Chapter 9 (complete)

Unilateral Contracts

"A promise for an act" Promise for performance. Accept by FULLY performing The offer is phrased so that the offeree can accept the offer only by completing the contact performance.

Implied Terms

"Formed by the conduct of the parties" Conduct creates and defines the terms of the contract. Requirements: (1)The plaintiff furnished some service or property (2)The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected. (3) The defendant has a chance to reject the services or property and did not.

Express Terms

"Formed by words" The terms of the agreement are fully and explicitly stated in words, oral or written.

Bilateral Contracts

"Promise for a promise" No performance, such as payment of funds or delivery of goods, need take place for a bilateral contract to be formed. The contract comes into existence at the moment of the promises are exchanged.

Formal Contracts

"Requires a special form for creation" Must be in writing to be enforceable They require a special form or method of creation (formation) to e enforceable. Examples are: Negotiable instruments, Letters of credit.

Informal Contracts

"Requires no special form for creation" Is also called simple contracts, they include all other contracts. No special form is required (except certain types of contracts that must be in writing), as the contracts are usually based on their substance rather than their form.

"All rights can be assigned" exception to this are:

(1) The assignment is prohibited by statute. (2) The contract is personal. (3) The assignment significantly changes the risk or duties of the obligator. (4) The contract prohibits assignment.

What three elements are necessary under common law for an offer to be effective?

(1) The offeror must have a serious intention to become bound by the offer. (2) The terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract. (3) The offer must be communicated to the offeree

Voidable contract

(unenforceable) a valid contract can be avoided or rescinded based on certain legal defenses. aka A party has the option of avoiding or enforcing the contractual obligation

What must consideration have?

-"legally sufficient value" -Promise, -Performance, or -Forbearance. and -a "Bargained-for-Exchange"

Requirements of a Valid Contract:

-Agreement (Offer and Acceptance) -Consideration: bargained-for-exchange -Contractual Capacity -Legality: purpose of contract must be legal at the time of execution *Some types of contracts must be in writing.

Types of Contracts

-Bilateral -Unilateral -Formal -Informal

What 3 actions (examples) potentially involve contractual relationships that the courts might enforce.

-Buying a house -Buying insurance -Buying the services of a lawyer

Sources of Contract Law

-Common Law and Statutes -Uniform Commercial Code (UCC)

What are the 4 requirements for a valid contract?

-Consideration -legality -agreement -contractual capacity

Fraudulent Misrepresentation

-Contract is Voidable by Innocent Party -Consists of the Following Elements: Misrepresentation of Material Fact Intent to Deceive Reliance on Misrepresentation Injury to the innocent party -Misrepresentation by Conduct -Misrepresentation of Law -Misrepresentation by silence

Adequacy of Consideration

-Courts typically will not consider. -Law does not protect a person from entering into an unwise contract. -Cases of "shockingly inadequate consideration" may raise a red flags, and be ruled unconscionable.

Even when all of the requirements are satisfied, a contract may be unenforceable. 2 major defenses to enforce-ability of an otherwise valid contract are:

-Delay -Inaccuracy

Offer terms (expressed or implied)

-Identification of the parties. -Object or subject matter of the contract. -Consideration to be paid. -Time of payment, Delivery, or Performance. -A court can supply missing terms if the parties intend to form a contract.

Promissory Estoppel (reliance)

-Must be definite promise -Promisee must justifiably rely on the promise -Reliance is substantial -Justice will be served by enforcing promise

Revocation of the Offer by the Offeror

-Offer can be withdrawn any time before Offeree accepts the offer. -Effective when the Offeree or Offeree's agent receives it. The offeror cannot revoke promise once performance has begun, for a reasonable time period.

Agreements that Lack Consideration

-Preexisting Duty -Past Consideration

Definition of a Contract

-Promise or set of promises, -For breach of which, -The law provides a remedy, or -The performance of which the law in some way recognize as a duty.

Rejection of the Offer by the Offeree

-Rejection by the Offeree (expressed or implied) terminates the offer. -Effective only when it is received by the Offeror or Offeror's agent.

Termination by operation of law

1. Lapse of time 2. Destruction of the specific subject matter of the offer 3. Death or incompetence of the offeror or the offeree. 4. Supervening illegality of the proposed contact.

Minors and Contractual capacity

A contract can be disaffirmed at any time during minority, or for a reasonable period after minor is emancipated. However, a contract entered into by a minor is voidable at the option of that minor, and can be disaffirmed.

Unenforceable Contract

A contract exists, but it cannot be enforced because of a legal defense.

Voluntary Consent

A contract may be unenforceable if the parties have not genuinely assented to its terms by: -Mistakes -Misrepresentation -Undue Influence -Duress

Legality

A contract must be formed for a legal purpose. A specific clause in contract can be illegal, but rest of contract can be enforceable. Contract to commit a tortious act is illegal.

Executed contract

A contract that has been completely performed by both parties.

Executed contract

A contract that has been fully performed on both sides.

Executory Contract

A contract that has not as yet been fully performed

Executory Contract

A contract that has not been fully performed on either side.

Valid Contract

A contract that has the necessary contractual elements: agreement, consideration, legal capacity of the parties and the legal purpose.

Voidable Contract

A party has the option of avoiding or enforcing the contractual obligation

Promisee

A person to whom a promise is made.

Promisor

A person who makes a promise

Bilateral

A promise for a promise

Unilateral

A promise for an act (acceptance is the completed performance of the act).

Enforceable Contract

A valid Contract that can be enforced because there are no legal defenses against it.

Valid Contract

A valid contract has the elements necessary to entitle at least one of the parties to enforce it in court (agreement, consideration, legal capacity of the parties, and legal purpose). It may be enforceable, voidable, or unenforceable

Enforceable Contract

A valid contract that can be enforced because there are no legal defenses against it.

Communication of Acceptance: Mailbox Rule

Acceptance is effective when offeree SENDS IT.

Communication of Acceptance: Unilateral Contract

Acceptance is evident, notification is not necessary

Contract

An agreement that can be enforced in court, formed by two or more parties, each of whom agrees to perform or to refrain from performing some act now or in the future.

Offer

An offer is a promise or commitment to do or refrain from doing some specified action in the future.

Mirror Image Rule

At common law, any change in terms automatically terminates the offer and substitutes the counteroffer.

Communication of Acceptance: Bilateral Contract

Communication of acceptance is necessary because there is a mutual exchange of promises.

Donee Beneficiary

Contract is made for the express purpose of promisor giving a gift to a third party (donee), the donee can sue the promisor directly if the promisor breaches the contract.

Undue Influence

Contract lacks voluntary consent and is voidable. -Confidentiality, fiduciary, or relationship of dependence -Undue influence or persuasion is presumed is a weaker party talked into doing something not beneficial to him or herself.

Contract performance

Contracts are also classified according to the degree to which they have been performed.

Substantive Unconscionability

Contracts are oppressive or overly harsh; that deny a remedy for nonperformance.

Contracts Contrary to Public Policy

Contracts contrary to public policy are void. Contracts in Restraint of Trade are generally void. Exception: Covenant not to complete; time & geographic terms are reasonable.

If the offeree can accept simply by promising to perform, then the contact is unilateral.

False

Promises that involve moral obligations are the basis of contract law.

False

The objective theory of contracts tells us that a party's intention to enter into a legally binding agreement is judged by the personal belief of at least one of the parties.

False

People make promises all the time, so promises have little to do with contract law.

False: A person to whom a promise is made has a right to expect or demand that something either will or will not happen in the future—that is the basis of contract law. See An Overview of Contract Law.

Misrepresentation by Silence

Fiduciary Duty

Duress

Forcing a party to enter into a contract under fear or threat makes the contract voidable. -Threatened act must be wrongful or illegal and render person incapable f exercising free will. -Threat of civil suit is not duress.

Assume that Eva tells Maria that she will buy Maria a new dress if Maria reads a book by Friday night. Maria begins reading but has a chapter left to finish when Eva says she has changed her mind and will not pay for the new dress. Under the modern approach to contracts, Eva and Maria:

Formed a unilateral contract as soon as Maria began reading the book

Implied

Formed by the conduct of the parties

Express

Formed by words (oral, written, or a combination)

When a court examines the objective facts surrounding contract formation, which of the following does it NOT examine?

If the party had the flu while negotiating

Negotiable Instruments

Include checks, drafts, promissory notes, bills of exchange, and certificates of deposit.

Procedural Unconscionability

Inconspicuous print or legalese, or the lack of an opportunity to read the contract or ask questions about its meaning. Depends on a party's lack of knowledge or expertise.

When the original parties to the contract agree that the contract performance should be rendered to or directly benefit a third person, the third person becomes an:

Intended third party beneficiary

Suppose that Jack and Hal and Sophia enter into the agreement for the sale of the restaurant, with Jack stating in the agreement that if he feels comfortable with his finances in his retirement, that he will not sell the frozen food in competition with the restaurant. After the sale, the stock market rises considerably, and Jack's net worth quadruples. He still decides to sell the frozen food. Hal and Sophia sue. What is the result?

Jack would win since the promise not to compete was illusory.

Intoxication and Contractual Capacity

Lack of capacity at the time the contract is being made. Contract is either voidable or valid depending on circumstances. Disaffrimance (voidable) Ratification: after "sobering up"

Supervening Illegality of the Proposed Contract

Legislation or court decision automatically terminates offer or renders contract unenforceable.

Letters of credit

Letters of credit are frequently used in international sales contracts, are another type of formal contract. Letters of credit are agreements to pay contingent on the purchaser's receipt of invoices and bills of lading (documents evidencing receipt of, and title to, goods shipped).

Mistakes

Mistakes of Fact: allow a contract to be canceled. Includes Mutual Mistakes and Unilateral Mistakes

Void Contract

No Contract exists, or there is a contract without legal obligations.

Void Contract

No contract exists, or there is a contract without legal obligations

Lapse of Time

Offer terminates by law when the period of time specified in the offer has passed. If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time.

Irrevocable Offer

Offeree has changed position based on justifiable reliance on the offer.

Revocation of Offers for Unilateral Contracts

Offeror cannot revoke promise once performance has begun, for a reasonable time period.

Privity of Contracy

Only original parties to a contract have rights and liabilities under the contract. There are exceptions: Assignment (of rights) Delegation (of duties) Third Party Beneficiary Contract

At a given point in time, contract law does NOT reflect which of the following?

Our physical well-being

Assignor

Party assigning rights to a third party

Delegator

Party making the delegation of duty The Delegator remains liable, even after the delegation.

Assignee

Party receiving rights

Delegatee

Party to whom the duty is owed The Delegatee is liable if he delegation contract creates a third party beneficiary relationship in the oblige

Obligee

Person to whom a duty or obligation is owed.

Obligor

Person who is obligated to perform the duty.

Contracts Contrary to Statute

Prohibited by federal or state statutory law is illegal and therefore ¬void (never existed). Includes: Contracts to commit a crime Usury (a lender who makes a loan above the lawful max) Gambling

Preexisting Duty

Promise to do what one already has a legal duty to do does not constitute legally sufficient consideration

Option Contracts

Promise to hold an offer open for a specified period of time in return of consideration.

Function of Common Law

Provides stability and predictability for commerce.

Informal

Requires no special form for creation

Formal

Requires special form for creation

Revocation

Revocation is the offerror's act of withdrawing (revoking) an offer.

The Statute of Frauds

Some Contracts must be in writing to be enforceable: Contracts with an Interest in Land Contracts involving "one-Year Rule" Collateral or Secondary Contracts Promises made in consideration of marriage Contracts for sales of goods over $500

Destruction

Termination of an offer by destruction means that the house or smartphone or whatever is destroyed before acceptance of the offer and then the offer is terminated.

Assume that the contract was voidable due to Jack's intoxication. Two years later Jack sues to undo the contract for the sale. Which of the following would be Hal and Sophie's best defense against this action?

That Jack, by waiting two years ratified the contract.

Suppose that Jack and Hal and Sophia enter in to a contract for the sale of the business. Jack however was drunk at the time that the negotiations took place and at the time of the signing of the contract. Please decide.

The contract is valid unless Jack did not know he was entering into the contract or lacked the mental capacity to comprehend its nature.

Suppose that Jack and Hal and Sophia enter in to a contract for the sale of the restaurant. Hal and Sophia inventory the restaurant and they find that there was a case of bald eagle meat in the refrigerator, which is illegal to possess. This was unknown to them at the time of the agreement. Which of the following is true?

The contract would likely sever the illegal part of the contract and allow for the contract for the sale of the business to be enforced.

Assume that a contract was entered into for the sale of the restaurant, and that the sale included the covenant not to compete. Which of the following is true?

The covenant not to compete must be reasonable in geographic scope to be valid.

Delegation

Transfer of contractual duties to a third party.

An implied contract differs from an express contract in that the conduct the parties creates and defines the terms of the contract.

True

Unilateral mistakes

Unilateral mistakes cannot be canceled unless: -The other party to the contract knows or should have known, OR -Mistake was due to an inadvertent mathematical mistake and was not gross negligence.

Consideration

Usually is defined as the value (such as cash) given in return for a promise (in bilateral contract) or in return for a performance (in a unilateral contract).

Mental Incompetence and Contractual Capacity

Void: person is adjudged mentally incompetent by a court of law and a guardian has been appointed. Voidable: person does not know she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences.

Acceptance is a:

Voluntary act (expressed or implied) by the Offeree that shows assent (agreement), to the terms of an offer. Unequivocal Acceptance: the "mirror image" rule.

Effect of an assignment

When rights of assignor are unconditionally assigned, her rights are extinguished The third party (assignee) has right to demand performance from original party to contract.

Third party beneficiary contract

a contract in which the parties to the contract intend that the contract benefit a third party.

Requirements for a valid contract do NOT include:

a fair price.

A contract is:

a promise or agreement that can be enforced in court.

Incidental beneficiary

a third party benificiary's benefit from contract between two parties is unintentional Incidental beneficiary cannot sue to enforce the contract

Third party rights

a third party is one who is not a direct party to a particular contract and normally does not have rights under that contract.

Agreement

agreement = mutual assent -An essential element for contract formation is agreement. -The Parties must mutually assent to the same bargain. -An agreement has two components: an offer and an acceptance.

Unconscionable Contracts

are so unscrupulous or grossly unfair as to be "void of conscience" Includes: Procedural Unconscionability and Substantive Unconscionability.

Death or Incompetence of the Offeror or Offeree

automatically terminates unless irrevocable offer.

Creditory

beneficiary benefits from a contract in which promisor promises the promise to pay a debt the promise owes to a third party (creditor beneficiary)

Mutual Mistake

concerns the same material fact, and can be rescinded by either party.

Suppose that Jack and Hal and Sophia enter into an agreement to sell the restaurant. The contract includes the non-competition agreement. A few months later, Jack decides that he will sell the frozen food in violation of non-competition agreement unless if Hal and Sophia agree to pay him an extra $100,000. Hal and Sophia agree since they do not want to fight. Six months later, however they still have not paid and Jack sues. What is the result?

d.Hal and Sophia would win, since Jack already had a prior existing legal duty to not compete with Hal and Sophia.

Misrepresentation of Law

does not entitle a party to relief

As the ___ ___ of the contract, the third party has legal rights and can sue the promisor directly for breach of the contract.

intended beneficiary

Counteroffer

is a rejection of the original offer and the simultaneous making of a new offer. -Mirror Image Rule

Assignment

is a transfer of contractual rights to a third party

Past Consideration

is no consideration because the bargained-for exchange element is missing.

Rescission

is the unmaking of a contract so as to return the parties to the positions they occupied before the contract was made.

Misrepresentation by Conduct

occurs when a party takes specific action to conceal a fact that is material to the contract

Pete calls A-1 Towing when his car won't start. He tells the dispatcher the location of the car, but does not ask for a price and leaves before the tow truck arrives. He obviously does not talk to the driver and does not sign any documents. Therefore, Pete:

owes A-1 for towing his car under an implied contract

Intended beneficiary

promise intended to confer on the beneficiary the right to bring suit to enforce the contract.

Contractual Capacity

the legal ability to enter into a contractual relationship