Contract Law Principles and Key Cases

Comprehensive question-and-answer flashcards covering contract formation, consideration, contract types, defenses, terms, remedies, breaches, and key court cases.

What types of contracts are governed by the UCC versus Common Law?

The UCC governs contracts for the sale of goods (movable items), while common law governs contracts involving services, real estate, and other non-goods transactions.

What constitutes a valid offer in contract formation?

A serious proposal to enter a contract with clear terms that is communicated to another person.

What events can cause the termination of an offer?

An offer ends because of rejection, counteroffer, revocation, expiration, or certain legal events.

What is a counteroffer?

When someone rejects the original offer and proposes different terms.

What does the mirror image rule require under common law?

Acceptance must match the offer exactly; changing the terms generally creates a counteroffer.

Who are the parties to a contract?

The people or businesses entering an agreement: the offeror makes the offer, and the offeree receives it.

What is an illusory promise, and can it serve as consideration?

A promise that does not actually require someone to do anything; it generally cannot serve as consideration.

How is an express contract defined?

A contract where the terms are clearly stated, either orally or in writing.

How is an implied contract formed?

Through people's actions rather than their spoken or written words.

How can a unilateral offer be accepted?

By performing a requested action rather than making a return promise.

What is an executory contract?

A contract where one or both parties still have obligations to complete.

What is an executed contract?

A contract where both parties have fully completed their obligations.

How do courts apply the objective test for serious intent in contract formation?

Courts determine whether a contract exists based on what a reasonable person would believe from someone's words and actions, not their hidden thoughts.

What is mutual assent?

Both parties agree to the same contract terms through a valid offer and acceptance.

What constitutes acceptance of an offer?

Agreeing to the terms of an offer in the manner required by the offer.

When does acceptance become effective under the mailbox rule?

Acceptance generally becomes effective when it is properly sent, not when it is received.

What is a revocation of an offer?

When the offeror takes back an offer before it has been accepted.

What is an option contract?

An agreement that keeps an offer open for a specific time, generally in exchange for consideration.

What occurs in a bargained-for exchange?

Both parties agree to give or do something in exchange for something from the other party.

What is consideration in contract law?

Something of legal value exchanged between parties that makes a promise enforceable.

What are the recognized types of legal value?

Giving something of value, performing an action, promising to act, or giving up a legal right.

What is forbearance, and can it serve as consideration?

Agreeing not to exercise a legal right; this can count as consideration.

What does the requirement of legal purpose demand for contract enforceability?

A contract must involve a lawful activity to be enforceable.

What is contractual capacity, and who typically has it?

A person's legal ability to enter a binding contract; adults of sound mind generally have capacity, while minors and certain people with mental impairments may have limited capacity.

What is a minor's right to disaffirm?

A minor's general right to cancel a contract before reaching adulthood or within a reasonable time afterward, subject to exceptions.

What is emancipation, and what determines its effect on contract rights?

When a minor becomes legally independent from their parents; its effect on contract rights depends on state law.

What does the Statute of Frauds require?

It requires certain contracts, such as contracts for the sale of land, to be supported by a signed writing to be enforceable.

Which types of agreements violate legal requirements and will not be enforced?

Contracts involving illegal activities, certain contracts lacking required writings, or agreements that are unconscionable.

What are common types of illegal contracts?

Agreements involving crimes, illegal gambling, unlawful restraints of trade, or other activities that violate laws or public policy.

What is a void contract?

An agreement with no legal effect from the beginning.

What is a voidable contract?

A contract that one party has the legal right to cancel, such as certain contracts involving minors, fraud, or duress.

What distinguishes an implied-in-fact contract?

It is a real contract created through the actions of the parties rather than express words.

What is a quasi-contract (implied-in-law contract)?

A legal obligation created by a court to prevent someone from unfairly benefiting at another person's expense, even though no actual contract exists.

What is an exculpatory clause?

A contract provision attempting to release someone from liability for certain injuries or damages.

What is an unconscionable contract?

A contract with extremely unfair terms or unfair bargaining circumstances that a court may refuse to enforce.

What is procedural unconscionability?

Unfairness in how a contract was created, such as pressure, hidden terms, or unequal bargaining power.

What is substantive unconscionability?

Unfairness in the actual contract terms, such as extremely one-sided obligations.

How is mistake defined in contract defenses?

An incorrect belief about an important fact when entering a contract that may affect whether the contract can be enforced.

What is a mistake of value, and does it allow contract cancellation?

When someone incorrectly estimates how much something is worth; this usually does not allow cancellation of a contract.

What constitutes fraud in the context of contract defenses?

Intentionally making a false statement about an important fact to persuade someone to enter a contract.

What constitutes duress in contract law?

Using improper threats or pressure to force someone into an agreement.

What is undue influence?

Taking unfair advantage of a position of trust or power to persuade someone to enter a contract.

What happens during contract rescission?

Canceling a contract and generally returning both parties to their positions before the agreement.

What is a condition precedent?

An event that must happen before a party is required to perform.

What is a condition subsequent?

An event that ends an existing contractual obligation.

What is an assignment of rights?

Transferring a contractual right, such as the right to receive payment, to another person.

What are third-party rights in a contract?

Rights held by someone who is not an original party to a contract, such as an intended beneficiary.

What is the doctrine of part performance?

A rule that may allow enforcement of certain oral land contracts when a party has taken significant actions in reliance on the agreement.

What is the parol evidence rule?

A rule that generally prevents earlier oral or written agreements from contradicting a final, integrated written contract.

What is a novation?

An agreement that replaces an existing party or obligation with a new one and releases the original party or obligation.

What is the purpose of a force majeure clause?

A contract provision that may excuse or delay performance when specified extraordinary events occur, such as natural disasters.

What constitutes a material breach of contract?

A serious failure to perform that substantially defeats the purpose of the contract and may excuse the other party's remaining performance.

What is a minor breach, and how does it affect performance?

A small failure to perform that does not substantially defeat the contract's purpose; the other party generally must still perform but may seek damages.

What does "benefit of the bargain" mean in awarding damages?

Putting the injured party in the financial position they would have been in if the contract had been performed.

What are compensatory damages?

Money awarded to cover losses caused by a breach of contract.

What are consequential damages?

Additional losses caused by a breach, such as lost profits, that were reasonably foreseeable when the contract was made.

What are liquidated damages, and when are they enforceable?

An amount of money agreed upon in advance that must be paid if a contract is breached, generally enforceable when it is a reasonable estimate of difficult-to-measure losses.

What is specific performance?

A court order requiring someone to fulfill their contractual obligations instead of simply paying damages.

When does discharge by impossibility occur?

When contractual duties are excused because an unexpected event makes performance objectively impossible.

What happens in an accord and satisfaction?

Parties agree to settle an existing obligation through different performance, and that new performance is completed.

What is tender of performance?

Offering to fulfill a contractual obligation according to the contract's terms.

What legal rule was established in Lucy v. Zehmer?

A contract can be enforceable even if one party claims they were joking, as long as their words and actions would make a reasonable person believe the agreement was serious.

What did the court rule in Leonard v. Pepsico, Inc.?

A reasonable person would not view the Pepsi commercial advertising a fighter jet as a serious contractual offer.

What does Mitchell v. Fortis Insurance Co. illustrate about contract rescission?

It illustrates how insurance rescission depends on applicable law and the significance of the misrepresentation when an insurer attempts to rescind a policy due to incorrect application information.