BUL5832 - Contracts (Ch10-18)

Counteroffer vs inquiry example

"Would you take $9,000?" - Not a counteroffer, simply an inquiry that has not rejected the original offer "I will pay $9,000" -Counteroffer

Minor's right to disaffirm

-A contract can be disaffirmed at any time during minority or for a reasonable period after the minor comes of age (3 months) -Minor must disaffirm the entire contract -Disaffirmance can be expressed or implied

What is the definition of a contract?

-A promise or set of promises, -For breach of which, -The law provides a remedy, or -The performance of which the law in some way recognizes as a duty

What are the main elements of a contract?

-Agreement (Offer and Acceptance) -Consideration -Contractual Capacity -Legality

What constitutes an offeror's serious intention?

-Contract is judged by what a reasonable person in the Offeree's position would conclude about the offer -Offers made in anger, jest, or undue excitement are usually not offers -Expressions of opinions are not offers -Statements of intention, preliminary negotiations, and agreements to agree, are not offers

When are contracts in the restraint of trade not void?

-Covenant not to compete and -Sale of an ongoing business

What are the most common remedies?

-Damages. -Rescission and Restitution. -Specific Performance. -Reformation. -Recovery Based on Quasi Contract.

What elements should be present for there to be Definiteness of Terms?

-Identification of the parties -Object or subject matter of the contract -Consideration to be paid -Time of payment, delivery, or performance -An offer can require specific terms to make the contract definite -A court can supply missing terms if the parties intend to form a contract

What are the essential elements of the writing for the statute of frauds?

-Identity of the parties -Contract's subject mater -Terms and Conditions of the agreement -Consideration -Signature of the party to be charged -Any confirmation, invoice, sales slip, check, or telegram can constitute a sufficient writing if it shows a meeting of the minds. The more elements present = the more binding the contract is

What are the characteristics of promissory estoppel?

-Must be clear and definite promise -Promissee must justifiably rely on the promise -Reliance is substantial -Justice will be served by enforcing promise (equitable remedy)

What are the characteristics of detrimental reliance and promissory estoppel?

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

Rules for a bargain-for-exchange?

-Must prove basis for the bargain -Something of legal value (a promise, or a performance) must be exchanged between the parties -The promise must be either: 1.Legally detrimental to the promissee, or 2. Legally beneficial to the promisor

What are the requirements of the offer?

-Offeror's serious intention -Definiteness of terms -Communication of offer

What is an option-to-cancel clause? Does it have consideration?

-One party option to cancel at any time -Reserving, in a contract, the right to cancel or withdraw at any time is an illusory promise. If the right is at all restricted, however such as by requiring 30 days notice, there is consideration.

What are the requirements for a contract to be Implied-In-Fact?

-PL furnished good or service -PL expected to be paid -DEF had chance to reject and did not

What factors are relevant for an intended beneficiary?

-Performance is rendered directly to TPB. -TPB's right to control contract details. -TPB expressly designated as beneficiary.

What are some rules of contract interpretation?

-Plain meaning rule -Contracts are interpreted as a whole -Words given ordinary, common meaning unless specified within contract (ex "pets" = companion or only cats & dogs?) -Specific wording > general language -Written or typewritten > preprinted -Ambiguous terms interpreted against the drafter -Trade usage, prior dealing, course of performance allowed to clarify -Plain meaning absent of fraud or mistake

What are agreements that lack consideration?

-Preexisting duty -Past consideration -uncertain performance

What is a Standard-form (Adhesion) contract?

-Preprinted contract in which the adhering party has no opportunity to negotiate the terms of the contract -One-sided "Take-it-or-leave-it" contracts where one side has substantially superior bargaining power

What are different types of "legal value" for consideration?

-Promise (Bilateral) -Performance (Unilateral) -Forbearance (Giving away right to do something)

What are some exceptions to the consideration requirement?

-Promissory Estoppel -Charitable Subscriptions -Detrimental reliance and promissory estoppel

What do liquidating damages do?

-Provide certainty, -Avoid lawsuits, and -Provide an incentive to enter into contracts

What is the rule for rejection of the offer by the Offeree?

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

What rights cannot be assigned?

-When a Statute Expressly Prohibits Assignment. -When a Contract is Personal in Nature. -Assignment materially changes rights or duties of obligor. -When an Assignment Will Significantly Change the Risk or Duties of the Obligor.

Questions considered when question of enforceability of liquidating damages

-When contract was entered into, was it apparent damages would be difficult to estimate in the event of a breach? -Was the amount set as damages a reasonable estimate and not excessive?

What 2 elements must be present to prove undue influence?

1. A fiduciary or confidential relationship must have existed between the parties 2. The dominant party must have unduly used his or her influence to persuade the servient party to enter into a contract Ex. Doctor, lawyer, accountant & client

What are 3 different elements of contracts?

1. Bilateral v. Unilateral 2. Formal v. Informal 3. Express v. Implied

Who lacks contractual capacity?

1. Extreme intoxicated parties 2. Minors 3. Mental incompetence

Types of equitable remedies

1. Rescission and Restitution 2. Reformation 3. Specific Performance 4. Recovery based on quasi contract

What are the elements of fraud?

1. The wrongdoer made a false representation of material fact 2. The wrongdoer intended to deceive the innocent party 3. The innocent party justifiably relied on the misrepresentation 4. The innocent party was injured

What is an exculpatory clause? Are they enforceable?

A clause that releases a party from liability in the event of monetary or physical damage - No matter who is at fault Enforceable when they are not against public policy, are not ambiguous, and do not shield parties from intentional conduct.

What does the One Year Rule state?

A contract that cannot, by its own terms, be performed within one year from the date it was formed must be in writing to be enforceable One-year period begins to run the day after the contract is made

How does a court determine to adequacy of consideration?

A court will not question the fairness of the bargain if legally sufficient Law does not protect a person from entering into an unwise contract In extreme cases, a court may find that a party lacks legal capacity or that contract was unconscionable

What is a breach of contract?

A failure to perform what a contracting party is under an absolute duty to perform

What is acceptance?

A final and unqualified expression of assent to the terms of an offer

What is an example of a quasi-contract?

A neighbor who is a real estate agent offers to help you sell your house. You don't discuss price, but the real estate agent expects a commission at the end, neighbor thinks it was simply out of kindness. Agent did work/burden for the other party and deserves to be paid, but may not receive the normal rate that they charge. Similar to case "Sheerer v. Fisher"

Bilateral Contract

A promise for a promise Ex. Promise to give a car and promise to give money for the car = enforceable bilateral contract

Unilateral Contract

A promise for an act Ex. Promise to pay if other party washes your car. Only an offer (acceptance would be washing the car), so not yet an enforceable contract.

What is a preexisting duty?

A promise to do what one already has a legal duty to do does not constitute legally sufficient consideration Exceptions: -Unforeseen Difficulties -Recession and New Contract

What is illegal consideration?

A promise to refrain from doing an illegal act in a contract Contracts based on this are void

What is a counteroffer by the offeree?

A rejection of original offer and the simultaneous making of a new offer. Offeree becomes Offeror.

What is rescission?

A remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions.

What is an intended beneficiary?

A third party: -To whom performance is rendered directly -Who has the right to control the details of performance, OR -Who is designated a beneficiary in the contract *An intended beneficiary CAN sue to enforce the contract

What is an incidental beneficiary?

A third party: -Who benefits from a contract but whose benefit was not the purpose for the contract -Who has no rights in the contract *An incidental beneficiary CANNOT sue to enforce the contract

What is the rule regarding revocation of the offer by the offeror? What type of law is this?

BLACK LETTER LAW -Offer can be withdrawn anytime before Offeree accepts the offer -Effective when the Offeree or Offeree's agent receives it

What are the sources of contract law?

Common law judge made law Sales and lease contracts - Uniform Commercial Code (UCC) The restatement (second) of contracts

How is acceptance communicated in a Bilateral contract?

Communication of acceptance is necessary because of mutual exchange of promises -Not necessary if offer does not require

Hawkins v. McGee (1929) Hawkins is a hand model who burns his hand. Goes to McGee, a physician, to get a skin graft from chest skin. Graft works, but not Hawkins has a hairy hand and can't work as a hand model, despite the 100% guarantee that his hand would look good. What damages would Hawkins sue for?

Compensatory - Value difference of a good hand vs hairy hand Consequential - lost model revenue determined from jury Incidental - pay for another surgery, travel to doctor, waxing, etc

What are the elements of consideration?

Consideration must have: 1. "legally sufficient value" and a 2. "bargain-for-exchange"

What is undue influence?

Contract lacks voluntary concent and is voidable. Based on Confidential or Fiduciary Relationship or Relationship of Dependence Undue influence or persuasion is presumed if weak party talked into doing something not beneficial to him/herself Ex. Mrs. Cook lived in nursing home and only say her accountant and lawyer regularly. Left her estate to them when she died and heirs set money aside and argued undue influence.

What types of contracts automatically void?

Contracts to do something prohibited by federal/state law Contracts to commit a crime Contracts for usury Contracts against public policy Contracts in restraint of trade

Layne D. Hess v. Jody Johnston Engagement Consideration

Couple decides to get married and Layne gives Jody an engagement ring. Had financial difficulty and dlayed wedding. Before they got married, they go to France and cruise to Alaska, Layne gets a vasectomy and buys Jody's son a car upon her request. Then, Jody decides she doesn't want to get married and gives ring back. Layne wants half of value of trips, surgery, etc back, claiming that they were conditional upon marriage. Court rules that this was not conditional (other than the engagement ring) and don't need to be returned. There was never a definite date for the wedding, so there was never promissory estoppel.

Hamar v. Sidway (1891) Verdict Forbearance

Court held that the nephew restricting his lawful freedom proves they had a contract and that "Valuable consideration may consist either in some right, interest, profit, or benefit accruing to one of the parties or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other party." Forbearance

What makes an offer irrevocable?

Courts are generally unwilling to allow revocation when offeree has changed position based on justifiable reliance on the offer (Ex. Move to Boston for job offer, then they revoke it)

What is the "plain meaning" rule?

Courts will enforce contracts whose meanings are clear from the face of the instrument When terms are ambiguous, court may admit "extrinsic" (external) evidence

Alexander v. Lafayette Crime Stoppers, Inc. (2010)

Crime stoppers was looking for a criminal and offered a reward for details leading to the arrest of the man via their phone line. Alexander went to the police with a report that she was robbed and the police were led to the missing criminal, who was also the robber. Alexander then claimed she was entitled to the reward money for leading to his arrest, even though the deadline for that had passed and she did not go through crime stoppers to give the tip. Crime stoppers won because the details of the offer were very clear in the terms and conditions.

Delegator vs Delegatee

Delegator- party making the delegation of duty Delegatee - party to whom the duty is owed

What are compensatory damages for?

Designed to compensate nonbreaching party for loss of the bargain -Damages actually sustained (out-of-pocket), directly arising from breach. -Standard Measure: difference between value of promised performance and value of actual performance. Ex. Contract to buy fruit for $100 but contract is breached when market price for fruit is $500. Sue for compensatory damages of $400.

Why are there no punitive damages to punish those who breach a contract?

Effective breach will boost economy

If a contract is entered into while one party is intoxicated, what is the status of the contract?

Either voidable or valid, depending on the court's ruling Enforceable if intoxicated person understands its legal consequences at the time of contracting If dissaffirmed (voidable): -Person has the option to disaffirm -Person may ratify the contract expressly or impliedly ONLY intoxicated party may disaffirm

B-Sharp Musical Productions, Inc. v. Haber (2010) Haber contracted with B-Sharp with clause that cancellation within 90 days will result in 50% deposit returned, and under 90 days a 100% deposit is kept as liquidating damages. Is this enforceable or punitive damages?

Enforceable - Big group of musicians that planned on being there. Probability of booking a different gig within 90 days notice taken into account

What are quasi-contracts?

Equitable remedy created by courts, and imposed on parties in the interest of fairness and justice Implied in law "Quantum Meruit" No prior dealings, least effective argument

Executed vs. Executory contract

Executed: A contract that has been fully performed on both sides Executory: A contract that has not been fully performed on either side

What are incidental damages?

Expenses caused directly by breach of contract. Type of compensatory damages.

Express vs Implied in Fact contracts

Express: Words (oral or written) Implied in Fact: Conduct creates and defines the terms of the contract.

True or false? If any clause in a contract is illegal, the entire contract is void.

False, a specific clause in a contract can be illegal, but the rest of the contract can be enforceable

True or false? You can sue for both liquidating damages and specific performance.

False, this would be 2 collections that are above and beyond making the injured party whole again.

True or false? A non-compete-agreement is a type of specific performance.

False. You cannot compel the person to work for you, but rather only compel them to not work for anyone else

What is 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 of exercising free will (threat of civil suit is not duress) Ex. Godfather - "I made him an offer he couldn't refuse" In Shameless - Debbie threatens to claim uncle molested her if he does not give them their house back

What is specific performance?

Forcing party to uphold contract rather than giving monetary relief Only for land and works of art where money wouldn't cover damages

What are consequential (special) damages?

Foreseeable losses that the breaching party is aware or should be aware of, causing the injury party additional loss

Formal vs. Informal contracts

Formal: Must be in writing to be enforced -> Statute of Frauds Informal: All other contracts (don't need to be written down)

Contracts may be unenforceable if the parties have not _______

Genuinely assented to its terms by: -Mistake -Misrepresentation -Undue Influence -Duress

What is implied in all contracts?

Good faith

Hadley v. Baxendale (1854) (Consequential damages)

Hadley had a broken part and contracted Baxendale to fix it, but B didn't do it on time. H sued for loss of profit, but lost. Common practice to have an extra part, so H should've explained to B that they didn't have one. No money received.

Access Organics, Inc. v. Hernandez (2003)

Hernandez got promotion and then signed a non-compete agreement 4 months after promotion. Ruled the contract is unenforceable because Hernandez didn't get any consideration when he signed. If he got anything when signed (ex. a pen), could count as consideration. Agreement needed to be in exchange for promotion rather than following it as in this case.

What do collateral promises include?

If Parties A and B are in a contract in which A owes B money, this doesn't have to be in writing (if under 1 year, <$500, not land, etc). However, if Party C promises to answer for A's debt, this promise must be in writing to be enforceable. Ex. Parent as guarantor on loan must be in writing

When will a court grant specific performance under the statute of frauds?

If act is partially performed. This performance gives certainty that contract existed Ex. Tenant is already living in apartment and paying rent

Mr. Thackrah & Mr. Haas example Capacity

In the late 19th century, Mr. Thackrah, a Utah resident and owner of $80,000 worth of mining stock, went on a three-month bender. Mr. T's fondness for alcohol was well known, and a local bank hired Mr. Haas to contract with the inebriated Thackrah. Haas did the deal, getting Thackrah to agree to accept $1,200 for his mining stock. When he sobered up (a month later), Thackrah learned that Haas had turned over the mining shares to a local bank (apparently the real culprits in the scheme). Thackrah sued Haas. The case went all the way to the U.S. Supreme Court, which ruled that the agreement was void because the bank and Hass knew that Thackrah had no idea what he was doing when he entered the contract. The bank had to return the shares to Thackrah, less the $1,200 he had already been paid

What are the two types of third party beneficiaries?

Incidental and intended

What is the test for the one year rule?

Is performance physically possible, however unlikely, within one year? Ex. Contract for job for life - possible person could die within one year, does not have to be in writing vs. Contract for 13 month job - must be in writing

Leonard v. Pepsico

Jet commercial -Pepsi made the offer in jest- wasn't a valid offer -Reasonable person could assume offer wasn't serious

What does justifiable reliance depend on?

Knowledge and experience of the party relying. Less likely to prove with more education. Ex. Mechanic told engine was new and worked perfectly when it did not. Not frauded because the mechanic should have known.

When does the offer terminate?

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 Death or Incompetence of the Offeror or Offeree - automatically terminates unless irrevocable offer Supervening Illegality of the proposed contract (legislation or court decision automatically terminates offer or renders contract unenforceable)

What is an example use of the plain meaning rule?

Lease allows for one "pet" in apartment, tenant gets an alligator and claims it is a pet. If the term "pet" was not clearly defined, tenant would win

Lucy v. Zehmer (1954)

Lucy & Zehmer agree to exchange a farm for $50,000 at a farm and write a contract on a bar napkin, with both Zehmer and his wife signing it. Later, Lucy brings money and claims Zehmer owes him the farm. Zehmer claims it was a joke and he was drunk, but court disagreed because he remembered details of the night. Lucy won.

Carlill v Carbolic Smoke Ball Co. (1891)

One of the most significant cases in English law Was the guarantee of $100 in their flier a contract or puffery? Normally ads are puffery, but the company gave an exact amount and claimed that they had deposited $1000 in the bank to fund this claim.

When are parents liable for a child's contract signed while a minor?

Only if they are a co-signer

When does a party have the right to cancel a valid contract?

Only in the case of home solicitation in Florida

What is Privity of Contract?

Only original parties to a contract have rights and liabilities under the contract Those who signed and were named beneficiaries

What type of contract is the following example: Party 1: "Bring me $5,000 and I will sell you my truck." Party 2: "I accept and will bring money tomorrow if you bring the truck."

Party 2 accepted a unilateral contract, did not create a bilateral contract.

Procedural vs Substantive unconscionably

Procedural: Inconspicuous print or legalese Substantive: Contracts are oppressive or overly harsh; that deny a remedy for nonperformance

What is an option contract?

Promise to hold an offer open for a specified period of time in return of consideration Must get consideration from both sides!

Are moral obligations contracts? Why or why not?

Promises made out of a sense of moral obligation or honor are generally not enforceable on the ground that they lack consideration

What are illusory promises?

Promisor has not definitely promised to do anything (no promise at all) Involves an illusory promise = uncertainty

What does contract law do?

Provides stability and predictability for commerce. Defines what promises our society believes should be legally binding Defines what excuses out society will accept for breaking promises.

What will a court do if a contract contains an unconscionable term?

Refuse to enforce it as a whole, refuse to enforce only the unconscionable term, or enforce the unconscionable term only to a limited degree

What does release do during settlement of claims?

Release bars any further recovery beyond the terms stated in the release

What are examples of requirements and output contracts?

Requirements - UF required to buy all drinkk/food from Pepsi only Output - Must buy entire output made by other company

How are damages measures for the sales of goods vs sale of land?

Sale of goods - difference between contract and market price Sale of land - specific performance

Good vs. Service under statute of frauds

Services not covered under statute of frauds Painting/Song/Book? Includes a service, but value is in tangible end product Vs. Taxes/Music lessons? Value is in service

What is contractual capacity?

The legal ability to enter into a contractual relationship

What is an agreement?

The manifestation by two or more persons of the substance of a contract Once reached, if the other elements of a contract are present, a valid contract is formed.

What is a remedy?

The means employed to enforce a right or to redress an injury after a breach of contract

How is it determined if a contract is a restraint of trade?

Three-element test: 1. Duration 2. Territorial coverage 3. Scope of activity

What is the aim of the parol evidence rule?

To force parties to put their complete agreement into writing and thereby make transacting business more certain Excluded terms that have been superseded by the writing Ex. Terms that the parties discussed in negotiation but that they did not intend to include in the contract

What is the objective of the statute of frauds?

To prevent the possibility of a nonexistent agreement between two parties being "proved" and enforced by perjury or fraud in court

What are punitive damages for?

To punish or deter future conduct Not available for contract law

Lhotka v. Geographic Expeditions, Inc (2010) Are all adhesion contracts unconscionable?

Tour guides hired and sign contract. Climber died from altitude sickness. Cotract was very wide and covered all bases. Only could recover travel expense, but must pay all fees. All to prohibit fair distribution of risk. Ruled too harsh - unconscionable. Not all adhesion (mandatory) contracts unless grossly unfair, leaving party with no remedy/recourse

What are the levels of contract enforceability?

Valid- agreement, consideration, contractual capacity, legality (all contract elements present) Void- no contract (missing at least one contract element) Voidable (unenforceable)- valid contract can be avoided or rescinded based on certain legal defenses

What are the different possibilities for a contract under mental incompetence?

Void: If a person has been adjudged mentally incompetent by a court of law and a guardian or custodian has been appointed Voidable: If a person does now know who he or she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences Valid: If person is able to understand the nature and effect of enetering into a contract yet lacks capacity to engage in other activities (Lucid interval) Ex. When Ally knows who Noah is at the end of the movie

What is the status of a contract entered into by a minor?

Voidable

Watkins v. Schexnider (Parol Evidence Rule)

Watson buys house. Contract says she buys "house, home, property", but does not explicitly say land. House is destroyed and Schexnider kicks her off the land. Parol evidence is allowed - daughter of Watkins testifies that they were walked around and shown the property. Court rules that Watson owns land

What is fraudulent misrepresentation?

When a person intentionally makes an assertion that is not in accord with the facts. Also called fraud.

When is fraudulent misrepresentation actionable?

When it is a statement of fact rather than opinion. Ex. "You're gas mileage will be 40 mpg" vs "You will get good gas mileage"

What is forbearance?

When one gives up a right Ex. Give up right to drink/smoke for money - Consideration does not need to be examined. Until you forbear, there is no enforceable contract

What is the effect of an assignment?

When rights of assignor are unconditionally assigned, her rights are extinguished

When does injury to innocent party need to be proved?

When seeking to recover damages (not when trying to simply rescind contract)

What is the Parol Evidence Rule?

When the words of the contract are clear, explicit, and lead to no absurd consequences the contract must be interpreted within its four corners and cannot be explained or contradicted by parol evidence Evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary contractual terms is inadmissible if the contract is intended as a complete and final expression of the parties. -Representations or promises made prior to the contract's formation or at the time the contract was created, may not be admitted in court.

When is a service company liable for consequential damages?

When they do not have a waiver against them in their contract.

Do marriage contracts have to have consideration?

Yes

Is a contract with a mistake of value enforceable?

Yes, enforceable by either party unless mistake of value is due to a mistake of material fact

What does "Quantum Meruit" mean?

You get what you deserve - not necessarily the normal rate you would receive

Raffles v. Wichelhaus Case (Mutual mistake)

• In Raffles v. Wichelhaus, Raffles (P) contracted to sell 125 bales of Surat cotton to Wichelhaus (D). The goods were to be shipped from Bombay to Liverpool, England on the ship "Peerless". • Neither party was aware that there were two ships called "Peerless" carrying cotton from Bombay to Liverpool, one arriving in October and the other in December. Wichelhaus thought that he had purchased the cotton arriving on the October ship, but Raffles sent his cotton on December ship. • D refused to accept delivery of the cotton arriving on the December ship and P sued for breach of contract.

What are the 7 exceptions to the parol evidence rule?

• Parol evidence is admissible to show intent of the parties: (1) subsequent modification of a contract; (2) a party was deceived into contracting by mistake, fraud, or misrepresentation; (3) the meaning of ambiguous terms; (4) what fills in the gaps in an incomplete contract; (5) a prior course of dealing between the parties or usage of trade; (6) a condition precedent to which the existence of a contract is subject - (for example, that the parties agreed a contract was not binding unless their attorneys approved it); (7) corrections of an obvious typographical or clerical error.

Sherwood v. Walker (bilateral contract mistake)

• Sherwood v. Walker. • Seller Walker owned breeding cows, worth between $750.00 and $1,000.00 and barren cows, worth about $80.00. • Buyer Sherwood inspected an apparently barren cow, Rose 2nd of Aberlone, and decided to buy her. • A price was agreed on 5.5 cents per pound but before the exchange of money and cow, Walker found Rose was pregnant and refused to part with her. Ruled mutual mistake of fact followed by mistake of value.

What is the effect of a delegation?

•Delegator remains liable •If Delagatee fails to perform the delagatee is also liable. •The obligee can sue both the delagator and the delagetee, but only can collect damages once

What is reformation?

•Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. •Available when an agreement is imperfectly expressed in writing

What is meant by assignment of "all rights"?

•Generally, when an assignment is made in a contract, the implication is an assignment of ALL rights and duties. •However, assignee remains liable for performance of duties. •One party cannot change the contract unilaterally, but get both parties to agree. First party still liable

What are liquidating damages? How are they different than penalties?

•Liquidated Damages. -A contract provides a specific amount to be paid as damages in the event of future default or breach of contract. •Penalties. -Specify a certain amount to be paid in the event of a default or breach of contract and are designed to penalize the breaching party.

Mitigation of damages

•When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered. •Duty owed depends on the nature of the contract.

When does recovery based on quasi contract arise?

•When no contract actually exists. Remedy created by courts to obtain justice and prevent unjust enrichment. •Party conferring benefit can recover in quantum meruit ("as much as she deserves").

What duties cannot be delegated?

•When the Duties are Personal in Nature (special trust). •When Performance by a Third Party Will Vary Materially From that Expected by the Obligee. •When the Contract Prohibits Delegation.

When can a minor not disaffirm?

In some states, when they misrepresent their age Contracts for necessaries - remain liable for the value or good/service

What is "land" under the statute of fruads?

All physical objects that are permanently attached to the soil: buildings, fences, trees, and the soil itself All contracts for the transfer of other interest in land: mortgages and leases NOT furniture, appliances, above ground pool, etc

How is acceptance communicated in a Unilateral contract?

Acceptance is evident, notification not necessary

What is the general rule for mode and timeliness of acceptance in a bilateral contract?

Acceptance is timely if made before offer is terminated

What is an offer?

An expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the "offeree"

Assignment vs. Delegation

Assignment - Transfer of contractual rights Delegation - Transfer of contractual duties Both occur AFTER contract was made

What are the two exceptions to privity of contract?

Assignment or delegation Third Party Beneficiary Contract

Assignor vs Assignee

Assignor - Party assigning rights to third party Assignee - Party receiving rights

What is the mirror image rule?

At common law, any change in terms automatically terminates the offer and substitutes counteroffer. Acceptance must be exactly what was offered

What is the goal of compensatory damages?

Attempt to put the plaintiff into a position where they would have been had the contract not been breached "Benefit of the Bargain"

What is destruction of subject matter?

Before acceptance of offer, terminates the offer

When can a unilateral contract be revoked?

Before performance has begun

What is a bilateral (mutual) mistake?

Both parties are mistaken. Can be rescinded by either party. Ex. Buyer thinks they are buying Truck A, Seller thinks they are selling Truck B

What is restitution?

Both parties must return goods, property, or money previously conveyed. Ex. Breach lease and give back keys, get deposit back, no damages paid

How can an offer by terminated prior to acceptance?

By either the actions of the parties or operation of law

Obligee vs Obligor

Obligee - Person to whom a duty or obligation is owed Obligor - Person who is obligated to perform the duty

What does agreement require?

Offer and acceptance Parties must show mutual assent to terms of contract

What does communication of offer entail?

Offeree's knowledge of the offer: -Directly by the offeror, or -Use of Agents

What contracts fall within the statute of frauds?

MY LEGS Marriage (prenup) Year (>1 year to complete) Land Executor's promise Goods (>$500) Secondary contracts

What is the general rule regarding a minor's obligations on disaffirmance?

Minor need only return the goods (or other considerations) subject to the contract, provided the goods are in the minor's possession or control

What is puffery?

Misrepresenting for sale, not actionable. Not material because not well defined. Ex. Saying apartment is "cool" in the summer. (puffery) vs. Saying apartment is 1,000 sq ft when its actually 900 sq ft (maybe fraud)

What type of mistake can be avoided in a contract?

Mistake of fact (believing something is something other than what it is)

If you breach a lease with an apartment complex, what duty does the complex have to mitigate damages?

Must try to rent apartment, but does not have to rent first if other rooms are also still open, just has to be reasonable.

What are nominal damages?

No financial loss Defendant is liable, but only a technical injury

Can all contracts entered into without contractual capacity be disaffirmed?

No, contracts to obtain necessary services (food, shelter, medical care) cannot be disaffirmed do to lack of capacity.

Are gift promises (gratuitous promises) enforceable? Why or why not?

No, they lack consideration A "completed gift promise" becomes a true gift, which by definition is irrevocable

Is there a "deal"? Why or why not? "J J McDaniels, 24, was about to begin trial for the murder of his grandparents and 15-year-old brother. Before opening arguments, Judge Smith ordered McDaniels to meet her in the judge's chambers. The judge informed McDaniels that she was not looking forward to the expected, two-week trial. She then told McDaniels, "if you plead guilty, there is a 90% chance that I will give you life without parole and only a 10% chance that I will give you the death penalty."(In this jurisdiction, the judge determines the sentence.) "Why not give it a shot?"she urged. Judge Smith then extended her hand and said, "Do you promise to plead guilty?"McDaniels pondered the offer for less than a minute, then shook the judge's hand and replied, "I promise."Heading back to the courtroom, McDaniels had second thoughts. When Judge Smith asked McDaniels for his plea, he responded, "not guilty.""But you can't do that,"exclaimed Judge Smith, "we had a deal!"Is she correct? Does McDaniels have to plead guilty as promised? "

Not a deal - Illusory promise Performance must be certain (can't be like this case, with a 90% chance)

When can unilateral mistakes be canceled?

ONLY when: -Other party to the contract knowns or should have known that a mistake of fact was made -If mistake was due to mathematical mistake and was made inadvertently and without gross negligence

When is a contract unconscionable?

Objectively and severely disproportionate exchange of value: Although courts will not usually question the judgment of parties, when the exchange is so disproportionate as to shock the court, it may be unenforceable as an unconscionable contact.

U.S. Bank, N.A. v. Tennessee Farmers Mutual Insurance Company

Tenants were foreclosed upon and evicted. Crackheads moved in and burnt the house down. Tennessee had in contract that bank must notify them in case of "increase in hazard" without a definition of what that means. Bank wins case because there was no definition of "increase of hazard" in the contract

What is an exception to collateral promises?

The Main Purpose Rule: Oral contract is enforceable if main purpose is to benefit guarantor.

Why does past consideration not count as consideration?

The bargained-for-exchange element is missing

What is the restatement (second) of contracts?

The unofficial authority for aspects on contract law which find their genesis in the common law principle

What happens to a minor's contract when they reach majority?

They are assumed to ratify the contract (indicate an intention to become bound) unless specifically disaffirming it