Contracts Flashcards
What are contracts?
- Contracts are sources of legal obligations
- Contracts are not only documents, if you buy something at the store without talking to the clerk you enter into a contract
What are the four essential elements of a contract and their meaning? Tip: CMCL
- Capacity (of the parties) - If the parties are capable of committing to the contract, i.e are in their right mind and have the authority required
- Meeting of the Minds (Mutual Agreement) - All crucial elements of the agreement need to be settled and only what is written is decided for
- Consideration (Something for something) - There needs to be a value of exchange (monetary/knowledge etc). Donations are therefore not contracts
- Legality (of the subject matter) - All illegal aspects of a contract are not enforceable, e.g I can not write a contract for an assasination
What are the three ways in which a contract can be formed?
- Expressed contract - Oral/writing
- Implied-In-Fact - Through actions, e.g buying at a store
- Implied by law - Automatic bindings as per law, e.g if a doctor saves my life I may owe him money
What is the difference between bilateral performance and unilaterai?
- Bilateral - Mutual agreement between parties
- Unilateral - A promise made by one party in exchange for the act of another
In the context of enforceability, what is the difference between a unenforceable, void and voidable contract?
- Unenforcable - The contract cannot be enforced due to legal technicalities
- Void - The contract is non-valid and has no effect
- Voidable - The contract can be made void by one or more parties
What is negotiation and what is important to consider?
Negotiation is the view to an agreement, done with the purpose of meeting minds. Parties need to have a willingness as acting in bad faith can have legal consequences
What is the step-by-step process for contract negotiation?
- Non-disclosure agreement (NDA)
- Exclusivity
- Memorandum of Understanding (MoU)
- Letter of Intent (LOI)
- Binding/non-binding offers
- Preliminary agreements
- Final contract
What are NDAs?
NDA stands for Non-disclosure agreement and is a document signed to protect sensitive information in a negotiation process
What is a Memorandum Of Understanding (MoU)?
MoU are snapshots of the current stage of negotiation that are not legally binding. An bilateral understanding rather than an agreement
What is a Letter of Intent (LOI)?
LOI are unilateral (one-sided) and have the purpose of showing the seriousness in ones intentions
For contracts, what are the requirements of acceptance?
- Clear - There can be no ambiguous understanding of the acceptance
- Unqualified - The acceptance has to be unconditional. A conditional acceptance is treated as a counteroffer, which counts as a rejection of the initial offer
- Made in the required manner - The acceptance must be made in the manner specified in the offer, e.g via mail or over the phone. When there are no specific manners, the receiver should act in accordance to reasonable manners or industry standards
What is important to consider if one is not happy with an offer?
The wording of your dissatisfaction is crucial. Saying that you will accept an offer if the terms are changed count as a counteroffer in contract to if you say that you accept and ask that the terms are altered
Does silence constitute acceptance?
It depends, but mostly no since it is not a clear manifestation of acceptance. It would constitute acceptance if you did not cancel a free trial period, in which it becomes a paid subscription
Does beginning to perform the act requested qualify as acceptance?
Only if the offeror is satisfied with the way in which the offeree acts
What is the statute of limitations?
States that a contract may no longer be enforceable due to the passing of time, e.g if a party sets a time limit. The contract is not invalidated
What does promissory estoppel mean?
It means that a party can not go back on a promise if the promisee was dependent on the promise, e.g if I try to withdraw a donation when the receiver already have made plans for what to make with the money
What is a material mistake?
A mutual understanding of that there has been a factual (material) mistake. The remedy is to void or cancel the contract
What are the five concurrent requirements for an act to be denounced fraud?
- Misrepresentation of a material fact - decipting a situation that differs from reality
- Made knowingly - The fraud needs to know that it is a misrepresentation
- With the intent to defraud - The intent of the fraud needs to be getting profit through misrepresentation
- Justifiably relied upon - The counterpart needs to rely upon the misrepresentation, i.e buying a fake item thinking that it is real
- Causing injury/damage to the other party - The counterpart needs to suffer damage for a fraud to be valid, e.g it is not valid if I sell a fake painting at a reasonable price
What are some of the consequences of fraud?
- Recission (cancellation) by the defrauded party
- Indemnification of damages - if the fraud fixes the damages the contract may still be valid
- Criminal sanctions
- Punitive damages - punishment for particularly damaging behaviour
What is undue influence?
When one party takes advantage of another by reason of a superior position in a close or confidential relationship, e.g doctor/patient or employer/employee
What is duress?
Physical or mental coercion (forcement) that deprives a person of its free will and leaves them no option other than to accept the contract terms
What is unconscionability?
Blatant inequality where there are unfair terms than no reasonable party would ever consider. Consumers are protected by consumer protection laws so that contracts are not way out of line, the same does not valid for B2B contracts.
What does the Statute of Frauds state?
That certain agreements must be incorporated in a written document to mitigate the risk of fraud. This is not only for evidence but also for validity, e.g in the case of buying a house
What is a Memorandum in Writing?
Essential parts of a transaction and identification of the parties written down.
What are the advantages of a Memorandum in Writing and the writing process?
- Valid as evidence
- Helps with remembering terms
- Avoiding misunderstandings
- Helps clarify terms, increasing the quality of the contract
What is the parol evidence rule?
A rule that states that side letters or oral agreements to the contracts that contradict the fundamental terms are not enforceable. There are exceptions, i.e if the conditions are not the same as they used to
What does does privity doctrine state?
That for a person to have a legal interest or right under a contract they have to be a party to that contract. However there are important exceptions
What are the five exceptions to privity?
- Assignment of rights
- Delegation of duties - i.e having somebody else carry out the duty. In this case, the one delegating their job is responsible
- Assignment of contract - a combination of points one and two
- Novation - splitting a contract and novating (making a new one)
- Third-party beneficiaries - e.g if a guy buys a flower delivery for his girl, the florist has the obligations and duties despite the guy getting the gain
What does the discharge of a contract imply?
That the contract has been terminated or completed, either on good or bad terms
What are the five types of discharge and their meaning?
- Discharge by performance - substantial performance of the contractual obligations
- Discharge by breach - When one party fails in a material way to perform its obligations and the non-breaching party has no obligations on the contract. Damages and other remedies are available for this type of discharge
- Discharge by anticipatory breach - when the non-breaching party anticipates a breach from the other party. The non-breaching party needs a statement of non-performance or clear and unambiguous evidence
- Agreement of the parties - when there is a mutual recission, i.e both parties agree to cancel entirely
- Operation of Law - when there is subsequent illegality, e.g in the case of new laws and regulations
What is the difference between a release and a waiver?
In a release a party relinquishes their right to pursue legal claims against the other party (concerns someones obligations). In a waiver a party relinquishes or abandons their right, claim or privelege (concerns ones rights)
What are two examples of impossibility?
Force majeure - an unforeseen disaster such as war
Acts of God - natural disasters
In the context of contracts, what are damages?
Compensation due by the breaching party to the non-breaching party to recover the loss or injury caused by the breach. Also known as indemnity/ indemnification. Important to understand that the compensation is not only monetary, but could be performance
What are the four essential elements needed for a breach to be valid?
- Proof of the existence of the contract
- Proof that the contract was breached
- Proof that the claimant suffered a loss
- Cause-effect, e.g a link between the breach and loss
What are compensatory damages and what are the three conditions for qualifying?
Damages awarded to the non-breaching party to cover the losses from the breach. The three conditions are:
1. Reasonable certainty - damages must be proved
2. Foreseeability - the damages were reasonably foreseeable at the time the contract was made or at the time of the breach
3. Mitigation - the claimant must use every reasonable effort to mitigate or avoid the damages
What are consequential damages?
Indirect damages/lost profits due to a breach, e.g if someone fails to deliver something important to me they may also be enforced to pay the value that I lost while missing the thing
What are liquidated damages?
Pre-specified damages in the case of a breach, e.g if you deliver a week too late, the penalty is 10 k
What are punitive damages?
Damages intended to punish/deter the defendant or other parties from engaging in conducts that are particularly outrageous or oppressive. E.g Liebeck vs Mcdonalds coffee case
What are three other remedies used in the case of contract breach?
- Specific performance - demanding the performance specified in the contract when money cannot compensate for the breach
- Injunctions - the non-breaching party may ask for an injunction which prohibits the breaching party from pursuing the damaging business (the resulting damage needs to be proven in court)
- Interim relief - a temporary order from court which directs how involved parties are supposed to act and not act during legal battles
