Business Torts and Contracts: A Comprehensive Guide - Prof. Barbara Danos, Study notes of Business and Labour Law

Download Business Torts and Contracts: A Comprehensive Guide - Prof. Barbara Danos and more Study notes Business and Labour Law in PDF only on Docsity! Terms and Notes for Final Exam Ch. 6 1. Actionable: Capable of serving as the basis of a lawsuit. 2. Actual malice: A condition that exist when a person makes a statement with either knowledge of is falsity or a reckless disregard for the truth. In a defamation suit, a statement made about a public figure normally must be made with actual malice for liability to be incurred. 3. Appropriation: In tort law, the use by one person of another person’s name, likeness, or other identifying characteristic without permission and for the benefit of the user. 4. Assault: Any word or action intended to make another person fearful of immediate physical harm; a reasonably believable threat. No contact necessary. 5. Battery: The unprivileged, unexcused and harmful or offensive physical contact and intentional touching of another. 6. Business Tort: The wrongful interference with the business rights of another. 7. Conversion: The wrongful taking, using, or retaining possession of personal property that belongs to another; taking for your own use without permission. 8. Cyber tort: A tort committed via the internet. 9. Defamation: Any published or publicly spoken false statement that causes injury to another’s good name, reputation, or character. 10. Disparagement of property: An economically injurious false statement made about another’s product or property. A general term for torts that are more specifically referred to as slander of quality or slander of title. 11. Fraudulent misrepresentation (fraud): Any misrepresentation, either by misstatement or omission of a material fact, knowingly made with the intention of deceiving another and on which a reasonable person would and does rely to his or her detriment. 12. Intentional tort: A wrongful act knowingly committed. Ex. forcefully pushing another even if done in jest and without any evil motive is an intentional tort(if injury results), because the object of a strong push can ordinarily be expected to go flying. 13. Libel: Defamation in writing or other form (such as in a videotape) having the quality of permanence. 14. Privilege: In tort law, the ability to act contrary to another person’s right without that person’s having legal redress for such acts. Privilege may be raised as a defense to defamation. 15. Public figure: Individuals who are thrust into the public limelight. Public figures include government officials and politicians, movie stars, well-known businesspersons, and generally anybody who becomes know to the public because of his or her position or activities. 16. Puffery: “seller’s talk”; A salesperson’s exaggerated claims concerning the quality of property offered for sale. Such claims involve opinions rather than facts and are not considered to be legally binding promises or warranties. Ex. “I am the best architect in town.” 17. Slander: Defamation in oral form. 18. Slander of quality (trade libel): The publication of false information about another’s product, alleging that it is not what its seller claims. 19. Slander of title: The publication of a statement that denies or casts doubt on another’s legal ownership of any property, causing financial loss to that property’s owner. 20. Spam: Bulk, unsolicited (“junk”) e-mail. 21. Tort: A civil wrong not arising from a breach of contract. A breach of a legal duty that proximately causes harm or injury to another. 22. Tortfeasor: One who commits a tort. 23. Trade libel: The publication of false information about another’s product, alleging it is not what it’s seller claims; also referred to as slander of quality. 24. Trespass to land: The entry onto, above, or below the surface of land owned by another without the owner’s permission or legal authorization. 25. Trespass to personal property: The unlawful taking or harming of another’s personal property; interference with another’s right to the exclusive possession of his or her personal property. NOTES:  Intentional Torts Against Persons o Assault and Battery  Example - Ivan threatens Jean with a gun, then shoots her. The pointing of the gun at Jean is an assault; the firing of the gun (if the bullet hits jean) is a battery. Unwelcome kiss is considered as a battery. i. Defenses to Assault and Battery: 1. Consent - allowing and giving someone permission to hurt you. 2. Self-Defense – in situation of real or apparent danger, a person may use whatever force is reasonably necessary to prevent harm. 3. Defense of others – individual can act in a reasonable manner to protect others who are in real or apparent danger. 4. Defense of Property – reasonable force may be used to remove intruders from one’s home but force that is likely to cause death or great bodily injury normally cannot be used just to protect property. o False imprisonment: intentional confinement or restraint of another person’s activities without justification. Person being restrained does no comply with the restraint willingly. Defense of probable cause can be used in delaying a suspected shoplifter if the merchant has probable cause. Any detention must be conducted in a reasonable manner and for no more than a reasonable length of time.  Example- Businesspersons are often confronted with suits for false imprisonment after they have attempted to confine a suspected shoplifter for questioning. o Intentional infliction of emotional distress  Example-prankster telephones an individual and says that the individual’s spouse has just been in a horrible accident. As result, individual suffers intense mental pain or anxiety (prankster’s behavior is actionable). o Defamation: i. Publication requirement  Publication requires communication to a third party. o Example: If Thompson writes Andrew a letter falsely accusing him of embezzling funds, the action does not constitute libel (does NOT have to show actual injury). If Peters falsely states that Gordon is dishonest and incompetent when no one else is around, the action does not constitute slander (must prove “special damages” but the exception is “slander per se” where no proof of special damages is required for it to be actionable). In neither case was the message communicated to a third party. Courts have generally held that even dictating a letter to a secretary constitutes publication and if a third party overhears defamatory statements by chance, it constitutes as publication. o Slander per se: (1) A statement that another has a loathsome communicable disease. (2) A statement that another has committed improprieties while engaging in a profession or trade. (3) A statement that another has committed or has been imprisoned for a serious crime. (4) A statement that a woman is unchaste or has engaged in serious sexual misconduct. ii. Defenses to defamation 1. Truth-statement is true, it must be true in whole, not in part 2. Privileged speech-statement is privileged; absolute (made in a judicial or legislative proceeding) or qualified (for example, made by one corporate director to another and was about corporate business) 3. Public figures-statement is about a public figure, made in a public medium, and related to a matter of general public interest. To recover damages, a public figure must prove a statement was made with actual malice (knowledge of its falsity or reckless disregard for the truth) o Invasion of Privacy: every person has a fundamental right to solitude/freedom from public scrutiny. Four Acts that qualify as invasions of privacy: i. The use of a persons name, picture, or other likeness for commercial purposes without permission  Example-using without permission someone’s picture to advertise a product or someone’s name to enhance a company’s reputation invades the persons privacy ii. Intrusion on an individuals affairs or seclusion  Example- It would be difficult for car dealer to attract customers after competitors published a notice that the dealers stock consisted of stolen autos (intentional tort in which someone knowingly publishes an untrue statement about another’s ownership of a certain property with the intent of discouraging third party to do business with the person slandered). Ch. 7 1. Assumption of risk: A defense against negligence that can be used when the plaintiff is aware of a danger and voluntarily assumes the risk of injury from that danger. 2. Business invitees: Those people, such as customers or clients, who are invited onto business premises by the owner of those premises for business purposes. 3. Causation in fact: An act or omission without (“but for”) which an even would not have occurred. 4. Comparative negligence: A theory in tort law under which the liability for injuries resulting from negligent acts is shared by all parties who were negligent (including he injured party), on the basis of each person’s proportionate negligence. 5. Compensatory damages: A money award equivalent to the actual value of injuries or damages sustained by the aggrieved party. 6. Contributory negligence: A theory in tort law under which a complaining party’s own negligence contributed to or caused his or her injuries. Contributory negligence is an absolute bar to recovery in a minority of jurisdictions. 7. Dram shop act: A state statute that imposes liability on the owners of bars and taverns, as well as those who serve alcoholic drinks to the public, for injuries resulting from accidents caused by intoxicated persons when the sellers or servers of alcoholic drinks contributed to the intoxication. 8. Duty of care: The duty of all persons, as established by tort law, to exercise a reasonable amount of care in their dealings with others. Failure to exercise due care, which is normally determined by the “reasonable person standard,” constitutes the tort of negligence. 9. Good Samaritan statute: A state statute that provides that persons who rescue or provide emergency services to others in peril-unless they do so recklessly, thus causing further harm-cannot be sued for negligence. 10. Malpractice: Professional misconduct or the failure to exercise the requisite degree of skill as a professional. Negligence-the failure to exercise due care-on the part of a professional, such as a physician or an attorney , is commonly referred to as malpractice. 11. Negligence: The failure to exercise the standard of care that a reasonable person would exercise in similar circumstances; torfeasor neither wishes to bring about the consequences of the act nor believes that they will occur. 12. Negligence per se: An ac (or failure to act) in violation of a statutory requirement. 13. Proximate cause: Legal cause; exists when the connection between an act and an injury is strong enough to justify imposing liability. 14. Punitive damages: Money damages that may be awarded to a plaintiff to punish the defendant and deter future similar conduct. 15. Reasonable person standard: The standard of behavior expected of a hypothetical “reasonable person.” The standard against which negligence is measured and that must be observed to avoid liability for negligence. 16. Res ipsa loquitur: (pronounced rehs ehp-suh low-quuh-duhr) A doctrine under which negligence may be inferred simply because an event occurred, if it is the type of event that would not occur in the absence of negligence. Literally, the term means “the facts speak for themselves.” 17. Strict Liability: Liability regardless of fault. In tort law, strict liability may be imposed on defendants in cases involving abnormally dangerous activities, dangerous animals, or defective products. NOTES:  Negligence (plaintiff must prove each of the following to succeed in a negligence action) 1. Defendant owed a duty of care to the plaintiff. 2. Defendant breached that duty. 3. Plaintiff suffered a legally recognizable injury. 4. Defendant’s breach caused the plaintiff’s injury. o The Duty of Care and Its Breach (defendant owes duty to protect plaintiff from foreseeable risks hat defendant knew or should have known about) i. Tort law measures duty by the reasonable person standard.  Example- courts ask how a reasonable person would have acted in the same circumstances. (It is society’s judgment of how an ordinarily prudent person should act.) ii. Duty of Landowners (expected to exercise reasonable care to protect individuals coming onto their property from harm)  Example- if you entered supermarket, slipped on a wet floor, and sustained injuries as a result, the owner of the supermarket would be liable for damages if, when you slipped, there was no sign warning that the floor was wet  Some risk are so obvious that an owner need not warn of them, business owner does not need to warn customer to open a door before attempting to walk through it.  Hardware store owner may not think its necessary to warn customers that, if climbed, a stepladder leaning against the back wall of the store could fall down and harm them. iii. Duty of Professionals  Example- professionals like physicians, dentists, architects, engineers, accountants, and lawyers are required to have standard minimum level of special knowledge and ability  Accountant cannot defend against a lawsuit for negligence by stating, “But I was not familiar with the general principle of accounting.”  If a professional violates his/her duty of care toward a client, client may bring a malpractice suit against the professional. Patient might sue a physician for medial malpractice; client might sue an attorney for legal malpractice iv. No Duty to Rescue  Example- assume that you are walking down a city street and see a pedestrian about to step directly in front of an oncoming bus. You realize that the person has not seen the bus and is unaware of the danger. Do you have a legal duty to warn that individual? NO  Most states require a motorist involved in an automobile accident to stop and render aid. Failure to do so is both a tort and a crime. o The Injury Requirement and Damages (plaintiff in a tort lawsuit must prove that he/she suffered a legally recognizable injury)  Example-if you carelessly bump into a passerby, who stumbles and falls as a result, you may be liable in tort if the passerby is injured in the fall. If the person is unharmed, there normally can be no suit for damages because no injury was suffered. Although the passerby might be angry and suffer emotional distress, few courts recognize negligently inflicted emotional distress as a tort unless it results in some physical disturbance or dysfunction. i. Compensatory Damages are the Norm  to make the plaintiff whole; reimburse plaintiff for actual losses or future losses; compensate the plaintiff for property damage and physical injury, which may include medical expenses, lost wages and benefits, pain and suffering, and sometimes even emotional distress. ii. Punitive Damages are Rare  punish the tortfeasor and deter others from wrongdoing; rarely awarded in lawsuits for ordinary negligence and usually are given only in cases involving intentional torts; they may be awarded, however, in suits involving gross negligence, which can be defined as an intentional failure to perform a manifest duty in reckless disregard of the consequences of such a failure for the life or property of another. o Causation (if a person breaches a duty of care and someone suffers injury, the wrongful activity must have caused the harm for a tort to have been committed) i. Causation in Fact and Proximate Cause (Court must address two questions in deciding whether the requirements of causation are met)  Is there causation in fact? Did the injury occur because of the defendant’s act, or would it have occurred anyway? If an injury would not have occurred without the defendant’s act, then there is causation in fact. Usually determined by the “but for” test: “but for” the wrongful act, the injury would not have occurred.  Was the act the proximate cause of the injury? o Example-Ackerman carelessly leaves a campfire burning. The fire not only burns down the forest but also sets off an explosion in a nearby chemical plant that spills chemicals into a river, killing all the fish for a hundred miles downstream and ruining the economy of a tourist resort. (only responsible for forest because that’s what’s foreseeable and what would typically occur in the course of events) ii. Forseeability  The consequences of an act are legally foreseeable if they are consequences that typically occur in the course of event.  Whether an act is foreseeable is generally considered a matter of fact determined by the reasonable person standard.  Defenses to Negligence o Assumption of Risk i. Knowing the risk and Voluntarily engaging in the act. Plaintiff does not assume a risk different or greater than the risk normally carried by the activity.  Example- Driver entering an automobile race knows there is a risk of being injured or killed in a crash. The driver has assumed the risk of injury but not the risk that the banking in the curves of the track will give way during the race because of a construction defect (not normally occurring in a race). o Superseding Cause (a unforeseeable, intervening act that occurs after the defendant’s act that breaks the causal relationship between defendant’s act and plaintiff’s injury relieving defendant of liability)  Example- Suppose that Derrick, while riding his bicycle, negligently hits Julie, who is walking on the sidewalk. As a result of the impact, Julie falls and fractures her hip. While she is waiting for help to arrive, a small aircraft crashes nearby and explodes, and some of the fiery debris hits her, causing her to sustain severe burns. Derrick will be liable for the damages caused by Julie’s fractured hip, but normally he will not be liable for the wounds caused by the plane crash, because the risk of a plane crashing nearby and injuring Julie was not foreseeable. o Contributory and Comparative Negligence i. Contributory Negligence: plaintiff who was also negligent could not recover anything from the defendant. Last Clear Chance, if defendant had last clear chance to avoid injury to plaintiff but does not take that opportunity, plaintiff’s contributory negligence will not bar his recovery. ii. Comparative Negligence: enables the plaintiff and defendant’s negligence to be computed and the liability for damages distributed accordingly.  Pure System – (allows plaintiff to recover damages even if his/her fault is greater than defendant’s) in determining liability, the amount of damages a plaintiff causes to herself are subtracted from the amount of damages suffered by the plaintiff, and only the remainder is recoverable from the defendant.  Mixed System – “50 percent” rule; if plaintiff is more than 50% at fault, he/she receives nothing. For example, a plaintiff who is 35% at fault could recover 65% of his/her damages, but a plaintiff who is 65% (over 50%) at fault could recover nothing.  Special Negligence Doctrines and Statutes Necessary to ensure compliance with a promise or to entitle the innocent party to some form of relief.  Example- when you purchase a DVD or when you borrow funds to buy a house you acquire rights and obligations. o Objective Theory of Contracts  Intention to enter into a legally binding agreement, or contract, is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party’s own secret, subjective intentions.  Elements of a Contract o Requirements of a Valid Contract (four requirements must be met before a valid contact will have been formed) 1. Agreement: Agreement to form a contract includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer. 2. Consideration: Any promises made by the parties to the contract must be supported by legally sufficient and bargained-for consideration (something of value received or promised, such as money, to convince a person to make a deal). 3. Contractual Capacity: Both parties entering into the contract must have the contractual capacity to do so; the law must recognize them as possessing characteristics that qualify them as competent parties. 4. Legality: The contract’s purpose must be to accomplish some goal that is legal and not against public policy. o Defenses to the Enforceability of a Contract - even if above-listed requirements are met, a contract may be unenforceable if the following are not met: 1. Genuineness of assent: The apparent consent of both parties must be genuine. For example, if a contract was formed as a result of fraud, undue influence,, mistake or duress, the contract may not be enforceable. 2. Form: The contract must be in whatever form the law requires, for example, some contracts must be in writing to be enforceable.  Types of Contracts o Contract Formation i. Bilateral Contracts (offeree must promise to perform; “promise for a promise”; no performance, such as payment of money of delivery of goods, need to take place)  Example- Jeff offers to buy Ann’s digital camera for $200. Jeff tells Ann that he will give her the money for the camera next Friday, when he gets paid. Ann accepts Jeff's offer and promises to give him the camera when he pays her on Friday. Jeff and Ann have formed a bilateral contract. ii. Unilateral Contracts (“promise for an act”; offeree can accept the offer only by completing the contract performance)  Example- O’Malley says to Parker, “If you carry this package across the Brooklyn Bridge, I’ll give you $20.” Only on Parker's complete crossing with the package does she fully accept O’Malley’s offer to pay $20. If she chooses not to undertake the walk, there are no legal consequences.  Contests, lotteries, and other competitions involving prizes are examples of unilateral contracts; unilateral contracts are formed, binding the organization offering the prize when the person complies with the rules of the contest like submitting the right lottery number at the right time and place.  Problems with Unilateral Contracts  A problem arises in unilateral contracts when the promisor attempts to revoke the offer after the promisee has begun performance but before the act is completed. Traditional view says that offer can be revoked at any time before the offer is accepted. Present-day view is that although the offer has not yet been accepted, the offeror is prohibited from revoking it for a reasonable time period. iii. Express Contracts (words, oral or written)  If a classmate calls you on the phone and agrees to buy your textbook from last semester for $45, an express oral contract has been made. A signed lease from an apartment or house is an express written contract. iv. Implied-in-Fact Contracts (conduct creates and defines terms of contract)  Example- Suppose that you need an accountant to complete your tax return this year. You look through the yellow pages and find an accountant at an office in your hood, so you drop by to see her. You go into the accountant’s office and explain your problem, and she tells you what her fees are. The next day you return and give her administrative assistant all the necessary info and documents. You then walk out the door without saying anything expressly to the assistant. You have entered into an implied in fact contract to pay the accountant the usual and reasonable fees for her services. The contract is implied by your conduct and hers. She expects to be paid for completing your tax returns and by bringing in the records she will need to do the work, you have implied an intent to pay her.  Requirements for Implied-in-Fact Contracts: 1. Plaintiff furnished some service or property. 2. Plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected. 3. Defendant had a chance to reject the services or property and did not. v. Formal Contracts  Example- contract under seal (see term) vi. Informal Contracts  simple contracts; no special form is required (except for certain contracts that must be in writing). o Contract Performance (classified according to the degree to which they’ve been performed; executory and executed)  Example- assume that you agree to buy ten tons of coal from the NCC. Further assume that NCC has delivered the coal to your steel mill, where it is now being burned. At this point, the contract is executed on the part of NCC and executor on your part. After you pay NCC for the coal, the contract will be executed on both sides. o Contract Enforceability (a valid contract that can be enforced because there are no legal defenses against it) 1. Valid Contract – a contract that has the necessary contractual elements: agreement, consideration, legal capacity of the parties, and legal purpose. 2. Voidable Contracts – a party has the option of avoiding or enforcing the contractual obligation. 3. Unenforceable Contracts- A contract exists, but it cannot be enforced because of a legal defense. Example, some contracts must be in writing and if they are not, they will not be enforceable except in certain exceptional circumstances. 4. Void Contracts- (no contract) Contract can be void because one of the parties was adjudged by a court to be legally insane or because the purpose of the contract was illegal.  Quasi Contracts (implied in law; imposed on parties in the interest of fairness and justice; equitable remedies; quantum meruit)  Example, suppose that a vacationing physician is driving down the highway and encounters Potter lying unconscious on the side of the road. The doctor renders medical aid that saves Potters life. Although the injured, unconscious Potter did not solicit the medical aid and was not aware that the aid had been rendered, Potter received a valuable benefit and the requirements for a quasi contract were fulfilled. The law will impose a quasi contact and Potter normally will have to pay the physician for the reasonable value of the medical services rendered.  Interpretation of Contracts i. Plain Meaning Rule – A court will enforce a contract according to its clear and unequivocal obvious terms. ii. If terms are unclear or ambiguous, the court will attempt to interpret ambiguous contract terms in a reasonable, lawful, effective manner. Ch. 11 1. Acceptance: (1) In contract law, the offeree’s notification to the offeror that the offeree agrees to be bound by the terms of the offeror’s proposal. Although historically the terms of acceptance had to be the mirror image of the terms of the offer, the Uniform Commercial Code provides that even modified terms of the offer in a definite expression of acceptance constitute a contract. (2) In negotiable instruments law, the drawee’s signed agreement to pay a draft when presented. 2. Agreement: A meeting of two or more minds in regard to the terms of a contract; usually broken down into two events-an offer by one party to form a contract, and an acceptance of the offer by the person to whom the offer is made. 3. Counteroffer: An offeree’s response to an offer in which the offeree rejects the original offer and at the same time makes a new offer. 4. Estop: To bar, impede, or preclude. 5. Mailbox rule: A rule providing that an acceptance of an offer becomes effective on dispatch (on being placed in a mailbox), if mail is, expressly or impliedly, an authorized means of communication of acceptance to the offeror. 6. Mirror image rule: A common law rule that requires, for a valid contractual agreement, that the terms of the offeree’s acceptance adhere exactly to the terms of the offeror’s offer. 7. Mutual assent: The element of agreement in the formation of a contract. The manifestation of contract parties’ mutual assent to the same bargain is required to establish a contract. 8. Offer: A promise or commitment to perform or refrain from performing some specified act in the future. 9. Option contract: A contract under which the offeror cannot revoke his or her offer for a stipulated time period and the offeree can accept or reject the offer during this period without fear that the offer will be made to another person. The offeree must give consideration for the option (the irrevocable offer) to be enforceable. 10. Promissory estoppel: A doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies; such a promise is binding if justice will be better served by the enforcement of the promise. 11. Revocation: In contract law, the withdrawal of an offer by an offeror. Unless an offer is irrevocable, it can be revoked at any time prior to acceptance without liability. NOTES:  Requirements of the Offer (three elements must be present for an offer to be effective) 1. Offeror must have a serious intention to become bound by the offer. 2. 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. Offer must be communicated by the offeror to the offeree, resulting in the offeree’s knowledge of the offer. o Intention (courts generally adhere to Objective Theory of Contracts-under this theory, a party’s words and conduct are held to mean whatever a reasonable person in the offerr’s position would thing they meant)  Offers made in anger, jest, or undue excitement are usually not offers.  Example- you and three classmates ride to school each day in Davina’s new automobile, which has a market value of $20,000. One cold morning, the four of you get into the car, but Davina cannot get the car started. She yells in anger I’ll sell this car to anyone for $500. You drop $500 in her lap. Given facts, reasonable person taking into consideration Davina's frustration and the obvious difference in worth between the market value of the  Effectively only when it is receive by the Offeror or Offeror’s agent.  Merely inquiring about an offer does not mean rejection. o Example- A friend offers to buy your CDROM library for $300 and you respond is that your best offer? Or will you pay me $375 for it? A reasonable person would conclude that you had not rejected the offer but had merely made an inquiry for further consideration of the offer. You can sill accept and bind your friend to the $300 purchase price.  Counteroffer by the Offeree  Example- Duffy offers to sell her Picasso lithograph to Wong for $4,500. Wong responds “your price is too high I’ll offer to purchase your lithograph for 4,000”. Wong’s response is a counteroffer because it terminates Duffy’s offer to sell at $4,500 and creates a new offer by Wong to purchase at $4,000. o Mirror Image Rule: requires that offeree’s acceptance must match the offeror’s offer exactly-to mirror the offer.  Termination By Operation of Law (power of the offeree to transform the offer into a binding, legal obligation can be terminated by operation of law through the occurrence of the following)  Lapse of Time  Offer terminates by law when the period of time specified in the offer has passed.  If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time. o Example- Alejandro offers to sell his camper to Kelly if she accepts within 20 days. Kelly must accept within the 20 day period or the offer will terminate.  Destruction of the Subject Matter  An offer is automatically terminated if the specific subject matter of the offer is destroyed before the offer is accepted. o Example- Johnson offers to sell his prize greyhound to Rizzo, but the dog dies before Rizzo can accept, the offer is automatically terminated. Johnson does not have to tell Rizzo that the animal has died for the offer to terminate.  Death or Incompetence of the Offeror or Offeree  Death or incompetence of either the offeror or the offeree terminates an offer, unless the offer is irrevocable.  Supervening Illegality of the Proposed Contract  When a statute or court decision makes an offer illegal, the offer is automatically terminated. o For example, Lee offers to lend Kim $10,000 at an annual interest rate of 12%. Before Kim can accept the offer, a law is enacted that prohibits interest rates higher than 10%. Lee’s offer is automatically terminated.  Acceptance o Unequivocal Acceptance (offeree must accept unequivocally; mirror image rule)  Example-“I accept the offer, but I wish I could have gotten a better price” is an effective acceptance. So, too, is “I accept, but can you shave the price?” in contrast the statement “I accept the offer but only if I can pay on 90 days credit” is not an unequivocal acceptance and operates as a counter offer rejecting the original offer. o Silence as Acceptance  Acceptance of Offered Services by Silence  Example- Sayre watches while a stranger rakes his leaves even though the stranger has not been asked to rake the yard. Sayre knows the stranger expects to be paid and does nothing to stop her. Here his silence constitutes an acceptance and an implied in fact contract is created. He is bound to pay a reasonable value for the stranger’s work.  Prior Dealings and Acceptance by Silence  Example- Merchant routinely receives shipments from a certain supplier and always notifies the supplier when defective goods are rejected. Silence regarding a shipment will constitute acceptance. o Communication of Acceptance  In a bilateral contract, communication of acceptance is necessary because acceptance is in the form of a promise (not performance) and the contract is formed when the promise is made (rather than when the act is performed).  Offeree must communicate the acceptance to the offeror, however, if the offer can be accepted by silence, no communication is necessary. o Mode and Timeliness of Acceptance  Authorized means of acceptance (specified mode of acceptance) o Example-overnight delivery (receives it the next day). Contract is not formed unless the offeree uses that specified mode of acceptance.  When the preferred means of acceptance is not indicated o When two parties are at a distance, for example, mailing is impliedly authorized because it is a customary mode of dispatch  When the authorized means of acceptance is not used o An acceptance sent by means not expressly or impliedly authorized is normally not effective until it is received by the offeror. In the previous example, if overnight delivery was not used and regular first class delivery was used but offeror received it the next day (same time as offeror should have received it if it were sent overnight) it will be accepted. Ch. 12 1. Accord and satisfaction: An agreement for payment (or other performance) between two parties, one of whom has a right of action against the other. After the payment has been accepted or other performance has been made, the “accord and satisfaction” is complete and the obligation is discharged. 2. Consideration: Generally, the value given in return for a promise or a performance. The consideration, which must be present to make the contract legally binding, must be something of legally sufficient value and bargained for. 3. Covenant not to sue: An agreement to substitute a contractual obligation for some other type of legal action based on a valid claim. 4. Forbearance: The act of refraining from an action that one has a legal right to undertake. 5. Past consideration: An act done before the contract is made, which ordinarily, by itself, cannot be consideration for a later promise to pay for the act. 6. Release: A contract in which one party forfeits the right to pursue a legal claim against the other party. 7. Rescission: A remedy whereby a contract is canceled and the parties are returned to the positions they occupied before the contract was made; may be effected through the mutual consent of he parties, by their conduct, or by court decree. NOTES:  Elements of Consideration o Legal Value  In a contract for the sale of goods, the seller promises to ship specific goods to the buyer, and the buyer promises to pay for those goods when they are received. Each of these promises constitutes consideration for the contract  Also act of painting the garage or performing an action is the consideration that creates contractual obligation o Bargained-for Exchange  Arlene says to her son, “in consideration of the fact that you are not as wealthy as your brothers, I will pay you $500.” The fact that the word consideration is used does not, by itself, mean that consideration has been given. The son need not give Arlene something of legal value in return for her promise, and the promised 500 does not involve a bargained-for exchange. Rather, Arlene has simply stated her motive for giving her son a gift.  Adequacy of Consideration o Dylan has a house worth $100,000 and sells it for $50,000. A $50,000 sale could indicate that the buyer unduly pressured Dylan into selling the house at that price or that Dylan was defrauded into selling the house at far below market value.  Agreements that Lack Consideration o Preexisting duty  For example a sheriff cannot collect reward for providing info leading to the capture of a criminal if the sheriff already has a legal duty to capture the criminal  Suppose Bauman begins construction on a 7 story building and after 3 months demands an extra $75,000 on its contract. If the extra $75,000 is not paid, it will stop working. The owner of the land, having no one else to complete the construction, agrees to pay the extra $75,000. The agreement is unenforceable because it is not supported by legally sufficient consideration; Bauman was under a preexisting contract to complete the building. o Past Consideration  Elsie, real estate agent, does her friend Judy a favor by selling Judy’s house and not charging any commission. Later, Judy says to Elsie, “in return for your generous act, I will pay you 3,000.” This promise is made in return for past consideration and is thus unenforceable, in effect; Judy is stating her intention to give Elsie a gift.  Problems Areas Concerning Consideration o Uncertain Performance  Example-president of Tuscan corp. says to her employees, “all of you have worked hard, and if profits continue to remain high, a 10 percent bonus at the end of the year will be given, if management thinks it is warranted.” Employees continue to work hard, and profits remain high, but no bonus is given.  Option-to-Cancel Clauses  Suppose that I contract to hire you for one year at 5,000 per month, reserving the right to cancel the contract at any time. This is an illusory contract.  I am required to give you 30 days notice to exercise the option. The 30 days notice entitles you to at least one month’s salary of 5,000, which is consideration. Thus, until I give you notice, you are entitled to 5,000 per month until the contract is terminated at the end of the year. o Promises Enforceable Without Consideration  Promissory Estoppels  Suppose that your uncle tells you, “I’ll pay you 150 a week so you wont have to work anymore.” In reliance on your uncle’s promise, you quit your job, but your uncle refuses to pay you. Under the doctrine of promissory estoppels, you may be able to enforce such a promise. Ch. 13 1. Adhesion contract: A “standard-form” contract, such as that between a large retailer and a consumer, in which the stronger party dictates the terms. 2. Age of majority: The age at which an individual is considered legally capable of conducting himself or herself responsibly. A person of this age is entitled to the full rights of citizenship, including the right to vote in elections. In contract law, one who is no longer an infant and can no longer disaffirm a contract. 3. Blue laws: State or local laws that prohibit the performance of certain types of commercial activities on Sunday. 4. Contractual capacity: The threshold mental capacity required by the law for a party who enters into a contract to be bound by that contract. 5. Covenant not to compete: A contractual promise to refrain from competing with another part for a certain period of time (not excessive in duration) and within a reasonable geographic area. Although covenants not to compete restrain trade, they are commonly found in partnership agreements, business sale agreements, and  Contract that is generally executed is presumed to be ratified.  Contract that is still executory is normally considered to be disaffirmed.  Parent’s Liability (statutes vary)  General rule is that parents are not liable for contracts made by minor children acting on their own; minors are personally liable for their own torts.  Liability imposed on parents only for willful acts of their minor children.  Parents of a minor may also be held for their child’s negligent acts that results from their parent’s negligence. o Intoxication (intoxicated persons lack contractual capacity at the time the contract is being made)  Contract can be either voidable or valid.  If voidable, person has the option to disaffirm or ratify the contract expressly or impliedly.  Disaffirmance o For example, suppose that Briller, who is intoxicated contracts to purchase a set of encyclopedias from Stevens. If the books are delivered, Briller can disaffirm the executed contract and recover the payment made to Stevens only be returning the encyclopedias.  Ratification o An intoxicated person, after becoming sober, maybe ratify a contract expressly or impliedly. Implied ratification occurs when a person enters into a contract while intoxicated and fails to disaffirm the contract within a reasonable time after becoming sober. o Mental Incompetence i. When The Contract Will Be Void.  If a court has previously determined that a person is mentally incompetent and had appointed a guardian to represent the individual, any decisions made by the mentally incompetent is void. When The Contact Will Be Voidable.  If the person does not know he/she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences. When The Contract Will Be Valid  For example, a person maybe be able to understand the nature and effect of entering into a certain contract yet simultaneously lack capacity to engage in other activities. Mentally incompetent person may have a lucid interval – a temporary restoration of sufficient intelligence, judgment, and will to enter into contracts without disqualification-during which he/she will be considered to have full legal capacity.  Legality (for a contract to be valid and enforceable, it must be formed for a legal purpose) o A contract to do something prohibited by federal or state statutory law is illegal and therefore void)  Contracts Contrary to Statute  Usury o Statute that sets the maximum rate of interest that can be charged for different types of transactions including ordinary loan.  Gambling o Statute that regulates gambling-scheme that involves distribution of property by chance among persons who have paid a valuable consideration for the opportunity (chance) to receive the property.  Sabbath (Sunday) Laws o Laws (Blue Laws) that prohibit the formation or performance of certain contracts on a Sunday. Statutes in other states prohibit only the sale of certain types of merchandise, particularly alcoholic beverages, on a Sunday (Blue Laws).  Licensing Statutes o All states require that members of certain professions or occupations obtain licenses allowing them to practice.  Contracts to Commit a Crime o Any contract to commit a crime is a contract in violation of a statute. (contract to sell an illegal drug is unenforceable) o Contract can be discharged by law after the contract has been entered into if the object or performance of the contract is rendered to be illegal.  Contracts Contrary to Public Policy  Contract in Restraint of Trade (covenant not to compete) i. Covenants Not to Compete and the Sale of an Ongoing Business  Covenant not to compete is created when a seller agrees not to open a new store in a certain geographic areas surrounding the existing store. For example, a well-known merchant sells his/her store and opens a competing business a block away, many of the customers will likely do business at the well-known merchant’s new store. ii. Covenants Not to Compete in Employment Contracts  Agreement not to work for competitors or not to start competing businesses for a specified period of time after termination of employment.  Unconscionable Contracts or Clauses o Procedural Unconscionability  Has to do with how a term becomes part of a contract and relates to factors that make it difficult for a party to know or understand the contract terms due to inconspicuous print, unintelligible language, or the lack of an opportunity to read the contract or to ask questions about its meaning. (involves adhesion contracts) o Substantive Unconscionability  Portions of contracts that are oppressive or overly harsh; for example, suppose that a person with little income and with only a fourth-grade education agrees to purchase a refrigerator for $2,000 and signs a two-year installment contract. The same type of refrigerator usually sells for $600 on the market.  Exculpatory Clauses o Suppose for example, that an employer requires its employees to sign contract provisions removing the employer’s potential liability for any injuries to those employees. In that situation, a court would usually hold the exculpatory clause to be contrary to public policy.  Effect of Illegality o Illegal contracts are void and both parties are considered to be in pari delicto.  Exceptions to the General Rule o Justifiable Ignorance of the Facts  For example, a trucking company contracts with Gillespie to carry goods to a specific destination for a normal fee of $500. The trucker delivers the goods and alter finds out that the contents of the shipped crates were illegal. Although the law specifies that the shipment, use, and sale of the goods were illegal, the trucker, being an innocent party, can still legally collect the $500 from Gillespie. o Members of Protected Classes  For example, flight attendants and pilots are subject to a federal statute that prohibits them from flying more than a certain number of hours every month. If an attendant or pilot exceeds the maximum number of hours, the airline must nonetheless pay for those extra hours of service. o Withdrawal from an Illegal Agreement  For example, Sam and Jim decide to wager (illegally) on the outcome of a boxing match. Each deposits money with a stakeholder, who agrees to pay the winner of the bet. At this point, each party has performed part of the agreement, but the illegal element of the agreement will not occur until the funds are paid to the winner. Before such payments occur, either party is entitled to withdraw from the bargain by giving notice of repudiation to the stakeholder. o Contract Illegal Through Fraud, Duress, or Undue Influence  one party is more at fault  When a party has been induced to enter into an illegal bargain by fraud, duress, or undue influence on the part of the other party to the agreement, that party will be allowed to recover for the performance or its value.  Severable or Divisible Contracts o Severable, or divisible, consists of distinct parts that can be performed separately, with separate consideration provided for each part. o Indivisible contract, in contrast, exists when the parties intended that complete performance by each party would be essential, even if the contract contains a number of seemingly separate provisions. o If a contract is divisible into legal and illegal portions, the court may enforce the legal portion but not the illegal one, so long as the illegal portion does not affect the essence of the bargain. Ch. 14 1. Genuineness of assent: Knowing and voluntary assent to the terms of a contract. If a contract is formed as a result of a mistake, misrepresentation, undue influence, or duress, genuineness of assent is lacking, and the contract will be voidable. 2. Innocent misrepresentation: A false statement of fact or an act made in good faith that deceives and causes harm or injury to another. 3. Negligent misrepresentation: Any manifestation through words or conduct that amounts to an untrue statement of fact made in circumstances in which a reasonable and prudent person would not have done (or failed to do) that which led to the misrepresentation. A representation made with an honest belief in its truth may still be negligent due to (1) a lack of reasonable care in ascertaining the facts, (2) the manner of expression, or (3) the absence of the skill or competence required by a particular business of profession. 4. Scienter: Knowledge by the misrepresenting party that material facts have been falsely represented or omitted with an intent to deceive. NOTES:  Genuineness of Assent (voluntary consent) can be used as a defense to the contract’s enforceability. Genuineness of assent may be lacking because of a mistake, misrepresentation, undue influence, or duress  Mistakes o Mistakes of Fact (only mistake of fact may allow a contract to be avoided)  Bilateral (Mutual) Mistakes of Fact misrepresentation. In contrast, if the purchaser asks you if the car has had extensive bodywork and you lie, you have committed a fraudulent misrepresentation.  Exceptions to the rule include: o If seller knows of a serious defect or a serious potential problem that could not reasonably be suspected by the buyer, the seller may have a duty to speak. o Also, when parties are in a fiduciary relationship (one of trust, such as the relationship between business partners, physicians and their patients), there is a duty to disclose material facts; failure to do so may constitute fraud. o Intent to Deceive  Scienter is an intent to deceive.  Scienter is clearly exists if a party knows a fact is not as stated.  Scienter also exist if a party makes a statement that he/she believes is not true or makes a statement recklessly, without regard to whether it is true or false.  Party says or implies that statement is made on some basis, such as personal knowledge or personal investigation.  For example, assume that Meese, a securities broker, offers to sell BIM stock to Packer. Meese assures Packer that BIM shares are blue-chip securities-that is, they are stable, are limited in risk, and yield a good return on investment over time. In fact, Meese knows nothing about the quality of BIM stock and does not believe what he is saying to be true. Meese’s statement is thus a misrepresentation. If Packer is induced by Meese’s intentional misrepresentation of a material fact to enter into a contract to buy the stock, normally he can avoid his obligations under the contract. o Reliance on the Misrepresentation  Deceived party must have justifiable reliance or reason for relying on the misrepresentation, and the misrepresentation must be an important factor in inducing that party to enter into the contract.  If a used care dealer tells you, “This old Cadillac will get fifty miles to the gallon,” you normally will not be justified in relying on the statement. Or suppose that Kovich, a bank director, induces Mallory, a co-director, to sign a guaranty that the bank’s assets will satisfy its liabilities, stating, “We have plenty of asses to satisfy our creditors.” If Mallory knows the true facts, he will not be justified in relying on Kovich’s statement. If, however, Mallory does not know the true facts and had now way of discovering them, he may be justified in relying on Kovich’s statement. o Injury to the Innocent Party  No proof of injury is required when the action is to cancel the contract but proof of injury is required to recover damages.  Nonfraudulent Misrepresentation o Innocent Misrepresentation  If person makes a statement that he/she believes is true but actually misrepresents material facts, the person is guilty only of an innocent misrepresentation, not of fraud.  If innocent misrepresentation occurs, party can rescind the contract but usually cannot seek damages.  For example, Parris tells Roberta that a tract contains 250 acres. Parris is mistaken-the tract of land contains only 215 acres-but Parris does not know that. Roberta is induced by the statement to make a contract to buy the land. Even though the misrepresentation is innocent, Roberta can avoid the contract if the misrepresentation is material. o Negligent Misrepresentation  Equal to scienter.  Is treated as fraudulent misrepresentation, even though the misrepresentation was not purposeful.  Misrepresentation is negligent if person does not use reasonable care in uncovering or disclosing the facts or does not use the skill and competence that her/his business or profession requires.  For example, an operator of a weight scale certifies the weight of Sneed’s commodity, even though the scale’s accuracy has not been checked in more than a year. In this situation, the scale’s operator’s lack of action could constitute negligent misrepresentation.  Undue Influence  Arises from relationships in which one party may dominate another party, thus unfair influencing him/her. o How Undue Influence May Occur  Minors and elderly people, for example, are often under the influence of guardians. If a guardian induces a young or elderly ward to enter into a contract that benefits the guardian, undue influence may have been exerted. Undue Influence may arise from a number of confidential or fiduciary relationships: attorney-client, physician-patient, husband-wife, parent-child, etc.  Party being taken advantage of does not, in reality, exercise free will in entering into a contract. o The Presumption of Undue Influence  When a contract enriches a party at the expense of another who is in a relationship of trust and confidence with, or who is dominated by, the enriched party, court will often presume contract was made under undue influence.  For example, if a person challenges a contract made by his or her guardian, the presumption will normally be that the guardian has taken advantage of the ward.  Duress  Forcing a party to enter into a contract under fear or threat. o The Threatened Act Must Be Wrongful or Illegal (threatening to sue someone is not illegal)  For example, suppose that Joan injures Olin in an auto accident. The police are not called. Joan has no automobile insurance, but she has substantial assets. Olin wants to settle the potential claim out of court for $3,000, but Joan refuses. After much arguing, Olin loses his patience and says, “If you don’t pay me $3,000 right now, I’m going to sue you for $35,000.” Joan is frightened and gives Olin a check for $3,000. Later in the day, Joan stops payment on the check, and Olin later sues her for the $3,000. Although Joan argues that she was the victim of the duress, the threat of a civil suit normally is not considered duress. Therefore, a court would not allow Joan to use duress as a defense to the enforcement of her settlement agreement with Olin. o Economic Duress  For example, suppose that the IRS assesses a large tax and penalty against Weller. Weller retains Eyman, the accountant who had filed the tax returns on which the assessment was based, to resist the assessment. Two days before the deadline for filing a reply with the IRS, Eyman declines to represent Weller unless he signs a very high contingency-free agreement for the services. This agreement would be unenforceable. Although Eyman has threatened only to withdraw his services, something that he was legally entitled to do, he was responsible for delaying the withdrawal until the last days before the deadline.  Adhesion Contracts and Unconscionability  Adhesion contracts are written exclusively by one party (dominant party, usually the seller or the creditor) and presented to the other party on a take-it-or-leave it basis. Adhering party has no opportunity to negotiate the terms of the contract. o Standard-Form Contracts  Fine print provision purports to shift a risk normally borne by one party to the other. o Unconscionability and the Courts  One-sided bargains in which one party has substantial superior bargaining power and can dictate the terms of the contract.