MGMT EXAM 2

elements of contract formation

[offer+acceptance]+consideration = K

• a contract must be for any lawful purpose - otherwise, contract is void

requirements of a valid contract

1. agreement

2. consideration

3. contractual capacity

4. legality

agreement

offer and acceptance

offer

statement of present intent to enter into a contract

acceptance

unconditional agreement to terms of offer

consideration

• something of value received or promised, such as money, to convince a person to make a deal

• purpose for the contract

• must have something exchanged between the parties

• usually money, goods, and/or services

ex; employment contract

types of contracts

• express

• implied

• valid-void-voidable

• executed vs executory

implied

conduct of parties

express

formed by words (oral, written, or a combination)

valid

The contract has the necessary contractual elements: agreement (offer and acceptance), consideration, legal capacity of the parties, and legal purpose.

• binding; no one can get out of it

voidable

One party has the option of avoiding or enforcing the contractual obligation.

• one or both parties can get out of it

void

No contract exists, or there is a contract without legal obligations.

executed

A fully performed contract.

executory

A contract not fully performed

quasi contract

implied by law

parties to a contract

• offeror vs offeree

• promisor vs promisee

• privity of contract

offeror

a person who makes an offer

offeree

a party/person to whom the offer is made

promisor

a person promising to do or not to do a certain thing

promisee

the person to who the promise is made

privity of contract

The relationship that exists between the promisor and the promisee of a contract

what is not an offer?

• expressions of opinion

• negotiations

• joking

• intoxication, insanity, infancy

• expiration of offer - paid-for-option

elements of acceptance

• yes - no

• counter-offer

counteroffer

a rejection of the original offer and the simultaneous making of a new offer.

illegal consideration (not valid consideration)

• past consideration

• pre-existing oblogation

past consideration

Something given or some act done in the past, which cannot ordinarily be consideration for a later bargain.

pre-existing obligation

a promise to do what one already has a legal duty to do

• may be imposed by law or may arise out of a previous contract

exception (subsitute) for consideration

• charities

• promissory estoppel

promissory estoppel (or detrimental reliance)

a doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies. such a promise is binding if justice will be better served by the enforcement of the promise

• an unenforceable promise was made and relied on but not performed

• moral obligation, not legal

contract capacity

ability to form proper INTENT to enter into a contract

• understand that a contract is being made and what it’s about

• infancy (minors), intoxication, insanity

statute of frauds

a state statute under which certain types of contracts must be in writing to be enforceable

• general rule of contract law

certain types of contracts that must be in writing

• real estate

• contracts with term longer than 1 year

issues pertaining to the parties to a contract

• mistake

• fraud

• undue influence

• duress

undue influence

persuasion that is less than actual force but more than advice and that induces a person to act according to the will or purposes of the dominating party

• arises from relationships in which one party can greatly influence another party, thus overcoming that party’s free will

• mental

• voidable

duress

unlawful pressure brought to bear on a person, causing the person to perform an act that he or she would not otherwise perform (or refrain from doing something that he or she would otherwise do)

• the use of threats to force a party to enter into a contract

• physical

• voidable

third party rights

• assignment

• third-party beneficiary

assignment

the transfer of contractual rights to a third party

• the act of transferring to another all or part of one’s rights arising under a contract

third-party beneficiaries

a contract in which the parties intend to benefit a third party

discharge from contract

• perform contract terms

• bankruptcy

• breach of contract. significant part of contract…not small details

breach of contract

the nonperformance of a contractual duty

• the failure, without legal excuse, of a promisor to perform the obligations of a contract

contract remedies for breach of contract

• damages

• specific performance

• injuction

• recession

• no punitive damages permitted

damages

compensate the non breaching party for the loss of the bargain

types of damages

• compensatory

• mitigation

• liquidated

compensatory damages

compensate the injured party only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract

• they simply replace what was lost because of the wrong or damage

liquidated damages

a certain dollar amount is to be paid in the event of a future default or breach of contract

• if something goes wrong “i’m only responsible for this and you’re only responsible for that”

recession and restitution

undo or terminate a contract and return goods, property or funds previously conveyed

specific performance

the performance of the act promised in the contract

• usually granted only when money damages would be an inadequate remedy and the subject matter of the contract is unique (for example, real property)

injuction

court order that either prohibits a party from taking a specific action or compels them to perform a specific action

purpose of uniform commercial code

to simplify and to streamline commercial transactions

• allows parties to form sales and lease contracts, including those entered into online, without observing the same degree of formality used in forming other types of contracts

• changes common law contracts

parties under UCC

• merchants - a person who has inventory for sale (retailer, wholesaler, manufacturer)

• goods - a tangible good (no real estate)

title

• the right of ownership

UCC defines a sale as “the passing of title[evidence of ownership rights] from the seller to the buyer for a price”

risk of loss

passed from seller to buyer with title

“they are in privity” means

they have a contract

• when the contract is done, privity is gone

legality

all contracts must be for a lawful purpose

how an offer ends

• an offer can be cancelled anytime prior to acceptance (you can change your mind) (revocation)

• the offeree says no

• lapse of time

• if person dies, the offer dies with them if they die BEFORE the offer was accepted

  • if a person dies when there is already a contract, then your family is responsible for carrying out that contract

what is not considered acceptance?

silence

the difference between a negotiation and a counteroffer?

the intent to enter a contract

revocation

when the person making the offer cancels it anytime prior to acceptance

counteroffer after the time limit

there is no counteroffer opportunity, you cannot use a counteroffer to revive an offer

option contract

a contract under which the offeror cannot revoke his or her offer for a stipulated time period and the offeree can accept or reject the offer at anytime during this period. the offeree must give consideration for the option to be enforceable

• an offeror promises to hold an offer open for a specified period of time in return for a payment (consideration) given by the offeree

usury

loaning money with excessive illegal interest

• loan sharking

impossibility

promise to paint house, house burns down, it is impossible to paint it

punitive damages

punish the wrongdoer, not allowed in contract law

keyman insurance

each partner ensures each other

mitigation

innocent party required to protect themselves & not make it more difficult