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Business Law Unit Two Test
Terms in this set (171)
a legally enforceable agreement that is created when two or more competent parties agree to perform, or to avoid performing, certain acts that they have a legal right to do and that meet certain legal requirements
The UCC defines a contrast as
"The total legal obligation which results from the parties' agreement as affected by the Uniform Commercial Code or any other applicable rules of law"
What is article two of the UCC relevant to
Contract law but only applies to transactions in goods or other tangible personal property
Tangible personal property
Personal property that can be moved ex: vehicle, kitchen table, or computer
The source of contract law regarding the sale of fixed assets, services, or intangibles
All contracts are _____, but not all agreements are ___contracts
If an agreement imposed a legal obligation..
An enforceable contract results
If an agreement imposed only a social or moral obligation..
It is not a contract and cannot be legally enforceable
Contracts may be created to establish legal obligation regarding matters including..
The sale of merchandise or services, employment, the transfer of ownership of land (real property) or personal property such as a car
A contract may be extended or revised to:
Reflect the parties future wishes
Offer and acceptance
An offer is made by the offeror and accepted by the offeree. This indicates both parties desire to enter into the agreement
The parties must have a clear understanding of what they are undertaking and the contract must show it
Each party to a contract must promise to give up something
The parties to a contract must be of legal age and mental state capability of understanding what they are doing
Legality of purpose
The intent of the contract must not violate the law. The courts will not enforce a contract that violated the law
Requirements for contracts. Contracts must not only be in written form but also a prescribed form , signatures of the parties
Contracts may be classified by how they are
Created, expressed, or performed
Not in writing or signed by the parties, but it is a real contract created by the conversation of the parties
Reduced to writing on a permanent surface that can be written or any other contract containing the terms of the agreement, as long as it is signed by the party or parties who wish to be bound by the agreement
Contract that specifically states the terms of the agreement between the parties (written or oral)
A contract that comes about simply from actions of the parties.
Known as specialty contract. It is written under seal which is either the word seal or L.S ( locus sigilli), on a scroll, wafer, or an impression on paper
Today only a few contracts are required to have a seal, these are:
Bonds, mortgages, and deeds conveying to real estate
Informal contract made without a seal even though the contract may be complex and involve huge amounts of money
Knows an indivisible contract and has two or more parts. Each part is dependent on the others for satisfactory performance
It is made up of two or more parts, each part is independent of the other
At any particular time, a contract may be
Awaiting the the first commence obligation, in the process of completion, or full completed
A contract where a future act or obligation remains to be performed under its term
A contract is completely executory if no part has been
A contract is partially executory if some parts have been ___ and some have yet to be ___
If all the terms of the agreement have been fully performed by both parties
Agreements resulting in obligations that are legally enforceable
Agreements that lack one or more of the essential elements of a contract
Agreements that may be rejected by one of the parties for a legally acceptable reason
Majority of the contracts entered into business transactions are of this type and meets all of the requirements of a contract because all six elements present
An agreement that lacks one or more of the essential elements of a contract. It cannot be enforced and is not a true contract
A contract may be rejected by one party for a legally acceptable reason. This is valid and enforceable unless and until rejected by party who has the right to reject.
For a contract to be valid, there must be a proposal that is both offered by the ___ and accepted by the __
For a offer to be valid, it must be
Definite and certain, communicated to the offeree, and made with a serious intentions that the offeror will be bound by it
Definite and certain
Specify all the terms and conditions of the contract and a later disagreement can be avoided if the offer is made as specif as possible
Usual means of communication are
Oral (telephone, TV, or radio) and written (letter, fax, e-mail, or text message)
Businesses frequently use
printed or electronic purchase orders containing the terms of an offer
Offers made in anger or jest, or those made under severe emotional strain are:
Not made with the intent of entering into a valid, enforceable agreement
What complications can occur when there is little or no direct contact between the two parties
Bidding, advertising, and public offers
Request for proposal
Request for an offer, not an offer. May be an invitation to negotiate and can be accepted or rejected by the person calling for a bid
Advertisements are generally regarded as an
Invitation to trade, or an invitation to make an offer, rather than a valid offer because they usually do not contain sufficient words of commitment to sell.
If an advertisement contains a positive promise and a positive statement of what the advertiser expects in return,
The courts will usually hold that the advertisement is an offer
If the advertisement states the wrong amount of money and it is the merchants fault
The merchant must honor the lower price
If the advertisement state the wrong amount of money and it is not the merchants fault
The merchant will choose the lower price to honor goodwill
When an advertisement is provided for a reward of a criminal
It is regarded as a general offer to the public at large
Acceptance of a public offer by anyone results in
In order for an acceptance of an offer to be valid
It must be communicated to the offeror and it must be unconditional
The offer specifies a certain form of communication, such as "reply by registered e mail"
When acceptance becomes effective
The offer may explicitly state whether acceptance effective when it is sent by offeree or when it is received by offeror
If the offeror is silent as to time acceptance is effective, this states that an acceptance sent by e mail or courier is effective when sent
When acceptance becomes effective
An acceptance communicated by telephone , fax, or telex is effective when recurved
Silence as accepted
A person cannot be compelled to speak or to write to avoid a binding agreement. A person is under no obligation to reply to an offer so silence may indicate assent when both parties have agreed in advance that this is to be means of acceptance
Provided that a "contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties UCB recognizes the existence of such a contract"
A counter offer that is conditional or a qualified acceptance of an offer is
Generally interpreted as a rejection and is not binding on the parties
What is the general rule of contract
The acceptance of an offer must be the same as the offer ,if there are any material (important) differences between the offer and the acceptance, the acceptance is regarded as a rejection of an offer
Termination by lapse of time
When offeree fails to accept an offer within the time specified, the opportunity to form a contract ends and if no tome is said then the contract tract ends at a reasonable time
Termination by revocation
An offer that has been neither accepted nor rejected by the offeree can be revoked or withdrawn by the offeror
Termination by rejection
A direct, unqualified rejection, or a refusal to accept, terminated an offer and once the offer is rejected the contract cannot be revived
Termination by death or incapacity
Mutual agreement cannot occur if either the offeror or the offeree die or become incompetent and the offer is immediately terminated as a result of death.
Has a provision to keep an offer open for a certain period of tome and in the event of death the estate of the deceased is responsible to carry out the provisions of this
Termination by destruction or illegality
If the subject matter of the contract is destroyed or declared illegal after the offer has been made but before it has been accepted, the contract is terminated
Genuineness of an agreement
Present in a contract when there is a true meeting of the minds in parties
If there is any misunderstanding, or if force/deception was used to obtain the agreement of the other party,
The contract is voidable and may be disaffirmed at the option of the injured party
A voidable contract results if agreement is obtained by
Fraud, mispresentation, mistake, undue influence, duress, one of adhesion, or unconscionable
The intentional misstatement or non disclosure of a material fact made by one party in an attempt to influence the actions of another party
Fraud may arise from
Spoken or written words by acts or conduct
Regardless of how the fraud is committed,
The part who relies on the misstatement of fraud will suffer a loss as a result
Intentional concealment or intentional non disclosure of material facts is
In order to prove a fraud case, you must demonstrate five elements
A misstatement or nondisclosure of a material fact, knowledge of its falsity remains with reckless disregard of its truth, intention of causing the other party to enter into the agreement, reliance by the injured party and harm to injured party
Expression of opinion by a salesperson
The unintentional misstatement or nondisclosure of a material fact that results in inducing another to enter into an agreement to his or her loss
An injured party providing fraud can have
Contract cancelled and sue for additional charges
An injured party proving misrepresentation can have
Contract cancelled but cannot sue for addition charges
A belief that is not in accord with the facts and may be concerned with the nature of the subject matter or the quality of the subject Matter
For a contract to dissolve because of a mistake,
Both parties must be part of the misunderstanding
She. One uses their higher up power improperly to his or her advantage
A contract resulting from undue influence is
Voidable at the option of the wrongfully influenced party
The act of applying unlawful or improper pressure or influence to a person in order to gain his or her agreement to a contract
If someone enter into a contract of duress,
The injured party can dissolve the contract
Contract of adhesion
A contract that involves parties who have unequal bargaining power and is known as the take it or leave it contract and is enforceable
The inequality of bargaining power exists in contracts that are prepared by
one party and presented to the other without the opportunity for meaningful negotiation.
An unconscionable contract
is regarded as shockingly unjust or unfair.
Under the UCC if there is a judicial finding of unconscionability the court may -
Refuse to enforce the contract, or
Strike any unconscionable clause and enforce the remainder of the contract, or
Limit application of any unconscionable clause to avoid an unconscionable result
promises exchanged by the parties to a contract
the promise to refrain from doing something that a party has a legal right to do, or the promise of inaction
Consideration in a contract may be more than just the promises exchanged by the parties, but the
actual benefit gained and the detriment suffered by them.
valid contract does not exist if the consideration is a promise to perform an illegal act (or to avoid performing a legal act)
Judging whether or not the exchange of promises in a contract was fair
Possibility of Performance
legally enforceable contract cannot be based on a promise that is impossible to fulfill
Consideration required in an enforceable contract can be:
An exchange of promises
Pledges or subscriptions
A promise of an act by one party in exchange for the promise of an act by another is a valid consideration
promise to donate money to such organizations as churches, temples, mosques, hospitals, colleges, cultural institutions, charitable organizations, and other groups. Because pledges are for a worthy cause, courts have deemed them to be enforceable.
some cases that involve contracts to sell goods, the Uniform Commercial Code (UCC) dispenses with the requirement of consideration in certain contracts that involve any of the following:
•A merchant's written firm offer that provides that the contract is irrevocable.
•A written discharge of a claim for an alleged breach of contract.
•Modifications of existing contracts.
Statutes that permit a person who has a claim against another to give up, or release, his or her claim without an exchange of consideration by making a written statement to that effect.
general release may be regarded as _____if the parties so intend, and such cases, the general release would be viewed as ____
Valid consideration, forbearance
Certain agreements are not enforceable because they lack
A promise to do something that is already required to do either by law or by contract represents
no additional sacrifice and is not valid consideration
promise to pay an existing debt or to obey the law, or a similar promise, is called a
obligation to perform acts already required is known as
A preexisting duty
person who makes a promise without requiring some benefit in return has made a
Agreements based on such one-sided promises are generally
consists of an indefinite, open-ended statement purporting to be an agreement.
person who makes an illusory promise never commits to a
specific or absolute act.
A person is not legally bound to do what he or she may feel obligated to do because of
love, friendship, honor, sympathy, conscience, or some other moral consideration.
a promise to repay someone for a benefit after it has been received. This type of promise is generally not a valid consideration and is considered a gratuitous promise.
A competent party is a person who must meet all the following conditions:
•Must be of legal age.
•Must have normal mental capacity.
•Is considered by law to be capable of understanding the meaning of a contract.
competent party must have contractual capacity—the ability to make a
person who has not yet reached the age of majority.
Minors and persons who are mentally ill or mentally challenged cannot
make legally binding contracts, although they are not denied the opportunity to benefit from their legal rights.
The responsibility of determining whether a person is competent to contract rests on
everyone who enters into a contract with such a person.
Until individuals reach legal age, or the age of majority, they are
not legally required to carry out most of their contracts
According to the coming of age rule in common law, a person's legal birthday is
12:01 a.m. of the day before his or her actual birthday.
In contracts between a minor and a competent person, only the minor has the privilege of
disaffirmance, or avoidance of the contract; the competent party is bound.
In contracts for necessities (food, shelter, clothing, employment, and medical care),
in many states the minor is bound as well.
minor may not disaffirm a contract involving the
sale or purchase of real estate.
Whether a contract has not yet been performed (an executory contract) or fully performed (an executed contract),
the minor may disaffirm the contract if he or she wishes.
Once the minor reaches the legal age of majority, the contract must be either
ratified (that is, agreed to) or disaffirmed within a reasonable time.
contract involving a minor can be ratified by an act that shows that the minor party intends to
live up to the terms of the contract.
If a reasonable period of time passes after a minor reaches legal age and he or she has said nothing about disaffirming the contract,
it is considered ratified in the eyes of the law.
When a contract is ratified,
the entire contract must be ratified, not merely a part of it.
An individual may disaffirm a contract, that is,
state his or her intention either orally or in writing not to honor a contract that had been made before reaching legal age.
Disaffirmance may be done
before reaching the legal age or within a reasonable time after reaching adulthood.
Disaffirmance, like ratification, may be implied by
the acts of the person who has reached legal age and wishes to disaffirm.
Emancipation could result from
marriage or from voluntary separation of a minor from his or her parents or guardians
The law that protects minors from their contractual commitments is not intended to
deny them the opportunity to enter into contracts for necessaries that are not provided by their parents or a guardian.
As a result of a minor's emancipation,
he or she assumes many of the rights and obligations of a person of legal age.
A minor is liable only for the
reasonable value of necessaries purchased by him or her.
a surrender of the special protection given to minors by law.
law does not protect minors who have committed a
tort or a crime.
A minor may be liable for such
injuries or damages and may be prosecuted by the state in a criminal action.
A minor may be held liable for money damages in a tort action when he or she:
•Destroys property and/or appropriates it.
•Causes another person to suffer a money loss through his or her negligence.
•Persuades another person to break a contract
•Makes damaging statements in writing or orally.
In most states, parents are not held liable for torts committed by their children, however
if a child causes damage due to a lack of parental supervision, the parent may be held for any damages caused by the unsupervised child .
Mentally incompetent people cannot make binding contracts to safeguard their own affairs, so
most of their contracts are considered voidable and cannot be enforced against them if they do not carry them out.
If the person entered into a contract during a lucid interval and the other party can prove it,
such a mentally ill person will be held to the contract.
contract with a person who has been declared insane by the courts is void
•Even if the other party who contracted with the incompetent individual did not know that he or she had been declared insane by the courts.
•Even if the contract was made during a lucid period.
Any contracts the insane person makes thereafter are considered void, not simply voidable, however
the legal guardian is usually liable for purchases on necessaries.
When a person makes a contract while intoxicated by alcohol or drug use and is unable to understand the nature and effect of the contract,
the contract is voidable at his or her option.
Although the parties to a contract are legally competent and have reached mutual agreement, the law still requires that the
purpose of the agreement be legal and not contrary to the public interest.
Three broad classifications of illegal agreements:
•Agreements that are contrary to the common law.
•Agreements that have been declared illegal by statute.
•Agreements the courts have found to be against the security or welfare of the general public.
An agreement with an illegal purpose is usually
void and unenforceable.
Agreements that violate government statutes are
not enforceable by the courts.
Some statutes and local ordinances, referred to as ___, regulate the creation and performance of certain types of contracts on Sundays and legal holidays.
In some jurisdictions, a contract that is made on Sunday but carried out on a weekday is
In some states, a Sunday agreement must be ratified on a
Contracts made on a legal holiday can generally be performed the
next business day following the holiday
A gambling agreement is
one in which performance by one party depends on the occurrence of an uncertain event.
Interest is the
charge for the use of borrowed money, generally expressed as an annual percentage of the amount of the loan (principal)
If a loan is made at an interest rate higher than that allowed by state law,
the lender is guilty of usury and such usurious agreements are illegal and void.
An agreement with a person who does not have the required license is an ___ and is generally illegal if the purpose of the statute is regulatory and enforcement of the licensing requirements is clearly in the public interest.
Some agreements are unenforceable because they are contrary to the interests of the public. These agreements:
•Obstruct or pervert justice.
•Interfere with public service.
•Defraud creditors and other persons.
•Contain exculpatory clauses
Agreements that obstruct or pervert justice:
•conceal a crime or not to prosecute a criminal (such as a thief if he or she returns the stolen property).
•encourage a lawsuit in which one or more of the parties have no legitimate interest, called champerty.
•false testimony or to suppress evidence.
•bribe a juror or a court official.
•refrain from testifying as a witness in a legal action.
Agreements in restraint of marriage are
Agreements to defraud lack the element of legality of purpose, and are
void and unenforceable.
exculpatory clause is a
statement in a contract that releases one party from liability resulting from his or her own negligence throughout the performance of the contract.
Exculpatory clauses are illegal when used by
companies in a business directly related to the public interest, such as banks, public utilities, and transportation providers.
Restraint of trade:
Agreements to suppress or eliminate competition which are illegal and unenforceable.
When one or more people or firms control the market in a particular area or for a certain product.
A monopoly is ___ because it results in a restraint of trade
Passed in 1890 by the Congress; also known as the Federal Antitrust Act, it
forbids certain agreements that tend to unreasonably inhibit competition, fix prices, allocate territories, or limit production.
The Robinson-Patman Act makes it
unlawful to discriminate, directly or indirectly, in matters involving product pricing, advertising, and promotion.
A government-granted franchise is a
legal monopoly in which a state or the federal government grants a firm or person a license to operate a bus line, a railroad, etc.
A special kind of business organization involving a contractual relationship between a franchisor (the parent firm) and a franchisee (the independent company).
A community may designate certain areas as ___ for such uses as light industrial, industrial, commercial, and residential.
While zoning regulations are intended to provide security for the citizens of a community, they also may act as
legal restraints of trade—because they restrict where and how businesses may operate.
Federal and state legislatures have enacted statutes to protect the health and welfare of the general population from the effects of
pollution of the atmosphere and bodies of water.
Safety and environmental regulations serve as
legal restraints of trade because they place limits and restrictions on how a firm operates.
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