Business Law Test 2

Hamer v. Sidway

- Uncle becomes indebted to nephew after uncle promises nephew $5,000 if he can refrain from drinking, using tobacco, swearing and playing cards or billiards for money until age 21 - Nephew fulfills promise to refrain - Nephew gives the right to receive the money to receive the money to Louisa Hamer. - Uncle Dies - Sidway, executor for the Estate of the Uncle refuses to pay Hamer - Executor argues there was no consideration given in exchange for the promise to pay $5,000 - Court disagrees and says the action of refraining from a legal right is consideration

Unenforceable Contract

A contract exists, but it cannot be enforced because of a legal defense.

1. Voluntary Consent 2. Form

A contract may be unenforceable if the following requirements are not met

1. Identification of parties 2. Identification of object/subject matter of contract including work to be performed (including quantity) 3. Consideration to be paid 4. Time of payment, delivery, or performance

A contract must include the following terms, either expressed or can be reasonable inferred:

Executory

A contract not fully performed

Valid Contract

A contract that has the necessary contractual elements: agreement, consideration, legal capacity of the parties, and legal purpose.

covenant not to compete

A contractual promise of one party to refrain from conducting business similar to that of another party for a certain period of time and within a specified geographical area. In some states it will not be enforced unless the employee has received some benefit in return for signing the noncompete agreement. Occasionally, courts will reform them to prevent undue burdens or hardships

1. When the intent of the parties cannot be determined from the contract's language 2. When contract lacks a provision on a disputed term 3. Term is susceptible to more than one interpretation 4. Uncertainty about provision

A court will consider a contract to be unclear, or ambiguous, in the following situations:

Already, LLC v. Nike, Inc.

A covenant not to sue can form the basis for a dismissal of the claims of either party to the covenant. In addition, Nike originally argued that the Sugars and Soulja Boys infringed its trademark; in other words, Nike believed those shoes were "colorable imitations" of the Air Force 1s. Nike's covenant now allows Already to produce all of its existing footwear designs—including the Sugar and Soulja Boy—and any "colorable imitation" of those designs. It is hard to imagine a scenario that would potentially infringe Nike's trademark and yet not fall under the covenant. Nike, having taken the position in court that there is no prospect of such a shoe, would be hard pressed to assert the contrary down the road. If such a shoe exists, the parties have not pointed to it, there is no evidence that Already has dreamt of it, and we cannot conceive of it. It sits, as far as we can tell, on a shelf between Dorothy's ruby slippers and Perseus's winged sandals. ** Given the covenant's broad language, and given that Already has asserted no concrete plans to engage in conduct not covered by the covenant, we can conclude the case is moot because the challenged conduct cannot reasonably be expected to recur. DECISION AND REMEDY The United States Supreme Court affirmed the judgment of the lower court. Under the covenant not to sue, Nike could not file a claim for trademark infringement against Already, and Already could not assert that Nike's trademark was invalid.

unliquidated debt

A debt that is uncertain in amount.

Executed

A fully performed contract

Contracts by Minors - Rules of Disaffirmance

A minor may disaffirm the contract at any time while still a minor and within a reasonable time after reaching age of majority. Most states do not require restitution.

Voidable Contract

A party has the option of avoiding or enforcing the contractual obligation.

Bilateral

A promise for a promise Each side is a promisor

Enforceable Contract

A valid contract that can be enforced because there are no legal defenses against it.

Contracts by Intoxicated Persons - Ratification

After becoming sober, a person can ratify a contract that she or he formed while intoxicated, thereby becoming fully liable for it.

Accord and Satisfaction

An accord is an agreement in which a debtor offers to pay a lesser amount than the creditor claims is owed. Satisfaction takes place when the accord is executed. Debt must be in dispute.

Release

An agreement in which, for consideration, a party forfeits the right to seek further recovery beyond the terms specified in the release. Example: forfeiting legal right to sue to recover damages

Covenant Not to Sue

An agreement not to sue on a present, valid claim.

Contracts by Intoxicated Persons - Rules of Disaffirmance

An intoxicated person may disaffirm the contract at any time while intoxicated and for a reasonable time after becoming sober but must make full restitution. Contracts for necessaries are voidable, but the intoxicated person is liable for the reasonable value of the goods or services.

Lapse of time

An offer terminates automatically by law when the period of time specified in the offer has passed If the offer states that it will be open for a number of days, this time period normally begins to run when the offeree receives the offer (not when it is formed or sent) If the offer does not specify a time for acceptance, the offer terminates at the end of a reasonable period of time

Destruction, Death, or Incompetence

An offerees power of acceptance is also terminated when the offeror or offeree dies or is ilegally incapacitated - unless the offer is irrevocable.

Mcnatt v. Vestal

Contract for the construction of an assisted living facility to be sanctioned by the state of Tennessee. On the projects completion, the facility was constructively delivered and accepted. At no time, however, was the party acting as the contractor licensed by the state to perform that function.

Usurious Loans Gambling ContractS Contracts to Commit a Crime Contracts by Unlicensed Persons

Contracts Contrary to Statute

Contracts by Minors - The General Rule

Contracts entered into by minors are voidable at the option of the minor.

Hinkal v. Pardoe

Court had to determine whether the circumstances indicated that the offerees acceptance of the agreement was unequivocal and clearly communicated

Is there mutual assent?

Definite and certain offer communicated? -> Yes -> Offer revoked by offeror? -> No -> Offeror received rejection or counteroffer? -> No -> Lapse of time, death, incompetency, destruction or subsequent illegality? -> No -> Acceptance effective? -> Yes -> Contract formed!

Basis Technology Corp. v. Amazon.com, Inc.

Dispute arose over an agreement to settle a case during the trial. One party claimed that agreement formed via email was binding. Other party claimed that email was merely an agreement to work out the terms of a settlement in the future. Provisions are not ambiguous simply because the parties have developed different interpretations of them To ascertain intent, court considers words used by parties, the agreement taken as a whole, and surrounding facts and circumstances

1. agreement 2. consideration 3. contractual capacity 4. legality

Elements of a Contract

Quasi Contract

Fictional contracts created by court as if parties had entered into an actual contract Help avoid unjust enrichment of one party at expense of another Can't be used when there is an actual contract

Express

Formed by words

Contracts by Mentally Incompetent Persons - When the Contract Will Be Void

If a court has declared a person to be mentally incompetent and has appointed a legal guardian, any contract made by that person is void from the outset.

Contracts by Mentally Incompetent Persons - When the Contract Will Be Voidable

If a court has not declared a person mentally incompetent, but that person lacked the capacity to comprehend the subject matter, nature, and consequences of the agreement, then the contract is voidable at that person's option.

Contracts by Intoxicated Persons - The General Rules

If a person was sufficiently intoxicated to lack the mental capacity to comprehend the legal consequences of entering into the contract, the contract may be voidable at the option of the intoxicated person. If, despite intoxication, the person understood these legal consequences, the contract will be enforceable.

Contracts by Mentally Incompetent Persons - When the Contract Will Be Valid

If ac court has not declared a person mentally incompetent and that person was able to understand the nature and effect of the contract at the time it was formed, then the contract is valid and enforceable.

Usurious Loans

Illegal if the interest rate exceeds legal limit

Holmes v. Multimedia KSDK, Inc.

In the following case, the court considered whether an exculpatory clause that released "any Event sponsors and their agents and employees" from liability for future negligence was ambiguous.

Vukanovich v. Kine

Mark Vukanovich and Larry Kine agreed under a "Letter of Understanding" to work together to buy a certain parcel of real property in Eugene, Oregon, from Umpqua Bank. Kine said he no longer wanted to continue deal. A month later Kine makes new offer Defendant breached the express terms of the contact when defendant refused to close on purchase even though he had the capacity to do so Defendant also lied and used confidential information thereby breaching the implied covenant of good faith and fair dealing

Lucy v. Zehmer

Men negotiated property while drinking whisky. An agreement was made. Zehmer argued that he had been drunk and offer had been made in jest and hence was unenforceable. Persuasive evidence that the execution of contract was a serious business transaction rather than a casual, jesting matter. Look to outward expression of a person in manifesting his intention rather than to secret and unexpressed intention

Exceptions to Basic Rules of Disaffirmance

Misrepresentation of age (or fraud)-In many jurisdictions, misrepresentation of age prohibits the right of disaffrimance. Necessaries-Minors remain liable for the reasonable value of necessaries (goods and services). Ratification-After reaching the age of majority, a person can ratify a contract that he or she formed as a minor, thereby becoming fully liable for it.

Void Contract

No contract exists, or there is a contract without legal obligations.

Weston v. Cornell University

Plaintiff commenced action seeking to recover for breach of contract which was dismissed by supreme court. Issues of fact exist as to whether defendant's 1998 offer letter reflects an intent to assure plaintiff that she would be granted tenure. The terms of the letter are ambiguous. Defendant acknowledges that she understood 2003 letter to be a modification of original terms of her employment agreement. There is nothing in the record to indicate that any alleged guarantee of tenure remained beyond the date of 2003. Subjective beliefs are insufficient

Unilateral

Promise for an act Only on completion of the offer is fully accepted Once performance has been substantially undertaken, the offeror can't revoke the offer Ex: Contests, lotteries and prizes Preferable if you want results and not commitment

1. The plaintiff provided some service or property 2. The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected. 3. The defendant had a chance to reject the services or property and did not.

Requirements for Implied Contracts

Formal

Requires a special form for creation

1. Express repudiation of the offer (such as "I withdraw my previous offer") 2. Performance of acts that are inconsistent with the existence of the offer and are made known to the offeree (selling the offered property to another person in the offeree's presence) Becomes effective when received

Revocation may be accomplished by either of the following:

PAK Foods Houston, LLC v. Garcia

S.L., a 16 year old minor worked for KFC operated by PAK Foods Houston, LLC. PAK Foods' policy was to resolve any dispute with an employee through arbitration. S.L. signed an acknowledgment of this policy. S.L. was injured on the job, and terminated her employment. She filed a suit against PAK to recover medical expenses for the injury. PAK filed a motion to compel arbitration, which the court denied. They appealed and lost because S.L. had the right to disaffirm the agreement since she was a minor.

1. Expressions of opinion 2. Statements of future intent 3. Preliminary negotiations 4. Invitations to bid 5. Advertisements and price lists 6. Live and online auctions

Situations in which intent may be lacking

Example of no consideration

Spencer pays $500 for iPhone 7 that he later discovers is a fake. Because the device is not authentic, he could claim that there was no valid contract because inadequate consideration and fraud

Revocation, rejection, counteroffer

Termination of an offer by action of the parties

Substantive Unconscionability

This exists when a contract, or one of its terms, is oppressive or overly harsh. 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?

Unconscionable Contract or Clause

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

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 the term. 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 for the sale and lease of goods

What contracts are governed by the UCC to the extent that the UCC has modified general contract law?

First to arrive is accepted If rejection is first to arrive then there is no contract Person can call and accept before rejection arrives

What happens if a rejection is sent first and then an acceptance?

element of intent

What is of prime importance to determine whether a contract has been formed?

Common law Exception: Modified or replaced by statutory law, such as Uniform Commercial Code, or by administrative agency regulations

What law governs all contracts and what is the exception?

Preexisting Duty

When a person already has a legal duty to perform an action, there is no legally sufficient consideration. Example: A firefighter cannot receive a cash reward from a business owner for putting out a fire in a downtown commercial district. As a city employee, the firefighter had a duty to extinguish the fire.

Illusory Promises

When a person expresses contract terms with such uncertainty that the terms are not definite, the promise is illusory. Example: A storeowner promises a $500 bonus to each employee who works Christmas Day, as long as the owner feels that they did their jobs well. The owner's promise is just a statement of something she may or may not do in the future.

Past Consideration

When a person makes a promise in return for actions or events that have already taken place, there is no consideration. Example: A real estate agent sold a friend's house without charging a commission, and in return, the friend promises to give the agent $1,000. The friend's promise is simply an intention to give a gift.

accord and satisfaction, release, or covenant not to sue

a claim may be settled through

severable contract

a contract that contains multiple parts that can each be performed separately

indivisible contract

a contract that requires complete performance by both parties

in pari delicto

a situation in which both parties are equally at fault in an illegal contract does not include innocent parties an employee who is required to work more than the maximum can recover for those extra hours of service

preexisting duty, past consideration, illusory promises

agreements that lack consideration

liquidated debt

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

First element of an offer - intention

anger, jest or undue excitement --> offerees acceptance does not create agreement Ex: Dena yells in anger that she will sell her car for $500. A reasonable person taking into consideration Dena's frustration and the obvious difference in value between the market price of the car and the proposed purchased price would realize that Dena's offer was not made with serious and objective intent. No agreement is formed

Emancipation

child's parent or legal guardian relinquishes legal right to exercise control over child

Voluntary Consent

contract may not be enforced due to fraud, undue influence, mistake or duress

promise

declaration by promisor to do or not do a certain act

revocation and rejection

effective only when it is actually received

age of majority

eighteen years for contractual purposes minor can enter into same contracts as adults excluding those prohibited by law for minors

1. legally sufficient value 2. bargained for exchange

elements of consideration

Unforeseen Difficulties

exception to the rule of preexisting duty

1. Promisory estoppel 2. Promises to pay debt that are barred by a statute of limitations 3. Promises to make charitable contributions

exceptions to the consideration requirement

option contract

form of irrevocable offer takes away offeror's power to revoke offer for period of time specified in option frequently used in conjunction with sale or lease of real estate not terminated by death

Implied

formed by the conduct of the parties

Bargained-for exchange

giving something of legal value in return

mailbox rule

if authorized mode of communication is the mail, then an acceptance becomes valid when it is dispatched, not when it is received by the offeror does not apply to instantaneous forms of communication

Preliminary Agreements

if parties agree on certain major terms but leave other terms open for further negotiation, a preliminary agreement is not binding

express ratification

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

Consideration

inducement, price or motive that cause party to enter agreement up to contracting parties; courts generally don't interfere

contractual capacity

legal ability to enter into a contractual relationship age and mental competence

disaffirmance

legal avoidance of contractual obligation minor must express intent not to be bound to entire contract minor can normally recover any property he/she transferred to adult as consideration

1. promise to do something that one has no prior legal duty to do 2. action that one is otherwise not obligated to undertake 3. forbearance: refraining from an action that one has a legal right to undertake

legally sufficient value

implied ratification

minor, on reaching age of majority, indicates intent to abide by contract

Unequivocal Acceptance

mirror image rule acceptance cannot impose new conditions or change terms of original offer

Communication of Acceptance

necessary in a bilateral contract because acceptance is in the form or a promise

1) What party said when entering contract 2) How party acted or appeared 3) Circumstances surrounding transaction Ex: Parties intended to be bound by the lease when they signed it. Change of heart is irrelevant.

objective theory of contracts - objective facts

Authorized Means of Acceptance

offer specifies (expressly or impliedly) how acceptance should be made -no acceptance if authorized means is not used if offer does not expressly authorize a certain mode of acceptance then acceptance can be made by any reasonable means usually the offeror's choice of a particular means in making the offer implies that the offeree can use the same or a faster means for acceptance

agreement

parties must agree on terms of contract and manifest to each other mutual assent to same bargain offer and acceptance objective theory of contracts - reasonable person

Adequacy of Consideration

relates to how much consideration is given and whether a fair bargain was reached courts will inquire into the adequacy of consideration (if the consideration is legally sufficient) only when fraud, duress, or the lack of bargained-for exchange may be involved

exculpatory clauses

release a party from liability in the event of monetary or physical injury no matter who is at fault void if it is against public policy

1. The agreement is made in good faith 2. The release contract is in a signed writing 3. The contract is accompanied by consideration

requirements for a release to be binding

1. Clear and definite promise 2. Promisor should have expected that the promisee would rely on the promise 3. Promisee reasonably relied on promise by acting or refraining from some act 4. Promisees reliance was definite and resulted in substantial detriment 5. Enforcement of promise is necessary to avoid injustice

requirements to establish promisory estoppel

Informal

requires no special form for creation

Silence as Acceptance

silence cannot constitute acceptance even if stated in contract only can constitute acceptance when offeree has had prior dealings with offeror

1. Lapse of time. 2. Destruction of the specific subject matter of the offer. 3. Death or incompetence of the offeror or the offeree. 4. Supervening illegality of the proposed contract.

termination of an offer by operation of law

1. Serious intention to be bound by offer 2. Terms must be reasonably certain 3. Offer must be communicated to offeree

three elements necessary for an offer to be effective:

Recission

unmaking of a contract so as to return parties to positions they occupied before contract was made