Contracts Flashcards
What, in essence, is a contract?
A legally enforceable promise
What are a promisee and an obligor?
Promisee = has right to receive performance in a contract
Obligor = has duty to perform in a contract
What is the difference between a bilateral and unilateral contract?
Bilateral = two parties promise to fulfill duties towards one another (e.g. A performs service for which B pays)
Unilateral = one party promises to fulfill duty in exchange for another party’s act or forbearance, which is not itself promised (e.g. a promise of reward for a missing pet)
What is the difference between an executed and executory contract?
Executed = already performed
Executory = not yet performed
A contract can be executed regarding one party’s performance and executory regarding the other
What is a quasi-contract?
A legal duty imposed in cases where there is not formally a contract but the law still ought to imply one as a matter of equity and justice
What is the difference between void and voidable contracts?
Void = lack an essential element and thus do not impose any legal duties
Voidable = remain binding if not rescinded (e.g. contracts of infants, some contracts acquired via fraud)
What are joint obligees/obligors?
Multiple people who are owed performance/who owe performance as a single entity
What are several obligees/obligors?
Multiple people who are owed performance/who owe performance as separate individuals
What is assignment?
Transferring a contract right (i.e. to the obligor’s performance) to someone else
When is assignment forbidden?
If both the obligor does not consent and either:
(a) the right is personal to the promisee or involves a confidential relationship
(b) the obligor’s duties, rights, or risks would be materially impaired
Can assignment of a contract be forbidden in the contract itself?
Yes, although the assignment-forbidding clause can be voided in some cases
How do the obligor’s counterclaims against an assignee work?
The obligor can assert counterclaims against an assignee only for claims against the assignor that accrued before notice for the assignment was given
What happens if an assignor wrongly assigns the same contract right to different assignees?
Two different rules can apply:
(1) Whoever received first assignment has the right
(2) Whoever gave first notice to the obligor has the right
What is a gratuitous assignment?
An assignment made without any consideration from the assignee
When is an assignor forbidden from revoking a gratuitous assignment?
When:
(a) there is promissory estoppel (i.e. the assignee has already acted to rely on the promise)
(b) the assignor gave a tangible document for the assignment
(c) the assignee has already collected the consideration from the obligor
What is delegation?
Transferring a contract duty (i.e. to give consideration to the obligee) to someone else
Not all duties can be delegated
Can a delegator still be liable for a contractual duty after having delegated the duty?
Yes, he is liable to the obligee until the duty is performed
What are the seven elements of a contract?
Agreement (mutual assent) Offer Acceptance Consideration Capacity Legal subject matter Statute of Frauds
What is the mirror acceptance rule?
The acceptance of a contract must contain all the terms and conditions included in the offer
What is the general rule behind implied contracts?
The objective rule of contracts: If a party’s conduct would cause a reasonable person to believe the party is assenting to the contract, then the party has implicitly assented to it
Are advertisements distributed to large numbers of people usually offers or invitations to make offers?
Usually invitations to make offers, but this is determined by various other factors and circumstances
Can contracts be validly made if they have missing terms?
Yes, so long as the parties intend to supply the terms later – this is frequent for many contracts
The Uniform Commercial Code (UCC) requires that only quantities be specified
What occurs if an offeree attempts to accept an offer after the offer is terminated?
It is effectively a new offer
Is an offeror allowed to revoke an offer if he has said the offer would be open for a given period of time?
Yes, so long as it is truly revoked
If an offeror revokes an offer by communicating the revocation to the offeree, when is the revocation effective?
When the offeree receives it (not when the message is sent)
What is a contract for the offeror to keep the offer open?
An option contract
What are firm offers?
Offers that are irrevocable despite having no consideration given to the offeror in exchange for keeping the offer open
When does a unilateral contract offer become irrevocable?
If partial performance is given
-A minority rule permits revocation but only if the offeror compensates the offeree (in a quasi-contract)
“Partial performance” for bilateral contracts occurs if the offeree promises to complete performance (i.e. accepts the contract)
When does an offer become revoked if a particular time period for the offer is not specified?
After a reasonable amount of time, given the circumstances
If an offeree communicates a rejection of an offer, when does that rejection become effective?
When the offeror receives it
What would count as a counteroffer?
If the offeree tries to substitute new terms in the contract
If the offeree merely inquires about adding terms, it is not a counteroffer
What else can terminate an offer?
Insanity (of offeror or offeree)
Bankruptcy or insolvency (of offeror or offeree)
How does contract acceptance relate to the objective rule of contracts?
It is an exception to it, since if an event is not clearly an act of acceptance, then the subjective intent determines whether acceptance actually occurred
When does a communicated acceptance become effective?
When the offeree sends it to the offeror (or his agent) – NOT when it is received
What is the mailbox rule?
Rule that acceptance is effective when sent, even if it is delayed or lost in transit
What is the exception to the mailbox rule?
If an offeror keeps an offer open because of a contract (i.e. an option contract), then he must receive acceptance for it to be effective
Can an offer be accepted if the offeror mistook the offeree for someone else?
Yes, so long as the offeree reasonably believes the offer was intentionally given to him
Can silence count as acceptance?
Yes, given the circumstances, though not ordinarily
How does the concept of “legal detriment” relate to consideration?
A party offers consideration only if it suffers legal detriment – i.e. if it voluntarily surrenders a legal right it would otherwise have, such as the right not to give the other party money
An act does not count as consideration if one is already legally bound to perform it
When do conditional promises count as consideration?
If the condition upon which the promise will be fulfilled is outside the promisor’s control
If the promisor or promisee can choose among alternative acts, does the promise include consideration?
If the promisor can choose, then it counts as consideration only if all options are legal detriments
If the promisee can choose, then it counts as consideration only if at least one option is a legal detriment
Can a contract be voided due to unfair considerations?
Not normally, but extremely lopsided contracts could evidence fraud, duress, etc.
What are some examples where the consideration is inadequate?
An exchange of unequal amounts of money (or other fungible goods) at the same time
Nominal consideration, e.g. only one dollar – though this works fine for an option contract
Can past actions count as consideration for another party’s promise?
No, because such actions would not have been done in exchange for the promise
How do negotiations for commercial paper relate to consideration?
Consideration is presumed if commercial paper is negotiated
When do contracts not require consideration to be enforceable?
When they are under seal
This rule is becoming very rare, however
What is promissory estoppel?
When a promisee acts substantially while justifiably relying on the promise (and the promisor should have expected him to act that way), so that it would be an injustice – more than a legal detriment – if the promise is not enforced
Lack of consideration cannot be asserted in such a situation
When are contracts with infants/minors not voidable?
When the other party provides the infant with necessities (e.g. food, shelter, clothing)
An infant contract is never voidable for the other party
When are persons no longer classified as infants/minors?
When they become adults – 18 in most states, though it can occur by court action, marriage, or other means
What are two kinds of incompetent persons?
De jure insane (already judicially declared insane) = all contracts made with them are void, except contracts for necessities
De facto insane (not judicially declared even though truly insane) = contracts with them are voidable
Drunk people also treated as (de facto) incompetents
What are some examples of illegal contracts?
- contracts which interfere with the dispensing of justice
- contracts which unreasonably monopolize trade
- contracts which exonerate a party from negligence or wrongdoing
What does it mean for contracts to fall within the Statute of Frauds?
Such contracts must be in writing and signed to be valid (even though they can be oral if promissory estoppel applies)
Strictly speaking, does a contract within the Statute of Frauds need to be written?
Not necessarily – there needs to be written evidence of the elements of the contract (which can also exist in separate documents), but the contract itself does not need to be written as an entire contract
What qualifies as a signature for contracts within the Statute of Frauds?
Any mark (even an “x”), so long as the signing party verifies it as his own
What occurs if only one party signs a contract within the Statute of Frauds?
The contract is still enforceable, but only against the signing party
What happens if a contract within the Statute of Frauds fails to comply with the Statute (i.e. is not in written form)?
It is unenforceable – which is different from being void or voidable
Unenforceable contracts cannot be a basis for lawsuits, though they can generate quasi-contracts
What contracts are covered by the Statute of Frauds?
(1) Sales of goods for $500 or more
(2) Real estate contracts
(3) Contracts impossible to perform within one year
(4) Contracts to answer for another’s debt (surety)
(5) Contracts for executors to answer for the debts of decedents’ estates
(6) Promises in consideration of marriage (e.g. prenuptials)
Are all lease contracts under the Statute of Frauds?
No, only contracts for leases longer than one year are
Under what circumstance would a real estate contract not be under the Statute of Frauds?
If the buyer has possession of the land and has already made partial payments or improvements
Under what circumstance would a promise to pay for another’s debt NOT be under the Statute of Frauds?
If the promise is not collateral (i.e. for another’s benefit), but primary (i.e. for the surety’s benefit)
What contracts are similar to, but not the same as, surety contracts?
Any promises to pay a third party for another, without promising to answer for debts towards the third party
Such situations are not covered by the Statute of Frauds
What is the general rule for ambiguous terms in a contract?
They are interpreted against the party who wrote the terms
What is the parol evidence rule?
For a contract intended by the parties to represent their whole agreement (i.e. an “integrated” contract), any prior or contemporaneous agreements which alter or contradict it are not relevant
Subsequent agreements are still relevant
What is a unilateral mistake?
One party makes a mistake in forming the contract
If the other party did not know and acted in good faith, usually still enforceable
What can occur if there is a bilateral mistake in a contract?
- If there is no real agreement, the contract is void
- If one party’s duties materially increase, the contract is voidable to that party (unless an innocent third party would be harmed), or the contract can be changed
What is a mistake in inducement?
A mistake involving not the actual terms of the agreement, but the reasons to enter into it
Not good grounds to void or alter the contract
What term denotes the intent to deceive (as in fraud)?
Scienter
What are two different types of fraud?
(1) Fraud in inducement – in causing the party to agree to the terms
(2) Fraud in execution – in causing the party to sign something that brings the contract into existence
(1) makes the contract voidable
(2) makes the contract void
If a fraudulent contract becomes void, can the defrauded party still seek out damages?
Yes, but not on the basis of the contract itself – only in tort
What is duress?
A threat to a person (or a family member of his) which forces him to enter into a contract
Causes the contract to become voidable
What are examples of duress?
Threat of criminal prosecution (whether guilty or not), threat to destroy or detain another’s property
Threat of civil suit does NOT count, nor does threat of economic loss
What is undue influence?
When someone in a position of trust manipulates someone of a weak mind to enter into a contract
Contract is voidable
For third-party beneficiary contracts, what is a donee beneficiary?
If a promisee contracts with a promisor to give a third party a gift, that party is the donee beneficiary
Donee can sue promisor for breach, but not promisee (since promisee does not owe anything)
When there is a donee beneficiary, what can the promisee do if the promisor does not perform?
Either (a) sue to restore original pre-contract conditions or (b) sue for specific performance
Promisee cannot sue for damages, because the promisor’s nonperformance cannot cause harm in this situation
For third-party beneficiary contracts, what is an incidental beneficiary?
Someone who benefits from other parties’ contract without their intending him to benefit
Has no contractual rights or grounds for lawsuit if the parties do not perform
For life insurance third-party contracts, when do the beneficiary’s rights come about (i.e. when do rights vest in the beneficiary)?
Immediately, unless the parties reserve the right to change the beneficiary
For other third-party contracts, when do the rights vest in the beneficiary?
When he learns of the contract and (a) assents to it, (b) acts to justifiably rely on it, or (c) sues on its basis
Why is the timing for beneficiaries’ rights-vesting significant?
Before the rights vest, the other parties can change or discharge the contract without the beneficiary’s consent
What is the difference between complete performance and substantial performance?
Complete = consideration fully given
Substantial = still serves as consideration, with compensation for any defects to the nonbreaching party
What is the difference between a condition precedent and a condition subsequent?
Both are uncertain future events
Condition precedent = must occur to create duty to perform
Condition subsequent = if occurs, erases duty to perform
What is a condition concurrent?
When two promises are performed simultaneously (or nearly so)
What does it mean if time is “of the essence” in a contract?
A failure to perform on time would relieve the other party of its duty
This is more than merely saying that failure to perform on time would be a breach of contract
What happens if payment for a contract is done with a negotiable instrument?
The contract is not yet discharged – not until the instrument is itself paid
How are partial payments of debts applied towards principal and interest?
The debtor has first say in specifying, but if neither he nor the creditor do so, then these rules obtain:
(a) interest before principal
(b) older debts before newer
(c) unsecured debts before secured
What are different ways to end a contract besides performance?
(a) Release = discharging of a right – ordinarily requires consideration (which can be the other party’s release)
(b) Waiver = promise to excuse a breach of promise – does not necessarily require consideration
(c) Cancellation = destroying physical document of contract
(d) Mutual rescission = restoration of both parties to pre-contract position
How does common law bear on clauses in written contracts forbidding future oral modification or rescission?
Common law treats such clauses as unenforceable
However, contract modification requires consideration
What is accord and satisfaction?
Resolving a disputed claim by agreeing to substituted terms (less than full payment) and performing those instead
“Accord” is the new agreement, and “satisfaction” is the discharging of the new terms
What is novation?
Substituting a new contract with an old one, discharging the duties of the old one
How does accord and satisfaction differ from novation?
In novation, the old contract is discharged ipso facto by the promises of the new contract
In accord and satisfaction, it is not; the old contract’s duties are discharged when satisfaction is rendered for the substitute contract’s duties
Does failure to perform still count as a contractual breach if the party was not at fault?
Yes
What is renunciation?
Either a promisor’s assertion not to perform, or an act he does to make performance impossible
Counts as a breach of contract
What is an anticipatory breach?
In a bilateral contract, a renunciation before performance is due
If renunciation is later withdrawn (before promisee sues), it does not count as a breach – but if the promisee has materially changed because of the renunciation, then it can’t be withdrawn
When does a breach discharge the other party’s duty?
(a) If it is material, or (b) if performance is, in the contract, a condition for the other party’s performance
What are two remedies in case of breach?
(a) Rescind the contract, with a lawsuit for restitution
(b) Maintain the contract, with a lawsuit for performance and/or damages
When might specific performance be a remedy for breach?
If the remedy for damages does not resolve the situation (e.g. in a contract for the sale of special property)
Specific performance is generally not granted if it would involve complex court supervision or overseeing a personal service or relationship (e.g. marriage)
What are compensatory, consequential, and special damages?
Compensatory = for losses or forgone profits from the breach
Consequential = for harms predictably following the breach
Special = for harms due to unusual circumstances (usually not enforced)
What are punitive, nominal, and liquidated damages?
Punitive = purely for punishment – never allowed
Nominal = damages in name only – usually allowed for when there is a breach without any proven loss
Liquidated = specific damages already mentioned in the contract in case of breach
