Business Law Exam 2 Flashcards Preview

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Flashcards in Business Law Exam 2 Deck (86):
1

Elements of a Contract

Mutual agreement
Competent parties
Consideration

2

Mutual Agreement

Offer
Acceptance
Reality of consent

3

Offer

Expression of willingness of the offeror to enter a contractual agreement

4

Offeror

Person/party who initiates, or makes, an offer

5

Offeree

Person/party whom an offer is made

6

Requirements of a Valid Offer

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

Invitation to Deal

o Advertisements
o Price lists and quotations
o Bids
o Estimates
o Not valid offers, may lead to an offer

8

Termination of an Offer

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

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Insane

Person afflicted with a serious mental disorder impairing ability to function

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By Rejection

Refusal to accept

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By Counteroffer

Intended acceptance which changes or qualifies the offer, and is a rejection of the original offer.

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By Intervening Illegality

Legal situation interfering with an offer and agreement
• Example: Making a contract to kill someone

13

Acceptance

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

Reality of Consent

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

Misrepresentation

o False statement of a matter of fact
o *INNOCENT MISREPRESENTATION
o False statement made in the belief it is true

16

Fraud

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

Manner of Committing Fraud

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

Undue Influence

o Improper influence that is asserted by one dominant person over another, without threat of harm
o Often with a fiduciary relationship

19

Fiduciary

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

Duress

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

Unilateral Mistake

• 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

Mutual Mistake

• 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

Competent Parties

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

Protected Classes of Persons

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

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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

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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

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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

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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

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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

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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

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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”