Comprehensive Study Notes: Business Law — Environment, Ethics, Administrative Agencies, and Contracts
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The legal environment surrounds the business world in relation to hiring and firing decisions, financing and the manufacturing and marketing of products. Familiarity with laws and regulations is necessary.
One of the most important functions of the law in any society is to provide stability and continuity so people can know how to order their affairs.
People need to understand the consequences of their actions and non actions. There is a general need to know one’s rights and responsibilities under the law.
Many different laws affect business decisions: contracts, sales, negotiable instruments, creditor’s rights, eCommerce, torts, agency, business organizations and courts and court procedure.
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Ethics and business are as important today as knowledge of the law; ethics influence decisions in addition to regulatory compliance.
Rules used by various administrative agencies affect almost every aspect of a business operation, including structure, financing, hiring and firing procedures, relations with employees and unions, and how goods are manufactured and marketed.
Federal agencies mentioned: FDA (Food and Drug Administration), NLRB (National Labor Relations Board), FTC (Federal Trade Commission); Independent federal agencies exist; State agencies run parallel to federal ones such as the EPA.
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Final source: Case law forms legal precedent which is the common law.
Stare decisis means to stand on what has been decided; Courts follow precedent but new cases can change it.
Cases are written into volumes such as Reporters. When arguing a case, the advocate calls on case law precedent to make their case. Legal research.
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The common law tradition: English traditional legal system that became the American system.
Courts of law decided remedies at law, typically monetary damages.
Courts of Equity decided remedies in equity, such as specific performance, injunction, rescission.
Equitable maxims: treat others fairly; come to court with clean hands; come to court to seek remedies in a reasonable time.
The plaintiff (the victim) sues the defendant in a court of law; the defendant raises defenses.
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Case law decisions become precedents; precedents are used to guide rulings under stare decisis.
Legal reasoning is used to harmonize decisions with stare decisis.
Basic steps of legal reasoning include IRAC: issue, rule, application and conclusion.
Interplay between case law and statutory law; example: in a criminal case a statute is violated and a case is decided using precedent to determine if certain evidence can be used to convict.
Jurisprudence is the study of law. The legislature enacts the law, the judge interprets the law.
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Substantive law consists of all laws that define, describe, regulate and create legal rights and obligations.
Procedural law consists of all laws that outline the methods of enforcing the law.
Civil law spells the rights and duties that exist between persons and also between persons and their government, and the relief granted when rights are violated.
Criminal law involves wrongs against the public as a whole and violations of statutes; the prosecution (a government agency) brings the case to court, not the victim.
Cyberlaw is the informal description of law that has emerged to regulate transactions conducted on the internet.
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Business ethics
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Ethics is the study of what is right or wrong. Business ethics looks at decisions that are made or have to be made and whether those decisions are right or wrong.
A corporation is viewed as a citizen with responsibilities to its owners and to society, including environmental impact, charitable contributions, paying taxes, offering jobs and benefits, safety and health issues, and public relations impact.
The internet can affect a company’s reputation; image is important.
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Moral minimum is simple compliance with the law, no more; lowest ethical standards.
Ethics is subjective; ethical dilemmas can arise when actions seem questionable.
Companies can have a code of conduct governing actions of employees, emphasizing respect, integrity, and ethical business conduct.
When there is a code violation, procedures are in place to correct improper behavior. Grey areas exist that are open to interpretation by a court.
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Business ethics and social media: companies consider social media involvement when making hiring or firing decisions.
Federal law prohibits broad prohibitions on employees speaking about their job, employer or coworkers on social media; grey area exists.
Top management must demonstrate a commitment to ethical decision making; looking the other way creates a conflict.
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Administrative Agencies: practical significance of administrative law.
Administrative law is created by administrative agencies, not by the legislature.
When Congress or a state legislature enacts legislation, it typically adopts a general statute and leaves its implementation to the administrative agency.
The agency creates detailed rules and hires personnel with specialized experience to make detailed decisions.
Administrative agencies exist at all levels of government and provide a comprehensive regulatory scheme.
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Agency creation and powers: Congress passes enabling legislation (example: the Federal Trade Commission, FTC).
Types of agencies: Federal executive agencies assist the President in carrying out executive functions and can create sub-agencies; Independent regulatory agencies run by a board.
Agencies can issue interpretive rules.
Delegation doctrine grants Congress the authority to establish administrative agencies.
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The Executive Branch has control over agencies in federal appointments and can veto legislation.
Legislative controls: Congress grants agency powers through legislation.
Judicial controls: Courts review agency actions.
The Administrative Procedure Act provides for judicial review and uses the arbitrary and capricious test (examples of failure to provide rational explanation, changing prior policy without justification, or considering legally inappropriate factors).
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Today the major function of an administrative agency is rulemaking, or the formulation of new regulations.
Rulemaking is considered legislative because it has a binding effect.
The process leads to a final publication in the Federal Register.
Judicial deference to agency decisions; appeals follow a case-by-case process; agencies have expertise.
Adjudication is the process of resolving disputes by presenting evidence; administrative law judges (ALJs) hear cases at hearings.
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Public Accountability: Freedom of Information Act requires federal government to disclose records upon written request; some records are exempt (national security and confidential records).
Sunshine Act allows public observation of agency meetings.
Regulatory Flexibility Act analyzes the cost of a new regulation and its impact on small business.
Small Business Regulatory Enforcement Fairness Act requires Congress to review new regulations for 60 days before they take effect.
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Examples of administrative agencies: police, district attorney’s offices, judiciary, mayor’s office, all government itself, public universities.
Agencies include: National Labor Relations Board (NLRB), Environmental Protection Agency (EPA), FTC, Federal Aviation Administration (FAA), Department of Education, Social Security Administration, Internal Revenue Service, Department of Homeland Security (Patriot Act), Immigration and Customs Enforcement (ICE).
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Contract Law basics: PROMISOR is the person making the promise; PROMISEE is the recipient.
In business agreements, the rules of common law are often followed to avoid disputes.
The legal framework provides parties with reasonable expectations and reliance on good faith; duty and good faith are central, though the law provides relief to the innocent party upon breach.
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Definition of CONTRACT: a legally binding agreement between two or more parties who agree to perform or refrain from performing some act now or in the future.
Contract disputes arise when there is a future promise; if the contract obligation is not performed, the injured party seeks remedies, typically monetary damages or specific performance.
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Agreements to agree in modern law can be binding when there is evidence of intent to be bound.
Courts may hold that the parties intend to be bound by future negotiations under certain circumstances.
All parties are subject to some form of contractual relationship in everyday life.
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Objective Theory of contracts: intent to enter a legally binding agreement is judged by outward objective facts, interpreted by a reasonable person, not by secret intentions.
Objective facts include: (1) what the party said when entering into the contract, (2) how the party appeared or acted to show intent, (3) the circumstances surrounding the transaction.
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Four requirements for a valid, enforceable contract:
Agreement: includes an OFFER and ACCEPTANCE; one party offers and the other accepts; does not necessarily have to be in writing.
Consideration: promises must be supported by legally sufficient and bargained-for consideration, something of value like money or property, or performance of an act.
Capacity: of age and mental capacity.
Legality: the purpose must be to perform something in compliance with the law.
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Defenses to enforceability:
Voluntary consent: contract entered into without fraud, duress, mistake, or undue influence.
Form: contract must be in the form the law requires, such as a writing to be enforceable.
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Types of contracts:
Every contract has at least two parties; the OFFEROR makes the offer and the OFFEREE is the party to whom the offer is made.
Bilateral vs Unilateral contracts depend on what the offeree must do to accept.
Bilateral contract: a promise for a promise; acceptance by promising to perform.
Unilateral contract: a promise for an act; acceptance occurs upon completion of the act.
Revocation of offers for unilateral contracts: promise is revoked if performance has begun before completion in traditional law; modern view considers reasonable time.
Formal vs informal contracts: formal contracts require a special form (eg, checks, drafts, promissory notes); informal contracts do not unless required by the UCC.
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Contract performance concepts:
Executed contract: fully performed on both sides.
Executory contract: performed by one side but not the other yet.
Enforceability: a valid contract has the four elements plus legality of purpose; a voidable contract can be avoided by one or both parties.
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Meeting of the Minds
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Express vs implied contracts:
Express contracts have terms explicitly stated, either orally or in writing.
Implied contracts (implied in fact) arise from conduct rather than express terms.
Requirements for implied contracts: the plaintiff furnished goods or services; the plaintiff expected to be paid; the plaintiff acted in reliance on that expectation.
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Interpretation of contracts: plain meaning rule; courts enforce clear terms and do not consider extrinsic evidence when the contract is clear.
Rules of interpretation:
A reasonable, lawful and effective meaning.
The contract is considered as a whole.
What was negotiated separately is given greater weight than what was not.
A word is given its ordinary meaning; technical words receive their technical meaning.
Specific words receive greater weight than general words.
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Agreement in traditional and electronic contracts:
Agreement is essential; mutual assent to the same bargain.
Offer and acceptance do not necessarily have to be in writing.
Under objective theory, the conduct and words of the parties are judged by what a reasonable person would think they mean.
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Requirements of the offer:
The offeror must have a serious intention to be bound by the offer.
The terms of the offer must be reasonably certain for the parties and the court to ascertain.
The offer must be communicated to the offeree.
Intention is determined by what a reasonable person in the offeree's position would believe the words and actions meant.
Examples of lack of serious intent: offers made in anger, jest, or undue excitement do not meet the serious and objective intent test.
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Example scenarios:
Dawn and Melissa case: an angry outburst about selling a car for a sum does not create a binding contract because a reasonable person would consider the emotional context and value discrepancy.
Lucy v. Zehmer: case involving a back-and-forth discussion about land sale; terms were exchanged but the sincerity of intent and the surrounding circumstances were considered in determining enforceability.
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Expressions of opinion do not constitute offers.
Statements of future interest are not offers.
Preliminary negotiations and invitations to negotiate are not offers; government or private bids submitted can be binding when accepted.
Price lists are usually invitations to negotiate; advertisements can be offers in some cases, such as rewards for a lost item.
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Auctions: generally an invitation to submit offers rather than an offer to form a contract.
Before the hammer falls, a bidder can withdraw or a bid can be rejected; higher bids can supersede.
Auctions can be with or without reserve; with reserve, the seller can withdraw items; without reserve, the item must be sold to the highest bidder.
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Essential elements identified for a contract:
Identification of the parties.
Identification of the object or subject matter and quantity, including the work to be performed.
Consideration to be paid.
Time of payment, delivery or performance.
Courts will not rewrite a contract but may supply a missing term in some circumstances, such as a sale with a missing quantity term.
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Communication: the offer must be communicated to the offeree.
If the offeree does not know about the offer, there is no acceptance or contract.
Example: if a reward is advertised and the offeree is unaware, they cannot claim the reward.
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Termination of Offer:
The power of acceptance can be terminated by action of either party or by operation of law.
Revocation: offeror withdraws the offer; revocation can be express or by actions inconsistent with acceptance (eg, selling the subject matter to someone else).
Revocation is effective when the offeree or their agent actually receives it; if mailed, it becomes effective when received.
An offer to the general public must be revoked in the same manner as it was made.
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Irrevocable offers:
Some offers cannot be revoked, especially when the offeree has relied on the offer to their detriment (detrimental reliance or promissory estoppel).
Option contracts are typically irrevocable offers, holding an offer for a specified period in exchange for consideration (for example, a lease option).
Rejection by the offeree must be received by the offeror; merely inquiring about the offer is not a rejection.
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Acceptance:
Must be unequivocal and communicated to the offeror; can be communicated by words or conduct.
Acceptance can be unequivocal even if dissatisfaction is expressed in terms;
Silence is generally not acceptance, but can be acceptance in certain ongoing relationships or where performance has begun.
For bilateral contracts, communication of acceptance is necessary.
For unilateral contracts, performance may indicate acceptance once the act is completed; notice of acceptance may not always be necessary.
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The mailbox rule:
Acceptance is effective when sent or delivered via a mode expressly or implied by the offeror.
Presumption of mailing: if mailed, it is presumed to be received.
If acceptance is dispatched by mail, in person, over the phone, or by email, it is effective when dispatched.
Authorized means of acceptance: parties may agree on a particular method; if a substituted means is used, acceptance is effective when received.
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Agreement in E-Contracts:
Online contracts follow the same basic requirements as traditional contracts.
Disputes center on whether terms were voluntary and whether the parties entered into those terms.
Online contracts may be formed for sale of goods or licensing; software is typically a license rather than a transfer of title.
Online offers must clearly spell out the terms governing the transaction.
Displaying the offer: the seller’s website should include a hypertext link to the full contract so buyers are aware of the terms.
The contract must be displayed online in a readable format with clear terms.
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Online acceptances:
Common law and UCC accept both written or spoken words and conduct as acceptance.
Click-on agreements (click to accept or agree) are common for software licenses; Submit is another common term.
Historically, acceptance occurred by opening and keeping the packaged item; now click-on agreements are standard and binding between buyer and manufacturer.
The terms typically cover warranties, remedies and use of the product.
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Provisions to include in online contracts:
Acceptance of terms (the I accept box)
Payment terms
Return policy
Disclaimer
Limitations on remedies
Privacy policy
Dispute resolution provisions (forum selection, governing law, etc.)
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E-Signature technologies:
An e-signature is an electronic sound, symbol, or process attached to or logically associated with a record and executed with the intent to sign.
Two categories: digitized handwritten signature and PKI-based digitized signatures.
UETA: Uniform Electronic Transactions Act; aims to uniform acceptance of e-signatures across states.
E-Sign Act: Federal law allowing the validity of e-signatures if consent and retention requirements are met; excludes certain documents (eg, wills, divorce filings, evictions, foreclosures, health insurance).
UCC articles 2 and 2a cover sales; partnering agreements can adopt electronic processes.
In case of error, parties should notify the other party to avoid binding effects.
Timing: an electronic record is sent when directed to the intended recipient in a readable form and to the proper place of business.
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Timing and recognition of electronic records:
Electronic records are considered sent when properly directed to the recipient and readable by their system; must be directed to the business address or place of business.
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CONSIDERATION:
Consideration must be given before a contract exists; defined as something of legal value given in exchange for a promise.
Forms include tangible payment (money/property) or performance of an act (eg, provide legal services).
Written contracts are presumed to be supported by consideration, though evidence can overcome this presumption.
Forbearance of a legal right, or accepting an out-of-court settlement in exchange for dropping a lawsuit, can be consideration.
Other examples include refraining from tobacco use or refraining from swearing.
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Two-part test for legal value:
1) The promise suffers a legal detriment, and
2) the promisor receives a legal benefit.
Case example: Hamer v. Sidway, the forbearance from certain acts created valid consideration when the uncle promised money for refraining until a future date.
Reiterates that consideration requires a bargained-for exchange.
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Additional nuances of consideration:
Forbearance from undesirable conduct can constitute consideration.
Example: Yankees contract with a tailor to make uniforms; dispute over color could involve consideration questions if a modification occurs.
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Gifts and consideration:
Gift promises (gratuitous promises) are unenforceable because they lack consideration.
To convert a gift promise into an enforceable contract, there must be consideration (something in exchange).
If a gift is completed, it cannot be rescinded for lack of consideration.
Engagement rings are treated as gifts, but if given in contemplation of marriage they may be recoverable under certain conditions.
Other gifts given during a relationship may not be required to be returned.
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Courts do not generally assess the adequacy of consideration; they do not police whether a deal is fair.
Significant disparity in value may trigger concerns about voluntary consent and potential issues like fraud, duress, or undue influence.
Exceptions include necessaries for minors and certain exceptions in need-based situations.
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Agreements lacking consideration:
Preexisting duty rule: promising to do something one already has a duty to do is not consideration.
Example: a sheriff already has a duty to capture a suspect in a reward contract; payment for that duty is not consideration.
If unforeseen difficulties arise, exceptions may permit additional compensation.
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Rescission and new contracts; Past consideration; Promises made in return for actions already taken are unenforceable (past consideration).
Example: a real estate broker who did not charge a commission but later receives a promise for payment is treated as a gift, not consideration.
Noncompete example: a contractor who signs a noncompete after performing work may not have had that as consideration for the original hiring.
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Rescission and new contract continued:
Rescission is unmaking a contract to return parties to their original positions; a new contract can be formed. Courts consider whether there is consideration from the old contract or a renewed duty.
Past consideration is unenforceable.
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Illusory promises:
If one or both parties can choose not to perform, the contract lacks consideration and is unenforceable.
Example: a bonus contingent on future profits is illusory if profits are not guaranteed.
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Settlement of claims:
Accord and Satisfaction: debtor offers to pay a lesser amount, and the creditor accepts; Accord is the new agreement, Satisfaction is the performance.
Liquidated debts: Accord and Satisfaction cannot take place because terms are definite.
Unliquidated debts: can settle via Accord and Satisfaction.
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Release and Covenant not to sue:
Release: one party forfeits the right to pursue a legal claim; binding if given in good faith, in a signed writing, and accompanied by consideration.
Covenant not to sue: not always a bar to recovery; may be able to sue for breach of contract instead.
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Promissory Estoppel (detrimental reliance):
A promise may be enforceable without consideration if a party reasonably relies on it to their detriment.
Requirements: clear and definite promise; promisor should expect reliance; promisee reasonably relied on the promise; reliance was definite and substantial.
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Promises to pay debts barred by the statute of limitations:
A debtor who promises to pay a time-barred debt can form an enforceable contract; partial payments can create new enforceable obligations.
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Capacity and legality general principles:
Generally, parties to a contract are presumed to have capacity.
Capacity deficiencies include minors, mentally incapacitated persons, and intoxicated persons.
The party asserting incapacity or their guardian bears the burden of proof.
Historically, special protection exists for those with lack of experience or required competence.
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Minors:
Minors typically lack maturity and experience; ages commonly used: under 18 for females and under 21 for males; many states set age of majority at 18.
Emancipation or marriage can terminate minority earlier.
A minor may petition to be treated as an adult in business transactions.
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General rule for minors:
A minor can enter into any contract that an adult can, provided the contract is not illegal for minors (eg, sale of tobacco or alcohol).
A contract is voidable at the option of the minor; disaffirmance can occur any time during minority or a reasonable time after reaching majority (commonly around 2 months to a year after majority).
Adults are not automatically released from obligations because a minor can disaffirm.
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Minor’s obligations in disaffirmance:
States differ on whether the minor must return goods in their original condition and whether the minor is entitled to a full refund.
Courts are moving toward making the adult party whole again by restoring them to the position before the contract.
Exceptions to minor disaffirmance: military contracts, marriage, misrepresentation of age, establishing public policy, and contracts for necessaries (minors may disaffirm but remain liable for reasonable value of necessaries).
Example: medical treatment provided to a minor; parents may be liable to pay for reasonable value.
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Ratification:
If a minor does not disaffirm during minority or within a reasonable time after reaching majority, the contract is ratified and binding.
Express ratification occurs when a party reaching majority states in writing that they still agree to the contract.
Implied ratification occurs when the party continues to use the goods or benefits after reaching majority.
Parents are generally not liable unless they cosign; responsibility often rests with the minor or guardian.
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Intoxication:
Many states say contracts entered into by intoxicated persons are voidable by the intoxicated party.
If intoxication prevented mental capacity, the agreement may be voidable even if voluntary.
The party must prove that reason and judgment were so impaired that they did not understand the legal consequences.
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Mental incompetence:
Contracts by mentally incompetent persons can be void or voidable, depending on whether a guardian has been appointed or if incompetence is proven at the time of contract.
A person may be lucid later and validly contract then; lack of capacity does not automatically void every agreement.
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Legality:
Contracts must be formed for a legal purpose; contracts to commit a crime are unenforceable.
If the object of a contract becomes illegal later, the contract is dischargeable by law.
Usury laws set limits on interest rates to protect borrowers from usurious terms.
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Gambling:
States regulate or prohibit gambling; gambling contracts are generally not enforceable as legal contracts.
States may allow casinos, racetracks, lotteries, and charity bingo under regulation.
Online gambling is regulated, including restrictions on electronic payments; assets obtained illegally may be forfeited.
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Licensing statutes and public policy:
Professions require licenses after schooling and exams; some licenses require good moral character and fees.
Licenses exist to protect the public; unlicensed practitioners may face penalties.
Contracts contrary to public policy are not enforceable; covenants not to compete must be reasonable and are often used in sale of ongoing business and employment contracts.
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Covenants not to compete:
In the sale of an ongoing business, a seller may not compete in a specified geographic area for a reasonable period of time.
In employment contracts, employees may be restricted from working for competitors for a period; reasonableness varies by state and can be reformed.
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Unconscionable contracts or clauses:
Courts focus on oppression or surprise rather than overall fairness.
Procedural unconscionability involves the manner in which terms are presented (adhesion contracts, fine print, lack of ability to negotiate).
Substantive unconscionability concerns overly harsh terms and imbalanced remedies (eg, one party can access courts freely while the other is forced into arbitration).
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Exculpatory clauses and discrimination: certain clauses releasing liability regardless of fault are often unenforceable; contracts attempting to discriminate on race or gender are not enforceable.
Illegality and misrepresentation: parties cannot claim a contract is enforceable if they were knowingly participating in illegal acts; justifiable ignorance of illegal goods can be treated differently.
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Genuineness of assent:
Voluntary assent of both parties is required for an enforceable contract.
Assent is determined by the facts surrounding negotiation and formation; it may be shown by words or conduct.
A contract may be unenforceable if one party did not genuinely assent due to mistake, fraudulent misrepresentation, duress or undue influence.
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Mistake:
Mistakes can be unilateral or bilateral; a bilateral (mutual) mistake is a misunderstanding about a basic fact upon which the contract was formed and can render the contract voidable by the adversely affected party.
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Example cases:
Raffles v. Weilhaus: two ships with the same name caused a failure to reach a binding contract due to misidentification.
Unilateral mistakes occur when only one party is mistaken about a fact; another party may know or should have known of the mistake.
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Mistake scenarios:
Unilateral mistake where the other party knew or should have known of the mistake.
Clerical or mathematical error not due to gross negligence may still be corrected.
If enforcing the mistake would be unconscionable, the contract may be unenforceable.
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Mistakes of value:
If the mistake concerns future market value or quality, it is a mistake of value and the contract is usually enforceable.
Examples include how a violin purchased at a low price is valued much higher later.
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Fraudulent misrepresentation:
Intentional misrepresentation to induce reliance and action; fraud is a tort and affects consent to the contract.
Elements: false representation of fact, intention to deceive, actual reliance, and injury.
Example given involves misrepresentation of artist attribution in art sales.
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Misrepresentation by opinion and conduct:
Statements of opinion typically do not qualify as misrepresentation, unless an expert has given an opinion.
Misrepresentation by conduct occurs when one party hides or misrepresents facts to induce a deal.
Misrepresentation by law generally does not entitle relief unless the seller is a professional in the field and reliance is reasonably expected.
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Intent to deceive and reliance:
Guilty knowledge or scienter can defeat a contract; innocent misrepresentation may allow rescission.
Negligent misrepresentation: failure to use reasonable care to ensure truthfulness and accuracy of facts can be actionable.
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Reliance and injury:
Justifiable reliance is required; the innocent party must have a justifiable reason to rely on the misrepresentation.
If a misrepresentation is found, rescission is sought to restore parties to original positions; actual damages may be pursued for breach of contract, while fraud damages may be punitive in some contexts.
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Undue influence:
Arises when one party greatly influences another so free will is compromised; common in relationships involving guardians, doctors, lawyers, parents, spouses.
Presumption of undue influence when the dominant party benefits at the expense of the vulnerable party.
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Duress:
Duress occurs when one party is forced into a contract; it is a defense to enforcement and can lead to rescission.
The threatened act must be wrongful or illegal; economic duress can be a factor but generally requires improper coercion.
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Adhesion contracts and unconscionability:
Standard form contracts with one-sided terms (adhesion) and take-it-or-leave-it contracts raise concerns of unconscionability.
Fine print provisions shifting risk or limiting remedies are scrutinized under unconscionability.
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Statute of Frauds:
Certain contracts must be in writing to be enforceable to prevent misunderstandings or fabrication of terms.
Contracts involving an interest in land; contracts that cannot be performed within one year; collateral promises; promises in consideration of marriage; and contracts for the sale of goods priced at 500 or more under the UCC must be in writing.
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Contracts involving interests in land:
Real property includes land, buildings, fixtures, and items permanently attached to the property.
Mortgages must be in writing as they use the property as security.
Leases for more than one year must be in writing.
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The one year rule:
If a contract cannot be performed within one year from the day after formation, it must be in writing to be enforceable.
If performance is possible within one year, the contract can be oral.
Extensions of an oral contract beyond one year must be in writing.
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Collateral promises:
A guaranty contract occurs when one person agrees to answer for the debts or duties of another; these guarantees must be in writing.
Primary obligations need not be in writing, but secondary or collateral obligations must be signed to be enforceable.
Main purpose rule: the secondary party must not benefit financially from the contract in order to require a writing.
Promises made in consideration of marriage must be in writing; prenuptial agreements must be in writing.
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UCC writing requirements for sale of goods:
Section 2-201 requires that contracts for the sale of goods costing 500 or more be in writing.
An amendment pushing a contract over 500 must also be in writing.
Writing can be a signed document or electronic record; the writing must indicate both parties' intentions, even if some terms are omitted (quantity may be missing under UCC in some cases).
The writing must be signed by the party being sued.
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Exceptions and sufficiency of the writing:
Partial performance, admissions, and promissory estoppel can create enforceability despite lack of a formal writing.
A writing can consist of multiple documents or forms that, taken together, indicate the agreement.
The writing must indicate the meeting of the minds of both parties.
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Parol Evidence Rule:
When a contract is reduced to writing, prior negotiations and extrinsic agreements outside the four corners of the contract are generally not admissible to contradict the written agreement.
Exceptions include clarifying ambiguous language or showing the contract is voidable due to fraud, mistake, duress, etc.
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Third party rights and privity:
Privity means the contract is between the two parties; third parties generally do not have rights unless they are intended beneficiaries.
Rights to a contract may be assigned to a third party (assignment) and duties may be delegated (delegation).
Assignor transfers rights to an assignee; the assignee takes the same rights as the assignor.
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Rights that cannot be assigned and exceptions:
Prohibited by statute (eg, workers' compensation benefits).
Personal in nature contracts or those affecting the obligor's rights (eg, personal tort claims) cannot be assigned.
If assignment would affect the rights or duties of the obligor or contract prohibits assignment, then assignment is blocked, with some exceptions (right to transfer property, right to receive funds, or in a contract for the sale of goods, the right to receive damages for breach may be assigned).
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Delegation of duties:
Delegator and delegatee.
Duties that cannot be delegated: personal service contracts and duties that would materially vary if delegated (eg, substituting a renowned surgeon with a less qualified person).
The delegator remains liable for nonperformance by the delegatee; contracts may include anti-delegation clauses.
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Third party beneficiaries:
Beneficiaries can be intended or unintended; third party beneficiaries (intended) can sue for breach of contract.
Creditor beneficiaries arise when a debtor borrows from a creditor to purchase an item; the debtor signs to pay the creditor and may assign rights to a third party.
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Performance and discharge in traditional and electronic contracts:
The most common way to discharge is through performance of duties.
Conditions: precedent (event triggering performance) and subsequent conditions (condition that could terminate ongoing performance).
Concurrent conditions: payment on delivery of goods.
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Types of performance and discharge:
Complete performance vs substantial performance (substantial can entitle damages if most of the promised benefits are conferred).
Personal satisfaction aspects: if the contract is for a portrait or artwork, satisfaction may be a factor unless the standard is a reasonable person standard.
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Material breach and anticipatory repudiation:
Material breach occurs when performance is not at least substantial.
Anticipatory repudiation occurs when one party refuses to perform; treated as a material breach, allowing the non-breaching party to seek other contracts.
Time for performance: a reasonable time is implied if not stated.
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Discharge by agreement and by law:
Rescission cancels the contract and returns parties to their original positions.
Novation substitutes a third party; settlement agreements and accord and satisfaction can discharge parties by forming a new contract.
Discharge by operation of law includes material alteration, and statutes of limitations limiting the time to sue on a breach.
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Impossibility and impracticability:
Impossibility of performance exists when an unforeseen event makes performance impossible; objective impossibility includes death or incapacity of a party, destruction of subject matter, or a law rendering performance illegal.
Commercial impracticability: event makes performance excessively costly or burdensome and was unforeseen.
Frustration of purpose: performance remains possible but the purpose of the contract is undermined by unforeseen events.
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Breach of contract and remedies overview:
Remedies include damages, restitution, specific performance, and reformation.
Remedies may be at law (often monetary) or in equity (injunction, rescission, specific performance, reformation).
Courts typically require that remedies at law be inadequate before granting equitable relief.
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Damages and the goal of compensation:
Damages aim to put the non-breaching party in the position they would have been in had the contract been fully performed.
Types of damages include compensatory and consequential damages.
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Compensatory damages:
Compensate direct losses and costs; measured by the difference between the promised performance value and the actual performance value, reduced by losses avoided by the injured party.
Example: contract for services at 4000 for March; breach leads to alternative work for 3000; damages would be 1000.
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Damages in sale of goods and land:
For goods: damages equal the difference between contract price and market price at breach; plus incidental damages.
Example: Medik Laboratories buys 10 servers at 4000 each; market price rises to 4500 each; damages = 10 x (4500 - 4000) = 50000?? Wait, that equals 10 x 500 = 5000; incidental damages included if any.
For land: parcels are unique; usually specific performance is sought; damages equal the difference between contract price and market price.
Construction contracts: damages depend on timing of breach (before, during, or after performance).
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Consequential damages and mitigation:
Consequential damages are foreseeable damages resulting from the breach, such as lost profits from resale, when the seller knew the buyer relied on their prompt performance.
Punitive damages are generally not awarded in contract breaches.
Nominal damages awarded when no actual monetary loss.
Mitigation of damages requires the innocent party to take reasonable steps to reduce losses (eg, landlord finding a new tenant; employee seeking another job).
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Liquidated damages and penalties:
Liquidated damages: a contract provision stating a certain amount will be paid for breach; common in construction and entertainment contracts where damages are difficult to estimate.
Penalties are generally unenforceable.
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Equitable remedies and restitution:
Restitution in rescission cases involves returning value of goods or making good the value if consumed.
Specific performance orders require the party to fulfill the exact bargain, often for unique items like paintings, rare books, or land; personal service contracts typically cannot be compelled.
Reformation: correction of contract terms to reflect the true intentions, often due to fraud or mutual mistake.
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Quasi contract and election of remedies:
Recovery based on quasi contract when there is no contract but one party is unjustly enriched at the expense of another.
Election of remedies prevents double recovery; a party must choose between alternatives when multiple remedies are available.
Waiver refers to voluntarily relinquishing a known right; remedies may be limited by contract terms.
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Summary notes:
The material covered includes the evolution of the legal environment for business, the role of ethics and administrative agencies, and the full spectrum of contract law from formation to performance and remedies.
Remember key concepts: IRAC, stare decisis, consideration, capacity, legality, misrepresentation, duress, undue influence, unconscionability, statute of frauds, parol evidence, assignment and delegation, third party beneficiaries, performance and discharge, and remedies (damages, specific performance, restitution, reformation, and quasi contract).