Chapter 10 Flashcards
Key Elements of a Contract
a. Offer
b. Acceptance
c. Consideration
d. Contractual (Mental) Capacity
e. Legality
f. Genuine Consent
Promise to do something or refrain from doing something.
Offer
Offer must show:
i. Intent by the offeror (person making the offer) to enter into a contract.
ii. Express clear & specific terms of the agreement (not too vague).
iii. Communicate offer to the offeree (party to whom the offer is made).
Generally, not offers – but instead are invitations to negotiate. However, the more specific it is, the more likely it is an actual offer.
Advertisements
Advertisement Example:
Ad reads: “Come in this weekend to our grand opening! We have lots of cars for sale under $10K!” If a potential buyer goes to the car lot and finds no car under $10K, dealership is not obligated to sell a car for that price.
Advertisement Example:
Advertisement that reads: Come in this Saturday to Furs and Purrs! We will sell three mink coats (valued at $1,000) for $500 each. Doors open at 9AM. First come, first served. Martha, a customer, stands outside the door of Furs and Purrs that Saturday at 6AM and is the first customer when the doors open. However, when she asks about the sale minks she is told that it was just an advertisement and there aren’t any sale minks available. She files a lawsuit against Furs and Purrs for breach of contract when they won’t sell her a mink for $500. Will she likely win?
Ways to Terminate an Offer:
(1) Withdrawal Offer
(2) Counteroffer
(3) Lapse of Time
(4) By Operation of Law
Offer can be revoked any time before being accepted.
Withdrawal (revoke) Offer
Offer open for a specified period of time. During that time period, offer cannot be withdrawn.
Option Contract
Option Contract Example
Offer put on a house for $225,000. Offer states that it is good for 24 hours. Buyer must keep the offer available for 24 hours.
Offeree rejects offer when she ignores the original offer and presents a different offer.
Counteroffer
Counteroffer Example
A lists his house for $150,000. B offers $140,000. Instead of A accepting her offer, he counteroffers with $145,000. B must now decide to accept, reject or offer another counteroffer.
When an offer states it is open until a particular time or date, the offer terminates on that time or date if it has not yet been accepted. Any offer presented after the expired time has no effect and gives no rise to a contract.
Lapse of Time
Lapse of Time Example
A lists his house for $150,000. B offers $140,000 with a stipulation that the offer is only good for 24 hours. If A does not accept her offer within that time frame, B’s offer terminates after 24 hours passes. Now it is too late for A to accept.
By Operation of law
(1) Death / Disability of Party
(2) Subject Matter is destroyed
(3) Subsequent Illegality
If either the offeror or offeree dies or becomes mentally incompetent before the offer is accepted, the offer terminates.
Death / Disability of Party
If performance of the contract illegal after offer is made, the offer terminates
Subsequent Illegality
Offeree’s expression of intent to accept the offer.
Acceptance
Types of Acceptances:
(1) Bilateral Contract
(2) Unilateral Contract
(3) Mirror Image Rule
(4) Mailbox Rule
Acceptance must be communicated by the ______ to the _______.
Offeree (party who has power to accept), Offeror (party who made the offer)
Exchange of promises between offeror and offeree.
Bilateral Contract
Example of Bilateral Contract
A offers: “I will sell you my car for $8,000.” B responds: “Great, I accept.”
When the offer calls for the performance of an act to show acceptance, performance becomes the acceptance.
Unilateral Contract
Example of Unilateral Contract
A offers: “I will pay you $20 if you mow my lawn by Friday.” B accepts when he mows the lawn on Thursday afternoon. A owes B $20. If B does not mow the lawn, there is no breach of contract because he never accepted the offer.
The acceptance must “mirror” the offer. Any change (no matter how minor) to an offer is a counteroffer, not an acceptance.
Mirror Image Rule
Mirror Image Example
A offers: “I will sell you my car for $8,000.” B responds: “Great, I’ll pay that… but you have to throw in 2 new rear tires for that price.” No acceptance.
A mailed acceptance of an offer is effective when sent, not when received.
Mailbox Rule
Mailbox Rule Example
On Monday, A verbally offers to sell B his car for $2,000. On Tuesday morning, B mails A a letter stating he will accept A’s offer. On Tuesday afternoon, A calls and tells B that he is withdrawing his offer. On Wednesday, A receives B’s letter. Is there a valid acceptance?
Bargained for exchange between parties to a contract.
Consideration
What can enter consideration?
Anything of value is consideration (e.g., money, goods, time, services) given in exchange for performance.
Each party to a contract receives a benefit, and suffers a detriment.
Benefit-Detriment Approach
Example of Benefit-Detriment Approach
A offers to pay B $40 to mow A’s lawn. B mows the lawn. The work of mowing the lawn was a legal detriment & a legal benefit to B. Getting a freshly mowed lawn is a legal benefit & a legal detriment to A.
Promises to make a gift are not contracts because they lack consideration.
Gifts
Example of Gifts
A offers to give B her boots. B accepts. There is no contract. Why?
Courts do not care how much consideration is given for a promise; just that there was consideration.
Adequacy of Consideration
Doctrine allowing recovery on a promise made without consideration when:
i. A party’s reliance on the promise was reasonable, and
ii. The promisee relied on it to his or her detriment.
Promissory Estoppel
Ability to understand that you are entering into a contract, and what the contract means.
Contractual Capacity
True or False: Everyone is presumed to have contractual capacity unless proven otherwise.
True
Parties lacking mental capacity by law:
(1) Minors
(2) Intoxicated persons
(3) Mentally disabled
Can enter into contracts but legally lack contractual capacity to do so.
Minors
Minors Contract Rules
i. Contracts made by minors are voidable at the election of the minor only.
ii. A minor can disaffirm a contract only during the age of minority and for a reasonable time after attaining the age of majority.
iii. Even if a minor misrepresents (lies about) their age, it generally does not affect the minor’s power to disaffirm the contract.
iv. If minor still has item received from other party (e.g., car), minor must “put things back to the original position” (i.e., return the car) ≈ Status Quo Ante
v. If minor can’t put things back to the original position (i.e., car destroyed), minor can still disaffirm the contract and is required to return only what remains.
vi. Upon return of item (or what is left), contracting party must return the money received (minus restitution)
For a contract to be valid, it must be lawful.
Legality
A contract is illegal when:
(1) Its formation or performance is a crime.
2) Its formation or performance is a tort (civil wrong
Example of a Crime Contract:
A written agreement between A & B where B will sell cocaine for A in exchange for cash. NOT a contract.
Example of a Tort Contract:
A written agreement between A & B where B will commit battery against C in exchange for cash from A. NOT a contract.
Any agreement found to be illegal is ____________.
VOID [never legally existed]
Both parties entering into a contract must, by words or actions must consent (agree) to being bound by the terms of the agreement.
Genuine Consent
Mutual Mistake [Sherwood vs. Walker]
Walker owned breeding cows (worth between $750-$1,000) and barren cows (worth about $80). Sherwood inspected an apparently barren cow and decided to buy her. A purchase agreement and price set of 5.5 cents per pound was entered into, but before the exchange of money and cow Walker found that Rose (the cow) was pregnant and thus refused to part with her for the agreed upon price. The court said that if both parties thought the cow was barren, the contract was voidable (by the injured party) on grounds of mutual mistake.
Defenses to Genuine Consent:
(1) Mutual Mistake
(2) Unilateral Mistake
(3) Fraud
If only one party enters a contract on the premise of a mistake, then the contract is VALID unless the other party either knew or should have known of the mistakes. One party enters the contract with false information or accidentally makes an error in a significant matter.
Contract is good if no evidence to suggest the other party knew of the mistake.
Unilateral Mistake
Inducing 1 party to enter into the agreement based on false information.
Fraud
Example of Fraud
Smith was thinking of buying Jones’ house. Smith noticed watermarks on the ceiling, but Jones stated that the roof had been repaired and was in good condition. Smith was not told that the roof still leaked and that the repairs had not been able to stop the leaking. Smith bought the house. Sometime later, heavy rains caused water to leak into the house. Jones is guilty of fraud and the agreement will be voidable at the election of the injured party.
Certain contracts must be in writing [MYLEGS]:
Statue of Fraud
Contracts that must be in writing [MYLEGS]:
a. M – Marriage Contracts (Marriage/ Divorce/ Annulment)
b. Y - Contract that can’t be performed within 1 Year (Ex: Oral agreement to supply a line of credit for 2 years is unenforceable because the contract can’t be completed in 1 year.)
c. L - Contract for sale, mortgage, easement, lease of real estate (Land)
d. E - Promise by Executor/administrator of an estate to answer for decedent (Ex: An executor of an estate is not personally liable for creditor’s claims against the estate of a decedent.)
e. G - Contract for Guarantee (A promise to pay the debts of another must be in writing to be enforceable)
f. S – Sale of goods > $500
