Business Contracts

Question 1

What does the Law of Agency deal with?

Answer 1

It deals with business duties, relationships, and obligations between a principal and his or her agents.
It establishes the ground rules about what a principal or agent can and can’t do to fulfill duties, responsibilities, and obligations.

Question 2

Agents can be…

Principals can be…

Answer 2

Agents can be one or more individuals whereas the principal can be only one person.
Company (principal) - Buyer (agent) / Salesperson / Employee / Consultant.

Question 3

Both the law of agency and law of contracts apply to procurement because…

Answer 3

purchasers(buyers) enter into contracts with suppliers, vendors, and contractors as an agent and employee.
Law of agency - Company (Principal) - Buyer (Agent)
Law of Contracts - Company (Principal) - Employee (Agent).

Question 4

Name the 3 types of authority that can exist between the principal and the agent.

Answer 4

1) Actual Authority
2) Apparent Authority
3) Ratified Authority

Question 5

Actual Authority

Answer 5

Whether explicit or implicit occurs when the principal gives the authority to the agent with consensus agreement. The principal is bound to this authority and can’t deny it.

Question 6

Apparent Authority

Answer 6

Also called Agency by Estoppel
Occurs based on the principal’s words or conduct, and the principal can’t deny it if third parties relied on it.
This is based on impressions of the third parties.

Question 7

Ratified Authority

Answer 7

Occurs when the principal accepts the liability from the third parties even if the agent acted without authority.

Question 8

What are the duties of the principal?

Answer 8

Require duty to compensate an agent, duty to reimburse the agent, duty to indemnify the agent, and duty to cooperate with the agent.

Question 9

What are the duties of the agent?

Answer 9

Require duty of performance to a principal.
Duty of notification to the principal
Duty of accountability to principal
In addition, an agent should not involve in self-dealing, usurp an opportunity, compete with the principal, or misuse confidential information, and should not maintain a dual-agency relationship (one agent reporting to two principals at the same time).

Question 10

What is the Law of Sale?

Answer 10

The sale of personal property is a huge commercial activity.
Article 2 of the Uniform Commercial Code (the Code or UCC) governs these sales in all states except Louisiana.
The Code has its own contract law.
Common law governs all general contracts outside the scope of UCC contract law.

Question 11

What is the definition of sale and is covered under UCC?

Answer 11

Sales consists of the passing of title to goods from the seller to the buyer for a price.
A contract of sale includes both a present sale of goods and a contract to sell goods at a future time.
The Code defines goods and products as tangible personal property.
Personal property is any property other than an interest in real property (land any attachments such as buildings.
Code does not apply to employment contracts, service contracts, insurance contracts, contracts involving real property, and contracts for the sale of intangible assets - these are governed by general contract law.

Question 12

What are contracts primarily governed by?

Answer 12

State Common Law

Question 13

What does the Law of Contracts apply to?

Answer 13

Can be applied to business contracts where they are governed by state common law.

Question 14

What is the definition of a contract?

Answer 14

Contracts are legal documents that describe terms and conditions under which two or more willing parties agree to commit, honor, and discharge their respective duties and obligations to each other as defined in the contract.
It describes penalties for breach of contract and remedies for damages.

Question 15

What are the five basic requirements of a contract?

Answer 15

1) Mutual Assent (agreement by offer and acceptance)
2) Consideration ( either express or implied mutual obligation
3) Legality of object and subject matter (must be for a legitimate purpose, not criminal and illegal or against public policy). If the purpose is illegal, the contract is null and void.
4) Capacity (only competent parties can have full capacity to contract (no minors, intoxicated people)
5) Formality (in writing)

Question 16

Mutual Assent

Answer 16

Words or conduct
Offer - proposal or expression - willing to do something
A contract only exists if formally accepted
Formal acceptance - verbally or written

Question 17

Consideration

Answer 17

Form of mutual obligation
Each party to a contract must intentionally exchange a legal benefit or incur a legal detriment as in inducement to the other party to make a return exchange.

Question 18

The legality of object and subject matter

Answer 18

Must not be illegal.
If the primary purpose of the contract is legal, but some terms contained within the agreement are not, then the contract may or may not itself be illegal, depending on the seriousness of the illegal terms and the degree to which the legal and illegal terms can be separated.

Question 19

Capacity

Answer 19

Parties to contract must have contractual capacity.
Certain persons have no capacity to contract (adjudicated incompetents).
Some people have limited capacity to contract (minors, adjudicated incompetents, intoxicated persons).
Use of force or coercion is not allowed.

Question 20

Formality

Answer 20

In most cases, an oral contract is binding and enforceable.

In a limited number of instances, a contract must be evidenced in writing to be enforceable.

Question 21

Contracts can be classified as…

Answer 21

1) Express or implied
2) Bilateral or unilateral
3) Valid, void, voidable, unenforceable
4) Executed and executory

Question 22

Implied Contracts

Express Contracts

Answer 22

Implied - contract formed by conduct
Express - manifest assent in words
Both are equally enforceable

Question 23

Bilateral Contract

Answer 23

When each party is both a promisor(making promise) and a promisee(person to whom the promise is made).

Question 24

Unilateral Contract

Answer 24

Where only one of the parties makes a promise.

Eg Insurance Contract

Question 25

Valid Contract

Answer 25

One that meets all the requirements of a binding contract. It is enforceable.

Question 26

Void Contract

Answer 26

An agreement that doesn’t meet all of the requirements of a binding contract.
It has no legal effect and is merely a promise or agreement.

Question 27

Unenforceable Contract

Answer 27

Is a contract for the breach of which the law provides no remedy. After the statutory time period has passed, a contract is referred to as unenforceable.

Question 28

Executed Contract

Answer 28

A contract that has been fully carried out and completed by all of the parties to it.

Question 29

Executory Contract

Answer 29

Contracts that are still partially or entirely unperformed by one or more of the parties.

Question 30

Aleatory Contracts

Answer 30

Contracts where the outcome is affected by chance and may be unequal.
Insurance contracts are an example.

Question 31

Conditional Contracts

Answer 31

Insurance contracts are conditional contracts.

The payment of benefits by the insurance company is conditioned upon the insured or owner paying the premium.

Question 32

The doctrine of Promissory Estoppel

Answer 32

In certain circumstances, the courts enforce noncontractual promises under the doctrine of promissory estoppel to avoid injustice.
A noncontractual promise is enforceable when it is made under circumstances that should lead the promisor to reasonably expect that the promise, in reliance on the promise, would be induced by t to take definite and substantial action or to forbear, and the promisee does take such action or does forbear.

Question 33

Quasi Contracts

Answer 33

These are not contracts at all.
This is a contract implied in law, which is an obligation imposed by law to avoid injustice.
These contracts are sometimes used to provide a remedy when the parties enter into a void, unenforceable, or voidable contract.

Question 34

The rules for awarding damages vary with…

Answer 34

The type of claim filed (breach of contract vs tort) and location and type of jurisdiction.

Question 35

Four major types of damages

Answer 35

1) Compensatory
2) Consequential
3) Liquidating
4) Punitive

Question 36

Compensatory Damage

Answer 36

Direct(normal) and actual damage paid to compensate claimant (victim) for loss suffered as a result of other party’s breach of duty.

Question 37

Expectation Damages

Answer 37

Are compensatory damages paid by the party that breached the contract.

Question 38

Consequential Damage

Answer 38

Is an indirect and special damage awarded due to loss of product or service, loss of profits, or loss of operating revenue if the court decides that such damages are reasonable, foreseeable, or expected of the parties at the time of contract formation.
US Supreme Court - consequential damages are not available in federal courts.

Question 39

Liquidating Damage

Answer 39

This clause in a contract will not be enforced if it amounts to a penalty.
The clause will be enforced only if it involves a genuine attempt to quantify a loss in advance and is a good-faith estimate of economic loss.
Courts have ruled that excessive liquidating damages are equal to penal damages.

Question 40

Punitive Damage

Answer 40

This is a noncompensatory damage that may be awarded to a plaintiff in order to deter a defendant.
Punitive damages are awarded that are over and above compensatory damages and are subject to the limitations imposed by the due process of law.
These damages may be awarded in the case of fraud and product liability cases.

Question 41

Consumer Review Fairness Act of 2016

Answer 41

Before this Act, a company could have sued customers who wrote honest but negative reviews about a company’s product or service.
Now the business can’t use contracts that prevent customers from writing truthful comments or penalize customers for writing negative reviews.
If a business including online, uses contract terms or conditions that limit a customer’s right to comment, it is breaking the law.

Question 42

Ethical considerations with product reviews.

Answer 42

A company can buy postsale feedback from a customer - the seller pays by gift card, cash card, reward points, vacation. travel trip.
Are product reviews written by real customers, sellers employees, competitors employees, or bot software?

Question 43

Ultra Vires

Answer 43

Sometimes lower-level managers may take business-related actions with or without the explicit authority and power given to them by upper-level management. Egs dealing with contractors, vendors, suppliers, consultants, or other businesses.
Ultra Vires - Actions taken without proper authority. (beyond the power). These actions can be construed by law as invalid actions.

Question 44

Intra Vires

Answer 44

Actions taken with proper authority (within the power). These actions can be construed by law as valid actions.

Question 45

Letter of intent

Answer 45

This is drawn between two or more parties
It could be a binding contract depending on how it is written
If the letter if very detailed and specific with names, dates, action plans, locations, it could be binding
If the letter is general and vague, then it is not binding.

Question 46

Can customers agree not to sue a company for any reason in exchange for a gift card, small cash amount?

Answer 46

No, it is illegal and unenforceable.

Question 47

What Act must a retail or manufacturing company adhere to with regards to warranties?

Answer 47

Magnuson-Mass Warranty Act of 1974.

Question 48

Magnuson-Mass Warranty Act of 1974

Answer 48

This Act governs consumer product warranties.
The Act requires manufacturers and sellers of consumer products to provide consumers with detailed information about warranty coverage.
It affects both the rights of consumers and the obligations of warrantors under written warranties.

Question 49

Two types of warranties exist

Answer 49

Product Warranty

Service Contract

Question 50

Product Warranty

Answer 50

When a customer makes a major purchase of a product, the manufacturer or retailer makes an important promise to stand behind the product.
Although not required by law, written warranties come with most major purchases.
US Federal law requires that warranties be available for customers to read before they buy, even if from a catalog or online.

Question 51

Three essential elements of warranties

Answer 51

1) Type - limited or full
2) Time - 30 days
3) Coverage - parts and repairs covered, personal vs business use, what damages are covered

Question 52

Service Contract

Answer 52

When a customer buys a car, an appliance, or an electronic device, a service contract is called an extended warranty.
A normal warranty cost is included in the price of a product whereas a service contract cost is not part of the product price.
The service cost is an add on that might not be worth the price.
Some service contracts duplicate the warranty coverage that the manufacturer provides, some cover only part of the product and some make it nearly impossible to get repairs when the customer needs them.

Question 53

Express Warranty

Answer 53

Is a type of guarantee given by the manufacturer or retailer for a specific product purchased by a customer. The document describes the terms and conditions of the warranty in a clear and complete manner so customers know what is included and excluded.
The cost of the express warranty is included in the price of a product.

Question 54

Implied Warranty

Answer 54

This is created by State Law and all states have these warranties.
Almost every purchase a customer makes is covered by an implied warranty.
Most common type - warranty of merchantability - seller promises that the product will do what it is supposed to do
Warranty of fitness - applies when a customer buys a product on the seller’s advice that it is suitable for a particular use
The cost of an implied warranty is included in the price of the product.

Question 55

If customers purchase does not come with a written warranty?

Answer 55

It is still covered by implied warranties unless the product is marked and sold as it, or the seller indicates in writing that no warranty is given.

Question 56

Exclusive Warranty

Answer 56

A seller or servicer make an exclusive warranty to a customer for a high-priced, customer made product or special service work.
It is so exclusive that no other customers would get the same type of warranty.
They are expensive.
The cost of an exclusive warranty is included in the price of a product.

Question 57

Quasi Warranty

Answer 57

Is not a full and complete warranty.
Lower warranty cost.
The cost is included in the price of a product.

Question 58

Oral Warranty

Answer 58

If a salesperson makes a promise orally, get it in writing.
A customer may not be able to get the warranty service that promised.
The cost of an oral warranty is not included in the price of a product because the warranty never became official.