Legal & Ethical Environment of Business
"scienter"
= intent to deceive.
1.Age of the parties, or 2.Fraud, Duress, or Undue Influence
A contract can be voided by a party due to a number of factors:
the adult
A contract entered into by a minor is voidable by the minor but not ______ In other words, minor's parents can decide whether to enforce contract.
1. Usury laws - prohibits interest rates above a specific percentage. 2. Blue laws - prohibits work on Sundays. 3. Contract to commit a crime. 4. Unconscionable Contracts
A contract to do something already prohibited by law is VOID. Examples include:
1. Real Property (Land or Structure). 2. Contracts That Cannot be Performed (by Their Own Terms) Within 1 Year. 3. Sale of Goods Over $500.
Certain contracts that are not in writing are not enforceable. These contracts include:
1.Statements made without serious intent (ex. statements made in anger, jest, or undue excitement) 2.Statements of Future Intent
Certain statements are not considered to have the required level of intent:
1. Must be something of legally sufficient value; and 2. there must be "bargained for exchange."
Consideration Has Two Parts:
U.S. Constitution
Founding Fathers recognized importance of protecting intellectual property rights. Article I, §8
1.Offer 2.Acceptance 3.Consideration 4.Capacity & Legality
Four Basic Elements of a Contract: (If any of these elements are missing, then there is no valid contract.)
Depends on whether the Contract is Unilateral or Bilateral.
How is Acceptance Communicated?
extrinsic evidence
However, if contract terms are unclear or ambiguous, then a court may consider __________ when determining how to construe the terms of the contract.
Contract Interpretation
If a contract is clear and unambiguous, then a court will apply the plain meaning rule if a conflict arises.
1. Intended Beneficiaries 2. Incidental Beneficiaries
Two Types of 3rd Party Beneficiaries:
A. Fraud B. Undue Influence C. Mistake D. Duress
What are some examples of No Genuineness of Assent?
1. Assignment 2. Third-Party Beneficiaries
What are the exceptions to the privity of contract?
1.Trademark 2.Patent 3.Copyright 4.Trade Secrets
What are the four types of protections of intellectual property rights?
-Courts will give a reasonable and ordinary meaning to the terms. -Specific language outweighs general language -Written provisions outweigh typed provisions -Contract is construed against the drafter
What are the rules of Construction?
Bilateral vs. Unilateral Contracts
What are the two main types of contract formation?
1. Condition Precedent 2. Condition Subsequent
What are the two types of conditions:
1) Complete Performance 2) Substantial Performance
What are the two types of performances for contract discharges?
1.Executed Contract 2.Executory Contract
What are the types of contract performances?
1. Personal services contract (ex. Heart Surgeon can't assign by-pass to another surgeon without patient's permission). 2. When contract prohibits assignment (however, most courts prohibit parties from unreasonably withholding consent).
What certain rights/responsibilities cannot be assigned:
Exception: Minor will remain liable for reasonable value of contracts involving necessities (ex. food, clothing, shelter).
What is an exception to the age example of capacity?
where the bargain is so grossly unfair or oppressive to one party that it "shocks the conscience" of the court.
What is an unconscionable contract?
1.Creation 2.Continuity 3.Control 4.Liability (Personal) 5.Taxation
What type of business organization you create is driven by a variety of factors, including:
-Owner of intellectual property may seek legal and/or equitable relief if another person infringes on that property right.
What's the commercial value?
the party who suffered the harm (ex. minor), but not by the other party.
When it comes to voidable contract, generally, contract may be ratified by...
material breach
When one party fails to substantially perform under the contract, then that party has committed a _________.
bilateral contract
Which contract is this an example of: Offeror: I will pay you $50 to mow my lawn. Offeree: I accept.
Forum Selection Clauses
identifies which county, state, country where parties will be required to file lawsuit, if dispute occurs.
Contract
is a legally binding agreement between two or more parties who agree to perform (or to refrain from performing) some act now or in the future.
Condition Precedent
must be fulfilled before another party's performance can be required.
Termination by Law
a. Lapse of time b. Destruction of property before acceptance of offer. c. Death or Incapacitation of either party before acceptance of offer. d. Supervening Illegality before acceptance of offer.
Bilateral Contract
acceptance generally occurs when dispatched by Offeree (called the Mailbox Rule) unless Offeror designates specific mode or manner of communication.
Click-On Agreements
are primary methods used to form e-contracts
Uniform Electronic Transactions Act (1999)
established that e-contracts are not unenforceable simply because they are electronic.
Hypertext Link to Contract
often contain other important terms like forum selection choice-of-law.
Assignor
party making assignment
Assignee
party receiving assignment
"scienter."
"intended to mislead" requires...
Limitation-of-Liability Clauses
- A party cannot "contract away" liability for fraudulent or intentional injuries to another party, but party may be able to limit liability for negligent acts under the contract.
Privity of Contract
- Generally, only parties involved in the contract have rights and liabilities under the contract.
Intended Beneficiary
- Insured pays premium to Insurer, who promises to pay Insured's spouse upon Insured's death. - __________ can sue to have contract enforced.
Incidental Beneficiary
- Nancy contracts with Trent's Fence Service to have a privacy fence in her back yard. Trent breaches contract. - Nancy's next door neighbor cannot sue Trent, also, simply because her property value won't be enhanced due Trent's breach.
Bilateral Contract
- a promise for a promise - contract is formed when promises are exchanged.
Adequacy of Consideration
- concerns the fairness of the bargain. - courts generally won't question the ________, unless it's a red flag suggesting fraud, undue influence, or duress.
Compensatory Damages
- damages actually sustained by non-breaching party - difference between party's promised performance minus party's actual performance.
Monetary Damages
- intended to put non-breaching party in the same position he would have been if contract was fully performed. - most common remedy for breach of contract
Remedy
- legal or equitable relief granted to injured party when contract has been breached. - used to enforce a right or redress an injury
Unilateral Contract
- promise for an act - contract is formed when the act is performed by offeree.
Liquidated Damages
- typically found in the contract - specifies dollar amount to be awarded if breach occurs. - will be upheld unless amount is excessive (cannot be punitive damage in disguise).
Genuineness of Assent
- voluntary consent - "meeting of the minds" - a defense to a contract's enforceability if the parties' haven't genuinely assented to the terms of the contract.
Trademarks
-Distinctive mark attached to a product to distinguish it from competitors. -Prevents: 1.consumer confusion, and 2.unauthorized use by competitors.
Duress
-Forcing another party to enter into a contract through fear. -The threatened act must be illegal (ie. threatening to exercise a legal right is generally not duress). -i.e. The Godfather
Intellectual Property
-Gives commercial value to the owner of a product, design, literary or artistic work.
1. Revocation 2. Rejection 3. Counter-Offer 4. Termination by Law
An Offer can Terminate in Four Ways:
Corporation
-One or more members. -Created by Articles of Incorporation. -Perpetuity. -Controlled by directors and officers. -Liability limited to shares owned. -All business income subject to corporation income tax while dividends taxed as personal income.
Limited Liability Company
-One or more members. -Created by Articles of Organization. -Perpetuity unless dissolved. -Controlled by managers. -Liability limited to units owned. -All business income subject to tax either as corporation, partnership or personal (if sole member LLC).
trademark
-Owner must register ________ with United States Patent & Trademark Office (USPTO). -Registration provides constructive notice, strengthening infringement case. -ex, nike swoosh, mcdonald's golden arches
Sole Proprietorship
-Single owner. -No formal documentation to create. -Discontinued after owner's death. -Total control by owner. -Unlimited liability. -All income subject to personal taxation.
condition
-Sometimes, performance is ______ on an event, usually the other party's performance. -A _______ is a possible event, the occurrence (or non-occurrence) of which will trigger a legal obligation to perform.
Partnership
-Two or more persons. -Created by agreement or conduct.* -Dissolves after partner withdraws.* -Equal control by all owners.* -Joint & Several liability.* -All business income subject to personal taxation, divided equally.* * Unless otherwise agreed.
Undue Influence
-Utilizing a special relationship with another to greatly influence that party to enter into the contract. -Usually involves elderly relatives or others in vulnerable position.
Adhesion Contract
-When terms of the contract are dictated by the party with overwhelming bargaining power. -Usually drafted exclusively by that party.
S-Corporations...Distinguished
-__________ have all the features of a regular corporation except the shareholders elect to have income taxed as a partnership. -_____________ can only be domestic corporations, have no more than 100 allowable shareholders (i.e. individuals), and have one class of stock.
Dilution cases
-involve allegations that new product's similarity with trademarked product lessens value of trademark. -Must show actual decrease in value.
Assignment of Contract
-transfer of contractual rights and/or liabilities to a third-party -Examples: Mortgages, Loans, Leases
Fraudulent Misrepresentation
A misrepresentation that is consciously false and intended to mislead the other party. ex: Seller forges signature of famous player on baseball card.
- voluntary act (words or conduct) by Offeree that shows assent to terms of offer. - must be unequivocal (mirror image rule) - must be communicated to Offeror
Acceptance is:
Statute of Frauds
Certain contracts that are not in writing are not enforceable
1.No Genuineness of Assent Or 2. Statute of Frauds Violation
Even if all four elements are present, a valid contract may not be enforceable if:
1. Compensatory Damages 2. Liquidated Damages
Example of Two Types of Monetary Damages:
extrinsic evidence (extrinsic=to be outside a thing)
In a dispute (contract interpretation), the court will limit its review of the four corners of contract and will not consider
1.Names of the parties, and 2.Subject matter involved, and 3.Consideration to be exchanged.
In regards to definiteness, generally, a contract must identify:
"severability clauses"
Many contracts contain _______ that permit court to strike illegal terms but enforce remain legal terms.
1. Monetary Damages
Most common remedy in contract breach:
e-commerce
Most courts have applied traditional contract principles to
Third Party Beneficiaries
Occurs when parties intend (at contract formation) for a 3rd Party to benefit from the contract.
communication
Offer must be communicated to the offeree.
1. Intent of parties to be bound (Intent) 2. Reasonably certain terms (Certainty) 3. Must be communicated to offeree
Offer must contain three terms:
Rejection
Offeree expresses intent not to accept the offer.
Counter-Offer
Offeree rejects Original offer and simultaneously makes new offer.
Revocation
Offeror withdraws offer before Offeree accepts.
Objective Theory of Contract
Offeror's words and conduct will be construed to mean whatever a reasonable person in the offeree's position would think his words and conduct meant.
12A O.S. §15-101
Oklahoma passed significant portion of UETA at
definiteness
Parties should also include when payment is due and when performance must occur (but courts will usually infer a reasonable time).
Contract Discharge
The majority of contracts are discharged when both parties perform their duties under the contract.
extrinsic evidence
There are different rules of construction that courts will use to review_________
1. Fraudulent Misrepresentation 2. Undue Influence 3. Duress 4. Adhesion Contract
There may be no genuineness of assent if:
1. Age - age of majority is 18 (unless person has been granted early emancipation by the courts). 2.Intoxication - may be voidable by intoxicated person, if party was so severely intoxicated that he lacked the necessary mental capacity to comprehend the legal consequences of the contract. - rarely accepted as a valid defense. 3.Mental Incompetence - If a person has already been adjudicated as incompetent by a court, then contract is void. - If a person has not previously been adjudged incompetent, then contract is voidable.
Three Examples of Capacity:
1.Sole Proprietorship 2.Partnership 3.Corporation 4.Limited Liability Company
You may choose a variety of structures when operating your business, including (but not limited to):
Executed Contract
a contract that been fully performed by all parties
Executory Contract
a contract that hasn't been fully performed by one or more parties.
Fact Pattern
summary of facts that judges consider when making their decisions
Unilateral Contract
the act generally qualifies as the communication.
Capacity
the legal ability to enter into a contract
Consideration
the value given in return for a promise or performance (The transaction cannot be a gift.)
Condition Subsequent
when an event operates to terminates another party's obligation to perform.
Click-On Agreement
where buyer expresses his intent to accept offer by manually clicking a button (ex. "I accept" or "I agree").
Choice-of-Law Clause
which state's law will apply, if dispute occurs.