Chapter 2 - Business Law

Question 1

Statute of Fraud

Answer 1

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

Question 2

what are the contracts that must be in writing under the Statute of Frauds?

Answer 2

• 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.
• Promises of executors for personal liability for debts of the estate

Question 3

Explain the parol evidence rule.

Answer 3

A fully integrated contract clearly written cannot be contradicted, varied, or altered by evidence of the parties’ prior negotiations, agreements, or contemporaneous oral agreements.

Question 4

What is required for modification of a contract under common law?

Answer 4

Additional consideration

Question 5

Usury

Answer 5

charging of interest in excess of statutory maximum

Question 6

Quasi-contract recovery

Answer 6

a remedy to give a reasonable value benefit to one party and avoid an unjust enrichment received by the other party

Question 7

Novation

Answer 7

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

Question 8

anticipatory repudiation

Answer 8

allows a party to either sue at once or wait until after performance is due when the other party indicates s/he will not perform. This doctrine is in effect because Nagel told Fields that Nagel had no intention of delivering the goods (i.e., repudiation of the contract) prior to the date of performance.

Question 9

Fungible

Answer 9

mutually interchangeable. Able to replace or be replaced by another identical item; cannot be distinguished either because of homogenous qualities or because they are so mixed together. They are identified when shipped, marked, or otherwise designated.

Question 10

what is a prerequisite for title and risk of loss to transfer?

Answer 10

identification of the items

Question 11

When does title and risk of loss transfer for already existing goods?

Answer 11

at time of contract

Question 12

on future and fungible goods, When does title and risk of loss transfer?

Answer 12

when the goods are shipped, marked, or otherwise designated for the buyer

Question 13

what is the general rule regarding title and risk of loss, absent an agreement?

Answer 13

In absence of agreement, the time title and risk of loss to identified goods passes from the seller to the buyer is dependent on the contract’s delivery terms.

Question 14

When does title/risk of loss pass in free alongside shipping terms?

Answer 14

Title and risk of loss pass upon seller’s delivery of conforming goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer.

Question 15

When does title/risk of loss pass when the shipping terms of cost, insurance, and freight are used?

Answer 15

When the seller:

• Delivers identified conforming goods to the carrier;
• Obtains a negotiable bill(s) of lading covering transportation to named destination;
• Procures an insurance policy; and
• Forwards all documents to the buyer.

Question 16

When does title/risk of loss pass when delivery is required by a seller with no physical movement and the goods are NOT represented by a document title?

Answer 16

Title passes when the contract is made.
If the seller is a merchant, risk of loss does not pass until the buyer gets possession
If the seller is a nonmerchant, risk of loss passes upon the seller’s tender of goods to the buyer.

Question 17

When does title/risk of loss pass when delivery is required by a seller with no physical movement and the goods ARE represented by a negotiable document of title?

Answer 17

Title and risk of loss pass upon buyer’s receipt of the document.

Question 18

When does title/risk of loss pass when delivery is required by the seller without physical movement and the goods are represented by a nonnegotiable document of title?

Answer 18

Title passes to the buyer upon receipt of the document.
Risk of loss passes after the buyer receives the document and has a reasonable time to present the document to receive the goods.

Question 19

what is identification?

Answer 19

It occurs when goods are shipped, marked, or otherwise designated for the buyer; identification must occur before title and risk of loss pass.

Question 20

Consequential damages

Answer 20

Damages to a third party. These include any foreseeable loss known by the breaching party (UCC 2-715(2)). These types of damages include penalties for delay in performing a contract because a party has been tardy in delivering goods or performance on a contract. To recover consequential damages, the breaching party must be aware that time is of the essence in the performance of the contract.

Question 21

Punitive damages

Answer 21

Damages awarded to punish a wrongdoer. Punitive damages are rarely given in breach of contract cases, with the example often used on the exam being in the case of fraud in the inducement in formation of the contract. (See “Defenses to Formation” for more information on this topic.)

Question 22

Liquidated damages

Answer 22

The parties agree in their contract that a specific sum is to be paid in the event that the contract is breached. Liquidated damage provisions are enforceable as long as (a) at the time of formation of the contract, it is apparent that damages would be difficult to estimate in the event of breach, and (b) the amount stated is a reasonable sum estimate. The provision cannot be constituted as a penalty. (See UCC 2-718.)

Question 23

Quasi-contract recovery

Answer 23

Remedy given when there is no contract, but recovery is necessary to avoid unjust enrichment, such as when someone has already performed the work (See the “Types of Contracts” lesson.) It is a remedy to give a reasonable value benefit to one party and avoid an unjust enrichment received by the other party.

Question 24

what is required for mitigation

Answer 24

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

Question 25

when is a nonbreaching party subject to specific performance?

Answer 25

Buyers in real estate contracts or rare or unique goods

Question 26

in what type of breaches is rescission granted?

Answer 26

in case of misrepresentation

Question 27

Replevin

Answer 27

is available only if the buyer cannot cover as a remedy. If the seller refuses to tender delivery of identified goods to the buyer, and the buyer cannot recover, the buyer can file a suit in equity requiring the seller to deliver the goods to the buyer

Question 28

what does contemporaneous mean

Answer 28

occurring/existing at the same time

Question 29

Things that do not release surety from obligation

Answer 29

• fraud by debtor (unless debtor and creditor gang up on surety)
• misrepresentation by debtor
• changes in loan terms (creditor allows another month to pay)
• release of debtor by creditor (surety is however not released)
• bankruptcy, insolvency of principal debtor
• death, incapacity of debtor
• lack of enforcement by creditor
• creditors failure to give notice of default (doesnt have to)
• failure of creditor to resort to collateral

Question 30

what releases the surety from obligation?

Answer 30

• proper performance by debtor
• release, surrender, or destruction of collateral
• substitution of debtor
• fraud/misrepresentation by creditor
• refusal by creditor to accept payment from debtor
• change in loan terms(uncompensated surety, must be material, compensated surety must be increased risk)
• statute of fraud
• statute of limitations