Legal Environment of Business
Legal Environment of Business L S 3323
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Date Created: 10/26/15
REVIEW 7 TEST 2 I Chapter 10 Nature and Terminology a Why do we have contract law 0 Ensures promises are kept o Deflnes excuses society will accept for breaking promises o Deflnes types of promises that cannot be enforced 0 Business would not function without contract law b What s a good de nition of a contract 0 A promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law recognizes a duty c 4 valid elements to a K Agreement offer and acceptance i 0 Must be mutual ii Consideration bargain for exchange iii 0 O 0 Something for something Must be money or something of value to induce a person to contract Can t be a gift or a moral obligation I ll give you 1 million to marry my daughter Capacity mutual assent O 0 Both parties must be competent to contract Can t be underage mentally ill or drunk iv Legality must be for a legal purpose 0 Can t be a contract for an illegal act d Types of contract Express vs implied i iii iv 0 0 Express Terms expressed orally or in writing Implied Implied for conduct ie plaintiff provided property or service to defendant barber story Executed vs executory o Executed Has been performed on both sides fully complete 0 Executory One side has fully performed but the other side has not ful lled their contractual obligation Implied in fact 0 Implied for conduct ie plaintiff provided property or service to defendant barber story Implied in law what s the difference 0 OO 0 Not actual contracts Created by courts and imposed on parties in the interests of fairness and justice Equitable rather than contractual in nature Imposed to avoid the unjust enrichment of one party at the expense of another Quantum meruit As much as he or she deserves v Formal K s vs Informal K H 5quot 0 a 0 Formal Requires a special form or method to create contracts under seal checks bills of lading cert of deposits house mortgages contracts for selling land Informal Any contract that isn t formal Most contracts are informal vi Valid void voidable and unenforceable 0 Valid Meets all 4 contract requirements agreement consideration capacity legality o Void Has m legal effect and neither party is liable O o Voidable 1 paIty has the option to avoid or ratify the contract both paIties have to follow that action 0 Unenforceable Valid contract but cannot be enforced in court parties can perform voluntarily if they choose Chapter 11 Agreement What are the requirements of an offer 0 Offeror must seriously intend to be bound by the offer 0 Terms must be reasonably ceItain or defmite 0 Communication of the offer to the offeree Expression Preliminary negations Statements of intent 0 Expression of opinion M an offer Does not indicate an intention to enter into a binding agreement ie Dr thinks a wound will heal in a few days it doesn t can t sue because that s just his opinion 0 Preliminary negotiations A request or invitation to negotiate is not an offer It only expresses a willingness to discuss the possibility of entering into a contract ie Will you sell your house or I wouldn t sell me car for less than 5000 governments invite contractors to submit bids but neither party is bound to accept that bid 0 Statement of intent Not an offer ie I plan to sell my stock in Novation is not a contract Advertisements 0 Usually treated as invitations to negotiate and not an offer to contract 0 Ads offering a reward for the return of something contain defmite terms that invite acceptance and will most likely be considered contracts Termination of offer by paIties o Revocation o Withdrawing an offer Unless the offer is irrevocable the offeror usually can revoke the offer as long as the revocation is communicated to the offeree before the offeree accepts May be accomplished by express repudiation of the offer ie I withdraw my previous offer of October 17 or by performance of acts that are inconsistent with the existence of the offer and are made known to the offeree ie selling the offered propeIty to another person in the presence of the offeree O o Becomes effective when the offeree or the offeree s agent actually receives it o Revoking offers made in newspapers must be done the same way the offer was made ie If you offer in 5 papers you must revoke in those same newspapers 0 Option contracts are irrevocable The offeror is paid to hold the offer open for a speci ed period of time to the offeree If no time is speci ed a reasonable amount of time is implied o If the offeree has justi ably relied on the offer the offer is most often irrevocable o Detrimental reliance When the offeree justi ably relies on an offer to her or his detriment the offer may be irrevocable o Promissory estoppel The promisor is barred from revoking the offer 0 Rejection o If the offeree rejects the offer the offer is terminated Any subsequent offer is construed as a new offer and the process starts again Ordinarily accomplished by words or conduct indicating an intent not to accept the offer and is effective only when it is actually received by the offeror or his agent 0 Inquiries about the offer do not constitute rejection of the offer 0 Counteroffer o Rejection of the original offer and the simultaneous making of a new offer 0 Mirror image rule The offeree s acceptance has to match the offeror s offer exactly Any change to the terms of the original offer terminates that offer and substitutes the counteroffer e Termination of offer by law 0 Lapse of time 0 An offer terminates when the period of time speci ed in the offer has passed 0 The time period actually begins to run when the offer is actually received by the offeree not necessarily when it is formed or sent 0 If the offer is left open until a particular date the offer will terminate at midnight on that day 0 When the offer is delayed through misdelivery of the mail for example the period begins to run from the date the offeree would have received the offer ONLY if the offeree knows or should know that the offer is delayed o If no time period is speci ed the offer terminates at the end of a reasonable period of time which depends on the subject matter business and market conditions and other relevant circumstances 0 If the item is perishable the offer will terminate quicker than a for a more permanent item 0 Destruction of the speci c subject matter of the offer 0 o The offer is automatically terminated if the matter of the offer is destroyed before the offer is accepted 0 The offeror does not have to tell the offeree that the subject matter has been destroyed for the offer to be terminated 0 Death or incompetence of the offeror or the offeree 0 An offeree s power of acceptance is terminated when the offeror or offeree dies or is deprived of legal capacity to enter into the proposed contract 0 A revocable offer is personal and cannot pass to heirs guardians or estates of either parties 0 If the offer is irrevocable the death of either paIty does NOT terminate the offer 0 Supervening illegality of the proposed contract 0 A statute or couIt decision that makes an offer illegal automatically terminates the offer f Who can accept a K o The offeree must accept unequivocally that is the acceptance of the offer is NOT subject to new conditions or terms g How can acceptance be recognized under the law 0 Usually silence cannot constitute acceptance UNLESS the offeree takes the benefit of offered services even though he or she had an opp01tunity to reject them and knew that they were offered with the expectation of compensation ie garage built by accident in backyard In bilateral contracts communication is necessary to accept because it is in the form of a promise In unilateral contracts communication is not necessary and only the performance is necessary to accept unless there is no way of determining whether the requested act has been performed h Communicating the acceptance what s the mailbox rule ie what is a counter offer 0 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 The majority of courts follow this rule 0 ie If the mode of communication is the mail the offer is accepted when the acceptance is placed in the control of the US Mail NOT when it is received by the offeror 0 An authorized means of communication must be used 0 Can be implied by facts and circumstances surrounding the situation or by law used by someone customarily in similar transactions 111 Chapter 12 Consideration i What are the elements of consideration 0 Legal Value Promisee suffers a legal detriment either something that one has no prior legal duty to do the performance of an action that one is 1 otherwise not obligated to undertake or the refraining from an action that one has a legal light to undertake forbearance ie If you stop smoking I ll wash your car Bargained for Exchange Must provide the bsis for the bargain struck between the contracting parties The promise must induce the offeree a return promise a performance or a forbearance and vice versa ie 2 parties sit and negotiate the terms of a contract and decide I ll pay you 5000 for 200 widgets Adequacy of Consideration What is it Consideration must be something of legally suf cient value in the eyes of the law and involves How much is given Essentially it concerns the fairness of the bargain Courts will not question the adequacy of consideration based solely on the comparative value of the things exchanged If the items being exchanged are of grossly inadequate consideration the court may look to see if there was fraud duress or undue in uence involved in the formation of the contract Nominal consideration Consideration that is as low as 1 When the consideration is grossly inadequate the court may declare the contract unenforceable because it is so unconscionable and shocks the conscious of the couIt Agreements that lack consideration remember I lectured over areas not in the book Preexisting duty ie soldier fmds Bin Laden story Unforeseen difficulties are the only things that can let a company raise a price on something they previously agreed on Promises made in return for an action or event that already occurred are unenforceable Illegal consideration If you don t work harder I ll cut your base pay and employee is a contract employee Illusory promises If you ship me those oranges by Friday I ll consider using you as my sole supplier if I m satis ed 0 Maybe kind of contract Moral Obligations If you marry and love my daughter I ll give you 20000 0 Look for detrimental reliance Problems with consideration m Detrimental reliancepromissory estoppel what is it 4 parts to promissory estoppel o Promisor made a promise o Promisor should have reasonably expected to induce the promisee to rely on the promise o The promisee relied on the promise Injustice would be caused if the promise were not enforced O o Detrimental reliancepromissory estoppel depends on if the promisee justi ably relied on the promise or changed their position in reliance on the promise IV Chapter 13 Capacity and legality a Contractual capacity 0 Legal ability to enter into a valid contract 0 Courts generally presume capacity Minors rules Trends Age of majority in all states is 18 Marriage emancipates minors from their parents If subject matter is legal for minors they can enter into a contract Contracts with minors are voidable at MINOR S DISCRETION 0 Adult parties remain bound Minor can legally avoid a contract at any time until they reach the age of majority or a reasonable time afterwards They only need to manifest intent NOT to be bound 0 Must disaffirm the entire contact not just parts of it Majority Rule lVIinor need only return the goods even if they re damaged Minor Rule Minor must pay for depreciationwear amp tear o This is a growing trend Minors are liable for necessaries reasonable value even if they disaffirm o Necessaries must be necessary for minor s living up to their standard of living and the minor must not be under a guardian who is required to supply it If the minor lies about their age they usually can t disaffirm at all General Rule Parents are not liable for their minor s contracts 0 Exceptions Parent co signs parents were grossly negligent and for necessaries c Intoxication Revisit cases 0 Could be alcohol or drugs 0 Courts look at objective factors to determine whether the contracting party was too intoxicated to understand the legal consequences of the contract 0 If so the contract is voidable at the option of the intoxicated party 0 If they disaffirm they must return the consideration they gained 0 They can ratify when sober and take over the obligations of the contract d Capacity guardians temporary insanity 0 Contract will be m if the court has previously determined that a person is mentally 39 I and has fr 39 J a g 139 to represent the individual only the guardian can contract for the pa y 5quot 0000 0 Contact will be voidable if a court has not previously declared a person mentally incompetent but the person was in fact incompetent at the time the contract was formed 1 If the party did not know they were entering into the contract or lacked the capacity to understand it s nature and consequences 2 Only the mentally incompetent person has the option to avoid the contract 3 They must return the reasonable value of any consideration 0 Contract will be M if the person has not been declared mentally incompetent OR was competent at the time the contract was formed lucid intervals e Disaffir39ming and ratification When can these be done 0 Express rati cation Minor reaches the age of majority and orally or on paper states that they intend to be bound Intoxicated persons can ratify when they re sober o Inplied rati cation means they indicate an intent to be bound i e not returning the merchandise when they reach the age of majority or become sober f Legality what does this mean 0 A contract that calls for a tort is illegal and unenforceable o A contract may be illegal even if there isn t a statue prohibiting the specific act g Unconscionable K s what are they and who do they affect o Unconscionable contracts are so grossly unfair they shock the conscious of the court 0 Too much legalese or the lack of opportunity to read the contract is procedural unconscionability o A contract given on a take it or leave it basis is an adhesion contract and is unconscionable o If a contract or part of it is too harsh ie rent to own story it is substantively unconscionable h What are the effects of an illegal K o In pari delicto Equally at fault 1 Both parties are equally at fault for contracting illegally 2 If one party suffers loss because of an illegal contract should be deterred from entering similar contracts and the court does not care that they suffered much loss V Chapter 14 Genuineness of Assent a lVIistakes the different types i Bilateral and unilateral 1 Unilateral mistake of fact lVIistake made by 1 party a Must be material b General rule is the party that made the mistake does not get relief from the contract i If the other party knew or should have know that a mistake of fact was made the contract is not enforceable ii If there is a math mistake made without gross negligence last minute scrambling it is unenforceable If enforcing the contract would be unconscionable it will not be enforced 2 Bilateral mistake of fact Mistake by both parties ie fake Van Gogh story a usually can be rescinded ii Facts value Opinions 1 Mistake of value mistake that concerns the future market value of quality of an object in a contract a Mutual mistakes of value usually CANNOT be rescinded b Either party can usually enforce the contract ii39 c b Fraud and the different types of fraud i Elements 1 Misrepresentation of fact occurs 2 The wrongdoer must intend to deceive the innocent party 3 The innocent party must have justi ably relied on the misrepresentation of fact 4 The innocent party must have been injured ii Types 1 Fraud in the inception Does not know what he is signing grandson asking for grandmother s signature story 2 Fraud in the inducement Knows what he is signing but was fraudulently induced into contracting Bernie Madoff 3 Fraud by conduct Conceals a material fact turning back the odometer story 4 misrepresentation of law Buyer asks seller if there are restrictions on land seller says no but there are a Buyer should know the laws b Exception If the seller was a professional or has higher knowledge than a normal person 5 lVIisrepresentation by silence daughter s car story a Usually neither party has to disclose facts UNLESS i If non disclosure would cause bodily harm ii There s a duciary responsibility iii A statute requires disclosure c Undue in uenceduress what s the difference i Undue in uence Arises from a duciary or special relationship between two paIties and the paIty taken advantage of does not exercise free will and the persuasion is so pervasive that the party is helpless Attorney induces a client into selling land for lower than valued ii Duress Occurs when one of the paIties is forced into an agreement by threats of force 1 Blackmail or distortion are duress d Unconscionable K s what are these e Scienter Guilty Knowledge the intent to deceive a person f What would a reasonable person believe in the situation