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BUS 131 Chapter 14 & 15 Notes

by: Whitney Davis

BUS 131 Chapter 14 & 15 Notes BUS 131 - 010

Whitney Davis
Kutztown University of Pennsylvania

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About this Document

Outlines of chapters 14 & 15
Business Law I
Dr. Slamon
75 ?




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This 4 page Bundle was uploaded by Whitney Davis on Wednesday March 16, 2016. The Bundle belongs to BUS 131 - 010 at Kutztown University of Pennsylvania taught by Dr. Slamon in Spring 2016. Since its upload, it has received 28 views. For similar materials see Business Law I in Business at Kutztown University of Pennsylvania.

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Date Created: 03/16/16
Chapter 14: Capacity and Legality Contractual Capacity  The legal ability to enter into a contractual relationship  Minors o Not legally bound by contracts o Emancipation  When child’s parent or legal guardian relinquishes legal right to exercise control over child o Disaffirmance  Minor must express his/her intent not to be bound by contract  Must be within reasonable time  Minor need only return the goods subject to the contract o Exceptions to Minor’s Right to Disaffirm  Misrepresentation of age  Contracts for necessaries (basic needs) o Ratification  The act of accepting and giving legal force to an obligation that previously was not enforceable o Parent’s liability  Intoxication o When a person’s normal capacity to act or think is inhibited by alcohol or some other drug o Disaffirmance  If contract is voidable because one party was intoxicated o Ratification  When a person enters into contract while intoxicated and fails to disaffirm the contract within a reasonable time after becoming sober  Mental Incompetence o Contracts may be void, voidable, or valid if made by mentally incompetent persons o When the court will be void  If court previously determined a person is mentally incompetent  Court appoints a guardian to represent individual o When contract will be voidable  If court has not previously judged a person to be mentally incompetent but person was incompetent at the time contract was formed  If person did not know he/she was entering into contract, or lacked mental capacity to comprehend its nature, purpose, and consequences o When the contract will be valid  Contract entered by mentally incompetent person may be valid IF person had capacity at the time contract was formed  Lucid intervals – temporary periods of time sufficient intelligencec, judgement, and will Legality  Fourth requirement for a valid contract to exist  Contracts Contrary to Statute o Contracts to commit a crime  In violation of statute o Usury  A lender who makes a loan at an interest rate above lawful maximum  Places a ceiling on allowable rates of interest o Gambling o Licensing statutes  Contracts Contrary to Public Policy o Contracts in Restraint of Trade  Violate one or more federal or state antitrust statutes  Covenant not to compete  Covenants not to compete in employment contracts  Enforcement problems o Unconscionable contracts or clauses  Grossly unfair to be “void of conscience”  Procedural unconscionability  Substantive o Exculpatory clauses  Effect of legality o in pari delicto  Both parties equally at fault o Justifiable ignorance of the facts o Members of protected classes o Withdrawal from a legal agreement o Contract illegal through fraud, duress, or undue influence o Severable, or divisible, contracts Chapter 15: Mistakes, Fraud, and Voluntary Consent Mistakes  Mistake of fact o Makes a contract voidable o Material fact  A fact a reasonable person would consider important when determining his/her course of action o Bilateral Mistakes  Mutual mistake  Made by both contracting parties o Unilateral mistakes  Made by only one party  Unilateral Mistakes of Fact o Contract is enforceable o Two exceptions:  Other party knows mistake of fact was made  The error was due to a substantial mathematical mistake made inadvertently and without extreme negligence  Bilateral Mistakes of Fact o Contract can be rescinded by either party  Mistakes of Value o Mistake concerns future market value or quality of contract Fraudulent Misrepresentation  Consists of the following elements: o Misrepresentation of a material fact must occur o Must be an intent to deceive o Innocent party must justifiably rely on misrepresentation o Party must have been harmed as a result of misrepresentation  Misrepresentation Has Occurred o Misrepresentation by Conduct o Statements of opinion o Misrepresentation of law o Misrepresentation of silence  Intent to deceive o Scienter  Guilty knowledge o Innocent misrepresentation o Negligent misrepresentation  Reliance on the Misrepresentation o 3 element of fraud is reasonably justifiable reliance on the misrepresentation of fact  Injury to the innocent party Undue Influence  One Party Dominates the Other o Fairly influence other party  Presumption of Undue Influence in Certain Situations o When dominant party in fiduciary relationship (attorney & client) benefits from relationship Duress  The use of threats to force a party to enter into a contract  Ex. Blackmail, extortion  The Threatened Act Must Be Wrongful or Illegal o Must be proof of threat o Must make person incapable of applying free will  Economic Duress o Economic need is insufficient to constitute duress o Even when arty demands higher price for necessary item in need of other party Adhesion Contracts and Unconscionability  Adhesion contracts o A standard-form contract where the stronger party dictates terms in contract  Standard-form Contracts o Contain provisions shifting a risk ordinarily borne by one party to another o Avoiding enforcement of contract/particular clause  Plaintiff must show contract is unconscionable  Unconscionability and the Courts o Section 2-302 of UCC applies to sale of good contracts only


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