BUS 315 chapter 11-15

Adhesion Contract:

"take-it-or-leave-it" contract, such that the adhering party has no opportunity to negotiate the terms of the contract.

Ratification: Accepting and giving legal force to an obligation that previously was

(1) not enforceable or (2) voidable. Ratification may be either express or implied.

Implied Ratification: a person lacking capacity at the time they formed a contract may, upon (re-)gaining the necessary capacity to do so, impliedly ratify the contract

(a) by acting in a manner that is clearly inconsistent with disaffirmance or avoidance, or (b) in the case of a minor, by failing to disaffirm within a reasonable time after reaching the age of majority, or (c) in the case of an intoxicated person, by failing to disaffirm within a reasonable time after regaining sobriety.

Promise

a person's declaration that he will perform or refrain from performing some present or future act.

UETA applies ONLY if

all parties to a transaction have explicitly or impliedly agreed to conduct the transaction using electronic means.

Contracts, Lotteries, Reward and Prizes:

competitions involving prizes are examples of offers to form unilateral contracts. If a person complies with the rules of the contest, a unilateral contract is formed.

Acceptance by Silence

generally, silence (or inaction) is not acceptable- even when offer indicates that silence or inaction will be taken as acceptance. EXCEPT: Acts Consistence with Acceptance, Prior Dealings, Unilateral Contract

By contrast, an executory contract is a contract that

has not yet been fully performed by one or more parties.

Express Ratification:

person lacking capacity at the time they formed a contract may, upon (re-)gaining the necessary capacity to do so, expressly ratify the contract by stating, orally or in writing, they intend to be bound by the contract.

When a minor disaffirms a contract, he can

recover all property that he has transferred as consideration - even if it was subsequently transferred to a third party.

Unconscionable Contracts:

terms that unfairly burden one party and unfairly benefit the other.

For accord and satisfaction to occur,

the amount of the obligor's debt to the obligee must be in dispute, or unliquidated.

Genuineness of Assent

the apparent consent of both parties must be genuine.

Legality

the contract's purpose must be to accomplish some goal that is legal and not against public policy.

Counteroffer

the offeree's rejection of the original offer, coupled with the original offeree's new offer to the original offeror

Once the offeree of a unilateral contract begins to perform,

the offeror loses the ability to revoke her offer

Unilateral Contract requires acceptance by some action on the part of the offeree, acceptance is usually evidenced by the action; therefore notification is unnecessary- unless

the offeror specifically requested notification or has no means to determine whether the requested act has been performed.

If party lacked the ability to comprehend the legal consequences of entering into the contract,

then they may avoid the contract, even if intoxication was purely voluntary.

Disaffirmance must be

timely

Contracts made by mentally incompetent parties may be

void, voidable, or valid, depending on the circumstances.

The "Mailbox Rule": Unlike a rejection or counteroffer, which takes effect when the offeror receives it, an acceptance generally takes effect when the offeree properly dispatches it to the offeror

1. by any means the offer expressly authorizes; or 2. by any means that is as fast as or faster than the slowest method the offer expressly authorizes or by U.S. Mail, unless the offer's terms expressly prohibit the offeree from accepting using a particular means.

Intent to offer: a variety of common statements generally are not offers, including

1. expressions of opinion; 2. statements of intent; 3. preliminary negotiations; 4. auctions and other invitations to bid, negotiate, or contract, including forms of advertisement; and 5. agreements to agree to one or more material contract terms or conditions at some later date.

Legally sufficient consideration may take the form of:

1. promising to do something that the promisee has no prior legal duty to do (e.g., promising to pay money for the offeror's goods); 2. performing an action that the promisee is not obligated to undertake (e.g., painting the offeror's house); or 3. refraining from exercising a legal right that the promisee is otherwise entitled to exercise (e.g., dismissing a viable lawsuit against the offeror).

Requirements of acceptance

1. the acceptance must be unequivocal and the oferee generally must communicate it to the offeror 2. a third party cannot accept an offer made solely to someone else

Requirements of an offer

1. the offer must seriously intend to perform or refrain as offered. 2. the offer's terms must be reasonably certain 3. the offeror must communicate the offer to the offeree

Promissory estoppel requires the following elements:

1. the promise was clear and definite; 2. the promisor should have expected the promisee to rely on the promise; 3. the promisee reasonably relied on the promise; 4. the promisee's reliance was substantial and of a definite character; and only enforcing the promise will avoid injustice.

Fact, Not Opinion:

A party may not avoid a contract due to a mistake regarding a thing's value (unless due to a factual mistake about the thing), an opinion (unless falsely held), or a prediction that does not come true.

Disaffirmance:

A person with the option to avoid a contract due to lack of capacity may do so by manifesting, by words or actions, his intent not to be bound.

Preexisting Duty:

A promise to do (or refrain from doing) what one already has a legal duty to do (or refrain from doing) generally does not constitute legally sufficient consideration.

Contract Requisites

Agreement, Consideration, Contractual Capacity, Legality, Genuineness of Assent, Voluntary Consent, and Form

Electronic Signatures in Global and National Commerce Act (E-SIGN):

Federal statute recognizing the validity of electronic contracts, records, and signatures.

Restrictive Covenants in Employment Contracts:

Many employment agreements require the employee to refrain from working for a competitor or starting a new business in competition with the employer for a reasonable period of time, and within a reasonably defined geographic area.

Uniform Electronic Transactions Act (UETA):

Model state law - enacted by 47 states and D.C. - recognizing the validity of electronic contracts, records, signatures, and notarization.

Mistake of Fact:

The parties entered into a contract with different understandings of one or more material facts relating to the contract's performance.

Unconscionability:

A court may invalidate a clause or an entire contract if the court finds the clause or contract to be substantively unconscionable, the product of procedural unconscionability, or both.

Negligent Misrepresentation:

A material misrepresentation made without knowledge of or reckless disregard for its falsehood and without intent to deceive.

Mutual Mistake:

A mistake by both contracting parties about one or more material facts generally entitles (but does not compel) either party to rescind.

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.

Click-On Agreement

An agreement that arises when a buyer/lessee/licensee completing a transaction online indicates her assent to be bound by the terms of an offer by clicking on a button or checking a box that says, e.g., "I accept" or "I agree." The terms of the agreement may appear on the screen or on a related Web page or site.

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.

E-Signature:

An electronic sound, symbol, or process attached and executed or adopted by a person with the intent to sign the electronic record.

Quasi Contract

a legal fiction a court imposes, in the interests of fairness and justice, on parties who have not formed an enforceable contract, typically to (1) prevent the unjust enrichment of one party at the expense of the other, and (2) allow the party whose actions would otherwise unjustly enrich the other party to recover the value of the unjust enrichment.

Minor's Obligations on Disaffirmance:

a majority of states require only that the minor return any goods or other consideration in his possession. However, a growing number of states further require that the minor take additional steps to restore adult to a position in prior to entering the contract.

"Mirror Image" Rule

an offeree's acceptance must match the offeror's offer exactly. If the offeree's acceptance non-trivially changes, adds to, or deletes any terms in the original offer, it is treated as a counteroffer, rather than an acceptance.

Acceptance

an offeree's statement or act indicating assent to the offer's terms.

Revocation

an offeror may withdraw his offer by communicating the revocation to the offeree any time before the oferee accepts.

Offer

an offeror's promise or commitment to perform or refrain from performing some specified act presently or in the future.

An enforceable contract is

an otherwise valid contract rendered unenforceable by some statute or law (ex, an oral contract that, due to the passage of time, must be evidence by a writing to be enforceable)

A voidable contract is

an otherwise valid contract that one of the parties may legally avoid, cancel, or annul (ex, a contract entered into under duress or under false pretenses)

Only the incompetent party has the option of disaffirming his contractual obligations;

any competent party to the contract remains bound.

Unilateral Contract

arrises when the offeree can only accept the offer by performance (ex, X delivers a car to Y, who promises to pay X an agreed price)

Bilateral Contract

arrises when the offeror gives her promise in exchange for the offeree's return promise.

Consideration is bargained for if

offeror sought it in exchange for his promise or commitment and the offeree gave it in exchange for the offeror's promise or commitment.

Only the minor may disaffirm; any adult party to the contract

remains bound unless and until the minor's disaffirmance releases her.

Courts generally do not inquire into the value of bargained-for consideration - although

some courts will make an exception for grossly inadequate consideration.

Duress

Compelling an innocent party to enter into a contract by threatening to harm him or another person, or his livelihood, if he does not agree to the contract. 1. Duress is grounds for rescission.

Voidable, Not Void:

Contracts entered into under a mistake of fact are not void; rather, the adversely affected party may, but need not, avoid the contract.

Voluntary Consent

Each party must give its consent voluntarily.

Promissory Estoppel:

If a promisor makes a clear and definite promise on which the promisee justifiably relies, the promisor may be bound by the promise, even if it was insufficient to form the basis of a binding contract.

Illusory Promise:

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 contract is unenforceable for lack of sufficient consideration.

Consideration

Legally sufficient value that an offeror bargains for and an offeree gives in exchange for the offeror's offer.

Injury:

Most courts do not require the innocent party to prove an injury in order to rescind the contract (returning the parties to their pre-contractual positions). However, if the innocent party seeks to recover damages, she must prove that the misrepresentation caused her economic harm.

Agreement

Mutual assent to a contract's essential terms, voluntarily manifested through offer and acceptance.

Past Consideration:

Promises made in return for acts or events that have already taken place are unenforceable for lack of consideration.

Misrepresentation by Conduct:

The conduct of a party - particularly a party's concealment of some material fact from the other party - will support an excuse of misrepresentation.

Justifiable Reliance:

The innocent party must have acted based on (although not solely based on) the misrepresentation; and she must have had a justifiable reason for doing so.

Implied-in-Fact Contract

a contract formed in whole or in part by the conduct (as opposed to the words) of the parties.

A void contract is

a contract having no legal force or binding effect (ex, a contract entered into for an illegal purpose)

Express Contract

a contract in which the terms of the agreement are explicitly stated orally or in writing.

Valid Contract

a contract satisfying the requisites discussed earlier- agreement, consideration, legal purpose, capacity and form.

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.

Formal Contract

a contract that requires a specific form or method of formation (creation) in order to be enforceable. ex, Promissory note, checks, certificate of deposit

If the parties clearly failed to agree (as distinct from having not agreed) on a particular term,

a court will not supply a reasonable term for them.

Proving someone's degree of intoxication or sobriety at time in the past,

is difficult. Most courts look for objective indications that the intoxicated party possessed or lacked the necessary capacity.

The minor must disaffirm the contract in

its entirety.

Usually, an unmarried legal minor (in most states, someone less than 18 years old)

may avoid a contract that would bind him if he were an adult.

Unless an offer is irrevocable, the offeror

may revoke an unaccepted offer without liability

Contractual Capacity:

minimum mental capacity the law requires to bind a party who enters into a contract.

Misrepresentation by Silence:

neither party to a contract has a duty to come forward and volunteer facts unless the other party asks. However, common and statutory law create a duty to speak in certain situations (e.g., where one is aware of a serious defect or serious risk of injury).

Emancipation: minor may lose the right to disaffirm due to age if, before entering into contract:

(1) a court/state official divested the parents/guardian of legal control, (2) parents or legal guardian voluntarily relinquished legal control, or (3) minor has engaged in business as an adult.

Predictions and Expressions of Opinion: Generally, these will not excuse the innocent party, unless the person making the prediction or stating the opinion:

(1) has superior knowledge of the subject matter and knows or has reason to know that the innocent party intends to rely on the statement; or (2) disbelieves the prediction or does not genuinely hold the stated opinion.

Fraudulent Misrepresentation: An innocent party induced to enter into a contract by a misrepresentation of material fact may avoid the contract because she did not genuinely assent. In order to do so, she must establish that the other party:

(1) knowingly, or with reckless disregard for the truth, and (2) with the intent to deceive the innocent party, (3) misstated or omitted a material fact on which (a) reasonable person would rely in deciding whether and on what terms to enter into the contract and (b) the innocent party did rely to her detriment

Scienter: A defendant acts with the intent to deceive if he:

(1) knows a statement to be false, (2) makes a statement he reasonably believes to false, (3) makes a statement recklessly, without regard to its truthfulness or falsity, or (4) implies that he bases the statement on information or expertise on which it is not, in fact, based.

Unless the offer expressly states otherwise, an acceptance cannot take effect until the offeror receives it if

(1) offeror conditioned his offer on receiving the offeree's acceptance; (2) the offeree improperly dispatched her acceptance; (3) offeree communicated her acceptance using an unauthorized (but not expressly prohibited) means; or (4) offeree dispatched her acceptance after dispatching a rejection or counteroffer (but the offeror received the acceptance first).

Unilateral Mistake: A mistake by one contracting party about one or more material facts generally will not excuse the mistaken party's performance unless:

(1) other party to the contract knew or should have known of the mistake; or (2) mistake was mathematical & made inadvertently -not by gross negligence.

A person lacks contractual capacity when they entered into a contract if:

(1) person was a minor; (2) person was mentally impaired, including impairment due to voluntarily consuming alcohol or drugs; (3) person was mentally incompetent, but had not been adjudged incompetent and was not under the care of a legal guardian.

To avoid enforcement of a contract based on adhesion, the adhering party must show:

(1) the parties had substantially unequal bargaining positions, and (2) enforcement against the adhering party would be manifestly unfair.

To establish an implied-in-fact contract,

(1) the plaintiff must have furnished some service or property to the defendant, (2) the plaintiff reasonably expected to be paid and the defendant knew or should have known that a reasonable person in the plaintiff's position would have expected to be paid for the service or property rendered, and (3) the defendant must have had the opportunity to reject the service or property and failed to do so.

In keeping with the objective theory of contract, intent is generally ascertained by considering

(1) the words used by the parties in the agreement, (2) the actions of the parties pursuant to the agreement, and (3) the circumstances surrounding the agreement as they would be interpreted by a reasonable person - rather than by considering the parties' subjective intentions (usually expressed after the fact).

A contract formed electronically must meet the same requirements (except as to form) as a traditional contract. An online offer to form a contract should clearly and conspicuously state:

(1) whether the offer is to sell, lease, or license, (2) how the offeree may accept, (3) how and amount offeree may pay, including taxes and shipping costs, (4) the offeror's return and refund policy (if applicable), (5) any liability disclaimers or limitations, (6) offeree's remedies (and limits thereon), and (7) how the offeror will handle information it gathers, or the offeree provides, before and after acceptance.

Statutes do not allow certain types of contracts or contractual provisions. For example:

1. Criminal Activity: A contract to commit a crime is void and unenforceable. 2. Usury: the maximum rate of interest that can legally be charged for different types of transactions, including ordinary loans. Usurious contracts are illegal, and may be void in their entirety, >21% in RI. 3. Gambling contracts are illegal and unenforceable, even in states that permit gambling. 4. Licensure: All states require that certain professionals (e.g., attorneys, doctors, architects) obtain a license from the state; many states also license skilled workers (e.g., dental hygienists, electricians, plumbers).

Examples of irrevocable offers

1. offers on which the offeree has justifiably relied to her detriment (aka promissory estoppel) 2. firm offers for the sale or purchase of goods made by a merchant and subject to the provisions of the UCC and 3. option contracts, under which the offeror, in exchange for valuable consideration from the offeree, cannot revoke her offer for a stipulated time period during which the offeree has the sole right of acceptance. The offeree must give the offeror consideration for the option to make the option binding and the offer irrevocable.

Definiteness: generally, an offer must express the following terms

1. the offeror's and offeree's identities; 2. the object or subject matter of the offer (ex, quantity of goods, work to be performed, specific identity of unique goods); 3. the consideration due; and 4. the time of payment, delivery or performance.

Undue Influence arises from relationships in which one party can influence another party to the point of overcoming the influenced party's free will. :

1. undue influence requirement is that the party being influenced does not genuinely assent of her own free will. 2. If a contract enriches a party at the expense of another whom the enriched party dominates or to whom the enriched party owes fiduciary duties, courts will often presume undue influence. 3. Undue influence is grounds for rescinding (or canceling) the contract.

Void Contract:

A party who has been adjudged mentally incompetent by a court of law prior to entering into a contract, and who has a court-appointed guardian, cannot enter into a legally binding contract - only the guardian may enter into binding contracts on behalf of the incompetent party.

Voidable Contract:

A party who has not been adjudged mentally incompetent by a court of law may, nonetheless, avoid a contract if, at the time of contracting, the party (1) did not know they were entering into a contract or (2) lacked the mental capacity to understand its nature, purpose, and consequences.

Right to Disaffirm:

A person entitled to avoid a contract due to intoxication must disaffirm while still intoxicated or within a reasonable time after becoming sober.

Valid Contract:

An otherwise incompetent party who understood the nature, purpose, and consequences of entering into the contract is bound by it.

Procedural Unconscionability:

Arises when one party to the contract lacks or is deprived of any meaningful choice regarding the terms of the contract due to inconspicuous print, unintelligible language, lack of opportunity to read the contract before signing, or lack of bargaining power.

Substantive Unconscionability:

Arises when the contract contains terms that deprive one party of the benefit of its bargain or of any remedy in the event of breach by the other party.

Contract Types

Bilateral, Unilateral, Formal, Informal, Express, Implied-in-Fact, Executed, Valid, and Quasi

Contractual Capacity

Both parties must be legally competent to enter into the agreement.

Restrictive Covenants in the Sale of a Business:

Many agreements for the sale of an ongoing business require the seller not to open a competing business within a specified area including the business being sold.

Releases are generally binding if they are,

a. given in good faith, b. written, and c. accompanied by consideration.

Contract

an agreement between two or more competent parties, for valuable consideration, to perform or refrain from performing some present or future act.

Contracts entered into by young children and contracts for something the law permits only for adults (e.g., a contract to purchase cigarettes or alcohol) are

generally void, rather than voidable.

1. Objective Theory of Contract

the parties' assent is judged not by the subjective intent of each party, but by the objective content that a similarly situated reasonable person would understand the parties to have. (a) what the party said when entering into the contract. (b) how the party acted or appeared (c) the circumstances surrounding the transaction

Courts typically will not allow a party to recover in quasi contract if

the party conferring the benefit did so officiously (e.g., if a car dealership applies, without your asking or agreeing to have it do so, an expensive finish to a car you agreed to buy, but before you take delivery, you should not have to pay for the unsought benefit) or (2) as a result of misconduct (e.g., a relative's murderer cannot use quasi contract to recover a portion of your inheritance) or negligence (e.g., a driver who falls asleep at the wheel and loses control of his car, which ends up sideways on the sidewalk in front of you, cannot recover in quasi contract for preventing you from falling into an open manhole in the sidewalk).

Offeror

the person proposing an agreement.

Offeree

the person to whom the offeror proposes the agreement.

Misrepresentation of Law:

this will not usually excuse the innocent party, unless the speaker is a judge, legislator, or attorney, or otherwise a member of a profession that requires greater knowledge of the law than possessed by the average citizen.

under the "unforeseen difficulties" doctrine, an existing contract may be modified to account for

unforeseen difficulties that arise during the course of performance. In such a case, the promisee's obligation under the modified contract is new consideration. Likewise, if the parties agree to replace an existing contract with a new, superseding contract, the promise to perform the new contract is a new promise; and, thus, not a promise to perform a pre-existing legal duty.