Glossary of REG - 34 - Contracts

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What is a bilateral contract? Give example.
A bilateral contract is one in which both the contracting parties are bound by their mutual promises to fulfill reciprocal obligations towards each other.

Example: a contract in which an accountant promises to prepare a tax return and the accountant’s client promises to pay an agreed fee would be a bilateral contract.
What is a unilateral contract? When is it completed? Give example.
one in which one party promises a performance in return for an act or forbearance, and a second party, without promising to do so, acts or forbears. A unilateral contract is completed upon the act or forbearance of the second party; only then is the first party obligated to render her/his performance.

Example: A promises to pay $100 reward to whoever finds her missing cat, and B finds the cat..the result is a unilateral contract. (B is not obligated)
What is a contract?
An express or implied legally binding agreement between two or more persons to perform or not to perform some specific act or undertaking. The law views the performance of a valid contract as a duty and provides a suitable remedy for its breach.
Executed vs. Executory Contract
An executed contract has been fully performed. An executory contract has not been fully performed. Note that a contract may be executory as to a party who has not rendered performance and executed as to a party who has completed performance.
Express vs. Implied Contract
An express contract is created by the verbal or written expression of its terms by the parties involved. An implied contract does not exist in form, but is implied in fact from the acts and circumstances of the parties.
What is a promise?
A promise is a declaration or assurance, however expressed, to do or refrain from doing a specified act. A promise that is legally enforceable is a contract.
What is a Quasi-Contract?
A concept or principle of law having its foundation in equity and good conscience. As implied by its name, a quasi-contract is not properly a contract. Rather, it is a legal obligation created by the law in cases in which there is no contract, but the law ought to imply a contract as a matter of equity and justice.
What is an Unenforceable Contract? Give example.
A contract that cannot be enforced by legal proceedings. For example, an oral contract is unenforceable if required to be in writing by the Statute of Frauds.
What is a void contract?
agreement that lacks one or more of the essential elements of a contract and, therefore, does not create any legal obligations
What is a voidable contract? Give example.
A contract that may be avoided by rescission but that remains binding if not rescinded. For example, contracts of infants, incompetents, and contracts obtained by fraud are voidable contracts.
What are joint obligors?
or more persons under a joint duty to a single obligee
What is entire performance? (joint obligors)
The obligee can hold any of them responsible for the entire performance due. Between themselves, joint obligors may agree on how they are to share in the obligation, and if any pays more than her/his share, s/he is entitled to reimbursement from the others.
What a surety's right to recovery? (joint obligors)
A surety may recover the entire performance from the principal debtor or a pro rata contribution from co-sureties.
What is a principal's right to recovery?
A principal debtor cannot recover from her/his surety, but is entitled to reimbursement from any other joint principal debtors.
What are several obligors?
Two or more persons who separately promise the same performance in the alternative.
What is the effect of discharge with several obligors?
Discharge of one does not discharge others
What is the obligee's entitlement with several obligors?
The obligee is entitled to only one performance
What is the recovery with several obligors?
c. Recovery If one obligor is required to perform more than her/his share, s/he is entitled to reimbursement from the others.
What are joint obligees?
Two or more persons who are owed performance as a single group.
What are several obligees?
Two or more persons who are owed individual performance
When is assignment not allowed without permission of the obligor? (two situations)
1. The right is personal to the promisee or involves a confidential relationship between the parties.
2. The duty of the obligor would be materially changed, the burden or risk materially increased, or the chances of obtaining return performance are materially impaired.
What are the assignee's rights against the obligor?
Generally, the assignee takes whatever rights the assignor had against the obligor, but no more
what are the assignee's rights against the obligor with nonconsumer contracts under UCC?
UCC 9-403 provides that in nonconsumer contracts, an agreement by a buyer or lessee of personal property that s/hewill not assert any claims or defenses s/he has against the seller or lessor is enforceable by an assignee who takes for value, in good faith, and without notice of any claim or defense.
When can an assignor revoke an assignment? (3 exceptions)
An assignor can revoke a gratuitous (i.e., without consideration) assignment unless one of the following applies:
1. There is promissory estoppel.
2. The assignor delivers either a tangible document embodying the right assigned or a written assignment.
3. The assignee collects the obligation prior to the attempted revocation.
What are assignee's rights against the obligor regarding counterclaims?
Any counterclaims against the assignor arising from collateral transactions may be asserted against the assignee, but if the assignee notifies the obligor of the assignment, the obligor can assert only those collateral counterclaims that accrued before notice was given.
What are the 7 elements of a contract?
"A Cold Sip of COLA"
Statute of Frauds
Legal Subject Matter
What is an offer?
An offer is a proposal made by one party (the offeror) to another (the offeree) which manifests an intent to enter into a contract. The offeree has the power to create the contract by acceptance.
What are the requirements of an offer?
The offeror (person making the offer) generally must intend the action to be an offer. Thus, an offer that is made in jest or anger is not a true offer. The courts apply the “objective rule”; therefore, they will find intent if a reasonable person would interpret the offeror’s action as manifesting actual intent, whether or not the offeror had such actual intent. However, if the offeree (person to whom the offer is made) actually knows there is no intent to offer, then no offer has been made.
Are advertisements and rewards offers?
1. Advertisements Communications sent to large numbers of people (newspaper advertisements) are normally only invitations. However, when an ad limits the quantities or uses “first come, first served” language, it is probably an offer.
2. Reward A reward is an offer to form a unilateral contract; that is, it may be accepted only by performance.
Can a contract be valid with one or more terms open?
The offer must be sufficiently definite and certain as to allow a court to delineate the terms and requirements of the contract that would result from acceptance. A valid offer may leave one or more terms open. Contracts are often made in which the parties intend to supply the missing terms at a later date. If the parties fail to agree on a term left open, the courts will imply a reasonable term. Terms commonly left open are time and method of delivery, method of payment, and price. NOTE: Article 2 of the UCC requires that only the quantity term be certain.
Can an offerer revoke an offer?
Offeror Generally, the offeror can revoke the offer at any time prior to an effective acceptance even if the offeror stated it would be open for a fixed period.
What type of communication is necessary to revoke an offer?
2. Communication Revocation must be communicated to the offeree, and it is not effective until received by the offeree. However, the communication need not be direct. Thus, the offeree cannot accept if s/he learns by any reliable means that the offeror has revoked the offer. If a general offer has been made by public announcement, revocation may be made by any means reasonably certain to reach all who may have heard of the offer. Preferably, the original method of publication should be used to make the revocation. A continuing offer may be revoked as to future contracts even if some binding contracts have already been created.
What are the 3 exceptions to the usual communications necessary to revoke an offer?
a. Option Contract If there is consideration for the offeror’s promise to keep the offer open, then that promise becomes an option contract, and it is irrevocable for the period of the option.
b. Firm Offers These are offers made under the UCC that are irrevocable even though they are not supported by consideration.
c. Partial Performance
i. Unilateral Contract If an offer can be accepted only by performance so that there is no acceptance until the act is complete, the majority rule is that partial performance makes the offer irrevocable. The usual rationale is that partial performance is consideration for an implied option contract. Minority rule: Revocation is allowed, but the offeree can recover for her/his performance in quasi-contract.
ii. Bilateral Contract If the offer can be accepted by a promise, then partial performance implies a promise to complete performance, and, therefore, a bilateral contract results.
How do Bankruptcy, Insolvency, Death, or Disability affect an offer?
In general, the death or supervening insanity of the offeror or a specific offeree terminates the offer. Bankruptcy or insolvency of either the offeror or offeree terminates the offer.
What is acceptance?
The intentional manifestation of assent required by an offer to create the contract is termed an acceptance. If, for one reason or another, a party’s assent to an agreement was not actually given, the contract may be voidable.
When is acceptance of an offer effective?
Generally, acceptance is effective when it is sent to the offeror or the offeror’s agent.
What is the mailbox rule?
If acceptance is sent by a mode of communication expressly or impliedly authorized by the offeror (e.g., mail), it is effective when sent, even if it is thereafter delayed or lost.
If no mode of acceptance is expressly authorized, what modes of communication are impliedly authorized? (2)
1. Common Law Rule The same mode by which the offer was sent.
2. UCC Rule Any reasonable mode dictated by business custom. (For example, if an offer is sent by mail, an acceptance by fax or by Federal Express—i.e. a faster method—would generally be considered a reasonable mode and the acceptance would be effective when sent.)
What is the exception where the acceptance must be received, not just sent, in order to be considered effective?
If the offer is held open under an option contract, acceptance must be received in order to be effective, regardless of the mode of communication
What is Consideration?
An act or a forbearance to act, or a promise to do either, given by one party to a contract in exchange for another party’s act or promise; the consideration must be understood by both parties to be the “quid pro quo,” or purchase price. Contracts, to be enforceable, must be supported by consideration.
What does it mean to suffer a 'legal detriment' that would imply consideration?
Must the other party receive a 'legal benefit'?
means the party must do something or bind her/himself to do something the party is not legally or otherwise bound to do, or the party must surrender a legal right to which s/he is otherwise entitled. To constitute consideration, it is not necessary that the other party receive a legal benefit.

For example, assume A and B enter into a contract wherein A promises to pay B $25.00 if B quits smoking for 6 months. B’s surrender of the right to smoke is a legal detriment and, therefore, constitutes consideration even though A gains no legal benefit through B’s performance. On the other hand, A’s payment of $25.00 to B is both a legal detriment to A and a legal benefit to B.
What is an illusory promise?
The promisor is free to perform or not perform the promise. This type of promise will not bind the promisor because there is no mutuality of obligation.
What is a conditional promise?
A conditional promise is valid consideration if the promisor is bound to perform upon the occurrence of a condition beyond the promisor’s control. For example, an insurance company promises to pay B $100 a day if B is hospitalized.
What is the adequacy of consideration? What are 3 exceptions?
The general rule is that the law will not inquire into the adequacy of consideration, i.e., a contract need not be absolutely fair to both sides. Exceptions are
a. An exceedingly disadvantageous bargain may be evidence of fraud, duress, or unconscionability, which furnishes a court with reason to refuse enforcement.
b. A contract to exchange unequal amounts of money or fungible goods at the same time is inadequate for lack of consideration. However, unequal amounts may be exchanged at different times.
c. Nominal consideration, e.g., $1, for an act or promise of some value may raise the question of whether it was actually the quid pro quo. However, nominal consideration is usually adequate for an option contract.
Does Performance or Promise to Perform Preexisting Duty count as consideration?
There is no legal detriment if one does or promises to do that which one is already bound to do. Any change in the preexisting duty may supply sufficient consideration to support the amended contract. For example, a promise to accept $400 as full payment for a $500 debt—provided the $400 is tendered one week before the $500 is due—would be enforceable.
Is past consideration consideration?
A promise in exchange for an act completed prior to the making of the promise (past consideration) will not be enforced because the act was not done in exchange for the promise, but independent of it.
Is a moral obligation consideration?
A moral obligation is insufficient consideration to support a contract under the past consideration rationale, except in certain cases in which a former promise (for which good consideration was once given) is renewed or slightly qualified. For example, a new promise to pay a debt barred by the statute of limitations is enforceable without additional consideration because the debt barred by the statute has been renewed
What is Promissory Estoppel? What 4 elements must be present?
The promisor is “estopped” (prevented) from asserting the lack of consideration for the promise if the following elements are present:
1. The promisor makes an express promise.
2. The promisor expects or should expect the promise to induce and it does induce the promisee to act or forbear to act in a substantial way.
3. The promisee in fact relied on the promise and this reliance was justifiable.
4. An injustice will result (not merely a legal detriment) to the promisee, unless the promise is enforced.
What is the capacity of infants? What is the exception?
A contract made by an infant is voidable by the infant, i.e., s/he may avoid performance. The one exception to this rule is that an infant may not avoid contracts that supplied her/him with necessities, such as food, shelter, and clothing. The other party to a contract with an infant has no power to void the contract on the basis of infancy.
What is the capacity of incompetant persons? What are the 2 kinds of incompetant persons?
Persons A test of capacity to contract is the question: Does the disability render the person incapable of understanding the nature and consequences of the transaction? There are two kinds of incompetent persons:
a. Persons adjudicated insane by a court. Contracts made by such persons are void from the beginning. Such incompetents are still liable for necessaries furnished to them.
b. Persons who are de facto insane. Contracts made by insane persons not judicially declared incompetent generally are voidable
What is the capacity of an intoxicated person?
3. Intoxication Intoxicated persons are treated like incompetents; a contract made by an intoxicated individual when s/he is unable to understand the nature of the transaction generally is voidable by the intoxicated individual.
What does the Statute of Frauds provide as far as Enforceability? (2 things)
1. Enforceability The Statute of Frauds provides that certain kinds of contracts cannot be enforced unless they are: (1) evidenced by a writing or writings, and (2) signed by the party to be charged
What are the 5 elements of the writing requirement for the Statute of Frauds?
a. Identity of the parties
b. Subject matter
c. Essential terms and conditions
d. Consideration
e. Signature of the party against whom enforcement is sought
Under the statute of frauds, what happens if the written proof is lost or destroyed?
Requirement If the writing is lost or destroyed before suit is brought, the requirement may be satisfied by oral proof that it existed.
What is the effect of 'Failure to Comply'?
Comply Failure to comply makes a contract unenforceable, but not void or voidable.
a. If one party performs, the party cannot sue on the contract for the other’s breach, but the party can recover in quasi-contract for the value of benefits given.
b. An executed contract cannot be rescinded.
c. If suit is brought on a contract that fails to comply, and the defendant fails to plead the statute as a defense, the defendant waives the statute and the contract is enforceable.
d. If the contract is bilateral and one promise comes within the statute (requires a writing) while the other promise does not, and the promise that comes within the statute is executed, then the promise that does not come within the statute can be enforced.
What are the 6 types of contracts covered by the Statute of Frauds?
1. Sale of Goods worth $500 or more (must state quantity)
2. Real estate contracts
3. Impossible to perform from one year date contract is made
4. Promise to answer for the debt of another
5. Promise of an Executor to be personally liable for the debt of the estate
6. Promise in consideration of marriage
What is an indemnity contract?
Contract A contract between two parties whereby one undertakes and agrees to reimburse the other against loss or damage arising from some contemplated occurrence.
What is novation?
A substitution of a new contract between the same or different parties that discharges the old contract and extinguishes the outstanding obligations.
What is the parol evidence rule?
If a contract is completely integrated into a written instrument, any evidence (written or oral) of a prior or contemporaneous agreement offered to modify or contradict the terms of the written instrument is inadmissible. Parties are presumed to have included every material term in the completed writing.
What is a mistake in the inducement?
If either or both parties were mistaken concerning their reasons for entering into the contract, this is a mistake in the inducement which is not in and of itself a ground for relief.
What is an innocent misrepresentation and what does it give rise to?
A misstatement of fact made without intent to defraud is an innocent misrepresentation. If an innocent misrepresentation is material, such misrepresentation gives rise to the following:

Defense A defense to an action to enforce the contract.

Grounds for Rescission Grounds for rescission; that is, a restoration of each party to its original position insofar as can equitably be accomplished, including the return of any benefits received.
What are the five elements of fraud?
1. False representation
2. Material fact
3. Intention to deceive (scienter)
4. Justifiable relaiance
5. Injury
What is scienter?
The intention to deceive. The knowledge that one’s statement is false or made in reckless disregard as to whether it is true or false.
What is fraud in the inducement, and what is the effect on the contract?
If fraud in the inducement (i.e., during contract negotiations) is present, the resulting contract is voidable at the option of the defrauded party.
What is fraud in the execution, and what is its effect on the contract?
If fraud in the execution is present (e.g., when one party is induced to sign an instrument different from the one the party intended to sign), the contract is void. It is void because there was never any actual intention to enter into it on the part of the defrauded party.
What are the remedies to a voidable contract due to fraud?
If the contract is voidable due to fraud, the defrauded party may use the fraud as a defense to an action brought against her/him on the contract. The defrauded party may affirm the contract or sue for rescission.
What are the remedies to a void contract due to fraud?
If the contract is void, it is of no legal effect. The defrauded party may seek damages in tort.
What is duress?
Duress is the threat of harm to a party or to a member of a party’s family that forces her/him to enter into a contract with the person initiating the threat or on whose behalf the threat is made.
What is the effect of duress on a victim?
The contract is voidable by the victim?

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