Business Law
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| Contract | An agreement voluntarily entered into by parties which creates obligations enforceable by law
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| Objective intent | is determined by the reasonable person standard – What would the reasonable person in the position of the contracting parties have intended?
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| 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
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| Elements of a Contract | 1.Agreement
2.Consideration
3.Contractual Capacity
4.Lawful Object
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| Agreement | Parties each consent to give up something of value in exchange for something of value
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| Consideration | Consideration is the bargained-for exchange of something of value in return for something of value
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| Contractual Capacity | Parties must have the legal capacity to enter into a contract in order for a contract to be enforceable against them
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| Lawful Objective | The subject matter of a contract must be legal. A contract to accomplish something illegal or against public policy is void
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| Bargained-for exchange | means there was a negotiation during which the parties voluntarily agreed to the exchange
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| Bilateral Contract | A contract formed by the exchange of promises by offeror and offeree
-A promise for a promise
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| Unilateral Contract | The offeror’s offer can be accepted only by the performance of an act by the offeree
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| Void Contract | A contract that has no legal effect. It never existed
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| Voidable Contract | The contract exists. Contract is in effect, but offeror or offeree can avoid contractual obligation because of a defect with the contract
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| Executed Contract | A completed contract because it is fully performed by both parties
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| Executory Contract | Contract is not completed because one or both parties has not performed the terms of the contract
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| Offer | A proposal to do or not do something in exchange for something of value
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| What is an effective offer? | one by which the offeror objectively intends to be bound by the offer
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| 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
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| 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
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| Rejection | The offeree or an authorized representative can reject the offer by communicating such rejection express words or by her conduct
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| 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
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| 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
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| 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
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| 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
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| Unequivocal acceptance | -Must accept using clear and unambiguous language
-Acceptance must have only one possible meaning
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| Mirror Image Rule | The term of the acceptance must be the same as the term of the offer
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| 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
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| 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
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| 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
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| Implied Means of Communication (Dispatch) | If the offer does not specify how the acceptance should be communicated the manner of acceptance will be implied
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| Acceptance vs Revocation | An offer is deemed accepted if the acceptance is dispatched before a revocation is received by the offeree
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| 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
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| What is "Legal Value?" | This means the consideration the parties have exchanged is lawful and sufficient
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| 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
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| The offeree/promisee or offeror/promisor receives a Legal Benefit | obtains something that she had no prior legal right to obtain
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| 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
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| Gift (Gratuitous) Promises | Are unenforceable due to lack of consideration
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| 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
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| Illegal consideration | A promise to do or refrain from doing an illegal act
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| Illusory promise | A contract that both parties enter, but one or both of the parties can choose not to perform their contractual obligations
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| Preexisting duty | A promise to do something the party is already under obligated to do
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| Past consideration | A prior act or performance is not consideration for a new contract
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| 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
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| 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
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| Contractual Capacity | the ability of a person to enter into a binding contract
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| Minor | A person who has not reached the age of majority
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| Infancy doctrine | A doctrine that allows minors to disaffirm (cancel) most contracts they have entered into with adults
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| Minor’s Duty of restoration | The obligation to return the consideration received from the adult
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| Minor's duty of restitution | The obligation to place the adult in a position the adult was in prior to the contract
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| 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
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| 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
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| 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
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| 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
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| 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
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| Unilateral Mistake | only one party is mistaken about a material fact concerning the contract
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| 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
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| 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
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| Duress | occurs when a person is coerced into entering into a contract through threat of physical harm or some other harm
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| Statute of Frauds | A statute, adopted in every state, that requires certain types of contracts be in writing
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| 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
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| What Does "Written" Mean? | A written contract does not have to be drafted by a lawyer or be formally typed to be legally binding
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| 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
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| 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
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| 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
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| Exceptions to the Parol Evidence Rule | Parol evidence may be used (is admissible in court)
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| 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
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| Minor Breach | a party fails to perform a contractual obligation which does not bear on the essential subject matter of the contract
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| 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
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| Consequential (or special) Damages | Foreseeable damages that flow from the breach of the contract but relate specifically to the circumstances of the nonbreaching party
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| Liquidated Damages | Parties agree in advance that certain damages will be available if contract is breached and specify this amount in the contract
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| 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
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| Duty to Mitigate Damages | Nonbreaching party has a duty to take reasonable action to avoid or reduce damages caused by a breach of contract
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| 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
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| 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
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