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Business Law I Final
Chapters 12-21, 29, 30
Terms in this set (96)
The Infancy Doctrine
gives minors the right to disaffirm most contracts they have entered into with adults (meaning they. renounce the contract)
This right is based on public policy, which reasons that minors should be protected from the unscrupulous behavior of adults
In most states, the infancy doctrine is an objective standard. If a person's age is below the age of majority, the court will not inquire into his or her knowledge, experience, or sophistication.
If a minor does not disaffirm a contract either during the period of minority or within a reasonable time after reaching the age of majority, the contract is considered ratified (accepted). Waiting 6 years is not a reasonable amount of time. Hence, the minor (who is now an adult) is bound by the contract; the right to disaffirm the contract is lost.
allows minors to cancel most contracts they have entered into with adults
The law has developed two standards concerning contracts of mentally incompetent persons:
1) adjudged insane; and 2) insane but not adjudged insane.
If, after evidence is presented at a formal judicial or administrative hearing, the person is adjudged insane, the 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 who has been adjudged insane is void.
Under the majority rule, a contract entered into by an intoxicated person 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.
After becoming sober, an intoxicated person can ratify the contracts entered into while intoxicated.
An agreement between two companies to engage in price fixing in violation of federal antitrust statutes is
illegal and therefore void. Thus, neither company to this illegal contract can enforce the contract against the other company.
—that is, contracts whose objective is the commission of an act that society considers immoral
—may be found to be against public policy. Judges are not free to define morality based on their individual views. Instead, they must look to the practices and beliefs of society when defining immoral conduct.
An agreement between two companies to engage in an illegal activity is...
void. Thus, neither company to this illegal contract can enforce the contract against the other company
Certain situations are exempt from the general rule of the effect of finding an illegal contract. Persons who can assert the exemption include those who were induced to enter into an illegal contract by fraud, duress, or undue influence. Thus, a 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.
An exculpatory clause, also called a release of liability clause
is a contractual provision that relieves one (or both) parties to a contract from tort liability (violation of common law, social norms, or civil law without involving criminal punishment. For this reason, the compensation for a tort in most cases comes in the form of financial payback for damages)
The reasonableness of covenants not to compete is examined on a
When a contract is so oppressive or manifestly unfair as to be unjust, the law has developed the
equity doctrine of unconscionability to prevent the enforcement of such contracts. The doctrine of unconscionability is based on public policy
The following elements must be shown to prove that a contract or a clause in a contract is unconscionable:
1) the parties possessed severely unequal bargaining power;
2) the dominant party unreasonably used its unequal bargaining power to obtain oppressive or manifestly unfair contract terms; and
3) the adhering party had no reasonable alternative.
A contract contrary to law
is a contract to perform activities that are prohibited by law
A usury law
sets an upper limit on the interest rate that can be charged on certain types of loans
A gambling statute
makes certain forms of gambling illegal
A contract contrary to public policy
is a contract to perform activities that have a negative impact on society or interfere with the public's safety and welfare.
A contract in restraint of trade
is a contract that unreasonably confines or restricts the exchange of goods.
A covenant not to compete
is a contract that provides that a seller of a business, an employee, a franchisee, or another covered party 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
An unconscionable contract
is a contract that courts refuse to enforce in part or at all because it is oppressive or manifestly unfair as to be unjust
A contract of adhesion
is a preprinted contract prepared by a provider of goods or services where the contract terms are set and the consumer or other party cannot negotiate the contract terms and must accept the terms of the contract in order to obtain the product or service.
is a state of contractual incapacity, as determined by law.
In pari delicto
refers to a situation in which both parties are equally at fault in an illegal contract.
The effect of illegality
is a doctrine that states that the courts will refuse to enforce or rescind an illegal contract and will leave the parties where it finds them
is determined by the relevant facts surrounding the negotiation and formation of a contract. It may be manifested in any manner sufficient to show agreement, including express words or conduct of the parties.
by the parties is necessary to create an enforceable contract. A contract may not be enforced if the _________ of one or both parties to the contract was not genuine or real. Genuineness of ________ may be missing because a party entered into a contract based on mistake, fraudulent misrepresentation, or duress.
threats, violence, constraints, or other action brought to bear on someone to do something against their will or better judgment. Ex.: confessions extracted under ______
A situation in which one party threatens to do a wrongful act unless the other party enters into a contract.
A mutual mistake of a material fact
is a mistake made by both parties concerning a material fact that is important to the subject matter of a contract
may occur by oral or written words, or by the conduct of a party
A unilateral mistake
occurs when only one party is mistaken about a material fact regarding the subject matter of the contract
If a buyer contracts to purchase a new automobile while thinking that there is a V-8 engine in the automobile when in fact there is a V-6 engine, this unilateral mistake does not excuse the buyer from the contract.
A party may rescind a contract
if there has been a mutual mistake of a material fact
To prove fraud, the following elements must be shown:
1) the wrongdoer made a false representation of a material fact
2) the wrongdoer intended to deceive the innocent party
3) the innocent party justifiably relied on the misrepresentation
4) the innocent party was injured
Janice gives her Mom a birthday card to sign. Her Mom signs it without reading it. Inside the card are contract terms transferring her house to Janice.
THEY DON'T KNOW WHAT THEY'RE SIGNING
This is an example of fraud in the inception. The contract is void.
Occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing
Naomi has been induced to give Janice $20,000 based on Janice's misrepresentation of fact. Naomi can rescind the contract and recover the money from Janice, if she can find Janice and locate his money or property
THEY KNOW WHAT THEY'RE SIGNING
Here, there has been fraud in the inducement
The innocent party knows what he or she is signing or doing but has been fraudulently induced to enter into the contract. Such contracts are voidable by the innocent party.
Occurs when the party knows what he or she is signing but has been fraudulently induced to enter into the contract
This occurs when one party takes specific action to conceal a material fact from another party
Fraud by concealment
(Because Janice has actively hidden material information about her business from LaToya, and LaToya relied on her statements)
Occurs when one party takes specific action to conceal a material fact from another party
a situation in which one person takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person to enter into a contract. For this to occur, the persuasion by the wrongdoer must overcome the free will of the innocent party
Courts may permit the rescission of a contract based on the doctrine of undue influence
The servient party
is a person who is subject to the influence of a dominant person who takes advantage of the __________ person's mental, emotional, or physical weakness and unduly influences the __________ person to enter into a contract
The dominant party
is a person who has a ________ position over another person and takes advantage of the other person's mental, emotional, or physical weakness to unduly influence that person to enter into a contract
is fraud that occurs when a person makes a statement of fact that he or she honestly and reasonably believes to be true even though it is not
the knowledge that a representation is false or that it was made without sufficient knowledge of the truth.
The word _________ means "guilty mind."
Reliance on a misrepresentation
occurs when the innocent party to whom a misrepresentation of a material fact has been made justifiably relies on the misrepresentation and acts on it
Injury that is economic in nature that is usually compensated by monetary damages
A mortgage, or deed of trust
is an interest in real property given to a lender as security for the repayment of a loan. Under the Statute of Frauds, any contract that transfers an ownership interest in land must be in writing to be enforceable
The Statute of Frauds
A state statute under which certain types of contracts must be in writing to be enforceable
requires that an executory contract that cannot be performed by its own terms within one year of its formation must be in writing. This one-year rule is intended to prevent disputes about contract terms that may otherwise occur toward the end of a long-term contract
If an oral contract that should have been in writing under the Statute of Frauds is already executed (in other words, completely performed by both parties)
neither party can seek to rescind the contract of the grounds of noncompliance with the Statute of Frauds
Uniform Commercial Code, or UCC
establishes statutes of fraud for contracts for the sales and leases of goods
Section 2-201(1) of the Uniform Commercial Code (UCC)
the basic Statute of Frauds provision for sales contracts.
It states that contracts for the sale of goods priced at $500 or more must be in writing to be enforceable
Logan tells Annika that he will sell her his car for $5,000. When Annika tries to give Logan a check for $5,000, he says he no longer wants to sell her the car
This is not a contract
amie tells Renata that he will sell her his car for $600. Renata agrees and then decides not to pay. She does, however, tell Jamie she will pay $400 and Jamie agrees
This is a valid contract
A verbal contract for the sale of goods under $500 does not have to be in writing to be enforceable
When a preprinted form contract is used
typed words in a contract prevail over preprinted words
Parol evidence may be admitted in court if
it shows that a contract is void or voidable
Doctrine of Promissory Estoppel
A promise justifiably relied upon by the promisee
Substantial economic detriment to the promisee if the promise is not fulfilled
An injustice will occur unless the contract is enforced
Relies on justice and not contractual rights
Equitable exception to the strict application of the Statute of Frauds
Permits enforcement of oral contracts that should have been in writing
The version of promissory estoppel in the Restatement (Second) of Contracts provides that if parties enter into an oral contract that should be in writing under the Statute of Frauds, the oral promise is enforceable against the promisor if three conditions are met
(1) The promise induces action or forbearance of action by another, (2) the reliance on the oral promise was foreseeable, and (3) injustice can be avoided only by enforcing the oral promise. Where this doctrine applies, the promisor is estopped (prevented) from raising the Statute of Frauds as a defense to the enforcement of the oral contract
The equal dignity rule
a rule that says that real estate agents' contracts to sell the real property of another are covered by the Statute of Frauds and must be in writing to be enforceable
The one-year rule
a rule that states that an executory contract that cannot be performed by its own terms within one year of its formation must be in writing
The parol evidence rule
says that if a written contract is a complete and final statement of the parties' agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract
In a guarantee situation
the original (or primary) contract is the contract between the debtor and the creditor that the guarantor has guaranteed to pay
an equitable doctrine that allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if it has been partially performed and performance is necessary to avoid injustice
real estate agents' contracts to sell real property for another party that are covered by the Statute of Frauds and must be in writing to be enforceable
Section 2A-201(1) of the Uniform Commercial Code (UCC)
states that lease contracts involving payments of $1,000 or more must be in writing
lease contracts >$1000 must be in writing
The main purpose exception (or the leading object exception)
states that if the main purpose of a transaction and an oral collateral contract is to provide pecuniary (relating to or consisting of money) benefit to the guarantor, the collateral contract does not have to be in writing to be enforced
This exception is intended to ensure that the primary benefactor of the original contract (i.e., the guarantor) is answerable for the debt or duty
The merger clause
is a clause in a contract that stipulates that it is a complete integration and the exclusive expression of the parties' agreement
Incorporation by Reference
contract consisting of both original document and the detailed statement that is incorporated in it
refers to integration made by express reference in one document that refers to and incorporates another document within it
standards of interpretation
Are rules applied by courts in defining ordinary words, technical words, specific terms, and other words used in contracts, in absence of a glossary. Under the _____________, specific terms are presumed to qualify general terms
This is simply the combination of several writings to form a single contract. That is, the entire writing does not have to appear in one document to be an enforceable contract
an Assignment of Rights or just an Assignment
The transfer of contractual rights.
In many cases, the parties to a contract can transfer their rights under the contract to other parties
Contracts for the provision of personal services
are generally not assignable
If a client retains a firm of accountants to do work for him or her
the firm can delegate the duties under the contract to any qualified member of the firm
If an obligee has a substantial interest in having an obligor perform the acts required by a contract, such as a personal services contract
These duties cannot be transferred
If a famous singer is hired to give a concert on a college campus, another singer cannot appear in her place
When parties enter into a contract, they can agree that the performance of one of the parties should be rendered to or directly benefit a third party
Under such circumstances, the third party is called an intended third-party beneficiary
Intended third-party beneficiaries may be classified as
either donee or creditor beneficiaries. The Restatement (Second) of Contracts and many state statutes have dropped this distinction, however, and now refer to both collectively as intended beneficiaries
An unconditional promise to perform
Nonperformance of a covenant is a breach of contract that gives the other party the right to sue. The majority of provisions in contracts are covenants
A Condition Precedent
a condition that requires the occurrence or nonoccurrence of an event before a party is obligated to perform a duty under a contract
The personal satisfaction test is a subjective test that applies to contracts with conditions precedent involving personal taste and comfort
Impossibility of Performance
occurs if a contract becomes impossible to perform. The impossibility must be objective impossibility
("it cannot be done") rather than subjective impossibility ("I cannot do it.")
Statute of Limitations
establishes the time period during which a lawsuit must be brought;
if the lawsuit is not brought within this period, the injured party loses the right to sue
Every state has a statute of limitations that applies to contract actions
The usual period for bringing a lawsuit for breach of contract is
1 to 5 years
A Concurrent Condition
is a condition that exists when the parties to a contract must render performance simultaneously;
each party's absolute duty to perform is conditioned on the other party's absolute duty to perform
Force Majeure Clause
A clause in a contract in which the parties specify certain events that will excuse nonperformance
usually excuses nonperformance caused by natural disasters such as floods, tornadoes, and earthquakes. Modern clauses also often excuse performance due to labor strikes, shortages of raw materials, and the like
An anti-assignment clause
prohibits the assignment of rights under the contract
An anti-delegation clause
permits the assignment of a contract only on receipt of an obligor's approval
A condition subsequent
a condition where the occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform
A condition precedent
a condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract
An implied-in-fact condition
a condition that can be implied from the circumstances surrounding a contract and the parties' conduct
A creditor beneficiary contract
a contract where a debtor borrows money, signs an agreement to pay back the money plus interest, sells the item to a third party before the loan is paid off, and the third party promises the debtor that he or she will pay the remainder of the loan to the creditor
A donee beneficiary contract
a contract entered into with the intent to confer a benefit or gift on an intended third party
A substituted contract
a contract that contracting parties enter into that revokes and discharges an existing contract and is a substitute for the first contract
A future right
a currently nonexistent right that a person is expected to have in the future, which a person usually cannot assign
novation (or a novation agreement)
An agreement that substitutes a new party for one of the original contracting parties and relieves the exiting party of liability on the contract
takes place when a contract is no longer being followed, if the contract can no longer be performed, or the parties involved ceased operating the business. When these situations occur, the parties can formally terminate the agreement in writing
Mutual rescission, or rescission by agreement
Mutual termination of a contract that occurs when the parties to a contract enter into a second contract that expressly terminates the first one
The right to rescind (revoke, cancel) is limited to the parties to the contract or those legally authorized to act for them
The reasonable person test
an objective test that is used to determine whether commercial contracts and contracts involving mechanical fitness meet a condition precedent. Most contracts that require the work to meet the satisfaction of a third person (e.g., engineer, architect) are judged by this standard
A "time is of the essence" condition
used in contracts that designate that the performance of the contract by a stated time is an express condition and that there is a breach of contract if the contracting party does not perform by the stated date
An implied-in-fact condition
a condition that can be implied from the circumstances surrounding a contract and the parties' conduct
An approval clause
a clause that permits the assignment of a contract only on receipt of an obligor's approval
The English Rule
stipulates that where there have been successive assignments of the same contract right, the first person to give notice to the obligor prevails
The American Rule (also known as the New York Rule)
stipulates that where there have been successive assignments of the same contract right,
the first assignment in time prevails regardless of when notice was given to the obligor
The possession of tangible token rule
stipulates that where there have been successive assignments of a contract right that is represented by a tangible token (e.g., stock certificate, savings account passbook), the first assignee who receives delivery of the tangible token prevails over subsequent assignees
Which of the following best defines accord and satisfaction?
The settlement of a contract dispute
A lost volume seller
seller who can recover lost profits from a defaulting buyer even though the seller sold the item to another buyer, where the seller has other similar items and would have made two sales had the original buyer not defaulted
Other Quizlet sets
CIS132 Week 3 Quiz
Lymphatic and immune
Serving Tables 101 (still in progress)