Chapter 13 - Business Law

Contract

set of legally enforceable promises

Covenant not to compete

an agreement not to compete against a party for a set priod of time within a designated geographic area

Contracts are almost exclusively formed from...?

common law

The vast bulk of contracts are (informal/formal)?

informal

Elements required for contract formation

agreement, consideration, contractual capacity, legal

Agreement

offer and acceptance

Consideration

value given by both parties

Does the exchange have to be equal for consideration to exist?

no

Contractual capacity

legal ability to enter into a binding agreement

Legal

contract cannot be illegal or against public policy

Arbitration clause

a clause in a contract that requires disputes arising out of the contract to be submitted to arbitration

Arbitration

settling a dispute by agreeing to accept the decision of an third party person

The arbitration clause comes up in a lot of which terms?

employment terms

Defenses to contract enforcement

lack of genuine assent and lack of proper form

Can you have a contract enforcement if there is lack of genuine assent of lack of proper form?

no

Lack of genuine assent

fraud, duress, undue influence, misrepresentation

Fraud

a person makes a false statement with the intent to deceive

Example of fraud

A car dealer tells a buyer a used car has never been in an accident, but it has significant crash damage

Duress

compulsion by threat

Example of duress

A landlord threatens to physically harm a tenant if they don't sign a new lease at double the rent, so they do.

Undue influence

occurs when one party to a contract is in a position of trust and wrongfully dominates the other party

Example of undue influence

An elderly woman relies heavily on her caretaker for daily needs. The caretaker pressures her to sign over her house by constantly reminding her that she won't be taken care of if she refuses. The woman signs, but her decision wasn't truly free—it was shaped by the caretaker's position of power and trust

Misrepresentation

a person makes a false statement without the intent to deceive

Example of misrepresentation

A homeowner selling their house tells a buyer, "The basement has never flooded," because they believe that's true. However, the basement actually flooded years ago before they owned the house.

Lack of proper form

some contracts must be in writing to be enforceable

Example of lack of proper form

A person agrees verbally to sell their house to a buyer. Later, they change their mind. The buyer tries to enforce the agreement, but because contracts for the sale of real estate must be in writing, the verbal agreement is not enforceable

Objective Theory of Contracts

In determining whether parties intended to enter a contract, courts look objectively at their words and conduct (outward indications of intent)

Regarding the Objective Theory of Contracts, does subjective or secret intent matter?

no

What is contract interpretation based on?

how a reasonable person would interpret the contract

Two most important sources of contract law

common law and uniform commercial code

If contract is for the sale of a good...

UCC

If contract is for anything else...

common law

Common law role in contracts

uses the restatement of the law: second to reestate the law of each states

Uniform Commercial Code role in contracts

governs contracts for the sales of goods

Individual states ahve adopted the _______________ as their law

Uniform Commercial Code

Contracts are classified as either what two things?

unilateral or bilateral

Bilateral contract

a promise in exchange for a promise

When does a bilateral contract form?

when promises are exchanged

To have a bilateral contract, both parties must be making ____________.

binding promises

Example of bilateral contract

You agree to sell your bike to a friend for $200, and your friend promises to pay you $200. You promise to deliver the bike, and your friend promises to pay.

Unilateral contract

a promise in exchange for performance

In a unilateral contract, you (can/can't) accept a reward from anything but performing the action

can't

Example of unilateral contract

A homeowner posts a sign: "$100 reward for anyone who returns my lost dog." You find the dog and return it. The homeowner must pay you $100.

Express contract

contract based on written or spoken words

Example of an express contract

You call your dentist and schedule an appointment to have a tooth pulled. The dentist tells you, "The extraction will cost $150," and you agree.

Implied contract

contract based on parties' conduct

Example of implied contract

You go to an emergency dentist because a tooth is causing severe pain. You sit in the chair and allow the dentist to pull the tooth immediately. Even though you didn't discuss payment or explicitly agree to the procedure, your actions show you expect treatment and the dentist expects to be paid

Quasi-contract

not actually a contract, but a liability imposed by a court to avoid unjust enrichment

Example of quasi-contract

A construction company mistakenly repairs your roof, thinking it was your order. You didn't request or agree to the work, but the roof is now fixed. A court could require you to pay the company a reasonable amount for the work because you received a benefit

Three requirements of a quasi-contract

plaintiff provided some service or benefit to the defendant

knowledge by the defendant of the benefit

retention of the benefit under circumstances where it would be unjust not to require payment

Classifcation of Contracts (3 V's, 1 U)

valid, void, voidable, unenforceable

Valid contract

all elements of contract formation satisfied

Example of a valid contract

You agree to buy a laptop from a store for $800. You pay the $800, and the store delivers the laptop

Void contract

has an illegal object or a serious defect so it is not actually a contract

Example of a void contract

a person agrees to sell illegal drugs to someone else

Voidable contract

one or both parties can withdraw from or enforce contract

Example of a voidable contract

you ask a fifteen year old to paint your fence, and he agrees. if later he backs out of the agreement, you cannot sue him

Unenforceable contract

valid contract, but some law prevents courts form legally enforcing it

Example of unenforceable contract

You and a friend make a verbal agreement to sell a house. Later, your friend refuses to go through with it.

Executed contract

all terms of the contract have been fully performed

Example of executed contract

You buy a coffee at a café. You pay $5, and the barista gives you the coffee

Executory contract

one or more duties under contract have not been performed by one/both parties

Example of executory contract

You hire a painter to paint your house next week for $1,000. You and the painter have agreed on the terms, but neither has fully performed yet—you haven't paid, and the painting hasn't been done

Informal (simple) contract

No other formalities required other than the essential elements made

Example of informal contract

You verbally agree to sell your friend your bike for $100. Your friend pays you, and you give them the bike

Formal contract

contract has a special form or must be created in a specific manner

Example of a formal contract

You sign a promissory note at a bank agreeing to repay a loan of $5,000 over two years. The note is in a specific written form required by law to be enforceable.

Types of formal contracts

contracts under seal, recognizances, letters of credit, negotiable instruments

Contracts under seal

contracts with a printed seal of soft wax

Contracts under seal example

A company sells land to another company, and the signed agreement has a seal next to the signatures.

Recognizances

an obligation in which a party ackowledges in court that he or she will perform some specified act and/or pay a price on failure to do so

Example of recognizances

A person is released from court on the promise to appear at their next trial. They formally acknowledge this promise in writing and agree to pay $1,000 if they fail to show up

Letters of credit

a binding document that a buyer obtains from his or her bank to guarantee htat payment for goods will be amde to the seller

Example of letters of credit

A U.S. company buys machinery from a German company. The U.S. bank promises to pay the German seller once the machinery is shipped and the shipping documents are provided.

Negotiable instruments

A written document signed by a person who makes an unconditional promise to pay a specific sum of money on demand or at a certain time to the holder of the instrument; an acceptable medium for exchanging value from one person to another

Example of negotiable instruments

A check from Jane to her friend Mark for $500. Mark can deposit it into his account or give it to someone else, and the bank must pay the amount

Contract Interpretation Principles

intrpret contract to give effect to parties' intentions at time they entered into it

Example of contract interpretation principles

A contract for the sale of goods states, “The seller will deliver 50 boxes of apples by Friday.” A dispute arises over whether “boxes” means small or large boxes. Courts interpret contracts by considering the whole agreement, the parties’ intentions, trade usage, and context. Based on these factors, the court determines the parties intended standard 20-pound boxes commonly used in the apple trade.

Plain meaning rule

if a writing or a term is plain and unambiguous, court should determine its meaning from the four corners of the document itself and give the words their ordinary meaning

Example of plain meaning rule

A contract states, "The seller will deliver 100 red chairs by June 1." Later, a dispute arises over whether "red" includes maroon chairs. The court will interpret the contract using the ordinary, everyday meaning of the words, so "red" means red—not maroon—because the language is clear on its face. Courts focus on the words themselves first and enforce them according to their usual, common meaning