Business Law
Valid Contract - ANS -A contract containing all the essential elements
Voidable Contract - ANS -contract enforceable against all parties until the party legally entitled
to avoid the contract decides to do so
Void Contract - ANS -A contract that has no legal effect and cannot be enforced
Unenforceable Contract - ANS -contract that is legal but fails to meet some requirements of the
law
Disaffirmance - ANS -Refusal of incompetent party to carry out the terms of an agreement
Executory Contract - ANS -A contract that is entered into, but not yet completed at all.
Executed Contract - ANS -A contract that is entered into and completed
Partially Executed Contract - ANS -A contract that is entered into and performance on the
contract has begun
Licensing Statutes - ANS -Licensing statutes require persons to obtain a license to practice
their occupation. Professions requiring licenses: doctors, dentists, nurses, lawyers, pharmacists,
public accountants, surveyors, architects, real estate brokers, insurance agents, funeral
directors, barbers, veterinarians, beauticians, electricians, plumbers, and contractors
Usury - ANS -the illegal action or practice of lending money at an amount of interest higher than
allowed by law
Incompetency by intoxication - ANS -Tough to utilize. A person so intoxicated by drugs or
alcohol that they do not realize what they are doing when they enter into an agreement can
disaffirm the contract. Slight intoxication is not enough to destroy a person's ability to make
contracts. Total helplessness is not necessary either. The person must be so affected that she
or he does not understand the seriousness or the consequences of the agreement. If a person
understands the consequences or seriousness, then the person cannot disaffirm. Because
intoxication is a voluntary act, courts do not favor disaffirming a contract through intoxication
unless other party caused person to become drunk or had reason to know that person was
drunk and unable to understand consequences. If person can disaffirm, must include return of
the consideration and be done in a reasonable time or they lose right to disaffirm.
,partial ratification and disaffirmance - ANS -A minor cannot ratify part of an agreement and
disaffirm another part. The entire agreement must be either ratified or disaffirmed.
Incompetency by mental illness - ANS -Persons with mental illness are considered incompetent
because, unlike normal persons, they are unable to comprehend either that they are making a
contract or the effect of the contract on them. A person suffering a mental illness but not
declared legally insane (e.g. serious depression) by a court creates contracts that are voidable.
Burden of proof is on person with illness. Person with mental illness is responsible for value of
necessities.
Incompetency by legal insanity - ANS -If the person with mental illness has been determined
incompetent by a court, the person is considered legally insane. The court normally appoints a
guardian and the guardian can disaffirm any contract made by the insane person. Contracts
made with an insane person are considered void. Disaffirming by an insane person must include
consideration unless destroyed or damaged. Insane person liable for reasonable value of
necessities.
Statute of Frauds - ANS -A doctrine requiring certain contracts to be in writing: a contract to pay
the debt of another person, by the executor to personally pay the debts of the decedent, for the
sale of real property, in consideration of marriage (prenuptial agreement), a contract that cannot
be performed w/in one year from date of agreement, and sales of goods contract over $500.
discharge by full performance - ANS -The contract is considered discharged when all parties
have completed all promises.
Tender of Performance - ANS -Offer to perform obligations of a contract. Contracts are
discharged by tender of performance
Discharge by Agreement of the Parties - ANS -After making a contract, both parties agree to
cancel the contract.
rescind - ANS -to cancel a contract and return the parties to their original condition before the
contract; english-spanish contract ex.
Novation - ANS -the substitution of a new party for one of the original parties. The new party
becomes responsible; this must be by the agreement of all parties; the terms of contract
generally remain the same; car payment ex.
Accord - ANS -An agreement by one party to accept performance of contract that is different
from the original performance agreed
Satisfaction - ANS -The performance of the accord made by the other party
, Substitute Contract - ANS -new contract entered into to replace a contract before a breach
occurs
Impossibility - ANS -Occurs when performance becomes impossible to perform based upon an
unforeseen event or circumstance: 1. destruction of the subject matter (agree to paint house,
house burns down), 2. Death or serious illness (personal service contract), 3. Change in Law
(coca cola cocaine ex.)
Impracticability - ANS -Discharges a contract when unforeseen events occur and performance
is still possible, but would cause a hardship for the party obligated to perform (cotton and bull
weavil ex.)
Termination of Contracts - ANS -1. Full Performance
2. Discharge by Tendered Performance
3. Discharge by Substantial Performance
4. Discharge by Agreement
5. Accord and Satisfaction
6. Discharge by Substitute Contract
7. Discharge by Impossibility
8. Discharge by Impracticability
Actual breach - ANS -when one party fails to perform the obligations required by a contract
Anticipatory Breach - ANS -notice of breach before the date of performance; "I am not going to
perform"; injured party can immediately declare contract ended and sue for damages; injured
party does not have to wait until date of performance but may want to see if change of heart
occurs; breaching party may back out of breach and continue with performance after giving
proper notice (provided nonbreaching party has not made arrangements to get performance
done by another party)
Remedy - ANS -course of action for a party to receive satisfaction from the breach; two kinds:
legal (money) and equitable (specific performance, rescission, injunction)
Material Breach - ANS -A violation of contract so substantial that it destroys the value of the
contract
Privity - ANS -A direct relationship with the defendant such that the defendant maintains an
obligation to you, the plaintiff. Need privity to sue
Compensatory Damages - ANS -Damages awarded to plaintiff to compensate plaintiff for their
actual loss or injury occurred. Damages are only to place you in a position you would have been
in but for the breach. If you didn't incur the costs, then you don't get the money.
Valid Contract - ANS -A contract containing all the essential elements
Voidable Contract - ANS -contract enforceable against all parties until the party legally entitled
to avoid the contract decides to do so
Void Contract - ANS -A contract that has no legal effect and cannot be enforced
Unenforceable Contract - ANS -contract that is legal but fails to meet some requirements of the
law
Disaffirmance - ANS -Refusal of incompetent party to carry out the terms of an agreement
Executory Contract - ANS -A contract that is entered into, but not yet completed at all.
Executed Contract - ANS -A contract that is entered into and completed
Partially Executed Contract - ANS -A contract that is entered into and performance on the
contract has begun
Licensing Statutes - ANS -Licensing statutes require persons to obtain a license to practice
their occupation. Professions requiring licenses: doctors, dentists, nurses, lawyers, pharmacists,
public accountants, surveyors, architects, real estate brokers, insurance agents, funeral
directors, barbers, veterinarians, beauticians, electricians, plumbers, and contractors
Usury - ANS -the illegal action or practice of lending money at an amount of interest higher than
allowed by law
Incompetency by intoxication - ANS -Tough to utilize. A person so intoxicated by drugs or
alcohol that they do not realize what they are doing when they enter into an agreement can
disaffirm the contract. Slight intoxication is not enough to destroy a person's ability to make
contracts. Total helplessness is not necessary either. The person must be so affected that she
or he does not understand the seriousness or the consequences of the agreement. If a person
understands the consequences or seriousness, then the person cannot disaffirm. Because
intoxication is a voluntary act, courts do not favor disaffirming a contract through intoxication
unless other party caused person to become drunk or had reason to know that person was
drunk and unable to understand consequences. If person can disaffirm, must include return of
the consideration and be done in a reasonable time or they lose right to disaffirm.
,partial ratification and disaffirmance - ANS -A minor cannot ratify part of an agreement and
disaffirm another part. The entire agreement must be either ratified or disaffirmed.
Incompetency by mental illness - ANS -Persons with mental illness are considered incompetent
because, unlike normal persons, they are unable to comprehend either that they are making a
contract or the effect of the contract on them. A person suffering a mental illness but not
declared legally insane (e.g. serious depression) by a court creates contracts that are voidable.
Burden of proof is on person with illness. Person with mental illness is responsible for value of
necessities.
Incompetency by legal insanity - ANS -If the person with mental illness has been determined
incompetent by a court, the person is considered legally insane. The court normally appoints a
guardian and the guardian can disaffirm any contract made by the insane person. Contracts
made with an insane person are considered void. Disaffirming by an insane person must include
consideration unless destroyed or damaged. Insane person liable for reasonable value of
necessities.
Statute of Frauds - ANS -A doctrine requiring certain contracts to be in writing: a contract to pay
the debt of another person, by the executor to personally pay the debts of the decedent, for the
sale of real property, in consideration of marriage (prenuptial agreement), a contract that cannot
be performed w/in one year from date of agreement, and sales of goods contract over $500.
discharge by full performance - ANS -The contract is considered discharged when all parties
have completed all promises.
Tender of Performance - ANS -Offer to perform obligations of a contract. Contracts are
discharged by tender of performance
Discharge by Agreement of the Parties - ANS -After making a contract, both parties agree to
cancel the contract.
rescind - ANS -to cancel a contract and return the parties to their original condition before the
contract; english-spanish contract ex.
Novation - ANS -the substitution of a new party for one of the original parties. The new party
becomes responsible; this must be by the agreement of all parties; the terms of contract
generally remain the same; car payment ex.
Accord - ANS -An agreement by one party to accept performance of contract that is different
from the original performance agreed
Satisfaction - ANS -The performance of the accord made by the other party
, Substitute Contract - ANS -new contract entered into to replace a contract before a breach
occurs
Impossibility - ANS -Occurs when performance becomes impossible to perform based upon an
unforeseen event or circumstance: 1. destruction of the subject matter (agree to paint house,
house burns down), 2. Death or serious illness (personal service contract), 3. Change in Law
(coca cola cocaine ex.)
Impracticability - ANS -Discharges a contract when unforeseen events occur and performance
is still possible, but would cause a hardship for the party obligated to perform (cotton and bull
weavil ex.)
Termination of Contracts - ANS -1. Full Performance
2. Discharge by Tendered Performance
3. Discharge by Substantial Performance
4. Discharge by Agreement
5. Accord and Satisfaction
6. Discharge by Substitute Contract
7. Discharge by Impossibility
8. Discharge by Impracticability
Actual breach - ANS -when one party fails to perform the obligations required by a contract
Anticipatory Breach - ANS -notice of breach before the date of performance; "I am not going to
perform"; injured party can immediately declare contract ended and sue for damages; injured
party does not have to wait until date of performance but may want to see if change of heart
occurs; breaching party may back out of breach and continue with performance after giving
proper notice (provided nonbreaching party has not made arrangements to get performance
done by another party)
Remedy - ANS -course of action for a party to receive satisfaction from the breach; two kinds:
legal (money) and equitable (specific performance, rescission, injunction)
Material Breach - ANS -A violation of contract so substantial that it destroys the value of the
contract
Privity - ANS -A direct relationship with the defendant such that the defendant maintains an
obligation to you, the plaintiff. Need privity to sue
Compensatory Damages - ANS -Damages awarded to plaintiff to compensate plaintiff for their
actual loss or injury occurred. Damages are only to place you in a position you would have been
in but for the breach. If you didn't incur the costs, then you don't get the money.
