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33 terms

Business Law Ch 12 Terms

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unconscionable contract
a contract that is so oppressive or manifestly unfair it would be unjust to enforce it
infancy doctrine
gives minors the right to cancel most contracts they entered into with adults, a minor may not affirm one part of a contract and disaffirm another
disaffirmance
can be done orally, in writing, or through conduct, no special formalities are required, the act of a minor to rescind a contract via infancy doctrine
minor's duty of restoration
a minor is obligated only to return the goods or property he or she has received from the adult in the condition it is in at the time of disaffirmance, even if the item has been consumed, lost, or destroyed, or has depreciated in value by the time of disaffirmance
competent party's duty of restitution
if minor has transferred valuables(consideration) to a competent(adult) party before disaffirming the contract, that party must place the minor in status quo, in other words the minor must be restored to the same position he or she was in before the minor entered into the contract, if valuables(consideration) have been sold or depreciated in value, competent(adult) party must pay the minor the cash equivalent
minor's duty of restitution
the minor must put the adult in status quo upon disaffirmance of the contract if the minor's intentional, reckless, or grossly negligent conduct caused the loss of value to the adult's property. minor's might misrepresent their age to adults when entering into contracts, state laws provide that minors who misrepresent their age must place the adult in status quoe if they disaffirm the contract
ratification (acceptance)
after the minor has reached the age by majority by which he or she accepts a contract entered into when he or she was a minor
emancipation
parental duty of support terminates, occurs when a minor voluntarily leaves home and lives apart form his or her parents (marriage, separate household, joining military)
necessaries of life
minors are obligated to pay for the ones that they contract for, food clothing, shelter, medical care, and other items considered necessary, minors must pay the REASONABLE value
adjudged insane
legally insane, a loved one instituting a legal action to have someone declared legally insane, court will make that person a ward of the court and appoint a guardian to act on that person's behalf, any contract entered into by a person is void, court-appointed guardian is the only one who has the legal authority to enter into contracts on behalf of the person, contract is void, neither party can enforce the contract
insane but not adjudged insane
still insane but not adjudged insane, or no formal ruling made about person's sanity, any contract entered into by this person is voidable by the insane person, generally voidable but some states are still void, competent party cannot void the contract
intoxicated person
contract is voidable only if the person was so intoxicated when the contract was entered into that he or she was incapable of understanding or comprehending the nature of the transaction, rule holds even if intoxication was self-induced, others allow person to disaffirm if person was forced to become intoxicated or did so unknowingly, amount of alcohol or drugs that must be consumed for a person to be considered legally intoxicated to disaffirm contracts varies from case to case. a person who disaffirms a contract based on intoxication generally must be returned to the status quo, the intoxicated person generally must return the consideration received under the contract to the other party and make restitution that returns the other party to the status quo. after becoming sober, intoxicated person can ratify the contracts entered while intoxicated, intoxicated persons are liable in quasi-contract to pay the reasonable value for necessaries they receive
illegal contract
a contract with an illegal object, void and unenforceable
contracts contrary to statutes
example: an agreement between two companies to engage in price fixing in violation of federal antitrust statutes is illegal and therefore void, neither company to this illegal contract can enforce the contract against the other company
usury laws
sets an upper limit on the annual interest rate that can be charged on certain types of loans. lenders who charge a higher rate than the state limit are guilty of usury. laws are intended to protect unsophisticated borrowers from loan sharks and others who charge exorbitant rates of interest
contracts to commit crimes
if the object of a contract becomes illegal after the contract is entered into because the government has enacted a statute that makes it unlawful, parties are discharged from the contract, contract is not an illegal contract unless the parties agree to go forward and complete it
gambling statues
states provide various criminal and civil penalties for illegal gambling
effect of illegality
because illegal contracts are void, parties cannot sue for nonperformance.. if illegal contract is executed, court will leave the parties where it finds them, but there are exceptions...
innocent persons justifiably ignorant of the law or the fact that made the contract illegal, is an exception
exception of illegality, person who purchases insurance from an unlicensed insurance company may recover insurance benefits from the unlicensed company
persons who were induced to enter into an illegal contract by fraud, duress, or undue influence, is an exception
shop owner who pays $5,000 "protection money" to a mobster so that his store will not be burned down by the mobster can recover the $5,000
persons who entered into an illegal contract who withdraw before the illegal act is performed, is an exception
if president of xyz corp pays $10,000 to an employee of abc corp to steal a trade secret fro his employer but reconsiders and tells the employee not to do it before he has done it, xyz corporation may recover the $10,000
persons who were less at fault than the other party for entering into the illegal contract
at common law, parties to an illegal contract were considered in pari delicto (in equal fault) some states changed this rule and permit the less-at-fault party to recover restitution of the consideration they paid under an illegal contract from the more-at-fault party.
contract contrary to public policy
illegal and void contract that have a negative impact on society or interfere with the public's safety and welfare
immoral contract
an example of contract contrary to public policy, objective is the commission of an act that society considers immoral, not judges call but must look into the practices and beliefs of society when defining. ex - contract based on sexual favors
contract in restraint of trade
contracts that unreasonably restrain trade are unlawful. ex - illegal restraint of trade for toyota, GM, and ford to agree to fix prices of the cars they sell, contract would be void and could not be enforced by any of the parties against the other parties
licensing statute
statutes that requires a person or business to obtain a license from the government prior to engaging in a specified occupation or activity (lawyers, doctors, real estate agents, insurance agents, cpas, teachers, hairdressers) license is granted to a person who demonstrates that he or she has the proper schooling, experience, and moral character required, written examination sometimes also required
regulatory statute
licensing statutes enacted to protect the public -problems arise if an unlicensed person tries to collect payments for services provided to another under a contract, some say unlicensed persons cannot enforce contracts to provide these services. if statute is silent on the point, enforcement depends on whether it is a regulatory statute or a revenue-raising statute, ex- marie a first year law student agrees to draft a will for randy for $350, she cannot enforce the contract and recover payment because she has not graduated or passed the bar
revenue-raising statute
statutes enacted to raise money for the GOVERNMENT are called this, person who provides services pursuant to a contract without the appropriate license required can enforce the contract and recover payment for services rendered ex - a state licensing statute requires licensed attorneys to pay an annual $500 renewal fee without requiring continuing education or other new qualifications, if a lawyer provides legal services but has not paid the annual licensing fee, lawyer can still recover for her services
exculpatory clause
also known as release of liability clause, contractual provision that relieves one or both of the parties to a contract from tort liability, cannot be used in a situation involving willful conduct, intentional torts, fraud, recklessness, or gross negligence.. often found in leases, sales contracts, sporting event ticket stubs, parking lot tickets, service contracts, etc. clauses do not have to be reciprocal (one party relieved while other is not)
ex- guy who voluntarily enrolled in parachute jump course and signed a release note, he received proper instruction and was injured when he couldnt steer to target area, cannot sue because it was a voluntary choice and did not involve an essential service.

ones that affect the public interest or result from superior bargaining power are usually found to be void as against public policy, the greater the degree to which the party serves the general public, the greater chance that the exculpatory clause will be struck down as illegal
covenant not to complete
a contract which provides that a seller of a business or an employee will not engage in a similar business or occupation within a specified geographical area for a specified time following the sale of the business or termination of employment, aka non-compete clause
unconscionable contracts
a contract that courts refuse to enforce in part or at all because it is SO oppressive or manifestly unfair as to be unjust
contracts of adhesion
preprinted forms whose terms the consumer cannot negotiate and which they must sign in order to obtain a product or service, most are lawful even though there is a disparity in power of contracting
elements of unconscionability
-parties possessed severely unequal bargaining power
-dominant party unreasonably used its unequal bargaining power to obtain oppressive or manifestly unfair contract terms
-adhering party had no reasonable alternative

takes advantage of uneducated, poor, or elderly people, often involves door-to-door sales and telephone sales.

if court finds contract is unconscionable, it may refuse to enforce the contract, refuse to enforce the unconscionable clause but enforce the remainder of the contract, limit the applicability of any unconscionable clause so as to avoid any unconscionable result