Chapter 2: Contract Law Flashcards
Types of Contracts
A contract must have four elements of be legally enforceable:
- Agreement
- Capacity to contract
- Consideration
- Legal purpose
Types of Contract
- Bilateral or Unilateral
- Executed or Executory
- Express or Implied
- Void or Voidable
Requirements of an Offer
- Intent to contract
- Definite terms
- Communication to the other party
Intent to Offer
Examples of statements that are not offers:
- Social invitations
- Predictions
- Offers made in excitement or jest
Duration and Termination
Factors to consider:
- Lapse of time
- Operation of law
- Offeree’s rejection
- Counteroffers
- Offeror’s revocation
Requirements of a Valid Acceptance
- The acceptance must be made by the offeree
- The acceptance must be unconditional and in equivocal
- The offeree must communicate the acceptance to the offeror by appropriate word or act
Capacity to Contract
Parties who may lack capacity to contract include:
- Minors
- Insane persons
- Intoxicated persons
- Artificial entities (such as insurers) that are restricted by law or corporate charter from entering into certain contracts
Insane Person’s Contract
Two classes of insane people:
- Those adjudged insane
- Those who claim insanity or mental incompetence
Insane Persons’ Contracts
A person claiming insanity but not adjudged insane must prove one of the following:
- The person did not know that a contract was forming
- The person did not understand the legal consequences of acts purporting to form the contract
Insane Persons’ Contracts
The party to a contract with an insane person can enforce the contract by providing the facts:
- The sane party lacked knowledge of the insanity
- The contract benefits the insane person
Intoxicated Persons’ Contracts
Contract may be voidable if:
- The person did not know that a contract was forming
- The person did. It understand the legal consequences of acts purporting to form the contract
Consideration
Consideration necessary to make a promise enforceable can be one of the following:
- A return policy
- An act performed
- A forbearance from acting
Types of Consideration
- Valuable consideration
- Forbearance
- Present consideration
- Future consideration
- Binding promises
Present and Future Consideration
Most jurisdictions enforce a new promise to pay an existing obligation that has become unenforceable for one of the following reasons:
- One of the parties is a minor
- The promisor is bankrupt
- The time for payment has ended
What is Not Valid Consideration?
- Past consideration
- Promises to perform existing obligations
- Compromise and release of claims
Exceptions to the Consideration Requirement
- Promissory estoppel
- Charitable subscription
Types of Illegal Contracts
- Contracts to commit crimes or torts
- Contracts harmful to the public interest
- Usury contracts
- Wagering contracts
- Contracts with unlicensed practitioners
- Contracts to transfer liability for negligence
- Contracts in restraint of marriage
- Contracts in restraint of trade
- Unconscionable bargains
Enforceability of a Contract
Genuine Assent:
- Fraud
- Mistake
- Duress
- Undue influence
- Innocent misrepresentation
Fraud
The plaintiff must prove six elements:
- A false representation
- of a material fact
- knowingly made
- with intent to deceive
- on which the other party has placed justifiable reliance
- to his or her detriment
Fraud
If fraud is proved, the plaintiff can seek one of two remedies:
- The plaintiff may seek rescission
- The plaintiff can sue for damages in a tort action, usually called an action in deceit
Statue of Frauds
contracts that must be in writing and signed
- Contracts for the sale of land or any interest in land
- Contracts that cannot be performed within one year
- Contracts to pay another’s debt
- Contracts in consideration of marriage
- Contracts by executors of decadents’ estates to pay estate debts from executors’ own funds
- Contracts for the sale of goods for $500 or more
Parole Evidence Rule
when a contract is in writing, it supersedes any oral contract
Serves three purposes:
- To carry out the parties’ presumed intention
- To achieve certainty and finality as to the parties’ rights and duties
- To exclude fraudulent and perjured claims
Contract Interpretation
- Plain meaning
- Effectuation of intent
- Entire or divisible contracts
- Clerical errors and omissions are corrected
- Contradictory terms are prioritized
- Ambiguities are interpreted against the writer of the document
- Parties’ own interpretations are considered
- The court seeks a legal and fair interpretation
- Trade usage, course of dealings, and performance are considered
Contradictory Terms
Courts apply this system of priorities:
- ) Handwriting prevails over typewriting
- ) Typewriting prevails over printing
- ) Words prevail over figures
Third-Party Contractual Rights
Third parties have rights in two situations:
- An assignment of a contract, by which one party transfers rights arising under a contract to a third party
- Third party beneficiary contracts, in which one party contracts with another party to confer a benefit on a third party
Third Party Beneficiaries
Types of third party beneficiaries:
- Creditor beneficiaries (enforceable rights)
- Donee beneficiaries
(enforceable rights) - Incidental beneficiaries
(no enforceable rights)
Termination of a Contract
- Performance
- Agreement of the partied
- Substitution
- Impossibility
- Fraudulent alterations
- Contractual conditions
Breach of Contract
Types of breach:
- Repudiation
- Anticipatory breach
- Material breach of contract
Anticipatory Breach
Two requirements must be present:
- The contract is an executory, bilateral contract entailing mutual and dependent conditions
- The promise has made a clear expression of his or her intention not to perform
Remedies for Breach
Damages;
- Compensatory
- Consequential
- Punitive
- Extracontractual
- Liquidated
Remedies for Breach
Equitable remedies;
- Specific performance
- Injunction
