LEGL Exam 2

Promise

A commitment or willingness to be bound to a contract obligation

Uniform Commercial Code (UCC)

The most successful attempt to have states adopt a uniform law
Purpose is to simplify, clarify, and modernize the laws governing commercial transactions

Goods

Tangible (touchable), movable personal property

Bilateral Contract

Promise in exchange for a promise
Involves promisor and promisee
Usually made to a specific person
Acceptance, then performance later
Binding even when promise hasn't been fulfilled yet
Ex) work order to paint house

Unilateral Contract

Promise in exchange for an action
Made to the whole world
Acceptance and performance happen at the same time
Not binding until action has been done
Ex) lost dog poster and reward

Express Contracts

A contract in which parties show their agreement in words

Implied-in-fact Contracts

A legally enforceable agreement inferred from the circumstances and conduct of the parties

Implied-in-law Contract

A quasi-contract; not a true contract
Legal fiction that the courts use to prevent unjust enrichment and wrongdoing
Courts permit the person who conferred a benefit to recover the reasonable value of that benefit
Nonetheless, the elements of a true contract are not present

Quasi-contract

An implied-in-law contract; not a true contract
Legal fiction that the courts use to prevent unjust enrichment and wrongdoing
Courts permit the person who conferred a benefit to recover the reasonable value of that benefit
Nonetheless, the elements of a true contract are not present

Enforceable Contract

A contract that can be enforced in court

Unenforceable Contract

A contract that cannot be enforced in court

Valid Contract

A contract that contains all of the proper elements of a contract

Void Contract

A contract that is empty, having no legal force; ineffectual, unenforceable
Ex) drug sale, killer-for-hire

In Pari Delicto

The parties to an illegal contract are equally at fault

Voidable Contract

Capable of being declared a nullity, though otherwise valid
Party taken advantage of can avoid contract; other party cannot

Executed Contract

A contract that is fully accomplished or performed, leaving nothing unfulfilled

Executory Contract

An agreement that is not completed
Remains this state until the performance required in a contract is completed

Offer

A contractual communication that contains a specific promise and a specific demand
Definite, present intent to be bound to a contract
Initiates the process of making a contract

Indefiniteness

When the terms of an agreement are not sufficiently specific, the agreement does not rise to the level of a contract

Revocation

The contractual communication of withdrawing an offer
Cannot be done upon completion of performance

Rejection

The refusal of an offer
Terminates an offer
Cannot be reversed

Counteroffer

An offer made in response to another's offer
Acceptance must be for as it is
Usually made in place of an acceptance
Usually terminates an offer

Lapse of Time

When the offeree fails to accept by a deadline defined in the offer or after a reasonable period of time

Subject Matter Destruction

When the object of the contract is destroyed or legally eliminated

Offeror Death or Insanity

When the offeror no longer has the capacity to make the offer

Subject Matter Illegality

Offer is automatically revoked if illegal
Also Subsequent Illegality

Acceptance

The contractual communication of agreeing to another's offer
Creates a contract

Mirror Image Rule

The common law rule that the terms of an acceptance offer must mirror exactly the terms of the offer
Any variation of terms would make the attempted acceptance a counteroffer

Mailbox Rule

The rule that an acceptance is effective once it is sent

Deposited Acceptance Rule

The contractual doctrine that a binding acceptance of an offer occurs when a mailed acceptance is irrevocably placed with the postal service

Consideration

Contracts must be two-sided to be enforceable

Accord and Satisfaction

Payment of money, or other thing of value, usually less than the amount demanded, in exchange for cancellation of a debt that is uncertain in amount

Firm Offer

An offer in signed writing by a merchant to buy or sell goods; it gives assurance that the offer will be held open for acceptance under the Uniform Commercial Code (UCC)

Option

A contractual arrangement under which one party has for a specified time the right to buy certain property from or sell certain property to the other party
Essentially a contract to not revoke an offer

Promissory Estoppel

Court enforcement of an otherwise unbinding promise if injustice can be avoided only by enforcement of the promise
Substitute for consideration

Capacity

Mental ability to make a rational decision that includes the ability to perceive and appreciate all relevant facts
Required element of a contract

Covenants Not to Compete

An agreement in which one party agrees not to compete directly with the business of the other party; may be limited by geography or length of time

Fraud

A false representation of fact made with the intent to deceive another that is justifiably relied upon to the injury of that person

Misrepresentation

An untrue manifestation of fact by word or conduct; may be unintentional

Mutual Mistake

A situation in which parties to a contract reach a bargain on the basis of an incorrect assumption common to both parties

Rescission

A contractual remedy that cancels the agreement and returns the consideration exchanged to each party

Unilateral Mistake

Arises when only one of the parties to a contract is wrong about a material fact
Not usually a basis for rescinding a contract

Duress

Being under threat of physical harm or illegal economic harm
A recognized defense to any act that must be voluntary in order to create liability in the actor

Undue Influence

A defense to contract enforcement available when one is taken advantage of unfairly by a party who misuses a position of relationship or legal confidence

Leading Object Rule

An exception to the statute of frauds' writing requirement for collateral promises
Occurs when the promisor's commitment is primarily intended to serve the promisor's own interests

Leyden v. American Accreditation Healthcare Commission (2015)

• Enforcing implied-in-fact agreements is an important means of ensuring that two parties' intent to make binding promises is honored

• Implied-in-fact agreements must contain the same elements as express contracts, including acceptance and consideration

• Employers can weaken the presumption of an at-will employment relationship by making statements about employee rights and expectation in policies and manuals

Gottlieb & Co., Inc. v. Alps South Corporation (2007)

• The court found that Gottlieb's term (consequential damages limitation) was included in the contract even though it appeared only on Gottlieb's forms and was not specifically discussed by the parties

• Alps' failure to read Gottlieb's forms was irrelevant, according to the court. This is generally true as a contract law principle

• If Alps foresaw the likelihood of certain outcomes, such as consequential damages from customer complaints, it should have addressed it with Gottlieb

Vassilkovska v. Woodfield Nissan, Inc. (2005)

• Contracts require consideration for both promises. Care must be taken in limiting one's obligations, particularly if the result is no legal detriment at all

• The amount of consideration is generally not an issue, but it must be more substantial than simply an acknowledgement or statement

Parol Evidence Rule

When a written contract exists, it is very strong evidence
Excludes the introduction of evidence of prior written or oral agreements that may vary, contradict, alter, or supplement the present written agreement
Exception example:
- When the parties to an agreement do not intend for that agreement to be final and complete, then parol evidence is admissible

Duty of Performance

Legal obligation of a party to a contract

Discharge

Act that forgives further performance of a contractual obligation

Condition Precedent

Event that must occur before a duty of immediate performance of the promise arises
Contracts often provide that one party must perform before there is a right to performance by the other party
Ex) Completion of a job is needed for payment for that job. One contracting party's failure to perform this permits the other party to refuse to perform, cancel the contract, and sue for damages.

Condition Subsequent

A fact that will extinguish a duty to make compensation for breach of contract after the breach has occurred

Express Conditions

Conditions that are explicitly set out in a contract

Implied Conditions

Conditions to a contract that are implied by law rather than by contractual agreement

Concurrent Condition

Mutual condition under which each party's contractual performance is triggered by the other party's tendering (offering) performance

Delivery

The physical transfer of something
In sale-of-goods transactions, transfer of goods from seller to buyer

Tender Performance

The offer by one contracting party to perform a promise; usually associated with the offer to pay for or to ship items under the contract

Complete Performance

A party performs all of its obligations under a contract

Material Breach

Materially deficient or nonexistent performance of one's obligations under a contract

Substantial Performance

Degree of performance recognizing that a contracting party has honestly attempted to perform but has fallen short
Entitled to the price promised by the other less that party's damages

Impossibility of Performance

A defense to contractual nonperformance based on special circumstances that render the performance illegal, physically impossible, or so difficult as to violate every reasonable expectation the parties have regarding performance

Commercial Impracticability

A Uniform Commercial Code (UCC) defense to contractual nonperformance based on happenings that greatly increases the difficulty of performance and that violate the parties' reasonable commercial expectations

Waiver

An express or implied relinquishment of a right

Release

The relinquishment of a right or claim against another party

Compensatory Damages

Usually awarded in breach-of-contract cases to pay for a party's losses that are a direct and foreseeable result of the other party's breach
The award for these damages is designed to place the non-breaching party in the same position as if the contract had been performed

Consequential Damages

The amount of money awarded in a breach-of-contract case to the non-breaching party to pay for the special damages that exceed the normal compensatory damages
May be created by lost opportunities if the breaching party was aware of the special nature of this contract
Can be unlimited
Domino effect of damages

Punitive Damages

Monetary damages in excess of a compensatory award, usually granted only in intentional tort cases where defendant's conduct involved some element deserving punishment

Liquidated Damages

Simple compensation stated in contract

Mitigate

To lessen the consequences of
Usually used to refer to the contractual duty to lessen damages following breach of contract

Equitable Remedy

A remedy fashioned by a court when money damages are not adequate (i.e., there is "no adequate remedy at law")
Ex) Injunctions and rescission of a contract

Restitution

A contractual remedy involving one party returning to another the value previously received

Injunction

A court order directing a party to do or to refrain from doing some act

Specific Performance

Equitable remedy that requires defendants in certain circumstances to do what they have contracted to do

Third-party Beneficiaries

Persons who are recognized as having enforceable rights created for them by a contract to which they are not parties and for which they have given no consideration

Assignment

A transfer of contractual rights

Assignor

An original contracting party who assigns or transfers contractual rights to a third party

Assignee

A third party, who is not an original contracting party, to whom contractual rights are transferred
May enforce the original contract

Delegate

A transfer of contractual duties

Delegator

An original contracting party who delegates or transfers contractual duties to a third party

Delegatee

A third party, who is not an original contracting party, to whom contractual duties are transferred
Will perform under the original contract

Anti-assignment Clause

A contractual provision that prevents a party from assigning rights or delegating duties without the permission of the other party

Novation

The substitution of a new contract in place of an old one

St. Louis Produce Market v. Hughes (2013)

• The failure of a condition precedent can excuse a party's performance, even if it is minor. Similarly, the existence of a minor condition subsequent can cut off a party's obligation to perform

• Parties often use conditions to ensure that a transaction occurs under favorable and anticipated circumstances

• Parties should carefully consider whether conditions are necessary and understand that they may, at times, provide hold-up power to one side

East Capitol View Community Development Corp. v. Robinson (2008)

• Courts are reluctant to excuse performance due to impossibility or impracticability

• The court specifically distinguishes between objective impossibility and personal impossibility. Only the former excuses performance

• Contracting parties have the ability to allocate known risks in the contract. For that reason, impossibility must be an unexpected ocurrence

Oliver v. Ball (2016)

• When a contract involves unique subject matter, courts may award specific performance because there is no amount of money that can make up for the failure of the contractual promise

• Land is a common context for the award of specific performance because it is such a unique asset

Contract Law

Tension between freedom of contract and consumer/public protection

Elements of a Contract

Agreement (offer and acceptance), capacity and genuine assent, consideration, lawful purpose, lawful form

Leonard v. PepsiCo (2000)

Determined that the Harrier Fighter jet that was not on the catalog was NOT an offer

Lack of Capacity

One party is too young or mentally incompetent to form a contract

Lack of Genuine Assent

1. One party was tricked (fraud) or forced (duress)

2. Both parties were confused about essential part of contract (mutual mistake)

Lucy v. Zehmer (1954)

Zehmer's drunkenness when entering contract did not excuse him out of the contract

Johnson v. Harmon (1876)

"Both minds must meet in such a transaction; and if one is so weak, unsound, and diseased that the party is incapable of understanding... he is incompetent"

Exceptions for Contracts without Capacity

Contracts for necessaries, ratified contracts, emancipated minors, under certain state laws

Coogan's Law

CA Child Actor's Bill
Exception of contracts without capacity

Sherwood v. Walker (1887)

Contract for selling of barren cow that wasn't actually barren was mistake of character
Contract was void

Wood v. Boynton (1885)

Selling of valuable stone that turned out to be a diamond is mistake of value
Since diamonds are valuable stones, contract was NOT void

Gratuitous Promise

Non-legally-binding promise

Nominal Consideration

Token amount identified in a written contract when parties either cannot or do not wish to state the amount precisely
Ex) The Freemasons of Lodge St. George, Bermuda
- Price of yearly rent is one peppercorn

Pre-existing Obligation

Can't use something you already are required to do as consideration
UCC has exception for good-faith modifications to sales of goods