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MS 331 Ch 9

Business Law: Ch 9 Contracts: Consideration, Capacity, and Legality

QuestionAnswer
What are the requirements of a contract? Agreement, Consideration, Capacity (Contractual), and Legality
Generally, consideration must have: “Legally Sufficient Value;” and a be a “Bargained-for-Exchange.”
Legally sufficient value may consist of (3 things) Promise, performance, or forebearance
Bargained-for-Exchange: must __________ provide basis for the bargain.
What is the requirement for the basis for the bargain? Something of legal value (a promise, or a performance) must be exchanged between the parties.
The promise must be either _________ to the promisee, or ____________ to the promisor. legally detrimental; legally beneficial
[Adequacy of Consideration] Courts typically will not consider: Freedom of contract doctrine
[Adequacy of Consideration] Law does not protect a person from ________ entering into an unwise contract
Cases of ______ may raise red flags and be ruled unconscionable shockingly inadequate consideration
What are examples of agreements that lack consideration? (4) 1.Preexisting Duty 2.Unforeseen Difficulties 3. Past Consideration 4.Illusory Promises
[Lacking Consideration] Describe Preexisting Duty Promise to do what one already has a legal duty to do does not constitute legally sufficient consideration
[Lacking Consideration] Describe Past Consideration no consideration because the bargained-for exchange element is missing [Ex. A helps B put in a fence for fun, a week later A says he will pay B $100 for the past work. No contract]
[Lacking Consideration] Describe Illusory Promises promisor has not definitely promised to perform because consideration is lacking, and unenforceable.
Define: rescission The “untying” of a contract (knot) so as to return the parties to their original position
[Settlement of (legal) Claims] Describe accord and satisfaction Settlement for lessor amount; debt must be in dispute
[Settlement of (legal) Claims] Describe liquidated debts debt is certain, accord and satisfaction cannot occur
[Settlement of (legal) Claims] Describe unliquidated debts amount not settled
[Consideration] Define: Release a contract where one parties gives up their rights to pursue a legal claim against the other party
[Consideration] Define: Covenant not to sue does not always bar further recovery (legal claim not given up)
[Consideration] Define: Promissory Estoppel "Detrimental Reliance": when a person relies on the promise of another to their legal detriment; promisor is “estopped” (precluded) from revoking the promise
What are some components/requirements of promissory estoppel? 1.Must be definite promise 2.Promisee must justifiably rely on the promise 3.Reliance is substantial 4.Justice will be served by enforcing the promise
_________________ is the legal ability o enter into a contractual relationship Contractual Capacity
What does emancipation mean for a minor? have the legal capacity to enter into any contract that an adult can
However, a contract entered into by a minor is ________ at the option of that minor, and can be disaffirmed voidable
Minors can enter into contracts adults can provided __________________ contract is not one prohibited by law for minors.
Define emancipation: Child’s parent or guardian relinquishes legal control over the child
[Contractual Capacity - Minors] A contract can be _____________ at any time during minority, or for a reasonable period after minor is emancipated disaffirmed
[Contractual Capacity - Minors] Can minors disaffirm only parts of a contract? No, a minor must disaffirm the entire contract.
[Contractual Capacity - Minors] Define ratification when minor reaches the age of majority, he can ratify a contract created while minor
[Contractual Capacity - Minors] Describe parent's liability generally, parents are not liable for minors, except for necessaries (whatever is reasonably needed to maintain the minor's standard of living)
[Contractual Capacity - Intoxication] Describe how intoxication is related to contractual capacity Lack of capacity at the time the contract is being made. Contract is either voidable or valid, depending on circumstances
[Contractual Capacity - Mental Incompetence] Describe how mental incompetence is related to contractual capacity -VOID Void: person previously adjudged mentally incompetent by a court of law and a guardian has been appointed
[Contractual Capacity - Mental Incompetence] Describe how mental incompetence is related to contractual capacity -VOIDABLE Voidable: person does not know she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences
[Contractual Capacity - Mental Incompetence] Describe how mental incompetence is related to contractual capacity -VALID Valid: when person is able to understand the nature and effect of entering into a contract but may lack capacity to engage in other activities (known as “lucid” intervals)
[Legality] T or F: a contract must be formed for a legal purpose True
[Legality] T or F: A specific clause in contract can be illegal, but rest of contract can be enforceable True
[Legality] T or F: Contract to commit a tortious act is illegal or an act that is inconsistent with public policy True
[Legality] Any contract prohibited by federal or state statutory law is illegal and therefore ___________ void (never existed)
[Legality] What are some examples of contracts contrary to statute? 1.Prohibited by federal or state law 2.Contracts to commit a crime 3.Contracts for usury 4.Gambling 5.Licensing statutes
[Legality - Contracts contrary to statute] Describe usury Laws setting maximum limit for interest rates
[Legality - Contracts contrary to statute] Describe Gambling distribution of property based on chance among persons who have paid valuable consideration
[Legality - Contracts contrary to statute] Describe Licensing Statutes contract’s enforceability depends on purpose
[Legality] Contracts contrary to public policy are ____ void!
[Legality] Contracts in Restraint of Trade are generally ________ void
[Legality] What are some exceptions to the restraint of trade? 1.Covenant not to compete/sale of an ongoing busniess 2.Covenant not to compete/employment
[Legality] What are two categories of Unconscionable Contracts or Clauses 1.Procedural Unconscionability 2.Substantive Unconscionability
[Legality - Unconscionable Contracts or Clauses] Describe Procedural Unconscionability inconspicuous print or legalese; One party has much more bargaining power than another (adhesion contract) / take-it-or-leave-it basis
[Legality - Unconscionable Contracts or Clauses] Describe Substantive Unconscionability Contracts are oppressive or overly harsh; that deny a remedy for nonperformance; contract terms “shock the conscience” of the court?
[Legality] Define Exculpatory Clauses Release a party from liability in the event of monetary or physical injury no matter who is at fault
[Legality] When might an exculpatory clause be enforceable? when they are not against public policy, are not ambiguous, and do not shield parties from intentional conduct
[Legality] Generally, an illegal contract is ___ void
[Legality] In illegal contracts, who is considered to be at fault? Both parties
[Legality] Describe justifiable ignorance of the facts If one party is ‘innocent’ (don’t know contract is illegal), they can recover if there has been unjust enrichment; Likewise, if an innocent party has fully performed, courts may enforce the contract against the other party
[Legality] Describe Members of Protected Classes When a statute protects a certain class of people, a member of that class can enforce the contract, even though the other party cannot
[Legality] Describe blue sky laws regulate sale of securities to individuals (protects the public from fraud)
[Legality] Describe withdrawal from an illegal agreement If the contract is executory, a party can withdraw from the contract, and recover the performance or its value
[Legality] Describe severalbe, or divisible, contracts Distinct parts that can be performed separately, with separate consideration for each part --- Illegal portion of contact can’t constitute the essence of the contract itself
[Legality] Describe fraud, duress, or undue influence Party to an illegal contract may be able to recover if wrongfully induced
Created by: savelae