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Business Law Flashcards

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1
Q

What are the four elements of a valid contract?

A

1) offer
2) acceptance
3) consideration
4) legal purpose.

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2
Q

What are the two sources of contract law?

A
  1. Article 2 of the Uniform Commercial Code

2. Common Law

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3
Q

What are the main distinctions between Article 2 and common law?

A
  1. The two sources govern different types of contract subject matter.
  2. The UCC is codified in statutory form and common law (for exam purposes) is the law developed in judicial decisions on contracts.
  3. Common law requires more details and precision than does UCC Article 2 for formation, terms, and damages
  4. The UCC Article 2 requires less detail than common law does from the parties to a contract and has terms that apply if the parties fail to agree on those terms. In addition, the UCC Article 2 has more flexibility than common law does when it comes to formation and performance. The goal of UCC Article 2 is to provide efficient ways for businesses to form contracts and deal expeditiously with issues that develop during performance.
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4
Q

UCC Article 2 apples to..?

A

Contracts that involve the sale of goods. Goods are tangible personal property, such as cars, clothes, books, iPads, livestock, groceries, and trees and crops that the seller has already harvested.
- If a contract involves providing both goods and services, then the UCC applies if the purpose of the contract is primarily the sale of the goods. If, however, the primary purpose of the contract is the installation of the goods, it is governed by common law.

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5
Q

Common law apples to..?

A

Service and real estate contracts. Contracts for employment, agency agreements, lawn service contracts, car washes, and medical care are all examples of service contracts. Real estate contracts include leases, mortgages, liens, and contracts for the sale and purchase of real estate.

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6
Q

What elements are needed to form a contract?

A

1) Offer
2) Acceptance
3) Consideration

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7
Q

What is needed under Common Law for an offer to be valid?

A
  1. Present intent (I will sell)

2. Language - all the details: price, subject matter, performance terms, etc.

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8
Q

What is needed under UCC for an offer to be valid?

A
  1. Present intent (I will sell)

2. Subject matter - if more than one, need quantity.

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9
Q

When is the mirror image rule under common law?

A

Everything has to be in the same context as the offer. The language, delivery method etc. If you change one item, the original offer dies, and it is rejection and/or counter offer.

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10
Q

When can an offer be revoked?

A

Anytime prior to acceptance.

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11
Q

What is an option?

A

A contract for time. Turns an offer into an enforceable contract. Consideration is required. Cannot be revoked, the seller is required to hold the option open for the agreed upon time.

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12
Q

What are the requirements of a merchant’s firm offer?

A
  1. Writing (record)
  2. Signed (intent to authenticate)
  3. By a merchant - in the business of selling good that are the subject matter of the contract
  4. States that it will be kept open (max of 3 months)

No consideration needed - if want to extend the option past the three months, need consideration. Also, if parties are non merchants, you need an option as consideration is needed.

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13
Q

What is the mailbox rule?

A

Acceptence is effectve when sent.
UCC - Need same method of communication or faster.
Common Law - same method of communication.

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14
Q

What is the UCC exception to the pre-existing duty rule?

A

Under the UCC, the parties are permitted, in good faith, to modify their contracts even without additional consideration (detriment) on both sides. UCC 2-209(1).

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15
Q

When is modification allowed for a common law contract?

A

Never. Common law contract requires additional consideration on BOTH sides; otherwise, the modification is not a valid contract because it is missing the required element of consideration.

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16
Q

What is a liquidated debt?

A

A liquidated debt is one in which the amount due and owed is clear to both parties.

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17
Q

What is an unliquidated debt?

A

An unliquidated debt is one in which the parties acknowledge that money is due and owed, but they disagree on the amount.

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18
Q

What is promissory estoppel?

A

A promise, that induces another party to rely on that promise and results in the party materially changing their position, estops the other party from refusing to honor that promise based on a claim of no valid consideration.

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19
Q

When is a guaranty contract enforceable?

A

A guaranty contract under the Statute of Frauds is enforceable against the guarantor when it is in writing signed by the guarantor, or a signed memorandum (written evidence of oral guaranty).

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20
Q

What are the requirements for a merchant’s confirmation memo?

A
  • Must be two merchants
  • signed by one merchant
  • underlying oral agreement
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21
Q

What are some UCC exceptions to the Statute of Frauds?

A
  1. Merchant’s confirmation memo
  2. Part performance (acceptance of goods or payment received)
  3. Specially manufactured goods
  4. Admission - in any proceeding under oath
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22
Q

What are the required elements for a record of a contract?

A
  1. Record
  2. Signature of the party you want to enforce the contract against
  3. Sufficient terms (contract formation requirements)
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23
Q

Explain how the parol evidence rule works and how courts interpret the terms in contracts evidenced by a record.

A

A fully integrated contract cannot be contradicted, varied, or altered by evidence of the parties’ prior negotiations, prior agreements, or contemporaneous oral agreements. Once the parties reduce their agreement to a record, they are bound by those terms and cannot use the courts to re-write their agreement.

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24
Q

List the types of contracts that must be evidenced by a record in order to be enforceable.

A

A. Guaranty of debt contracts
B. Contracts involving an interest in real property (partial performace included)
C. Contracts to not be performed within one year- measured from the time of the agreement, not the period of the contract
D. Contracts for the sale of goods priced at $500 or more (UCC)
E. Promises of executors for personal liability for debts of the estate

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25
What are five types of defenses to formation?
A. Mistake B. Fraud (also called fraud in the inducement) or misrepresentation C. Duress (subjective test; person deprived of a meaningful choice) D. Undue influence (confidential relationship- relationship of dependence, enter into contracts under there own free will examples: lawyer/client, old parent/child) E. Illegality - usury- charge a rate above the maximum - public policy- consumer contracts & exculpatory/hold harmless clauses - licensing (qualificaitons - void, revenue)
26
Generally, how long does someone have to file a breach of contract under the statue of limitations? When does the period begin?
Usually four years is the maximum amount of time a party has to file a lawsuit. In a breach of contract case, the period begins at the time the contract is breached.
27
Explain the following: 1) Conditions precedent 2) Conditions subsequent 3) Conditions concurrent
1) Conditions precedent - an event which must take place before a party to a contract must perform or do their part. 2) Conditions subsequent - in a contract, a happening which terminates the duty of a party to perform or do his/her part. 3) Conditions concurrent - is something that must occur simultaneously with another condition. Each party's obligation acts as a condition precedent for the other.
28
When does the risk of loss pass for a FOB place of shipment?
Risk of loss passes to the buyer at tender of the goods to the common carrier.
29
When does the risk of loss pass for a FOB destination contract?
Risk of loss passes to the buyer when the seller properly "tendered" the goods to the buyer at the specific destination stated in the contract.
30
When is rejection effective?
Rejection is not effective until the seller receives, or has notice of, the rejection.
31
What are the types of orders to pay?
1) Checks 2) Drafts drawer, drawee, & payee
32
What are the types of promises to pay?
1) Promissory Note 2) Certifcate of deposit maker & payee
33
What are the requirements for negotiabilty?
1) Writing 2) Signed by maker or drawer 3) Unconditional promise or order to pay 4) Payable on demand or at a definite time 5) Sum certain in money (fixed amount of money) 6) Words of negotiability (bearer paper or order paper)
34
What is a bill of lading?
Issued by a carrier (like a receipt). A way of transferring title to goods.
35
What are the rights of a holder by due negotiation?
- title to documents - title to goods - issuer obligated to hold or deliver goods according to document terms - not subject to personal defenses - subject to claims of stolen goods
36
What are the elements needed for creation a security interest?
The value has been given, the secured party receives a security agreement describing the collateral authenticated by the debtor, and the debtor has rights in the collateral.
37
What must be present for a security interest to attach?
Underlying debt/obligation; Either a security agreement or possession of the collateral by the creditor; and Debtor must have interest in the property.
38
When does a PMSI arise?
A PMSI arises when a creditor extends credit that is used to purchase the collateral as a consumer good. A PMSI is perfected automatically at the time the interest attaches.
39
What is a PMSI?
Purchase money security interest. A PMSI is a security interest in collateral that secures the assistance provided by the secured party to the grantor to enable their purchase or acquisition of rights in the collateral.
40
How do you get priority on a security interest?
By perfection.
41
What is the period for perfection?
Once you file you are protected for 5 years. In the last 6 months, you can renew the filing. If it is possession, protected as long as the items are in your possession. Temporary - 4 month rule - debtor moves to another state - 21 day rule - negoitable intstruments (need to file and perfect, take possession. Do something ) - 20 day rule - if perfect within 20 days of delivery, you get priority from that day of the security agreement
42
What are the filing requirements to perfect a security interest?
1) must state the name of both the debtor and creditor 2) description of the collateral subject to the security interest 3) Standards either generic (financing statements ) or specific (security agreements)
43
When does a PMSI in a debtor's non-inventory have priority over a previously perfected non-PMSI?
For any other types of collateral, a PMSI will have priority over a previously perfected non-PMSI if the PMSI secured party perfects before or within twenty days after the debtor takes possession of the collateral. No notice is required.
44
What is an easement?
The right of a person to make limited use of another's realty, usually without taking anything from it, or possession of it.
45
What is a fee simple estate?
A fee simple estate gives the owner the right to sell, will, mortgage, and lien the property. It is the highest form of land ownership.
46
What is a Mechanic's lien?
One based on improvements to real property that have not been paid for, requires the holder to give notice before selling the property.
47
What is an Artistian's lien?
One based on amounts unpaid for work done on personal property, also requires notice be given before sale of the property.
48
What is the mean's test?
Determines whether bankruptcy can proceed or whether debtor is involved in "substantial abuse" of the bankruptcy system. It calculates the debtor's monthly income average over the last six months less allowed expenses. Monthly income x 12, if this figure exceed's states median by more than $6,000, then substanial abuse is presumed.
49
What are voidable preferences?
When a trustee has the power to set aside transfers of the debtor's property, and bring them back into the bankruptcy estate. Trustee can set aside transfers due to the usual contract defenses such as duress, mistake, undue influence, failure of consideration, debtor's incapacity, etc.
50
What are the two types of legal or voidable preferences and the elements for each?
Two types - creditors or insiders ELEMENTS FOR ALL TRANSFERS BY DEBTORS TO CREDITORS i. a transfer of debtor's property to a creditor; ii. for an antecedent or preexisting debt; iii. made within ninety (90) days of the filing of the petition; iv. made while the debtor was insolvent (insolvency presumed for any transfer made within ninety days of the petition being filed). ELEMENTS FOR ALL INSIDERS i. An insider is an individual or business, that has a close relationship with the debtor. ii. a transfer of debtor's property to an insider; iii. for an antecedent or pre-existing debt; iv. made within one year from date of the filing of the bankruptcy petition; v. made while the debtor was insolvent -- There is a presumption of insolvency for any transfer made during the ninety-day window that precedes the date of filing of the petition. To set aside a transfer made during the one-year period beyond the ninety-day window, the trustee must actually prove that the debtor was insolvent at the time of transfer.
51
What is the time frame to bring a 1934 Act securities-fraud lawsuit?
Within two years of when he/she should have discovered the fraud and within five years of the fraud.
52
What is crowdfunding and what is the maximum amount a firm can raise through crowdfunding in a single year?
The practice of funding a project or venture by raising many small amounts of money from a large number of people. Maximum is 1 million/year.
53
What is a tombstone advertisement?
An ad that makes known the availability of a prospectus. During the waiting period of 20 days immediately after registering with the SEC, tombstone ads may be placed. Tombstone ads are heavily restricted and may contain only limited information, such as the type of security and where a potential investor would acquire a now-available prospectus.
54
What is a prospectus?
A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details about an investment offering for sale to the public. A prospectus should contain the facts that an investor needs to make an informed investment decision.
55
What is a warrant?
The right to purchase corporate stock for a limited time at a fixed price.
56
When can a company make oral offers to see their shares to the public?
As soon as a registration statement is filed, ORAL offers may be made, as well as limited written advertising. The 20-day waiting period that exists applies to when the securities may actually be sold. No sale can take place for 20 days after the filing.
57
What are debentures?
Debentures are securities that represent debt, rather than ownership.
58
What does the Dodd-Frank act attempt to do?
- Limit risk posed by existing financial institutions. - Limit proprietary trading by financial institutions. - Increase transparency in the OTC market for derivative securities.
59
What are the elements of an investment contract?
1) An investment of money 2) In a common enterprise (all would profit or lose) 3) With an expectation of profit 4) To be derived primarily from the efforts of others
60
What is Section 11 under the Securites Act of 1933?
Remedies false statements or omissions in a registration statement as of the EFFECTIVE DATE.
61
What must a plantiff prove to win under Section 11 of the Securites Act of 1933?
1) There were false statements or omissions in the registration statement as of the EFFECTIVE DATE. 2) Material 3) Trace the defective statement/omission to their security 4) Damages
62
What is the Securities Act of 1933?
Require that investors receive financial and other significant information concerning securities being offered for public sale; and prohibit deceit, misrepresentations, and other fraud in the sale of securities.
63
What was the purpose of the Securities Act of 1934?
It was created to provide governance of securities transactions on the secondary market (after issue) and regulate the exchanges and broker-dealers in order to protect the investing public. Created the SEC and created the periodic disclosure system.
64
What is Section 10b under the Securites Act of 1934?
Punishes fraudulent statements and omissions in the purchase or sale of securities in virtually every setting (oral statements, writing, public & private companies, primary & secondary markets, broad range of defendants)
65
What must a plantiff prove to win under Section 10b of the Securites Act of 1934?
1) False statement or omission 2) Materiality 3) Reliance (does not need to be eyeball reliance; if entire market was mislead, everyone was indirectly mislead) 4) Causation 5) Purchase or Sale 6) Damanges 7) Scienter by the defendant
66
What is the time frame to bring a 1933 Act securities-fraud lawsuit?
Within one year of when he/she should have discovered the fraud and within three years of the fraud.

Regulation (3 decks)

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