Legs Exam 2

Discharge Of Contract

1. Performance

2. Material Breach

3. Mutual Agreement

4. Operation of Law

Contract

A set of legally enforceable promises.

Contracts are based on…

Common Law (State law) and UCC (applicable to transactions involving sale of goods)

Elements of a contract

Agreement, consideration, legal purpose, capacity.

Expressed Contract

A contract in which all the terms are outlined in either written or spoken words.

Implied Contract

A contract that arises not from words of agreement but from the conduct of the parties.

Quasi-Contract

Implied-in-law contract.

Bilateral Contract

A promise exchanged for a promise.

Unilateral Contract

A promise exchanged for an act.

Valid

A term applied to a contract that includes all four elements of a contract:agreement (offer and acceptance), consideration, contractual capacity, and legal object.

Void

A term applied to a contract that is not valid because its object is illegal or it has some defect that is so serious that it is not a contract.

Voidable

A term applied to a contract that one or both parties can either withdraw from or enforce (no breach).

Executory

Not all terms have been fully performed.

Offeror

The party making the offer.

Offeree

The party to whom the offer is made.

Intent

Objective, "reasonable person" standard.

Revocation

The act of the offeror taking back or withdrawing the offer.

Rejection

The act of the offeree refusing the offer.

Mailbox Rule

Acceptance by mail is effective when placed in the mailbox, but revocation of the offer is effective only when received by the offeree.

Consideration

What a person will receive in return for performing a contract obligation.

Promissory Estoppel

The one exception to the rule of consideration: Needs All

1. One party makes a promise knowing the other party will rely on it 

2. The other party relies on it 

3. The only way to avoid injustice is to enforce the promise 

Preexisting Duty

A promise to do something that you are already obligated to do is not a valid consideration.

Contractual Capacity

The mental ability to understand the rights and obligations of the contract.

Dissaffirm

Minors' right to avoid their contracts.

Contract for Necessaries

A possible contract exception; need for necessities.

Ratification

Accepting the terms of the contract after reaching the age of majority.

Parental Liability

Parents are not liable for contracts made by minor-aged children.

Emancipated Minors

Minors legally separated from parents.

Mental Incapacity

Limited or full capacity depending on the extent of understanding.

Intoxicated Persons

Contractual capacity depends on whether the sober party knows the intoxicated person is unable to understand the transaction.

Illegal Contract

Contracts with no legal purpose and/or subject matter.

Unenforceable Contracts

Contracts against public policy or unconscionable.

Covenant not to Compete

An agreement not to compete against a party for a set period of time within a designated geographic area.

Lucy V Zehmer

A party’s words meant something different from his thoughts. While being intoxicated, there was a note made to sell the farm. Zehmer was joking about selling the farm, while Lucy was serious about the contract. Lucy sued Zehmer for not selling to him and upholding their note. Zehmer claimed to not have subjective intent. Lucy lost; and appealed. 

Lefkowitz V. Surplus Store

sets the acceptance rule when ads were considered offers. The ad was so clear and had terms

Reasons for Termination of an Offer

1. Revocation by Offeror

2. Rejection by Offeree

3. Death of Offerer

4. Destruction/Subsequent Illegality of Subject Matter

5. Lapse of Time failure

Components of an Acceptance

1. Represents the offeree” 's intent to be bound by the terms of the offer

2. Terms of acceptance must be identical to the terms of the offer  (Mirror Image Rule)

3. Effective when communicated by the offeree to the offeror 

Full Capacity

Valid

Limited Capacity + Who is included

Voidable (minors, mentally disabled, intoxicated)

No Capacity

Void

What do minors need to disaffirm?

• Show intent, words/actions, to rescind an offer 

• Return any consideration received (in minors' possession) 

Lopez V. KMart

Wage, Hour Laws; Arbitration  

Plaintiff: Lopez (employee) 

Defendant: Kmart (employer)

Court: Federal Court (US); Trial Court (original and general jurisdiction) 

• Fighting over more than 75,000; concurrent jurisdiction; diversity of citizenship

In Pari Delecto

both parties are equally responsible for the illegal agreement 

Procedural Unconscionability

conditions that would impair one party’s understanding of a contract's terms 

Adhesion Contracts

A contract created by a party to an agreement that is presented to the other party on a take-it or- leave-it basis (valid) (can be challenged;but rare)

Substantive Unconscionability

Overly harsh or lopsided substance in a contract

Sentient Jet V. Mackenzie

Three salesmen signed a non-compete agreement “They promise to not work for competing employer for 1 year and confidential info can't go with you”. Two of them left to work for a competitor (took client lists with them). The company sued them and sought an injunction (ban them from working with competitors). The jury ended up ruling in favor of the company and was given 200,000 each for breaking their non-compete.

Mistake

misunderstandings regarding material facts of the contract at the time agreement made 

Unilateral Mistake

The result of an error by one party about a material fact 

Mutual Mistake

• The result of an error by both parties about a material fact if: 

  • Basic assumption about the subject matter 

  • Material effect on agreement 

  • Adverse effect on the party who did not agree to bear the risk

Innocent Misinterpretation

A false statement about a fact material to an agreement that the person who made the statement believed to be true

Negligent Misinterpretation

Negligent untruthful assertion of material fact

Fraudulent Misinterpretation

Intentional untruthful assertion

Undue Influence

The dominant party uses persuasive efforts that interfere with the free choice of contract terms (doctor-patient, attorney-client)

How to classify contracts

1. How it was created (express or implied)

2. What the offeror wants (bilateral vs unilateral)

3. Do we have a good contract? (valid, void, or voidable)

4. How much has been done? (executed or executory)

Defenses to the Enforceability of a Contract

lack of genuine assent (fraud, duress, undue influence, misrepresentation)

lack of proper form requirements (statute of frauds writing requirement)

If the offer is for a unilateral contract, the offeree can accept only by __________________.

providing the requested performance

An offer immediately terminates in all of the following situations, except:

manifestation of intent to be bound

Suppose Joey and Mikey enter into a contract together. Joey says he will pay Mikey $100,000 to kill one of Joey's enemies. Both parties know this contract involves the undertaking of an illegal act. Under which element of a contract is this contract not enforceable?

Legal object

If the subject matter of the offer is destroyed or becomes illegal, the offer immediately terminates.

True

Which article of the UCC governs contracts for the sale of goods

2

Which of the following is not an element of a contract

proper form

Promissory Estoppel

substitute for consideration when another acts in reliance on a promisor's promise

ratification

Acceptance of terms of contract (entered into as a minor) after reaching age of majority

For a court to enforce a promise, who must offer consideration?

both sides

Frank works as a cellphone salesman. He has worked at the same company for the past two years, and one day his boss approaches him with good news. He says because Frank has sold so many phones lately, he is going to give Frank $500 bonus. Three weeks later, Frank has still not received the bonus. Can Frank sue his boss to enforce this promise?

No, this is an example of past consideration

Which of the following is an exception to the preexisting duty rule?

Additional work

A promise to do something that you already obligated to do is _______ consideration

insufficient

How often do courts weigh whether or not you made a good bargain?

seldom

A pool lifeguard demands money after saving Bob from drowning in the pool. Bob need not pay the lifeguard because this is an instance of _____.

preexisting duty

covenant not to compete

A contractual promise of one party to refrain from conducting business similar to that of another party for a certain period of time and within a specified geographical area.

adhesion contract

A contract created by a party to an agreement that is presented to the other party on a take-it-or-leave-it basis. Such contracts are legal but are sometimes rescinded on the grounds of unconscionability and the absence of one party's free will to enter a contract.

For a mutual mistake to interfere with legal consent, it must involve:

a basic assumption about the subject matter of the contract, a material effect on the agreement, and an adverse effect on a party who did not agree to bear the risk of mistake at the time of the agreement

duress

occurs when one party uses an improper threat or act to obtain an expression of agreement

If a contract is deemed unenforceable, what remedy is available to the parties?

none

Bob is hired to do computer sales for an electronics store. He agrees that if he leaves his employment, he will not work for another computer store within 25 miles for a period of two years. That type of agreement is called a[n] ______.

covenant not to comepete

A substantive unconscionable contract contains conditions that:

are one-sided

Under an adhesion contract, negotiations are:

nonexisitent

Statute of Frauds

A state statute under which certain types of contracts must be in writing to be enforceable.

-Does it have to be in writing?

Sufficiency of the Writing- Common Law

Names of parties

subject matter

consideration

essential terms

signature

Tender

an offer of performance; making an offer to perform and being ready, willing and able to perform

Anticipatory Repudiation

Party decides, before the actual time of performance, not to complete contract obligations

Which of the following describes a false statement about a fact material to an agreement that the person who made the statement believed to be true?

innocent misrepresentation

What exists if one party threatens the other party with physical harm to gain consent to a contract

duress

Suppose an operator of a weight scale certifies the weight of a good that is for sale. However, the accuracy of the scale used to weigh the good has not been checked in more than four years, even though the weight scale operator could have easily checked the accuracy of the scale. The scale gave an improper weight measurement that resulted in many problems with the shipping and sale of the product. The above scenario is an example of what?

Negligent misrepresentation

Which of the following is not generally an obstacle to genuine assent in a contract

Unilateral mistake

Taking advantage of one's dominant position in a relationship to unduly persuade the other party is known as:

undue influnece

A misrepresentation is an untruthful assertion by one of the parties about a:

material fact

Hammer V. Sidway

Court disagrees and says the action of refraining from a legal right is consideration.
-Unilateral contract - promise for act of not drinking

Genuine Assent

agreement to enter into a contract that is evidenced by words or conduct between the parties

Ruffles V. Whichaus

Mutual Mistake

Contracts involved in the Statute of Frauds

Suretyship (pay debt), marriage, land, time (impossible to perform in 1 year), and sale of goods (over $500)

Complete Performance

Complete: all aspects of parties’ duties under a contract are carried out perfectly

Substantial Performance

• “Nearly all” terms of agreement completed 

• Honest effort to complete all terms 

• No “willful departure” from terms of agreement 

Discharge by Material Breach

a party unjustifiably fails to substantially perform his/her contractual obligations 

Discharge by mutual agreement

both parties agree to discharge

Accord and Satisfaction

One party wishes to substitute a different performance for his/her original contractual duty

Novation

 Parties wish to replace one of the parties with a 3rd party

Discharge by Operational Law

1. Impossibility of performance 

2. Commercial impracticability 

3. Frustration of purpose 

Thrifty Rent a Car V. Florida Transport

Demonstration of commercial impracticability: how strictly courts look at circumstances before filing commercial impracticability