Business Law Exam 2 - Study guide exam 2 PDF

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BUSINESS LAW EXAM 2

Introduction to Contracts -

Contract (K) o A contract is a legally enforceable promise

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Elements of a Contract (checklist) 1. Offer o Was there a “manifestation of a willingness to enter into a bargain?” 2. Acceptance o Was acceptance effective? 3. Enforceability o Is there consideration (i.e., a bargained-for exchange of something of value)? o Is the contract legal? o Did both parties have capacity to consent? o Was that consent actually valid? 4. Writing o Must the contract be in writing and signed?

Sources of Contract Law - Common Law o Rules of contract sometimes vary stat-to-state - Uniform Commercial Code (UCC) o Drafted to ease formation, interpretation, and enforcement of Ks as interstate commerce became increasingly prevalent  Provides uniformity  Reflects modern commercial methods  Adopted, in part, by every state  Only applies to the sale of goods  Goods = anything moveable, except money and investment securities o Example – selling 10,000 sq. feet of white oak – governed by UCC o Selling 10,000 sq. foot house – governed by common law because a house is not a moveable good Sources of Contract Law - Article of UCC governs contract for sale of moveable goods - State common law governs where contract involves o Sale of non-movable goods o Services to be provided - Predominant Purpose Rule o If K is for both goods and services – a mixed K:  UCC governs if predominant purpose is sale of goods  Common law governs if predominant purpose is providing services - Practical effects o Parties in dispute over a mixed K will argue about what is the predominant purpose of K - Why does it matter whether UCC or common law governs? o Article 2 of UCC is more forgiving o Article 2 of UCC requires certain K’s to be in writing o Article 2 of UCC contains warranty provisions that common law does not

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BUSINESS LAW EXAM 2

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Contract Vocabulary - Bilateral vs. Unilateral Contracts o Bilateral Contract – both parties make a promise to do something  Ex – seller places him home up for sale, and buyer agrees to pay $150,000 to purchase the home  Each party is required to do something: buyer must pay the sales price; seller must transfer ownership of the home to the buyer o Unilateral Contract – one party makes a promise that the other party can only accept by actually doing something  Ex – when sally’s dog runs away, she posts signs offering a $50 reward for return of the dog. Bobby finds and returns the dog.  No reciprocal promises here – sally made a promise to pay if anyone returned the dog. Bobby however did not promise to find the dog.  Ex – Insurance policies  Insurance company promises to pay claim amount to consumer if consumer pays premiums on time. Consumer does not promise to pay the premiums.  No reciprocal promises – consumer receives the promised benefit only of she pays her premiums, much like Bobby received $50 only of he returned the dog. - Executory vs. Executed Contracts o Executory Contract – K is executory when K has been made, but one or more parties has not yet fulfilled obligations o Executed Contract – K is fully executed when all parties have fulfilled obligations - Valid vs. Unenforceable Agreement o Valid Contract – agreement that satisfies all legal requirements (see checklist) o Unenforceable Contract – agreement cannot be enforced as a matter of law, even if parties intended to form a valid bargain  Lacks consideration  Needed to be in writing  Is void for illegality or public policy  Is voidable due to incapacity or lack of consent - Void vs. Voidable Contracts o Void contract – neither party can enforce, usually because purpose of the deal is illegal or for reasons of public policy o Voidable contract – law permits one party to terminate an otherwise binding agreement  Agreement signed under duress  Cases of fraudulent misrepresentation  Party to K is a minor  Party to K is incompetent or heavily intoxicated Express/ Implied Contracts - Express Contract o Arises from interactions in which all parties explicitly discuss an agreement and all its important terms  Agreement may be verbal or in writing - Implied contract o Arises when all the elements of an enforceable agreement can be inferred from conduct of the parties

BUSINESS LAW EXAM 2 Unit Outline I. Formation - How do courts decide if an agreement exists? - What distinguishes an offer from things that look like offers? - What makes an acceptance effective? II. Interpretation - How do we decide what a contract means? III. Enforceability - Under what circumstances can a contract be enforced? IV. Performance - If we know a contract is enforceable, are there problems with its performance? V. Breach - Has (or will) one party fail (ed) to perform? VI. Remedies - What can a court do to fix broken promises?

Contract Formation: Offers -

Offer o Was there a “manifestation of a willingness to enter into a bargain”?

Review: - A contract is a legally enforceable promise - To form a contract, must have: o Offer and o Acceptance - Offer = a proposal of definite terms - Acceptance = unconditional agreement with those terms Meeting of the Minds How do courts decide if there is an agreement? - Must be a “meeting of the minds,” sometimes called “mutual assent.” o Would an objective reasonable person believe there was an agreement? o Courts use this objective test: they do not attempt a subjective analysis of what parties are secretly thinking o Looks only at how a reasonable person would view parties’ words and conduct Reasonable Person Standard - Type I – purely hypothetical – judge/ jury look into space - Type II – promises’ actual characteristics - contextual - Type III – promisor’s reasonable understanding of the promise – also contextual Division of Labor - When a contracts case goes to trial, judges or juries are responsible for the following: o Judges determine “legal” issues (interpreting language of K, what law governs K) o Jury (or judge if acting as fact – finder) determines factual issues – were words spoken at all? Or would reasonable person believe K existed, given parties’ words and conduct Offers - Offer denied o Manifestation of willingness to enter into a bargain

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BUSINESS LAW EXAM 2 - Two questions help us evaluate whether statement is in fact an offer:  Do the promisors words and actions indicate an intention to make a bargain?  Are the terms of the offer reasonably definite? - Promisor = person making offer/ promise - Promise = person to whom offer/ promise is made

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Non-Offer Manifestations of Intent (1a) Advertisements - Advertisements are not generally considered offers except… - Carlill v. Carbolic Smoke Ball Co. o Exception to general rule: advertisements are offers if they are “clear, definite, explicit, and leave nothing open for negotiation.” 2- Letters of Intent - Rule – preliminary negotiations are not offers if the contemplate a further, written memorial. o No clear intent to be bound 3 – Invitations to Bargain - Rule – invitations to bargain are not offers 4 – Price Quotes - Rule – a price quote is not generally an offer; it is an invitation to bid. 5- Auctions - Rule – placing an item up for auction is not an offer; it is an invitation for offers. A bid is the offer. Gaps/ Uncertainty in Terms - Common Law Rule o Gaps or uncertainty in key contract terms suggest that parties did not intend to form a contract.  Terms of K must be definite. - UCC Rule o A contract is enforceable even though one or more terms are left open, if the parties intended to contract.  Gap filler provisions:  UCC will fill gaps as to price, quantity, place of delivery, time provisions (for payment/ performance) - How does the UCC treat uncertainty in price terms? o If parties do not settle on a price, USS establishes that goods will be sold for a reasonable price.  How do we know what price is reasonable?  Markey value or price established by a neutral expert/ agency o How does UCC treat uncertainty in quantity terms in “output” or “requirements” Ks?  All parties must act in good faith: quantity must not be unreasonably disproportionate to estimates or comparable past deals

BUSINESS LAW EXAM 2

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Contract Enforcement: Consideration -

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Offer o Was there a manifestation of a willingness to enter into a bargain? Acceptance o Was offer terminated? Was acceptance effective? Enforceability o Is there consideration (bargained for exchange of something of value)? o Is the contract legal? o Did both parties have capacity to consent? o Was that consent actually valid? Writing o Must the contract be in writing and signed?

Intro to Consideration - Central Questions: o How do we tell which promises are worth enforcing? o How can we distinguish between gifts and legally binding promises? - Answer: Consideration Consideration - Proof that parties intended to be bound to their promises - Central premise o If one party gets all the benefit, and the other party gets nothing, the agreement is not enforceable  Contracts must be a two- way street: promises must be reciprocal Elements of Consideration 1. Value a. Must be legal benefit to the promisor and legal detriment to the promise i. Legal benefit = receiving something of measurable value ii. What benefits might have measurable value? 2. Bargained- for Exchange a. Both parties must have struck a deal over exchanged value i. “If you do this, then I will do that.” Value - How do we determine measurable value? - Value: 1- An Act Party does something that she was not legally required to do 2- Forbearance Party agrees not to do that which he is legally entitled to do 3- A promise to act or to forbear Promise to do (or not to do) something in the future

6 BUSINESS LAW EXAM 2 Bargained-For Exchange - Consideration requires reciprocity o Something is bargained for if it is sought by the promisor and given by the promise in exchange for mutual promises - Adequacy of Consideration o Consideration must provide some benefit to promisor and some detriment to promise, but need not be much  Mere Peppercorn Rule – courts will not analyze economic terms of exchange: not the courts role to protect parties from foolish deals Consideration Problems - Three scenarios in which courts decline to recognize basic rules of consideration: 1 – illusory promises 2 – preexisting duties 3 – past consideration Illusory Promises - An illusory promise is not consideration Pre –Existing Duties - Alaska Packer’s Ass’n v. Domenico o APA contracted with sailors to work as fisherman. Pay was set but after arrival the sailors demanded more. APA could not replace so they agreed to meet their demands. At the end of the season, APA refused to honor the modification of the contract. Is this modification enforceable?  Pre-existing duty rule – performing a legal duty already owed under an existing contract does not constitute consideration  Result – no. sailors violated the pre-existing obligation. To modify K with APA, additional consideration was needed. PDR Exceptions - What if sailors had agreed to work overtime in exchange for increased pay? o APA would have been obligated to pay because of the extra work would have been valid consideration. - PDR Exception 1 – when a party agrees to do something above and beyond what a contract obligates him to do, his promise is valid consideration. - PDR Exception 2 – UCC Rules on Contract Modification o UCC 2-209 Provides: 1 – agreement modifying K for sale of goods does not require consideration to be binding 2 – if original signed agreement excludes modification or rescission except by signed writing, parties can only agree to modification or rescission in another signed writing, parties can only agree to modification or recession in another signed writing Example – - At common law, modification would have invalid for lack of consideration - This contract is government by UCC due to the movement of goods. UCC allows for modification of K without consideration. - Nothing in facts to suggest that original K prohibits oral modifications, so alleged modification is probably valid. PDR Exceptions - Takeaway!

BUSINESS LAW EXAM 2 7 o If original agreement s governed by the UCC, and parties agree it needs modification, the best practice is to rescind (cancel) the old agreement and draft a new agreement to be signed by both parties. Past Consideration - Rule: a completed act cannot be the basis for consideration, unless the parties agree in advance. Consideration Substitutes - Promissory Estoppel o No contract because agreement lacked consideration. Used to enforce defendants promise if plaintiff can show that: 1 – D made a promise reasonably expecting P to rely on it; 2 – P did in fact rely on it and 3 – the only way to avoid injustice is to enforce the promise - Primary instances of promissory estoppel o Family promises, exceptions to Statute of Frauds; pension cases; charitable giving

BUSINESS LAW EXAM 2

In-Class Review 11/14/17 Text Book Chapters Question Structure 10-15 true/ false 15-20 Multiple Choice 3-4 Damages Questions 7-8 Short Answer 2 Short Essay CRAC (conclusion, rule, analysis, conclusion) Exam Topic Outline - Difference between guilt/ liable in a civil case o Civil defendants are liable (not guilty) - Equifax and the Consumer Finance Protection Bureau ruling o Articles that we talked about the rules related to this o Critical thinking question o Opinions regarding the ruling  Formulating an argument and articulating well - Other topics… o Types of contracts – difference between bilateral and unilateral, express and implied contracts o Void agreements and what makes an agreement voidable  Void – void for legal reasons or public policy  Voidable – problems of consent in capacity  Minor, intoxicated o Contract governed by UCC or common law and why o Offers  Elements of what constitutes an offer  Standards for determining whether an offer exists  How to distinguish between offers and non-offers  Manifestations of intent  UCC gap filler provisions  How offers can be terminated o Acceptance  How to accept an offer  What qualifies as a counter-offer  Mirrored image rule  How to distinguish between additional terms and different under the UCC  Battle of the forms  What effect does this have on whether or not a contract exists  Mailbox rule – acceptance is effective upon dispatch – once it is put in mailbox

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BUSINESS LAW EXAM 2 9  Revocation – only effective upon offerees receive upon it o Offeree must have in hand o Consideration  Value  How what counts as measurable value  Bargained for exchange  What constitutes adequate consideration  Mere peppercorn rule  Consideration exceptions  Illusory promises  Preexisting duties  Contract modifications  Promissory estoppel  Review examples o Void contracts  Illegal purpose, or violate public policy  Usury laws  What makes a non-compete enforceable  Concerns the sale of a business or relates to a former employee  Sculpatory clauses  Enforceability of adhesion contracts  Minors who contract  Fraud and its elements  State has to be intentionally or recklessly represented  Material  Mistake – unilateral and mutual  Duress  Undoing o Contracts – fewest number of questions  Statutes of frauds and its acceptance  Legal principle by which certain types of contracts must be in writing  Exceptions to rules o Parol evidence rule  Signature requirements the statutes of fraud has  Principle of law that you cannot introduce evidence to add to, detract from, or contradict the written forms of contract  Not admissible  What was said at time of signing  Sale of goods less than 500 – oral contract ok  Does not relate to land ok  Meet basic requirements of valid offer and valid acceptance o Warranties and disclaimers – fewest questions  Implication under the UCC o Performance and breach  Conditions – precedent, subsequent, concurrent  What makes a beach material or nonmaterial  Strict versus substantial performance  Personal satisfaction  Time is of the essence clauses o Impossibility

BUSINESS LAW EXAM 2  Commercial and truly o UCC Rules  Common law – substantial performance  Goods are  Perfect tendor rule and its acceptance  When seller has a right to cure and timing  Buyers right to revoke acceptance  Destruction of goods rules o Remedies  Equitable remedies – nonmonetary – specific performance and injunction  How to calculate expectation and reliance damages under the common law  UCC damage formulas  Efficient breach  Mitigation  Liquidated damages  Last shot rule – applies to common law contracts, corollary in UCC 207 battle of the forms  Whoever mails last document, those rules apply o Chart of rules UCC vs. common law o Know additional and different Answering Essay Questions - Call of the Q - CRAC o Conclusion o Relevant rule of law o Application of law to the facts o Conclusion restated

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