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Business Law Exam 3

Business Law

TermDefinition
Contract An agreement voluntarily entered into by parties which creates obligations enforceable by law
Objective intent is determined by the reasonable person standard – What would the reasonable person in the position of the contracting parties have intended?
Who are the parties to a contract? 1.Offeror 2.Offeree 1.the party who makes an offer to enter into a contract 2.the party to whom an offer is made
Elements of a Contract 1.Agreement 2.Consideration 3.Contractual Capacity 4.Lawful Object
Agreement Parties each consent to give up something of value in exchange for something of value
Consideration Consideration is the bargained-for exchange of something of value in return for something of value
Contractual Capacity Parties must have the legal capacity to enter into a contract in order for a contract to be enforceable against them
Lawful Objective The subject matter of a contract must be legal. A contract to accomplish something illegal or against public policy is void
Bargained-for exchange means there was a negotiation during which the parties voluntarily agreed to the exchange
Bilateral Contract A contract formed by the exchange of promises by offeror and offeree -A promise for a promise
Unilateral Contract The offeror’s offer can be accepted only by the performance of an act by the offeree
Void Contract A contract that has no legal effect. It never existed
Voidable Contract The contract exists. Contract is in effect, but offeror or offeree can avoid contractual obligation because of a defect with the contract
Executed Contract A completed contract because it is fully performed by both parties
Executory Contract Contract is not completed because one or both parties has not performed the terms of the contract
Offer A proposal to do or not do something in exchange for something of value
What is an effective offer? one by which the offeror objectively intends to be bound by the offer
An offer contains definite terms if it expressly: 1.Identifies the parties 2.Identifies the subject matter and quantity 3.Specifies the consideration to be paid 4.Specifies time of performance
How Can a Party Terminate an Offer? Revocation – Withdrawal of an offer by the offeror which terminates an offer -Revocation is not effective until it is actually received by the offeree
Rejection The offeree or an authorized representative can reject the offer by communicating such rejection express words or by her conduct
Counteroffer A response by an offeree that contains terms and conditions different from or in addition to those of the offer and thus terminates the offer
How Offers may be terminated by operation of law 1.Destruction of subject matter 2.Death or incompetency of offeror & offeree 3.Supervening illegality 4.Lapse of time
Acceptance What the offeree does to show her agreement to the terms of the offer. The acceptance must be done in the manner invited or required by the offer
Who can accept the offer? -The offeree (or authorized person) can accept the offer -More Than One Offeree - If an offer is made to separate offerees, the first offeree to accept is bound by the offer and the offer is terminated as to the other offerees
Unequivocal acceptance -Must accept using clear and unambiguous language -Acceptance must have only one possible meaning
Mirror Image Rule The term of the acceptance must be the same as the term of the offer
Joint Offerees -If an offeror makes an offer to joint offerees -Each joint offeree must accept -A rejection by one joint offeree is a rejection by all
When is an offer deemed to be accepted? -Unilateral Contract – when the bargained for act is performed -A bilateral contract is accepted when the offeree 's promise is communicated to the offeror in the manner permitted by the offeror
Mailbox rule If acceptance by writing is required, then the offer is accepted when the acceptance is dispatched (placed in the mail box) to the offeror -even if it is lost in transmission and does not reach the offeror
Implied Means of Communication (Dispatch) If the offer does not specify how the acceptance should be communicated the manner of acceptance will be implied
Acceptance vs Revocation An offer is deemed accepted if the acceptance is dispatched before a revocation is received by the offeree
Consideration something of legal value exchanged by the offeror and offeree that is bargained for so that it is the inducement for the parties to enter into an agreement
What is "Legal Value?" This means the consideration the parties have exchanged is lawful and sufficient
The offeree/promisee or offeror/promisor suffers a Legal Detriment refraining from doing something that one has a legal right to do or doing something that one is not legally obligated to do
The offeree/promisee or offeror/promisor receives a Legal Benefit obtains something that she had no prior legal right to obtain
What is "bargained-for" exchange? the parties agreed to the exchange before the exchange occurred and the process of bargaining was the inducement for the offeror to make the offer and for the offeree to accept the offer
Gift (Gratuitous) Promises Are unenforceable due to lack of consideration
Completed gift promises are not revocable While a person who promises a gift is under no obligation to complete (actually give the gift), if the gift is completed the recipient is under no obligation to return it
Illegal consideration A promise to do or refrain from doing an illegal act
Illusory promise A contract that both parties enter, but one or both of the parties can choose not to perform their contractual obligations
Preexisting duty A promise to do something the party is already under obligated to do
Past consideration A prior act or performance is not consideration for a new contract
Accord and Satisfaction A new agreement is referred to as an Accord. Performance of the new terms of the contract by the parties is called Satisfaction
Promissory estoppel (or Detrimental Reliance) An equitable doctrine that prevents the withdrawal of a promise by a promisor/offeror if it will adversely affect a promisee/offeree who has changed her position in justifiable reliance on the promise
Contractual Capacity the ability of a person to enter into a binding contract
Minor A person who has not reached the age of majority
Infancy doctrine A doctrine that allows minors to disaffirm (cancel) most contracts they have entered into with adults
Minor’s Duty of restoration The obligation to return the consideration received from the adult
Minor's duty of restitution The obligation to place the adult in a position the adult was in prior to the contract
Adult's duty of restitution If the minor disaffirms the contract, the adult must make the minor whole which means the adult must return to the minor whatever consideration was transferred to that adult by the minor
Minor's Right to Ratify A minor can ratify (accept) a contract during her period of minority or within a reasonable time thereafter by expressly doing so in writing or orally, or by implication based on her conduct
Two standards of insanity 1.Adjudged insane 2.Insane, but not adjudged insane 1.Declared legally insane by a proper court or administrative agency 2.Contract is voidable and can be disaffirmed by the insane person
Genuineness of assent A party may avoid performing under the terms of a contract if she can show that there was no genuineness of assent , that is, there was no agreement (or meeting of the minds) because of Mistake, Fraud, Duress, Undue Influence
Mistake -Material fact occurs where one or both of the parties to a contract have an erroneous belief about a material fact of the contract such as subject matter or value -a fact that is sufficiently important to influence a person to enter into a contract
Unilateral Mistake only one party is mistaken about a material fact concerning the contract
Mutual Mistake a mistake made by both parties concerning a material fact which results in the rescission of the contract if the parties elect to do so
Fraudulent Misrepresentation (fraud) A person induces another to enter into a contract by intentionally misrepresenting (lying about) a material fact upon which the other person justifiably relied
Duress occurs when a person is coerced into entering into a contract through threat of physical harm or some other harm
Statute of Frauds A statute, adopted in every state, that requires certain types of contracts be in writing
One-Year Rule Provides that an executory contract that cannot be performed by its own terms within one year of its formation must be in writing
What Does "Written" Mean? A written contract does not have to be drafted by a lawyer or be formally typed to be legally binding
Parol Evidence Oral or written words that are extraneous to (separate from or not part of) a written contract and introduced to validate the contract or to help interpret the contract
Parol Evidence Rule written contract represents a complete and final statement of the parties’ agreement, any prior or contemporaneous statements that alter, contradict, or add to the terms of the written contract are inadmissible in court regarding dispute over the contract
Merger clause (integration clause) A clause in a contract that stipulates that the contract is a complete integration, and the exclusive expression, of the parties’ agreement
Exceptions to the Parol Evidence Rule Parol evidence may be used (is admissible in court)
When does a breach of contract occur? What does the nonbreaching party receive when a contract is breached? -A contract is breached when the terms have not been performed -Usually the nonbreaching party receives monetary damages when a contract is breached
Minor Breach a party fails to perform a contractual obligation which does not bear on the essential subject matter of the contract
Material breach A breach that goes to the essence of the subject matter of the contract and that denies the nonbreaching party the benefit of the bargain
Consequential (or special) Damages Foreseeable damages that flow from the breach of the contract but relate specifically to the circumstances of the nonbreaching party
Liquidated Damages Parties agree in advance that certain damages will be available if contract is breached and specify this amount in the contract
Nominal Damages A small amount of damages, (such as $1), awarded as a token when there is a technical breach but no actual financial loss
Duty to Mitigate Damages Nonbreaching party has a duty to take reasonable action to avoid or reduce damages caused by a breach of contract
Compensatory (actual) Damages provides the benefit of the bargain to the nonbreaching party by placing her in the position she would have been in had the contract been fully performed
Contracts that Must Be in Writing -Contracts that by their own terms cannot possibly be performed within one year -Promises made in consideration of marriage
Created by: NickUD