BMGT 380 Exam 2: Contracts

who can accept an offer?

As the masters of their offers, offerors have the right to determine who can bind them to a contract. So, the only person with the legal power to accept an offer and create a contract is the original offeree. An attempt to accept by anyone other than the offeree is treated as an offer, because the party attempting to accept is indicating a present intent to contract on the original offer's terms. For example, Price of- fers to sell his car to Waterhouse for $5,000. Anderson learns of the offer, calls Price, and attempts to accept. Anderson has made an offer that Price is free to accept or reject.

alternatives to statute of fraud in UCC

Confirmatory memorandum between merchants. Part payment or part delivery. Admission in pleadings or court. Specially manufactured goods.

procedural unconsciobility

Courts and writers often refer to unfairness in the bargaining process as procedural unconscionability. Some facts that may point to procedural unconscionability include the use of fine print or in- conspicuously placed terms, complex, legalistic language, and high-pressure sales tactics.

Emancipation

Emancipation is the termination of a parent's right to control a child and receive services and wages from him. There are no formal requirements for emancipation. It can occur by the parent's express or implied consent or by the occurrence of some events such as the marriage of the child

noncompetition clauses are allowed if they:

Clause must serve a legitimate business purpose. The restriction on competition must be reasonable in time, geographic area, and scope. The noncompetition clause should not impose an undue hardship.

composition agreements

Composition agreements are agreements between a debtor and two or more creditors who agree to accept as full payment a stated percent- age of their liquidated claims against the debtor at or after the date on which those claims are payable.

Preexisting Duties

The legal value component of our consideration definition requires that promisees do, or promise to do, something in exchange for a prom- isor's promise that they had no prior legal duty to do. Thus, as a general rule, performing or agreeing to per- form a preexisting duty is not consideration. This seems fair because the promisor in such a case has effectively made a gratuitous promise, since she was already entitled to the promisee's performance. for example a shopkeeper tells a cop he will pay him money to keep an extra lookout on his shop. He doesn't have to pay him because it is the cops preexisting duty to watch his shop

requirement of unilateral mistakes

The nonmistaken party caused or had reason to know of the mistake. It would be unconscionable to enforce the contract.

stipulation

The offeror, as the master of the offer, has the power to specify the precise time, place, and manner in which acceptance must be communi- cated. This is called a stipulation. If the offeror stipulates a particular manner of acceptance, the offeree must respond in this way to form a valid acceptance.

Scope of the Parol Evidence

The parol evidence rule is relevant only in cases in which the parties have expressed their agreement in a written con- tract. Thus, it would not apply to a case involving an oral contract or to a case in which writings existed that were not intended to embody the final statement of at least part of the parties' contract.

voidable contracts

This means that the person whose consent was not real has the power to rescind (cancel) the contract. A person who rescinds a contract is entitled to the return of anything he gave the other party. By the same token, he must offer to return anything he has received from the other party.

minors and neccassaries

Though the law regarding minors' con- tracts is designed to discourage adults from dealing with (and possibly taking advantage of) minors, it would be undesirable for the law to discourage adults from selling minors the items that they need for basic survival. For this reason, disaffirming minors are required to pay the reason- able value of items that have been furnished to them that are classified as necessaries. A necessary is something that is essential for the minor's continued existence and general welfare that has not been provided by the minor's parents or guardian.

acceptance in an unilateral contract

To accept an offer to enter such a contract, the offeree must perform the requested act.

requirements for mutual mistakes

When both parties are mistaken, the resulting contract can be avoided if the three following elements are present: 1. The mistake relates to a basic assumption on which the contract was made. 2. The mistake has a material effect on the agreed-upon exchange. 3. The party adversely affected by the mistake does not bear the risk of the mistake.

specific performance

a remedy whereby the court orders the breaching party to perform his contract.

destruction of subject matter in an offer

If, prior to an acceptance of an offer, the subject matter of a pro- posed contract is destroyed without the knowledge or fault of either party, the offer is terminated.

Substantive unconsciobility

In addition to looking at facts that might indicate procedural unconscionability, courts will scrutinize the contract terms themselves to determine whether they are oppressive, unreasonably one-sided, or unjustifiably harsh. This aspect of unconscionability is often referred to as substantive unconscionability. Examples include situations in which a party to the contract bears a disproportionate amount of the risk or other negative aspects of the transaction and situations in which a party is deprived of a remedy for the other party's breach.

remedies for fraud

In some states, a person injured by fraud cannot rescind the contract and sue for damages for deceit; he must elect (choose) between these remedies. In other states, however, an injured party may pursue both rescission and damage remedies and does not have to elect between them.

executory contract

It is executory until such duties have been fully performed.

firm offer

It needs to have: Be made by an offeror who is a merchant Be contained in a signed writing Give assurances that the offer will be kept open.

promise to pay debt barred by bankruptcy

Once a bankrupt debtor is granted a discharge,11 creditors no longer have the legal right to collect discharged debts. Most states enforce a new promise by the debtor to pay (reaffirm) the debt regardless of whether the creditor has given any consideration to support it.

Past Consideration

Past consideration—despite its name—is not consideration at all. Past consideration is an act or other benefit given in the past that was not given in exchange for the promise in question. Because the past act was not given in exchange for the present promise, it cannot be considertion

statutes of limitation

Statutes of limitations set an express statutory time limit on a person's ability to pursue any legal claim. A creditor who fails to file suit to collect a debt within the time prescribed by the appropriate statute of limitations loses the right to collect it.

Merger clause

also known as an integration clause. These clauses, which are very common in form contracts and commercial contracts, provide that the written contract is the complete integration of the par- ties' agreement. They are designed to prevent a party from giving testimony about prior statements or agreements and are generally effective in indicating that the writing was a complete integration.

quasi-contract

it represents an obligation imposed by law to avoid injustice, not a contractual obligation created by voluntary consent. is imposed when one party confers a benefit on another who knowingly accepts it and retains it under circumstances that make it unjust to do so without paying for it. example: when tim paints Bob's fence by accident and Bob knew. Bob has to pay for the work done

Common Law

laws created in court. Deals with services

consideration

legal value, bargained for and given in exchange for an act or a promise. Consider the early case of Thorne v. Deas, in which the part owner of a sailing ship named the Sea Nymph promised his co-owners that he would insure the ship for an upcoming voyage.2 He failed to do so, and when the ship was lost at sea, the court found that he was not liable to his co-owners for breaching his promise to insure the ship. Why? Because his promise was purely gratuitous; he had neither asked for nor received anything in exchange for making it. Therefore, it was unenforceable because it was not supported by consideration.

elements of a contract

made up of an offer and an acceptance of that offer. In addition, there usually must be consideration to support each party's promise. The contract must be between parties who have capacity to contract, and the objective and performance of the contract must be legal.

people without capacity

minors mental illness intoxication

writing required for statute of frauds

most states require only a memorandum of the parties' agreement; they do not re- quire that the entire contract be in writing. Essential terms of the contract must be stated in the writing. The memorandum must provide written evidence that a contract was made, but it need not have been created with the intent that the memorandum itself would be binding. In fact, in some cases, written offers that were accepted orally have been held sufficient to satisfy the writing requirement.

promissory estopel

one person might rely on a promise made by another even though the promise and the relevant circumstances are not sufficient to justify the conclusion that a contract exists. For example, in Ricketts v. Scothorn, a grandfather's promise to pay his granddaughter interest on a demand note he gave her so that she would not have to work was enforced against him after she had quit her job in reliance on his promise.

unconscionable contract

one that is grossly unfair or one-sided,

unilateral contracts

only one party makes a promise.

exception to the general common law of revocation

options: when people pay you to hold an offer. Like when you put a deposit down on a house offers for unilateral contract: with these acceptance is by doing the offer and if they do it you can't revoke it promissory estopel firm offers of the sales of goods

merchants

professionals or licensed people. They are hold to a higher standard in contract disputes

Forbearance to sue

An agreement by a promisee to refrain, or forbear, from pursuing a legal claim against a promisor can be valid consideration to support a return promise usually to pay a sum of money by a promisor. The promisee has agreed not to file suit, something that she has a legal right to do, in exchange for the promisor's promise.

exculpatory clause

An exculpatory clause (often called a "release" or "liability waiver") is a pro- vision in a contract that purports to relieve one of the parties from tort liability. Exculpatory clauses are suspect on public policy grounds for two reasons. First, courts are concerned that a party who can contract away his liability for negligence will not have the incentive to use care to avoid hurting others. Second, courts are concerned that an agreement that accords one party such a powerful advantage might have been the result of the abuse of superior bargaining power rather than truly voluntary choice.

bilateral contract

both parties exchange promises and the con- tract is formed as soon as the promises are exchanged.

Moral obligation

As a general rule, promises made to satisfy a preexisting moral obligation are unenforceable for lack of consideration.

Freedom of Contract

idea that contracts should be enforced because they are the products of the free wills of their creators, who should, within broad limits, be free to determine the extent of their obligations.

material

important

acceptance in a bilateral contract

As a general rule, to accept an offer to enter such a contract, an offeree must make the promise requested by the offer. This may be done in a variety of ways.

Rescinding due to innocent or fraudulent misrepresentation needs these elements

1. An untrue assertion of fact was made. (needs to be past or present) 2. The fact asserted was material or the assertion was fraudulent. 3. The complaining party entered the contract because of his reliance on the assertion. 4. The reliance of the complaining party was reasonable.

3 categories of illegal agreements

(1) agreements that violate statutes, (2) agreements that violate public policy developed by courts, and (3) unconscionable agreements and contracts of adhesion.

elements needed for acceptance

(1) the offeree indicates a present intent to enter the contract, (2) the offeree accepted on the terms proposed by the offeror, and (3) the offeree communicated his acceptance to the offeror.

Types of contracts covered by Statutes of Frauds

1. Collateral contracts in which a person promises to per- form the obligation of another person. 2. Contracts for the sale of an interest in real estate. 3. Bilateral contracts that cannot be performed within a year from the date of their formation. 4. Contracts for the sale of goods for a price of $500 or more. 5. Contracts in which an executor or administrator prom- ises to be personally liable for the debt of an estate. 6. Contracts in which marriage is the consideration.

determining undue influence

1. The relationship between the parties is either one of trust and confidence or one in which the person exercising the persuasion dominates the person being persuaded. 2. The persuasion is unfair.

collateral contracts

A collateral contract is one in which one person (the guarantor) agrees to pay the debt or obligation that a second person (the principal debtor) owes to a third person (the obligee) if the principal debtor fails to perform. For example, Cohn, who wants to help Davis establish a business, promises First Bank that he will repay the loan that First Bank makes to Davis if Davis fails to pay it. Here, Cohn is the guarantor, Davis is the principal debtor, and First Bank is the obligee. Cohn's promise to First Bank must be in writing to be enforceable.

executed contract

A contract is executed when all of the parties have fully per- formed their contractual duties.

unliquidated debt

A good faith dispute about either the existence or the amount of a debt makes the debt an unliquidated debt. The settlement of an unliquidated debt is called an accord and satisfaction. When an accord and satisfaction has occurred, the creditor cannot maintain an action to recover the remainder of the debt that he alleges is due.

liquidated debt

A liquidated debt is a debt that is both due and certain; that is, the parties have no good faith dispute about either the existence or the amount of the original debt. If a debtor does nothing more than pay less than an amount he clearly owes, how could this be consideration for a creditor's promise to take less? Such a debtor has actually done less than he had a preexisting legal duty to do—namely, to pay the full amount of the debt. For this reason, the creditor's promise to discharge a liquidated debt for part payment of the debt at or after its due date is unenforceable for lack of consideration.

Minor's and quasi-contractual

A minor's liability for necessaries supplied to him is quasi-contractual. That is, the minor is liable for the reasonable value of the necessaries that she actually receives. She is not liable for the entire price agreed on if that price exceeds the actual value of the necessaries, and she is not liable for necessaries that she contracted for but did not receive.

misrepresentation

A misrepresentation is an assertion that is not in accord with the truth. When a person enters a contract because of his justifiable reliance on a misrepresentation about some important fact, the contract is voidable.

Situations where Parol Evidence is permissable

Additional terms in partially integrated contracts. Explaining ambiguities. Circumstances invalidating contract. Existence of condition. Subsequent agreements.

capacity

Capacity means the ability to incur legal obligations and acquire legal rights.

2 important aspects of consideration

First, the requirement tended to limit the scope of a promisor's liability for his promises by insulating him from liability for gratuitous promises and by protecting him against liability for reliance on such promises. Second, the mechanical application of the requirement often produced unfair results. This potential for unfairness has produced considerable dis- satisfaction with the consideration concept.

Requirements of an offer

First, they look for some objective indication of a present intent to contract on the part of the offeror. Second, they look for specificity, or definiteness, in the terms of the alleged offer. Third, they look to see whether the alleged offer has been communicated to the offeree.

Illusory Promises

For a promise to serve as consideration in a bilateral contract, the promisee must have promised to do, or to refrain from doing, something at the promisor's request. It seems obvious, therefore, that if the promisee's promise is illusory because it really does not bind the promisee to do or refrain from doing any- thing, such a promise could not serve as consideration. Such agreements are often said to lack the mutuality of obligation required for an agreement to be enforceable.

Fraud

Fraud is the type of misrepresentation that is commit- ted knowingly, with the intent to deceive. The legal term for this knowledge of falsity, which distinguishes fraud from innocent misrepresentation, is scienter.

disaffirmance

Minors have the right to avoid contracts as a means of protecting against their own improvidence and against overreaching by adults. The exercise of this right to avoid a contract is called disaffirmance. The right to disaffirm is personal to the minor. That is, only the minor or a legal representative such as a guardian may disaffirm the contract. No formal act or written statement is required to make a valid disaffirmance. Any words or acts that effectively communicate the minor's desire to cancel the contract can constitute disaffirmance.

charitable subscription

Promises to make gifts for charitable or educational purposes are often en- forced, despite the absence of consideration, when the institution or organization to which the promise was made has acted in reliance on the promised gift. This result is usually justified on the basis of either promissory estoppel or public policy.

illegality in contracts

Rather, an agreement is illegal either because the legislature has declared that particular type of contract to be unenforceable or void or because the agreement violates a public policy that has been developed by courts or that has been manifested in constitutions, statutes, administrative regulations, or other sources of law.

requiremtn of duress

The contract was induced by an improper threat. The victim had no reasonable alternative but to enter into the contract.

death or insanity in a contract offer

The death or insanity of either party to an offer automatically terminates the offer without notice. A meeting of the minds is obviously impossible when one of the parties has died or become insane

modification of a contract

The general common law rule on contract modi- fications holds that an agreement to modify an existing contract requires some new (independent) consideration to be binding. For example, Turner enters into a contract with Acme Construction Company for the construction of a new office building for $350,000. When the construction is partially completed, Acme tells Turner that due to rising labor and materials costs it will stop construction unless Turner agrees to pay an extra $50,000. Turner, having al- ready entered into contracts to lease office space in the new building, promises to pay the extra amount. When the construction is finished, Turner refuses to pay more than $350,000. Is Turner's promise to pay the extra $50,000 enforceable against him? No. All Acme has done in ex- change for Turner's promise to pay more is build the building, something that Acme had a preexisting contractual duty to do. Therefore, Acme's performance is not consideration for Turner's promise to pay more. If they added a new consideration, such as finishing early or putting in expensive rugs. Then they can charge the extra money

general common law of revocation

The general common law rule on revocations is that offerors may revoke their offers at any time prior to acceptance, even if they have promised to hold the offer open for a stated period of time.

concealment of fact

is still seen as fraud

Parol Evidence Rule

The term parol evidence means written or spoken statements that are not contained in the written con- tract. The parol evidence rule provides that, when parties enter into a written contract that they intend as a complete integration (a complete and final statement of their agreement), a court will not permit the use of evidence of prior or contemporaneous statements to add to, alter, or contradict the terms of the written contract. This rule is based on the presumption that when people enter into a written contract, the best evidence of their agreement is the written contract itself. It also reflects the idea that later expressions of intent are presumed to prevail over earlier expressions of intent

mirror image rule

The traditional contract law rule is that an acceptance must be the mirror image of the offer. Attempts by offerees to change the terms of the offer or to add new terms to it are treated as counteroffers because they impliedly indicate an intent by the offeree to reject the offer in- stead of being bound by its terms. However, recent years have witnessed a judicial tendency to apply the mirror image rule in a more liberal fashion by holding that only material (important) variances between an offer and a purported acceptance result in an implied rejection of the offer.

ancillary covenant not to compete

To protect herself, the buyer or the employer in the above examples might bargain for a contractual clause that would provide that the seller or employee agrees not to engage in a particular competing activity in a specified geographic area for a specified time after the sale of the business or the termination of employment. This type of clause is called an ancillary covenant not to compete, or, as it is more commonly known, a noncompetition clause or "noncompete." Such clauses most frequently appear in employment contracts, contracts for the sale of a business, partnership agreements, and small-business buy-sell agreements. In an employment contract, the non- competition clause might be the only part of the contract that the parties put in writing.

mailbox rule

Under the so-called mailbox rule, properly addressed and dispatched acceptances can become effective when they are dispatched, even if they are lost and never received by the offeror. However, the offeror can still revoke an offer until he sees the acceptance

undue influence

Undue influence is unfair persuasion. Like duress, undue influence involves wrongful pressure exerted on a person during the bargaining process.

adjudicated

adjudged or decree

contracts of adhesion

contracts in which a stronger party is able to determine the terms of a contract, leaving the weaker party no practical choice but to "ad- here" to the terms)

UCC

deals with sales goods

reasonable

this is so important in this test. if something is done reasonably then it is allowed