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Business Law Chapter 11-13

Contract
A promise or 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
Objective Theory of Contracts
Theory under which the intent to form a contract will be judged by outward, objective facts (what the party said when entering into the contract, how the party acted or appeared, and the circumstances surrounding the trans-action) as interpreted by a reasonable person, rather than by the partys own secret, subjective intentions
Requirements of a Valid Contract
1. Agreement
2. Consideration
3. Contractual Capacity
4. Legality
Bilateral Contract
A contract formed by a promise for a promise.
example: offering to buy and Iphone for $200 dollars when an individual gets paid. $200 is promised for the exchange of an iphone. Contract exists at the moment the promises are exchanged.

“if you do this, Ill do that”

Unilateral Contract
A contract formed by a promise for and act
Example: If an individual offers to another to drive their car to Los Angeles for $1000. Lotteries, contests, and other competitions involving prizes
Contract exists and is completed at the moment the act is performed

“when you do this, ill do that”

Formal Contract
A contract that Requires a special form for creation
Example: Negotiable instruments such as checks, drafts, promissory notes, bills of exchange, and certificates of deposit. Under Uniform Commercial Code (UCC) a special form of language are required to create them
Informal Contract
A contract that Requires no special form for creation
Example: Typical business contracts and all other contracts not including into a formal contract. Typically taken into writing for the purpose of potential disputes
Express Contract
A contract Formed by words
Example: A classmate calls and agrees to buy a text book from another classmate for $300 or a signed lease for an appt or a house.
Terms of the contract are fully written and explicitly stated in words; oral or written.
Implied Contract
A contract formed by the conduct of the parties. Conduct of the parties, rather than words, creates and defines the terms of the contract
Tradition Revocation to Unilateral Contract
Up until the act is performed in a unilateral contract, the offer-or can revoke from the contract and not be bound to it
Todays Revocation to Unilateral Contract
Once the performance of the act has been substantially performed, the parties are bound to the contract
Requirements for Implied Contracts
1. Plaintiff furnished some service or property
2. Plaintiff expected to be paid for service or property and the defendant knew the plaintiff expected payment
3. Defendant had an opportunity to decline the offer of service or property
Contracts with Expressed and Implied Terms
Some contracts contain both express and implied terms such as the building of a house. Designer will tell the architect to make changes to the original specifications
Executed Contract
A contract that has been fully performed by the parties
Executory Contract
A contract not fully performed by the parties
-partially completed
Valid Contract
A contract that contains all 4 of the necessary elements to entitle at least one of the parties to enforce the contract in court.
A Voidable Contract
This is a valid contract but one that can be avoided at the option of one or both of the parties. The party given the option can elect either to avoid any duty to perform or to ratify (make valid) the contract. Both parties are released or both parties must perform
Voidable Contract possibilities
Contracts made with minors
Contracts made by mentally incompetent persons
Contracts made by intoxicated person (must be extremely intoxicated)
Contacts entered into under fraudulent conditions are optional at the defrauded party
Contracts entered under legally defined duress or undue influence
Unenforceable Contract
A contract that cannot be enforced because of certain legal defenses against it. A party failed to satisfy a legal requirement of the contract. A valid contract rendered unenforceable by some statute or law.
Example: Certain contracts must be in writing
Void Contract
A contract that is no contract at all. The terms void and tract are contradictory. None of the parties have a legal obligation if the contract is void.
Example: A party was determined mentally incompetent, or the purpose of the contract was illegal
Formations of different types of Contracts
1. Bilateral
2. Unilateral
3. Formal
4. Informal
5. Expressed
6. Implied
Performance Levels Of Contract
1. Executed
2. Executory
Enforceability of Contract options
1. Valid
2. Voidable
3. Enforceable
4. Void
Quasi Contract
A fictional contract that the courts can impose on the parties “as if” the parties had entered into an actual contract. contract implied in law, but not an actual contract. Do not arise from any agreement, expressed or implied, between the parties themselves.
Purpose: Imposed to avoid unjust enrichment of one party at the expense of another.
Unjust Enrichment
A benefit conferred upon the defendant by the plaintiff; an appreciation or knowledge by the defendant or of the benefit; and the acceptance or retention by the defendant under such circumstances as to make it inequitable for the defendant to retain the benefit without the payment of its value.
Quantum Meruit
The recovery to “as much as he or she deserves” in an applied Quasi contract
Plain Meaning Rule
Meaning of the terms is determined from the face of the instrument – from the written document alone.
The words and their plain, ordinary meaning determine the intent of the parties at the time that they entered into the contract
Court determines Ambiguity under these situations
1. When the intent of the parties cannot be determined from the contract’s language
2. When the contract lacks a provision on a disputed term
3. When a term is susceptible to more than one interpretation
4. When there is uncertainty about a provision
Extrinsic Evidence
Any evidence not contained in the document itself – such as the testimony of parties and witnesses, additional agreements or communications, or other relevant information.
This is used when the plain language of the contract cannot determine the interpretation of the terms.
Offer
Is a promise or commitment to do or refrain from doing some specified action in the future
Necessities for an offer to be effective
1. The offeror must have serious intention to become bound by the offer
2. 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.
3. the offer must be communicated to the offeree
Expressions of Opinion
Statements of Future Intent (“plan to sell”)
This is not an offer. It does not indicate an intention to enter into a binding agreement, rather a way of thinking about the situation at hand.
Preliminary Negotiations
Request or invitation to negotiate is not an offer. Expresses a willingness to discuss the possibility of an offer or agreement “will you sell your car?” or “i wouldnt sell my car for less than 2500”
Adervertisements
A invitation to negotiate
Definiteness of Terms
1. The Identification of the parties
2. The identification of the object or subject matter of the contract including the work to be performed, with specific identification of such items as goods, services, and land
3. The consideration to be paid
4. The time of payment, delivery, or performance
Revocation
The offerors act of withdrawing an offer
Each method is a possible way of Revocation
1. Express repudiation of the offer (such as “i with-draw my previous offer of October 17”)
2. Performance of acts that are inconsistent with the existence of the offer and are made known to the offeree (for instance, selling the offered property to another person in the presence of the offeree)
Option Contract
Leaves the offer open for a specified amount of time that is irrevocable during that period of time.
Termination of offer by operation of law happens with these options
1. Lapse of time
2. Destruction of the specific subject matter of the offer
3. Death or incompetence of the offeror or the offeree
4. Supervening illegality of the proposed contract (a statute or court decision that makes an offer illegal automatically terminates the offer)
Methods in which an offer can be terminated
By action of the Parties
1.revcation
2. rejection
3. counteroffer

By operations of Law
1. lapse of time
2. destruction of the subject matter
3. death or incompetence
4. supervening illegality

Mailbox Rule
Acceptance happens when the offoree sends the means of acceptance to the offeror
At minimum, this should be included in an Online offer
1. Acceptance of Terms
2. Payment
3. Return Policy
4. Disclaimer
5. Limitation on Remedies
6. Privacy Policies
7. Dispute Resolution
Forum- Selection Clause
Indicates the forum, or location (such as court or jurisdiction) in which contract disputes will be resolved
Click-On Agreements
The box saying “I accept” Allowed to review and accept the agreements and states that you accept to the terms and conditions
Shrink Wrap Agreement
Terms are expressed inside the box in which the goods are packaged. He or she agrees to the terms by keeping the goods within the box. If you order a mac and you open it, you have 30 days to return it upon seeing the terms of agreement
Elements of Consideration
Value given in return for a promise
Two parts:
1. Legally Sufficient Value
2. There must be a ‘bargained-for’ exchange
Legally Sufficient Value is considered one of these 3 options
1. A promise to do something that one has no prior legal duty to do
2. the performance of an action that one is other-wise not obligated to undertake
3. The refraining from an action that one has a legal right to undertake (Forbearance)
Preexisting Duty
Whats wrong with it in terms of consideration?
Does not constitute legally sufficient consideration. A cop already has a job to fight crime, therefore he cant accept consideration to do a job that he is already inclined to do.
Rescission
The unmaking of a contract of a contract so as to return the parties to the positions they occupied before the contract was made
Agreements that Lack Consideration
1. Preexisting Duty
2. Past Considerations
3. Illusory Promises
Illusory Promise
Without consideration and unenforceable. Promise is unenforceable when it fails to bind the promisor. The promisor may say they will do something for someone under a certain situation, but there is no way to enforce it becuase there is no bargained-for exchange.
Option-to-cancel Clauses (present problems with consideration)
Giving a notice to cancel after the performance of a hired person begins work.
Requirements Contract
A contract that A buyer and a seller agree that the buyer will purchase from the seller all of the goods of a designated type that the buyer needs, or requires.
Output Contract
A contract in which the buyer and seller agree that the buyer will purchase from the seller all of what the seller produces, or the sellers output.
Accord (is the agreement) and Satisfaction (performance, usually payment)
A debtor offers to pay and a creditor accepts, a lessor amount than the creditor originally claimed was owed.
No satisfaction unless there is first an accord. Amount of debt must be in dispute
Liquidated Debts
A debt that is one whose amount has been ascertained, fixed, agreed on, settled, or exactly determined.
Accord and satisfaction can not take place.
UnLiquidated Debts
a debt in which the amount of the debt is not settled, fixed, agreed on, ascertained, or determined, and reasonable persons may differ over the amount owed.
acceptance of a lesser sum operates as satisfaction, or discharge, of he debt because there is no valid consideration. Parties give up a legal right to contest the amount in dispute
Release
is a contract in which one party forfeits the right to pursue a legal claim against the other party.
Binding Release Requirements
1. The agreement is made in good faith (honesty)
2. The release contract is in a signed writing (required in many states)
3. The contract is accompanied by consideration
Covenant not to Sue
Parties substitute a contractual obligation for some other type of legal action based on a valid claim.
Enforceable despite the lack of consideration
1. Promises that induce detrimental reliance, under the doctrine of promissory estoppel
2. Promises to pay debts that are barred by a statute of limitations
3. Promises to make charitable contributions
Promissory Estoppel (Detrimental Reliance)
A person who has reasonable and substantially relied on the promise of another may be able to obtain some measure of recovery
Requirements to State a Claim
1. There must be a clear and definite promise
2. The promisor should have expected that the promisee would rely on the promise
3. The promisee reasonably relied on the promise by acting or refraining from some act
4. The promisee’s reliance was definite and resulted in substantial detriment
5. Enforcement of the promise is necessary to avoid injustice
With this, a promise may be enforced even though it is not supported by consideration
Promissory Estoppel and Quasi Contract
In both situations, a court, acting in the interests of equity, imposes contract obligations on the parties to prevent unfairness even though no actual contract exists. Difference is that in the QC no promise was made at all where as in Promissory Estoppel there was a promise that was relied on but unenforceable
Statute of Limitations
Sets a limit of time in which a creditor can sue to collect a debt. Although recovery is barred by this limitation in time, if a debtor promises to pay even though recovery is barred by by the statute of limitations makes and enforceable promise. The promise extends the limitations period, and the creditor can sue to recover the entire debt or at least the amount promised.
Charitable Subscriptions
A promise to make a donation to a religious, educational, or charitable institution.

Traditionally were unenforceable because of the lack of consideration. Exceptions now to the general rule by applying the doctrine of promissory estoppel

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