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Business Law Ch 9

Summary of slides for Chapter 9 of Fundamentals of Business Law

QuestionAnswer
What must a contract have? Agreement, Consideration, Capacity, and Legality
What 2 parts much consideration have? A legally sufficient value and it must be a bargained-for-exchange
What does legally sufficient value consist of? Promise, Performance, or Forbearance
If the word consideration is used in a contract, does that mean the contract has consideration? Not necessarily; it's not the common type of consideration we think of
Bargained-for-Exchange something of legal value must be exchanged between the parties
The promise must be either legally ___ to the promisee OR legally ___ to the promisor detrimental; beneficial
Does the law protect people from entering unwise contracts? Nope!
In cases of "shockingly inadequate consideration" what happens and what is usually the ruling? Red flags are raised and the contract is ruled unconscionable
What types of agreements lack consideration? Preexisting duty, unforseen difficulties, rescission and new contract, past consideration, illusory promises
Does promising to do what one already has a legal obligation to do constitute as consideration? No!
What is rescission? the "untying" of a contract to return the parties to their original positions
If person A installs a fence for person B, and a week later person A says he'll pay person B for helping him put in the fence, is there a contract? No; the element of CURRENT consideration is missing
What is an illusory promise? the promisor has not DEFINITELY promised to perform because consideration is lacking
Is an illusory promise enforceable? No
If A promises to pay B $5 a month for work, is this an enforceable promise? No; this is an illusory promise
If A promises to pay B $5 a month with the right to cancel with a 30 days after start of work, is this an enforceable promise? Yes
Accord and Satisfaction debt is in dispute; settlement for a lesser amount than likely owed
Liquidated debts debt is certain
Can accord and satisfaction be applied to liquidated debts? No; since debt is certain, accord and satisfaction do not apply
Unliquidated debts amounts not settled
Release contract where one party gives up their rights to pursue a legal claim against the other party
What does a release bar a party from? Future recovery
What must a release contain? good faith, signed writing, and consideration
Covenant not to Sue does not always bar further recovery (still can have legal claim)
Promissory Estoppel a person relies on the promise of another to their legal detriment
Can a promisor revoke their promise under promissory estoppel? No
Can promissory estoppel be applied to promises made without consideration? Yes, depending on the situation
What elements must be present in promissory estoppel? must be a definite promise, promisee must justifiably rely on the promise, reliance is substantial, and justice will be served by enforcing promise
Contractual Capacity the legal ability to enter into a contractual relationship
Emancipation parent of guardian relinquishes legal control over the child; minors gaining the legal capacity to enter into any contract that an adult can (usually at 18)
Can minors enter into contracts? Yes, but it can be voidable at the option of the minor
Can minors enter into contracts that adults can? Yes, unless it is a contract prohibited by law for minors
When can minors disaffirm a contract? any time during minority or for a reasonable period after minor is emancipated
Can minors disaffirm only part of a contract? No; they must disaffirm the entire contract
Is disaffirmance expressed or implied? Both!
Can a minor disaffirm an executed contract? yes
Ratification when a minor reaches the age of majority, they can ratify a contract created while a minor
How can a minor ratify a contract? (what type of conduct?) expressed or implied conduct
When are parents' liable for minors? for necessaries--whatever is reasonably needed to maintain the minor's standard of living
Does intoxication render a contract void? Not necessarily; person must prove lack of capacity and then return consideration paid
Can a person ratify a contract made while intoxicated? Yes!
When does mental incompetence render a contract void? when person is previously adjudged mentally incompetent by a court of law and a guardian has been appointed
When does mental incompetence render a contract voidable? when the person does not know they are entering into the contract or lack the mental capacity to comprehend its nature, purpose, and consequences
When does mental incompetence render a contract valid? when the person is able to understand the nature and effect of entering into a contract but may lack capacity to engage in other activities
What does legality mean in terms of contract formation? the contract must be formed for a legal purpose
If a specific clause in a contract is illegal, is the contract unenforceable? Not necessarily; the rest of the contract may still be enforceable
Is a contract to commit a tortious act illegal? Yes
Is a contract that is inconsistent with policy illegal? Yes
Are contracts contrary to statute valid? No; if the content is prohibited by federal or state statutory law, the contract is void
What types of contracts are contrary to statute? contracts to commit a crime, contracts for usury, gambling, and licensing
What is a contract for usury? Lending money at an extremely high interest rate
When is gambling contrary to statute? When people have paid valuable consideration but property is distributed based on chance
When can licensing contracts be valid? Depends on the purpose.
Are contracts in restraint of trade valid? Typically they are void
Are there any exceptions to restraint of trade? Covenants not to Compete with the Sale of an Ongoing Business or in Employment
If a restraint of trade is valid, what restrictions must be set? Reasonable time and geographic restraints
What is procedural unconscionability? when inconspicuous print or legalese is used in a contract; whenever one part has much more bargaining power than the other
What is substantive unconscionability? when contracts are oppressive or overly harsh; they deny a remedy for nonperformance
Exculpatory Clause releases a party from liability in the event of monetary or physical injury no matter who is at fault
When are exculpatory clauses enforceable? when they are not against public policy, are not ambiguous, and do not shield parties from intentional conduct
Would an exculpatory clause in residential leases be enforceable? Probably not; there is an essential need to have housing
Would an exculpatory clause with a skydiving company be enforceable? Probably; this is not necessary
If a contract is illegal, which party is at fault? Both
Do parties have rights and duties for an illegal contract? No
Will courts rule on an illegal contract due to unjust enrichment? Usually not
Justifiable Ignorance of the Facts if one party is innocent (ie didn't know the contract was illegal), then they can recover if there has been unjust enrichment
If an innocent party has fully performed in an illegal contract, can courts enforce the contract? They can
If a contract is executory but illegal, can a party withdraw from the contract and recover the performance or value? Yes
Severable, or Divisible, Contracts distinct parts can be performed separately with separate consideration for each part
In a severable contract, can an illegal portion of the contract constitute the essence of the contract? No
A party to an illegal contract can recover if wrongfully induced under what circumstances? Fraud, Duress, or Undue Influence
Members of Protected Class Like the blue sky laws... a statute protects a certain class of people, so a member of that class can enforce the contract even though the other party cannot
Created by: fredrickss