Chapter 10

Question 1

What governs contract law?

Answer 1

The common law governs all contracts except when it has been modified or replaced by statutory law, such as the Uniform Commercial Code (UCC), or by administrative agency regulations. Contracts relating to services, real estate, employment, and insurance, for instance, generally are governed by the common law of contracts. Contracts for the sale and lease of goods, however, are governed by the UCC—to the extent that the UCC has modified general contract law.

Question 2

What is a contract?

Answer 2

A set of promises constituting an agreement between parties, giving each a legal duty to the other and the right to seek a remedy for the breach of the promises or duties.

Question 3

What is the objective theory of contracts?

Answer 3

The view that contracting parties shall be bound only by terms that can be objectively inferred from promises made.

Question 4

What are the four requirements necessary for a contract to be valid?

Answer 4

Agreement. An agreement to form a contract includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer.
Consideration. Any promises made by the parties must be supported by legally sufficient and bargained-for consideration (something of value received or promised to convince a person to make a deal).
Contractual capacity. Both parties entering into the contract must have the contractual capacity to do so. The law must recognize them as possessing characteristics that qualify them as competent parties.
Legality. The contract’s purpose must be to accomplish some goal that is legal and not against public policy.

Question 5

What are defenses to the enforceability of a contract?

Answer 5

Voluntary consent. The consent of both parties must be voluntary. For instance, if a contract was formed as a result of fraud, mistake, or duress (coercion), the contract may not be enforceable.
Form. The contract must be in whatever form the law requires. Some contracts must be in writing to be enforceable.

Question 6

Types of contracts may be categorized based on what legal distinctions?

Answer 6

They may be categorized based on legal distinctions as to their formation, performance, and enforceability.

Question 7

What is a bilateral contract?

Answer 7

A type of contract that arises when a promise is given in exchange for a return promise.

Question 8

What is a unilateral contract?

Answer 8

A type of contract that results when an offer can be accepted only by the offeree’s performance.

Example: Reese says to Kay, “If you drive my car from New York to Los Angeles, I’ll give you $1,000.” Only on Kay’s completion of the act—bringing the car to Los Angeles—does she fully accept Reese’s offer to pay $1,000. If she chooses not to accept the offer to drive the car to Los Angeles, there are no legal consequences.

Question 9

Under modern contract law, how are revocations of unilateral contracts justified regarding performance?

Answer 9

Today, once performance has been substantially undertaken, the offeror cannot revoke the offer. In fact, as illustrated by the following case, the rule in some states is that as soon as the offeree begins performing, the offeror is precluded from revoking or modifying the offer.

Question 10

What are formal contracts?

Answer 10

An agreement that by law requires a specific form for its validity. One example is negotiable instruments, which include checks, drafts, promissory notes, and certificates of deposit. Negotiable instruments are formal contracts because, under the Uniform Commercial Code, a special form and language are required to create them. Letters of credit, which are frequently used in international sales contracts, are another type of formal contract.

Question 11

What is an informal contract?

Answer 11

A contract that does not require a specific form or method of creation to be valid.

Question 12

What is an express contract?

Answer 12

A contract in which the terms of the agreement are stated in words, oral or written.

Question 13

What is an implied contract and what does it require?

Answer 13

The plaintiff furnished some service or property.

The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected.

The defendant had a chance to reject the services or property and did not.

Question 14

What is an executed contract?

Answer 14

A contract that has been fully performed by both parties.

Question 15

What is an executory contract?

Answer 15

A contract that has not yet been fully performed.

Question 16

What is a voidable contract?

Answer 16

A contract that may be legally avoided at the option of one or both of the parties.

Question 17

What is an unenforceable contract?

Answer 17

A valid contract rendered unenforceable by some statute or law.

Question 18

Quasi contracts?

Answer 18

An obligation or contract imposed by law (a court), in the absence of an agreement, to prevent the unjust enrichment of one party. Quasi contracts are equitable rather than legal contracts.

Question 19

What is the FACE OF THE INSTRUMENT?

Answer 19

When a contract’s language is clear and unequivocal, a court will enforce it according to its obvious terms. from the written document alone.

Question 20

When will a court generally consider a contract to be unclear?

Answer 20

When the intent of the parties cannot be determined from its language.
When it lacks a provision on a disputed issue.
When a term is susceptible to more than one interpretation.
When there is uncertainty about a provision.

Question 21

What is extrinsic evidence?

Answer 21

Any evidence not contained in the contract itself, which may include the testimony of the parties, additional agreements or communications, or other information relevant to determining the parties’ intent.