LA245 FINAL STUDY GUIDE Chapter 9 Sources of Law Common Law lawsuits build law over time Uniform Commercial Code UCC o To facilitate the easy formation and enforcement of contracts in a fast paced world governs the sale and leasing of goods except money securities and legal rights negotiable instruments bank deposits letters of credit investment securities and other commercial matters o UCC Article 2 governs the sale of goods Goods means anything movable except for money securities and certin legal rights Restatement Second of Contracts Agreement Two parties can form a contract only if they have had a meeting of the minds Understand each other Intended to reach an agreement Offers an act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms The person who makes an offer is offeror To whom he makes the offer is offeree An invitation is not an off Letters of intent can help summarize the progress made thus far and assist the parties in securing necessary financing Advertisements generally not an offer merely a request for offers Consumer Protection State outlaws false advertising The terms of the offer must be definite if not the court doesn t have enough information Definiteness to enforce it Termination of Offers Acceptance Revocation the offeror revokes the offer effective right away Rejection If an offeree rejects an offer the rejection immediately terminates the offer Counteroffer a counteroffer is a rejection Expiration when an offer specifies a time limit for acceptance that period is binding Destruction of Subject Matter The offeree must say or do something to accept When the offer is for bilateral contact the offeree generally must accept by making a promise When the offer is not for a unilateral contract the offeree must accept by performing The common law mirror image rule requires that acceptance be on precisely the same terms as the offer Consideration the doctrine of consideration exits for one purpose to distinguish promises that are binding from those that are not Consideration there must be bargaining that leads to an exchange between parties o Bargaining indicates that each slide is obligating itself in some way to induce the other side to agree o The thing bargained for can be another promise o The thing bargained for can be action rather than promise o The thing bargained for can be a promise to do something or a promise to refrain from doing something Illusory Promises are not considerations Neither party can enforce the deal if I like it Chapter 10 Legality Consent and Writing Contract that is illegal is void and unenforceable A gambling contract is illegal unless it is specifically authorized by state statute Morality is a significant part of contract legality A court will no assist either party to an illegal agreement Legality Restraint of Trade To be valid an agreement not to compete must be ancillary to a legitimate bargain Ancillary means that the noncompetition agreement must be part of a larger agreement Two most common are sale of business and an employment relationship Sale of Business o When a noncompete agreement is ancillary to the sale of a business it is enforceable if reasonable in time geographic area and scope of activity Employment work o Courts look at the reasonableness of restrictions placed on an employee s future o A noncompete clause in an employment contract is generally reasonable and enforceable only to the extent necessary to protect Trade secrets Confidential information Customer lists developed over an extended period Exculpatory Clauses one that attempts to release you from liability in the event of injury to another party Generally unenforceable when it attempts to exclude an intentional tort or gross negligence o Gross Negligence carelessness far greater than ordinary negligence Generally unenforceable when the affect activity is in public interest such as medical care public transportation or some essential service Generally unenforceable when the parties have greatly unequal bargaining power Generally unenforceable unless the clause is clearly written and readily visible Unconscionable Contracts An unconscionable contract is one that a court refuses to enforce because of fundamental unfairness such as no man in his senses and not under delusion would make on the one hand and as no honest and fair man would accept on the other o Oppression one party uses superior power to force a contract on the weaker party o Surprise the weaker party did not fully understand the consequences of its agreement Legal Capacity the legal ability to enter into a contract Minors a minor is someone under the age of 18 o A voidable contract may be canceled by the party who lacks capacity only the party lacking capacity Disaffirmance notifying the other party that you refuse to be bound by the agreement o Can be done for any reason at all Restitution Restoring the other party to its original position o A minor who disaffirms a contract must return the consideration he has received to the extent he is able Mentally Impaired Persons o A person suffers from a mental impairment if by reason of mental illness or defect is unable to understand the nature and consequences of the transaction o Also schizophrenia or mental retardation o A party suffering a mental impairment generally creates only a voidable contract Similar rules apply to intoxication Reality of Consent Rescind to cancel the agreement Misrepresentation and Fraud o Argue that you did not truly consent because you lacked essential information o Misrepresentation when a party to a contract says something that is factually wrong Innocent misrepresentation if the owner believes the statement to be true and has good reason for that belief Fraudulent misrepresentation if the owner knows it is false Do not have to show both o To rescind a contract based on misrepresentation or fraud a part must show three things There was a false statement of fact Does not have to be lie Opinion is not a statement of fact Puffery realize it s a sales pitch exaggeration The statement was fraud or material Fraudulent if the maker intended to induce the other party to contract either knowing that her words were false or uncertain that they were true The statement was material if the maker expected the other party to rely on her words in reaching the agreement Fraud indicates a bad faith statement whereas material representation signifies that the words were