Blaw Mid Term 2

Valid Contract

A contract that has all four required elements: agreement (offer and acceptance), legally sufficient consideration, parties with contractual capacity, and a legal purpose. A court will enforce it.

Void Contract

Not a contract at all. It has no legal effect from the start (e.g., a contract to commit a crime, or a contract made by someone a court has declared mentally incompetent).

Voidable Contract

A valid contract that one party may choose to cancel (avoid) or enforce. Examples: contracts made by minors or intoxicated persons, or contracts lacking voluntary consent because of mistake, fraud, undue influence, or duress.

Express Contract

A contract whose terms are fully stated in words, either oral or written.

Implied Contract (Implied-in-Fact)

A contract formed from the conduct of the parties rather than from express words.

Illegal Contract (Void)

A contract to do something prohibited by federal or state statute. It is illegal, void from the outset, and unenforceable.

Unenforceable Contract

A valid contract that a court will not enforce because of a legal defense, such as the lack of a writing required by the Statute of Frauds.

Bilateral Contract

A promise exchanged for a promise. The offeree accepts by promising to perform, so communication of acceptance is necessary.

Unilateral Contract

A promise exchanged for an act. The offeree accepts only by fully performing the act, so notice of acceptance is usually unnecessary unless required by law or requested by the offeror.

Unconscionable Contract

A contract or clause so unfair that a court will not enforce it. Procedural unconscionability is about how the contract was formed (fine print, legalese, no chance to read or ask questions, adhesion contracts). Substantive unconscionability is about terms that are oppressive or overly harsh. Under the UCC, a court may refuse to enforce the contract, enforce only the conscionable part, or limit the clause.

Executed Contract

A contract that has been fully performed by both parties.

Executory Contract

A contract that has not yet been fully performed.

Oral vs. Written Contract

An oral contract is spoken and is generally enforceable. A written contract is required only when the Statute of Frauds applies.

Offer

A proposal to enter a contract. It requires (1) a serious, objective intention by the offeror, (2) reasonably certain or definite terms, and (3) communication to the offeree.

Acceptance

The offeree's agreement to the terms of the offer. It must be unequivocal, cannot add new conditions or change the terms (mirror image rule), and must be communicated (for bilateral contracts). Silence is normally not acceptance unless there is a duty to speak or prior dealings.

Consideration

The bargained-for exchange of value. It must be legally sufficient. Courts normally do not question its adequacy, but a large disparity in value may signal a lack of voluntary consent. Preexisting duties, past consideration, and illusory promises are not consideration.

Capacity

The legal ability to enter a contract. Minors, intoxicated persons, and mentally incompetent persons may lack capacity, making their contracts void or voidable.

Legality

A contract must be formed for a legal purpose. Contracts contrary to statute (crimes, usury, gambling, unlicensed professionals) or contrary to public policy are void.

Expiration / Reasonable Time (Lapse)

An offer terminates automatically by law when the time stated in the offer passes. If no time is stated, it terminates after a reasonable time.

Revocation of Offer

The offeror's withdrawal of an offer before acceptance, either by express repudiation or by acts inconsistent with the offer that are made known to the offeree. It is effective when received by the offeree.

Termination of the Offer

An offer can end by action of the parties (revocation, rejection, or counteroffer) or by operation of law (lapse of time, destruction of the subject matter, death or incompetence of a party, or a new law making it illegal).

Option Contract

A contract in which the offeree gives consideration to keep the offer open for a stated period, so the offeror cannot revoke it during that time.

Counteroffer

A rejection of the original offer that is also a new offer. Under the common law mirror image rule, an acceptance must match the offer exactly, or it is a counteroffer.

Mailbox Rule

An acceptance is effective when it is sent (dispatched) by an authorized means, not when it is received. Rejections and revocations are effective only when received.

Minors / Ratification

The age of majority is 18. A minor may disaffirm (legally avoid) most contracts. Ratification happens when the minor, after reaching majority, accepts the contract expressly or by conduct (e.g., keeps using the item), making it binding.

Divisible Contract

A contract whose performance is split into separate parts, with payment for each part. A breach or illegality in one part does not void the whole contract.

Quasi Contract

A contract implied in law. A court imposes it to prevent unjust enrichment when no actual contract exists, requiring payment for the reasonable value of a benefit received.

Promissory Estoppel

A person who reasonably and substantially relied on another's promise may recover something even though no enforceable contract exists. Elements: a clear promise, the promisor expected reliance, substantial and justifiable reliance occurred, and justice requires enforcement.

Conditions

Events that must happen (or not happen) before a party's duty to perform arises or ends. A condition precedent must occur before performance is due, a condition subsequent ends a duty, and concurrent conditions require both parties to perform at the same time.

Accord and Satisfaction

A way to discharge a contract. The accord is an agreement to accept a different performance to settle a disputed debt, and the satisfaction is performing that new agreement, which discharges the original obligation.

Unilateral Mistake

One party is mistaken about a material fact. The contract is generally enforceable against the mistaken party unless the other party knew or should have known of the mistake, or the error was a substantial mathematical mistake made without extreme negligence.

Bilateral (Mutual) Mistake

Both parties are mistaken about the same material fact. The contract is voidable and can be rescinded by the adversely affected party. Only mistakes of fact count, not mistakes of value or quality.

Fraud (Fraudulent Misrepresentation) - Elements

(1) A misrepresentation of a material fact, (2) intent to deceive (scienter), (3) justifiable reliance by the innocent party, and (4) harm to the innocent party. Harm is required to recover damages but usually not to rescind.

Scienter

Knowledge that a statement is false, or intent to deceive. It is the element that separates fraud from innocent misrepresentation (honest belief it was true) and negligent misrepresentation (carelessness).

Undue Influence

Unfair persuasion by a dominant party over a weaker party, often in a fiduciary relationship. When the dominant party benefits, courts often presume undue influence, and the contract is voidable.

Duress

Using threats to force a party into a contract. It is both a defense to enforcement and a ground for rescission.

Business Sale (Covenant Not to Compete)

A promise in the sale of an ongoing business that the seller will not run a similar business for a certain time within a specified area. It is enforceable if the time and geographic limits are reasonable.

Pledge (Charitable Subscription)

A promise to donate money to a charity. It often lacks consideration but is commonly enforced under promissory estoppel when the charity relied on it.

Advertisement

Generally an invitation to negotiate, not an offer, because it lacks serious intent and definite terms. Exception: a reward ad can be an offer for a unilateral contract.

Privity of Contract

The relationship between the parties to a contract. Third parties generally have no rights in a contract they are not part of, with exceptions for assignments and intended third-party beneficiaries.

Assignment

The transfer of contract rights to a third party (the assignee). An unconditional assignment extinguishes the assignor's rights. The assignee can demand performance from the obligor but takes the rights subject to any defenses the obligor has. The assignee should notify the obligor.

Delegation

The transfer of contract duties to a third party (the delegatee). The delegator is still liable if the delegatee fails to perform. Duties cannot be delegated when special trust is involved, performance depends on personal skill, performance would vary materially, or the contract prohibits delegation.

Subrogation

The right of a party who pays another's loss or debt (e.g., an insurer) to step into that person's shoes and pursue their claims against the party responsible.

Intended Third-Party Beneficiary

A third person whom the original parties meant to benefit from the contract. This person has the right to enforce it (e.g., Lawrence v. Fox).

Incidental Third-Party Beneficiary

A third person who benefits from a contract even though benefiting them was not the reason for the contract. This person has no right to enforce it.

Novation

Substituting a new contract for an old one by agreement, which terminates the old rights. It requires (1) a previous valid obligation, (2) agreement of all parties to a new contract, (3) extinguishing of the old obligation, and (4) a new valid contract.

Statute of Frauds - Application

Certain contracts must be in writing (signed by the party against whom enforcement is sought) to be enforceable: interests in land, contracts that cannot be performed within one year, promises to pay another's debt, promises in consideration of marriage, and sales of goods of $500 or more (leases of $1,000 or more). UCC exceptions: specially manufactured goods, admissions, and partial performance. Between merchants, a signed written confirmation sent within a reasonable time can satisfy the writing requirement.

Liquidated Damages

A contract clause setting the damages amount in advance. It is enforceable if, when the contract was formed, damages would be difficult to estimate and the amount is reasonable. Common in construction, sale of goods, loan, and entertainer or athlete contracts.

Penalty

A damages clause designed to punish the breaching party rather than estimate actual loss. It is unenforceable, so only actual damages can be recovered.

Compensatory Damages

Damages that compensate the nonbreaching party for the loss of the bargain. The standard measure for sale of goods and sale of land is the difference between the contract price and the market price. For construction contracts, it depends on when the breach occurred.

Consequential Damages

Also called special damages. These cover foreseeable losses caused by special circumstances beyond the contract itself, which the breaching party knew or should have known about. Punitive damages are generally not available for breach of contract.

Nominal Damages

A small amount awarded when there was a breach but no actual financial loss.

Mitigation of Damages

The plaintiff must do whatever is reasonable to minimize the damages caused by the breach (e.g., a landlord finding a new tenant).

Full (Complete) Performance

Performing every term of the contract exactly as promised, which discharges the party's duties. Performance can also be accomplished by tender, an unconditional offer to perform by someone ready, willing, and able to do so.

Substantial Performance

Performance that is not perfect but is made in good faith, does not vary greatly from the contract, and provides substantially the same benefits. The other party must still perform but can sue for damages for the shortfall.

Material Breach

Nonperformance of a contractual duty that is important enough to excuse the nonbreaching party from performing and allow it to sue for damages.

Anticipatory Repudiation

A party announces before performance is due that it will not perform. Repudiation is a material breach. The nonbreaching party does not have to stay willing to perform and may seek a similar contract elsewhere. A repudiation may be retracted.

Equitable Remedies - Types

Available when money damages are inadequate. (1) Rescission and restitution: cancel the contract and return the parties to the status quo. (2) Specific performance: a court order to perform as promised, usually for land or unique goods, not personal services. (3) Reformation: rewriting the contract to reflect the parties' true intent, used for fraud, mistake, or incorrect written versions of oral agreements.

Lottery (Gambling)

A scheme involving a prize, chance, and consideration. Lotteries and gambling contracts not authorized by the state are illegal and void.

Uniform Commercial Code (UCC)

A uniform law governing commercial transactions in all 50 states. Article 2 covers sales of goods, and Article 2A covers leases of goods. Common law requirements (agreement, consideration, capacity, legality) still apply.

Sale of Goods

The passing of ownership (title) from seller to buyer for a price. Goods must be tangible and movable. For mixed goods and services contracts, courts use the predominant-factor test, and the UCC applies if goods predominate.

Merchant

Under UCC 2-104, someone who deals in goods of the kind involved (retailer, wholesaler, or manufacturer), holds themselves out as having special knowledge or skill related to the goods, or employs an agent or broker with merchant status.

Firm Offer

A merchant's written, signed offer that assures it will stay open. It is irrevocable without consideration for the stated period, or a reasonable time if none is stated, up to a maximum of three months.

Special Standards for Merchants

Merchants are held to a higher standard than nonmerchants, including a stricter good faith duty and special rules for firm offers, additional terms between merchants, Statute of Frauds written confirmations, and the implied warranty of merchantability. The UCC good faith duty (UCC 1-304) applies to every contract and cannot be disclaimed.

Quantity Term

Under the UCC, a contract can leave many terms open, but the quantity must be stated (except in requirements and output contracts). If too many terms are open, a court may find the parties did not intend a contract.

Rejection / Acceptance of Goods

Under the perfect tender rule, if goods fail in any respect, the buyer may accept all, reject all, or accept part and reject part. Rejection must happen within a reasonable time with notice to the seller. Acceptance occurs after inspection or by failing to reject. A buyer can later revoke acceptance before the goods have substantially changed, effective on notice to the seller.

Promise to Ship

Under UCC 2-206, an offer to buy goods can be accepted by a prompt promise to ship or by promptly shipping conforming or nonconforming goods. Shipping nonconforming goods is both an acceptance and a breach, unless the seller notifies the buyer it is only an accommodation.

Requirements / Output Contracts

A requirements contract is an agreement to buy all the goods a buyer needs from one seller. An output contract is an agreement to buy all the goods a seller produces. The quantity is measured by actual good faith needs or output, so these contracts are an exception to the stated-quantity rule.

Warranty of Title

The seller warrants (1) good and valid title and the right to transfer it, (2) no liens the buyer doesn't know about, and (3) for merchants, that the goods are free of copyright, trademark, or patent infringement claims.

Express Warranty

Created when goods are promised to conform to (1) an affirmation or promise of fact, (2) a description, or (3) a sample or model, and the statement is part of the basis of the bargain. Words like "warrant" or "guarantee" are not required. Statements of opinion generally do not create a warranty.

Implied Warranty of Merchantability

Automatically made by a merchant who deals in goods of that kind, promising the goods are fit for their ordinary purpose (food must be fit to eat). A garage-sale seller doesn't make it. To disclaim it, the word "merchantability" must be mentioned.

Implied Warranty of Fitness for a Particular Purpose

Arises when the seller knows the buyer's particular purpose and that the buyer is relying on the seller's skill and judgment to select the goods. To disclaim it, the disclaimer must be in writing and conspicuous, but the word "fitness" is not needed.

Warranty Implied from Prior Dealings or Trade Custom

When both parties know of a well-recognized trade custom or course of dealing, they are presumed to intend it to apply to their contract.

Magnuson-Moss Warranty Act

A federal law covering written warranties on consumer goods. No seller is required to give a written warranty. A full warranty requires free repair or replacement of defective parts, and required disclosures must be conspicuous and in plain language.

Warranty Disclaimers

Phrases like "as is" or "with all faults" disclaim implied warranties. Merchantability must be disclaimed by name. Fitness disclaimers must be in writing and conspicuous.