Legal Environment of Business Exam 3- Final Exam

This exam covers specifically entering contracts, statutes of fraud and what is/isn't a valid contract. This is based off an exam at Black Hills State University. Have fun!

Agreement is…

both parties understand each other. They met up and accept the contract

Agreement is also known as…

Meeting of the minds

Certain types of contracts must…

be in writing in order to be enforced by the court.

Contracts are..

promise for the breach of which the law gives remedy

Promises are…

assurance that one will or will not do something in the future

A Promisor is…

Person making the promise.

A Promisee is…

the person to who, the promise was made.

The four elements for a valid contract are…

Agreement, Consideration, Capacity and Legality

Agreement is…

Must include an offer and an acceptance.

Consideration

Objective Theory of Contracts is…

is that a party’s intention to enter into a legally binding agreement or contract. The facts are interpreted by a reasonable person, rather than by the party’s own secret, subjective intentions.

Capacity is….

Do the parties to the contract have contractual capacity? (i.e. a minor, mentally impaired, or extremely drunk)

Legality is…

A contract’s purpose must include a legal act or not against public policy

Contracts can be either…

verbal or in writing

Another definition for objective theory of contracts…

standard by which the court will use the decide if a contract was formed.

In Objective Theory of Contracts the court will use…

Objective facts- not subjective (aka personal intent)

The court will look at two things when reviewing the Objective Theory of Contracts…

What the parties said and how the parties acted.

Case example for the Objective Theory of Contratcs…

Toy Yoda Case— The manager said he would buy a new Toyota car for which the employee makes the most in sales. In the end the manager gave the employee a toy Yoda (from Star Wars) as a joke.

A bilateral contract, simply put is…

a promise for a promise.

A unliteral contract, simply put is…

a promise for an act.

Define Bilateral contracts…

If the offeree can accept by merely promising to act

Define Unilateral Contracts…

If the offer is phrased so that the offeree can only accept the offer by completing a performance (an act).

What does an offeror do?

they are the party that makes an offer

What does a offeree do?

they are the party to whom the offer is made.

What standpoint does someone in the offeree position must have?

that of a reasonable person.

Express is…

terms of the agreement are directly stated in words (oral or written)

Implied-in-fact is…

the conduct of the parties created and defined the terms of the contract

The consideration given by the promisor must…

induce the promisee to incur a legal detriment and the detriment incurred must induce the promisor to make the promise.

EXAMPLE: Callie is getting behind on her rent and her nice mother promises to pay her $1000. Who/What is the: Promisor, Promisee, Consideration and the Legal Detriment?

Promisor: Mom. Consideration $1000. Promisee: Callie. Legal Detriment: Nothing.

EXAMPLE: Callie is getting behind on her rent and her nice mother promises to pay her $1000. What kind of nonenforable contract is this?

Gratuitous promise

EXAMPLE: Dora has been emplyeed at Younkers Department Store for 30 years and has decided to retire next year. The store manager promises to pay Dora a bonus of $5000 for her years of past service at Younkers. Will this contract be enforced?

No, because there is no legal detriment. The $5000 did not induce her to work for 30 years so the court will not enforce this reward to be given to Dora.

EXAMPLE: Kevin is currently a college student at university. His mother promises to pay him $500 if he earns an A in his history class. Who/What is the: Promisor, Promisee, Consideration and the Legal Detriment?

Promisor: Mom. Consideration: $500. Promisee: Kevin. Legal Detriment: Earning an A.

EX: Paul orally promises Ern that Paul will pay her $500/year until her bakery goes out of business. The bakery stays operational for 15 years, at which time the decision is made to close. Is this contract enforceable (possible to perform in one year)?

Yes, because this business could of gone out of business in their first year, so the act (the service of paying money) can be performed in one year.

EX: Mike rented a bike from Ed for 13 months. The agreement is verbal. Is this contract enforceable (possible to perform in one year)?

Not enforceable because it was not one year time frame.

Clay’s Construction enters into a verbal contract with John to update his kitchen by installing new tile. Is this contract enforceable (possible to perform in one year)?

Yes, because this performance could realistically be completed within one year.

On June 1, 2021, Blake Shelton orally promises ABC TV network that he will appear on and host the Country music Awards which will take place on October 30th, 2022. Black will get paid $250,000. Is this contract enforceable (possible to perform in one year)?

No, because this performance/ service is not happening within one year. In this case, its 18 months.

EX: Adam verablly promises to sell goods for $300, to be delivered 18 months after the contract was made. Is this contract enforceable (possible to perform in one year)?

No, because it is over a year to perform this. Adam will need to get the contract in writing for it to be enforced by the court.

EX: Sam, who is 17, buys a TV for $1000. On the way home, he drops and breaks the picture tube. The tube will cost $500 to replace. He returns the TV to the store and demands a full refund. In a majority of states (so not including SD), how much cash must be returned to Sam?

$1000

What is the majority rule for law?

Laws that a majority of states have adopted.

EX: Sam, who is 17, buys a TV for $1000. On the way home, he drops and breaks the picture tube. The tube will cost $500 to replace. He returns the TV to the store and demands a full refund. In South Dakota how much cash must be returned to Sam?

$500 because he is over the age of 16 and he broke $500 worth of the product he wishes to return. He is still allowed to return it but there are consequences for his actions in the form of not getting a full refund.

Ginger goes to a bar, has several drinks, and agrees to purchase aluminum shutters for double their normal price from a salesperson who happens to be sitting next to her on a stool. Ginger is…

liable on the contract if she understood the legal consequences of the contract.

Mia offers to sell her treadmill to Lori for $1000. Lori says “That is too much, but would like to take $800?” Mia says no. Lori than says, “Well, I’ll take it for $1000.” What has happened?

Lori has rejected Mary’s offer and Lordi has made a new offer.

Julia promises to pay her nanny $2000 in consideration of the services that the nanny has provided over the last eight years. Julia later revokes the promise and does not pay. Julia is…

not liable because the consideration was in the past. Aka the nanny didn’t perform these services because of the $2000 promise given to her by Julia.

In May 2021, Ben says he’ll hire Sam in September 2022 for 9 months of work. Is this oral contract enforceable?

No because this contract is out of the bounds of one year to be enforced by the court. Ben doesn’t have to hire Sam because of this.

On May 1, by telephone, Yu offers to hire Benson to perform personal services. On May 5, Benson returns Yu’s call and accepts the offer. The contract calls for Benson to submit a written research report, with a deadline of two years for submission. Is this contract enforceable?

Sometimes. If they turn in the contract early, then they will be able to enforce this in court.

EX: Jacks signs a contract to buy a car just before reaching the age of majority. Six months after reaching the age of majority, Jack does not wish to keep the car. According to SD law, Jack…

can disaffirm the contract and must return the car because he acted within a one-year time frame after turning the age of majority.

EX: Chad, a minor, signs a contract to buy alcoholic beverages for Dine & Drink, his parents’ resturant. The contract is…

void as a matter of law (like it never took place).

Contracts enter into by minors are ____ at the option of the minor.

Voidable because they can decide if they want to or not continue the contract.

The age of majority for contractual purposes in most states is…

18 years old.

Eve, a local business purpose, is a good friend of Al, the owner of a local candy store. Even goes into Al’s candy store and stays about five minutes. One afternoon, Even goes into Al’s candy shop, looks at the candy and picks up a $1 candy bar. Seeing that Al is very busy, she waves the candy bar at Al and without saying a word, walks out. What category of contract is this?

an implied-in-fact contract

Burger Baby restaurant engaged Air Ads to fly an advertisement above the beach. The ads offered $1000 to any person who could swim from this beach to Long Island in less than a day. At 10:00 AM. On Oct. 10th, Air Ad’s pilot flew a sign on a beach that said “Swim across the South and Burger Baby pays $1000.” Sean sees this and starts swimming. 4 hours later Burger Baby flies an ad saying that they are revoking the offer made. Sean completed the swim in another sic hours. Is there a contract between Sean and Burger Baby?

Yes, Sean had substainal performance, could only accept the offer with performance and can recover something if the court decided.

Burger Baby restaurant engaged Air Ads to fly an advertisement above the beach. The ads offered $1000 to any person who could swim from this beach to Long Island in less than a day. At 10:00 AM. On Oct. 10th, Air Ad’s pilot flew a sign on a beach that said “Swim across the South and Burger Baby pays $1000.” Sean sees this and starts swimming. 4 hours later Burger Baby flies an ad saying that they are revoking the offer made. Sean completed the swim in another sic hours. What kind of contract is this?

Unilateral contract— expressed (quasi contract)

What is a quasi-contract?

implied in law. They are fictional contracts that courts can impose on the parties “as if” the parties had entered into an actual contract.

Why do we have quasi contracts?

they are imposed to avoid the unjust enrichment of one party at the expense of another. The doctrine of unjust enrichment is based on the theory that individuals should not be allowed to profit or enrich themselves inequitably at the expense of others.

What is equitable remedy?

when the court orders the defendant to complete a contract as originally agreed.

A valid contract must…

meet the four elements (offer, acceptance, consideration and capacity)

Voidable contracts is…

valid contracts but one or parties can avoid the legal obligations set forth in the contract.

Void contract is…

neither party has any legal obligations because there is no contract.

Unenforceable “contracts” are…

a contract that cannot be enforced due to legal defense (so otherwise a valid contract but they brought a defense to the court)

How can someone bring up a defense that can make a otherwise valid contract unenforceable?

Bringing up the statute of limitations or frauds.

What must happen in an agreement?

the parties understood each other and intended to reach an agreement.

Offers are…

promise of commitment by the offeror.

Acceptance is…

offeree shows assents to the terms of the offer.

There are 3 elements to have a VALID offer:

Serious intention, terms are reasonably definite, and offer is communicated to the offeree.

What is not considered a serious intention?

Offers made in jest, anger, undue excitement, a statement of intent, invitations to bargain or advertisements.

Example of a statement of intent (which is not considered a serious intention)?

I’m thinking about selling my car

Do parties have to know about a reward to receive it?

Yes, parties must know the terms and consideration to be paid. The “Lost Dog Reward” does not have to go to someone who returns the dog and didn’t know about the reward.

Elements of Offer Termination are…

Revocation, rejection and counteroffer

In revocation, who has the power to terminate?

offeror— effective when received by the offeree (offeror puts it out on the table)

In rejection, who has the power to terminate?

offeree, effective when received by the offeror.

In counteroffer, who has the power to terminate?

offeree has the power to terminate the offer OR create a new offer.

Acceptance of a contract must have…

Mirror Image Rule (unequivocal) and Mailbox Rule (timely)

Mirror Image Rule is…

terms of the acceptance must mirror the terms of the offer, if not the counteroffer.

PUT THE PROFESSOR EXAMPLE HERE

Mailbox Rule is…

acceptance generally effective when dispatched.

Contract must be supported by ______ which is broadly definded as something of legal value.

consideration

There are two aspects of consideration:

the promisee suffered a legal detriment and bargained for exchange of promises.

What rule should be used when going over consideration?

consideration given by the promisor must induce the promisee to incur a legal detriment and the detriment must induce the promisor to make the promise.

Promises that lack consideration:

gratuitous promises, pre-existing duty rule, and past consideration.

Promissory Estoppel is…

a person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery.

Under this doctrine, a court may enforce an otherwise unenforceable promise to avoid the injustice that would otherwise result.

promissory estoppel

A major rule for contracts involving minors…

minors can disaffirm any time prior

Contracts made while someone was intoxicated CAN be voidable if they can prove…

they did not understand or comprehend the consequences of entering into the contract.

There are three groups that lack capacity. Contract law protects members of these groups…

minors, intoxicated persons, and mentally incompetent persons.

If a mentally incompetent person is adjudicated incompetent and has a guardian, contract with said person are…

VOID. There is no contract

If a mentally incompetent person has no guaridan they’re contracts are…

VOIDABLE but can disaffirm or ratify (if they ever regain capacity)

What do all contracts must have in order to be valid? (one answer)

legality

What does legality pertain to?

Contracts against the law or contracts against public policy

Defense for statute of frauds…

certain types of contracts must be in writing in order to be enforced by the court (aka you want the best possible evidence for the jury)