BMGT380 Exam III (copy)

Law of Contracts

deals with the enforcement of promises
- only some are enforceable

General Rule of Contracts

contracts need to be oral or written to be enforceable
- does not need to be written but is it easier to enforce if written

4 Basic Elements of a Contract

1. voluntary agreement - offer and acceptance of the offer
2. consideration - something of legal value that every party in the contract gives to the other parties in the contract
3. capacity - adult and without mental impairment
4. objective and performance of the contract must be legal - illegal contracts cannot be enforced

4 Ways to Classify Contracts

1. bilateral vs unilateral
2. valid, unenforceable, voidable, and void
3. expressed vs implied
4. executed vs executory

Valid Contracts

meets all 4 of the basic elements to a contract which makes it enforceable
- employee contract

Unenforceable Contracts

meets all 4 basic elements to a contract but is not enforceable for some other reason

Statute of Frauds

requires some contracts to be in writing to be enforceable
- buying a house: if not in writing the contract is not enforceable

Statute of Limitations Expired

the period in which you can sue has passed

* for breach of contracts the statute is approx 3-6 years

Voidable Contracts

agreement in which one or more parties are entitled to get out the of the contract once they are in it
- minors, mentally impaired, and victims of fraud

Void Contracts

illegal contracts / drug-related or hitman related

Expressed Contracts

terms of contracts are explicitly stated either orally or in writing

Implied Contracts

terms of contracts are not explicitly stated, but we can figure out the terms by looking at the circumstances of the transaction

Executed Contracts

when all of the parties have fully performed their contractual duties

Executory Contracts

when all parties have not fully performed their duties

2 Main Sources of Contract Laws

1. Common law
2. Uniform Commercial Code (UCC)

UCC Article 2

Applies to contracts for the sale of goods
- goods are tangible, movable, and are personal property

Hybrid Contracts

deals with a combination of goods and services
- source depends on the dollar value of good and dollar value of service
- If good \> service dollar value, → UCC
- If good < service dollar value, → Common Law

Non-Contract Obligations

a situation where there is some kind of arrangement (not contract) that is still enforceable by the court

Unjust Enrichment

one benefiting unfairly at another's expense
- A provides a benefit to B, who knowingly accepts the benefit, unjust to allow B to accept the benefit without paying for it, therefore the court will require B to pay A

Promissory Estoppel

An equitable doctrine that protects those who foreseeably and reasonably rely on the promises of others by enforcing such promises when enforcement is necessary to avoid injustice, even though one or more of the elements normally required for an enforceable agreement is absent
- knowingly accept
- promisor and promisee

Promissory Estoppel 3 Requirements

- all three must be shown
1. promisor made a promise to the promisee and the promisor should have expected that the promisee would have relied on that promise
2. Promisee did rely on the promise (actual reliance)
3. unjust to allow the promisor to break the promise

3 Requirements of an Offer

1. objective indication of intent to enter a contract on the part of the offerer
2. specificity of the alleged offer
3. communication of the offer to the offeree

How to Discern Intent

- joking does not equal intent
1. subjective - what did the offerer actually/secretly intend when they said what they said
2. objective - does not care about what someone thinks but asks what would a reasonable person who heard the offer think/do

Specificity of the Offer

- 2 reasons for for this requirement
1. the less specific the deal the less likely it shows intent
2. too much vagueness then the court is going to have a tough time figuring out of a breach of contract actually occurred

4 Terms Courts Can Fill In

1. price
2. quantity
3. delivery/conditions
4. time for payment
- exception: if the reason for a missing term is due to parties not agreeing then. the courts will not fill in the terms \= no intent

Communication of the Offer

- indirect communication does not count (exception if the person is acting as a agent)
- ads are not offers (the more specific the ads are, the more likely it is to be an offer)
- ads for rewards are offers

Terms Included in an Offer

the terms accepted are the ones you had actual or reasonable notice of
- small writing at the. end does not count

By the Terms of the Offeror

offeror includes a term in the offer that limits its duration (1 - Termination)

By Lapse of Time

terminates after a reasonable amount of time has occurred which is determined by the judge/jury (2 - Termination

* subject matter can be subjected to rapid fluctuation of value - the offer has a short duration

Revocation

an offer can be revoked at any time before acceptance of time and that X amount has not passed even if the offeror says it'll remain open for X amount (3 - Termination)

Rejection

* 2 types of rejections (4 - Termination)


1. expressly - offeree states they refuse
2. impliedly - make counteroffers

Death or Mental Insanity

the offer is terminated if either party dies or goes instance after the offer is given (5 - Termination)

Destruction of Subject Matter

if, just before the offer is accepted, the subject matter is destroyed without either party knowing/being at fault, the offer is terminated (6 - Termination)

Intervening Illegality

an offer terminates if the performance in contracts becomes illegal before the offer is accepted (7 - Termination)

* ex: drug becomes illegal before the offer is accepted

3 Requirements for an Acceptance

- all three must be met
1. offeree has to intend to enter into a contract
2. offeree has to accept the terms proposed by the. offerer
3. offeree must communicate acceptance to the offer

Approach Used by Courts to Figure Out Intent

objective approach - what would a reasonable person who heard what the offerer said would think

The Mirror Image Rule

accept exactly the terms and no new terms
- new terms or any. alternations are treated as an counteroffer

Communicate Acceptance Details

- the offeror is entitled to specify how and when the acceptance can be made or occur
- could accept in any reasonable manner unless specified
- if the subject matter of the acceptance is time-constrained then there is a shorter reasonable time

The Mailbox Rule

acceptances are effective when sent even if never received by the offeror
- offeror is entitled to modify the mailbox rule and say that the acceptance is only valid when received by the offeror

Silence as Acceptance

generally, silence by the offeree is not acceptance

3 Exceptions to Silence as Acceptance

1. there are prior dealings between the parties and there is a mutual understanding of silence as acceptance
2. an offer is made and the offeree says if you don't hear from me then take it as an acceptance
3. offeree is silent, offeror assumes acceptance and acts, offeree accepts benefits from acts then there is acceptance to the contract

Acceptance When a Writing is Expected

there is a deal even if the terms of the contract are not in writing
- can sue for breach of contract
- exception: evidence shows that there was an intention that that there is no deal until in writing

Who Can Accept the Offer

only the offeree can accept the offer unless there is an agent involved

Consideration

the legal value given by everybody who is a party to the contract to everybody else who is a party to the contract

Adequacy of Consideration

if one party makes a bad deal then it is their own problem
- exception: if the deal is bad enough the court may refuse to enforce it if there is evidence that the reason the deal is bad is that one party defrauded the other party into entering the contract/lacked capacity

4 Forms of Consideration

1. you do something you had no prior obligation to do
2. your promise to do something you had no prior obligation to do
3. you refrain from doing what you are entitled to do
4. you promise to refrain from doing something you are entitled to do

Not Consideration: Illusory Promises

looks like consideration/promise but isn't actually consideration/promise
- promise that does not bind or require the individual to do anything or refrain from doing anything therefore is not a contract
- ex: Heye Case

Not Consideration: Preexisting Duties

if you already have a duty to do something and the consideration in the contract is that you are going to do that preexisting duty that does not constitute consideration

Preexisting Public Duty

deals with obeying the law - not consideration

Contract Modification under UCC

do not need consideration
- oral modifications do not count
- 500 dollars+ must be in writing
- UCC is only with the sale of goods

Contract Modification under Common Law

you do need new consideration

Agreement to Settle Debts

- deals with credit card debt or gen debt
- can negotiate a reduction in debt payment

Liquidated Debt

debt where there. is no dispute on how much is owed - unenforceable
- I'll pay half of what I owe you - not consideration
- I'll pay half of what I owe 2 weeks early - yes consideration

Unliquidated Debt

dispute about how much is owed
- Some of the charges aren't yours and the bank removes those, they cannot come after you for those removed charges later - enforceable
- Called Accord and Satisfaction

Composition Agreement

owes a debt to multiple creditors
- each creditor agrees to accept a small percentage of the total owed - enforceable

Not Consideration: Past Consideration

- does not count as a consideration
- an act or benefit given in the past that was not given in exchange for the promise in question

Exceptions to the Consideration Requirement

1. promissory estoppel - subs consideration
2. promise to pay a debt where the statute of limitations expired
3. promise to pay a debt you discharged in bankruptcy
4. charitable gifts

Rescind

to terminate the contract as to future transactions or to annual the contract from the beginning
- only the injured can rescind

Ratification

the adoption of affirmance by a person of a prior act that did not bind them and continue to receive benefits from the contract

Misrepresentation

making the statement but does not know it's false
- should be allowed out of the contract because the other party made a misrepresentation during negotiations

Misrepresentation 4 Requirements

1. there was a false statement of fact
2. has to have relied on the fact
3. has to be material/significant
4. the reliance has to be justified

Fraud

making statements but knew it was false

Fraud 5 Requirements

1. false statement of fact
2. has to have relied on the fact
3. has to be material/significant
4. the reliance has to be justified
5. scienter

Scienter

person making the statement knew it was false. and the intent was to deceive the other person

Mistake

during the negotiations either party are mistaken about some important fact and you either into the contract on the basis of that mistake

2 Kinds of Mistake: Mutual

both parties are mistaken about the same basic fact

Prove 3 Things to Leave Mutual Mistake Contract

1. mistake relates to the basic assumption on which the contract was entered into
- assumption: identify, existence, quality, and quantify
2. has to be material
3. the party adversely affected by the mistake does not bear the risk of the mistake

2 Kinds of Mistake: Unilateral

only one party is mistaken
- more difficult for the court to agree to

Prove 4 Things to Leave Unilateral Mistake Contract

1. mistake relates to the basic assumption on which the contract was entered into
2. has to be material
3. the party adversely affected by the mistake does not bear the risk of the mistake
4. must prove either A or B
A.) the non-mistaken party either caused the mistake or knew of the mistake but did not tell
B.) it would be extremely unfair to enforce the contract

Duress

wrongful coercion that induces a person to enter into a modified contract

2 Kinds of Duress: Physical Compulsion

physically forcing someone to sign a contract
- void contract

2 Kinds of Duress: Threat of Physical, Emotional, or Economic Harm

threat to kill dog

2 Requirements to Leave Contract Under Duress

1. victim must show there was an improper act or threat
2. victim must show they had no reasonable alternative but to. give in to the duress

Undue Influence

- unfair persuasion
- ex: rich elderly person who has a evil caretaker and persuades the elderly person to change their will to leave everything to them instead

Undue Influence Proof

1. show either a relationship of trust or confidence between the victim and evil person
2. or show how the evil person had dominance over the victim

Factors for Unfairness

- is the victim kept isolated and unable to discuss with family
- is the result of the change that the distribution of assets is suspicious

Capacity

the ability to give voluntary consent to enter into a contract
- no capacity then there is not an enforceable contract

3 Categories of People Who May Not Have Capacity

1. minors
2. mental illness/impairment
3. intoxicated people

Disaffirmance

The legal avoidance, or setting aside, of a contractual obligation.

Minors

have no capacity which means they can choose to rescind just on the abasi of being a minor

4 Exceptions to Minors' Right to Disaffirm

1. marriage
2. child support agreement
3. student loans
4. insurance

Time of Disaffirmance

the minor is disaffirming the. contract and wants to get out
- when: immediately
- exception: real estate cannot disaffirm until 18

Capacity: Ratification

- can only ratify as a legal matter when you turn 18
- once you ratify, you can no longer disaffirm
- anything said or done which indicates that you will perform under the contract

Duties if Disaffirming

- return the consideration
- ex: give back property

Capacity: Mental Impairment/Illness

- who: those suffering from mental illness, intellectual disabilities, brain injury, or dementia
- test of mental impairment \= understand the nature of the contract entered into
- give back consideration
- responsible for damages

Mental Impairment General Effect

- if they were mentally impaired when entering the contract then the contract is voidable and rescindable only at the option of the impaired person

Mental Impairment Void Contract

- before entering into the contract a judge rules the person as impaired then the contract is void

Capacity: Intoxicated People

- under either drugs or alcohol
- generally impossible to leave a contract on this basis because judges are unsympathetic
- give back consideration

Effect of Not Having Capacity

- contract is voidable
- party who does not have capacity has the right to rescind

3 Situations Where Contracts Are Void

1. at the time when the contract is entered into the incapacitated person had already been legally determined to be mentally incompetent
2. entered into a contract when they are comatose
3. entered into a contract when they are unconcious

3 Basic Types of Illegal Contracts

1. violates statutes./laws
2. violate public policy as expressed by the courts
3. unconscionable contracts & contracts of adhesion

Illegal: Contracts that Violate Statutes

- unenforceable if it violates the law
- ex: surrogacy is illegal in some states so contract would be unenforceable

Licensing Laws

- many professions have to be licensed to practice
- no license but enter into a contract then:
1. if the licensing requirement has a regulatory purpose then the contract is unenforceable
2. if the licensing requirement has a finance raising purpose then the contract is enforceable

Illegal: Violates Public Policy as Expressed by Courts

- restrictive employment provisions
- ex: noncompete - cannot join a former place of employment for a period of time in a region

Noncompete

3 requirements to be enforceable:
1. serves a legitimate business purpose (trade secrets)
2. restrictions are reasonable in terms of time (2 years) and geographic region
3. cannot create an undue hardship (decent job)

Illegal: Unconscionable Contracts

2 types of unconscionable contracts:
1. procedural unconscionability
2. substantive unconscionability

Procedural Unconscionability

something unfair happened in the negotiation process
- ex: salesperson puts intense pressure on you, small font in contract

Substantive Unconscionability

something in the contract is unreasonably one sided
- ex: only party A can sue

Court Responses to Unconscionability

- refuse to enforce the entire contract
- refuse to enforce the unconscionable parts
- order the parties to modify the contract to rewrite/move the unconscionable parts

Illegal: Contract of Adhesion

one party has no opportunity to negotiate the terms of a contract
- generally unenforceable, only if it is substantively unconscionable