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BUSINESS LAW TEST #2
| Question | Answer |
|---|---|
| Bilateral Contract | A contract entered into by way of exchange or promises of promises of the parties; "a promise for a promise." |
| Unilateral Contract | A contract in which the offeror's offer can be accepted only by the performance of an act by the offeree; "a promise for an act." |
| When does breach occur? | |
| A valid contract has what four things? | (1)Consists of an agreement "meeting of the minds," (2)Supported by legally sufficient consideration, (3) Both parties have contractual capacity, (4)Accomplishes a lawful objective. |
| Void Contract | A contract that has no legal effect; a nullity |
| Voidable Contract | A contract in which one or both parties have the option to void their contractual obligations. If a contract is voided, both parties are released from their contractual obligations. |
| Unenforceable Contract | A contract in which the essential elements to create a valid contract are met but there is some legal defense to the enforcement of the contract. |
| Express Contract | An agreement that is expressed in written or oral words. |
| What three elements must be established to create an Implied-In-Fact-Contract? | (1) Plaintiff provided property or services to the defendant, (2) Plaintiff expected payment. (Not given gratuitously (3) The defendant was given an opportunity to reject the property or service provided by the plaintiff but failed to do so. |
| Agreement | Offer and acceptance."Meeting of Minds" or Mutual Assent. |
| What three elements are required for an offer to be effective? | (1)The offeror must objectively intend to be bound by the offer, (2) The terms of the offer must be definite or reasonably certain, (3) The offer must be communicated to the offeree. |
| Objective Intent | The intent to enter into a contract is determined using the objective theory of contracts -- that is, whether a reasonable person viewing the circumstances would conclude that the parties intended to be legally bound . |
| Advertisement | An invitation to make an offer. |
| Reward | An award given for performance of some service or attainment to collect a reward, the offeree must (1) have knowledge of the reward offer prior to completing the requested act and (2) perform the requested act. |
| Counteroffer | A response by an offeree that contains terms and conditions different from or in addition to those of the offer. A counteroffer terminates the previous offer. |
| Option Contract | An offeree can prevent the offeror from revoking his or her offer by paying the offeror compensation to keep the offer open for an agreed upon period of time. |
| Termination of an offer by Operation of Law | (1) Destruction of subject matter, (2) Death or incompetency of the offeror or offeree, (3) Supervening illegality, (4)Lapse of time. |
| Unequivocal Acceptance | The acceptance must be clear and unambiguous, and it must have only one possible meaning. Must not contain conditions or exceptions. Usually even a grumbling acceptance is a legal acceptance. |
| Mirror Image Rule | A rule which states that for an acceptance to exist, the offeree must accept the terms as stated in the offer. |
| Silence is not acceptance unless...(three things) | (1) The offeree indicates it, (2) Offeree signs an agreement that silence is acceptance until further notice (book of the month memberships), (3) Prior dealing indicate silence is acceptance. |
| Mailbox Rule | A rule which states that an acceptance is effective when it is dispatched, even if it is lost in transmission. |
| What are the five exceptions to the mailbox rule? | (1) Authorized means not used, (2) Reasonable means not used, (3) Bad address (4) Contract around it, (5) Rejection then acceptance. Then it is a race. |
| Consideration | Something of legal value given in exchange for a promise. |
| Gift Promise | A promise that is unenforceable because it lacks consideration. |
| What are the our promises that lack consideration? | (1) Illegal Consideration, (2) Illusory Promise, (3) Preexisting Duty, (4) Past Consideration. |
| Illegal Consideration | A promise to refrain from doing an illegal act. Such a promise will not support a contract. |
| Illusory Promise | A contract into which both parties enter but in which one or both of the parties can choose not to perform their contractual obligations. Thus, the contract lacks consideration. |
| Preexisting Duty | Something a person is already under an obligation to do. A promise lacks consideration if a person promises to perform a preexisting duty. |
| Past Consideration | A prior act or performance. Past consideration (e.g., prior acts) will not support a new contract. New consideration must be given. |
| Accord | An agreement whereby the parties agree to accept something different in satisfaction of the original contract. |
| Satisfaction | The performance of an accord. |
| Promissory Estoppel | An equitable doctrine that prevents the withdrawal of a promise by a promisor if it will adversely affect a promisee who has adjusted his or her position in justifiable reliance on the promise. |
| What four elements must be shown for promissory estoppel to apply? | (1) The promisor made a promise, (2) Reasonable reliance(3) Actual relaince (e.g., engage in action or forbearance of right), (4) Injustice would be caused if not enforced. |
| Who lacks contractual capacity? | (1) Minors, (2) Insane, (3) Intoxicated. |
| Unconscionable Contract | A contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust. |
| Infancy Doctrine | A doctrine that allows minors to disaffirm (cancel) most contracts they have entered into with adults. |
| Duty of Restoration | A rule that states that a minor is obligated only to return the goods or property he or she has received from the adult in the condition it is in at the time of disaffirmace. |
| What are the two exceptions to the duty of restoration? | (1) Minor misrepresents their age, (2) Intentional, reckless, or gross negligence. |
| What is the competent party's duty of restitution? | If a minor has transferred consideration - money, property, or other valuables - to a competent party before disaffirming the contract, the party must place the minor in status quo. |
| Ratification | The at of a minor after the minor has reached the age of majority by which he or she accepts a contract entered into when he or she was a minor. |
| Necessaries of Life | Food, clothing, shelter, medical care, and other items considered necessary to the maintenance of life. Minors must pay the reasonable value of necessaries of life for which they contract. |
| Intoxicated Person | A person who is under contractual incapacity because of ingestion of alcohol or drugs to the point of incompetence. |
| Effect of Illegality | A doctrine that states that the courts will refuse to enforce or rescind an illegal contract and will leave the parties where is finds them. |
| The three exceptions to the effect of illegality are what? | (1) Innocent persons who were justifiably ignorant of the law, (2) Induced to enter into an illegal contract by fraud, duress, or undue influence, (3) Persons who entered into an illegal contract and withdrew before illegal act was performed. |
| Licensing Statute | A statute that requires a person or business to obtain a license from the government prior to engaging in a specified occupation or activity. |
| Regulatory Licensing Statute | A licensing statute enacted to protect the public. |
| Revenue-Raising Statute | A licensing statute with the primary purpose of raising revenue for the government. |
| Exculpatory Clause | A contractual provision that relieves one (or both) of the parties to a contract from tort liability for ordinary negligence. Also known as a release of liability clause. |
| What does an exculpatory clause not protect against? | An exculpatory clause cannot be used in a situation involving willful conduct, intentional torts, fraud, recklessness, or gross negligence. |
| Covenant Not To Compete | A contract that provides that a seller of a business or an employee will not engage in a similar business or occupation within a specified geographical area for a specifed time following the sale of the business or termination of employment. |
| Covenants not to compete are lawful if they are reasonable in what three aspects? | (1) The line of business protected, (2) The geographic area protected, (3) The duration of the restriction. |
| Unilateral Mistake | A mistake in which only one party is mistaken about a material fact regarding the subject matter. |
| What are the three situations in which a contract may not be enforced due to a unilateral mistake? | (1) One party makes mistake, and other party knew (or should have known) that mistake was made. (2) Mistake is b/c of a clerical or mathematical error that is not the result of gross negligence. (3) The mistake is so serious enforcement is unconscionable. |
| Mutual Mistake of Material Fact | A mistake made by both parties concerning a material fact that is important to the subject matter of a contract. |
| Mutual Mistake of Material Value | A mistake that occurs if both parties know the object of the contract but are mistaken as to its value. |
| To prove fraud, what four elements must be shown? | (1) The wrongdoer made a false representation of material fact. (2) The wrongdoer intended to deceive the innocent party. (3) The innocent party justifiably relied on the misrepresentation. (4) The innocent party was injured. |
| Fraud in the Inception | Fraud that occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing. The contract is void. |
| Fraud in the Inducement | Fraud that occurs when the party knows what he or she is signing but has been fraudulently induced to enter into the contract. |
| Fraud by Concealment | Fraud that occurs when one party takes specific action to conceal a material fact from another party. |
| Silence is not misrepresentation unless what? | (1) Non-disclosure would cause bodily injury or death. (2) There is a fiduciary relationship (i.e., a relationship of trust and confidence) between the contracting parties, or (3) Federal and state statutes require disclosure. |
| Misrepresentation of Law | Usually not actionable as fraud. Innocent party can't generally rescind contract because each party to contract is assumed to know the law that applies to transaction. Exception: If one party is a professional who should know what the law is. |
| Innocent Misrepresentation | Fraud that occurs when a person makes a statement of fact that he or she honestly and reasonably believes to be true even though it is not. |
| Duress | A situation in which one party threatens to do a wrongful act unless the other party enters into a contract. |
| Statute of Frauds | A state statute that requires certain types of contracts to be in writing. |
| What are the six types of contracts that must be in writing? | (1) Marriage contracts (2) Year. Contracts that by their own terms cannot possibly be performed within one year. (3)Land: Partial Performance (4)Goods over $500 (5) Guarantee: Main purpose exception (6) Statute of Limitatations |
| Parol Evidence | Any oral or written words outside the four corners of a written contract. |
| Parol Evidence Rule | Rule that says if a written contract is a complete and final statement of the parties' agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in c |
| What are the five exceptions to the Parol Evidence Rule? | (1)Shows that the contract is void/voidable. (Fraud, duress, intoxication,illegal, etc...(2)Explains ambiguous language (3)Course of dealing (4)Fills in the gaps in a contract (5)Corrects obvious clerical or mathematical errors |
| Assignment | The transfer of contractual rights by an obligee to another party. |
| Delegation of Duties | A transfer of contractual duties by an obligor to another party for performance. |
| What contracts cannot be assigned? | (1) Personal Service (2) Future Right (Inheritance) (3) Where risk is materially altered (insurance) (4) Right to sue |
| When an assignor makes an assignment of a right under a contract, the assignee is under a duty to notify the obligor or what two things? | (1) The assignment has been made (2) Performance must be rendered to the assignee |
| American Rule | The American rule provides that the first assignment in time prevails, regardless of notice. Most states follow this rule. |
| English Rule | The English rule provides that the first assignee to give notice to the obligor prevails. |
| Assumption of Duties | A situation in which a delegation of duties contains the term assumption, I assume the duties, or other similar language. In such a case, the delegatee is legally liable to the obligee for nonperformance. |
| Declaration of Duties | Where there is a valid delegation of duties but the delegatee has not assumed the duties under a contract. Here the delegatee is not liable to the obligee for nonperformance and the obligee cannot recover damages from the delegatee. |
| What contracts cannot be delegated? | (1) Personal service contracts (2) Contracts where performance would materially vary. |
| Intended Beneficiary | A third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor. |
| Donee Beneficiary Contract | A contract entered into with the intent to confer a benefit or gift on an intended third party. |
| Donee Beneficiary | A third party on whom a benefit is to be conferred. |
| Creditor Beneficiary Contract | A contract that arises in the following situation: (1)a debtor borrow money, (2)the debtor signs an agreement to pay back the money plus interest, (3)the debtor sells the item to a third party before the loan is paid off, (4)the third party promises the |
| Creditor Beneficiary | An original creditor who becomes a beneficiary under the debtor's new contract with another party. |
| Incidental Beneficiary | A party who is unintentionally benefited by other people's contracts. |
| Condition Precedent | A condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract. |
| Condition Subsequent | A condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform. |
| Performance of a contract can be discharged by what? | (1) Mutual Rescission (2) Substituted Contract (3) Novation (4) Accord and Satisfaction (5) Impossibility (6) Force Majeure Clause (7) Frustration of purpose |
| Breach of Contract | A situation that occurs if one or both of the parties do not perform their duties as specified in the contract. |
| Complete/Strict Performance | A situation in which a party to a contract renders performance exactly as required by the contract. Complete performance discharges that party's obligations under the contract. |
| Inferior Performance | A situation in which a party fails to perform express or implied contractual obligations and impairs or destroys the essence of a contract. |
| Material Breach | A breach that occurs when a party renders inferior performance of his or her contractual duties. |
| Anticipatory Breach | A breach that occurs when one contracting party informs the other that he or she will not perform his or her contractual duties when due. |
| Compensatory Damages | An award of money intended to compensate a nonbreaching party for the loss of the bargain. Compensatory damages place the nonbreaching party in the same position as if the contract had been fully performed by restoring the "benefit of the bargain." |
| Consequential Damages | Foreseeable damages that arise from circumstances outside a contract. To be liable for these damages, the breaching party must know or have reason to know that the breach will cause special damages to the other party. |
| Liquidated Damages | Damages that parties to a contract agree in advance should be paid if the contract is breached. |
| Nominal Damages | Damages awarded when the nonbreaching party sues the breaching party even though no financial loss has resulted from the breach. Nominal damages are usually $1 or some other small amount. |
| Mitigation of Damages | A nonbreaching party's legal duty to avoid or reduce damages caused by a breach of contract. |
| Rescission | An action to rescind (undo) a contract. Rescission is available if there has been a material breach of contract, fraud, duress, undue influence, or mistake. |
| Restitution | The return of goods or property received from the other party to rescind a contract. If the actual goods or property are not available, a cash equivalent must be made. |
| Specific Performance | A remedy that orders the breaching party to perform the acts promised in the contract. Specific performance is usually awarded in cases in which the subject matter is unique, such as in contracts involving land, heirlooms, and paintings. |
| Intentional Interference with Contractual Relations | A tort that arises when a third party induces a contracting party to breach the contract with another party. |
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