Business Law Vocabulary Final
Monetary Damages
A breach of contract entitles the non-breaching party to sue for money damages - four basic types
Temporary Impossibility
A change in circumstances that makes performance temporarily impossible will act to suspend, but not excuse performance
Extension Clause
A clause in a time instrument that allows the instrument's date of maturity to be extended into the future
Acceleration Clause
A clause that allows a payee or other holder of a time instrument to demand payment of the entire amount due, with interest, if a certain event occurs, such as a default in the payment of an installment when due
Insolvent
A condition in which a person cannot pay his or her debts as they become due or ceases to pay debts in the ordinary course of business
Condition Precedent
A condition that must be satisfied before a party's contractual obligation to perform becomes absolute (e.g. Bob promises to hire Terry as a driver as soon as Terry gets his license)
Condition Subsequent
A condition that of which the occurrence or nonoccurence will terminate a party's absolute obligation to perform (e.g. Mary agrees to let Sue stay in May's spare room for as long as Sue remains unmarried)
Employment Contract
A contract between an employer and an employee in which the terms and conditions of employment are stated
Sales Contract
A contract for the sale of goods
Shipment Contract
A contract for the transport of the goods (The liability of goods shifts from seller to buyer at transport)
Implied Contract
A contract formed in whole or in part from the conduct of the parties
Void Contract
A contract having no legal force or binding effect (e.g. a contract entered into for an illegal purpose) - ex. a person has been adjudged mentally incompetent and a guardian and/or conservator has been appointed by the court
Express Contract
A contract in which the terms of the agreement are full and explicitly stated orally or in writing
Valid Contract
A contract satisfying all of the requisites of a contract - agreement, consideration, capacity, legal purpose, assent, and form
Unconscionable Contract
A contract so unfair and one-sided that enforcing it would be unreasonable
Informal Contract
A contract that does not require a specified form or method of formation in order to be valid
Executed Contract
A contract that has been completely performed by both (or all parties)
Executory Contract
A contract that has not yet been fully performed by one or more parties
Formal Contract
A contract that requires a special form or method of formation (creation) in order to be enforceable
Destination Contracts
A contract where seller transports goods to the buyer at the destination specified, tendered at a reasonable hour, and the goods must be held at the buyer's disposal for a reasonable period (liability of goods shift from seller to buyer at delivery)
Covenant Not to Compete
A contractual promise of one party to refrain from conducting business similar to that of another party for a certain period of time and within a specified geographical area
Exculpatory Clauses
A contractual provision that releases a party from liability, regardless of fault
Condition
A contractual qualification, provision, or clause which creates, suspends, or terminates the obligations of one or both parties to the contract, depending on the occurrence or nonoccurrence of some event(s)
Liquidated Debt
A debt whose amount has been ascertained, fixed, agreed on, settled, or exactly determined
Unliquidated Debt
A debt whose amount is in dispute by reasonable person's
Promise
A declaration that binds a person who makes it to do or not to do a certain act
Personal Defense
A defense that can be used to avoid payment to an ordinary holder of a negotiable instrument but not a holder in due course (HDC) or a holder with the rights of an HDC
Impossibility of Performance
A doctrine which permits a party to be relieved of his or her contractual duties when performance becomes either impossible or totally impracticable through no fault of either party to the contract
Check
A draft ordering a drawee bank and payable on demand
Sight Draft
A draft payable on presentment
Trade Acceptance
A draft that is drawn by a seller of goods ordering the buyer to pay a specified sum of money to the seller, usually at a specified future time. The buyer accepts the draft by signing and returning it to the seller
Acceptor
A drawee that accepts, or promises, to pay, a negotiable instrument when it is presented later for payment
Holder in Due Course
A holder who acquires a negotiable instrument for value, in goods faith, and without notice that the instrument is defective (such as that it is overdue, has been dishonored, is subject to a defense against it or a claim to it, contains unauthorized signatures has been altered, or is so irregular or incomplete as to call its authenticity into question
Negligence
A manufacturer's seller's, or lessor's liability to consumers, users, and by-standers for physical harm or property damage that is caused by the goods.
Unilateral Mistake
A mistake made by one of the contracting parties.
Mutual Mistake
A mistake on the part of both contracting parties.
Order Instrument
A negotiable instrument that is payable "to the order of an identified person" or "to an identified person or order"
Election of Remedies
A non-breaching party must choose one remedy from those available to prevent double recovery or a windfall
Certificate of Deposit
A note issued by a bank in which the bank acknowledges the receipt of funds from a party and promises to repay that amount, with interest, to the party on a certain date
Delegatee
A party to whom contractual obligations are transferred, or delegated
Assignee
A party to whom the rights under a contract are transferred, or assigned
Fraudulent Misrepresentation
A party unknowingly consents to a contract with fraudulent terms (contract is void)
Delegator
A party who tranfers (delegates) her or his oblications under a contract to another party (called delegatee)
Assignor
A party who transfers (assigns) his or her rights under a contract to another party (called the assignee)
Material Breach of Contract
A party's failure, without legal excuse, to substantially perform the obligations he or she has promised to perform
Bearer
A person in possession of an instrument payable to bearer or indorsed in blank
Payee
A person to whom a negotiable instrument is made payable
Promisee
A person to whom a promise is made
Offeree
A person to whom an offer is made
Lessee
A person who acquires the right to the possession and use of another's goods in exchange for rental payments
Merchant
A person who deals in goods that are the kind involved in the contract, holds himself or herself out as having knowledge and skill peculiar to the practice or use of the goods involved in the contract
Promisor
A person who makes a promise
Offeror
A person who makes an offer
Lessor
A person who transfers the right to the possession and use of goods to another in exchange for rental payments
Unreasonably Dangerous Product
A product that is so defective that it is dangerous beyond the expectation of an ordinary consumer or a product for which a less dangerous alternative was feasible but the manufacturer failed to produce it
Bilateral Contract
A promise is given in exchange for a promise in return (e.g. money in exchange for a car). The parties are both promisors and promisees
Offer
A promise or commitment to perform or refrain from performing some specified future act made by the offeror
Insurable Interest
A property interest in goods being sold or leased that is sufficiently substantial to permit a party to insure against damage to the goods
Counteroffer
A rejection by the offeree of the original offer, coupled with an offer made by the original offeree to the original offeror
Reformation
A remedy allowing the contract to be re-written to reflect the true intent of the parties, typically limited to cases of fraud or mutual mistake
Quasi Contract
A remedy available to prevent one party from being unjustly enriched at the other party's expense
Cover
A remedy that allows the buyer or lessee, on the seller's or lessor's breach, to obtain substitute goods from another seller or lessor
Express Warranties
A seller's or lessor's oral or written promise, ancillary to an underlying sales or lease agreement, as to the quality, description, or performance of the goods being sold or leased
Indorsement
A signature, with or without additional words or statements (e.g., "for deposit only", "payable to Jane Smith", "payable from acct. #000001", etc.), made by the drawer in order to transfer his or her rights to the payee
Adhesion Contract
A standard-form contract in which the stronger party dictates the terms
Statute of Frauds
A stature, which requires certain types of contracts to be in writing in order to be enforceable
Statute of Limitations
A statute which limits the time period for initiating a lawsuit to recover damages for a breach of contract
Parol Evidence Rule
A substantive rule of contract law under which a court will not admit evidence of the parties' prior negotiations, prior oral or written agreements, or contemporaneous oral agreements if the evidence contradicts or varies the terms of a written contract
Predominant-Factor Test
A test courts use to determine whether a contract is primarily for the sale of goods or for the sale of services
Intended Beneficiary
A third party for whose benefit a contract is formed
Donee Beneficiary
A third party for whose benefit a contract was made whereby the promisor promised the promisee to make a gift to the third-party beneficiary
Creditor Beneficiary
A third party that benefits from a contract in which the promisor promises to pay a debt owed by the promisee to the third-party beneficiary
Incidental Beneficiary
A third party that benefits from the performance of contract, but whose benefit was not the reason the contract was formed
Third-Party Beneficiary
A third party, X, who is intended, by the terms of the contract between Y and Z, to benefit from Y's and Z's performance of the contract
Assignment (of Rights)
A transaction whereby a party to the contract (the assignor) transfers his or her rights to some third party (the assignee). As a consequence, the assignee may demand performance of the contract by the obligor, and the assignor's contract rights are extinguished
Delegation (of Duties)
A transaction whereby a party to the contract (the delegator) frees himself or herself from his or her duties by having some third party (the delegatee_ perform those duites. Unlike the assignor, whose contract right are extinguished by the assignment, the delegator remains liable for his or her contract duties if the delegatee fails to perform
Acceptance
A voluntary act by the offeree - either in the form of words or of conduct - which indicates agreement to the terms of the offer
Limited Warranty
A warranty that does not meet all of the requisites for a full warranty
Implied Warranty of Merchantability
A warranty that goods being sold or leased are reasonably fit for the general purpose for which they are sold or leased, are properly packaged and labeled, and are of proper quality
Implies Warranty of Fitness for a Particular Purpose
A warranty that the goods being sold or leased are fit for the particular purpose for which the buyer/lessee wishes to use the goods, which is imposed on any seller who knows that the buyer/lessee is relying on the seller/lessor's skill and judgment to select suitable goods.
Implied Warranties
A warranty that the law derives by implication or inference from the nature of the transaction or the relative bargaining positions or circumstances of the parties
Integrated Contract
A written contract that constitutes the final expression of the parties' agreement. Evidence extraneous to the contract that contradicts or alters the meaning of the contract in any way is inadmissible
Promissory Note
A written promise made by one person to pay a fixed sum of money to another person on demand or at a specified future time
Firm Offer
A written, signed offer that is irrevocable for the stated period or if not stated time, then for a reasonable period of time, up to three months, without the payment of consideration
Ratification
Accepting and giving legal force to an obligation that previously was not enforeable and/or voidable - may be either express or implied
Licensing Statutes
All states require those members of certain professions - attorneys, doctors, and architects, to name a few - be licensed by the state. Any contract with an unlicensed individual is illegal and may be unenforceable
Mailbox Rule
An acceptance becomes effective upon being placed in the mailbox by the offeree
Anticipatory Repudiation
An action by a party to a contract that indicates that he or she will not perform a contractual obligation due to be performed in the future
Replevin
An action that can be used by a buyer or lessee to recover identified goods from a third party, such as a bailee, who is wrongfully withholding them
Accord and Satisfaction
An agreement between an obligor (debtor) and obligee (creditor), by which the obligor agrees to pay the obligee some amount owed under the contract (generally less than the amount in dispute) in exchange for a discharge of all obligations owed by the obligor to the obligee
Contract
An agreement between two or more parties to perform or to refrain from some act now or in the future
Output Contract
An agreement by which the buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the seller produces
Requirement Contract
An agreement in which a buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer needs or requires
Covenant Not to Sue
An agreement to substitute a contractual obligation for some other type of legal action based on a valid claim
Release
An agreement whereby one party forfeits its rights to pursue a legal claim against another party (binding if they are: given in good faith, stated in writing, and accompanied by consideration)
Special Indorsement:
An indorsement that indicates the specific person to whom the indorser intends to make the instrument payable - i.e., the indorsee.
Blank Indorsement
An indorsement that specifies no particular indorsee and can consist of a mere signature.
Trust Indorsement
An indorsement to a person who is to hold or use funds for the benefit of the indorser or a third person. It is also known as an agency indorsement
Qualified Indorsement:
An indorsement which disclaims any contract liability on the instrument (e.g., "without recourse").
Unilateral Contract
An offer can be accepted only by the offeree's performance (e.g. X offers Y $15 to mow X's yard); the offeror cannot revoke the offer for a reasonable period of time
Common-Law Acceptance
An offeror can specify a particular method of acceptance; that method of communicating acceptance is effective as long as it is received before the offeror's deadline
Unenforceable Contract
An otherwise valid contract rendered unenforceable by some statute or law (e.g. an oral contract for the transfer of an interest in real estate)
Voidable Contract
An otherwise valid contract that may be legally avoided, cancelled, or annulled at the option of one of the parties (e.g. a contract entered into under duress or under false pretenses) - ex. a person not previously adjudged mentally incompetent enters into a contract and is not able to comprehend the nature, purpose and consequences of the contract
Tender
An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so
Draft
An unconditional order to pay
Infringements
Any copyright, trademark, or patent claims by a third party
Lien
Any encumbrance on the goods or other property to satisfy a debt or protect a claim for payment of a debt
Restrictive Indorsement:
Any indorsement on a negotiable instrument that requires the indorsee to comply with certain instructions regarding the funds involved
Bearer Instrument
Any instrument that is not payable to a specific person, including instruments payable to the bearer or to "cash"
Holder
Any person in possession of an instrument drawn, issued, or indorsed to him or her, to his or her order, to bearer, or in blank
Usage of Trade
Any practice or method of dealing having such regularity of observance in a place, vocation, or trade that it is reasonably expected to be observed by the transaction in question
Undue Influence
Arises from relationships in which one party can influence another party to the point of overcoming the influenced party's free will (parent-child, doctor-patient, etc.)
Open Payment Term
As a general rule, if the parties do not specify otherwise, payment is due at the time and the place that the buyer receives the goods. Moreover, the buyer can tender payment using any commercially acceptable means. However, if the seller demands payment in cash, the buyer must be given a reasonable time to obtain it
Open Delivery Term
As a general rule, if the parties do not specify: the place of delivery, the buyer will take delivery at the seller's place of business, or (if non exists) at the seller's residence and/or the time of delivery, the seller will deliver within a reasonable period of time
Open Price Term
As a general rule, if the parties have not agreed on a price, the court will determine a reasonable price at the time of delivery
Privity of Contract
As a general rule, only the parties to a contract - the promisor(s) and the promisee(s) - owe any duties and enjoy any rights arising from the contract
Contractual Capacity
Both parties must be competent to enter into the agreement; the minimum mental capacity required by law for a party who enters into a contractual agreement to be bound by it. Common law recognizes two classes of persons who are generally not considered to have sufficient capacity to be bound by their contracts - minors and mentally impaired or incompetenet
Objective Impossibility
Excuses performance (e.g. death of incapacitation, destruction of the subject matter, change in applicable law)
Open Quantity Term
Failure to specify the quantity of goods to be bought and sold is fatal at common law and under Article 2
Necessaries
Food, shelter, clothing, medical attention, etc.
Duress
Forcing a party to enter into a contract because of the fear created by threats
Emancipation
Minor is treated as adult
Third-Party Beneficiaries
Only intended beneficiaries acquire actionable legal rights in a contract
Sale
Passing of titles to property from the seller to the buyer for a price
Specifically Performed
Performed according to the precise terms of the contract
Course of Dealing
Prior conduct between the parties to the contract that establishes a common basis for their understand
Mirror Image Rule
Prior to the adoption of the Uniform Commercial Code, an offeree's acceptance was required to match the offeror's offer exactly. If the offeree's acceptance materially changed, added to, or deleted any terms in the original offer, the offeree's acts were deemed to constitute a counteroffer, not an acceptance
Mistake
The parties entered into a contract with different understandings of one or more material fact(s) relating to the subject matter of the contract
Contractual Limitations on Remedies
The parties may contractually agree to expand or limit the remedies provided by the U.C.C. The parties may also limit or exclude consequential damages as long as the limitation or exclusion is not unconscionable, given the relative bargaining strength of the parties
Drawer
The party that initiates a draft (such as a check), thereby ordering the drawee to pay
Drawee
The party that is ordered to pay a draft or check with a check, a bank or a financial institution
Shelter Principle
The principle that the holder of a negotiable instrument who cannot qualify as a holder in due course (HDC), but who derives his or her title through an HDC, acquires the rights of an HDC
Design Defect
The product, even if manufactured perfectly, is unreasonably dangerous as designed - often because an economically feasible, less dangerous alternative was available to the manufacturer
Cure
The rights of a party who tenders nonconforming performance to correct his or her performance within the contract period
Entrustment Rule
The rule that entrusting goods to a merchant who deals in goods of that kind gives that merchant the power to transfer those goods and all rights to them to a buyer in the ordinary course of business
Discharge
The termination of a party's obligations arising under a contract
Negotiation
The transfer of an instrument in such form that the tranferee (the person to whom the instrument is transfered) becomes a holder
Alienation
The transfer of land out of one's possession
Delegation of Duties
The transfer to another of all or part of one's duties arising under a contract
Objective Theory of Contracts
The view that contracting parties shall only be bound by terms that can objectively be inferred from promises made
Revocation
The withdrawal of an offer by the offeror, communicated to the offeree prior to the offeree's acceptance
Dishonor
To refuse to pay or accept a negotiable instrument, whichever is required, even though the instrument is presented in a timely and proper manner
Pre-Existing Legal Duty
Under most circumstances, a promise to do (or refrain from doing) what one already has a legal duty to do (or refrain from doing) does not constitute legally sufficient consideration
Usury Statutes
Virtually every state has a statute that sets the maximum rate of interest that can legally be charged for different types of transactions, including ordinary loans
The Plain Meaning Rule
When a contract is clear and unequivocal, a court will enforce it according to its plain terms, set forth on the face of the instrument, and there is no need for the court either to consider extrinsic evidence or to interpret the language of the contract
Substantial Performance
When a party fails to completely perform his or her contractual duties, the party's performance must not vary greatly from that promised in the contract, and it must create substantially the same benefits as those promised in the contract
Promissory Estoppel
When a promisor makes a clear and definite promise on which the promisee justifiably relies, the promisor is bound by the promise, even if it was insufficient to form the basis of a balid, legally binding contract
Payment Term
When goods are sold on credit, the buyer's obligation to pay is conditioned on the credit terms provided in the contract, not when the goods are delivered
Commercial Impracticability
When occurrences, unforeseen by either party at the time the contract was made (e.g. destruction of goods)
Justifiable Ignorance
When one of the parties to an illegal contract has no knowledge or any reason to know that the contract is illegal, that party will be entitled to be restored to its pre-contractual situation
U.C.C. Acceptance
When the offeror does not specify a method, acceptance may be communicated by any method that is reasonable under the circumstances
Installment Contract
Where a contract requires or authorizes delivery in two or more separate lots, to be accepted and paid for separately
Seasonably
Within a specified time period or, if no period is specified, within a reasonable time
Negotiable Instrument
Written instrument; 2) Signed by the maker or drawer of the instrument; 3) That contains an unconditional promise or order to pay; 4) An exact sum of money (with or without interest in a specified amount or at a specified rate); 5)On demand or at an exact future time; 6) To a specific person, or to order, or to its bearer.
Product Liability
The legal liability of manufacturers, sellers, and lessors of goods for injuries or damage caused by the goods to consumers, users, or bystanders
Manufacturing Flaw
The manufacturer fails to exercise due care in the manufacture, assembly, and/or testing of the product;
Liquidated Damages
Many contracts contain provisions specifying a sum certain of money to be paid by the breaching party in the event that he or she fails to perform as required by the contract.
Rescission
Canceling an existing contract, and returning the parties to their pre-contract states
C.O.D. Shipments
Cash on delivery (buyer has a right to reject because it does not permit the buyer to inspect prior to making payment)
Usury
Charging an illegal rate of interest
Unconscionable Contracts
Contracts that require one party, as a consequence of disproportionate bargaining power, to accept terms that are unfairly burdensome to that party and unfairly beneficial to the party with greater bargaining power, are generally unenforceable
Contracts in Restraint of Trade
Contracts that tend to reduce competition for the provision of goods or services in one or more market(s) (e.g. covenants not to compete) are illegal
Nominal Damages
Damages awarded to the non-breaching party when only a "technical" injury occurred resulting in no actual damages (e.g. one dollar)
Punitive Damages
Damages designed to punish a wrongdoer and to deter similar conduct in the future. Such damages are generally not recoverable in breach of contract actions, unless the breaching party's actions give rise to a separate tort claim
Consequential Damages
Damages resulting indirectly from the breach which were reasonably foreseeable to the breaching party at the time the breach occurred
Incidental Damages
Damages that compensate for expenses directly incurred because of a breach of contract, such as those incurred to obtain performance from another source
Compensatory Damages
Damages which compensate the non-breaching party for the injuries or losses actually sustained as a result of the breach
Universal Defenses
Defenses that are valid against all holders of a negotiable instrument, including holders in due course (HDCs) and holders with the rights of HDCs
Consistent Additional Terms
Terms which do not contradict and which help explain the writing
Performance
Fulfiling one's contractual duties
Conforming Goods
Goods that conform to contract specifications
Partial Performance
If a buyer has taken partial possession of real or personal property and paid that part of the contract price attributable to the property received, and if the parties cannot be returned to their pre-contract, an oral contract is enforceable to the extent that the seller has accepted paymentor the buyer has accepted delivery of the goods covered by the oral contract
Perfect Tender
If the goods delivered or the tender of delivery fail in any respect to conform with the terms of the contract, the buyer has the right to accept the goods, reject the entire shipment, or accept part and reject part
Assorted Goods
If the terms fail to specify what mixture of goods are to be delivered, the buyer may specify the assortment
Illusory Promises
If the terms of a contract call for performance in such uncertain terms that the promisor has not definitely promised to do (or refrain from doing) anything, the promise is unenforceable for lack of sufficient consideration
Identification
In a sale of goods, the express designation of the goods provided for in the contract
Mitigation of Damages
In most situations, when a breach of contract occurs, the non-breaching party has a duty to take whatever action is reasonable to minimize the damages caused by the breach
Disaffirmance
In order for a minor to avoid a contract, he or she has need only manifest an intention not to be bound by it
Scienter
Knowledge by a misrepresenting party that material facts have been falsely represented or omitted with an intent to deceive
Concurrent Conditions
Mutually dependent conditions that must occur or be performed at the same time in order to give rise to any absolute obligation to perform (e.g. Mikki offers to pay Tina $100 in exchange for Tina's class ring)
Open Duration Term
Occurs if a contract does not indicate how long the parties are to deal with one another. In such a case, either party may terminate with reasonable notification
Option Contracts
Offeror cannot revoke his or her offer for a stipulated time period during which the offeree has the sole right of acceptance
Notice of Assignment
Once a valid assignment of rights has been made to a third party, the third party (the assignee) should notify the obligor of the assignment
Agreement
One party must objectively intend to make an offer to enter into a contract, and the other party must accept the terms of the offer; a meeting of two or more minds in regard to the terms of a contract
Obligee
One to whom an obligation is owed
Obligor
One who owes an obligation to another
Maker
One who promises to pay a fixed amount of funds to the holder of a promissory note or a certificate of deposit
Past Consideration
Promises made in return for acts or events that have already taken place are unenforceable for lack of sufficient consideration
Intangible Property
Property that cannot be seen or touched but exists only conceptually, such as corporate stocks
Tangible Property
Property that has physical existence and can be distinguished by the senses of touch and sight
Novation
Replacing an existing contract with a new, superseding contract between the same parties
Restitution
Returning good, property, or money previously transferred in order to restore the non-breaching party to his or her pre-contract position
Tender of Delivery
Seller must have and hold conforming goods at the disposal of the buyer, and give the buyer reasonable notice to enable the buyer to take delivery
Blue Laws
Some states and localities prohibit engaging in certain business activities on Sunday
Consideration
Something of value received or promised, to convince a party to agree to the deal
Penalties
Specifies sum certain of money, bearing no reasonable relationship to the value of performance, to be paid by the breaching party in the event of default or breach
Blue Sky Laws
State laws that regulate the offering and sale of securities for the protection of the public
Presentment
The act of presenting an instrument to the party liable on the instrument in order to collect payment. It also occurs when a person presents an instrument to a drawee for a required acceptance
Forbearance
The act of refraining from an action that one has a legal right to undertake
Right of Inspection
The buyer is given an opportunity to inspect the identified goods as a condition precedent to the seller's or lessor's right to enforce payment under the contract under the U.C.C
Course of Performance
The conduct of the parties to the agreement under the terms of the agreement (this evidence is particularly helpful in determining what the parties intended the agreement to mean)
Bargained-For Exchange
The consideration given by the promisor must induce the promisee to incur a legal detriment and/or provide a legal benefit to the promisor, either or both of which are sufficient to induce the promisor to make the promise
Integration
The determination of whether parol evidence will be considered revolves around the court's determination of whether the written contract constitutes the final expression of the parties' agreement
The "Majority" Rule
The first assignment made takes priority over subsequent assignment
The "English" Rule
The first assignment recorded or otherwise made known to the obligor takes priority - even over an assignment made before it
Contract Alteration
The innocent party may elect to be discharged under a contract when the other party has unknowingly materially altered a written contract