Business Law exam 3

How is a contract defined?

A contract is an agreement between two or more parties to perform or to refrain from some act now or in the future enforceable by the courts.

Difference between impossiblity of performance and impracticability is?

A party may be relieved of his or her contractual duties when performance becomes either impossible or totally impracticable through no fault of either party to the contract. An objective standard is used. Temporary impossibility only may allow delay of performance. The major difference between the two doctrines is that while impossibility excuses performance where the contractual duty cannot physically be performed, the doctrine of impracticability comes into play where performance is still physically possible, but would be very burdensome for the party whose performance is due

What are the types of contracts that are subjected to the statute of frauds?

A statute which requires certain types of contracts to be in writing in order to be enforceable. Some contracts considered important enough that their terms must be memorialized in writing to ensure reliable evidence of their existence and their terms Agreements in consideration of marriage-Prenuptial agreements Not performable within one year Involving an interest in land For sale of goods over $500 ($5,000 under UCC) Collateral agreements

Difference between an executory contract and executed contract?

Executory Contracts: Not yet performed by all parties An executory contract is a contract made by two parties in which the terms are set to be fulfilled at a later date Executed Contracts: Fully performed by all parties.

Difference between an express contract and an implied contract?

Express Contract: A contract in which the terms of the agreement are fully and explicitly stated orally or in writing. Implied Contract: A contract formed in whole or in part by the conduct (as opposed to the words) of the parties. Can be implied in fact or implied in law (quasi contract)

How contracts with minors are treated?

Minors: under the age of eighteen (18) contract is voidable at option of minor (must disaffirm) minor is required to return consideration (what's left of it) cosignor or guarantor is liable on contract Minor may disaffirm and avoid obligation under the contract: Anytime up until a reasonable time after reaching majority Minor may ratify contract upon reaching majority Treated voidable (a term typically used with respect to a contract that is valid and binding unless avoided or declared void by a party to the contract who is legitimately exercising a power to avoid the contractual obligations.) Mentally Impaired or Incompetent Persons Voidable if contract is made while party is mentally incompetent. Obligation to return consideration upon avoidance/disaffirmation. May be ratified after becoming competent

What cannot be used for consideration? (past consideration, pre-existing duties, and promises of gifts)

Pre-Existing Legal Duty: Under most circumstances, a promise to do (or refrain from doing) what one already has a legal duty to do (or refrain from doing) does not constitute legally sufficient consideration. Past Consideration: Promises made in return for acts or events that have already taken place are unenforceable for lack of sufficient consideration.

What is the privity of a contract and its exceptions?

Privity: As a general rule, only the parties to a contract owe any duties and enjoy any rights arising from the contract. Assignment - a party to the contract (the assignor) transfers his or her rights to some third party (the assignee). Delegation - a party to the contract frees himself or herself from duties by having some third party perform those duties.

What makes a contract unconscionable?

Unconscionable Contracts: Contracts that require one party, as a consequence of disproportionate bargaining power, to accept terms that are unfairly burdensome to that party and unfairly beneficial to the party with greater bargaining power. An unconscionable contract is one that is so one-sided that it is unfair to one party and therefore unenforceable under law. It is a type of contract that leaves one party with no real, meaningful choice, usually due to major differences in bargaining power between the parties. Procedural Unconscionability - Lack of voluntariness due to disparity in bargaining power. (Contracts of Adhesion) Substantive Unconscionability- focus on contracts or provisions that are overly harsh.

Difference between a unilateral and a bilateral contract?

Unilateral Contract: a promise is exchanged only for the offeree's performance. For example: X offers Y $15 if Y will mow X's yard. Bilateral Contract: a promise is given in exchange for a promise in return. For example: X promises to deliver a car to Y, and Y promises to pay X an agreed price.

Difference between unilateral and a mutual mistake?

Unilateral Mistake A mistake made by one of the contracting parties. Generally, a unilateral mistake will not excuse performance of the contract unless other party knew of the mistake OR substantial mathematical error Mutual Mistake: A mistake on the part of both contracting parties. In this case, either party may rescind.

How are contracts for illegal purposes treated?

Usury Statutes: Virtually every state has a statute that sets the maximum rate of interest that can legally be charged for different types of transactions, including ordinary loans. Gambling - three elements: Consideration Chance Prize Licensing Statutes: All states require that members of certain professions -- attorneys, doctors, and architects, etc. -- be licensed by the state. Contract with unlicensed person may be unenforceable. Some statutes are regulatory in nature Contract with unlicensed person may be unenforceable. Some statutes just produce revenue Contract with unlicensed person not affected

How to calculate damages? requirement to mitigate damages?

Sue for the difference between the substantial and the complete performance. Mitigation of Damages: In most situations, when a breach of contract occurs, the non-breaching party has a duty to take whatever action is reasonable to minimize the damages caused by the breach.

What is a breach and participatory repudiation of a contract are?

Breach of Contract: A party's failure, without legal excuse, to substantially perform the obligations he or she has promised to perform. If a party's breach is non-material, the non-breaching party's duty to perform may be suspended until the breach is remedied or cured. Anticipatory Repudiation: An action by a party to a contract that indicates that he or she will not perform a contractual obligation due to be performed in the future. Such a repudiation will excuse the non-repudiating party from performing under the contract. Anticipatory repudiation, also called an anticipatory breach, is a term in the law of contracts that describes a declaration by the promising party to a contract, that he or she does not intend to live up to his or her obligations under the contract.

What is substantial performance?

Complete vs. Substantial Performance In order to qualify as substantial performance, the party's performance must not vary greatly from that promised in the contract, and it must create substantially the same benefits as those promised in the contract. If one party substantially performs, the other party's duty to perform remains absolute, but the other party may be entitled to recover damages for the substantially performing party's failure to fully perform.

What is consideration and how is it treated?

Consideration must be given in order to make a contract legally binding Must be something of value to be a "bargained for exchange" Consideration must induce the party to incur a legal detriment and/or provide a legal benefit to the other party sufficient to induce that party to commit itself. The adequacy of the consideration is not usually taken into account.

What are the rules of contract interpretation?

Contracts will be interpreted objectively (looking at the words and the circumstances at the time of entering into the contract) as interpreted by a reasonable person.

Know the things that show lack of assent to a contract?

Fruad: When an innocent party consents to a contract with fraudulent terms, he or she may usually avoid the contract, because he or she did not genuinely assent to the fraudulent terms. Elements: misrepresentation of material fact made with the intent to deceive (scienter) justifiable reliance damages Undue Influence -- arises from relationships in which one party can influence another party to the point of overcoming the influenced party's free will. Duress -- forcing a party to enter into a contract because of the fear created by threats. Unilateral Mistake A mistake made by one of the contracting parties. Generally, a unilateral mistake will not excuse performance of the contract unless other party knew of the mistake OR substantial mathematical error Mutual Mistake: A mistake on the part of both contracting parties. In this case, either party may rescind.

What makes a covenant not to compete valid?

Generally the contract is void (not voidable), due to the "in pari delicto rule." adv. (in pah-ree dee-lick-toe) Latin for "in equal fault," which means that two (or more) people are all at fault or are all guilty of a crime. In contract law, if the fault is more or less equal then neither party can claim breach of the contract by the other; in an accident, neither can collect damages, unless the fault is more on one than the other under the rule of "comparative negligence"; in defense of a criminal charge, one defendant will have a difficult time blaming the other for inducing him or her into the criminal acts if the proof is that both were involved. -One party is relatively innocent, then that party may recover benefits. -Withdrawal prior to the illegal act. -Severable or divisible contracts (i.e. overly broad covenant not to compete).

Express warranty? Different types of implied warranties? Who are they clamied against?

Most consumer purchases are covered by a warranty, even when it is not explicitly stated as such. The two main types are express and implied warranties. An express warranty is one that is clearly stated (or "expressed") either verbally or in writing, while an implied warranty automatically covers most consumer goods valued over a certain amount, but only provides a base level of protection for consumers. They must conform to the standards of the trade as applicable to the contract for sale. They must be fit for the purposes such goods are ordinarily used, even if the buyer ordered them for use otherwise. They must be uniform as to quality and quantity, within tolerances of the contract for sale. They must be packaged and labeled per the contract for sale. They must meet the specifications on the package labels, even if not so specified by the contract for sale.

Communicated to Offeree

Must be sent to offeree If accepted by someone else, it's a new offer

What constitutes a valid offer?

Offer A promise or commitment to perform or refrain from performing some specified future act made by the offeror. Contractual Intent Reasonable Definiteness Communication to Offeree

Reasonable Definiteness

Offer must contain all key terms Acceptance does not add any terms

What is a Quasi contract? How are they created?

Quasi-Contract (Implied in Law) A fictional contract imposed on parties by a court in the interests of fairness and justice, typically to prevent the unjust enrichment of one party at the expense of the other. A quasi contract is an agreement between two parties without previous obligations to one another that has been created and legally recognized by the court system. under a quasi-contract, neither involved party is expected to create such an agreement; this contract is arranged and imposed by a judge to correct a circumstance in which one party acquires something at the expense of the other party.

What is voluntary recession? accord and satisfaction? novation work?

Rescission - the process by which the parties cancel a contract and return one another to their pre-contract status. Novation - substituting a new contract for an old one thereby terminating the parties' rights and duties under the old contract. Accord and Satisfaction - an agreement between the parties to accept different performance than originally promised.

What is specific performance and how a court order rescission works?

Specific Performance - requiring the breaching party to perform exactly as required (only granted only when money damages would be an inadequate remedy and the subject matter of the contract is unique). Rescission - canceling a contract and returning the parties to their pre-contract position. Rescission requires restitution. Restitution - returning goods, property, or money previously transferred in order to restore the non-breaching party to his or her pre-contract position.

Contractual Intent

Statements made in anger or jest are not offers Advertisements are not offers Social invitations are not offers Opinions are not offers Statements of future intent

What constitutes valid acceptance (mirror image rule) and the mail box rule?

The "Mailbox Rule" An acceptance becomes effective upon being placed in the mailbox by the offeree. Note: revocation of an offer becomes effective upon its receipt by the offeree; an acceptance becomes effective upon its dispatch by the offeree to the offeror. The UCC adopts the common law "mail box rule" and the Convention adopts a "receipt" rule. Under the UCC, acceptance of an offer is effective when mailed; acceptance under the Convention is effective when it reaches the offeror Mirror Imaging: . The mirror image rule is used throughout the business environment and is based on the requirement for an absolute and unequivocal acceptance to an offer to create a contract, with anything less than that constituting a counter offer that effectively rejects the original offer.

How an offer can be terminated?

The communication of an effective offer gives the offeree the power to transform the offer into a binding legal agreement, or contract (by acceptance). Counteroffer ("Mirror Image Rule"): reject the offer and at the same time make a new offer to the other party. In the law of contracts, the mirror image rule, also referred to as an unequivocal and absolute acceptance requirement, states that an offer must be accepted exactly with no modifications. The offeror is the master of one's own offer.

Difference between intended and incidental third party beneficiaries?

The law distinguishes between intended and incidental third-party beneficiaries. Only intended beneficiaries acquire actionable legal rights in a contract. Intended Beneficiary: A third party for whose benefit a contract is formed. Example: life insurance. Incidental Beneficiary: A third party who benefits from the performance of a contract, but whose benefit was not the reason the contract was formed. Example: include construction contracts.

Force majeure clause?

a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. In the absence of a force majeure clause, parties to a contract are left to the mercy of the narrow common law contract doctrines of "impracticability" and "frustration of purpose," which rarely result in excuse of performance.