Summary of slides for Chapter 9 of Fundamentals of Business Law
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| What must a contract have? | Agreement, Consideration, Capacity, and Legality
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| What 2 parts much consideration have? | A legally sufficient value and it must be a bargained-for-exchange
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| What does legally sufficient value consist of? | Promise, Performance, or Forbearance
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| 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
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| Bargained-for-Exchange | something of legal value must be exchanged between the parties
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| The promise must be either legally ___ to the promisee OR legally ___ to the promisor | detrimental; beneficial
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| Does the law protect people from entering unwise contracts? | Nope!
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| In cases of "shockingly inadequate consideration" what happens and what is usually the ruling? | Red flags are raised and the contract is ruled unconscionable
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| What types of agreements lack consideration? | Preexisting duty, unforseen difficulties, rescission and new contract, past consideration, illusory promises
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| Does promising to do what one already has a legal obligation to do constitute as consideration? | No!
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| What is rescission? | the "untying" of a contract to return the parties to their original positions
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| 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
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| What is an illusory promise? | the promisor has not DEFINITELY promised to perform because consideration is lacking
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| Is an illusory promise enforceable? | No
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| If A promises to pay B $5 a month for work, is this an enforceable promise? | No; this is an illusory promise
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| 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
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| Accord and Satisfaction | debt is in dispute; settlement for a lesser amount than likely owed
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| Liquidated debts | debt is certain
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| Can accord and satisfaction be applied to liquidated debts? | No; since debt is certain, accord and satisfaction do not apply
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| Unliquidated debts | amounts not settled
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| Release | contract where one party gives up their rights to pursue a legal claim against the other party
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| What does a release bar a party from? | Future recovery
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| What must a release contain? | good faith, signed writing, and consideration
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| Covenant not to Sue | does not always bar further recovery (still can have legal claim)
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| Promissory Estoppel | a person relies on the promise of another to their legal detriment
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| Can a promisor revoke their promise under promissory estoppel? | No
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| Can promissory estoppel be applied to promises made without consideration? | Yes, depending on the situation
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| 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
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| Contractual Capacity | the legal ability to enter into a contractual relationship
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| 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)
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| Can minors enter into contracts? | Yes, but it can be voidable at the option of the minor
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| Can minors enter into contracts that adults can? | Yes, unless it is a contract prohibited by law for minors
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| When can minors disaffirm a contract? | any time during minority or for a reasonable period after minor is emancipated
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| Can minors disaffirm only part of a contract? | No; they must disaffirm the entire contract
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| Is disaffirmance expressed or implied? | Both!
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| Can a minor disaffirm an executed contract? | yes
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| Ratification | when a minor reaches the age of majority, they can ratify a contract created while a minor
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| How can a minor ratify a contract? (what type of conduct?) | expressed or implied conduct
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| When are parents' liable for minors? | for necessaries--whatever is reasonably needed to maintain the minor's standard of living
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| Does intoxication render a contract void? | Not necessarily; person must prove lack of capacity and then return consideration paid
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| Can a person ratify a contract made while intoxicated? | Yes!
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| 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
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| 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
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| 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
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| What does legality mean in terms of contract formation? | the contract must be formed for a legal purpose
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| If a specific clause in a contract is illegal, is the contract unenforceable? | Not necessarily; the rest of the contract may still be enforceable
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| Is a contract to commit a tortious act illegal? | Yes
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| Is a contract that is inconsistent with policy illegal? | Yes
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| Are contracts contrary to statute valid? | No; if the content is prohibited by federal or state statutory law, the contract is void
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| What types of contracts are contrary to statute? | contracts to commit a crime, contracts for usury, gambling, and licensing
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| What is a contract for usury? | Lending money at an extremely high interest rate
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| When is gambling contrary to statute? | When people have paid valuable consideration but property is distributed based on chance
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| When can licensing contracts be valid? | Depends on the purpose.
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| Are contracts in restraint of trade valid? | Typically they are void
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| Are there any exceptions to restraint of trade? | Covenants not to Compete with the Sale of an Ongoing Business or in Employment
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| If a restraint of trade is valid, what restrictions must be set? | Reasonable time and geographic restraints
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| 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
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| What is substantive unconscionability? | when contracts are oppressive or overly harsh; they deny a remedy for nonperformance
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| Exculpatory Clause | releases a party from liability in the event of monetary or physical injury no matter who is at fault
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| When are exculpatory clauses enforceable? | when they are not against public policy, are not ambiguous, and do not shield parties from intentional conduct
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| Would an exculpatory clause in residential leases be enforceable? | Probably not; there is an essential need to have housing
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| Would an exculpatory clause with a skydiving company be enforceable? | Probably; this is not necessary
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| If a contract is illegal, which party is at fault? | Both
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| Do parties have rights and duties for an illegal contract? | No
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| Will courts rule on an illegal contract due to unjust enrichment? | Usually not
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| 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
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| If an innocent party has fully performed in an illegal contract, can courts enforce the contract? | They can
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| If a contract is executory but illegal, can a party withdraw from the contract and recover the performance or value? | Yes
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| Severable, or Divisible, Contracts | distinct parts can be performed separately with separate consideration for each part
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| In a severable contract, can an illegal portion of the contract constitute the essence of the contract? | No
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| A party to an illegal contract can recover if wrongfully induced under what circumstances? | Fraud, Duress, or Undue Influence
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| 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
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Created by:
fredrickss
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