Business Law and Ethics: Chapter 9 Contract Law

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Legally Enforceable Contract
: A contract in which, if one party fails to perform as promised, the other party can use the court system to enforce the contract and recover damages or other remedy.
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 a duty
Offeror:
The party who makes an offer to enter into a contract
Offeree
: The party to whom an offer to enter into a contract is made
Elements of a Contract
1. Agreement
: The manifestation by two or more persons of the substance of a contract
2. Consideration
: A promise must be supported by a bargained-for consideration that is legally sufficient
3. Contractual capacity:
The parties to a contract must have this for the contract to be legally enforceable against them
4. Lawful object
: object must be lawful
Offer
: The manifestation of willingness to enter into a bargain
Acceptance
: A manifestation of assent by the offeree to the terms of the offer in a manner invited or required by the offer as measured by the objective theory of contracts
Consideration
: Something of legal value given in exchange for a promise
Defenses to the Enforcement of a Contract
1. Genuineness of assent:
the consent of the parties must be genuine
2. Writing and form
: law requires that certain contracts must be in writing or in a certain form
Classifications of Contracts
Bilateral contract
: a contract entered into by way of exchange of promises of the parties “a promise for a promise”
Unilateral contract
: a contract in which the offerror’s offer can be accepted only by the performance of an act by the offeree “promise for an act”
Formal contract
: a contract that requires a special form or method of creation
Informal contract
: not formal. Enforceable and may be sued upon if breached
Valid, Void, Voidable, and Unenforceable Contracts
Valid contract
: a contact that meets all the essential elements to establish a contract; enforceable by at least one of the parties
Void contract
: A contract that has no legal effect; a nullity
Voidable contract
: A contract in which one or both parties have the option to void their contractual obligations
Unenforceable contract
: A contract in which he essential elements to create a valid contract are met but there is some legal defense to the enforcement of the contract
Executory contract
: a contract that has not been fully performed by either or both sides
Executed contract
: A contract that has been fully performed on both sides; a completed contract
Express contract
: An agreement that is expressed in written or oral words
Implied-in-fact contract
: a contract in which agreement between parties has been inferred from their conduct
Implied-in-Law Contract (Quasi Contract)
: an equitable doctrine whereby a court may award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract may exist.
Three elements required for an effective offer
1. the offerror must objectively intend to be bound by the offer
2. The terms of the offer must be definite or reasonably certain
3. The offer must be communicated to the offeree
Objective theory of contracts
: a theory stating that the intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties
Auction with reserve
: an auction in which the seller retains the right to refuse the highest bid and withdraw the goods from sale.
Auction without reserve
: an auction in which the seller expressly gives up his or her right to withdraw the goods from sale and must accept the bid
Termination of an Offer
1. Revocation
: Withdrawal of an offer by the offeror that terminates the offer
2. Rejection
: Express words or conduct by the offeree to reject an offer. Rejection terminates the offer.
3. Counteroffer
: A response by an offeree that contains terms and conditions different from or in addition to those of the offer. A counteroffer terminates the previous offer.
Lapse of time
: A stated time period after which an offer terminates.
An offer can be terminated by operation of law if…
1. The subject matter of the offer is destroyed through no fault of either party
2. Either the offeror or the offeree dies or becomes incompetent
3. The object of the offer is made illegal by law
Mirror image rule:
a rule stating that, for an acceptance to exist, the offeree must accept the terms as stated in the offer.
Acceptance-upon-dispatch rule (mailbox rule)
: A rule stating that an acceptance is effective when it is dispatched, even id it is lost in transmission
Legal value:
Support for a contract when either (1) the promisee suffers a legal detriment (2) the promisor receives a legal benefit
Bargained-for Exchange:
Exchange that parties engage in that leads to an enforceable contract
Gift promise
: a promise that is unenforceable because it lack consideration
Contracts that lack consideration
Illegal consideration
: a promise to refrain from doing an illegal act. Such a promise does not support a contract.
Illusionary Promise (illusionary contract)
: A contract into which both parties enter but in which one or both of the parties can choose not to perform their contractual obligations.
Preexisting duty
: Something a person is already under an obligation to do. A promise lacks consideration if a person promises to perform a preexisting duty
Past consideration
: A prior act of performance. Past consideration does not support a new contract. New consideration must be given.
Infancy Doctrine
Minor
: A person who has not reached the age of majority
Infancy doctrine
: a doctrine that allows minors to disaffirm most contracts they have entered into with adults
Disaffirm
: the act of a minor to rescind a contract under the infancy doctrine. Disaffirmance may be done orally, in writing, or by the minor’s conduct.
Mentally Incompetent Persons
Adjudged insane: Declared legally insane by a proper court or administrative agency. A contract entered into by a person adjudged insane is void
Insane but not adjudged insane:
Being insane but not being adjudged insane by a court or an administrative agency. A contract entered into by such person is generally voidable.
Intoxicated Persons
: A person who is under contractual incapacity because of ingestion of alcohol or drugs to the point of incompetence.
Illegal contract
: a contract that has an illegal object. Such contracts are void
Exculpatory clause
: A contractual provision that relieves one or both of the parties to a contract from tort liability for ordinary negligence.
Unconscionable contract
: A contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust.
Electronic Commerce:
The sale and lease of goods and services and other property and the licensing of software over the internet by other electronic means.
Electronic contract
: a contract that is formed electronically
Electronic license
: An electronic contract that licenses the use of computer and software information
An offer can be terminated by operation of law if…
1. The subject matter of the offer is destroyed through no fault of either party
2. Either the offeror or the offeree dies or becomes incompetent
3. The object of the offer is made illegal by law
Categories: Business Law