BUSFIN 3500 Final Exam

Sources of Contract Law

-*Case law (common law) (Restatements) -*Uniform Commercial Code (UCC), article 2 -Convention on Contracts for International Sales of Goods (CISG)

Implied Contracts

-A contract that arises not from words of agreement but from the conduct of the parties. -Ex. you have a dental emergency and the dentist pulls out your severely infected tooth without prior negotiation about payment, you have an implied contract for payment of her services.

Unilateral Contract

-A promise + A requested action -ex. Tom promises to pay Bill $50 if Bill cleans the garage

Bilateral Contract

-A promise + a promise -ex. Bill promises to clean the garage, Tom promises to pay Bill $50

Exceptions to Statute of frauds

-Admission -Partial performance -Promissory estoppel -sale of goods between merchants -Customized goods

Elements of a Contract

-Agreement (offer and acceptance) -Consideration (the bargained-for exchange) -Contractual Capacity (parties are of age, no defects) -Legal purpose (subject matter does not violate law or public policy)

Illegality of Contracts

-Agreements to commit crime or tort

Covenant not to compete

-An agreement not to compete against a party for a *set period of time* within a *designated geographic area*. -Sale of a business -Employment contracts

Accord and Satisfaction

-An arrangement between contracting parties whereby one of the parties substitutes a different performance for his or her original duty under the contract -The promise to perform the new duty is the accord, and the actual performance of that new duty is the satisfaction. 3 requirements: 1. debt is unliquidated 2. creditor agrees to accept as full payment less than it claims is owed 3. debtor pays the amount they have agreed on

Contracts in Restraint of trade

-Anticompetitive agreements --consists of covenants not to compete

Defenses to Claims under Title VII

-Bona Fide Occupational Qualification Defense (BFOQ) -Merit defense - someone better at work -seniority system defense - has to be fair

Against Public Policy

-Contracts in restraint of trade -Unconscionable clauses -Exculpatory clauses

Limited partnership

-General partner personally liable -Limited partners only liable for investment

*Not* Considerations

-Illusory promise ("I'll look at them in the morning") -Past consideration -Preexisting duty

de facto corporation

-Latin for "corporation in fact" -a corporation that has not substantially met the requirements of the state incorporation statutes.

De jure Corporations

-Latin for "lawful corporation" -a corporation that has met the mandatory statutory provisions and thus received its certificate of incorporation.

Characteristics of a Corporation

-Legal entity -Rights as a person and a citizen -Creature of the State -Limited Liability -Free transferability of corporate shares -perpetual existence -centralized management -Corporate taxation -Liability for officers and employees

Objective Theory of Contracts

-Look at what you say and what you do but don't care about what's in your head (motives, thoughts) -Ex. going to sell some land to someone; you care about this land deeply; the person buying it secretly wants to make it into a mall - we don't care about your thoughts

Rules for Minors (capacity)

-Minors may enter into only voidable contracts -They can disaffirm the contracts (has to be entire thing) ---unless contract is for necessities -Ratification: once person reaches age of majority, he/she may legally affirm contracts made as a minor

Mistake

-Mistake of fact (possibly void) -Mistake of subject value (not void) -mutual or unilateral

Defenses to a contract

-Mistakes -Misrepresentation -Undue influence -Duress

What must be in writing

-Name of Parties -Subject matter -Consideration -Signature of party against whom enforcing

Civil Rights Act - Title VII Discrimination

-No discrimination on race, color, religion, sex, national origin -No harassment -No pregnancy discrimination

Who is protected under ADA

-Physical or mental impairment -Substantially limits a major life activity -Has a record of impairment

Things that seem to be an offer but aren't:

-Preliminary Negotiations -Advertisements -Auctions

Equitable Remedies

-Rescission and restitution -Specific performance -Injunction -Reformation -Recovery on quasi contract

Unilateral Mistake

-Result of error by one party about a material fact (fact that is important in the context of the particular contract) -Rarely voidable Any of the following conditions invalidate contract due to unilateral mistake: 1. one party made mistake about material fact and other part knew or had reason to know about the mistake 2. mistake was caused by clerical error that was accidental and did not result from gross negligence 3. mistake was so serious that contract is unconscionable

Ways to Terminate Contract

-Revocation -rejection -counteroffer -death or incapacity -illegality -lapse of time

Forming a Corporation

-Select state -Reserve name -file articles of incorporation -elect board -adopt bylaws

Accepting an Offer

-Show intent to be bound (do or say something to form contract) ---*silence* cannot be used to form a contract -Mirror Image Rule -Communication to offeror -*Can* accept a offer through the mail

Quasi Contracts

-Sometimes called implied-in-law contracts -Not actually contracts, but a court-imposed contractual obligation to prevent unjust enrichment.

Mental Incapacity

-Still understand nature of contract --> valid -Contract for necessities --> valid -Don't understand obligations --> voidable -Adjudicated insane or has guardian --> void

Definite and Certain (terms)

-The requirement, under common law, that a contract must include and clearly define all material terms.

Procedural Unconscionability

-Unconscionability that derives from the process of making a contract. -Usually arises in an adhesion contract

Discharge by Operation of Law

-alteration of contract -bankruptcy -tolling of the statute of limitations -impossibility -commercial impracticability -frustration

Fraudulent Misrepresentation (intentional misrepresentation)

-consciously false representation of a material fact intended to mislead the other party -3 elements: 1. false statement 2. intent to deceive 3. justifiable reliance Voidable + damages includes concealment & nondisclosure

Intoxicated Persons (Capacity)

-contract voidable if other party cant tell the person is not well -If intoxication merely causes poor judgement, contract valid. -Once sober, intoxicate person has ability to ratify or disaffirm contract (courts not sympathetic)

Mistake of fact

-erroneous belief about facts of the contract *at the time the contract is concluded* -legal assent is absent when mistake of fact occurs

Person has no capacity to enter into a contract if the person either:

-has been adjudicated insane -adjudicated a habitual drunkard -has a legal guardian appointed to enter into contracts on his or her behalf

Formal Contracts

-have special form or must be created in a specific manner -The Restatement of Contracts identifies the 4 types of contracts: 1. contracts under seal 2. recognizances 3. letters of credit 4. Negotiable instruments

Void Contract

-object is illegal has serious defect -not a contract at all

Negotiable Instruments

-unconditional written promises to pay holder a specific sum of money on demand or at a certain time -ex. check

Mutual Mistake

-when both parties are mistaken about a current or past material fact, either can choose to rescind the contract -For mutual mistake to interfere w/ legal consent all of the following must be present: 1. basic assumption about the subject matter of contract 2. material effect on the agreement 3. adverse effect on a party who did not agree to bear the risk if mistake at the time of the agreement

How to discharge a contract

1. Conditions 2. Performance 3. Material Breach 4. Mutual Agreement 5. Operation of law

Procedure for Filing a claim under Title VII

1. File charge with EEOC 2. EEOC investigates 3. Right to sue letter --until you get this letter, you cannot go to court

Discharge by Mutual Agreement

1. Mutual rescission 2. Substituted contract 3. Accord and satisfaction 4. Novation

To prove Disparate Impact

1. Plaintiff makes a prima facie case 2. Defendant shows it's a business necessity 3. Plaintiff shows reason is mere pretext

To prove disparate treatment

1. Plaintiff makes a prima facie case 2. Defendant shows legitimate, nondiscriminatory reason 3. Plaintiff shows reason is mere pretext

3 Elements of an Offer

1. Serious intent by offeror 2. Reasonable definite terms 3. Communication to the offeree

What Contracts fall within the Statute of Frauds

1. can't be performed within a year 2. promises made in consideration of marriage (prenup) 3. contracts for one party to pay debt of another if the initial party fails to pay 4. contracts related to an interest in land 5. UCC: contracts for sale of goods more than $500

Substantial Performance

1. completion of nearly all terms of agreement 2. Honest effort to complete all the terms 3. no willful departure from terms of agreement

Sole Proprietorship and advantages/disadvantages

A business in which one person (sole proprietor) controls the management and profits. Advantages: No legal formalities Complete control Keep all profits Profits taxed as personal income Disadvantages: Personal liability

Partial Performance

A buyer of land, in alleged contract, has paid a portion of the sales price, has begun permanently removing the land, or has taken possession of it; these actions prove the existence of a contract

Parol Evidence Rule

A common law rule which makes oral evidence of an agreement inadmissible if it is made before or at the same time as writing that the parties intend to be complete and final version of their agreement. -Have an agreement in writing; we assume that everything you intended is in the written agreement -Ex. landlord promised free cable, but it wasn't in written contract so it wasn't enforceable

Express Contracts

A contract in which all the terms are clearly set forth in either written or spoken words.

Informal/Simple Contract

A contract that requires no formalities

closely held corporation

A corporation that does not sell stock to the general public.

S corporations and pros cons

A corporation that enjoys the tax status of a partnership. Pros: Limited liability Taxed like a partnership Cons: Can't have more than 100 shareholders Shareholders can't be nonresident alien

publicly held corporation

A corporation whose stock is available to the public.

Injunction

A court order either forcing a party to do something or prohibiting a party from doing something.

corporation by estoppel

A defective corporation that has conducted business with a third party and therefore cannot deny its status as a corporation to escape liability.

Innocent Misrepresentation

A false statement made about a material fact by a person who believed the statement was true -permits the mislead party to rescind the contract (voidable) -aggrieved party cannot sue for damages

Negligent Misrepresentation

A false statement of material fact made by a person who thinks it is true but who would have known the truth about the fact had he or she used reasonable care to discover or reveal it. -voidable + damages

Corporation and Pros/Cons

A legal entity formed by issuing stock to investors, who are the owners of the corporation. Pros: Owners have limited liability Raise money thru issuing stock Perpetual Cons: Formal requirements to form Income taxed twice

Limited Liability Partnership and Pros/cons

A partnership in which all the partners assume liability for any partner's professional malpractice to the extent of the partnership's assets. Pros: Limited liability FlexibleMembers can manage Taxed as partnership Can elect to be taxed as corporation Need not be US citizens Cons: Access to federal courts limited Formalities in forming

Preexisting Duty

A promise to do something that one is already obligated to do. It is not considered valid consideration -ex. Police officer accepting reward for catching criminal Exceptions: -unforeseen circumstances -if party to contract offers to do additional work

Mail-Box Rule

A rule which holds that an acceptance is valid when it is placed in the mailbox, whereas a revocation is effective only when received by the offeree -Offer made --> Accept by mail --> Call to reject = Agreement -Offer made --> Accept by mail --> Call to revoke = Agreement

Workers Compensation

A state law that provides for financial compensation to employees or their dependents when the covered employee is injured on the job.

Valid Contract

A term applied to a contract that includes all four elements of a contract—agreement (offer and acceptance), consideration, contractual capacity, and legal object—and thus is *enforceable*.

Voidable

A term applied to a contract that one or both parties have the ability to either withdraw from or enforce.

Unenforceable Contract

A term applied to a contract that, because of a law, cannot be enforced by the courts.

Executed Contract

A term applied to a contract whose terms have all been fully performed.

Executory Contract

A term applied to a contract whose terms have not all been fully performed.

Partnership and advantages/disadvantages

A voluntary association between two or more people who co-own a business for profit Pros: Easy to form No written agreement Income taxed personally Losses deducted personally Cons: Personal liability Ends when partner dies.

Unconscionable Contracts

Agreements that are so heavily one-sided that courts will not make innocent party be harmed by fulfilling his or her contractual duties 2 types: -Procedural Unconscionability -Substantive Unconscionability

Licensing Statutes

All 50 states have statutes requiring that people in certain professions obtain a license before practicing their craft 3 purposes: 1. give govt. some control over which and how many people can perform certain jobs 2. charging for licenses, they obtain revenue (enforceable) 3. protection of public (unenforceable)

Specific performance

An order of the court requiring that a nonbreaching party fulfill the terms of the contract.

Misrepresentation

An untruthful assertion by one of the parties about a material fact

Duress

Any unlawful act or threat exercised on a person whereby the person is forced to enter into an agreement or to perform some other act against his or her will. -physical harm -extortion -economic interests threatened

Adequacy of Consideration

Courts don't question the adequacy of consideration -ex. ellen offers to buy Sam's motorcycle for $100, which is far below fair market value for the vehicle. Sam accepts and makes the sale. Sam the learns the moto is worth more and sues ellen. Who wins? --Sam Loses.

Public Corporation

Created by government to help administer law

Private Corporation

Created by private persons for private purposes -no govt. duties

Liquidated damages

Damages specified as a term of the contract before a breach of contract occurs.

General Partnership

Divide profits equally and personal liability

Domestic vs. Foreign Corporation

Domestic: Operates in the state where incorporated Foreign: Incorporated in another state

Wrongful Termination

Employment at will; can be fire for any reason except: 1. actions encouraged by public policy 2. Wagner Act 3. Dsicrimination 4. Contract

Family and Medical Leave Act (FMLA)

Federal act requiring that employers provide all eligible employees with up to 12 weeks of leave during any 12-month period for several family related occurrences (e.g., birth of a child, care of a sick spouse).

Americans With Disabilities Act (ADA)

Federal law that prohibits discrimination against employees and job applicants with disabilities.

Hostile work environment

Form of sexual harassment -he or she suffered unwanted, intentional discrimination because of his/her sex -harassment was sever or pervasive -negatively affected terms of work environment -subjectively and objectively unwelcome -management knew about harassment

Death/Incapacity

If offeror becomes incapacitated or dies, the offer immediately terminates

Debt Securities (Bonds)

Loans to a corporation from another party

Liquidated Debt

No dispute that money is owed or how much

Discrimination on Smoking and Sexual Orientation

No federal law prohibits discrimination for smoking or for sexual orientation

Lapse of Time

Offer will expire after a reasonable amount of time, which depends on subject matter of offer, unless specific time condition is given

Rejection

Offeree can reject the offer

Equity Securities

Preferred stock: preferences for assets, may not vote Common Stock: lowest priority, can vote

Wagner Act

Protected employees who wanted to talk about their terms of employment (called concerted activity)

Exculpatory Clause

Releases on of the contracting parties from all liability -Private business -Not important to the public interest -Nonessential service ex. Blue jackets game (getting hit by puck)

Contract

Set of legally enforceable promises

Severable vs. Indivisible Contracts

Severable: A contract whose terms can be divided Indivisible: A contract that cannot be divided and must be performed in its entirety.

Condition Precedent

Something that triggers the duty

Nondisclosure

The failure to provide pertinent information about a projected contract.

Capacity

The legal ability to enter into a binding contract.

Promissory Estoppel

The legal enforcement of an otherwise unenforceable contract due to a party's detrimental reliance on the contract Occurs when 3 conditions are met: 1. one party makes a promise and either knows or should know that the other party will reasonably rely on it 2. the other party does reasonably rely on the promise 3. the only way to avoid injustice is to enforce the promise

Usury

The lending of money at an exorbitant or unlawful rate of interest

Revocation

The offeror can revoke the offer at any time unless the offeree entered into an option contract

Undue Influence

The situation in which one person takes advantage of his or her dominant position in a relationship to unfairly persuade the other person and interfere with that person's ability to make his or her own decision. Factors: 1. was the dominant party rushing the other party to consent? 2. did the dominant party gain undue enrichment from agreement? 3. was the nondominant party isolated from other advisers at time of agreement 4. is the contract unreasonable because it overwhelmingly benefits the dominant party?

Substantive Unconscionability

Unconscionability that derives from contract terms that are so one-sided, unjust, or overly harsh that the contract should not be enforced. ex. large differences between cost and price in a sales agreement

Disparate Impact

Unintentional discrimination look at outcome

Recognizances

a party acknowledges in court that he or she will perform some specified act and/or pay a price on failure to do so.

Concealment

active hiding of the truth about material fact

Letter of credit

agreement by the issuer to pay another party a sum of money on receipt of an invoice and other documents

Adhesion Contract

agreement presented on a take-it-or-leave-it basis or as the only chance the presented party will have to enter into it

Complete performance

all aspects of the parties' duties under the contract are carried out perfectly

Bona Fide Occupational Qualification Defense (BFOQ)

allows employer to discrimnate in hiring when doing so is necessary to performance of job

Fair Labor Standards Act

created standards minimum wage and overtime -Executives exempt

Recovery on Quasi Contract

don't exactly have contract, but its an unfair situation

Condition Concurrent

each party's performance is conditioned on the performance of the other

Employment at will

en employer can fir an employee for any reason at all

Express conditions

explicitly stated in contract

Plain Meaning Rule

if a writing, or a term in question, appears to be plain/ambiguous on its face, we must determine its meaning from just the "four corners" of the document, without resorting to outside evidence, and give word to their meaning

Counteroffer

if the offeree offers a counteroffer, the original offer is terminated

Picketing

individuals place themselves outside an employer's place of business for the purpose of informing passersby of the facts of a labor dispute.

Disparate Treatment

intentional discrimination look at treatment

Objective impossibility

it is in fact not possible to carry out contract

Subjective impossibility

it would be very difficult to carry out contract

Consequential Damages

last opportunity, have to be foreseeable

Nonprofit Corporations

may earn profits, but they do not distribute them to shareholders -don't have shareholders, don't issue stock

Implied conditions

no explicitly states but are inferred from nature and language of contract

For-profit Corporations

objective to operate for profit

Unliquidated Debt

parties disagree about whether money is owed or dispute the amount

Unemployment Compensation

provides unemployment compensation to qualified employees who lose their jobs o Have to be looking for new job o Can't voluntarily quit or be fired for cause o Governed by the state

Boycott

refusal to deal with, purchase goods from, or work for a business -Primary: against employer whom union is directly engaged with (legal) -Secondary: boycott another company to force it to cease doing business with their employer. (illegal)

Statute of frauds

requires that certain contracts must be in writing

Reformation

rewriting the contract

Piercing Corporate Veil

shareholders attempt to hide behind corporate veil of limited liability to protect themselves from personal liability pierce the corporate veil to impose personal liability on shareholders

Quid Pro Quo

someone of power makes sexual demand on someone of opposite sex and demand is perceived as term or condition of employment

Condition Subsequent

something that ends duty

Illegality

subject matter of offerer becomes illegal, offer is terminated

Strike

temporary, concerted withdrawal of labor

Rescission and Restitution

termination of contract and return of any property given up under contract

Mirror-image Rule

terms of acceptance must mirror the terms of the offer

Novation

the parties to the agreement want to replace one of the parties with a third party

Admission

the party against whom charges have been brought admits during legal proceedings that an oral contract existed, even though the contract was supposed to be in writing

Material Terms

the terms that allow a court to determine what the damages are in the event that one of the parties breaches the contract; include the subject matter, quantity, price, quality, and parties.

Consideration

what each party gets in exchange for his or her promise under a contract -Benefit to promisee -Detriment to promisor -Promise to do something -Promise to refrain from doing something

Discharge by Material Breach

when a party unjustifiably fails to perform his obligations under the contract