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Business Law Terminology - Contracts

Copyright © 1997, 1998, 2004 E. Marshall Wick All rights reserved. This work may not be copied in any form without written permission of the author.
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Introduction to Contracts

Bilateral contract - A contract in which both parties exchange promises.

Breach - Wrongful failure to perform the terms of a contract.

Contract - An agreement between two parties which is legally enforceable.

Executed contract - Contract fully performed by both parties.

Executory contract - Contract partially or entirely unperformed by one or more of the parties.

Express contract - Agreement of parties that is expressed in words either in writing or orally.

Forbearance - A promise not to do an act.

Formal contract - Agreement that is legally binding because of its particular form or mode of expression.

Goods - Moveable, tangible personal property.

Implied-in-fact contract - Contract where the agreement of the parties is indicated by (inferred from) their conduct.

Informal contract - All oral or written contracts other than formal contracts.

Personal property - Property other than an interest in land.

Promise - An indication of the intention to act or refrain from acting in a specific way, an indication that the other party relies on.

Promisee - Person to whom a promise is made.

Promisor - Person making a promise.

Promissory estoppel - A non contractual promise which is nonetheless enforceable to avoid an injustice.

Quasi Contract - An obligation that is imposed by the courts to avoid injustice or unjust enrichment.

Real Property - Land and anything permanently attached to it.

Recognizances - Formal acknowledgements of indebtedness made in a court

Sale - Transfer of ownership of property from seller to buyer for consideration.

Statute of Frauds - A law which states which types of contracts must be in writing.

Unenforceable contract - A contract for which there is no legal remedy.

Uniform Commercial Code - The law which governs contracts for sale of personal property.

Unilateral contract - A contract in which only one party makes a promise

Valid contract - A contract which the courts will enforce because it meets all 4 basic requirements.

Void contract - A contract which has no legal force or binding effect.

Voidable contract - A contract which is capable of being made void.

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Mutual Assent

Acceptance - The demonstration of a willingness to enter into a contract on the terms of the offer.

Counter offer - A counter proposal from the offeree that indicates a willingness to enter into a contract but with different terms.

Exclusive dealings contract - A contract that provides for the sole right to sell goods in a defined market.

Firm Offer - An offer that gives assurance that it will not be rescinded for a specific period of time.

Mirror image rule - An acceptance cannot deviate from the terms of the offer.

Mutual Assent - A meeting of minds as manifested by an offer and an acceptance.

Objective standard - What a reasonable person, under the same circumstances, would believe or do.

Offer - The indication of of a willingness to enter into a contract with another party.

Offeree - The party who receives an offer.

Offeror - The party who makes an offer.

Option Contract - A contract, supported by consideration, that provides that an offer will stay open for a specified period of time.

Output contract - A contract in which one party agrees to sell the entire output to the other party.

Rejection - The refusal to accept an offer.

Requirements contract - A contract where one party agrees to purchase the total needs from the other party.

Revocation - Cancellation of an offer by an offeror.

Without reserve - An auctioneer may not withdraw the goods from the auction.

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Conduct Invalidating Consent

Duress - Improper physical or mental force upon a person, whereby they are forced to do some act against their will.

Fiduciary - Person who owes a duty of trust, loyalty, and confidence to another.

Fraud - The act of false representation of a material fact made by defendant upon which the other party relies and damages result.

Fraud in the execution - Misrepresentation that deceives the other party as to the nature or contents of a contractual document.

Fraud in the inducement - Misrepresentation regarding the subject matter of a contract and inducing the other party to make it.

Material - important, substantial.

Misrepresentation - A claim not in accordance with the facts.

Mutual mistake - Where both parties have a common but erroneous belief forming the basis of a contract.

Negligent misrepresentation - Misrepresentation made without due care in ascertaining its truth or falsity.

Puffing - Exaggerated claims that are a matter of opinion and not fact.

Scienter - Done with intention or with the knowledge a statement or act would cause harm.

Undue influence - Taking unfair advantage of a person by reason of a dominant position based on a special relationship of trust.

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Consideration

Consideration - Some benefit (right, interest, profit) accruing to one party, or some detriment (forbearance, loss, or responsibility) by the other.

Gift - A voluntary transfer of property without consideration.

Illusory promise - A nonbinding or nonexistent promise.

Legal benefit - Obtaining something one had no legal right to obtain.

Legal detriment - Doing an act you not legally obligated to do or not doing an act that one has a legal right to do.

Liquidated debt - Ascertained or settled debt.

Renunciation - A written and signed waiver of claims or rights under a contract.

Statute of limitation - Time period in which a lawsuit must be initiated.

Unliquidated debt - Uncertain debt or when the amount is contested.

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Legality

Blue Laws - Laws which prohibit certain types of commercial activity on Sunday.

Exculpatory clause - A clause which excuses oneself from fault or tortious liability.

License - Formal authorization to engage in certain regulated activity.

Regulatory license - Licensing for the purpose of protecting the public interest.

Revenue license - Licensing for the purpose of raising money.

Unconscionable contract - A contract with unfair or unduly harsh terms.

Usury Laws - Laws stipulating the maximum interest rates allowed.

Usurious Loan - A loan where interest rates are in excess of those permitted by the usury laws.

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Contractual Capacity

Disaffirmance - The exercise of the power of avoidance of a contract.

Guardian - A person appointed by a court to preserve and control the property of another person.

Guardianship - The relationship established between a guardian and the person whose property is being preserved and controlled.

Intoxicated - Under the influence of drugs or alcohol to the extent that a person is unable to understand the nature and consequences of his actions.

Mentally incompetent - Due to a mental defect, one is unable to understand the nature and consequences of one's acts.

Minor - A person who has not attained the age of legal majority.

Necessity - Items needed to maintain one's position in life.

Ratification - The confirmation of a previous act done either by the party himself or by another.

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Contracts Requiring a Writing

Contract interpretation - Construction of the meaning of the contract.

Course of dealing - Previous conduct between the parties in general.

Course of performance - Conduct between the parties concerning performance of the particular contract.

Goods - Tangible personal property.

Integrated contract - A complete and total agreement.

Main purpose doctrine - The object of promisor/surety is to provide an economic benefit for herself.

Parol evidence rule - When parties put their agreement in written, all previous and the current agreements merge in the writing and a contract as written cannot be modified or changed by parol evidence.

Statute of Frauds - A law which states which types of contracts must be in writing.

Surety - A promisor who provides security for the debt of another.

Usage of trade - The practice engaged in by a particular trade or industry.

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Third Party Contracts

Assignee - The party to whom contract rights are assigned.

Assignment of rights - The voluntary transfer to a third party of the rights arising from a contract.

Assignor - The party making an assignment of her rights.

Contract rights - The legal benefits a party to a contract acquires.

Contract duties - The legal obligations a party to a contract creates.

Delegatee - The third party to whom the delegator's duty is delegated.

Delegation of duties - The transferring all or part of one's duties created in a contract to a third party.

Delegator - The party delegating his duty to a third party.

Express warranty (on Assignment) - An explicitly made contractual promise regarding transferred property or contract rights.

Implied warranty (on Assignment) - An obligation imposed by law upon the transferor of property or contract rights.

Incidental beneficiary - A third party whom the contracting parties have no specific intention of benefiting but who would benefit anyway.

Intended beneficiary - A third party whom one of the contracting parties specifically wishes to gain from the contract.

Novation - A new contract substituting a new promisor for an existing promisor.

Obligee - The party to whom a duty of performance is owed.

Obligor - The party who owes another a duty.

Partial assignment - The transfer of a portion of contractual rights to one or more assignees.

Third-party beneficiary contract - A contract in which one party promises to render a performance to a third person.

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Performance, Breach and Discharge

Accord and satisfaction - Agreement (or "accord") to substitute a new duty for a prior contractual duty which is thus discharged ("satisfaction") by performance of the new duty.

Anticipatory repudiation - Breach of a contract before performance is due by the party announcing that he will not perform or committing an act that makes it impossible for him to perform his duties.

Breach - Wrongful failure to perform the terms of a contract.

Commercial impracticability - Discharge from a contractual duty when performance of it can be accomplished only at unforeseen and unjust hardship.

Concurrent conditions - Performances by the parties are to occur simultaneously.

Condition precedent - An event must occur before performance under a contract is due.

Condition subsequent - An event terminates a duty of performance when it happens.

Contract Conditions - Uncertain events that affect a contractual duty of performance.

Discharge - Termination of a contractual duty.

Express condition - Performance is contingent on the happening or nonhappening of a stated event.

Implied-in-fact condition - Contingencies understood to be a part of the contract but not expressed by the parties.

Implied-in-law condition - Contingency that arises from operation of law.

Impossibility of Performance - A situation where a contractual duty cannot possibly be done.

Material breach - Nonperformance that significantly impairs the aggrieved party's rights under the contract.

Mutual rescission - Agreement between the parties to terminate their respective duties under the contract.

Perfect tender rule - Requirement that seller's tender of delivery must conform exactly to the contract.

Performance - Fulfillment of a party's contractual obligations.

Tender - An offer by one party, who is ready, willing and able to perform, to the other party to perform his contractual duties.

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Remedies

Benefit-of-the-bargain damages - Difference between the value received and the value of what the fraudulent party said they would get.

Compensatory damages - Contract damages placing the injured party in as good a position as if the other party had performed.

Consequential damages - Damages not occuring directly from a breach but as a foreseeable result of the breach.

Damages - Losses occuring when a party breaches his contract.

Equitable remedies - Relief for a breach which is non monetary in nature.

Foreseeable damages - Loss that the party in breach had reason to know of when the contract was made.

Incidental damages - Reimbursement for reasonable expenses directly arising out of the contract when a breach occurs.

Injunction - Court order prohibiting a party from doing a specific act.

Liquidated damages - Reasonable damages agreed to in advance by the parties and stated in the contract.

Mitigation of damages - Requirement that the injured party take reasonable steps to lessen or avoid damages.

Monetary damages - Financial relief of various forms, awarded when a contract has been breached.

Nominal damages - A small sum of money awarded where the dollar loss is negligible or unproved.

Punitive damages - Damages awarded in cases involving willful, wanton, or malicious conduct.

Reliance damages - Damages covering foreseeable loss caused by reliance on the contract.

Restitution - Restoration of the injured party to the position he was in before the contract was made.

Specific performance - Court decree ordering breaching party to render promised performance.

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