BUL 4421 Lecture Notes - Lecture 8: Automatic Stay, Option Contract, Bankruptcy
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Department assessment will be open book.
Final will be 55 questions, multiple choice
Contract- promise or set of promises for breach of which law gives remedy or the performance
of which the law in some way recognizes a duty.
Agreement- an offer by one party called the offeror, to enter into a contract and an acceptance
of the terms of the offer by the other party, called the offeree.
Consideration- the bargained-for exchange, the quid pro quo, the something for something,
what each party gets in exchange for his or her promise under the contract.
Contractual capacity- legal ability to enter a binding agreement
Most adults have capacity, unless you suffer from mental illness, and sufficiently intoxicated
persons do not.
Objective theory of contracts- we base the existence of a contract on the parties outward
manifestations of intent and we base its interpretation on how a reasonable person would
The subjective intent of parties is not usually relevant, what matters is how they represented
their intent through their actions and words.
Bilateral contract- promise for a promise. As soon as promises are exchanged, a contract is
formed and the parties’ legal obligations rise.
Unilateral contract- req. Performance in order to form a contract, ie. a promise + requested
action. The offeror wants the offeree to do something. Ie. $500 reward for lost dog, he wants
you to find his dog, not promise to find it.
Express contract- the terms of the contract are clearly set forth in written or spoken words
Implied contract- arises not from words but from the conduct of the parties, ie. going and getting
a haircut, you must pay afterwards
Void contract- not a contract. Either its object is illegal or it has some defect.
Voidable contract- one or both of the parties has the ability to either withdraw from the contract
or enforce it. Ie.entering into a contract with someone under age of 18.
Option contract- the offeree gives the offeror consideration in exchange for holding the offer
open for a specified period of time.
Revocation- the offeror can revoke an offer at any time unless the offeror entered an option
contract with the offeree. Revocation is effective when the offeree receives it.
Rejection- another way to terminate the offer, effectuated by the offeree. Regardless of how
long the offer was stated to be open, once the offeree rejects the offer, it is terminated.
Counteroffer- an offer made by an offeree to his offeror relating to the same matter as the
original and proposing a substituted bargain differing from that proposed in the original offer.
A counteroffer terminates the original offer.
Destruction or subsequent illegality of the subject matter- if the subject matter of the offer is
destroyed or becomes illegal, the offer immediately terminates.
Lapse of time- if the offer states that it will be open for only a certain time, it terminates when
that time expires.
In the absence of such a time condition, the offer will expire after the lapse.
Authorized means of acceptance- if the offer specifies that acceptance must be communicated
by a specific mode, that mose is the only means for accepting the offer.
If no mode of communication is specified in the offer, any reasonable means of acceptance is
Unauthorized means of acceptance- when an offer specifies that acceptance be communicated
by certain means, no other form is valid.
For a unilateral contract, only performanced by the offeree is valid acceptance.
Consideration- what a legal entity receives in return for performing a contract obligation
Types of consideration:
1. A benefit to the promisee
2. Detriment to the promisor
3. A promise to do something
4. A promise to refrain from doing something
Adequacy of consideration- courts seldom consider the adequacy of consideration. Courts will
not weigh whether you made a good bargain or not. Exception- if court believes you were in
Illusory promise- not a promise at all. Ie. Sean offers to sell his skis for $300 and Molly says
she’ll look at em in the morning and if she likes them she will take them. Molly has made an
Enforcement of a promise- for a court to enforce a promise, both parties must provide valid
consideration by one party only is insufficient to support an enforceable contract.
Preexisting duty rule- performance of duty you are obligated to do under the law is not
Performance of an existing contractual duty is not good consideration.
Liquidated debt- no dispute that money is owed or how much.
Unliquidated debt- parties either disagree about whether money is owed or dispute the amount,
the parties can settle for less than the full amount if they enter into an accord and satisfaction.
Accord and satisfaction- settling to pay unliquidated debt for less than the full amount requires.
1. Debt is unliquidated
2. Creditor agrees to accept full payment less claims owed
3. Debtor pays full amount they agreed on
Capacity- the third element req. For a contract to be enforcable
Emancipation- given full legal capacity under 18
Disaffirmance by a minor- minors have the right, until a reasonable time after reaching the age
of majority, to disaffirm or avoid their contract.
Note that it is only the minor who has the right to disaffirm, never the other adult in the contract.
Ratification by a minor- once a minor becomes an adult, they may ratify or affirm contracts
made by a minor
Express ratification- after reaching the age of majority, the peron states that they intend to be in
Implied ratification- occurs when the former minor takes some action after reaching the age of
majority. They choose to continue to perform.
Mentally incapacitated persons- may be invalidated
When the intoxicated person becomes sober, the contract may be ratified or disaffirmed
Unconscionable contracts- agreement in question is so unfair that it is void of conscience and
may be unenforceable.