The Legal and Ethical Environment of Business Chapter 6 Contracts

implied covenant

A promise the law requires in all contracts, regardless of whether the parties state it or not.

good faith

Without deception; honest.

contract

A legally enforceable promise.

damages

Compensable loss.

breach

The failure to perform duties and obligations required by contract.

private law

A legally binding agreement between consenting parties that does not apply to the public at large.

terms

Elements of contracts that specify important matters, such as quantity, price, and time for performance.

mutual assent

In common-law contracts, comprises offer and acceptance.

noncompete clause

A contract clause that restricts competition for a specified period of time, within a certain geographic region, and for specified activities.

formation

In common-law, this refers to offer, acceptance, and consideration.

Uniform Commercial Code (UCC)

A model statute that seeks to provide uniformity to contracts law among the different states. It is not a law until state legislatures adopt it as law.

void

Refers to a contract that is not valid on its face because it suffers from some fatal flaw.

voidable

Refers to the status of a contract that may be terminated due to some defect.

offer

In common law, it creates the power of acceptance in another party and includes the agreement's essential elements, which must be definite and certain.

acceptance

In common law, it must be a mirror image of the offer.

consideration

A bargained-for exchange.

legal purpose

An essential element of contract formation. The subject matter of a contract must have lawful purpose consistent with public policy. If the subject matter of a contract does not have a legal purpose, contract formation will fail

capacity

The legal ability to enter into a contract.

mirror image

The requirement for acceptance in common-law contracts; it means that the acceptance must be precisely the same as the offer.

counteroffer

A rejection of an offer. It is a new offer.

revocation

The retraction of an offer before it is accepted.

invitation to bargain

When a party invites others to make offers to buy; advertisements are a prevalent example.

bilateral contract

A contract in which both parties make a promise.

unilateral contract

A contract in which the accepting party may accept only through an action.

noncompete agreement

A contract or clause in a contract limiting the time, place, and scope of future competition.

illusory promise

A statement that looks like a promise but is actually only an illusion of a promise due to its conditional nature or its otherwise lack of a firm commitment.

infancy doctrine

A legal doctrine that allows minors to disaffirm contracts.

goods

As defined in §2-105 of the Uniform Commercial Code (UCC), things that are moveable, but not money or securities. It does not include land or houses.

Statute of Frauds

A statute that requires certain types of contracts to be in writing to be enforceable.

gap fillers

In contracts governed by the Uniform Commercial Code (UCC), terms that can be inserted into a contract when those terms are not definite and certain.

discharged

When parties to a contract have fulfilled their duties under the contract and they are released from further requirements to perform under the contract.

Performance

Undertaking the legal duties imposed on us by the terms of the contract.

complete performance

Full and perfect performance of the promises, obligations, and duties contained in a contract.

breach

The failure to perform duties and obligations required by contract.

substantial performance

The standard for service contracts. It means that the performing party acted in good faith and conveyed enough benefit of the contract to the other party so that the other party can use it for its intended purpose and that the defects arising under the contract may be remedied by money damages.

strict performance

A standard of performance in a contract that requires perfect performance.

personal satisfaction

A standard of performance in a contract that means that the performance under the contract is scrutinized subjectively, either by a party to the contract or by a third-party beneficiary specified in the contract.

reasonable person standard

An objective standard based on reasonableness, against which actions are measured to determine sufficiency.

equitable remedy

A remedy imposed by the court to prevent injustice, which allows the court to enforce the terms of a "contract," even though, technically speaking, there was no contract to begin with. An equitable remedy can substitute for lack of consideration.

Quasi-contract

A type of equitable remedy that may be imposed on parties to avoid unjust enrichment to one party at the expense of the other.

promissory estoppel

A type of equitable remedy that may be imposed on parties to avoid injustice, when one party detrimentally relied on another party's promise.

unjust enrichment

A benefit that is conferred or expected to be conferred unjustly

quantum meruit

The name for damages awarded in quasi-contract cases, which means "as much as is deserved."

disaffirm

An option that may be exercised by a minor who is a party to a contract to render the contract void.

economic duress

A defense to contract that can be exercised when one party had no other reasonable alternative but to enter into a contract due to economic threat or pressure.

force majeure

An unforeseen act of God such as earthquake, hurricane, volcanic eruption, tsunami, etc., that prevents one or both parties from fulfilling their obligations under the contract.

automatic stay

An order by the court to stop all collection activities of prepetition debts owed by a debtor in bankruptcy.

Specific performance

A remedy that requires complete performance in a breach, rather than (or in addition to) monetary damages.

duty to mitigate

A duty placed on a party injured by breach, requiring that party to avoid damages by making reasonable efforts.

assignment

The ability to transfer rights conveyed by a contract to another party.

delegation

The ability to transfer duties imposed on a party by a contract to another party.

restriction on assignment

A clause that prohibits parties from transferring the rights conveyed by a contract to another party.

novation

An agreement that transfers all rights and duties to a new party to the contract and releases the previous party from any further obligation arising from the original contract.

exculpatory clause

An express limitation on potential or actual liability arising under the subject matter of the contract.

noncompete clause

A contract clause that restricts competition for a specified period of time, within a certain geographic region, and for specified activities.

mandatory arbitration clause

A contractual clause that requires the parties to a contract that contains such a clause to submit to mandatory arbitration in the event of a dispute arising under the contract. Mandatory arbitration clauses frequently foreclose any possibility of appealing arbitration awards in court.

acceleration clause

A type of clause that accelerates all payments due under the contract on breach.

liquidated damages clause

A type of clause that sets the amount of damages in the event of breach.

integrated

The legal assumption made about contracts that they contain the entire expression of the parties' agreement.

parol evidence

Statements or actions that are not captured within the four corners of the contract.