BLAW Exam 2

A fraudulent misrepresentation consists of the following elements:

A misrepresentation of a material fact must occur. You are lying about something that is a fact (the fact has to be important to the transaction) justifiable reliance There must be an intent to deceive. Scienter, causation, damage The innocent party must justifiably rely on the misrepresentation. To collect damages, a party must have been harmed as a result of the misrepresentation.

Misrepresentation of Words or Actions

Actor Tom Selleck contracted to purchase a horse named Zorro for his daughter from Dolores Cuenca. Cuenca acted as though Zorro was fit to ride in competitions, when in reality the horse suffered from a medical condition. Selleck filed a lawsuit against Cuenca for wrongfully concealing the horse's condition and won. A jury awarded Selleck more than $187,000 for Cuenca's misrepresentation by conduct

Discharge by Performance

Tender: an unconditional offer to perform an obligation by a person who is ready, willing, and able to do so. • If the parties to the contract did not expressly make the specifications a condition, however, and the builder fails to meet the specifications, performance is not complete. What effect does such a failure have on the other party's obligation to pay? The answer is part of the doctrine of substantial performance

Voluntary consent

The knowing and voluntary agreement to the terms of a contract. If voluntary consent is lacking, and the contract will be voidable o The party can choose either to carry out the contract or to rescind (cancel) it and thus avoid the entire transaction

Objective theory of contracts

The view that contracting parties shall only be bound by terms that can objectively be inferred from promises made o Objective facts may include: " What the party said when entering into the contract. " How the party acted or appeared (intent may be manifested by conduct as well as by oral or written words). " The circumstances surrounding the transaction.

Revocation

The withdrawal of a contract offer by the offeror. Unless an offer is irrevocable, it can be revoked at any time prior to acceptance without liability. o Express repudiation of the offer (such as "I withdraw my previous offer of October 17"). o Performance of acts that are inconsistent with the existence of the offer and are made known to the offeree (for instance, selling the offered property to another person in the presence of the offeree)

Implied Contract

a contract formed in whole or in part from the conduct of the parties " Ex: formed by the conduct of the parties Requirements: o The plaintiff furnished some service or property. o The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected. o The defendant had a chance to reject the services or property and did not

Void Contract

a contract having no legal force or binding effect -no contract at all - the purpose of the contract was illegal

Express Contract

a contract in which the terms of the agreement are stated in words, oral or written " Ex: a signed lease for an apartment or house or if a classmate calls to buy textbook for $300. " Formed by words

Informal Contract

a contract that does not require a specific form or method of creation to be valid " Simple contract/ no special form for creation

Executed Contract

a contract that has been fully performed by both parties; Ex: Rosanno agreed to buy ten tons of coal from Western Coal Company. Western has delivered the coal to his steel mill, where it is now being burned. At this point, the contract is an executory contract—it is executed on the part of Western and executory on Rosanno's part. After he pays Western for the coal, the contract will be executed on both sides.

Executory Contract

a contract that has not yet been fully performed; Ex: Rosanno agreed to buy ten tons of coal from Western Coal Company. Western has delivered the coal to his steel mill, where it is now being burned. At this point, the contract is an executory contract—it is executed on the part of Western and executory on Rosanno's part. After he pays Western for the coal, the contract will be executed on both sides.

Unilateral Contracts

a contract that results when an offer can be accepted only by the offeree's performance; "a promise for an act"; contract is formed at the moment when the contract is performed " Ex: contests, lotteries, and other competitions involving prizes; Reese says to Celia, "If you drive my car from New York to Los Angeles, I'll give you $1,000." Only on Celia's completion of the act-bringing the car to Los Angeles-does she fully accept Reese's offer to pay $1,000. If she chooses not to accept the offer to drive the car to Los Angeles, there are no legal consequences

Valid contract

a contract that results when the elements necessary for contract formation are present " Meets the four basic requirements (agreement, consideration, capacity, and legality)

Promise

a declaration by a person (the promisor) to do or not to do a certain act o It distinguishes the promises that create only moral obligations (such as promise to take a friend to lunch) and promises that are legally binding (such as a promise to pay merchandise purchased)

Impossibility to Performance

a doctrine under which a party to a contract is relieved of his or her duty to perform when performance becomes objectively impossible or totally impracticable (through no fault of either party). o When one of the parties to a personal contract dies or becomes incapacitated prior to performance.

Agreement

a mutual understanding or meeting of the minds between two or more individuals regarding the terms of a contract -Agreement is evidenced by two events: an offer and an acceptance. One party offers a certain bargain to another party, who then accepts that bargain. The agreement does not necessarily have to be in writing. Both parties, however, must manifest their assent, or voluntary consent, to the same bargain. Once an agreement is reached, if the other elements of a contract (consideration, capacity, and legality—discussed later in this chapter) are present, a valid contract is formed. Generally, the contract creates enforceable rights and duties between the parties.

Novation

a separate agreement, where one party tells another party that they are off the hook The substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated. Typically, novation involves the substitution of a new party for one of the original parties to the contract. The requirements of a novation are as follows: o A previous valid obligation. o An agreement by all parties to a new contract. o The extinguishing of the old obligation (discharge of the prior party). o A new contract that is valid

Bilateral Contracts

a type of contract that arises when a promise is given in exchange for a return promise; "a promise for a promise" - Ex: Javier offers to buy Ann's smartphone for $200. Javier tells Ann that he will give her the $200 for the smartphone next Friday, when he gets paid. Ann accepts Javier's offer and promises to give him the smartphone when he pays her on Friday. Javier and Ann have formed a bilateral contract

Unenforceable Contract

a valid contract rendered unenforceable by some statute or law; For instance, certain contracts must be in writing, and if they are not, they will not be enforceable except in certain exceptional circumstances

Acceptance

act of voluntarily agreeing, through words or conduct, to the terms of an offer, thereby creating a contract " Mailbox Rule: A common law rule that acceptance takes effect, and thus a contract is formed, at the time the offeree sends or delivers the acceptance using the communication mode expressly or impliedly authorized by the offeror even though it hasn't arrived yet

Release

an agreement in which one party gives up the right to pursue a legal claim against another party o Bars any further recovery beyond the terms stated in the release Releases will generally be binding if they are o given in good faith, o stated in a signed writing (required by many states), and o accompanied by consideration.

Formal Contract

an agreement that by law requires a specific form for its validity. " Ex: checks, drafts, promissory notes, bill of exchange, and certificates of deposit - negotiable instruments

Waiver

an intentional, knowing relinquishment of a legal right

Performance

in contract law, the fulfillment of one's duties arising under a contract with another; the normal way of discharging one's contractual obligations

Record

is information that is either inscribed on a tangible medium or stored in an electronic or other medium and is retrievable

Remedy

is the relief provided for an innocent party when the other party has breached the contract -it is the means employed to enforce a right or to redress an injury

Elements of a VALID CONTRACT (4)

o Agreement: An agreement to form a contract includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer o Consideration: Any promises made by the parties to the contract must be supported by legally sufficient and bargained-for consideration (something of value received or promised, such as money, to convince a person to make a deal). o Contractual: capacity Both parties entering into the contract must have the contractual capacity to do so. The law must recognize them as possessing characteristics that qualify them as competent parties o Legality: The contract's purpose must be to accomplish some goal that is legal and not against public policy

Breach of contract

the failure, without legal excuse, of a promisor to perform the obligations of a contract Material Breach of Contract: Ex: When country singer Garth Brooks's mother died, he donated $500,000 to a hospital in his hometown to build a new women's health center named after his mother. After several years passed and the health center was not built, Brooks demanded a refund. The hospital refused, claiming that while it had promised to honor his mother in some way, it did not promise to build a women's health center. Brooks sued for breach of contract. A jury determined that the hospital's failure to build a women's health center and name it after Brooks's mother was a material breach of the contract. The jury awarded Brooks damages.

Contractual Capacity

the legal ability to enter into contracts. The threshold mental capacity required by law for a party who enters into a contract to be bound by that contract. o Minors, intoxication, mental incompetence...contract can be voided or valid (if the mental incompetent person had control when contract was done) o Minors can enter into contracts, but they are voidable at the minor's request (called disaffirmance).

Legality

-Contracts Contrary to Statute " Contracts to commit a crime " Usury: charging an illegal rate of interest " Gambling " Licensing statutes most issues deal with licensing Ex: if a construction worker has a pool license but his license expired when he made the pool, then the owner doesn't have to pay and gets a free pool-these are created to protect the public

Exculpatory Clause

A clause that releases a contractual party from liability in the event of monetary or physical injury, no matter who is at fault

Mirror Image Rule

A common law rule that requires the terms of the offeree's acceptance to exactly match the terms of the offeror's offer for a valid contract to be formed this is by saying yes and I accept the deal

Unconscionable

A contract or clause that is void on the basis of public policy because one party was forced to accept terms that are unfairly burdensome and that unfairly benefit the stronger party.

Voidable Contract

A contract that may be legally avoided at the option of one or both of the parties.; contracts made by minors generally are voidable at the option of the minor (with certain exceptions). Contracts made by mentally incompetent persons and intoxicated persons sometimes may also be voidable. Additionally, contracts entered into under duress, fraudulent conditions, or undue influence are voidable.

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).

Covenant Not to Compete

A contractual promise of one party to refrain from competing with another party for certain period of time and within a certain geographic area.

Reformation

A court-ordered correction of a written contract so that it reflects the true intentions of the parties

Merchant

A person who is engaged in the purchase and sale of goods. Under the UCC, a person who deals in goods of the kind involved in the sales contract or who holds herself or himself out as having skill or knowledge peculiar to the practices or goods being purchased or sold. o 1. A merchant is a person who deals in goods of the kind involved in the sales contract. Thus, a retailer, a wholesaler, or a manufacturer is a merchant of the goods sold in his or her business. A merchant for one type of goods is not necessarily a merchant for another type. For instance, a sporting goods retailer is a merchant when selling tennis rackets but not when selling a used computer. o 2. A merchant is a person who, by occupation, holds himself or herself out as having knowledge and skill unique to the practices or goods involved in the transaction. This broad definition may include banks or universities as merchants. o 3. A person who employs a merchant as a broker, agent, or other intermediary has the status of merchant in that transaction. Hence, if an art collector hires a broker to purchase or sell art for her, the collector is considered a merchant in the transaction

Offer

A promise or commitment to perform or refrain from performing some specified act in the future. Requirements for Offer: 1. The offeror must have a serious intention to become bound by the offer. -- Offers made in obvious anger, jest, or undue excitement do not meet the serious-and-objective-intent test; an opinion is not an offer, A statement of an intention to do something in the future is not an offer; a request or invitation to negotiate is not an offer like "Will you sell Blythe Estate?" or "I wouldn't sell my car for less than $5,000" 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.--identification of object/product/payment method/time/delivery performance 3. The offer must be communicated to the offeree--one cannot agree to a bargain without knowing it exists Ex: Tolson advertises a reward for the return of her lost cat. Dirk, not knowing of the reward, finds the cat and returns it to Tolson. Usually, Dirk cannot recover the reward because an essential element of a reward contract is that the one who claims the reward must have known it was offered

Rescission

A remedy whereby a contract is canceled, and the parties are returned to the positions they occupied before the contract was made

Mitigation of Damages

A rule requiring a plaintiff to do whatever is reasonable to minimize the damages caused by the defendant o Ex: the landlord must find a new tenant to mitigate the damages from the old tenant

Contract

A set of promises constituting an agreement between parties, giving each a legal duty to the other and also the right to seek a remedy for the breach of the promises or duties. o An agreement that can be enforced in court

Liquidated Damages

An amount, stipulated in a contract, that the parties to the contract believe to be a reasonable estimate of the damages that will occur in the event of a breach o Specific dollar amount is to be paid in the event of a future default or breach of contract o Liquidated damages differ from penalties o Penalty: A sum inserted into a contract, not as a measure of compensation for its breach but rather as a punishment for a default. The agreement as to the amount will not be enforced, and recovery will be limited to actual damages

Firm Offer

An offer (by a merchant) that is irrevocable without consideration for a period of time (not longer than three months). A firm offer by a merchant must be in writing and must be signed by the offeror o Ex: Osaka, a used-car dealer, e-mails a letter to Gomez on January 1, stating, "I have a used 2013 Toyota RAV4 on the lot that I'll sell you for $22,000 any time between now and January 31." This e-mail creates a firm offer, and Osaka will be liable for breach of contract if he sells the RAV4 to another person before January 31

Counteroffer

An offeree's response to an offer in which the offeree rejects the original offer and at the same time makes a new offer o Ex: Burke offers to sell his home to Lang for $270,000. Lang responds, "Your price is too high. I'll offer to purchase your house for $250,000." Lang's response is called a counteroffer because it rejects Burke's offer to sell at $270,000 and creates a new offer by Lang to purchase the home at a price of $250,000

Types of Damages

Compensatory Consequential Punitive Nominal

Promises of Performance

Ex: Paloma Enterprises contracts to sell a truckload of organic produce to Tran for $10,000. The parties' promises are unconditional: Paloma will deliver the produce to Tran, and Tran will pay $10,000 to Paloma. The payment does not have to be made if the produce is not delivered

Lease agreement

In regard to the lease of goods, an agreement in which one person (the lessor) agrees to transfer the right to the possession and use of property to another person (the lessee) in exchange for rental payments o Lessor: One who transfers the right to the possession and use of goods to another in exchange for rental payments o Lessee: One who acquires the right to the possession and use of another's goods in exchange for rental payments.

Mistakes of Fact (2 forms)

Unilateral mistake: A mistake that occurs when one party to a contract is mistaken as to a material fact. • Ex: Elena intends to sell her jet ski for $2,500. When she learns that Chin is interested in buying a used jet ski, she sends him an e-mail offering to sell the jet ski to him. When typing the e-mail, however, she mistakenly keys in the price of $1,500. Chin immediately sends Elena an e-mail reply accepting her offer. Even though Elena intended to sell her personal jet ski for $2,500, she has made a unilateral mistake and is bound by the contract to sell it to Chin for $1,500 • Two general exceptions...the contract may be enforceable if: o The other party to the contract knows or should have known that a mistake of fact was made. o The error was due to a substantial mathematical mistake in addition, subtraction, division, or multiplication and was made inadvertently and without gross (extreme) negligence. If, for instance, a contractor's bid was significantly low because he or she made a mistake in addition when totaling the estimated costs, any contract resulting from the bid normally may be rescinded Bilateral mistake: A mistake that occurs when both parties to a contract are mistaken about the same material fact. • Contract can be rescinded by either party • Ex: L&H Construction Company contracted with Circle Redmont, Inc., to make a staircase and flooring system. Circle Redmont's original proposal was to "engineer, fabricate, and install" the system. Installation was later cut from the deal. In the final agreement, payment was due on Circle Redmont's "supervision" instead of "completion" of installation. But the final contract still included the wording, "engineer, fabricate, and install." Later, Circle Redmont claimed that this wording was a mistake. L&H insisted that installation was included and filed a suit against Circle Redmont.

Condition

(a qualification, provision, or clause in a contractual agreement, which can terminate the obligations of the contracting party) Ex: Restoration Motors offers to buy Charlie's 1960 Cadillac limousine only if an expert appraiser estimates that it can be restored for less than a certain price. Thus, the parties' obligations are conditioned on the outcome of the appraisal. If the condition is not satisfied—that is, if the appraiser deems the cost to be above that price—their obligations are discharged Condition precedent: in a contractual agreement, a condition that must be met before a party's promise becomes absolute.

Compensatory Damage

(to cover direct losses and costs) Ex: Janet Murley was the vice president of marketing at Hallmark Cards, Inc., until Hallmark eliminated her position as part of a corporate restructuring. Murley and Hallmark entered into a separation agreement under which she agreed not to work in the greeting card industry for eighteen months and not to disclose or use any of Hallmark's confidential information. In exchange, Hallmark gave Murley a $735,000 severance payment. After eighteen months, Murley took a job with Recycled Paper Greetings (RPG) for $125,000 and disclosed confidential Hallmark information to RPG. Hallmark sued for breach of contract and won, and the jury awarded $860,000 in damages (the $735,000 severance payment and $125,000 that Murley received from RPG). Murley appealed. The appellate court held that Hallmark was only entitled to the return of the $735,000 severance payment. Hallmark was not entitled to the other $125,000 because that amount would leave Hallmark better off than it would have been if Murley had not breached the contract

Consequential Damage

(to cover indirect and foreseeable losses) Def: Special damages that compensate for a loss that does not directly or immediately result from the breach (for example, lost profits). For the plaintiff to collect consequential damages, they must have been reasonably foreseeable at the time the breach or injury occurred. Ex: Marty contracts to buy a certain quantity of Quench, a specialty sports drink, from Nathan. Nathan knows that Marty has contracted with Ruthie to resell and ship the Quench within hours of its receipt. The beverage will then be sold to fans attending the Super Bowl. Nathan fails to timely deliver the Quench. Marty can recover the consequential damages—the loss of profits from the planned resale to Ruthie—caused by the non-delivery. (If Marty purchases Quench from another vender, he can also recover compensatory damages for the difference between the contract wholesale price and the market wholesale price.)

Statute of Frauds

A state statute under which certain types of contracts must be in writing or in an electronic record to be enforceable o An oral agreement is fine o 1 Sale of real estate; Contracts involving land...you shake on buying a land o 2 Contracts that cannot be performed within one year and one day of execution o 3 Contracts to answer the debts of another—to buy a car, you don't have the money, so they loan the money only if there is another person that will also sign to say that they will pay the loan if the primary person doesn't o 4 Promises in consideration of marriage—if we get married and transfer half the house to you will have to be in writing o 5 Contracts for sale of goods $500 or more o If we agree he is finished paying his car and another person is going to buy it and you send him in email to confirm it and drop off a check and the seller signs a check, that signature on the back of the check along with the email is enough ...you can start performing it then the statue of frauds doesn't matter

Past consideration

An act that has already taken place at the time a contract is made and that ordinarily, by itself, cannot be consideration for a later promise to pay for the act; Ex: Jamil Blackmon became friends with Allen Iverson when Iverson was a high school student who showed tremendous promise as an athlete. One evening, Blackmon suggested that Iverson use "The Answer" as a nickname in the summer league basketball tournaments. Blackmon said that Iverson would be "The Answer" to all of the National Basketball Association's woes. Later that night, Iverson said that he would give Blackmon 25 percent of any proceeds from the merchandising of products that used "The Answer" as a logo or a slogan. Because Iverson's promise was made in return for past consideration, it was unenforceable. In effect, Iverson stated his intention to give Blackmon a gift

Mutual Recession

An agreement between the parties to cancel their contract, releasing the parties from further obligations under the contract. The object of the agreement is to restore the parties to the positions they would have occupied had no contract ever been formed o There must be an offer, an acceptance, and consideration

Covenant Not to Sue

An agreement to substitute a contractual obligation for some other type of legal action based on a valid claim o Does not always prevent further recovery like the release

Mistakes

Mistakes are made when making contracts, however only a MISTAKE OF FACT makes a contract voidable. Need to distinguish the differences between mistakes of fact and mistakes of value or quality o Ex: Sung buys a violin from Bev for $250. Although the violin is very old, neither party believes that it is valuable. Later, however, an antiques dealer informs the parties that the violin is rare and worth thousands of dollars. Here, both parties were mistaken, but the mistake is a mistake of value rather than a mistake of fact that warrants contract rescission. Therefore, Bev cannot rescind the contract

Equitable Remedies

o Restitution: An equitable remedy under which a person is restored to his or her original position prior to loss or injury, or placed in the position he or she would have been in had the breach not occurred. Ex: Katie contracts with Mikhail to design a house for her. Katie pays Mikhail $9,000 and agrees to make two more payments of $9,000 (for a total of $27,000) as the design progresses. The next day, Mikhail calls Katie and tells her that he has taken a position with a large architectural firm in another state and cannot design the house. Katie decides to hire another architect that afternoon. Katie can obtain restitution of the $9,000 o Specific Performance: An equitable remedy requiring exactly the performance that was specified in a contract; usually granted only when money damages would be an inadequate remedy and the subject matter of the contract is unique (for example, real property) Only if goods are unique will a court grant specific performance like paintings, sculptures, sale of land (the same land cannot be obtained elsewhere) & doesn't work for contracts for personal services (will not cause involuntary servitude like have to perform surgery) o Reformation: A court-ordered correction of a written contract so that it reflects the true intentions of the parties Imperfectly expressed their agreement in writing When fraud or mutual mistake is present Written contract incorrectly states the parties' oral agreement Covenants not to compete (if the covenant is for a valid and legitimate purpose but the area or time is unreasonable, reformation can occur)

Defenses of the Enforceability of a Contract

o Voluntary consent: the consent of both parties must be voluntary. For instance, if a contract was formed as a result of fraud, undue influence, mistake, or duress, the contract may not be enforceable o Form: The contract must be in whatever form the law requires. Some contracts must be in writing to be enforceable

Privity of contract

the relationship that exists between the promisor and the promisee of a contract Some exceptions of privity of contracts: Assignment: The act of transferring to another all or part of one's rights arising under a contract • Assignor - assigns the rights • Assignee - receives the rights • The assignee can demand performance from the original contracting party • All rights can be assigned unless: o The assignment is prohibited by statute o the contract is personal o it significantly changes the risk or duties of the obligor o the contract prohibits assignment Delegation: The transfer of a contractual duty to a third party. The party delegating the duty (the delegator) to the third party (the delegatee) is still obliged to perform on the contract should the delegatee fail to perform

Discharge

the termination of an obligation. In contract law, discharge occurs when the parties have fully performed their contractual obligations or when events, conduct of the parties, or operation of law releases the parties from performance.

Duress

the use of threats to force a party to enter into a contract; blackmail or extortion in induce consent to a contract constitutes duress.

Consideration

the value (such as cash) given in return for a promise (bilateral contract) or performance (unilateral contract) in a contractual agreement o Consideration is broke down into two parts: 1. Something of legally sufficient value must be given in exchange for the promise " A promise to do something that one has no prior legal duty to do. " The performance of an action that one is otherwise not obligated to undertake. " The refraining from an action that one has a legal right to undertake (called a forbearance: The act of refraining from an action that one has a legal right to undertake. An agreement between the lender and the borrower in which the lender agrees to temporarily cease requiring mortgage payments, to delay foreclosure, or to accept smaller payments than previously scheduled) 2. There must be a bargained-for exchange " The item of value must be given or promised by the promisor (offeror) in return for the promisee's promise, performance, or promise of performance " Ex: Sheng-Li says to his son, "In consideration of the fact that you are not as wealthy as your brothers, I will pay you $5,000." The fact that the word consideration is used does not, by itself, mean that consideration has been given. Indeed, Sheng-Li's promise is not enforceable because the son does not have to do anything in order to receive the $5,000 promised. Because the son does not need to give Sheng-Li something of legal value in return for his promise, there is no bargained-for exchange. Rather, Sheng-Li has simply stated his motive for giving his son a gift

Punitive Damage

to punish and deter wrongdoing -are almost never available in contract disputes

Nominal

to recognize wrongdoing when no monetary loss is shown