Business Law

Voidable Title

1. Anyone who obtains property as a result of another's fraud, misrepresentation, mutual mistake, undue influence, or duress holds voidable title to the goods. 2. Voidable title is also obtained when a person buys goods from a minor or mentally impaired person. 3. Voidable title means title may be voided if the injured party elects to do so. 4. A person with voidable title has power to transfer good title to a good faith purchaser for value.

Entrusting goods to a merchant

1. If a merchant sells entrusted goods in the ordinary course of business to a third party who has no knowledge of the real owner's rights, the third party receives good title to them. 2. The reason for the rule is to give confidence to purchasers.

The Destruction of Mutual Assent

1. If mutual assent has been destroyed, the contract is said to be a defective agreement. 2. Defective agreements can arise as result of fraud, misrepresentation, mutual mistake, duress, or undue influence.

Destination Contracts

1. In a destination contract the seller is required to deliver the goods to a destination. 2. Both title and risk of loss pass to the buyer when the seller tenders the goods at the place of destination. 3. Destination contracts are often designated by the terms f.o.b. the place of destination. 4. Additional terms such as c.o.d. (collect on delivery), c.i.f. (cost of goods shipped, insurance, and freight), and f.a.s. (free alongside) vessel may be used.

Shipment Contracts

1. In a shipment contract the seller turns the goods over to a carrier for delivery to the buyer. 2. Both title and risk of loss pass to the buyer when the goods are given to the carrier. 3. Shipment contracts are often designated by the terms f.o.b. the place of shipment. 4. Shipment contracts are presumed under the UCC when the terms of shipment do not specify a shipping point or destination.

Mistake

A unilateral mistakes, a mistake made by only one party to a contract, does not allow for rescission or renegotiation. When both parties are mistaken, a bilateral, or mutual, mistake exists. A mutual mistake may under certain circumstances allow for rescission by either party.

Problems with Consideration

A. Disputed Amounts 1. A disputed amount is one on which the parties never reached mutual agreement. 2. If a creditor accepts as full payment an amount that is less than the amount due, then the dispute is settled by an accord and satisfaction. 3. Accord is the implied or expressed acceptance of less than what has been billed the debtor. 4. Satisfaction is the agreed upon settlement contained in the accord. B. Undisputed Amounts 1. An undisputed amount is one on which the parties have mutually agreed. 2. A part payment in lieu of full payment when accepted by a creditor will not cancel an undisputed debt.

Fraud

Fraud is a wrongful statement, action, or concealment pertinent to the subject matter of a contract knowingly made to damage the other party. Proven fraud destroys a contract. Fraud in the inception occurs when one party tricks another party into a contract by lying to the innocent party about the actual nature of the contract. Fraud in the inducement occurs when one party tricks another party into a contract by lying about the terms of the agreement to get the innocent party to enter the contract under false pretenses.

Misrepresentation

Misrepresentation is a false statement innocently made with no intent to deceive. Unlike cases based on fraud, which allow rescission and damages, cases based on innocent misrepresentation allow only rescission.

Mutual Assent

Mutual assent is the third element of a valid contract. Mutual assent can be destroyed by fraud, misrepresentation, mutual mistake, duress, or undue influence. If mutual assent has been destroyed, the contract is said to be a defective agreement. 1. Mutual assent means the parties have had a "meeting of the minds." 2. Mutual assent evolves through the communication of an offer and an acceptance between the contracting parties.

The Statute of Frauds

The six types of contracts that must be in writing under the version of the statute of frauds applicable in most states are contracts that cannot be completed within one year; contracts transferring real property rights; contracts for the sale of goods of $500 or more; certain contracts entered by executors and administrators; contracts by one party to pay a debt incurred by another party; and contracts in consideration of marriage.

The Passage of Title and Risk of Loss

1. Rules for determining risk of loss are contained in the UCC. 2. Except when goods are to be picked up by the buyer and in a few other cases, whoever has title to goods bears the risk of loss. 3. Goods must be identified in the contract before title can be transferred to the buyer.

No delivery required

1. When the contract calls for the buyer to pick up the goods, title passes to the buyer when the contract is made. 2. If the seller is a merchant, the risk of loss passes when the buyer receives the goods. 3. If the seller is not a merchant, the risk of loss passes to the buyer when the seller tenders the goods to the buyer.

Types of Consideration

A. Money as Consideration B. Property and Services as Consideration C. Promises Not to Sue 1. A promise not to sue, when there is the right or apparent right to sue, is enforceable when it is supported by consideration. 2. A promise not to sue in exchange for an amount of money is a customary way to settle or prevent a pending lawsuit. 3. A promise not to sue is commonly called a release. D. Charitable Pledges 1. Under traditional rules, charitable pledges are not enforceable as contractual obligations because they are not supported by consideration. 2. Because of the dependence of charities on contributions, courts have been encouraged to enforce charitable pledges in the following three ways: a. Some courts see the promise to install a memorial to the pledgor as consideration. b. A more contemporary approach is to use either promissory estoppel or public policy to support the claim. c. Some courts have held that a pledge made is supported by the pledges of all others who have made similar pledges.

Insurable Interest

A. People must have an insurable interest in property in order to place insurance on it. B. An insurable interest is the financial interest that an insured party has in the insured property. C. Buyers may place insurance on goods the moment a contract is made and the goods are identified to the contract. D. Sellers retain an insurable interest in goods as long as they still have title to the goods.

Requirements of Consideration

A. The Nature of Consideration 1. Consideration consists of a mutual exchange of gains and losses between contracting parties. 2. The term "legal benefit" is used to designate the gain that each party experiences. 3. The term "legal detriment" is used to describe the sacrifice that each party must experience. 4. The term "forbearance" is used to reference the type of legal detriment that involves refraining from doing something that one has a legal right to do.

Agreements without Consideration

A. Unenforceable Agreements 1. Certain promises are not enforced by courts because they lack even the rudimentary qualities of valid consideration. 2. Following are promises that are unenforceable based upon a lack of consideration. a. A promise based upon a preexisting duty cannot constitute consideration for a new contract. b. A promise to give another something of value in return for goods or services rendered and delivered in the past, without expectation of reward, is past consideration which will not support a new contract.

Void Title

A. Void Title 1. With the exception of voidable title, buyers of goods acquire whatever title their sellers had to the property. 2. If a seller has void title, a buyer of goods obtains no title to them. 3. The continued sale of stolen property through innocent buyers does not defeat the real owner's right to the property.

Active Fraud

Active fraud occurs when one party makes a false statement intended to deceive the other party and thus lead that party into a deceptively based contract. The false statement can involve an oral statement or an action that misleads the other party about a crucial fact.

Passive Fraud

Passive fraud, or concealment or nondisclosure, occurs when one party does not say something that the party is obligated to say. Hiding a fact becomes concealment under certain circumstances including situations involving hidden problems and fiduciary relationships.

Agreements Contrary to Public Policy

Public policy is the general legal principle that says no one should be allowed to do anything that tends to injure the public at large. Agreements most commonly invalidated as contrary to public policy are those to escape liability, and restrain trade.

Contractual Capacity

The fourth element essential to a legally effective contract is capacity, the legal ability to enter into a contractual relationship. Under the law there is a rebuttable presumption that anyone entering a contract has the legal capacity to do so. Since the presumption is rebuttable, a party can attack it.