Business Law Final (Ch 11-19)

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Sanctity of Promises
-rooted in our Western tradition -morally important -economic necessity -personal responsibility and "taking care of your own self-interest"
sources of common law
-common law for all contracts except sales and leases -sale and lease contracts
function of contract law
Provides stability and predictability for commerce
definition of a contract
promise or set of promises for breach of which the law provides a remedy for, or the performance of which the law in some way recognizes as duty
objective theory of contracts
-we determine what a contract and/or its terms means by what the parties did, not by what the parties tell us they meant -"actions speak louder than words" -what a contract is or what it means can be inferred from the parties' conduct -determined by the "reasonable person" standard
1. The most important reason courts enforce contracts is/are: a) "a person's word is their bond." (It is the moral thing to do.) b) The law says one will keep one's promises, so you must obey the law. c) Contracts are a foundation of our economy. d) Keeping one's promises shows you can be trusted.
c) Contracts are a foundation of our economy.
T/F: Contract law emphasizes personal responsibility and accountability.
What are the 4 elements of a contract?
agreement, consideration (value), contractual capacity, legality
6 types of contracts
1. bilateral 2. unilateral 3. formal 4. informal 5. express 6. implied
a promise for a promise
bilateral contract
a promise for an act
unilateral contract
requires a special form for creation (comes from state code); must be in writing ex: checks
formal contract
requires no special form for creation
informal contract
formed by words; terms are state and out there; either oral or written
express contract
formed by the conduct of the parties; even though they didn't agree to exactly what happened, there was a contract there; very common
implied contract
contract performance
executed, executory
Contract Enforceability
Valid, Void, Voidable
Executed Contract Performance
a contract that has been fully performed on both sides
Executory Contract Performance
a contract that has not been fully performed on either side
Valid Contract Enforceability
agreement, consideration, contractual capacity, legality
Void Contract Enforceability
no contract
Voidable Contract Enforceability
-implied in law -no actual contract exists -equitable remedy created by courts, and imposed on parties in the interest of fairness and justice
Quasi contract
It is a dark and stormy night and a guy is driving and hydroplanes and his car flips and he is in a coma. When he wakes up in a coma, he says he is not paying his hospital bills because he did not say they could help him. This is not fair to doctors, ambulance drivers, etc. This is an example of ________________.
Quasi contract
T/F: An otherwise valid contract may still be unenforceable.
Interpretation of Contracts
·-Plain meaning" Rule; However, if terms are unclear or ambiguous, court may admit "extrinsic" (external) evidence. -Contracts are interpreted as a whole. -Terms that are negotiated separately given greater weight. -Words given ordinary, common meaning. -Specific wording given greater weight that general language. -Written, typewritten or handwritten given greater weight than preprinted. -Ambiguous terms interpreted against the drafter. -Trade usage, prior dealing, course of performance to allowed to clarify.
1. A bilateral contract a) Must be in writing b) Is an exchange of a promise for a promise c) Is an exchange of a promise for performance d) a. & b. above e) a. and c. above
b) Is an exchange of a promise for a promise
T/F: Consideration is the respect you pay for other person in a contract.
False- Consideration is value.
agreements consists of ________ and _________________________.
offer acceptance
the two parties of an agreement are the ___________________ and __________________________.
offeror offeree
party who initiates the offer
party to whom the offer is made
for an agreement to be made, parties must show _____________ _______________________ assent to terms of the contract.
mutual voluntary
Requirements of the Offer
-offeror's serious intent -definiteness of terms -communication to offeree
Contract is judged by what a reasonable person in the Offeree's position would conclude about the offer
offeror's serious intention
Lucy wanted it more but Zehmer bought it. One Christmas Eve, Lucy brought over drinks and said I will give you $50,000 cash for the Thompson Farm and so he called his wife. Zehmer wrote on a napkin and wrote out the agreement and signed it and then made Lucy sign it as well. They had to sign a napkin a third napkin because it kept getting messed up. The day after Christmas, they went to a lawyer and gave them the contract on a napkin. She gave the lawyer the $50,000 cash and calls the Zehmers. Zehmer says that they didn't think Lucy was serious and he was too drunk. Tried to say he wasn't serious about that deal. This is an example of
offeror's serious intention
expression of opinions are not ___________.
where intent may be lacking
Expressions of Opinion: not offers. Statements made in jest, frustration, or anger. Statements of Future Intent: not offers. Preliminary Negotiations, or Invitations to Negotiate: not offers.
statements of future intent are not ________.
preliminary negotiations, or invitations to negotiate are not _________.
Lowe's offers $10 widgets. 900 people want them, but they only have 100 to sell for $10. They are not required to fulfill the 900 people and so they do not have to accept the people's offer. This is an example of:
advertisements are not offers
§ Mr. Cochran's mother was very short and small. She loved lobster more than anything else in the world. One day when Cochran was in the Navy, he came home with a few $100. His mother comes in one night and asks if he has any money and he said yes in my wallet. She reaches over and pulls out every penny from his wallet and from his sister. She was getting every bit of money in the house. She held up the newspaper and it had an ad for $3.99 for a pound of lobster. She went to the Winn Dixie and said she wanted every bit of lobster, but the man said that it was a mistake and it was supposed to say $13.99. She insisted that she would buy it for $3.99 but the employee said no and went and got the manager. They manager was a nice man and have her the lobster for $3.99. He probably did this to avoid a bad rep from both Cochran's mom and the media. This is an example of:
advertisements are not offers
not an offer, but invitation for offers through auctioneer
Auctions with and without _________.
with reserve
can withdraw goods
without reserve
cannot withdraw goods
definiteness of terms
-Identification of the parties -Object or subject matter of the contract -Consideration to be paid -Time of payment, delivery, or performance -A court can supply missing terms if the parties intend to form a contract.
T/F: Bill offered to pay Jennifer $100 for her bike if she would paint it blue. Jennifer agreed and painted the bike a beautiful Carolina blue. Bill refused to buy the bike saying it wasn't a manly blue and Jennifer should have known that. Bill wins, Jennifer loses.
An offer may be terminated prior to acceptance by either
-action of the parties -operation of the law
Offer can be withdrawn anytime before offeree accepts the offer
Revocation of the offer by the offeror
§ Bill and Joe are lifelong friends. After work every day, they would meet for one day and go their separate ways. Bill bought a bass boat for $30,000 and has only taken it out once. His wife says you either start using it or sell it. Bill knows Joe would love it and says to Joe he would sell it to him for $15,000. Joe was getting a little excited and said let me run this buy the wife. Bill thinks uh oh I didn't tell the wife about it. Bill's wife gets mad that he was selling it to her for only $15,000. He decides to call Joe and revokes his offer. This is valid because Joe had not accepted it yet. § Ex) If the same circumstance happened and Bill calls Joe to revoke the offer but Joe accepts before he revokes the offer. This is an example of:
revocation of the offer by the offeror
3 types of termination by action of parties
-revocation of the offer by the offeror -rejection of the offer by the offeree -counteroffer by the offeree
-Rejection by the Offeree (expressed or implied) terminates the offer -Effective only when it is received by the Offeror or Offeror's agent
rejection of the offer by the offeree
Joe rejects the offer for $15,000 but then goes home and tells his wife he rejected the great offer. She says he is stupid so he goes back to accept but the offer is not there anymore. This is an example of:
rejection of the offer by the offeree
-Rejection of original offer and the simultaneous making of a new offer -Mirror image rule: at common law, any change in terms of automatically terminates the offer and substitutes the counteroffer
counteroffer by the offeror
termination by the action of the parties
-acceptance -revocation -rejection -counteroffer
Death or incompetence of the Offeror or Offeree: ___________________ _______________________ unless it is an irrevocable offer
automatically terminates
Termination by Operation of Law
1. lapse of time 2. destruction of the specific subject matter of the offer 3. death or incompetence of the offeror or the offeree 4. supervening illegality of the proposed contract
T/F: An agreement must have both an offer and acceptance.
T/F: Generally, what the parties intended to do matters in determining what a contract means.
False; it is what the parties actually do
1. An offer may be terminated by: a) Operation of the law b) The objective theory of contracts c) Actions of the parties d) All of the above e) A & C only
e) A & C only
acceptance is the
voluntary act (expressed or implied) by the offeree that shows assent (agreement) to the terms of an offer
Mode and Timeliness of Acceptance
general rule & mailbox rule
general rule of acceptance
acceptance is timely if made before offer is terminated
mailbox rule of acceptance
acceptance is effective when offeree places the acceptance in the mailbox (Default Rule)
If the offer calls for a specific way of acceptance that should be the only way you accept. Use an alternative way at your own risk.
substitute method of acceptance
· A warehouse landlord had rented a warehouse to another business. They rented the warehouse during a downtime in the economy for a very good price. The landlord said they have to let them know in writing. The tenant never notified the landlord that they wanted the warehouse. The other tenant arrived but the old tenant was still there. The old tenant said he should have known that the tenant wanted to continue staying there. This is an example of:
substitute method of acceptance
Two business are talking, and one business says "I make this offer to you. You've got until 4:30 on Friday afternoon, March 31st. To accept this offer, you have got to deliver to our office via FedEx. The business is in a rural area and they wait until Thursday afternoon and they don't have a FedEx drop nearby so they use UPS drop box. When the company calls to see if they got the package, they say they did, but they said it was not accepted because it came from UPS. This is an example of:
substitute method of acceptance
Full contract should be available to both parties (at least hyperlink)
agreements in E-contracts
Terms of acceptance should be clear
1. Forum-selection clause 2. Choice of law clause 3. Click on agreements: 'I Agree' 'I Disagree'
what is valid for E-signature technologies
-Any electronic means of agreeing to an electronic contract is valid if it clearly indicates "intent to be bound:" "X" or "check mark" or initials -Digitalized signatures valid -Typing your name is valid -E-signatures and E-documents are valid under Federal law unless the parties both specifically agree otherwise. There are exceptions.
generally, consideration must have
-legally sufficient value -bargained for exchange
T/F: In contract law, the term consideration refers to the serious thought that underlies a party's intent to enter into a contract.
FALSE- Consideration means value.
T/F: In contract law if a promise if made, it will be enforced.
FALSE-Just because there is a promise, doesn't mean it will be enforced.
T/F: Consideration has to be essentially equal in any contract.
T/F: The most important consideration in determining value is the cost involved.
FALSE- Cost has nothing to do with value.
"legal value" elements
-value (money, property) -promise -performance -forbearance
Not doing something that you have the legal right to do in exchange for something of value
Hamer's uncle promised to pay him $10,000 if, when he went off to college, he didn't smoke, drink, cuss, gamble, or womanize. Hamer went to college and didn't do any of these during his 4 years but while he was at college, his uncle passed away, so it got complicated. Hamer said I didn't do anything that I had a legal right to do in those areas because I expected my $10,000 reward. This is an example of:
"bargained-for-exchange" elements
-Must provide basis for the bargain -Both parties must be able to say "yes" or "no" -Something of legal value must be exchanged between the parties.
Henry promises not to open his Hank's Lunchbox Café before 10 A.M. if Danni who owns Danni's Danish & Donuts next door promises to close by 1 P.M. Henry's consideration is: a) The destruction of a legal relationship b) The creation of a legal relationship c) A forbearance d) An exchange of money
c) A forbearance
A company specialized in selling Bibles. Cochran's neighbor said he would pay him $2.50 an hour and minimum wage was only $1.75 which he could earn enough money to pay tuition, room/board, and buy a new car. This publishing company would make the students go to a rural area to sell Bibles to illiterate people. Cochran turned down the opportunity because he didn't know how he would sell Bibles to illiterate people. At the end of the summer, his neighbor told him that the he sold so many Bibles because they had pictures and not words. They sold it for $795 and a few weeks later, Cochran went to the store and saw the same Bible for sale for only $49. A couple years later, a federal agency shut them down. This is an example of:
adequacy of consideration
General rule is that
Courts typically will not consider adequacy of consideration
two questions about the adequacy of consideration
1. where is consideration in a contract? 2. why do we have consideration in a contract?
Agreements that lack consideration
-preexisting duty -past consideration -illusory promises -gift promises
promise to do what one already has a legal duty to do does not constitute legally sufficient consideration.
preexisting duty
A general contractor contracts sub-contractors. When the contractor went to the subcontractor, they established a contract. Before the project is over, the general contractor already gives the subcontractor a new project with him. One day, another general contractor comes along and offers the subcontractors double the pay that the other general contractor would pay. They work for the new general contractor but then they only get paid $200,000 so they sue for $400,000. This is an example of:
preexisting duty
past consideration is
not consideration at all
Cochran and his wife's next-door neighbors go on a cruise before COVID hits. Cochran cuts their yard and his wife pays their bills. They finally get back and see that they had cut grass and paid their bills. The neighbor tells Cochran when his paycheck comes in, he will pay Cochran $2,000 for cutting his yard. This is an example of:
past consideration
Promisor has not definitely promised to do anything (no promise at all).
illusory promises
Cochran took his paralegal out and ask her to work more hours in the summer and promised he would pay her a lot more and give her a bonus if they have a good summer. If she didn't get the bonus and she thought it was a good summer, she could not sue him. This is an example of:
illusory promises
One party promises to do something without any promise in return
gift promises
Uncle Chester promises his niece $20,000 for being a sweet girl. This is not consideration at all. This is an example of:
gift promises
Past consideration is consideration.
You agree to pay Eddie $1,000 if he quits smoking. This is a valid contract.
TRUE (forbearance)
Settlement of Claims: Accord and Satisfaction
-debtor offers to pay a lesser amount than the creditor purports to be owed -the debt must be in dispute -the accord is the new agreement -the satisfaction occurs when the new agreement is completed (release
Legal ability to enter into a contractual relationship.
contractual capacity
contract capacity is either ________________________ or ____________________________________.
not present subject to special rules
no contractual capacity
contractual capacity subject to special rules
4 types of incompetency
-Adjusted by a court to be mentally competent ("insane") - Void -Not adjusted by a court to be mentally incompetent but later determined by a court to be mentally incompetent. - Voidable. -"Lucid" intervals - Valid. -Incompetence because of intoxication. - today mostly "valid"
the age of majority is either
18 or 19
A contract entered into by a minor is generally ___________________ at the option of the minor (can be disaffirmed).
CE Fitness took advantage of freshman girls who think they will have all this free time to workout. Parents would call Cochran and see if he could help them get out of the membership. Then, they got minors to have someone sign with them. This is an example of:
minors - disaffirmance
minor must disaffirm the _____ contract
2 general rules of disaffirmance
-Minor disaffirms and must return the Consideration in the condition it is in at time of disaffirmance to receive his total Consideration back; Minor's conduct must have been responsible and lawful. -Minor disaffirms but his conduct has been willful, wanton, egregious, and/or irresponsible; the minor must return the Consideration in the condition it was in upon receipt.
The minor knew at a very young age that he was going to have to have a car when he turned 16. He knew that his parents didn't have money to buy him one so he started saving at a very young age. By the time he was 16, he bought a used car for $6,000. He didn't have to buy insurance in Tennessee. He drove off of the lot and turned right. He stopped at the nearest red light. He was sitting there waiting for the light to turn green and someone crashed into him. As he was sitting in the corner and the cops asked him why he was so upset. He said he just bought that car with his own money. The cop said when the wrecker comes, just have it hauled back to the car lot and get your $6,000. This is an example of:
minor disaffirmance
The same case, but when the minor drives off of the lot, he is admiring his car and someone rolls up next to him and says "Hey Leroy, where'd you get that piece of junk? Does it run?" It was two guys from his high school mocking them, so it turned into a drag race. The cars were going 80 when his car flipped multiple times. He had his seatbelt on so he was fine but the car was destroyed. He can still disaffirm the contract he signed that morning and get his $6,000 back. Since his conduct was irresponsible, the minor only gets the value of that consideration when he hauls it back on the lot. This is an example of:q
minor disaffirmance
exceptions to disaffirmance
-misrepresentation of age -necessaries
-Generally, minor can disaffirm the contract. -But some states prohibit disaffirmance and hold the minor liable.
misrepresentation of age
Contracts for food, clothing, shelter may be disaffirmed by minor, who remains liable for the reasonable value of goods or services. Why?
T/F: If you don't have contractual capacity you may not enter into a contract.
FALSE; you can enter into the contract, but it may be voidable.
T/F: The age of majority in the United States is 19.
FALSE; only in Alabama and Nebraska
-For a contract to be enforceable, it must be formed for a legal purpose. -A specific clause in contract can be illegal, but rest of contract can be enforceable. -A contract to commit a tortious act is illegal (see chapter 6).
Contracts Contrary to Statute
-Contracts to do something prohibited by federal or state statutory law is illegal and therefore void (never existed). -Contracts to commit a crime. -Contracts for usury. (no question on final) -Gambling -Licensing statutes: only remember that where a license is required, a contract without a license is unenforceable.
Contracts Contrary to Public Policy: Generally, VOID.
-Health, safety, welfare, morals. Ex) stripper from Columbus didn't get fully paid what she needed. -Contracts in restraint of trade are generally void. (Exception: covenant not to complete and safe of an ongoing business.)
Covenant not to compete in a sale of a business is enforceable as long as type of business restriction, time and geographic terms are reasonable (same business/2 years/75 miles)
contracts in restraint of trade
Bubba's BBQ is tired and wants to turn his business to a manager for a week. When he comes back to town, he comes back home and sells his business and then moves to the beach. Then, he gets bored and moves back to Auburn and opens a new restaurant. He takes all the business from the old business. He is not allowed to open a BB restaurant with 2 years and 75 miles of Auburn. This is an example of:
contracts in restraint of trade
An accountant in San Diego sells his firm and gets million. He opens a new tax preparation busines in San Francisco and the people of San Diego heard about this and tried to get it shut down, but this was not reasonable because the geography was too broad and over 75 miles away. This is an example of:
contracts in restraint of trade
Party promises to discriminate on the basis of race, color, national origin, religion, gender, age, or disability are contrary to both statute and public policy, and unenforceable.
discriminatory contracts
The real estate salesman in the neighborhood sales you can't move in the neighborhood is you're a certain race. This is an example of:
discriminatory contracts
A restaurant won't sell to someone because of a national origin. This is an example of:
discriminatory contracts
Generally, illegal contracts are _____.
If contract is executory, ______________________________________
cannot be enforced
T/F: Unjust enrichment is not an issue - Courts just leave the parties where they find them.
Contract may be unenforceable if the parties have not genuinely assented to its terms by:
-duress (forced to agree) -mistake -undue influence -misrepresentation
A mistake of fact _____ allow a contract to be cancelled.
________________ mistakes cannot be cancelled unless: -If other party to the contract knows or should have known that a mistake of fact was made, or -If mistake was due to an inadvertent mathematical and without gross negligence. -Cannot get out of the contract unless the other party knew you were making a mistake.
Mistakes can be rescinded by either party.
bilateral mistakes
In Britain, they cannot grow cotton. In the 1800s, most of their cotton came from South America, Egypt, and India. Wichelhaus specialized in representing the cotton mills. The cotton mills would go to Wichelhaus and say they needed a ship of cotton. Wichelhaus said to Raffles that he needed and ship of cotton, do you have one? Raffles said oh yes, I have one and Wichelhaus said great. Raffles said it would be coming on his ship named the Pierless. They made this deal in August. Wichelhaus didn't know that Raffles had a few ships named Pierless. In December, a ship named Pierless arrived and Wichelhaus went to get the ship load of cotton he bought but Raffles said that this ship was already sold to someone else before they made their deal. Raffles said his ship wouldn't be in until March but Wichelhaus said he has already sold it and it needed to be delivered by December to the manufacturer. Wichelhaus had made a mistake because he didn't know this wasn't his ship, but Raffles is in trouble too. The court determined that Raffles and Wichelhaus didn't agree to the same thing. Quite frankly, they don't even have a contract. This is the result of a bilateral, or mutual, mistake. Cochran thinks Wichelhaus is to blame because he made the most assumptions. Neither one of them looked at the details. This is an example of:
bilateral mistake
Generally, contract is enforceable by either party.
mistakes of value
There was a lady in her late 60s in Iowa. She grew up in New Jersey & her mother was in her 90s. She was an only child and she left new jersey when she got married. She would go back to New Jersey to visit her mom. As her mom got older, she stopped going up the stairs. The rest of the house she seldom went into. The other parts of the house because dusty and dingy. The mother passed away in her 90s and the daughter went to the house. Everything was old. An estate agent said they would sell everything for 10% of the total profit. She decided she would have a yard sale. She gets up early the day of the attic and found an old trunk that was about to fall apart. This brought back memories because she used it as a child. The only other thing else up there were old posters and didn't think they would sell but she put a price tag of $20 on the posters. A professor came that lived next door came and looked through the stack of pictures and said he would buy one for $10. She agreed. He took the picture back to his house, cleaned it up, and hung it up in his living room. The next week, the mechanical engineering professor had one of his fine arts professors at his university to his house and come to found out, he found out that he has the original picture that would be worth about $1.5 million. He took it and sold it for $1.5 million. The daughter sees it in the news and is upset, and files a lawsuit saying she made a mistake of value. The daughter is at fault because it is her fault that she didn't get is appraised. They both thought is was only worth $10. On the other hand, if the professor of fine arts saw it and thought it was valuable, he could ask her if he could find the value and that they could split the price. This is an example of:
mistakes of value
Leroy and Bubba commit to put up $500 each to attend the NASCAR race in September. Leroy thought this commitment was for the Talladega race, but Bubba thought this commitment was for the Darlington, South Carolina race. Either party may get out of this contract because: a) This as a mutual mistake of value b) This was a bilateral mistake c) This was a unilateral mistake d) None of the above
b) This was a bilateral mistake
T/F: A bilateral contract is the exchange of a promise for performance.
FALSE, this is a unilateral mistake
fradulent misrepresentation consists of the following elements
-Misrepresentation of material fact -Intent to deceive -Reliance on misrepresentation -Injury to the innocent party
fraudulent misrepresentation of a contract is
voidable by innocent party
A(n) ________________ misrepresentation occurs when a person makes a statement he believes to be true but actually misrepresents facts.
-Ordinarily neither party has duty to disclose facts. -However, seller will be liable if she knows of material defects that cannot be reasonably discovered by buyer.
misrepresentation by silence
Man didn't tell the buyer of his house that there was a huge leak in the attic. The buyer hired someone to inspect, but he didn't see this because he isn't required to take apart the house. Six months later, the buyer found the leak and came to Cochran and Cochran talked to the inspector. The inspector found that the seller knew this was a problem because he could see where he tried to fix it. The seller is at fault. This is an example of:
misrepresentation by silence
-occurs when a party takes specific action to conceal a fact that is material to the contract.
misrepresentation by conduct
Statement of Opinions are
not actionable
Contract lacks voluntary consent and is voidable.
undue influence
Sibling is taking care of his dad. He tells his dad to sign his house, etc. over to him. The father doesn't want to do this because he wants to be fair to all his children, but he doesn't want to go to the nursing home, so he does it. This is an example of:
undue influence
Party who enters into a contract under fear or threat makes the contract voidable.
_________________ duress is generally not sufficient to constitute duress