Business Law Exam 3

Chapters 11, 12, 13, 14

contract

an agreement that can be enforced in court

offeror

one who makes offer

offeree

whom an offer is made to

promisor

one who makes promise

promisee

whom a promise is made to

objective theory of contracts

determines intent through **speech**, **actions**, and **circumstances**

requirements of a valid contract

1. agreement
2. consideration
3. contractual capacity
4. legality

agreement

valid contracts are required to have an offer and acceptance

consideration

valid contracts are required to have value given in return for promise

contractual capacity

those entering into contracts are required to have the mental capacity required to bind to an agreement

legality

valid contracts are required to have legal purpose and be aligned with public policy

bilateral contract

promise for a promise

(acceptance communicated due to promise)

unilateral contract

promise for an act - contract is irrevocable upon completion of the act

(ex: contests, lotteries, prizes)

(performance is acceptance)

formal contract

requires special form/method of creation

(ex: promissory notes, certificate of deposits, letters of credit, checks, drafts)

informal contract

no special form or writing needed

express contract

terms expressed specifically in words, oral or written

implied contract

conduct reveals the parties intended to form a contract

requirements:


1. plaintiff furnished service or property
2. plaintiff expected pay, defendant (should have) expected to pay
3. defendant had the chance to reject service or property and didn’t

executed contract

fully performed contract

executory contract

not fully performed contract

valid contract

contract that meets all four requirements (agreement, consideration, capacity, legality)

void contract

no contract and no legal effect

(ex: illegal contracts)

voidable contract

one or both parties have the option to avoid contractual obligations

* if void, both released
* if ratified, both perform

unenforceable contract

a contract that cannot be enforced due to certain defenses

(ex: statute of limitation)

enforceable contract

a valid contract that can be enforced because there are no legal defenses against it

quasi contract

contracts “implied in law”, created to avoid unjust enrichment of one party

* plaintiff recovers quantum meruit = reasonable value

Limitations:


1. Not liable if benefits are due to another’s negligent misconduct
2. Will not be imposed if there is an existing contract that covers matter

circumstances for quasi contract in court

1. plaintiff supplied good or service
2. defendant received good or service
3. defendant did not provide compensation to plaintiff

plain meaning rule

court will enforce contracts based on the writing according to its plain meaning

offer

promise to do or refrain from some specified thing in the future

requirements of an offer

serious intent, reasonable terms, communication of parties

are NOT offers

1. expression of opinion
2. statement of future intent
3. preliminary negotiations
4. invitation to bid (a bid is an offer, party making bid is bound to contract if accepted)
5. advertisements and price lists
6. live and online auctions

termination of offer action of parties

1. revocation
2. irrevocable offers
3. rejection by offeree
4. counteroffer

mirror image rule

offeree’s acceptance match offeror’s offer

termination of offer operation of law

1. lapse of time
2. subject matter destroyed
3. death or incompetence of a party before acceptance
4. supervening illegality

acceptance

by words or conduct the offeree shows assent to terms of an offer

* silence does not count unless
* offeree reaps benefits
* offeree led offeror to think they would reasonably accept
* compliant with mirror image rule

requirements for consideration

1. something of legally sufficient value
2. bargain for exchange
3. adequacy of consideration (value does not need to be equal)

agreements that lack consideration

1. pre-existing duty (unless unforseen difficulty)
2. past consideration
3. illusory promises

pre-existing duty

when a person already has a legal duty to perform an action, there is no legally sufficient consideration

past consideration

when a person makes a promise in return for actions or events that have already taken place, there is no consideration

illusory promises

when a person expresses contract terms with uncertainty that the terms are not definite, the promise is illusory

settlement of consideration claims

1. accord = agreement/satisfaction
2. release = bars further recovery
3. covenant not to sue = does not bar further recovery

exceptions to consideration requirement

1. promissory estoppel
2. promise to pay debts barred by statute of limitations
3. charitable subscriptions

promissory estoppel

a party may recover if they were relying on a promise, reasonably

settlement of a debt

only applies to unliquidated debts (when amount is in dispute), consideration is each party contesting the amount

minors

contracts are voidable at the option of

disaffirmance

1. minors can whenever
2. within reasonable time frame of turning the age of majority
3. expressly or thru the conduct
4. must disaffirm the full contract
5. if misrepresented age

exception to minor’s right to disaffirm

1. marriage contracts
2. contract to enlist in armed services
3. necessaries: may disaffirm but still reliable for reasonable value of goods

ratification

minors can ratify once they reach age of majority

intoxication

contract voidable if person lacked mental capacity to understand legal consequences

mental incompetence

contracts can be

void = judicially declared incompetent

voidable = not declared but was incompetent during contract

valid = lucid periods might mean legal capacity

legality

contracts can’t break the law or contrary to public policy

unconscionable agreement

is so unfair/one sided it will not be enforced

exculpatory clause

contract clause excusing a party from liability for negligence