Chapter 10: Nature and Terminology of Contracts

Question 1

What is the function of Contract Law

Answer 1

To provide stability, predictability and certainty for both buyers and sellers in the marketplace.

Question 2

What is the definition of a Contract?

Answer 2

A contract is a legally binding agreement bewteen two or more parties who agree to perform or to refrain from performing some act now or in the future.

Question 3

Definition: The Objective Theory of Contracts

Answer 3

A party’s intention to enter into a legally binding agreement, or contract, is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party’s own secret, subjective intentions.

Question 4

What are the 3 objective facts?

Answer 4

1) What the party said when entering into the contract. 2) How the party acted or appeared (intent may be manifested by conduct as well as by oral or written words) and 3) the circumstances surrounding the transaction.

Question 5

What are the 4 requirements of a valid contract?

Answer 5

Agreement, Consideration, contractual capacity, and legality

Question 6

Define: Agreement

Answer 6

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.

Question 7

Define: Consideration

Answer 7

Any promises made by the parties to the contract must be supported by legally sufficient and bargained-for consideration (Something of value received or promised such as money, to convince a person to make a deal)

Question 8

Define: Contractual Capacity

Answer 8

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

Question 9

Define: Legality

Answer 9

The contract’s purpose must be to accomplish some goal that is legal and not against public policy

Question 10

Define: Bilateral Contracts

Answer 10

If the offeree can accept simply by promising to perform. “A promise for a promise”

Question 11

Define: Unilateral Contracts

Answer 11

If the offer is phrased so that the offeree can accept the offer only by completing the contract performance

Question 12

Define: Offeror

Answer 12

The party making the offer

Question 13

Define: Offeree

Answer 13

The party to whom the offer is made

Question 14

At what point does a unilateral contract become irrevocable?

Answer 14

Once the performance has begun

Question 15

Define: Formal Contracts

Answer 15

Contracts that require a special form or method of creation to be enforceable.

Question 16

What are some examples of “Formal Contracts”

Answer 16

Checks, drafts, promissory notes, and certificates of deposit.

Question 17

Define: Informal Contracts or “Simple Contracts”

Answer 17

Contracts that no special form is required.

Question 18

Define: Express Contracts

Answer 18

The terms of the agreement are fully and explicitly stated in words, oral or written. (example, a signed lease for a house)

Question 19

Define: Implied Contracts

Answer 19

The conduct of the parties, rather than their words, creates and defines the terms of the contract.

Question 20

What are the requirements for an Implied Contract to be held in court?

Answer 20

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

Question 21

Define: Executed Contract

Answer 21

A contract that has been fully performed on both sides.

Question 22

Define: Executory Contract

Answer 22

A contract that has not been fully performed by the parties.

Question 23

Define: Valid Contract

Answer 23

Has the elements necessary to entitle at least one of the parties to enforce it in court.

Question 24

What are the elements in a “Valid Contract”

Answer 24

An agreement, support by legally sufficient consideration, parties who have the legal capacity to enter into the contract, and a legal purpose.

Question 25

Define: Voidable Contract

Answer 25

a valid contract but one that can be avoided at the option of one or both of the parties.

Question 26

Define: Unenforceable Contracts

Answer 26

A contract that cannot be enforced because of certain legal defenses against it.

Question 27

Define: Void Contract

Answer 27

No contract at all. It produces no legal obligations on any of the parties.

Question 28

Define: Quasi Contract

Answer 28

Contracts that are “implied in law”, and are not actual contracts. They are fictional contracts that courts can impose on the parties “as if” the parties had entered into an actual contract.

Question 29

What is the “Plain Meaning Rule”?

Answer 29

If a contract’s words appear to be clear and unambiguous, a court cannot consider “extrinsic evidence”, however, if the terms are unclear or ambiguous, extrinsic evidence may be admissible to clarify the meaning of the contract.