Basic Contract Law for ParalegalsFifth Edition

Jeffrey A. Helewitz

Chapter 1OVERVIEW OF CONTRACTS

In this chapter you will:

Define a legally binding contract Identify the six basic requirements to forming a valid contract Explain the concept of offer and acceptance Define and exemplify consideration Classify contracts into bilateral or unilateral agreements Understand how a contract is created Explain the difference between executory and executed contracts Differentiate between valid, void, voidable and unenforceable contracts Discuss various contractual provisions Know what is meant by the term contractual capacity

Contract Defined

A contractcontract is a legally enforceable agreement that meets certain specified legal requirements between two or more parties in which each party agrees to give and receive something of legal value.

Elements of a Valid Contract

Offer Acceptance Consideration Legality of subject matter Contractual capacity Contractual intent

Type of Obligation

Bilateral: a bilateral contract is a promise for a promise.

Unilateral: a unilateral contract is a promise for an act.

Method of Creation

Express contract: mutual assent of the parties is manifested in words, either orally or in writing.

Implied-in-fact contract: promises of the parties are inferred from their actions or conduct as opposed to specific words being used.

Implied in Law contract (also known as quasi-contract): situations that look like a contract but are not because one of the requisite elements is missing.

Type of Form

Formal: limited group of contracts that different states have declared valid and enforceable if certain statutory requirements are met.

Informal: all non-formal contracts; agreements that meet all the requirements of valid contracts.

Timing

Executory contract: a contract in which one or both of the parties still have obligations to perform.

Executed contract: a contract that is complete and final with respect to all of its terms and conditions.

Enforceability Valid: an enforceable contract that meets all of the

six requirements Void: a situation where there is no contract and the

law therefore does not entitle the parties to any legal remedy.

Voidable: a contract where a party to the agreement has the option of avoiding his legal obligation without any negative consequences, but who could, if he wished, affirm his obligation and thereby be contractually bound.

Summary

Type of Obligation

Method of Creation

Form Timing Enforceability

Bilateral

Unilateral

Express

Implied in fact

Implied in law (quasi)

Formal

Informal

Execut-ory

Execut-ed

Valid

Void

Voidable

Unenforceable

Chapter 2OFFER

In this chapter you will: Define offer Identify the three conditions necessary to create a valid offer Explain the concept of certainty and definiteness in the terms of an

offer List the four required terms in a valid offer Briefly discuss what is the UCC Discuss the impact of the UCC on traditional legal principles of a

contractual offer Know what is meant by an output contract Apply basic concepts of an offer to contractual clauses Draft a basic offer that would meet legal standards Indicate the difference between contracting with a member of the

general public and a merchant

Offer Defined

An offer is a proposal by one party, the offeror, to a second party, the offeree, manifesting an intention to enter into a valid contract.

Three Conditions for a Proposal to Qualify as a Contractual Offer

1. The offeror must manifest a present contractual intent.

2. The offer must be communicated to the offeree.

3. The offer must be certain and definite with respect to its terms

Certainty and Definiteness in the Terms of the Offer

Four essential elements for definite and certain terms: The price of the contract The subject matter of the contract The parties to the contract The time of performance for fulfilling the

contract

Uniform Commercial Code

The Uniform Commercial Code (UCC) is a model law adopted in whole or in part by each state as a statutory enactment that, among other things, has codified certain contractual concepts with respect to the sale of goods.

Chapter 3ACCEPTANCE

In this chapter you will: Define acceptance Differentiate between an acceptance and a counter-offer Discuss the mirror image rule Indicate the effect of silence on an offer Explain who is capable of accepting an offer Discuss the method of accepting a bilateral and a unilateral offer Discuss the impact of the mailbox rule on the acceptance of a

contract Explain the effect of the rejection of an offer Define revocation Discuss the effect of the termination of an offer on the parties ability

to create a valid contract

Acceptance

Acceptance is the manifestation of assent in the manner requested or authorized by the offeror.

Varying the Terms of the Offer

First, to be valid, the acceptance must parrot exactly the terms of the offer.

Second, any variance in the terms of the offer creates a counteroffer, which rejects and therefore terminates the original offer.

Third, if the variance is merely a term that is implicit in the original offer, that variance will not constitute a counteroffer.

When Does Silence Constitute an Acceptance?

if the offer was solicited by the offeree or

the contract is implied in fact

Principal-Agent Relationship

An agent is one who acts for and in the place of another, known as the principal, in order to enter into contracts with third persons on the principal’s behalf.

Mailbox Rule

The acceptance of an offer of a bilateral contract is effective when properly dispatched by an authorized means of communication.

Termination of the Ability to Accept

To terminate an offer by an act of the parties, either the offeree must reject the proposal or the offeror must revoke the offer.

Termination by Operation of Law

Lapse of time The death or destruction of the subject

matter The death or insanity of the offeror or

offeree Supervening illegality

Chapter 4CONSIDERATION

In this chapter you will: Define contractual consideration Discuss the concept of mutuality of consideration Differentiate between a benefit conferred and a detriment incurred Exemplify what is not considered to be legally sufficient

consideration Explain the pre-existing duty rule Discuss the impact of the UCC on traditional concepts of

consideration Explain what is meant by the sufficiency of the consideration Define promissory estoppel Discuss accord and satisfaction Indicate how one becomes a guarantor

Consideration

Consideration is something that has legal value.

Detriment as Consideration

For a detriment to qualify as consideration, the person incurring the detriment must:

1. give up a legal right

2. at the request of the other party

3. in exchange for something of legal value

What is Not Consideration

Past consideration is no consideration Moral consideration is no consideration A gift can never be legal consideration Illusory promises are never

consideration Promises to do that which one is already

bound to do are not consideration

Circumstances under which a Preexisting Duty May Be Consideration

If new or different consideration is given The purpose is to ratify a voidable obligation The duty is owed to a third person, not the

promisee Unforeseen circumstances make the duty

more difficult to fulfill

Does a Bad Bargain Matter?

Caveat emptor: Let the buyer beware

Caveat venditor: Let the seller beware

Valid Accord and Satisfaction

The requirements are: A valid contract A dispute between the parties with

respect to that contract and An agreement to compromise the

dispute rather than sue

Guarantees

A guarantee is a written promise to answer for the debts of another that is enforceable against the guarantor.

Requirements for a Guarantee to be Valid

A valid contract is entered into between two or more parties

The guarantor creates the guarantee at the time the contract is executed and

The guarantee is in writing

Chapter 5LEGALITY OF SUBJECT MATTER AND CONTRACTUAL CAPACITY

In this chapter you will: Discuss the concept of the legality of the subject matter Define malum in se Define malum prohibitum List the sic types of contracts that come under the Statute of

Frauds Discuss what is meant by usury Explain the concept of contractual capacity Differentiate between infants and minors Know which types of contracts a minor cannot avoid Discuss the effect of alcohol and drugs on a person’s

contractual capacity Apply the concepts of legality and capacity to your everyday life

Malum in Se

Contracts that violate public policy and are deemed bad in and of themselves.

Malum Prohibitum

Contracts that are not morally reprehensible or against public policy but are still minor violations of the lawa prohibited wrong, or something prohibited by statutory regulation.

Contracts that Violate the Statute of Frauds

Contracts for an interest in realty Contracts that are not to be performed

within one year Contracts in consideration of marriage Guarantees Sale of goods valued at over $500 Executors’ promises to pay the

decedent’s debts

Contractual Capacity

The parties’ legal ability to enter into a binding contractual relationship

Four Major Areas of Contractual Capacity

Age Mental capacity Alcohol Drugs

Chapter 6CONTRACTUAL INTENT

In this chapter you will: Define what is meant by contractual intent Define fraud Differentiate fraud from misrepresentation Explain the concept of duress List the three types of duress that may be encountered in contract

law Discuss what is meant by undue influence Define a contract of adhesion Discuss the effect of a mistake on contract formation Discuss the enforceability of contract entered into with a unilateral

mistake Understand how the concept of contractual intent may be applied to

void contracts

Contractual Intent

The parties to the contract must actually intend to enter into a contract for the same bargain at the same time.

Fraud

Five elements of contractual fraud:

1. The misrepresentation

2. of a material fact

3. made with the intent to deceive and

4. relied on by the other party

5. to his or her detriment

Duress

Duress connotes some form of force or coercion exercised over one party to the contract in order to induce that party’s promise to contract

Forms of Duress

Physical duress Economic duress Mental duress

Mistake

Mistake occurs when one (or both) of the parties is under a misconception as to the subject matter of the contract.

Categories of Mistake

Mutual mistake: this type of mistake goes to a basic assumption of the agreement, the mistake has a material adverse effect on the parties, and the mistake was of the type that could not be foreseen.

Unilateral mistake: concerns a situation in which only one party to the contract is mistaken because of some typewritten or computation error.

Chapter 7CONTRACT PROVISIONS

In this chapter you will: Distinguish between a covenant and a condition List the most generally encountered contractual rules of construction Apply general contract rules of construction to analysis of contract

provisions List the types of contracts that are governed by the Statute of Frauds Define an antenuptial agreement Categorize conditions by when they create or extinguish a contractual

duty Categorize conditions by the method whereby they have been

created Define a condition subsequent, precedent and concurrent Explain the parol evidence rule Analyze contractual clauses to determine the parties rights and

obligations

The Statute of Frauds

The statute of frauds required that, to be enforceable, the following six types of contracts had to be in writing:

Contracts for an interest in real estate Contracts in consideration of marriage Contracts that are not to be performed within

one year Guarantees Contracts for the sale of goods valued over a

specified amount Executor’s promises to pay a decedent’s debts

Covenant

An unconditional, absolute promise to perform.

Conditions

Specific promise made by the parties to the contract.

Categories of Conditions

Conditions categorized by when they create, or extinguish, the duty to perform the covenant Conditions precedent Conditions subsequent Conditions concurrent

Conditions categorized by how the parties have arrived at them Express conditions Implied-in-fact conditions Implied-in-law conditions

Rules of Construction Guidelines that the courts use to interpret all

contractual provisions Lengthy communications are viewed as a whole, and any

inconsistent words are discarded Contracts are to be interpreted according to business

custom and usage Words are to be construed according to their ordinary

meaning If there is an inconsistency with words that are printed,

typed, or handwritten, handwriting prevails over typing, and typing prevails over mechanical printing

Parol Evidence Rule

Oral testimony may not be used to vary the terms of a writing

Chapter 8THE UNIFORM COMMERCIAL CODE

In this chapter you will: Explain the background of the Uniform Commercial Code Discuss the basic guidelines to be used when applying the UCC Indicate the obligations imposed by Article I of the UCC Discuss the concept of custom and usage as it applies to contracts Distinguish between contracts for goods and contracts for services Define the UCC concept of merchant Discuss the UCC express and implied warranties List and discuss conditional sales contracts List and discuss shipment contracts Discuss the various remedies afforded parties under the UCC Define a secured transaction Indicate the requirements to create a security interest Define a financing statement

Uniform Commercial Code

Major statutory basis of several important areas of contract law. The UCC was created to promote commerce and to establish certain basic guidelines for those parties involved in commercial transactions.

Basic Guidelines of Article I

The law of the state applies unless otherwise superseded by the UCC

The parties to a contract may, by their agreement, vary the provisions of the Code

The UCC is to be liberally construed

Obligations Imposed by Article I

To perform in “good faith”–honesty in fact

To perform in a “reasonable time,” “reasonableness” to be determined by the facts and circumstances of each situation

To perform according to past business dealings and practices (custom and usage)

Basic Guidelines of Article II, Sales The type of contracts that are governed

by the UCC Specific contractual provisions regulated

by the Code covering warranties and risk of loss

Certain remedies that the contracting parties may be entitled to that differ from the general contractual remedies

Types of Contracts Covered by Article II

Contracts for the sale of goods Contracts for the lease of goods Contracts between merchants

Remedies Available under Article II

Remedies available to Seller Withhold delivery Stop delivery Reclaim goods from insolvent buyer

Remedies available to Buyer Cover Replevin Revocation Claim goods from insolvent seller

Article II-ALeases

Many jurisdictions have added a new subsection to Article II to deal with the lease of goods.

Article IXSecured Transactions

A secured transaction is any transaction, regardless of form, that is intended to create a security interest in personal property or fixtures, including tangible goods, intangibles, and documents.

Requirements to Create a Security Interest

There must be a security agreement There must be attachment There must be perfection

Chapter 9THIRD PARTY CONTRACTS

In this chapter you will: List the different types of third party contracts Discuss third party creditor beneficiary contracts Discuss third party donee beneficiary contracts Distinguish between an intended and an incidental beneficiary Define a contractual assignment Discuss the effect of an assignment on the original contracting parties Indicate how a gratuitous assignment may become irrevocable Differentiate between an assignment and a novation Distinguish a delegation from an assignment Explain the effect of the UCC on third party contracts

Third Party Beneficiary Contracts

Agreements in which the original intent of one of the contracting parties, when entering into the contractual agreement, is to have the promised-for consideration pass not to her, but to some outside person

Two Types of Third Party Beneficiary Contracts

Third party creditor beneficiary contract: the purpose is to extinguish a debt or obligation owed to some third party

Third party donee beneficiary contract: the purpose is to confer a gift on a third person

Third Party Beneficiary Contracts

Creditor Beneficiary Donee Beneficiary

Created to extinguish debt Created to confer gift

Rights vest with detrimental reliance

Rights vest on knowledge

Can sue promisor or promisee Can sue promisor only

Promisor/promisee can defend by asserting any claim he has against the other contracting party

Promisor can defend by asserting any claim he has against promisee

Assignment

An assignment is the transfer of a promisee’s rights under an existing contract Assignments come into existence after the

original contract is created A promisee may not assign his rights

without the consent, express or implied, of the promisor

Chapter 10DISCHARGE OF OBLIGATIONS

In this chapter you will: List the methods whereby a contractual obligation may be

discharged Define voluntary disablement Discuss the concept of anticipatory breach Understand what is meant by tendering performance Differentiate between a material and a minor breach Define mutual rescission Explain the concept of impossibility of performance Exemplify frustration of purpose Understand which contracts are divisible contracts Discuss the effect of discharge on the parties to the agreement

Methods of Discharge

Excuse of conditions Performance Breach of contract Agreement of the

parties

Impossibility of performance

Supervening illegality Death or destruction

of the subject matter or parties

Frustration of purpose

Chapter 11REMEDIES

In this chapter you will: Distinguish between legal and equitable remedies Define compensatory damages Discuss when punitive damages may be sought Explain what is meant by consequential damages Distinguish between liquidated damages and limitation of damages Define injunction Understand when specific performance may be sought as a remedy Explain the effect of rescission and restitution on a contract List the quasi-contractual remedies Discuss the effect of waivers on a breach of contract

Legal Remedies

Legal Remedies or damages are monetary awards granted to an injured party in a contractual dispute whenever money would be an appropriate method of rectifying the injury

Four Types of Damages

Compensatory damages Punitive damages Consequential damages Liquidated damages

Equitable Remedies

Equitable remedies are designed to prevent unfairness and unjust enrichment. These are largely nonmonetary awards.

Categories of Equitable Remedies

Injunctions Specific performance Rescission and restitution Reformation Quasi-contractual

Quasi-Contractual Remedies

These are the only equitable remedies that involve a monetary award

Quantum meruit: the value of the service rendered

Quantum valebant: the value of the property received