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Basic Elements of a Contract
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offer, acceptance, consideration, capacity, legal
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Bilateral
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both parties make a promise
ex) pay rent in exchange for a leased house
ex) pay rent in exchange for a leased house
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Unilateral
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a promise for an act
ex) reward for finding a lost dog
ex) reward for finding a lost dog
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Valid Contract
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meets legal requirements for a binding contract and are enforceable in court
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Unenforceable
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meets basic legal requirements, but cannot be enforced in court
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Voidable Contract
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one of the parties has the legal right to cancel their contract
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Void Contract
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no legal obligations and no remedy
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Express Contract
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terms of the contract are directly stated orally or in writing at the time the contract was formed
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Implied Contract
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surrounding facts and circumstances indicate an agreement has in fact been reached
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Executed
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all parties have performed their contractual duties
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Executory
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some duties under the contract still need to be performed
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UCC
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statute that represents modern contract law;
- applies only to sale of goods
- applies to contracts that deal predominantly with sale of goods
- more flexible, less weight to technical requirements like consideration
- reasonable standard and duty of good faith
- gives broad discretionary powers to deal with unconscionable contracts
- merchants are held to a higher standard than nonmerchants
- applies only to sale of goods
- applies to contracts that deal predominantly with sale of goods
- more flexible, less weight to technical requirements like consideration
- reasonable standard and duty of good faith
- gives broad discretionary powers to deal with unconscionable contracts
- merchants are held to a higher standard than nonmerchants
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Unconscionable Contract
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grossly unfair or one-sided, and it gives the courts broad discretionary powers to deal fairly with such contracts
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Quasi-Contract
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Used to prevent unjust enrichment of persons who have not contracted for, but nonetheless received a benefit. It is only imposed where that benefit was knowingly received or retained by the other party.
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Promissory Estoppel
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protects persons who rely on the promises of others by preventing promissors from raising legal defenses to the enforcement of their promises despite the fact that technically, no enforceable contract exists;
exact elements: a promise made by a promisor, foreseeable, reasonable and justifiable reliance by the promisee, and resulting legal detriment
exact elements: a promise made by a promisor, foreseeable, reasonable and justifiable reliance by the promisee, and resulting legal detriment
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Offer, Offeror, and Offeree
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Offer: "if you agree to these terms, we have a contract"
Offeror: person who makes the offer
Offeree: person who receives the offer
Offeror: person who makes the offer
Offeree: person who receives the offer
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Offer Requirements
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present intent to contract, definiteness, communicated to the offeree
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Are advertisements offers?
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no, advertisements are invitations to offer or negotiate UNLESS the ad was very specific and there was nothing to negotiate
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Rewards
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considered to be an offer for a unilateral contract
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What terminates an offer?
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Revocation, Rejection, Counteroffer, Death or Insanity of the Offeror, Lapse of time.
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Lapse of Time
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The amount of time that the offer will remain open to the offeree.
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Offers for Unilateral Contract
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Offeree has started to perform requested act before offeror revokes
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Promissory Estoppel
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Offeree foreseeably and reasonably relies on offer being held open, and will suffer injustice if it is revoked
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Mailbox Rule
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properly addressed and dispatched acceptances can become effective when they are dispatched, even if they are lost and never received by the offeror (unless stipulated only effective on receipt)
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Consideration
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legal value, bargained for and given in exchange for an act or a promise
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Voidable
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A contract that is capable of being made void.
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Rescind
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terminate the contract as to future transactions or to annul the contract from the beginning
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Material Breach
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important; information that is sufficiently significant to influence an individual into acting in a certain way, such as entering into a contract
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Mistake
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an erroneous belief about some fact that exists at the time the contract was formed (knowing you are ignorant or have limited knowledge is NOT a mistake)
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Unilateral Mistake
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mistake made by just one of the parties
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Mutual Mistake
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mistake made by both parties
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Courts will allow avoidance of a contract if the mutual mistake:
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1. relates to a fact that was a basic assumption on which the contract was made
2. the fact was material
3. the person adversely affected by the mistake does not consciously bear the risk of the mistake
2. the fact was material
3. the person adversely affected by the mistake does not consciously bear the risk of the mistake
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Undue Influence
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unfair persuasion of a person by one who stands in a legally recognized relationship of trust and confidence or has a relationship of dominance over that person
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Quasi-Contract
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the doctrine by which the courts imply, as a matter of law, a promise to pay the reasonable value of goods or services when the party receiving such goods or services has knowingly done so under circumstances that make it unfair to retain them without paying for them
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Unconscionability
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Unusually harsh, grossly unfair, or "shocks the conscience of the court"; when something is judged unconscionable, a court will refuse to allow the perpetrator of the conduct to benefit
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5 Contracts that are Voidable
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1. misrepresentation
2. fraud
3. mistake
4. economic duress
5. undue influence
2. fraud
3. mistake
4. economic duress
5. undue influence
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Misrepresentation
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an assertion about a fact material to a contract that is not in accordance with the truth and upon which the party actually and justifiably relies
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Remedy for Innocent Misrepresentation
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Rescission
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Fraud
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misrepresentation knowingly made (scienter) with intent to deceive
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Remedy for fraud (negligent misrepresentation)
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Rescission or damages (California law and the UCC allow the injured party to select both)
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What are the 3 categories of people who may not have the capacity to contract? What happens to these contracts?
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1. minors
2. people suffering from mental illnesses
3. intoxicated persons
The contracts become VOIDABLE
2. people suffering from mental illnesses
3. intoxicated persons
The contracts become VOIDABLE
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Disaffirm
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a party's exercise of his power to avoid a contract entered before the party reached the age of majority; a minor's cancellation of his contract
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What are some contracts that a minor CANNOT disaffirm?
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Marriage contracts, alimony agreements, student loans, medical insurance contracts, entertainment contracts, etc.
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How can a minor disaffirm a contract?
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Through words (oral or written), conduct, or a combination of both
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General common law rule regarding the period during which a minor can disaffirm a contract:
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A minor can disaffirm a contract before age of majority and up until a reasonable time after reaching the age of majority, although some states specify this period of time (i.e. 6 months) in statutes
Exception: contracts for the sale of real estate cannot be disaffirmed until after majority
Exception: contracts for the sale of real estate cannot be disaffirmed until after majority
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Necessaries (Necessities)
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that which is reasonably necessary for a minor's proper and suitable maintenance, in view of the income level and social position of the minor's family
Examples: food, clothing, shelter, and sometimes transportation
Examples: food, clothing, shelter, and sometimes transportation
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If the disaffirming minor has purchased something from the other party that is considered to be a necessary:
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the minor is liable for the reasonable value of what he has actually received
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If the disaffirming minor has purchased something from the other party that is considered to be a non-necessary:
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the minor gets a full refund
* To promote the fair treatment of innocent adults, a growing number of states require that minors pay for expenses like depreciation or repair costs*
* To promote the fair treatment of innocent adults, a growing number of states require that minors pay for expenses like depreciation or repair costs*
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Emancipate
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a parent's waiver of his rights to control and receive the services of his minor child; same laws apply to unemancipated minors
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When a minor lies about their age...
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makes him liable in tort for deceit or precludes him for asserting his minority as a claim or defense
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Capacity
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the ability to incur legal obligations and acquire legal rights
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Determining Mental Capacity
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Unless there is prior adjudication, the courts will examine the individual's state of mind at the exact moment he entered the contract. If lucid, the contract is valid and enforceable. If not, the contract is voidable.
Tests:
1. cognitive test (capable of understanding the basic nature and consequences of the contract)
2. volitional test (inability to act reasonably b/c of mental defect or illness and the other party has reason to know of his impairment)
Tests:
1. cognitive test (capable of understanding the basic nature and consequences of the contract)
2. volitional test (inability to act reasonably b/c of mental defect or illness and the other party has reason to know of his impairment)
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What happens to contracts for intoxicated persons?
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Persons who are SO intoxicated that they do not understand the nature and consequences of a contract are treated as lacking capacity to contract. If the other party had reason to know he was unable to understand the contract or act in a reasonable way due to his intoxication the contract is VOIDABLE. To avoid the contract, he must disaffirm it within a reasonable time after regaining sobriety. (similar to minors)
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Illegality
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unlawfulness by virtue of violating some legal statute
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Illegal agreements are generally considered:
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VOID or unenforceable
ex: courts won't give remedy for buying fake cocaine
ex: courts won't give remedy for buying fake cocaine
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Statute of Frauds
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requirement that certain kinds of contracts be memorialized in a signed writing with sufficient content to evidence the contract; a contract that fails to comply is UNENFORCEABLE
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Contracts Covered by the Statute of Frauds
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- Collateral
- Land
- Year
- Sale of goods $500 or more
- Executor's Promise
- Marriage
- Land
- Year
- Sale of goods $500 or more
- Executor's Promise
- Marriage
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Statute of Frauds applies only to:
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executory contracts. if an oral agreement is fully executed, the need for a writing becomes totally irrelevant
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Specific Performance
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A remedy whereby the court orders the breaching party to perform his contract
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Writing Requirements for Statute of Frauds
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Most states require only a memorandum of the parties' agreement; they do not require the entire contract to be in writing
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Substantial Performance
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applies to duties that are difficult to perform without some deviation from perfection if performance of those duties is not an express condition
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Effect of Material Breach
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injured party has the right to withhold his own performance
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Effect of Nonmaterial Breach
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may sue for damages caused by breach, but must also continue with contractual duties- cannot cancel contract
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Impossibility
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examples) illness or death of promisor, supervening illegality, or destruction of the subject matter of the contract
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Types of Contract Remedies
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1) legal remedies (money damages)
2) equitable remedies
3) restitution
2) equitable remedies
3) restitution
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Legal Remedy/Remedy at Law
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(most common) award of money damages that will compensate the injured party for his losses
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Equitable Remedies
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those remedies that had their origins in courts of equity rather than in courts of law (specific performance and injunction)
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Compensatory Damages
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damages recovered in payment for actual injury or economic loss (does not include punitive damages)
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Nominal Damages
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very small damage awards that are given when a technical breach of contract has occurred
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Liquidated Damages
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the parties to a contract expressly provide in their contract that a specific sum shall be recoverable if the contract is breached
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Punitive Damages
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damages awarded in addition to the compensatory remedy that are designed to punish a defendant for particularly reprehensible behavior and deter similar future behavior
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Equitable Remedy
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granted when money damages alone or not adequate to fully compensate for a party's injuries, can be granted alone or in combination with a legal remedy, primary equitable remedies for breach of contract are specific performance and injunction
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Specific Performance
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an equitable remedy whereby the court orders the breaching party to perform his contractual duties as promised, only available when the injured party has no adequate remedy at law
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Injunction
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an equitable remedy that is employed in many different contexts and is sometimes used as a remedy for breach of contract, can be invoked when a breach has merely been threatened, only available when the breach or threatened breach is likely to cause irreparable injury
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