NEW Exam 2 Flashcards
Contract
A binding agreement based on the genuine assent of parties made for lawful object. When you form a contract you have to have intent to be bound. It has to be objective intent, which is based on ordinary prudent man. A promise that has consequences if you leave contract.
Objective:
Subjective:
Objective- what is
Subjective- based on personal impression.
Elements To A Contract
¥ *Agreement - made ¥ *Between Competent Parties - with ¥ *Genuine assent (consent) - supported by ¥ *Consideration - for ¥ *Legal Purpose (lawful objective) - in ¥ *Legal form (form required by law)
Privity
the governing relationship between people in a contract “privity on contract”
Formal Contracts
written contracts or agreements whose formality signifies the parties’ intention to abide by the terms
¥ Contracts Under Seal- Stamped wax.
¥ Recognizance Bond- promise or obligation entered into before court to do an act such as come to trial.
¥ Negotiable Instruments – drafts, promissory notes, checks and certificates, that in proper form give special rights as “negotiable commercial paper”
Informal Contracts
can be oral or written. Are enforceable because they represent an agreement between parties
Types of Contracts
¥ *Expressed- 99% of all contracts. It is governed by law (Lex). Contract - law
¥ *Implied in Fact- Not shown by words, written or spoken, but by acts and conducts of parties. Happens when one renders services and indicates payment and other person accepts the benefit of services. Contract - law
¥ *Implied By Law- This is governed by equity. Includes Remedies. Law imposes in where it looked like a contract but was not. Restores parties to the status quo. A part of a contrat is missing but law steps in. Quasi Contract - equity
- Quasi Contract- Court imposed obligation to prevent unjust enrichment in absence of a contract. - Unjust Enrichment- Receive a benefit from another even in absence or promise to pay, court may impose obligation to pay for reasonable value of the benefit. - Quantum Meruit- As much as deserved- an action brought for the value of services rendered even when there was no expressed contract
¥ *Contracts gives rise to damages non breeching party benefit of the bargain
¥ *Equity gives rise to remedies restores the injured parties to status quo ante.
Classifying Validity/Enforceability of a Contract
Valid- everybody has rights, binding and enforceable
Voidable- one person can get out or not get out at option- personalized (not given enough information or the right information) EX: Bought a car whose seller lied about mileage but you got a great deal. You can get your money back, or just keep it.
Void- contract is unenforceable from the beginning (made with elderly person not in mental state to make a contract)
Valid but unenforceable- contracts that are supposed to be in writing but are not
Unilateral Contracts
Promise for an act. Example- 100 dollar reward for finding lost puppy.
Bilateral Contracts
Promise for a promise (most contracts). This is conditioned by the word “if”.
Executory Contract
One party still has something to do. Duties of performance remaining
Executed Contract
All terms of contract have been completed
Option
a big contract supported by a little contract. This is the right to hold a bigger contract.
Right of First Refusal
Found in real estate transactions. Right of a party to meet the terms of a proposed contract before it is executed. If selling a building, seller has to give tenant right to buy the building first.
Agreement
consists of two parts
¥ *Offer
¥ *Acceptance
Offer
Consist of 4 parts condensed into 2 ¥ * Legal 1. Legal Terms (A,B,C) ¥ *Intent (contractual) or ¥ *Definite Terms ¥ *Communicated 2. Communicated
Empowers- “Power of Acceptance” May only be accepted to whom the offer was directed at. Silence generally doesn’t constitute acceptance.
Intent:
Rely on objective intent
To Power to Terminate:
An offer can be revoked at any time before acceptance. The offeror can revoke it even if he promised it would remain open for an amount of time.
Exceptions to Power to Terminate
¥ Option- Promise to keep an offer open for a stated period of time. Contract to refrain from revoking an offer for sum of money.
¥ *Firm Offer- As outlined in Uniform Commercial Code. Applies to merchant’s signed or written offer to buy or sell goods with a maximum of three months on its period of irrevocability.
¥ Merchant’s - someone who usually sells that product
What Terminates a Offer:
¥ Revocation- taking back an offer
¥ Time expires - given a week and not terminated but week has passed
¥ Counter Offer- offering lower amount kills original offer
¥ Rejection- saying no to the offer first, cant go back on offer
¥ Lapse of Time- reasonable range of time for based. Based on products. For example, perishables have a shorter lapse of time.
¥ Destruction of Subject Matter - what is offered changes somehow
¥ Death and Disability -
¥ Subsequent illegality- if the act becomes illegal
¥ War
¥ Bankruptcy
Acceptance
this changes an offer to an agreement.
Terms of acceptance set by offeror, can be anything. Ex. Wearing a pink tutu to the cog.
Acceptance continued
The assent (agreeing to) of the offeree to the terms of the offer
You can specify manner and time of acceptance in your offer.
If not specified- generally common sense dictates.
Acceptance creates a contract! (assuming all other elements are present)
Acceptance cannot change or alter the terms of the offer
Offers are directed toward a person or class of persons
Only the person that it is offered to can accept
If group- one of the people
Must be absolute and unconditional
If offeree changes terms, there is no acceptance
Must mirror the offer
If agree, you are agreeing to the price
Must be clear expression that the offeror agrees to be bound by the terms of the offer
Reward- offer is made to universal person
Is silence acceptance? Sometimes…
History of Performance - milkman, membership/club fees
You have to tell the milkman you are going out of town or you still have to pay for it!
Unordered Goods -
use goods sent to you, agree to buy them
Now– Can always send goods back for free- just write “Return to sender”, do not have to pay for it
The Mailbox Rule
If the offer is in the mail and has been sent, you are still able to change your mind and revoke the offer.
However, an acceptance to the offer becomes official on postage (when it is initially mailed) while revocation of an offer has to be received. If the two cross while in the mail, the offer is still valid. Acceptance wins
Silence as acceptance
Oferee’s silence and failure to act cannot be regarded as an acceptance.
Only have affirmative duty to say no in certain situations where you are contractually agreed to it or have a long pattern and you don’t inform people of change
Capacity and Genuine Assent
Everyone is assumed to have capacity unless it is proven that capacity is lacking or that there is status in capacity.
-Capacity can exist even though a party doesn’t understand every provision of the contract
Capacity
Ability to understand that a contract is being made and to understand its general meaning. Factual and temporary incapacity can make contracts void.
Factual Capacity
Temporary or Permanent: mental condition caused by medications, alcohol, illness, age. A person does not understand that a contract is being made.
Legal Capacity
(Status incapacity) Law protects classes by keeping them out of unwise contracts. Most important class today is minors.
Minors
under the age of 18. They lack contractual capacity, making contracts voidable at the election of the minor. Minor may affirm or ratify contract on attaining majority. Minors must pay reasonable value (based on equity, what’s fair) for necessaries.
Two types of Minors
¥ Misrepresenting Minors- (Fake ID). Guilty of fraud. Generally a misrepresentation still means a minor can disaffirm a contract. Other party can disaffirm as well due to fraud. Minor must make restitution.
*Status quo ante- minor returns what was gained so parties are at the same standing as when they made they contract.
¥ Innocent Minor- Doesn’t have to make restitution unless they have it
*Minors must pay reasonable value for necessaires.
Types of Mistakes
¥ Mutual Mistake of Fact- Recission- Can you get out of it? Yes
¥ *Unilateral mistake of fact- Recession-No
¥ *Mutual Mistake of Law- Recession- Maybe
¥ *Unilateral Mistake of Law- Recession- No
Fraud
making of a material misrepresentation (or false statement) of fact with, (1) Knowledge of its falsity or reckless indifference to its truth (2) the intent that the listener rely on it (3) the result that the listener does so rely and (4) the consequence that the listener was harmed. *Fraud utilizes subjective intent. *You have to be injured.
¥ *Crime - criminal
¥ *Tort of deceit - tort
¥ *Defense to formation of genuine assent - contract
Assent
Agreeing to the contract that was made. 3 ways assent can be false (Fraud, Duress, Undo-Influence).
Confidential Relationship
Because of knowledge, one party places full confidence and trust in the other. However, failure to disclose information may be regarded as fraudulent. Ex- Attorney has a duty to reveal anything that is material to the clients interest when dealing with client.
Nondisclosure
nondisclosure serves to make a contract voidable, especially when the nondisclosure consists of active concealment.
Material
whether it is of importance or not. Example-saying there is low mileage on a car is a material fact. Materiality is a subjective test.
Patent
that which is obvious
Latent
that which is not obvious
*subjective intent -
utilized by fraud- If something is latent, you have an obligation to disclose it or its fraud.
*Fraud in the personeum
Voidable
Fraud in the Inducement
getting you to do it. More common transactions. Voidable.
*Fraud in the factum
Void
*Fraud in the essence
- Void
Misrepresentation-
Fraud without intent. Makes the contract voidable.
*Types of Pressure:
¥ Duress- conduct that deprives the victim of free will. Generally entered into to avoid threatened danger. Requires the element of coercion and no relationship. Can be physical, financial, economic, psychological pressure.
Undue Influence- Takes place under a fiduciary (required to disclose something) relationship. Person making the contract doesn’t exercise free will. You can be competent but still be subject to undue influence. Comes from a relationship.
Consideration
the fourth element of a contract. It is the bargained for exchanged that is the agreement between. Can also consist of refraining from doing something. Key word is the “if.” Promise for a promise. Ordinarily doing something already under legal obligation is not consideration.
Benefit-determent approach-
a benefit received by the promsior and a determent incurred by the promissee. “I will pay you $3,000 dollars if you paint my summer home.”
Adequacy of Consideration
doesn’t matter whether the contract is fair in return. Courts will not interfere.
Forbearance
agreement to not act. Refraining from doing that which you have a legal right to do. Buying inaction or a promise of inaction.
¥ Form of consideration
Illusory Promise-
Promise that doesn’t actually impose any obligation on the promisor. Both parties are not bound because he has received no consideration.
Cancellation Provision-
A provision to cancel the agreement under certain circumstances on giving notice by a certain date.
Good Faith Adjustment-
enforce a second promise when there are extraordinary circumstances caused by unforeseeable difficulties. Outside reasonable expectation of the parties.
Compromise of Claim-
split the difference on the agreement. A promise to pay part of an amount on a debt that is already owed is not consideration though. Can’t release people for partial payment of debt.
*Promissory Estoppel-
substitute for consideration. Based on equity “promise without the if”.
Doctrine that a promise will be enforced although it is not supported by consideration. Do not have contract. You have a quasi contract.
¥ The promisor makes a promise that lacks consideration
¥ The promisor intends the promisee will rely on the promise
¥ The promisee relies on the promise
Enforcement of the promise is the only way to avoid injustice.
*In Pari Delicto-
equally guilty. When parties are NOT in pari deledcto the least guilty party is granted relief when doing so advances public interest.
*Consumer Protection
a form of duress. Economic duress for consumers.
Unconsionability-
A provision in a contract that may give what courts believe too much of an advantage over a buyer.
Implied Covenant of Good faith-
Every contract has implied obligation that neither party should do anything that will destroy or injure the right of the other party to receive the fruits of a contract
“Bona fide”- do the right things for the right purposes
You have to cooperate with people fulfilling contractual obligations (you can’t put up barriers)
The Doctrine of Unconscionability (from UCC)
1.Doctrine-the doctrine of unconscionability
Contain unfair and oppressive terms
2.Clause- unconscionable clause
- Contract that contains unconscionable clause- then it is a contract of adhesion
Contract of adhesion- offered by a dominant party to a party with inferior bargaining power on a take it or leave it basis
Liscense Callings
- Some liscenses are about competence - passing means minimal level of competence
Licensure-
State rendered allowing certain professions to practice. If profession requires license and you don’t have one, services are void (uncollectible). If license is only for generating revenue then it is not void.
Covenant-
provision in a contract
*Covenant Not To Compete-
enforceable if it is reasonable in scope. They are judicially disfavored because they restrict liability.
Scope Includes: (The WHAT)
1. Time (generally less then 3 years)
2. Distance - distance away from similar customers 3. Breadth (Broadness) - within range of similar job
Only Allowed In (the WHERE)
a. Employment Contracts
b. Sales of business
Usury-
¥ charging illegal rate of interest. lending money at an interest rate that is higher then the maximum rate allowed by law. Commercial Transactions. All states have these laws, they are politically popular.
Time- Price Differential
¥ difference between cash price and time price.
Punitive Damages: If usury law is exceeded, you lose what you gained.
