Exam 2 Business Law

Contracts

What three basic elements must ordinarily be present for an enforceable contract?

offer

acceptance

consideration

what is mutual assent?

where there was a meeting of the minds where each party agreed to a point

what is an offer?

a promise or commitment to do or refrain from doing something

example: i get a letter saying someone will sell their bike to me for $100

what is an invitation to negotiate?

when someone is encouraged to make an offer, typically in advertisements and price tags. exception is a certain number of items for a certain price.

example: price tag on an item in walmart

what are 4 ways an offer may terminate before acceptance?

1) Lapse of Time

2) Death or incapacity of a party

3) Destruction of subject matter

4) Supervening illegality

what is a counteroffer?

a response to an offer that give new or additional terms, it kills the first offer.

what is the mirror image rule?

that the acceptance must be the exact same terms of the offer.

what is the mailbox rule?

an offer is effective upon being properly sent and not received.

what is an option contract?

this is when money is exchanged to keep an offer open for a state of time. This prevents the offeror from entertaining other parties.

what are the principal categories of persons whose contractual capacity may be limited?

a) minors

b) mentally incompetent

c) intoxicated

their contracts are typically voidable, and legally incompetent can have theirs voided

A seventeen-year-old buys a used motorcycle and later wants to cancel the deal. What capacity issues should be analyzed?

The general rule of voidability when it comes to minors shows that when a minor enters a contract it is voidable when they reach 18.

Why will a court generally refuse to enforce a contract whose purpose violates the law?

Legal detriment: Proper consideration requires that the parties suffer some type of detriment that the law recognizes as adequate. If the purpose of the contract violates the law then no legal detriment is suffered.

what is farud?

when one party has actual knowledge that a representation was false. If fraud is present, there is no mutual assent and therefore the contract is not enforceable. liable for treble damages (3x amt)

what is misrepresentation?

occurs when the fact misrepresented was material, when the party justifiably relied on the misrepresentation when forming the agreements, and that the misrepresentation was on a fact and not an opinion. Here, the contract is unenforceable, and the party is liable for actual damages.

what is puffery?

Could happen in either fraud or misrepresentation when there was an exaggeration or inflation that a reasonable person would not find factual.

what is duress?

An agreement is entered into in the presence of a threat of economic value, violence, extortion, etc.

what is undue influence?

Similar to duress, but this is when you must prove that the duress threat came from someone who had power or influence over the party entering the agreement.

what facts may lead a court to find a contract unconscionable?

when the exchange is so unfair that it “shocks the conscience” of a reasonable person.

What is the difference between unilateral vs. mutual mistake?

Unilateral: when one party makes a mistake or has a mistaken belief

Mutual: a basis for cancelling a contract is both parties share a mistake.

Two parties contract for the sale of a painting that both believe is an original, but it is later shown to be a reproduction. Analyze whether the agreement may be rescinded.

yes because it is a mutual mistake and was a basic assumption of their sales contract

A seller says a ten-year-old appliance is “the finest machine ever made.” Is that statement more likely a fact or an opinion, and why does the distinction matter?

the statement is an opinion and the seller can not be held legally liable because it was not the finest machine ever made

Distinguish a material breach from a minor breach. How does each affect the non-breaching party’s duties?

Material Breach: when the breach defeats the purpose of the contract, it may also excuse the nonbreaching party from performing.

Minor Breach: when one party doesn’t fully comply with the contract, but it isn’t material. The nonbreaching party may not be relieved from performing, but they can recover damages.

What is anticipatory repudiation, and what options does it give the non-breaching party?

it means clearly refusing to carry out a contract before the deadline. The other party can stop performing and sue immediately, or wait to see whether the performance occurs while limiting loss.

what are compensatory vs. consequential damages?

compensatory: the actual damages incurred.

consequential: cover the predictable losses that are an indirect result of the breach.

Is a liquidated damages clause enforceable?

Yes, as the parties agreed in advance on the damages to be awarded and as long as they are reasonable.

Explain the duty to mitigate damages. What happens if the injured party unreasonably fails to mitigate?

the duty holds that, in the event of a breach, each party has an affirmative duty to decrease or limit damages caused by the breach. If the injured party fails to mitigate, their damages could be reduced.

Distinguish legal remedies from equitable remedies:

Legal: monetary damages

Equitable: non-monetary damages

A seller refuses to convey a unique parcel of land after signing a valid agreement. Which remedy is the buyer most likely to seek, and why?

the buyer is most likely to seek the specific performance equitable remedy so that the seller is forced to turn over the title to the unique lan purchased.

Which common categories of contracts generally must be in writing under the statute of frauds?

a) Real Estate Contracts

b) Payment of another’s debt

c) Services that can not be performed in less than one year

d) Sales of Goods over $500

On Monday, Dana offers to repair Lee’s office for $2,000. On Tuesday, Lee replies, “I accept if you also paint the lobby.” On Wednesday, Dana withdraws the original proposal. Identify each communication and determine whether a contract was formed.

Dana’s offer on Monday was the original, Lee’s response on Tuesday was a counteroffer, which killed Dana’s original. Dana withdrew on Wednesday, and no contract was formed.

A business promises to pay a designer $5,000 for a website completed by June 1. The designer states, “I accept, but delivery will be June 15.” Apply the mirror-image rule.

due to the designer changing the date, the contract was not accepted as it was not mirror image to the original offer

A caterer promises in writing to serve a banquet six months from now. Before performance is due, the caterer unequivocally states that it will not perform. Identify the doctrine involved and the customer’s available response.

This involves the anticipatory repudiation doctrine because the party made it clear they are not going to perform. The customer may respond by seeking recovery for damages before the breach happens.

A contract fixes damages at $25,000 for a one-day delay even though likely losses are only a few hundred dollars and are easy to calculate. Analyze the clause.

The clause is an unenforceable penalty because $25,000 is much higher than the expected loss. The injured party can seek money for the proven losses instead. 

Summarize the key facts of Leonard v. PepsiCo, identify the contract-formation issue, and explain the court’s reasoning.

Pepsi's commercial showed a Harrier Jet for achieving 7 million Pepsi points. John Leonard sent in some points as well as $700,000 to handle the cost of the other points + shipping and handling. Pepsi, of course, refused, and the question of whether the commercial was an offer was brought up. The court found no contract because the advertisement was not a clear enough offer, and receiving the jet scene as a joke would have been done by a reasonable person. There was also no contract offer in writing.