Week 2 - Contracts Flashcards
what is a contract
Contract - is a deliberate and complete agreement between two or more competent persons, not necessarily in writing, supported by mutual consideration to do some act voluntarily. A contract is enforceable in a court of law.
what rules govern contracts
Rules governing contracts are based on common law (refers to judge made laws)
A judge resolving a contractual conflict is relying on what other judges have said in past cases that resemble the current case
Contract law is facilitative: it allows participants to create their own rights and duties within a framework of rules that a judge will later enforce (if called upon to do so)
what elements are in a contract
An agreement - composed of an offer to enter into a contract and an acceptance of that offer. The promises contained in the agreement are known as terms
The informing idea behind a contract is that there has been a meeting of the minds - that the parties have agree on what their essential obligations are to each other
Complete - the agreement must be complete, that is certain
Deliberate - the agreement must be deliberate, that is, both parties must want to enter into a contractual relationship. This is known as an intention to create legal relations
Voluntary - the agreement must be freely chosen and not involve coercion or other forms of serious unfairness
Between two or more competent persons - those who enter into a contract are known as parties to the contract. There must be AT LEAST 2 parties to any contract who must have legal capacity. Only parties to a contract can sue and be sued on it
Supported by mutual consideration - involves a bargain or exchange between the parties. This means that each party must give something of value in exchange for receiving something of value from the other party — the contract must be supported by mutual consideration
Not necessarily in writing - oral contracts can be enforceable, though it is preferred for the contract to be in writing
what is contract law governed by
Most contract negotiations start with communication - this is very important as contract law concerns itself with what the negotiators say and/or do
Contract law is governed by the objective standard test - a test based on how a reasonable person would view the matter; observing the communication that has occurred between the negotiators, would conclude that an offer and acceptance had occurred. Assuming all other components of the contract are in place, the parties are completely bound
There is an evidentiary challenge with contracts
what is bargaining power
Negotiating parties rarely have equal bargaining power (the legal assumption that parties to a contract are able to look out for their own interests) - one side will have more experience, knowledge, market leverage ex,. – the law does not attach significance to this reality
what are the elements to a basic contract
There are several elements of a basic contract:
An agreement (ie., composed of offer and acceptance)
Complete (ie., certain)
Deliberate (ie., intention to create legal relations is present)
Supported by mutual consideration
an offer
OFFER
Offer- is a promise to enter into a contract on specified terms as soon as the offer is accepted
Certainty of Offer
Only a complete offer can form the basis of a contract, this means all essential items must be set out or the contract will fail for uncertainty. An offer does not have to meet the standard of perfect clarity and precision in how it is expressed. If the parties intend to have a contract, the courts will endeavor to interpret the alleged offer in as reasonable a fashion as possible and thereby resolve ambiguities.
Invitation to Treat
An offer is different from a communication that merely expresses a wish to do business. The latter form of communication is called an invitation to treat and has no legal consequences
Whether a communication is an offer or an invitation to treat depends on the speaker’s intention, objectively assessed - subjective intent is of no legal relevance
Some contracts are only formed after protracted discussions. Similarly the standard form contract is entered into without any negotiations (they can help reduce transaction costs)
termination of offer
revocation, lapse, rejection, counteroffer, death or insanity
acceptance
Acceptance - must demonstrate an unqualified and complete willingness to enter into the contract on the precise terms proposed. If the purported acceptance does not mirror the offer by agreeing to all its content, it is a counteroffer and no contract has been formed
consideration
A contract is a set of commitments or promises. It entails a bargain or an exchange between the parties. Each party must give up something of value in exchange for receiving something of value from the other contracting party (consideration = the price paid for a promise)
Key fact that distinguishes a legally enforceable promise from one that is not legally enforceable
Gratuitous Promise - a promise unsupported by consideration - Such a promise can be broken with legal impunity because it has not been purchased
pre-existing duty
When parties to a contract agree to alter the contract in a way that benefits only one of them, the traditional legal perspective says that the alteration is unenforceable unless there is fresh consideration
Pre-existing duty - a legal obligation that a person already owes
promissory estoppel
Promissory Estoppel - focuses on the idea of fairness, but since fairness is subjective and courts are reluctant to stray too far from the doctrine of consideration, the party seeking to rely on the doctrine must show that a number of distinct factors also exist in relation to the promise made by party B
