Business Law Flashcards
(95 cards)
1
Q
Which of the following actions requires an agent for a corporation to have a written agency agreement?
A
Purchasing an interest in undeveloped land for the principal
The statute of frauds only requires a writing for contracts for sale of goods of $500 or more, real estate, contracts impossible to perform in one year, a promise to answer the debt of another, and an executor’s promise to be personally liable for the debt of an estate.
2
Q
Noll gives Carr a written power of attorney. Which of the following statements is correct regarding this power of attorney?
A
A power of attorney usually limits an agent’s authority to specific transactions.
3
Q
Thorp was a purchasing agent for Ogden, a sole proprietor, and had express authority to place purchase orders with Ogden’s suppliers. Thorp placed an order with Datz, Inc. on Ogden’s behalf after Ogden was declared incompetent in a judicial proceeding. Thorp was aware of Ogden’s incapacity. Which of the following statements is correct concerning Ogden’s liability to Datz?
A
Ogden will not be liable because Thorp’s agency ended when Ogden was declared incompetent.
Death or insanity of either the principal or the agent will end an agency immediately.
4
Q
Which of the following would not have capacity to create an agency relationship?
A
An unincorporated association does not have capacity, because it is not an individual or an entity, and therefore has no contractual capacity.
5
Q
How is apparent authority created?
A
By perceptions of third parties that have been created or allowed by the principal
6
Q
Creation of an Express Agency Relationship.
A
Consideration—An agency relationship can be created with or without consideration and is called a gratuitous agency relationship. However, an agent who serves without consideration in a gratuitous agency can quit at any time.
7
Q
Accompanying Implied Authority that Goes with Express Authority
A
- When a principal creates an express agency relationship, the agent holds whatever authority is provided for in the agreement.
- In addition, the agent has whatever authority is customary for his or her position—whatever authority can be implied because of the position.
8
Q
Agency by Estoppel or Ostensible Authority
A
For the purposes of the exam, this agency relationship is another form of apparent authority agency that is created when the principal acts as if another is his or her agent.
9
Q
Apparent Agency
A
Agency relationship in which the agent does not have an express agreement but still has authority to act as an agent for a principal because of the appearance of having that authority.
10
Q
Which of the following duties is owed by a principal to an agent?
A
Indemnification-The principal is obligated to indemnify the agent for any contracts entered into on the principal’s behalf with express, implied, or apparent authority or an agreement ratified by the principal.
11
Q
The apparent authority of a partner to bind the partnership in dealing with third parties
A
Apparent authority depends on how things appear to a third party dealing with the agent. Usually if it appears the agent was authorized, apparent authority will exist.
12
Q
Sol, an agent for May, made a contract with Simon that exceeded Sol’s authority. If May wishes to hold Simon to the contract, May must prove that
A
May ratified the contract before withdrawal from the contract by Simon.
A principal is liable for contracts made by an agent on its behalf if the agent had some type of authority (actual or apparent). If the contract was unauthorized, the principal will be liable only if the principal ratifies. The principal must ratify prior to the third party’s withdrawal from the contract. Thus, if May ratifies prior to Simon’s withdrawal, Simon will be bound by the contract.
13
Q
Pell is the principal and Astor is the agent in an agency coupled with an interest. In the absence of a contractual provision relating to the duration of the agency, who has the right to terminate the agency before the interest has expired?
A
Principal-NO
Agent- YES
14
Q
Baker sold an automobile to Bob’s Old Autos, where Fuller is a manager. Fuller took $100 from Baker for encouraging the sale. What duty to Bob’s Old Autos did Fuller violate?
A
Loyalty.
15
Q
Duties of principal to agent:
A
- To comply with agency agreement
2. To reimburse reasonable expenses
16
Q
Duties of agent to principal:
A
- Fiduciary duty (trust)
- Duty of obedience-follow instructions
- Reasonable care
- Accounting for all funds of principal
- Duty of disclosure
- Duty of loyalty (no competition, conflict of interest, disclosure of confidential information)
17
Q
Termination of relationship by acts of parties:
A
- By fulfillment- duty fulfilled
- by lapse of time
- by specified event (ex. wedding planner)
- by mutual agreement
- by unilateral act of one party (does not resolve breach of contract issue)- principal CANNOT terminate agency coupled with interest
18
Q
Termation by act of parties terminates ONLY express and implied authority, how must apparent authority be terminated?
A
- Principal has duty to notify 3rd parties
2. Agent has duty to honor termination and not use apparent authority
19
Q
Termination by operation of the law:
A
- Death of principal or agent
- Insanity of principal
- By bankruptcy of principal
- Change in law that makes relationship illegal
- Loss/destruction of subject matter (selling a building that was then destroyed by a fire)
20
Q
Easy Corp. is a real estate developer and regularly engages real estate brokers to act on its behalf in acquiring parcels of land. The brokers are authorized to enter into such contracts but are instructed to do so in their own names without disclosing Easy’s identity or relationship to the transaction.
If a broker enters into a contract with a seller on Easy’s behalf,
A
The broker will have the same actual authority as if Easy’s identity had been disclosed.
21
Q
Kent, without authority, contracts to buy computer equipment from Fox Corp. for Ace Corp. Kent tells Fox that Kent was acting on Ace’s behalf.
For Ace to ratify the contract with Fox,
A
Ace must know all material facts relating to the contract at the time it is ratified.
22
Q
Which of the following rights will a third party be entitled to after validly contracting with an agent representing an undisclosed principal?
A
Normally, an agent is not bound by a contract signed on behalf of his principal. However, this question illustrates the exception to the rule, because the principal is UNDISCLOSED. In such a situation, the agent can be made to honor the agreement.
23
Q
Liability of disclosed principle:
A
- Disclosed principle, agent has actual authority (express or implied)- ONLY principal is liable
- Disclosed principle, agent has apparent authority-ONLY principle is liable
- Disclosed principle, agent has not authority-ONLY agent liable
24
Q
Liability for partially disclosed principles:
A
Agent has actual authority but does not identify principles, BOTH are liable
25
Liability for undisclosed principles
Agent has actual authority but does not disclose existence of principle, BOTH are liable but agent entitled to reimbursement by principle for damages
26
Your client, Sanitary Dairies, Inc., employs Harold Stone as a milk-truck driver. Stone negligently runs the truck into the car of Ronald Green, injuring Green, his wife, and damaging Green's car. Stone is also injured in the collision. Which of the following is correct?
If Green is shown to have been contributorily negligent, he cannot recover for his injuries, or for the damage to the car.
27
Generally, a disclosed principal will be liable to third parties for its agent's unauthorized misrepresentations, if the agent is an
Employee-YES
Indep Contractor-NO
A principal is liable for ALL AUTHORIZED misrepresentations, but not for all UNauthorized misrepresentations.
28
Under agency law, which of the following statements best describes ratification?
A principal's affirmation of an agent's unauthorized act
29
North, Inc. hires Sutter as a purchasing agent.
North gives Sutter written authorization to purchase, without limit, electronic appliances. Later, Sutter is told not to purchase more than 300 of each appliance.
Sutter contracts with Orr Corp. to purchase 500 tape recorders. Orr had been shown Sutter's written authorization.
Which of the following statements is correct?
The written authorization given to Sutter constitutes actual authority. Actual authority exists whenever an agent acts under direct orders, or takes steps reasonably necessary to complete specific directives. For the first 300 of the 500 recorders, Sutter has actual authority. Further, he has apparent authority to buy the other 200, because Orr can reasonably believe that Sutter is authorized to make such a purchase after seeing his authorization.
An agent has apparent authority to act whenever a third party reasonably believes the agent has authority to act.
30
Janice Gwinn is having an in-floor vacuum system put in her new home. The cost of the components for the system and installation is $22,000. She has signed a contract with Jill's Permanent Vacuum Systems for that amount with installation to be completed as the phases of construction of the home proceed and allow. Which of the following statements is correct about this contract?
Because the contract is one predominantly for installation, it is governed by common law.
31
Susan Worth has a lease for two years at the Bedford Arms apartment complex. Susan has the opportunity to study at Oxford for one year and has agreed to sublease her apartment to Karen Knight. Karen is to take over the lease on August 1, 2010, and finish the term of the lease, which ends May 31, 2011. Susan and Karen execute an agreement for the lease takeover. In January 2011, Karen misses her rent payment and then moves out of the apartment. The Bedford Arms owner wants to recover from Susan. This contract:
Real property interests, including leases, are under common law.
32
Contract
An agreement supported by consideration between two or more persons with competent capacity for a legal purpose.
33
Sources of contract law
Common law and Article 2 of UCC
34
UCC Article 2 applies to:
Contracts that involve the sale of goods.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
Sales of growing crops or timber are the sale of goods regardless who severs.
“Things” attached but not deemed fixtures, which can be severed without material harm to realty, are goods.
35
Which of the following would be an example of an implied contract?
John being treated by a doctor without first agreeing to the charges for the service.
36
Kay, an art collector, promised Hammer, an art student, that if Hammer could obtain certain rare artifacts within two weeks, Kay would pay for Hammer's postgraduate education. At considerable effort and expense, Hammer obtained the specified artifacts within the two-week period. When Hammer requested payment, Kay refused. Kay claimed there was no consideration for the promise. Hammer would prevail against Kay based on
Unilateral contract
This is a unilateral contract because it can only be accepted by performing an act. Hammer cannot accept with a promise. Instead, Hammer has to do an act, which results in total performance of the contract. A unilateral contract is formed if the required action is completed.
37
Express contract
A contract formed wholly by oral and/or written words.
38
Implied or Implied-in-Fact Contract
A contract formed, at least in part, based on the conduct of the parties or based on the factual circumstances.
39
Quasi-Contract or Implied-in-Law Contract
A contract imposed by the courts or by law when some performance has gone forward, even though there is no express or implied contract. The law creates a quasi-contract for the parties to prevent unjust enrichment of one party by the other.
40
Bilateral Contract
A type of contract in which both sides make a promise. A promise is made by one party to the contract in exchange for a promise from the other party to the contract.
41
Unilateral Contract
A type of contract in which one side makes a promise in exchange for an action or performance from the other side.
42
Executed Contract
A contract that has been fully performed by both parties to that contract.
43
Executory Contract
A contract that has not yet been fully performed by the involved parties
44
Partially Executed Contract
A contract that has been performed in part (i.e., one side has performed the contractual obligation). Rights of the parties under executed and executory contracts are different. You can find additional information on those differences in the statute of frauds discussion.
45
Valid Contract
A contract that has been legally formed and meets all necessary requirements for formation
46
Void Contract
A contract that lacks a legal purpose or is in violation of the law. A void contract cannot be enforced by the courts because enforcement would violate public policy and encourage illegal conduct. Also, contracts entered into by those who have been declared incompetent are void.
47
Voidable Contract
An otherwise valid contract that can be set aside because one party has protection under the law and the right, by choice, to be relieved of liability under the contract. Examples of these include contracts that involve fraud in formation or one of the parties lacked the required capacity to form contracts.
48
Unenforceable Contract
An otherwise valid contract that cannot be enforced because of a statutory or other legal defense. An unenforceable contract is one that the courts will not enforce, but such a contract still can be honored by the parties if they choose.
49
Barron offers in writing to sell her 13,000‡acre cattle ranch to Reese for $5 million, the offer to remain open until March 15. On March 1, Goad offers Barron $5.8 million for the ranch. Reese hears of this offer on March 11 and faxes his unqualified acceptance of Barron's offer. Barron's offer to Reese
Is revoked if Reese, before accepting, learned that Barron has sold the ranch to Goad.
An offer can be withdrawn any time prior to acceptance The knowledge of the sale is an effective revocation.
50
Opal offered, in writing, to sell Larkin a parcel of land for $300,000. If Opal dies, the offer will
Automatically terminate prior to Larkin's acceptance.
An offer, unless irrevocable, IS terminated immediately upon the death of the offeror, and thus no contract could be formed.
51
On February 12, Harris sent Fresno a written offer to purchase Fresno's land.
The offer included the following provision: "Acceptance of this offer must be by registered or certified mail, received by Harris no later than February 18 by 5:00 p.m. CST."
On February 18, Fresno sent Harris a letter accepting the offer by private overnight delivery service. Harris received the letter on February 19.
Which of the following statements is correct?
Normally, under the mailbox rule acceptances are valid as soon as they are mailed. However, in this case we have an exception, because the offeror specified the method of acceptance (registered or certified mail) AND a time by which offeror had to actually receive the acceptance. By the terms of the offer, the acceptance was not sent as authorized and arrived late. Therefore, it is a counteroffer, which Harris may now accept or reject.
52
Common law applies to:
Service and real estate contracts. Real estate contracts include leases, mortgages, liens, and contracts for the sale and purchase of real estate.
53
Requirements for the Formation of a Contract
1. Offer
2. Acceptance
3. Consideration
4. No defenses
54
Requirements of a Valid Offer
1. Present Intent—Offer (and acceptance) must be made with serious intent. Requires that the parties do something more than preliminary negotiations. Advertisements usually are not offers but rather an invitation to the reader to make an offer.
2. Definite Terms- Under common law, definite and certain terms require identification of the parties, the subject matter, the price stated, and the time for performance. The UCC Article 2 requires only that the offer identify the subject matter (and quantity if more than one is being sold or limited by need or output)
3. Communication of Offer—The offer must be communicated by the offeror or authorized agent and received by the offeree or authorized agent.
55
Termination of Offers
1. Revocation- effective when received and must be received prior to acceptance of offer
2. Irrevocable Offers
3. Rejection
4. Counteroffer
5. Lapse of Time by Operation of Law- Death or insanity of the offeror or offeree (except for options), Destruction of the specific subject matter, illegality
56
Irrevocable Offers
1. Options are unique in that they are offers that are part of a contract for time, requires consideration and cannot re revoked
2. Firm offers—UCC Article 2 has its own form of options called a merchant's firm offer. Must be a merchant and must be in writing, no consideration needed if less than 3 months.
57
Rejections of offer
An offer is terminated, at any time prior to acceptance, by the offeree saying or writing something as simple as “Terms are not acceptable,” “No thank you,”
An inquiry is not a rejection.
58
Counteroffer
1. A counteroffer made at any time prior to acceptance is a form of rejection.
2. A conditional acceptance is never acceptance but rather a counteroffer under both the UCC and the common law. Conditional acceptances usually are spotted through the use of prepositional phrases, such as “but I must,” “on the condition that,” or “provided that.”
59
Acceptance of an offer
1. Unilateral offer- acceptance takes place upon completion of act required by offer
2. Acceptance by shipment of goods-seller has accepted by shipping goods or agreeing to send by X date
3. Bilateral offer
60
Bilateral offer acceptance (Language of acceptance)
1. Language of acceptance for common law: Acceptance must be absolute, unequivocal, and unconditional, or it is treated as a counteroffer, not an acceptance.
2. Language of acceptance for UCC Article 2-
For nonmerchants, if there is a definite statement of acceptance (not conditional acceptance) followed by some additional terms, a contract is formed, but without the additional terms.
For merchants, if there is a definite statement of acceptance (not conditional acceptance) followed by additional terms, there is a contract WITH the additional terms UNLESS
-The additional terms are material
-The offer specifically states, “This offer is limited to these terms.” In this situation, a contract is formed, but without the additional terms in the acceptance.
-The offeror objects within a reasonable time after receiving the acceptance to the additional terms.
61
Bilateral offer acceptance (Timing of acceptance)
If sent by an authorized medium, the acceptance is effective, that is, a contract is formed when the offeree delivers the acceptance to the authorized medium—even if it is never received by the offeror. Use authorized means, if no authorized means, use same means as offeror OR it will only be valid when received.
62
Which of the following requires consideration to be binding on the parties?
Material modification of a contract involving the sale of real estate.
63
In which of the following situations does the first promise serve as valid consideration for the second promise?
A debtor's promise to pay $500 for a creditor's promise to forgive the balance of a $600 disputed debt.
64
Kelly owed Connor $500. Connor agreed to accept Kelly's microwave oven instead of the money. Kelly immediately delivered the oven to Connor. Which of the following terms correctly describes this agreement?
Accord and satisfaction
65
Consideration/Legal Detriment
Consists of the benefit promised by the offeror (promisor) and the legal detriment promised or performed by the offeree (promisee), it is a bargained-for-exchange meaning detriment on both sides
1. Consists for something of legal value
2. Consists of a legally sufficient amount
66
Preexisting duty and consideration
One that exists under a valid contract or perhaps by law. Once you have committed to something you cannot ask for more money to complete same act. Common law requires ADDITIONAL consideration on BOTH sides. UCC does not.
Exceptions:
1. Rescission and new contract
2. UCC modification if BOTH parties agree
67
UCC Contracts
1. Requirements- contract to buy all that you require
| 2. Output- contract to sell all that you produce
68
Accord and Satisfaction
An accord is an agreement to waive legal rights, releasing another party from legal obligations. Satisfaction is the actual payment of the amounts agreed to in the accord.
Liquidating debt- both parties agree to amount due
Unliquidating debt- parties do NOT agree on amount but settle in order to avoid court
69
Past consideration
A promise to pay for an act already completed is without (not bargained-for) consideration. The promise is unenforceable because it is for an event that has already taken place.
70
Estoppel
A legal principle that bars a party from denying or alleging a certain fact owing to that party's previous conduct, allegation, or denial.
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.
71
Which of the following statements is correct regarding the parol evidence rule?
It applies to prior or contemporaneous oral agreements that contradict the terms of final written agreements.
72
Tate signs an all-inclusive written agreement whereby he undertakes to “fully refurbish Bond's 1981 Porsche 911”. Tate later asserts that the contract did not include rechroming any of the chrome parts. Bond wishes to introduce evidence that rechroming is part of the agreement. Which of the following will not be permitted as evidence under the parol evidence rule?
All would be permissible since "fully refurbished" is ambiguous
73
Kram sent Fargo, a real estate broker, a signed offer to sell a specific parcel of land to Fargo for $250,000. Kram, an engineer, had inherited the land. On the same day that Kram's letter was received, Fargo telephoned Kram and accepted the offer. Which of the following statements is correct under the common law Statute of Frauds?
A contract was formed but would be enforceable only against Kram.
This answer is correct because a contract for the sale of realty falls under the Statute of Frauds requiring a writing signed by both parties or a written memo signed by the party to be charged to be enforceable. Kram signed the letter and the contract is enforceable against Kram.
74
Sand orally promised Frost a $10,000 bonus, in addition to a monthly salary, if Frost would work two years for Sand.
If Frost works for the two years, will the Statute of Frauds prevent Frost from collecting the bonus?
No, because Frost fully performed.
Generally, contracts that cannot be performed within one year are not enforceable unless they are in writing. However, this case illustrates an exception to the rule. If a contract has been finished, or fully performed, a party may then sue to enforce payment, even if the contract is not in writing.
75
Which of the following statements is true with regard to the Statute of Frauds?
The contract terms may be stated in more than one document.
76
The Statute of Frauds
Requires certain types of contracts to be in writing.
77
Types of Contracts that Must Be in Writing under the Statute of Frauds
1. Guaranty of debt contracts- guarantor guarantees debt, NOT original debtor
2. Contracts involving an interest in real property unless behavior indicates a contract (tenant moves in/makes improvements)
3. Contracts impossible to perform within one year of formation (date of acceptance)
4. Contracts for the sale of goods priced at $500 or more (only UCC guideline) unless special order item or buyer has already taken possession
5. Promises of executors for personal liability for debts of the estate
78
Merchant confirmation memorandum
An exception to UCC Statute of Frauds. One merchant sends written confirmation to another merchant, if offer not objected to in writing, it is enforceable with only one signature.
79
Parol (oral) evidence
Occurs prior to written contract and cannot be used as evidence UNLESS:
1. Contract has ambiguous terms
2. Clerical error that is obvious
3. Incomplete contracts (parol evidence can fill in the gaps)
4. Contract defenses
EXCEPTIONS: Parties agree to other terms or fraud has occurred
80
Fritz, a minor who actually appeared to be in his early 20s, purchased from Mills a used Jet Ski for $2,750 in cash. Fritz ran the Jet Ski aground the first week he used it, causing it considerable damage. Fritz
Can return the Jet Ski to Mills, without repairs, for a full refund.
81
Which of the following types of conduct renders a contract void?
Duress through physical compulsion. Physical threats do render a contract void.
82
What type of conduct generally will make a contract voidable?
Fraud in the inducement.
This creates a voidable contract. If someone misrepresents information about the contract subject matter, you are free to go ahead with the contract or rescind it—it is voidable.
83
If a buyer accepts an offer containing an immaterial unilateral mistake, the resulting contract will be
Valid as to both parties.
84
Maco, Inc. and Kent contracted for Kent to provide Maco certain consulting services at an hourly rate of $20. Kent's normal hourly rate was $90 per hour, the fair market value of the services. Kent agreed to the $20 because Kent was having serious financial problems. At the time the agreement was negotiated, Maco was aware of Kent's financial condition and refused to pay more than $20 per hour for Kent's services. Kent has now sued to rescind the contract with Maco, claiming duress by Maco during the negotiations. Under the circumstances, Kent will
Lose, because Maco's actions did not constitute duress.
For duress to be proved Kent would have to show that Maco's actions were threats that overcame Kent's free will forcing Kent into a contract
85
Five types of defenses to formation:
1. Mistake
2. Fraud
3. Duress
4. Undue influence
5. Illegality-Contracts in violation of a statute or are contrary to public policy are void.
86
Age capacity requirement
1. A minor who enters into a contract has the right to disaffirm the contract and avoid liability at any time before reaching majority and for a reasonable time thereafter
2. To disaffirm, must express intent and need only return what he or she still has left of the consideration
3. Ratification—Any minor's contract that is ratified by the minor after reaching the age of majority (now an adult), results in the minor being fully liable.
87
Requirement of Mental Capacity
1. Contracts made by a mentally incompetent person, but before a court has adjudged that person incompetent, are voidable by the person or legal guardian
2. If the contract is made after the person has been adjudged incompetent by the court, the contract is void
88
Mistakes
Unilateral Mistake- the mistake is binding on the mistaken party, unless:
-The other party knows or should know of the mistake
-The mistake is material and obvious
-The error was due to a mathematical calculation and was made inadvertently, not through gross negligence.
Bilateral (Mutual) Mistake—General Rule—If both parties are mistaken and the mistake is one that involves the identity, existence, or quantity of the subject matter, the contract is void
89
Innocent misrepresentation
Same as fraud without the intent
1. Misrepresentation based on fact-based statements (not puffery)
2. Involves something material
3. One party relied on the deception
Contract can usually be rescinded
90
Fraud (Fraud in the Inducement)
Deceived party is entitled to damages (including punitive damages) or can rescind (cancel) the contract. Fraud in formation is one of the few times that punitive damages are available in contract suits.
91
Undue influence
Contracts entered into under undue influence are voidable. The party who is unduly influenced is able to set aside the contract if he or she wishes to do so.
92
Duress
1. Physical force or threat- contract is void
2. Threats to disclose private information
3. Economic pressure
93
Exculpatory clauses
A clause in a contract, that disclaims any liability regardless of fault.
94
Bond purchased a painting from Wool, who is not in the business of selling art. Wool tendered delivery of the painting after receiving payment in full from Bond. Bond informed Wool that Bond would be unable to take possession of the painting until later that day. Thieves stole the painting before Bond returned.
The risk of loss
Passed to Bond at Wool's tender of delivery.
95
Under the Sales Article of the UCC, which of the following statements is correct regarding a seller's obligation under a F.O.B. destination contract?
The seller is required to tender delivery of conforming goods at a specified (contract) destination.
