Business Law Exam 2 Flashcards
1
Q
Elements of a Contract
A
Mutual agreement
Competent parties
Consideration
2
Q
Mutual Agreement
A
Offer
Acceptance
Reality of consent
3
Q
Offer
A
Expression of willingness of the offeror to enter a contractual agreement
4
Q
Offeror
A
Person/party who initiates, or makes, an offer
5
Q
Offeree
A
Person/party whom an offer is made
6
Q
Requirements of a Valid Offer
A
o Definite o Basis for agreement o Seriously intended o Not a joke o Nor offered in jest, fear, or anger o Communicated from offeror to offeree o Both parties must be cognizant of the agreement
7
Q
Invitation to Deal
A
o Advertisements o Price lists and quotations o Bids o Estimates o Not valid offers, may lead to an offer
8
Q
Termination of an Offer
A
o By REVOCATION
o Annulment or cancellation of an instrument, act, or promise by one doing or making it
o Communicated by offeror to offeree prior to acceptance
o By terms of the offer
o If terms are not met, there is no contract
o By lapse of “reasonable” period of time
o Depends on type of offer
o By death or insanity of offeror
9
Q
Insane
A
Person afflicted with a serious mental disorder impairing ability to function
10
Q
By Rejection
A
Refusal to accept
11
Q
By Counteroffer
A
Intended acceptance which changes or qualifies the offer, and is a rejection of the original offer.
12
Q
By Intervening Illegality
A
Legal situation interfering with an offer and agreement
• Example: Making a contract to kill someone
13
Q
Acceptance
A
o Agreement to an offer resulting in a contract
o Communicated by offeree to offeror
o Oral or written
o Including mail or telegram
14
Q
Reality of Consent
A
o Justifiable reliance by offeree o Offeree believes what offeror says is true o No reason to believe otherwise o Without this, contract is VOIDABLE o Influencing factors: • Misrepresentation • Fraud • Undue influence • Duress • Mistake
15
Q
Misrepresentation
A
o False statement of a matter of fact
o *INNOCENT MISREPRESENTATION
o False statement made in the belief it is true
16
Q
Fraud
A
Intentional or reckless false statement of a material fact, upon which the injured party relied, which induced the injured party to enter into a contract, at his/her detriment
17
Q
Manner of Committing Fraud
A
o By express misrepresentation
o Oral or written
o By concealment
o Attempting to hide information
o By silence when one has a duty to speak
o Not sharing information when asked or requested
18
Q
Undue Influence
A
o Improper influence that is asserted by one dominant person over another, without threat of harm
o Often with a fiduciary relationship
19
Q
Fiduciary
A
o Person in a relationship of trust or confidence o Family relationships o Attorney and client o Physician and patient o Funeral director and family
20
Q
Duress
A
o Means of removing one’s free will
o Obtaining consent by threat to do harm to the person, his/her family or property
o Element of coercion or force
o Physical, emotional, and financial
21
Q
Unilateral Mistake
A
- Mistake by one party to a contract
- Mistake as to quality, value, or price
- Mistake as to terms of contract
- Generally will not render agreement defective
22
Q
Mutual Mistake
A
- Mistake by both parties to a contract
- Mistake as to nature of transaction
- Mistake as to identity or existence of subject matter
- Generally render agreement defective
23
Q
Competent Parties
A
o CONTACTUAL CAPACITY
o Necessity that parties desiring to enter into contracts meet all requirements
o Requirements
• Parties must have the ability to understand a contract is being made
• Parties must understand the contracts general nature
• Must have legal competence to contract
24
Q
Protected Classes of Persons
A
o Afforded special protection in contracts • Minors • Insane persons • Intoxicated persons • Convicts
25
Minors
o Persons under full legal age
o Under age eighteen (18)
o In most states
26
Contracts by a Minor
o VOIDABLE at option of the minor
o DISAFFIRMANCE
• Repudiation of, or election to avoid a voidable contract
o Minor can also agree to terms of a contract after becoming a legal adult
o RATIFICATION
• Confirming of an act which was executed without authority or an act which was voidable
o Liable for reasonable value of contracts involving necessaries
o NECESSARIES
• Items, required or proper and useful, for sustaining a human being at an appropriate living standard (food, clothing, and shelter)
27
Insane Persons
o “Mentally incompetent”
o “Mentally impaired”
o Includes complications from stroke, senile dementia, and mental retardation.
o Contracts by those legally declared insane are VOID
o Contracts by those not legally declared are VOIDABLE
o Determination of intensity and duration of state of incompetence
o Disaffirmance
o Ratification
o Liability for necessities
o Applicable to insane persons
28
Intoxicated Persons
o INTOXICATION
• Persons who are under the influence of alcohol to the extent that their judgment may be impaired
o Contracts made by intoxicated persons are VOIDABLE
o Disaffirmance, ratification, and liability for necessities may apply
29
Convicts
o Persons found guilty by court of a major criminal offense (felony or treason)
o Contracts by a Convict
• Depends on state or jurisdiction
• Some impose limitations similar to minors and insane persons
• Lifted once individual is no longer imprisoned or supervised by parole authorities
30
Consideration
o That which the offeror/ promisor demands and receives as the price for an offer/ promise
o Includes money, personal property, and service
o Generally, promises unsupported by consideration are not enforceable
o Concept of legal detriment as a basis for consideration
o Contract cannot call for performance of an illegal act as consideration
o Fairness and adequacy of consideration
o Goods and services typically have recognized market value
o But not every promise has a fixed monetary value
o The law does not prohibit “bargains”
31
Invalid Consideration
o Promising to do what one is legally obligated to do
• Cannot promise to drive legal speed limit
• Already obligated to follow speed laws
o Promising or refraining from doing that which one has no right to do
o FORBEARANCE
32
Forbearance
* Refraining from doing something
| * Example: Promising not to rob a bank
33
Promises Enforceable without Consideration
o Charitable pledges and subscriptions
o Church or other charity organization
o Legally required to honor your pledge or subscription
o Depend on this for budget and expenses
o Your subscription or pledge…
o “is an offer of an unilateral contract that is accepted by creating liabilities and making expenditures” (P. 78 textbook)
o PROMISSORY ESTOPPEL
34
Promissory Estoppel
Enforceable promise whereby one party justifiably acts in reliance upon the promise of another
35
Elements of Promissory Estoppel
o Offer is made
o Offeror reasonably expects the promise to induce action by offeree
o Offeree acts
o Offeror fails to honor the offer
o What can the offeree do?
o According to promissory estoppel
o Justice requires enforcement of the promise when the offeree would be substantially harmed if it were not enforced
36
Legal Objectives
o Legal purpose and execution
o As long as elements of a contract are legal (mutual agreement, competent parties, and consideration), terms of a contract should be executed
o Illegality renders a contract VOID
37
Classes of illegal Agreements
o Agreements to commit crimes or torts
o Agreements prohibited by statute
o Agreements contrary to public policy
38
Agreements to Commit Crimes or Torts
o Injurious to individuals and society at large
39
Agreements Prohibited by Statute
```
o Usurious
o Restraint of trade
o Fix prices
o Influence fiduciaries
o Defraud creditors
o Obstruct justice
o Relieve liability for willful negligence
```
40
Usurious
Exceeding maximum rate of interest which may be charged on loans or consumer credit accounts
41
Usury
Charging a higher rate of interest than the law allows
42
Maximum Contract Rate
Highest legal rate of interest
43
Legal Rate
Interest rate applied when no rate is specified
44
Antitrust Laws
```
Laws which seek to promote competition among businesses
o Prevents creation of a MONOPOLY
o Prohibits contracts not to compete
o Restrain (limit or prohibit) trade
o Fix prices of goods and services
o Unfair competitive practices
```
45
Sherman Antitrust Act
Legislation intended to promote competition among businesses by prohibiting restraint of trade
46
Agreements to Influence Fiduciaries
o FIDUCIARIES
| • Person or persons in a relationship of trust or confidence
47
Agreements to Defraud Creditors
o Regarding payment of a debt
| o Money owed
48
Agreements to Obstruct Justice
o Process of law and justice
o Determined by established laws
o Court judgments
49
Agreements to Relieve Liability for Willful Negligence
o Agreements in which someone else “takes the blame”
50
Agreements Contrary to Public Policy
o Contracts limiting freedom of marriage
| o Contracts injurious to public service or the “public good”
51
Statute of Frauds
o Originally enacted by the English Parliament
o Present in some form in all States
o Lists certain types of contracts which can only be enforced if in written form
52
Debt
Obligation to pay money or goods
53
Default
Nonperformance of a duty or obligation
54
Types of Contracts in Writing
o Contracts to transfer an interest in real property
• REAL PROPERTY (real estate)
• Land
• Objects attached to land
o Executory bilateral contracts which cannot be completed within one year from date of making
o Ensures parties do not forget contract terms
• Examples: Purchase of real estate with long term loan contract/ mortgage
o Agreement to become responsible for the debt (or default) of another
o Contracts made by executors or administrators to pay debts of an estate out of his/her personal funds
o Rather than paying debts from decedent’s estate
o Agreement to pay debts of another
o Promises made in consideration of marriage
• Prenuptial agreements
o Contracts involving sale of goods or merchandise with price of $500.00 or more
• GOODS
• Moveable tangible personal property
55
Discharge
Termination of a contract by performance, agreement, impossibility, acceptance of breach, or operation of law
56
Performance
When all terms of the contract have been fulfilled, the contract is discharged by performance
57
Satisfactory or Complete Performance
Contract that has been performed in a manner that would “satisfy” an ordinary, reasonable person
58
Substantial Performance
* Fulfilling major terms of the contract
* Contract can be discharged
* Less any damages that might occur for minor breaches of contract
* Examples:
* You have a contract to build a house for $100,000; some minor breach of contract amounting to $1,000; You don’t like the kitchen flooring; Builder can still collect $99,000 for substantial performance of building your house
59
Discharge by Agreement
o Mutual agreement to cancel the contract
o Entering into a contract is a mutual agreement
o Parties can also mutually agree to cancel the contract
o NOVATION
o ACCORD AND SATISFACTION
60
Novation
Change of one party to a contract at the mutual agreement of the original parties
• Example
• You buy a house; you decide to sell the house; another person agrees to assume your bank mortgage
61
Accord and Satisfaction
* Agreement made and executed in satisfaction of the rights one has from a previous contract
* You satisfy your contract with the bank when another party assumes payment of your mortgage
62
Discharge by Impossibility
o Impossibility of performance
o Destruction of the subject matter
o Occurs when subject matter of a contract is destroyed without fault of either party
o Examples:
• You want to sell your car; you find a buyer who agrees to buy the car; before the sale is completed; tornado destroys the car; subject matter is destroyed; contract is discharged
o Intervening illegality
o New laws which make the contract illegal
63
Discharge by Acceptance of Breach
o Material breach of contract
o BREACH OF CONTRACT
o ANTICIPATROY BREACH
64
Breach of Contract
Situation in which one of the parties to a contract fails or otherwise refuses to perform the obligation established in that contract
65
Anticipatroy Breach
* One party announces his/her intention not to perform prior to time to perform
* If innocent party accepts breach of contract, contract is discharged
66
Remedies for Breach of Contract
```
o DAMAGES
• Sum of money awarded to injured party
• Nominal
• Compensatory
• Punitive
• Liquidated
```
67
Nominal Damages
o Token award to symbolize vindication wrong done to the plaintiff
o Generally award of $1.00
68
Compensatory Damages
o Award paid to injured party to cover exact amount of their loss, but no more
69
Punitive Damages
o Award paid to the plaintiff in order to punish the defendant, not to compensate the plaintiff
o EXEMPLARY
o Occurs most with torts
o Rather than breach of contract
70
Liquidated Damages
o Provision in a contract fixing the amount of damages to be paid in the event one party breaches the contract
71
Rescission
Canceling, annulling, or avoiding
72
Specific Performance
* Carrying out terms of the contract
* Contracts involving sale of real estate
* Sale of rare articles of personal property
73
Injunction
Judicial order or decree forbidding performance of a certain act
74
Discharge by Operation of Law
o Intervening illegality
o New laws which make the contract illegal
o In Addition…
• Debts discharged in bankruptcy cannot be collected
• Individual or business debts
• Upon filing with and discharge by bankruptcy court
• Creditor’s rights of action to enforce contracts of the debtor are barred
75
Statute of Limitations
* Time within which right to sue must be exercised or lost
* Time limits vary from state to state
* Types of suits
* Types of debts
o If creditor does not sue for payment of a debt within a certain time period
o Will not be allowed under statute of limitations
76
Assignment
Method whereby one party conveys rights to another person, who is not a party to the original contract
77
Assignor
Party making assignment
78
Assignee
Party to whom assignment is made
79
Rights of Assignment
Transferring one’s rights under a contract to another party
80
Third-Party Beneficiary Contract
Person not a party to a contract, but whom the parties intend to benefit
81
Creditor Beneficiary
Person to whom the promisee owes an obligation, which is discharged if the promisor performs
82
Donee Beneficiary
Third party beneficiary to whom no legal duty is owed and for whom performance is a gift
83
Sale
o Transfer of title of goods from seller to buyer for consideration called the price
• Is a contract in which ownership of goods transfers immediately from the seller to the buyer for a price
84
Goods
```
o Moveable tangible personal property
• Examples:
• Food
• Vehicles
• Clothing
• Furniture
```
85
Existing Goods
Goods which are in existence and owned by the seller when the contract is made
86
Future Goods
* Goods which are not in existence when the contract is made
| * “Goods to be provided at a later date”
