Comprehensive Contract Law Review Guide

Flashcards covering essential contract law principles: contract formation, capacity, consideration, warranties, breach remedies, the Statute of Frauds, and licensing.

What are the four foundational requirements that must exist simultaneously for a contract to be legally binding and enforceable?

1. Agreement (Offer + Acceptance), 2. Consideration (Legal Value Exchanged), 3. Capacity (Legal Power to Contract), and 4. Legality (Lawful Purpose & Terms).

1. Recognize what is required to be adequate consideration to support a contract.

1. Summarize the special situations for options, rewards, and auctions.

Option Contracts

Under the general rule, an offeror can revoke an offer at any time prior to acceptance. However, an Option Contract creates an irrevocable offer.

• Mechanism: The offeree gives independent consideration (e.g., pays $500) in exchange for the offeror's binding promise not to revoke the offer for a specified period (e.g., 30 days).

Rewards

An offer of a reward for capturing a criminal or returning lost property is an offer for a unilateral contract (a promise for an act).

• Prerequisite Knowledge Rule: The offeree must know about the reward offer before performing the requested act.If a citizen returns a lost dog without knowing there is a reward, they cannot later enforce payment because there was no mutual agreement or bargained-for exchange.

Auctions

• Auction WITH Reserve (Default Rule): The auctioneer is inviting offers (bids). The bidders are the offerors. The seller/auctioneer may reject any bid and withdraw the item at any point before the gavel falls.

• Auction WITHOUT Reserve: The seller explicitly gives up the right to withdraw the item. The seller is making a binding offer to sell to the highest bidder. The item must be sold to the highest bona fide bidder once bidding opens.

1. Explain the two requirements in contract law for there to be an agreement.

Offer and an Acceptance.

Requirement A: Valid Offer

An offer is a statement by the offeror showing willingness to enter into a contract. To be valid, it must meet three sub-requirements:

1. Objective Intent: The offeror must manifest serious objective intent to be bound. Jokes, statements of opinion,preliminary negotiations, and advertisements are generally not offers; they are invitations to negotiate.

2. Definiteness of Terms: The offer must contain sufficiently definite terms so a court can determine if a breach occurred. Standard common law required the QTIPS elements:

   • Quantity

   • Time of performance

   • Identification of parties

   • Price

   • Subject matter

3. Communication: The offer must be directly communicated to the offeree. You cannot accept an offer you did not know existed.

Requirement B: Valid Acceptance

Acceptance is the offeree's objective manifestation of assent to the terms of the offer.

1. Mirror Image Rule: Under common law, the acceptance must match the offer exactly. Any attempt to change, add,or alter terms acts as a rejection and counteroffer, which terminates the original offer.

2. Voluntary Assent: Silence generally does not constitute acceptance, unless prior dealings create a duty to speak or the offeree takes the benefit of offered services knowing payment is expected.

3. Mailbox Rule: Acceptance is effective upon dispatch (when properly sent/posted), whereas revocations,rejections, and counteroffers are effective only upon receipt

How do courts evaluate whether an agreement was formed under the Objective Theory of Contracts?

Courts evaluate an agreement by asking how a reasonable person in the position of the parties would interpret their words and actions, rather than examining hidden, subjective intentions.

Why are gratuitous promises (gifts) unenforceable as contracts under contract law?

Gratuitous promises are unenforceable because they lack consideration on one side, as no bargained-for exchange of legal value occurred.

What is the general legal status of a contract entered into by a party lacking full contractual capacity?

Contracts entered into by parties lacking full capacity (such as minors, mentally impaired persons, or severely intoxicated individuals) are generally voidable at the option of the impaired party.

What is the legal effect if a contract's subject matter involves an illegal act or violates public policy?

The contract is void from the beginning (ab initio) and cannot be enforced by either party.

What three sub-requirements must be satisfied for an offer to be legally valid?

1. Objective Intent (serious intent to be bound), 2. Definiteness of Terms (containing essential terms like QTIPS), and 3. Direct Communication to the offeree.

2. Q – Quantity (How much is being bought or sold; under the Uniform Commercial Code [UCC], this is often the only strictly required term)

3. T – Time (Time for performance or delivery)

4. I – Identity of the parties (Who is entering into the agreement)

5. P – Price (The cost or consideration exchanged)

6. S – Subject matter (What goods, services, or property are being traded)

Under common law definiteness of terms, what do the letters in the QTIPS mnemonic stand for?

Quantity, Time of performance, Identification of parties, Price, and Subject matter.

Why are advertisements, jokes, statements of opinion, and preliminary negotiations generally not treated as offers?

They lack serious objective intent to be bound and are instead treated merely as invitations to negotiate.

What is the effect under common law when an offeree attempts to add, alter, or change terms when accepting an offer?

Under the Mirror Image Rule, any modification acts as a rejection and counteroffer, which immediately terminates the original offer.

Under the Mailbox Rule, when does an acceptance become legally effective compared to a revocation or rejection?

An acceptance is effective upon dispatch (when properly sent or posted), whereas revocations, rejections, and counteroffers are effective only upon receipt.

What mechanism makes an offer irrevocable in an option contract?

The offeree provides separate, independent consideration paid to the offeror in exchange for a binding promise to keep the offer open for a set duration.

How does the death or incapacity of a party affect an option contract compared to a standard offer?

Unlike a standard offer which terminates upon the death of either party, an option contract survives the death or incapacity of either party and binds their estate.

What is the Prerequisite Knowledge Rule regarding unilateral reward offers?

The offeree must know about the reward offer before performing the requested act; performing without prior knowledge prevents enforcement because there was no mutual agreement or bargained-for exchange.

What is the core distinction regarding withdrawal between an auction with reserve and an auction without reserve?

In an auction with reserve, the seller invites offers and can withdraw the item anytime before the gavel falls; in an auction without reserve, the seller explicitly promises to sell to the highest bidder and cannot withdraw the item once bidding starts.

What two core elements are required for legal consideration to exist?

1. Legal Value (suffering a legal detriment or receiving a legal benefit, such as forbearance or performing an act), and 2. A Bargained-for Exchange.

What is the Pre-existing Duty Rule in contract law?

A promise to do what one already has a legal or contractual duty to do does not constitute legal consideration (e.g., a police officer claiming a public reward for arresting a criminal).

Why are past consideration and illusory promises unenforceable?

Past consideration involves acts performed before the promise was made (consideration must be forward-looking), while an illusory promise leaves performance entirely optional at the discretion of one party.

What is the liability of a minor for 'necessaries' under the Infancy Doctrine?

Minors remain liable for the reasonable value of necessities of life (food, shelter, basic clothing, emergency medical care) under quasi-contract theory so merchants are not discouraged from providing essential care.

What is the legal difference between a contract entered into by an adjudged incompetent person versus an unadjudged incompetent person?

Contracts created personally by an individual formally adjudged incompetent by a court are void from the outset; contracts entered into by an unadjudged incompetent person are voidable by that person.

What is a lucid interval and how does it affect a contract?

A lucid interval is a temporary period during which cognitive capability is restored; contracts signed by an incompetent person during a lucid interval are fully valid and binding.

What two conditions must be met for a contract made by an intoxicated person to be voidable?

The intoxication must be so severe that the person was incapable of understanding the nature and consequences of the transaction, and the non-intoxicated party knew or had reason to know of this impairment level.

What four criteria must a covenant not to compete meet to be legally enforceable?

1. Protection of a Legitimate Business Interest, 2. Reasonable Scope of Activity, 3. Reasonable Geographic Boundary, and 4. Reasonable Duration (typically $6\text{ months}$ to $2\text{ years}$ in employment settings).

How do express warranties differ fundamentally from implied warranties regarding their origin?

Express warranties are created explicitly by affirmative statements, promises, descriptions, samples, or models given by the seller, whereas implied warranties are imposed automatically by operation of law (UCC Article 2).

What standard is guaranteed under the Implied Warranty of Merchantability, and when does it apply?

It applies automatically to sales of goods by a merchant dealing in goods of that kind, guaranteeing that goods are fit for ordinary purposes, adequately packaged and labeled, and of fair, average quality.

What three conditions must be met to trigger the Implied Warranty of Fitness for a Particular Purpose?

1. The seller knows or has reason to know the buyer's specific non-ordinary purpose, 2. The seller knows the buyer is relying on their skill/judgment to select goods, and 3. The buyer actually relies on that expertise.

What does the Implied Warranty of Title guarantee to a buyer?

It guarantees that the seller has valid title, full right to transfer ownership, and that the goods are free from undisclosed security interests, liens, or third-party infringement claims.

How does a bilateral (mutual) mistake differ from a unilateral mistake regarding contract enforceability?

A bilateral mistake on a material fact makes a contract voidable by either party, whereas a unilateral mistake generally does not relieve obligations unless the other party knew/should have known of the error or enforcement is unconscionable.

What four legal elements are required to prove fraudulent misrepresentation?

1. False representation of a material fact, 2. Intent to deceive (scienter), 3. Justifiable reliance by the innocent party, and 4. Financial or physical injury/damage suffered.

What is the difference in contract validity between physical duress and economic duress?

Contracts executed under physical duress are void, whereas contracts entered into under economic or other wrongful threats/duress are voidable.

What constitutes undue influence, and what is its legal consequence on a contract?

Undue influence occurs when a dominant party uses a confidential or fiduciary relationship (e.g., attorney-client, caregiver-elderly parent) or mental weakness to unfairly manipulate a party into an agreement; the contract is voidable by the victim.

Which categories of contracts must be in writing under the Statute of Frauds (MY LEGS)?

Marriage promises (prenuptials), Year (contracts incapable of performance within one year), Land/real estate interests, Executor promises, Goods priced at $\$500$ or more (UCC § 2-201), and Suretyship (guaranty contracts).

What is the precise standard for the One-Year Rule under the Statute of Frauds?

The contract must be in writing only if, by its precise terms, it cannot possibly be fully performed within one year from the date the contract was formed.

How do assignment of rights and third-party beneficiary rights differ in the timing of their creation?

Assignments transfer existing rights to a third party after contract formation (extinguishing the assignor's rights), whereas third-party beneficiary rights are created at the exact moment of contract formation.

Why can intended beneficiaries sue to enforce a contract while incidental beneficiaries cannot?

Intended beneficiaries (donee or creditor) were explicitly intended by the contracting parties to directly benefit and receive legal standing upon vesting; incidental beneficiaries benefit purely by coincidence and acquire no enforceable rights.

What is the difference in legal consequence between the failure of a covenant versus the failure of a condition?

Failure of a covenant (an unconditional promise) constitutes an immediate breach that triggers damages, whereas failure of a condition prevents the duty from arising or discharges it without constituting a breach.

What are the legal remedies and counter-obligations associated with substantial performance (minor breach)?

The non-breaching party is not excused from performance and must pay the contract price, but is entitled to deduct the cost to repair or rectify the minor defect.

What options are available to a non-breaching party faced with inferior performance (material breach)?

The non-breaching party is excused from all performance obligations and can either: 1. Rescind the contract and seek restitution, or 2. Treat the contract as intact and sue for full compensatory damages.

What is the purpose of compensatory damages, and what formula expresses them?

Compensatory damages restore the non-breaching party to the position they would have enjoyed had the contract been performed (expectation interest), calculated as: $\text{Direct loss} + \text{Incidentals} - \text{Costs saved}$.

Under the rule of Hadley v. Baxendale, what is required for a party to recover consequential (special) damages?

The special circumstances giving rise to the indirect losses must have been known or foreseeable to the breaching party at the time the contract was formed.

What two requirements determine the enforceability of a liquidated damages clause?

1. Actual damages would be difficult or impossible to estimate at the time of formation, and 2. The amount specified is a reasonable forecast of damages rather than a punitive penalty.

Why will courts never grant the equitable remedy of specific performance for personal service contracts?

Ordering an individual to perform personal labor violates constitutional prohibitions against involuntary servitude.

How does the equitable remedy of reformation differ from rescission and restitution?

Rescission cancels the contract and restitution returns benefits conveyed, whereas reformation rewrites or corrects a written contract to accurately reflect the parties' true prior intent (e.g., fixing clerical or scrivener's errors).

What are the core verification methods recognized under the federal E-SIGN Act?

1. User Authentication (passwords, MFA/2FA, SMS codes), 2. Audit Trails & Security Logs (IP, timestamps, hashes), 3. Biometric Verification, 4. Digital Certificates (PKI encryption), and 5. System Verification / Intent Confirmation.

What is the defining characteristic of a license agreement regarding asset ownership?

The licensor retains title and ownership of the intellectual property or asset while granting the licensee conditional, limited rights to access, use, produce, or commercialize it without transferring ownership.