Business Law Chapter 8

Front 1

promise

Back 1

assertion that something either will or will not happen in the future

Front 2

acceptance

Back 2

voluntary act by offeree that shows assent, or agreement, to the terms of an offer

Front 3

sources of contract law

Back 3

common law governs all contracts except when it has been modified or replaced by statutory law, such as uniform commercial code, or administrative agency regulations.

Front 4

contract

Back 4

an agreement that can be enforced in court. Formed by two or more parties who agree to perform or refrain from performing some act now or in the future

Front 5

1. promisor
2. promisee

Back 5

1. person making promise
2. person to whom promise is made

Front 6

objective theory of contracts

Back 6

that a party’s intention to enter into a contract is judged by outward, objective facts as interpreted by a reasonable person rather than by the party’s secret, subjective intentions

Front 7

examples of objective facts

Back 7

1. What the party said when entering the contract
2. How the party acted or appeared
3. The circumstances surrounding the transaction

Front 8

requirements of a valid contract

Back 8

1. Agreement – includes offer and acceptance.
2. Consideration – any promises made by the parties must be supported by legally sufficient and bargained-for consideration – something of value promised, incentive for deal
3. Contractual capacity – both parties entering into the contract must have the contractual capacity to do so, i.e. be competent
4. Legality – the contract’s purpose must be to accomplish some goal that is legal and not against public policy

Front 9

2 ways to make valid contract unenforceable

Back 9

1. Voluntary consent is not met (genuineness of assent) – if contract was formed as result of fraud, mistake, or duress contract is void.
2. Form is not met – the contract must be in whatever form the law requires; some must be in writing

Front 10

3 categories of contract formation

Back 10

1. Bilateral v. unilateral
2. Formal v. informal
3. Express vs. implied

Front 11

bilateral contract

Back 11

if the offeree can accept simply by promising to perform ex. Someone says they will buy a camera for cash on Friday, other person says they will sell Friday and contact is formed, no performance need to take place for contract to be formed.

Front 12

unilateral contract

Back 12

if it is phrased so that the offeree can only accept upon completion of the contract performance (“a promise for an act”) ex: contests – person performs contest rules and upon completion receives prize

Front 13

formal contracts

Back 13

contracts that require a special form or method of creation (formation) to be enforceable ex: checks, must be made a certain way

Front 14

informal (simple contracts)

Back 14

include all other contracts, no special form is required (except for certain types that must be in writing)

Front 15

express contract

Back 15

the terms of the agreement are fully and explicitly stated in words, oral or written. Ex: lease on house

Front 16

implied contract

Back 16

conduct of the parties, rather than their words, creates and defines at least some of the terms of the contract

Front 17

conditions for implied to exist

Back 17

i. Plaintiff furnished some service or property
ii. Plaintiff expected to be paid for that service or property, and defendant knew payment was expected
iii. Defendant had a chance to reject services or property and did not

Front 18

1. executed contract
2. executory contract

Back 18

1. contract that has been fully performed on both sides
2. contract that has not been fully performed on both sides

Front 19

voidable contracts

Back 19

is a valid contract, but one that can be cancelled at the option of one or both of the parties. Party having option can either void or ratify contract, binding both parties and making valid the contract

Front 20

unenforceable contract

Back 20

is one that cannot be enforced due to certain legal defenses against it, rendered unenforceable by some statute or law

Front 21

void contract

Back 21

no contract at all; no legal obligations from either party. Ex: one party declared legally insane, thus no capacity to enter into contract (validity requirement)

Front 22

quasi contracts

Back 22

contracts implied in law wholly different from actual contracts. Nothing is written or said or implied, but rather are used for equitable purposes – doctor saves mans life with CPR, man doesn’t solicit services but still receives benefit therefore quasi-contract is in place and man should owe doctor medical fees

Front 23

agreement

Back 23

parties must agree on the terms of the contract. Evidenced by two events, offer and acceptance

Front 24

3 elements necessary for offer to be effective

Back 24

a. There must be serous, objective, intention by the offeror
b. The terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract
c. The offer must be communicated to the offeree

Front 25

offer

Back 25

promise or commitment to perform or refrain from performing some specified act in the future.

Front 26

list of things that are NOT offers

Back 26

1. Expression of opinion – not an offer, does not demonstrate intention to enter binding agreement
2. Statements of future intent – statement of intention to do something in the future is not an offer
3. Preliminary negotiations – request/invite to negotiate is not an offer, only expresses willingness to discuss contract
4. Advertisements, catalogs, and circulars – treated as invitations to negotiate, not offers
5. Auctions – offers goods for sale through auctioneer, however it is treated as an invite for bidders to make offers. When the hammer slams, offer is accepted.
6. Agreements to agree – agreements to agree to the material terms of a contract at some future date – may be enforced if parties clearly intended to be bound by this agreement to agree. Didn’t used to be a binding contract

Front 27

2 ways contracts can be terminated

Back 27

action of parties or operation of law

Front 28

offer can be terminated in 2 ways

Back 28

action of parties or operation of law

Front 29

action of parties

Back 29

offer can be terminated by the action of the parties in three ways: revocation, rejection, or counteroffer

Front 30

revocation of offer

Back 30

offeror’s act of withdrawing an offer. This can be done unless offer is irrevocable, and as long as revocation is communicated to the offeree before acceptance

Front 31

rejection of the offer by the offeree

Back 31

rejection, by words or conduct, the offer is terminated

Front 32

counteroffer by offeree

Back 32

rejection of original offer and simultaneous making of a new offer

Front 33

2. Termination by operation of law – power of the offeree to transform the offer into a binding, legal obligation can be terminated by operation of law through occurrence of any following events

Back 33

a. Lapse of time – an offer terminates automatically by law when the period of time specified in the offer has passed
b. Destruction of the specific subject matter of the offer – an offer is automatically terminated if the specific subject matter of the offer is destroyed before the offer is accepted
c. Death or incompetence of the offeror or offeree – an offeree’s power of acceptance is terminated when the offeror or offeree dies or is deprived of legal capacity to enter into the proposed contract, unless the offer is irrevocable
d. Supervening illegality of the proposed contract – a statute or court decision that makes an offer illegal automatically terminates the offer

Front 34

acceptance

Back 34

a voluntary act by the offeree that shows assent, or agreement, to the terms of an offer

Front 35

unequivocal acceptance

Back 35

that if the acceptance is subject to new conditions or terms and it changes original offer, new offer is made

Front 36

mailbox rule

Back 36

acceptance takes effect, thus completing formation of contract, at the time the offeree sends or delivers the communication via the mode expressly or impliedly authorized by the offeror (also called deposited acceptance rule)

Front 37

authorized method of communication

Back 37

a means of communicating acceptance can be expressly authorized by the offeror or impliedly authorized by the facts and circumstances surrounding the situation

Front 38

substitute method of acceptance

Back 38

if the offeror authorizes a particular method of acceptance, but the offeree accepts by a different means, the acceptance may still be effective of the substituted method of acceptance serves the same purpose as the method authorized

Front 39

click on agreements

Back 39

online forms of acceptance in which the user clicks a box that signifies that they accept the offer

Front 40

shrink-wrap agreements

Back 40

– an agreement whose terms are expressed inside a box in which the goods are packaged

Front 41

browse wrap terms

Back 41

unlike click on agreements, these do not require the acceptance of the terms of the offer, i.e. user can install software before clicking “I agree.” Generally these are not enforceable

Front 42

e-signature

Back 42

defined as “an electronic sounds, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record”

Front 43

Electronic Signatures in Global and National Commerce (E-SIGN) act

Back 43

provides that no contract, record, or signature may be “denied legal effect” solely because it is in electronic form. E-contracts are as valid as paper contracts, and as enforceable.

Front 44

Uniform Electric Transactions Act (UETA)

Back 44

primary purpose of UETA is to remove barriers to e-commerce by giving the same legal effect to electronic records and signatures as is currently given to paper documents and signatures

Front 45

consideration

Back 45

defined as the value given in return for a promise

Front 46

elements of consideration

Back 46

1. Something of legally sufficient value must be given in exchange for promise
2. There must be bargained-for exchange

Front 47

legal value

Back 47

1. A promise to do something that one has no prior legal duty to do
2. The performance of an action that one is otherwise not obligated to undertake
3. The refraining from an action that one has a legal right to undertake ( a forbearance)

Front 48

bargained-for exchange

Back 48

the promise must provide the basis for the bargain struck between the two contracting parties

Front 49

contracts that lack consideration

Back 49

1. Preexisting duty – a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration
a. Unforeseen difficulties – if unforeseen difficulties arise and completely change the terms of the contract, sometimes a court will hold that the preexisting duty defense does not aply
b. Rescission and new contract – the unmaking of a contract so s to return the parties to the positions they occupied before the contract was made
2. Part consideration – promises made in return for actions or events that have already taken place are unenforceable
3. Illusory promises – if the terms of the contract express such uncertainty of performance that the promisor has not definitely promised to do anything, the promise is said to be illusory.

Front 50

Settlement of claims – may be made in 2 ways

Back 50

accord and satisfaction, or the signing of a release or a covenant not to sue

Front 51

accord and satisfaction

Back 51

a debtor offers to pay and a creditor accepts a lesser amount than the creditor originally claimed was owed. For accord and satisfaction to occur the amount of the debt must be in dispute. If debt is liquidated (one whose amount has been ascertained, fixed, agreed on, settled, or exactly determined) accord and satisfaction cannot take place

Front 52

release

Back 52

is a contract in which one party forfeits the right to pursue a legal claim against the other party. Bars any further recovery beyond terms stated

Front 53

covenant not to sue

Back 53

– unlike release, does not always bar further recovery. Parties simply substitute contractual obligation for some other type of legal action based on a valid claim.

Front 54

promissory estoppel (detrimental reliance)

Back 54

a person who has reasonably and substantially relied on the promise of another can obtain some measure of recovery