Business Law Midterm

Front 1

Contract

Back 1

Legally binding agreement that creates an obligation

Front 2

Elements of a Contract

Back 2

(1) Agreement (2) between competent parties, (3)based on genuine assent, (4) supported by consideration, (5) made for a lawful objective, (6) in the form required by law.

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Promisor

Back 3

the person who makes a promise. If binding, called the obligor.

Front 4

Promisee

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the person to whom the promise is made, the obligee.

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How a Contract Arises

Back 5

Agreement arises when the offeror makes an offer and the offeree accepts.

Front 6

Intent to Make a Binding Agreement

Back 6

Not all agreements produce contracts. There must bean intent to make the agreement binding

Front 7

Freedom of Contract

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Parties may make contracts as they choose. No requirement that they are fair, kind, reasonable or equitable.

Front 8

Formal Contracts

Back 8

Contract under seal,Contracts of record,(recognizance) andNegotiable instruments

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Informal contracts

Back 9

all other contracts

Front 10

Express contract

Back 10

Spoken or written words

Front 11

Implied contracts

Back 11

Created based onacts or conduct of parties

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Valid contract

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Binding and enforceable

Front 13

Voidable contract

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Circumstances surrounding execution or lack of capacity allow rejection by one of the parties

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Void contract

Back 14

Without legal effect

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Executed contract

Back 15

Completely performed

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Executory contract

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Something remains to be done by one or both parties

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Bilateral contract

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One promise given in exchange for another

Front 18

Unilateral contract

Back 18

One party promises to perform after the otherparty does an act

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Option contract

Back 19

gives one party the right to enter into acontract at a later date. It is its OWN contract

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Right of first refusal

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imposes a duty to make the first offer to the partyhaving that right

Front 21

Quasi Contracts

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prevention of unjust enrichment; Court may impose an obligation to pay for the reasonable value of benefits received even when no contract existed.

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Claim of unjust enrichment requires:

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(1) benefit conferred on defendant, (2) defendant’s knowledge of benefit, (3) finding that it would be unjust to retain the benefit without payment.

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An action in quantum meruit

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is for the value o fservices when no purchase price was set

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Contractual Intention

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-The offeror must intent to create a binding obligation.

– Intention is determined by an objective standard and can be shown by conduct.

– Invitation to Negotiate: Not a contract.

– Agreement to Make a Contract at a Future Date: Not a contract.

– Contracts to Negotiate: Can be enforced.

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Definiteness

Back 25

-An offer and the resulting contract must be definite and certain.

-Contracts that omit minor or nonessential terms are still enforceable.

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Definite by Incorporation

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A contract maybe definite by referencing another writing or prior dealings of the parties or based on trade practices.

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Implied Terms

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May be implied by law

Front 28

“Best Efforts”Clauses

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May be enforced

Front 29

Divisible Contracts

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Agreement consisting of two or more parts that each call for performances. The agreement may be regarded as separate promises.

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Exceptions to Definiteness

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Requirementsand output contracts

Front 31

Communication of Offer to Offeree

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When the offeree performs an act called forby an offeror without knowledge of the offer, the performance does not constitute an acceptance.

Front 32

Revocation of Offer by Offeror

Back 32

Generally an offeror can revoke an offer before it is accepted, even if the offeror promised to keep the offer open for a certain period of time

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Communication of Revocation

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A revocation is effective only when made known to the offeree; If the offeree accepts an offer before it is effectively revoked, a valid contract is formed.

Front 34

Options Contract

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A binding promise to keep an offer open for a stated period of time: requires consideration

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Firm Offer

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A firm is irrevocable, at least for a period of time

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Counteroffer by Offeree

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A counteroffer is a rejection of the original offer and creates a new one

Front 37

Rejection of Offer by Offeree

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A rejection terminates the offer

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What Constitutes an Acceptance?

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An assent to the terms of the offer

Front 39

Mailbox Rule

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Acceptance is effective upon dispatch. The offeror may avoid this rule by stating that acceptance is effective upon receipt by the offeror.

Front 40

Contractual Capacity

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Ability to understand that a contract is being made understand its general meaning

Front 41

Status Incapacity

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Minors do not have the legal capacity to contract

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Factual Incapacity

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Mental incompetence due to drugs, alcohol, illness or age. Mere mental weakness does not incapacitate a person from contracting

Front 43

Restitution by Minor After Avoidance

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Minor must return what was received or offer to do so. (restore the status quo ante).

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Recovery of Property by Minor on Avoidance

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Other party must return money & property received from the minor. If property has been sold, minor is entitled to receive money instead.

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Liability of Parent or Guardian

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Parents are liable for medical care, but child can be held responsible if parents are unable or unwilling to pay

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Liability of Cosigner

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The cosigner is boundindependently of the minor

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Mentally incompetent persons

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May generally avoid a contract in the same way as a minor. Upon becoming competent, the contract can either be ratified or disaffirmed. Current trend is to treat contracts as binding when terms are reasonable and the person is unable to restore the other party to status quo ante.

Front 48

Appointment of Guardian

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If a guardian has been appointed, a contract made by the incompetent person pre-appointment may be ratified or perhaps disaffirmed by the guardian. After the appointment,a contract made is void, not merely voidable.

Front 49

Unilateral Mistake

Back 49

A mistake that is unknown to other party doesn’t affect the contract; Party making a mistake may avoid a contract if the other party knew or should have known about the mistake.

Front 50

Mutual Mistake

Back 50

When both parties are mistaken about a basic fact,the adversely affected party may void the contract

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Mistake in Transcription or Printing ofthe Contract: Reformation

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If parties make an oral agreement, and there are mistakes in the typing of the written agreement, the aggrieved party may petition a judge to reform the contract based on the true intent of the parties

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Fraud

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Material misrepresentation of fact with (1)knowledge of falsity or reckless indifference to truth (2) intent that listener rely on it, (3)listener does rely, and (4) as a result the listener is harmed.

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Negligent Misrepresentation

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Similar to fraud except it is based on a negligently made false statement; Contract is voidable by innocent party.

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Deception

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Fraud and Nondisclosure

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Pressure

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Undue influence and Duress

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Undue Influence

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Influence asserted upon a person by someone who dominates that person; Assumed by law when the dominating person obtains any benefit from a contract with the dominated person.

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Duress

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physical and economic threat

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Consideration

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What each party gives up in the making anagreement; Something of value must be given or promised in return for the performance of promise of another

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Gifts

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Promises to make a gift are unenforceable becausethey lack consideration

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Adequacy of Consideration

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Courts do not ordinarily consider the adequacy of consideration given as it is up to parties to decide ifeach is getting a fair return

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Forbearance as Consideration

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Refraining from an act can be consideration

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Illusory Promises

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If one party’s promise is no obligation or an apparent obligation the contract fails for lack of mutuality.

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Preexisting Legal Obligations

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Promising (or refraining) to do what has alreadybeen agreed to is not legal consideration

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Good Faith Adjustment

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the original contract if extraordinary and unforeseeable difficulties.

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Exceptions to Consideration:

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1. Charitable Subscriptions

2. Uniform Commercial Code

3. Promissory Estoppel