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Contracts

A promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

Elements of a Contract

1. Agreement

2. Consideration

3. Capacity

4. Legality

Agreement

A mutual understanding or meeting of the minds between two or more individuals regarding the terms of a contract.

Acceptance

The offeree's notification to the offeror that the offeree unequivocally agrees to be bound by the terms of the offeror's proposal.

- Must be mirror image under common law

Adhesion Contract

A standard-form contract in which the stronger party dictates the terms.

-Between large retailer and consumer

Assignment

The act of transferring to another all or part of one's rights arising under a contract.

-Valid as long as it does not change the obligor's duties

Consideration

Value given in return for a promise.

-Must be present to make the contract legally binding, must be something of legally sufficient value and bargained for and must result in a detriment to the promisee or a benefit to the promisor

Past Consideration (No Consideration)

In order to have valid consideration, there must be a contemporaneous exchange of value

-If one party gives the other something of value in the past and not in exchange for the value offered by the second person, it does not constitute consideration

Pre-Existing Legal Duty

Both parties to a contract must give up something of legal value, and not something they are already obligated to do.

-There must be new consideration to support each new promise.

Counteroffer

An offeree's response to an offer in which the offeree rejects the original offer and at the same time makes a new offer.

Covenant Not to Compete

Contractual promise to refrain from competing with another party for a certain period of time and within a reasonable geographic area.

-Commonly found in partnership agreements, business sale agreements, and employment contracts

Delegation

The transfer of a contractual duty to a third party.

-Not allowed for personal services contracts, or any contract that is based on a particular skill or talent.

-Does not absolve the delegator from liability

Definiteness

A doctrine holding that a contract will only be enforced if its terms are sufficiently precise that a court can determine what the parties meant.

Duress

An unlawful threat made to force another party to enter into a contract. Contract is voidable.

Fraudulent Misrepresentation

A false statement of material fact knowingly made with the intention of deceiving another and on which a reasonable person relies to his/her detriment.

Incidental Beneficiary

A third party who incidentally benefits from a contract but whose benefit was not the reason the contract was formed.

-Wal-Mart gains business when new warehouse opens in route to workers homes.

Bilateral Contract

An exchange of promises binding both parties.

Unilateral Contract

Promise in exchange for an act.

Expressed Contract

Both parties state their intended ahead of time.

Implied Contract

A contract formed in whole or in part from the conduct of the parties (as opposed to an express contract).

Executed Contracts

Agreements which have been performed by both parties

Executory Contracts

Agreements which are not yet fully performed

Void Contracts

No enforceable agreement exists for either party

Unenforceable Contract

A valid contract rendered unenforceable by some statute or law.

Voidable Contracts

Valid contracts that can be avoided by one party

Offer

Initial promise to do, or not to do, an act that the party has a right to do

Offeree

The party in contract negotiations who receives the first offer

Offeror

A person who makes an offer.

Elements of a Valid Offer

(1) the intent to be bound by an acceptance

(2) definite and certain terms

(3) communication to the offeree

What an Offer Must Include

1. Identification of the parties

2. Identification of subject matter

3. Consideration to be paid

4. Time of payment, delivery, or performance

Revocation

If an offeror withdraws and communicates his/her desire to offeree before the offeree accepts, the offer is terminated.

-Effective upon receipt

Rejection by Offeree

Once this is made, the offer is off the table.

-Effective when received by the offeror

Termination by Operation of Law

1. lapse of time

2. destruction of the specific subject matter of the offer

3. death or incompetence of the offeror or the offeree

Lapse of Time

Too much time has passed since the initial offer and is now invalid

Destruction of the Subject Matter

The item that is being offered is destroyed

Mirror Image Rule

Terms of the acceptance must match the terms of the offer

Promissory Estoppel

Doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies; such a promise is binding if the promissee suffers a detriment due to his/her reliance on the promise (i.e., spends money they otherwise would not have).

Capacity

Legal ability to enter into a contract

Who Are Generally Not Bound by Contracts

Minors

Mental Incapacity

Condition in which a party to a contract is unable to understand the consequences of the contractual act

Legaillity

Any contract, the subject of which is illegal, or against public policy, is void

Genuineness of Assent

Must be a true meeting of the minds in order for a contract to be enforceable.

Bilateral Mistake

both parties are mistaken about the same material fact of the contract

-Recession of contract

Unilateral Mistake

Occurs when only one party enters a contract under a mistaken assumption

-Enforceable contract

Innocent Misrepresentation

Party to a contract does not know that a statement he or she made is untrue

-Courts allow recision

Undue Influence

The weaker party in a relationship enters into an agreement because of the unfair influence of the stronger party.

Intended Beneficiary

Third party for whose benefit a contract is formed; an intended beneficiary can sue the promisor if such a contract is breached.

Privity of Contract

Only the parties to the contract can enforce the rights and obligations created by the contract

Third Party Beneficiaries

Party who receives the benefit of another

Novation

An agreement by all parties to substitute one party to a contract for another.

Discharge

The termination of a contract by performance, agreement, legal defense

Tender

To offer up ones performance

Complete Performance

Performing exactly as agreed, fulfilling all requirements

Substantial Performance

Good faith performance that provides a party with the important and essential benefits of the contract, despite minor deviations.

Condition

An event, the occurrence or non-occurrence of which will trigger a legal duty or terminate an existing obligation under a contract

Personal Satisfaction Contract

Performance is subject to scrutiny from the one parties satisfaction

Breach of Contract

The failure, without legal excuse, of a promisor to perform the obligations of a contract.

Material Breach

Performance substantially less than required, non-breaching party is relieved of duty to perform (Pay)

Minor Breach

Substantial performance, but still some deviation from original performance

Time is of the Essence Clause

A clause in a contract that emphasizes punctual performance as a requirement of the contract

Discharge by Recession

Parties agree to end the contract and go back to their original positions

-If one party has performed, they are entitled to some consideration

Discharge by Novation

Both parties agree to substitute a new third party for one of the original parties

-Substitution agreement

Discharge by Accord and Satisfaction

Parties agree to settle a dispute arising from the original contract for less than the full performance

Statute of Limitations

Law that restricts the period of time a party may sue for breach

Bankruptcy

Discharge order from bankruptcy court discharges the debt

Discharge by Impossibility

Party cannot perform because...

1. They have died or become incapacitated while under contract

2. Subject matter is destroyed

3. Change in the law that renders the contract illegal

Commercial Impracticability

Contract discharge caused by an event that is...

1. Reasonably unforeseeable

2. Outside the control of the parties that makes performance much more difficult than originally anticipated

Damages

A sum of money paid in compensation for a breach of contract

Compensatory Damages

Difference in value between what the non-breaching party contracted to get and what they actually received

Consequential Damages

Special damages that compensate for a loss that is not directly or immediate (lost profits).

-The special damages must have been reasonably foreseeable at the time the breach occurred

Liquidated Damages

Damages agreed to by the parties before a breach

Penalties

A sum inserted into a contract, not as a measure of compensation for its breach but rather as punishment for a default. The agreement as to the amount will not be enforced, and recovery will be limited to actual damages

Test for Proper Liquidated Damages

1. At time of contract formation, were damages difficult to determine

2. Was the amount of liquidated damages reasonable

Punitive Damages

Money damages that may be awarded to a plaintiff to punish the defendant and deter future similar conduct. Not awarded in contracts cases unless there is fraud or bad faith.

Nominal Damages

A small monetary award (often one dollar) granted to a plaintiff when no actual damage was suffered or when the plaintiff is unable to show such loss with sufficient certainty

Restitution

Parties return or repay goods, property, or money already conveyed under a rescinded contract

Specific Performance

Remedy where a court will force the parties to go through with performance of the contract

Reformation

A court-ordered correction of a written contract so that it reflects the true intentions of the parties.

Waiver

An intentional, knowing relinquishment of a legal right. In contracts, a waiver could exist where one party accepts defective performance.

Exculpatory Clause

Contract language that prohibits a suit for damages regardless of breach

UCC

A uniform law passed in every jurisdiction governing commercial transactions. Article 2 of the UCC establishes the rules relating to contracts for the sale of goods

Gap Filler Provisions

Provisions of the UCC (Article 2) that fill in the terms of a contract for the sale of goods if the parties fail to agree on them. Gap fillers may be used to establish any of the essential terms of a contract, except for quantity

Goods

Items of personal property that are tangible and movable. Contracts for the sale of goods are governed by Article 2 of the UCC

Merchant

If a person is in the normal business of buying and selling shoes, then he/she is a merchant in shoes.

Offers in Terms of UCC

Does not have to be definite, allows for open terms

Open Price

If the parties do not set a price, the UCC says a court will "determine a reasonable price at the time of delivery"

Open Payment

if time of payment is not set in contract, the UCC sets the time of payment at the time of delivery of the goods

Open Delivery

If not otherwise specified, delivery is at the seller's place of business; time of delivery would be a "reasonable" time

Open Quantity

Generally courts will not impose a quantity and there is no remedy, unless: the contract is either a requirements or output contract.

Merchant's Firm Offer

An offer made by a merchant in writing, which is irrevocable for the period of time stated in the offer, or a reasonable time (not longer than three months).

Acceptance (UCC)

Allow for formation of contract, even if the acceptance includes different or additional terms

Output Contract

A contract where the seller says, "All I produce, I will sell to you."

Requirements Contract

A contract where the buyer says, "All I need, I will buy from you."

Acceptance - Effective upon dispatch

Revocation- Effective upon receipt

When is both acceptance and revocation effective?

When will additional terms not be accepted in UCC Offers?

1) The offer specifically limits acceptance to the terms

in the offer

2) The additional terms materially alter the contract

3) If the offeror rejects the additional terms