BULW Exam #2: Contract Law

Contract

A legally binding agreement between two or more parties to do something now or in the future (authentic free will).

• Every contract is an agreement, but not even agreement is a contract

Bilateral

Promise for a promise, specifically asking you for a promise in return.

• Contract is in exitstence the moment the promises are exchanged.

Unilateral

Promise for an act, don’t care about return promise - only have agreement when you perform the act that’s asked for.

• Contract created at moment the act is performed

Formal

Following a certain format/process (elected officials or mandators make you format a contract a certain way).

• EX - Force you to put in writing (sale of good, sale of land)

Informal

Freedom to set up contract however you want.

Expressed

Uses words to get point across (written or verbal).

Implied

Point of contract is portrayed through behavior.

• EX - Obligation to pay a towing bill.

Executed

All parties have performed their duty under the contract.

Executory

A contract in which one or both parties still have obligations they need to fulfill.

Valid

More likely to be upheld/enforced in court, all required elements are present.

Void

Not a contract, doesn’t have one or more of the elements.

Voidable

One that is otherwise valid, all five elements are present but one party has the ability to shut down the contract at any point in time.

• EX - Minor has the choice to void.

Unenforceable

Otherwise valid, something keeps contract by being enforced by court.

• EX - A contract that doesn’t meet format requirements.

What is the first element of a contract?

Offer to Agreement

Offeror

Person making the offer.

Offeree

Person receiving the offer.

What is the criteria of an offer to agreement?

1. Offeror has sincere intent to enter an agreement if the offer is accepted.

2. Clear and definite terms to the offer (detailed enough to allow the offeree to make a decision).

3. Communicated to offeree.

Revoked

Take the offer back - all offers revocable at any time prior to acceptance.

Irrevocable

Can’t take back offer.

• Option Contract

• If offeree relies on the offer to the extent they make a substantial life change based on reliance of offer.

Option Contract

Is an agreement in which the offeror promises to keep an offer open for a specified period of time in exchange for consideration (something of value).

• EX - Offeree pays offeror a certain amount of money to keep the contract open for a little longer, the offeror is not able to revoke thr contract within this agreed upon time period.

What happens to an offer?

Accepted, rejected, revoked (or irrevocable), counteroffer, operation of law

Counteroffer

Rejection of the initial offer, swapping of the parties - the general idea has slightly different terms now.

Operation of Law

Offer can disappear or be eliminated, factors beyond anyone’s control (possibility of offer is gone).

What is the second element of a contract?

Acceptance of Agreement

• Voluntary

• Unequivocal - direct, clear, exactly what is meant

• Mirror Offer Terms

• Communicated to Offeror - knows about acceptance, communicated to be reasonably understood, comply with method of acceptance

• Timely - mandate a deadline (Mailbox Rule)

Mailbox Rule

Acceptance is official when mail is SENT.

What is the third element of a contract?

Consideration

• Legally Sufficient Value

• Bargained for Exchange

• Adequacy

Legally Sufficient Value (Consideration)

Satisfies that aspect of consideration if it results in a change of circumstances for the parties.

• That change is most likely going to be an obligation that you didn’t primarily have.

Bargained for Exchange (Consideration)

Difference between a contract and a gift - need participation from both parties now or in the future.

Adequacy (Consideration)

Fairness in the bargain in agreement among the parties.

What is the fourth element of a contract?

Legality

• Delegation

• Assignment

• Third Party Beneficiary

Legality

Something you can conclude exists along as there is no reason to doubt it.

• Contracts will fall if contrary to public policy (court may refuse if goes against safety, societal welfare).

Delegation (Legality)

Someone who is a third party that has an obligation to fulfill an obligation of one party.

• Party is responsible for third party’s actions/damages.

Assignment (Legality)

When a third party receives benefits of contract without any obligation.

Third Party Beneficiary (Legality)

Everyone knows that they will benefit from the contract at the moment of contract formation.

What is the fifth element of a contract?

Capacity

Capacity

At the moment of contract formation, could the person understand the consequences of their actions?

Mistake of Value (Problem Within Contract)

When we believe that something is worth more or less than what you later decide the thing is worth.

• Solution - no solutions necessary because probably enforceable

Mistake of Fact (Problem Within Contract)

How many parties are mistaken?

• Bilateral/Mutual Mistake: both parties are mistake

  • Solution - rescission or equitable remedy

• Unilateral Mistake: one party is mistaken

  • Solution - no remedy, unless one party knew about the mistake OR mistake results in mathematical error

Fraud (Problem Within Contract)

Lie to a person to get them into a contract (negating involuntary consent).

• Solution - rescind contract OR enforce and sue for damages

Undue Influence (Problem Within Contract)

Refers to situations where someone is taking advantage of another person to get them into a contract.

• NOT through lying, but because of a PERSONAL RELATIONSHIP (power dynamic).

• Solution - contract is voidable

Duress (Problem Within Contract)

Direct threat in order to get a person into a contract.

• Solution - recission OR defense to enforcement

Breach of Contract

When someone fails to uphold their side of the contract/deal.

• RULE - Every/any breach entitles the non-breaching party to some measure of damages. Any failure to achieve perfection in the contract is going to entitle the non-breaching party to some amount of money.

• Non-breaching party still need to fulfill obligations, on top of receiving compensation for a breach (UNLESS it is a material breach).

Contract Discharge

When a contract has ended.

• Performance

• Agreement

• Operation of Law

Complete Performance (Contract Discharge)

100% perfection in contractual obligations (majority of contracts are discharged through complete performance).

Material Breach (Contract Discharge)

Person never even bothered to fulfill contractual obligations (non-existent, insignificant).

Substantial Performance (Contract Discharge)

Performance done in good faith, performance creates substantially same benefits as called for under contract (MINOR BREACH)

• In the absence of bad faith, good faith will prevail.

• Even is someone is awarded $0, that’s still an award for damages.