BUS 131 Chapter 14 & 15 Notes
BUS 131 Chapter 14 & 15 Notes BUS 131 - 010
Kutztown University of Pennsylvania
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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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