Study Unit 18 Flashcards
Identify the elements of a legally binding contract.
A contract is legally binding when all of the following are present:
- Mutual assent (offer and acceptance) - Consideration - Capacity - Legality
Compare a void contract and a voidable contract.
A void contract cannot be enforced; it is not binding and cannot be ratified.
A voidable contract may be enforced or nullified (becomes a void contract).
What is mutual assent with respect to contract law?
Mutual assent is the mutual agreement between parties to form a contract (offer and acceptance).
In the context of contract law, are advertisements considered offers?
Advertisements are generally not offers but invitations to submit offers.
They are offers if they use clear, definite, and explicit language that leaves nothing open for negotiation.
Give examples of circumstances under which an offer in a contract is terminated.
An offer is terminated upon
- lapse of time
- death of offeror or offeree
- incompetence of offeror or offeree
- Destruction or loss of the specific subject matter
- Illegality of a proposed contract or performance
- Revocation by the offeror
- Rejection by the offeree
In contract law, when must revocation of an offer by communicated to the offeree?
Revocation must be communicated to the offeree prior to the offeree’s acceptance. A conctract is formed upon the offeree’s acceptance.
In contract law, when is revocation of an offer effective?
Revocation is effective when received by the offeree through reasonable means of communication.
What is a conditional acceptance of an offer in contract law?
A conditional acceptance requires the offeror’s agreement to additional or different terms. It is a counteroffer, not an acceptance.
In contract law, when is an acceptance of an offer effective if the means of communication is not specific?
Acceptance is effective when received by the offeror.
NOTE: If the means of communication is specified, it must be used for acceptance to be effective.
Describe the mailbox rule in contract law.
Under the mailbox rule, acceptance is effective at the moment of dispatch, even if the offeror attempts revocation while it is in transit, when
- The offeree has used an authorized means of acceptance to communicate and
- The offer is still open
Compare the times at which (1) acceptance of an offer and (2) rejection of an offer are effective under the mailbox rule in contract law.
Effective
Acceptance of offer Upon dispatch
Rejection of offer Upon receipt
What are the elements of consideration with respect to a contract?
- Legal sufficiency
- The promise incurs a legal detriment or
- The promisor receives a legal benefit.
- A bargained-for exchange (mutuality of consideration)
Give examples of items that are not sufficient consideration of a contract.
- Past consideration
- Pre-existing legal duty
- Part payment of an undisputed (liquidated) debt
- Part payment of a disputed (unliquidated) debt is a consideration.
When is a contract legally binding despite a lack of consideration?
A contract is enforcable, even is consideration is absent, in the presence of substitutes for consideration. Sustitutes include
* Promissory estoppel * Quasi-contract
Give examples of parties lacking legal capacity to enter into a contract.
- Minors
- Persons lacking mental capacity
- Intoxicated persons
Describe whether contracts are void or voidable when entered into by (1) minors, (2) persons lacking mental capacity, and (3) intoxicated persons.
Contracts entered into by Void/Voidable
Minors Voidable
Persons lacking mental capacity
(Determined before contract is formed) Void
Persons lacking mental capacity
(Determined after contract is formed) Voidable
Intoxicated persons Void
What are the powers of a minor regarding a contract (1) before the age of majority and (2) after the age of majority?
Time Power of a Minor
Before the age of majority Disaffirm the contract
(Plus a reasonable time)
After the age of majority Ratify the contract
Under what circumstances is a contract considered ratified by a minor?
A contract is ratified by a minor if the minor
* Retains the consideration for a unreasonable time after reaching majority * Sells or donates the consideration received * Fails to disaffirm the contract
When is a covenant not to compete enforceable?
A convenant not to compete is enforceable if
* Its purpose is to protect a property interest of the promisee and * the restraint on trade is no more extensive than is reasonably necessary.
Identify the elements of fraud that may result in a contract being voidable.
A fraud contains all of the following elements:
* Intent to * Misrepresent (scienter) * Induce reliance * Actual or implied false representation (or concealment) of material fact * Justifiable actual reliance by the innocent party * Damage (loss) suffered by the innocent party
Compare (1) fraud in the inducement and (2) fraud in the execution.
Fraud in the Inducement Fraud in the Execution
Awareness of Is aware of entering Is not aware of entering
Defrauded into a contract and into a contract and does
Party intends to do so not intend to do so
Void/Voidable Voidable Void
Remedy Claim for damages Claim for damages
Rescission of contract
Compare the causes of (1) negligent misrepresentation and (2) innocent misrepresentation.
Negligent Misrespresentation Innocent Misrepresentation
Made by a party that has no knowledge of its falsity and
Acted without due care Acted with due care
When are contracts formed under duress void or voiable?
Contract formed due to Void/Voidable
Physical compulsion Void other reasons Voidable
Is a contract entered into under undue influence void or voidable?
A contract is voidable as a result of undue influence.
List the types of contracts that are required to be in writing under the statute of frauds.
- Agreements that cannot be performed within 1 year of the making of the contracts
- Agreements for the sale of an interest in land
- Agreements for the sale of goods for $500 or more
- Agreemments made in contemplation of marriage
Describe the parol evidence rule.
The paroll evidence rule excludes as evidence to a contract dipute (1) any prior agreement or (2) an oral agreemwnt made at the time of the final writing that would tend to vary or contradict the terms of a written agreement intended to be complete.
Name the ways by which a party is discharged from their contractual obligations.
- Discharge by performance
- Discharge by agreement
- Discharge by operation of law
- Failure of a condition
- Breach of contract
Name the two ways to discharge a party’s contractual obligations by performance.
- Strict performance
- Performing according to the perms of the contract
- Substantial performance
- Performing with immaterial deviations of contract terms (breach of contract)
Name the ways to discharge a party’s contractual obligations by agreement.
Mutual Rescission - Both parties agree to cancel the contract
Accord and Satisfaction - Discharging an existing contract by performance (satisfaction) of the new contract (accord).
Exisiting contract is not canceled.
Substitute Contract - Cancelling an existing contract and replacing it with a new one.
Novation - Replacing a party to an existing contract with another party.
Composition with Debt - Extending of time for payment, lowering amount owed, etc.
Modification - Modifying existing contract terms
Release - One party releasing another of performance obligations.
Name the ways to discharge a party’s contractual obligations by operation of law.
- Illegality
- Impossibility
- Commercial impracticability
- Frustration of purpose
Identify the different kinds of breach of contract.
- Material Breach
- Unjustified failure to perform obligations arising from a contract - Nonmaterial Breach
- Unintended, and the injured party receives substantially all the benefits - Anticipatory breach
- One party repudiates - refuses or shows no intention to perform
Identify common remedies for breach of contract.
- Damages
- Specific performance
- Rescission of contracts
- Reformation
- Replevin
- Injunction
- Restitution
Describe a third-party beneficiary contract.
Inna third-party beneficiary contract, at least one performance is intended for the direct benefit of a person not a party to the contract (not in privity of contract).
Does an assignment or delegation of rights discharge the liability of the obligor?
Assignment or delegation of rights does not relieve the obligor (assigner) of liability. The obligee may sue the assignee, the obligor, or both after a breach.
