BUSLAW EXAM 2

contract

legally enforceable promise or set of promises; private law that governs our dealings with others; oral or written

basic elements of contract

voluntary promises

consisting of an offer and acceptance

with legal consideration

between parties with capacity to contract

made for a lawful purpose

bilateral contracts

two parties make promises to one another

unilateral contracts

one party makes a promise

valid contract

binding and enforceable agreement

unenforceable contract

meets the basic legal requirements for a contract but may not be enforceable because of some other legal rule

voidable contract

agreement otherwise binding, but due to circumstances surrounding execution, may be rejected at option of one party

void contract

agreement without legal effect because terms or subject are prohibited by law

express contract

agreement of parties manifested by specific words, written or oral

implied contract

agreement not shown by words, but by acts and conduct of parties

executory verses executed

a contract is executed when all of the parties have fully performed their contractual duties. It is executory until such duties have been fully performed

2 bodies of law govern contracts

article 2 of UCC (uniform commercial code)

common law of contracts

UCC

Uniform Commercial Code; a commercial set of laws that standardize commercial transactions across US, including the sale of goods, leases, negotiable instruments, and secured financing

hybrid contract

contract that involves both goods and services

Quasi-contract theory

a legal obligation that ensures fairness and equity; imposed by a court to prevent one party from experiencing unjust enrichment at the expense of another, even though no actual contract exists; “unjust enrichment”

promissory estoppel

Equitable remedy created by courts to protect reliance; a legal principle that allows a court to enforce a promise even if there is no formal, written contract

offer

a promise conditional on an act, return, promise, or forbearance (retaining from doing something). Requires intent, definite terms, and communication of offeree and offerer.

objective theory (reasonableness)

Would a reasonable person judge the offeror’s words and

acts in the context of the circumstances to signify intent to

contract?

definiteness of terms

offer and resulting contract must be definite and certain

Article 2 sales contracts

can be created “in any manner sufficient to show agreement, including conduct”

advertisements

for a sale of goods at specified prices; generally not considered offers, but are invitations to offer or negotiate; flyers, catalogs, etc

sales puffery

Not an offer; exaggerated, subjective statement or boast made by a seller to promote a product that no reasonable person would take as a literal factual claim

rewards

treated as unilateral contracts; advertisements for lost property, information, or lost animals; offeree must perform the act to receive it

auctions

sellers are generally treated as making an invitation to offer; advertised as being “without reserve” and bidders make offers to sell goods to highest bidder

bids

advertisements and sellers at auctions generally are treated as making an invitation to offer, so those who bid are making an offer that seller may accept or reject.

modern trend is

offerees are bound only by terms of which they had actual or reasonable notice

termination of offer

an offer may be terminated by revocation if revoked and communicated to the offeree BEFORE the offer is accepted

exceptions to revocation

option is a separate contract agreeing not to revoke for an amount of time; offers for unilateral contracts; promissory estoppel; firm offers for sale of goods only

lapse of time

offers that fail to provide a specific time for acceptance are valid for a reasonable amount of time depending on the circumstances and medium of communication

rejection

an offeree is expressly unwilling to accept offer or impliedly rejects offer by making a counter offer

acceptance

a manifestation of assent to the terms of the offer made by the offeree in the manner invited or required by the offer; must be by clear expression of intent to be bound by terms & communicated

acceptance elements

1. offeree intended to enter the contract

2. offeree accepted on the terms proposed by offeror

3. offeree communicated their acceptance to the offeror

mirror image

common law contract doctrine stating that an acceptance must match an offer’s terms exact-for-exact, without any changes

Battle of the Forms

amends the common law ‘mirror image’ rule'; allows contract formation even when there is some variance between terms of offer and terms of acceptance

knockout rule

final contract will contain terms and conditions on which both parties agree

‘gap filling’ provisions

from UCC code

‘mailbox rule’ acceptance

effective upon dispatch when offeree uses a manner of communication expressly or impliedly authorized (invited) by offeror

modern trend

unless stipulated, any reasonable means of communication under circumstances

offeree’s silence

is NOT an acceptance

acceptance of ambiguous offers

if the offer is unclear or ambiguous, an acceptance can be made in a manner that is reasonable under the circumstances. thus, either a promise to perform or performance, if reasonable, creates a contract

consideration

legally recognized value bargained for and given in exchange for an act or a promise

adequacy of consideration

generally, courts will not examine adequacy of consideration

laissez faire (adequacy of consideration)

as long s the parties’ acts or promises have legal value, courts generally do not inquire about whether it was ‘fair’

bargained-for-exchange

a promisee’s act or promise must have been bargained for and given in exchange for the promisor’s promise

exchanges that fail to meet consideration requirements

illusory promises

preexisting duties

past consideration

illusory promises

if a promisee’s promise really does not bind them to do or refrain from doing a thing, their promise is __ and cannot serve as consideration

output (illusory promises)

party agrees to buy all of the other party’s production of a particular commodity

requirements (illusory promises)

party agrees to supply all of the other party’s needs for a particular commodity

exclusive dealing contracts

imposes rights and duties on both distributor and manufacturer to use their “best efforts” to sell and supply the goods

preexisting duties

as a general rule, performing or agreeing to perform a preexisting duty is NOT consideration

liquidated debts

debts in which parties have no dispute about existence or amount of debt

a creditor’s promise to discharge a liquidated debt

for part payment of the debt at or after its due date is unenforceable for lack of consideration

unliquidated debts

involve a good faith dispute about the existence or amount of a debt

accord and satisfaction

the settlement of an unliquidated debt so the creditor cannot maintain a separate action to recover the debt

composition agreements

agreements between a debtor and two or more creditors who agree to accept as full payment a stated percentage of their liquidated claims against the debtor

forbearance

temporary agreement with a lender or creditor to pause or reduce your loan or debt payments due to short-term financial hardship

past consideration

an act or benefit given in past that was NOT given in exchange for promise in question, is NOT enforceable consideration

moral obligations

generally promises made to satisfy a preexisting moral obligation are unenforceable for lack of consideration

consideration promissory estoppel

widely used as a consideration substitute in cases involving commercial promises contemplating a bargained-for exchange (requirements include a promise, reliance, injustice)

promises to pay debts barred by Statutes of Limitations

statutes of limitations set an express statutory time limit on a person’s ability to pursue any legal claim

promises to pay debts barred by Bankruptcy Discharge

once a bankrupt debtor is granted a discharge, creditors no longer have the legal right to collect discharged debts

charitable subscriptions

promises to make gifts for charitable or educational purposes are often enforced based on promissory estoppel, IF the institution or organization to which the promise was made has acted in reliance no the promised gift

voidable contracts

are induced by mistake, fraud, misrepresentation, duress, or undue influence; rescission should be prompt and unequivocal

misrepresentation or fraud

a false statement and may be negligent (innocent) or fraudulent (made with knowledge of falsity and intent to deceive); either way, injured party may rescind the contract

elements of misrepresentation or fraud

in both cases there is lack of truth. material facts, actual and justifiable reliance

material facts

facts if they are likely to play significant role in inducing reasonable person to decide to enter contract

actual reliance

course of action is based on direct representations made, plus a causal connection between the assertion and reliance

justifiable

reasonable under circumstances

in fraud there is

a scienter, which differentiates it from misrepresentation

scienter

intent to deceive

concealment

non disclosure (can be evidence of intent)

to be a ‘fact’ it must be

historical, based on validated information or present. distinguished from opinions or predictions

mistake

a belief about a fact that is not in accord with the truth; relates to facts as they exist at time contract is created

mutual mistakes elements

• mistake relates to a basic assumption on which the contract was made

• mistake has a material effect on the agreed-upon exchange

• party harmed by the mistake does not bear risk of the mistake

unilateral mistake

only one party is mistaken about a fundamental fact; will not render a contract unenforceable unless unequal bargaining position existed

duress

improper (wrongful) threat or act that coerces a person to enter or modify contract; victim must have had no reasonable choice but to enter the contract; if proven, contract is VOIDABLE

economic duress (business compulsion)

one person induces formation or modification of a contract by threatening another person’s economic interests; one of the parties offers a disproportionately small amount of money in settlement of a debt and refuses to pay more

undue influence

involves wrongful pressure exerted on a person during the bargaining process; unlike duress, pressure is exerted through persuasion rather than coercion

Capacity

the ability to incur legal obligations and acquire legal rights and duties; minors, the mentally ill, the intoxicated

effect of lack of capacity

lack of capacity comes as a claim by a plaintiff (seeking restitution) or affirmative defense to enforcement of contract claiming it is voidable

capacity of minors

a minor has right to avoid or disaffirm contract

necessaries

something one needs to live; exception to the minor’s right to disaffirm

emancipation

termination of a parent’s right to control a child, receive services and wages

minor’s power to avoid contracts

continues for a reasonable period of time after they reach age of majority. if no avoidance there is possibility of ratification (affirming)

disaffirming minors

are required to pay reasonable value for necessaries furnished

quasi-contract

a court-imposed legal obligation designed to prevent one party from experiencing unjust enrichment at the expense of another

ratification

occurs when a person of majority age indicates they intend to be bound by a contract made while still a minor

disaffirmance

is the legal right of a party lacking contractual capacity—such as a minor or a mentally incompetent person—to reject and cancel a voidable contract

mentally ill persons

disadvantaged in their ability to protect their interests in bargaining process, thus contract law makes their contracts void or voidable

contract is void

a person adjudicated incompetent with a guardian appointed at time on contract

contract is voidable

mental illness established after contract executed

intoxication

is grounds for lack of capacity only when it is so extreme the person is unable to understand nature of bargaining process

illegality

a contract or agreement is void and unenforceable if it involves an act or promise that violates a law or is against public policy

3 types of illegal agreements

violates statutes, violates public policy, is unconscionable

agreements that violate public policy

agreements to commit a crime, promote an illegal purpose, perform an act without license, restraint of trade (competition)

licensing laws

agreement to perform an act for which a party is not properly licensed

statutes require a person to

obtain a license, permit, or registration before engaging in a certain business or profession

if a statute’s purpose is to protect the public,

the contract is unenforceable

if a statute’s purpose is to raise revenue,

the contract is enforceable

agreements in restraint of trade (competition)

if sole purpose of an agreement is to restrain competition, it violates public policy and is illegal