Business Law Test 3

Front 1

contract

Back 1

"a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty."

OR

a legally binding agreement between two or more parties who agree to perform or to refrain from performing some act now or in the future.

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objective theory of contracts (&3)

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a party's intention to enter into a legally binding agreement, or contract, is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party's own secret, subjective intentions.
Objective facts include:
(1) what the party said when entering into the contract
(2) how the party acted or appeared (intent may be manifested by conduct as well as by oral or written words)
(3) the circumstances surrounding the transaction.

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Valid Contract (4)

Back 3

1. Agreement
2. Consideration
3. Contractual Capacity
4. Legality

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Agreement

Back 4

An agreement to form a contract includes an offer and an acceptance . One party must offer to enter into a legal agreement, and another party must accept the terms of the offer.

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Consideration

Back 5

Any promises made by the parties to the contract must be supported by legally sufficient and bargained-for consideration (something of value received or promised, such as money, to convince a person to make a deal)

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Contractual Capacity

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Both parties entering into the contract must have the contractual capacity to do so; the law must recognize them as possessing characteristics that qualify them as competent parties.

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Legality

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The contract's purpose must be to accomplish some goal that is legal and not against public policy.

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Defenses to Enforcability

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1. Voluntary consent. The consent of both parties must be voluntary. For example, if a contract was formed as a result of fraud, undue influence, mistake, or duress, the contract may not be enforceable

2. Form. The contract must be in whatever form the law requires; for example, some contracts must be in writing to be enforceable

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Bilateral Contracts

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"promise for a promise." No performance, such as payment of funds or delivery of goods, need take place for a bilateral contract to be formed. The contract comes into existence at the moment the promises are exchanged.

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Unilateral Contracts

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"promise for an act." the time of contract formation in a unilateral contract is not the moment when promises are exchanged but the moment when the contract is performed

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Formal contracts

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contracts that require a special form or method of creation (formation) to be enforceable.

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Informal contracts (Simple Contracts)

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No special form is required (except for certain types of contracts that must be in writing), as the contracts are usually based on their substance rather than their form.

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Express contracts

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The terms of the agreement are fully and explicitly stated in words, oral or written

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Implied-in-fact contract

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A contract that is implied from the conduct of the parties

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Requirements for Implied Contracts

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1. The plaintiff furnished some service or property.
2. The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected.
3. The defendant had a chance to reject the services or property and did not.

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Executed contract

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A contract that has been fully performed on both sides

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Executory contract

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A contract that has not been fully performed by the parties

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Valid contract

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Has the elements necessary to entitle at least one of the parties to enforce it in court

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Voidable contract

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a valid contract but one that can be avoided at the option of one or both of the parties. The party having the option can elect either to avoid any duty to perform or to ratify (make valid) the contract. If the contract is avoided, both parties are released from it. If it is ratified, both parties must fully perform their respective legal obligations.

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Unenforceable contract

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One that cannot be enforced because of certain legal defenses against it. It is not unenforceable because a party failed to satisfy a legal requirement of the contract; rather, it is a valid contract rendered unenforceable by some statute or law

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Void contract

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A void contract produces no legal obligations on any of the parties

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Quasi contracts

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contracts implied in law, are not actual contracts

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Quantum meruit

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"as much as he or she deserves." It essentially describes the extent of compensation owed under a contract implied in law.

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The Plain Meaning Rule

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The meaning of the terms must be determined from
the face of the instrument—from the written document alone, not from outside sources.

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Agreement

Back 25

The required to form a contract, regardless of whether it is formed in the traditional way, through the exchange of paper documents, or online, through the exchange of electronic messages or documents.

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Mutual Assent

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Agreement to the same bargain

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Requirements of the Offer

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1) The offeror must have a serious intention to become bound by the offer.
2) 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.
3) The offer must be communicated to the offeree

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Intention

Back 28

Serious intent on the part of the offeror. Serious intent is not determined by the subjective intentions, beliefs, and assumptions of the offeror. Rather, it is determined by what a reasonable person in the offeree's position would conclude that the offeror's words and actions meant. Offers made in obvious anger, jest, or undue excitement do not meet the serious-and-objective-intent test because a reasonable person would realize that a serious offer was not being made. Because these offers are not effective, an offeree's acceptance does not create an agreement.

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Expressions of Opinion

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An expression of opinion is not an offer. It does not indicate an intention to enter into a binding agreement.

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Statements of Future Intent

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intention to do something in the future is not an offer

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Definiteness of Terms

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1. The identification of the parties.
2. The identification of the object or subject matter of the contract (also the quantity, when appropriate), including the work to be performed, with specific identification of such items as goods, services, and land.
3. The consideration to be paid.
4. The time of payment, delivery, or performance.

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Revocation

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The offeror's act of withdrawing (revoking) an offer

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Agent

Back 33

A person acting on behalf of the offeree

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Promissory estoppel

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detrimental reliance

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Option contract

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created when an offeror promises to hold an offer open for a specified period of time in return for a payment (consideration) given by the offeree. An option contract takes away the offeror's power to revoke the offer for the period of time specified in the option.

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Counteroffer

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A rejection of the original offer and the simultaneous making of a new offer

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Mirror image rule

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Requires the offeree's acceptance to match the offeror's offer exactly—to mirror the offer. Any change in, or addition to, the terms of the original offer automatically terminates that offer and substitutes the counteroffer. The counteroffer, of course, need not be accepted; but if the original offeror does accept the terms of the counteroffer, a valid contract is created.

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Termination by operation of law

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1. Lapse of time.
2. Destruction of the specific subject matter of the offer.
3. Death or incompetence of the offeror or the offeree.
4. Supervening illegality of the proposed contract.

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Mailbox rule

Back 39

The authorized mode of communication is the mail, then an acceptance becomes valid when it is dispatched (placed in the control of the U.S. Postal Service)—not when it is received by the offeror

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E-contracts

Back 40

Must meet the same basic requirements (agreement, consideration, contractual capacity, and legality) as paper contracts. Disputes concerning e-contracts, however, tend to center on contract terms and whether the parties voluntarily agreed to those terms.

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Forum-selection clause

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Indicate the forum, or location (such as a court or jurisdiction), in which contract disputes will be resolved

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Choice-of-law clause

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Any dispute arising out of the contract will be settled in accordance with the law of a particular jurisdiction, such as a state or country

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Click-on agreement

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a binding contract can be created by conduct, including the act of clicking on a box indicating "I accept" or "I agree" to accept an online offer.

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Shrink-wrap agreement

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The terms are expressed inside the box in which the goods are packaged

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Browse-wrap terms

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occur in transactions conducted over the Internet. Unlike click-on agreements, however, browse-wrap terms do not require Internet users to assent to the terms before, say, downloading or using certain software. In other words, a person can install the software without clicking "I agree" to the terms of a license. Browse-wrap terms are often unenforceable because they do not satisfy the agreement requirement of contract formation

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e-signature

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an electronic sound, 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. include encrypted digital signatures, names (intended as signatures) at the ends of e-mail messages, and clicks on a Web page (if the clicks include some means of identification). The technologies for creating e-signatures generally fall into one of two categories, digitized handwritten signatures and public-key-infrastructure–based digital signatures.

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cybernotary

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legally recognized certification authority, issues the key pair, identifies the owner of the keys, and certifies the validity of the public key. The cybernotary also serves as a repository for public keys

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partnering agreement

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a seller and a buyer who frequently do business with each other agree in advance on the terms and conditions that will apply to all transactions subsequently conducted electronically. The partnering agreement can also establish special access and identification codes to be used by the parties when transacting business electronically.

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Uniform Electronic Transactions Act

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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

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The E-SIGN Act

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UETA and provides that if a state has enacted the uniform version of the UETA, it is not preempted by the E-SIGN Act. In other words, if the state has enacted the UETA without modification, state law will govern.

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Legal Value

Back 51

(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 (called a forbearance )

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past consideration

Back 52

you can bargain for something to take place now or in the future but not for something that has already taken place

Front 53

covenant not to compete

Back 53

Under such an agreement, the employee agrees not to work for competitors of the employer for a certain period of time after the employment relationship ends

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illusory promise

Back 54

performance depends solely on the discretion of the president (the management). There is no bargained-for consideration

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output contract

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the buyer and seller agree that the buyer will purchase from the seller all of what the seller produces, or the seller's output

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Accord and satisfaction

Back 56

a debtor offers to pay, and a creditor accepts, a lesser amount than the creditor originally claimed was owed.

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Accord

Back 57

the agreement under which one of the parties undertakes to give or perform, and the other to accept, in satisfaction of a claim, something other than that on which the parties originally agreed

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Satisfaction

Back 58

the performance (usually payment) that takes place after the accord is executed. A basic rule is that there can be no satisfaction unless there is first an accord. For accord and satisfaction to occur, the amount of the debt must be in dispute.

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liquidated debt

Back 59

one whose amount has been ascertained, fixed, agreed on, settled, or exactly determined.

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unliquidated debt

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The amount of the debt is not settled, fixed, agreed on, ascertained, or determined, and reasonable persons may differ over the amount owed.

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release

Back 61

a contract in which one party forfeits the right to pursue a legal claim against the other party. It bars any further recovery beyond the terms stated in the release. Releases will generally be binding if they are

(1) given in good faith
(2) stated in a signed writing (which is required in many states)
(3) accompanied by consideration.8

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covenant not to sue

Back 62

The parties simply substitute a contractual obligation for some other type of legal action based on a valid claim

Front 63

promissory estoppel (also called detrimental reliance)

Back 63

a person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery. This doctrine is applied in a wide variety of contexts in which a promise is otherwise unenforceable, such as when a promise is not supported by consideration. Under this doctrine, a court may enforce an otherwise unenforceable promise to avoid the injustice that would otherwise result.

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contractual capacity

Back 64

the legal ability to enter into a contractual relationship

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age of majority

Back 65

when a person is no longer a minor, usually 18

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emancipation

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occurs when a child's parent or legal guardian relinquishes the legal right to exercise control over the child. Normally, minors who leave home to support themselves are considered emancipated. Several jurisdictions permit minors to petition a court for emancipation themselves. For business purposes, a minor may petition a court to be treated as an adult.

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Minor disaffirmance

Back 67

a minor must express his or her intent, through words or conduct, not to be bound to the contract. Courts in most states hold that the minor need only return the goods (or other consideration) subject to the contract, provided the goods are in the minor's possession or control. Even if the minor returns damaged goods, the minor often is entitled to disaffirm the contract and obtain a full refund of the purchase price.

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Misrepresentation of Age

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Ordinarily, minors can disaffirm contracts even when they have misrepresented their age. Nevertheless, a growing number of states have enacted laws to prohibit disaffirmance in such situations. In some states, misrepresentation of age is enough to prohibit disaffirmance. Other states prohibit disaffirmance by minors who misrepresented their age while engaged in business as an adult. Still other states prevent minors who misrepresented their age from disaffirming a contract unless they can return the consideration received.

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Necessaries

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whatever is reasonably needed to maintain the minor's standard of living. In general, food, clothing, shelter, and medical services are necessaries. What is a necessary for one minor, however, may be a luxury for another, depending on the minors' customary living standard.

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Contracts for Necessaries (3) (Minors)

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(1) the item contracted for must be necessary for the minor's subsistence
(2) the value of the necessary item must be appropriate to maintain the minor's standard of living
(3) the minor must not be under the care of a parent or guardian who is required to supply this item.

Unless these three criteria are met, the minor can disaffirm the contract without being liable for the reasonable value of the goods used.

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ratification (Minors)

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the act of accepting and giving legal force to an obligation that previously was not enforceable.

A minor who has reached the age of majority can ratify a contract expressly or impliedly.

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Express ratification (Minors)

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when the individual, on reaching the age of majority, states orally or in writing that he or she intends to be bound by the contract.

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Implied ratification (Minors)

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when the minor, on reaching the age of majority, indicates an intent to abide by the contract.

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Mental Incompetence

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Contracts made by mentally incompetent persons can be void, voidable, or valid.

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usury

Back 75

a loan at an interest rate above the lawful maximum

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covenant not to compete

Back 76

reated when a seller agrees not to open a new store in a certain geographic area surrounding the old store. Such an agreement enables the seller to sell, and the purchaser to buy, the goodwill and reputation of an ongoing business without having to worry that the seller will open a competing business a block away. Provided the restrictive covenant is reasonable and is an ancillary part of the sale of an ongoing business, it is enforceable.

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reformation

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If a covenant is found to be unreasonable in time or geographic area, the court may convert the terms into reasonable ones and then enforce the reformed covenant. This presents a problem, however, in that the judge has implicitly become a party to the contract

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unconscionable

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unscrupulous or grossly unfair as to be "void of conscience."

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Procedural Unconscionability

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involves inconspicuous print, unintelligible language ("legalese"), or the lack of an opportunity to read the contract or ask questions about its meaning. This type of unconscionability typically arises when a party's lack of knowledge or understanding of the contract terms deprived him or her of any meaningful choice.

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adhesion contract

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a contract written exclusively by one party (the dominant party, usually the seller or creditor) and presented to the other (the adhering party, usually the buyer or borrower) on a take-it-or-leave-it basis

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Substantive Unconscionability

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characterizes those 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 a remedy for nonperformance by the other.

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exculpatory clauses

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release a party from liability in the event of monetary or physical injury no matter who is at fault. Indeed, courts sometimes refuse to enforce such clauses on the ground that they are unconscionable.

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in pari delicto

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equally at fault