legal environment of business exam 3

TH 3.1 Contract Law Overview

TH 3.1 Contract Law Overview

a declaration by a person to do or not to do a certain act

promise

for a promise to be legally enforceable, it must be a …

contract

a promise or a set of promises for the breach of which the law gives a remedy, or performance of which the law recognized a duty

contract

governs the law of most contracts (including real estate, insurance, services, and employment)

the common law

governs contracts for the sale and lease of goods

the uniform commercial code

you can do both…

common law and uniform commercial code

is a set of model laws that guide a number of commercial transactions
-For instance, if the main purpose of the contract is to purchase a good (e.g., a custom-designed website with a built-in software program), the UCC might govern, even though there's a service component involved in creating the website.

uniform commercial code

a parties intention to enter a contract is judged by outward, objective facts as interpreted by a reasonable person

-use this when determining if two parties have entered into a contract or determining terms of contract

objective theory of contracts

under the objectives theory of contract, these facts may include…

-what the party said when entering into the contract
-how the party acted or appeared
-circumstances surrounding the transaction

elements of a valid contract should have…

(if any of these are not in the contract, you don’t have a valid contract)

agreement (offer and acceptance)

consideration (bargained for exchanged of value)

contractual capacity (legal age and sound of mind)

legality

an oral agreement that otherwise meets the elements of a contract is still enforceable unless the …applies

statute of frauds

oral agreements are just as enforceable as…with the exception of the statute of frauds

written agreements

types of contracts

bilateral
unilateral
formal
informal
express
implied

promise given in exchange for return promise
-once two parties exchange promises, you have a contract “promise for an act”

bilateral contract

offers can be accepted only by offeree performance
-only way to accept it is by the person who is making the offer (contests) (no contract until the act is made)

unilateral contract

an agreement that by law requires a specific form for its validity

formal contract

a contract that does not require a specific form or method of creation to be valid

informal contract

a contract in which the terms of the agreement are stated in words, oral or written

express contract

a contract formed in a whole or in part from the conduct of the parties

implied contract

The contract is based on the actual (though unspoken) agreement of the parties

-You walk into a barbershop, sit in the chair, and the barber cuts your hair. You didn't sign a contract or say "I will pay you $30," but by sitting there and accepting the service, you've created an … to pay the standard price.

implied in fact contract

contract is a legal "fiction" created by a judge to ensure fairness, regardless of what the parties intended

implied in law contract

a contract that has been fully performed by both parties

executed contract

a contract that has not yet been fully performed

executory contract

a contract that may be legally avoidable at the option of one or both of the parties

voidable contract

a valid contract rendered unenforceable by some statute or law (statute of frauds and statute of limitations)

-would be valid but for legal defenses

unenforceable contract

a contract having no legal force or binding effect (illegality or violation against public policy)(no contract)
-law treats it as if it was never a contract

void contract

meets all of the elements of a contract

valid

module 3.2

contract formation

a mutual understanding or meeting of the minds between two or more individuals regarding the terms of a contract

-consists of an offer and acceptance

agreement

a promise or commitment to do something or refrain from doing some specified action in the future

offer

the person making the offer

offeror

the person to whom the offer is made

offeree

elements of a valid offer…

-serious intent to be bound

-reasonably certain (or definite)
(offer must be clear enough for the offeree)

-communication to the offeree

(must actually receive the offer)

where intent may be lacking:(6)

expressions of opinions

statements of future intent

preliminary negotiations

invitations to bid

advertisements

auctions

no intent to enter into an agreement

(e.g., "This car is probably worth $5,000")

expressions of opinions

an offer must have present intent (make an offer in future)

(e.g., "I might sell my car next week")

statements of future intent

may show a willingness to enter into a contract under the right conditions, but there is still no intent
(wait until they make an offer)

preliminary negotiations

it is the bidders making offers, not the entity inviting the bids

invitations to bid

generally are treated as invitations to negotiate

-may be considered an offer if they contain language that invites acceptance(ex first 5 people who do this)

advertisements

like invitations to bid, the bidders are offerors

auctions

an auction that must have a minimum (often unadvertised) bid before the item will be sold

with reserve

the offerees affirmative act of turning down the offer

rejection

a rejection terminates the offer. it is effective once the offeror… it

receives it

a simultaneous rejections of the original offer and making of a new offer

counteroffer

may be enforceable if the parties have agreed to the essential terms of the agreement

preliminary agreements

-the parties

-the subject matter of the contract

-the consideration to be paid

the time of payment, delivery, or performance

definite terms for a valid contract

Under the UCC, the only essential term is .... if the parties intended to enter into an agreement but omitted other terms, the UCC will supply those terms

quantity

An offer must be communicated to the offeree to be effective in …

-can be communicated to the individual persons or to the public at large

UCC and common law

A valid offer can be terminated if:
(No contract and the offer goes away)

-revoked by the offeror
-rejected by the offeree
-terminated by operation of law

the offerors withdrawal of an offer

revocations

-Any act inconsistent with holding the offer open is considered a revocation (act of selling to someone else)

-effective once received by the offeree(once they learn of revocation from 3rd party or offeror)

-can be revoked at any time acceptance unless it is an irrevocable offer

(even if they say they will hold it)

revocation by the offeror

irrevocable offers are..(4)

option contract
conduct of the offeree
detrimental reliance
merchants firm offer UCC only

a contract where the offeree has considered for the offer to remain open (paying for the time)

options contract

Sometimes the offeree's conduct can make an offer irrevocable. This applies to unilateral contracts (where an offer is made in exchange for an action). If the offeree takes substantial steps to perform the requested act in reliance on the offer, it becomes irrevocable.

conduct of the offeree

The offer may also become irrevocable if the offeree suffers a detriment (a loss or hardship) because they relied on the offeror's promise to hold the offer open.

detrimental reliance

if merchant (if someone in the business of selling goods) signs a document promising to hold an offer open, the offer is irrevocable for the specified period (or a reasonable time if no time is noted)

merchants firm offer (UCC only)

If the contract can be accepted by performance, the offer cannot be revoked once the offeree takes substantial steps to perform (no contract or acceptance until performance has been completed)

partial performance

The offeree has materially changed his/her position due to justifiable reliance on the offer

Ex. The offer is to sell a car to the offeree for a certain amount of money, and the offeree starts selling stock in order to collect the funds to pay it (the offer becomes irrevocable)

promissory estoppel

under the…an acceptance that does not mirror the offer is a counteroffer

mirror image rule

operation of law (termination)

-lapse of time/reasonable time has passed
-destruction of the subject matter of the offer
-death or incopetance of either party
-supervening illegality of the proposed contract
-specific provisions

offeree beings to perform a unilateral contract

conduct of the offeree

offeree suffers a loss in reliance on the offer

detrimental reliance

a mutual understanding or meeting of the minds between two or more individuals regarding the terms of a contract
-cosnists of an offer an an acceptance

agreement

a voluntary act by the offeree that shows consent to the terms of an offer
-express or implied

acceptance

a common law rule that requires the terms of the acceptance to mirror those of the offer
-offer must mirror acceptance to be valid

mirror image rule

silence generally does not constitute acceptance unless there is a d…
-there may be a … when there are prior dealings

duty to speak

under the…an acceptance is effective once it is sent

(rejection is effective when received)

mailbox rule

-The terms of the offer state that acceptance is not effective until it is received
-The offeree uses a substitute method of acceptance
- the offeree sends a rejection first

exceptions to the mailbox rule

The value given in return for a promise or performance in a contractual agreement
-there is no requirement that the consideration be equal to the value of the promise or performance

consideration

bargained-for exchange
legal sufficient value
-promise to do something one is not legally obligated to do
-a performance that one is not legally obligated to undertake creation
-forbearance of a right one has the legal right to do

elements for consideration

promises that lack consideration(3)

preexisting duty
past consideration
illusory promises

one cannot use a … as consideration for a promise
exception: an unforeseen difficulty may give rise to a right to ask for more money

pre existing duty

one cannot use performance that they have given in the past as consideration for a contract
ex. bonus for work you have done in past

past consideration

if the wording of the contract is such that the promisor is not obligated to do anything, there is no consideration

illusory promises

the legal ability to enter into a contract

-courts generally believe the existence of contractual … unless there are facts present to suggest otherwise

capacity

voidable at the option of the …

-the … retains this right until a reasonable amount of time past their 18th birthday

minor

if the minor disaffirms the contract, the minor is only obligated to return …

the consideration they received

minor entitled to a full refund

common law

minor is responsible for any wear, tear, or depreciation

minority rule

… bear no responsibility unless they sign the contract as well

parents

if one is… to the point that they do not understand the legal consequences of the agreement, the contract is voidable

-always be responsible for wear and tear

-intoxicated party chooses to exercise this option

intoxication

-if a court has previously determined that a person is mentally incompetent, any contract made by that person void

-if the person lacked the mental capacity to comprehend the nature, purpose,and consequences of the contract, the contract is voidable

-If the person suffers from a mental incapacity but otherwise has capacity at the time the contract is formed, the contract is valid (if you enter the contract when they have a lucid moment they are valid)

mental incompetence

any contract that is contrary to statute is going to be…

void

validity of the contract depends on the purpose of the …

licensing statute

purpose: raise government revenue
contract:

valid

purpose: protect from unauthorized practioners

contract:

void

covenents not to compete

must be part of a employment contract or part of the sale of a business
must protect a legitimate business interest
must have reasonable time frame
must have reasonable geograhapic restriction

a contract where one party is forced to accept terms that are unfairly burdensome and that unfairly benefit the stronger party

-has to be extremely unfair (unethical)

unconscionable

inconspicuous print, difficult language, or lack of real opportunity to understand the contract

procedural

contract provisions that are unduly oppressively or overly harsh

susbtantive

a clause that releases a party from liability no matter who is at fault

ex. usually when at a sporting event/chairty event you may be asked to sign a …where if you get injured, you are not going to be able to sue the other party for wtv your injury is. even if the other party is at fault

exculpatory clause

though an agreement meets the elements of a contract, a contract may voidable due to a lack of voluntary consent. like…

fraud, undue influence, duress and a mistake

a …may make a contract voidable

mistake

mistake of fact v.mistake of value

bilateral mistake v. unilateral mistake

only these are voidable

only a mistake of … rendors a contract voidable

fact

the mistake must involve a …(one that a reasonable person would consider important when determining his/her course of action)
-something that is immaterial, or if the mistake is based on the value of the object rather than the fact than that type of mistake is going to be pretty irrelevant

material fact

a mutual misunderstanding concerning a basic assumptions on which the contract was made

-renders a contract voidable

bilateral mistake

a mistake by only one of the parties

unilateral mistake

unilateral mistake is voidable if the…

-the other party knew or should have known that a mistake of fact was made

-the error was due to a substantial calculation error in addition, subtraction, multiplication, or division