Business Law and Ethics: Contracts and Corporate Responsibility

Comprehensive vocabulary flashcards covering fundamental legal principles of contract formation, defenses, breach, remedies, and business ethics from Chapters 12, 13, and 3.

Contract

An agreement that can be enforced in court, formed by two or more parties, each of whom agrees to perform or to refrain from performing some act now or in the future.

Objective theory of contracts

A theory under which the intent to form a contract will be judged by outward, objective facts as interpreted by a reasonable person, rather than by the party’s own secret, subjective intentions.

Bilateral contract

A contract formed when the offeree can accept simply by promising to perform; characterized as a 'promise for a promise' where no performance needs to occur for formation.

Unilateral contract

A contract formed when the offer is phrased so that the offeree can accept only by completing the contract performance; characterized as a 'promise for an act.'

Formal contracts

Contracts that by law require a specific form, such as being executed under seal or requiring special form and language (e.g., checks and promissory notes), to be valid.

Informal contracts

Contracts that do not require a specified form or formality in order to be valid, usually based on their substance rather than their form.

Express contract

A contract in which the terms of the agreement are fully and explicitly stated in words, oral or written.

Implied contract

A contract formed in whole or in part from the conduct of the parties rather than express words.

Executed contract

A contract that has been completely performed by both parties.

Executory contract

A contract that has not yet been fully performed by one or both parties.

Unenforceable contract

A valid contract that cannot be enforced because of certain legal defenses against it, such as a statute or law requiring a written agreement.

Voidable contract

A valid contract that may be legally avoided (canceled) or ratified at the option of one of the parties.

Void contract

An agreement that produces no legal obligations on any of the parties; it is no contract at all.

Agreement

A meeting of two or more minds in regard to the terms of a contract; usually broken down into an offer by one party and an acceptance of that offer by another party.

Offer

A promise or commitment to perform or refrain from performing some specified act in the future.

Revocation

The withdrawal of an offer by an offeror before acceptance, which becomes effective when the offeree actually receives it.

Option contract

A contract under which the offeror cannot revoke an offer for a stipulated time period, and the offeree provides consideration for the right to accept or reject during that period.

Counteroffer

A rejection of the original offer and the simultaneous making of a new offer.

Mirror image rule

A common law rule that requires, for a valid contractual agreement, that the terms of the offeree’s acceptance adhere exactly to the terms of the offeror’s offer.

Mailbox Rule

A rule stating that if the authorized mode of communication is the mail, acceptance becomes valid when it is dispatched (placed in the control of the U.S. Postal Service)—not when it is received by the offeror.

Contractual capacity

The legal ability to enter into contracts; the threshold mental capacity required by law for a party who enters into a contract to be bound by that contract.

Disaffirmance

The legal avoidance, or setting aside, of a contractual obligation, exercised by manifesting an intention not to be bound.

Usury

The practice of charging an illegal rate of interest on a loan.

Covenant not to compete

A contractual promise to refrain from competing with another party for a certain period of time and within a certain geographic area.

Reformation

A court-ordered correction of a written contract so that it reflects the true intentions of the parties when they have imperfectly expressed their agreement in writing.

Adhesion contract

A contract written exclusively by one party and presented to the other on a take-it-or-leave-it basis, depriving the adhering party of an opportunity to negotiate terms.

Exculpatory clause

A contractual clause that releases a party from liability in the event of monetary or physical injury, no matter who is at fault.

Privity of contract

The principle that a contract is a private agreement between the parties who have entered into it, and traditionally these parties alone have rights and liabilities under the contract.

Assignment

The act of transferring to another all or part of one’s contractual rights arising under a contract.

Delegation

The transfer of a contractual duty to a third party, which does not relieve the original delegator of the obligation to perform if the delegatee fails.

Incidental beneficiary

A third person who receives an unintentional benefit from a contract even though that benefit is not the reason the contract was made, and who has no legal right to sue to enforce it.

Bilateral mistake

A mistake that occurs when both parties to a contract are mistaken about the same material fact; the contract can be rescinded by either party.

Unilateral mistake

A mistake that occurs when only one party to a contract is mistaken as to a material fact; the contract normally remains enforceable unless specific exceptions apply.

Scienter

Guilty knowledge signifying an intent to deceive; clearly exists if a contracting party knows that a fact is not as stated.

Undue influence

Persuasion that is less than actual force but more than advice and that induces a person to act according to the will or purposes of the dominating party, depriving them of free will.

Duress

Unlawful pressure brought to bear on a person, causing them to perform an act they would not otherwise perform by rendering them incapable of exercising free will.

Condition

A possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract.

Tender

An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so.

Substantial performance

A doctrine under which a party who in good faith performs substantially all contract terms without major variance can enforce the contract, subject to damages for minor variances.

Breach of contract

The failure, without legal excuse, of a promisor to perform the obligations of a contract.

Anticipatory repudiation

An assertion or action by a party indicating that they will not perform an obligation they are contractually bound to perform at a future time; treated as a material breach.

Mutual rescission

An agreement between the parties to cancel their contract, releasing them from further obligations and restoring them to the positions they occupied prior to contract formation.

Novation

The substitution of a third party for one of the original parties by agreement of all parties, which revokes and extinguishes the old obligation and creates a new valid contract.

Discharge by Accord and satisfaction

A process where parties agree to accept a performance different from the original promise (the accord) and then carry out that performance (the satisfaction) to discharge the original duty.

Discharge by operation of law

these circumstances include material alteration of the contract, the running of the statute of limitations, bankruptcy, and the impossibility or impracticability of performance

Impossibility of performance

A doctrine relieving a party of contractual duties when performance becomes objectively impossible or totally impracticable due to an unforeseeable event through no fault of either party.

Commercial impracticability

A doctrine excusing a seller from performance when an unforeseen contingency occurs that makes performance impracticable, the nonoccurrence of which was a basic contract assumption.

Frustration of purpose

A court-created doctrine under which a party is relieved of the duty to perform when the objective purpose for performance no longer exists due to reasons beyond that party’s control.

Compensatory damages

Damages that compensate the injured party only for direct losses and costs actually sustained from a breach of contract, intended to make the person whole.

Incidental damages

Damages that compensate for expenses directly incurred because of a breach of contract, such as costs incurred to obtain performance from another source.

Consequential damages

Foreseeable damages resulting from a party’s breach of contract that cover indirect losses caused by special circumstances beyond the contract itself.

Liquidated damages

An amount stipulated in a contract that the parties believe to be a reasonable estimation of the damages that will occur in the event of a future breach.

Specific performance

An equitable remedy requiring the breaching party to perform as promised under the contract, granted when monetary damages are inadequate and the subject matter is unique.

Moral minimum

The concept that merely complying with the law represents the lowest ethical level that society will tolerate.

Triple bottom line

A corporate performance measure evaluating a company's profits, its impact on people, and its impact on the planet.

Duty-based ethics

An ethical philosophy rooted in the idea that every person has certain duties to others (humans and the planet), focusing on corporate obligations, concepts of right and wrong, and rights.

Outcome-based ethics

An ethical philosophy that focuses on the impacts of a decision on society or on key stakeholders, seeking the greatest good for the greatest number (utilitarianism).

Corporate social responsibility (CSR)

A concept that combines a commitment to good citizenship with a commitment to making ethical decisions, improving society, and minimizing environmental impact.

4 requirements for a valid contract to exist:

agreement: an offer and acceptance

consideration: any promises made by the parties to the contract must be supported by legally sufficient and bargained-for consideration

contractual capacity- qualify as competent parties

legality- purpose must be to accomplish some goal that is legal