Business Law exam 3

Statue of frauds

to be enforceable, certain contracts must be evidenced by a writing and signed by the person sought to be bound

Oral contracts

most contracts are oral and vast majority are valid

example of oral contracts

phone calls, and discussions can be deemed legally enforceable

What classes of contracts are covered by statue of frauds?

1) contracts evidencing an interest in real property
2) contracts where terms can’t be performed within one year.
3)contractual promises to answer for the debt of another
4) promise of the executor of an estate to pay estate debts from personal fund
5) promises arising from a promise to marry
6) UCC contracts exceeding $500

What does it mean to answer for the debt of another?

suretyship, which means to pay the debt or be liable for the default of another.

what does contracts evidencing an interest in real property mean?

contracts to sell land, buildings, and interests on land such as mortgages

what are promises arising from a promise to marry?

promises to pay a sum of money or give property in consideration of marriage

What are the 4 exceptions to statue of frauds?

part performance, promisor benefit, detriment release, and port payment

What is part performance?

Allows a party to enforce an oral contract if the party already performed part of the contract in reliance on the other party’s oral promise.

What is the detriment reliance (estoppel)

when a party reasonably relies on a promise made by another party

What is the parol evidence rule?

prohibits parties from using evidence that isn’t included in a written contract to contradict or modify the contract.

What are the exceptions to parol evidence rule?

Evidence of fraud, duress, or mistake and failure of consideration

what are the 4 rules of interpretation?

intent of the parties (objective standard), meaning of words, incorporation by reference, and whole contract.

What does intent of parties mean?

The parties intent to enter an agreement will have some effect

What does meaning of words mean?

The plain meaning of the words is how they should be interpreted. Ordinary words mean their ordinary meaning.

What does incorporation by reference mean?

contract consists of both the original document and detailed statement that is incorporated into it

What is the definition of ambiguity?

When the intent of a party is uncertain and contract is capable of more than one interpretation

What are the two rules of ambiguity?

look to reasonable intent and interpreted strictly against the drafting party

What is the “insurance company rule”

part of ambiguity and states that a contract will be interpreted to benefit the one who is being insured (never the drafting party)

What is the hierarchy in written documents that are internally contradictory?

Handwritten over, type written over, pre-printed

What is avoidance of hardship?

A party is bound by a contract even though it proves to be a bad bargain.

what is the saying for avoidance of hardship?

You make a bad deal, you’re stuck with it.

What is course of conduct and course of performance?

the conduct of parties in carrying out the terms is the best guide to determine the parties’ intent

What is custom and usage of trade

the language and customs of an industry

What is a third party beneficiary?

third person whom the parties to a contract intend to benefit by the making of the contract and such person can sue for breach of contract.

Third party beneficiary (simple definition)

a contract that is intended to benefit a 3rd person

What are the 3 types of third party beneficiaries?

Creditor, donee, and incidental

What is a creditor?

third party that receives benefit from contract to fulfill debt

What is donee?

benefit is a ‘gift’ because the third party gets something of value without any obligations (life insurance)

What is incidental?

when a third party gets a benefit that was not intended

In a third party beneficiary what is the relationship between A and B

A and B are in privity (contract)

what is the relationship between B and C

C is the third party beneficiary

What is the relationship between A and C?

performance

What is assignment?

the transfer of a contract right (intangible right) to a third party.

what is an intangible right?

something that can’t be physically held

What two things does an assignment of a contract include?

rights and duties

what is an assignment of rights?

a claim, right to payment. Generally used to make money and only includes rights no duties.

The assignee…

takes the contract (right) subject to claims, defenses, and set-offs good against the assignor

What is assignor impliedly warrants?

promise or assurance made by one party to another that was not made but is implied by law.

what are the two parts of assignor implied warrants?

1) the right is valid- no claims, defenses, or set-offs are against it
2) the assignor owns the claim or right assigned, and has the right to assign it

what is the definition of assignor continuing liability?

assignor remains liable on the assigned claims unless released by the assignee, or until the contract is completely and properly executed.

What are the 4 non-assignable rights?

where assignment… is prohibited by contract, would increase the burden or performance, where the right is to receive personal services, and credit transactions.

what is delegation of duties?

transfer of duties by a contracting party to another person who is to perform them

what are non-delegable duties?

personal or non-standardized performance

what is a condition?

when the occurrence or nonoccurrence of an event, as expressed in a contract, affects the duty of a party to the contract to perform.

what is an event?

an event = condition

what are the 3 types of conditions?

precedent, concurrent, and subsequent

what is condition precedent?

event must occur before party has an obligation to perform under the contract

what is condition concurrent?

performance and mutual duties of performance take place simultaneously

what is condition subsequent?

event whose occurrence or lack of, terminates the contract

what are the two parts of contracts?

a condition/triggering event and covenant/major or minor promises

What is a tender?

an offer to perform

What are the two types of tender?

tender of performance and tender of payment

What is the definition of time of performance?

the specific time or times indicated in the Contract at which or within which delivery or other performance is to be completed.

when time is a material item then it is said that…

time is of essence

what is a material item?

an item that is vital, perishable, or its value fluctuates rapidly

what is curative tender?

to replace defective goods with conforming goods when time is not of the essence

curative tender is…

doctrine is cure

what is the substantial performance doctrine?

if a party has performed a contract substantially, but not perfectly, then that party will be allowed the contract price -set offs, if defects are non intentional or material

what is the equation for substantial performance doctrine?

contract prices - set offs

what are the 8 discharge by agreements?

by the mutual terms of the contract, mutual cancellation, mutual recession, substitution, novation, accord + satisfaction, release and waiver

What is mutual recession?

when one party sets contract because of breach of contract by other party

What is substitution?

contract is replaced by a new contract between the same parties

what is accord and satisfaction?

alternative for debt, discharge of debt by substituted performance

what is release?

when the releasor gives up claims against persons who otherwise would be subject to liability to the releasor

what is waiver?

release or relinquishment (to give up) of a right under contract

what are the three impossibilities?

impossibility, frustration of purpose, and commercial impracticalbility

Impossibility is…

common law and the standard is objective NOT subjective

Frustration of purpose is…

common law and economic frustration

What is temporary impossibility?

suspends the duty to perform such as weather

What is statue of limitations?

provides a time period within which lawsuits on contract claims must be brought, and prohibits claims outside this time period.

what are the 4 parts of contractual limitations?

parties agree to a shortened time period, it’s shorter than statue of limitations, the purpose is to limit risk and uncertainty, and can only be between businesses with equal bargaining power

What is the definition of bankruptcy?

a federal law that allows debtors to seek and be granted discharge from their debts.

what is the definition of breach?

the failure to act or perform in the manner called for by the contract

what is anticipatory breach?

a party a contract clearly repudiates his or her obligation under the contract. (anticipatory and material breach)

Repudiation is by…?

words and conduct

What are the two types of breach of contract?

Material (major) breach and non-material (minor) breach

what is a material breach?

a major breach that breaks the contract and gives rise to a claim for damages

what is a non-material breach?

a minor breach that doesn’t break the contract, but does provide a basis for incidental damages and or offsets

what is the purpose of contract damages?

to place non-breaching party in the position they would have enjoyed had the contract been performed as it was written.

what are the 5 contract damages?

compensatory, consequential, nominal, punitive, and liquidated.

What is compensatory contract damages?

compensates the injured party (cover cost- contract price)

what is the equation for compensatory contract damages?

cover cost - contract price = compensatory damages

what are consequential contract damages?

foreseeable and natural consequences from the breach. Seeks to lessen damages by obtaining substitute goods

what is mitigation of damages?

they’re called “cover” in the UCC

what is punitive contract damages?

damages for the purpose of punishing the breaching party and to discourage certain practices.

what is nominal contract damages?

sum awarded in order to establish that legal rights have been violated even though no actual loss or damages occured.

what are liquidated contract damages?

a certain amount that should be paid in case of a breach (ex. $1,000 per every day late)

what are liquidated contract damages? class definition?

pre-agreed amount where actual damages are difficult to determine.

What is status quo ante?

previously existing state of affairs

what is the purpose of equitable remedies?

to return the injured party to their original position before performance began

what are the two types of remedies?

if it’s a contract = damages, if its a quasi contract = remedy/relief

what are the 5 equitable remedies?

Reformation, recession, restitution, injunction, and specific performance

what is the process of injunction Relief

temporary restraining order - preliminary injunction - permanent injunction

what is the definition of injunction relief?

a court order that requires a person or entity to do or stop doing a specific action

What is exculpatory and limitation of liability clauses?

means to be released from liability

What is the “American Rule”

each party pay his or her own attorney’s fees

What can disputing parties in contract agree about in terms of attorney fee’s?

the loser will pay the prevailing party’s attorney fees

what are the two types of property?

real property and personal property

what are the elements of a gift?

Donative Intent and Delivery