Law and Ethics 6
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a promise or a set up promises enforcable by law
- simply an agreement that a court of law will recognize and enforce
categories of contracts
- written vs. oral
- bilateral vs unilateral
- express vs implied vs quasi
all contracts will fit into more than one category
written contracts are defined by the
statute of frauds
involves 2 promises and 2 performances
involves one promise, followed by one performance, which than triggers a second performance from the offeror (the party making the offer)
ex: a offer in the form of a reward
is created when the parties have expressly agreed on the promises and performances
one in which the agreement is reached by the parties' actions rather than their words
ex: seeking care from a physician
no express or implied contract exists
enforceable where one party suffers losses as a result of another party's unjust enrichment.
- - one party does not actually request a certain service, but still benefits from the services rendered
- - also possible when an express contract is unenforceable for some legal reason, but one of the parties has gained a benefit
when a contract has necessary elements
those agreements that have not been formed in conformance with the law from the outset of the agreement and, thus, cannot be enforced by either party.
ex: contract for the sale of an illegal narcotic
one in which one party may at its option either disaffirm the contract or enforce it
ex: allowing a minor or guardian the right to void a contract up until the time the minor turns 18
one that meets the elements required of the law for an otherwise binding agreement, but is subject to a legal defense such as the statutory requirement that certain contracts be in writing in order to be enforceable
Sources of Law
- State Common
- State Statutory
- Hybrid Contracts
State Common Law
Contracts for services (legal, acct, engineering) or real estate (such as the sale of an office building or a lease for a commercial retrail space)
Contracts for goods or products (something that is moveable at the time of identification in the contract)
based on the UCC, also includes leasing of equipment
involves both goods and services
source of law is determined by the determining the predominant thrust
of the contract subject matter.
- courts examine:
- 1.) allocation of price (value of goods vs value of services)
- 2.) Uniqueness of the services (did it require a special talent?)
the more unique the service, the more likely the contract is covered by common law
1st contract is formed when 2 or more parties agree to a particular set of terms
an agreement is recognized as legally binding so long as it meets certain formation requirements
2nd, after the formation requirements are met, the contract is governed by laws that set out requirements for enforceability of the agreement.
Finally, assuming that the contract was properly formed and is legally enforceable, the law sets out rules and consequences related to how the parties fulfill their obligations to one another. This is known as performance (or nonperformance) of the agreement.
in order for a contract to be valid, the parties must reach an agreement using a combination of offer and acceptance
a conscious approval or confirmation of facts. In contract law, assent is the knowing, voluntarily, and mutual approval of the terms of a contract by each party.
- 1.) agreement (offer and acceptance)
- 2.) consideration
- 3.) capacity
- 4.) legality/public policy
in order for the contract to be enforceable, the agreement must also be the product of genuine assent and in some cases, certain terms must be in writing as required by the statute of frauds.
promise or committment to do (or refrain from doing) a specified activity such as selling a good at a certain price or offering to provide services at a given rate.
also the expression of willingness to enter into a contract by the offeror promising an offeree that she will perform certain obligations in exchange for the offerree's counterpromise to perform.
In order for an offer to have legal effect, the offeror must have an objective intent to contract when making the offer.
does not matter what the offeror atually intended, but what a reasonable person would ordinarily believe the language and conduct to mean in those circumstances.
most advertisements appearing in mass media and store windows are NOT offers
instead it is an invitation for the consumer to make an offer to the seller to purchase the goods at a specified price
the exception to this rule is when the advertisement is specific enough to constitute a unilateral contract.
the offeree's expression of agreement to the terms of the offer
offer may be terminated by:
- revocation- offeror (revoke/withdraws) the offer (prior to the acceptance)
- rejection- offeror rejects the offer
- counteroffer- offeror rejects the original offer and prposes a new offer with different terms
offers may also be terminated by operation of law
- 1. offer in the form of an option contract
- 2. offers where the offeree party performed or detrimentally relied on the officer
- 3. so called firm offers by a merchant under the UCC
one way to make an offer irrevocable
ex: offeror agrees to hold an offer open (not enter into a contract with another party) for a certain period of time in exchange for something of value. (known as consideration)
partial performance/ reliance
ex: a unilateral off (acceptance only through performance, not through promise). This can offer temporarily irrevocable.
an offer may be rendered irrevocable if the offeree makes preperations prior to acceptance based on reasonable reliance on the offer
rejection and counteroffer
an offer is terminated once the oferee has either rejected the offer outright or makes a counteroffer by rejecting the original offer and makes a new offer
must be the precise mirror image of the offer
contract termination protected under
- lapse of time (reasonable)
- death or incapacity of the offeror or offeree
- destruction of the subject matter of the contract before acceptance
the acceptance of an offer is generally effective upon dispatch using a commercially reasonable manner and not when the acceptance is received by the offeror
must use equal or faster method (if not specified in the contract)
common circumstances where parties lack mutual assent
- cases when the agreement's terms are too indefinite
- one or both parties are mistaken about an important term
- parties to the contract
- subject matter of the contract
- time for performance or delivery
- price or other consideration to be exchanged
requires a court to examine the terms of the agreement to determine whether "they provide a basis for determining the existence of a breach and for giving an appropriate remedy."
- missing terms may be implied as reasonable or by the course of past dealing
Agreements to agree
parties enter into an agreement with an essential term unfilled, intending to agree upon the term in the future.
- the courts will allow such agreements to be enforced with the court cupplying the missing term according to industry standards and market values.
an erroneous belief about an existing fact that is not in accord with the facts (not an erroneous belief as to what will happen in the future)
can be mutal or unilateral
may be the basis for canceling the contract (also called avoiding the contract) when both parties hold an erroneous belief.
the mistake must concern a basic assumption on which the contract was made
only one person had the erroneous belief about a basic assumption in the terms of the contract.
courts are MUCH LESS willing to allow a mistaken party to cancel a contract
it is NOT a valid reason to avoid a contract
*IF the nonmistaken party had reason to know of the mistake or his actions CAUSED the mistake, a court will allow the mistaken party to avoid the contract
ex: clerical errors
For a binding contract to exist there must not only be agreement (offer and acceptance) but the agreement must also be supported by
a promise is supported by consideration if
- 1. the promisee suffers a legal detriment by giving up something of value or some legal right
- - does NOT include preexisting duties!
(ex: waiving your rights to pursue a lawsuit when you have been injured, or the promise of someone refraining to smoke, drink or gamble untile 21 for $5,000)
- 2. The promisor makes his promise as part of a bargained for exchange- distinguishes contracts from gifts
- - a performance or return promise is "bargained for " ONLY if it was exchanged for another promise.
- - NOT considered (and NOT SUFFICIENT) to meet the bargain for exchange requirement is when a promise is made in return for a detriment previously made by the promisee, aka past consideration
ex: after a contract is signed, one person offers to send over a bottle of brandy and the other accpets, this is considered a gift, it lacks consideration.
amount and type of consideration
- consideration does not need to be of equal value
- courts will NOT look to the amount or type od consideration, or the relative bargaining power of the parties in deciding the validity of consideration
So long as SOME bargained for exchange is contemplated, the contract will be deemed enforceable.
if one party justifiable relies on the promise of another, under certain circumstances, the relying party may recover costs of the reliance
*(even though the original promise agreement lacked consideration)
- a relying party may recover damages IF
- 1. the promisee actually relied on the promise (promise must have induced an act)
- 2. the promisee's reliance was reasonably foreseeable to the promisor
- 3. principles of equity and justice (good faith and fair dealing) are served by providing compensation to the reliant party
*still not considered a contract, just can recover damages
certain classes of persons have only limited power to contract
- those with mental incapacity
*parties may seek to avoid (cancel) the contract immediatley or at any time until the time regain capacity, once the party regained capacity the contract becomes binding on both parties
*Exceptions to the minor capacity rule- food, clothing and shelter
covers not just obvious cases such as mental retardation or dementia, but ALSO temporary incompetence such as parties who are HIGHLY intoxicated
- 1. unable to understand the nature and consequences of the contract
- 2. unable to act in a reasonable manner in relation to the transaction and the other party has REASON to know if her condition
- *most states contracts made by an incomptent are voidable, not void. If they regain or have a guardian they may ratify the contract.
- *other party CANNOT avoid the contract
- *contract is void per se (not valid from onset) if one party has been legally declared incompetent prior to entering into the contract
Legality of a contract
inorder to be enforceable, BOTH the subject matter and performance of the contract must be legal
ex: barred by statute- illegal gambling, or illegal because the terms violate some public policy objective (overly broad restriction on employment possibilities known as a restrictive covenant).
Agreement- offer must represent a serious, objective intent to contract; proper acceptance of the offer must occur prior to termination by the parties or by operation of the law
Mutual Assent- the terms must be sufficiently definite, and there must beno mistake (belief by one or both parties not in accord with the facts)
Consideration- There must be the possibility of legal detriment to the promisee and a bargained for exchange on the part of the promisor.
Capacity- If one of the parties is a minor, the contract is voidable by the minor or the minor's guardian. If one of the parties is mentally incapacitated, and the other party had reason to know of the incapacity, the contract may be avoided
Legality- the subject matter of the contract and transaction must be legal
- even if the elements of a contract are met, the contract must still be
- 1. the product of genuine assent
- 2. in writing in certain circumstances
Genuineness of Assent
the law requires the parties to have given genuine consent on the terms of the contract
- lack of genuine assent occurs in cases of
- 1. misrepresentation and fraudulent misrepresentation
- 2. duress
- 3. under influence
- 4. unconscionability
when one party to an agreement makes a promise or representation about a material fact that is not true, the other party may avoid the contract
- this is true even if the misrepresening party doesn't actually know that the promise or misrepresentation was false
- in order for one party to avoid the contract on the basis of misrepresentation they must prove:
- 1. the misrepresented fact was material
- 2. justifiably relied on the mistatement when forming an agreement
- 3. the misrepresentation was one of fact and not just someone's opinion or mere puffing
one party has engaged in contact that meets the standards for misrepresentation, but that party has actual knowledge that the representation is not true, aka Fraud, referred to as guilty knowledge
can sometimes occur when one party conceals a material fact. Parties do not have a duty to disclose all information, courts have allowed
in both misrepresentation and fruadulent misrepresentation
both cases the innocent party may avoid the contract and be released from any obligations
in misrepresentation- the innocent party has only limited relief in terms of money damages because actual recovery is limited to out of pocket damages
in fraudulent misrepresentation- most states classify the the contract as void and the innocent party is generally entitled to recover money damages for any losses incurred, PLUS more for speculative damages such as loss of future profits.
one party to a contract uses any form of unfair coercion to induce another party to enter into or modify a contract, it can be avoided
- 3 categories:
- 1. violence or threats of violent acts
- 2. economic threats such as wrongful terminationor threats to breach a contract
- 3. threats of extortion or other threats where the other party has no meaning choice
- *if one party threatens another with a certain act, it is irrelevant that he would have the legal right to perform that act
- ex: sell stock cheap or be fired, avoidable, even though employee is at will
gives legal relief to a party that was induced to enter into a contract through the improper pressure of a trusted relationship
allows the influenced party to avoid a contract where the court determines that the terms of the contract are unfair and the parties had some type of relationship that involved a fiduciary duty or some duty to care for the influenced party
ex: caregiver forceing 50K worth of stock is avoidable
contract can be avoided based on the grounds that one party suffered a grossly unfair burden that shocks the objective conscience, when the consideration is grossly unequal
ex: annuity sold for 50K worth 150K but really worth 530K; high pressure sales tactics that mislead illiterate consumers
standardized preprinted contracts
statute of frauds
contracts that must be in writing in order to be enforceable
- includes a signature and quantity
- applies to
- 1. contracts that involve the sale of an interest in land
- 2. contracts that cannot be performed in under one year
- 3. contracts that pay the debt of another
- 4. contracts made in consideration of marriage (ex prenuptial agreement)
*under the UCC (merchants), applies to any contract for the sale of goods over $500 and to any lease transaction of $1000 or more
parole evidence rule
any writing intended by the parties to be the final expression of their agreement may NOT be contradicted by any oral or written agreements made prior to the writing
terms are construed by the court agaist the interest of the side that drafted the agreement
omitted terms- where the contract is silent
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