Chapter 7 Business Law Part 1

Question 1

Who does a subagent owe fiduciary duty to?

Answer 1

A subagent is appointed by an agent (principal said to hire assistance), the subagent owes duty to both agent and principal

Question 2

When an agent fraudulently breaches a fiduciary duty what is available to principal?

Answer 2

Principal can terminate agency and receive remedy of “constructive trust” to ensure that principal can recover secret profits obtained by agent because of wrongful conduct

Question 3

Agent has same actual authority whether the principal is

Answer 3

disclosed or undisclosed

Question 4

Actual authority is the authority that

Answer 4

the agent reasonably believes she possesses because of the principal’s communications to the agent.

Question 5

When a agent is in a nondisclosed prinicipal situatuion, the principal may be liable

Answer 5

once disclosed..undisclosed principal can be held liable on a contract made on principal’s behalf by an agent if the agent had authority.

Question 6

An undisclosed principal can NEVER ratify because

Answer 6

there is no representation of agency

Question 7

An agent is personally liable on contracts the agent makes on behalf of the principal when the principal is

Answer 7

undisclosed.

if disclosed, agent is NOT liable

Question 8

Purchasing an interest in undeveloped land for the principal requires an agent

Answer 8

to have a written agency agreement

most states require agreement in writing if agent is to buy or convey interests in land.

Question 9

Apparent authority arises from a 3rd party’s reasonable beliefs based on the

Answer 9

principal’s communications directed toward the 3rd party.

Question 10

Example of apparent authority

Answer 10

North gave Sutter written authorization to buy with no limit.. then verbally told him don’t buy more than 300… he bought 500..

Ora was shown the written authorization… so North is liable to Ora…) Sutter had apparent authority

Verbally = Secret limitations on Sutters authority (has no effect on Sutters apparent authority)

Question 11

Doctrine of Respondeat superior

Answer 11

employer can be liable for EE’s torts committed within scope of employment.

(injured person may sue both employer, and agent)

Question 12

General rule, a principal is NOT liable for torts committed by his agent

Answer 12

only the agent is liable

Question 13

Generally, agent’s apparent authority does not terminated/ceased (come to an end) until/unless

Answer 13

actual notice is given to the third party…

constructive notice = in a newspaper ad.

No notice is needed if terminated by operation of law.

Question 14

An unauthorized transaction/agreement by an agent is voidable by 3rd party if:

Answer 14

3rd party cancels the transaction/agreement before the disclosed principal ratifies the transaction (entirely)

Question 15

After validly contracting with an agent representing an undisclosed principal, a 3rd party is entitled to:

Answer 15

performance of the contract by the agent.

3rd party with whom agent dealt with can hold agent liable on the contract.

Question 16

Once an undisclosed principal becomes known to 3rd party, 3rd party can

Answer 16

elect to hold either the agent or the principal liable for breach of contract.

Question 17

What conditions must be met to form an agency?

Answer 17

Principal must possess contractual capacity.

formation requires consent of the parties but NOT consideration

Question 18

If a principal violates a duty owed to the agent, whether or not the relationship is contractural, the agent may:

Answer 18

• recover damages for past services
• recover futures damages
• withhold further performance

Question 19

What is specific performance?

Answer 19

A court order to fulfill the terms of a contract.

Question 20

Where the principal is undisclosed, there can be NO

Answer 20

apparent authority (because apparent is based on principal’s communications with the 3rd party who the agent deals with.

Question 21

Actual authority depends on communications between

Answer 21

principal and the agent (unaffected by whether P’s identity is disclosed to 3rd parties

Question 22

When does incapacity result in termination of the agency relationship?

Answer 22

Immediately by operation of law.

-doesn’t matter whether agent and 3rd party are aware of the P’s incapacity.

Question 23

An agent no longer has actual authority or apparent authority once

Answer 23

the principal becomes incapacitated.

Question 24

An agency relationship is terminated by operation of law which includes:

Answer 24

• principal’s incapacity
• agent’s failure to acquire necessary business license
• principal’s death

Question 25

The agent’s termination is called

Answer 25

renunciation (terminate agency by the act of a party)

Question 26

A power of attorney is an

Answer 26

agency appointing the agent as the P’s attorney in fact…

• can limit agent’s authority to specific matters; “special power of attorney”

Question 27

What is required to create an agency relationship?

Answer 27

• A principal with contractual capacity
• Not a minor, not incompetent person
• Consent of the parties.

Question 28

General rule: a promise to keep an offer open for a specified time is unenforceable unless:

Answer 28

made in writing by a merchant (merchant’s firm offer) or consideration supports the promise, in which case an option contract is formed.

Ex. Bob gave his promise to not buy another compute in exchange for Jen’s promise to keep the offer open till noon tomorrow. (he gave up the right, so this is valid consideration)

Question 29

The offeree may invoke (appeal) the “mailbox rule” if

Answer 29

1) offer does not state that acceptance is effective upon receipt
2) it didn’t specify the means of acceptance

Question 30

An offeror may opt out of the “mailbox rule” by:

Answer 30

stating in the offer that acceptances must be RECEIVED to be effective.

• the offeror can attach any conditions he/she wants to the offer.

Question 31

To satisfy the consideration requirement for a valid contract, consideration exchanged by the parties must be:

Answer 31

“legally sufficient”

• consideration includes: money, a promise, an act, not acting, ect.

Question 32

To be valid, an offer must state essential terms of the contract in a definite and certain way. Under common law,

Answer 32

contracts involving (RISE), must include:

• identity
• price
• time
• quantity
• nature of the work to be performed

Question 33

Under UCC sales article, an offer for the sale of goods, generally needs to include only:

Answer 33

the quantity term in the contract “sell 3 panes of glass”

Question 34

A unilateral contract is formed when:

Answer 34

a promise is exchanged for an act.

ex. K promised to pay for H’s education in exchange for H obtaining rare artifacts. H got the artifacts. This forms a contract…

Question 35

Statue of limitations for an alleged breach of contract commences (starts):

Answer 35

on the date of the breach.

time period in which the case must be filed

Question 36

“AIMPE” = Formation defenses that make a contract VOID:

Answer 36

Cannot be enforced by law, no valid contract.

• Adjudicated incompetency
• Illegality
• Mutual mistake
• Physical Duress
• Fraud in the Execution

Question 37

An agreement to a “substituted contract” will release:

Answer 37

ALL original parties, from original agreement, and now original parties are bound by the NEW agreement

duties from first agreement are immediately discharged.

Question 38

In a novation, the agreement is unchanged but…

Answer 38

one of the original parties is released and a new party is substituted in their place. (old party is released).

Question 39

The amount of monetary damages (consequential damages) recoverable by a nonbreaching party only to extent:

Answer 39

they are (1) foreseeable,

(2) duty to mitigate damages; reasonable effort to avoid damages (you can’t recover damages that could have been reasonably avoided).

Question 40

GR: Unilateral mistake

Answer 40

Not a defense to a contract…

unless it’s a unilateral mistake as a ‘material’ fact (then its a defense if the other party knew or should have known of the mistake)

(ex. S sells land to T, S knows land can’t support 5 story building, T wants to build a 20 story (S doesn’t know that). T’s unilateral mistake is not a defense)

Defense only if T showed S the plans to the bldg before the sale, and she stayed silent, then Unilateral Mistake is available) He should have been told he can’t build.

Question 41

_____, ______, _____, conditions can affect performance and may be validly in contracts.

Answer 41

Precedent, Concurrent,
Subsequent.

Conditions: “IF”;
“Subject to”

• Precedent- events must occur before other party must perform.
• Concurrent- conditions/events that must occur at the same time
• Subsequent- event that will occur after a party’s duty to perform has arise and will cut off that duty.

Question 42

Prevention of performance and accord & satisfaction will result in:

Answer 42

the discharge of party.

Prevention of performance is a breach.. 1 party prevents the other from performing contract duties.

Accord and Satisfaction is an agreement to substitute 1 contract for another. They discharge the original duty.

Question 43

For a minor to disaffirm a contract, what is necessary?

Answer 43

• can cancel while a minor, or within a reasonable time after becoming an adult.
• must return whatever she possess when they cancel.
• minority is a defense for the minor only.

Question 44

Contracts governed by common law, follow the doctrine of substantial performance.

Under common law, they do not allow:

Answer 44

• rescission/cancellation of contracts for minor breaches.
• if they receive substantially all of the benefit of the bargain, they can only seek damages for minor breaches.

Ex. Contract to build warehouse. In contract states specific lighting.. builder puts wrong lighting. The other person is receiving all of the benefit of the bargain (everything is built, just lights are wrong)… so they can only seek damages for minor breaches.

Question 45

Ways to ratify a contract entered into by a minor:

Answer 45

• failing to disaffirm within a reasonable time after reaching majority age.
• expressly ratifying the entire contract orally/or writing
• retaining or accepting the benefits.

Question 46

Scienter (Intent to deceive)

Answer 46

• intentional tort
• misrepresentation must be made with scienter(intent) to deceive.
• knowingly or intentionally deceiving
• intent to deceive can all be from:
• reckless disregard for truth is constructive fraud or gross negligence

Question 47

The basis for fraud requires _________ of a ______ ___:

Answer 47

Misrepresentation of a material fact.

• immaterial facts/predictions/opinions/statements of value don’t matter unless made by expert…
• an appraised value = is made by an expert so they could misrepresent a material fact…

Question 48

Parol evidence rule prohibits:

Answer 48

introduction of PRIOR or contemporaneous oral statements that seek to change the terms of a written contract.

Subsequent oral statements that modify the contract after the contract has been entered into is OK, = admissible evidence.

Question 49

Specific performance is a remedy a court will grant. It is available only:

Answer 49

in contracts for unique or rare property

ex. a contract for the sale of a patent is unique

Question 50

Upon reaching the age of majority, a person can become

Answer 50

bound by contracts that they entered into as a minor through ratification.

Question 51

Under Sales Article of UCC, unless the agreement says otherwise, the seller’s obligation to the buyer is to:

Answer 51

Hold conforming goods and give the buyer whatever notification is reasonably necessary to enable the buyer to take delivery….

• unless there is an agreement, seller not obligated to deliver the goods to buyer, just “merely needs to hold them for the buyer’s disposition”

Question 52

A promise to keep an offer open for a specified time in unenforceable unless…

Answer 52

it’s made in writing by merchant or consideration supports the promise (an option contract is formed to keep the offer open)

Question 53

Under Sales Article of UCC, which events will result in the risk of loss passing from MERCHANT seller to a buyer?

[Tender of goods at seller’s place of business] yes/no?

[Use of Seller’s truck to deliver goods] yes/no?

Answer 53

ROL passes from MERCHANT seller to buyer on actual delivery of the goods into buyer’s possession.

(this is a noncarrier case) since it says “use of the seller’s truck to deliver goods” and place of business does not pass the risk…