Business Law Contracts Flashcards
Contract Elements
CLAIMS
Consideration - give something to get something (Money, services or goods)
Legality - must be for a legal purpose
Agreement - offer and acceptance
Individuals who are competent
Meeting of the Minds - genuine assent
Signature - when required - sometimes written contracts are required, other times oral contracts are ok
Consideration & Competence
Value that is promised in exchanged for performance by the other party
Both parties provide it and it must be legal
“bargained-for exchange”
Not present:
- pre-existing legal duty to perform (i.e. police, inspector, etc)
- past consideration: did the task last time for free but getting money this time, can’t request money for prior time
Modification:
- requires new consideration to be exchanged after the contract has already begun
- both sides needs new consideration to have a balanced contract
Exception for Charities:
- do not need to prove consideration
hint look to see if charity spent the money or incurred debt on expectation of debt - donation must be made
Legality
- must be legal purpose
- illegal will be void
Licensing:
- for services
- if they don’t have the required competency license - they are not entitled to get paid
Revenue:
- even without a tax ID number, they can still collect for services rendered
Agreement - Offer and Acceptance
- One party begins by making an offer
- Other party accepts the offer
- Until accepted there is no legally binding agreement
- Counteroffer is not acceptance
- advertisements are not offers, invitation to make an offer
Offeror: makes the offer
Offeree: Party to whom the offer is made
Counteroffer: Destroys the original offer and becomes the new offer
- Offers, Revocations, Counteroffers and Rejections all MUST be received to be effective
- Acceptances are valid PRIOR to receipt
(business, real estate or services) - mirror image rule: terms of acceptance must exactly mirror terms of the offer - Effective date of acceptance - sent not received (mailbox rule)
– Offeror can change by using wording they must receive by a certain date
Option Contract
Options give the buyer time to think
- offer made in writing and supported by consideration
- once option price is paid, the offer cannot be revoked before the agreed upon date (non refundable)
- option is used when the dollar value of the deal is high and financing needs to be secured
- other offers are NOT considered counteroffers
- can sell your option to someone else to complete the rest of your option
Individuals who are Competent
Only the party without capacity can withdraw from contract.
Lack the Capacity:
- Minors: under age 18 - can withdraw from contract even if adult will suffer financial loss
– for necessaries - minor needs to pay reasonable value for what has already been received, then avoid the remaining contract (if parent is not able to provide food, clothing, shelter and medical attention)
– Ratification: acceptance - can ratify a contract after reaching ‘age of majority’ (implied if the new adult continues to use the service/product without announcement)
– VOIDABLE
- Insane: suffer from Alzheimer’s, senility or mentally challenged
– all contracts are void before (voidable) or AFTER legally declared incompetent (void) - Intoxicated: Accidentally drunk can cancel a contract they would not have made sober
– not a person who drinks every day
–VOIDABLE
Meeting of the Minds - Genuine Assent
Parties agreed to be bound - genuine assent
- Referred to as a defense - it provides one party with justification for backing out of the contract
- If they have defense, they can set the contract aside and it would be voidable by that party
- Defenses - fraud and mistakes
4 elements of fraud
1. material misrepresentation or omission of fact
2. Intent to deceive or cheat (scienter- bad faith)
3. Reliance - Justifiable
4. Damages - usually monetary
Mistakes
- if one party makes a mistake, the contract could still exist but not if the other party knows it is a mistake
- voidable at the option of the party that made the mistake if the other party knows its a mistake
Duress: Threatening Someone, physically forcing them to enter a contract against their will (render the contract void)
Undue Influence: Using position to take unfair advantage of a person in close personal relationship
Signature
ORGIES need signatures
One Year - impossible to complete within 12 mos
Real Estate - sale of house, land, building
Guaranty - co-signor’s signature is required
Investment Securities - stocks and bonds, commercial paper
Executor of a will - executor’s signature
Sale of Goods $500 or more - tangible like computer or furniture
VOIDABLE by party that didn’t sign
Contract Terms to Know
Valid - binding contract - legally enforceable
Voidable - valid but one party has the right to cancel (mistake)
Void - without legal effect - illegal contracts are void
Bilateral - promise exchanged for a promise
Unilateral - offer for a reward - acceptance is by performance not promise
Quasi Contract
- created by court to prevent one side from receiving something they were never entitled to
- not created by the parties involved
- prevents one side from being unjustly enriched
– usually wrong answer
Executory Contracts - not yet fully performed
Fully Executed - performed by both sides
Parol Evidence Rule
If parties reduce the agreement to writing - it becomes the contract even if it doesn’t include any oral agreements PRIOR to the final written contract
*read contract over prior to signature
- Can introduce evidence to prove someone committed fraud
- any information that came along AFTER the written contract can be introduced
Contract Rights to 3rd Party
Involvement of another party may not materially change the original contract or increase the party’s risk
- option contracts are assignable
- does not need to be in writing
- if contract is silent about assignment - it is allowed
- right to receive money is always assignable (mortgage or car payments)
- highly personal contract rights are NOT assignable (ie. working with a certain doctor and another does surgery without consent)
Breach of Contract
Anticipatory Repudiation - expression of unwillingness or inability to perform a contract before the time for performance is due (breach in advance)
- non-breaching part may either sue immediately or may wait to see if performance does occur, then sue
Excuses for non-performance
- Death - but NOT from a contract for sale of goods or real estate (survivor would fulfill obligation)
- Impossibility / Destruction of subject matter
Remedies for Breach of Contract
Most often is monetary
- also equitable relief
Monetary Damages:
- Compensatory Damages - amount that puts the non-breaching part in position if there were no breach (actual dollar losses)
- Nominal Damages - small amount of money awarded by court to plaintiff when plaintiff’s legal rights have been violated, but not suffered substantial loss or injury
Punitive Damages:
- aimed at punishing the breaching party
- rarely in breach of contract
- plaintiff would have to prove intentional fraud (i.e. malpractice or product liability)
Liquidated Damages:
- Damages agreed to in advance when entered into the contract (i.e. security deposit for real estate)
- enforces a long as not punitive
- court has final say on damages (only reasonable)
Equitable remedies:
- Specific Performance: if injured party would like the contract to be enforced over collect monetary damages (i.e. unique items or real estate)
– not a remedy when its personal services - you can’t force obligation. Instead you can sue for the difference in damages if you had to higher someone for higher price
- Injunction-stop: non compete, must be reasonable
