Chapter 2. Contract Law

contracts

written agreements that are legally enforceable by law

tort

a private, civil, noncontractual wrong for which a remedy through legal action may be sought

intentional tort

deliberate act that causes harm to another person

unintentional tort

result of acting without proper care (negligence)

consideration

something of value that each party gives to the other

competent parties

parties to a contract must be capable of entering into a contract in the eyes of the law

contract of adhesion

one party prepares the contract; the other party must accept it as is

conditional contract

certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations

aleatory

there is an exchange of unequal amounts or values

• ex. John pays $75/mo for a $100,000 benefit. He dies after only paying $150 for 2 months. His beneficiary receives $100,000.

unilateral contract

only one of the parties to the contract is legally bound to do anything

representations

statements believed to be true to the best of one’s knowledge, but are not guaranteed to be true

maximum fine of a misdemeanor

$25,000

warranty

a statement considered to be guaranteed to be true and becomes part of the contract

materiality

all parties to a contract are entitled to all information necessary to make an informed decision about the quality or nature of the contract

concealment

legal term for the intentional withholding of information of a material fact that is crucial in making a decision

fraud

intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party

rescission

cancellation of a contract

• entitled to rescind the contract if there’s a false material representation, concealment, violation of a material warranty

6 elements that need to be identified in every contract of insurance + elements of a legal contract

1. parties to the contract

2. people or property being insured

3. statement of the insurable interest that exists if the insured is not the owner

4. the risks insured against

5. the time period during which the policy will be in force or continue

6. the stated premium

1. agreement: offer and acceptance

2. consideration: premiums and representations on the part of the insured; payment of claims on the part of the insurer

3. competent parties: of legal age, sound mental capacity and not under the influence of drugs or alcohol

4. legal purpose: not against public policy