Business Law Final
Terms in this set (153)
When is a contract used?
With an agreement, bargain, undertaking, or deal.
What was the evolution of society that required contracts?
Prior, relationships were fixed due to strict social order. The emerging industrial order caused affairs that were based on mutual assent, due to the boom. Affairs were no longer face to face and became more complicated.
Is a promise or set of promises for the breach of which the law gives remedy, or the performance of which the law in some way recognizes as a duty.
What are the fundamentals that break down a contract?
1. Legally enforceable
2. Set of promises
3. Promise for a duty
What are the four elements necessary for a valid contract? (What tells us if the parties have created a valid contract?)
1. Did the parties reach an agreement?
2. Was the consideration present?
3. Was the agreement legal?
4. Was there a contractual contract - Did the parties enter into the contract on their own free will, with the knowledge of all the facts and with the capacity to make a contract?
What is state case law?
Law made up of the vast cases of judges resolving disputes - that causes inefficiencies in contract law due to the number of resolutions.
What is the Restatement of the law of Contracts (1932) and the Restatement (Second) of the Law of Contracts (1979)?
Combined all of the state case laws to reduce inefficiencies.
What are state statutes for the sales include?
Specifically for real estate, the sale of goods, and services.
What is the Uniform Commercial Code (UCC), especially Article 2.
Deals with the sale of goods and unifies commercial law from state to state.
What is significant about the adoption of the UCC?
Adopted by every state but is not a federal law.
What are the articles in the Uniform commercial code?
Article 1: General provisions
Article 2: Sales
Article 2A: Leases
Article 3: Commercial paper
Article 4: Bank deposits and collections
Article 4A: Funds transfers
Article 5: Letters of credit
Article 6: Bulk transfers
Article 7: Warehouse receipts, bills of lading and documents of title
Article 8: Investment securities
Article 9: Secured transactions
What transactions do Article 2 deal with?
The present and future sale of goods
What are the present and future sale of goods definition?
"all things..which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid."
What are the four dimensions of a contract?
4. Degree of completion?
What is explicitness?
In what degree has the agreement been manifested to those party to it?
What are the different forms of a contract?
1. Express contract
2. Implied contract
What is an express contract?
Terms of the contract is spelled out directly by the parties, where both are aware that they have entered the contract.
What is an implied contract?
The terms haven't been discussed by the parties, but both parties can infer the terms (using intent)
- i.e. common law marriage: where people are deemed to be married if they live together with the intent to be married, regardless of their failure to have obtained a license or gone through a ceremony.
What is a quasi-contract?
Is an obligation said to be "imposed by law" in order to avoid unjust enrichment of one person at the expense of another, to prevent injustice.
How are quasi-contracts different from express and implied contracts?
They do not embody an actual agreement of the parties
What is mutuality?
Takes into account whether promises are given by two parties or only one.
What are the different forms of mutuality in contracts?
1. Bilateral contracts
2. Unilateral contracts
What is a bilateral contract?
The parties make mutual promises, where each is both the promissory and promisee and each pledges to do something.
What is a unilateral contract?
one party performs an act in exchange for the other party's promise.
i.e. offer an award for catching a criminal.
What is the main difference between bilateral and unilateral contracts?
Whether one of the parties makes a promise or if both of the parties make a promise.
What is enforceability?
Degree to which a given contract is binding.
What is a void contract?
An agreement that is lacking one of the legal elements of a contract.
What is a voidable contract?
Is one that may become unenforceable by one party but can be enforced by the other.
What is an unenforceable contract?
Some rule of law bars a court from enforcing (i.e. when the statute of limitations has run out)
What is a completed contract?
Whether the contract is yet to be performed or whether the obligations have been fully discharged by one or both parties.
What is an executory contract?
Agreement with promises that have not been carried out
What is an executed contract?
Agreement with promises that have been completed.
One who makes an offer.
One to whom an offer is made.
What is the structure of an agreement within a contract?
An offer and an acceptance
What is the objective standard of agreements?
Does the agreement mean what the parties said or did - not what they thought they said or did, or not what impression they thought they were making.
What is an offer?
The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that this assent to the bargain is invited and will conclude it.
What are the key elements of an offer?
2) Offer must be communicated
3) Must have definite terms
What is intent?
Has to use the objective standard, looking at the totality of the circumstances to understand if the offer was spoken in the heat of the moment.
What are proposals that are not offers?
2. Invitations to bid
What are the terms of communication?
1. Has to specify what is being assented to (i.e if there are multiple offers on the table)
2. Has to be communicated to the offeree.
What are the requirements of definite terms?
1. Identity of the parties (offeror and offeree)
2. Goods or services that are going to be exchanged
3. The quantity of goods or type of services
4. The amount of time to perform the contract.
Does every offer in the term have to be communicated?
How relaxed is the UCC approach to definite terms of a contract?
If the parties intend to enter into a binding agreement, this subsection recognizes that agreement as valid in law, despite missing terms, if there is a reasonably certain basis for granting remedy...Commercial standards on the point of 'indefiniteness' are intended to be applied, such as to price, performance, and remedies.
What does the UCC's standards provide the provisions for?
Provides the provisions for filling in the missing terms of price and performance.
What are the offers under the UCC?
1. Outputs contract
2. Requirements contract
What is an outputs contract?
Which a buyer agrees to purchase the seller's entire goods
What is a requirements contract?
Which a buyer agrees to meet all the buyer's requirements.
- Note: A party under such contract cannot offer or demand that is "unreasonably disproportionate" to a stated estimate or past quantities.
Under the UCC, what is important to remember about making offers in contracts?
Note: A party under such contract cannot offer or demand that is "unreasonably disproportionate" to a stated estimate or past quantities.
What are the 7 ways by which the offer can expire (besides acceptance) that are recognized by law?
2. Rejection by the offeree
4. Acceptance with counteroffer
5. Lapse of time
6. Death or insanity of a person or destruction of an essential term
What does common law and the UCC say about when the revocation of the offer can occur?
The offeror may revoke his or her offer at any time before acceptance, even if the offer states that it will remain open for a specified period of time.
What does common law and the UCC say about how the revocation should be communicated?
Revocation can be communicated directly or indirectly, and the offeree must receive it
What is the exception to how an offer is made?
offers made through the public advertisements
How would the offeror revoke an offer on public advertisements?
the offeror may revoke a public offering by notifying the public by the same means used to communicate the offer - and the offer is terminated even if a particular offeree had no actual notice
When are offers irrevocable?
1. In an option contract - where the promisor explicitly agrees for consideration to limit his right to revoke.
2. Partial performance of a unilateral contract: Once the performance begins, the law implies an option, allowing the offeree to complete the performance according to the terms of the offer. If, after a reasonable time, the offeree does not fulfill the terms of the offer, then it may be revoked.
3. Firm offer rule (UCC)
5. Contract submitting a bid to public agency (Law)
What is the firm offer rule?
A written and signed promise by a merchant to hold an offer to buy or sell goods for some period of time - option is created, no consideration is required, and the offer must remain open for the time period stated (not exceed three months).
What is a rejection?
A manifestation of refusal to agree to the terms of an offer.
When is the rejection effective?
1. When the offeror receives it.
2. If the offeree changes his mind by accepting after prior rejection, there is no contract, even if the offeror has made no further effort to sell the item.
What is a counter offer?
a response that varies the terms of an offer and is a rejection of the original offer (therefore, all the terms lapse).
What is the mirror image rule?
- Common law
- The acceptance must match the offer in all its particulars or the offer is rejected.
What happens when the counteroffer is accepted?
The acceptance changes the terms of the offer, therefore terminates the offer.
What are the battle of the forms?
The problem where a buyer and seller sends out documents accompanying or incorporating their offers and acceptances - and the provisions in each document rarely correspond because one side's form contains terms favorable to it but inconsistent with terms on the other side's forms.
What is the solution to the battle of the forms?
That the new terms are construed as offers and are automatically incorporated in any contract between merchants for the sale of good
What are the exceptions to the additions of new terms of merchant's offer/acceptance?
1. The new terms materially alter the offer.
2. The offer has to specefically limit the acceptance to the terms of the offer
3. Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
i.e. clauses providing for interest payments on overdue bills.
Is an offer valid indefinitely?
No, offers laps after some period of time (which can contain its own specefic time limitation)
What is the common law rule to when an offer expires?
An offer expires at the end of a "Reasonable time," which depends on the case.
When and How does the acceptance have to be sent, under the restatement?
Under the restatement, if the offer has been mailed, the acceptance has to be mailed at any time until midnight of day the offer is received.
What does the common law and the UCC require for the acceptance of unilateral contracts?
That the offeree has to notify the offeror that he has begun to perform the terms of the contract.
What are the conditions that can terminate the offer?
1. Death or insanity of the offeror prior to the acceptance terminates the offer (but the estate of the deceased person may be liable on a contract made by the person before death).
2. Destruction of subject matter essential to the offer.
What is illegality?
A statute making unlawful the object of the contract will terminate the offer if the statute takes effect after the offer was made.
What is an acceptance?
A manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
What is the allowed assent that shows manifestation?
The assent may be either...
1. The making of a mutual promise
2. Performance or partial performance
Who may accept the offer?
The offeree (Who is going to pay)
When is the acceptance effective?
1. By the specific means stated in the offer
2. By the "mailbox rule"
3. If the offeror fails to specify the mode of acceptance and the offeree uses a mode that is considered not reasonable, then effective when received
What is important to remember about acceptance vs. rejection?
Acceptance outruns rejection - When the offeree sends a rejection first and then later transmits a superseding acceptance, the "effective when received" rule also applies.
What is consideration?
A set of mutual promises in which each party agrees to give up something to the benefit of the other.
What is the test to see if there is consideration in a contract?
Legal Value that can either be a...
What is an example of a legal benefit?
Money, goods, services
What is a legal detriment?
Giving up an actual value or giving up something that you are legally entitled to have
What happens if you are not entitled legally to the value, is this considered a legal detriment?
Nominal consideration is a consideration which has no relation to the value of the contract or article.
- i.e. $100,000 painting sold for $10 of friendship to avoid division of assets in a divorce. Not good consideration because there was not a contract, so painting stays within the divorcee relationship
What action is required between both parties for proper consideration?
"Quid pro quo" - this for that
Needs a bargain for exchange that shows both sides have entered into a contract willingly for a bargain.
What is promissory estoppel?
Prevents one party from withdrawing a promise made to a second party if the latter has reasonably relied on that promise.
What is needed for promissory estoppel to apply?
1. The promisor must make a clear and definite promise
2. The promisee must rely on that promise
What is past consideration?
create a contract on past performance that was already done.
What is legality have to do with contracts?
The courts will not enforce contracts of an illegal bargain to preserve the name of the institution
What are the (2) where courts will provide remedy to an illegal action?
1. Ignorance of the violation of public policy.
2. Withdrawal prior to the illegal act.
What are the two ways an agreement is illegal?
1. Violates a statute
2. Violates a public policy, even though not expressly set forth in statutes.
What do statutes cover over criminal law?
5. some gambling
7. consumer credit transactions
Are contracts that involve gambling legal?
because it is an anti utilitarian activity most attractive to those who can least afford it and to the criminal elements, and that gambling is addictive.
Are contracts that involve "gambling" through insurance agencies of a random person legal? Are contracts with insurance agencies on a family member legal?
- No, it is gambling on a contingent event.
- Yes, if you insure your family members then you will have suffered a direct loss.
What is the exception to contracts involving gambling that is legal?
Common law permits the sale or purchase of securities - respectable risk taking in the capitalist system
When do statutes forbid the making of a contract or the performance agreed upon?
2. Failure to hold a regulatory license
3. Restrain trade
What is a usury contract?
One that sets the maximum allowable interest that may be charged on a loan - charging illegal interest rates
If there is an absence of a revenue or registration license, will statutes forbid the making of a contract or the performance agreed upon?
No because it doesn't mean as much - so the person may obtain the license and then move to recover.
Intended to protect the public health, safety and welfare.
Are non-compete clauses legal based on no lawful object?
Can be or cannot be, because it restrains trade.
What are unconscionable contracts?
one-sided/unfair/oppressive/ result of unequal bargaining power
- I.e. sick mother - loan company- give loan with highest interest sale to person with sick mother - took advantage that son had no bargaining power and came to the insurance company as a last resort.
How would the courts make an unconscionable contract fair?
By removing the unfair act, to make the contract more fair.
What happens when a contract is found illegal?
The parties are left were the court found them, and no relief is granted.
What are the exceptions to where a court may permit action to help the party recover?
1. Party withdraw before performance
2. Party protected by a statute
3. Party not equally at fault
4. Excusable ignorance
How is contractual capacity relevant to a contract?
Contract cannot be formed if one of the parties are presumed to lack the capacity to understand what he or she is agreeing to or to understand the consequences of the agreement.
What are the classes/groups of individuals who lack capacity?
Class 1: Minors
Class 2: Mentally ill
Class 3: Intoxicated persons
When minors stop taking action in an agreed contract, is it void?
- Courts will look at when the person turns 18 and what they do after - if they comply with the contract for a while, then can't get out of the contract
If the minors take action in an agreed contract after they comply with the contract for awhile, is it void?
No. This means that they accept the contract, therefore they cannot get out of the contract.
What are the exceptions that prevent minors to get out of a contract? Why is this considered an exception that is binding to a contract?
Contracts for necessities of life
B/c if the minor doesn't have housing, they should be treated like an adult because it shows taking advantage of the system.
What are the additions that expand the list of exceptions, binding the contract of a minor?
2. Services to get a jib
6. medical care
7. bank accounts
8. third party intervening
What are the exceptions that can make contracts involving necessities unbinding, depending on the state?
Misrepresentation of age - depending on the state, a minor can get out of a contract if the kid provided proof that he misrepresented his age.
What is ratification?
The minor becomes an adult and expressly affirms the contract, that allows them to continue to make payments or keep the goods.
What is important to remember about ratification?
Age of majority plus a reasonable amount of time
- i.e. the kid says wants to restart voided contract
- by making payments and keeping the goods.
What happens when a minor decides to disaffirm (void) a contract?
1. Duty to return consideration when received
2. Return goods in the condition at the time of disaffirmance.
3. Return the amount of consideration received t the time of disaffirmance.
What is Dodson vs. Shrader?
17 yr old kid from Tenessee takes a pickup truck that he bought and beat it to death. He said to disaffirm the contract and wanted his money back.
Why is Dodson vs. Shrader significant?
Because it shows a court ruling of how the kid had to pay for the damages, so the truck could be returned to how it was found
(Some states reverse back to the state it was, except for subtracting the damages out of the total).
What is the general rule to the mentally ill class?
The contract is voidable if the legal guardian steps in or if the person returns back to sanity.
How do we know a contract with a mentally ill individual is valid? TEST
Is on a case by case basis
- Test: Only the fact of the mental illness impaired the judgement of the person in the particular transaction.
What are the exceptions that ensure a legally binding contract to the mentally ill? Why?
- B/c want mentally ill to receive services and prevent against providers to refuse to enter into a contract with a mentally ill person if they are able to walk away.
What happens when individual with mental illness or guardian disaffirms a contracts?
1. Returns the goods at the condition at the time of disaffirmance.
2. Return same amount of goods at condition received at the time of disaffirmance
3. But if the contract was fair, and the other party had no knowledge of the mental illness, the court has the power to order other relief.
What is the general rule to intoxicated persons?
Intoxicated persons lack capacity
- If the individual is so intoxicated and has no awareness of his or her actions AND the other person knows this, the contract is void.
Contracts with intoxicated persons voidable or void? Why?
- Contract is void if the individual is so intoxicated and has no awareness of his or her actions AND the other person knows this.
- Otherwise, the contract is voidable if intoxicated individual agrees to ratify the contract when sobers up, then the contract is valid.
If contractural capacity doesn't exist, then how do we have an enforceable contract?
What is the Quasi-contract theory?
It is not a true contract but is recognized by the court - the remedy is typically restitution or recovery under a theory of quantum merit.
Scenario: Julia is 17 years old. In September 2017 she wanted to buy a 2012 Honda FIT from Cindy's Clunkers. Cindy offered to sell Julia the car for $13,000. Julia said that she wanted to think about it. The next day, Julia called Cindy and left her a message on her voicemail saying that she would buy the car if the price was $10,000. Two days later, Julia didn't hear back from Cindy so she went to the car dealership. There she told Cindy that she really wanted the car and asked Cindy whether she would be willing to sell it to her for $11,000 if Julia can pay her $200 every month until the car is paid.
Julia turned 18 in January 2018. In March2018 Julia was driving in the highway and her 2012 Honda FIT broke down. She had been having problems with the car since December 2017 but never said anything. When her car broke down she decided that she wanted to give the car back and she stopped paying the $200 per month.
Is there a valid cntract between Julia and Cindy by fully explaining whether all the elements of a contract are met.
There is a valid contract between Julia and Cindy
1. The parties reached an agreement where there was an offer that was communicated (the price and the model of the car) & There was an acceptance that was the result of direct conversation.
2. The consideration was present: the parties received a legal detriment/legal benefit (money in exchange for the car)
3. The agreement was legal
What happens when Julia stops paying the fee and stops the contract?
Julia has to return the goods at the condition at the time of the disaffirmance - b/c Julia was a minor during the contract.
Could Cindy show that Julia breached the contract regardless of the minor clause?
Yes, because reasonable amount of time is necessary after Julia turns 18 to see if there is contractural capacity.
- The argument is that Julia made two payments, not one, which is considered reasonable time. She cannot get out of the contract.
What happens when in a contract, all 4 elements: agreement, consideration, legality and contractual capacity exist...is there a defense as to why the contract is not enforceable?
2. Undue influence
What is duress?
Forced to do something against his or her will.
Duress by threat?
Threatens the party to point that he or she feels that there is no alternative but to agree to the contract.
What is physical duress?
Physical force has been used to compel a party to agree.
- I.e pay protection money or building won't burn down - not a valid contract
Contract by physical duress, is it void or voidable?
Contract by duress by threat, is it void or voidable?
Voidable - the party threatened could still get rid of the contract or agree to the contract (by ratifying)
What is the test to see if there was duress present?
1. The threat must be improper
2. There is no reasonable alternative
3. Did the threat induce assent by the victim (subjective)
What does it mean that the threat is improper?
1. Bodily harm
2. To commit a crime
3. Instigate criminal proceedings
4. To instigate civil proceedings if in bad faith
5. Economic threats
What does it mean there is no reasonable alternative? (TEST)
Needed to enter into the contract because necessities were threatened.
What does it mean if the threat induced assent by the victim?
Evidence by the victim, if there was not a threat, then wouldn't have entered into the contract.
Scenario: A new york based rug company has the only available hand loomed rugs. An American buyer has agreed to pay $2500 per rug. The rug company then tells the buyer (who wants to fill his orders for the rugs) that he can have the rugs only if he is willing to pay $4,000 apiece for them.
Is there a contract?
Economic threat: might have no alternative
- contract voidable because of how the contract was entered into
What situations are considered undue Influence?
1. Unfair persuasion
2. Fiduciary relationship
What is unfair persuasion?
Under the domination of the persuader and using improper power and trust.
What is Fiduciary relationship?
Relationship built upon trust (attorney, doctor vs. patient)
What is misrepresentation?
Someone enters into the contract if the other party says something that is false
What are the kinds of misrepresentaton?
What is considered non-fradulent?
1. Negligent misrepresentation
2. Innocent misrepresentation
Some misrepresentation but without intent for a misrepresentation
i.e. I was expecting the product to do, but that's why I entered into the contract - want out)
really not intending to misrepresent the item, didn't check.
What is the test of misrepresentation?
A statement of fact that is not consistent with the truth, not correctly entering into contract
What is fraudulent misrepresentation?
A false statement is made
- misstatement of fact
- concealment (not putting facts out there that should be)
What is a mistake?
Did one party or both parties make the mistake?
What is unilateral mistake?
One party makes the mistake
What is the general rule to a unilateral mistake, towards if the contract is legally enforceable? Why?
Usually the contract is not voidable. B/c the party that makes the mistake is usually not doing too well
What is the exception to the unilateral mistake, for the contract to be voidable?
If the other side knew or should have known...could be voidable. (i.e. bought wrong truck to tow boat, but the seller should have known better of what he wanted.)
both parties made a mistake about a material fact of the contract.
- basic assumption to which the contract was made.
- mistake has a material effect n the agreement.
- an adverse effect on the party that did not agree to bear the risk.
For the contract to be valid, does it have to be in writing? (GENERAL RULE)
General rule: no, doesn't have to be in writing
What are the exceptions that make the contract have to be in writing?
The statute of frauds
What points make up the statute of frauds?