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Business Law > Exam #3 - Contract Law > Flashcards

Exam #3 - Contract Law Flashcards

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1
Q

Background info of a contract

A
  • not every contract is enforceable
  • contract law is ancient law but has evolved to reflect social change
  • founded on tradition
  • it is immoral to not keep a promise which is why contracts were created
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2
Q

2 main goals of contract law

A
  1. autonomy/certainty (supports what people want to do)

2. fairness

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3
Q

Elements of a contract

A
  1. agreement
  2. consideration (look at exchange between the parties)
  3. capacity (who can legally enter into a contract)
  4. lawful object (an object or action that is not illegal)
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4
Q

Contract law = strict liability (so state of mind does not matter)

true or false?

A

TRUE

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5
Q

What happens when a promise is broken in contract law?

A

A remedy occurs

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6
Q

Unilateral contract

A
  • one promise (in exchange for performance)
  • one party promises to do something in the future
  • contract is formed at the time of the promise

ex: I ask you to replace my car’s battery and if you show up (but you don’t have to) I will give you $500
ex: loyalty programs (the brusters stamp card where on the tenth stamp I get a free one or a discount

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7
Q

Bilateral contract

A
  • 2 promises
  • contract is formed at the time of the promise
  • both parties are promising to do something in the future

ex: I ask a mechanic to come fix my car battery on Friday for $500

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8
Q

Express contract

A

when you expressily promise (either orally or in writing)

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9
Q

Implied contract

A
  • implied in fact = implied from circumstances
  • nothing specific but one can assume based on the circumstances

ex: two companies who have done business together for 20+ years when suddenly one leaves then they are breaching an implied contract

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10
Q

Valid contract

A

a contract that can be enforced

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11
Q

Voidable contract

A

one or both parties have a reason by law that the contract can be voided if one or both parties choose to do so

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12
Q

Void contract

A

a contract that cannot be enforced by law even if both parties want it to

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13
Q

Executory contract

A

a contract is in place but one or both parties have not performed yet

ex: the mechanic came to my house the day I asked him to but I was not home

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14
Q

Executed contract

A

the contract was fully performed on both ends and the contract is over

ex: mechanic came to my house on Friday like I asked and I paid him the $500

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15
Q

Treaty

A

a contract between countries

choice of law system can allow for parties to opt out of a treaty

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16
Q

Sources of contract law

A
  • common law
  • uniform commercial code (UCC - sale of goods only)
  • convention on the International sale of goods (CISG)
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17
Q

Uniform commercial code (UCC)

A
  • ONLY applies to sale of goods (tangible, movable, personal property)
  • does NOT apply to sale of service, intangible (stocks or intellectual property) and real estate
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18
Q

Mixed sale situation

A

deals with an issue of goods AND services to determine which is the dominant one is a contract

gravamen test or predominate factor test

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19
Q

Gravamen test

A
  • deals with a mixed sale situation

- looks at the breach (what the complaint filed was about) and determines if that is a goods or service issue

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20
Q

Predominate factor test

A
  • deals with mixed sale situation
  • 4 factors
    1. language of contract (ex: “repair” or “inspection”)
    2. nature of business (ex: oil change is due for the car)
    3. reason for contract (ex: bringing a car in for an oil change)
    4. amounts charged (ex: goods: 25% and service 75%)
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21
Q

Quasi contract

A
  • court will give a remedy as if there was a valid contract in place
  • prevents UNJUST ENRICHMENT (unfair for someone to not pay for it)
  • NOT someone doing you a favor without you asking and then asking/expecting compensation

ex: guy hires contractor to fix city sewage pipe and city gave him a permit to do it and then refused to reimburse him for it even though it was their responsibility to fix in the first place

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22
Q

Promissory estoppel (4 elements)

A
  1. a promise
  2. reasonable reliance
  3. actual reliance
  4. INJUSTICE
  • this stops someone from backing out of their promise because of reliance
  • a reasonable person would have relied on the promise
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23
Q

Holt vs Home Depot (example of promissory estoppel)

A
  • Home Depot had an open door policy when it came to complaints
  • 2 senior managers terminated Holt after they complained
  • promissory estoppel because in the employee handbook there was the open door policy and it promised to not have any consequences for using it (reasonable person would rely on a company policy stated in a company document)
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24
Q

Material and non-material breach

A
  • material breach or non-material breach
  • factors: magnitude of breach, good faith, timing, extent that injured party can be compensated for damages
  • did the breach deprive party from reasonable expectation?

example of material breach: hired you to paint my house and you only painted half of it
example of non-material breach: hired you to paint my house and you painted everything except a 2’x2’ area

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25
Q

Anticipatory breach and excuses

A

this occurs when one party is unable or unwilling to perform

possible excuses:

  • impossibility (death, illegality, destruction of subject matter)
  • impracticability: would result in losing money because of contract and it was unforseeable (ex: natural disasters, pandemic, war)
  • “force majuere” clause (superior force): through my own fault I am not responsible, this clause prevents the need to go to court
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26
Q

Remedies for breach

A
  • equitable remedies (court orders)
  • legal remedies (money damages): compensatory damages, nominal damages (suing for a low amount just to save dignity), punitive damages (suing for other party intentional trying to harm you for the original suit)
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27
Q

Compensatory damages

A
  1. expectation interest (loss of value of performance the plaintiff expected)
    ex: seller failed to perform (difference between contract and market price)
    ex: seller defective performance (difference between value warranted and value in defective condition)
  2. consequential damages (lost profits due to forseeable risk)
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28
Q

Limitations on legal remedies

A
  • reasonable certainty
  • forseeable (from breaching party)
  • duty to mitigate
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29
Q

An offer

A

a promise conditional on an act, return promise or for bearance (reframing from doing something)

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30
Q

Offeror vs offeree

A 
offeror = person making the offer
offeree = person receiving the offer
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31
Q

An offer (3 elements)

A
  1. intent to enter a binding agreement
  2. terms must be definite
  3. offer must be communicated to the office
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32
Q

Intent

A
  • would a reasonable person judge the offeror’s words and acts in the context of the circumstances to signify intent
  • NOT obviously joking, haggling, or equivocating

ex: Lucy vs Zehmer (Zehmer wrote contract down on the back of a receipt with all the conditions and a place for Lucy’s wife to sign but Lucy claimed to be drunk and joking even though he never said no like in the past)

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33
Q

Definiteness of terms (common law vs UCC)

A

common law:

  • parties, price(s), subject matter, quantity, timeline ( needs lots of terms)
  • policy: identify breach and give a remedy

UCC:

  • ONLY covers goods
  • open terms are okay
  • gap filling rules (judge can fill in blanks)
  • policy: reasonable certainty basis to provide a remedy
    ex: case with company contract saying “all the work they could handle” and “up to $10,000 a month in financing” - not enough to even fill any gaps
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34
Q

Termination of the offer by the parties

A
  • revocation (offeror takes back offer before the offeree can give an answer)
  • rejection (offeree says no even if they end up changing their mind after)
  • counteroffer (wants the offer but to also add or subtract part of the conditions before accepting)
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35
Q

Termination of the offer by the law

A
  • lapse of time (acceptance of offer must happen before the conversation ends)
  • death or insantity of either party
  • destruction of subject matter
  • something makes the offer illegal
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36
Q

Types of contracts that must be in writing

A
  1. collateral contracts
  2. contracts for real estate
  3. contracts for more than one year
  4. contracts for the sale of goods exceeding $500
  5. executor’s promise (a will)
  6. things involving marriage (a prenup)
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37
Q

Collateral contracts

A

a person (guarantor) promises to perform an obligation of another person (principal debtor) to a third person (obligee)

ex: A wants to buy a car but they have a shit credit score so the car company wants A’s parents to promise that if A doesn’t pay then they will pay in place of A

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38
Q

Contracts for real estate

A
  • land contracts
  • for interests in real estate
  • leases for more than one year and certain easements (electricians or plumbers) on real propoerty
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39
Q

Contracts for more than one year

A
  • bilaterla contracts that cannot be performed within a year from the date of formation
  • courts are afraid that parties will forget about the contract

ex: I make a contract with Liam to paint his house but I can’t do it for 1 year and 1 month because my supplies is backordered and then I will have six months to paint it at that time

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40
Q

Contracts for sale of goods exceeding $500

A
  • UCC2-201: contracts for the sale of goods over $500

- includes contract modifications that cause contract to now exceed $500

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41
Q

Writing requirement (common law)

A
  • does NOT need to be made at the time the contract comes into existence
  • can be multiple papers, receipts, etc (can even be on a sticky note)
  • contents:
    a. identify parties
    b. identify subject matter with reasonable certainty
    c. signed by party being charged (initials are fine)
42
Q

Writing requirement (UCC)

A
  • writing must be sufficient enough to indicate a contract for sale has been made
  • must indicate quantity of goods
  • sufficient writing includes:
    a. confirmatory memorandum between merchants
    b. party started performing
    c. admissions in pleadings or court
    d. specifically manufactured goods
43
Q

Acceptance

A

manifestation of assent of the terms (of the offer) made by the offeree n the manner invited or required by the offer

  • only offeree may accept offer
  • offeror may specify manner of accepting offer (ex: must accept in writing)
44
Q

3 requirements to accept an offer

A
  1. intent to enter into an agreement
  2. on the same terms as offer (inquiries or grumbling are valid acceptance)
  3. communication of offer (silence is not acceptable, mail box rule)
45
Q

Advertisements

A
  • general rule: advertisements are NOT offers
    ex: flyers, catalogs, “for sale” ads
  • think of Pepsi Co. lawsuit with the military jet*
46
Q

Oral contracts are enforceable

true or false?

A

TRUE (generally with the exception of statute of frauds)

statute of frauds created what subjects must have a contract in writing

47
Q

Contract interpretation

A
  • unclear terms causes party who made them to be penalized
  • specific terms over general ones
  • handwritten notes override original text
  • look at each party and their practices to help determine unclear things within contract (ex: trade customs within an industry)
48
Q

Consideration (2 elements)

A

the legal term for giving something up

  1. legal value
    - both sides have to give something up of legal value
    - a bad bargain does not matter in the eyes of the law
    - no reasonable person judgement
    - not a gift
    - examples: money or property, refrains from doing something a person has a legal right to do
    ex: uncle promised inheritance if nephew stopped drinking, which he did but then uncle refused to give it up (court favored w/ nephew because both parties gave up something of value)
  2. bargained for exchange
    - causation (you give up x because you want y)
    - quid pro quo (this for that)
49
Q

Exchanges that are NOT consideration EXAM QUESTIONS

A
  1. illusory promises
    - when one or both parties can choose to not perform their promise as stated in the contract
    - usually uses “if” or “unless”
    - cancellation clauses
    - ex: “I will sell you my textbook tomorrow if I don’t have another person buy it today”
  2. preexisting duties
    - when a person gives upwhat they already had a duty to do and give up
    - so…not really giving anything up
    - ex: my car is always dirty, mom pays brother $10 to clean it but brother comes to me offering to clean my car for $20 ; if I found out about original deal I would not have to pay him because he will not be giving anything up
  3. past consideration
    - you already did it, no duty because you already did it and the person will pay you for something you already did
    - leads to no exchange
    - ex: christmas bonuses or when there is a moral obligation
50
Q

5 doctrines to avoid a contract (defenses)

A

these defenses are used to avoid a contract because of the absences of real consent

  1. misrepresentation
  2. fraud
  3. mistake (unilateral or bilateral)
  4. duress
  5. undue influence
51
Q

Effects of the doctrines

A
  • person claiming non-consent has power to cancel the contract
  • person claiming non-consent must not act in a manner to affirm the contract
52
Q

Fraud/innocent misrepresentation (6 elements)

A
  1. untrue assertion
  2. of fact
  3. fact was innocent and gave reeason to enter a contract or fraudulent
  4. reliance on the assertion
  5. reliance was reasonable
  6. economic harm was present

fraud also happens when someone does not know if something is true but says it anyways

53
Q

Scanter

A

knew something was false and made a statement to get someone into a contract

54
Q

Mistake (4 elements)

A
  • bilateral
    1. basic assumption
    2. material effect on exchange
    3. party harmed did not bear the risk of mistake
  • unilateral (past three plus this)
    4. caused or had reason to know of mistake or was unethical to enforce contract
55
Q

Duress (2 elements)

A
  1. wrongful threat or act that coerces a person to enter or modify a contract (physical, emotional, or economic harm)
  2. victim must have no reasonable alternative but to enter the contract
56
Q

Undue influence (2 elements)

A
  1. relationship of trust and confidence or dominance

2. unfair persuasion

57
Q

Capacity

A

a person must have the ability to give consent before they can be legally bound to an agreement, so capacity is the ability to incur legal obligations and acquire legal rights

58
Q

Groups that lack capacity

A

these groups are protected under the law

  • minors
  • mental disability
  • intoxicated
59
Q

Minor’s right to disaffirm

A
  • voidable by minors only
  • express or implied
  • exception by statute (ex: marriage)
  • exculpatory clauses by parents are usually not valid
  • reasonable period of time after age of majority (usually only a few months)
60
Q

Ratification

A
  • a person who reaches majority age indicates that they intend to be bound by a contract made by as a minor
  • cannot be disaffirmed after that and is made when they are a minor
61
Q

Duties upon disaffirmance

A
  • return any money or goods to each other
  • if the goods or money given by the adult has been lost, damaged, destroyed, or depreciated in value courts are usually split on whether the minor must pay it back or not
  • minors must pay back if they meet these 2 elements
    1. essential for existence (food, clothes, shelter)
    2. parents will not provide
62
Q

Mental impairments

A
  • did the person understand what a contract is talking about?

OR

  • was the person unable to act in a reasonable manner regarding the contract and the other party knew it?
63
Q

Intoxicated persons

A
  • person is unable to understand the nature of the bargaining process

AND

  • other party has reasonable knowledge to know the other person was under the influence
64
Q

Illegality

A

an illegal agreement involves an act or promise that violates a law or is against public policy

ex: two people agreeing to rob a bank, one sues the other for taking all the money and then the court kicks them out and won’t enforce anything

65
Q

3 categories of illegality

A
  1. agreement violates statutes
  2. agreement that violates public policy per the courts
  3. unconscionable contracts
66
Q

Agreement that violates statutues

A

2 ways

  1. statute declares agreement to be illegal
  2. agreement frustrates policyof the statute

ex: encouraging committing crime or violence

67
Q

Agreements that violate public policy per the courts

A

4 types

  1. agreements that restrict competition
  2. noncompete agreements
  3. exculpatory clauses
  4. immoral agreements
68
Q

Non-compete agreements (3 elements)

A
  1. ends = serve a legit business purpose
  2. means = no greater than necessary to protect interest of business (within a specific geographical area and time)
  3. does not burden anyone
69
Q

Exculpatory clauses

A
  • used for preventing one party for holding the other party liable
  • not valid if intentional (used for accidents)
  • ones by parents are usually not valid
70
Q

Unconscionable contracts

A

procedural = bargaining power (how you entered the contract)

  • economic need
  • on a time crunch
  • market conditions
    ex: no heat in the winter when one signed a contrct with an electric company

substantiative = terms so unfair they shock a reasonable person

  • deprived of remedy
  • excessive price compared to market price
  • one party has excessive amount of risk
71
Q

Effects of a voided contract

A

leaves both parties where they are atthat point in time (even if one party completed their end of the bargain)

72
Q

Employment at will rule

A

either party can terminate an employment contract to indefinite duration for good cause or no cause

73
Q

Employment at will rule - common law exceptions (3)

A
  1. public policy (ex: being fired for going to jury duty or reporting illegal activities on behalf of the company)
  2. in bad faith
  3. employment promises (employee contract)
74
Q

Warranty info

A
  • source of law for warranty is now UCC

- can’t have a warranty UNLESS you have a contract

75
Q

3 types of warranties

A
  1. express warranty
  2. implied warranty of merchantability
  3. implied warranty: fitness for a particular purpose
76
Q

Express warranty (2 elements)

A
  1. affirmation of fact or promise regarding goods, or description of goods, or sample/model
    (seller has given this affirmation of FACT, not opinion)
  2. that becomes part of the basis of bargain
    (the reason for buyer to enter the contract)
77
Q

Implied warranty of merchantability (6 elements)

A

seller must be a merchant in regard to stuff being sold

(1) pass without objection in the trade
(2) be of even kind, quality, and quantity within each unit
(3) be adequately contained, packaged, and labeled
(4) conform to any promises or statements of fact made on the container or label
(5) in the case of fungible goods, be of fair average quality
(6) be fit of the ordinary purpose
- to the basic thing it’s supposed to do; a toaster is supposed to toast your bread
- consumer expectation test: is the product doing what a reasonable person would expect it do

78
Q

Implied warranty: fitness for a particular purpose

A
  • seller has reason to know buyer’s particular purpose
  • seller has reason to know that buyer was relying on seller’s skill or judgment for the selection of suitable goods
  • buyer did rely
79
Q

Warranty disclaimers

A
  • can disclaim if clear (ex: as is)
  • except: unconscionable → if disclaimer is grossly unfair OR fails its essential purpose (ex: seller cannot repair or replace within a reasonable time)
80
Q

Background on constitutional law

A
  • constitutional law is a lot like common law
  • the constitution was not enacted after independence from England → it was articles of confederation
  • “we the people” has been in our constitution ever since it was made and was made by white males
81
Q

Amendment 15

A

gave the right to vote to any male without the basis of race, color, or previous condition of servitude

82
Q

Amendment 19

A

right of citizens of the US to vote should not be denied based on sex

83
Q

Amendment 26

A

gave the right to 18 year olds to vote; a result of vietnam war

84
Q

Judicial review

A

judicial branch decides if the other two have exceeded their power

85
Q

Executive branch can exclusively enter a treaty w/out other branches

true or false

A

FALSE

⅔ of senate needs to agree

86
Q

Amendment 1

A

freedom of speech

87
Q

What does each branch of the government do?

A

article 1: powers of the legislative branch is given to the Senate and House of Reps
article 2: executive power is vested in the President
article 3: judicial power of the US is vested in one supreme court, and in such inferior courts the Congress may from time to time ordain and establish

88
Q

Congress only act to the power given by the constitution

true or false

A

TRUE

89
Q

The balance of power that is not specified in the constitution is up to state’s discretion

true or false

A

TRUE

90
Q

Commerce clause

A
  • congress has the power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the US
  • congress has the power to regulate interstate commerce, with foreign nations, and with Indian Tribes
  • congress has the power to coin money, regulate the value of foreign coin, and fix the standard of weights and measures
  • congress has the power to spend
91
Q

3 ways congress can regulate interstate commerce

A

(1) channels of interstate commerce
- roads, canals, etc.
(2) instrumentalities of interstate commerce
- trucks, boats, cars, etc.
(3) intrastate activities (things within the state) as long as they can show that it substantially affects interstate commerce

92
Q

Dormant Commerce Clause (2 ways states can violate)

A
  • cannot burden interstate commerce
    (1) undue burden
    (2) discriminatory
93
Q

Ends means test

A
  • strict scrutiny (compelling ends + necessary means)
  • intermediate scrutiny (important ends + substantially related means)
  • rational basis (legitimate ends + reasonable means)
94
Q

Categories of speech

A
  • fully protected (political speech, anything in the media) strict scrutiny
  • unprotected (obscene speech, fighting words, child porn) rational bias
  • limited protection (commercial, offensive speech) intermediate scrutiny
95
Q

Commercial or non-commercial speech?

A
  • commercial is any kind of speech or writing on behalf of a business that is intended to earn profit or gain revenue
  • non-commercial speech is anything that is not advertisement
96
Q

Equal protection clause

A

prohibits government from enacting laws that will treat people in similar situations differently

  • strict scrutiny: race, national orgin, fundamental rights
  • intermediate scrutiny: sex, gender
  • rational bias: economic and social relations

ex: short hair vs long hair can fall in each category (fundamental right to wear hair short or long, pertains to gender, and is a social relation like one may be more trendy over the other

97
Q

2 categories of due process

A
  1. substantiative (non-economic rights)
    - marriage
    - raise children
    - marital privacy
    - contraception
    - abortion
  2. procedural (3 factors)
    - private interest
    - risk of error of current process
    - government interest
98
Q

Privileges or immunity clause

A

states cannot discriminate against out of state citizens versus in state citizens

99
Q

The constitution can be amended

true or false

A

TRUE

100
Q

Takings clause (emment domain)

A

private property shall not be taken for public use without good reason and compensation

  • property (real, personal, contract)
  • public use (development of gov. owned facility or construction improvements to public things/places)
  • takings will be compensated
101
Q

What are the first ten amendments of the constitution called?

A

bill of rights

102
Q

Objective theory of contracts

A

an agreement between two parties exists if a reasonable person could judge the acts and behaviors of the parties enough to objectively construe agreement

Business Law (2 decks)

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