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CPCU 530 Chapter 2
Contract Law
| Term | Definition |
|---|---|
| Contract | a legally enforceable agreement between two or more parties in which each party makes some promise to another |
| Promisee | the party to a contract to whom a promise is made. |
| Promisor | the party to a contract making a promise. |
| Privity of contract | the relationship that exists between the parties to a contract |
| Third-party beneficiary | a person who is not a party to a contract but who benefits from it and has a legal right to enforce the contract if it is breached by either of the contracting parties |
| Breach of contract | the failure, without legal excuse, to fulfill a contractual promise |
| Unilateral contract | a contract in which only one party makes a promise or undertakes the requested performance. |
| Bilateral contract | a contract in which each party promises a performance. |
| 4 elements of a contract to be legally enforceable | agreement, capacity to contract, consideration and legal purpose. |
| Executed contract | a contract that has been completely performed by both parties |
| Executory contract | a contract that has not been completely performed by one or both of the parties. I.e fire insurance policy |
| Implied contract | a contract whose terms and intentions are indicated by the actions of the parities to the contract and the surrounding circumstances. |
| Express contract | a contract whose terms and intentions are explicitly stated |
| Implied-in-fact contract | a contract that is not express but that the parties presumably intended, either by tacit understanding or by the assumption that it existed |
| Implied-in-law contract | a contract that is not an actual contract but that is imposed by law because of the parties' conduct or some special relationship between them or because one of them would otherwise be unjustly enriched |
| Voidable contract | a contract that one of the parties can reject (avoid) based on some circumstance surrounding its execution |
| Void contract | an agreement, that despite the parties' intentions, never reaches contract status and is therefore not legally enforceable or binding. |
| Offer | a promise that requires some action by the intended recipient to make an agreement |
| Offeror | the party to a contract who promises to give something in return for a promise or an act by another party |
| Offeree | the party to a contract who makes a promise or acts in return for something offered by another party |
| An offer is valid when it includes | intent to contract; definite terms; communication to the other party |
| Acceptance includes | by offeree; unconditional and unequivocal; offeree's communications of acceptance |
| Definite terms | make an agreement enforceable and make it possible to determine whether the parties have fulfilled their promises. Is the 2nd requirement of an offer. |
| Communication to Offeree | an offeree cannot accept a proposal before knowing about it and is the 3rd requirement of an offer. |
| Duration and Termination | key to determining whether an offer is binding. |
| Factors determining whether an offer is binding | lapse of time; operation of law; offeree's rejection; counteroffers; offeror's revocation |
| Counteroffer | a proposal an offeree makes to an offeror that varies in some material way from the original offer, resulting in rejection of the original offer and constituting a new offer. |
| Acceptance | the assent to an offer that occurs when the party to whom an offer has been made either agrees to the proposal or does what has been proposed. |
| Forbearance | the act of giving up or the promise to give up a legal right. |
| Substantial performance | the performance of the primary, necessary terms of an agreement. |
| Competent party | a party to a contract who has the basic or minimal ability to do something and the mental ability to understand problems and make decisions. |
| Restitution | the return of specific property by court order |
| Consideration | something a value or bargained for and exchanged by the parties to a contract. |
| Good consideration | consideration based on natural love or affection, or on moral duty, that is not sufficient to support a contract |
| Valuable consideration | the consideration necessary and sufficient to support a valid contract |
| Gratuitous promise | a promise not supported by valuable consideration and, therefore, not binding. |
| The consideration necessary to a make promise enforceable | a return promise; an act performed; a forbearance from acting |
| Five types of consideration sufficient to form an enforceable contract | valuable consideration; forbearance; present consideration; future consideration; binding promises |
| Three types of consideration are insufficient for forming a binding contract | past consideration; promises to perform existing obligations; compromise and release of claims |
| Accord and Satisfaction | an agreement (accord) to substitute performance other than that required in a contract and the carrying out of that agreement (satisfaction.) |
| Promissory estoppel | a legal principle that permits enforcement of a promise made without consideration in order to prevent injustice |
| Insurable interest | an interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred. |
| Usury | the charging of an illegally high rate of interest on a loan |
| Negligence | the failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others. |
| Exculpatory clause (exculpatory agreement) | a contractual provision purporting to excuse a party from liability resulting from negligence or an otherwise wrongful act |
| Noncompete agreement | an agreement between an employer (the principal) and an employee (the agent) to protect the employer's customers, trade secrets, confidential information, and other items for a specific period after an employee relationship has been terminated |
| In pari delicto agreement | an illegal transaction in which both parties are equally at fault |
| Severable contract | a contract that includes two or more promises, each of which a court can enforce separately. |
| Genuine assent | contracting parties' actual assent to form a contract or their indication of intent to contract by their actions and words. |
| Fraud | an intentional misrepresentation resulting in harm to a person or an organization |
| Representation | a statement of fact or opinion made by the insured when applying for insurance, usually in response to a question from the insurer. |
| Material fact | in insurance, a fact that would affect the insurer's decision to provide or maintain insurance or to settle a claim. |
| Rescission | a legal action that voids a principal's bid |
| Mistake | a perception that does not agree with the facts |
| Bilateral mistake | a perception by both parties to a contract that does not agree with the facts |
| Unilateral mistake | a perception by one party to a contract that does not agree with the facts |
| Duress | the use of restraint, violence, or threats of violence to compel a party to act contrary to his or her wishes or interests. |
| Undue influence | the improper use of power or trust to deprive a person of free will and substitute another's objective, resulting in lack of genuine assent to a contract |
| Statute of frauds | a law to prevent fraud and perjury by requiring that certain contracts be in writing and contain the signature of the party responsible for performing that contract |
| Real property (realty) | tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land. |
| Uniform Commercial Code (UCC) | a model code that has been adopted in whole or in part by each state and whose purpose is to provide a consistent legal basis for business transactions throughout the United States and its territories |
| Parol Evidence Rule | a rule of evidence that limits the terms of a contract evidenced by a writing to those expressed in writing. |
| Assignment | the transfer of rights or property |
| Assignor | the party to a contract who makes an assignment |
| Assignee | the individual or entity to whom property, rights, or interests have been transferred |
| Third-party beneficiary | a contract between two parties that benefits a third party |
| Creditor beneficiary | a third-party beneficiary owed a debt that is to be satisfied by performance of a contract |
| Donee beneficiary | a third-party beneficiary who receives the benefit of a contract's performance as a gift from the promisee, with the intent of the contracting parties |
| Incidental beneficiary | a third-party beneficiary who has no contractual rights but benefits from a contract even though that is not the intent of the parties to the contract. |
| Tender | an offer to perform one's duties under a contract |
| Novation | the substitution of a third party for one of the original parties to a contract, releasing the original party from rights and obligations under the contract. |
| Condition concurrent | an event that must occur at the same time as another condition in a contract |
| Condition subsequent | an event that, if it occurs, discharges a duty of performance in a contract |
| Repudiation | a party's refusal to meet obligations under a contract |
| Anticipatory breach | a party's unequivocal indication before contract performance is due that he or she will not perform when performance is due |
| Material breach of contract | violation of the agreement that would justify an owner's termination of the contract |
| Five categories due to damages from breach of contract | compensatory; consequential; punitive; extracontractual; liquidated |
| Compensatory damages | a payment awarded by a court to reimburse a victim for actual harm |
| Consequential damages | a payment awarded by a court to indemnify an injured party for losses that result indirectly from a wrong such as a breach of contract or a tort |
| Punitive damages (exemplary damages) | a payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party's actual damages |
| Bad faith (outrage) | an intentional or reckless act, extreme or outrageous in nature, causing severe emotional distress that results in physical injury; generally applied in suits for breach of insurance contracts |
| Extracontractual damages | a payment awarded by a court that exceeds the usual contract damages for a breach of contract |
| Mitigation of damages | a duty owed by an injured party to a claim to take reasonable measures to minimize or avoid additional injury or loss |
| Liquidated damages | a reasonable estimation of actual damages, agreed to by contracting parties and included in the contract, to be paid in the event of a breach or for negligence |
| Specific performance | a court-ordered equitable remedy requiring a party to perform a certain act, often - but not always - as a result of breach of a contract |
| Injunction | a court-ordered equitable remedy requiring a party to act or refrain from acting |
Created by:
CHahnCPCU
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