R7 - Business Law: Part 1 Flashcards
(110 cards)
1
Q
What are liquidated damages?
A
Damages agreed in the contract if there is breach. i.e. I keep your down payment if you back down.
2
Q
When are liquidated damages enforceable?
A
Liquidated damages are enforceable if the amount is:
1. Reasonable in relation to the actual harm done
2. Not a penalty
3
Q
What is an agency relationship?
A
The agent acts on behalf of the principal. An agent has the following:
1. Fiduciary duty to the principal
2. Must act in the principal’s best interest
3. Various other duties, such as obedience and loyalty
4
Q
What is fiduciary duty?
A
Fiduciary duty means the duty of loyalty.
5
Q
What is actual authority?
A
A principal is liable for the contracts entered into by its agent if the agent has the authority to enter into contracts.
6
Q
What is renuntiation?
A
When the agent terminates (the act of terminating) the agency relationship. If the agency is coupled with an interest, only the agent has the power to terminate the agency relationship,
7
Q
What is revocation?
A
When the principal performs the act of terminating the agency relationship.
8
Q
When can an agent’s authority terminate by operation of law?
A
- Death of principal or agent (notice need to be given to the agent)
- Bankruptcy of principal
- Illegality of purpose - operating without a required license
- Destruction of the subject matter
- Incapacity of principal
- Subsequent illegality
No notice need be given.
9
Q
What is a tort?
A
Wrongful actions committed by agent in an employment relationship. A tort is a private wrong for which the remedy is usually is money damages rather than jail time. Compare that to a crime that is a public wrong for which the remedy is often jail time and money damages.
10
Q
When is the principal liable for the tort of an agent?
A
The principal is liable for the tort committed within the scope of the agent’s employment. If the agent is negligent on the job, not only is the agent liable, but so is the principle.
11
Q
What is Respondeat Superior?
A
A principal, including a corporation, can be held liable for an employee’s tort committed within the scope of employment
12
Q
What is the Ultra Vires doctrine?
A
A doctrine limiting a corporation’s power to act outside the scope of the corporation’s stated purposes or statutory power.
13
Q
What is ratification?
A
Occurs when a principal agrees to be bound by a previously unauthorized contract entered into by an agent on the principle’s behalf.
14
Q
What is a unilateral contract?
A
In a unilateral contract, one promise is given in exchange for performance (e.g., Ann promises to give Barb $10 if Barb will wash Ann’s car). A contract is not formed until performance is completed.
15
Q
What does an offer under common law need to include to create a contract?
A
- The identity of the offeree and the subject matter
- the price to be paid
- the time of performance
- The quantity involved, and
- the nature of the work to be performed.
16
Q
What does an offer for the sale of goods only need to include?
A
It only needs to include the quantity term (e.g., “I offer to sell 100 widgets”).
17
Q
Are advertisements considered offers?
A
No, widely distributed statements such as advertisements are not offers because they are not addressed to anyone. They are usually considered only to be invitations seeking offers.
18
Q
What is an option contract?
A
An option contract is formed when the promisor gives a promise to keep the offer open in exchange for consideration from the promise. Giving the right to do something in exchange for a promise can also be considered as forming an option contract.
19
Q
What is the mailbox rule?
A
Acceptances are generally effective when they are dispatched (i.e., mailed, e-mailed, faxed, etc.) if properly addressed. It is irrelevant if a properly addressed acceptance is lost or delayed.
if the offer does not state that acceptance is effective upon receipt and does not specify the means of acceptance, the offeree may invoke the mailbox rule.
20
Q
What is consideration?
A
It is the price of contracting. Both sides of the contract must be supported by legally sufficient consideration. The law will not enforce gratuitous promises.
21
Q
What are the two elements of consideration?
A
- Legal value is given by each party
- bargained for exchange
22
Q
What is duress?
A
Duress arises when a party’s free will to contract is overcome by the unlawful use of a threat of harm.
23
Q
When is a contract considered void under duress?
A
If the harm threatened is physical force (e.g., “sign the contract or I’ll break your arm”)
24
Q
When is a contract considered voidable under duress?
A
If the harm threatened is economic or social (e.g., “I’ll fire you if you don’t sign the contract” or “I’ll divorce you if you don’t sign the contract”)
25
What is undue influence?
- A party's free will to contract is overcome by the defendant's abuse of a position of trust or confidence.
- The person in the position of trust or confidence (e.g., a spouse, trustee, guardian, attorney, etc.) uses the position to take advantage of the other's weakness, infirmity, or distress.
- Undue influence makes a contract voidable.
26
What is the parol evidence rule?
The parol evidence rule prohibits evidence of prior or contemporaneaous oral or written agreements that seek to contradict the terms of a fully integrated contract (i.e., one intended as the complete agreement).
27
What is a unilateral mistake?
If one party makes a mistake, the contract could exist but not if the other party knows it's a mistake and it's just taking advantage. The contract would be voidable at the option of the party who made the mistake if the other party knows it's a mistake.
28
What is mutual mistakes?
If both parties to a contract are mistaken about a material fact, the adversely affected party can avoid the contract. The rule does not apply to mistakes as to value because the value is considered a matter of opinion.
29
When can a minor dissafirm a contract?
A minor (usually a person under the age of 18) may dissafirm a contract anytime while a minor, or even within a reasonable time after becoming an adult.
30
When can a person become bound on a contract with a minor?
A person becomes bound on a contract with a minor when the minor reaches the age of majority by ratifying the contract.
31
How can a contract with a minor can be ratified after reaching majority?
A contract may be ratified by:
1. Failing to dissafirm within a reasonable time after reaching majority
2. Expressly ratifying the entire contract orally or in writing
3. Retaining or accepting the benefits.
32
What is fraud in the inducement?
When a party is aware its making a contract, but the terms are materially misrepresented. This act makes a contract voidable.
33
What is a statute of limitation?
A statute of limitation provides that a legal action must be commenced within a certain period of time.
34
Is a contract enforceable if the statute of limitations expire?
A contract would be unenforceable. It does not make a contract void, but bars access to the judicial remedies.
35
When is the status of limitation time computed?
The statute of limitations is computed from the date the contract is breached.
36
What is the timeline for the status of limitation to apply?
Although contracts status of limitation vary, 4 to 6 years is typical.
37
What are the status of fraud?
1. One year: impossible to complete within one year-services, sales of a business.
2. Real estate: Sale of a house, land, building
3. Guaranty: Co-signor's signature would be required. Oral promise is not sufficient.
4. Investment securities: commercial paper.
5. Executor of a will: Executor's signature
6. Sale of goods $500 or more
ORGIS
38
What is impossibility?
If after the parties enter into a contract an event occurs that will make performance of the contract objectively impossible (i.e., impossible for anyone to perform), impossibility is available as a defense.
39
Could a contract be avoided if the evidence is destroyed?
Yes, if the subject matter of the contract has been destroyed, the contract may be avoided due to impossibility.
40
What is objective impossibility?
The death or incapacity of a person to perform a service contract will discharge the contract.
41
What is novation?
A novation is a defense to a party who has been released from a contract. It occurs when a new party substitutes an old party in an existing contract.
42
What is condition precedent?
It is a condition that must occur before the other party must perform.
43
What is condition concurrent?
These are conditions that must occur simultanously. For example, the payment of money and exchange of goods in most face-to-face sales contracts
44
What is condition subsequent?
A condition that will not occur after a party's duty to perform has arisen and will cut off that duty
45
What is an accord?
It is an agreement to substitute one contract for another
46
What is satisfaction?
It is the execution of the accord.
47
What is accord and satisfaction?
Accord and satisfaction discharge the original duty. Until the accord is satisfied a party may sue under the original contract or the accord.
48
What is admissable under the parol evidence rule?
Oral or written modifications made after the contract has been entered into (subsequent modification) are admissible under the parol evidence rule.
49
What is specific performance?
it is a court order (remedy) that the breaching party perform or face contempt charges in relation to land or unique personal property (e.g., one-of-a-kind-item, such as patent) under a contract.
50
What is foreseeability damages?
consequential damages that at the time the contract was formed could be reasonably anticipated as a result of a breach.
51
What is mitigation (reasonable effort to avoid damages)?
Under contract law, a non-breaching party cannot recover for damages that could have been reasonably avoidable. The party must mitigate damages.
52
What is rescission or cancellation?
Cancels the contract and restores the parties to their former position.
53
When is rescission or cancellation available?
Rescission or cancellation is available for mutual or unilateral mistakes, fraud, and most material contract breaches.
54
When can a party not rescind or cancel a contract?
A party may not rescind or cancel a contract if the contract has been substantially performed (doctrine of substantial performance). The non-breaching party only remedy is monetary damages for the minor breach.
55
What is the timeline for a merchant's firm offer to be irrevocable?
A merchant's firm offer is irrevocable for the time stated, or if no time is stated, for a reasonable time, but in no event longer than 3 months.
56
What items qualify a merchant for a firm offer?
1. The seller must be a merchant (regularly deals in goods of the kind sold)
2. The offer must be in writing and signed by the merchant.
3. The offer must give assurance that it will be kept open for a certain time.
57
What is an acceptance and breach of contract?
if prompt shipment of goods is an acceptance but if the seller ships goods that do not conform with contract terms without notifying the buyer is a breach.
58
What is a counteroffer?
When the seller reasonably notify the buyer that nonconfirming goods are shipped only as an accomodation to the buyer, the shipment is not an acceptance.
59
What is impossibility to perform in a contract?
Under the contract law, if an event occurs that makes the contract objectively impossible to perform (i.e., no one could perform), the contract is discharged.
60
What is impracticability to perform in a contract?
Under the Sales Article (UCC), a contract is discharged for mere impracticability (e.g., extremely more burdensome than anticipated because of the occurrence of an unforseen event).
61
What is the implied warranty of fitness of a particular purpose?
where the seller knows the particular purpose for which goods are to be used and that the buyer is relying on the seller's skill or judgement
62
What is the implied warranty of title?
Implied in every sales contract is the warranty that the seller has good title and the right to transfer that title. This warranty can only be disclaimed by specific language or by circumstances that indicate the seller is not guaranteeing there is a title. Examples:
- "As is" or "with all faults"
- "Seller makes no warranties beyond the face of this instrument"
- "I disclaim any and all warranties"
63
What is anticipatory repudiation?
Occurs when either the buyer or seller indicates in advance of performance that they will not perform. The non-breaching party may sue immediately, cancel the contract, demand assurance or wait until the time for performance and sue the party that fails to perform.
64
Can the repudiating party withdraw from a contract under the anticipatory repudiation?
The repudiating party has the right to withdraw the repudiation until the other party relies (brings suit)
65
What is the buyer's right to specific performance?
Specific performance may be used in a sales contract if the goods are unique or if the buyer cannot reasonably cover.
66
What is replevin?
The right to recover goods wrongfully in the hands of the seller. Maybe be used if the good are identified and the buyer cannot reasonably cover.
67
What is a Surety?
A surety is directly liable on the contract (i.e., creditors will find the surety if the principal debtor fails to pay)
68
What is a guarantor?
A guarantor is liable only if the creditor is unable to collect from the debtor after exhausting all legal remedies, including demand, suit, judgement, and exhaustation of all supplementary proceedings (i.e., co-signer)
69
What do the statutes of fraud required for a suretyship?
The status of fraud requires written evidence of the promise to answer for the debt of another signed by the surety. A suretyship is no enfoceable if there is not a written memorandum.
70
What is subrogation?
After paying the principal debtor's obligation, the surety may enforce (i.e., subrogate) any rights that the creditor has against the principal debtor.
71
What is contribution?
- On payment, a surety is entitled to contribution from the cosureties for their share of the payment.
- The right of contribution arises only after the surety has already paid more than her share.
- If the contract does not specify the liability of each surety, each surety is liable for a pro rata share determined by the number of solvent sureties.
72
What is exoneration?
One surety may compel the cosureties, by a suit in equity for exoneration, to pay their pro rata share of debt.
Exoneration is the right of a surety prior to payment to get a court order demanding that the debtor pay. Note that this right is available to the surety prior to payment.
73
What is creditors' composition?
It is an agreement between the debtor and at least two creditors that the debtor pays the creditors less than their full claims in full satisfaction of their claims.
74
What is attachment of the security interest?
The relationship between the debtor and the secured party (creditor). Once interest is attached, if the debtor defaults, the creditor has the right to take the collateral from the debtor to satisfy the debt.
75
What are the 3 requirements for an attachment in order for a secured interest to be enforceable?
1. Agreement of the parties (either an authenticated record of the agreement or the creditor's having either possession or control of the collateral)
2. Value is given by creditor
3. Debtor has rights in the collateral
When a creditor takes possession, no written security agreement is required.
76
What is perfection of the security interest?
To acquire the maximum priority in the collateral over other parties who may have an interest in the collateral (e.g., subsequent purchasers of the collateral, unsecured creditors, and other priority creditors)
77
How can a security interest be perfected by filing of financing statements?
There are 3 requirements:
1. The name and address of the debtor and the secured party.
2. A description or indication of the collateral covered by the financing statement, and,
3. If the collateral is related to the real property, a description of that real property.
The financing statement need not include a statement of the purpose of the transaction.
78
What should a principal do to confirm revokation of an agent?
the principal should notify the third parties that were working with the agent or the agency termination.
79
What is a writ of attachment?
It is an order by the court to a sheriff to seize a person's property. It can apply to personal property or real property, and so the writ can be used even when a person wons no real property.
80
What is garnishment?
Garnishment is an order to a third person who holds property of the debtor to turn the property over to a creditor. The property involved usually are wages and/or other property owed by a third person to the debtor.
81
What is consideration?
It is the price of contracting. Both sides of the contract must be supported by legal sufficient consideration. Something must be given in exchange for a promise for it to be enforceable. Two elements of consideration:
1. Something of legal value by each party
2. A bargained-for exchange
82
When can an oral contract be enforceable under the Statute of Frauds?
If any of the following exceptions apply, an oral contract will be enforceable even without sufficient writing:
1. Specially manufactured goods
2. Written confirmation
3. Admitted in court
4. Performed (enforceable to the extent of the performance of the party sought to be held liable).
If goods were shipped to the party repudiating the contract and those are not accepted, then he/she will not be liable.
83
Can a security interest be perfected for deposit accounts and money?
No, a security interest may be perfected as to all kinds of collateral except deposit accounts and money by filing financial statements.
84
Under agency law, when does the angent need a writing to act on behalf of the principal?
1. When the agreement concerns the sale of land (real estate), or
2. It is impossible for the agent to perform the agent's duties within one year
85
What is recovery of secret profits?
If the agent obtained a secret profit, the principal can recover the secret profit, usually by imposing a contructive trust on the profit.
86
What condition should be met to form an agency?
Formation of an agency requires a principal with contractual capacity (not a minor or incompetent) and consent of the parties (parties agree to act as principal and agent).
87
Does the surety has the right to compel the creditor to first collect from the debtor?
No, the surety does not have the right to require the creditor to first collect from the debtor. When the debtor defaults, the debtor may do any of the following:
1. immediately demand payment from the surety
2. immediately demand payment from the debtor
3. immediately go after collateral, if there is any
88
What is the purpose of the Fair Debt Collection Practice Act (FDCPA)?
It curbs abuses by collection agencies in collecting consumer debts. it does not apply to creditors attempting to collect their own debt.
89
What are prohibitions of the Fair Debt Collection Practice Act (FDCPA)?
it restricts collections agencies the ability to call third parties, such as relatives of the debtor, to indirectly pressure the debtors. Prohibitions include:
1. Contacting the debtor at inconvenient or unusual times (convenient time is between 8 am and 9 pm)
2. contacting the debtor directly if the debtor is represented by an attorney.
3. Using harrasing or abusive language in talking to the debtor
4. Making false misleading claims
5. contacting the debtor at the place of employment if the employer objects.
90
What defense can the surety use to successfully limit the surety's liability to a creditor?
The surety can use the following:
1. It's own contractual incapacity (e.g., minority, adjudicated insinity, etc.)
2. surety's bankruptcy
91
What is subrogation?
This is an enforcement of creditor's rights against the principal. After paying the principal debtor's obligation, the surety may enforce (i.e., is subrogated to) any rights that the creditor has against the principal debtor. This includes the right to enforcement of any security interest and any priority in bankruptcy that the creditor had.
92
What is reimbursement?
The surety is entitled to reimbursement from his principal debtor for any amount the surety paid on behalf of the debtor. Also referred as "indemnification."
93
When is compensatory damages (benefit of the bargain)?
The standard measure of damages for personal service contracts awards the non-breaching party enough money to obtain substitute performance (i.e., the difference between the cost of subsitute performance and the contract price). It puts the injured party in the same position as if the contract has been performed or agreed.
94
How is shipment of nonconfirming goods treated based on the shipment method?
Shipment of nonconforming goods constitutes a breach of contract. When there is a breach, risk of loss is generally borne by the breaching party no matter whether the contract is "shipment" or "destination."
95
When is an express warranty with respect to the sale of goods created?
An express warranty can be made by any seller and may be oral or written. The warranty must include the following:
1. Must involve facts.
2. Be part of the basis of the bargain (i.e., made at a time when it could have played some part in the buyer's decision to buy).
96
When is a security interest effective between parties?
A security interest is effective once the interest is attached. If the debtor defaults, the creditor has some right to take the collateral from the debtor to satisfy the debt.
97
Does attachment provide the creditor the right against third parties to the collateral?
No, attachment does not provide the creditor with the right against third parties who also have an interest in the collateral. To gain rights over third parties, a creditor must take added steps to perfect the security interest.
98
What is perfection of the collateral?
It serves as a form of notice that the creditor has a security interest in the collateral, and because of this notice, gives the creditor rights in the collateral superior to certain third parties.
99
What is the implied warranty of fitness?
Where the seller knows the particular purpose for which goods are to be used and that the buyer is relying on the seller's skills or judgement. There is an implied warranty that the goods will be fit for the purpose.
100
When is an unauthorized transaction or agreement by the agent voidable?
An unauthorized transaction or agreement by an agent is voidable by the third party if the party cancels the transaction or agreement prior to the principal's ratifying the transaction or agreement. if the principal ratifies before the third party cancels, the transactions i not void.
101
What is a subsitute contract?
The original parties are both released from the original agreement but are both bound by a new agreement.
102
What is a security interest?
A security interest is a limited right in specific personal property (collateral) of the debtor that allows the creditor to take the property (commonly referred to as repossessing) if the debtor fails to fulfill the creditor obligation.
103
What is a secured transaction?
The creditor wants to be able to rely on something other than the debtor's promise to ensure payment. A security interest on collateral is that something.
104
What is a Purchase Money Security Interest (PMSI)?
This is a special type of security interest. It has priority over all other types of security interest in the same collateral, if the PMSI is properly perfected. A PMSI arises when:
1. A creditor sells the collateral to the debtor on credit, retaining a security interest for the pruchase price; or
2. The creditor advances funds used by the creditor to purchase the collateral.
105
When there is an oral contract for longer than 1 year, and one of the parties fails to enforce the contract, can the party be held liable?
Yes, if the party to execute the contract fully performed. The party failing to comply with the oral terms of the contract can be held liable. This is an exception to the status of fraud when stating that contracts for more than one year have to be in writing.
106
What type of assets can be perfected using perfection by filing?
A security interest may be perfected as to all kinds of collateral except deposit accounts and money. These are perfected by filing a financing statements
107
How does perfection by taking possession (pledge) works?
A secured party may perfect a security interest in most types of collateral simply by taking possession of the collateral. Similar to when the pawn shop takes an item in exchange for a loan.
108
How does automatic perfection of a security interest works?
Article 9 provides that a security interest can be perfected simply by the attachment of the security interest without any added requirements. This is called automatic perfection. There are only two types of automatic perfection:
1. Purchase of Money Security Interest (PMSI) in consumer goods
2. Small-scale assignment of accounts
109
What is a small-scale assignment of accounts?
A small-scale assignment of accounts (e.g., assignment of a few accounts receivable) is automatically perfected.
110
When is the seller entitled to recover the full contract price from the buyer plus incidental damages?
1. The goods cannot be resold for any price (often the case when the goods are specially manufactured)
2. The goods are destroyed after risk of loss has passed to the buyer.
