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Law Comm. Transaction Exam 1
Terms in this set (69)
What is a contract?
1) legally binding agreement
2) judicially enforceable agreement
3) an agreement that creates enforceable duties and obligations
What does the agreement of a contract create?
enforceable duties and obligations
What is the source of contract law?
Common law (comes from court cases)
What is the subject matter of our study of contracts?
- Real Property
What is one important purpose of contract law?
Stability and Predictability
Who are the parties to an agreement?
Promisor and Promisee
- promisor makes the promise
- promisee is offered the promise
Assigner and Assignee
- assigner obligation can be assigned
- assignee accepts the assignment
Remember contracts must be voluntarily entered, not by force, misrepresentation, mistake,
Remember contracts must be voluntarily entered, not by force, misrepresentation, mistake,
What is the objective theory of contracts?
the way the law views contracts
"outside reasonable person"
What do we mean by mutuality of obligation?
requires that each party have a duty to perform or an obligation to fulfill
- each party is active
Mutuality of obligation sets aside enforceable contract from illusory promise
What is Privity?
What is the significance of being a party in privity?
Privity - closed circle or direct relationship between the contracting parties
Only parties in privity have rights in the contract or the right to enforce the contract
What kind of intent do we look for in contracts?
present day intent
What do/should you know about the freedom to enter a contract?
- competent parties are free to enter any legal agreement
- agreement is unenforceable if one party is incompetent
What are the 6 elements of a valid contract?
1) Agreement - most important
2) Between competent parties
3) Based on genuine and mutual assent to terms of the agreement
5) for a lawful purpose
6) in the proper form if one is required
What is the difference between bilateral and unilateral contract?
Bilateral - an exchange of promises
Unilateral - contract where requested action is performance of an act without legal obligation
Regarding enforceability - What is
a valid contract?
all elements present and is completely enforceable
What is a void contract and what is its legal effect?
may have an element that is missing, has no legal effect, not enforceable by either party
What is a voidable contract?
a contract that is fully enforceable, however, circumstances surrounding its execution give one of the parties the ability to avoid the situation
What is an express contract?
a contract that is fully stated orally or in writing
What are the two types of implied contracts?
Implied in Fact
Implied in Law
What do or should
you know about each type of implied contract?
Implied in fact :
1) one party performs services under circumstances indicating payment is expected
2) the other party, knowing of the benefit, accepts those services
Implied in law : "Quasi Contract"
1) one party receives benefit
2) has knowledge of the benefit
3) would be unjust to keep the benefit without paying for it
What is basis of recovery in contract law?
Quantum Meruit - the amount deserved or as much as is deserved
What are the two elements of an agreement?
Offer and Acceptance
What is an offer?
an expression by the offeror of the willingness to be bound by the terms of the offer
What are the requirements of a valid offer?
1) Contractual Intent - present day intent
2) Definiteness - offeree must know what they accept (central parties, description of subject matter, statement of consideration, time of performance)
3) Offer must be communicated to offeree
What is required to meet requirement of
definite and certain?
1) central parties
2) description of subject matter
3) statement of consideration
4) time of performance
What are the ways an offer can be terminated before it has been accepted?
1) Revocation - offeror can revoke his/her offer - offer can be revoked anytime before it has been validly accepted
2) Counteroffer - occurs when it appears that the offer has been accepted, but there's a change in the terms
4) Lapse of Time: Terms of the offer (give deadline and if not met contract is off) Reasonable Timeline (based on facts and circumstances)
5) Death or Disability of Either Party
6) Subsequent Illegality - involves a change in the law
What is the Mirror Image Rule?
offeree can only accept what has been offered w/out change
- this cancels original offer and becomes a new offer
What is an acceptance?
assent of the offeree to be bound by the terms of the offer
- Unequivocal and Communicated
How is a unilateral contract accepted?
by the performance of the requested act
How is a bilateral contract accepted?
by a returned promise
What do you know about silence?
not considered a valid acceptance
What is the Mailbox Rule and why is this important?
When is the acceptance effective? When it is DISPATCHED
When is a revocation effective? When received
What it the definition of capacity?
ability to understand that a contract is being entered and to understand its general meaning
What is the 1 status incapacity?
Status Incapacity is being a minor
What are the two factual incapacities?
Mental Incompetence and Intoxication
Who is a minor?
anyone under the age of 18
What is the general rule regarding the contracts that a minor can enter?
a minor can enter any contract that an adult could, however, the contract is voidable by the minor
What is the legal effect a contract with a minor? (valid, void, voidable)
a minor can void during minority before they turn 18 and for a reasonable period of time after reaching majority
- after reaching 18 the minor can confirm or ratify the contract - misrepresentation of age does not affect a minors ability to void agreement, but minor must pay for restitution
When can a minor disaffirm a contract?
At any time during minority; OR
For a "reasonable time" after minor reaches age of majority.
What kind of contract is an exception
to a minor's ability to disaffirm and receive a return
of all consideration?
What are necessaries, to which of these classes of persons does this apply and how do we treat these contracts?
minor can avoid the contract in the future, but must pay reasonable value of any services received
What do you know or should you know about mental incompetence? (particularly the effect of mental incompetence on the contract -
valid, void or voidable?)
Determined at the time the contract was entered, not at the time we seek to enforce
- these contracts may be valid, void, or voidable
When do we determine a party's mental state?
at the time the contract is entered
What do you know or should you know about intoxication?
necessities apply in the same way
What is consideration? What are the two elements of valid consideration?
Consideration is what each party gives or receives in making the agreement
- Legal value and Bargain for exchange
What are the 3 kinds of consideration to which the law
What is a bargained-for-exchange?
This separates a contracts from what?
each party is satisfied, what each party is giving
What are the kinds of agreements we covered that are unenforceable because they lack consideration?
1) Pre-existing Legal Obligation
2) Past Consideration
3) Moral Obligations
4) Compromise and Release of Claims
What are the two special types of business contracts that we covered that have the vague term of quantity that are still enforceable?
Charitable Subscriptions and Doctrine of Promissory Estoppel
What is the Doctrine of Promissory Estoppel? What is its purpose? What are the elements?
Detrimental Reliance - stopping the promisor that has been reasonably relied on from claiming its unenforceable, because there is no consideration- provides a substitute for consideration
- the promisor makes a promise that lacks consideration
- promisor expects or should reasonably expect the promisee to rely on promise
- promisee reasonably relies on the promise and takes a definite and substantial action
- enforcement of the promise is the only way to avoid injustice
Legality is broader than violation of a written law (statute). Legality is also affected by agreements that are Contrary to Public Policy. Public policy is hard to define
What is unconscionability? When does this apply in contract law?
What are the two kinds?
fairness, when parties are in unequal bargaining positions
- prevents a dominant party from taking advantage of a weaker party
1) Procedural 2) Substantive
What is the implied Covenant of Good Faith and Fair Dealing?
Neither party will take any action to impede the other parties enjoyment of the benefit of the bargain
form of the agreement
- prepared by dominant party, terms favor dominant party
- no place for negotiation
Case Example- Wentz v. Campbell Soup
harsh or oppressive
Case Example- Williams vs. Walker Thomas furniture
"So unfair, it shocked the conscience of the court"
Revenue Generating - failure to have license has no effect on contract
Regulating - does effect contract, assures the public of minimal qualifications - renders any contract "void"
agreements not to compete
first employment contract
sale of a business
- must be reasonable in terms of place and time
The charging by a lender of a higher rate of interest than allowed by law is usury. Law does not apply to loans to corporations in many states.
Fees beyond reasonable expenses of making the loan constitute interest.
One kind of agreement that affects Public Policy are contracts that are a Restraint on Trade. This is more that limiting trade (price-fixing agreements).
Oral contracts are enforceable, unless this is the type of contract that falls within the Statute of Frauds, the statute that defines which contracts must be in writing to be enforced, not in writing- unenforceable.
The requirement for a contract to be in writing is found in the Statute of Frauds. Every state has one.
These are the contracts that must be in writing to be enforced. If these contracts are not in writing the
contract is unenforceable.
What are the 5 types of contracts that must be in writing to be enforced?
1) contract that cannot be completed within 12 months from the date of agreement*
2) contract that involves any interest in land
3) promise to pay someone else's debt
4) promise where marriage is the consideration
5) sale of goods where the value is greater than $500
What are the two requirements that must be contained in the writing?
names of parties, subject matter, time of performance, consideration
What is the Parol Evidence Rule?
oral or extrinsic, is excluded if it changes the terms of a written agreement - brings finality to written agreements
What does the parole evidence prohibit?
info that was determined before the contract was written
Exceptions to the parole evidence rule
1) Ambiguity - word has two meanings
5) Undue Influence
What are the two kinds of contract beneficiaries? What is the difference?
1) Third Party Beneficiaries
What is a covenant?
an absolute promise
What is mitigation of damages and to what party does this apply?
Placement of duties to the non-breaching party to stop accumulation of damages from happening
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