BUS 121 Test 2 Review

Promissory Estoppel Contract

A possible remedy for an injured plaintiff in a case with no valid contract, where the plaintiff can show a promise, reasonable reliance, and injustice.

Quasi Contract

A possible remedy for an injured plaintiff in a case with no valid contract, where the plaintiff can show benefit to the defendant, reasonable expectation of payment, and unjust enrichment.

Bilateral Contract

A promise made in exchange for another promise.

Acceptance of offers and the mirror image rule (common law and UCC rules)

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Accord and Satisfaction

A completed agreement to settle a debt for less than the sum claimed.

Accord and satisfaction

A completed agreement to settle a debt for less than the sum claimed.

Liquidated Debt

A debt in which there is no dispute about the amount owed.

Unliquidated Debt

A debt is disputed because the parties disagree over its existence or amount.

Know and distinguish between contracts made statutorily illegal

A gambling contract is illegal unless it is a type of wagering specifically authorized by state statute.

Ratification of contracts by minors

A minor may disaffirm a contract anytime before she reaches age 18. She also may disaffirm within a reasonable time after turning 18. Suppose that 17-year-old Betsy signs a contract to buy a $3,000 stereo. The following week, she picks up the system and pays for it in full. Four months later, she turns 18, and two months after that, she disaffirms the contract. Her disaffirmance is effective.

Disaffirmance of contracts by minors

A minor who wishes to escape from a contract generally may disaffirm it; that is, he may notify the other party that he refuses to be bound by the agreement. There are several ways a minor may disaffirm a contract. He may simply tell the other party, orally or in writing, that he will not honor the deal. Or he may disaffirm a contract by refusing to perform his obligations under it. A minor may go further—he can undo a contract that has already been completed by filing a suit to rescind the contract; that is, to have a court formally cancel it.

Offer

All contracts begin when a person or a company proposes a deal. It might involve buying something, selling something, doing a job, or anything else. But only proposals made in certain ways amount to a legally recognized offer.

Advertisements as offers

An advertisement is generally not an offer. An advertisement is merely a request for offers. Advertisers should be careful, however, not to be too specific in their ads. Some ads do count as offers, as the following case illustrates.

Acceptance of Offers

As we have seen, when there is a valid offer outstanding, it remains effective until it is terminated or accepted. An offeree accepts by saying or doing something that a reasonable person would understand to mean that he definitely wants to take the offer. Assume that Ellie offers to sell Gene her old iPod for $50. If Gene says, "I accept your offer," then he has indeed accepted, but there is no need to be so formal. He can accept the offer by saying, " It's a deal," or, " I'll take it," or any number of things. He need not even speak. If he hands her a $50 bill, he also accepts the offer. It is worth noting that the offeree must say or do something to accept. Marge telephones Vick and leaves a message on his answering machine: "I'll pay $75 for your business law textbook from last semester. I'm desperate to get a copy, so I will assume you agree unless I hear from you by 6:00 tonight." Marge hears nothing by the deadline and assumes she has a deal. She is mistaken. Vick neither said nor did anything to indicate that he accepted.

Know and distinguish between the different types of contracts made statutorily illegal

Courts have not always assumed that promises are legally significant. In the twelfth and thirteenth centuries, promises were not binding unless a person made them in writing and affixed a seal to the document. This was seldom done, and therefore most promises were unenforceable. The common law changed very slowly, but by the fifteenth century, courts began to allow some suits based on a broken promise. There were still major limitations. Suppose a merchant hired a carpenter to build a new shop, and the carpenter failed to start the job on time. Now courts would permit the suit, but only if the merchant had paid some money to the carpenter. If the merchant made a 10 percent down payment, the contract would be enforceable. But if the merchant merely promised to pay when the building was done, and the carpenter never began work, the merchant could recover nothing.

Parties to an offer

Parties form a contract only if they have a meeting of the minds. For this to happen one side must make an offer and the other must make an acceptance. An offer proposes definite terms, and an acceptance unconditionally agrees to them.

Fraud and it elements

Fraud: Injuring another person by deliberate deception. Element One: Intentional or Reckless Misrepresentation of Fact: The injured party must show a false statement of fact. Notice that this does not mean the statement was a necessarily a "lie." Element Two: Materiality: The injured party must demonstrate that the statement was material, or important. A minor misstatement does not meet this second element of fraud. Element Three: Justifiable Reliance: The injured party also must show that she actually did rely on the false statement and that her reliance was reasonable.

Adequacy of consideration

Gold can make people crazy. At the turn of the 20th century, John Tuppela joined the gold rush to Alaska. He bought a mine and worked it hard, a disciplined man in an unforgiving enterprise. Sadly, his prospecting proved futile and mental problems overwhelmed him. In 1914, a court declared him insane and locked him in an institution in Portland, Oregon. Four years later, Tuppela emerged and learned to his ecstasy that gold had been discovered in his mine, now valued at over half a million dollars. Then the bad news hit: a court-appointed guardian had sold the mine for pennies while Tuppela was institutionalized. Destitute and forlorn, Tuppela turned to his lifelong friend, Embola, saying, "If you will give me $50 so I can go to Alaska and get my property back, I will pay you $10,000 when I win my property." Embola accepted the offer, advancing the $50. After a long and bitter fight, Tuppela won back his mine, though a guardian would still supervise his assets. Tuppela asked the guardian to pay the full $10,000 to Embola, but the guardian refused. Embola sued, and the issue was whether his $50 was adequate consideration to support Tuppela's promise of $10,000. A happy ending: Embola won and recovered his money. Courts seldom inquire into the adequacy of consideration. Although the difference between Embola's $50 and Tuppela's $10,000 was huge, it was not for a court to decide whether the parties had made an intelligent bargain. Embola undertook a risk, and his $50 was valid consideration. The question of adequacy is for the parties as they bargain, not for the courts.

Communication of acceptance

If an offer demands acceptance in a particular method or manner, the offeree must follow those requirements. If the offer does not specify a type of acceptance, the offeree may accept in any reasonable manner and method.

Duress

If one party makes an improper threat that causes the victim to enter into a contract, and the victim had no reasonable alternative, the contract is voidable.

Remedies for fraud

In the case of fraud, the injured party generally has a choice of rescinding the contract or suing for damages or, in some cases, doing both. The contract is voidable, which meant that injured party is not forced to rescind the deal but may if he wants. Fraud permits the injured party to cancel. Alternatively, the injured party can sue for damages—the difference between what the contract promised and what it delivered.

Fraud

Injuring another person by deliberate deception.

Illusory promises

Is not consideration, because he has given no consideration, there is no contract, and neither party can enforce the deal.

Option contracts

It allows the holder to buy or sell an underlying security at a given price.

Requirements Contracts

Obligates a buyer to obtain all of his needed goods from the seller.

Output Contracts

Obligates the seller to sell all of his output to the buyer, who agrees to accept it.

Bilateral Mistake

Occurs when both parties negotiate based on the same factual error.

Acceptance

Once a party receives an offer, he must respond to it in a certain way.

Termination of offers

Once an offer has been made, it faces only two possible fates—it can be terminated or accepted. If an offer is terminated, it can never be accepted. If it is accepted, and if there are no problems with any of the five remaining elements on the Contracts Checklist, then a valid contract is created.

Unilateral Contract

One party makes a promise that the other party can accept only by actually doing something.

Void Contracts

One that has no legal effect whatsoever.

Valid Contracts

One that is legally binding and fully enforceable by the court. All of the elements are present.

Voidable Contracts

One that may be avoided or canceled by one of the parties.

Unenforceable Contracts

One that, because of some rule of law, cannot be upheld by court of law.

Express Contracts

Parties explicitly state all the important terms of their agreement. Requires some sort of written or spoken expression indicating a desire to enter the contractual relationship.

Mirror Image Rule

Requires that acceptance be on precisely the same terms as the offer.

Mirror image rule

Requires that acceptance be on precisely the same terms as the offer.

Reqirements Contract

The buyer agrees to purchase 100 percent of her goods from one seller.

Legality

The contract must be for a lawful purpose. Courts will not enforce agreements to sell cocaine.

Capacity

The parties must be adults of sound mind.

Misrepresentation of age by minors

The rules change somewhat if a minor lies about his age. Sixteen-year-old Dan is delighted to learn from his friend Betsy that a minor can buy a fancy stereo system, use it for a year or so, and then get his money back. Dan drops into SoundBlast and asks to buy a $4,000 surround-sound system. The store clerk says that the store no longer sells expensive systems to underage customers. Dan produces a fake driver's license indicating that he is 18, and the clerk sells him the system. A year later, Dan drives up to SoundBlast and unloads the system, now in shambles. He asks for his $4,000 back. Is he still permitted to disaffirm? States have been troubled by this problem, and there is no clear rule. A few states will still permit Dan to disaffirm the contract entirely. The theory is that a minor must be saved from his own poor judgment, including his foolish lie. Many states, though, will prohibit Dan from disaffirming the contract. They take the reasonable position that the law was intended to protect childhood innocence, not calculated deceit.

Output Contract

The seller guarantees to sell 100 percent of its output to one buyer, and the buyer agrees to accept the entire quantity.

Implied Contracts

The words and contract of the parties indicate they intended to create an agreement. Created by the actions or gestures of the parties involved in the transaction.

Consideration

There has to be bargaining that leads to an exchange between the parties. Contracts cannot be a one-way street; both sides must receive.

Misrepresentation

To describe someone or something in a false way especially in order to deceive someone.

What is consideration?

contracts must be a two-way street. If one side gets all the benefit and the other side gets nothing, then an agreement lacks consideration and is not an enforceable contract.