Business Law Ch 5-8

Business Law Ch 5-8 Blaw Ch 5-8
  
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A contract is
 
A contract is a legally enforceable agreement between two or more competent persons.
A valid contract is
 
A valid contract is one that is enforceable by the courts and it has five requirements:Mutual agreementCompetent partiesConsiderationLawful purposeAny formal requirements

All contracts are
 
All contracts are agreements, but not all agreements are contracts; only those agreements enforceable by law are contracts.
Contracts are classified as:
 
Valid contracts, void agreements, and voidable contractsExpress and impliedFormal* and simpleExecutory and executedUnilateral and bilateral *ln a formal contract, the letters L.S. after a name stand for the Latin Locus Sigilli, which means "the place of the seal."
A void agreement is
 
a. A void agreement is one that is of no legal effect.
A voidable contract is
 
A voidable contract is one that may be set aside by at least one of the parties.
An express contract is
 
An express contract is one in which the parties express their intentions by words at the time of the agreement.
A formal contract is
 
A formal contract is one that must be in a special form or be created in a certain way.
An implied contract is
 
An implied contract is one in which the duties and obligations that the parties assume are not expressed but are implied by their acts or conduct
A simple contract is
 
A simple contract is a contract other than a formal contract.
An executory contract is
 
An executory contract is one in which the terms have not been fully carried out by all parties.

An executed contract is
 
An executed contract is one in which the terms have been fully carried out by all parties.
unilateral contract.
 
A contract in which an act is done in consideration for a promise is a unilateral contract.
A bilateral contract consists of
 
A bilateral contract consists of a mutual exchange of promises to perform some future acts. Each promise is consideration for the other.
A quasi contract is
 
A quasi contract is the imposition of rights and obligations by law when no real agreement exists.
What provision does the law allow if a party to a contract fails or refuses to perform it?
 
If a party to a contract fails or refuses to perform it the law allows the other party an appropriate action for obtaining damages or enforcing performance by the party breaching the contract.
How does a contract differ from an agreement?
 
A contract differs from an agreement in that the parties to a contract intend to be legally obligated to the terms of the agreement.
When is a contract actually unenforcable agreement? Can it be made enforcable?
 
A contract is actually an unenforceable agreement when the law requires it to be in a particular form and it is not. It can be made enforceable by changing the form to meet the requirements of the law.
what 2 items must be expressed in order to have an express contract?
 
Both the parties' intention to contract and the terms of the agreement must be expressed in order to have an express contract.
how must a sealed contract be executed?
 
In order to execute a contract under seal, the word "seal" or the letters "L.S." should appear after the signatures. In some states the document itself must also recite that it is under seal.
What is a recognizance?
 
A recognizance is a type of formal contract in which obligations are entered into before a court whereby persons acknowledge they will do a specified act required by law.
Why are most business contracts written rather than oral?
 
Most business contracts are written rather than oral to avoid disputes about the terms of the agreement. No such disputes need arise if the wording is clear, explicit, and complete.
Explain the difference between an executor and a executed contract?
 
An executor contract is one in which the terms have not been fully carried out by all the parties while an executed contract is one in which the terms have been fully performed by all the parties to the contract.
Are all contracts the result of mutual promises by both parties?
 
No, unilateral contracts are the result of only one promise. The other party makes no promise, but performs an act.
When will the law impose a contract when no real contractc exists?
 
The law will impose a contract when no real contract exists when a failure to do so would result in one person unfairly keeping money or otherwise benefiting at the expense of another.
State the five requirements for a valid contract.
 
To be valid, a contract must be: based on mutual agreement, made by competent parties, supported by consideration, for a lawful purpose, and in the form required by law.
Describe the types of contracts and how they differ from agreements.
 
A contract is a legally enforceable agreement between two or more competent people. An agreement differs from a contract in that an agreement is not necessarily enforceable. The types of contracts include: express and implied; valid, void, and voidable; formal and simple; executory and executed; and unilateral and bilateral.
Explain the difference between a contract and a quasi contract
 
A quasi contract is not a true contract because the parties have not made an agreement. But it is a contract imposed by law to prevent unjust enrichment.
contract
 
legally enforcable agreement
breach of contract
 
failure to perform contractual obligations
valid contract
 
contracts enforcable by law
void
 
of no legal effect
unenforcable contract
 
agreement that is not currently binding
voidable contract
 
enforcable agreement that may be set aside by one party
express contract
 
contract with the terms of the agreement specified in words
implied contract (implied in fact contract)
 
contract with major terms implied by the parties' conduct
formal contract
 
contract with special form or manner of creation
recognizance
 
obligation entered into before a court to do an act required by law
negotiable intrument
 
document of payment, such as a check
written contract
 
contract with terms in writing
oral contract
 
contract with terms spoken
executory contract
 
contract not fully carried out
executed contract
 
fully performed contract
unilateral contract
 
contract calling for an act in consideration for a promise
bilateral contract
 
contract consisting of mutual exchange of promises
quasi (implied by law contract)
 
imposition of rights and obligations by law without a contract
unjust enrichment
 
one benefiting unfairly at another's expense
An agreement is reached when
 
An agreement is reached when one party makes an offer and the other party accepts the offer. The intention of one party to make or to accept an offer may be inferred from acts if a party's conduct leads the other party reasonably to believe an offer is made or an acceptance is intended.
There are three requirements of a valid offer:
 
The offer must be definite. The offer must be seriously intended. If it is made in jest, banter, fear, or extreme anger, it ordinarily is not an acceptable offer. The offer must be communicated to the offeree.
Advertisements, window displays, price lists, etc., are
 
are not offers, but are invitations for customers to make offers.
Duration of an offer is affected by the following factors:
 
An offer may be revoked by the offeror at any time prior to acceptance, An option cannot be revoked at will, Revocation of an offer must be communicated to the offeree prior to acceptance, An offer is revoked by the lapse of the time specified in the offer, Death or insanity of the offeror before acceptance revokes the offer, Rejection of an offer by the offeree and communication of the rejection to the offeror terminates the offer, Illegality of the contract after the offer has been made terminates the offer.
A proper acceptance of an offer creates a contract.
 
The acceptance may be by words, oral or written, or by some act which clearly shows an intention to accept, Silence seldom constitutes an acceptance, If the offer stipulates how acceptance must be made, these stipulations must be met for the acceptance to be valid.
counteroffer
 
If the offeree varies or qualifies the terms of the offer, even if intending to accept the offer, this becomes a counteroffer, which in turn must be accepted by the original offeror to create a contract.
The offeree may
 
The offeree may make an inquiry without rejecting the offer.
When an offer is made by mail
 
When an offer is made by mail, the contract is completed when the acceptance is mailed unless the offeror stipulated otherwise in the offer.
If an offeree accepts by telegram
 

  1. If an offeree accepts by
    telegram, the agreement is completed when the acceptance is
    delivered to the telegraph company.

Careful and prudent persons can avoid many difficulties by
 
stipulating in the offer how and when acceptance must be made.
Explain the 2 essential elements of a contract
 
The two essential elements of a contract are an offer, either expressed or implied and an acceptance, either expressed or implied.
list the 3 requirements for a valid offer
 
The three requirements for a valid offer are: the offer must be definite, it must appear to be seriously intended, and it must be communicated to the offeree.
under what circumstances can an offer be definite and yet the price not be definite
 
A businessperson may make a definite offer that is not definite as to price. The offeror may state that the price will be determined by the market price at a future date or by a third party.
what are common types of invitations to make an offer
 
Common types of invitations to make an offer include advertisements, window displays, catalogs, price lists, and circulars

when may an offer be revoked?
 
An offer may be revoked at any time prior to acceptance.
What is the effect of death or insanity of the offeror on an offer?
 
Death or insanity of the offeror automatically terminates an offer, even if the offeree is not aware of the death or insanity.
explain one instance in which silence constitutes acceptance of an offer?
 
Silence constitutes acceptance of an offer when the offeree accepts the benefit of offered services with reasonable opportunity to reject them, knowing compensation is expected; when the offeree accepts the benefit of offered services with reasonable opportunity to reject them, knowing compensation is expected; or when because of previous dealings it is reasonable for the offeree to notify the offeror of non-acceptance.
How is a "reasonable time" after which an offer would "lapse" determined?
 
What is judged a reasonable length of time varies with each case depending on the circumstances.
explain the consequences when an intended acceptance varies or qualifies the offer
 
An intended acceptance that varies or qualifies the offer is a counteroffer that rejects the original offer and terminates the offer.
what is the "mailbox rule"?
 
the "mailbox rule" states that if there is no requirement of delivery, a properly mailed acceptance is effective when it is posted.
Discuss the requirements for a valid contract.
 
A valid contract is created by agreement of the parties. This agreement exists when one party makes an offer and the other party accepts that offer.
Explain the difference between and offer and invitation to make an offer
 
An offer is a proposal to make a contract and, if accepted, binds the offeror. An acceptance of an invitation to make an offer does not bind the person making the invitation.
Summarize the rules affecting the duration of an offer
 
The rules affecting the duration of an offer are: an offer may be revoked any time prior to acceptance; an option cannot be revoked at will; revocation must be communicated to the offeree prior to acceptance; an offer is terminated by the lapse of the time specified in the offer; and death or insanity of the offeror automatically terminates the offer.
Define a counteroffer
 
A counteroffer is a response to an offer which does not accept the offer, but changes or qualifies it.
State the way to accept and offer made by mail.
 
An offer received by mail may be accepted in any reasonable manner uniess the offer specifies a certain manner.
offer
 
a proposal to make a contract
offeror
 
person who makes an offer
offeree
 
person to whom an offer is made
option
 
binding promise to hold an offer open
firm offer
 
a merchant's signed, written offer to sell or purchase goods saying it will be held open
acceptance
 
assent to an offer resulting in a contract
counteroffer
 
offeree's response that rejects offer by varying its terms
minor
 
person under the legal age to contract
necessaries
 
items required for living at a reasonable standard
disaffirmance
 
repudiation of a voidable contract
ratification
 
adult indicatiing contract made while a minor is binding
convict
 
person found guilty by court of a major criminal offense
consideration
 
what promisor requires as a price for a promise
composition of creditors
 
when all of the multiple creditors settle in full for a fraction of the amount owed
forbearance
 
refraining from doing something
promissory estoppel
 
substitute for consideration when another acts in reliance on a promisor's promise
In order that an agreement may be enforceable at law
 
In order that an agreement may be enforceable at law, all parties must have the legal and mental capacity to contract.
Those whom the law considers at least in some degree incompetent to contract are
 
(a) minors, (b) mentally incompetent persons, (c) intoxicated persons, and (d) convicts.
Minors in most states are
 
Minors in most states are persons under eighteen years of age
Minors are the sole judges as to
 
Minors are the sole judges as to whether or not they wish to be bound on voidable contracts.
A minor is
 
A minor is liable for the reasonable value of necessaries actually supplied.
Many states have special laws making minors
 
Many states have special laws making minors liable on their business contracts.
Disaffirmance means the repudiation of a contract.
 
A minor has the legal right to disaffirm a voidable contract at any time during minority or within a reasonable time after becoming of age.

If the contract is wholly executory, a disaffirmance completely nullifies the contract.

A minor, upon electing to disaffirm the contract, must return whatever was received, provided it is still in the minor's possession.

Ratification is
 
is indicating one's willingness to be bound.

A minor may ratify a voidable contract only after the minor has attained majority.

A contract cannot be ratified in part and disaffirmed in part; all or none of the contract must be ratified.

One can safely contract with a minor for nonnecessaries by
 
One can safely contract with a minor for nonnecessaries by having an adult co-sign, making the adult responsible for the performance of the contract independently of the minor.
As a general rule, a minor (other than a very young child) is
 
As a general rule, a minor (other than a very young child) is fully liable for torts.
contracts with the mental
 
A contract made by a person who is incompetent but who has not been so declared by a court is voidable unless it is for a necessary. Contracts made by mentally incompetent persons during lucid intervals are binding.
Contracts made by a person who has been judicially declared mentally incompetent are void.

A contract made by one who is so intoxicated
 
A contract made by one who is so intoxicated as to be incapable of understanding the nature of the contract is voidable.
Laws of the various states differ with regard to
 
Laws of the various states differ with regard to the capacity of a convict to contract.
what is the legal presumption regarding capacity to contract, and what is the effect of this presumption?
 
The legal presumption regarding capacity to contract is that all parties have this capacity. The effect of this presumption is that anyone alleging incapacity must offer proof of incapacity to overcome that presumption.
what choices does a minor have regarding the enforceability of most contractsmade with an adult?
 
A minor who contracts with an adult may avoid the contract or treat the contract as valid and then the adult is bound by it.
with regards to contracts of minors, what are necessaries?
 
Necessaries are items required for a minor to have a reasonable standard of living that are not provided by the minor's parents or guardian.
if minors engage in a business in the same manner as persons having legal capacity, what is the consequence of their business contracts?
 
If minors engage in business in the same manner as persons having legal capacity, their contracts that arise from such businesses cannot be set aside.
what is the obligation of a minor on disaffirming a contract?
 
When disaffirming a contact, minors must return whatever they may have received under the contract provided they still have possession of it.
when and how may a minor ratify a voidable contract?
 
A minor may ratify a voidable contract only after attaining majority. Ratification may be oral, written, or merely implied by conduct.
If Gordon, a minor, lies about his age to induce an adult to enter a contract, is he guilty of a tort? can any reesulting contract be enforced?
 
Yes. If a minor misrepresents his or her age and the adult with whom he or she contracts relies on this misrepresentation to the adult's detriment, this is a tort. The law is not uniform as to whether minors are bound on contracts induced by misrepresenting their age.
what is the effect in most states of a person being formally adjudicated incompetent?
 
In most states, contracts made by a person who has been formally adjudicated incompetent are void without regard to whether they are reasonable or for necessaries.
can a person who has not been judicially declared insane and has only intervals of insanity or delusions make a binding contract?
 
A person who has not been declared by a court to be insane and has only intervals of insanity or delusions can make a contract fully as binding as that of a normal person if it is made during a sane or lucid interval.
explain the enforceability of contracts made by people who have become so intoxicated that they cannot understand the meaning of their acts?
 
Contracts made by people who have become so intoxicated that they cannot understand the meaning of their acts are voidable. On becoming sober, such persons may affirm or disaffirm contracts they made when drunk.
Identify classifications of individual who may not have the capacity to contract.
 
Persons who are minors, mentally incompetent, intoxicated, or convicts may not have the capacity to contract.
Define disaffirmance.
 
Disaffirmance is the repudiation of, or the election to avoid, a contract.
Explain how a minor's contract can be ratified.
 
A minor's contract can be ratified only after the minor attains majority. Ratification may be oral, written, or implied by conduct. Ratification must be of all or none of the contract.
Discuss reasons other than age that may impair a person's capacity to contract.
 
A number of reasons within or beyond a person's control result in mental incompetence and make contracts made by the person voidable or even void. These include insanity, incompetence as a result of stroke, senile dementia, and retardation, and intoxication. In addition, convicts may have limitations on their ability to make contracts.
Consideration is
 
Consideration is whatever the promisor demands and receives as the price for a promise.Consideration may be another promise. For a promise to be consideration, the promise must impose an obligation upon the person making the promise. Consideration may be the performance of an act or the making of a promise to refrain from performing a lawful act.
The law does not prohibit
 
The law does not prohibit bargains, nor does it attempt to measure the value each party receives as consideration.
Consideration may be
 
Consideration may be the performance of an act or the making of a promise to refrain from performing a lawful act.

A partial payment of a past-due debt is
 
A partial payment of a past-due debt is not consideration to support the creditor's promise to cancel the balance of the debt. There are several exceptions to this rule:
If the amount of the debt is in dispute, acceptance of a lesser sum in full settlement cancels the debt.

If there is a composition of creditors, the unpaid balance is canceled.
Cancellation and return of the written evidence of the debt cancels the debt.

A lesser sum accompanied by a receipt in full and an indication that a gift of the balance is made cancels the debt.
If a secured note is accepted in payment of an unsecured note for a greater amount, the difference between the two notes is discharged.



There are three kinds of consideration that are deemed invalid:
 
There are three kinds of consideration that are deemed invalid: If consideration in an agreement consists merely of a promise to do what one is already legally obligated to do, there is no valid consideration.
Refraining from doing something is called forbearance. When forbearance consists of refraining from doing what one has no right to do, that is an invalid consideration.

An act performed prior to the promise does not constitute valid consideration.
There are several exceptions to the requirement of consideration for a contract:
 
(a) voluntary subscriptions, (b) debts of record, (c) promissory estoppel, and (d) modification of sales contracts.
When does a promise constitute consideration?
 
A promise constitutes consideration when the promise imposes an obligation on the person making it.
may a promise that is conditional constitute consideration?
 
Yes, a promise that is conditional is consideration even if the condition is unlikely to occur.
what is the general rule about the adequacy of consideration?
 
The general rule is that the adequacy of the consideration is irrelevant because the law does not prohibit bargains.
what is a composition of creditors?
 
A composition of creditors is an arrangement in which there is more than one creditor and each one agrees, in consideration of the others' agreement, to accept in full settlement a percentage of the amount due.
is there consideration when a secured note for a lesser amount is given and accepted in discharge of an unsecured note for a greater amount? expliain
 
Yes. When a secured note for a lesser amount is given and accepted in discharge of an unsecured note for a greater amount the security is the consideration to support the contract to settle for a lesser sum.
george agrees to remodel a kitchen for harry for $30k, but after beginning work asks Harry to pay $34k. Can George enforce Harry's new promise to pay $34k?
 
Because George is already obligated to do the work for $30,000, the promise to pay an additional $4,000 is not binding unless George concurrently agrees to do something the original contract did not require as a consideration for the extra $4,000.
If a boy promises his father that he will not own and operate an automobile until he is 18 in exchange for his father's promise to pay him $2k, is there a valid contract?
 
Yes. The promise of one party is consideration for the promise of the other. For the father, the value of the son's promise is $2,000.
is a promise to pay a debt discharged by bankruptcy enforceable? explain
 
A promise to pay a debt discharged by bankruptcy is enforceable if approved by the bankruptcy court. The debtor is said to have waived the defense of discharge in bankruptcy and the original debt therefore remains in force.
under what theory will courts enforce a promise to pay a voluntary subscription?
 
Courts will enforce a promise to pay a voluntary subscription under the theory that each subscriber's promise is supported by the promises of other subscribers.
when will courts apply the doctrine of promissory estoppel?
 
Courts will apply the doctrine of promissory estoppel when the promisor should reasonably expect to cause and does cause action by the promisee and the promisee would be harmed substantially if the promise is not enforced.
Define Consideration.
 
Consideration is whatever the promisor demands and receives as the price of a promise.
Explain when part payment constitutes consideration
 
Part payment constitutes consideration when the amount of the debt is in dispute and a lesser sum than that claimed is accepted in full settlement or when there is a composition of creditors.
Give three examples of insufficient or invalid consideration.
 
Consideration is insufficient or invalid when it consists of performing or promising to perform what one is already obligated to do, refraining or promising to refrain from doing what one has no right to do, or past performance.
Recognize when consideration is not required.
 
Consideration is not required for a voluntary subscription, a debt of record, in the case of promissory estoppel, or if a sales contract is modified by the parties.

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