Business Law Contracts Exam

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Chapter 13
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Capacity and Legality
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Age of Majority
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-when a person is no longer a minor. In regard to contracts this would be 18 years old. -contracts can be voided if you are a minor.
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Emancipation
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-occurs when a child’s parent/legal guardian relinquishes the legal right to exercise control over the child. -so basically, minority status can be terminated by a legal guardian. -Minors who leave home to support themselves are considered emancipated.
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Disaffirmance
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-the legal avoidance, or setting aside of a contractual obligation. -in order to disaffirm, a minor must express his/her intent to not be bound to a contract. -they also must disaffirm the entire contract and not just a portion of it.
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Exceptions to Disaffirmance
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1. Ratification
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-the act of accepting and giving legal force to an obligation that was not enforceable before.
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a. Express Ratification
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-the individual, on reaching the age of majority, states orally or in writing that he or she intends to be bound by the contract.
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b. Implied Ratification
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-the minor, reaching the age of majority, indicates the intent to abide by the contract but does not actually verbally or in writing say that they are following the contract.
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2. Necessaries
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-necessaries include whatever is reasonably needed to maintain the minor’s standard of living. -what a court considers to be necessary may depend on what the minor’s parents provide.
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3. Misrepresentation of Age
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-this prohibits the right of disaffirmance (get out of a contract)
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Intoxication
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-if a person was intoxicated enough to lack the mental capacity to comprehend the legal consequences of entering into a contract. -if a person still understood the consequences, then the contract will still be enforceable. -a person can disaffirm the contract at any time while intoxicated before becoming sober. -a person can ratify a contract that they formed while intoxicated. They are then liable from then on.
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Mentally Incompetent
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-any person that has been declared by the court to be mentally incompetent is void from being a part of a contract. -if a person is not declared as mentally incompetent but still lacks the capacity to comprehend the subject matter, they can void the contract. -however, if a person was unable to understand the contract, then it is still active. -so when they lack the capacity they can void it but if they have the ability to understand but is an idiot, then the contract is still enforceable.
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Contracts Contrary (Illegal) to Statute
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1.contracts to commit a crime (voids it) 2.usury: a lender who makes a loan at an interest rate above the lawful max. 3.gambling 4.online gambling 5.licensing statutes (required for professionals to have)
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Contracts Contrary to Public Policy
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1. contracts in restraint of trade
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-people make promises to not compete (in employee contracts and sales of business)
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2. unconscionable (immoral) contracts/clauses
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-when contracts are so grossly unfair that they are voided (void of conscience) a. procedural unconscionability: unintelligible language or the lack of being able to read and ask questions about the contract. b. Substantive clauses: characterizes those contracts or portions of one’s that are overly harsh. Sometimes a court will be more generous when they split the money say if one of the people has a poor education.
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3. exculpatory clauses
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-this is when a party is released from their liability due to physical or monetary injuries no matter who was at fault.
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4. discriminatory contracts
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-occurs when a party promises to discriminate on the basis of race, color, national origin, religion, gender, age, or a disability.
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Effect of Illegality
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-if the contract is deemed to have never existed then it is voided. -pari delicto: when both parties are equally at fault within a contract.
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1. Justifiable Ignorance of the facts
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-when one of the parties is relatively innocent (ex. doesn’t know the contract is illegal), that party can usually gain back their benefits that they lost.
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2. Members of protected classes
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-when a statue is clearly designed to protect a certain class of people, a member of that said class can enforce a contract whereas a person outside of the class cannot.
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3. Withdrawal from an illegal agreement
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-if an agreement has only partly been carried out and the illegal part has not been performed yet then either party can put an end to the contract as long as they let the stakeholder know.
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4. Contract illegal through fraud, duress, or undue influence
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-along with illegal contracts, one party is generally more at fault than the other and so the one who is less at fault can recover the value.
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5. Severable or Divisible Contracts
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-severable and divisible: contracts that can be divided or separated into parts based on legality. The courts can then choose to enforce the legal parts of them while reforming the illegal parts of them. -indivisible: occurs when both parties must carry out the performance even if there are separate provisions.
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Chapter 10
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Nature and Terminology
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Contract
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-a promise/set of promises for which the breach of gives a remedy by the court.
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Promisor
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-person making the promise
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Promisee
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-the person to whom the agreement is made.
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Objective Theory of Contracts
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-this determines the intent of forming a contract. -states that a party must have the intention to enter into a legally binding agreement. -what would a reasonable person think about the intentions?
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Four Requirements of a Valid Contract
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ACCL
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1. Agreement
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-people must accept a contract through offers and acceptances.
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2. Consideration
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-any promises made must be supported by legal consideration (bargaining)
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3. Contractual capacity
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-both parties must have the capacity to enter into a contract.
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4. Legality
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-the contract must have a purpose to accomplish some goal that is legal.
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Two Defenses to the Enforceability of a Contract
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-these two things need to also be met in order for a contract to avoid being unenforceable.
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1. Voluntary Consent
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-consent from both parties must be voluntary. -must not result from fraud or under the influence, etc.
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2. Form
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-the contract must be in whatever format the law requires; some contracts, for instance, must be written.
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Types of Contracts
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Bilateral Contracts
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-occurs when the person accepting an offer can accept simply by promising to perform. -ex. friend promising another to sell them a camera when they get paid next week.
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Unilateral Contracts
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-occurs when a person can accept the offer only by completing the contract performance. -ex a friend giving another friend gas money only after they drive them to a certain place.
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Formal Contracts
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-contracts that require a special form of creation a. negotiable instruments: checks, drafts, promissory notes, certificates of deposit. b. letters of credit: agreements to pay random stuff.
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Informal Contracts (aka simple contracts)
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-no special forms are required. (some need to be in writing but nothing crazy like with formal contracts)
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Express Contracts
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-when the terms of the agreement are fully and explicitly stated in words, oral or written. -ex. a signed lease or any monetary agreement made over the phone.
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Implied Contracts (aka implied in fact)
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-the conduct of the parties rather then their words defines the terms of a contract. -ex. when a written contract has been made and then adjustments are made to it which are talked about but never written down. -a contract can be both express and implied.
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Three Requirements for implied contracts
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1. plaintiff furnished some service/property. 2. plaintiff expected to be paid after performing the service and that the defendant was aware they had to pay. 3. the defendant had a chance to reject the services and did not.
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Executed Contract
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– a contract that has been fully performed on both sides.
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Executory Contract
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-a contract that has not been fully performed by the parties. -even if one party goes though with their side of the bargain, the court still classifies it as an executory contract.
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Valid contract
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-must entitle at least one party to enforce it in court. 1. an agreement 2. support by legal consideration 3. parties must have legal capacity 4. a legal purpose.
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Voidable Contract
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-a valid contract that can be avoided at the option of one or both of the parties.
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Unenforceable Contracts
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-one that can’t be enforced because of certain legal defenses against it. -when a party failed to satisfy a legal requirement of a contract.
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Void Contracts
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-a contract that has no legal obligations on any of the parties and so is not a contract at all. -ex. it’s a vid contract if one of the parties lacks the capacity.
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Quasi Contracts
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-these are not true contracts because they don’t arise from any agreement. They are fictional contracts created by the court in order to avoid enriching one party at the expense of another. -this contract CANNOT BE USED IN CONJUNCTION WITH AN ACTUAL CONTRACT.
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quantum meruit
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-this is what a plaintiff can recover under a quasi contract. -translation: “as much as he/she deserves” -describes the extent of compensation.
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The Plain Meaning Rule
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– if a court determines that the terms of a contract are clear from the written document, then the contract will be enforced.
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Other Rules of Interpretation
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-if a court finds that they need to dig deeper into the intentions’ of the parties, then several rules will be put forth. 1. a reasonable and lawful meaning will be given to all of the contract’s terms. 2. a contract will be interpreted as a whole. all writings of the same transaction will be interpreted together. 3. terms of separate negotiation will be given greater consideration than the one’s not negotiated separately. 4. a word will be given to it’s most common meaning unless it is clear that the parties mean something else.
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Chapter 12
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Consideration
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Elements of consideration
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a. must be of legally sufficient value -a promise to do something that one has no prior legal duty to do. -performance of an action not obliged to take. b. is usually a bargained for exchange.
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Forbearance
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-refraining from an action that one has a legal right to undertake.
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Chapter 14
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Mistakes Fraud and Voluntary Consent
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Fraudulent Misrepresentation
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-refers to misrepresentation that is consciously false and is intended to mislead another. 1. must have misrepresentation of a fact 2. must be intent to deceive 3. innocent party must justifiably rely on the misrepresentation. – ex. misrepresentation occurs when you lie about something like saying that Michelangelo painting something he did not.
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Statement of fact vs. opinion
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-opinions do not count as fraud. However, if they are an expert in a certain field and are deliberately trying to deceive a customer/patient, then they could be liable. -ex of expert) dance studio with old lady.
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Reformation
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-a remedy granted by a court where the court alters the true intentions of the parties. The innocent party may be entitled for things if they had been relying on the advice of an expert.
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Misrepresentation by Conduct
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-occurs when a party takes action to conceal a fact that is part of a contract.
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Misrepresentation of Law
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-usually does not grant relief from a contract. However, if a person is or used to be in a law profession where they know more about the law than the average person and they still commit fraud, than their victim will be compensated because of the misrepresentation.
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Misrepresentation by Silence
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-this occurs when neither party chooses to disclose facts and so the case can never be closed. -ex. a person does not have to tell a buyer that the car they are selling has been in an accident but if they are asked, they cannot lie about it.

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