Business Law Exam 3

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Common Law

Back 1

The primary source of contract law

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Contract Law

Back 2

Provides predictability and stability for buyers and sellers in the marketplace.

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Contract

Back 3

Contract Law: 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.

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Intent

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Objective Theory of Contracts: In determining whether a contract has been formed, the element of ______ is of prime importance.

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Objective Theory of Contracts

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Intent is determined not based on the personal or subjective intent or belief of a party.

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Objective Facts

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Objective Theory of Contracts: what the party said when entering into the contract, how the party acted or appeared and the circumstances surrounding the transaction.

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Elements of a contract

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Agreement, consideration, contractual capacity, and legality are required.

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Offer

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Agreement: serious intent on part of offeror to make an offer

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Acceptance

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Agreement:

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Consideration

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Elements of a Contract: both sides get something out of the contract

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Contractual capacity

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Elements of a contract: both parties are able to sign.

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Legality

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Elements of a Contract: It must be legal affairs.

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Bilateral Contract

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Types of Contracts: Has two promises.

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Unilateral Contract

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Types of Contracts: Has one promise

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Offeror

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The party making the offer.

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Offeree

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The party whom the offer is made.

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Bilateral

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Types of Contracts: promise for a promise

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Unilateral

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Types of Contracts: promise for an act

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Traditional Rule of Unilateral Contracts

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Problem with Contracts: Unilateral contracts can be revoked prior to the completion of the act.

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Current Rule of Unilateral Contracts

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Problem with Contracts: Once the actor acts, the offer is no longer revokable.

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Express Contract

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Types of Contracts: 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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Types of Contracts: A contract that is implied from the conduct of the parties.

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Executory Contract

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Contract Performance: A contract in which on or more of the parties have not fully performed their duties.

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Executed Contract

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Contract Performance: All parties have performed their duties of a contract.

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Valid Contract

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Contract Performance: A valid contract but one that can be avoided at the option of one or both of the parties.

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Voidable Contract

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Contract Performance: A valid contract that can be voided at the options of one or both of the parties.

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Unenforceable Contracts

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Contract Performance: One that cannot be enforced because of legal defenses.

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Void Contract

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Contract Performance: Any contract that has a subject matter that is illegal.

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Quasi Contracts

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Contracts implied in law. They are created by courts and imposed on parties in the interests of fairness and justice.

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Quantum Meruit

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Quasi Contracts: The extent of compensation owed under a contract implied in law.

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Plain Meaning Rule

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Interpretation of Contracts: Contract's writing is clear and will be enforced to its obvious terms.

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Extrinsic Evidence

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Interpretation of Contracts: Evidence that is not contained in the document.

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Other Rules of Interpretation

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Interpretation of Contracts: because a contract should be drafted in clear and unambiguous language, a party who uses ambiguous expressions is held to be responsible for the ambiguities. Thus, when the language has more than one meaning, it will be interpreted against the party who drafted the contract.

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Agreement

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The parties must agree on the terms of the contract and manifest to each other their mutual assent to the same bargain.

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Requirements of the Offer

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Offoror must have serious intent, terms of the offer must be reasonable, certain or definite parties terms of the agreement, and communication of the offer to the offeree by the offoror.

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Intent

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An offer must have serious _________.

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Expressions of Opinion

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Not offers: "Your hand will probably heal in a few days."

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Statements of Future Intent

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Not offers: "I plan to sell my house."

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Not offers

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Traditional rules of preliminary negotiations

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May be an offer if the parties have reached an agreement on most of the material terms.

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Modern views of preliminary negotiations

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Advertisements

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Not offers: "For Sale $500,000."

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Revocation

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Termination of offer: Offer can be revoked by the offeror to the acceptance of the offer by the offeree

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Irrevocable offers

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Termination of the offer: seller will pay buyers to keep their offer open longer, then the contract can't be canceled.

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Promissory Estoppel

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Termination of the offer: The offeror cannot revoke the offer because the offeree is already reliant on that offer.

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Rejection of the offer by the offeree

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Termination of the offer: If offeree rejects offer, it is terminated.

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Counteroffer

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Termination of the offer: This terminated the original offer and turns the offeree into the offeror

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Mirror Image Rule

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Termination: the offerees acceptance must be exactly like the offer.

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Lapse of Time

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Termination by Law: If the offer is past due, its terminated

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Destruction of the Subject Matter

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Termination by Law: If the house for sale burns down

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Death/Incompetence of Offeror/Offeree

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Termination by Law: If someone in the contract dies.

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Supervening illegality of the contract

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Termination by Law: If you are contracted to sell something and it becomes illegal

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Acceptance

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A voluntary act by the offeree that show's assent to the terms of an offer.

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Unequivocal Acceptance

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Acceptance: Must reflect the original terms exactly.

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Silence as Acceptance

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Acceptance: This cannot be used as a method of acceptance except in certain circumstances if the parties had previous dealings.

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Mailbox Rule

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Timeliness of Acceptance: if the authorized mode of communication is the mail, then an acceptance becomes valid when it is dispatched (placed in the mail)

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Communication of Acceptance

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Acceptance: in a bilateral contract, communication is necessary because acceptance is in the form on a promise, not performance, therefor the contract is performed when the promise is made.

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Consideration

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An exchange of something of value between the parties, each side must get something.

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Elements of consideration

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Something of legally sufficient value must be given in exchange for a promise and usually there must be a bargained-for exchange.

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Unconscionable

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Grossly Inadequate Consideration: Can make the contract unenforceable because it is __________________.

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Preexisting Duty

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Lack Consideration: If a party is already bound by contract to perform a certain duty, that duty cannot serve as consideration for a second contract.

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Rescission

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Lack Consideration: the unmaking of a contract so as to return the parties to the positions they occupied before the contract was made.

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Past Consideration

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Lack Consideration: You can bargain for something to take place now or in the future but not for something that has already taken place.

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Accord and Satisfaction

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Settlement of Claims: A debtor's offer of payment and a creditor's acceptance of a lesser amount than the creditor originally claimed was owed.

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Release

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Settlement of Claims: A contract in which one party forfeits the right to pursue a legal claim against the other party.

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Covenant Not to Sue

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Settlements of Claims: an agreement to substitute a contractual obligation for some other type of legal action based on a valid claim.

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Promissory Estoppel

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Exceptions of Consideration: A person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery.

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Contractual Capacity

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Capacity and Legality: The legal ability to enter into a contractual relationship.

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Emancipation

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Minors: A child's parent or legal guardian relinquishes the legal right to exercise control over the child.

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Disaffirmance

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Minors: The legal avoidance, or setting aside, of a contractual obligation

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Ratification

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

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Intoxication

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Exceptions to Disaffirm: Being drunk can make the contract void or voidable.

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Mental Incompetence

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Exceptions to Disaffirm: If the person becomes to old to function.

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Legality

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Subject matter of contract must be legal otherwise it is a void contract.

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Usury

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Legality: A lender who makes a loan at an interest rate above the lawful max. Loan shark.

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Blue Laws

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Legality: Certain contracts cannot be made on Sundays.

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Covenant Not To Compete

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Contracts Against Public Policy: When someone agrees not to compete with the same company within a certain time frame and geographic scope.

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Adhesion Contract

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Contracts Against Public Policy: A contract where one party has no opportunity to affirm the terms.

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Exculpatory Clauses

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Contracts Against Public Policy: Clauses that release a party from liability in the event of monetary or physical injury no matter who is at fault.

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Bilateral Mistake

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Mistakes of Fact: Both parties are mistaken as to a material fact in the contract.

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Unilateral Mistake

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Mistakes of Fact: One party is mistaken to a material fact, the mistaken party is still contracted to perform.

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Exceptions to Mistakes of Fact

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Mistakes of Fact: If the other party to the contract knows or should have known that a mistake of fact was made, the contract may not be enforceable.

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Exceptions to Mistakes of Fact

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Mistakes of Fact: A mistake is made through a mathematical error and was made inadvertently and without gross negligence.

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Mistakes of Value

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Mistakes: If a mistake concerns the future market value or quality of the object of the contract, the mistake is one of value and is enforceable. Ex. Selling a painting for $5 that was worth $5 million.

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Qualifications of Fraudulent Misrepresentation

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A misrepresentation of a material fact must occur. There must be an intent to deceive. The innocent party must justifiably rely on the misrepresentation.

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Fraudulent Misrepresentation

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Lying about a product just to get it to sell, then the person figured out later on that is was not as good as the sales person said.

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Undue Influence

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A contract entered into under excessive influence lacks voluntary consent and is therefore voidable.

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Undue Influence

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Ex. A lawyer trying to get a hysterical divorced woman to sell her house for less than market value and later on she realizes it was a bad idea.

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Duress

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Consent to the terms of a contract is not voluntary if one of the parties is forced into the agreement.

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Adhesion Contract

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A "take it or leave it" contract.

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Statute of Frauds

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Writing Requirement: Certain agreements are required by law to be in writing and signed by both parties.

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1. Land/Leases
2. Contracts that cannot be performed in one year or less
3. Under the UCC, the sale of good $500+

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Types of contracts that need to be in writing

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Land

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Statute of Frauds: For the sale of _____, if you don't have a contract it is not enforceable, if you have a contract that one party did not sign it is not enforceable.

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Sale of Goods $500+

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Statute of Frauds: If you have an agreement to buy something for 1,000, you pay and you never receive the items, if it's not in writing, it is not enforceable.

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One-Year Rule

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Statue of Frauds: Yankees players must sign a contract because their job contracts last for 5 years, it cannot be completed in one year.

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What needs to be included in the contract

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Sufficiency of Writing: It needs to have enough so the court can see what the intention was of both parties. Must have names, prices, the exchange and date of execution.

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Parol Evidence Rule

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If a court finds the parties contract says something in clear terms, whatever is in the contract will be enforced. ex. Contract says "no pets" makes an oral exception, then takes it back, she will have to comply.

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Privity of Contract.

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Third Party Rights: A contract is a private agreement between the parties who have entered into it, and traditionally these parties alone have rights and liabilities under the contract. This right is known as ___.

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Effect of Assignment

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Assignments: When rights under a contract are assigned unconditionally, the rights of the assignor are extinguished. The third party (the assignee) has a right to demand performance from the other original party to the contract.

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Delegation

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A party can transfer their duties. This does not relieve the party making the delegation of the obligation to perform in the event that the party to whom the duty has been delegated fails to perform.

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Duties that are personal in nature

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Delegation: When performance depends on the personal skill or talents of the personal contractually obligated to perform contractual duties cannot be delegated. ex. Hiring Britney Spears to do a show and having Lady Gaga show up in her place.

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Intended Beneficiaries

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Third party beneficiary: Is aloud to sue if he/she was supposed to benefit from the contract.

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Incidental Beneficiary

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Third party beneficiary: A contract between two parties is unintentional, which is why he or she cannot enforce a contract.

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Performance

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When you do what you say you're going to do in a contract.

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Discharge

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You've completed your duty and are now relinquished of that duty.

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Condition/Contingency

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Something that terminates the original contract.

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Tender

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Discharge by Performance: An unconditional offer to perform by a person who is ready, willing, and able to do so.

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Complete Performance

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Performance: When a party performs exactly as agreed, there is no question as to whether the contract has been performed.

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Substantial Performance

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Performance: A party who in good faith performs substantially all of the terms of a contract can enforce the contract against the other party under the doctrine of substantial performance.

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Material breach of contract

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Performance: This breach will discharge the nonbreaching party from the contract.

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Time for Performance

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Performance: Time is of the essence.

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Mutual Rescission

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Discharge by Agreement: The parties must make another agreement that also satisfies the legal requirements for a contract.

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Remedy

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Breach of Contract and Remedies: the relief provided for an innocent party when the other party has breached the contract.

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Damages

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A breach of contract entitles the nonbreaching party to sue for _______________.

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Compensatory Damages

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Damages: Compensating the nonbreaching party for the loss of the bargain

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Incidental Damages

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Damages: expenses that are causes directly by a breach of contracts, such as those incurred to obtain performance from another source.

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Sale of goods

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The unusual measure of compensatory damages is an amount equal to the difference between the contract price and the market price. (ex. contract price - market price)

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Sale of land

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Since this sale is very unique, you are either contracted to give up the land or get money.

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Consequential Damages

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Damages: Foreseeable damages that result from a party's breach of contract

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Nominal Damages

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Damages: When no actual damage of financial loss results from a breach of contract and only a technical injury is involved, the court may award this to the innocent party.

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Mitigation of Damages

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Damages: The duty owed depends on the nature of the contract. Nonbreaching party has a right to mitigate. Ex. Landlord needs to find another tenant, even if its for less, and then sue for lost profits.

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Liquidated Damages

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Damages: Provision in a contract specifies that a certain dollar amount is to be paid in the event of a future default or breach of contract.

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Rescission

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To take back

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Restitution

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To put the parties back in the original position before the contract/incident.

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Specific Performance

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The performance of the act promised in the contract is called for. A court order to make a to make breaching party perform.

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Contracts for Personal Services

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Specific Performance: Requires one party to work personally for another party.

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Reformation

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An equitable remedy used when the parties have imperfectly expressed their agreement in writing.

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Consequences of a Waiver of Breach

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Waiver of Breach: The party waiving the breach cannot take any later action onto it. In effect, the waiver erases the past breach; the contract continues as if the breach had never occurred.

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Exculpatory Clauses

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Limiting remedies: Completely eliminating their liability if they breach