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CPCU 530

Chapter 2 Contract Law

QuestionAnswer
Contract a legally enforceable agreement between two or more parities 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