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UT / OTHER / BULW 301 / ut business law study guide

ut business law study guide

ut business law study guide


School: University of Tennessee - Knoxville
Department: OTHER
Course: Business Law
Professor: Somer chyz
Term: Spring 2017
Tags: business, Law, exam, and 2
Cost: 50
Name: Business Law Study Guide 2 (complete)
Description: This study guide covers everything for exam 2.
Uploaded: 02/28/2017
33 Pages 136 Views 2 Unlocks

▪ Someone who is induced into a contract based on lies, typically is voidable by ?

o Why do we need contracts?

❖ How does the constitution affect business?

Chapter 4 Reading Notes- Business and the Constitution The Constitutional Powers of Government o After the Revolutionary War, the US adopted the Articles of the  Confederation ▪ Created a confederal form of government in which states had the  authority to govern themselves and the national government could  exercise only limited powers o US constitution was ratified in 1789, and became the basis for a whole  new government o A federal form of government: the national government and the states  share sovereign power ▪ Constitution has certain powers outlined that can be exercised by  the federal government ▪ The implied power to undertake actions necessary to carry out  expressly designated powers (enumerated powers) ▪ All other powers are expressly reserved to the states under the 10th amendment of the constitution o Regulatory powers of the states ▪ Sovereignty: the power for states to govern themselves ▪ Police powers: give state governments broad rights to regulate  private activities to protect or pormite the public order, health,  safety, morals, and general welfare o Relationships among the states ▪ Privaleges and immunities clause: citizens of each state shall be  entitled to all privalages and immunities of citizens in several states ∙ Prevents a state from imposing unreasonable boundaries on  a citizen of another state ∙ Foreign state must have a substantial reason for treating the  non-resident differently than its residents ▪ Full faith and credit clause: full faith and credit shall be given in  each state to the public acts, records, and judicial proceedings of  every other state ∙ Applies only to civil matters ∙ Ensures that rights rights established under deeds, wills,  contracts ,and similar instruments in one state will be onored  by other states ▪ Separation of powers ∙ Legislative branch-makes the laws, executive branch enforces the laws, judicial branch-interprets the laws∙ Checks and balances: allows each branch to limit the actions  fo the other two branches, thus preventing any one branch  from exercising too much power o Ex. Congress (legislative) can enact a law, but  president (executive) can veto o Ex. Executive branch is resoponsible for foreign  affairs, but treaties with foreign governments require  advice and consent of the senate o Ex. The judicial branch has the power to hold actions  of the other two branches unconstitutional ▪ The commerce clause: provides the basis for the national  government’s extensive regulation of state and even local affairs (applies only to interstate commerce) ∙ Interstate commerce- commerce between the states ∙ Intrastate commerce- commerce within the states o The Supremacy clause and federal preemption ▪ Supremacy clause: the Constitution, laws, and treaties of the US  are the “supreme law of the land” ∙ If direct conflict between a federal law and state law, the  state law is rendered invalid ▪ Preemption: something that happens when congress chooses to act  exclusively in a concurrent area o The taxing and spending powers ▪ Congress has the power to lay and collect taxes, duties, imports, and excises ∙ Today if a tax measure is reasonable, it generally is held to  be within the national taxing power ▪ Congress has the power to pay the debts and provide food for the  common defense and general welfare of the US ∙ Congress can spend revenues not only to carry out its  expressed powers but also to promote any objective it  deems worthwhile Business and the Bill of Rights o Bill of rights: 10 of the first 12 amendments to the US Constitution  ▪ Outlines many rights and freedoms natural persons and business  entities have Limits on Federal and State Governmental Actions o The 14th amendment ▪ says that no state shall deprive any person of life, liberty, or  property, without due process of law o Judicial interpretation▪ The US supreme court is the final interpreter of the Constitution. It  gives meaning to the rights and determines their boundaries o Freedom of speech ▪ Symbolic speech: gestures, movements, articles of clothing, and  other forms of expressive conduct is also given substantial  protection by the courts o Reasonable restrictions ▪ Content neutral laws- laws that regulate the time, manner, and  place, but not the content, of speech receive less scrutiny by the  courts than do laws that restrict the content of expression ∙ To be content neutral the restriction must be aimes at  combatting some societal problem, such as crime or drug  abuse, and not be aimed at suppressing the expressive  conduct of its message ▪ Laws that restrict the content of speech ∙ Compelling government interest: the government’s interest  is balanced against the individual’s constitutional right to  free expression ▪ Corporate political speech ∙ Is still given significant protection under the 1st amendment  ∙ Limits can be placed on independent political expenditures  by corporations ▪ Commercial speech ∙ Primarily advertising and marketing ∙ Looks mainly at communications made by business firms  that involve only their commercial interests ∙ Restriction on commercial speech with be considered valid  when it meets 3 criteria o Must seek to implement a substantial government  interest o Must directly advance that interest o Must go no further than necessary to accomplish its  objective ▪ Unprotected speech ∙ Some types of speech will not be protected under the 1st amendment ∙ Threatening speech- speaker must have posed a “true  threat” ∙ Obscene speech- a crime to possess and distribute obscene  materialo Filtering software: software tha prevents a person  from viewing certain websites based on a site’s  interned address or meta tags o Meta tags: key words Freedom of Religion o The government may neither establish any religion nor prohibit the free  exercise of religious practices o Establishment clause: the government cannot establish a religion, or pass  laws that promote a religion or show preference for one religion over  another o Free exercise clause: the government may not prohibit the free exercise of  religious practices and guarantees that people can hold any religious  beliefs that want or hold no religious belief Searches and Seizures o The 4th amendment protects the right of the people to be secure in their  persons, homes, papers, and effects o Search warrant: an order from a judge or other public official authorizing  the search or seizure  o Probable cause: law enforcement officials must convince a judge that they  have reasonable grounds to believe a search will reveal evidence of a  specific illegality Self Incrimination o The 5th amendment guarantees that no person shall be compelled in any  criminal case to be a witness against himself Due Process and Equal Protection o Due process clause: no person shall be depreived of life, liberty, or  property without due process of law ▪ Applies to legal persons (corporations and individuals) ▪ Procedural due process requires that any government decision to  take life, liberty, or proberty must be made equitably ▪ Substantive due process- focuses on the content of the legislation  rather than the fairness of the procedures Equal Protection o By the 14th amendment, a state may not deny any person within its  jurisdiction the equal protection of the laws o Equal protection clause: the government cannot enact laws that treat  similarly situated individuals differently o The courts use one of 3 standardized tests ▪ Strict scrutiny- if a law or action prohibits or inhibits some persons  from exercising a fundamental right this test is applied/the classification myst be necessary to promote a compelling state  interest ▪ Intermediate scrutiny- applied to cases involving discrimination  based on gender or legitimacy (children born out of wedlock)/ must  be substantially related to important government objectives ▪ Rational basis test- in matters of economic or social welfare, a  classification will be considered called if her is any conceivable  rational basis on which the classification might relate to a legitimate  government interest Privacy Rights o In a landmark case in 1965, the supreme court held that a constitutional  right to privacy was implied by the 1st, 3rd, 4th, 5th, and 9th amendments o Today privacy rights receive protection under various federal statutes as  well as the US constitutionFormation of Traditional Contracts Overview of Contract Law o Sources of contract law ▪ Common law- governs all contracts except when it has been  modified or replaced by statutory law, such as UCC or  administrative agency regulations o The definition of a contract ▪ Contract: “a promise or a set of promises for the breach of which  the law gives a remedy, or the performance of which the law in  some way recognizes as a duty” ∙ An agreement that can be enforced in court ▪ Generally contract disputes arise when there is a promise of future  performance o The objective theory of contracts: a party’s intention to enter into a legally  binding agreement, or contract, is judged by outward, objective facts.  These facts are interpreted by a reasonable person. ▪ Objective facts may include: ∙ What the party said when entering in to the contract ∙ How the party acted or appeared (may be by conduct or oral  words) ∙ The circumstances surrounding the transaction o Requirements of a valid contract (4) that must be met before a valid  contract exists ▪ Agreement- an agreement to form a contract includes offer and  acceptance ▪ Consideration- any promises made by the parties to the contract  must be supported by legally sufficient and bargazined-for  consideration (something of value received or promised, such as  money, to convince a person to make a deal) ▪ Contractual capacity- both parties entering into the contract must  have the contractual capacity to do so  ▪ Legality- the contract’s purpose must be to accomplish some goal  that is legal and not against public policy o Defenses to the enforceability of a contract ▪ A contract may be unenforceable if the following requirements are  not met: ∙ Voluntary consent- the consent of both parties must be  voluntary ∙ Form- the contract must be in whatever form the law  requires (some contracts must be in writing)o Types of contracts ▪ Every contract involves at least 2 parties ∙ Offeror: the party making the offer ∙ Offeree: the party to whom the offer is being made o Bilateral vs. unilateral ▪ Bilateral contract: the offeree can accept simply by promising to  perform- a “promise for a promise” – no performance, such as  payment of funds or delivery of goods need to take place (the  contract comes into existence the moment the promises are made) ▪ Unilateral contract: an offer that is phrased so that the offeree can  accept the offer only by completing the contract performance- “a  promise for an act” (the contract is formed at the moment when  the contract is performed) o Formal vs. informal ▪ Formal contract: a contract that requires a special form or method  of creation to be enforceable ∙ Negotiable instruments such as: checks, drafts, promissory  notes, bills of exchange, etc. are examples of formal  contracts ▪ Informal contract: no special form is required (except for the type  of contracts that must be in writing), as the contracts are usually  based on their substance rather than their form o Express vs. implied contracts ▪ Express contract: the terms of the agreement are fully and  explicitly stated in words, oral or written ∙ A signed lease for an apartment or house is an example ▪ Implied contract: a contract that is implied from the conduct of the  parties (3 requirements for implied contracts) ∙ The plaintiff furnished some service or property ∙ The plaintiff expected to be paid for that service or property,  and the defendant know or should have known that  payment was expected ∙ The defendant had a chance to reject the services or  property and did not o Executed vs. executory contracts ▪ Executed contract: a contract that has been fully performed on  both sides ▪ Executory contract: a contract that has not been fully performed by  the parties  o Enforceable vs. unenforceable contracts▪ Valid contract: a contract with the necessary elements to entitle at  least one of the parties to enforce it in court ∙ Agreement ∙ Legally sufficient Consideration ∙ Legal capacity is present ∙ Legal purpose ▪ Unenforceable contract: a contract that cannot be enforced  because of certain legal defenses against it ∙ It is a valid contract that has been rendered unenforceable  by some statute or law ▪ Voidable contract: a valid contract but one that can be avoided at  the option of one or both parties ∙ If the contract is avoided, both parties are released from  their obligations ∙ If the contract is ratified, both parties must fully perform  their respective legal obligations ▪ Void contract: no contract at all ∙ A contract can be void because one of the parties was  determined by a court to be mentally incompetent Agreement o Agreement: the parties must agree on the terms of the contract and  manifest to each other their mutual assent to the same bargain o Requirements of an offer ▪ Offer: a promise or commitment to do or refrain from doing some  specified action in the future (3 elements are necessary for an offer  to be effective) ∙ The offeror must have serious intention to become bound by  the offer ∙ The terms of the offer must be reasonably certain, or  definite, so that the parties and the court can ascertain the  terms of the contract ∙ The offer must be communicated to the offeree o Situations in which intent may be lacking ▪ Expressions of opinion ▪ Statements of future intent- “I plan to sell my Verizon stock” ▪ Preliminary negotiations- a request or invitation to negotiate ▪ Invitations to bid- a contractor placing their bid in response to the  invitation is an offer ▪ Advertisements and price lists- treated as invitations to negotiate ▪ Live and online auctions- bidders submit the offers, the auctioneer  poses an invitation to bido Agreements to agree may be enforceable agreements if it is clear that the  parties intended to be bound by the agreements o Preliminary agreements can constitute a binding contract if the parties  have agreed on all essential terms and no disputed issues remain to be  resolved o Definiteness of terms (generally a contract must include the following  terms, expressed in the contract or capable of being reasonably inferred  from it) ▪ The identification of the parties ▪ The identification of the object or subject matter of the contract  (quantity when appropriate) including the work to be performed,  with specific identification of goods, services, and land ▪ The consideration to be paid ▪ The time of payment, delivery, or performance o Communication ▪ The offer must be communicated to the offeree o Termination of the offer ▪ Termination by action of the offeror ∙ Revocation: withdrawing an offer ∙ Can be accomplished by o Express repudiation of the offer o Performance of the acts that are inconsistent with the  existence of the offer and are made known to the  offeree ▪ Irrevocable contracts ∙ Option contract: a contract created when an offeror  promises to hold an offer open for a specified period of time  in return for payment given by the offeree o Termination by action of the Offeree ▪ If the offeree rejects the offer by words or conduct, the offer is  terminated ▪ Inquiries about an offer ∙ Inquiring about the firmness of an offer does not constitute  rejection ▪ Counteroffer: a rejection of the original offer and the simultaneous  making of a new offer ∙ Mirror image rule: requires the offeree’s acceptance to  match the offeror’s offer exactly- to mirror the offer o Termination by operation of law▪ The power of the offeree to transform the offer into a binding, legal  obligation can be terminated by operation of law through the  occurrence of 4 things: ∙ Lapse of time- offer terminates automatically when the  period of time specified in the offer has passed ∙ Destruction of the specific subject matter of the offer terminated if the specific idem is destroyed before the offer  is accepted ∙ Death or incompetence of the offeror or the offeree terminated when the offeree dies or is incapacitated (unless  the offer is irrevocable) ∙ Supervening illegality of the proposed contract-a statute or  court decision that makes an offer illegal automatically  terminates the offer o Acceptance: a voluntary act by the offeree that shows assent to the terms  of an offer ▪ Must be unequivocal and must be communicated to the offeror  o Unequivocal acceptance ▪ The mirror image rule ▪ An acceptance cannot impose new conditions or change the terms  of the original offer o Silence as acceptance ▪ Silence cannot constitute acceptance  ▪ In some instances, the offeree does have a duty to speak and his  or her silence will operate as an acceptance o Communication of acceptance ▪ Notification is necessary (unless the law requires it or the offeror  asks for it) o Mode and timeliness of acceptance ▪ The mailbox rule: acceptance takes effect at the time the offeree  sends or delivers the communication via the mode expressly or  impliedly authorized by the offeror ▪ Does not apply to text, email, etc. Consideration o Consideration: defined as the value given in return for a promise (in a  bilateral contract) or in return for performance (in a unilateral contract) o Consideration is broken down into 2 parts: ▪ Something of legally sufficient value must be given in exchange for  the promise ▪ There must be a bargained-for exchange o Legally sufficient value▪ To be legally sufficient, consideration must be something of value  in the eyes of the law and may consist of the following: ∙ A promise to do something that one has no prior legal duty  to do ∙ The performance of an action that one is otherwise not  obligated to undertake ∙ Forbearance: The refraining from an action that one has a  legal right to undertake o Bargained for exchange ▪ Bargained-for exchange distinguishes contracts from gifts o Agreements that lack consideration ▪ Preexisting duty-may be imposed by law or may arise out of a  previous contract ▪ Unforeseen difficulties- to prevent extortion and the “hold up  game” ▪ Rescission: the unmaking of a contract so as to return the parties  to the positions they occupied before the contract was made (can  rescind and make a new contract at the same time) o Past consideration: Promises made in return for actions or events that  have already taken place are unenforceable o Illusory promises ▪ If the terms of the contract express such uncertainty of  performance that the promisor has not definitely promised to do  anything, the promise is said to be without consideration and  unenforceable o Settlement of claims (3 ways) ▪ Accord and satisfaction: a debtor offers to pay, and a creditor  accepts, a lesser amount than the creditor originally claimed was  owed ▪ Liquidated debt: a debt whose amount has been ascertained, fixed,  agreed on, settled, or exactly determined ▪ Unliquidated debt: the amount of debt is not fixed, agreed on,  settled, ascertained, or determined, and reasonable persons may  differ over the amount owed o Release: a contract in which one party forfeits the right to pursue a legal  claim against the other party (will generally be binding if it meets 3  requirements) ▪ Agreement is made in good faith ▪ The release contract is in a signed writing ▪ The contract is accompanied by considerationo Covenant not to sue: parties simply substitute a contractual obligation for  some other type of legal action based on a valid claim  o Promissory estoppel: (detrimental reliance) a person who has reasonably and sustainably relied on the promise of another may be able to obtain  some measure of recovery (5 elements are required for this doctrine to be  applied) ▪ Must be a clear and definite promise ▪ Promisor should have expected that the promisee would rely on the  promsise ▪ The promisee reasonably relied on the promise by acting or  refraining from some act ▪ The promisee’s reliance was definite and resulted in substantial  detriment ▪ Enforcement of the promise is necessary to avoid injustice o Estopped: prevented from asserting the lack of consideration as a defense Contractual Capacity o Contractual capacity: the legal ability to enter into a contractual  relationship o Minors ▪ Can exercise emancipation- leaving the home to support  themselves ▪ A contract can be entered into by a minor, but it is voidable at the  option of that minor, subject to certain exceptions ▪ Disaffirmance: the legal avoidance, or setting aside, of a  contractual obligation  o Intoxication ▪ A contract entered into by an intoxicated person can either be  voidable or valid (and enforceable). o Mental incompetence ▪ Contracts made by mentally incompetent persons can be void,  voidable, or valid ▪ If a court has previously ruled the person as mentally incompetent,  the contract is void Legality o For a contract to be valid and enforceable, it must be formed for a legal  purpose o Contracts contrary to a statute ▪ Contracts to commit a crime ▪ Usury: a lender who makes a loan at an interest rate above the  unlawful maximum commits this ▪ Gambling▪ Licensing statutes- a contract involving an unlicensed practitioner is  illegal and unenforceable o Contracts contrary to public policy- some contracts that involve private  parties are not enforceable because of the negative impact they would  have on society o Contracts in restraint of trade ▪ Covenant not to compete: a restrictive covenant (promise) ∙ In business ∙ In employment contracts ∙ Enforcement issues ▪ Reformation: a covenant found to be unreasonable in time or  geographic area may be converted into reasonable terms and  enforced as a reformed covenant o Unconscionable contracts or clauses ▪ Unconscionable: bargains that are so unfair as to be “void of  conscience” o Exculpatory clauses: release a party from liability in the event of monetary  or physical injury no matter who is at fault Form o Statute of frauds: a statute that stipulates what types of contracts must  be in writing (the following types of contracts are generally required to be  written) ▪ Contracts involving interest in land ▪ Contracts that cannot be performed 1 year from the day after the  date of formation ▪ Collateral, or secondary, contracts ▪ Promises made in consideration of marriage ▪ Under UCC, contracts for sale of goods over $500 Third Party Rights o Privity of a contract: a contract is a private agreement between the  parties who have entered in to it, and those parties alone have rights and  liabilities under the contract o Assignment: transfer of contractual rights to a 3rd party (rights can be  assigned except under certain circumstances) ▪ Assignment is prohibited by statute ▪ Contract is personal ▪ Assignment significantly changes the risk or duties of the person  contractually obligated to perform ▪ Contract prohibits assignment o Delegation: transfer of contractual duties to a 3rd party (some  circumstances in which delegation is prohibited)▪ Special trust has been placed in the obligor (the person  contractually obligated to perform) ▪ Performance depends on the personal skill or talents of the obligor ▪ Performance by a 3rd party will vary materially from that expected  by the oblige (person whom an obligation is owed) under the  contract ▪ Contract expressly prohibits delegation by including an anti delegation clause o Third party beneficiaries ▪ Third party beneficiary: when original parties to the contract agree  that the contract performance should be tendered to or directly  benefit a 3rd person ▪ Intended beneficiary: 3rd party has legal rights and can sue the  promisor directly for breach of the contractChapter 10- Contract Performance, Breach, and Remedies Voluntary Consent o Voluntary consent: meeting of the minds, assent, truly agreeing to the  terms of a contract o Mistakes ▪ In certain circumstances, contract law allows a contract to be  avoided on the basis of a mistake ▪ Mistakes of value ▪ Mistakes of fact- only a mistake of fact can make a contract  voidable ∙ The mistake must involve some material fact (a fact that a  reasonable person would consider important when  determining his or her course of action ∙ Mistakes of fact occur in 2 forms- bilateral (mistake made by  both parties) and unilateral (mistake made by one party) ▪ Unilateral mistake: a mistake made by only one of the parties ∙ In general, a unilateral mistake does not give the mistaken  party any right to relief from the contract (normally  enforceable) ∙ The contract may not be enforceable if: o The other party to the contract knows or should have  known that a mistake of fact was made o The error was due to substantial mathematical  mistake and was made inadvertently and without  gross (extreme) negligence ▪ Bilateral (mutual) mistakes of fact ∙ Bilateral mistake: a mutual understanding concerning a basic  assumption on which the contract was made ▪ Mistakes of value- a mistake that concerns the future market value  or quality of the object of the contract ∙ Normally enforceable Fraudulent misrepresentation o Fraud is a tort, but the presence of fraud affects the authenticity of the  innocent party’s consent to the contract o When an innocent party is fraudulently induced to enter a contract, the  contract can usually be avoided because that party has not voluntarily  consented to its terms o Fraudulent misrepresentation consists of the following elements ▪ Misrepresentation of material fact must occur ▪ There must be an intent to deceive▪ The innocent party must justifiably rely on misrepresentation ▪ To collect damages, a party must have been harmed as a result of  the misrepresentation o Misrepresentation by words or conduct ▪ The first element of fraud is to show that misrepresentation of a  material fact has occurred ▪ Misrepresentation occurs when a party takes specific action to  conceal a fact that is material to the contract o Injury to the innocent party ▪ Rescission returns the parties to the positions they held before the  contract was made, a showing of injury to the innocent party is  unnecessary ▪ Proof of harm is required, courts may award punitive damages Undue Influence o Undue influence: arises from relationships in which one party can greatly  influence another party, thus overcoming that party’s free will ▪ A contract entered into under excessive or undue influence lacks  voluntary consent and is therefore voidable o One party dominates the other ▪ Minors and elderly people are under the influence of parents or  guardians ▪ The party being taken advantage of does not, in reality exercise  free will in entering into a contract ▪ There must be clear and convincing evidence that the person did  not act out of her or his free will o Presumption of undue influence in certain situations ▪ When the dominant party in a fiduciary relationship benefits from  that relationship, a presumption of undue influence Duress o Duress: the use of threats to force a party to enter into a contract  ▪ Blackmail or extortion ▪ Duress is both a defense to the enforcement of a contract and a  ground for rescission of a contract o Adhesion contracts and unconscionability ▪ Adhesion contracts: contracts written exclusively by one party and  presented to the other party on a take-it-or-leave-it basis ∙ Used in standard forms which gives the adhering party no  opportunity to negotiate the contract terms Performance and Discharge o Discharge: terminating contractual duties o Performance: actually doing the contractual dutieso Conditions ▪ Condition: a qualification in a contract based on a possible future  event ▪ Condition precedent: a condition that must be fulfilled before a  party’s performance can be required  ▪ Discharge by performance ∙ The contract comes to an end when both parties fulfill their  respective duties by performing the acts they have promised ∙ Tender: an unconditional offer to perform by a person who  is ready, willing, and able to do so o Complete performance (perfect performance) ▪ When a party performs exactly as agreed, there is no question as  to whether the contract has been performed o Substantial performance ▪ A party who is in good faith performs substantially all of the terms  of a contract can enforce the contract against the other party ▪ Basic requirements for substantial performance: ∙ The party must have performed in good faith ∙ The performance must not vary greatly from the  performance promised in the contract ∙ The performance must create substantially the same  benefits as those promised in the contract ∙ Since the performance is not complete, the other party is entitled to damages to compensate for the failure to comply  with the contract (measure of damages id the cost to bring  the object of the contract into compliance with its terms) o Performance to the satisfaction of another ▪ When the subject matter of the contract is personal, the obligation  is conditional, and performance must actually satisfy the party  specified in the contract o Material breach of contract ▪ Breach of contract: the nonperformance of a contractual duty (the  breach is material when performance is not at least substantial) ∙ The non-breaching party is excused from the performance of  contractual duties- that party can also sue the breaching  party for damages resulting from the breach o Minor breach of contract ▪ Not material, the non-breaching party’s duty to perform is not  entirely exercised, but it can sometimes be suspended until the  breach has been remedied ▪ Nobody can get out of the contracto Anticipatory repudiation: before either party to a contract has a duty to  perform, one of the parties may refuse to carry out his or her contractual  obligations ▪ When this occurs, it is treated as a material breach, and the non breaching party is permitted to bring an action for damages  immediately o Time for performance ▪ If a specific time is stated in the contract, the parties must usually  perform by that time ▪ When time is stated to be “of the essence”, or vital, the parties  normally must perform within the stated time period because the  time element becomes a condition Discharge by Agreement  o Discharge by mutual rescission ▪ Mutual rescission: the parties must make another agreement that  also satisfies the legal requirements for a contract along ▪ Agreements to rescind mist executory contracts are enforceable  even if the agreement is made orally and even if the original  agreement was in writing. o Discharge by novation ▪ Novation: occurs when both of the parties to a contract agree to  substitute a third party for one of the original parties ▪ 4 requirements of a novation: ∙ Previous valid obligation ∙ An agreement by all parties to a new contract ∙ The extinguishing of the old obligation (discharge of the  prior party ∙ A new contract that is valid o Discharge by settlement agreement ▪ A compromise that arises out of a genuine dispute over the  obligations under an existing contract will be recognized at law ▪ A substituted agreement does not involve a third party, the 2  original parties to the contract form a different agreement to  substitute for the original one o Discharge by accord and satisfaction ▪ The parties agree to accept performance that is different from the  performance originally promised ▪ An accord is a contract to perform some act to satisfy an existing  contractual duty that is not yet discharged ▪ Satisfaction is the performance of the accord agreement▪ Once the accord is made, the original obligation is suspended until  the accord agreement is fully performed (if it is not performed, the  obligee, the one who performance is owed, can sue based on the  original obligation or the accord Damages o A breach of contract entitles the non-breaching party to sue for monetary  damages o Types of damages (4) ▪ Compensatory (to cover direct losses and costs) ▪ Consequential (to cover indirect and foreseeable losses) ▪ Punitive (to punish and deter wrongdoing) ▪ Nominal ( to recognize wrongdoing when no monetary loss is  shown) o Compensatory damages ▪ Damages that compensate the non-breaching party for the loss of  the bargain ▪ Simply replace what was lost because of the wrong or damage and  are often said to “make the person whole” ▪ Standard measure of compensatory damages is the difference  between the value of the breaching party’s promised performance  under the contract and the value of her or his actual performance ▪ Incidental damages: expenses that are caused directly by a breach  of a contract, such as those incurred to obtain performance from  another source o Consequential damages: foreseeable damages that result from a party’s  breach of contract ▪ They are caused by special circumstances beyond the contract itself ▪ For the non-breaching party to recover consequential damages, the  breaching party must have known (or had reason to know) that  special circumstances would cause the non-breaching party to  suffer an additional loss o Punitive damages ▪ When no actual damage or financial loss results from a breach of  contract and only a technical injury is involved the could may  award nominal damages ∙ Nominal damages: often small, and establish that the  defendant acted wrongfully Mitigation of Damages o Mitigation of damages: when a breach of a contract occurs, the innocent  injured party is held to a duty to reduce the damages that he or she  suffersLiquidated Damages vs. Penalties o Liquidated damages: a certain dollar amount to be paid in the event of a  future default or breach of a contract (liquidated means, determined,  settled, or fixed) o Penalty: specifies a certain amount to be paid in the event of a default or  breach of contract (designed to penalize the breaching party, not to make  the innocent party whole) o Enforceability ▪ To determine if a particular provision is for liquidated damages or  for a penalty, a court must answer 2 questions: ∙ When the contract was entered into, was it apparent that  damages would be difficult to estimate in the event of a  breach? ∙ Was the amount set as damages a reasonable estimate and  not excessive? ▪ If the answered to both questions are yes, the provision normally  will be enforced. If either answer is no, the provision usually will  not be enforced Equitable Remedies o Rescission and restitution ▪ Rescission is essentially an action to undo, or terminate, a contract to return the contracting parties to the positions they occupied  prior to the transaction ∙ Unilateral Rescission is available when fraud, a mistake,  duress, undue influence, misrepresentation, or lack of  capacity to contract is present ▪ Restitution: both parties must do this in order to rescind the  contract ∙ If property or goods can be returned, they must be ∙ If the goods or property have been consumed, restitution  must be made in an equivalent dollar amount  o Specific performance: the performance of an act promised in the contract o Sale of land ▪ A court may grant specific performance to a buyer in an action for  a breach of contract involving the sale of land o Contracts for personal services ▪ Courts generally refuse to grant specific performance of personal service contracts ▪ One reason is that to order a party to perform personal services  against his or her will amounts to a type of involuntary servitudeo Reformation: an equitable remedy used when the parties have imperfectly  expressed their agreement in writing o Fraud or mutual mistake is present ▪ Courts order reformation most often when fraud or mutual mistake  is present  o Written contract incorrectly states the parties’ oral agreement ▪ A contract will be reformed when two parties enter into a binding  oral contract but later make an error when they attempt to put the  terms in to writing o Covenants not to compete ▪ Such covenants are included in contracts for the sale of ongoing  businesses and in employment contracts Waiver of Breach o Waiver: knowing relinquishment of a legal right (that is, the right to  require satisfactory and full performance) o Consequences of a waiver breach ▪ When a waiver of breach of contract occurs, the party waiving the  breach cannot take any later action on it ▪ In effect, the waiver erases the past breach and the contract  continues as if it never occurred o Reasons for waiving a breach ▪ To obtain whatever benefit is still possible out of the contract o Waiver of breach and subsequent breaches ▪ A waiver by a contracting party will not operate to waive  subsequent, additional, or future breaches of contract. This is  always true when the subsequent breaches are unrelated to the  first breach o Pattern of conduct exception ▪ Waives a number of successive breaches will operate as a  continues waiver ▪ To change this result, the non-breaching party should give notice  to the breaching party that full performance will be required in the  future o Effect on the contract ▪ The party who has rendered defective or less-than-full performance  remains liable for the damages caused by the breach of the  contract ▪ In effect, the waiver operates to keep the contract going ∙ The waiver prevents the non-breaching party from declaring  the contract at an ed or rescinding the contract Contract Provisions Limiting Remedieso A contract may include provisions starting that no damages can be  recovered for certain types of breaches or that damages will be limited to  a maximum amount o A contract may also provide that the only remedy for breach is  replacement  o A contract may provide that one party can seek injunctive relief if the  other party breaches the contract o Exculpatory clauses- provisions stating that damages can be recovered o Limitation-of-liability clauses- provisions that affect the availability of  certain remediesBULW- In-class Notes on Ch4- Week of 2/6-2/10 ❖ The United States Constitution o Constitution- system of fundamental principles according to which a nation or  state is governed  o Constitution as we know it today: ▪ Not the first constitution in America ▪ During Revolutionary War a convention of delegates from the 13 colonies  got together to draft a constitution and called themselves the 1st Continental Congress ∙ George Washington, Ben Franklin, John Adams, Patrick Henry ∙ Called the Articles of Confederation o Provided legitimacy for the war with England o Established USA as a collection of sovereign states o Replaced shortly after they were ratified because it was  weak and did not create a strong central government ▪ Next document that was drafted was the US Constitution ∙ Preamble talks about unity at the very beginning of the document ❖ Constitution Breakdown  o The constitution is divided into ▪ Articles 1-7; original document ▪ Amendments 1-27; changes that happened after articles were drafted ▪ First was drafted in 1787 and second draft in 1789 o Article 1- establishes congress and its powers and responsibilities (legislative  branch) o Article 2- establishes the presidency and its powers and responsibilities (executive branch) o Article 3- establishes the supreme court and lesser courts and their  responsibilities (judicial branch) o Doesn’t cover everything, and the things it doesn’t explicitly grant to the federal  government is left to the states ▪ 10th amendment limits the power of the federal government  ▪ Police powers- ability to regulate behavior and enforce rules within your  territory (one of the biggest responsibilities of the states) ❖ Articles Describing How States Should Interact o Privileges and immunities clause- article 4 section 2- all Americans shall be treated equally in every state no matter which one they call home  o Full faith and credit clause- article 4 section 1- full faith and credit shall be given  in each state to the public acts, records, and judicial proceedings of every other  state ▪ Judicial proceeding- marriages, divorces, custody battles▪ Public records- buying land ▪ Doesn’t mention laws- for ex: getting drug tested in TN after legally  smoking marijuana in CO would not receive full faith in credit because  laws are not covered ❖ Branches of Government o Executive- enforces laws o Legislative- writes laws o Judicial- interprets laws ❖ Commerce clause (big deal)- constitutional provision o Article 1 section 8- congress shall have power to regulate commerce with foreign  nations and among the several states ▪ Congress has the power to regulate interstate commerce with foreign nations intrastate commerce that effects interstate (the state does not  have this power) ∙ Interstate commerce- commerce between the different states ∙ Intrastate commerce- commerce within one particular state ▪ Power under this clause is broad- congress is always passing laws and  saying that their ability to do so is under the commerce clause o In 1990 congress enacted the gun free school zones act ▪ 1995- Alfonzo Lopez brings an unloaded gun to school and claimed that  he was selling it ∙ He was arrested and charged with a federal criminal offense ∙ He argued that the gun free school zones act was an overreach of  boundaries of congress ∙ Court had to decide if schools were part of interstate commerce o Dormant commerce clause- says that states do not have the power to regulate  commerce  ❖ Supremacy Clause- article 6 paragraph 2 o This constitution and the laws of the US which shall be made in pursuance thereof shall be the supreme law of the land ▪ All the legislation that congress passes that is supposed to support the  constitution are the supreme law of the land ▪ Federal law prevails and nullifies a state law- called federal preemption  ❖ The Taxing and Spending Powers- article 1 section 9 o Congress shall have power to lay and collect taxes, duties, imports, and excises,  to pay the debts and provide for the common defense and general welfare of  the united states ❖ How does the constitution affect business? o The first 10 amendments- Bill of Rights▪ First amendment- freedom of speech, press, religion, and to peaceably assemble ∙ Establishment clause ∙ Free exercise clause ∙ Freedom of speech can be restricted if it is content neutral (not  restricting message but about the delivery) and if the restriction  serves a compelling state interest( public health and safety,  protecting residential privacy, etc.) ∙ Can restrict commercial speech if it is in substantial governmental  interest and narrowly tailored to do so ▪ Second amendment- right to bear arms shall not be infringed ▪ Third amendment-no soldiers to be quartered without permission ▪ Fourth amendment- protects against unreasonable searches or seizures  or persons or property ∙ Police cannot come in your home unless they have a warrant (they have to prove to a judge that they have probable cause to  believe that a search of your home will reveal evidence of a crime  or criminal activity) ∙ Don’t need a warrant to search your car  ▪ Fifth amendment- Right to indictment by grand jury, due process of law,  and fair payment when government takes private land for public use,  protects against self incrimination ∙ Miranda Rights ∙ Self incrimination does not apply to corporations ∙ Procedural due process refers to fairness in the rules ∙ Substantive due process refers to the fact that if a law or other  governmental action seeks to limit a fundamental right, it cannot  do so unless it serves a compelling state interest and is the least  restrictive way to achieve that interest (14th Amendment) ▪ Sixth amendment-Guarantees the accused to a speedy trial with a lawyer in a criminal case ▪ Seventh amendment-Right to jury in a civil case ▪ Eighth amendment- Prohibits excessive bail and cruel and unusual punishment ▪ Ninth amendment-Other rights that are just as important but “we just can’t think of them now” ∙ Right to privacy ▪ Tenth amendment-Grants to the states all powers over issues not  explicitly delegated to the federal government o Equal protection law▪ If a law at issue restricts a fundamental right or if it classifies people by  race, national origin, or citizenship then the law is only constitutional if it  serves a compelling state interest and it is the only way to achieve that  interest- called strict scutinyWeek 5 In-Class Notes on Ch 12 Chapter 12 ❖ Contracts (how and why) o Contract is a deal ▪ Contract law is the law of the deal  ▪ Exchanging promises ▪ Agreement that is enforceable in court o Why do we need contracts? ▪ Supplier contracts- want to lock in prices, give certainties ▪ Consumer contracts- give certainties to consumers, help plan for future  sales ▪ Apartment contracts- benefits and obligations for both sides, ensures  stability ❖ Sources of contract law o Primarily is state law (don’t see much in way of federal law) o Common law-judge made law o Our contract law has been around for a couple hundred years o Statutes that address contracts ▪ Uniform Commercial Code- model legislation/laws ∙ modifies sales agreements or contracts for sale of goods ❖ Objective theory of contracts o Court applies this when one person denies that there was a contract in place o Court looks at what was going on when the contract was put into place o Subjective approach (opposite) o Lucy v. Zehmer case ❖ Elements of a valid contract (4) o Agreement ▪ Offer- offeror  ▪ Acceptance- offeree ▪ Extremely close to a valid agreement/ most important part o Consideration ▪ Both parties are giving something of value to the other ▪ Does not have to be fair market value- it is what you bargained for o Contractual capacity ▪ Competent people that you are making commitments with  o For a legal purpose ▪ Can’t take legal action against sale of drugs, children, etc.  ▪ Must be legal sale ❖ Types of contracts (formation, performance, enforceability) o Bilateral▪ A promise for a promise o Unilateral ▪ A promise for an act, the acceptance is the completed performance of  the act ▪ Ex. If you do X, I will pay you Y dollars o Formal ▪ Requires a special form for creation o Informal ▪ Requires no special form for creation o Express ▪ Formed by words, such as oral, written, or a combination ▪ Ordering more beers at a bar by your physical conduct, and claiming that  you didn’t ask for more when you were charged o Implied ▪ Formed by the conduct of the parties ❖ Performance o Executed ▪ A fully performed contract o Executory  ▪ A contract not fully performed ❖ Contract Enforceability o Valid ▪ The contract has the necessary contractual elements (4) o Enforceable ▪ A valid contract that can be enforced because there are no legal defenses  against it o Voidable ▪ One party has the option of avoiding or enforcing the contractual  obligation  o Unenforceable  ▪ A contract exists, but it cannot be enforced because of legal defense o Void ▪ No contract exists, or there is a contract without legal obligation ❖ Agreement= offer + acceptance o When you are the one making the offer, you are the master of the offer until you  propose I to the other person o Lucy v. Zehmer case in book** o Advertisements are not offers, they are invitations o Auctions are not offers, the person making the bid makes the offer o You can’t trick people into accepting your offer ❖ Offer requirements and terminationo Offer must have: ▪ Serious intent ▪ Essential terms under common law ▪ Communication o Offeror can revoke their offer only if the offeree has not accepted it yet o One situation you can’t take back your offer is an ‘option contract’ ▪ The offeree can pay x amount to the offeror to hold the offer for x  amount of time ▪ Ex. Land is up for sale, and the offeree could pay the offeror to hold the  land for x amount of money and x amount of time. If the offeree hasn’t  paid for the land after x amount of time, the offeror gets to keep the  money and the offer is dead. o The offer dies if the item in question is destroyed o Supervening illegality- when you offer to sell something that then becomes  illegal to sell, the offer is terminated ❖ Acceptance requirements o Ex: 12.8 in book is a good example of communication acceptance o Communicated directly, or in writing o Exculpatory clause- carves out liability o Acceptance has to be a mirror image of the offer (if not, under common law it  would be considered as a rejection/counter offer) o When is acceptance effective? ▪ When the acceptance I sent (sent by email, mail, or hand delivered) ▪ Could be a problem if the offeror wants to revoke the offer o “Mailbox Rule”- person X offers to sell an item, the next day person X says they  want to revoke the offer. Person Y had already mailed the acceptance and check,  so person Y wins because the acceptance is effective when it is sent. ❖ Statue of frauds- must be in writing to be valid ❖ Consideration o Preexisting duty- promising to do something that I was already obligated to do o past consideration ▪ Has to be done in the present or in the future o illusory promises o Settlement of claims o Promissory Estoppel  o Skip: covenant not to sue and Nike case ❖ Contractual capacity o Minors, intoxicated persons, mental incompetence ❖ Legalityo Contrary to statutes o Contrary to public policy ❖ Statute of frauds o “MY LEGS”- Marriage, Year, Land, Executors, Guaranty, Sales of goods for $500  or more ❖ Third party rights o Assignment of rights o Delegation of duties o Third party beneficiaries (intended v. incidental)Chapter 13 In Class Notes ❖ Voluntary consent o Mistakes: ▪ Mistakes of fact- unilateral v. bilateral ∙ Can possibly get out of the contract, accidentally typing the  wrong amount in your offer ∙ Exceptions in unilateral: if the other party knew that it was a  mistake, OR if it was a simple computation error ∙ Bilateral mistake: both parties were mistaken about a  material fact, and either one of the parties can get out of the  agreement ▪ Mistakes of value ∙ Cannot get out of the contract ∙ Even if the value is wrong, you cannot exit the contract o Fraudulent misrepresentation ▪ Someone who is induced into a contract based on lies, typically is  voidable by ??? ▪ If you were lied to, you can rescind the contract, but probably wont  get damages o Undue influence- you have a close relationship between 2 parties, and one  person is trying to influence the other person by  o Duress- somebody is being forced into a contract by intimidation, ??? o ‘Adhesion contracts’ and unconscionability- if you get a credit card, you  sign the form they give you and don’t get to negotiate terms ❖ Conditions to performance of contract obligations o Discharge by performance (13-2) ▪ Performance (tender)- if performance is tendered, if one party is  ready, the other party can’t back out of the deal ∙ Complete- no breach-contract is discharged (perfect) ∙ Substantial- duty to perform continues. Party can recover  damages (you can’t get out of your obligations, but you can  get damages) ∙ To the satisfaction of another- contract is discharged. No  further duty to perform. Party can sue immediately for  breach (should make the determination based on good faith  and being reasonable) ❖ Material breach (performance not at least substantial o Excuses non-breaching party’s obligations, and entitles them to sue for  damages o Performance wasn’t at least substantial o Party not responsible can get out of contract ❖ Minor breach (substantial performance) o Substantially performed, but you still need to sue for damages o Cannot get out of contract  ❖ Anticipatory repudiation o A material breach, so non-breaching party can sue as soon as notified of  intent not to perform o A sales contract provides that Sally (seller) is obligated to deliver $10,000  worth of building materials to Bob (buyer) on April 1. On March 15, Sally  calls Bob and says she will not be delivering the goods because she needs  them for a larger customer ▪ Bob can treat this as a material breach as soon as the notice is  given. He is excused from his obligation to but from her. Bob can  buy replacement materials elsewhere and sue for damages immediately (does not have to wait until April 1) ❖ Discharge of contract obligations by agreement o Mutual rescission and restitution ▪ Create a new agreement by agreeing to get rid of the old one then  paying anything back o Novation ▪ Substitution of a party into a contract ▪ Ex. Delegation in housing contract o Settlement agreement ▪ o Skip: accord and satisfaction ❖ Skip 13-2d discharge by operation of law ❖ Damages o Compensatory damages (usual award for contract breaches) – most  common (make the innocent party whole and put them in the same  position they were before the contract-suing party) ▪ Included incidental damages ▪ Employment agreement – services, lease ▪ Sale of goods ▪ Sale of land ▪ Skip: construction contracts o Consequential damages (special circumstances only) ▪ Lost profits o Punitive damages (generally not available for contract breaches) ▪ The point is to punish the wrongdoer in order to deter people from  doing it in the future o Nominal damages (very small- perhaps just $1)▪ Court it not going to give you anything more than what makes you  whole o Mitigation damages- ▪ contract law principle, the party who didn’t breach has to do  everything they can to minimize losses o Liquidated damages (vs. penalties) ❖ Equitable remedies o Recission and restitution- ▪ original contract is cancelled and the parties are responsible for  putting each other back in the original state they were in o Specific performance ▪ Court orders the breaching party to do what they said they said  they were going to do ∙ Typical in land deals where seller breaches ∙ Not awarded for personal services contracts o Reformation ▪ The contract is rewritten by the court ▪ Sometimes the court will reform a contract just for a clause  ❖ 13-5/6

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