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Business Law Final Notes and Examples • Contractual Capacity: Intoxicated persons may not use their intoxication as an excuse. Law

differs from what happens in the real world. It is the one who is asserting incapacity that has to prove that they are incapacitated. • Minors: Females mature faster than males and therefore the minor age is different. Made common law through observation. No state now has age difference in contractual capacity. • Infancy Doctrine: Cory Everson Fitness signs up freshman girls. Dad gets the bill and does not want to pay for it. Since she is 18, she is not obligated to pay or remain in the contract because of her young age. She does have to pay for the time she used. Leases with no cosigners at the age of 18 (minor) are the same way. • Minor’s Duty of Restoration: Car dealer sold 16 year old a car. He gave down payment and little payments every month. Car broke down and is now valued at 3,000 dollars (12,000 start value). Minor just has to return what he has, in its condition, in order to receive his full consideration back. As long as the damage was not done intentionally, the minor receives the money and the adult suffers the loss. • Minor’s Duty of Restitution: Car Wreck from drag racing would no longer give minor the ability to disaffirm contract. • Misrepresentation of Age: Criminal law misrepresentation of age does not matter, but is important in contract law. • Ratification: Must be done within a reasonable time. Contract is considered ratified after a reasonable time, after the person makes a statement of ratification, and his actions show ratification. EX: Minor sends birthday invite to car dealer and this is the first time he realizes he is a minor. The car dealer goes to the party and has him sign a statement saying that he ratifies the contract. EX: If nothing is done, but the party continues to make payments it is considered ratified. EX: Jones v. Free Flight Sport Aviation – signs contract to skydive, reaches age of majority, 10 months later he is severely injured while skydiving. He has participated in the activity every month and continued to pay. Therefore, his contract was ratified by his actions. • Necessaries of Life: Minors are required to pay for these items if parents are not there to do so. Leases are not under this category because your parents have a home for you that you could live in. • Emancipated: reach the age of majority; minor gets married; minor joins the military;

establishes a separate household EX: girl 17 yr old freshman, mother in jail, father didn’t supply

financial support, working 2-3 jobs and raising her two younger siblings, judge emancipated her in order for her to be able to get credit to better her household and family • Mentally Incompetent Persons: Know the general rule that the mentally insane may not contract • Intoxicated Persons: Being drunk is not an excuse for a wreck or your actions. They will throw the book at you for accidents while drunk. MADD had a lot to do with this ruling. • Illegality: Two types of contracts: 1) Contracts Contrary to Statutes 2) Contracts Contrary to Public Policy • Usury Laws: Prevent from gouging interest rates • Gambling Statutes: Authorized dog racing and video poker at Victoryland. Illegal at all of the other locations. The manufacturer had to return all of the money because the contract was illegal. • Regulatory Statutes: If a license is required by the person with whom you make the contract, and they do not have one, the contract is invalid • Immoral Contract: Frat guys hired dancers for entertainment from Georgia to dance in Alabama. Signed a contract for payment but when the dancing was over they refused to pay because the contract was invalid in Alabama. They did however violate a federal law that was later punished. • Exculpatory Contract: Go-carts can’t get insurance, but if you are aware of the knowledge of danger and sign a contract saying you do not hold them liable, it is enforceable. Airplanes are not because they are insurable. • Using a Covenant Not to Compete with a Sale of Business – covenants not to compete that are ancillary to a legitimate sale of a business or employment contract are lawful if they are reasonable in three aspects: 1) The line of business protected 2) The geographical area (75 miles) 3) The duration of the restriction (3 years) – anything not following these requirements are illegal covenants and would be voided • Unconscionable Contracts: Bad bargains do not fall under this. Elements EX: 1) Bible salesman sold bibles to people who were uneducated and could not know the difference of other bibles

• Fraud in the Inception: EX) Baseball player who was really dumb would sell his autograph at

trade shows. People would pay him to sign the items they brought. He signed five pictures for a man, but the bottom one was actually a contract to appear at a banquet. Not bound because he didn’t know. • Fraud in the Inducement: EX) Developer get ten men to invest in a condo project. Their money would help him get a loan and they would receive the return. He gets the loan and everything starts going good. When the project is done, he returns them their money and then gives them their small return. The men investigated and found that he had defrauded them of their money and had pocketed the rest of their investment for himself. EX) Used car salesman says 10,000 miles on car but really has 100,000 miles on it. • Fraud by Concealment: Parties have the responsibility to reveal things that would affect the person. EX) Closing goes down without the buyer knowing of a defect. If it was obvious, there was no responsibility, but if it was hidden then they were fraudulent. • Silence as Misrepresentation: It is not good faith to conceal something that the other party would care about. Reveal everything is the best option. Silence is only problem if defect is present. • Innocent Misrepresentation: Generally not going to hammer them, just return everyone to status quo. Usually can’t sue for damages. • Economic Duress: Brick Mason says he won’t finish the job that he already contracted for unless more is paid. This is not allowed under this clause. • Undue Influence: A contract entered into because of this is voidable by the innocent party or by the innocent parties’ estate. EX) Child gets elderly parent to sign everything to them. This takes advantage of poor mental and physical health. This is voidable because the elderly did not do this out of their own free will. Can apply to many types of relationships, not just child parent. • Wills and deeds are contracts. • Steel vs. Goette: pg. 206 – House left for sale in an estate. Executor decides to sell. Two doctors made an offer to by the house for $300,000. Executor accepts the offer. Buyers have about six weeks to close on this house. They have all inspections, insurance and surveys done. The survey shows that the house has more square feet than they thought and the sellers ask for more money. The buyers go to court to petition that they be able to buy the house for the first agreed upon price. The court declares that this is a unilateral mistake and that the seller must go through with the original contract because of his mistake.

• Mutual Mistake Case: Boskett bought a coin that he thought was genuine. He contracts with

Beachcomber Coins to buy it. They inspect it and buy it. When they decide to sell it, it is discovered that the coin is counterfeit. Boskett and Beachcomber both thought that the coin was genuine. The object of the contract was a genuine coin therefore it was a mutual mistake. This means that either party may rescind the contract. • Fraud: McClure owned a salvage business. Potential buyer comes and asks about the profit of the business. He tells him it is about 100,000. He asks to see old tax returns in order to prove it. They don’t match but he tells him it is mostly taken in in cash and he doesn’t report it all. An accountant evaluates it and says that he could be making that amount. When the buyer purchases the business, he discovers that there is no way that the business ever made that amount of money and sues for damage. The court allowed him to rescind the contract and awarded him damages for the time lost. • Fraud: Dupree builds condos. People bid on the condo under the condition that a boat slip will be approved. The regulatory people told Dupree that the slip hadn’t been approved and probably wouldn’t be. He told the people it would be and they bought it. He knew what he was advertising was false and therefore it was fraud. • Innocent Misrepresentation: Yost vs. Rieve Enterpries – Yost had a restaurant that was inspected for vermin. They got a clean bill after removing the four mice. Yost told Rieve this before he purchased the property. Only a few weeks later, Rieve found 52 health violations. He wanted out of the contract. It was not that Yost purposely defrauded him; he honestly didn’t know the truth. • Duress: Eckstein – They were married. He was one of the world’s greatest jerks. He was so bad that she left him and the children. She took the checkbook but he had taken all the money out. He found their van she had taken and had it repossessed. He told her that she could have $1,100, her clothes, and the old van that doesn’t run. He says she must answer now and that if she doesn’t agree she will never see her children again. He files for divorce. The husband presents what they had agreed upon. The judge finds this ridiculous and says that it does not comply with the law and rescinds the contract. He declares that she only signed this under duress and is therefore invalid. • Undue Influence: Man with 8 sons and 5 daughters. He got really old and his son Lawrence took care of him and his affairs. He was probably the most capable. At some point, Lawrence decided that since he was doing so much he deserved the entire farm. Lawrence agreed to pay $23,500 for it (WAY TOO LOW for this large farm). The dad only signed it because he thought that he would be left alone if he didn’t. The other children were shocked to find that Lawrence

owned the whole farm. The only reason that Dad signed this was because he was undue

influence. • Statute of Frauds: First concern was taxes, second they enacted bills of attainment. One of the first statutes as we know them today. Maybe the most widely known law among lawyers. Enacted because when cases went to court, they always had different stories and couldn’t agree on what they had agreed upon. House of Lords passed this to prevent fraud and perjury. This is one statement of what the agreement was and is extremely helpful to help enforce it. People came to parliament after they passed this as a law for help with other issues. Lawyers like this law because it works extremely well. Justice is appointed to the most convincing party and lawyer. Purpose is to prevent fraud and perjury and to “memorialize” a contract that the terms are not forgotten, misunderstood, or fabricated. The Statute of Frauds requires that certain contracts be in writing to be enforceable. • Contracts required to be in writing by the Statute of Frauds: Contracts in the consideration of marriage, contracts which cannot be performed in one year, contracts for the transfer of an interest in land, contracts by the executor of a will to pay a debt of the estate with their own money, contracts for the sale of goods above $500, contracts in which one party becomes a surety (acts as guarantor) for another person’s debt REMEMBER BY THIS: MYLEGS Marriage, Year, Land, Executor, Goods, Surety • Part Performance Exception: Normally a written contract is required to be enforceable, but this is an exception. The Warner’s inherited property in San Francisco. The Warner’s were talking to the Sutton’s and were interested but didn’t have the money right then. They agree on the specific terms and agree to follow through. The Sutton’s followed every detail for the five years of the agreement and took the Warner’s to court to receive the land they had been paying on for five years. It would be unfair not to follow through with this oral contract because the Warner’s became greedy. Because the Sutton’s had done their part for five years they fit into this exception and the judge sided with them. • One-Year Rule: Employment contracts are often for periods longer than one year. These contracts should be in writing to be enforceable. • Collateral Contract – occurs where one person aggress to answer for the debts or duties of another person. This is required to be in writing under the Statute of Frauds. EX) Person appointed to handle debts of deceased. If deceased debts are greater than the value of the estate debtors will ask the executor to agree to pay the debts out of his own pocket.

• Guaranty Contract – EX) Parents signed as guarantor of your lease because you were not 19.

Must be in writing, oral not enforceable. • Electronic Signature in Global and National Commerce Act: Federal statute designed to place the world of electronic commerce on a par with the world of paper contracts in the U.S. Recognizes electronic contracts as meeting the writing requirement of the Statute of Frauds for most contracts. Recognizes an electronic signature, or E-signature. The act gives an E-signature the same force and effect as a pen-inscribed signature on paper. • Marriage: In the past – contracts to marry (usually with dowry) Today – mostly prenuptial agreements • Exceptions to the SOF: Merchant Confirmation Rule (UCC) – Merchants are used to doing business with one another and like to take shortcuts. This allows merchants that have been in a standard working agreement to agree on terms before hand and just contact when termination is wanted, Admission of the existence of a contract under oath – If a party on the stand testifies that there was an oral contract it is just as good as in writing. Most do not admit that there was a contract at all., Part Performance (Promissory Estoppel) – someone has an oral agreement but has done their part of the contract agreement and the judge enforces it, Specially manufactured goods – someone orders foam fingers with AUvUA scores on them, the manufacturer doesn’t have a written contract, the only person that these are of value to is the one who ordered them and this makes this an exception. • Promissory Estoppel – Sutton v Warner case can be used as an example. • Required Signature: Both parties have to sign a contract under the Statue of Frauds FALSE Only one has to sign. It also does not have to be your full name. It can be just initials. • Integration of Several Writing: must reference documents in contract, every thing does not have to be included for the contract to be enforceable. • Interpreting Words in a Contract: Words will be interpreted to promote the principal object of the contract. Ambiguity is the most important. • Handwritten notes in the margin of a contract, especially if initialed by both parties, trump other things that are typed. • Parol Evidence rule: Word evidence, written or oral. Extremely important that the contract include everything possible that the contract could or should include.

• Parol Evidence that can be introduced even though it is outside of the four corners: mistakes;

underage signee; ambiguous language – judge goes with the specific details in the contract, those are not ambiguous, present evidence from prior dealings that have been successful to compare to the case presented; fills in the gaps of a contract; clear up obvious errors • Integration Clause: says that everything is integrated and that this contract includes every detail and outside agreement; jogs memory of parties and gives the judge some support • Privity of Contract: Bill has eye on Jennifer, she needs him to do her a favor (change tire, carry something), he does this for her, she offers to pay him, he says no but he wants to take her to lunch, she says yes but later calls and says she can’t, this upsets Joe (Bill’s roommate), Joe sues Jennifer for hurting Bill, The Judge laughs because he has no Privity of contract and tells him to basically butt out! • Third Party Rights: Bill buying bike from Jennifer, Bill pay 100 and receive bike, Jennifer receive money and give bike. These rights can be bought, sold, or delegated and that is where the exceptions come in. There are the two main ways that other parties can get involved. • Assignment: wants to transfer the right to roommate • Assignee: one who assigns the right • Assignor: person who gives up the right to another person • Bank (creditor) gives loan to debtor. Assignee gives bank money for the right to the payment of the loan. • Personal Service Contract: Coach Lebo cannot assign his contract to coach to someone else then go on vacation. An interior designer cannot assign his contract to someone else because they are all unique. • Assignment of Future Rights: You cannot assign your parents estate until they have passed because they are speculative. • Assignment would materially alter risk: Life insurance company provides life insurance for a $500 premium. Can’t assign his life insurance policy to his dad because it would materially affect the risk that the insurance company based their risk on. • Assignment of legal action: selling the right to sue someone else for an action • Effect of the assignment of rights: Assignee gets all of the rights of the assignor. Once the

assignee gets these rights the rights of the assignor is extinguished.

• Notice of Assignment: assignee must be notified that the rights of obligation have changed. The only thing that really changes is who you pay, the amount remains the same. • Anti-Assignment Clause: Two men fight all the time and have a huge fence on the property line. One man wants to sell to a third party. He agrees on a 100,000 and the third party. The man agrees to buy it but then gets offered 150,000 and sells the property to them. The two fighting men have to go through with the contract even though they hate each other. • Delegation of Duties: Transfers duty not right • Assignment and Delegation: Assignment of all rights is both an assignment and a delegation. Assignment of all rights assigns both rights and duties. **An assignment of all rights is an assignment of all rights and an obligation of duties** • Donee Beneficiary Contract: Life insurance example. His children are the beneficiary but they have no power until he dies. Insurance company promises to pay money to donee beneficiary after his death. • Incidental Beneficiary: Bain blew a call in a basketball game which costs the University of Iowa the Big 10 Championship. Iowa was very upset, but not much can be done. The Gillespie’s own a local store that sold merchandise for the team. They decided that that call cost them a ton of money in profit. They sued Bain because of his bad call to get money for their losses. The judge knew the facts because both parties agreed a bad call was made. The Judge rules to dismiss the case because the law ruled in favor of Bain. • Conditions Precedent: Bike painted wrong shade of blue but he is still under the contract because he was not clear with what shade of blue. • Conditions Subsequent: Someone is hired by a big accounting firm, hired at CPA pay, will pay that salary pending passage of CPA exam at the next possible test, if they do not pass their pay could be reduced to lower pay until passage of the exam. • Implied Conditions: Man needs to buy pesticides, will take a week to get it, they special ordered it but now he can’t by it because he is not licensed to use it. It is not the seller’s fault that the buyer didn’t know his law. The buyer signed a contract that implied that he met all the conditions required. • Discharge (from obligation of performance) of Performance: may be discharged by: complete

performance, mutual agreement of the parties, impossibility of performance, force majeure

clauses, commercial impracticability, operation of the law. Both parties must agree for this to occur • Mutual rescission: rescind the old contract because they both agree that if they had known now what they know then then they would have done the contract differently. • Novation: New party takes over the old party of a contract’s obligations. Discharges one party and obligates another • Accord and Satisfaction: parties have a dispute, disagree on the terms of the contract, accord is set, parties must fulfill the accord or else go to court and be forced to also perform the old contract • Discharge by impossibility: death – someone dies before contract is completed; destruction – material is destroyed in transport buyer is not obligated to pay because he never received; illegality – going through with contract would be illegal • Force Majeure: prevent losses from natural disasters, labor strikes, or shortages of raw materials. • Commercial Impracticability: very few are excused on this; event must be extreme if you are to be released from your contract EX) Guy from small town in NY wants to provide milk to students in small town, he is not a dairy farmer but will buy the milk from dairy co-op, he gets the bid and the price of milk doubles, he contracted to provide the milk for a certain price, He should have included in his contract that he would provide as long as it does not exceed a certain price. The judge ruled against him because he did not take care of himself in creating the contract. • Discharge by operations of law: statute of limitations – two year limitation; bankruptcy – may or may not involve further involvement; alteration of a contract – if one party alters the contract without agreement by both parties, they other party is relieved of all duties. • Complete performance: makes the money available for the purchase of some item but if that item is not given they may sue • Substantial Performance: someone contracts to have their house built, contractor says everything is ready, you have done everything to prepare, the plans called for a cover on the patio and it is not there, you would probably deduct for the cost of that awning to balance out the contract. Situations arise when trying to determine the amount of money to deduct

• Inferior performance: house built without a roof, since that is necessary, they can receive their

money back that they have paid or enforce the contract and sue. EX) lead paint in children’s toys come from another country, able to rescind contract because the toys could not be sold and it was a total loss • Anticipatory Repudiation: Wood products supplier and the 2004 Tsunami, breach is not always evil, courts always start with money thus they only go further if money cannot fix the breach of contract. • Mitigation: order pink paint but was sent lime green. If he still wants pink paint then he could send him the green back and then receive the pink paint. If he threw away the green paint then the sender could sue him for failure to mitigate. EX) Bloomer Girls was going to be produced and Shirley McClain was going to be in it and sing and dance. The movie never took off, but she was under contract with 20th century fox and they wanted her to be in a western in Australia. The courts ruled against them because that was not the same thing that she had been contracted for. EX) accountant that is offered job with major accounting firms. Contract is signed and then when you show up they lay you off, they are under contract to pay him but he must still find another accounting job. • Liquidated Damages: cannot be a penalty • Specific Performance: Client wanted to buy land. The seller had a better offer and said that she was now not going to sell it to his client. Because land is unique, no land or money could make up the damages and therefore the judge ordered the seller to sell the land to his client for the original agreed upon price. Personal services may be unique but no performance of services is rendered. • Injunctions: EX) LSU printing shirts not associated with the university that stated “Auburn Sucks” LSU filed and injunction in order to prevent this from happening. • Torts Associated with Contracts: Intentional Interference with Contractual Relations and Breach of the Implied Covenant of Good Faith and Fair Dealing • Exam Prep!!!!!!! Know these things!!!!! • Disaffirmance of a contract by a minor • What is the primary purpose of the statue of frauds? • What happens if a government requires a license for a particular activity and you do not have

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