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contracts flow chart

contracts flow chart

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Published by Erica Chavez

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Categories:Types, Business/Law
Published by: Erica Chavez on Sep 21, 2010
Copyright:Attribution Non-commercial


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A contract is a legally enforceable agreement.
Promise + Consideration = K
Promise + Detrimental Reliance = K 
To constitute consideration, a performance or promise must be
bargained for 
, i.e.
sought inexchange
for another performance or a returnpromiseEach party has the duty to bargain in
good faith
In some instances, detrimental reliance acts inplace of consideration.
A promise is the
manifestation of intent 
to actor refrain from acting in a specified wayA promise or performance must offer some
legal detriment 
, i.e. something of value or some form of freedom
Conditional & IllusoryPromises
An agreement that dependson the
wish, will, or  pleasure
of one of theparties will not be enforced.
One party cannot convertwhat both parties knew to bea joke into a serioustransaction simply byclaiming it to be so.There must be a
meeting of the minds
Satisfaction Clauses
Two Categories:(1) Objective test:
Reasonable person standard 
, where“satisfaction” can be asserted to
something measurable
 (2) Subjective test:
Good faithstandard 
, where “satisfaction” isdetermined by the
fancy, taste, or  judgment 
of the parties
Exclusivity:Good Faith & Reasonable Efforts
Implied Promises = A promise may belacking, and yet the whole K may be
“instinct with an obligation, imperfectly expressed.” 
In these situations thecourt
reads in the promise
good faith
reasonable efforts
byboth parties.
DISCRETIONARYVague & Indefinite Terms
Six Ways of Interpreting a Term:The Courts use these to determineINTENT(1) Language of the K(2) Dictionary(3) Prior Negotiations Between theParties(4) Trade Usage(5) Standards Incorporated byReference(6) The Conduct of the PartiesOther relevant factors:Evidence; Subject Matter 
(I).Lack o
Illiteracy without guidance
Mentally Ill
Infant (Minor)K is voidable if:- Party is unable to
in a
reasonable manner 
- Party is unable to
in a
Stress of $ 
Situation = No Void of K(Bad public policy)
Assent Induced by
Improper Threat 
=Voidable K
Business Compulsion creates
no other speedy remedy 
= Voidable K. i.e. did the persondo what they otherwise would not have done?
Defenses to KFormation
unjustified failure
to perform anabsolute duty
(III).Unconscionable & Unjust
K’s of 
Gross Inequality 
are not sustainedAdhesion & Unjust Terms:K’s offered by the party with more power to the party with weaker power on a
take-it-or-leave-it basis.
 Rule: Enforceability depends upon the (1)
degree of inequality 
and the (2)
social necessity 
of thecontract.Unconscionability:Occurs where there is an
absence of meaningful choice
on one party, together with contract terms
unreasonably favorable
to another party. Must be a necessary act of life, not a luxury or hobby.Rule: Where the element of unconscionability is present at the time a K is formed, the K is unenforceable. Kmust be with the
reasonable expectations
of the weaker party [substantive] to be enforceable. Conduct isalso considered [procedural].NOTE: Both
unconscionability must be shown for a K to be unenforceable.
If the expressions of the parties are capable of two different and
equally reasonable interpretations
, andneither one negligently misled the other, there is
no contract
. Parties are bound by the
of what they said.
Mutual Mistake:
 The Court offers
for cases of mutual mistake.
Latent Ambiguity 
= A problem that was hidden before a certain event that is essential to the contract.
Parole Evidence
(Extrinsic Evidence) = Can be used to clear up a latent ambiguity. Think chicken/cottonshipping case.(1) Was the mistake as to a
basic assumption
essential term
of the contract?Yes = K is voidable; No = K is enforceable.(2) If liability can be determined the courts consider:(i) Element of Risk for each party(ii) Fraud of Quasi-Fraud(iii) Negligence
Unilateral Mistake:
(1) General Unilateral = When through
fraud or mistake
one party is misled, the K must be revised on theside of the injured party. If the other party knew or 
had reason to know 
of the mistake and did notdisclose it, the K is
.(2) Scribner’s Error = If the parties have agreed to terms, and only the
written document is defective
, a
meeting of minds
has occurred and the contract is
on original understood terms.NOTE: Contract is voidable if one party does not bear risk of mistake. Also note that risk is allocateddepending on fairness; the court will also see whether risk has been allocated in the contract itself.
Was the mistake as toa basic assumption?
Yes = Contract isvoidable
No = Contractenforceable:Did the other partyknow or have reasonto know of themistake?Contract is voidable under R153
Defenses to KFormation
unjustified failure
to perform an absolute duty
(IV).Fraud & Misrepresentation
Nondisclosure = Recission of K
Partial Disclosure believed to be FullDisclosure = Promisor is LiableRule: If the promisee
acted in reliance
, thenthere is no K and the Promisor is liable.Nondisclosure of knowledge of a defect thatcreates misrepresentation is illegal. There is a
duty to disclose
if lack of disclosure createsreliance.
Rule: When one party’s obligation to another party isextinguished, usually through a K clause.To be valid and enforceable the release must:(1) Clearly, unambiguously, and explicitly express thespecific intent of the subscribing parties(2) Be distinguished from the rest of the contractlanguage
when signed 
.(3) Notify the releasor of the effects of signing(4) Remain within the realm of 
known risks
, i.e. those
reasonably foreseeable
to the acts the release ismeant to protect.

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