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BUSINESS LAW EXAM 2
EXAM 2
116
Law
Undergraduate 3
10/13/2011

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Term
contract
Definition
legally enforceabe promise or set of promises
Term
contracts clause
Definition
states shall pass no laws impairing the legal obligations of contracts
Term
4 requirements for a valid contract
Definition
1. mutual manifestation of assent
2. consideration
3. capacity
4. legality
Term
mutual manifestation of assent
Definition
consists of offer and acceptance, viewed objectively not subjectively
Term
consideration
Definition
value given or detriment suffered in exchange for a promise allowing the promise to be enforceable, a bargained for exchange
Term
capacity
Definition
ability to legally enter a contract
Term
legality
Definition
contract requirement that states a contract must not break any laws or be unlawful
Term
defenses to a contract are...
Definition
-lack of reality of consent (assent)
-noncompliance with formalities
Term
lack or reality of consent
Definition
defense to a contract, where assent to a contract is not real or voluntary, contract is voidable
Term
noncompliance with formalities
Definition
defense to a contract when legal standards arent met. some contracts must be in writing or witnessed to be enforceable
Term
bilateral contract
Definition
a promise in exchange for a promise
Term
unilateral contract
Definition
promise in exchange for a completed act
Term
express contract
Definition
contract created by the specific words of the parties
Term
implied contracts
Definition
created by conduct of parties, (getting a hair cut, you gotta pay for it!)
Term
valid
Definition
enforceable by all parties
Term
void
Definition
enforceable by none of the parties
Term
voidable
Definition
may be avoided by one or more parties
Term
unenforceable
Definition
4 requirements for a valid contracts are met, but contract i not binding because of a statute
Term
executed contracts
Definition
all performance is complete
Term
executory contracts
Definition
part of the performance is lacking
Term
objective nature
Definition
interpretation where a judge looks at the words and actions of the parties rather than what they are thinking
Term
rules of construction (interpretation)
Definition
1. plain meaning rule
2. entire writing rule
3. meaning of words
4. conflicts of terms
5. ambiguous terms
6. surrounding circumstances
Term
plain meaning rule
Definition
if words of the contract are clear in their meaning, the courts will enforce the contract as written-generaly no extrinsic evidence allowed
Term
entire writing rule
Definition
the court will do its best to enforce the entire contract when there is a potential conflict of terms
Term
meaning or words
Definition
ordinary words are given their dictionary definition, legal terms are given their legal definition, technical terms are given their technical definition
Term
conflicts of terms
Definition
review the entire contract and apply the most consistent with the intent of the parties
Term
ambiguous terms
Definition
primary rule is to interpret the word against the drafting party; hand written has first priority, type written terms have second priority, pre printed terms have last priority
Term
surrounding circumstances
Definition
-course of performance: the way the parties performed the contract being interpreted
-course of dealing: the way the parties performed previous similar contracts
-usage of trade: the way the issue in question is customarily addressed in the type of business involved
Term
standard of objectivity
Definition
look at words spoken or written and conduct and what they would mean to a reasonable person
Term
valid offer
Definition
a serious specific offer and a specific demand in a contract setting
Term
non offers include...
Definition
-expressions of opinion
-statements of intentions
-preliminary negotiations
-certain advertisements and auctions
Term
expressions of opinion
Definition
non offer; statement as to general quality or prediction
Term
statements of intention
Definition
non offer; a statement of what one may do in the future
Term
preliminary negotiations
Definition
non offer;inquiries or generall discussion of potential contract terms
Term
advertisements and auctions
Definition
non offers; with ads the problem is multiple acceptances-could be offers if they are very specific eliminating multiple acceptances. auctions are not offers unless they are advertised without reserve
Term
requirements of a valid offer include...
Definition
-intention
-definitenes
-communication
Term
intention
Definition
a serious and dobjective intention by the offer to be bound, offers made in obvious anger, jest, or excitement are not binding
Term
defiteness
Definition
offer definite enough to ascertain the terms of the contract, includes names, descrition of goods or services, quantity, price, and important delivery terms
Term
communication
Definition
offer must be communicated to the offeree; requires communication by the offeror and a receipt by the offeree
Term
when does an offer terminate
Definition
-revocation of offeror
-lapse of time
-rejection or counter offer
-operation of law
-by terms of offer
Term
option contracts
Definition
under the UCC, a merchant who has been given money to hold an offer on the table must keep offer on table
Term
mirror image rule
Definition
an acceptance which contains new or varying terms is considered a rejection and counteroffer (the acceptance must be a mirror image of offer or it is invalid)
Term
requirements for valid acceptance
Definition
-acceptance by whom
-terms of acceptance
-must be communicated
Term
acceptance by whom
Definition
must be made by the offeree; cant accept an offer made to another person
Term
terms of acceptance
Definition
acceptance must be...
-unconditional
-unequivocal
-same terms
Term
UCC
Definition
uniform commercial code
Term
what does the UCC do
Definition
governs contracts involving sale of goods
Term
sale
Definition
passage of title from a seller to a buyer for a price or consideration
Term
goods
Definition
things tangible and moveable
Term
3 categories of a merchant
Definition
-dealer in goods of the type contracted for
-person who holds himself out as having special knowledge as to goods of the type contracted for
-a person who employs a merchant as an agent
Term
common law applies to...
Definition
employment and sales of land, services, and insurance
Term
UCC applies to...
Definition
sales of goods and has other provisions governing leases of personal property, commercial paper, and mortgages on personal property
Term
variations under the UCC
Definition
-standards of dealing
-offer
Term
standards of dealing
Definition
1. good faith is implied in every contract
2. higher standards for merchants: must meet industry standards for fair dealing
Term
offer (under UCC)
Definition
-price
-payment terms
-delivery
-shipment time
Term
firm offer (under UCC)
Definition
if a merchant in a signed writing promises an offer will be kept open, the merchant is bound to holdthe offer open for stated time or reasonable time, not greater than three months
Term
consideration
Definition
value given or detriments suffered in exchange for a promise, making the promise enforceable
Term
quid pro quo
Definition
this for that; a bargained for exchange of consideration on each side is normally necessary for a contract to be enforceable
Term
4 types of sufficient consideration...
Definition
-an act
-giving up the exercise of a legal right
-a change in status
-a promise to do any of the first 3
Term
sufficiency required
Definition
enough consideration to make the contract enforceable
Term
adequacy of consideration
Definition
fairness of the amount of consideration for what is received in exchange
Term
5 types of insufficient consideration
Definition
-illusory promise
-a gratuitors promise
-past consideration is insufficient
-nominal consideration
-promise to perform a pre-existing duty is insufficient consideration
Term
illusory promise
Definition
a promise with no substance behind it-subject of the promisor; exceptions: requirements contracts, output contracts
Term
gratuitors promise
Definition
promise to make a gift or moral obligation
Term
past consideration
Definition
not sufficient consideration; promised consideration has already been performed prior to the promise to do it
Term
nominal consideration
Definition
consideration in name only-typically only recited in a written agreement but not paid; amount is very small in light of the entire contract
Term
pre existing duty rule
Definition
if a duty existed prior to the promise to do it then the promise to fulfill that duty is not valid consideration
Term
exceptions to the consideration rule include...
Definition
-promises to pay debts barred by statute of limitations
-reaffirmation agreements in bankruptcy
-charitably subscriptions
-promissory estoppel
Term
promissory estopple
Definition
promise is made by the defendant, plaintiff suffers detriment by reasonable reliance on the promise, and enforcement of the promise is necessary to avoid injustice
Term
full competence
Definition
parties have full legal capacity
Term
no competence
Definition
one or more parties have been adjudicated mentally incompetent, contract is void
Term
limited competence
Definition
one or both are minors, highly intoxicated, or mentally incompetent; contract is voidable by the person with disability
Term
disaffirmance
Definition
avoidance of a contract by a person with a legal disability
Term
3 steps to disaddirmance
Definition
-expierencing the intent, by words or conduct, not to be bound to the contract while under a disability or within a thereafter
-restoration: requires the return of property purchased before disaffirmance
-restitution: requires payment for any damages to property prior to return
Term
restoration
Definition
step in disaffirmance; requires return of property purchased before disaffirmance
Term
restitution
Definition
step to disaffirmance; requires payment for any damages to property prior to its return
Term
express ratification
Definition
using specific language to manifest agreement to the contract after a legal disability is removed
Term
implied ratification
Definition
failure to disaffirm within a reasonable time after the removal of a disability is an implied ratification (no longer voidable)
Term
necessaries
Definition
items necessary for health and maitenance such as foodm clothing, medical care, etc
Term
quasi contract
Definition
contract implied in law to avoid unjust enrichment
Term
requirements for disaffirmance in the case of minority
Definition
1. express the intent not to be bound within the required time period.
2. fullfill only the duty of restoration under the majority rule
3. must be a type of contract for which disaffirmance is allowed
Term
contracts that cant be voided because of minority
Definition
-marriage
-military
-student loans
Term
intoxicated persons capacity and legality...
Definition
someone so intoxicated at the time of the contract that they do not understand the nature or substance of the transaction
Term
incompetents persons
Definition
persons who at time of contract do not understand the nature or substance of the transaction because of a mental condition
Term
illegal agreements
Definition
an agreement whose purpose or performance is illegal
Term
illegal agreements include...
Definition
-violation of usury laws
-gambling laws
-blue (sabbath) laws
-contracts by unliscensed professionals
-contracts to perform illegal acts
Term
violation of usury laws
Definition
violation of laws which set a maximum interest rate on loans or credit; typically cannot collect interest and some states cant collect on entire contract
Term
gambling laws
Definition
gambling contract is void, but the loser as a short time to sue to recover losses
Term
blue (sabbath) laws
Definition
now illegal, certain contracts that prohibited on sundays
Term
contracts by unlicensed professionals
Definition
certain professions require a liscence to perform (surgeon, cutting hair)
Term
contracts to perform illegal acts
Definition
cant make a contract that involves illegal shit
Term
exculpatory contracts
Definition
attempt to escape liability of the party at fault
Term
3 types of agreements in restraint of trade
Definition
-price fixing schemes are against public policy
-market divisions are against public policy
-covenants not to complete
Term
discriminatory contracts
Definition
cant descriminate in a contract because it is protected by the constitution
Term
contracts involving a tort
Definition
contracts involving commission of a tort are illegal
Term
in pari delicto
Definition
in equal fault
Term
5 contracts which must be in writing
Definition
1. sale of interest in land
2. performance beyond one year
3. collateral promises
4. promises made in consideration of marriage
5. sale of goods priced at $500 or more
Term
statute of frauds (definition)
Definition
a statute which requires certain types of contracts to be in writing to be enforceable
Term
if a contract has to be in writing
Definition
it is inside or within the statute of frauds
Term
entire interest
Definition
if ownership of land may be divided into various parts, the entire interest is the parts possible
Term
easements
Definition
the permanent right to use a portion of land without owning it
Term
profits
Definition
right to come onto land and remove something from it, like coal/gold
Term
lien on land
Definition
an interest which allows a sale of property to collect a debt
Term
forclosure
Definition
a mortgage gives this right if a certain obligation is breached
Term
performance beyond one year
Definition
if performance of a contract will take longer than one year from the date it is made the contract must be in writing to be enforceable
Term
posibility of performance
Definition
the mere posibility of performance within one year, however unlikely, takes the contract outside the statute of limitations
Term
collateral promises
Definition
a promise of guarantee made to a creditor to pay anothers debt only if the other does not pay; debtor and guarantor both have promises to creditor
Term
jointly liable
Definition
liable on same basis as debtor-not a collateral promise; see pic in notes
Term
primarily liable
Definition
guarantor is liable instead of debtor; see pic in notes
Term
prenuptial agreement
Definition
promises made prior to marriage, must be in writing
Term
promise of dowry
Definition
familys promise made to prospective husband by daughters family, must be in writing
Term
requirements of writing
Definition
1. writing must be sufficient to show the essential terms of the contract
2. contract must be signed by the party being sued
Term
exceptions to the statute of frauds...
Definition
-performance
-admissions of terms
Term
admissions of terms
Definition
exception to statute of frauds, when the defendant admits there is a contract, the contract is enforceable to the extent of teh admission
Term
parole evidence rule
Definition
evidence prior to contempoaneous oral statements or agreements is inadmissible as evidence to alter the terms of a written contract
Term
exceptions to parol evidence rule
Definition
1. extrinsic (outside) evidence is admissible to prove lack of reality of consent (fraud)
2. extrensic evidence is admissible to clear up ambiguity
2. extrinsic eviednce is admissible to clarify incomplete contracts
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