Legal Studies Exam 2

What is a contract?

A set of legally enforceable promises.

Four elements of contract formation

Agreement, consideration, capacity, and legality (A-C-C-L).

Agreement

Offer and acceptance; both sides show they agree.

Consideration

Something of legal value exchanged by the parties.

Capacity

Legal ability to enter a binding contract.

Legality

The contract cannot have an illegal purpose or violate public policy.

Genuine assent

Real agreement without fraud, duress, undue influence, or misrepresentation.

Fraud

Intentional deception about an important fact.

Duress

Improper pressure or threats used to get agreement.

Undue influence

Unfair persuasion using a relationship of trust or power.

Misrepresentation

A false statement about an important fact.

Lack of proper form

A contract lacks a writing when the law requires one.

Objective theory of contracts

Courts examine outward words and actions as a reasonable person would understand them, not secret thoughts.

Common law of contracts

Law from court decisions; generally applies to service and real estate contracts.

UCC

Uniform Commercial Code; governs contracts for the sale of goods.

Bilateral contract

Promise in exchange for a promise.

Unilateral contract

A promise accepted through performance.

Express contract

Agreement stated through spoken or written words.

Implied-in-fact contract

Agreement shown through conduct.

Quasi-contract

Court-imposed obligation to prevent unjust enrichment; not an actual contract.

Valid contract

All required elements of formation are satisfied.

Void contract

Has an illegal object or serious defect; no enforceable contract.

Voidable contract

One or both protected parties may withdraw from or enforce the contract.

Unenforceable contract

A contract exists but cannot legally be enforced in court.

Executed contract

All parties have completed their duties.

Executory contract

One or more duties remain to be performed.

Contract interpretation: ambiguity

An ambiguous term is generally interpreted against the drafter.

Contract interpretation: handwritten terms

Handwritten provisions prevail over preprinted terms.

Contract interpretation: numbers

Numbers written in words prevail over numerals.

Contract interpretation: specific terms

Specific terms prevail over general terms.

Contract interpretation: technical terms

Technical terms generally follow industry meanings.

Scenario: both parties promise to perform next week

Bilateral and executory.

Scenario: customer orders and eats restaurant food

Implied-in-fact contract based on conduct.

Scenario: a reward is offered for returning a lost dog

Unilateral offer accepted through performance.

Scenario: signed contract but secretly did not mean it

Objective theory: outward manifestations generally control.

What is an offer?

A promise or commitment to do or refrain from doing something in the future.

Three elements of a valid offer

Intent to be bound, definite terms, and communication to the offeree (I-D-C).

Offeror

Person making an offer.

Offeree

Person receiving an offer.

Objective intent in offers

Whether a reasonable person would believe the offeror intended to be bound.

Advertisements and preliminary negotiations

Generally invitations to negotiate, not offers.

Definite and certain terms

Material terms are clear enough, such as parties, subject matter, price, and quantity.

Communication of offer

The offeree or agent must know about the offer.

Revocation

Offeror withdraws the offer; generally must be communicated before acceptance.

Rejection

Offeree declines the offer, generally terminating it.

Counteroffer

Offeree proposes changed terms, generally terminating the original offer.

Death or incapacity of offeror

Generally terminates an ordinary offer.

Destruction of subject matter

Generally terminates the offer when its subject matter is destroyed.

Subsequent illegality

Offer terminates if its subject matter later becomes illegal.

Lapse of time

Offer expires at its deadline or after a reasonable time if none is specified.

Failure of specified condition

An offer can terminate if a condition it requires is not met.

Acceptance

Offeree shows intent to be bound by the offer through a return promise or performance.

Mirror-image rule

Under traditional common law, acceptance must match the offer terms.

Silence and acceptance

Silence generally is not acceptance; limited exceptions exist.

Method of acceptance

If none is specified, a reasonable communication method can be effective.

Scenario: $800 offer, buyer responds $700

Counteroffer, not acceptance.

Scenario: seller withdraws offer before buyer accepts

Communicated revocation generally terminates the offer.

Scenario: buyer only thinks yes

No communicated acceptance.

Scenario: tractor burns before acceptance

Destruction of the subject matter terminates the offer.

Scenario: offeror dies before acceptance

Offer generally terminates, even if offeree does not know of death.

Consideration

Something of legal value exchanged in a mutually bargained-for deal.

Bargained-for exchange

Each side gives something to receive something else: this for that.

Legal sufficiency

The consideration has legal value; not necessarily equal money value.

Adequacy of consideration

Whether the exchange is fair or equal in value; courts generally do not question it.

Freedom of contract

Parties generally choose their own bargains.

Consideration can include

A benefit, a detriment, a promise to act, or a promise to refrain from acting.

Illusory promise

A statement that does not really commit the speaker to anything.

Past consideration

An act done before a later promise; not consideration for that new promise.

Preexisting duty rule

Doing something you are already legally required to do is generally not new consideration.

Accord

Agreement to settle a disputed debt for a specified amount.

Satisfaction

Performance or payment that completes the accord.

Accord and satisfaction

An agreed partial payment settles a genuinely disputed debt when requirements are met.

Unliquidated debt

Debt where amount or obligation is genuinely disputed in good faith.

Release

Agreement barring further recovery beyond its stated terms.

Promissory estoppel

A clear promise may be enforced without consideration when reasonable substantial reliance makes enforcement necessary for justice.

Promissory estoppel: requirements

Clear definite promise; justifiable reliance; substantial definite reliance; justice favors enforcement.

Scenario: pay $100 for last month’s help

Past consideration.

Scenario: contractor demands more to finish same job

Preexisting duty rule.

Scenario: I will pay if I feel like it

Illusory promise.

Scenario: agree to settle disputed $2,000 bill for $1,400, then pay

Accord and satisfaction.

Scenario: job promise causes reasonable costly relocation

Possible promissory estoppel.

Scenario: sell a $1,000 collectible for $100

Adequacy generally does not matter if consideration is legally sufficient and no other defense applies.

Contractual capacity

Mental and legal ability to understand contract rights and obligations.

Age of majority

18 in most states; adults generally presumed to have capacity.

Limited contractual capacity

Certain minors, mentally impaired persons, and severely intoxicated persons may have voidable contracts.

Disaffirmance

A minor’s right to cancel certain contracts while underage or within a reasonable time after adulthood.

Minor disaffirmance: returning property

Under the slide’s general rule, return what remains in the minor’s possession or control, regardless of condition.

Necessaries

Basic needs such as food, clothing, shelter, and basic medical services.

Minor contracts for necessaries

An exception to ordinary disaffirmance rules; necessary goods/services can create liability.

Statutory exceptions for minors

Special state-law exceptions that limit the right to disaffirm.

Ratification

Accepting a contract made as a minor after reaching adulthood.

Express ratification

After adulthood, stating orally or in writing the intent to be bound.

Implied ratification

After adulthood, acting consistently with an intent to keep the contract.

Parents and minor contracts

Generally parents are not liable for minor children’s contracts, subject to exceptions such as necessaries.

Parents and minors’ torts

Generally not liable, with exceptions such as negligent supervision.

Judicially adjudicated incapacity

Under the slides, contracts made directly with certain persons adjudicated incapacitated or under guardianship are void.

Intoxication and contracts

Severe impairment can make a contract voidable; merely making a bad choice while drinking does not automatically do so.

After becoming sober

A person with a voidable intoxication-based contract may ratify or disaffirm; conduct can show ratification.

Scenario: 17-year-old cancels an ordinary purchase

Disaffirmance.

Scenario: 18-year-old says I will keep the contract signed at 17

Express ratification.