Business Law 3391 w/ McInturff test 2

Communication of Contracts

1.) Entirely Oral 2.) Partly Oral and Partly Written 3.) Entirely Written 4.) Partly Oral or Written and partly implied 5.) Wholly implied

Classification of Contracts

1.) Express or Implied 2.) Unilateral or Bilateral 3.) Valid, Void, Voidable, or Unenforceable 4.) Executed or Executory 5.) Formal or Informal

Requirements of a Contract

1.) Mutual Assent 2.) Consideration 3.) Legality of Object 4.) Capacity

Forms of Offers

1.) Promise for a promise (bilateral) 2.) Promise for an act (unilateral) 3.) An act for a promise ("inverted" unilateral)

Advertisements

Advertisements, circulars, quotation sheets, and merchandise displays ARE NOT offers because 1.) they do not contain a promise and 2.) they leave unexpressed many terms that would be necessary to the making of a contract. Therefore, a customer's response IS NOT acceptance because there is no offer. In some circumstances an ad. can be an offer ONLY IF it contains a definitive promise of something in exchange for something else.

Informal Contract

All other contracts whether oral or written are INFORMAL CONTRACTS because they do not depend upon formality for their legal validity.

Void Contract

An agreement that does not meet all the requirements of a binding contract; therefore it is not a contract at all.

Auction Sales

An auctioneer DOES NOT make offers to sell but invites offers to buy. A bidder makes offers that can be accepted, then a contract is created. A bidder is free to withdraw his/her offer at any time before it is accepted. If an auction is WITHOUT RESERVE then the auctioneer can not withdraw the item. Vice-versa for an auction that is advertised WITH RESERVE.

Open Terms

An offer for the purchase or sale of goods may leave open particulars of performance to be specified by one of the parties. Good Faith: honesty in fact in the conduct or transaction concerned Commercial Reasonableness: a standard determined in terms of the business judgement of reasonable persons familiar with the practices customary in the type of transaction involved.

Offer

An offer is a definite proposal or undertaking made by one person to another which manifests a willingness to enter into a bargain. Offeror: person making the proposal. Offeree: the person to whom the offer is proposed to. Upon receipt of the offer, the offeree has the power of acceptance, by which the offeree expresses his/her to comply with the terms of the offer.

e.) Promissory Estoppel

An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract.

d.) Irrevocable Offers of Unilateral Contracts

An offeror CAN'T revoke an offer once the offeree has started to perform the act requested. The offeree is entitled to compensatory damages if he has started the act and the offeror revokes after he has started. On the other hand, the offeree has not accepted the contract until he has FINISHED and can opt out at any time, even after starting. The offeror can revoke the offer after a reasonable time though.

a.) Option Contracts

An option is a contract by which the offeror is bound to hold open an offer for a specified period of time. It must comply with ALL of the requirements of a contract.

c.) Statutory Irrevocability

Certain offers, such as bids made to the State, municipality, or other governmental body for the construction of a building or some other public work, are made irrevocable by statute.

Contracts Without Consideration

Certain transactions are enforceable even though they are not supported by consideration. These are: 1.) promises to perform prior unenforceable obligations 2.) promises that induce detrimental reliance (promisorry estoppel) 3.) promises made under seal 4.) promises made enforceable by statute

Consideration

Each party to a contract must intentionally exchange a legal benefit or incur a legal detriment as an inducement to the other party to a return exchange.

Licensing Statutes

Every jurisdiction has laws requiring a license for those who engage in certain trades, professions or businesses. (lawyers, doctors, etc.) An unlicensed person may not recover for services rendered if their profession requires a license.

Settlement of a Liquidated Debt

an obligation the existence or amount of which is undisputed

Authorized Means of Acceptance

authorized means of communication of the means the offeror expressly authorized in the offer, or, if none was authorized, it was the means the offeror used. A contract shall be construed as authorizing acceptance in any reasonable manner.

Usury Statutes

is a law establishing a maximum rate of permissible interest rate for which a lender and borrower of money may contract. For a transaction to be usurious courts require: (1) a loan or forbearance (2) of money (3) which is repayable absolutely and in all events (4) for which an interest charge is exacted in excess of the interest rate allowed by law.

Voidable Contract

is in fact a contract, but because of the manner in which it was formed or a lack of capacity of a party to it, the law permits one or more of the parties to avoid the legal duties the contract creates. If the contract is avoided BOTH parties are relieved of their legal duties under the agreement.

Modification of a Preexisting Contract

modification of a contract occurs when the parties to the contract mutually agree to change one or more of its terms.

Mutual Mistake

occurs when BOTH parties are mistaken as to the same set of facts. If the mistake relates to the basis of a contract then the adversely affect party can make it VOIDABLE.

Unilateral Mistake

occurs when only only one of the parties is mistaken.

Fraud

prevents assent from being knowingly given. 2 types a.) Fraud in the Execution b.) Fraud in the Inducement

Substituted Contracts

results when the parties to a contract mutually agree to rescind their original contract and enter into a new one. 3 separate contracts involved: the original contract, the agreement of rescission, and the substitute contract.

IV.) Knowledge of Falsity and Intention to Deceive

the misrepresentation must have been known by the one making it to be false and mist have been made with an intent to deceive. a.k.a. "Scienter" this element can consist actual knowledge, lack of belief in the statement's truthfulness, or reckless indifference as to its truthfulness.

Bargained-for Exchange

the parties have intentionally entered into a bargained exchange with one another and have given to each other something in exchange for a promise or performance.

Unauthorized Means of Acceptance

traditional rule using unauthorized means is effective when and if received by the offeror, provided that he receives it within the time during the authorized means would have arrived.

Sunday Statutes

"Blue Laws" prohibit certain types of commercial activity on Sunday. (liquor)

Executory Contract

"unperformed", applies to situations where one or more promises by any party to the contract are as yet unperformed or where the contract is wholly unperformed by one or more of the parties.

Promissory Estoppel

A NONcontractual promise is enforceable when it is made under circumstances that should lead the promisor to reasonably expect that the promise would induce the promisee to take definite and substantial action or forbearance in RELIANCE of the promise, and the promisee does take such action or forbearance.

Output and Requirements Contracts

A buyer's agreement to purchase an entire output of a seller's factory for a stated period, or a seller's agreement to supply a buyer with all his requirements for certain goods, may appear to lack definiteness and mutuality of obligation. Upon entering such a contract, a seller can not increase output on purpose to make more money. And a buyer can't expand his business abnormally and insist that the seller still supply all of his requirements.

Conditional Promises

A conditional promise is a promise the performance of which depends upon the happening or nonhappening of an event not certain to occur. This is sufficient consideration UNLESS the promisor knows at the time of making the promise that the condition cannot occur.

Unenforceable Contract

A contract that is neither void nor voidable may be unenforceable. An unenforceable contract is one for the breach of which provides no remedy. Infraction on the Statute of Fraud (requires certain contracts to be evidenced by writing) or Statute of Limitations (reasonable amount of time which a suit may be filed) can cause a contract to become unenforceable.

Valid Contract

A contract that meets all the requirements of a binding contract. Judicially enforceable promise or agreement.

Non-fraudulent Misrepresentation

A material, false statement that induces another to rely justifiably but is made WITHOUT scienter. Negligent Misrepresentation: a false representation that is made without due care in ascertaining its truthfulness. Innocent Misrepresentation: a false representation made without knowledge of its falsity but with due care.

III.) Materiality

A misrepresentation is material if (1) it would be likely to induce a reasonable person to manifest his assent or (2) the maker knows that it would be likely to induce the recipient to do so.

Quasi Contract (Quasi meaning "as if")

A quasi contract is NOT a contract at all, but an obligation imposed by law to avoid injustice. (usually created when parties enter into void, voidable, or unenforceable contracts to provide remedy)

Acceptance of an Offer

Acceptance can only be made by an offeree and once accept a contract is formed. A late or defective acceptance does not create a contract, but can be perceived as a new offer because it shows willingness of the offeree.

Effective Moment of Acceptance

Acceptance is effective upon dispatch to the offeror of acceptance.

Example of Quasi Contract

Anna, by mistake, delivers to Robert a plain, unaddressed envelope containing $100. Robert is under no contractual obligation to return it. However, Anna is permitted to recover the $100 from Robert. The law imposes a quasi-contractual obligation on Robert to prevent his unjust enrichment at Anna's expense.

Duress

Any wrongful or unlawful act or threat that overcomes the free will of a party. 2 types: a.) Physical Compulsion b.) Improper Threats

I.) False Representation

Concealment: action intended or known to be likely to keep another from learning of a fact of which he would otherwise learned. Denying Knowledge of a Fact of which a party knows to exist is a misrepresentation if it leads the other party to believe that the facts do not exist or cannot be discovered. Silence or Nondisclosure alones does NOT amount to fraud. (Exceptions (1) a person fails to disclose a fact known to him (2) he knows that the disclosure of that fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract (3) nondisclosure of the fact amounts to a failure to act in a good faith and in accordance with reasonable standards of fair dealing.) "Arm's Length" basically means a fiduciary (person in confidential relationship) must disclose all relevant facts.

Past Consideration

Consideration is the inducement for a promise or performance. The element of bargained- for exchange is absent where a promise is given for a past transaction. The promise is not binding.

Third Parties

Consideration to support a promise may be given to a person other than the promisor if the promisor bargains for that exchange. (example: A promises to pay B $15 if B delivers a specified book to C)

Express Contract

Contract in which the parties manifested their agreement by oral or written language.

Chapter 9: Intro to Contracts

Contract: a binding agreement that the courts will enforce. Promise: a manifestation of the intention to act or refrain from acting in a specified way. Breach: failure to perform properly

Real Estate and 1 year or more Contracts

Contracts involving real estate and contracts that can't be performed in a year MUST be in writing.

5.) Death or Incompetency

Death or incompetency of either the offeror or offeree terminates an offer and no one else has the power to accept the offer. A contract is still valid if the offeree or offeror dies after the contract is made.

Formal Contract (rare)

Depends upon a particular form, or mode of expression, for its legal existence. (Example: checks, promissory notes, drafts, formal acknowledgment of debt in court)

6.) Destruction of Legal Matter

Destruction of the subject matter of an offer terminates the offer.

Example of Promissory Estoppel

Gordon promises Constance not to foreclose for a period of six months on a mortgage Gordon owns on Constance's land. Constance then expends $100,000 to construct a building on the land. Gordon is obligated not to foreclose for those 6 months under promissory estoppel. This is because Constance, in reliance of Gordon's promise, proceeded to build the building when she otherwise wouldn't have.

3.) Rejection

If an offeree decides not to accept an offer, he is not required to reject it formally but may simply wait until the offer terminates by lapse of time. The effective moment of rejection is when the offerer RECEIVES the rejection.

7.) Subsequent Illegality

If performance of a valid contract is illegal, the obligations of both parties under the contract are discharged.

Stipulated Provisions in the Offer

If the offer specifically stipulates the means of communication the offeree is to use, the acceptance, to be effective, must conform to that specification. (ex; if offeror specifically indicates acceptance in person, mail, etc.)

b.) Improper Threats

Improper threats or acts, including economic and social coercion, to compel a person to enter into a contract. The threat may be explicit or may be inferred from words or conduct; in either case, it must leave the victim with no reasonable alternative. This type of duress makes the contract VOIDABLE. Each instance is subjective case to case. The acts don't have to be criminal or tortious, just wrongful; they merely need to be contrary to public policy or morally reprehensible.

b.) Fraud in the Inducement (a.k.a. fraud or deceit)

Intentional misrepresentation of material fact by one party to the other, who consents to enter into a contract in justifiable reliance upon the misrepresentation. Renders a contract VOIDABLE by the defrauded party. 5 elements to prove I.) a false representation II.) of a fact III.) that is material and IV.) made with knowledge of its falsity and the intention to deceive (scienter) and V.) which representation is justifiably relied on

a.) Fraud in the Execution (rare)

Misrepresentation that deceives the defrauded person as to the very nature of the contract. Occurs when a person does not know, or does not have a reasonable opportunity to know, the character or essence of a proposed contract because the other party misrepresents its character or essential terms. Renders a contract VOID

a.) Physical Compulsion

Occurs when one party compels another to manifest assent to a contract through actual physical force. Although extremely rare, this renders a contract VOID.

Unilateral Contract

One party makes a promise, but no contract is made until the promisee finishes or refrains from performing said promise. (Example: Ben promises to pay you 10$ to mow his lawn, you make no agreement and mow his lawn. Once you finish mowing, a contract is formed and Ben is obligated to pay you 10$)

Preliminary Negotiations

Parties either request or supply the terms of an offer that may or may not be given. A statement that may indicate willingness to make an offer is not in itself an offer.

Chapter 10: Mutual Assent

Parties show mutual assent by OFFER and ACCEPTANCE.

Silence as Acceptance

Silence or inaction of an offeree who fails to reply to an offer operates as an acceptance and cause a contract to be formed where by PREVIOUS DEALINGS the offeree has given the offeror reason to understand that the offeree will accept all offers unless the offeree sends notice to the contrary.

Mistake in meaning of terms

Situation in which the parties misunderstood the meaning of one another's manifestations of mutual assent. If neither party is to blame or both are to blame, there is no contract at all. VOID.

b.) Firm Offers Under the Code

The Code provides that a MERCHANT is bound to keep an offer to buy or sell goods open for a stated period not exceeding three months, if the merchant gives assurance in a SIGNED WRITING that the offer will be help open.

Violation of Statutes

The courts WILL NOT enforce an agreement declared illegal by statute. (Examples: gambling in most states, murder, robbery, etc.)

Ch. 12 Consideration

The doctrine of Consideration ensures that promises are enforced only when the parties have exchanged something of value in the eye of the law. Composed of two basic elements: 1.) Legal Sufficiency (something of value) 2.) Bargained-for exchange

Preexisting Obligation

The law does not regard the performance of, or the promise to perform, a preexisting legal duty, public or private, as either a legal detriment to the party under the prior legal obligation or a benefit to the other party.

Communication of an Offer

The offeree must have knowledge of the offer; he cannot agree to something of which he has no knowledge. Not only must the offer be communicated to the offeree, but the communication must also be made or authorized by the offeror. Communication does not necessarily need to be by words, but can be inferred by a reasonable person.

1.) Lapse of Time

The offeror may require that the offeree accept the offer immediately or within a specified period. If the offer states no time within which the offeree must accept, the offer will terminate after a REASONABLE time.

Capacity

The parties to a contract must have contractual capacity. (excludes judicially declared incompetent persons. limited capacity to contract includes minors, intoxicated persons, and incompetent persons.)

Mutual Assent

The parties to a contract must manifest by words or conduct that they have agreed to enter into a contract. (Offer and Acceptance) The offer valid once the recipient receives the offer, on the other hand, the acceptance is valid the second the offer is accepted.

Legality of Object

The purpose of a contract must not be criminal, tortious, or otherwise against public policy.

Adequacy

The subject matter that the parties agree to exchange does not need to have the same or equal value; rather, the law will regard consideration as adequate if the parties have freely agreed to the exchange. Requirements of legally sufficient consideration: (1) that the parties have agreed to exchange and (2) that, with respect to each party, the subject matter exchanged, or promised in exchange, either imposed a legal detriment upon the promisee or conferred a legal benefit upon the promisor.

Definiteness of an Offer

The terms of a contract must be reasonable certain so as to provide a court with the basis for determining the existence of a breach and for giving an appropriate remedy.

Undue Influence

The unfair persuasion of a person by a party generally in a dominant position based upon a confidential relationship. (Examples; guardian-warden, trustee-beneficiary, principal-agent, spouses to each other, parent-child, attorney-client, physician-patient, and clergy-parishioner) Contract under undue influence is VOIDABLE. Important Factors a.) whether the dominant party made full disclosure of all relevant information known to him b.) whether the consideration was adequate c.) whether the dependent party received competent and independent advice before completing the transaction.

Duration of Offers

The ways an offer may be terminated are through 1.) Lapse of Time 2.) Revocation 3.) Rejection 4.) Counteroffer 5.) Death or Incompetency of the offeror or offeree 6.) Destruction of Subject Matter 7.) subsequent illegality of the type of contract

Ch. 11 Conduct Invalidating Assent

This chapter deals with situations in which the consent manifested by one of the parties to the contract is not effective because it was not knowingly and voluntarily given.

Requirements of an Offer

To be an effective offer, the offeror must 1.) be communicated to the offeree 2.) manifest an intent to enter into a contract 3.) be sufficiently definite and certain

2.) Revocation

To be effective, notice of revocation of the offer must actually reach the offeree before he/she has accepted. Revocation can be communicated through any reliable way.

1.) Legal Sufficiency

To be legally sufficient, the consideration exchanged for the promise must be either a legal detriment to the promisee OR a legal benefit to the promisor. Legal Detriment: (1) doing, or undertaking to do, that which the promisee was under no prior legal obligation to do or (2) refraining from doing that which he was previously under no legal obligation to refrain from doing. Legal Benefit: the obtaining by the promisor of that which he had no prior legal right to obtain.

Intent of an Offer

To have legal effect an offer must manifest an intent to enter into a contract. Intent of an offer is determined objectively from the words or conduct of the parties. (reasonable person may infer) An offer made out of obvious excitement or emotional strain IS NOT an offer.

Bilateral Contract

When a contract comes into existence by the exchange of promises, each party is under a duty to the other. Each party is both a promisor (maker of a promise) and a promisee (recipient of a promise).

Ch. 13 Illegal Bargains

When the formaction or performance of an agreement is criminal, tortious, or otherwise contrary to public policy, the agreement is illegal and UNENFORCEABLE. The law does not provide a remedy for the breach of an unenforceable agreement.

Remedies to Breaches

When there is a breach of contract the remedies include compensatory damages, equitable remedies, reliance damages, and restitution(<- means give up the gains back).

Exclusive Dealing Contracts

Where a manufacturer of goods grants an exclusive right to a distributor to sell its products in a designated territory, unless otherwise agreed, the manufacturer is under an implied obligation to use its best efforts to supply the goods, and the distributor must use best efforts to promote their sale.

Mistake

a belief that is not in accord with the facts. Where the mistaken facts relate to the basis of the parties' agreement, the law permits the adversely affected party to AVOID or REFORM the contract under certain circumstances.

Implied Contract

a contract that is inferred from the parties' conduct, not from spoken or written words. (a.k.a. Implied in Fact Contracts)

4.) Counteroffer

a counterproposal from the offeree to the offeror that indicates a willingness to contract but upon terms or conditions different from those contained in the offer. A counteroffer is considered a rejection and also operates as a new offer. Conditional Acceptance: purports to accept the offer but expressly makes the acceptance conditional upon the offeror's assent to additional or different terms.

Executed Contract

a fully performed contract by all parties to it.

Effect of Fault Upon Mistake

a mistaken party's fault in not knowing or discovering a fact before making a contract DOES NOT prevent him from avoiding the contract. This does not apply to failure to read a contract.

Assumption of Risk of Mistake

a party who has undertaken to bear the risk of a mistake will be unable to avoid the contract, even though the mistake would otherwise have permitted her to do so.

V.) Justifiable Reliance

a person is not entitled to relieve unless he has justifiably relied upon the misrepresentation.

Illusory Promise

a statement that is in the form of a promise but imposes no obligation upon the maker of the statement. (Example Statements that make an illusory promise "desire" "want" "wish to buy") This creates no contract at all.

Limitations on Revocation

a.) Option Contracts b.) Firm Offers Under the Code c.) Statutory Irrevocability d.) Irrevocable Offers of Unilateral Contracts e.) Promissory Estoppel

Mirror Image Rule

acceptance may not change, add to, subtract from, or qualify in any way the provisions of the offer.

Acceptance Following a Prior Rejection

an acceptance sent after a prior rejection is not effective when sent by the offeree, but is only effective when and if the offeror receives it before he receives the rejection.

II.) Fact

an event that actually took palce or a thing that actually exists. Actionable fraud rarely can be based on opinion and should not be held as a fact. Same goes for a prediction of the future.

Settlement of an Unliquidated Debt

an obligation disputed as to either its existence or its amount.