Business Law McGraw-Hill Connect Module 5 Key terms and Explanation

What is a condition subsequent?

I. A future event that terminates a party's duty when it arises. II. For example, Non-compete clauses (NCC) between employers and their current or former employees often have expiration dates.

What is a condition precedent?

I. A particular event that must occur for a party's duty to arise. If the event does not occur, the party's duty to perform does not arise. II. For example, a life insurance company is only required to pay out the beneficiaries of a life insurance plan after the contract-holder has died

What is prenuptial agreement and how does it fall within the statute of frauds?

I. A prenuptial agreement is an agreement two parties enter into before marriage that clearly states the ownership rights each party enjoys in the other party's property. To be enforceable, prenuptial agreements must be in writing. II. The reason consideration is privileged is that a prenuptial agreement is not automatically enforceable just because it is in writing. Although writing is required, it is not sufficient to establish enforceability.

What are the exceptions to the Statute of Frauds?

I. Admission II. Partial Performance III. Promissory Estoppel IV. Exceptions under the UCC.

Explain. Contracts for the Sale of Goods Totaling More Than $500

I. Agreements in which the total price for a sale is $500 or more are required by the UCC, Section 2-201, to be recorded in a written contract or a memorandum. II. To satisfy this UCC requirement, the contract or memorandum need only state the quantity to be sold. Buyer, seller, price, and method of payment do not need to be included in the writing according to the UCC. III. Contractual terms beyond quantity may be written, but they need not be. In fact, terms other than quantity can be inexact or left out of the writing as long as what is written does not contradict the parties' agreement. IV. The contract will be enforceable for the stated quantity and not a unit more. Furthermore, for the contract to be enforceable against a party, the party against whom action is sought must have signed the written document.

Explain: Statute of Frauds: Promises Made in Consideration of Marriage

I. Agreements regarding marriage in which one party is gaining something other than a return on his or her promise to marry are within the statute of frauds and must be in writing. In other words, when one party promises something to the other as part of an offer of marriage, the contract must be in writing to be enforceable. II. It is important to realize that mutual promises to marry do not fall within the statute of frauds. For example, if Ed and Jeanie promise each other they will get married, this agreement does not need to be in writing because it does not fall within the statute.

Exception to Parol Evidence Rule: Contracts that have been Subsequently Modified

I. Although parol evidence contradictory to the final terms is inadmissible, evidence regarding a contract's subsequent modification is admissible. To be admissible, the modification must have been made after the writing, and the evidence must clearly indicate this later modification. II. Despite the allowance of evidence to demonstrate modifications, not all evidence of modification is admissible. If the agreement is required to be in writing under the statute of frauds, oral modifications are unenforceable. III. In addition, if the contract's terms require modification to be in writing, oral modifications are inadmissible and unenforceable.

What is an admission?

I. An admission is a statement made in court, under oath, or at some stage during a legal proceeding in which a party against whom charges have been brought admits that an oral contract existed, even though the contract was required to be in writing.

What is Commercial Impracticability?

I. Commercial impracticability is seen by some as a response to a somewhat unfair harshness of the objective impossibility standard. II. Commercial impracticability is used when performance is still objectively possible but would be extraordinarily injurious or expensive to one party. III. Commercial impracticability arises when, because of an unforeseeable event, one party would incur unreasonable expense, injury, or loss if that party were forced to carry out the terms of the agreement.

What are consequential damages?

I. Consequential damages are foreseeable damages that result from special facts and circumstances arising outside the contract itself. These damages must be within the contemplation of the parties at the time the breach occurs. II. Damages are not recoverable for breach of contract unless they can be proved with a high degree of certainty.

What are the exceptions to the Parol Evidence Rule?

I. Contracts are subsequently modified II. Contracts conditioned orally agreed-on terms III. contracts that are not final because they are part-written and part-oral IV. Contracts with ambiguous terms V. Incomplete contracts VI. Contracts with obvious typographical errors VII. Voidable or void contracts VIII. Evidence of prior dealings or usage of trade

What is a conditional contract?

I. Contracts containing conditions affecting the performance obligations of the parties. II. The conditions may be either implied by law or expressly inserted into the contract by the parties.

What are the Methods of Discharging a Contract

I. Discharge by conditions If precedent, concurrent, implied, and express conditions are not met or subsequent condition occurs. II. Discharge by performance If a party performs the terms of the contract or makes a tender (an offer to perform), or if the party performs to the satisfaction of the contracting party. III. Discharge by material breach If a party fails to substantially perform his obligations, thereby justifying that the non-breaching party be discharged from the contract. IV. Discharge by mutual agreement If the parties mutually agree to discharge one another, substitute a new contract, substitute a party, or substitute a different performance. V. Discharge by operation of the law If one of the following occurs: alteration of the contract, bankruptcy, tolling of the statute of limitations, impossibility, commercial impracticability, or frustration of purpose.

What are nominal damages?

I. If no actual damages resulted from the breach of contract, the court may award the plaintiff nominal damages. The award is typically for $1 or $5, but it serves to signify that the plaintiff has been wronged by the defendant.

What is the main-purpose rule?

I. If the main purpose for incurring a secondary obligation is to obtain a personal benefit, the promise does not fall within the statute and need not be in writing.

What is discharge by performance?

I. In most situations, parties discharge their obligations by doing what they respectively agreed to do under the terms of the contract; this is called discharge by performance. II. If Sherry refuses to let him start, the painter has now discharged his duties under the contract by his tender of performance and he may sue Sherry for material breach.

Explain: Statute of Frauds: Impossible 1 Year Contracts

I. It is important to realize that the one-year period begins to run the day after the contract is created, not when the contract is scheduled to begin. The test for compliance with the one-year rule is not related to the likelihood of the completion of the contract within one year. Rather, the test considers the possibility of completing the contract within one year. II. For example, if Robert contracts with Elise for lifetime employment, they do not have to write and sign the agreement because it is possible for the contract to be completed within one year: Robert could die after two days of work. Moreover, Robert and Elise's contract, if oral, would be enforceable because it is not within the statute of frauds.

What is tender?

I. Parties also discharge their duty by making an offer to perform and being ready, willing, and able to perform. II. For example, If a painter shows up at Sherry's house with his paint and ladders and is ready to start painting the garage, he has tendered performance.

What is a mutual rescission?

I. Parties may agree that they simply wish to discharge each other from their mutual obligations and therefore may rescind or cancel the contract. II. For example, if James agreed to cater a graduation reception for Bill's son but it appears that the child is not going to graduate when planned, James could agree not to hold Bill responsible for paying him the agreed-on cost for the catering in exchange for Bill's agreement not to expect James to cater the reception.

What is reformation?

I. Sometimes a written contract does not reflect the parties' actual agreement, or there may be inconsistencies in the contract, such as the price being listed as "$200,000 (twenty thousand dollars)." In such a case, the written document may be rewritten to reflect what the parties had agreed on.

What is the impossibility of Performance?

I. Sometimes an unforeseen event occurs that makes it physically or legally impossible for a party to carry out the terms of the contract. In such a situation, the parties will be discharged on grounds of impossibility of performance. II. Courts distinguish between objective impossibility, meaning it is in fact not possible to lawfully carry out one's contractual obligations, and subjective impossibility, meaning it would be very difficult to carry out the contract. Objective impossibility but not subjective impossibility discharges the parties' obligations under the contract.

What is novation?

I. Sometimes the parties to the agreement want to replace one of the parties with a third party. II. he original duties remain the same under the contract, but one party is discharged and the third party now takes that original party's place. All three parties must agree to this agreement for it to be valid.

What is anticipatory repudiation?

I. Sometimes, a contracting party may decide not to complete the contract before the actual time of performance. This situation often arises when market conditions change and one party realizes that it will not be profitable to carry out the terms of the contract. II. The breaching party may convey the anticipatory breach to the non-breaching party either by making an express indication of her intent not to perform or by taking an action that would be inconsistent with her ability to carry out the contract when performance was due. III. Once the contract has been anticipatorily repudiated, the non-breaching party is discharged from his obligations under the contract.

What is a substituted Contract?

I. Sometimes, instead of canceling the contract and terminating their relationship, the parties want to substitute a new agreement in place of the original. II. This contract immediately discharges the parties from their obligations under the old contract and replaces those obligations with the new obligations imposed by this contract.

What is the frustration of Purpose?

I. Sometimes, when a contract is entered into, both parties recognize that the contract is intended to fulfill a particular purpose, and the occurrence of that purpose is said to be a basic assumption on which the contract is made. II. If, due to factors beyond the control of the parties, the event does not occur, and neither party had assumed the risk of the event's nonoccurrence, the contract may be discharged. III. This doctrine arose from the so-called coronation cases in England. Numerous parties had contracted for rooms along the parade route for the king's coronation, but the king became ill and the coronation was canceled. The courts held that the parties' duties under the room contracts should be discharged and that any payments made in advance should be returned because the essential purposes of the contracts could no longer be fulfilled, through no fault of any of the parties.

Explain: Statute of Frauds: Contracts For One Party to Pay The Debt of Another Initial Party Fails to Pay.

I. The contracts involving promises to pay a debt that are within the statute of frauds are of a very limited kind. These promises are referred to as secondary promises, collateral promises, or suretyship promises. All of these terms refer to agreements in which a third party agrees to pay the debt owed by another party if that other party fails to pay his or her debt. II. For example, Helen enters into a contract with Tom to sell Tom her car. Subsequently, Diana agrees to pay Tom's debt if he fails to pay Helen the money he owes her. To be enforceable, Diana's promise needs to be in writing because it is within the statute.

Exception to the parol evidence rule: Contracts Conditioned on Orally Agreed-on terms

I. The parol evidence rule does not prevent parties from introducing evidence proving the written agreement was conditioned on terms agreed to orally. II. The reason the parol evidence rule does not apply is that the evidence being elicited does not substantially modify the written agreement. III. Rather, what is at issue with such evidence is the enforceability of the contract as written. No terms are altered, so the parol evidence rule does not apply.

What is the purpose of the parol evidence rule?

I. The purpose of the parol evidence rule is to restrict evidence from being admitted that substantially contradicts the agreement in its written form. Therefore, evidence of prior agreements and negotiations, as well as of contemporaneous agreements and negotiations, is typically excluded under the parol evidence rule.

What are legal remedies?

I. The remedies the potential plaintiff will be thinking about can generally be classified as either legal remedies (also known as money damages) or equitable remedies, some form of court-ordered action. II. The distinction between legal and equitable remedies can be traced back to a time in our legal system's English roots when, instead of one unitary legal system, there were two separate courts, a court of law and a court of equity. III. When parties were seeking money damages, they went to the court of law; but when parties needed any remedy other than money damages, they went to the High Court of Chancery, which was a court of equity. IV. When the United States was establishing its legal system, it combined both these types of powers in a unitary system. The reasons for this joinder are not known, but it seems likely that the primary reason was that the early colonists simply did not have the resources to support separate systems. V. The courts did, however, still maintain the distinction between legal and equitable remedies. However, unlike judges in the old English courts, judges in the U.S. system have the power to award both legal and equitable remedies in the same case.

Define secondary obligation

I. This arises when a party outside a primary agreement promises to fulfill one of the original party's (the primary debtor's) obligations if the original party (primary debtor) fails to fulfill his or her obligation.

What is Promissory Estoppel?

I. This exception is the legal enforcement of an otherwise unenforceable contract due to a party's detrimental reliance on the contract. II. For this to be in effect, the party's reliance must be to his or her own detriment. Furthermore, the reliance must have been reasonably foreseeable; that is, the party who did not rely on the contract should have known that the other party would rely on it.

What is accord and satisfaction?

I. This is used when one of the parties wants to substitute a different performance for his original duty under the contract. II. The promise to perform the new duty is called the accord, and the actual performance of that new duty is called the satisfaction. The party's duty under the contract is not discharged until the new duty is actually performed. Thus, it is the satisfaction that discharges the party.

What are liquidated damages?

I. Typically, the court determines the amount of damages to which a non-breaching party is entitled. Sometimes, however, the parties recognize that if there is a breach of contract, it will probably be somewhat difficult for the court to determine exactly what the damages are. II. To prevent a difficult court battle, the parties specify in advance what the liquidated damages will be if there is a particular kind of breach. III. The parties specify these damages in what is called a liquidated- or stipulated-damage clause in the contract. The damages may be specified as either a fixed amount or a formula for determining how much money is due.

Explain: Statute of Frauds: Contracts Related to an Interest in Land

I. Under the statute of frauds, land is considered real property, such as the land and soil itself, as well as anything attached to the land, such as trees or buildings. II. the statute requires a writing as evidence of the contract, a claim to an oral contract for the sale of land is not enough to prove such a contract existed. III. However, determining exactly what constitutes an interest in land under the statute of frauds is difficult. IV. For example, promises to sell crops annually, agreements between parties for profit sharing from the sale of real property, and boundary disputes that have been settled through the use of land are not within the statute of frauds and, therefore, do not require evidence in writing

Exception to the parol of evidence rule: Contracts Containing Ambiguous Terms

I. When a contract contains what the court deems to be ambiguous terms, the court is faced with a dilemma in interpretation. To attempt to reach the most accurate interpretation of the original agreement, the court allows evidence, even if it is oral, for the sole purpose of clarifying ambiguous terms. II. As with evidence regarding orally agreed-on condition precedents, evidence used to clarify ambiguity is not believed to modify the contract but, rather, to clarify it. Accordingly, oral evidence related to ambiguity is admissible only to clarify, and not to change, any of the contractual terms.

What are the mitigation of damages?

I. When a contract has been breached, the non-breaching party is often angry at the breaching party and may want to make the breaching party pay through the nose. II. However, the courts do not allow a non-breaching party to increase his damages intentionally. III. In fact, to recover damages in a breach-of-contract case, the plaintiff must demonstrate that he used reasonable efforts to minimize the damage resulting from the breach.

Exception to the parol of evidence rule: Incomplete contracts

I. When a contract is fundamentally flawed because it is missing critical information, courts can allow parol evidence to provide the missing information. II. Typically, the missing information is related to essential terms of the contract. Parol evidence will be admitted to clarify the contract by filling in the missing parts while not modifying, in any substantial way, the written agreement. III. Parol evidence is used to facilitate business transactions as opposed to forcing the parties to enter into a new, complete agreement.

What happens when a party files bankruptcy?

I. When a party files bankruptcy, the court allocates the assets of the bankrupt among the bankrupt's creditors and then issues the party a discharge in bankruptcy. Once the assets have been distributed, all the bankrupt's debts are discharged.

What are the methods of discharging a contract?

I. When a party's obligations under a contract are terminated, they are said to be discharged. II. Performance

What are Concurrent Conditions?

I. When each party's duty is conditioned upon the performance of the other, meaning each party's duty must be performed simultaneously. II. For example, a buyer's duty to pay for a good is conditioned upon a seller's duty to deliver that good, and vice versa.

Exception to the parol of evidence rule: Contracts with obvious typographical errors

I. Whenever a written agreement under the statute of frauds contains a serious, and obvious, typographical error, parol evidence is admissible to demonstrate that the typo was a typo and to set forth the proper term. II. Allowing parol evidence to correct typos does not fundamentally alter the written agreement because the typo is not an accurate reflection of the parties' agreement. III. The agreement is not altered by correcting a typo; rather, the agreement is clarified.

What is a merger clause?

I. a clause parties include in a written agreement within the statute of frauds that states that the written agreement accurately reflects the final, complete version of the agreement. II. Not all courts consider merger clauses to be conclusive proof of a contract. III. Nonetheless, where merger clauses are accepted, they greatly reduce the amount of guesswork courts must do in determining whether a written agreement was in fact intended to be the final statement of the agreement.

Define primary obligations

I. are debts entered into in an initial contract. II. In our car-sale example, the primary obligation is Tom's promise to pay Helen for the car. Primary obligations are not within the statute of frauds and, therefore, need not be in writing to be enforceable.

What are implied conditions?

I. are those that are not explicitly stated but are inferred from the nature and language of the contract. II. For example, if a man enters into a contract with a builder to replace the windows in his house, there is an implied condition that the builder will be given access to the home so that she may fulfill her obligations under the contract.

Which specific types of contracts fall within the statute of frauds?

I. contracts whose terms prevent possible performance within one year II. promises made in consideration of marriage III. contracts for one party to pay the debt of another if the initial party fails to pay IV. contracts related to an interest in land V. contracts for the sale of goods totaling more than $500

What are compensatory damages?

I. damages designed to put the plaintiff in the position he would have been in had the contract been fully performed. These damages are said to compensate the plaintiff for his loss of the benefit of the bargain. II. uppose, for example, that Dr. Wilcox hires Jeremy to work exclusively as his research assistant during the fall semester, for a salary of $2,000 per month. If Wilcox breaches the contract and terminates Jeremy for no reason with two months left on the contract, and the only job Jeremy can get as a substitute pays only $500 per month, Jeremy is entitled to compensatory damages of $3,000. However, if Jeremy gets a new job that pays $2,500 per month, he is actually better off now, so he has no compensatory damages. III. In addition to losing the benefit of the bargain, the plaintiff may suffer other losses caused directly by the breach. These losses may be compensated as incidental damages. IV. For example, because Jeremy was unfairly terminated before his contractual term was over, he may have to spend money to find another job. His job search expenditures would be considered incidental damages.

What are punitive damages?

I. designed to punish the defendant and deter him and others from engaging in similar behavior in the future. II. Because the primary objective of contract law, however, is to ensure that parties' expectations are met, punitive, or exemplary, damages are rarely awarded. III. Most jurisdictions award them only when the defendant has engaged in reprehensible conduct such as fraud. The primary factor in determining the amount of punitive damages is how much is necessary to punish the defendant; thus, the amount depends on matters such as the wealth and income of the defendant.

What is discharge by material breach?

I. discharges the non-breaching party from his obligations under the contract. A material breach occurs when a party unjustifiably fails to perform his obligations substantially under the contract.

What are the required elements of writing via statue of frauds?

I. include the identification of the parties to the contract, the subject of the agreement, the consideration if any is given, and any pertinent terms of the contract. II. Furthermore, the contract must be signed, but the signature does not need to be located at the end, which is the traditional location for a signature. In fact, the signature need not be the full signature; a mark, such as an initial, is permissible as long as the mark is placed with the intent to function as a signature. III. Although it is standard for both parties to sign the agreement, because the writing is being offered as proof of an agreement, only the party against whom action is sought needs to have signed the writing. IV. If only one party signed, the agreement is enforceable against the signing party but not against the non-signing party. The required elements can be contained in a memorandum, a written document, or a compilation of several written documents.

What is the parol evidence rule?

I. is a common law rule that specifically addresses the admissibility of oral evidence as it relates to written contracts. II. The parol evidence rule states that oral evidence of an agreement made prior to or contemporaneously with a written agreement is inadmissible when the parties intend the written agreement to be the complete and final version of their agreement.

What is an injunction?

I. is an order either forcing a person to do something or prohibiting a person from doing something. Most commonly, injunctions are prohibitions against actions.

What are the requirements of a Writing Sufficient to Satisfy the Statute of Frauds under the Common Law?

I. name of the parties to the contract. II. The subject matter of the agreement. III. The consideration given for the contract. IV. All relevant contractual terms. V. The signature of at least the party against whom action is brought.

What is a complete performance?

I. occurs when every aspect of the parties' duties under the contract is carried out perfectly. In many instances, complete performance is difficult, if not impossible, to attain, and courts today generally require only substantial performance.

What is a substantial performance?

I. occurs when the following conditions have been met: (1) completion of nearly all the terms of the agreement, (2) an honest effort to complete all the terms, and (3) no willful departure from the terms of the agreement. II. For example, if a contract called for all bedrooms of a house to be painted blue but one was inadvertently painted green, the court may require the contractor to compensate the buyer with the amount that it will cost the buyer to have that room repainted.

What are express conditions?

I. re explicitly stated in the contract and are usually preceded by words such as conditioned on, if, provided that, or when. II. For example, in a situation involving a potential sale of a house, the offer expressly required the buyer to make a deposit of $1,000 on acceptance. The buyer wrote "accepted" on the offer and returned it but did not include the deposit. No deposit of money was ever made. The seller then canceled the transaction. Several weeks later, the buyer attempted to tender payment to the seller. The court found that under the terms of the contract, payment of the $1,000 was an express condition of acceptance and, because the acceptance was incomplete, there was no contract.

Statute of Frauds Applies (MY LEGS)

M Marriage I. Contracts made in consideration of marriage. Y Year II. Contracts whose terms prevent possible performance within one year. L Land III. Contracts related to an interest in land. E Executor IV. Contracts in which the executor promises to pay the debt of an estate with the executor's own money G Goods V. Contracts for the sale of goods totaling more than $500 S Suretyship VI. Contracts involving secondary obligations (promise to pay the debt of another) or suretyships

What is the statute of frauds?

A law that serves three purposes. I. The first is to ease contractual negotiations by requiring sufficiently reliable evidence to prove the existence and specific terms of a contract. II. The second is to prevent unreliable oral evidence from interfering with a contractual relationship. Requiring a written contract prevents the admittance of oral evidence denying or substantially altering the contract. III. The third is to prevent parties from entering into contracts with which they do not agree. The statute's requirements impose on parties the need to consider the terms carefully, agree to them, write them down, and sign the contract.

What is Partial Performance?

Under this exception, if the buyer in an alleged contract for the sale of land has paid any portion of the sales price and either has begun to improve the land permanently or has taken possession of the land, the courts will consider the contract partially performed, and this partial performance will amount to proof of the contract.