Which of the following arises from the conduct of the parties rather than from words

Contract Law in Private Enterprise

• contract need not be formal, written; rules still apply
• enables private agreements to be legally enforceable - desirable because gives certainty
• provides flexibility and precision in business dealings (can agree to change anything; can agree to requirements that accomplish purpose)

• common law - judge-made law affects many types of contracts
• legislation - various states enacted common law in statutes (i.e. Uniform Commercial Code, impacting sale of goods)

• an agreement containing mutual promises
• involves 2 promises, 2 rights, and 2 duties
• courts assume bilateral when there's doubt about form

• an agreement w/ one promise, and only one party committed to perform
• maker of promise seeks action rather than promise in return

contracts arising from interactions in which parties discuss promised terms of agreement

Implied-in-Fact Contracts

• contracts arising from conduct of parties rather than from words (i.e. asking accountant for professional advise implies promise to pay going rate even though don't make an express promise to pay)
• many conflicts/disputes could be avoided if parties took time to express clearly the terms of agreement

Implied-in-Law/Quasi-Contracts

• when one party unjustly enriched at expense of another, law may imply a duty on first party to pay second even though there's no contract between 2 parties
• quasi-contract because no actual contractual agreement
• remedy of quasi-contract generally applies when no agreement to cover dispute (applied in fairly limited number of cases)

Contractual Enforcement Terminology

• enforceable
• unenforceable
• valid
• void
• voidable

Enforceable vs. Unenforceable

• enforceable - courts uphold validity of contract's promises
• unenforceable - nonperforming party has justifiable reason for noncompliance

• valid - when agreement is enforceable because all essential requirements present
• void - one that appears to be an agreement but lacks essential requirement for validity and enforceability (i.e. contract w/ illegal purpose)
• voidable - agreement when at least one party has right to w/draw from promise made w/o incurring legal liability (enforceable until party w/ legal right to do so voids contract)

Contractual Performance Terminology

• executed contract - one in which parties performed their promises
• executory contract - when parties haven't yet performed promises (most contracts executory at some time)

agreements void if don't have essential elements

Essential Elements of Contract Formation

1. Offer
2. Acceptance
3. Consideration
4. Capacity
5. Lawful purpose

• contains a specific promise and demand
• offeror (person making promise) must intend to make offer by making commitment to offeree - the objective
• terms must be specific and definite (under UCC, sale of goods can leave open non-quantity terms)
• create legal power in offeree to bind offeror in contract, unless offer terminated

• necessary to create valid, enforceable contract
• accepted by offeree making the required promise in bilateral contract
• unilateral accepted by performing requested act
• language of offer determines whether acceptance should be promise or act

• acceptance must "mirror" the offer
• if acceptance changes terms of offer or adds new terms, its not really acceptance but a counteroffer (negotiations should continue)

• silence alone isn't acceptance
• an action may constitute acceptance though

• unless offeror specifies particular time, acceptance binds parties when offeree dispatches it
• acceptance becomes binding when its "deposited" w/ posital service - deposited acceptance rule
• offeror can't revoke offer once offeree has accepted it
• offeror's revocation not effective until offeree actually receives it

• must be some incentive or inducement for person's promise to be binding
• consideration - receipt of legal benefit or suffering of legal detriment
• bilateral - binding promises are the consideration; unilateral - one party, its the promise; the other its the act
• when consideration not clear, court considers transaction as a whole

Consideration Must Be Bargained For

• insignificant consideration in return for great one brings exchange into question
• prior consideration is no consideration

Consideration - Agreement Not to sue

• when reasonable grounds for lawsuit exist, agreement not to sue is consideration to support promise
• accord and satisfaction - agreeing on a compromise to resolve a dispute

• party to an agreement doesn't give consideration by promising to do something he/she already obligated to do
• option - promise to keep offer open for certain time (must be supported by offeree's consideration)
• promissory estoppel - arises when promise justifiably relies on promisor's promise to his/her economic injury; prevents party who made unilateral offer from w/drawing offer after work has begun

person's ability to be bound by contract

1. minors
2. intoxicated persons
3. mentally incompetent persons

• in number of states, courts will hold minor who misrepresented age to contractual promises
• contract voidable at election of minor
• minor can disaffirm contract and recover consideration, but adult is bound by contract unless minor disaffirms

Intoxicated and Mentally Incompetent Persons

• measure capacity by whether adult was capable of understanding nature and purpose of contract
• more complex the agreement, more likely court to decide mentally incompetent/intoxicated person lacks capacity
• be careful w/ elderly citizens

• contracts that require commission of crime/tort/violate accepted standards are void
• contract may have both legal and illegal provisions - courts will only enforce legal provisions
• often, courts will allow innocent party to recover payment made to party who knows that contract is illegal

Contracts That Restrain Trade

• often considered illegal and void
• include contracts to monopolize, fix prices, etc.
• some important to efficient operation of business
• covenants not to compete - protect employers from having employees they train leave them and compete against them (can't restrain too long or too large of an area)
• those that are illegal declared illegal unless there's a valid business purpose

Other Situations Involving Voidable Contracts

• fraud - intentional misstatement of material fact that induces one to rely justifiably to his/her injury (sometimes failure to disclose fact fraud too)
• misrepresentation - misstatement w/o intent to mislead (voidable by innocent party)
• induced by duress - force or threat of force
• undue influence - one taken advantage of unfairly through contract by party who misuses position/relationship/legal confidence

Other Situations Involving Voidable Contracts (cont'd)

• when there's a mutual mistake as to material fact inducing contract, rescission is appropriate (whether parties would have contracted had they been aware of mistake)
• unilateral mistake arises when only one of parties to contract is wrong about material fact

Written vs. Oral Contracts

• oral generally as enforceable as written
• many everyday transactions involve formal contracts (shouldn't ignore reasons for greater formality though)
• when contracts of significant importance and involve large dollar amount, written, signed contract best
• in certain situations, court require written

• law requiring certain contracts be in writing
• designed to prevent potential deception or fraud from oral contracts (and minimize confusion)
• every stat has its own
• if required writing not met, parties let w/ unenforceable contract
• should be signed by party being sued (unless sale of goods)

Sale of an Interest in Land

• commonly covered by statute of frauds
• include sell of land, contracts for mortgages, mining rights and easements (rights to use another's land)

Collateral Promise to Pay Another's Debt

• secondary/conditional promise
• arises at time different from original obligation
• promise is of collateral nature and must be in wiring to be enforced

Cannot Be Performed Within One Year

• contract must specify period of performance longer than a year
• oral contract for services to be completed by date over year away is enforceable (because can be performed in a year)
• once one party completed performance for other, can enforce oral multiyear contract

Sale of Goods $500 or More

• under UCC, statute of frauds covers sales of goods over $500
• as dollar amount increases, need for written agreement increases (particularly true if contract will remain executory for extended period of time)
• written agreement governs relationship until contract performed

Other Situations Covered by Statutes of Fraud

• insurance policies
• written estimates in contracts for auto repairs

Interpretation of Contracts

• when disagreement over terms arises, interpretation is necessary
• meaning of contract is question of law, so judge makes final determination
• court established rules of interpretation

• if meaning of word is clear, courts reject party's attempt to reinterpret it (if has trade usage, given that meaning)
• written warranty enforced since writing is best evidence of true intention
• when only one parties drafts contract, courts interpret vague terms against party that drafted them (gives non-drafting party the benefit of the doubt)

• influences the form of contracts
• states that parties to a complete/final written contract can't introduce oral evidence in court that changes the intended meaning of written terms
• applies only to evidence of oral agreements made at the time or prior to written contract (doesn't apply to oral modifications coming after parties made written contract)
• exception - allows evidence of oral agreement that explains meaning of written terms or if necessary to prevent fraud

Excuses for Nonperformance

• complete performance of contract
• tendering performance if tender is rejected
• substantial performance
• performance of part of divisible contract
• a legitimate excuse for nonperformance can result in party being discharged from contractual performance

Impossibility of Performance

• party's nonperformance excused
• can be because of: death of essential party, destruction of essential materials or subject matter of contract becomes illegal
• mere increased difficulty or reduced profitability doesn't constitute impossibility of performance though

Commercial Impracticability

• under UCC, party to a sale-of-goods contract receives discharge from performance
• impracticability standard not as difficult to meet as impossibility standard
• what constitutes impracticability depends upon circumstance (i.e. source of raw materials disrupted)

• waiver - party intentionally relinquishes right to enforce the contract (after party fails to perform; usually unilateral)
• release - when party announces other party doesn't have to perform as promised (before party fails to perform; often takes form of negotiated contract)
• nonperformance forgiven and there's no liability for breach of contract

• when party doesn't live up to obligation of contractual performance
• remedies available - negotiated settlement, arbitration, various awards, specific performance, rescission
• the choice of one remedy may exclude others
• awarding money damages is more common remedy (put party in same financial position as if contract performed)

Breach of Contract (cont'd)

• victim of contract breach should mitigate damages when possible
• mitigation - requires victim to take reasonable steps to reduce damages

A situation where a party can breach its contract, make the other party whole, and still be better off. A breach that leaves both parties at least as well off as if there hadn’t been a breach.

• principal - interacts w/ someone to gain 2nd party's assistance
• agent - the 2nd party who will help (do tasks and represent in transaction)
• principle may hire independent contractor to perform task
• nature of relationship w/ principal determines whether employees or independent contractors have authority to contractually bind principle
• agent interacts w/ 3rd party; agent creates binding relationship between principal and 3rd party

Contractual Liability from an Agent's Acts

• for employee to bind employer to contract negotiated w/ 3rd party, employer must have authorized actions
• contractual authroity take following forms - actual authority, expressed/written authority, implied authority, apparent authority
• one of these authorities must be present to contractually bind principal and 3rd party

• authority expressed in writing
• specific instructions given by employer to employee create actual authority
  

inferred from acts of agent who holds position of authority or who had actual authority in previous situations

when reasonable to assume someone has authority based on history

Trading vs. Nontrading Partnership

• trading partnership - engaged in buying/selling commodities has implied authority to borrow money in usual course of business and to pledge credit of firm
• nontrading partnership - no implied power to borrow money (authority must be actual)

occurs when principal voluntarily decides to honor an agreement, which otherwise would not be binding due to agent's lack of authority

Tort Liability From an Agent's Acts

• agent who causes harm to 3rd party may create legal liability owed by principal (whether agent acting w/in scope of employment)
• respondeat superior - principal liable when agent commits tortious acts in scope of employment
• reason for respondeat superior is that employee advancing interests of employer when tortious act occurs
• only defense for employer is that employee out of scope of employment (frolic and detour)
• employer can sue employee for reimbursement (seldom happens because has insurance)
• partners liable for one another too (except, shareholders and members of LLCs protected)

Which one of the following is a contract that arises from the conduct of the parties rather than their words?

What is it called when one or both parties do not perform according to the terms of the contract?

Where a contract is been understood by from the conduct of parties it is?

Which of the following describes a contract in which only one party makes a promise to perform?