How can we help?

You can also find more resources in our Help Center.

66 terms

Bus Law 9

Contractual Capacity
is the legal ability to enter into a contractual relationship. In some situations, capacity is lacking or may be questionable. example, a person who has been determined by a court to be mentally in competent cannot form a legally binding contract with another party.
in almost all states, the age of majority (when a person is no longer a minor) for contractual purposes is 18 yr (the so called coming of age).
Minority status may also be terminated by a minor's emancipation, which occurs when a child's parent or legal guardian relinquishes the legal right to exercise control over the child. It's Emancipation when a child leaves home to support himself.
The legal avoidance, or setting aside, of a contractual obligation. To disaffirm, a minor must express, through words or conduct, his intent not to be bound to the contract. He has to disaffirm the entire contract, not merely a portion of it.
A minor's obligation on disaffirmance
although all states laws permit minors to disaffirm contracts (with certain exception), including executed contracts, state laws differ on the extent of a minor obligation on disaffirmance. Most states hold that the minor need only for returning the goods (or other consideration)* subject to the contract.even though, the minor returns damaged goods, the minor often is entitled to disaffirm the contract and obtain a refund of the purchase price.
Exception to a minor's right to disaffirm
State courts and legislatures have several exception on some contracts, such as marriage contracts and contracts to enlist in the armed services, cannot be avoided on the ground of public policy.
are basic needs, such as food, clothing, shelter, and medical services, at a level of value required to maintain the minor's standard of living or financial and social status.
is the act of accepting and giving legal force to an obligation that previously was not enforceable. Example, a minor who has reached the age of majority can ratify a contract expressly or impliedly.
Express Ratification
occurs when the minor, on reaching the age of majority, states orally or in writing that she intends to be bound** by the contract.
Implied Ratification
takes place when the minor, on reaching the age of majority, indicated through his conduct an intend to abide**(Accept) by the contract.
Example of Ratified
courts presume that a contract that is executed (fully performed by both sides) was ratified.
Example of Disaffirmed
a contract that is still executory (not yet performed by both parties) is considered to be disaffirmed.
Parent's Liability
parents are not liable for the contracts made by minor children acting on their own, except contracts for necessaries (needs), which the parents are legally required to provide.
Intoxicated (drunk) Persons
person's normal capacity to act or think inhibited by alcohol or some other drug. Example, the person claiming intoxication must be able to return all consideration received, As a practical matter, courts rarely permit contracts to be avoided on the ground of intoxication, because it is difficult to determine whether a party was sufficiently intoxicated to avoid legal duties.
Mentally incompetent persons
contracts made by mentally incompetent persons can be void, voidable or valid.
When the Contract will be void
if a court has previously determined that a person is mentally incompetent and has appointed a guardian to represent the person and only guardian can enter into a binding contract, Any contract made by that mentally incompetent person is Void (NO contract Exists).
When the contract will be voidable
if the person did not know he was entering into the contract or lacked the mental capacity to comprehend its nature, purpose, and consequences. The contract may be disaffirmed or ratified (if the person regains mental competence).
When the contract will be valid
a contract entered into by a mentally incompetent person (whom a court has not previously declared incompetent) may be also be valid if the person had capacity at the time the contract was formed.
for a contact to be valid and enforceable, it must be formed for a legal purpose. Legality is the Fourth Requirement for a valid contract to exist.
Contract contrary to statute
Statutes often set forth rules specifying which terms and clauses may be included in contracts and which are prohibited (illegal Contract). such as, Contracts to commit a crime, Usury (charging an illegal rate of interest), Gambling, Licensing Statutes (all states require members of certain professions, including, physicians, lawyers, real estate brokers, accountants, architects, electricians, and stock brokers) need to have Licenses.
Contracts Contrary to PUblic Policy
contracts are not enforceable if there are negatives impacts on society, such as to commit an immoral act (selling a child and a contract that prohibits marriage).
Contracts in Restraint of Trade
if someone tries to do monopoly and control the economy and it's illigal. This country has a strong public policy favoring competition in the economy. Exception: Convenants Not to compete and the sale of an ongoing business and Covenants not to compete in employment contracts.
Covenant not to compete and the sale of an Ongoing business
a contract that make people covenant (promise) not to compete with ceratin business. Example, when a seller agrees not to open a new store in a certain geographic area surrounding the old store.
Covenants not to Compete in Employment contracts
agreements not to compete can also be included in employment contracts (contracts stating the terms and conditinos of employment). Example, People in middle to upper level management positions commonly agree not to work for competitors or not to start a competing business for a specified period of time after terminating employment.
Unconscionable (Not right or Reasonable) contracts or clauses
a contract or clause that is void on the basis of public policy because one party, as a result of disproportionate bargaining power, is forced to accept terms that are unfairly burdensome and that unfairly benefit the dominating party. Bargains are deemed unconscionable because they are so unscrupulous or grossly unfair as to be "void of conscience". It can be on either procedural or substantive grounds.
Procedural Unconscionability
often involves inconspicuous print, unintelligible language (legalese) or the lack of an opportunity to read the contract or ask questions about its meaning. It involves an adhesion contract.
Adhension Contract (Standard-form)
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 and borrower) on a Take-it-or-leave-it basis.
Substantive Unconscionability
it occurs when contracts, or portions of contracts, are oppressive or overly harsh. Example, A person with low income and low education (4th grade) agree to purchase a refrigerator for $5000 and sign a two year installment contract. The same type of refrigerator usually sells for $900 on the market. Court will held this type of contract is unconscionable because the contract terms are so oppressive as to "shock the conscience" of the court.
Exculpatory Clause
a clause that releases a contractual party from liability in the event of monetary or physical injury, no matter who is at fault.
The effect of illigality
an illigal contracts is void, both parties are considered to be at fault-- in pari delicto. But there are exceptions to the general rule that neither party to an illegal bargain can sue for breach (an act of breaking the law) and neither party can recover for performance rendered (provide).
Justifiable ignorance of the Facts
when one parties to a contract is relatively innocent (has no reason to know that the contract is illegal) that party can often recover any benefits conferrred in a partially executed contract. Example, A trucking company contract with Gillspie to carry goods within containers to specific destination for a normal fee of $5000. The trucker delivers the goods and later finds out that they contained illegal goods. Although the shipment, use, and sale of the goods are illegal under the law, the trucker, being an innocent party, can normally still legally collect the $5000 from Gillespie.
Members of protected classes
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.
Blue Sky laws
state laws that regulate the offering and sale of securities for the protection of the public and state statues regulating the sale of insurance.
Withdrawal from an illegal agreement
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.
severable, or divisible, contracts
consists of distinct parts that can be performed separately, with separate consideration provided for each part.
Contracts illegal through fraud, duress, or undue influence
often one party to an illegal contract is more at fault than the other. 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.
Voluntary consent
(assent) may be lacking because of mistake, fraudulent misrepresentation, undue influence, or duress.
are made when contracts are created. In certain circumstances, contract law allows a contract to be avoided on the basis of mistake. It is important to distinguish between mistakes of fact and mistakes of value or quality. Only MISTAKES OF FACT (such as unilateral and bilateral "mutual" make a contract voidable.
Unilateral Mistakes
occurs when only one party is mistaken as to a material fact, that is a fact important to the subject matter of the contract.
Bilateral (mutual) mistakes
when both parties are mistaken about the same material fact, the contract can be rescinded by either party
Fraudulent misrepresentation
refers only to misrepresentation that is consciously false and is intended to mislead another. It involves three elements: 1. A misrepresentation of a material fact must occur, 2, there must be an intent to deceive, 3, the innocent party must justifiably rely on the misrepresentation. It also occur in the online environment.
Misrepresentation has occurred
the first element of proving fraud is to show that misrepresentation of a material fact has occurred it can be by words or actions.
Misrepresentation by conduct
when a party takes a specific action to conceal a fact that is material to the contract.
Misrepresentation of law
ordinarily does not entitle a party to be relieved of a contract.
Misrepresentation by silence
when neither party to a contract has a duty to come forward and disclose facts, and a contract normally will not be set aside because certain pertinent information has not been volunteered.
Intent to deceive
is knowledge on the part of the misrepresenting party that facts have been misrepresented. It usually called "scienter" or "guilty knowledge"
Reliance on the misrepresentation
is justifiable reliance on the misrepresentation of fact.
Injury to the innocent party:
most courts do not require a showing of injury when the action is to rescind (cancel) the contract.
Undue influence:
arises from relationships in which one party can greatly influence another party, thus overcoming that party's fee will.
Duress consent to the terms of a contract
is not genuine if one of the parties is forced into the agreement. Forcing a party to enter into a contract because of the fear created by threats is referred to as duress.
every state has a statute that stipulates what types of contracts must be in writing or evidenced by a record. Such as Statute of Frauds: a state statute under which certain types of contracts must be in writing to be enforceable.
The statute of frauds—writing requirement:
1. Contracts involving interest in land. 2. Contracts that cannot by their terms be performed within one year from the day after the contract is formed. 3. Collateral contracts, such as promises to answer for the debt or duty of another. 4. Promises made in consideration of marriage. 5. Under the UCC contracts for the sales of goods priced at $500 or more. Any agreement or promise that fit into one or more of these categories are said to "fall under or fall within" the Statute of Frauds.
Contracts involving interests in land
is a form of real property, or real estate which includes not only land but also all physical objects that are permanently attached to the soil, such as buildings, plants, trees, and the soil itself. Under the statute of frauds a contract involving an interest in land must be evidenced by a writing to be enforceable.
The One-Year Rule
contracts that cannot by their own terms be performed within one year from the day after the contract is formed must be in writing to be enforceable.
Collateral promises (secondary promise)
is one that is ancillary (subsidiary) to a principal transaction or primary contractual relationship.
Primary versus secondary obligations:
a contract in which a party assumes a primary obligation normally does not need to be in writing to be enforceable. Primary obligation does not have to be in writing to be enforceable, but secondary obligation does have to be in writing to be enforceable.
Promises made in consideration of marriage:
a unilateral promise to make a monetary payment or to give property in consideration of marriage must be in writing.
Contracts for the sale of goods:
the UCC includes statute of frauds provisions that require written evidence or an electronic record of a contract.
Exception to the statute of frauds:
is made in certain situations, such as partial performance, admissions, promissory estoppel, and special exceptions.
Partial performance
involving oral contracts for the transfer of interest in land, if the purchaser has paid part of the price, taken possession, and made valuable improvements to the property, and if the parties cannot be returned to their positions prior to the contract, a court may grant specific performance (performance of the contract according to its precise terms).
in some states, if a party against whom enforcement of an oral contract is sought admits in pleadings, testimony, or otherwise in court proceedings that a contarct for sale was made, the contract will be enforceable.
Promissory estoppel
in some states, an oral contract that would otherwise be unenforceable under the Statute of Frauds may be enforced under the doctrine of promissory estoppel or detrimental reliance.
Special exception
, to the applicability of the Statute of Fraudes exist for sales contracts under the UCC. Oral contracts for customized goods may be enforced in certain circumstances. Another exception has to do with oral contracts between merchants that have been confirmed in writing.
The Statute of Frauds—Sufficiency of the writing
a written memorandum (written or electronic evidence of the oral contract) signed by the party against whom enforcement is sought will also satisfy the writing requirement.
What constitutes a writing?
A writing can consist of any confirmation, invoice, sales slip, check, fax, or email or such items in combination.
What must be contained in the writing?
A memorandum or note evidencing the oral contract need only contain the essential terms of the contract, not every term.