Ch.9: Formation and Requirements of Contracts

Vocabulary flashcards covering the formation and requirements of contracts based on Chapter 9 of Legal Environment of Business Ninth Edition.

Contract

An agreement that is enforceable by a court of law or equity.

Legally Enforceable Contract

A contract in which if one party fails to perform as promised the other party can use the court system to enforce the contract and recover damages or another remedy.

Offeror

The party who makes an offer to the offeree.

Offeree

The party who has the power to accept the offer and create a contract.

Agreement

A manifestation by two or more persons of the substance of a contract, requiring an offer by the offeror and an acceptance of the offer by the offeree.

Consideration

Something of legal value given in exchange for a promise, which must be supported by a bargained-for exchange that is legally sufficient.

Contractual Capacity

A requirement for parties to a contract to be able to enforce the agreement against them.

Lawful Object

The requirement that the object of a contract must be lawful.

Genuineness of Assent

The requirement that consent to create a contract must be genuine and not obtained by duress, undue influence, or fraud.

Bilateral Contract

A contract entered into by the exchange of promises of the parties; characterized as a 'promise for a promise.'

Unilateral Contract

A contract where the offeror’s offer can be accepted only by the performance of an act by the offeree; characterized as a 'promise for an act.'

Formal Contract

A contract that requires a special form or method of creation, such as negotiable instruments, letters of credit, recognizance, or contracts under seal.

Negotiable Instrument

A form of formal contract, such as a check, which requires the specific words 'Pay to the order of.'

Letter of Credit

A formal contract where a bank guarantees payment by a buyer who purchases goods on credit from a seller if the buyer fails to pay.

Recognizance

A formal contract where someone agrees to pay a sum of money if another person does not pay it, such as a bail bond.

Informal Contract

A contract that is not formal, also known as a simple contract; valid informal contracts are fully enforceable.

Valid Contract

A contract that meets all essential elements (agreement, consideration, capacity, and lawful object) and is enforceable by at least one party.

Void Contract

A contract that involves no legal effect; it is considered a nullity.

Voidable Contract

A contract where one or both parties have the option to void their contractual obligations.

Unenforceable Contract

A contract where the essential elements are met but there is some legal defense to its enforcement.

Executory Contract

A contract that has not been fully performed by either or both sides.

Executed Contract

A contract that has been fully performed by both sides; a completed contract.

Express Contract

An agreement that is expressed in written or oral words.

Implied-In-Fact Contract

An agreement between parties inferred from conduct where the plaintiff provided property/services, expected payment, and the defendant had a chance to reject but did not.

Implied-In-Law Contract (Quasi-Contract)

An equitable doctrine where a court may award monetary damages for services provided even though no actual contract existed, intended to prevent unjust enrichment.

Objective Theory of Contracts

The theory that the intent to contract is judged by the reasonable person standard rather than the subjective intent of the parties.

Auction With Reserve

An auction where the seller retains the right to refuse the highest bid and withdraw the goods from sale.

Auction Without Reserve

An auction where the seller gives up the right to withdraw goods and must accept the highest bid.

Revocation

The withdrawal of an offer by the offeror that terminates the offer; must be communicated to the offeree.

Rejection

Express words or conduct by the offeree to reject an offer, which terminates the offer.

Counteroffer

A response by an offeree that contains terms different from or additional to the offer, which terminates the previous offer.

Mirror Image Rule

A rule stating that for an acceptance to exist, the offeree must accept the terms exactly as stated in the offer.

Acceptance-Upon-Dispatch Rule

Also known as the mailbox rule, it states that acceptance is effective when it is dispatched, even if lost in transmission.

Legal Value

Support for a contract when either the promisee suffers a legal detriment or the promisor receives a legal benefit.

Gift Promise

Also called a gratuitous promise, it is unenforceable because it lacks consideration.

Illusory Promise

A contract where one or both parties can choose not to perform their contractual obligations; lacks consideration.

Preexisting Duty

A promise to do something one is already under an obligation to do, which fails to provide consideration for a new contract.

Past Consideration

A prior act or performance that cannot support a new contract; new consideration must be given.

Infancy Doctrine

A doctrine that allows minors to disaffirm (rescind) most contracts they have entered into with adults.

Adjudged Insane

A person declared legally insane by a proper court or administrative agency; contracts entered into by them are void.

Insane But Not Adjudged Insane

A person who is insane but has not been formally declared so by a court; contracts entered into by them are voidable.

Exculpatory Clause

A contractual provision that relieves a party from tort liability for ordinary negligence; also called a release of liability clause.

Unconscionable Contract

A contract that is so oppressive or manifestly unfair that courts refuse to enforce it in part or in its entirety.

E-Commerce

The sale and lease of goods/services and licensing of software over the internet or by other electronic means.