Contracts

Question 1

A contract

Answer 1

can be described as:

• an agreement between two or more competent parties based on legal consideration that creates duties and obligations that are legally enforceable
• a voluntary agreement between legally competent parties to do or refrain from doing some legal act

Question 2

Enforceable Contract (CLOC)

Answer 2

C Competent Parties
L Legal Object
O Offer and Acceptance
C Consideration

Question 3

An express contract

Answer 3

is a contract created in words, by either written or oral agreement.

Question 4

An implied contract

Answer 4

is a contract that results from the actions of the parties involved, rather than from words.

For example, if, after a written lease expires, the tenant continues to pay rent and the landlord accepts the payments, the landlord and tenant would have a new implied lease.

Question 5

Statute of Frauds

Answer 5

The purpose of this statute is to prevent perjury and dishonest conduct in proving the existence and terms of certain important contracts.

The statute provides that certain agreements are invalid and unenforceable unless the agreement or some note expressing the consideration is in writing and signed by the parties or an authorized agent of a party.

Question 6

a parol evidence rule

Answer 6

requires that evidence of the agreement cannot be received other than in writing.

Spoken words (parol evidence) cannot be used in court to change, modify, or contradict the terms of a written agreement that appears complete.

It can be used to clarify ambiguities and to provide proof that mutual mistakes, verbal misrepresentations, or fraud were used to obtain a person’s signature to the agreement.

Question 7

An offer would terminate

Answer 7

• upon the death or insanity of either the offeror or the offeree.
• if the purpose of the contract becomes illegal.
• due to a lapse in time. It would terminate automatically upon expiration of a specified time limit in the offer before acceptance. To create a valid contract, acceptance of a written offer to purchase real property must be in writing within the time period specified in the offer. If no period were specified, the offer would terminate after a reasonable period of time, as determined by a court or arbitrator.
• upon revocation of the offer communicated to the offeree by the offeror, any time before notification of acceptance of the offer is given. This can be done even if the offer was to be open for a specified period of time or was irrevocable.
• upon rejection by the offeree. If an offer is rejected, it is terminated. If an offeree rejects the offer and then changes their mind, they cannot bind the offeror to a contract by giving notification of acceptance of the offer. They can, however, negotiate to create a new offer.
• upon qualified acceptance (or a counteroffer) by the offeree. Inquiries during negotiations or suggestions of different terms do not constitute a rejection or a counteroffer. If the offer were in writing, the rejection or counteroffer would have to be in writing to be effective.

Question 8

Misrepresentation

Answer 8

is a false statement of a material fact (i.e., an important fact that significantly affects a person’s decision to enter into the contract).
A person may have their contract voided if they can show that they justifiably relied on the misrepresentation in entering the contract.
If they had investigated the facts themselves before entering the contract and knew they were false at that time, they could not claim misrepresentation as a basis for voiding the contract.

Question 9

Coercion

Answer 9

or duress means forcing a person to do something against their will, including using threats to force a person to do something.

Question 10

Menace

Answer 10

is a show of an intention to inflict harm.

Question 11

Undue influence

Answer 11

involves taking unfair advantage of a position of confidence or authority or of a person’s distress or weakness of mind (such as when a person is intoxicated, ill, or enfeebled).

Question 12

An executory contract

Answer 12

is a contract that is to be performed (i.e., something remains to be done by one or both parties). When both parties to the contract have fully performed the terms, the contract is considered to be an executed contract.

Question 13

Novation

Answer 13

is the substitution of a new obligation for an existing one with the intent to cancel the existing one.

Question 14

Full performance

Answer 14

means all parties have performed all of their duties under the contract. A purchase and sale contract is fully performed when the seller receives the purchase price and the buyer receives a deed to the property.

Question 15

Partial performance (or accord and satisfaction)

Answer 15

exists when one party performs part of the obligations and the other party relieves them of the obligation to perform the rest.

Question 16

Substantial performance

Answer 16

exists when one party has substantially performed but failed to perform exactly as the contract requires, such as when a contractor substitutes material other than what was specified in the contract. Substantial performance may relieve the performing party from any further obligation but also may involve a monetary adjustment to cover any damages the other party may suffer.

Question 17

rescission

Answer 17

When parties agree to rescission, they terminate all obligations under the contract and refund to each other any consideration they had received so that they would return to their status before entering the agreement. This remedy may be used when:

• both parties agree that the contract had been entered into by mutual mistake
• the law has provided a party a statutory right to rescind after having time to consider the effects of entering into a contract