Quiz 2 Business Law

Bad consideration

If there is shockingly bad consideration, the courts may review because that may indicate fraud, duress, or other was involved in the contract formation

record

Information that is either inscribed on a tangible medium or stored in an electronic or other medium and is retrievable in visual form.

true or false: Father offers young man $50,000 not to marry his daughter. If the young man accepts, is there a contract?

false It is not a contract because it is against public policy.

true or false: When analyzing the legality requirement for a valid, enforceable contract, we only need to analyze whether the purpose of the agreement is legal under statutory law.

false Remember, it cannot break a statute, public policy, and other legality

-Withdrawal from an illegal agreement

if the illegal part of the bargain has not yet been performed, the party rendering performance can withdraw from the contract and recover the performance of its value

Requirements of the offer

intention, definiteness, communication

Mirror Image Rule

offeree's acceptance of the offer must match the offeror's offer exactly If the acceptance materially changes or adds to the terms of the original offer, it will not be considered an acceptance --> it will be considered a counteroffer

partnering agreement

partnering agreement

satisfaction

performance (usually payment) which takes place after the accord is executed

Consideration

something of value received or promised to convince a person to make a deal

Consideration:

something of value received or promised to convince a person to make a deal (Each party must have something at stake in the arrangement

Ratification

the acceptance or confirmation of an act or agreement that gives legal force to an obligation that previously was not enforceable. -A minor who has reached the age of majority can ratify a contract expressly or impliedly

accord

the agreement under which one party promises to give or perform, and the other party to accept, in satisfaction of a claim, something different from what the parties originally agreed

Bargained-for exchange

the basis for a bargain struct between or among the contracting parties

Express ratification:

occurs when the individual, on reaching the age of majority, states orally or in writing that she or he intends to be bound by the contract

True or false: a promisor can't argue lack of consideration as a defense (in promissory estoppel)

true

option contract

A contract under which the offeror cannot revoke the offer for a stipulated time period (because the offeree has given consideration for the offer to remain open).

offer

A promise or commitment to perform or refrain from performing some specified act in the future.

forum-selection clause

A provision in a contract designating the court, jurisdiction, or tribunal that will decide any disputes arising under the contract.

Supervening Illegality

A statute or court decision that makes an offer illegal automatically terminates the offer.

browse-wrap terms

A term or condition of use that is presented when an online buyer downloads a product but to which the buyer does not have to agree before installing or using the product.

Communication of the Offer

A third requirement for an effective offer is communication—the offer must be communicated to the offeree. Ordinarily, one cannot agree to a bargain without knowing that it exists.

Mode and Timeliness of Acceptance

Acceptance in bilateral contracts must be timely. The general rule is that acceptance in a bilateral contract is timely if it is made before the offer is terminated. Problems may arise, though, when the parties involved are not dealing face to face. In such situations, the offeree should use an authorized mode of communication.

The effect of illegality general rule

neither party to an illegal bargain can sue for breach and neither party can recover for performance rendered.

Once an effective offer has been made, the offeree's acceptance of that offer creates a legally binding contract (providing the other essential elements for a valid and enforceable contract are present).

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The first requirement for an effective offer is serious, objective intent on the part of the offeror. Intent is not determined by the subjective intentions, beliefs, or assumptions of the offeror. Rather, it is determined by what a reasonable person in the offeree's position would conclude that the offeror's words and actions meant. Offers made in obvious anger, jest, or undue excitement do not meet the requirement of serious, objective intent. Because these offers are not effective, an offeree's acceptance does not create an agreement.

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Contractual capacity of minors

- A minor can enter into any contract an adult can, - Provided that the contract is not one prohibited by law for minors (sale of etoh, tobacco)

Release:

- a contract - one party forfeits the right to pursue a legal claim against the other party -it prohibits any further recovery beyond the terms stated in the release.

Which of the following is an example of something of legally sufficient value?

-A promise to do something that you otherwise have no prior legal obligation to do. -Performing an action that you otherwise have no prior legal duty to do -Refraining from an action that you have legal right to undertake. (All of the above)

Offeere's options

-Accept--forms contract (neither can later back out) -Reject--kills offer (offeree can't later accept) -Counteroffer (Treated as: rejection (kills offer) + new offer -Ignore (offer expires per terms or after "reasonable time")

Contracts that do not meet legality:

-Contracts in restraint of trade -Contracts to commit a crime -Contracts that exceed the maximum interest rate allowed by state law

Contracts contrary to public policy

-Contracts in restraint of trade -Covenant not to compete (found as a restraint of trade) -Immoral acts -Mergers often violate public policy and antitrust law

Gift v. Bargained for exchange:

-Father to son: "Inconsideration of the fact that you are not as wealthy as your brothers, I will pay you $5,000" (no contract, just a gift because the kid doesn't have to do anything) as apposed to: -"If you never smoke by the age 30 I will buy you a car" (makes a contract, performance for exchange)

A minor's obligations on dissafirmance

-Increasing number of states impose obligation on disaffirming minors to restore adults to pre-contract position. -Minor still liable for value of the goods.

Exceptions to the general effect of legality rule:

-Justifiable ignorance of the facts -Members of protected classes -Withdrawal from an illegal agreement -Severable contract -Fraud, duress, or undue influence

Other ways an offer dies

-Lapse of time (stated...or if not stated, a reasonable time) -Subject matter destruction (thing that offer made offer is gone) -Death or incompetency (of offeror or offeree) -Supervening illegality (becomes illegal)

Contracts a minor enters into but cannot dissafirm (public policy):

-Marriage contracts -Contracts to enlist in the military -Contracts entered into by a minor engaged in business as an adult -Contracts for necessaries: basic needs such as food, clothing, shelter, and medical services.

How an offeree can kill an offer

-Rejection of offer: if the offeree rejects the offer by words or by conduct -Counter offer: a rejection of the oringal offer and the simultaneous making of a new offer

When the exculpatory clause is not enforced:

-Residential property leases -Employment contracts which remove employer's potential liability for injuries to employees

When the exculpatory clause is enforced

-Those that limit but do not release a party from liability, are not ambiguous, and do not claim to protect parties from liabilities for intention misconduct - and involve non-essential services -Health clubs, race tracks, amusement parks, skiing facilities -People contract for these services voluntarily

Disaffirmance details

-To disaffirm, a minor must express, through words or conduct, his or her intent not to be bound by it. -Must disaffirm the entire contract, not just a part of it. -Can disaffirm a contract even after the minor comes of age (i.e, 18 years old), as long as the contract was entered into as a minor ^ reasonable time period required, otherwise, ratification is presumed. -An adult who enters into a contract with a minor cannot avoid his or her contractual duties on the same grounds ^ Unless the minor exercises the option to disaffirm the contract, the adult is normally bound by it.

The "something of legally sufficient value" may consist of any of the following:

1. A promise to do something that one has no prior legal duty to do. 2. The performance of an action that one is otherwise not obligated to undertake (such as providing accounting services). 3. The refraining from an action that one has a legal right to undertake (called a forbearance).

A release is generally binding if:

1. Given in good faith 2. Stated in a signed writing (required by many states) 3. Accompanied by consideration

Elements that must be met for promissory estoppel:

1. There must be a clear and definite promise 2. Promisor should have expected promisee would rely on the promise 3. Promisee reasonably relied on the promise by acting or refraining from some act 4. Promisee's reliance was definite and resulted in substantial detriment 5. Enforcement of the promise necessary to avoid injustice

consideration is broken down into two elements:

1. something of legally sufficient value must be given in exchange for the promise, and 2. there must be a bargained-for exchange.

Legally sufficient value:

1. something of value in the eyes of the law; 2. may consist of any of these: -Promise -Performance -Forbearance

Age of majority for contracts

18 years old is the cutoff in most states

Know This

A bilateral contract is a promise for a promise, and a unilateral contract is performance for a promise.

mailbox rule

A common law rule that acceptance takes effect, and thus completes formation of the contract, at the time the offeree sends or delivers the acceptance via the communication mode expressly or impliedly authorized by the offeror.

mirror image rule

A common law rule that requires that the terms of the offeree's acceptance adhere exactly to the terms of the offeror's offer for a valid contract to be formed.

Promissory Estoppel

A doctrine that can be used to enforce a promise when the promisee has justifiably relied on it and when justice will be better served by enforcing the promise. -allows a party to recover on a promise even though that promise was made without consideration

When can a minor void a contract?

A minor only needs to clearly show an intention not to be bound by it at the option of that minor. exceptions: emancipated minors. they are treated as adults.

agreement

A mutual understanding or meeting of the minds between two or more individuals regarding the terms of a contract.

Unliquidated debt: (settlement of claims):

Accord and satisfaction can be used. - Amount of debt not settled / ascertained - Reasonable people disagree/differ over amount owed

Liquidated debt (Settlement of claims):

Accord and satisfaction cannot be used. - the amount was clearly ascertained (loans)

Acceptance

An acceptance is a voluntary act by the offeree that shows assent, or agreement, to the terms of an offer. The offeree's act may consist of words or conduct. The acceptance must be unequivocal and must be communicated to the offeror. Generally, only the person to whom the offer is made or that person's agent can accept the offer and create a binding contract. (See this chapter's Adapting the Law to the Online Environment feature for a discussion of how parties can sometimes inadvertently accept a contract via e-mail or instant messages.)

shrink-wrap agreement

An agreement whose terms are expressed in a document located inside a box in which goods (usually software) are packaged.

Termination by Action of the Parties

An offer can be terminated by action of the parties in any of three ways: by revocation, by rejection, or by counteroffer.

Destruction, Death, or Incompetence

An offer is automatically terminated if the specific subject matter of the offer (such as a smartphone or a house) is destroyed before the offer is accepted. An offeree's power of acceptance is also terminated when the offeror or offeree dies or becomes legally incapacitated, unless the offer is irrevocable.

counteroffer

An offeree's response to an offer in which the offeree rejects the original offer and at the same time makes a new offer.

What is not an offer:

Anger Drunk Person Statement of future intent Preliminary negotiations Expression of opinion

Abby gives Bobby $3K as consideration for Bobby releasing Abby from further liability resulting from the accident; what if the car repairs cost $4,000?

Bobby cannot go back and ask for more money.

Co-singing contracts:

Business ordinarily require parents to co-sign any contract entered into with a minor -parents then become personally obligated to perform the conditions of the contract, even if their child avoids liability.

Covenant not to compete:

Contractual promise of one party to refrain from business similar to that of another party for a certain period of time and within a specified geographic area. Courts don't like these because they go against public policy.

Adequacy (who decides of what's fair) general rule:

Courts do not typically get involved in determining adequacy as long as consideration is legally sufficient.

Performance

Doing an action that you are otherwise not obligated to undertake (provide accounting services, running a marathon)

Statements that are not offers:

Expressions of opinion. Statements of future intent. Preliminary negotiations. Invitations to bid. Advertisements and price lists. Live and online auctions.

True or false: when analyzing the legality requirement for a valid, enforceable contract, we only need to analyze whether the purpose of the agreement is legal under statuary law

False

Parents liability for contracts held liable to a minor

General rule: Parents are not liable for the contracts entered into by minor children acting on their own, except contracts for necessaries, which the parents are legally required to provide.

Voidable (mentally incomptent persons)

If a court has not previously judged a person to be mentally incompetent and the person did not know he or she was entering into the contract or the person lacked the mental capacity to comprehend its nature, purpose, and consequences -Can only be voided by the mentally incompetent person; not another party

Void (mentally incompetent persons)

If a court has previously determined that a person is mentally incompetent and has appointed a guardian to represent the person -only guardian can enter into binding contract on that person's behalf

Valid (mentally incompetent persons)

If person was competent when contract was formed -Lucid intervals: temporary periods of sufficient intelligence, judgement, and will

Contracts contrary to statute

If the object or performance of a contract is rendered illegal by statute after the contract has been formed, the contract is considered to be discharged/terminated (made illegal)

Termination by Action of the Offeree

If the offeree rejects the offer, either by words or by conduct, the offer is terminated. Any subsequent attempt by the offeree to accept will be construed as a new offer, giving the original offeror (now the offeree) the power of acceptance.

The power of the offeree to transform the offer into a binding, legal obligation can be terminated by operation of law through the occurrence of any of the following events:

Lapse of time. Destruction of the specific subject matter of the offer. Death or incompetence of the offeror or the offeree. Supervening illegality of the proposed contract.

Rejection

Like a revocation, a rejection is effective only when it is actually received by the offeror or the offeror's agent.

If you enter into a contract with a minor, can you disaffirm/void the contract because the contract was with a minor?

No, only a minor can disaffirm a contract.

Implied ratification:

Occurs when the minor, on reaching the age of majority, behaves in a manner inconsistent with disaffirmance

-Fraud, duress, or undue influence

Often, one party to an illegal contract is more at fault than the other party When one party uses fraud, duress, or undue influence to induce the other party to enter into an agreement, the second party will be allowed to recover for the performance or its value

Termination of the offer

Once an offer is made by offeror, offeree has the power to transform it into a binding, legal agreement if he or she accepts the offer -- but an offer does not last forever

Examples that lack consideration:

Preexisting duty, rescission, past consideration, illusory promise

Promise

Promising to do something that you otherwise have no prior legal duty to do (eg. to pay a supplier upon receiving goods)

Legality

Purpose must be to accomplish a goal that is legal and not against public policy

When covenant not to compete are allowed:

Reasonable in terms of time, geography, and scope.

Forbearance

Refraining from an action that you have a legal right to undertake. -not purchasing goods from another supplier -Hamer v. Sidway (uncle and nephew)

Revocation

Revocation. The offeror's act of withdrawing an offer is referred to as revocation. Unless an offer is irrevocable, the offeror usually can revoke the offer (even if he or she has promised to keep it open), as long as the revocation is communicated to the offeree before the offeree accepts. Revocation may be accomplished by either of the following: Express repudiation of the offer (such as "I withdraw my previous offer of October 17"). Performance of acts that are inconsistent with the existence of the offer and are made known to the offeree (for instance, selling the offered property to another person in the offeree's presence).

How an offeror can kill an offer

Revocation: withdrawal of an offer by the offeror -unless the offer is irrevocable, offeror can revoke at any time -offeror needs to communicate the revocation either by words or actions -offeror can communicate revocation via an agent -typically becomes effective when offeree receives it

Substitute Method of Acceptance.

Sometimes, the offeror authorizes a particular method of acceptance, but the offeree accepts by a different means. In that situation, the acceptance may still be effective if the substituted method serves the same purpose as the authorized means. Acceptance by a substitute method is not effective on dispatch, though. No contract will be formed until the acceptance is received by the offeror.

Ways an offer can die

Termination by Action of the Offeror Termination by Action of the Offeree Termination by Operation of Law

Definiteness

Terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract

forbearance

The act of refraining from an action that one has a legal right to undertake.

Generally, a contract must include the following terms, either expressed in the contract or capable of being reasonably inferred from it:

The identification of the parties. The identification of the object or subject matter of the contract (also the quantity, when appropriate), including the work to be performed, with specific identification of such items as goods, services, and land. The consideration to be paid. The time of payment, delivery, or performance.

Contractual capacity:

The legal ability to enter into a contractual relationship - Required by the law - For a party who enters into a contract - In order to be bound by that contract

Dissafirmance

The legal avoidance of a contractual obligation. (What minors do to get rid of a contract)

does the mailbox rule apply to instant forms of communication?

The mailbox rule does not apply to instantaneous forms of communication, such as when the parties are dealing face to face, by phone, by fax, and usually by e-mail. Under the Uniform Electronic Transactions Act (UETA—discussed later in this chapter), e-mail is considered sent when it either leaves the sender's control or is received by the recipient. This rule, which takes the place of the mailbox rule if the parties have agreed to conduct transactions electronically, allows an e-mail acceptance to become effective when sent.

Essential items for definiteness of an offer:

The parties The object or subject matter of the contract The consideration to be paid The time of payment, delivery, or performance

offeror

The party making an offer

What is the primary purpose of the Uniform Electronic Transactions Act?

The primary purpose of the UETA is to remove barriers to e-commerce by giving the same legal effect to electronic records and signatures as is given to paper documents and signatures.

Definiteness of the Offer

The second requirement for an effective offer involves the definiteness of its terms. An offer must have reasonably definite terms so that a court can determine if a breach has occurred and give an appropriate remedy. The specific terms required depend, of course, on the type of contract. Generally, a contract must include the following terms, either expressed in the contract or capable of being reasonably inferred from it:

Know This

The way in which a response to an offer is phrased can determine whether the offer is accepted or rejected.

Three elements are necessary for an offer to be effective:

There must be a serious, objective intention by the offeror. The terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract. The offer must be communicated to the offeree.

Covenant not to use

This is when parties simply agree that they are using the contract instead of a legal form of recovery.

Unequivocal Acceptance

To exercise the power of acceptance effectively, the offeree must accept unequivocally. This is the mirror image rule previously discussed. An acceptance may be unequivocal even though the offeree expresses dissatisfaction with the contract. For instance, "I accept the offer, but can you give me a better price?" or "I accept, but please send a written contract" is an effective acceptance. (Notice how important each word is!)

Know This

When an offer is rejected, it is terminated.

Are there any other ways in which to provide a party with consideration other than by paying money to that party?

Yes. Giving up the right to do something counts as well.

Exculpatory clause:

a clause that releases a contractual party from liability in the event of monetary or physical injury no matter who is at fault

Accord and satisfaction:

a common means of settling a disputed claim, whereby a debtor offers to pay a lesser amount than creditor purports to be owed

Intoxication:

a person's normal capacity to act or think is inhibited by alcohol or some other drug

Adhesion contract:

a standard form contract in which the stronger party dictates the terms

Three elements of a settlement agreement:

accord, satisfaction, release

Four elements of a valid contract

agreement, consideration, capacity, legality

Contractual capacity of a mentally incompetent person

contracts made by mentally incompetent persons can be void, voidable, or valid

agreement is evidenced by two events:

an offer and an acceptance.

Capacity

both parties must be comptetent

Employment contract

contract between employer and employee in which the terms and conditions of employment are outlined.

Contractual capacity of intoxicated persons:

contract entered into by an intoxicated person might be voidable at that person's option; he or she must return all consideration received. -Must prove the intoxication impaired his or her reason and judgement so severely that he or she did not comprehend the legal consequences of entering into the contract -Even though he or she voluntarily entered into it -Practically speaking, courts use an objective test -It is very hard to prove intoxication so greatly that the person could not comprehend legal ramifications.

Unconscionable

contract or clause that is void on basis of public policy because one party was forced to accept terms that are unfairly burdensome and unfairly benefit stronger party

-Severable contract

contract that is divisible because it consists of distinct parts that can be performed separately, with separate consideration given for each part -court may enforce the legal portion but not the illegal portion, so long as the illegal portion does not affect the essence of the bargain ex: employment agreement that includes an overly broad (illegal) covenant not to compete

A reasonable period of time

is determined by the subject matter of the contract, business and market conditions, and other relevant circumstances. An offer to sell farm produce, for instance, will terminate sooner than an offer to sell farm equipment because produce is perishable and subject to greater fluctuations in market value.

Procedural unconscionability:

lack of knowledge or understanding of the contract, which often involves inconspicuous print, unintellible language, lack of an opportunity to read the contract or ask questions about its meaning -party's lack of knowledge or understanding of the contract deprives him or her of any meaningful choice.

Legality:

purpose must be to accomplish a goal that is legal and not against public policy

Communication:

the offer must be communicated to the offeree. -Not effective until offeree receives offer -Reward not due if finder did not know of reward -Only the specific offereee(s) can accept.

offeree

the party to whom the offer is made

-Justifiable ignorance of the facts

the trucking company can still collect its fees because it didn't know what it was carrying.

-Members of protected classes

when a statue protects a certain class of people, a member of that class can enforce an illegal contract even though the other party cannot.

Substantive unconscionability:

when contract or a provision is oppressively or overly harsh -> focus on provisions that deprive one party of the benefits of the agreement or leave the party without remedy for nonperformance by the other ex: a contract to purchase a car that limits the buyer, the damages he/she can seek while providing a much higher limit for the seller (dealership)

Under which of the following scenarios is it possible to hav a voidable contract?

when one of the parties is a minor when one of the parties entered into the contract at the time when he/she lacked an understanding of what he/she was getting into when one of the parties was intoxicated at the time of entering the contract when one of the parties entered into the contract in reliance of a material misrepresentation or under duress ( all of the above )