FIN 3055 Test 2 Book Notes - Test Two Book Notes CHAPTER 10...

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Test Two Book Notes CHAPTER 10 Purpose of a Contract Contracts exit to make business matters more predictable A contract is a promise that the law will enforce Judicial Activism vs. Judicial Restraint Judicial Restraint o A court’s reluctance to interfere with the terms of a contract o Court taking a passive role and requiring parties to fulfill whatever obligations they agreed to, whether deal was wise or foolish o Makes the law less flexible but more predictable Judicial Activism o A court’s willingness to change or ignore a contract that is perceives as unjust o Court will ignore certain provisions of a contract or an entire agreement if the judge believes that enforcing the deal would be unjust o Further a court may artificially create a contract where none existed if judge believes that’s the only way to avoid injustice o Makes the law more flexible but less predictable Contract Four elements o Agreement One party must make a valid offer, and the other party must accept it o Consideration There has to be a bargaining that leads to an exchange between the parties o Legality The contract must be for a lawful purpose o Capacity The parties must be adults of sound mind Other issues o Consent Neither party may trick or force the other into the agreement o Written Contracts Some contracts must be in writing to be enforceable o Third Party Interests Some contracts affect people other than the parties themselves o Performance and Discharge If a party fully accomplishes what the contract requires, his duties are discharged o Remedies A court will award money or other relief to a party injured by a breach of contract Mutual Promises Deals in which neither party gave anything to the other but both promised to do something in the future Noncompetition Agreement A contract in which one party agrees not to compete with another No longer automatically enforced Types of Contracts Bilateral
o A promise made in exchange for another promise o Both parties make promise o Vast majority Unilateral o One party makes a promise that the other party can accept only by doing something o Ex. I will give Chris 100 bucks if he mows my lawn If Chris mows the lawn then he accepted the offer and I owe him $100 If he didn’t then I don’t owe him anything Express Contract o An agreement with all important terms explicitly stated o Vast majority Implied Contract o The words and conduct of the parties indicate that they intended an agreement Executory Contract o An agreement in which one or more parties hasn’t yet fulfilled its obligations Executed Contract o An agreement in which all parties have fulfilled their obligations Valid Contract o One that satisfies all of the law’s requirements o A court will enforce is Unenforceable Agreement o Occurs when the parties intend to form a valid bargain but a court declares that some rule of law prevents enforcing it o

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