Contracts Flashcards
Elements of a Contract
The elements to a contract are offer, acceptance, and consideration. Example: Bob tells Frank, “I will sell you my used casebook, ‘Problems in Contract Law’ for $30.00.” Frank replies, “Ok, I will buy it.” (Offer is the sale of the book for $30.00. Acceptance is Frank’s unequivocal assent to the offer. Consideration is the bargained for exchange, i.e. the book in exchange for the $30.00.)
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: Salesman offers to sell a Mickey Mouse cup to Customer for $7; Customer says, “I accept.” Case: Ray v. William G. Eurice & Bros., Inc.
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.
Acceptance
An acceptance is an unequivocal assent to the terms of an offer. Example: Salesman proposes a valid offer to Customer and Customer says, “I accept.”
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.
Bilateral Contract
A bilateral contract results from an offered promise that is accepted by the giving of a return promise. Example: Miss Overgrown tells Mr. Mower she will pay him $50 today if Mr. Mower will promise to mow her entire yard tomorrow. Mr. Mower 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: Miss Overgrown tells Mr. Mower, “I will pay you $50 if you mow my entire yard.” Mr. Mower begins mowing. (Here, Miss Overgrown is not asking for Mr. Mower’s promise to mow her yard, but for Mr. Mower’s performance.)
Adams v. Lindsell
The case of Adams v. Lindsell, established the Mailbox Rule.
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: Customer received a valid offer from Manufacturer on May 1st and mailed a valid acceptance on May 2nd. Manufacturer received Customer’s acceptance on May 4th. (Under the mailbox rule, Customer’s acceptance became effective on May 2nd.)
Option
An option is a purchased right to perform or to require performance of the terms of a contract within a specified length of time. Example: Joe makes a valid offer to Bob. Bob pays Joe $1.00 to hold open the offer for three days.
Firm Offer
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 #1: Joe offers to sell Neighbor the painting, “Vortex”, for $500. Neighbor pays Joe $1 to hold the offer open for the following three days. Example #2: Merchant provides a signed statement offering to buy Customer’s painting, “Vortex”, for $500.
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 April 29th, Merchant mails to Buyer a signed offer stating it will remain open for five days. Buyer receives the offer on May 1st. (In this case, the offer will remain open through May 5th.)
Revocation
Revocation results from the canceling, annulling, or otherwise voiding of an offer. An offer may freely be revoked by the offeror prior to acceptance by the offeree UNLESS: 1) the offer was for a unilateral contract and the offeree has already begun performance, 2) the offer was a firm offer, in which case it terminates at the time specified in the offer, or 3) the offeree detrimentally relied on the offer. Example #1: Miss Overgrown tells Mr. Mower she will pay him $50 to mow her entire yard. Mr. Mower begins mowing the yard, Miss Overgrown tells Mr. Mower she changed her mind and asks him to stop. (In this case, Miss Overgrown may not revoke her offer because the contract was unilateral and Mr. Mower already began mowing.) Example #2: Mr. Buyer purchases an option from Mr. Seller to hold open Seller’s valid offer through May 5th. (In this case, Mr. Seller may not revoke his offer until May 6th.) Example #3: On June 5th, Father tells Daughter that as an early Christmas present, he will put $7500 towards the purchase of a new 2014 Toyota, Camry. Daughter sells her ’89 Corolla. Father tells Daughter that he changed his mind. (In this case, Father may not revoke because Daughter detrimentally relied upon Father’s promise to put $7500 when she sold her car.) Example #4: Seller offers to sell Buyer his coin collection for $300. Buyer tells Seller, “Let me think on it.” Seller tells Buyer, “Never mind. I do not really want to sell it anyway.” (In this case, Seller may revoke his offer.)
Revocation Effective Upon Receipt by Offeree
A revocation is effective upon receipt by the offeree. A minority view holds that a revocation becomes effective when sent by the offeror. Example: Sam sends a revocation letter to Orville on June 1st. On June 3rd, Orville receives Sam’s revocation letter. (MAJORITY view: revocation became effective on June 3rd. MINORITY view: revocation became effective on June 1st.)
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 1: Joe tells Bob, “If you begin walking across the Brooklyn Bridge prior to 5:00 pm today and make it to the other side by 6:00 pm, I will pay you $20.” (Joe may not revoke until 5:00 pm.) Example 2: Joe tells Bob, “I will pay you $20 if you walk across the Brooklyn Bridge.” Bob begins walking across the bridge. (Joe may not revoke because Bob has already begun performance.) Example 3: Joe tells Bob, “If you begin walking across the Brooklyn Bridge, I will pay you $20.” Bob stands there and does nothing. (In this case, Joe may revoke his offer because Bob has not begun performance.) Example 4: Joe tells Bob, “If you begin walking across the Brooklyn Bridge, I will pay you $20.” Bob starts walking towards the bridge and Joe says, “Stop, I have changed my mind.” (May Joe revoke at this point? The question becomes whether or not Bob has begun performance or Bob is preparing to perform, therefore it can be argued either way.)
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: After hearing the offer, Miss Offeree walks away from Mr. Offeror while shaking her head. (Even though Miss Offeree did not specifically state in words that she rejected, her outward actions indicate she does not intend to accept, nor give Mr. Offeror’s offer further consideration.)
Rejection Effective When Received
A rejection becomes effective upon receipt by the offeror. Example: Miss Offeree received an offer from Mr. Offeror in the mail on May 1st. On May 2nd, Miss Offeree sent Mr. Offeror a rejection letter, which he received on May 5th. (In this case, Miss Offeree’s rejection became effective on May 5th – the day Mr. Offeror received the letter.)
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: Seller tells Buyer, “I will sell my 1964 Ford Convertible Mustang to you for $30,000.” Buyer responds, “Your Mustang is nice, but not that nice. I will only give you $23,000 for it.” (Buyer’s response is the counter offer.)
Counteroffer as an Implied Rejection
Supra.
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: Father tells Painter, “If you paint my daughter’s bedroom pink, I will pay you $100 if I am in a generous mood.”
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: On June 5th, Father tells Daughter that as an early Christmas present, he will put $7500 towards the purchase of a new 2014 Toyota Camry. Daughter sells her ’89 Corolla the next day and is ready to go to the local car dealer and pick out her new car. (In this case, the Doctrine of Promissory Estoppel provides a substitute for the element of consideration because it was foreseeable that Daughter would detrimentally rely on her Father’s $7500 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. Bankrupt had $5,000 worth of medical debts owed to Dr. Saver discharged in bankruptcy. As she was leaving the courthouse, she saw Dr. Saver and told him, “I know the $5,000 of services you provided for me was discharged in my bankruptcy, but I will pay you anyway.”
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: As consideration for a parent paying for college tuition, a daughter agrees not to marry her fiancée until after she graduates.
Failure of Consideration
Failure of consideration occurs when the subject matter of the consideration ceases to exist or becomes worthless even though valid consideration was present when the parties first contract. Example: On April 25th, Seller agrees to sell his Ford Mustang to Buyer for $8,000 on May 1st. However, on April 27th Seller was driving the Mustang, which was struck by another vehicle and the car was totaled.
Want of Consideration
Lack of consideration for a contract. Example: On Mrs. Retirement’s last day of work, Boss promised to give her a $1000 bonus for the past 20 years of service she provided to the company. Unfortunately for Mrs. Retirement, Boss never gave her the money. (In this case, there is want of consideration to form a legally binding contract, because Mrs. Retirement’s service occurred in the past, therefore it is not considered valid.)
Sufficiency of Consideration
Courts generally do not require that consideration have any substantial value or that it benefit the promisee; all that is required is that there be some legal detriment to the promisor so that the consideration serves as an inducement for the return promise of the promisee. Example: Joe makes a valid offer to Bob. Bob pays Joe $1.00 to hold open the offer for three days.
Executed Contract
A contract that has been fully performed by all parties is called an executed 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 within three days of completion. On May 25th, Builder finishes the house. On May 26th, Customer pays Builder $200,000.
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.
Meeting of the Minds
This rule holds that mutual consent 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 agree to the terms and conditions of the contract. A “Meeting of the Minds” is subtly different from “Mutual Assent” in that the former is subjective, whereas the latter is objective. Example (taken from “Problems in Contracts” text pg. 23): Seller and Buyer sign a written document in which Buyer agrees to buy a condominium in a new development. Buyer later claims that he did not understand that he was signing a contract and that he did not intend to buy the condo; he thought that the document he signed merely “reserved” the condominium but did not obligate him to buy. The Seller sues the Buyer for breach of contract and the case goes to trial. If the jury believes Buyer is telling the truth and if the jurisdiction requires a “meeting of the minds”, then the jury should find in favor of the Buyer. However, if the jurisdiction requires a manifestation of “mutual assent” then, in absence of fraud or other misconduct from Seller, the jury should find in favor of the Seller because both parties “outwardly” manifested their assent to the contract by having signed the document.
Outward Manifestation Theory
Mutual assent exists if a reasonable person would have objectively understood the outward actions and statements of the other party to indicate intent to enter into a legally binding contract and agreement to its terms and conditions. Example: Case: Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954) One evening over drinks, Zehmer offers to sell his farm to Lucy for $50,000. The two men discussed the sale for nearly an hour. The men drew up a contract to which they signed, including Zehmer’s wife. However, Zehmer’s secret and subjective intent was merely as a joke to get Lucy to admit that Lucy did not have $50,000. Lucy sued Zehmer for specific performance. (The trial court ruled for Zehmer. On appeal, the judgment was reversed and remanded on the basis that the court looks to the objective, outward expressions rather than the inward, subjective intents of the parties. The test is whether or not a reasonable person would conclude the party’s actions constituted a valid offer.)
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: Bob signs a contract with Frank to buy the mare, Supra, for $20,000 but does not read the contract’s terms and conditions. (Bob will be bound to the terms and conditions of the sale even though he did not read them.)
Express Contract
A contract manifested in words, whether written or oral, is called an express contract. Example 1: Joe makes a valid offer to Bob. Bob pays Joe $1.00 to hold open the offer for three days. Bob tells Susan he will buy her lawn mower for $100. Susan agrees. Example 2: John and Frank sign a written contract that states Frank will pay John $5,000 to clear a five acre parcel Frank owns.
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: Annette’s horse is ill and she calls the local equine veterinarian and schedules an appointment for the veterinarian to visit her barn the following morning. (Although there is no verbal agreement, it is implied that the veterinarian will treat the animal and that Annette 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: John is lying unconscious on the road when a passerby notifies local emergency. John is transported to the hospital by American Ambulance Co. and then treated for three days by County Hospital while he remains in a coma. On the fourth day, he awakens from his coma. (Although John was unconscious and therefore did not request the medical services he received, the law will impose a quasi-contract in this case because he retained valuable benefits from American Ambulance and County 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: John is lying unconscious on the road when a passerby notifies local emergency. John is transported to the hospital by American Ambulance Co. and then treated for three days by County Hospital while he remains in a coma. On the fourth day, John awakens from his coma and asserts that he will neither pay the hospital or the ambulance company. Subsequently, the hospital and ambulance company bring suit against John. The court rules in favor of the hospital and the ambulance service, awarding an amount that is reasonable for the services John 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: ( ??? Builder is hired by Owner to put in a swimming pool. The contract does not specify which filtration system Builder is to install. Builder installs the best and most expensive one he has available. Builder stayed within the estimated price. After the job is complete Owner objects to the filtration system, stating she did not agree to the most expensive one available and refuses to pay the difference in price between the least expensive filtration system and the most expensive one. )
