Contracts Flashcards
What is a Contract?
Agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration.
What are the ways to form a contract?
Express
Implied
Quasi-contract
What are the six elements to a contract?
Offer Acceptance Consideration Mutuality of Obligations Competency and Capacity (in certain circumstances) Written Instrument
What is an Express Contract?
Contract formed by specific words, either oral or written.
What is an Implied Contract?
Agreement created by the actions of the parties but is not written or spoken
Example - taking pet to the vet, it is implied that the vet will examine and treat the pet in exchange for the payment of a fee but there is no oral/written agreement
What is a Quasi-Contract?
Binding obligation that’s imposed by the Courts to avoid injustice or unjust enrichment; occurs in situations where there’s an obligation under a contract, although the elements of a contract have not been fulfilled
Example: order and pre-pay for a pizza to be delivered but it’s delivered to a different house and they eat the pizza - the pizzeria could be court ordered to reimburse for the amount paid for the pizza
What is an Offer, Offeror, Offeree, and Essential Terms of an Offer?
Offer = promise to act or refrain from acting in exchange for a return promise to do the same; an objective expression of a promise
Offeror = party to the agreement that makes the offer
Offeree = party to the agreement who either accepts or rejects the offer
Essential Terms of an Offer = identity of the offeree and subject matter, the price to be paid and the time of payment, delivery or performance, the quality involved, and the nature of the work to be performed
What is Acceptance of an Offer?
Express agreement to its terms
What is a Unilateral Contract?
Offer that may only be accepted by the performance of or the non-performance of an act
What is a Bilateral Contract?
An offer that may only be accepted by a return promise of performance
What is Consideration?
Something of value that each person brings to the table to induct the other to enter into an agreement
Not always money - may be a promise to perform an act that one is not legally required to perform or a promise to refrain from an act that one is legally entitled to do
What is Legal Detriment?
Detriment is an essential element of consideration.
Any loss or harm to a person or property; relinquishment of a legal right, benefit, or something of value.
To incur detriment means to promise to either refrain from doing something that one has a legal right to do or do something that one isn’t under any legal obligation to do.
What is Mutuality of Obligations?
A “meeting of the minds”, requires that every party to the contract agrees to the specific terms of the contract
Occurs when one party makes an offer and the other party accepts that offer
What is Legal Capacity?
Having the legal capacity to be held liable for the promises and performances that person has agreed to undertake - a minor, someone who’s mentally incapacitated or someone who’s intoxicated lack the capacity to enter into a contract
What are Void and Voidable Contracts?
Void Contract = requires one of the parties to the contract to perform an act that is impossible or illegal, considered void because they’re too unfair or infringe on a person’s rights, cannot be enforced by either party, law treats void contracts as if they’ve never been formed
Voidable Contract = valid agreements but one or both of the parties to the contract can void the contract at any time (contract entered into when one party was a minor, one party was tricked/forced into entering it, or one party was incapacitated [drunk, insane, or delusional])
What is a Third-Party Contract and Third-Party Beneficiary?
Third-Party Contract: when two parties enter into a contract for the benefit of another party
Third-Party Beneficiary: party benefitting from the third-party contract, may have the right to sue on a contract despite not having originally been an active party to the contract
Example: life insurance policy taken out under one person’s name which is intended to benefit their spouse/family upon their passing
What is Delegation, Assignment, and Novation in Third-Party Contracts?
Delegation = one party to a contract arranges to have a third-party performs the party’s contractual obligations
Assignment = one party to the contract assigns or transfers their rights in the contract to another party (party to whom the rights are transferred is the assignee and the party who is assigning their rights is the assignor)
Novation = one party is transferring all of their rights under the terms of a contract to another party - novation contracts must be signed by all original parties and the third-party taking the place of one of the parties. The original contract is then extinguished, the withdrawing party’s obligations and rights are discharged under the terms of the original contract
What are Creditor, Donee, and Incidental Third-Party Beneficiaries?
Creditor = non-party to a contract who receives benefits when a promise is made to satisfy legal duty
Donee = non-party to the contract who benefits from a promise that’s made for the purpose of making a gift to the donee
Incidental = incidentally benefits from the terms of a contract between other parties and is not the intended beneficiary (ex. grandchildren may benefit from parent receiving or inheriting a gift)
What is the Statute of Frauds and what types of contracts does it apply to?
Statute of Frauds = requires certain contracts to be in writing and signed by all the parties to be enforceable
M = Marriage (promises made in consideration of marriage - prenup agreement) Y = Year (contracts that can't be performed within one year) L = Land (sale or transfer of land unless partial performance has occurred) E = Estate (pay debts of estate using personal funds) G = Guaranty (collateral, guaranty the debt of another) S = Sale of Goods (valued at $500+)
What is a Breach of Contract?
Party fails to perform its obligations on a contract
What is a Material Breach?
Failure of a party to uphold their end of a contract in a way that renders the contract seemingly pointless
What is a Minor Breach?
Aka partial breach, less severe than material breach, gives harmed party right to sue for damages but doesn’t excuse them from further performance
What are Contract Defenses?
Available for defendants sued for breach of contract:
- Absence of the six elements of a contract
- Unconscionability
- Mistake
- Fraud
- Undue Influence
- Duress
- Misrepresentation
What is Unconscionable as a contract defense?
Contracts so offensive that it offends the conscience of all reasonable people, goes against public policy
Includes unfair terms, hidden language in unrelated provisions, small font, or provisions added to the contract after it has been signed
What is a Mistake in Value contract defense?
When parties make assumptions concerning the value of the contract’s subject matter
What is Fraud contract defense, Fraud in the Inducement, and Fraud in the Factum?
Fraud = deliberate misrepresentation of material fact made by one party to another with knowledge of the falseness and for the purpose of inducing the other person to act and upon which the other person relied with resulting injury or damage.
Fraud in the Inducement = fraud exists with regard to the entire contract; person is deceived into signing the contract due to fraudulent circumstances
Fraud in the Factum = fraud exists as to a fact or description contained in the contract
What is Undue Influence contract defense?
When one party to a contract is able to influence the decisions of another party and takes advantage of another party through a position of trust; always involves two parties and one of the parties to the contract must be in a superior position over the other party
What is Duress contract defense?
A coercive threat of sufficient gravity that induces the other party to assent to an agreement to which they would not have assented otherwise; blackmail, violence, and threats may all constitute duress
What is Misrepresentation contract defense and Negligent Misrepresentation?
Misrepresentation = A statement made by one party to a contract to induct another party to enter into the contract; the misrepresentation must be both false and fraudulent in order for damages to apply
Negligent Misrepresentation = Statement of fact that is false as the result of a party’s negligence, induces another to act, and results in injury to the party relying on the statement
What is the purpose of a Contract Remedy and what are the 5 Breach of Contract Remedies?
Put the plaintiff where they would’ve been if the contract had never been breached
Money Damages Restitution Rescission Reformation Specific Performance
What are Money Damages as a contract breach remedy?
Sum of money that’s given to the plaintiff as compensation for financial losses caused by the breach
Type of breach determines damages that may be recovered
Damages must be proved and not speculative
Money damages may be classified as:
- Compensatory (general or specific)
- Punitive
- Nominal
- Liquidated
What are Compensatory Damages (money damages as contract breach remedy)?
Ensure injured party receives what was expected from the bargain
injured party should be placed back in position as if the contract had been fully performed
What are Consequential Damages (money damages as contract breach remedy)?
Other losses incurred as a consequence of the breach which the plaintiff may be able to recover
Not a direct result of the incident itself but are consequences of the incident
What are Punitive Damages (money damages as contract breach remedy)?
Designed to punish or penalize the defendant for bad conduct above and beyond a simple breach of contract
Used by the court to set an example
What are Nominal Damages (money damages as contract breach remedy)?
Awarded by a court when defendant has breached the contract, but no monetary loss is proved, usually $1 - $2
Proves that plaintiff had a legal right to bring a lawsuit against a defendant for the wrongful behavior of the defendant
What are Liquidated Damages (money damages as contract breach remedy)?
Damages that are predetermined if either party breaches the contract
Used when parties understand that proving damages, like lost profits, in the event of breach may be difficult.
What is the Measure of Damages?
A way to compute damages that are to be awarded to an injured party in a contract
Intent is to place the injured party where they would’ve been if the contract had been performed
What governs contract law?
Common law and the Uniform Commercial Code (UCC)
What is the Uniform Commercial Code (UCC)?
Set of laws with nine articles that governs the sale of goods, among other things
If a buyer rejects or revokes acceptance of the goods or fails to make a payment due on or before the delivery, what are the seller’s options?
- Withhold delivery of such goods
- Stop delivery by any carrier
- Resell and recover damages
- Recover damages for non-acceptance
- Cancel
- Recover ordinary contract damages for non-acceptance
If the seller fails to make delivery of the goods or when the buyer rightfully or justifiably rejects the goods or revokes acceptance of the goods, what are the buyer’s remedies?
- Cancel
- “Cover” by purchasing substituted goods on the open market and recovering from the seller the difference between the contract price and the substituted goods
- Recover the specific goods identified in the contract if the buyer has paid all or a portion of the purchase price
- Recover damages for non-delivery of the goods, which is the difference between market prices at the time that the buyer learned of the breach and the contract price. This includes consequential damages.
- Obtain specific performance where the goods are special or unique as spelled out in UCC Sec 2
What is Restitution as a contract breach remedy?
When the contract’s entered into by one party that lacks capacity or is incompetent
May not request to be compensated for lost profits or other earnings
Money property given to the defendant under the contract must be returned
What is Recission as a contract breach remedy?
Unwinding of the contract between the parties to bring the parties back to the positions they were in before they entered into the contract - any benefit received as a part of the contract must be returned
What is Reformation as a contract breach remedy?
Allows courts to change the substance of the contract to correct inequities that were suffered
When the parties enter into a contract and not all of the provisions of the contract match what the parties understood the contract to be - court can reform the contract to settle a dispute
What is Specific Performance as a contract breach remedy?
Court issues an order requiring a party to a contract to complete a specific obligation or act of the contract - an alternative to the court awarding damages, commonly used as injunctive relief
What is a Tort?
A wrong, civil wrong, or a wrongful act whether intentional or accidental from which an injury occurs.
Both contract law and tort law involve breach of duties.
A civil wrong is a non-criminal cause of action under the law of a governing body.
Tort actions and contract breaches are civil wrongs for which there’s a legal remedy for the harm caused.
Tort actions can be put in place to address a breach of duty of either party to a contract.
The taking back of an offer by the offeror is:
A - Revocation
B - Rejection
C - Cancellation
D - Consideration
A - Revocation
A contract that amounts to nothing and has no legal effect is:
A - Bilateral
B - Voidable
C - Void
D - Unilateral
C - Void
A contract that contains a promise by both parties is:
A - Express
B - Implied
C - Bilateral
D - Unilateral
C - Bilateral
What occurs when one party to a contract does not do what that party agreed to do?
A - Breach
B - Fraud
C - Consideration
D - Ratification
A - Breach
People sometimes enter into contracts without saying a word. What type of contract is this?
A - Voidable
B - Express
C - Unenforceable
D - Implied
D - Implied
The offeree’s refusal of an offer ends that offer. This is known as:
A - Rejection
B - Revocation
C - Implication
D - Expression
A - Rejection
An offer must be definite, communicated to the offeree, and:
A - Signed
B - Implied
C - Seriously intended
D - Timely
C - Seriously intended
Deliberate deception to secure unfair or unlawful gain is:
A - Misrepresentation
B - Libel
C - Unilateral mistake
D - Fraud
D - Fraud
Overcoming a person’s will through force is:
A - Fraud
B - Duress
C - Extortion
D - Ratification
B - Duress
Alex persuaded his grandmother, Clara, to sell him her car for $1,000. They both knew the car was worth much more than that. However, Clara didn’t need the car anymore and loved her grandson, so she agreed to sell him the car. The next day, Clara found out that Alex was planning to sell the car to a friend for $6,000. Clara can void the contract because of:
A - Duress
B - Fraud
C - Undue influence
D - Mistake
C - Undue influence
Legal means of enforcing a right or correcting a wrong is a(n):
A - Breach
B - Remedy
C - Avoidance
D - Beneficiary
B - Remedy
A minor who claims to be over the age of majority commits:
A - Fraud
B - Misrepresentation
C - Extortion
D - Larceny
A - Fraud
Consideration in a contract means that:
A - A person has the mental capacity to enter into a contract
B - The two parties deal with the contract in a polite manner
C - The contract is legal and fully valid
D - Something of value is being exchanged by the two parties
D - Something of value is being exchanged by the two parties
A court’s award that reimburses a buyer for reasonable expenses when the seller has breached a contract is:
A - Incidental
B - Actual
C - Real
D - Illusory
A - Incidental
Illegal agreements are:
A - Voidable
B - Void
C - Limited
D - Enforceable
B - Void
Can a contract be ended by mutual agreement by the parties?
A - Yes
B - No
A - Yes
As long as all terms have been carried out properly and completely, the most common way a contract is discharged is by:
A - Agreement
B - Avoidance
C - Performance
D - Exaction
C - Performance
Damages agreed upon by the parties when they first enter into a contract are called:
A - Actual damages
B - Incidental damages
C - Anticipatory damages
D - Liquidated damages
D - Liquidated damages
Damages that may be awarded by a court when a defendant has breached a contract, but no monetary loss is proved, are called:
A - Incidental damages
B - Anticipatory damages
C - Nominal damages
D - Consequential damages
C - Nominal damages
Damages that ensure the injured party receives what the injured party expected from the bargain are:
A - Anticipatory damages
B - Compensatory damages
C - Punitive damages
D - Incidental damages
B - Compensatory damages
An incorrect/false statement made by one party to a contract to induce another party to enter into a contract is:
A - Misrepresentation
B - Fraud
C - Libel
D - Mistake
A - Misrepresentation
Which of the following is NOT one of the three required elements of a contract?
A - Acceptance
B - Offer
C - Seal
D - Consideration
C - Seal
The act of one party transferring all rights, obligations, and benefits under the terms of the contract to a third-party is called a(n):
A - Assignment
B - Novation
C - Delegation
D - Beneficiary
B - Novation
The unwinding of a contract is called:
A - Reformation
B - Specific performance
C - Recission
D - Restitution
C - Recission
