MGT 200: Exam 2

Contract

Enforceable agreements between parties that is a promise or a set of promises enforceable by law.

Statute of frauds

The law governing which contracts must be in writing in order to be enforceable.

Bilateral

A contract involving two promises and two performances.

Unilateral

A contract involving one promise followed by one performance, which then triggers a second performance from the offeror.

Express

A contract that is created when the parties have knowingly and intentionally agreed on the promises and performances.

Implied

A contract in which the agreement is reached by the parties’ actions rather than their words.

Quasi-contract

A classification that permits a contract to be enforceable in cases where no express or implied contract exists and one party suffers losses as a result of another party’s unjust enrichment.

Unjust enrichment

When one party receives a financial, property, or service benefit at the expense of another party under circumstances that make it unfair or inequitable to keep it without paying.

Valid

When a contract has the required elements.

Void

When an agreement lacks one of the required elements or has not been formed in conformance of the law from the outset, sometimes called per se.

Voidable

When the law gives one or more parties the right to cancel an otherwise valid contract under the circumstances.

Unenforceable

One party asserts a legal defense against performing the contract.

State common law

The body of law governing contracts for services or real estate.

Uniform Commercial Code (UCC)

State statutory law governing contracts for goods or products.

Hybrid

A contract that involves terms for both goods and services; the source of law is established by determining the predominant thrust of the subject matter.

Allocation of price

Value of goods versus value of services.

Uniqueness of the services

Do they require special talent? The more of this, the more likely the contract is covered by common law.

Digital contract

An agreement that is expressed in the form of electronic data interchange and is signed, concluded, and transferred via an electronic or code-based system.

Uniform Electronic Transactions Act (UETA)

A state law to give electronic records and signatures the same legal standing as traditional paper documents and handwritten signatures.

E-Sign Act

Gives electronic signatures and records the same legal validity as paper documents and wet-ink signatures for interstate and foreign commerce.

Formation

Parties reach mutual agreement on all terms. All elements are met.

Enforceability

After the contract is formed, laws are governed that set out requirements for the agreement.

Performance

The law sets out rules and consequences related to how the parties will fulfill their obligations to one another.

Mutual assent

For the formation of a valid contract, the broad underlying requirement that the parties must reach an agreement using a combination of offer and acceptance and that the assent must be genuine.

Consideration

The mutual exchange of benefits and detriments, for the formation of a valid contract, requires that each party receive something of value (the benefit) from the other and that each party give up something of value (the legal detriment) to the other, resulting in a bargained-for exchange.

Capacity

For the formation of a valid contract, the requirement is that both parties have the power to contract. Certain classes of persons have only limited powers to contract, including minors and those with mental incapacity.

Legality

For the formation of a valid contract, the requirement that both the subject matter and performance of the contract must be legal.

Offer

A promise or commitment to do (or refrain from doing) a specific activity. In contract law, the expression of a willingness to enter into a contract by the offeror’s promising an offeree that she will perform certain obligations in exchange for the offeree’s counterpromise to perform.

Clear

A type of offer where the language of the offer must be such that the offeree knows what is being offered.

Serious

An offer that requires the offeror to have an objective intent to contract when making the offer.

Communicated

An offer where the language is examined and the actions of the parties determine how a reasonable person would interpret that language.

Advertisements, offer

The law recognizes mass _______________ as an invitation for the consumer to make an _____ to the seller to purchase the goods at a specified price.

Acceptance

The offeree’s expression of agreement to the terms of the offer. The power of this is created by a valid offer.

Mailbox rule

Principle stating that the acceptance of an offer is effective upon dispatch of the acceptance via a commercially reasonable means and not when the acceptance is received by the offeree; governs common law contracts.

Silence as acceptance

Courts will not enforce a contract in which the offer states that failure to respond will be considered an acceptance of the offer. An exception occurs if the parties had previously agreed to terms.

Revocation

An action terminating an offer whereby the offeror decides to withdraw the offer by expressly communicating the revocation to the offeree prior to acceptance.

Irrevocable offers

Offers that cannot be withdrawn by the offeror; include offers in the form of an option contract, offers that the offeree party performed or detrimentally relied on, and firm offers by a merchant under the UCC.

Partial performance

Acceptance can occur only through performance and not through a promise.

Detrimental reliance

Situation in which the offeree acts, based on a reasonable promise made by the offeror, and would be injured if the offeror’s promise is not enforced.

Rejection

An action terminating an offer whereby the offeree rejects the offer outright prior to acceptance.

Counteroffer

An action terminating an offer whereby the offeree rejects the original offer and proposes a new offer with different terms.

Mirror image rule

Principle stating that the offeree’s response operates as an acceptance only if it is the precise mirror image of the offer.

Operation of law

Termination of an offer by the occurrence of certain happenings or events, which generally include lapse of time, death or incapacity of the offeror or offeree, destruction of the subject matter of the contract prior to acceptance, and supervening illegality.

Definite terms

The essential terms for an offer to be valid are parties to the contract, subject matter of the contract, time for performance or delivery, and price or other consideration to be exchanged.

The Restatement test

Requires a court to examine the terms of the agreement to determine whether “they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

Agreements to agree

In certain circumstances, the parties enter into an agreement with an essential term unfilled, intending to agree upon the term in the future.

Modern approach to agreement

Allow agreements to be enforced with the court supplying the missing term according to industry standards and market values.

Bargained-for exchange

The aspect of consideration that differentiates contracts from illusory promises by holding that a performance or return promise is bargained for only if it was exchanged for another promise.

Legal detriment

Proper consideration requires that the parties suffer some type of detriment that the law recognizes as adequate.

Illusory promises

A promise that courts will not enforce because the offeror is not truly bound by his vague promise or because a party cannot be bound by their due to the lack of a bargained-for exchange.

Past consideration

A promise made in return for a detriment previously made by the promisee does not meet the bargained-for exchange requirement.

Promissory estoppel

Theory allowing for the recovery of damages by the relying party if the promisee actually relied on the promise and the promisee’s reliance was reasonably foreseeable to the promisor.

Elements of a promissory estoppel claim.

1. The promisor makes a promise that is reasonable.

2. The promisee actually relied on the promise and suffered an injury.

3. The promisee’s reliance was reasonably foreseeable to the promisor.

4. Principles of equity and justice are served by providn gcompensation to the reliant party.

Public policy

Contracts are illegal because the terms violate this objective (such as an overly broad restriction).

Genuine assent

The knowing, voluntary, and mutual approval of the terms of a contract by each party; required for a contract to be enforceable.

Misrepresentation

Situation in which one party to an agreement makes a promise or representation about a material fact that is not true; basis for avoiding a contract.

Fraudulent misrepresentation

Situation in which one party has engaged in conduct that meets the standards for misrepresentation and that party has actual knowledge that the representation is not true; basis for avoiding a contract.

Concealment of material fact

While parties do not have a general duty to disclose all information, courts have allowed the use of misrepresentation in cases where a party has asserted a half-truth that leads to an overall misrepresentation.

Duress

The use of any form of unfair coercion by one party to induce another party to enter into or modify a contract; basis for avoiding a contract.

1. Violence

2. Economic threats

3. Extortion

What are examples of duress?

Undue influence

A defense that gives legal relief to a party who was induced to enter into a contract through the improper pressure of a trusted relationship.

Unconscionability

A defense that may allow a party to potentially avoid a contract on the grounds that they suffered a grossly unfair burden that shocks the objective conscience.

Statute of frauds

The law governing which contracts must be in writing in order to be enforceable.

1. Interest in land

2. Contracts that cannot be performed within one year.

3. To pay the debt of another.

4. Made in consideration of marriage.

5. Contracts for the sale of goods.

The statute of frauds applies to five types of contracts:

Parol evidence rule

Interpretation rule stating that any writing intended by the parties to be the final expression of their agreement may not be contradicted by any oral or written agreements made prior to the writing.

Ambiguous terms

Contract terms that are vague and indefinite. In contract law, these terms are construed by the court against the interest of the side that drafted the agreement.

Omitted terms

Contract terms that are left out or absent. In contract law, courts may supply a reasonable term in a situation where the contract is silent.

Condition

An event that must occur before a contract obligation is triggered.

Condition precedent

An event that must occur before performance under a contract is due.

Condition subsequent

An event that occurs after the performance under the contract and discharges the parties’ obligations.

Concurrent condition

Each party is required to render performance simultaneously.

Discharge

In contract law, the removal of all legal obligations under the agreement.

Good faith

In contract law, the duty to honestly adhere to the contract’s common purpose. Under this obligation, neither party can do anything to prevent the other party from enjoying the “fruits of the contract.'“ Instead, both must try to make the deal work as written.

Perfect performance

When the parties simply perform their obligations completely.

Substantial performance

Performance of the essential terms of the contract such that performance can be considered complete, less damages for anything still unperformed.

Rescission

Cancellation of a contract occurs when both parties agree to discharge each other from all duties under the contract and end the agreement, no matter what has been done or left undone.

Impossibility

Doctrine that excuses performance when an essential part of the contract has become impossible because a crucial, irreplaceable thing has been destroyed; a crucial person has died; a crucial means of performance no longer exists; or a crucial action has become illegal.

Objective impossibility

Managers must understand that a reasonable person would consider the obligation impossible to perform.

Impracticability

Doctrine that excuses performance when an extreme circumstance occurs or reveals itself that destroys the value of the performance to the party, and that circumstance was not the fault of either party and was not reasonably foreseeable.

Force majeure

An event or act that is impossible to anticipate or control.

Frustration of purpose

Events may occur that destroy a party’s purpose in entering into the contract even though performance of the contract itself is not objectively impossible.

Unilateral alteration

One party changes a term of the offer or acceptance after the contract was made, and without the consent of the other party, who is then discharged from performing.

Bankruptcy

A procedure by which a debtor’s assets are reorganized and liquidated by a court order to pay off creditors and free the debtor from obligations under existing contracts.

Statute of limitations

The time limit within which a lawsuit must be filed or the lawsuit will be barred forever. State law that places a time limit on the enforcement of certain contracts in order to ensure diligent enforcement.

Breach of contract

When one party has failed to perform their obligation under the contract. If the breach is material, the nonbreaching party is excused from their performance and can recover monetary damages.

Total (material) breach

In cases where the breach relates to a fundamental term of the contract or has an effect on the value of the contract.

Partial breach

Breach is not material, the nonbreaching party may be relived from performing; however, the nonbreaching party may still recover damages related to the breach from the breaching party.

Anticipatory repudiation

Doctrine under which, when one party makes clear that they have no intention to perform as agreed, the nonbreaching party is entitled to recover damages in anticipation of the breach rather than waiting until performance is due.

Remedies

Judicial actions, which can be monetary or equitable, are taken by courts that are intended to compensate an injured party in a civil lawsuit.

Compensatory damages

Damages that are meant to make the injured party whole again. They are an attempt to place the nonbreaching party in the position they would have been in had the contract been executed as agreed.

Consequential damages

Damages that repay the injured party for any foreseeable but indirect losses that flow from the breach of contract.

Restitution

A remedy that restores to the plaintiff the value of the performance that they have already rendered to the breaching party and by which the breaching party has been unjustly enriched.

Liquidated damages

Reasonable estimates of the actual damages that will result if the contract is breached, agreed to by the parties ahead of time.

Specific performance

An equitable remedy whereby a court orders the breaching party to render the promised performance by ordering the party to take a specific action.

Injunctive relief

A court order to refrain from performing a particular act.

Reformation

Contract modification in which the court rewrites the contract to conform to the parties’ actual intentions when the parties have imperfectly expressed their agreement and the imperfection results in a dispute.

Duty to mitigate

The rule preventing recovery for reasonably avoidable damages.

Clean hands

An equitable doctrine whereby a party seeking to enforce a breach of contract against the opposing party must prove that they have no fault in causing the breach. Shown by a person proving they are prepared to tender performance.

Tender of performance

An offer or attempt to perform what is required under a contract.