Business Law Exam 3

Be able to identify whether or not a particular advertisement is an offer

"an offer to make an offer" in most cases. An ad can be treated as an offer if it is worded in a way that the store has a certain number of products for a certain price

Substantive unconscionability

Unconscionability that derives from contract terms that are so one-sided, unjust, or overly harsh that the contract should not be enforced.

What is the effect of an auction with reserve or without reserve?

Auction with reserve: Seller merely expresses intent to receive offers. Auctioneer (as representative of seller) may withdraw item from auction at any time before "hammer falls." Before hammer falls (signaling acceptance of offer), bidder/offeror may revoke bid Auction without reserve: Seller must accept higher bid

Implied contract

Based on conduct or actions

If a contract says that performance must be satisfactory, what is the standard for satisfaction if it is not stated to be personal in the contract? If it does not say that is must be performed to the buyer's satisfaction, what standard will a court apply to determine whether performance is satisfactory?

A party is not discharged from the contract until the other party is satisfied. Satisfaction is considered an express condition that must be met before the other party's obligation to pay for the performance arises. It may be judged according to either a subjective or an objective standard. As long as the person, in good faith, is not satisfied, the other party is deemed to have not met the condition.

Required elements for writing under the Statute of Frauds

1. Contract whose terms prevent possible performance within one year 2. Promises made in consideration of marriage 3. Contracts for one party to pay the debt of another if the initial party fails to pay 4. Contracts related to an interest in land 5. Although required to be in writing under the Uniform Commercial Code, and not the statute of frauds, a related fifth category is contacts for sale of goods totaling more than $500.

What are the elements of promissory estoppel? When is it used?

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 Promissory estoppel is not awarded regularly, but in the right case it can provide a remedy where no other remedy exists.

What is required for recovery in quasi-contract?

A benefit is conferred by the plaintiff upon the defendant The defendant has knowledge of the benefit that is being bestowed upon her The defendant retains the benefit under circumstances in which it would be unjust to do so without payment

List the various rules courts use to interpret contracts

A judge should interpret a contract as to give effect to the parties' intentions at the time they entered into the contract and to ensure the agreement makes sense as a whole If multiple interpretations are possible, the court should adopt the interpretation that makes the contract lawful, operative, definite, reasonable, and capable of being carried out If the contract contains ambiguity, the judge should interpret it against the interests of of the drafter. After all, the drafter is the one who could have prevented the ambiguity in the first place. If there is a conflict between preprinted and handwritten terms, the handwritten ones prevail. If numerals and numbers written out in words conflict, the written words prevail. If there is a conflict between general terms and specific ones the specific terms apply. The court should interpret technical words in a contract as they usually understood by persons in the profession or business to which they relate, unless clearly used in a different sense.

Understand how acceptance may be communicated if there is no way specified in the contact

A key factor in the agreement element of a contract; consists of the agreement of one party, the offeree, to the terms of the offer in the contract made by the other party, the offeror.

Express contract

Based on written or spoken words

The result in Halbman v. Lemke

Action was instituted on complaint by minor for return of purchase price of vehicle and counterclaim of vendor for amount owing on contract. Court held that minor could recover full price without liability for use, depreciation, damage, or other diminution in value

The result in Audrus v. State Department of Transportation and City of Olympia

Affirmed in favor of the city (Found that the city did nothing wrong with handling Scott Andrus' employment contract)

What is the Uniform Electronic Transactions Act? What is its purpose? Is it state or federal law?

Affirms electronic contracts as valid Seeks consistency across states State law

In the auto negotiation exercise, when was there a binding contact?

After four requirements for a binding contract happened 1. Agreement 2. Consideration 3. Capacity 4. Legal object

What are the material terms of a contract?

Allow a court to determine damages in the event that one of the parties breaches the contract. They include the subject matter, price, quantity, quality, and parties

Be able to apply the decision in Scalisi et al. v. New York University Medical Center

Although there was an oral agreement along with the written contract, the oral agreement was held admissible in light of the existence of the subsequent written agreement directly contradictory to them

What is an accord and satisfaction? Be able to define and/or to recognize one

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. Three requirements 1. The debt is unliquidated 2. The creditor agrees to accept as full payment less than it claims is owed. 3. The debtor pays the amount they have agreed on

How does an option contract differ from other contacts?

An offeree who wishes to ensure that an offer will in fact be held open for a set period of time may do so by entering into an option contract with the offeror. In an option contract the offeree gives the offeror a piece of consideration in exchange for holding the offer open for the specified period of time

What is mutual rescission?

Both parties agree to discharge each other from their mutual obligations

What is in pari delicto?

Both parties are equally responsible for the illegal agreement

Parol Evidence Rule

Common law rule stating that oral evidence of agreement made before or contemporaneously with written agreement is inadmissible when parties intended to have written agreement by complete and final version of agreement

Implied condition

Condition not explicitly stated, but inferred from nature and language of contract e.g. access to property

Understand the rules regarding contracts for necessaries by minors

Contracts that supply minor with basic necessities of life ex. food, clothing, shelter, basic medical services General Rule: Parents are not liable for contracts entered into by their minor children Exception: contracts for necessaries

What happens to the contract when the subject matter of a contract becomes illegal?

Courts will usually label it void. The reason is the legal principle of in pari delicto, which means both parties are equally responsible for the illegal agreement. In that case, it does not makes sense for the courts to attempt to salvage the agreement or reward either party. Therefore, neither party can enforce the agreement, and neither is entitled to recovery.

How did the court view the covenant not to compete in Cavanaugh v. McKenna

Defendant (McKenna) could not work for or open her own funeral business in the city of Wilmington as long as the plaintiff (Cavanaugh) operates his funeral home. Affirmed in favor of Plaintiffs

Who must sign a document coming within Statute of Frauds

Documents within the Statute of Frauds must be signed by all parties in agreement

Concurrent condition

Each party' performance conditions on simultaneous performance of the other

Bilateral contract

Exchange of promises A promise + A promise = Bilateral Contract

Condition subsequent

Future event that terminates obligations of party when it occurs

Understand how a court views intoxication and how they will interpret behavior that may be a ratification

General rule: Contracts made by intoxicated persons are voidable If intoxication merely causes person to exercise poor judgment, contract not voidable unless other party unfairly capitalized on the impaired judgment When intoxicated person becomes sober, contract can be ratified or disaffirmed; however, courts will liberally interpret behavior that seems like ratification once intoxicated person becomes sober If party had no way of knowing of the intoxication contract is generally enforceable

Be able to identify a situation where there is valid consideration for an additional promise

If unforeseen circumstances cause a party to make a promise regarding an unfinished project, that promise is valid consideration. example on page 354.

Consideration

Is required for every contract It is what a person will receive in return for performing a contract obligation

Procedural unconscionability

Unconscionability that derives from the process of making a contract

What is the purpose of the parol evidence rule

Lends stability, predictability, and integrity to written contracts

Liquidated versus unliquidated debts. What are they? Why is it important?

Liquidated Debt: No dispute as to amount of money owed Unliquidated Debt: Parties either (in good faith) dispute fact money owed, or disputed amount of money owed

What damages are available under a quasi-contract?

Liquidated damages

How can parties show the contract is integrated? (type of contract clause)

Merger Clause

Does subjective intent matter in construing a contract? Why or Why not?

No it is usually irrelevant

How long must an offer remain open?

Offer ends after a reasonable period of time if no time period is stated, often determined by the judge. Offeror can usually still revoke before stated amount of time.

Under what circumstances does anticipatory repudiation occur?

Often occurs when marketing conditions change and one party realizes it will not be profitable to fulfill terms of contact Can occur either through express indication of intent, or action inconsistent with intent to fulfill contract when performance due

What are the rights of a nonbreaching party in a situation of anticipatory repudiation?

Once contract anticipatory repudiated, non-breaching party discharged from obligations under contract, and can sue immediately for breach

What is a valid contract?

One that contains all the legal elements and thus can be enforced

What is an injunction?

Order forcing person to do something, or prohibiting person from doing something (usually a prohibition against certain actions)

What is specific performance? When is specific performance an appropriate remedy?

Order requiring breaching party to fulfill obligations under contract. Usually awarded only when monetary damages inadequate, and subject matter of contract unique.

Condition precedent

Particular event that must occur for a party's duty to arise

What is a substituted contract?

Parties agree to substitute new contract in place of original contract

What is a novation?

Parties to contract wish to replace one of the parties with a third party

The result in Power Entertainment Inc. v. Football League Properties Inc.

Power Entertainment sued NFLP for breach of contract seeking damages for amounts spent in reliance on the alleged agreement and for lost profits. The court granted NFLP's motion to dismiss holding Power Entertainment's contract claim failed as a matter of law because it was not in writing and failed to plead facts sufficient to support an estoppel claim. Power Entertainment filed for appeal and the ruling was reversed and remanded in favor of Power Entertainment.

Unilateral contract

Promise in return for performance of act A promise + A requested Action = Unilateral contract The offer may be revoked at any time before performance

What are exceptions to the rule requiring consideration? What elements must be present for an exception to apply?

Promissory estoppel 1. One party makes a promise and either knows or should know that the party will reasonably rely on it 2. The other does reasonably rely on the promise 3. The only way to avoid injustice is to enforce the promise

What type of damages are available when a person incurs costs in reliance on a promise of a job?

Reliance damages (money spent in "reliance" of an offer)

The result in Roberts v. T.H.E Insurance Company

Reversed and Remanded

The result in Lucy v. Zehmer

Reversed and Remanded in favor of Plaintiff (Lucy won and the farm was hers for $50,000)

Understand the various ways that offers are terminated and what happens if an offer is terminated

Revocation Rejection Counteroffer Death/Incapacity of offeror Destruction of subject matter of offer Subsequent illegality of subject matter of offer Lapse of time Failure of conditions specified in offer

The result in Shelby's Inc. v. Sierra Bravo Inc.

Shelby's Inc. gave Sierra Bravo permission in a written agreement that granted Sierra permission to use Shelby's land as a disposal site for waste and debris Sierra removed as part of the construction of a new highway. Shelby's also claimed that the two companies orally agreed that Sierra would construct a waterway and building pad on Shelby's property. Sierra denied that this agreement ever happened and appealed saying that this was in the statute of frauds under land and sale. The court agreed in favor of Shelby's Inc. saying that the contract was not a "sale" and that there was no ownership or title transferred with the land.

Result in Alexander v. Lafayette Crime Stoppers Inc.

Summary Judgment in favor of Defendants, Affirmed

Illusory promise

Suppose Shawn offers to sell Molly his skis for $300. Molly responds, "I'll look at them in the morning, and if I like them, I'll pay you." At this point, Molly has not committed to doing anything. The law considers this an ILLUSORY PROMISE - it is not a promise at all.

When does a writing satisfy the Statute of Frauds under the Uniform Electronic Transactions Act?

The act reflects the decision that a particular electronic transaction may constitute a 'written copy' and therefore have legal significance.

Be able to apply the reasoning of the Case Opener involving Branstad and Garland

The court determined that the parol evidence rule did not apply to the oral agreement in question because the agreement was made after the completion of the written contract, not before or during. Ultimately, the court determined that the oral contract existed as a separate agreement and not as part of the original written agreement

The result in Steward Lamle v. Mattel Inc.

The court ruled to vacate the previous rulings and remand the further proceedings consistent with the opinion ruled in this court

Does silence constitute acceptance?

The offeree must either do or say something to form a contract. Silence, generally does not form a contract. Any mode is valid, if not specified.

Offeror

The party proposing the contract

Offeree

The person who agreed to or accepted the contract

The result in Smith v. Riley

The plaintiff, Thelma Agnes Smith, lived with the defendant out of wedlock for several years. When the relationship ended, she sued the defendant, seeking to enforce two written agreements with him regarding the sale and assignment of property to her. The trail court enforced the agreements and divided the parties' property. the defendant appealed, arguing the agreements lacked consideration and were void as against public policy. Judgement affirmed in favor of Plaintiff (Thelma Agnes Smith)

The result in Thrifty Rent-A-Car System v. South Florida Transport

The plaintiff, Thrifty Rent-A-Car system provided South Florida Transport with trademark and business methods in exchange for payment and South Florida ended up sending insufficient funds owing up to 4 million to Thrifty Rent-A-Car. Plaintiff filed a motion for summary judgment, seeking full reimbursement for the debts owed by defendant and judge granted the motion.

How does the preexisting duty rule work in practice; i.e., when does a promise lack consideration because of a pre-existing duty?

There are two parties to the preexisting duty rule: performance of a duty you are obligated to do under the law is not good consideration, and performance of an existing contractual duty is not good consideration Exceptions to the rule: if unforeseen circumstances cause a party to make a promise regarding an unfinished project, that promise is a valid consideration, and if a party to a contract agrees to do additional work (more than the contract requires), the promise to do it is valid consideration

The result in Thomas v. CitiMortgage, Inc.

Thomas included a letter purporting to create an agreement to "remove material from his credit rating" along with a mortgage payment. Court held that there was no consideration for the agreement because Thomas was already obliged to make the mortgage payment (pre-existing duty rule)

What assumptions did the judge make in Lucier and Haley v. Williams et al.

Unconscionable and violated public policy; Reversed and remanded

What is an exception to the rule that past consideration is not consideration?

Under the Restatement (Second) of Contracts (a persuasive, though not binding, authority), promises based on past consideration may be enforceable "to the extent necessary to avoid injustice."

When is an e-mail considered received under the Uniform Electronic Transactions Act?

Under the UETA, an e-record is considered received is considered received when it enters the recipient's processing system in a readable form, even if no person is aware of its receipt.

Understand which contacts are void and which contracts are voidable

Void: a term applied to a contract that is not valid because its object is illegal or it has a defect that is so serious that it is not a contract Voidable: a term applied to a contract that one or both parties have the ability to either withdraw from or enforce

What is the effect of a mutual misunderstanding when entering into a contract?

When both parties are mistaken about a current or past material fact, either can choose to rescind the contract. Rescission is fair because any agreement was an illusion: Ambiguity prevented a true meeting of the minds.