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Understand the fundamentals of contract law, including parties, elements, Restatement of Contracts 2nd, UCC, objective theory, offers, valid contracts, consideration, voidable contracts, intoxication, misrepresentations, fraud, Statute of Frauds, Parole Evidence Rule, assignment.
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Test Review #6 Contract Law
Contract Basics • Definition of a Contract • “A contract is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty” (Rest. 2nd of Contracts) • A contract is enforceable by a court.
Contract Basics • Parties to a Contract (Every contract has these two parties) p. 191 • Offeror- Party who makes the offer to enter into a contract • Offeror promises to do, or refrain to do something • Offeree is the party to whom the offer is made. • Offeree has the power to create a contract by accepting the offeror’s offer.
Contract Basics • Elements of a Contract p. 191-192 • Agreement • Consideration • Contractual Capacity • Lawful Object (Either good or service)
Contract Basics • Restatement of Contracts 2nd p. 193 • A compilation of model contract law principles drafted by legal scholars. The Restatement is not law
Contract Basics • UCC p. 193 • Uniform Commercial Code (UCC) • Goal is to create a uniform system of commercial law among the 50 states. • Is overwhelmingly similar in each state but not exactly the same.
Contract Basics • Objective Theory of Contracts p.196 • A theory that says the intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties. • Reasonable Person Standard • Would a hypothetical reasonable person conclude that the parties intended to create a contract after considering 1) the words and conduct of the party 2) the surrounding circumstances?
Contract Basics • Objective Standard (cont.) p.196 • Objective standard is based upon what a reasonable party would have perceived the intent of the parties to be, actual intent is not what is considered.
Offers • An advertisement is not an offer, it is an invitation to deal. • Offer does not have to be explicit as to all terms in order to be valid. • Judged by the objective theory of contracts.
Valid Contracts • In order for a contract to be valid it must contain • Offer • Acceptance • Consideration
Consideration • Types of valid consideration • Cash • Services • Perform a service in the future • Goods
Void and Voidable Contracts • Void contract—A contract that has no legal effect: a nullity. • Voidable contract—A contract where one or both parties have the option to avoid their contractual obligations. If a contract is avoided, both parties are released from their contractual obligations.
Void and Voidable Contracts • Contracts entered into by a minor are voidable. • The purpose of which is to protect minors from unscrupulous adults. • Contracts entered into by persons adjudicated to be insane are void. • Contracts entered into by nonadjudicated persons are voidable.
Intoxication and contractual capacity • Most states provide that contracts entered into by intoxicated persons are voidable by the intoxicated person. This includes intoxication because of alcohol or drugs. The contract is not voidable by the other party if that party had contractual capacity.
Misrepresentations • Fraud in the inception and fraud in the inducement • If a person is deceived as to the nature of his or her act and does not know what he or she is signing, that is fraud in the inception. The contract is void. • When the party knows what he or she is signing, but has been fraudulently induced to enter into the contract, that is fraud in the inducement. The contract is voidable by the innocent party • Parties can generally rescind the contract with the exception of: • Misrepresentation of Law
Statute of Frauds • Contracts for the Sale of writing must be in writing • Contracts for the sale of goods over $500 must be in writing
Parole Evidence Rule • Parol evidence rule—A rule that says if a written contract is a complete and final statement of the parties' agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract.
Parole Evidence Rule • Parol evidence—Any oral or written words outside the four corners of the written contract. • Evidence cannot be admitted to show prior oral agreement, however, it can be admitted to cure ambiguity and to fill gaps in the contract.
Assignment of Contracts • Assignment of contractsOften parties can and do assign their rights under a contract to other parties. The actual transfer of contractual rights is called assignment. An assignor is the obligee who transfers the right; the assignee is the party to whom the right has been transferred.
