Contracts Flashcards
Contract
A contract is an agreement between two or more parties which the law will enforce.
Example: A couple goes under contract with a purchase of a new house. The seller and buyer agree to the terms of the contract
Privity of Contract
Privity of contract is the relationship that exits between the parties to an agreement, allowing them to sue each other to enforce the agreement, but preventing a third party from doing so.
Uniform Commercial Code
The Uniform Commercial Code (UCC) governs contracts for the sale of goods. The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. It is not a federal law, but a uniformly adopted state law. Uniformity of law is essential in this area for the interstate transaction of business.
Example: A car rental company purchases a fleet of trucks from a local car dealer.
Goods
Good are tangible chattels which are moveable and identifiable to the contract at the time of formation.
Example: The fleet of trucks that the rental company has purchased from the local dealer are considered the “goods”.
Predominant Factor Test
The test evaluates factors including the contract language, billing terms, allocation of costs, and the nature of the final product delivered to determine whether the contract should be considered predominantly a contract for goods or for services.
Example: A vendor was hired to provide and install large shelves in a warehouse. The owner of the warehouse claimed a breach of contract. An issue that arose was whether the trial court erred by applying the common law instead of the UCC to the hybrid contract which involved both the sale of goods (providing the racks) and services (installing the racks). After the application of the Predominant Factor Test, the court found that the predominant factor of the transaction was services, hence the application of the common law should be applied.
Merchant
Under the UCC, a merchant is one who deals regularly in the kind of goods involved in the contract, or one who holds himself out as having special knowledge or skill about the practices or goods involved in the contract. Merchants owe a duty to observe reasonable commercial standards of fair dealing.
Example: The merchant has been prompted to call a credit card company after a customer attempted to pay with a stolen credit card.
Offer
An offer is an outward manifestation of present contractual intent that: is certain and definite in terms, proposes a bargain of exchange, is communicated to the offeree, and creates a power of acceptance in the offeree.
Example: The prospective home buyers have a written an offer that their real estate agent will present to the seller’s agent in hopes of purchasing a new house.
Termination of Offer
Termination of offer is the expiration of the period of time during which the offer is to remain in effect, whether such be a definite period as fixed by the terms of the offer or by custom or usage of trade. Offers may be terminated in any one of the following ways:
a. revocation of the offer by the offeror;
b. counteroffer by offeree;
c. rejection of offer by offeree;
d. lapse of time;
e. death or disability of either party; or
f. performance of the contract becomes illegal after the offer is made
Example: After the seller’s real estate agent relayed the counter to the buyer’s offer, the initial offer was terminated. The buyer does not have to agree to the seller’s counter offer. The buyers may counter to the seller’s counter or they may just walk away because they were never under contract.
Revocation of Offer
Revocation of an offer occurs when the offeror rescinds the offer before it is accepted by the offeree. Thus, an offer can be revoked by the offeror even if he has already promised to keep the offer open. Whoever makes an offer can revoke it as long as it hasn’t yet been accepted. This means that if you make an offer and the other party wants some time to think it through, or makes a counteroffer with changed terms, you can revoke your original offer.
Example: The buyer’s had buyer’s remorse after submitting an offer for a house 30 percent above asking. The buyer’s real estate agent submitted a revocation of offer before the sellers responded to their initial ask. Thereby not under any obligation to buy.
Firm Ask
Under the common law, a firm offer is an offer, which is irrevocable because an option has been paid for by one of the parties. Under the UCC, an option need not be paid for if the firm offer was made by a merchant who signed it in writing giving assurance that the offer will remain open for a certain or reasonable length of time not to exceed three months.
Example: Walmart is selling 50 inch TVs for $100 for a period of 30 days as a holiday promotion.
Acceptance
An acceptance is an unequivocal assent to the terms of an offer.
Example: The sellers have signed their acceptance to the buyers’ offer. The house is officially under contract once the sellers have accepted the offer and all its terms
Mirror Image Rule
The mirror image rule is a traditional rule of contract law which requires an acceptance to contain the same terms as an offer, otherwise, there is no contract.
Mutual Assent
Mutual assent relates to the requirement that the parties agree to enter into a contractual relationship including terms and conditions which are certain, definite, and free from ambiguity. Showing that one party made a valid offer and the other party made a valid acceptance usually proves it.
Example: A woman is shopping at a flea market and haggles on the price of a piece of jewelry. The owner of the jewelry stand states that the price of the necklace is $15 and the woman agrees to the price.
Meeting of the Minds
The historic rule holds that mutual assent exists if there was a “meeting of the minds” between the parties, meaning that the parties subjectively intended to enter into a legally binding contract and agreed to the terms and conditions of the contract.
Example: A father and son are looking to buy a used car from someone online. They meet a man who is selling his car for $4800. However, they have a “meeting of the minds”, or discuss the price a bit and agree upon $4200 in cash.
Objective Theory of Contracts
The objective theory of contract states that an agreement between two parties exists if a reasonable person could judge the acts and behaviors of the parties enough to objectively construe agreement.
Example: Bill owns a guitar that was owned and signed by Elvis Presley. Bill had it recently appraised and it was valued at several hundred-thousand dollars. His neighbor expresses interest in the guitar, and this time, Bill states a price for selling the guitar based on the appraisal rate and actually lets the neighbor get the instrument appraised by a third-party. The neighbor then sells valuable assets to raise the funds to purchase the guitar, but at the last-minute Bill decides not to sell. Applying the objective theory, the court could determine that through the act of setting a price, letting an independent appraisal occur and the neighbor acting to raise the funds, a valid contract between the parties does exist.
Consideration
Consideration is that which is bargained for and given in exchange for a promise. It may be an act, a forbearance to act, or a return promise on the part of the promisee, but it must include a legal detriment to both parties in order to be valid.
Example: Sue admires her neighbor Pam’s hover board. Pam knows she is moving soon, so Pam then offers to sell it to Sue for $100 (consideration). Sue accepts Pam’s offer. On the other hand, if Pam tells Sue that she will give her the bicycle if she can’t sell it at her garage sale, there is no element of consideration because she has not agreed to pay you anything
Legal Detriment
A legal detriment is a promise to do something that one is not legally obligated to do, or to refrain from doing something that one is legally privilege to do.
Example: A mother offers to buy her teen daughter a car, in return her daughter agrees to babysit her younger siblings anytime her mother needs her to.
Sufficiency of Consideration
Enough consideration as a matter of law to support a contract.
Example: Chloe offers to buy Scarlett’s, Vespa worth $700, for $10. Scarlett agrees. This agreement is supported by sufficient consideration because both have agreed to give up something that is theirs: Chloe, the cash; Scarlett, the motor scooter. Courts are not generally concerned with the economic adequacy of the consideration but instead with whether it is present.
Preexisting Duty Rule
The rule that if a party does or promises to do what the party is already legally obligated to do, or refrains or promises to refrain from doing what the party is already legally obligated to refrain from doing, the party has not incurred detriment. This rule’s result is that the promise does not constitute adequate consideration for contractual purposes.
Example: If a builder agrees to construct a building for a specified price but later threatens to walk off the job unless the owner promises to pay an additional sum, the owner’s new promise to pay an additional sum is not enforceable because, under the preexisting duty rule, there is no consideration for that promise.
Promissory Estoppel
The Doctrine of Promissory Estoppel provides a substitute for the element of consideration when there was a foreseeable and detrimental reliance by the promisee upon the gratuitous promise of the promisor.
Example: Mother tells Daughter as a birthday present, she will put $8500 towards the purchase of a new 2022 Honda Civic. Daughter sells her ’98 Toyota Camry next day and goes to a dealership to pick out her new car. (This scenario, the Doctrine of Promissory Estoppel substitutes for the element of consideration because it was foreseeable that Daughter would detrimentally rely on her mother’s $8500 and sell her car.)
Moral Obligation Rule
Under the Moral Obligation Rule, consideration may be found if the promisor has received something of value from the promisee under such circumstances as to create a moral obligation for the promisor to pay for what he or she has received, and if the promisor has later promised to pay. The rule most often applies in situations involving promises to pay for previously provided gratuitous services, promises to pay debts barred by the statute of limitations, or promises to pay debts discharged in bankruptcy. The promise to pay can be implied by a mere acknowledgment of a debt or by part payment of the debt.
Example: Mrs. Anderson had $8,000 worth of Hospital bills owed to Dr. Harris discharged in bankruptcy. As Mrs. Anderson left the courthouse, she saw Dr. Harris and told him, “I know the $8,000 of services you provided for me was discharged in my bankruptcy, but I will pay you anyway.”
Illusory Promise
An illusory promise is an expression resembling promissory terms, but in actuality imposes no obligation, therefore the element of legal detriment is lacking.
Example: Mother tells daughter, “If you clean out the pantry, I will pay you $100 if I am in a generous mood.”
Merit Music v. Sonneborn
Merit Music v. Sonneborn: the court held that in the absence of fraud, duress, or material mistake, a party to a contract with the capacity to understand the written document, will be bound by his or her signature whether or not he read the document.
Example: Ryeleigh signs a contract to buy a new phone and begin phone service with a new phone plan. The phone is $1,000 and the contract is for two years. She did not read the contract’s terms and conditions. (Ryeleigh will be bound to the terms and conditions of the sale even though she did not read them.)
Mailbox Rule
Established in the case of Adams v. Lindsell, the Mailbox Rule states that an acceptance of an offer for a bilateral contract, dispatched by an authorized mode of communication, is effective when mailed.
Example: Madison received an offer for a free lipstick from a new makeup company as a sales promotion on March 3rd and mailed a valid acceptance on March 4th. The makeup company received Madison’s acceptance on March 6th. (Under the mailbox rule, Madison’s acceptance became effective on March 4th.)
Caldwell v Cline
Under Caldwell v. Cline, if an offer states that it will be open for a certain number of days, the first day is the day the offeree receives the offer.
Example: On October 5th, Ideal Image mails to Laura an offer for free cosmetic services stating it will be valid for 5 days. Laura received the promotion on October 7. (In this case, the offer will remain open through October 11th.)
Unilateral contract
revocation of offer rule: The offeror in a unilateral contract may not revoke the offer for the time stated in the offer or, if no time is stated in the offer, then for a reasonable length of time if the offeree begins performance.
Example: Madison tells Chloe, “I will pay you $20 if you eat that entire bowl of worms.” Chloe begins to eat the worms (Madison may not revoke the offer because Chloe has already begun the performance.)
Rejection
A rejection is an outward manifestation by the offeree that he or she does not intend to accept the offer nor give it further consideration.
Example: Two men are haggling over the price of a car. After hearing the final price for the car Man1 walks away from Man2 while shaking his head. (Even though Man1 did not specifically state in words that he would reject his offer, his actions indicated he did not accept, nor give Man2’s offer further consideration.)
Counteroffer
A counter offer is an implied rejection and is in effect, a new offer made by the original offoree regarding the same transaction, but contains terms differing from those proposed in the original offer made by the original offeror.
Example: Man1 tells Man2, he is selling his truck for $9,500. Man2 responds, “Your truck is nice, but has previous damage. I will only give you $8,800 for it.” (Buyer’s response is the counter offer.)
Counteroffer as an implied rejection
A counteroffer functions as both a rejection of an offer to enter into a contract, as well as a new offer that materially changes the terms of the original offer. Because a counteroffer serves as a rejection, it completely voids the original offer. This means that the original offer can no longer be accepted.
Example: A potential home buyer makes an offer on a house for $10,000 under asking. The seller then counters with $3,000 under asking, implying that the offer was rejected.
Battle of the forms
A battle of the forms may occur when parties use standardized forms to make offers and acceptances. Such forms contain fixed contractual language (boilerplate) which often conflicts with the terms included in the other party’s forms. Thus, although a contract may be formed through the exchange of such forms, the parties may disagree as to which the terms govern the contract.
Example: The seller receives the buyer’s form and responds by sending back its acknowledgment form that promises to ship the product referenced in the purchase order. But on the back of that form are the seller’s own preprinted, standardized terms and conditions, which are very different from the buyer’s. Among other things, the seller’s terms exclude consequential and incidental damages, disclaim implied warranties, set forth a limited 90-day warranty. The buyer’s purchase order was silent on each of these terms. Even though the parties have not signed off on a single document, the seller ships, and the buyer accepts the goods. Nobody bothers to read the other party’s standardized terms, much less tries to figure whose boilerplate governs the transaction—until there’s a problem with the product.
Bilateral Contract
A bilateral contract results from an offered promise that is accepted by the giving of a return promise.
Example: The neighbor’s son asks Mr. Anderson if he can shovel his driveway for $20. However, the neighbor’s son says he has homework to complete and it is getting late. He then promises to shovel it tomorrow but would still like to get paid today. Mr. Anderson agrees. (Promise of $50 today for a promise of service tomorrow.)
Unilateral Contract
A unilateral contract results from an offered promise that must be accepted by giving the performance specified. A mere promise to perform does not constitute acceptance in such a case.
Example: Mr. Anderson has a hurt back and asks the neighbor’s son to shovel his driveway and Mr. Anderson will pay him $20. (Here, Mr. Anderson is not asking for the neighbor’s son to promise to shovel his driveway, but for his neighbor’s son’s actual performance of shoveling his driveway)
Executed Contract
A contract that has been fully performed by all parties is called an executed contract.
Example: Buyer contracts with seller to buy their house for the price of $200,000. The closing date is June 1st and it is to be paid in cash. Buyer pays the seller $200,000 in cash on June 1st.
Executory Contract
A contract that remains to be completed by at least one of the contracting parties is called an executory contract.
Example: Builder contracts with Customer to build a house at the price of $200,000 no later than June 1st, to be paid for in advance. On April 1st, Customer pays Builder $200,000. On May 1st, the house is only halfway finished and a dispute arises regarding the workmanship of Builder.
Express contract
A contract manifested in words, whether written or oral, is called an express contract.
Example: Bill and Ted sign a written contract that states Bill will pay Ted $6,000 to add an extra bathroom in his garage workshop.
Implied in Fact Contract
A contract that is inferred by law because the acts or conduct of the parties and the surrounding circumstances make it reasonable to assume that a contract exists between them even though the contract was never manifested by words is called an implied in fact contract.
Example: Scarlett’s pet dog is sick so she calls a mobile veterinarian and schedules an appointment for later in the afternoon. (Although there is no verbal agreement, it is implied that the veterinarian will treat the animal and that Scarlett will pay for the treatment provided.)
Implied in Law Contract (quasi contract)
An implied-in-law contract is a remedy that is imposed by operation of law to do justice even though it is clear that no promise was ever manifested by words or ever intended. The creation of an implied-in-law contract will be recognized when one party accepts or retains benefits that have been conferred upon him by another party who expected to be paid and who was not a volunteer.
Example: Carrie is in a car accident and is unconscious when emergency medical services arrive. Carrie is then transported to the hospital by Acme Ambulance Company where he remained in a coma for two days. After the third day, she awakens. (Although Carrie was unresponsive at the time of treatment and didn’t request the medical services she received, the court will likely rule that a quasi-contract in this case exists because she retained valuable benefits from Acme Ambulance Company and Hospital for which they expected to be paid
Quantum Meruit
Quantum Meruit (Latin for “as much as he deserved”), refers to the reasonable value deserved for one’s labor, and is awarded in a quasi-contract claim.
Example: Carrie wakes up from her coma and states that she will not pay the hospital or the ambulance company. As a result, the hospital and ambulance company bring suit against Carrie. The court rules in favor of the hospital and the ambulance service, awarding an amount that is reasonable for the services Carrie received from each.
Quantum Valebant
Quantum Valebant (Latin for as much as it is worth) refers to the reasonable value that is deserved as payment for goods, and is awarded in a quasi-contract claim.
Example: An air conditioning company is hired to install a new ac system. The contract does not specify what thermostat the tech is to install. The technician installs the most expensive top of the line thermostat. The air conditioner tech was able to stay within contracted budget. However, after the job is complete the home owner objects to the thermostat and argues that she never agreed to the most expensive model and refuses to pay the difference in price between the least expensive thermostat and the most expensive one.
Requirements Contract
A requirements contract is a contract in which the seller agrees to supply all of the goods or services that the buyer needs over a specified period of time. As consideration for the seller’s promise, the buyer agrees to obtain the goods or services exclusively from the seller.
Example: American Baseball Equipment Supply contracts with Tykes Little League to supply all the uniforms Tykes Little League needs for the 2015 season.
