BUL3310 FSU Exam 2 (Adkins Spring 2025)

Contract

a legally enforceable promise or set of promises

Types of Contracts

○ Bilateral Contract

○ Unilateral Contract

○ Explicit Contract

○ Implied Contract

Bilateral Contract

mutual promises made by parties to each other (the main category of contracts)

Unilateral Contract

promise made by one party

Explicit Contract

terms are explicitly defined--either oral or written

Implied Contract

lacks explicit terms, are implied by behavior or social custom

Statute of Frauds

A state statute under which certain types of contracts must be in writing to be enforceable.

In which cases is the Statute of Frauds required?

- under common law:

§ Real estate

§ Payment of another's debt

§ Services that cannot be performed within 1 year

- under UCC:

§ required for the sale of goods > $500

Requirements for a Valid Contract

1. Mutual Assent

2. Consideration

3. Legality of Purpose

4. Capacity

Mutual Assent (Requirements for a Valid Contract)

parties must indicate through words or behavior that they willingly agree to enter into a contract

○ Offer (promise to do something) + Acceptance (Offeree's agreement) = Meeting of the Minds

Acceptance

Offeree's expression of agreement to the terms of the offer.

• Written, oral, or action or conduct.

When is acceptance in mutual assent effective?

• Deadlines set in offer

• Mailbox Rule

• Specific Method set in the Offer

What are the requirements for a valid offer in regards to Mutual Assent in a contract?

the offer must have objective intent (a reasonable person would see intent)

What are the exceptions for a valid offer in regards to Mutual Assent in a contract?

○ Advertisements (invitation to make an offer)

- precise, unilateral advertisements are not an exception

How can an offer in regards to Mutual Assent in a contract be Terminated?

1. By action (revocation, rejection, counteroffer by the offeree)

2. Operation of Law (time, death, incapacity, destruction, supervening illegality)

Consideration (Requirements for a Valid Contract)

requires both sides to obtain something of value (legal benefit) and to give up something of value (legal detriment)

○ mutual exchange of value

○ forbearance - valuable consideration must be a legal right

Which Agreements Lack Consideration?

○ Preexisting Duty

○ Illusory Promises

○ Past Consideration

○ Promissory Estoppel

Statuses of Contracts

○ Valid

○ Void

○ Voidable

○ Unenforceable

Valid Contract

A contract that results when elements necessary for contract formation (agreement, consideration, legal purpose, and contractual capacity) are present.

Void Contract

An agreement that lacks one of the required elements of a contract or has not been formed in conformance with the law from outset (missing either mutual assent or consideration)

Voidable Contract

A contract that may be legally avoided (canceled, or annulled) at the option of one of the parties, under certain circumstances

Unenforceable Contract

1 party asserts a legal defense to performing the contract, even if a contract may have all required elements and be considered valid

Assuming mutual assent & consideration, what are the possible statuses of a contract?

○ Valid

○ Voidable

○ Unenforceable

Leonard v. PepsiCo, Inc.

Objective Reasonable Person Standard applied to reject idea that a commercial made an offer of a Harrier Jet. A reasonable person would understand that such commercials exaggerate

○ Concept: Absurd commercials do not constitute fraud

○ Context: Pepsi reward points for a Harrier Jet

Legality of Purpose (Requirements for a Valid Contract)

○ contracts that violate a statute are unlawful and void

○ contracts that are against the common sense (public policy) of the community are voidable (i.e., unreasonable restraint of trade/noncompete agreements)

○ contracts with an illegal purpose are void

Capacity (Requirements for a Valid Contract)

Legal doctrine used by courts to protect parties who may lack the ability to understand and appreciate the terms of an agreement

What are the main categories of persons who do not have full legal capacity to incur contractual duties?

• Minors

• Mental Capacity (Limited Capacity, No capacity, Lucid Period Rule)

• Intoxicated Persons (courts use objective standard)

Minors (Capacity)

• Minors have the ability to avoid a contract (it is statutory/automatic)

• Unless they do not became emancipated and continue action or ratify

• When a contract with a minor has been performed or partially performed, the minor must invoke an action to avoid obligation under the contract

Ratification (Minors)

is any act that indicates the minor intends to be bound by his promise; may be expressed orally, in writing, or it can be implied

Disaffirmance

When a contract with a minor has been performed or partially

performed the minor must invoke an action to avoid obligation under the contract

Intoxicated Persons (Capacity)

• Courts use objective standard to determine if a reasonable person would have believed the intoxicated person had sufficient capacity to enter into an agreement

- If intoxication merely causes poor judgement, contract valid.

- Once sober, intoxicate person has ability to ratify or disaffirm contract (courts not sympathetic)

Bright-Line Rules

clear cut and easy to apply rules, such as determining whether the person has reached the age of majority

Flexible Standards

more general guidelines, providing a greater range of choice or discretion

Nonenforcement Rule

generally, courts will not enforce illegal bargains; leaving the parties where it finds them

Exception to the Nonenforcement Rule

When a party to the contract is member of the class of persons for whose protection the contract was made illegal, he may enforce it or obtain restitution

CMD v. Facebook

Enforceability

• The ability of a properly formed contract to be enforceable in a court of law; requires that the contract is a product of genuine assent and is in writing (if req. by the statute of frauds)

○ Without genuine consent, the contract is not legally binding

Genuine Assent

the knowing, voluntary, and mutual approval of the terms of a contract by each party; required for a contract to be enforceable

○ Without genuine consent, the contract is not legally binding

○ if this is present, it also assumes mutual assent

Formation Asymmetry

refers to the problem of contracts in which one contracting party has more or better information than the other

○ may occur if there is a misrepresentation, either innocent or intentional (fraud)

What are the 5 Types of of "consent defects" (Situations where Genuine Assent to a contract may be lacking)

1. Misrepresentation (innocent)

2. Fraudulent Statement (knowingly false)

3. Duress (unfair coercion)

4. Undue influence (breach of fiduciary duty)

5. Unconscionability (so grossly unfair it shocks the conscience)

Innocent (Negligent) Misrepresentation

the party makes a misrepresentation about a material fact that it believes to be true

○ if found, one can generally cancel the contract and make whole

Fraudulent (Intentional) Misrepresentation

○ the party making the misrepresentation knows its false

○ the intention is to deceive the other party

○ if found, many states apply treble damages

Contract Interpretation and the Parol Evidence Rule

○ contracts will be read and interpreted to the plain meaning of its terms

○ Outside (Parol) Evidence is not allowed unless necessary to correct ambiguous terms

Vokes v. Arthur Murray, Inc.

Appellant dance student enrolled in 14 dance courses at appellee dance studio for a total cash outlay of over $ 31,000 dollars. It should have been reasonably apparent to defendants that her vast outlay of cash for the many hundreds of additional hours of instruction was not justified by her slow and awkward progress, which she would have been made well aware of if they had spoken the "whole truth". Ruled that they were fraudulent in their contract.

○ A statement of opinion may be actionable as a misrepresentation where the party stating his opinion possesses superior knowledge of the truth or falsity of the statement.

What is a Contract Condition?

an event, not certain to occur, which must occur before performance under the contract becomes due.

3 Types of contract Conditions

○ Condition Precedent

○ Condition Subsequent

○ Condition Concurrent

Condition Precedent (types of conditions)

the condition must occur before performance is required

Condition Subsequent (types of conditions)

the condition must occur after performance, otherwise the duty to perform is subsequently discharged

Condition Concurrent (types of conditions)

each party's performance depends on the other's performance

Contract Discharge

the legal termination of a contract

Ways a Contract May be Discharged

1. Perfect Performance

2. A condition which fails (promises are either conditional or absolute)

3. Assignment of Rights (rights are transferred to a third party only by agreement)

4. Substantial (not full) performance

5. Mutual Agreement

6. Operation of Law

Ways a Contract May be Discharged by Mutual Agreement

○ Recession (cancellation)

○ Accord and Satisfaction (parties accept different "satisfactory" performance)

○ Substitute Agreement (amend/replace initial agreement)

○ Novation (new party to contract)

Ways a Contract May be Discharged by Operation of Law

○ Impossibility (death, destruction, means cannot be performed, subject matter becomes illegal)

○ Impracticability (unforeseeable and extreme)

○ Frustration of Purpose (principal reason for contract doesn't occur)

Breach of Contract

= Nonperformance

○ when a party to an agreement owes a duty to perform and fails to fulfill their obligation

Types of Breach of Contract

○ Material Breach

○ Anticipatory Breach/Repudiation

○ Partial Breach

Material (total) Breach

nonperformance relates to a fundamental term of contract or affects the value; the nonbreaching party may suspend performance, be discharged from further obligation, and sue to recover losses

To determine whether breach is material, consider:

○ Does the breach defeat the purpose of the contract

○ if the breach occurs at outset, it is most likely material

○ if the breach was willful and in bad faith, it is most likely material

Anticipatory Breach/Repudiation

a material breach that occurs after contract is signed but before the performance of its conditions.

○ the nonbreaching party may sue for damages immediately if the breach is clear

What are the 3 ways Repudiation can Happen?

○ A statement is made indicating intent not to perform

○ An action that renders the performance impossible

○ Knowledge by both sides that one party cannot perform

Partial Breach

When one party has enraged in the specific performance outlined in the contract, but not the exact (or full) extent of the specific performance

○ the nonbreaching party may or may not be able to suspend performance, but also may sue for the damages related to the breach regardless

When a party breaches a contract, the nonbreaching party may sue for damages. 2 Types of remedies may be sought. What are they?

1. Remedies at law (monetary damages)

2. Equitable Remedies (relief given when monetary damages are insufficient)

Remedies at Law (monetary damages)

monetary damages

1). Compensatory

2). Consequential

3). Liquidated

Compensatory Monetary Damages (Remedies at Law)

direct losses from nonperformance

Consequential Monetary Damages (Remedies at Law)

indirect but foreseeable losses

Liquidated Monetary Damages (Remedies at Law)

predetermined value according to contract

Equitable Remedies (damages)

given when monetary damages are insufficient

1). Specific Performance

2). Injunctive Relief

3). Reformation