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116 Cards in this Set
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Contract
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A legally enforceable agreement between two or more parties in which each party makes some promise to the other
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Promisee
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The party to a contract to whom a promise is made
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Promisor
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The party to a contract making a promise
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Privity of contract
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The relationship that exists between the parties to a contract
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Third party beneficiary
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A person who is not a party to a contract but who benefits from it and has a legal right to enforce the contract if it is breached by either of the contracting parties
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Breach of contract
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The failure, without legal excuse, to fulfill a contractual promise
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Unilateral contract
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A contract in which only one party makes a promise or undertakes the requested performance
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Bilateral contract
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A contract in which each party promises a performance
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Executory contract
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A contract that has not been completely performed by one or both of the parties
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Implied contract
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A contract whose terms and intentions are indicated by the actions of the parties to the contract and the surrounding circumstances
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Express contract
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A contract whose terms and intentions are explicitly stated
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Implied-in-fact contract
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A contract that is not express but that the parties presumably intended, either by tacit understanding or by the assumption that it existed
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Implied-in-law contract
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An obligation that is not an actual contract but that is imposed by law because of the parties' conduct or some special relationship between t hem or because one of them would otherwise be unjustly enriched
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Voidable contract
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A contract that one of the parties can reject (avoid) based on some circumstance surrounding its execution
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Void contract
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An agreement that, despite the parties' intentions, never reaches contract status and is therefore not legally enforceable or binding
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Offer
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A promise that requires some action by the intended recipient to make an agreement
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Offeror
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The party to a contract who promises to give something in return for a promise or an act by another party
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Offeree
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The party to a contract who makes a promise or acts in return for something offered by another party
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Counteroffer
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A proposal an offeree makes to an offeror that varies in some material way from the original offer, resulting in rejection of the original offer and constituting a new offer
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Acceptance
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The assent to an offer that occurs when the party to whom an offer has been made either agrees to the proposal or does what has been proposed
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Forbearance
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The act of giving up or the promise to give up a legal right
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Substantial performance
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The performance of the primary necessary terms of an agreement
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Competent party
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A party to a contract who has the basic or minimal ability to do something and the mental ability to understand problems and make decisions
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Restitution
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The return of specific property by court order
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Consideration
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Something of value or bargained for and exchanged by the parties to a contract
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Good consideration
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Consideration based on natural love or affection, or on moral duty, that is not sufficient to support a contract
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Valuable consideration
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The consideration necessary and sufficient to support a valid contract
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Gratuitous promise
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A promise not supported by valuable consideration and, therefore, not binding
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Accord and satisfaction
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An agreement (accord) to substitute performance other than that required in a contact and the carrying out of that agreement (satisfaction)
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Promissory estoppel
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A legal principle that permits enforcement of a promise made without consideration in order to prevent injustice
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estoppel is french for "stopper plug" or to place a halt on the imbalance of a situation
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Insurable interest
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An interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred
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Usury
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The charging of an illegally high rate of interest on a loan
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Negligence
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The failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others
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Exculpatory clause (exculpatory agreement)
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A contractual provision purporting to excuse a party from liability resulting from negligence or an otherwise wrongful act
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Noncompete agreement
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An agreement between an employer (the principal) and an employee (the agent) to protect the employer's customers, trade secrets, confidential information, and other items for a specific period after an employee relationship has been terminated
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In pari delicto agreement
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An illegal transaction in which both parties are equally at fault
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Severable contract
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A contract that includes two or more promises, each of which a court can enforce separately
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Genuine asset
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Contracting parties' actual assent to form a contract or their indication of intent to contract by their actions and words
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Fraud
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An intentional misrepresentation resulting in harm to a person or an organization
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Representation
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A statement of fact or opinion made by the insured when applying for insurance, usually in response to a question from the insurer
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Material fact
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In insurance, a fact that would affect the insurer's decision to provide or maintain insurance or to settle a claim
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Rescission
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A legal action that voids a principal's bid
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Mistake
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A perception that does not agree with the fact
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Unilateral mistake
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A perception by one party to a contract that does not agree with the facts
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Bilateral mistake
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A perception by both parties to a contract that does not agree with the facts
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Duress
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The use of restraint, violence, or threats of violence to compel a party to act contrary to his or her wishes or interests
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Undue influence
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The improper use of power or trust to deprive a person of free will and substitute another's objective, resulting in lack of genuine assent to a contract
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Statute of frauds
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A law to prevent fraud and perjury by requiring that certain contracts be in writing and contain the signature of ht party responsible for performing the contract
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Real property (realty)
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Tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land
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Uniform Commercial Code (UCC)
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A model code that has been adopted in whole or in part by each state. Its purpose is to provide a consistent legal basis for business transactions throughout the United States and its territories. Its articles cover the sale and lease of goods; negotiable instruments; banks and banking; funds transfers; letters of credit; bulk transfers and bulk sales; warehouse receipts, bills of lading, and other documents of title; investment securities; and secured transactions
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Condition precedent
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An event that must occur before a duty of performance arises in a contract
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Parol evidence rule
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A rule of evidence that limits the terms of a contract evidence by a writing to those expressed in writing
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Assignment
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The transfer of rights or property
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Assignor
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The party to a contract who makes an assignment
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Assignee
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The individual or entity to whom property, rights, or interests have been transferred
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Third-party beneficiary contract
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A contract between two parties that benefits a third party
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Creditor beneficiary
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A third-party beneficiary owed a debt that is to be satisfied by performance of a contract
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Donee beneficiary
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A third-party beneficiary who receives the benefit of a contract's performance as a gift from the promisee, with the intent of the contracting parties
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Incidental beneficiary
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A third-party beneficiary who has no contractual rights but benefits from a contract even though that is not the intent of the parties to the contract
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Tender
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an offer to perform one's duties under a contract
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Novation
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The substitution of a third party for one of the original parties to a contract, releasing the original party from rights and obligations under the contract
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Condition concurrent
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An event that must occur at the same time as another condition in a contract
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Condition subsequent
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An event that, if it occurs, discharges a duty of performance in a contract
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Repudiation
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A party's refusal to meet obligations under a contract
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Anticipatory breach
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A party's unequivocal indication before contract performance i due that he or she will not perform when performance is due
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Material breach of contract
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Violation of the agreement that would justify an owner's termination of the contract
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Compensatory damages
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A payment awarded by a court to indemnify a victim for actual harm
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Consequential damages
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A payment awarded by a court to indemnify an injured party for losses that result indirectly from a wrong such as a breach of contract or a tort
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Punitive damages (exemplary damages)
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A payment awarded by a court to punish a defendant for a reckless, malicious or deceitful act or to deter similar conduct; need not bear any relationship to a party's actual damages
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Bad faith (outrage)
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An intentional or reckless act, extreme or outrageous in nature, causing severe emotional distress that results in physical injury; generally applied in suits for breach of insurance contracts
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Extracontractual damages
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A payment awarded by a court that exceeds the usual contract damages for a breach of contract
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Mitigation of damages
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A duty owed by an injured party to a claim to take reasonable measures to minimize or avoid additional injury or loss caused by the defendant
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Liquidated damages
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A reasonable estimation of actual damages, agreed to by contracting parties and included in the contract, to be paid in the event of a breach or for negligence
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Specific performance
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A court-ordered equitable remedy requiring a party to perform a certain act, often-but not always-as a result of breach of a contract
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Injunction
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A court-ordered equitable remedy requiring a party to act or refrain from acting
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Compare bilateral and unilateral contracts
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A bilateral contract is one in which each party becomes both a promisor and a promisee. If a default occurs, either party may enorce the other's promise in a legal action. In a unilateral contract performance is required in exchange for a promise. A contract is not formed until performance occurs.
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Contrast voidable and void contracts
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A voidable contract is a valid contract that can continue in force unless an innocent party (such as a minor) chooses to avoid it, one of the contracting parties commits fraud, or othe contract is found to be the result of duress on one of the parties. A void contract is an agreement that is not really a contract because it is not legally enforceable, such as an agreement to commit a crime
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Describe the three requirements for an offer to be valid for contractual purposes
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1. Intent to contract. The offeror must intend, or appear to intend, to create a legally enforceable contract if the offeree accepts the offer.
2. Definite terms 3. Communication to the offeree |
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Explain how lapse of time affects an offer for contract purposes
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Offers do not remain open indefinitely. An offer ceases to be binding when the time period the offer specifies expires or, absent a specific time period, when a reasonable amount of time passes. What is reasonable depends on considerations such as the contract's subject matter and the general commercial setting.
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Under what circumstances can an offeror revoke an offer?
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Generally, an offeror can revoke, or withdraw, an offer any time before acceptance. As in the case of the offer itself, the revocation is effective only when communicated. The revocation must be communicated to the offeree, and is effective only when the offeree actually receives it
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Who can accept an offer made to one person?
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An offer made to onen person can only be accepted by th eperson to whom the offer is made, who is the offeree
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Who can accept an offer made to a group of people?
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Any member of the group that has received the offer can accept it
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Who can accept an offer made to the public?
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Anyone can accept an offer made to the public
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Contrast acceptance of an offer with a counteroffer
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Acceptance of an offer must be unconditional and unequivocal. If there is an acceptance that deviates from the offer's terms, it is a counteroffer
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Explain the different requirements for communication in unilateral and bilateral contracts
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In a unilateral contract, performance of the contract is both acceptance and performance. Usually no communication other than performance or forbearance is required. In a bilateral contract, the offeree is typically required to communicate acceptance to the offeror.
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Explain the concept of legal capacity to contract
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For an agreement to qualify as a contract, the parties to it must have legal capacity to contract. Capacity refers to one's ability to sue or be sued or to enter into an enforceable contract. Capacity inludes the ability to understand consequenes of one's actions. A party deemed competent to contract is one who has the mental ability to understand problems and make decisions.
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Describe the four parties who typically lack capacity to contract
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1. minors
2. insane persons 3. intoxicated persons (alcohol or drugs) 4. artificial entities (i.e. insurers) that are restricted by law or corporate charter from entering into certain contracts |
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Discuss the extent of a corporation's competence to enter into contracts
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Corporations, although artificial creations of the state, are persons in the eyes of the law. They can enter into contracts, and most states do not restrict the types of contracts they can make. However, the extent of the competence of a corporation to enter into a contract may be restricted by its corporate charter or, in the case of insurance, banking and transportation, by license or regulation
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Describe the five types of consideration that are sufficient to form an enforceable contract
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1. Valuable consideration (a legal benefit received by the promisor, such as money)
2. Forbearance (i.e. a promise to refrain from an activity) 3. Present consideration 4. Future consideration (but not past consideration) 5. Binding promises |
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Describe the three types of consideration that are insufficient for forming a binding contract
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1. Past consideration (a promise to pay for performance previously completed without an agreement)
2. A promise to perform an existing obligation (i.e. a promise to perform an obligation that someone is legally required to perform) 3. A compromise and release of claims (usually - there are exceptions) |
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Discuss exceptions to the consideration requirement in contracts
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Some contracts are enforceable despite a lack of consideration for equitable or public policy reasons or because state laws make specific exceptions. One example is promissory estoppel that applies when a party relies on the promise of the other party and only enforcement of the promise would achieve justice. Another example is a pledge made to a charitable organization
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Discuss the insurer's consideration in a property-casualty insurance contract
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The insurer's consideration is its promise to indemnify, or pay on behalf of, an insured resulting from a covered occurrence
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Discuss the insured's consideration in a property-casualty insurance contract
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The insured's consideration is the premium payment or the promise of premium payment
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Discuss whether prepayment of premium is necessary before coverage begins
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Payment of the premium does not become an obligation until coverage begins
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Explain why an insurance policy not covering an insurable interest is illegal and void
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Such policies are considered wagering contracts because they gamble on others' lives or property and increase the likelihood of intentional harm or destruction
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Describe the recourse for an individual receiving services from an unlicensed professional
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If a person engages in an occupation without a required license, the recipients of that person's services can refuse to pay for them because the contract was illegal
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Explain why common carriers are generally restricted from limiting their liability for negligence unless permitted by statute, administrative agency ruling, or international agreement
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Common carriers are restricted due to the lack of equality of bargaining power between a large and powerful entity and the relatively powerless consumer
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Describe the two remedies available to the plaintiff if fraud is proved in a given case
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1. Plaintiff may seek rescission. If the court rescinds the contract, the plaintiff has no further duties under it and is entitled to reimbursement of all payments made to the defendant
2. If rescission would not make the plaintiff whole, the plaintiff can sue for damages in a tort action, usually called an action in deceipt |
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Identify two requirements for an insurer to assert the concealment defense to an insurance contract
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Insurer must prove:
1. The insured knew that the fact concealed was material 2. The insured concealed the fact with the intent to defraud |
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Distinguish between unilateral and bilateral mistakes in a contract
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A unilateral mistake does not affect a contract. Bilateral mistakes occur when both parties to a contract make the same mistake of fact. Under these conditions, contracts are generally voidable
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Explain why a person who has reasonably relied on an innocently misrepresented material fact can later avoid a contract
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A person who has reasonably relied on an innocently misrepresented material fact can alter avoid a resulting contract because of lack of genuine assent
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Describe the purpose of the parol evidence rule
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The parol evidence rule serves three purposes:
1. To carry out the parties' presumed intention 2. To achieve certainty and finality as to the parties' rights and duties 3. To exclude fraudulent and perjured claims |
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Explain how courts apply established maxims of construction to interpret ambiguous contract language
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Maxims of construction are not strict legal rules but well-accepted guidelines for interpretation. They do not make a new contract or rewrite an old one. Courts apply them only to resolve doubts and ambiguities in a contract
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Contrast entire contracts with divisible contracts
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In an entire contract, one party must complete performance to be entitled to the other party's performance. In a divisible contract, the performance of a potion of the contract entitles the performing party to immediate payment
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Explain why courts prefer to interpret contracts as divisible
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Courts prefer to interpret contracts as divisible to avoid hardships that can result from delaying payments under the contract until full performance has been completed
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Describe the system of priorities courts apply to resolve contradictory contract terms
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To resolve contradictory terms, courts apply this system of priorities:
1. Handwriting prevails over typewriting 2. Typewriting prevails over printing 3. Words prevail over figures |
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List the most common situations in which contract rights are not assignable
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Contract rights are not assignable in these situations:
1. Laws restrict prior assignment of such rights as veterans' disability benefits, gov'mt pensions, wages, inheritances, and worker's comp benefits 2. The parties to an agreement might specify that they cannot, under the contract, assign the rights 3. Personal rights are not assignable 4. When an assignment materially alters or varies the obligor's performance, a court usually will not uphold it 5. When a judgment is pending in a personal injury case, generally the injured person cannot assign a claim for damages resulting from the injury |
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Describe an assignee's right under a contractual assignment
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As a general rule, the assignee's rights are those of the assignor and do not extend beyond them
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Explain why the legal distinction between creditor and donee beneficiary contract is becoming less important
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These two types of beneficiaries are often treated as one class, intended beneficiaries, who are third-party beneficiaries to whom a benefit was intended by the contracting parties
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Explain how contracts promising or guaranteeing satisfaction are discharged
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If a contract promises or guarantees satisfaction, unless the promisor can show bad faith on the promisee's part, obligations are not discharged until the promisee experiences personal and subjective satisfaction. Courts apply an objective standard to determine personal satisfaction relating to utility, fitness, or value.
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Describe the elements required for a novation to be effective
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For a novation to be effective, all parties must agree to the substitution. The remaining party must agree to accept the new party and must release the withdrawing party. The latter must consent to withdraw and to permit substitution of the new party. The presence of these essentials discharges the withdrawing party from the contract.
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Distinguish between frustration and impracticability as related to contract performance
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Frustration is the prevention of the attainment of a goal. To excuse a party's nonperformance of a contract, frustration must arise from an unforseeable and uncontrollable circumstance that causes a fundamental change and that is the fault of neither party. Impracticability is an excuse for non-performance of a contractual duty, the performance of which, though possible, would be extremely or unreasonably difficult
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Identify four circumstances that may make performance of a contract impossible
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1. If a change in law or government act makes performance of an existing contract illegal, the promisor's performance is excused
2. The death or incapacitating illness of a specific person necessary to perform a personal service discharges the duty to perform 3. If the specific subject matter of the contract is destroyed or becomes nonexistent after contract formation without the promisor's fault, impossibility of performance discharges the promisor's duty 4. If the other party's act prevents the performance of a contract, a court will excuse performance |
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Compare material breaches of contract with minor breaches of contract
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The circumstances that affect the materiality of a breach include the extent to which the breaching party has performed, the willfulness of the breach, and the extent to which the nonbreaching party has obtained benefits and can receive adequate compensation. A material breach by one party excuses the other party's performance and immediately gives rise to remedies for breach of contract. A minor breach may temporarily suspend any duty of performance by the nonbreaching party or may give the aggrieved party a basis to sue for damages resulting from the breach, but not for breach of the entire contract.
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Contrast compensatory damages and punitive damages in breach of contract lawsuits
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Compensatory damages are intended to place the injured party in approximately the position he or she would be in if the breaching party had performed the contract. Compensatory damages comprise the difference between the value of the promised performance and the plaintiff's cost of obtaining that performance elsewhere. They include losses caused by the breach and gains the breach prevented. Compensatory damages are typically awarded if a plaintiff prevails in a contract case. Punitive damages punish a defendant for a reckless, malicious, or deceitful act. Punitive damages are not usually appropriate in contract cases. If a seller of personal property commits fraud or misrepresentation, punitive damages can be appropriate; however, the punitive damages are usually based on the fraud, not on the breach of contract.
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Explain when courts would order the equitable remedy of specific performance
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Courts order the equitable remedy of specific performance when money damages would be inappropriate or inadequate. To determine whether money damages would be adequate, courts consider the difficulty of valuing the subject matter of the contract, the existence of unique qualities of the subject, and the difficulty or impossibility of obtaining a duplicate or substantial equivalent of the subject of the contract
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