Shared Flashcard Set

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Contracts
Bar Prep
70
Law
Post-Graduate
06/30/2008

Additional Law Flashcards

 


 

Cards

Term
Armadillos From Texas Play Rap Eating Tacos
Definition
Applicable Law
Formation of Contracts
Terms of Contract
Performance
Remedies for unexcused nonperformance
Excuse of nonperformance
Third-party Problems
Term
Formation
Definition
FORMATION:  three elements are required to make a contract:  (1) mutual assent; (2) consideration; and (3) no defenses exist
Term
Mutual Assent
Definition

Mutual assent:  for an agreement to be enforced, there must an acceptance of an offer.

1.  Offer:  an offer must be a (1) manifestation of intent to enter into a contract with (2) definite and certain terms and (3) communicated to an offeree.
Term
Manifestation of Intent
Definition
manifestation of intent:  look for an expression of promise, undertaking or commitment.  It is important to distinguish between preliminary negotiations (not offers) and promises (offers).
Term
Definite and Certain Terms
Definition

definite/certain terms:  whether the subject matter is sufficiently definite depends on the type of contract it is—

   i.  real estate transactions:  require identification of land and price terms;

   ii.  sale of goods:  requires the quantity be certain, or capable of being made certain;

  iii.  employment contract:  requires the duration of employment to be specified
Term
Termination of Offer by Offeror
Definition

termination by offeror:

1.  revocation:  the offeror terminates the offer if he (1) directly communicates the revocation to the offeree; or (2) acts inconsistently with continued willingness to maintain the offer, and the offeree receives correct information of this from a reliable source.

   a.  when effective:  revocation is effective when received by the offeree (note:  publication of revocation is effective when published)

   b.  power to revoke:  if the offer is not supported by consideration or detrimental reliance, the offer can be revoked at will by the offeror.
Term
Termination of Offer by Offeree
Definition

termination by offeree:

1.  rejection:  an offeree may reject an offer either expressly or by making a counteroffer. 

   a.  when effective:  a rejection is effective when received by the offeror

   b.  rejection of an option:  the offeree is still free to accept the offer within the option unless the offeror has detrimentally relied on the offeree’s rejection (e.g. sold it to someone else)

   c.  lapse of time:  an offer may be terminated by offeree’s failure to accept within the time specified by the offer or within a reasonable period of time if no deadline was specified
Term
Termination of the Offer by Operation of Law
Definition

termination by operation of law:  the following events will terminate an offer by law—

A.  death or insanity of either party;

B.  destruction of the proposed contract’s subject matter; or

C.  supervening illegality
Term
Acceptance
Definition
Acceptance:  valid acceptance of a bilateral contract requires (1) an offeree with the power to accept; (2) unequivocal terms of acceptance; and (3) communication of acceptance
Term
Power to Accept
Definition
power to accept:  person to whom the offer was addressed.  Note:  the right to accept usually cannot be assigned.
Term
Unequivocal Terms of Acceptance
Definition
unequivocal:  the mirror image rule requires that the acceptance must mirror the offeror’s terms, otherwise, it is a rejection and a counteroffer
Term
Communicated
Definition

communicated (mailbox rule):  under the mailbox rule, if acceptance is by mail and properly addressed and stamped, it is effective at the moment of dispatch.  Note:  this rule applies only to acceptance—not to rejection or revocation.

 i.  limits on the mailbox rule:

   A.  does not apply if the offer stipulates that acceptance is not effective until received or if an option contract;

   B.  if rejection is sent, and then an acceptance, whichever arrives first is effective;

  C.  if acceptance is sent, and then a rejection, the acceptance is effective (i.e. the mailbox rule applies) unless the rejection arrives first and the offeror detrimentally relies on it
Term
Consideration
Definition

Consideration:  courts will enforce a bilateral or unilateral contract only if it is supported by consideration or a substitute

1.  Consideration involves two elements:  (1) a bargained for exchange for (2) something of legal value
Term
Bargained For Exchange
Definition

bargained for exchange:  the following are not consideration, because they were not “bargained for”—

i.  gift:  no bargain involved when one party gives a gift to another;

ii.  past (or moral) consideration:  when there is an unrequested event and then a promise to pay for that event
Term
Legal Value
Definition

legal value:  usually a detriment to the promissee, where he promises something he is under no legal obligation to do, or refrains from doing something that he has a legal right to do. Note:  exchange of promises is valid consideration. 

i.  illusory promise:  not consideration, because there is no detriment to the person making the promise

ii.  preexisting legal duty:  generally, not valid consideration, because the duty already exists, so no new detriment
Term
Consideration Substitutes
Definition
Consideration Substitutes:  promissory estoppel or detrimental reliance can be used to enforce a contract if the consideration is found to be invalid.  The following elements must be present: (1) the promisor should reasonably expect his promise to induce an act of forbearance; (2) of a definite and substantial character; and (3) such action or forbearance is in fact induced.
Term
Defenses Regarding the Formation of a Contract
Definition

1. Mutual Mistake

2. Unillateral Mistake

3. Mistake by Intermediary

4. Latent Ambiguity Mistakes

5. Misrepresentation

6. Lack of Consideration

7. Illegality

Term
Mutual Mistake
Definition
mutual mistake:  a mistake by both parties is a defense if (1) the mistake concerns a basic assumption on which the contract was made; (2) it has a material adverse effect on the exchange; and (3) the adversely affected party did not assume the risk of the mistake
Term
Unilateral Mistake
Definition
unilateral mistake:  generally insufficient to void a contract (unless nonmistaken party knew/should have known)
Term
Mistake by Intermediary
Definition
mistake by intermediary (e.g. telegraph company):  the message usually will be operative as transmitted, unless the party receiving the message should have been aware of the mistake
Term
Latent Ambiguity Mistakes
Definition

latent ambiguity mistakes:  if K has an ambiguous term, the result depends on the parties awareness of it:

A.  neither party aware—no contract unless both parties intended the same meaning;

B.  both parties aware—no contract unless both parties intended the same meaning;

C.  one party aware—binding K based on what the ignorant party reasonably believed to be the meaning
Term
Misrepresentation
Definition
misrepresentation:  if a party induces another to enter a contract by using fraudulent misrepresentation or by using nonfraudulent material misrepresentation, the contract is voidable by the innocent party if he justifiably relied on the misrepresentation.
Term
Lack of Consideration
Definition
lack of consideration:  if lacking elements of a bargain or legal detriment, no contract exists
Term
Illegality
Definition
illegality:  if the consideration or subject matter of a contract is illegal, the contract is void.
Term
Defenses Based on Lack of Capacity
Definition
Defenses based on lack of capacity:  persons under age 18 lack capacity to contract (unless contract provides for “necessities”).  A contract between an infant and an adult is voidable by the infant, but binding on the adult.  Insane persons lack capacity, although they may contract during a lucid interval.  Intoxicated persons may lack capacity if the other party has reason to know of the intoxication.  Contracts induced by duress or coercion are voidable.
Term
Defenses Concerning Enforcement of Contract
Definition

1. Statute of Frauds

2. Unconscionabilty

Term
Statute of Frauds
Definition

Statute of Frauds (SOF):  certain contracts require the terms to be in writing to be enforceable.  This defense is waived if it is not raised.  A helpful mnemonic for when a writing is required—MY LEGS

i.  M—marriage:  promises in consideration of marriage;

ii. Y—year:  service contracts not capable of being performed within

one yearfrom the time of the agreement;

      iii. L—land:  promises creating an interest in land;

      iv. E—executor:  promises by executors or administrators to pay obligations of an estate out of his their own funds;

      v.  G—goods:  agreements for the sale of goods for $500 or more;

    vi.  S—surety:  promises to answer for the debt or default or another (i.e. to act as a surety)
Term
Satisfying the SOF
Definition
Satisfying the SOF:  the writing must contain the following—(1) the identity of parties to be charged; (2) identification of the contract’s subject matter; (3) terms and conditions of the agreement; (4) recital of the consideration; and (5) the signature of the party to be charged (or his agent).
Term
When the SOF does not Apply
Definition
When SOF does not apply:  for a sale of land, most jurisdictions do not apply SOF if there is performance that unequivocally indicates that the parties contracted for the sale of land.  This is usually evidenced by either (1) payment (in part or in whole); or (2) possession and/or valuable improvements to the land.
Term
Unconscionability
Definition
unconscionability:  a contract may be voided where the clauses are so one-sided as to be unconscionable.  This is tested at the time the contract was made, not later (i.e. the contract must have been unfair when it was entered into).  The defense is often applied where one party has substantially superior bargaining power.
Term
Third Party Beneficiaries
Definition
3rd Party Beneficiaries:  in a typical 3rd party beneficiary situation, A (the promisee) contracts with B (the promisor) that B will render some performance to C (the 3rd party beneficiary).
Term
Intended vs. Incidental Beneficiaries
Definition
“intended” v. “incidental” beneficiary:  only intended beneficiaries have contractual rights; not incidental beneficiaries.  To determine “intended beneficiary” status, consider whether the beneficiary (1) is identified in the contract; (2) receives performance directly from the promisor, or (3) has some relationship with the promisee to indicate intent
Term
Third Party Enforcement
Definition
3rd party enforcement:  a 3rd party can only enforce a contract when his rights have vested.  This occurs when he (1) manifests assent to a promise in the manner requested by the parties; (2) brings a lawsuit to enforce the promise; or (3) materially changes position in justifiable reliance on the promise. 
Term
Assigment of Rights
Definition
Assignment of Rights:  in the typical assignment situation, A (the obligor) contracts with B (the assignor).  B assigns his right to A’s performance to C (the assignee).
Term
What is Neccessary for an Assignment?
Definition
the assignor must manifest an intent to immediately and completely transfer his rights.  Consideration is not required.  Note:  a writing is not required to have an effective assignment.
Term
What Rights can be Assigned?
Definition
generally all contractual rights may be assigned, unless the assignment would substantially change the obligor’s duties or risk (e.g. output contracts where the assignee will substantially vary the quantity), or the assignment would be prohibited by law (e.g. wage assignments)
Term
Is the Assignment Revocable or Irrevocable?
Definition
an assignment for consideration is irrevocable.  An assignment not for consideration is generally revocable.  However, a gratuitous assignment is irrevocable if:  (1) the obligor has already performed; or (2) the assignee can show detrimental reliance on the gratuitous assignment.  A revocable gratuitous assignment may be terminated by:  (1) the death or bankruptcy of the assignor; (2) notice of revocation by the assignor to the assignee or the obligor; (3) the assignor taking performance directly from the obligor; or (4) subsequent assignement of the same right by the assignor to another.
Term
What if There is more than One Assignment?
Definition
If the 1st assignment is revocable, a subsequent assignment revokes it.  If it is irrevocable, the first assignment will usually prevail over a subsequent assignment. 
Term
Delegation of Duties
Definition

Delegation of Duties:  in the typical delegation situation, A (the obligor/delegator) promises to perform for B (the obligee).  B delegates his duty to C (the delegate).

1.  What is necessary for a delegation:  the delegator must manifest a present intention to make a delegation.  There are no special formalities to be complied with—it may be written or oral.

2.  What rights can be delegated:  generally, all duties may be delegated, unless (1) prohibited by the contract; (2) the duties involve personal judgment and skill; (3) delegation would change the obligee’s expectations (e.g. requirements and outputs contracts); or (4) a special trust was reposed in the delegator by the other party to the contract.

3.  Remedies:  the obligee may sue the delegator or the delegate for nonperformance of the contract.  Note:  delegate is liable only if he receives consideration from the delegator.
Term
Novation
Definition
Novation:  novation substitutes a new party for an original party to the contract.  It requires consent of all parties and completely releases the original party.
Term
Contract Terms
Definition
a contract is construed as “whole,” and according to the plain meaning of the words.  If there is an inconsistency between provisions, written or typed provisions prevail over printed ones.  Ambiguities are construed against the party preparing the contract, absent evidence of the intention of the parties.  Courts look to the custom and usage in a particular business and in a particular locale to determine the parties’ intent when it is unclear.
Term
Parol Evidence Rule
Definition
Parol Evidence Rule:  says that “Evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary contractual terms is inadmissible if the written contract is intended as a complete and final expression of the parties.”  A “merger clause” (recital that a contract is complete on its face) strengthens the presumption that the written document is final.
Term
Exceptions to the Parol Evidence Rule
Definition

Exceptions to the Parol Evidence Rule:  evidence of the following is admissible:

1.  formation defects (e.g. fraud, duress, mistake, illegality);

2.  the existence of a condition precedent to a contract;

3.  the parties’ intent regarding ambiguous terms;

4.  consideration problems (e.g. consideration stated in the contract was never paid);

5.  a prior valid agreement which (as by mistake) is incorrectly reflected in the writing;

6.  a collateral agreement if it does not contradict or vary the main contract and if it is not so closely connected as to be part of the main contract; and

7.  subsequent modifications
Term
Performance
Definition
two questions must be asked—(1) whether a present duty to perform has arisen (i.e. is there an absolute promise or have all conditions been met and excused); and (2) whether the duty to perform has been discharged.  If a present duty to perform has arisen and has not been discharged, nonperformance will be a contractual breach.
Term
Distinctions between promises and conditions
Definition
a promise is a commitment to do or refrain from doing something.  It may be conditional or unconditional.  A condition is an event the occurrence or nonoccurrence of which will create, limit, or extinguish the absolute duty to perform; it is a promise modifier.
Term
Classifying Conditions according to the time of Occurence
Definition

1.  condition precedent:  the condition must occur before performance is due.  (E.g. an agreement to pay $10,000 “if my house is sold by April 1.”  No payment is required unless the house is sold by April 1.)

2.  condition concurrent:  conditions to occur at the same time.  If one condition has occurred, performance of the other is due.  (E.g. Agreement to pay $100,000 for the farm.  Money and deed are exchanged in same transaction.)

3.  condition subsequent:  condition cuts off an already existing duty.  The duty to perform is excused.  (E.g. Agreement to buy the farm for $100,000 unless zoning changes.  If zoning changes, no duty to pay $100,000 or transfer deed.)
Term
Excusing the Conditions
Definition

a duty of performance becomes absolute when conditions are either performed or excused.  Conditions can be excused in several ways:

1. Anticipatory Repudiation

2. Substantial Performance

3. Divisibility of Contract

4. Waiver or Estoppel

Term
Anticipatory Repudiation
Definition
anticipatory repudiation:  must be unequivocal, not just an expression of doubt.  It applies only if there are executory (unperformed) duties on both sides.  It gives the nonrepudiating party four alternatives:  (1) treat the contract as totally repudiated (breached) and sue immediately; (2) suspend his own performance and wait until the performance is due to sue; (3) treat the repudiation as an offer to rescind and treat the contract as discharged; or (4) ignore the repudiation and urge performance.
Term
Substantial Performance
Definition
substantial performance:  where a party has almost completely performed his duties, but has breached in some minor way, the rule of substantial performance avoids forfeiture of a return performance.  Note:  the substantially performing party may be required to pay damages to compensate the other party for the incomplete performance.
Term
Divisibility fo Contract
Definition

divisibility of contract:  where a party performs one of the units of a divisible contract, he is entitled to the agreed equivalent for that unit even though he fails to perform the other units.  Three tests determine whether K is divisible:

  a.  the performance of each party is divided into two or more parts under the contract;

  b.  the number of parts due from each party is the same; and

  c.  the performance of each part by one party is the agreed equivalent of the corresponding part by the other party.
Term
Waiver or Estoppel
Definition
waiver or estoppel:  a party may “waive” a condition by indicating that he will not insist on it.  However, such a waiver may be retracted at any time unless the other party relies on the waiver and changes his position to his detriment.  Upon such detrimental reliance, the waiving party is estopped from asserting the condition.
Term
Has the Duty Been Discharged?
Definition
1. Impossibility
2. Impractability
3. Frustration fo Purpose
4. Recission
5. Novation
6. Accord and Satisfaction
Term
Impossibility
Definition
impossibility:  this is measured by an objective standard—where nobody could perform by the terms of the contract
Term
Impracticalability
Definition
impracticability:  this is a subjective test, that requires:  that a party encounter extreme and unreasonable difficulty or expense that was not anticipated.  A mere change in difficulty or expense due to normal risks that could have been anticipated will not warrant discharge of the duty.
Term
Frustration of Purpose
Definition
frustration of purpose:  this requires (1) a supervening event; (2) that was unforeseeable at the time of contracting; (3) which completely or almost completely destroys the purpose of the contract; and (4) that purpose was understood by both parties
Term
Recission
Definition