Business Contracts Flashcards
What does the Law of Agency deal with?
It deals with business duties, relationships, and obligations between a principal and his or her agents.
It establishes the ground rules about what a principal or agent can and can’t do to fulfill duties, responsibilities, and obligations.
Agents can be…
Principals can be…
Agents can be one or more individuals whereas the principal can be only one person.
Company (principal) - Buyer (agent) / Salesperson / Employee / Consultant.
Both the law of agency and law of contracts apply to procurement because…
purchasers(buyers) enter into contracts with suppliers, vendors, and contractors as an agent and employee.
Law of agency - Company (Principal) - Buyer (Agent)
Law of Contracts - Company (Principal) - Employee (Agent).
Name the 3 types of authority that can exist between the principal and the agent.
1) Actual Authority
2) Apparent Authority
3) Ratified Authority
Actual Authority
Whether explicit or implicit occurs when the principal gives the authority to the agent with consensus agreement. The principal is bound to this authority and can’t deny it.
Apparent Authority
Also called Agency by Estoppel
Occurs based on the principal’s words or conduct, and the principal can’t deny it if third parties relied on it.
This is based on impressions of the third parties.
Ratified Authority
Occurs when the principal accepts the liability from the third parties even if the agent acted without authority.
What are the duties of the principal?
Require duty to compensate an agent, duty to reimburse the agent, duty to indemnify the agent, and duty to cooperate with the agent.
What are the duties of the agent?
Require duty of performance to a principal.
Duty of notification to the principal
Duty of accountability to principal
In addition, an agent should not involve in self-dealing, usurp an opportunity, compete with the principal, or misuse confidential information, and should not maintain a dual-agency relationship (one agent reporting to two principals at the same time).
What is the Law of Sale?
The sale of personal property is a huge commercial activity.
Article 2 of the Uniform Commercial Code (the Code or UCC) governs these sales in all states except Louisiana.
The Code has its own contract law.
Common law governs all general contracts outside the scope of UCC contract law.
What is the definition of sale and is covered under UCC?
Sales consists of the passing of title to goods from the seller to the buyer for a price.
A contract of sale includes both a present sale of goods and a contract to sell goods at a future time.
The Code defines goods and products as tangible personal property.
Personal property is any property other than an interest in real property (land any attachments such as buildings.
Code does not apply to employment contracts, service contracts, insurance contracts, contracts involving real property, and contracts for the sale of intangible assets - these are governed by general contract law.
What are contracts primarily governed by?
State Common Law
What does the Law of Contracts apply to?
Can be applied to business contracts where they are governed by state common law.
What is the definition of a contract?
Contracts are legal documents that describe terms and conditions under which two or more willing parties agree to commit, honor, and discharge their respective duties and obligations to each other as defined in the contract.
It describes penalties for breach of contract and remedies for damages.
What are the five basic requirements of a contract?
1) Mutual Assent (agreement by offer and acceptance)
2) Consideration ( either express or implied mutual obligation
3) Legality of object and subject matter (must be for a legitimate purpose, not criminal and illegal or against public policy). If the purpose is illegal, the contract is null and void.
4) Capacity (only competent parties can have full capacity to contract (no minors, intoxicated people)
5) Formality (in writing)
Mutual Assent
Words or conduct
Offer - proposal or expression - willing to do something
A contract only exists if formally accepted
Formal acceptance - verbally or written
Consideration
Form of mutual obligation
Each party to a contract must intentionally exchange a legal benefit or incur a legal detriment as in inducement to the other party to make a return exchange.
The legality of object and subject matter
Must not be illegal.
If the primary purpose of the contract is legal, but some terms contained within the agreement are not, then the contract may or may not itself be illegal, depending on the seriousness of the illegal terms and the degree to which the legal and illegal terms can be separated.
Capacity
Parties to contract must have contractual capacity.
Certain persons have no capacity to contract (adjudicated incompetents).
Some people have limited capacity to contract (minors, adjudicated incompetents, intoxicated persons).
Use of force or coercion is not allowed.
Formality
In most cases, an oral contract is binding and enforceable.
In a limited number of instances, a contract must be evidenced in writing to be enforceable.
Contracts can be classified as…
1) Express or implied
2) Bilateral or unilateral
3) Valid, void, voidable, unenforceable
4) Executed and executory
Implied Contracts
Express Contracts
Implied - contract formed by conduct
Express - manifest assent in words
Both are equally enforceable
Bilateral Contract
When each party is both a promisor(making promise) and a promisee(person to whom the promise is made).
Unilateral Contract
Where only one of the parties makes a promise.
Eg Insurance Contract
Valid Contract
One that meets all the requirements of a binding contract. It is enforceable.
Void Contract
An agreement that doesn’t meet all of the requirements of a binding contract.
It has no legal effect and is merely a promise or agreement.
Unenforceable Contract
Is a contract for the breach of which the law provides no remedy. After the statutory time period has passed, a contract is referred to as unenforceable.
Executed Contract
A contract that has been fully carried out and completed by all of the parties to it.
Executory Contract
Contracts that are still partially or entirely unperformed by one or more of the parties.
Aleatory Contracts
Contracts where the outcome is affected by chance and may be unequal.
Insurance contracts are an example.
Conditional Contracts
Insurance contracts are conditional contracts.
The payment of benefits by the insurance company is conditioned upon the insured or owner paying the premium.
The doctrine of Promissory Estoppel
In certain circumstances, the courts enforce noncontractual promises under the doctrine of promissory estoppel to avoid injustice.
A noncontractual promise is enforceable when it is made under circumstances that should lead the promisor to reasonably expect that the promise, in reliance on the promise, would be induced by t to take definite and substantial action or to forbear, and the promisee does take such action or does forbear.
Quasi Contracts
These are not contracts at all.
This is a contract implied in law, which is an obligation imposed by law to avoid injustice.
These contracts are sometimes used to provide a remedy when the parties enter into a void, unenforceable, or voidable contract.
The rules for awarding damages vary with…
The type of claim filed (breach of contract vs tort) and location and type of jurisdiction.
Four major types of damages
1) Compensatory
2) Consequential
3) Liquidating
4) Punitive
Compensatory Damage
Direct(normal) and actual damage paid to compensate claimant (victim) for loss suffered as a result of other party’s breach of duty.
Expectation Damages
Are compensatory damages paid by the party that breached the contract.
Consequential Damage
Is an indirect and special damage awarded due to loss of product or service, loss of profits, or loss of operating revenue if the court decides that such damages are reasonable, foreseeable, or expected of the parties at the time of contract formation.
US Supreme Court - consequential damages are not available in federal courts.
Liquidating Damage
This clause in a contract will not be enforced if it amounts to a penalty.
The clause will be enforced only if it involves a genuine attempt to quantify a loss in advance and is a good-faith estimate of economic loss.
Courts have ruled that excessive liquidating damages are equal to penal damages.
Punitive Damage
This is a noncompensatory damage that may be awarded to a plaintiff in order to deter a defendant.
Punitive damages are awarded that are over and above compensatory damages and are subject to the limitations imposed by the due process of law.
These damages may be awarded in the case of fraud and product liability cases.
Consumer Review Fairness Act of 2016
Before this Act, a company could have sued customers who wrote honest but negative reviews about a company’s product or service.
Now the business can’t use contracts that prevent customers from writing truthful comments or penalize customers for writing negative reviews.
If a business including online, uses contract terms or conditions that limit a customer’s right to comment, it is breaking the law.
Ethical considerations with product reviews.
A company can buy postsale feedback from a customer - the seller pays by gift card, cash card, reward points, vacation. travel trip.
Are product reviews written by real customers, sellers employees, competitors employees, or bot software?
Ultra Vires
Sometimes lower-level managers may take business-related actions with or without the explicit authority and power given to them by upper-level management. Egs dealing with contractors, vendors, suppliers, consultants, or other businesses.
Ultra Vires - Actions taken without proper authority. (beyond the power). These actions can be construed by law as invalid actions.
Intra Vires
Actions taken with proper authority (within the power). These actions can be construed by law as valid actions.
Letter of intent
This is drawn between two or more parties
It could be a binding contract depending on how it is written
If the letter if very detailed and specific with names, dates, action plans, locations, it could be binding
If the letter is general and vague, then it is not binding.
Can customers agree not to sue a company for any reason in exchange for a gift card, small cash amount?
No, it is illegal and unenforceable.
What Act must a retail or manufacturing company adhere to with regards to warranties?
Magnuson-Mass Warranty Act of 1974.
Magnuson-Mass Warranty Act of 1974
This Act governs consumer product warranties.
The Act requires manufacturers and sellers of consumer products to provide consumers with detailed information about warranty coverage.
It affects both the rights of consumers and the obligations of warrantors under written warranties.
Two types of warranties exist
Product Warranty
Service Contract
Product Warranty
When a customer makes a major purchase of a product, the manufacturer or retailer makes an important promise to stand behind the product.
Although not required by law, written warranties come with most major purchases.
US Federal law requires that warranties be available for customers to read before they buy, even if from a catalog or online.
Three essential elements of warranties
1) Type - limited or full
2) Time - 30 days
3) Coverage - parts and repairs covered, personal vs business use, what damages are covered
Service Contract
When a customer buys a car, an appliance, or an electronic device, a service contract is called an extended warranty.
A normal warranty cost is included in the price of a product whereas a service contract cost is not part of the product price.
The service cost is an add on that might not be worth the price.
Some service contracts duplicate the warranty coverage that the manufacturer provides, some cover only part of the product and some make it nearly impossible to get repairs when the customer needs them.
Express Warranty
Is a type of guarantee given by the manufacturer or retailer for a specific product purchased by a customer. The document describes the terms and conditions of the warranty in a clear and complete manner so customers know what is included and excluded.
The cost of the express warranty is included in the price of a product.
Implied Warranty
This is created by State Law and all states have these warranties.
Almost every purchase a customer makes is covered by an implied warranty.
Most common type - warranty of merchantability - seller promises that the product will do what it is supposed to do
Warranty of fitness - applies when a customer buys a product on the seller’s advice that it is suitable for a particular use
The cost of an implied warranty is included in the price of the product.
If customers purchase does not come with a written warranty?
It is still covered by implied warranties unless the product is marked and sold as it, or the seller indicates in writing that no warranty is given.
Exclusive Warranty
A seller or servicer make an exclusive warranty to a customer for a high-priced, customer made product or special service work.
It is so exclusive that no other customers would get the same type of warranty.
They are expensive.
The cost of an exclusive warranty is included in the price of a product.
Quasi Warranty
Is not a full and complete warranty.
Lower warranty cost.
The cost is included in the price of a product.
Oral Warranty
If a salesperson makes a promise orally, get it in writing.
A customer may not be able to get the warranty service that promised.
The cost of an oral warranty is not included in the price of a product because the warranty never became official.
