Study Unit 18

Question 1

Identify the elements of a legally binding contract.

Answer 1

A contract is legally binding when all of the following are present:

- Mutual assent (offer and acceptance)
- Consideration
- Capacity
- Legality

Question 2

Compare a void contract and a voidable contract.

Answer 2

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).

Question 3

What is mutual assent with respect to contract law?

Answer 3

Mutual assent is the mutual agreement between parties to form a contract (offer and acceptance).

Question 4

In the context of contract law, are advertisements considered offers?

Answer 4

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.

Question 5

Give examples of circumstances under which an offer in a contract is terminated.

Answer 5

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

Question 6

In contract law, when must revocation of an offer by communicated to the offeree?

Answer 6

Revocation must be communicated to the offeree prior to the offeree’s acceptance. A conctract is formed upon the offeree’s acceptance.

Question 7

In contract law, when is revocation of an offer effective?

Answer 7

Revocation is effective when received by the offeree through reasonable means of communication.

Question 8

What is a conditional acceptance of an offer in contract law?

Answer 8

A conditional acceptance requires the offeror’s agreement to additional or different terms. It is a counteroffer, not an acceptance.

Question 9

In contract law, when is an acceptance of an offer effective if the means of communication is not specific?

Answer 9

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.

Question 10

Describe the mailbox rule in contract law.

Answer 10

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

Question 11

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.

Answer 11

Effective

Acceptance of offer Upon dispatch
Rejection of offer Upon receipt

Question 12

What are the elements of consideration with respect to a contract?

Answer 12

• Legal sufficiency
  
  • The promise incurs a legal detriment or
  • The promisor receives a legal benefit.
• A bargained-for exchange (mutuality of consideration)

Question 13

Give examples of items that are not sufficient consideration of a contract.

Answer 13

• Past consideration
• Pre-existing legal duty
• Part payment of an undisputed (liquidated) debt
  
  • Part payment of a disputed (unliquidated) debt is a consideration.

Question 14

When is a contract legally binding despite a lack of consideration?

Answer 14

A contract is enforcable, even is consideration is absent, in the presence of substitutes for consideration. Sustitutes include

* Promissory estoppel
* Quasi-contract

Question 15

Give examples of parties lacking legal capacity to enter into a contract.

Answer 15

• Minors
• Persons lacking mental capacity
• Intoxicated persons

Question 16

Describe whether contracts are void or voidable when entered into by (1) minors, (2) persons lacking mental capacity, and (3) intoxicated persons.

Answer 16

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

Question 17

What are the powers of a minor regarding a contract (1) before the age of majority and (2) after the age of majority?

Answer 17

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

Question 18

Under what circumstances is a contract considered ratified by a minor?

Answer 18

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

Question 19

When is a covenant not to compete enforceable?

Answer 19

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.

Question 20

Identify the elements of fraud that may result in a contract being voidable.

Answer 20

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

Question 21

Compare (1) fraud in the inducement and (2) fraud in the execution.

Answer 21

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

Question 22

Compare the causes of (1) negligent misrepresentation and (2) innocent misrepresentation.

Answer 22

Negligent Misrespresentation Innocent Misrepresentation
Made by a party that has no knowledge of its falsity and
Acted without due care Acted with due care

Question 23

When are contracts formed under duress void or voiable?

Answer 23

Contract formed due to Void/Voidable

Physical compulsion				Void

other reasons						Voidable

Question 24

Is a contract entered into under undue influence void or voidable?

Answer 24

A contract is voidable as a result of undue influence.

Question 25

List the types of contracts that are required to be in writing under the statute of frauds.

Answer 25

• 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

Question 26

Describe the parol evidence rule.

Answer 26

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.

Question 27

Name the ways by which a party is discharged from their contractual obligations.

Answer 27

• Discharge by performance
• Discharge by agreement
• Discharge by operation of law
• Failure of a condition
• Breach of contract

Question 28

Name the two ways to discharge a party’s contractual obligations by performance.

Answer 28

• Strict performance
  
  • Performing according to the perms of the contract
• Substantial performance
  
  • Performing with immaterial deviations of contract terms (breach of contract)

Question 29

Name the ways to discharge a party’s contractual obligations by agreement.

Answer 29

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.

Question 30

Name the ways to discharge a party’s contractual obligations by operation of law.

Answer 30

• Illegality
• Impossibility
• Commercial impracticability
• Frustration of purpose

Question 31

Identify the different kinds of breach of contract.

Answer 31

• 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

Question 32

Identify common remedies for breach of contract.

Answer 32

• Damages
• Specific performance
• Rescission of contracts
• Reformation
• Replevin
• Injunction
• Restitution

Question 33

Describe a third-party beneficiary contract.

Answer 33

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).

Question 34

Does an assignment or delegation of rights discharge the liability of the obligor?

Answer 34

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.