Fundamentals Of Business Law - Chapter 9

Front 1

Consideration

Back 1

The value given in return for a promise

Front 2

Elements of Consideration

Back 2

1. Legally sufficient value
2. Bargained-for exchange

Front 3

Legally Sufficient Value

Back 3

1. A promise
2. The performance
3. A forbearance - the refraining from an action that one has a legal right to undertake

Front 4

Bargained-For Exchange

Back 4

Must provide the basis for the bargain.

Incur a legal detriment either now or in the future

Front 5

Adequacy of Consideration

Back 5

How much consideration is given.

Concerns the fairness of the bargain.

A court generally will not question the adequacy of consideration.

Courts leave it up to the parties to decide what something is worth, and parties are usually free to bargain as they wish.

A large disparity in the amount or value of the consideration exchanged may raise a red flag

Front 6

Preexisting Duty

Back 6

a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration

-Unforeseen Difficulties - exception
-Rescission and New Contract - (rescission: the unmaking of a contract so as to return the parties to the positions they occupied before the contract was made)

Front 7

Past Consideration

Back 7

Promises made in return for actions or events that have already taken place are unenforceable. These promises lack consideration in that the element of bargained-for-exchange is missing

Past consideration is NO consideration

Front 8

Illusory Promises

Back 8

Illusory - without consideration and unenforceable

Front 9

Accord and Satisfaction

Back 9

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

Accord is the agreement - Satisfaction is the performance

The amount of debt must be in dispute

Front 10

Liquidated versus Unliquidated Debts

Back 10

Liquidated Debt - one whose amount has been ascertained, fixed, agreed on, settled, or exactly determined (accord and satisfaction CANNOT take place)

Unliquidated Debt - the amount of the debt is not settled, and reasonable persons may differ over the amount owed

Front 11

Release

Back 11

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

1. Given in good faith
2. Stated in a signed writing
3. Accompanied by consideration

Front 12

Covenant Not to Sue

Back 12

Unlike a release, a covenant not to sue doe not always bar further recovery, The parties substitute a contractual obligation for some other tupe of legal action based on a valid claim.

Front 13

Promissory Estoppel

Back 13

(Detrimental Reliance)
A person who has reasonably and substantially relied on the promise of another can obtain some measure of recovery.

Allows a party to recover on a promise even though it was made without consideration.

Front 14

Requirements to State a Claim (Promissory Estoppel)

Back 14

1. Clear and definite promise
2. The promissor should have expected that the promisee would rely on the promise
3. The promisee reasonably lied on the promise by acting or refraining form some act
4. Resulted in substantial detriment
5. Enforcement is necessary to avoid injustice

Front 15

Contractual Capacity

Back 15

The legal ability to entern into a contractual relationship

Front 16

Minors

Back 16

Age of majority for contractual purposes is eighteen years.

Minority status may also be terminated by a minor's emancipation

A contract entered into by a minor is voidable

Front 17

Disaffirmance

Back 17

The legal avoidance, or setting aside, of a contractual obligation.

The minor must disaffirm the entire contract, mot merely a portion of it.

A contract can ordinarily be disaffirmed at any time during minority or for a reasonable time after the minor comes of age

Front 18

Ratification

Back 18

The act of accepting and giving lega force to an obligation that previously was not enforceable. Can ratify a contract a contract expressly or impliedly.

Express - states orally ir in writing that she or he intends to be bound by the contract

Implied - indicates an intent to abide by the contract

Front 19

Intoxication

Back 19

A person's normal capacity to act or think is inhibited by alcohol or some other drug. Contracts can be either voidable or valid/enforceable

Front 20

Mental Incompetence

Back 20

Contracts made by mentally incompetent person can be:
-Void (court has previously determined a person mentally incompetent)
-Voidable (If a court has not previously judged a person to be mentally incompetent but in fact the person was incompetent at the time)
-Valid (if the person had capacity at the time the contract was formed)

Front 21

Legality

Back 21

For a contract to be valid and enforceable, it must be formed for a legal purpose

Front 22

Contracts Contrary to Statute

Back 22

-Contracts to commit a crime
-Usury (a leder who makes a loan at an interest rate above the lawful maximum)
-Gambling (any scheme that involves the distribution of property by chance among persons who have paid valuable consideration)
-Licensing Statutes (whether a contract with an unlicensed person is legal and enforceable depends on the purpose of the licensing statute)

Front 23

Contracts Contrary to Public Policy

Back 23

Some contracts are said to be contrary to public policy and therefore VOID.

Front 24

Contracts in Restraint of Trade

Back 24

Contracts that restrain trade, or anticompetitive agreements, generally are unenforceable because they are contrary to public policy

(not valid in California)

Front 25

Exceptions to Contracts in Restraint of Trade

Back 25

-Covenants Not to Compete and the Sale of an Ongoing Business

-Covenants Not to Compete in Employment Contracts

Front 26

Unconscionable Contracts or Clauses

Back 26

Some bargains are deemed unconscionable because they are so unscrupulous or grossly unfair as to be "void of conscience"

Front 27

Procedural Unconscionability

Back 27

Involves inconspicuous print, unintelligible language (legalese). 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

Front 28

Substantive Unconscionability

Back 28

Occurs when contracts, or portions of contracts, 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.

Front 29

Exculpatory Clauses

Back 29

Release a party from liability in the event of monetary or physical injury, no matter who is at fault

Front 30

The Effect of Illegality

Back 30

In general, an illegal contract is void. Both parties are considered to be equally at fault - in pari delicto.

The courts usually are not concerned if one wrongdoer in an illegal contract is unjustly enriched at the expense of the other

Front 31

Justifiable Ignorance of the Facts

Back 31

When one of the parties to a contract is relatively innocent (has no reason to know that the contract is illegal), that party can often recover any benefits conferred in a partially executed contract.

A court may sometimes permit an innocent party who has fully performed under a contract to enforce the contract against the guilty party.

Front 32

Members of Protected Classes

Back 32

When a statute protects a certain class of people, a member of that class can enforce an illegal contract even though the other party cannot.

Front 33

Withdrawal from an Illegal Agreement

Back 33

If the illegal part of a bargain has not yet been performed, the party rendering performance can withdraw from the contract and recover the performance or its value

Front 34

Severable, or Divisible, Contracts

Back 34

Consists of distinct parts that can be performed separately with separate consideration provided for each part

Front 35

Fraud, Duress, or Undue Influence

Back 35

When a party has been induced to enter into an illegal bargain through fraud, duress, or undue influence on the part of the other party to the agreement, the first party will be allowed to recover for the performance or its value