Business Law #3

how would undue influence possibly occur?

a confidential relationship where one party can greatly influence the other provides an opportunity for undue influence. The essential feature is that the party taken advantage of does not exercise free will.

contracts to commit a crime (under: contracts contrary to staute)

a contract to commit a crime is illegal. If the contract is rendered illegal by statute after it has been entered into, the contract is discharged.

Frustration of purpose (under: discharge by operations of law)

a contract will be discharged if unforeseeable, intervening circumstances make it impossible to attain the purpose the parties had in mind

Minors (under contractual capacity)

a minor (under 17) can enter into any contract that an adult can enter into, as long as it is not prohibited by law (for example, the sale of alcohol)

A minor's obligation on disaffirmance (on contractual capacity)

a minor cannot dissafirm a fully executed contract without returning whatever goods have been received or paying their reasonable value.

**Objective impossibility of performance (under: discharge by operations of law)

a performance is objectively impossible in the unforceeable event of: 1. a party's death or incapacity 2. destruction of the specific subject matter 3. a change in law that makes performance illegal

collateral promises

a secondary promise, or a promise ancillary to a principle transaction (one person pays for the second person if the second person cannot pay it)

anticipatory repudiation

a term in the law of contracts that describes a declaration by the promising party to a contract, that he or she does not intend to live up to his or her obligations under the contract.

gambling (under: contracts contrary to staute)

all states regulate gambling (any scheme that involves distribution of property by chance among persons who pay for the chance to receive it.)

express ratification

when a person after reaching the age of majority, states orally or in writing that he or she intents to be bound by a contract

**the parol evidence rule

WRITTEN contract between parties is integrated into the FINAL expression of their agreement (not prior draft) Evidence of their prior negotiations/agreements/contemporaneous oral agreements that contradicts or varies the terms of the contract is not admissible at trial.

Is an intent to deceive (scienter) an element of fraud?

Yes, the misrepresenting party must know that facts are falsely represented

unconscionable contracts or clauses (under: contracts contrary to public policy)

a bargain that is unfairly one sided is unconscionable procedural unconscionability: (take it or leave it situation) (party's lack of knowledge/understanding of contract terms because of small print. an adhesion contract drafted by one party for his own benefit) may be held unconscionable. substantive unconscionability: (relates to the parts of a contract that are so unfairly one sided they "shock the conscience" of the court)

covenant not to compete (under: contracts contrary to public policy)

(an ancillary contract) this is enforceable if it is reasonable, determined by the length of time and the size of the area in which the party agrees not to compete.

*Collateral promise

(requires 3 parties) made by a 3rd party to a creditor to pay the debt of another, who is primarily obligated to pay the debt. Under the Statue of Frauds, collateral promises must be in writing to be enforceable.

Injury to the innocent party

*to rescind a contract most courts do NOT require proof of injury. TO RECOVER DAMAGES proof of injury is required. fraud=punitive damages often granted, on public policy ground of punishing the defendant or setting an example to prevent similar further wrongdoing

Exceptions to the Minor's right to disaffirm

-misrepresentation of age (minor can still disaffirm a contract in some states, but in others it is enough to prohibit disaffirmation) -doing some business as an adult: some states prohibit minors who engage in business as adults from disaffirming related contracts -contracts for necessaries: food, clothing, shelter, medicine, hospital care (whatever a court believes is necessary to maintain a person's status) a minor may disaffirm a contract for necessaries but will be liable for reasonable value

**exceptions to the parol evidence rule

1. contract was subsequently modified 2. Contract is voidable or void 3. the meaning of ambiguous terms 4. essential term is lacking in an incomplete contract 5. prior dealing, course performances, or usage of trade 6. an orally agreed-on condition precendent 7.obvious or gross clerical error

partial performance (under:exceptions to the statue of frauds)

1. contracts for the transfer of interests in land (if a buys pays part of the price, takes possession, and makes permanent improvements and the parties cannot be returned to their pre-contract status quo, a court a court may grant specific performance) 2.contracts covered by the UCC (oral contract is enforceable to the extent that a seller accepts payment or a buyer accepts delivery of the goods)

what are the elements of fraud?

1. misrepresentation of a material fact 2. an intent to decieve 3. an innocent party's justifiable reliance on the misrepresentation 4. to collect damages if they suffer on injury

Statute of Limitations for Contracts

3-5 Years

Assignment

=rights- Transfer of a contract right to a third party

*Assignments: Which Rights can be assigned?

All rights can be assigned unless— • A statute expressly prohibits assignment (ex: prohibit future worker's compensation benefits) • A contract is for personal services (rights cannot be assigned unless all that remains is a money payment. Personal services are unique to the person rendering them Rights to receive personal services are likewise unique and cannot be assigned) • An assignment will materially increase or alter the obligor's risk or duties

Impossibility of Performance

Commercial impracticability: change in law, death of person, destruction of property.

Commercial impracticability

Cost must have prohibitively increased.

Creditor Beneficiary (under: intended beneficiaries)

Creditor relationship, main purpose of contracting is to get rid of debt already owed.

*What does it mean if all the above misrepresentations occur and the deceived party suffered an injury?

Damages may be recovered. • The measure of damages is the property's value had it been delivered as represented, less the actual price paid. • Punitive damages may also be awarded.

*What is the one year rule?

From when the contract is formed: -the contract CAN POSSIBLY be performed within a year, the contract does not have to be in writing to enforceable One Year from the day after the date of contract formation: -if performance CANNOT POSSIBLY be completed within a year, the contract must be in writing to be enforceable

Donee Beneficiary (under: intended beneficiaries)

Giving third party the proceeds upon your demise

*What does it mean if all the above misrepresentations occur but the deceived party did NOT suffer an injury?

In most courts, THE CONTRACT MAY BE RESCINDED.

*Should the assignee notify the obligor of the assignment?

Not legally necessary, but establishes— • Which of two or more assignees has the right to the obligor's performance • Only performance to the assignee can discharge the obligor's obligations

*What are the assignor's rights under an assigned contract?

On a valid assignment, effective immediately with or without notice, the assignor (the original party) can no longer enforce the contract.

Mutual Recision

Parties must make another contract

*What if the original contract prohibits assignment?

Rights that can be assigned even if a contract prohibits assignment include— • A right to receive money • Ownership rights in real estate • Rights in negotiable instruments • A right to receive damages for breach of a sales contract or for payment of an account owed (even if contract prohibits it)

*What does it mean if the deceived justifiably relied on the misrepresentation?

The deceived party— • Must have a justifiable reason for relying on the misrepresentation • Must have been induced to enter the contract by the misrepresentation • Must not have known the true facts • Must not have relied on obviously extravagant statements

Reliance on the misrepresentation

The misrepresentation must be reliant in inducing the party to contract. Reliance is not justified if the party knows the truth/relies on obviously extravagant statements, or the defect is obvious.

*What does it mean where there is a misrepresentation of a material fact?

The misrepresentation— • May take the form of words or action • Must be a statement of fact, not of opinion

*What does it mean when the misrepresenting party has an intent to deceive?

The misrepresenting party— • Must know the misrepresented fact is not as stated • Must believe that the statement is not true • Must make a statement recklessly without regard for the truth • Or must express or imply that a statement is made on some basis when it is not

*Unconscionable contract or clause definition?

This is as contract or clause that is void for reasons of public policy

**contracts for sales of goods

UCC requires a writing for a sales of goods priced at $500 or more. A written memo or a series of writings may satisfy the requirement.

**Temporary impossibility (under: discharge by operations of law)

an event that makes it temporarily impossible to perform will SUSPEND PERFORMANCE until the impossibility ceases

Condition

an event, which is not certain to occur, but it must occur, in order to mature the particular duty

*Exception--"Main Purpose Rule" (under collateral promises)

an oral promise to answer for the debt of another is enforceable if the guarantor's main purpose is to secure a personal benefit

*Contracts contrary to public policy

contracts in restraint of trade=normally unenforceable unless the restraint is reasonable under the circumstances such as in some covenants not to compete contracts to commit a tort=are always unenforceable exculpatory clauses=may be deemed unconscionable adhesion contracts= may be unenforceable if entered into because of one's party's superior bargaining power unconscionable contracts=must not be so unfair as to be oppressive discriminatory contracts=illegal when discrimination is based on race, color, disability, religion, national origin, age, or gender.

statute of fraud

contracts involving certain subject must be in writing to be enforced

what are the forms of an assignment

can be oral or written. assignments under statue of frauds must be in writing to be enforceable. most states require contracts for the assignment of wages to be in writing.

contracts in restraint of trade (under: contracts contrary to public policy)

competition in the economy is favored so contracts that restrain or trade or violate an antitrust statue are prohibited

*What are factors that courts consider with substantive unconscionability

does a provision deprive one party of the benefits of the agreement? Does a provision leave one party without a remedy for nonperformance by the other?

Discharge

doing what was promised. Complete performance.

delegations

duties are delegated. the party making delegation=delegator, party where duty is delegated=delegatee

**delegation=?

duty • B has a duty to mow the lawn. • *If there is an assignment of all rights, there is an assumption of delegation, Not duty

usury (under: contracts contrary to staute)

every state sets rates of interest charged for loans (exception: are made for certain business deals). Charging a higher rate is usury. Fed law limits interest and fees on credit cards.

online gambling (under: contracts contrary to staute)

fed law bars electronic payments, such as credit-card transactions, to online gambling sites.

Duress

forcing a party to enter into a contract BY THREATENING THE PARTY WITH A WRONGFUL OR ILLEGAL ACT--(ex: threatening blackmail/extortion=committing duress)

are statements of opinion an element of fraud?

general not. but when a naive purchaser relies on an expert opinion, the innocent party may be entitled to rescission or reformation (an alteration of the terms of the contract to reflect the parties' true intent.

parent's liability

generally, parents are not liable for contracts made by their minor children acting on their own

undue influence

if a contract enriches a party at the expense of another who is dominated by the enriched party, the contract is voidable

admissions (under:exceptions to the statue of frauds)

if a party admits in pleadings/testimony/court that a contract was made, the contract will be enforceable. Under UCC contract will be enforceable only to the extent of the quantity admitted

bilateral/mutual mistakes of fact (of contracts)

if both parties are mistaken as to a MATERIAL FACT, either party can rescind the contract. also true if they attach different meanings to a term subject more than one reasonable interpretation.

When does scienter exist?

if party 1. knows the fact is not as stated 2. makes a statement he/she knows isn't true or makes it recklessly without regard to truth 3. says/implies that statement is made on a basis such as personal knowledge when it is not

licensing statutes (under: contracts contrary to staute)

in some states the lack of a required business or professional license bars the enforcement of work-related contracts illegal contracts: if a licensing statute's purpose is to protect the public from unauthorized practitioners, a contract with an unlicensed individual is illegal enforceable contracts:if the purpose of the statute is to raise revenue, a contract entered into with an unlicensed practitioner is enforceable

*Contractual capacity

incapacity: Contracts (requires 2 parties) entered into by minors, mentally incompetent persons, or intoxicated persons are in most cases voidable by those persons. Capacity: REASONABLE TIME Contracts entered into by minors, mentally incompetent persons, or intoxicated persons are voidable by those persons for a reasonable time after they reach the age of majority, or become mentally competent or sober.

*What are factors that the courts consider with procedural unconscionability?

is the print inconspicuous? Is the language unintelligible? Did one party lack an opportunity to ask questions about the contract? Was there a disparity of bargaining power between the parties?

contracts involving any interests in land

land includes all objects permanently attached, such as trees. Contracts to transfer interests in land (such as leases) must be in writing

is misrepresentation by silence an element of fraud? (with exceptions)

no party to a contract has a duty to disclose facts exceptions: -latent defects (a serious defect the seller knew but buyer couldn't have possibly suspected, the seller may have a duty to inform) -fiduciary relationships: (if one party knows facts that materially affect the other's interests, they must be disclosed)

Innocent Misrepresentation

occurs when a person misrepresents a material fact without intent to defraud (Believes it to be true). The party who relies on the statement to his/her detriment can rescind the contract

Repudiation

occurs when one party, by words or conduct, evinces an intention not to perform part or all of the contract.

promissory estoppel (under: exceptions to the statue of frauds)

oral contract may be enforced if: 1. promisor makes a promise on which the promisee justifiably relies to his or her detriment, 2. the reliance was forseeable to the proimsor and 3. injustice can be avoided only by enforcing the promise

special exceptions under the UCC (under: exceptions to the statue of frauds)

oral contracts may be enforceable under UCC including those customized goods and those between merchants that have been confirmed in writing.

what are the exceptions to unilateral mistake of fact?

other party's knowledge -may not be enforceable if the other party knows or should have known that a mistake was made mathematical mistakes -conduct may not be enforceable if a significant mistake in addition,subtraction, division, or multiplication was inadvertent and made without gross negligence

**Commercial impracticability (under: discharge by operations of law)

performance may be excused if it becomes significantly more difficult or expensive than contemplated when the contract was formed.

**Promises made in consideration of marriage

prenuptial and postnuptial agreements must be in writing to be enforceable (consideration and voluntary consent are also required)

*primary vs. secondary obligations (under collateral promises)

primary obligation does not need to be in writing to be enforceable. a promise by a third party to assume the debts or obligations of a primary party, if the primary party does not perform, is a secondary obligation and must be in writing to be enforceable.

**assignment=?

rights • may transfer contract to 3rd party; the right to retain/have.

Ratification

the act of accepting and thereby giving legal force to an obligation that was previously unenforceable

Substantial Performance

the party must have performed in good faith, must not have varied greatly, must create substantially the same benefits.

is misrepresentation by law an element of fraud?

this does not entitle the party to relief, unless the misrepresentation party is in a profession known to require greater knowledge of the law than a layperson has

*What is substantive unconscionability?

this exists when a contract, or one of its terms is oppressive or overly harsh

*Procedural unconscionability

this occurs if a contract is entered into, or a term becomes part of the contract, because of a party's lack of knowledge or understanding of the contract or its term.

Negligent misrepresentation

this occurs when a person misrepresents a material fact by failing to exercise reasonable care in uncovering/disclosing the facts/not using the skill and competence required by the business. This is treated as fraudulent misrepresentation.

what is duress NOT?

threatening to exercise a legal right or taking advantage of another's eonomic need (unless the party exacting the price also creates the need) does not give rise to the duress

How can misrepresentation occur?

through words or conduct

*What are the contract contrary to statue?

usurious loans=illegal if the interest rate exceeds legal limit gambling contracts=illegal depending on the statute contracts to commit a crime=are always illegal contracts on sunday=some state laws prohibit entering or performing certain contracts on sunday contracts by unlicensed persons=may not be enforceable depending on the purpose of the statute.

unilateral mistakes of fact (of contracts)

when 1 contracting party makes a mistake as to some material fact, he or she is NOT entitled to relief from the contract

implied ratification

when a minor performs acts inconsistent with disaffirmance or fails to disaffirm an executed contract within a reasonable time after reaching the age of majority

Performance to the Satisfaction of another

when the subject matter of the contract is personal, the performance must be personal.

is misrepresentation by conduct an element of fraud?

yes, including concealing a fact material to the contract

*What are the intoxicated persons exceptions to contractual capacity?

• A contract is enforceable if an intoxicated person understands its legal consequences at the time of contracting.

*What are the mentally incompetent persons exceptions to contractual capacity?

• A mentally incompetent person is liable for the reasonable value of necessaries on disaffirmance

*What are the minors exceptions to contractual capacity?

• A minor who commits fraud may be denied the right to disaffirm. • A minor must return received goods on disaffirmance or may be liable for their reasonable value. • A minor is liable for the reasonable value of necessaries on disaffirmance.