Chapter 4 Flashcards
When does a Bilateral Contract get enforced?
- once the promise is made by the offeree
When does a Unilateral Contract get enforced?
- once the performance is performed by the offeree
Unilateral vs. Bilateral Contracts
Unilateral - “Promise for an act”
Bilateral - “Promise for a Promise”
Executory Contract
- a contract not fully performed by either party
Executed Contract
- a contract fully performed by all parties
Most common form of lawsuit
- Breach of Contract
Examples of Non-offers for Agreement
- Preliminary negotiations
- Advertisements
- Auctions
Ways to terminate an offer
- Revocation (offer taken back prior to acceptance)
- Rejection (offeree says no)
- Lapse of time
- Counteroffer
- Termination by Law
Mailbox Rule
- acceptance of a contract must be by reasonable means, otherwise there is no acceptance until received by offeror
Contracts that must be in writing
- takes > 1 year
- sale of goods over $500
- Transfer of an interest in real property
- Promise to perform obligations of others
- Promise made in contemplation of marriage
Parol Evidence Rule
- prohibits the use of oral evidence or extraneous evidence if contrary to terms of written contract
- “written contract speaks for itself”
Repudiation
- “Anticipatory Breach”
- one party IN ADVANCE OF TIME OF PERFORMANCE notifies innocent party that they will not perform under contract
Rights of Innocent Party during Repudiation
- Repudiation AKA “Anticipatory Break”
- can treat contract as breached and find replacement
- wait and see
- innocent party is discharged if chooses to be
Most common remedy in breach of contract?
- Money
- no punitive damages however
Types of Monetary Damages
- Compensatory damages
- Consequential damages
- Liquidated damages
Compensatory Damages for Contracts
- compensates for injuries actually sustained
- must be proven to have arisen from the breach in contract
- Lost Profits generally not recoverable
Consequential Damages
- damages that flow from the result of the breach
- only recoverable if they are reasonably foreseeable and the non breaching party tried to mitigate damages
- Can be foreseeable by only one party
Liquidated Damages
- Damages stipulated in contract in event of breach
- Common in construction contracts
- Cannot be excessive
- Must be an adequate estimate
Equitable Remedies
- Reformation
- Rescission and Restitution
- Specific Performance
Reformation
- Rewrites a contract to express true agreement of the parties
- Used because of clerical errors, or to fix an invalid portion of the contract
Rescission and Restitution
- Rescission is an action to undo or cancel a contract
- Used in fraud, mistake, duress or failure of consideration
- If innocent party had expenses or money due, then restitution is owed
Agency by Agreement
- Written or Oral Contract
- Express and Implied Authority
- Called Power of Attorney if in writing
- Unless under Statute of Frauds, Agency relationship does not have to be in writing
Express Authority
- Explicitly agreed power
Implied Authority
- power necessary to carry out express authority
Agency by Ratification
- a non-agent enters into an agreement for benefit of alleged principal without real authority by the principal
- alleged principal can then say no, and no agency is given and only the non-agent is bound to the agreement, or ratify after the fact and the principal is bound
- Ratification can also be by failing to disaffirm non-agent’s actions
Agency by Apparent Authority
- No actual authority by the agent
- 3rd party can bind the principal by actions of the agent, as long as the alleged principal knows that the agent is acting on his behalf, and that the agent thinks that they represent the principal
Agency by Operation of Law
- Law implies as agency relationship
- Rises out of necessity or emergency
Duties of Agents to Principals
- Fiduciary duty on agent
- Agent’s Duty of Loyalty
- Agent’s Duty to Obedience and Performance
- Agent’s Duty of Reasonable Care
- Agent’s Duty to Account
- Agent’s Duty to Notify
Duties of Principal to Agent
- Duty to Cooperate with Agent
- Principal’s Duty to Compensate Agent
- Principal’s Duty to Reimburse Reasonable Expenses
- Safe Work Environment
- Principal’s Duty to Indemnify the Agent for Losses
Disclosed Principal
- 3rd party knows of Agency and who Principal is
Partially Disclosed
- 3rd party knows of Agency, but not who Principal is
Undisclosed Principal
- 3rd party doesn’t know that Principal exists
- Agent liable to 3rd party
- If Agent is acting within scope of authority, Principal is liable to 3rd party and must indemnify Agent
- If Agent is not acting within scope of authority, Principal has no liability
Respondeat Superior
- would employer be in better position to pay the damages to injured 3rd party?
- Principal is liable for torts if told agent to commit tort
Vicarious Liability
- Principal can still be liable for unauthorized, intentional or negligent torts
- Agent must be acting within scope of employment
- Same rule whether agent was paid or not
- If agent was unauthorized, only the agent is liable
Liability for Crimes
- Generally the principal is not liable for crimes unless knew or should have known of criminal activity or due to the criminal background of agent
- Rapidly being expanded to make employer more liable
Two functions of Contracts
- Performance
- Risk allocation
Definition of Contracts
A contract is a legal agreement of the parties to do something not obligated to do or to refrain from doing something legally entitled to do
Objective Standard
The apparent intention of a party is determined as it would be interpreted by a reasonable person
Partially Executed Contract
- Type of Executory
- One party has completed work, the other party has not
Definition of Valid Contract
- all elements are present, and it is enforceable
Definition of Void Contract
- not a contract at all
- No legal obligation on ANY of the parties
Definition of a Voidable Contract
- is currently a valid contract
- one of the parties has the right to avoid contractual obligations without incurring legal liability
Elements of a Contract
- Mutual Agreement
- Consideration
- Capacity
- Legality
- Genuine and real asset to the contract
- Some must be in writing
Legal Detriment
- an act, promise to act, or refraining from an act, which not legally obligated to do
Legal Benefit
- legal right acquired by promise due to promisee’s legal detriment
Statute Exceptions for Contracts with Minors
- Insurance
- Banking
- Public transportation
- Student Loans
Who can Void a Contract with a Minor?
- minor only, it is valid to the adult
Intoxication vs. Contractual Capacity
- if intoxicated at time of entering into contract, contract is voidable
- RARE, the standard is that the party is so intoxicated as to not understand the very nature of the contract
Adjudicated Insane
- Court has ruled person is insane
- any contract made after adjudicated insane is void
Contracts with Unadjudicated Insane
- insane person liable for restitution
- has right to disaffirm contract or to ratify
- voidable
Unconscionable Contract
- one party, with unequal bargaining power, takes advantage of other party
- grossly unfair contract
- violates public policy
Exculpatory Agreement
- releases one party from consequences of wrongful acts or negligence
- violates public policy
Mistakes in Assent to Contract
- if unilateral, then no relief
- no relief for mutual mistake of value either
- mutual mistake of material fact allows either party to void contract, and gives relief to either party
Elements of Fraud
- Misrepresentation
- Intent
- Justifiable reliance on misrepresentation
- Innocent party injured
- usually doesn’t apply to predictions or statements of opinion
Exceptions to Parol Evidence Rule
- subsequent modification of written contract
- Oral evidence to prove contract was void or voidable
- Ambiguous or incomplete contracts
- Prove a condition
Substantial Performance
- Breach of Contract
- Slight deviation from full performance
- results in payment minus damages
Material Breach of Contract
- totally insufficient performance of contract
- non-breaching party is discharged from contract
- breaching party responsible for damages
Conditions Precedent
- contractual obligations do not arise until some stated event occurs
- if said even never occurs, there is no contractual responsibility so the contract is discharged
Conditions Subsequent
- some stated event terminates contractual obligations
Concurrent Conditions
- Parties simultaneously perform duties
- each party’s duty to perform is conditioned on the other party’s duty to perform
Novation
- discharge of contract by agreement
- substitutes new party for one of the original parties
Accord and Satisfaction
- agreement between parties for different performance than required in contract
Subjective Impossibility
- “I can’t do it”
- no discharge from Contract
Objective Impossibility
- “It can’t be done”
- contract discharged
Specific Performance
- Court ordered performance of a contract
- Rare due to difficulty for the court to enforce
What is Agency by Estoppel
The Principal’s actions or inactions leads a reasonable 3rd party to believe that the Agent has the Principal’s authority
