Law Chapter 10-11

Contract

An agreement that can be enforced in court. Formed by two or more competent parties that agree to perform or refrain from performing some act.

Objective theory of contracts

Intent is determined by objective facts, not by a party’s secret, subjective intentions

Requirements of a valid contract

Consists of an agreement, consideration, contractual capacity, and legality.

Defenses to the enforceability of a contract

A contract may be unenforceable if it lacks voluntary consent or is not in the required form.

Bilateral contract

A promise for a promise

Unilateral contract

A promise for an act

Formal contract

A contract that requires a special form

Informal contract

This contract does not require a special form.

Express contract

Contract formed by words exchanged by the parties.

Implied contract

A contract formed, at least in part, by the conduct of the parties.

Executed contract

A fully fulfilled contract

Executory contract

A contract that has not yet been fully performed

Valid contract

A contract that has the four necessary contractual elements (Agreement, consideration, contractual capacity, and legality)

Voidable contract

A valid contract that one party has the option of avoiding

Unenforceable contract

A valid contract that cannot be enforced because of certain legal defenses.

Void contract

A contract that has no legal force or binding effect.

Intent

Serious, objective intention by the offeror to be bound by the offer.

Examples of non-offer situations

Includes expressions of opinion, statements of future intent, preliminary negotiations, invitations to bid, advertisements and price lists, and auctions.

Definiteness

The terms of the offer must be sufficiently definite to be ascertainable by the parties or by a court.

Termination by action of parties

An offer can be revoked at any time before acceptance without liability.

Termination by operation of law

An offer can terminate by lapse of time, destruction of the subject matter, death or incompetence of the parties or supervening illegality.

Elements of consideration

-Something of legally sufficient value must be given

-A bargained-for exchange must take place

Agreements that lack consideration

Preexisting duties, past consideration, and illusory promises

Minor

A person who has not reached the age of majority. Contracts with these people are voidable at their option

Enforceable

This is if the intoxicated person understood the legal consequences of entering into a contract

Voidable

If the intoxicated person was sufficiently intoxicated to lack mental capacity, even if it was voluntarily.

Regarding mental incompetence

A contract made by a person who is determined mentally incompetent is void. If a person has questionable mental competence, it can be valid or voidable

Contracts contrary to statute

A contract to do something that is illegal is automatically void and thus unenforceable

Contracts contrary to public policy

Contracts that violate public policy on the grounds of illegality. Can include contracts that restrain free competition, unconscionable contracts or clauses.

Option contract

a contract under which the offeror cannot revoke the offer for a stipulated time period (because the offeree has given consideration for the offer to remain open)

Rejection

a rejection is effective only when it is actually received by the offeror, or the offeror’s agent

Counteroffers

a rejection of the original offer, and the simultaneous making of a new offer

Mirror image rule

requires that the offeree’s acceptance match the offeror’s offer exactly.

Rescission

two parties can mutually agree to rescind, or cancel, their contract, to the extent that it is executory (still to be carried out)

Disaffirmance

The legal avoidance, or setting aside, of a contractual obligation

Unilateral mistakes

When one party is mistaken about a material fact. Typically bound by the contract unless the other party knows or should have known about the mistake, or the mistake is committed with gross negligence.

Bilateral mistakes

When both parties are mistaken about the same material fact. Either party can avoid the contract. If the mistake concerns value or quality, the contract normally is enforceable.

Fraudulent misrepresentation

When fraud occurs, usually the innocent party can enforce or avoid the contract.

Undue influence

A contract entered into as a result of undue influence lacks voluntary consent and is voidable.

Duress

A party forced to enter a contract under duress can rescind the contract.

Assignments

The transfer of rights under a contract to a third party.

Delegations

The transfer of duties under a contract to a third party, who then assumes the obligation of performing the contractual duties previously held by the one making the delegations.

Third party beneficiaries

A third party who benefits from a contract between two other parties.

Privity of contract principle

Establishes that third parties have no rights in contracts to which they are not parties.

Conditions of performance

A possible future event, where the occurrence or nonoccurrence of which will trigger the performance of a contract obligation or terminate an existing obligation.

Discharge by performance

A contract may be discharged by complete (strict) performance or by substantial performance. In some instances, performance must be to the satisfaction of another. Totally inadequate performance constitutes a material breach of contract.

Discharge by operation of law

Parties’ obligations under contracts may be discharged by operation of law by contract alteration, statutes of limitations, bankruptcy, impossibility or impracticability of performance, or frustration of purpose.

Compensatory damages

Compensate the non breaching party for injuries actually sustained and proven from the breach of contract.

Consequential damages

Cover indirect and foreseeable losses

Punitive damages

Punish and deter wrongdoing

Nominal damage

Recognizes wrongdoing when no monetary loss is shown

Mitigation of damages

A duty of the non-breaching party to reduce the damages incurred as a result of the contract’s breach

Liquidated damages

The amount to be paid to the non-breaching party in the event of a breach.

Condition precedent

A condition that must be fulfilled before a party’s promise becomes absolute.

Anticipatory repudiation

An assertion or action that indicates a party will not perform a contractual obligation to perform at a future time.

Novation

Substitution of agreement of a new contract for the old one, with the old rights terminated

Waiver of breach

A party’s willing acceptance of defective performance of a contract may operate as a waiver of the breach.

Rescission and restitution

A contract is cancelled and the parties are restored to the position that they occupied before the contract formation. Parties must return the goods, property or funds previously conveyed.

Specific performance

Calls for the performance of the act promised in the contract. Not usually granted unless monetary damages are inadequate.

Reformation

Allows a contract to be “reformed’ or written to reflect the parties’ true intent.