Chapter 6: Contract Law Flashcards
What is a contract?
A legally enforceable agreement to do or not do a specific thing.
What is a contract to forbear?
a contract where one or both parties have agreed not to do some specific thing
How are contracts created?
- Expressed: Declare intentions orally or in writing
2. Implied: created by the behavior of the party
Unilateral vs. Bilateral Contracts
- Unilateral: only 1 party makes a promise
2. Bilateral: 2 parties make a promise (exchange of promises)
What is an executory vs. executed contract?
Executory: contract is in the process of being fulfilled
Executed: contract is fully performed
What is the Uniform Commercial Code (UCC)?
a body of law relating to commercial transactions which make state laws uniform
covers personal property transactions and oral contracts
What is the Statue of Frauds?
requires that all contracts for the sale of land or any interest exceeding 1 year be in writing and signed by the parties to be enforceable
Leases for 1yr. or less are not required
What is a valid contract?
- complies with all essential elements of a contract
2. It is binding and enforcing on both parties
What is a void contract?
- Does not meet the essential elements of a contract
- It is illegal (Has no legal force)
- Ex. contract to commit a crime
What is a voidable contract?
- Seems to be valid on the surface but may be rescinded or disaffirmed by the party who might be “injured” if the contract were to be enforced.
- One or both parties may disaffirm
What is an unenforceable contract?
Has all elements of a valid contract; however, neither party can sue the other to force performance.
Something happens outside of the control of the parties requiring the contract to be unenforceable
Ex.: Someone no longer eligible for an FHA loan.
What are the 5 essential elements needed for a contract to be legally valid?
- Legally competent parties: Legal age
- Mutual agreement: Both agree not under duress, etc
- Lawful objective: For something legal
- Consideration or cause
- Contract in writing when required by law
What does it mean to be legally competent in a contract?
- Person must reach the age of majority
- Minors do not have contractual capabilities
- Minors can only enter contracts if it is for necessities (only exception)
- Minors have normally have “voidable” contracts
When are contracts valid or invalid due to intoxication?
- Voluntarily intoxication: Contract is valid
2. Involuntarily intoxicated: Contract can be cancelled
Unsound mind
- Anyone declared incompetent by a judge may not make a valid contract. Any attempt to do so would result in a (VOID contract).
- If a person is judged to be lucid upon entering into a contract, the contract remains valid he was later declared to be incompetent.
What is a Power of Attorney
A document that gives another person the power to act on one’s behalf
What is an “Attorney in Fact”
This is the person holding Power of Attorney
What is the equal dignities rule?
states that when a contract is to be put in writing, the authority of the agent must also be in writing, be acknowledged, and have equal dignity.
Corporations and contracts (Explain relationship)
- Corporations are considered legally competent
- Individuals from corporation must have permission from the “Board of Directors” to do contracting
- Some states require that the corporate seal be affixed to contract
- Partnership can contract in the name of the partnership or in the names of any of its general partners
- Courts allow executors, administrators, and trustees to contract
What does mutual agreement mean?
- Both offeror and offeree must agree to the contract
- There’s no fraud, misinterpretation, or mistake
A.K.A:
- Mutual consent
- Mutual assent
- Meeting of the minds
What is reality of consent?
- There is no fraud, misrepresentation, or mistake
2. The agreement must be genuine and freely given
Process of submitting and receiving an offer
- Offeror provides an offer to the offeree
- Offeree either accepts, rejects, or counter-offers
- If accepted offeree must agree to every item in offer and communicate back that the offer was accepted.
- The offeree can make changes to the agreement and submit an updated offer back to the original person
5.
What are the forms one can use to accept an offer?
- Can be in writing
- Can be oral
- Can be through any action that implies acceptance
The process used to notify that an offer has been accepted is called?
Delivery
How is an offer terminated?
- By death of either party
- Offer can be withdrawn up until acceptance
- After contractual period of time or that set by courts
When is an offer considered accepted?
When the offeror has been notified
What is fraud?
- Intentional misrepresentation
- An act intended to deceive for the purpose of inducing another to part with something of value
- Could be intentional lie or making a promise with no intention of keeping it
What does it mean to rescind an offer?
To “cancel” an offer.
What is innocent misrepresentation?
person did not intend to misrepresent for the purpose of deceiving.
Mistake
- Does not include ignorance, inability, or poor judgment
2. Caused by ambiguity in negotiations and mistakes of material facts
What is contractual intent?
- Buyer shows intention to buy property
- Jokes and jesting don’t count towards a contract
- Is shown via an “earnest deposit”
Things that prevent mutual agreement
- Duress: Use of force
- Menance: Threat of violence
- Undue influence: Unfair advantage
What is consideration?
In real estate, it is the mutual exchange of promises by the buyer and seller to obligate themselves to do something they were not previously required to do.
Seller agrees to sell on the terms agreed and buyer agrees to buy on the terms received.
- Anything of value such as money, goods, services, or promises, given to induce another person to enter into a contract
- Something bargained for and received by a promisor from a promisee
- the benefit that each party gets or expects to get from the contractual deal
Is earnest money considered consideration?
No, it only shows intention to buy or cover “damages” to the buyer if the seller renigs.
What happens if either party loses consideration?
The contract is no longer legally-binding.
What is the most common real estate contract that does not have to be in writing?
Month-to-Month rental agreement
What is the order or priority for contracts?
- Written
- Typed,
- Printed
- Oral
What is the pole evidence rule?
Permits oral evidence to complete an otherwise incomplete and ambiguous written contract
How are contracts discharged?
- Fully performed
- Assign 2 someone: original party still liable/responsible
- Novation: a substitution of a new contract between the same or new parties
- Supervening legality: if contract objective becomes legally impossible to accomplish
- Mutually agreement from both parties
- If dead person in contract was the only person who could perform the task
What is novation?
When a party, term, or obligation in a contract is replaced with another.
What does it mean for contracts to be enforceable against the estate?
It means the estate can still be responsible for the contract even after the death of the person in the contract.
What is a breach of contract?
When one party fails to perform as required by a contract and the law does not recognize the reason to be a valid excuse.
How can the affected party respond to the breach of contract?
- Accept partial performance
- Rescind the contract unilaterally
- Sue for specific performance
- Sue for money damages
- Accept liquidated money damages
- Mutually rescind the contract
What is partial performance?
person doesn’t fully perform task as agreed upon
What does it mean to unilaterally rescind?
Innocent party will not fulfill their obligation because offending party is not fulfilling their part of the agreement
What is a specific performance?
an action taken to court by an innocent party to force the breaching party to carry out the remainder of the contract according to the precise terms, price, and conditions agreed upon.
What are liquidated damages?
When seller retains earnest deposit because buyer did not meet their obligation.
What is the Statute of Limitations?
The law limits the amount of time once can petition through the courts to seek justice for an action.
