Business Law- 2nd Test Review Guide (Chapters 12,13,14,15,16)*
Chapter 12Contract-A binding agreement based on the genuine assent of parties made for lawful
object. When you form a contract you have to have intent to be bound. It has to be
objective intent, which is based on ordinary prudent man. A promise that has
consequences if you leave contract.
Objective- what is
Subjective- based on personal impression.
*Elements To A Contract - K - Symnol
• *Agreement - made
• *Between Competent Parties - with
• *Genuine assent (consent) - supported by
• *Consideration - for
• *Legal Purpose (lawful objective) - in
• *Legal form (form required by law)
• In Contract Law, words ending in “or” means acting party, words ending in “ee”
means party acted upon. Example- Lessor, Lessee Offeror, Offeree
• Privity - relationship between contracts
Formal Contracts- written contracts or agreements whose formality signifies the parties’
intention to abide by the terms
• Contracts Under Seal- Stamped wax.
• Recognizance- promise or obligation entered into before court to do an act such as
come to trial.
• Negotiable Instruments – drafts, promissory notes, checks and certificates, that in
proper form give special rights as “negotiable commercial paper”
Uniform Commercial Code- 1960, Standardized state law. Governs personal property
sales. It simplified contract law because the banking industry wanted easier security.
Asks two questions, “Did parties intend to be bound”, “Is there a reasonable basis for
granting remedy”
Informal Contracts- can be oral or written. Are enforceable because they represent an
agreement between parties
*Types of Contracts
• *Expressed- 99% of all contracts. It is governed by law (Lex). Contract - law
• *Implied in Fact- Not shown by words, written or spoken, but by acts and conducts of
parties. Happens when one renders services and indicates payment and other
person accepts the benefit of services. Contract - law
• *Implied By Law- This is governed by equity. Includes Remedies. Law imposes in
where it looked like a contract but was not. Restores parties to the status
quo. A part of a contrat is missing but law steps in. Quasi Contract - equity
•
Quasi Contract- Court imposed obligation to prevent unjust enrichment in
absence of a contract.
•
Unjust Enrichment- Receive a benefit from another even in absence or
promise to pay, court may impose obligation to pay for reasonable
value of the benefit.
•
Quantum Meruit- As much as deserved- an action brought for the value of
services rendered even when there was no expressed contract
• *Contracts gives rise to damages non breeching party benefit of the bargain
• *Equity gives rise to remedies restores the injured parties to status quo ante.
*Classifying Validity/Enforceability of a Contract
• Valid
• Void (Ab Ignitio) - no enforceable rights from beginning of contract - judible
incompetent
• Voidable
• Valid but unenforceable.
*Unilateral Contracts- Promise for an act. Example- 100 dollar reward for finding lost
puppy.
*Bilateral Contracts- Promise for a promise (most contracts). This is conditioned by the
word “if”.
*Executory Contract- One party still has something to do. Duties of performance
remaining
*Executed Contract - All terms of contract have been completed
Chapter 13-Formation of Contracts: Offer and Acceptance (Study Vocab)
-Advertising is generally an invitation to negotiate terms. Not a contract
-Offers made in jest/excitement are Not Contracts.
-Invitations are Not Contract
Incorporation by reference- contract consisting of both original document and the
detailed statement that is incorporated in it.
*Option- a big contract supported by a little contract. This is the right to hold a bigger
contract.
*Right of First Refusal- Found in real estate transactions. Right of a party to meet the
terms of a proposed contract before it is executed. If selling a building, seller has to give
tenant right to buy the building first.
*Agreement- consists of two parts
• *Offer
• *Acceptance
*Offer- Consist of 4 parts condensed into 2
•
* Legal
1. Legal Terms (A,B,C)
• *Intent (contractual) or
• *Definite Terms
• *Communicated
2. Communicated
*Offer- Empowers- “Power of Acceptance” May only be accepted to whom the offer was
directed at. Silence generally doesn’t constitute acceptance.
Intent: Rely on objective intent
Requirement Output Contract- “I will supply what you need, if you buy what you need
from me” Common law found this illegal. It appears to bind buyer because they are
actually not required to pay because they might not need any.
To Power to Terminate: An offer can be revoked at any time before acceptance. The
offeror can revoke it even if he promised it would remain open for an amount of time.
Exceptions to Power to Terminate
• *Option- Promise to keep an offer open for a stated period of time. Contract to refrain
from revoking an offer for sum of money.
• *Firm Offer- As outlined in Uniform Commercial Code. Applies to merchant’s
signed or written offer to buy or sell goods with a maximum of three months
on its period of irrevocability.
• Merchant’s - someone who usually sells that product
*What Terminates a Offer:
• Revocation- taking back an offer
• Time expires - given a week and not terminated but week has passed
• Counter Offer- offering lower amount kills original offer
• Rejection- saying no to the offer first, cant go back on offer
• Lapse of Time- reasonable range of time for based. Based on products. For example,
perishables have a shorter lapse of time.
• Destruction of Subject Matter - what is offered changes somehow
• Death and Disability -
• Subsequent illegality- if the act becomes illegal
• War
• Bankruptcy
Acceptance- this changes an offer to an agreement.
Terms of acceptance set by offeror, can be anything. Ex. Wearing a pink tutu to the cog.
*The Mailbox Rule- If the offer is in the mail and has been sent, you are still able to
change your mind and revoke the offer. However, an acceptance to the offer becomes
official on postage (when it is initially mailed) while revocation of an offer has to be
received. If the two cross while in the mail, the offer is still valid. Acceptance wins
Silence as acceptance- Oferee’s silence and failure to act cannot be regarded as an
acceptance.
Only have affirmative duty to say no in certain situations where you are
contractually agreed to it or have a long pattern and you don’t inform people of change
Don’t have to pay for tickets that get sent on accident
NO AUCTION STUFF
Chapter 14- Capacity and Genuine Assent
-Everyone is assumed to have capacity unless it is proven that capacity is lacking or that
there is status in capacity.
-Capacity can exist even though a party doesn’t understand every provision of the
contract
Compos Mentus- brain activity. Required to enter into a contract
*Capacity- Ability to understand that a contract is being made and to understand its
general meaning. Factual and temporary incapacity can make contracts void.
• *Factual Capacity- Temporary or Permanent: mental condition caused by medications,
alcohol, illness, age. A person does not understand that a contract is being
made.
• *Legal Capacity- (Status incapacity) Law protects classes by keeping them out of
unwise contracts. Most important class today is minors.
Abdjucated Incompetent- Having legal rights taken away (felons, enemy aliens, insanity).
Once they are gone, you can’t get them back until you go before a judge again. Can’t
enter into a contract. Judge places guardian in charge of person/estate.
Nonabjubicated - voidable
*Minors- under the age of 18. They lack contractual capacity, making contracts voidable
at the election of the minor. Minor may affirm or ratify contract on attaining majority.
Minors must pay reasonable value (based on equity, what’s fair) for necessaries.
• Avoidance- a minor may disaffirm a contract by any expression of intention to revoke
a contract. However, a minor can only disaffirm during minority and for a
reasonable time after majority.
Two types of Minors
• Misrepresenting Minors- (Fake ID). Guilty of fraud. Generally a misrepresentation still
means a minor can disaffirm a contract. Other party can disaffirm as well due
to fraud. Minor must make restitution.
•
*Status quo ante- minor returns what was gained so parties are at the same
standing as when they made they contract.
• Innocent Minor- Doesn’t have to make restitution unless they have it
• *Minors must pay reasonable value for necessaires.
• Force equity not law
Incapacity - Intoxication, Spend thrift, mental illness - only if state of mind is bad
Necessaries- things indispensible or absolutely necessary for the sustenance of human
life. Includes things relating to health, education and comfort for minors. Minors are
liable for necessaries like medical bills.
Ratification- If you enter into a contract during minority and stay in it after majority then
it becomes ratified.
Mistakes:
Mutual Mistake- Both parties enter into a contract under mutually mistaken
understanding concerning a basic assumption of fact or law. Contract is voidable by the
adversely affected party if mistake has a material effect on the agreed exchange.
Unilateral Mistake- A mistake by only one of the parties.
*Types of Mistakes
• *Mutual Mistake of Fact- Recission- Can you get out of it? Yes
• *Unilateral mistake of fact- Recession-No
• *Mutual Mistake of Law- Recession- Maybe
• *Unilateral Mistake of Law- Recession- No
*Fraud- making of a material misrepresentation (or false statement) of fact with, (1)
Knowledge of its falsity or reckless indifference to its truth (2) the intent that the listener
rely on it (3) the result that the listener does so rely and (4) the consequence that the
listener was harmed. *Fraud utilizes subjective intent. *You have to be injured.
• *Crime - criminal
• *Tort of deceit - tort
• *Defense to formation of genuine assent - contract
Assent- Agreeing to the contract that was made. 3 ways assent can be false (Fraud,
Duress, Undo-Influence).
Confidential Relationship- Because of knowledge, one party places full confidence and
trust in the other. However, failure to disclose information may be regarded as fraudulent.
Ex- Attorney has a duty to reveal anything that is material to the clients interest when
dealing with client.
Nondisclosure- nondisclosure serves to make a contract voidable, especially when the
nondisclosure consists of active concealment.
Material- whether it is of importance or not. Example-saying there is low mileage on a
car is a material fact. Materiality is a subjective test.
Patent- that which is obvious
Latent- that which is not obvious
*subjective intent - utilized by fraud
- If something is latent, you have an obligation to disclose it or its fraud.
*Fraud in the personeum- Voidable
*Fraud in the Inducement- getting you to do it. More common transactions. Voidable.
*Fraud in the factum- Void
*Fraud in the essence- Void
Misrepresentation- Fraud without intent. Makes the contract voidable.
*Types of Pressure:
• Duress- conduct that deprives the victim of free will. Generally entered into to avoid
threatened danger. Requires the element of coercion and no relationship. Can
be physical, financial, economic, psychological pressure.
• Undue Influence- Takes place under a fiduciary (required to disclose something)
relationship. Person making the contract doesn’t exercise free will. You can be
competent but still be subject to undue influence. Comes from a relationship.
•
Chapter 15- Consideration
Consideration- the fourth element of a contract. It is the bargained for exchanged that is
the agreement between. Can also consist of refraining from doing something. Key word
is the “if.” Promise for a promise. Ordinarily doing something already under legal
obligation is not consideration.
Benefit-determent approach- a benefit received by the promsior and a determent incurred
by the promissee. “I will pay you $3,000 dollars if you paint my summer home.”
• Paying someone for an act they have already done is a gift, therefore not enforceable if
they don’t come through.
• Charitable subscriptions by which individuals make pledges are binding to the extent
that the donor should have reasonable realized the charity was relying on the
promise in undertaking the building program. .
Adequacy of Consideration- doesn’t matter whether the contract is fair in return. Courts
will not interfere.
• However, unequal amounts of the same thing are not consideration. Can’t sell 1 bushel
of apples for 2 bushels.
*Forbearance- agreement to not act. Refraining from doing that which you have a legal
right to do. Buying inaction or a promise of inaction.
• Form of consideration
Illusory Promise- Promise that doesn’t actually impose any obligation on the promisor.
Both parties are not bound because he has received no consideration.
Cancellation Provision- A provision to cancel the agreement under certain circumstances
on giving notice by a certain date.
Good Faith Adjustment- enforce a second promise when there are extraordinary
circumstances caused by unforeseeable difficulties. Outside reasonable expectation of the
parties.
Compromise of Claim- split the difference on the agreement. A promise to pay part of an
amount on a debt that is already owed is not consideration though. Can’t release people
for partial payment of debt.
*Promissory Estoppel- substitute for consideration. Based on equity “promise without
the if”. Doctrine that a promise will be enforced although it is not supported by
consideration. Do not have contract. You have a quasi contract.
• The promisor makes a promise that lacks consideration
• The promisor intends the promisee will rely on the promise
• The promisee relies on the promise
• Enforcement of the promise is the only way to avoid injustice.
Chapter 16- Legality and Public Policy
-Contracts entered into for an illegal purpose may be void
*In Pari Delicto- equally guilty. When parties are NOT in pari deledcto the least guilty
party is granted relief when doing so advances public interest.
*Consumer Protection- a form of duress. Economic duress for consumers.
Unconsionability- A provision in a contract that may give what courts believe too much
of an advantage over a buyer.
FAirness/Good Faith - Can’t do things to make job impossible
2 Parts
• Clause- (unconscionable)
• *Doctrine of Uncionciability
• *Clause - unconsionable
• **Contract - Contact of adhesion
•
*Contract of Adhesion- contract offered by a dominant party to a party with
inferior bargaining power on take it or leave it basis. Procedurally
unconscionable. Has unconsciable clause
•
Procedural- Has to do with matters of freedom of assent resulting from
inequality of bargaining power. Hiding a disputed term in unduly
long fine print.
•
Substantive- focuses on the actual terms of the contract. Happens when
contract terms are so extreme as to appear uncionable according to
the business practices of time and place.
Liscense Callings - Some liscenses are about competence - passing means minimal level
of competence
Licensure- State rendered allowing certain professions to practice. If profession requires
license and you don’t have one, services are void (uncollectible). If license is only for
generating revenue then it is not void.
Covenant- provision in a contract
*Covenant Not To Compete- enforceable if it is reasonable in scope. They are judicially
disfavored because they restrict liability.
Scope Includes: (The WHAT)
1. Time (generally less then 3 years)
2. Distance - distance away from similar customers
3. Breadth (Broadness) - within range of similar job
Only Allowed In (the WHERE)
a. Employment Contracts
b. Sales of business
*Regulations on Agreements:
• *Usury- charging illegal rate of interest. lending money at an interest rate that is higher
then the maximum rate allowed by law. Commercial Transactions. All states
have these laws, they are politically popular.
• Time- Price Differential - difference between cash price and time price.
•
Punitive Damages: If usury law is exceeded, you lose what you gained.
• Time-Price Differential- Most states don’t treat it as usury. Difference between time
price payments and cash.
•
It’s the exception.
For the test
• 6 elements of a contract
• Privity, frmal contracts three classes - one question defintional
• Lists
• Express contracts,
• Quasi contract - not contract
• Valid, Voidable - 4
• Missing Element contracts that are valid but unenforcable
• Option
• Quasi Contract equity looks like contract, to avoid unjust enrichment
• PRIMASORRY Estoppel
• Intent - subjective objective
• Offer - legal terms and communication
• What constitutes termination of an offer
• Firm Offer 287
• Acceptance Material
• Bottom page 290 - silence as acceptance
• Rule on unordered goods and tickets
• Mailbox Rule
• Nothing on Auctions
• CH 14
• Minority - misrepresenting minor, minor must pay reasonable value for necessaries
• Distiungish between abjudicated - void and nonadjubicated - voidable
• 4 types of mistakes
• Fraud questions - know elements - reliance and injuries
• Rules of nondisclosure 314
• Undue InfluencePressure and DuressPressure(Under influence v durress)
• Gifts are not enforcael
• Forbearance - refraining from doing
• Incorporation byy reference
• Exceptions 328
• Pg 329 defintions
• Legality and Pblic Policy - impare di lecto
• Good Faith
• Unconscionablity - COntract of Adhesion has unconscianable clause
• Liscened callings - purpose is to insure competence agreement is void
• Covenence not to compete - reasonable in scope breadth time distance agreement to
sell business and employment agreement
Usury and time price differential - charging of an illegal rate of interest, difference
between cash price and credit price