Business Law Flashcards
(143 cards)
1
Q
Define the UCC.
A
Uniform law (portions only) passed in all states except Louisiana that provides uniform treatment for contracts that involve the sale of goods.
2
Q
Give examples of service contracts.
A
Employment contracts, plumbing contracts, painting contracts, real estate commission contracts
3
Q
List items that would be considered goods under the UCC.
A
Food, crops and timber harvested by the seller, cars, boats, iPads, clothing
4
Q
Explain why determining the source of law that governs a contract is important.
A
Common law and the UCC have different results when contract issues arise. You need to find out which source of law to follow by examining the subject matter of the contract.
5
Q
What happens when a contract involves both goods and services?
A
We look at what is most important to the parties. A burglar alarm is a good, but a burglar alarm installed is a service.
6
Q
What is a bilateral contract?
A
A promise in exchange for a promise.
7
Q
What is a unilateral contract?
A
A promise in exchange for an act.
8
Q
What is an executed contract?
A
A contract that is fully performed by both sides.
9
Q
What constitutes an executory contract?
A
A contract not fully performed by both sides.
10
Q
Define “void contract.”
A
A contract that violates the law or lacks an element necessary for a court to enforce the agreement (e.g., a contract entered into by a party who has been declared incompetent).
11
Q
Define “voidable contract.”
A
A valid contract in which a party has the option to avoid liability.
12
Q
Define “unenforceable contract.”
A
A valid contract that cannot be enforced due to a legal defense.
13
Q
List the enforceability classifications of contracts.
A
Valid
Void
Voidable
Unenforceable
14
Q
List the classifications of contracts in terms of degree of performance completion.
A
Executed
Executory
15
Q
Define “quasi-contract.”
A
A contract imposed by law, even when no contract was formed, to prevent unjust enrichment.
16
Q
List the sources of contract law and the items to which they apply.
A
Common law: Real estate and services
Uniform Commercial Code: Goods
17
Q
List the requirements of an offer.
A
Present intent to contract
Definite terms
Communication of offer
18
Q
How is present intent (objective intent) measured?
A
It is measured by a reasonable person’s interpretation of the circumstances.
19
Q
When are advertisements considered offers?
A
Advertisements are generally not offers unless they only invite acceptance.
20
Q
When are preliminary negotiations considered offers?
A
Preliminary negotiations are generally not offers unless such negotiations include price lists, solicitation of bids, and auctions with reserve.
21
Q
List the ways an offer can be terminated by the act of the parties to the offer.
A
Revocation
Rejection
Counteroffer
22
Q
Describe the general rule of revocation.
A
An offer can be revoked at any time before acceptance unless the offer is irrevocable.
23
Q
List the three types of irrevocable offers.
A
Options
Sales of goods firm offers
Offers irrevocable by estoppel
24
Q
List the requirements of a firm offer for the sales of goods.
A
Offeror is a merchant.
Offeror is an authenticated record.
Assures offer will remain open for a stated period of time (without consideration not to exceed three months, regardless).
25
Define "option contract."
An option contract is a distinct contract in which the offeree gives consideration to keep the offer open.
26
When is a revocation by the offeror effective?
When the offeree knows of or receives the revocation
27
When is the revocation of a public offer effective?
It is effective if made in the same medium as the offer.
28
List the ways in which an offer can be terminated by operation of law.
Lapse of time
Death or insanity of either party (unless the offer is irrevocable)
Destruction of the specific subject matter of the contract
Intervening illegality
29
When does the acceptance of a unilateral offer occur?
It takes place upon completion of the act required by the offeror.
30
What conditions must exist for the acceptance of a bilateral offer to take place?
Acceptance must be unequivocal and communicated to the offeror.
31
Describe an expressly authorized or stipulated means of communication.
A means of communicating acceptance that is expressly stipulated in the offer
32
When is an acceptance of an offer effective?
If sent by authorized medium: effective when delivered to the medium
If sent by unauthorized medium: effective when received by offeror, provided that the offer is still open
33
Can silence be considered a form of acceptance to an offer?
Generally it is not acceptance unless the offeree's actions indicate an attempt to accept or the offeree has the duty to reject.
34
List the elements of a contract.
Offer and acceptance consideration
Capacity of the parties
Legality
Writing (when required)
35
Describe the requirements of an offer.
Objective intent to contract
Under common law: subject matter, price, payment terms, time for performance, and so on
Under the Uniform Commercial Code (UCC): subject matter and quantity if more than one
UCC will supply the remaining terms if not in the offer
36
Describe the mirror-image rule regarding acceptance of an offer.
Acceptance must be absolute, unequivocal, and unconditional. In common law, if the acceptance is not a mirror image of the offer's terms, it is a rejection and counteroffer.
37
What happens under common law if there are additional terms in an acceptance?
The acceptance is a counteroffer and a rejection.
38
What happens under Uniform Commercial Code (UCC) law if there are additional terms in acceptance and the parties are nonmerchants?
There is a contract, but without the additional terms.
39
What happens under Uniform Commercial Code (UCC) law if there are additional terms in acceptance and the parties are merchants?
There is a contract with the additional terms unless those terms are material, are objected to, or if the offer was specifically limited to its terms.
40
What are the elements of a consideration?
There must be a bargained-for exchange between the parties. (If a party intends to make a gift, he or she is not bargaining.)
What is bargained for must have legal value.
41
How does an individual incur legal detriment?
An individual can incur legal detriment by (1) doing or promising to do something that he or she had no prior legal duty to do or (2) refraining from or promising to refrain from doing something that he or she had no prior legal duty to refrain from doing (i.e., by forbearance).
42
Define "preexisting duty."
A promise to do what one is already legally obligated to do without consideration.
43
List the exceptions to a preexisting duty.
Rescission and new contract
Unforeseen hardship
Sale of goods: modification of contract
44
List the types of contracts with uncertainty of total performance.
Requirements contracts
Output contracts
45
Describe the requirement for an output contract to be with consideration.
The contract is based on established production or ability to produce by the seller, and the seller must sell its production to the buyer.
46
What are the requirements for consideration in a contract?
Each party to the contract has a benefit and detriment. The promises (detriment) are induced by the benefits and the benefits are induced by the promises (detriment). Bargained-for exchange. Consideration must actually change hands.
47
Define "accord and satisfaction."
Agreement between two parties to settle an unliquidated debt (obligation is acknowledged, but the amount is unclear)(accord); satisfaction is payment of that amount; payment discharges all obligations; is not effective for discharging a liquidated debt, such as an installment loan.
48
What promises are enforceable without consideration?
Good-faith modification under the Uniform Commercial Code (UCC)
Charitable subscriptions (promissory estoppels on pledge to make a gift)
Promises barred by the statute of limitations.
49
What is required under the Uniform Commercial Code (UCC) for modification of a contract?
The parties agree to the modification (although they are not required to do so; it is their choice), but additional consideration is not required.
50
Explain the difference between a liquidated and an unliquidated debt.
Liquidated debt: One in which the amount due is agreed upon
Unliquidated debt: One in which the parties acknowledge a debt but disagree as to the amount that is due
51
Describe the general rule about contracts that involve an interest in real property.
To be enforceable, Any contract involving an interest in realty must be in writing or have written evidence thereof, or an applicable exception.
52
Describe the exception to the written requirement for contracts involving an interest in realty.
If a performance is such that the parties cannot be returned to the status quo, the exception is applicable.
53
Describe the one-year rule under the statute of frauds.
Any contract objectively impossible to perform within one year from the date of contract formation (date of acceptance) without breaching the terms, must be in writing or have written evidence of it to be enforceable.
54
Describe a situation in which the special-ordered goods exception would apply.
A condition in which the seller has substantially begun performance or has made an irrevocable commitment to do so before the buyer cancels the contract.
55
Describe the Uniform Commercial Code (UCC) performance exception to the requirement of a record.
If the buyer takes possession or makes a payment accepted by the seller, the statute of frauds is removed at least for the part possessed or paid for. If the seller accepts payment for the goods, at least for the amount reflected in that payment.
56
Against whom are ambiguities construed?
Against the party who drafted the contract
57
Explain the parol evidence rule.
A fully integrated contract clearly written cannot be contradicted, varied, or altered by evidence of the parties' prior negotiations, agreements, or contemporaneous oral agreements.
58
What is required for modification of a contract under common law?
Additional consideration
59
List the contracts that must be in writing or on record to be enforceable.
Contracts involving real property sales, transfers, listing, and leases longer than one year.
Contracts to pay the debt of another.
Contracts that cannot be performed within one year.
Contracts for the sale of goods for $500 or more.
60
Describe the statute of frauds.
A contract statute that requires certain kinds of contracts (i.e., contracts for the sale of goods for more than $500) be memorialized in a signed writing with sufficient content to evidence the contract
61
List the minimum requirements for a valid writing or record of a contract.
Identity of the parties
Subject matter
(Quantity if more than one)
Signature (authentication) by party against whom you want enforcement
62
List the situations in which the partial performance exception for real property agreements apply.
Buyer has made a payment.
Buyer has taken possession.
Buyer has made improvements.
63
Define "fully integrated contract."
Contract that is complete, final, and unambiguous.
64
List the exceptions to the parol evidence rule.
Defenses to formation (misrepresentation, mistake, duress)
Modification
Ambiguities (because the contract is not fully integrated)
Incomplete contract (because the contract is not fully integrated)
65
Define "merchant's confirmation memorandum."
A Uniform Commercial Code (UCC) provision that allows one merchant to bind another based on an oral agreement with one signature. For example, if two merchants have an underlying oral agreement and one merchant sends the other a fax, letter, or e-mail that confirms the terms of the oral agreements, the contract is enforceable even though it was only signed/authenticated by one party. The contract is enforceable against both parties.
66
List the types of contracts to which the parol evidence rule applies.
Final, complete, and unambiguous contracts (fully integrated contracts)
67
What types of contracts are enforced against minors?
Contracts for necessaries or necessities (for their reasonable value and not necessarily the contract amount)
Contracts that they ratify (expressly or by conduct) after reaching the age of majority
68
List the two types of contractual mistakes that can occur.
Mutual (bilateral) mistake (defense)
Unilateral mistake (not always a defense)
69
When do bilateral mistakes create a binding contract?
When the mistake is due to
Value or
Quality
70
List the elements that constitute a fraud.
Intentional deceit (or negligent misrepresentation)
Deceit of a material fact
Reliance of the party deceived
71
Define "undue influence."
Actions by one party that induce another party to enter into a contract by overcoming his or her free will or choice through the abuse of a confidential relationship (lawyer/client; priest/parishioner; parent/child).
72
Define "duress."
Conduct that deprives a party of free will and choice such that the party enters into a contract under fear or threat of violence, or the use of economic pressure to overcome the party's free will
73
List the types of assent defenses that can be used to invalidate the formation of a contract.
Mistake
Misrepresentation
Fraud
Duress
Undue influence
74
Under what circumstances can a unilateral mistake become a defense?
When the other party knew or should have known of a mistake.
75
Describe a formation mistake.
When a mistake is a clerical/computation error so large that the other party should have known.
76
List the elements for misrepresentation or fraud.
Misrepresentation of statement of fact
Intent to deceive
Reliance on the misrepresentation
77
Describe the differences between fraud and misrepresentation.
Fraud requires proof of malicious intent to mislead or; misrepresentation may not have malicious intent to deceive if it happens negligently through a misstatement and/or omission of a material fact(s);
Fraud is a civil wrong that entitles a party to claim damages in addition to the right to rescind the contract. Parties to a contract claiming misrepresentation only have the right to rescind the contract, and there can be no suit for damages.
78
List the remedies for lack of mutual assent.
Rescission
Damages
Modification
79
What is the effect of illegal subject matter on a contract?
It makes the contract void.
80
When can a covenant not to compete be enforced?
When it is:
Part of a contract.
Necessary to protect one party, such as the buyer of a business.
Reasonable in geographic scope and time.
81
What is the effect of an illegal covenant in a contract?
The court can declare the covenant void.
The court can interpret the covenant in order to have it fall within the law.
82
List the various types of conditions that can exist in contract sales.
Precedent
Subsequent
Concurrent
83
List the types of contractual discharge that can occur by agreement or party action.
Release
Waiver
Mutual rescission
Novation
Accord and satisfaction
84
Define "mutual rescission."
An enforceable mutual agreement to discharge all contract obligations and restore the parties to their pre contract positions
85
Define "novation."
A contract entered into by the original parties to a contract and a third party by which the third party is substituted for one of the original parties, thereby terminating (discharging) the obligations of one of the original parties under the original contract
86
Other than damages, what are the remedies for contract breaches?
Specific performance
Rescission
87
List the types of damages available for remedies.
Nominal
Compensatory
Punitive
Liquidated
88
Define "compensatory damages."
All costs or loss actually suffered and proved caused by the breach
89
Define "liquidated damages."
A specific sum is agreed to be paid in the formation of the contract in the event that in the future the contract is breached
90
What requirements must be present for the enforceable liquidated damages provisions of a contract?
Damages are difficult to estimate if a breach.
The amount stated is a reasonable sum estimate (not a penalty).
91
Define "rescission."
The undoing of a contract so as to return the parties to their original position
92
Define "quasi-contract recovery."
A remedy to give a reasonable value benefit to one party and avoid an unjust enrichment received by the other party
93
What is meant by substantial performance?
Substitute performance done in good faith.
Substituted performance is for practical purposes just as good.
Party can be compensated for the substitution.
94
What happens when a condition precedent fails?
The duty to perform is discharged.
95
What are the rules of the statute of limitations under contract law?
Under contract law, the statute of limitations:
* Bars any type of suit not brought within a statutory period of time.
* Begins to run from the date that breach occurs, not when the contract was entered.
96
What is meant by discharge by novation?
Novation is a contract involving three parties whereby a previous agreement is discharged by the creation of a new agreement. For example: A leases a house to B for one year. B wants out of the house after four months. B gets C to take over the balance of the lease. Both B and C will be liable under C's assumption of the lease. However, if A, B, and C all agree (a novation), B can be released, leaving only A and C as parties to the lease.
97
Describe discharge by accord and satisfaction.
An agreement whereby the original contract can be satisfied either by completion of the original performance or by a different performance.
98
List the various ways to discharge a contract.
Discharge by performance
Discharge by death or insanity
Discharge by operation of law
Discharge by accord and satisfaction
Discharge by agreement or party action
Discharge by novation
Discharge by failure of conditions
Discharge by material breach
Discharge by impossibility or impracticability of performance
Bankruptcy decree
Statute of limitations
Discharge by illegality
99
List the ways a contract can be discharged.
By occurrence of failure of a condition
By performance or breach of contract
By agreement
By operation of law
100
List the ways a contractual obligation can be discharged by operation of law.
Material alteration
Statute of limitations
Bankruptcy decree
Impossibility or impracticability of performance
101
List the ways a contract can be considered impossible or impracticable.
Death or insanity
Destruction of specific subject matter
Illegality
Commercial impracticability
102
What are nominal damages?
The types of damages awarded when there is no financial loss to the nonbreaching party
103
What are compensatory damages?
The actual costs of the breach awarded to the nonbreaching party
104
Give an example of consequential damages.
Damages awarded when the nonbreaching party experiences a penalty for delay in performance
105
When are punitive damages awarded in a contract breach?
In the case of fraud in the inducement
106
What is required for mitigation?
The nonbreaching party must take action to reduce the amount of damage owed, such as a landlord trying to lease the property for a tenant who breached a lease
107
When is a nonbreaching party entitled to specific performance?
Buyers in real estate contracts
Buyers of rare or unique goods
108
In what types of breaches is rescission granted?
In cases of misrepresentation
109
When is quasi‡contract recovery available?
When there is no contract but recovery is necessary to avoid unjust enrichment, such as when someone has already performed the work
110
When can a buyer have specific performance as a remedy?
When the goods are rare or unique or in the case of land contracts
111
When can a buyer recover consequential damages?
When the buyer has to pay penalties or damages for being late on performance owed to third parties.
112
What are the seller's remedies if the buyer is insolvent or in breach when the buyer has possession of the goods?
The seller can reclaim the goods within 10 days if the buyer received the goods on credit while insolvent.
The seller can sue for the purchase price.
113
What are the seller's remedies if the buyer is insolvent or in breach when the goods are in transit?
If the buyer is insolvent, the seller can stop any quantity shipped.
If the buyer is not insolvent but isin breach, the seller can stop the order only if the shipment is a carload, truckload, planeload, or larger shipment.
114
Upon a buyer's breach, what remedies does the seller have when the seller retains possession of the goods?
Withhold delivery.
Identify goods to contract and proceed with other remedies.
Cancel and/or rescind contract.
Resell the goods.
Sue for breach of contract.
115
What is the statute of limitations used to file actions against a party that breached a contract?
Four years from cause of action: By agreement, it can be shortened to not less than one year, but it cannot be extended.
For breach of warranty action: Cause of action starts with tender of delivery, not discovery of breach.
116
Describe the concept of replevin.
If the seller refuses to tender delivery of identified goods to the buyer, and the buyer cannot cover, the buyer can file a suit in equity requiring the seller to deliver the goods to the buyer.
117
What types of limitations may be put in place on remedies of a breach?
Liquidated damage agreements
Contract limitations (e.g., limited to repair or replacement)
Statute of limitation time runs out
118
What are the buyer's remedies when the buyer accepts nonconforming goods with notice?
Sue for ordinary damages.
Sue for breach of warranty.
Deduct damages from purchase price.
119
What are the buyer's remedies when the seller tenders nonconforming goods or refuses to deliver conforming goods?
Cancel and with notice.
Rescind.
Cover.
Sue for breach of contract.
Specific performance.
Replevin.
The buyer can recover prepayment if the seller becomes insolvent within 10 days of receipt or can pay the balance and get the goods.
120
Upon a buyer's breach, what remedies does the seller have when the seller retains possession of the goods?
Withhold delivery.
Identify goods to contract and proceed with other remedies.
Cancel and/or rescind contract.
Resell the goods.
Sue for breach of contract.
121
What are the seller's remedies if the buyer is insolvent or in breach when the goods are in transit?
If the buyer is insolvent, the seller can stop any quantity shipped.
If the buyer is not but is in breach, the seller can stop the order only if the shipment is a carload, truckload, planeload, or larger shipment.
122
What are the seller's remedies if the buyer is insolvent or in breach when the buyer has possession of the goods?
The seller can reclaim the goods within 10 days if the buyer received the goods on credit while insolvent.
The seller can sue for the purchase price.
123
What are the buyer's remedies when the seller tenders nonconforming goods or refuses to deliver conforming goods?
Cancel and with notice Rescind.
Cover
Sue for breach of contract.
Specific performance.
Replevin.
The buyer can recover prepayment if the seller becomes insolvent within 10 days of receipt or can pay the balance and get the goods.
124
What are the buyer's remedies when the buyer accepts nonconforming goods with notice?
Sue for ordinary damages.
Sue for breach of warranty.
Deduct damages from purchase price.
125
Describe the concept of replevin.
If the seller refuses to tender delivery of identified goods to the buyer, and the buyer cannot cover, the buyer can file a suit in equity requiring the seller to deliver the goods to the buyer.
126
What types of limitations may be put in place on remedies of a breach?
Liquidated damage agreements
Contract limitations (e.g., limited to repair or replacement)
Statute of limitation time runs out
127
When is a seller entitled to the full contract price when the buyer breaches?
When the goods cannot be resold, such as in specially manufactured goods.
128
When is a seller entitled to lost profits?
In situations in which no other remedy provides compensation, such as when specially manufactured goods are ordered but the buyer breaches prior to production beginning. Lost profits compensate for the downtime in the seller's production facilities.
129
List contractual assignment exceptions.
Terms prohibit assignment.
Statute prohibits assignment.
Personal contracts.
Materially increases risks.
130
List contractual delegation exceptions.
Terms prohibit delegation.
Personal skill/special trust.
Material variation.
131
When is an assignment binding on the parties to the original contract?
When the original parties receive notice of the assignment.
132
When two assignee's names are on the same contract, which assignment is valid?
U.S. rule: First in time of the assignment
English rule: First to give notice of the assignment
133
Describe the liability of the assignor.
Unless released, the assignor remains liable.
134
List the various types of third-party beneficiaries.
Donee (intended)
Creditor (intended)
Incidental (not intended)
135
What elements must be in place for a creditor beneficiary to exist?
A debtor-creditor relationship must exist.
The debtor must make a contract with the third party that benefits the creditor.
136
Define "incidental beneficiary."
A third party who receives an unintended benefit has no legal rights in a contract between two parties (e.g., if the city has a contract to build a stadium, the business owners around the stadium have increased business, but business owners cannot force the city to perform the contract for the stadium).
137
List the various types of third-party contracts.
Assignments
Delegations
Third-party beneficiary contracts
138
Define "assignment."
The transfer of the benefits under a contract to a third party (e.g., a contractor assigns payment to lumber company)
139
Define "delegation."
The transfer of the detriment (duties) under a contract to a third party (Mr. Ice asks Ice Inc. to take over ice supply contract for Lobster, Inc.).
140
Define "third party beneficiary contracts."
A contract between two parties that is set up for the purpose of providing benefits to a third party.
141
Describe the rights of a creditor beneficiary.
Can recover from original debtor who designated the creditor beneficiary or from the party required to pay under contract with the debtor (e.g., with health insurance, a hospital can recover from the insured or the insurer).
142
Describe the rights of a donee beneficiary.
Can recover from the party required to pay under the contract but not from the party who makes the arrangements for the payment (e.g., a life insurance arrangement, where the beneficiary can recover from the insurance company but not from the insured).
143
Describe the rights of an incidental beneficiary.
Has no right of recovery against either party to the original contract (e.g., resident of city cannot recover if a contractor does build planned city park).
