Business Law- Genuine Agreement and Contractual Capacity Flashcards
Genuine Agreement
-When the offeror makes a valid offer and the offeree has made a valid acceptance
How do courts decide a Genuine Agreement?
-Meeting of the Minds
What are the 5 circumstances that destroy genuine agreement?
- Fraud
- Innocent Misrepresentation
- Mistake
- Duress
- Undue Influence
Fraud
-A deliberate deception intended to secure an unfair or unlawful gain
The 5 Elements of Fraud
- A false representation of fact
- Knowledge of the falsity
- Intent to deceive
- Reasonable reliance by the innocent party
- An actual loss suffered by the innocent party
False representation of fact
-A false representation of a material existing fact
Material Fact
-One that is important and matters to one of the parties
Concealment/Passive Fraud
-Choosing not to reveal important information
-Seller must only disclose latent defects that cannot be seen
False representation of fact: Fiduciary Relationship
-The two parties are in a relationship of trust, there is a duty to disclose material facts
Ex. Doctor and patient, attorney and client
Sales puffery
A seller is allowed to make an overstated belief about their product in order to sell it
Elements of Fraud: Representation known to be false
-The bad party must be aware that the statement they made was false
-SHOWN BY
-Proving actual knowledge
-Showing the statement was made recklessly
False Representation Intended to be Relied Upon
-To prove fraud, the bad party must intend that the good party will rely on the information as part of the contracts negotiations
-Must be reasonably relied upon by the other party
Actual/Resulting Loss
-The innocent party must show monetary loss in order to prove fraud
Remedies for fraud
-Rescind/cancel the contract
-Sue for monetary damages
Innocent Misrepresentation
-The act of making an innocent statement that turns out to be false, when the person honestly believed the statement was true
Remedy for Innocent Misrepresentation
-The right to rescind the contract
-You may not win damages
Mistake
-Sometimes people enter into contracts believing that certain information is true when it is not
Unilateral Mistake
-An error on the part of one of the parties to the contract
-A person cannot avoid a contract because of such a mistake
Two types of unilateral mistakes
-Mistake as to the Nature of the Agreement
-Mistake as to the Identity of the Party
-Mistake as to the Nature of the Agreement
-People who sign an agreement are bound to it even if they have not read it/ are mistaken about its contents
Remedy: NO RECISSION
Mistake as to the identity of the party
If you make an offer by letter to one party, but the wrong person mistakenly receives the offer, the mistake may be cause to void the contract
Remedy: Rescission may be granted
Bilateral Mistake
-When both parties to a contract are mistaken about some important fact
-Either party may avoid the contract
Two types of bilateral mistakes
-Mistake as to the Possibility of Performance
-Mistake as to the Subject Matter
-Mistake as to the Possibility of Performance
-If both parties enter into a contract believing that the duties described can be performed when they actually cannot, either party may avoid the contract
Remedy: Rescission may be granted to either party
-Mistake as to the Subject Matter
When both parties make a mistake regarding the subject matter of the contract
Ex. Title, quantity, quality, price, identity mistakes
RESCISSION MAY BE GRANTED
5 elements of Fraud: Duress
-The overcoming of a person’s will by use of force/threat/bodily harm
3 types of Duress
- Physical Duress
- Emotional Duress
- Economic Duress
Physical Duress
-When actual physical violence is used to force someone to enter a contract
Remedy: Contract is void
Emotional duress
-When the threat of physical force is used to force a person to enter a contract
Remedy: Contract is voidable
Economic duress
-Threats to a person’s business/reputation that cause him/her to enter a contract without one’s consent
Remedy: Contract is voidable
5 elements of Fraud: Undue Influence
-When a person uses unfair and improper persuasive pressure to force another person to enter an agreement
-Old age/mental immaturity may put someone in a weaker position
KEY FACTOR: ONE IS NOT EXERCISING FREE WILL
Remedy: contract is voidable
Contractual capacity
The legal ability to enter into a contractual relationship
-People who enter into contracts are permitted by law to presume that the other party has capacity to contract (REBUTTABLE PRESUMPTION)
Minors Rights
-The presumption of capacity plays a key role in contracts made by minors
-Law permits minors to rescind/void contracts
Age of majority
-Also known as age of legal adulthood
-A person not of legal age is still in minority
Emancipation
-Minors who are not under the control of their parents have been emancipated
-Means they are responsible for their contracts
Abandonment
-A minor who marries or leaves home:
-Gives up all rights to parental support
-Is considered emancipated
-Abandoned the protection afforded him/her as a minor
Why does the law shield minors in contract law?
-To protect vulnerable individuals from dishonest adults
Reasons why minors may be vulnerable in a contract
-Immaturity
-Inexperience
-Lack of education
-Naivete lack of judgement
Disaffirmance
the legal avoidance/setting aside of a contractual obligation
Requirements of a voidable contract
-Must be disaffirmed through words/contracts
-Must disaffirm ENTIRE CONTRACT
-Must return merchandise
-Minors can be held responsible for damage/wear of goods
When two minors enter into a contract with each other, both parties have the right to…
Disaffirm the contract
Exceptions to a minors right to disaffirm
-Some contracts such as marriage contracts cannot be avoided as a matter of law on the ground of public policy
-Misrepresentation of age= fraud
-Minors will be held responsible for a wrongful act
-Minor is held responsible for the fair value of necessaries
Ratification of Minors Contracts
-After reaching the age of majority a person can ratify contracts made during minority
Ratification
The acceptance of an agreement that gives legal force to an obligation that was previously not enforceable
Express ratification of a contract involving a minor
-When the individual, on reaching the age of majoirty, states that they intent to be bound by the contract
Implied ratification of a contract involving a minor
-When the minor reaches the age of majoirty and behaves in a manner inconsistent with disaffirmance
Time frame ratification with a minor
-If a minor fails to disaffirm a contract within a reasonable time after reaching majority age, then a court must determine whether the conduct constitutes implied ratification or disaffirmance
Contracts that are executed is…
ratified
Contracts that are still executory are..
disaffirmed
Parents Liability
-As a general rule parents are not liable for the contracts made by minor children acting on their own
Exceptions to parents liability
-Contracts for necessaries which the parents are legally required to provide
-Parents become obligated to perform the conditions of the contract even if the minor avoids liability
Why do Mentally Impaired Persons have the right to disaffirm contracts?
-They are considered unable to make sound judgements
Before a guardian is appointed by court to look after the affairs of a mentally impaired person, his/her contracts are….
VOIDABLE
If a court has previously determined that a person is mentally incompetent and has a appointed a guardian, any contract made by that person is…
VOID
Contracts made by a court appointed guardian are..
VALID
Intoxicated persons
-Intoxicated people are sometimes able to disaffirm the contracts they enter into when they are intoxicated
-They must have been so intoxicated that they did not understand the purpose, nature, or effect of the transaction
Capacity limitations: Convicts
People convicted of a crime
Capacity limitations: Aliens
-People who are living in this country but owe their allegiance to another country
Capacity limitations: Enemy Aliens
-Certain foreign-born persons designated as such during time of war
