Business Law 241

Front 1

Objective Theory

Back 1

"I had my fingers crossed"

A theory under which the intent to form a contract will be judged by outward, objective facts (e. g. what the party said when entering into the contract) as interpreted by a reasonable person, rather than by the party's own secret intentions

Front 2

Elements of a Contract

Back 2

Agreement -- The process of offer and acceptance

Consideration -- What is bargained for? What is the value to be exchanged?

Capacity -- parties to a contract must have legal capacity (minors, mentally incapacitated)

Legality -- Subject matter has to be legal

Front 3

Bilateral contract

Back 3

when a promise is given in exchange for a promise

Front 4

Unilateral contract

Back 4

contract that results when an offer can only be accepted by the offeree's performance. Cannot be voided

Front 5

Express contract

Back 5

A contract in which the terms of the agreement are fully and explicitly stated in words, oral or written.

Front 6

Implied-in-fact contract

Back 6

a contract formed in whole or in part from the conduct of the parties (as opposed to an express contract)

o Plaintiff furnished some service or property
o Plaintiff expected to be paid; defendant knew or should have known

Defendant had a chance to reject and did not

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Executory contract

Back 7

a contract that has not as yet been fully performed.

Front 8

Valid (contract)

Back 8

we have all elements of the contract

Front 9

voidable (contract)

Back 9

o One or both parties have the option to rescind.

Front 10

Void (contract)

Back 10

not a contract at all, never existed because you have no remedy
o One of the elements of the contract is missing, contract does not exist

Front 11

unenforceable (contract)

Back 11

o WE have all the elements of the contract but something else renders it unenforceable, such as fraud, because statute of fraud says it should be in writing but it isn't, it's not enforceable

Front 12

Quasi contract

Back 12

a fictional contract imposed on parties by a court in the interests of fairness and justice; usually, imposed to avoid the unjust enrichment of one party at the expense of another

Front 13

Things that are not offers

Back 13

Expressions of Opinion

Statements of future intent

Preliminary Negotiations
· Inquiries -- "if you want to sell your golf clubs, what would you sell them for?" "$300" Both statements not an offer"
· Bids

The Bid is the offer - "I'll buy them for $300" That's an offer

Agreements to Agree -- Not enforceable, generally speaking

Advertisements -- Not a contract, more like an invitation to come and make on offer, but NOT AN OFFER

Auctions

Front 14

Termination

Back 14

Effective when received by the offeree

Ways:
Expressly
Orally
In writing
By act of another party (

Front 15

Revocation (termination by action of another party)

Back 15

Effective when received

Offer can be revoked anytime before acceptance EVEN IF THE OFFEROR PROMISES TO KEEP THE OFFER OPEN;

Exceptions: Options (contracts within a contract) anything that would add valid consideration

Detrimental Reliance including Promissory Estoppel and Partial Performance

Front 16

Rejection

Back 16

2 ways:

say no thanks

or

counteroffer

Front 17

Counteroffer

Back 17

rejection & new offer

Inquiring about the offer is not rejecting the offer
If you add a new term to the offer, it's a rejection and a counteroffer

Front 18

Mailbox rule

Back 18

o Acceptance is effective when dispatched (put in mailbox)
o Acceptance letter gets lost in the mail, we still have a contract

Front 19

Authorized means

Back 19

"No harm no foul"

Front 20

Exceptions to Contract acceptance

Back 20

o Bad address -- unless timely sent, timely received e. g. if it still gets there in two days and it would have anyway
o Offeror contract around mailbox rule -- makes contract say that acceptance isn't effective until I receive it
o If rejection, then acceptance sent, first one to arrive wins! -- If somebody sends a rejection first, and then sends and acceptance, whichever one gets there first wins. If you send acceptance first, and then a rejection later, the contract is formed when you send the acceptance.

Front 21

Adequacy vs. Sufficiency

Back 21

Sufficiency = is there consideration?

Adequacy = is the consideration enough?

Courts will care that there is consideration, they don't care how much
They care about sufficiency, not adequacy

Front 22

Pre-existing legal duty (agreements that lack consideration)

Back 22

promise to do what one already has a legal duty to do.

Exceptions: Unforseen difficulties/circumstances -- when someone can hold something hostage unless the other person pays more

Rescission and new contract

Front 23

Past consideration (agreements that lack consideration)

Back 23

remember that past is past, doesn't matter how long. If the consideration has already been performed, then the consideration based on it has already been performed

Front 24

Accord and Satisfaction (settlement of claims)

Back 24

Accord is offer of new amount, and Satisfaction is the fix

Just because somebody doesn't want to pay or doesn't have the money to pay, doesn't make the AMOUNT in dispute.

Only for Unliquidated (disputed) debts

Front 25

Minor's right to dissafirm

Back 25

minor may disaffirm any time during minority OR for a reasonable period after reaching majority · If not disaffirmed, it's ratified (later)

Front 26

Minor's obligation on dissafirmance

Back 26

· Majority Rule: return the goods if in possession
· Minority Rule: minor liable for damages
► Allows minor to still disaffirm

Front 27

Exceptions to Right to Disaffirm

Back 27

· Misrepresentation of Age -- can still disaffirm
· Necessaries (necessary for minor's subsistence)
· May disaffirm but remains liable for reasonable value of the goods
· Don't worry about the three elements for necessaries

Front 28

Ratification

Back 28

· Express (orally or in writing)
· Implied (intent to abide) -- continuing to use or sells it to someone else
· Failing to Disaffirm w/i a reasonable time
· Executed v. Executory

Front 29

Intoxication

Back 29

· Didn't comprehend legal consequences (voidable)
· Did understand the legal consequences (valid)
· Disaffirmance (full restitution except necessaries)
· Ratification (express or implied) -- can ratify after they sober up

Front 30

Mental Incompetence

Back 30

· Judged incompetent by a court=VOID
· Didn't know or understand=VOIDABLE
· Understands this specific K=VALID

Front 31

Procedural Unconscionability

Back 31

Occurs when, due to one contractual party's costly superior bargaining power, the other party lacks a knowledge or understaning of the contract terms due to inconspicuous print or the lack of an opportunity to read the contract or to ask questions about its meaning. Procedural unconscionability often involves an adhesion contract, which is a contract drafted by the dominant party and then presented to the other -- the adhering party -- on a take-it-or-leave-it basis

trying to hide a clause in small print, legal ease, tell you there's no time to get the advice of an attorney

Front 32

Substantive unconscionability

Back 32

"Shocks the conscience" of the court

results from contracts, or portions of contracts, that are oppressive or overly harsh. Courts generally focus on provisions that deprive one party of the benefits of the agreement or leave that party without remedy for nonperformance by the other. An example of substantive unconscionability is the agreement by a welfare recipient with a fourth-grade education to purchase a refrigerator for $2,000 under an installment contract

Front 33

Exculpatory clauses

Back 33

I don't care what I do if you get injured I'm not liable.
· releasing liability no matter who is at fault
· enforceable if business not important to public interest (skydiving)
· Necessary for the public good? No, then

Can waive ordinary negligence, but not gross.

Front 34

Effect of Illegality

Back 34

**** You pay someone money but withdraw before the act in the illegal contract is performed, you can go to the court and gain a remedy

· GR: k is void and the court will not enforce or award damages. You are out of luck!
· Exceptions:
· Justifiable ignorance of the facts (rescission and restitution)
· Members of a protected class
· Withdrawal from an Illegal Agreement
· Contract Illegal through Fraud, Duress, or Undue Influence
· Severable, or divisible, contracts

Front 35

Mistake of value vs. mistake of fact

Back 35

Value -- sell a violin, don't know it's a Stradivarius. No relief, it's a valid, enforceable contract

Fact -- Can be rescinded if both parties are mistaken

Front 36

Unilateral Mistakes of Fact

Back 36

· Material Fact
· GR: No relief
· Exceptions:
► Non mistaken party knows mistake has been made.

Mathematical error

Front 37

FRAUDULENT MISREPRESENTATION requires

Back 37

Misrepresentation Has Occurred

Intent to Deceive (scienter)

Justifiable Reliance

Front 38

UNDUE INFLUENCE

Back 38

· Arises from a special relationship; innocent party's will is overcome
· "To what extent was the transaction induced by domination of the mind or emotions?"
· Odirrizzi Case
· Discussion of the transaction at an unusual time
· Pressure to do it immediately, no time to consult friends
· Absence of 3rd party advisors

Front 39

DURESS (Voidable)

Back 39

worse than undue influence, have to have a threat
One party forced to enter into a k through the threat of a wrongful OR illegal act (force, blackmail, extortion, etc.)

Front 40

Contracts that fall with in the Statute of Frauds:

Back 40

MYLEgS

M -- Marriage -- prenups
Y -- not possible completion within year, day after contract is signed
L -- Land, real estate, easements
E -- Estates - assets/ liabs. of someone who's died, promise made to pay debt of estate
G -- Don't have to know -- Goods over $500
S -- Surety, promise to pay debt of another if they don't perform

Front 41

Statute of Frauds

Back 41

A state statute under which certain types of contracts must be in writing to be enforcable

Front 42

Interests in Land (S.O.F)

Back 42

Easements - right to cross someone else's land,

mortgages, leases, etc.

Front 43

Collateral Promises (Surety & Estate)

Back 43

· A promise to pay the debts of another
· i.e. I promise to pay if Milly does not
· Exception: Main Purpose Rule
► Reason I'm promising to pay your debt is to benefit me, then it doesn't have to be in writing

Front 44

Exceptions to the S.O.F. -- contracts would be enforceable

Back 44

1. Partial Performance
· (Buyer has paid, taken possession and made improvements)
2. Admissions
· Party against whom enforcement is sought (party being sued) admits the existence of an oral contract
3. Promissory Estoppel
· Detrimental Reliance

Front 45

PAROLE EVIDENCE RULE

Back 45

If written contract intended to be complete and final, no oral evidence will be introduced UNLESS:
1. Subsequent Modification -- change term of the deal after signing -- judge would overrule, court will ALLOW oral testimony
2. Void or Voidable Contract (fraud, mistake, misrepresentation, duress, undue influence, minority, mental capacity, etc.)
3. Ambiguous Terms

Front 46

Integrated Contract

Back 46

· Tricky if we have a draft and an email adds a provision, etc. Court needs to decide what is the "Integrated Contract"

Front 47

Liability (assignments and delegations)

Back 47

when you assign something, you are no longer liable, when you delegate then you are still liable.

Front 48

Cannot be assigned:

Back 48

Statute prohibits assignement
Contract is personal in nature
Dance lessons, surgery

Front 49

Assignment

Back 49

Transfer of a contract right

Front 50

Effect of Assignement

Back 50

· Rights of Assignor Extinguished

Assignee Can Demand Performance

Front 51

Assignment Subject to the Same Defenses

Back 51

Obligor may assert any defense against the assignee that she had against the assignor

Front 52

Contract Prohibits Assignment

Back 52

· Exceptions:
· Right to receive money
· Rights in real estate

Negotiable Instruments

Front 53

Notice of Assignment

Back 53

American rule - once you give notice to one person you can't give it to anyone else vs. English rule - whoever gives notice first, wins

You can assign something by gift

Front 54

Duties that Cannot be Delegated

Back 54

· Duties are Personal in Nature
· Performance will Vary from Obligee's Expectaion
· Contract Prohibits Delegation

Front 55

Conditions Precedent

Back 55

· Must be fulfilled before a party’s performance can be required
o i.e. financing for a home

Front 56

Conditions Subsequent

Back 56

· Condition operates to terminate a party’s absolute promise to perform.
· In other words, if the condition happens, my obligation to perform terminates.

Look for words like unless, but if, until, etc.

Front 57

Complete Performance

Back 57

· Performed exactly as agreed
o Payment of money, delivery of goods, title, performance of service, etc.

Front 58

Substantial Performance (good faith required; no material breach)

Back 58

· Pretty darn close; but not exact. Minor variations (breaches) in the promised performance.
· Non-breaching party entitled to damages
o Measure of damages can be tricky!
o Difference between what they did and what you would have received
o See Jacob & Youngs v. Kent -- pipe

If there's no difference in the quality of pipe, then the court may award nominal ($1)

Front 59

Anticipatory Repudiation

Back 59

· Before duty to perform arises, one party refuses to carry out their contractual obligation.

You don't have to wait around until the date of non-performance, you can contract with others

Front 60

Objective Impossibility

Back 60

· “It can’t be done” vs. “I can’t do it”
· Death or Incapacity
· Destruction of Subject Matter

Change in Law Render Illegal

Front 61

Commercial Impracticability

Back 61

· Performance must become extremely difficult

Must not have been known at the time of k formation

Front 62

Frustration of Purpose

Back 62

Supervening circumstances make performance impossible

Front 63

Temporary Impossibility

Back 63

· Once impossibility removed, parties must perform UNLESS:
o Lapse of time/change of circumstances make it substantially more burdensome to perform

Front 64

Compensatory Damages

Back 64

· Compensate for damages actually sustained that arose directly from the breach of contract
· Put the non-breaching party in the position they would have been in had the contract been performed + incidental damages - losses avoided (unnecessary shipping, etc.)

Front 65

Consequential Damages

Back 65

· Foreseeable Damages outside (beyond) the actual contract. i.e. lost profits
· May also still recover compensatory damages
· Hadley v. Baxendale

Front 66

Punitive Damages

Back 66

· Only if a tort (usually fraud) is involved
· May arise out of a contract case, but the conduct must be more than a breach of contract

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Nominal Damages

Back 67

· Legally you win, but you have no real damages.
· $1

Front 68

SPECIFIC PERFORMANCE

Back 68

· Only awarded if legal remedy inadequate (i.e. real estate, unique goods, etc.)
· CAREFUL: Buyer may get it; seller and involuntary servitude won't. Why not?

Front 69

QUASI-CONTRACT

Back 69

· Prevents unjust enrichment
· One party has partially performed
· Contract would be otherwise unenforceable
· Recovery equal to value of services/goods received