REG 13 - Contracts

Question 1

What are the two main sources of Contract Law?

Answer 1

1. Common Law - derived from courts, based on real estate & services.
2. Uniform Commercial Code - derived from statutory law, based on sales of goods.

Question 2

Common Law Contract (2)

Answer 2

An agreement between parties that may involve either a promise being exchanged for a promise, or a promise being exchange for an act.

• Bilateral Contract - A promise for a promise
• Unilateral Contract - One promise for an act

NOTE: Two main sources of contract law, commmon law (real estate/services) & the Uniform Commercial Code UCC (sale of goods).

Question 3

What are the three requirements for a valid Common Law Contract?

Answer 3

1. Offer
   
   • Definite terms, Intent, Communicated to offeree
2. Acceptance
   
   • Mirror image rule
   • Early acceptance rule (when dispatched)
3. Consideration
   
   • both parties must provide

Question 4

Offer (3)

Answer 4

The offeror expresses a willingness to enter into a contract with the offeree. Must include the three:

1. Definite Terms - may be implied
   
   • Parties Involved
   • Nature of the subject matter
   • Price
   • Quantity
   • Time for performance
2. Intent to make offer or contract
   
   • Note: Advertisement does NOT have intent
3. Communicated to Offeree
   
   • Constructively received when available to offeree

Question 5

What are 5 ways an Offer may be Terminated?

Answer 5

1. Expiration - expires after reasonable time if no stated date
2. Revocation - may revoke even if promised not to do so & the revocation must be received by the offeree to be effective
   
   • May NOT be revoked if option contract exists
3. Rejection - refusal by offeree, must be received by offerror
4. Counter Offer - a form of rejection
   
   • Rejects original offer, & counters by becoming offeror
5. Operation of Law (automatically terminates w/o notice)
   
   • Death or insanity of either party
   • Destruction of subject matter
   • Illegality of subject mater

Question 6

Acceptance (2)

Answer 6

Acceptance of an offer creates a contract. All terms & conditions must be accepted. Two important rules:

1. Mirror Image Rule - must accept all terms & conditions of the offer without any alteration.
   
   • Otherwise it’s a counter offer which would terminate the original offer.
   • Acceptance must be unequivocal & unqualified with respect to the precise terms specified by the offer
2. Early Acceptance (Mailbox) Rule - acceptance is effective when transmitted or dispatched.

Question 7

Consideration

Answer 7

Both parties to a contract must provide some consideraton as a result of the contract. The consideration offered must be legally sufficient, meaning it must represent a true value under law. Examples are:

• Money, goods, services, or promise to perform
• Giving up a legal right
• No preexisting legal obligation
• Need not be of equal value
• Past consideration is NO consideration

NOTE:Modification of contract requires additional consideration by both parties.

Question 8

Past Consideration

&

Pre-existing Duty

Answer 8

In order to be a valid contract, the consideration in a contract must be the result of the contract, it CANNOT be from:

• Past Consideration - actions taken before the contract was formed.
• Pre-Existing Duty - an obligation which the party already had before the contract was formed.

Question 9

Voidable Contracts (5)

Answer 9

A contract that has the potential to become unenforcable against one or more parties due to certain defenses that may be asserted by the party wishing to avoid obligations under the contract. May result from:​

1. Duress - coerce someone through force/threat
2. Undue Influence - “trick” someone into a contract
3. Misrepresentation of a Material Fact
   
   • Unintentional/Innocent (must prove MILE)
   • Fraudulent (Scienter)
4. Mistake
   
   • Mutual
   • Unilateral (Usually offeror) - TESTED
5. Capacity
   
   • Minor
   • Intoxication
   • Incompenent Person

Question 10

Voidable Contracts

Misrepresentation of a Material Fact (2)

Answer 10

A contract is voidable if a party enters into a contract after receiving inaccurate information about relevant matters from the other party. There are two types:

1. Innocent“Unintentional” - allows contract to be rescinded; must prove (MILE)
   
   • Material Misrepresentation
   • Intent to induce
   • Loss
   • Error caused by misrepresentations
2. Fraudulent - when there is fraud in the inducement, other party had actual or constructive knowledge that the info provided is inaccurate.

Question 11

Voidable Contracts

Mistake (2)

TESTED

Answer 11

There are two types of Mistakes:

1.) Mutual Mistake of Fact - both parties are mistaken

• Typically causes a contract to be unenforcable & allows it to be rescinded.

2.) Unilateral Mistake - one party is mistaken, usually the offeror

• Binding if the offeree didn’t know of the error/mistake & is an IMmaterial mistake.
• NOT binding if the offeree knew of a Material mistake (offeree was aware of the mistake = NOT binding)

Question 12

Voidable Contracts

Capacity (3)

TESTED

Answer 12

In order to contract, one must have legal capacity. One possible reason for the courts to refuse to enforce a contract is that a party to the contract lacked the capacity to make one.

• Minor - someone under the age of 18, unless they are for necessities such as food, shelter, or clothing.
  
  • May dissafirm the contract any time prior to reaching the age of majority (18).
  • May disaffirm a contract up until a reasonable time after reaching majority (10 days after).
  • May ratify the contract (after reaching 18), thereby becoming liable once not a minor anymore.
  • NOTE: Correct! A contract entered into with a minor is only voidable by the minor. The minor can still enforce the promise against the promisor.
• Intoxication - can avoid if the other party knew of impariment.
  
  • May ratify the contract after becoming sober
• Incompetent Person - contract entered into before insanity may be voidable by incompetent person. After being declared insane by the courts, contract is considered void.

Question 13

Void Contracts (4)

Answer 13

A contract that is invalid & unenforceable from the onset due to:

• Extreme Duress - a party enters into a contract as a result of physical threat of force (gun point)
• Fraud in Execution - party enters into a contract unaware of the other party’s deception
• Illegal Subject Matter - example: contract to kill
• Incompetent Person - contracts entered into once adjudicated insane by a court of law are considred void

Question 14

Statute of Frauds

(GROSS)

Answer 14

Under common law, reqires written evidence signed by the defendant to enforce certain contracts: (GROSS):

• Sale of Goods worth >$500
• Real Estate Sales (does not apply to $$ limit, even if $1)
• Over 1 yr required to perform contract (Bilateral Contract)
• Suretyship (being a co-signor)
• Statements in Consideration of Marriage

Question 15

What are certain contracts that are still enforceable even without it being in writing?

(SPAM)

Answer 15

For contracts involving the sale of goods that are still enforceable without a written contract (SPAM):

• Contract involving goods that are being Specifically manufactured by the buyer can be enforced by the seller.
• Contract that has been Partially performed will be enforced to the exent of performance.
• The defendant Admits in court to having made the contract.
• Merchants bound by their silence, Merchant does NOT object w/in 10 days.

Question 16

Parol Evidence Rule

Answer 16

Parol Evidence Rule - this rule bars from court testimony, any prior or contemporaneous oral or written contracts that contradict the written contract.

• When a written contract exists, it bars from court:
  
  • Prior written or oral contracts on the same subject
  • Concurrent oral contracts (contemporaneous)
• Rule doesn’t bar (still admissible):
  
  • Subsequent oral modifications
  • Evidence to prove fraud, duress, mistakes
  • Subjects not addressed or ambiguous in written contract

Question 17

Assignment of Rights & Delegation of Duties may be delegated unless? (4)

Answer 17

Any right may be assigned & any duty may be delgated unless:

1. Contract specifically prohibits
2. Duty is personal in nature
3. Materially alters the rights & responsibility of the other party
4. Involved specialized personal service

NOTE: The assignor is still liable on the contract unless the other party to the contracts accepts the assignee in place of the assignor, which is called a novation.

Question 18

Discharge of Contracts (4)

Answer 18

1. By Performance
2. By Agreement
   
   • ​​Recission - parties are restored to their original position
   • Accord & Satisfaction - performance of the subsituted duty is the “satisfacation” that discharges the original duty
   • Novation - one party accepts the performance of a third party in place of the party obligated under the original contract
3. By Operation of Law
   
   • Impossibility
   • Death or Insanity
   • Discharge in Bankruptcy
4. By Breach (violation of contract terms)

Question 19

When a contract is breached, what kind of Damages may one recover?(5)

Answer 19

When a contract is breached, the victim of breach is normally one entitled to recover actual damages. Examples are:

• Compensatory - for direct losses & lost profits
• Consequential - indirect costs & anticipated losses
• Nominal - no real provable loss
• Punitive - to punish, usually for fraud
• Specific Performance - available for unique property
  
  • Example: Correct! Patents are unique. Therefore, a court will generally grant the remedy of specific performance because other remedies are inadequate substitutes for a unique patent.

Question 20

Statute of Limitations

Answer 20

• Time period in which a lawsuit must be initiated
• Enforcement is measured from the time the contract is made
• An action for Breach of contract begins at the date of breach
• Generally 4 to 6 years

Question 21

Assignment of Rights

(Rights & Duties)

Answer 21

Assignment - permitted unless it materially changes the performance of the contract.

• Right may be transferred - assignor loses right.
• Duties may be transferred - delegator remains liable as surety.
  
  • If novation, delegator not liable.
• Rights are NOT assignable if:
  
  • Prohibited in the contract
  • Personal Services
  • Materially changes obligations

Question 22

Liquidated Damage Clause

Answer 22

Correct! A liquidated damages clause is one that specifies what damages a party will be entitled to upon a breach of contract by the other party. The town may recover liquidated damages because of the liquidated damages clause in the contract. A court will enforce liquidated damages when they are reasonable (not punitive) and actual damages would be too difficult to determine.

Correct! A liquidated-damages clause is enforceable if it is a reasonable approximation of the loss resulting from the breach.

Correct! A liquidated damages clause is valid so long as it is considered a reasonable estimate of the actual damages and not a punitive assessment.

Question 23

Novation

vs.

Substituted Contract

Answer 23

Correct! In a novation, one party to a contract releases the other party while accepting the performance or promised performance of a third party who was not a party to the original contract.

A substituted contract maintains the contractual relationship between the parties, but revises their obligations.