Business law midterm Ch 12-15

To be enforceable, the following types of contracts must be in writing and signed

-Contracts involving interests in land. -Contracts that cannot (by their terms) be performed within one year from the day after the date of formation. Collateral, or secondary, contracts. -Promises made in consideration of marriage. -Under the Uniform Commercial Code (UCC), contracts for the sale of goods priced at $500 or more

uTermination of Offer: Termination by Action of the Offeree

-Counteroffer: Rejection of original offer and the simultaneous making of a new offer. -"Mirror Image" Rule: At common law, any change in terms automatically terminates the offer and substitutes the counteroffer.

uTypes of Contracts:Bilateral versus Unilateral Contracts

-Every contract involves at least two parties. -The offeror is the party making the offer. -The offeree is the party to whom the offer is made. -Bilateral: Offeree must only promise to perform ("promise for a promise"). -Unilateral: Offeree can accept the offer only by completing the contract performance ("a promise for an act")

Types of Contracts: Executed versus Executory Contracts

-Executed: A contract that has been fully performed by both (or all parties). -Executory: A contract that has not been fully performed by one or more parties: something else still needs to be done by one or more of the parties

Types of Contracts: Express versus Implied Contracts

-Express: The terms of the agreement (oral or written) are explicitly stated. -Implied (in Fact): Conduct creates and defines the terms of the contract. -A contract can be a mixture of an express and an implied contract—with some express terms and implied terms.

Types of Contracts: Formal versus Informal Contracts

-Formal Contract: A contract that requires a special form or method in order to be enforceable. -Informal Contract: A contract that does not require a specified form or method of formation in order to be valid

Online Offers: Dispute Settlement Provisions

-Forum-Selection Clause: Location or jurisdiction where disputes will be resolved. -Choice-of-Law Clause: Disputes will be settled in accordance with law of particular jurisdiction

Discharge by Agreement: Discharge by Novation

-Substitution of a new third party for one of the original parties. Requirements: -Previous valid obligation. -Agreement by all parties. •Extinguishment of all old obligations. New valid contract. •A novation expressly or impliedly revokes and discharges a prior contract.

Minors: Disaffirmance

-The legal avoidance, or setting aside, of a contractual obligation. -A minor must express his or her intent, through words or conduct, not to be bound to the contract. -The minor must disaffirm the entire contract, not merely a portion of it.

Performance and Discharge

-The most common way to discharge, or terminate, contractual duties is by the performance of those duties -A party's obligation to perform can also be discharged in other ways such as by agreement. -Sometimes promises are not completely performed as stated in the contract, or one party refuses to perform.

Requirements of the Offer: Communication

-The offer must be communicated to the offeree. -One cannot agree to a bargain without knowing that it exists -there needs to be some form of communication that you are accepting the contract

Mode and Timeliness of Acceptance: Authorized Means of Acceptance

-The offer specifies (expressly or impliedly) how acceptance should be made. -No acceptance if authorized means is not used. -If a certain mode of acceptance is not expressly authorized, then acceptance can be made by any reasonable means

Termination by Action of the Offeror

-The offeror's act of revoking (or withdrawing) an offer is known as revocation -Unless an offer is irrevocable, the offeror usually can revoke the offer, as long as the revocation is communicated to the offeree before the offeree accepts. -Irrevocable offers cannot be revoked -Rejection: The offeree's rejection of the offer (in words or conduct) terminates the offer. It is effective only when it is received by the offeror or offeror's agent -Inquiries about an Offer:Merely inquiring about the "firmness" of an offer does not constitute rejection.

Consideration

- usually defined as the value given in return for a promise (in a bilateral contract) or in return for a performance (in a unilateral contract). -Generally, consideration must have: -"Legally Sufficient Value" and "Bargained-for-Exchange" -Consideration in bilateral contracts normally consists of a promise in return for a promise -Unilateral contracts involve a promise in return for a performance (an action)

Online Acceptances:Click-On Agreements

-A binding contract can be formed by clicking on a box indicating "I Accept" or "I Agree." Contract can be formed via Web site or software. -Law does not require that parties read all the terms

Legality

-A contract is valid and enforceable only if it is formed for a legal purpose. -A contract to do something that is prohibited by federal or state statutory law is illegal, void from the outset, and unenforceable.

Discharge by Performance: Substantial Performance

-A party in good faith that performs substantially all of the terms can enforce the contract. -Confers most of the benefits promised: performance must not vary greatly from what was promised -Party must have performed in good faith. -Performance must not vary greatly from the performance promised in the contract. -Performance must create substantially the same benefits as those promised in the contract

Duress

-A party who enters into a contract under fear or threat makes the contract voidable. -Threatened act must be wrongful or illegal and render person incapable of exercising free will. -The threat of civil suit is not unlawful

Form: Statute of Frauds

-A statute requiring that certain types of contracts be evidenced by a signed writing (or its electronic equivalent) in order to be enforceable -The statute denies enforceability to certain contracts that do not comply with its writing requirements: any contract dealing with real property needs to be in writing

Option Contract

-A type of irrevocable offer that is held open for a specified period of time in return for consideration.

Discharge by Agreement: Discharge by Accord and Satisfaction

-Accord: Contract to perform existing contractual duty not yet discharged. -Satisfaction: Performance of accord. -Once the accord has been made, the original obligation is only suspended until the accord agreement is fully performed

Requirements of a Valid Contract

-Agreement (offer and acceptance). -Consideration (legally sufficient and bargained for). -Contractual Capacity (all parties must be competent). -Legality(purpose of contract must be legal at time of execution)

Online Acceptances:Shrink-Wrap Agreements

-An agreement whose terms are expressed inside the box containing the goods. -Party opening box agrees to terms by keeping merchandise.

Federal Law on E-Signatures and E-Documents: E-Signature Technologies

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

Termination of Offer

-An offer can be terminated either by action of the parties or by operation of law.

Material Breach of Contract: Underlying Policy:

-Any breach entitles the nonbreaching party to sue for damages. Only a material breach discharges the nonbreaching party from the contract

Release

-Bars any further recovery beyond the terms stated in the release. A release will generally be binding if: -The agreement is made in good faith (honestly) -The release contract is in a signed writing (required in many states). -The contract is accompanied by consideration.

Conditions Precedent

-Condition that must be fulfilled before a party's performance can be required. -Requires absolute duty to perform

Bargained-for-Exchange

-Consideration must provide the basis for the bargain struck between the contracting parties -The item of value must be given or promised by the promisor (offeror) in return for the promisee's promise, performance, or promise of performance.

Silence as Acceptance

-Generally, silence (or inaction) cannot constitute acceptance but: -Prior Dealings: If the offeror and offeree have prior dealings, the offeree has the duty to reject or risk being bound by his silence -First time making a contract with someone there cannot be silence \

Discharge by Performance:Material versus Minor Breach

-If the breach is minor (not material), the nonbreaching party's duty to perform may be suspended until the breach has been remedied -Once the minor breach is cured, nonbreaching party must resume performance of contractual obligations.

Mode and Timeliness of Acceptance: Substitute Method of Acceptance

-If the offeree accepts the offer by a substitute means, the acceptance may still be effective if the substituted method serves the same purpose as the authorized means -A contract that is formed electronically (e-contract) must meet the same requirements (except as to form) as a traditional contract

Discharge by Operation of Law: Material Alteration of the Contract

-Innocent party is discharged after material alteration of contract terms. -in one party alters the contract materially then the other party is free from the contract

Termination of Offer: Termination by Operation of Law

-Lapse of Time: Offer terminates by law when the period of time specified in the offer has passed -If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time. -Destruction of the Subject Matter: If it occurs before acceptance of the offer, then the offer is canceled. -Death or Incompetence of the Offeror or Offeree: Automatically terminates the offer unless it is an irrevocable offer. -Supervening Illegality: Legislation or court decision automatically terminates a previously valid offer or renders a contract unenforceable

Online Acceptances: Browse-Wrap Agreements

-Like click-on agreements, browse-wrap terms can occur in transactions over Internet. -Unlike click-on agreements, browse-wrap terms do not require assent and are usually unenforceable

Mode and Timeliness of Acceptance

-Mailbox Rule: Acceptance is effective when offeree uses authorized means of acceptance. -If U.S. mail, acceptance upon dispatch. Does not apply to instantaneous communications (UETA may apply).

Legally Sufficient Value

-Must have legal value and may consist of the following: -A promise to do something that one has no prior legal duty to do. -The performance of an action that one is otherwise not obligated to undertake. -The refraining from an action that one has a legal right to undertake (called a forbearance).

Fraudulent Misrepresentation: Injury to the Innocent Party

-No proof of injury is required when the action is to rescind contract. -Proof of injury is universally required to recover damages.

Requirements of the Offer

-Offeror must have a serious intention to be bound by the offer. -The offer's terms must be reasonably certain, or definite. -The offer must be communicated to the offeree. -Contract is judged by what a reasonable person in the offeree's position would conclude about the offer.

Agreement = Offer and Acceptance

-Parties must show mutual assent to terms of contract.: talking on the same level -Once an agreement is reached, if the other elements of a contract are present, a valid contract is formed

Discharge by Performance: Complete Performance

-Parties perform exactly as agreed, and all conditions are satisfied. -Normally, conditions expressly stated in a contract must fully occur in all respects for complete performance of the contract to take place.

Agreements That Lack Consideration

-Preexisting Duty: Promise to do what one already has a legal duty to do does not constitute legally sufficient consideration -Preexisting Duty: Exceptions include: •Unforeseen difficulties. •Rescission: The unmaking of a contract that returns the parties to their pre-contract positions. •New Contract: Sometimes, parties rescind a contract and make a new contract at the same time. -Past consideration is no consideration because the bargained-for exchange element is missing: One can bargain for something to take place in the present or future but not in the past -Illusory Promises: Contract terms that express uncertainty of performance from the promisor to the point that she/he has not promised to do anything, i.e., the promise fails to bind the promisor

Discharge by Performance: Time for Performance

-Reasonable time is implied if not stated in contact. If a specific time is stated, the parties must usually perform by that time. Unless time is expressly stated as vital, a performance delay will not destroy the performing party's right to payment If time is "of the essence," it becomes a condition precedent to performance

Implied contracts

-Requirements for Implied Contracts: -The plaintiff furnished some service or property. -The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected. -The defendant had a chance to reject the services or property and did not.

Privity of Contract

-The principle that a contract is a private agreement between the parties who have entered into it. -A third party—one who is not a direct party to a particular contract—normally does not have rights under that contract. But there are exceptions to this rule:Third party rights -One exception allows a party to a contract to transfer the rights or duties from the contract to another person through an assignment (of rights) or a delegation (of duties). -Another exception involves a third party beneficiary contract: a contract in which the parties to the contract intend that the contract benefit a third party -In a bilateral contract, one party has a right to require the other to perform some task, and the other has a duty to perform it -Transfer of contractual rights is an assignment. -Transfer of contractual duties is a delegation. -Assignments and delegations occur after the original contract is formed

Fraudulent Misrepresentation: Misrepresentation by Words or Conduct

-To prove fraud, the innocent party must show that misrepresentation of a material fact has occurred by words or actions. -Misrepresentation also occurs when a party takes specific action to conceal a fact that is material to the contract -Statements of opinion and predictions (representations of future facts) generally are not subject to claims of fraud -Exception: If a naïve purchaser relies on an opinion from an expert, the innocent party may be entitled to a rescission or reformation.: Unless you are an expert, you cannot be held on a statement of opinion

Types of Contracts: Enforceable versus Unenforceable Contracts

-Valid: A contract with agreement, consideration, contractual capacity, form, and legality that is enforceable. This is valid, you can sue them -Unenforceable: An otherwise valid contract that is rendered unenforceable by some statute or law. Void vs. Voidable: who has the ability to void and when

Defenses to Enforceability of a Contract

-Voluntary Consent: All parties must voluntarily consent to the contract. -Form: Some types of contracts must be in writing

Undue influence

-arises from relationships in which one party can greatly influence another party and overcome that party's free will -Contract lacks voluntary consent and is voidable -ex:One family member is influencing their senior family member by making them feel bad for the decision like during the making of a will

Settlement of Claims

A claim may be settled through an accord and satisfaction, a release, or a covenant not to sue.

Discharge by Agreement:Discharge by Settlement Agreement:

A compromise that arises out of a genuine dispute over the obligations under an existing contract will be recognized at law

Intoxication

A condition in which a person's normal capacity to act or think is inhibited by alcohol or some other drug. -A contract entered into by an intoxicated person can be either voidable or valid -If the person knew that he was making a contract and still agrees to the contract then the contract will be valid -The agreement may be voidable even with voluntary intoxication if the person was intoxicated enough to lack mental capacity. -The contract is enforceable if the person understood the legal consequences of the agreement despite intoxication

The Definition of a Contract

A contact is an agreement formed by two or more parties who agree to a promise (or set of promises). -Contracts can be enforced in court.

Bankruptcy

A discharge in bankruptcy usually prevents creditors from enforcing most of the debtor's contracts.

Bilateral (Mutual) Mistakes of Fact

A mistake by both contracting parties about one or more material facts generally entitles (but does not compel) either party to rescind. -Either party can rescind the contract when both parties are mistaken about the same material fact. -When the parties reasonably interpret a term differently, a court may allow the contract to be rescinded -The terms must be reasonable able to interpret the terms differently for the contract to be able to rescind

Unilateral Mistakes of Fact

A mistake made by only one of the parties that does not generally give the mistaken party any right to relief from the contract. -The contract is usually enforceable with two exceptions. (These still must involve a mistake of some material fact) -The other party to the contract knows or should have known that a mistake of fact was made. The error was due to an inadvertent, substantial mathematical mistake and not gross (extreme) negligence -Allowed some modification if the mistake is unintentional -If you know of the error and you know that it is an error then it is voidable because you are taking advantage of a mistake of fact

Mistake

A mistake of fact occurs when the parties entered into a contract with different understandings of one or more material facts relating to the contract's performance. -Only a mistake of fact makes a contract voidable.: has to be a material fact about the performance or value -Mistakes of fact occur in two forms—bilateral and unilateral

Third party rights: delegations

A party can transfer duties through delegation. -The delegator is the party delegating the duties. -The delegatee is the party to whom the duties are delegated. If the delegator expresses an intention to make the delegation, it is effective

Promise

A person's declaration that he will perform or refrain from performing some present or future act -The promisor makes the promise, and the promisee is the person to whom the promisor made the promise

Conditions

A qualification in a contract based on a possible future event -Occurrence (or nonoccurrence) of the event will trigger the performance of a legal obligation—or terminate an existing obligation under a contract. -If the condition is not satisfied, the obligations of the parties are discharged

Statutes of Limitations

A suit for breach of contract must be filed within the time permitted by applicable law.

Adhesion Contracts and Unconscionability

Adhesion contracts are written exclusively by one party and presented to the other party on a take-it-or-leave-it basis. These are often standard form contracts that are preprinted and give the adhering party no opportunity to negotiate the terms of the contract. -To avoid enforcement of the contract, the plaintiff normally must show that the contract or particular clause is unconscionable (contains terms that are unfairly burdensome and that unfairly benefit the dominating party).

Online Offers

All important contract terms should be conspicuous. The seller's Web site should include hyperlink to page with full contract terms in a readable format Provisions to Include: -Acceptance of Terms: What constitutes an acceptance. -Payment: How payment is made. -Return Policy. -Disclaimer of liability for certain uses of the goods. -Limitations on Remedies: Provision for defective goods or a breached contract. -Privacy Policy. -Dispute Resolution: Usually arbitration or forum-selection clauses

Accord and Satisfaction: Liquidated Debt

Amount has been ascertained, fixed, agreed on, settled, or exactly determined

Third Party Beneficiaries

An intended third party beneficiary (TPB) is a person whom the original parties to the contract intended to benefit at the time of contracting -The beneficiary of the contract has legal rights and can sue the promisor directly for breach of the contract -A third party who benefits from the performance of a contract, but whose benefit was not the reason the contract was formed. -Since the benefit is unintentional, an incidental beneficiary cannot sue to enforce the contract. -Only intended beneficiaries acquire legal rights in a contract.

Tender of Performance

An unconditional offer to perform. You are trying to do your performance

Sources of Contract Law

Common law governs all contracts except sales and leases. -Sale and lease contracts are governed by the Uniform Commercial Code (UCC)

Discharge by Performance

Both parties fulfill their respective duties by performing the acts they have promised

Mental Incompetence

Contracts made by mentally incompetent persons can be void, voidable, or valid. -If a court has previously determined a person to be mentally incompetent, any contract made by that person is void. -The court will appoint a guardian who will represent the mentally incompetent individual and enter into binding legal obligations on his or her behalf -A party who is not determined to be mentally incompetent by a court of law may avoid a contract if at the time of contracting, that person (1) did not know he was entering into a contract or (2) lacked the mental capacity to understand its nature, purpose, and consequences -A contract entered into by a person who is mentally ill—but not previously declared incompetent—may be valid if the person had capacity at the time the contract was formed, such as during a lucid interval (when a person's intelligence, judgment, and will are temporarily restored

Contracts Contrary to Public Policy: Unconscionable Contracts or Clauses

Contracts whose bargains are so oppressive that the courts relieve innocent parties of part or all of their duties.

Discharge by Performance: Measure of Damages

Cost to bring the object of the contract into compliance with its terms—if that cost is reasonable under the circumstances. If not reasonable, then the measure of damages is the difference in value between performance rendered and complete performance of the contract

Substantial Performance: Courts Must Decide

Courts decide whether the performance was substantial on a case-by-case basis

Accord and Satisfaction

Debtor offers to pay a lesser amount than the creditor purports to be owed: completes another task that is less than the original to satisfy the original contract

E-Signature Technologies: Exclusions

E-SIGN does not apply to all documents including court papers, divorce decrees, evictions, foreclosures, health insurance terminations, prenuptial agreements, and wills.

Federal Law on E-Signatures and E-Documents

Federal statute recognizing the validity of electronic contracts, records, and signatures -For an e-signature to be enforceable, the contracting parties must have agreed to use electronic signatures

Requirements of the offer: definiteness of terms

Generally, an offer must express the following items: •Identification of the parties. •Object or subject matter of the contract. •Consideration to be paid. •Time of payment, delivery, or performance. A court can supply missing terms if the parties intend to form a contract

Voluntary consent (assent)

Lack of voluntary consent can be used as a defense to the contracts enforceability. Consent may be lacking due to: -mistake -fraudulent -misrepresentation -undue influence -duress

Contractual Capacity

Legal ability to enter into a contractual relationship. -A person determined by court to be mentally incompetent cannot form a valid contract. -In other situations, capacity may exist, but contract is not legally binding

Discharge by Performance: Material Breach of Contract

Occurs when performance is not substantial.

Unliquidated Debt

Parties give up right to contest amount in dispute, and thus consideration is given

Discharge by Operation of Law: Commercial Impracticability

Parties may be excused from performance if it becomes more difficult or expensive than the parties originally expected at contract formation. -Anticipated performance must become significantly difficult or costly. -Burden of performing must not have been foreseeable by the parties.

Discharge by Agreement: Discharge by Mutual Rescission

Parties must make another agreement that also satisfies the legal requirements for a contract. -There must be an offer, an acceptance, and consideration -Rescission of most executory contracts is enforceable if agreement is made orally and even if original contract was in writing -Under the UCC, agreement to rescind sales contracts must be in writing. -Rescission of contracts involving transfers of realty must also be in writing. -If one party has performed, agreement to rescind must have additional consideration Statue of frauds: says that any contract that relates to realty, the contract must be in writing. If it is not, the contract cannot be enforcable

Temporary Impossibility:

Performance is normally only delayed. Once the temporary event ends, parties ordinarily must perform the contract as originally planned. If the lapse of time/change in circumstances surrounding the contract make it substantially more burdensome for the parties to perform the promised acts, the contract will be discharged in that situation.

Promissory Estoppel (Detrimental Reliance)

Recovery if reliance on promise of another. For the promissory estoppel doctrine to be applied, the following elements are required: -Must be a clear and definite promise. -Promisee must justifiably rely on the promise. -Promisee reasonably relied on the promise by acting or refraining from some act -The promisee's reliance was definite and resulted in a substantial detriment. -Justice will be served by enforcing promise

Discharge by Performance: Anticipatory Repudiation

Refusal of one party to carry out his or her contractual obligations before either party has a duty to perform. -It is treated as a material breach, and nonbreaching party may sue for damages immediately, even though performance is not due -Notice by repudiating party may restore parties to original obligations. -Rationale for treating repudiation as breach. -Nonbreaching party should have opportunity to seek similar contract elsewhere to minimize his or her loss

Discharge by Operation of Law: Impossibility of Performance

Supervening events may make performance objectively impossible. It applies only if the event was not foreseeable by any parties. -Objective impossibility ("It can't be done") must be distinguished from subjective impossibility ("I simply cannot do it"). Unforseeable events that make the contract nearly impossible to complete the contract can be discharged

Unequivocal Acceptance

The acceptance cannot impose new conditions on—or change the terms of—the original offer.

Minors

The age of majority (when a person is no longer a minor) for contractual purposes is eighteen years in almost all states. Some states provide for the termination of minority on marriage -Emancipation occurs when a child's parent or legal guardian relinquishes the legal right to exercise control over the child. -A contract entered into by a minor is voidable at the option of that minor, subject to certain exceptions

Objective Theory of Contracts

The circumstances that determine the intent of the parties. Objective facts include: -What a party said when entering into the contract. -How the party acted or appeared. -The circumstances surrounding the transaction

uUndue Influence: One Party Dominates the Other

There must be clear and convincing evidence that the person did not act out of her or his free will

Requirements of the Offer: Situations Where Intent May Be Lacking

The following statements are not offers: •Expressions of opinion. •Statements of future intent. •Preliminary negotiations. •Invitations to bid. •Advertisements and price lists (invitations to negotiate).

Substantial Performance: Effect on Duty to Perform

The parties must continue performing under the contract.

Impossibility of Performance: When Performance Is Impossible

Types of situations that may allow for discharge of contractual obligations: -One party to a personal contract dies or becomes incapacitated prior to performance. -The specific subject matter of the contract is destroyed -when a change of law renders perfromance illegal

Undue Influence: Presumption of Undue Influence in Certain Situations

When a contract enriches the dominant party in a fiduciary relationship, the court will often presume that the contract was made under undue influence

Fraudulent Misrepresentation

When an innocent party is induced to enter into a contract by a misrepresentation of material fact. -The innocent party can rescind the contract or enforce the contract and seek damages for any harms resulting from the fraud. -If you believe that the seller is lying, you must inquire about the fact or else you will not recoup the value spent Consists of the following elements: -A misrepresentation of a material fact must occur. -There must be an intent to deceive. -The innocent party must justifiably rely on the misrepresentation.: does it makes sense that some made a judgement based on the statement -To collect damages, a party must have been harmed as a result of the misrepresentation to the best of my knowledge: means that you are not intending to deceive, and you must look into the matter yourself because at this point the seller will not be held to fraudulent misrepresentation

Discharge by Performance: Performance to the Satisfaction of Another

When the contract is personal, the performance must actually satisfy the party specified in the contract, and only the personal satisfaction of the party fulfills the condition -if the contract is based on the other parties satisfaction, you are still obligated to continue to perform the duties until it meets the other parties satisfaction even if its unrealistic -Most other contracts need to be performed only to the satisfaction of a reasonable person unless they expressly state otherwise

A mistake of value (or quality)

a mistake about the future market value or quality of the object of the contract. -Contracts cannot be rescinded due to mistakes of value. -Each party is considered to have assumed the risk that the value will change in the future or prove to be different from what she/he thought.

Executory

means that something still needs to be done by one party

Acceptance

the voluntary statement or act from the offeree that indicates his/her assent (agreement) to the terms of the offer.

Communication of Acceptance

•With a unilateral contract, acceptance is evident and notification is not necessary. The only way to complete the contract is by doing it •With a bilateral contract, communication of acceptance is necessary because of mutual exchange of promises. Acceptance is timely if made before offer is terminated