Chapter 7 - Contract and Business Law - Concepts

Question 1

The right to enter into contract is basic to the (1) system, though over time contracts have become regulated by (2) and (3). The ALI’s (4) attempts to make consistent terminology used in contracts.

Answer 1

1. free enterprise
2. legislatures
3. courts
4. Restatement (Second) of Contracts

Question 1

A (1) states a party cannoy introduce oral evidence to contradict the terms of a (2) that is complete. This does not apply to (3), (4), (5) or (6) and sometimes oral agreements will be used to clear up (7).

Answer 1

1. parol evidence rule 2. fraud 3. duress 4. misrepresentation 6. amendments (change orders, eg) 7. ambiguities

Question 2

2 basic types of contracts

Answer 2

1. express

2. implied (buying a hamburger)

Question 2

Lecture: 3 building blocks of contract law

Answer 2

1. offer 2. acceptance 3. consideration

Question 3

A contract in which parties exchange promises is a (1); one in which one party responds to another’s offer by performing an act is a (2). An (3) is one that has yet to be performed; an (4) is one where the performance has been completed.

Answer 3

1. bilateral
2. unilateral
3. executory contract
4. executed contract

Question 3

An (1) a contract occurs when one one party to a contract assigns rights to another who is not a party to the original contract. Usually allowed as long as the (2) or a (3) does not say otherwise; a (4) may still approve the assignment in these cases.

Answer 3

1. assignment 2. contract 3. statute 4. courts

Question 4

Difference between a voidable contract and a void contract

Answer 4

The voidable contract is one that may be legitimately cancelled; a void contract is one not recognized by law (such as a contract to kill someone)

Question 4

Although (1) can be assigned, (2) of same person may not be delegated. The non-assigning party retains all (3) and (4) under the contract.

Answer 4

1. rights 2. duties 3. rights 4. defenses

Question 5

A contract utilizing a (1) such as a check or promissory note would require precise terms and thus be a (2); other contracts are (2).

Answer 5

1. negotiable instrument
2. formal contract
3. informal contracts

Question 6

The three basic components of a contract are the (1), (2) and (3). there must be (4) of two or more parties who have the (5).

Answer 6

1. offer
2. acceptance
3. consideration (exchange of benefits/promise/forbearance)
4. mutual assent
5. capacity to contract (age of legal majority, competent)

Question 7

In contract law, the (1) must manifest an (2), while the (3) must accept the offer on the (4).

Answer 7

1. offeror
2. intention to become legally bound
3. offeree
4. terms proposed

Question 8

Lucy v. Zehmer,in which a person sold a 471-acre farm for $50,000, was a case in which the SC used a (1) standard to determine that a contract was valid even though the offeror claimed it was a (2).

Answer 8

1. reasonableness

2. joke

Question 9

An ad that is definite as to (1), (2) and (3) can be seen as an intention to be bound and upholdable as a contract; in most cases ads would not be seen as valid (4) so lack of stock could not be sued for.

Answer 9

1. time
2. place
3. description of goods
4. legal offer

Question 10

Where there is not definite information in a contract, (1) applies. For example, acceptance of an oral offer must be made (2). (3) may also play in. Conditional acceptance of terms are seen by law as a (4) and thus a (5) of the original terms.

Answer 10

1. reasonableness
2. by the end of the conversation
3. Customs of an industry
4. counter-offer
5. rejection

Question 11

The precursors of the “consideration” standard of seriousness in a contract were (1) and (2). In common law consideration was a (3) or a (4).

Answer 11

1. oaths
2. seals
3. benefit to a promisor
4. detriment to a promisee

Question 12

4 things consideration in exchange for a promise can be

Answer 12

1. an act other than a promise (labor in return for a promise to pay)
2. a forbearance (agree not to build annex to house in exchange for right to use neighbor’s well)
3. the creation, modification or destruction of a legal relation (withdrawal from a partnership so daughter can be partner)
4. a return promise (deed for money)

Question 13

A promise in a contract cannot be (1)–that is, it must commit to do something definite, instead of saying, “I will pay you when I have money). Courts generally do not become involved in the (2) of American contracts, provided no (3) is involved. However, agreeing to accept a lesser amount than the debt creates an agreement called an (4) that extinguishes the debt.

Answer 13

1. illusory
2. adequacy of consideration
3. fraud
4. accord and satisfaction

Question 14

A (1), or act previously committed, cannot be grounds for a contract. (2) also cannot be considered–for example, payment cannot be offered to police to respond to a crime. The requirement of consideration may be dropped in cases of (3), such as if one party incurs expenses based on promises of other party. This includes promises of funds to (4) who relied on that promise.

Answer 14

1. past consideration
2. pre-existing duty
3. promissory estoppel
4. charities

Question 15

A (1) does not have legal capacity to enter into contracts and thus may (2) a contract. This is seen in purchasing (3) such as cars and in (4). Persons under (5) for any reason are legally incapable of contracting, as are (6) people.

Answer 15

1. minor
2. disaffirm
3. unnecessary
4. marriage contracts
5. legal guardianship
6. intoxicated

Question 16

Law does not enforce contracts to do (1). This is often extended to lenders’ (2).

Answer 16

1. criminal acts

2 usurious rates of interest

Question 17

In a (1), either party can avoid a contract; however, a (2) is no grounds for avoidance. (3), however, is grounds for avoidance. A contract can also be avoided for (4)–if inequality of acceptance is so strong as to shock the conscience. The (5) supports this last one.

Answer 17

1. mutual mistake (both parties are mistaken)
2. unilateral mistake (one party makes a mistake)
3. material misrepresentation of fact (tampered odometer)
4. unconscionability
5. Uniform Commercial Code

Question 18

The meaning of (1) is somewhat vague. The old standard is that in the absence of constitutional or statutory provisions, it can be found in (2) and the (3). Public policy plays a part in how contracts are enforced, especially in (4).

Answer 18

1. public policy
2. decisions of courts
3. practice of government officials
4. covenants not to compete

Question 19

5 types of contracts which statutes of frauds require to be in writing

Answer 19

1. sale of real estate or lease for more than a year
2. marriage
3. anything that cannot be performed within a year
4. payment of a debt (such as suretyship)
5. sale of personal property over $500

Question 20

2 exceptions to the requirement that specified types of contracts be in formal writing

Answer 20

1. informal memos that describe parties, subject matter and essential terms of contract (for real estate, also a description of property)
2. knowingly allowing someone to do work that has not been ordered

Question 26

Duties may be (1); however, the (2) remains liable. The (3) must be able to perform as effectively as the (4). Construction, delivery, etc.can be delegated; (5) are non-delegable.

Answer 26

1. delegated 2. contracting party 3. delegatee 4. delegator 5. professional services (doctor, lawyer)

Question 27

Normally (1) have the right to enforce the contract, but most contracts can be (2). The right to enforce a contract also extends to (3) and (4).

Answer 27

1. parties to a contract
2. assigned (so assignee can enforce)
3. third-party donee beneficiary (recipient of life insurance)
4. third-party creditor beneficiary (such as someone who should be paid back by contract between other people…a transferred loan)

Question 28

Fulfillment of a contract constitutes (1); excused lack of fulfillment is (2), (3) or delays due to strike, adverse weather conditions or (4). Clauses accounting for these possibilities are sometimes referred to as (5).

Answer 28

1. performance
2. impossibility of performance
3. illegal obligations in contract
4. acts of God
5. force majeure clauses

Question 29

Fulfillment of a contract constitutes (1); excused lack of fulfillment is (2), (3) or delays due to strike, adverse weather conditions or (4). Clauses accounting for these possibilities are sometimes referred to as (5).

Answer 29

1. performance
2. impossibility of performance
3. illegal obligations in contract
4. acts of God
5. force majeure clauses

Question 30

Non-performance of a contract is (1); denial of the contract before the time for performance is (2). The three judicial remedies for breach are (3), (4) and (5).

Answer 30

1. breach of contract
2. anticipatory breach
3. damages
4. specific performance
5. rescission of the contract

Question 31

Damages in contract cases are usually assessed by a (1) and are usually (2) for the plaintiff to recover what he would have gained had the contract been executed. Damages have to be proven to have been (3).

Answer 31

1. jury
2. compensatory
3. reasonably foreseeable

Question 32

Three other types of damages, besides compensatory, that may be awarded.

Answer 32

1. nominal (breach did occur but no damages)
2. liquidated (specified in contract how damages are calculated, such as how much per day if a construction project is late)
3. punitive (when related to torts only!)

Question 33

3 cases where a court may order rescission (cancellation) of contract

Answer 33

1. party was fraudulently induced to enter contract
2. void contract
3. party unable to perform

Question 34

Courts often require specific performance where a contract is breached to sell a (1), including (2). Usually it is not used for making a person render personal service, because this could be seen as (3).

Answer 34

1. unique item
2. real estate
3. involuntary servitude.

Question 35

The purpose of the Uniform Commercial Code is (1). It has been a boon to (2), especially between merchants. Contracts deal mostly with article (3) and (4),

Answer 35

1. uniform laws for the sales of goods
2. interstate commerce`
3. 2 (sales)
4. 9 (secured transactions)

Question 36

3 main parts of the sales article of the UCC are:

Answer 36

1. acceptance of offer even if acceptance proposes changes
2. implied warranty of merchantability (goods are fit for ordinary use)
3. implied warranty of fitness of goods (for buyer’s particular purpose)

Question 37

(1) are substitutes for money in commercial transactions where more than two persons are involved.

Answer 37

1. commercial papers

Question 38

4 standards to make a person a holder in due course of negotiable legal instrument (such as with commercial papers)

Answer 38

1. takes for value
2. in good faith
3. without knowledge it has been dishonored or is overdue
4. without knowledge there is any defense against or claim to it by any other person

Question 39

2 main standards of negotiable legal instruments

Answer 39

1. unconditional order or promise in writing to pay

2. payable on demand or at a fixed/determinable time

Question 40

A check is a legal instrument where the bank customer (1) orders the bank (2) to pay the (3) of the check a certain amount.

Answer 40

1. drawer
2. drawee
3. payee

Question 41

A promissory note is a legal document whereby the (1) promises to pay the (2) a sum of money either (3) or (4).

Answer 41

1. maker
2. payee
3. on demand
4. at a certain time

Question 42

A draft is a (1) requesting payment of a certain sum to a (2).

Answer 42

1. written order

2. third person

Question 43

2 ways banking has been modified

Answer 43

1. Electronic Fund Transfer Act

2. Check Clearing for the 21st Century

Question 44

A security agreement is a (1) that grants a creditor a security interest in (2) pledged by a borrower, and it is perfected by filing a (3) giving public notice of the security holder’s interest.

Answer 44

1. contract
2. collateral (security)
3. financing statement

Question 45

4 most common types of business associations

Answer 45

1. sole proprietorships
2. partnerships
3. corporations
4. limited liability companies

Question 46

In a sole proprietorship, the owner has (1), enjoys (2) and suffers (3). These are not (4) from the owner. The owner is also responsible for all (5) and (6). If he operates under a name different from his own, he may have to file under (7).

Answer 46

1. control
2. profits
3. losses
4. separately taxed
5. contracts
6. torts
7. fictitious name laws

Question 47

A general partnership is two or more people who combine (1), (2) and (3) to carry on a business. Each partner is liable for (4), and each is (5) and (6) liable for contract and tort. They file (7) federal tax returns but report profits and losses in (8).

Answer 47

1. money
2. property
3. skills
4. debts
5. individually
6. jointly
7. informational
8. personal tax returns

Question 48

In a limited partnership,a partner can limit his (1) to his (2).

Answer 48

1. liability to debts

2. investment

Question 49

A corporation is considered a (1) under the 14th Amendment and so has a legal existence separate from its (2). The corporate charter grants the corporation (3), provides for sharing of (4) and selection of (5). (6) allows voting for directors; (7) gives priority to receive dividends and to receive assets at dissolution. A small corporation with fewer stockholders is a (8).

Answer 49

1. person
2. stockholders
3. certain powers
4. stock
5. officers and directors
6. common stock
7. preferred stock
8. closely held corporations

Question 50

5 advantages to a corporation

Answer 50

1. limited liability (stockholders are not liable for debts or legal action)
2. aggregation of capital
3. perpetual existence (beyond death of owners)
4. transferability of ownership (through stock exchange)
5. continuity of management (officers, directors)

Question 51

To become a corporation, (1) are submitted and the executive department issues a (2) which contains information and rules about the business. A lawful corporation is (3); a corporation is domestic in the state it is (4); in others it is (5) and may be subject to additional requirements. A fraudulent corporation which has stockholders by no assets or employees is called a (6) and courts may hold stockholders personally liable. Attacking these is called (7)

Answer 51

1. articles of incorporation
2. certificate of incorporation
3. de jure
4. incorporated
5. foreign
6. shell corporation
7. piecing the corporate veil

Question 52

Powers listed in article of incorporation are (1); (2) are what are reasonably necessary to carry these out. A corporation acting beyond its powers commits (3).

Answer 52

1. express powers
2. implied powers
3. ultra vires act

Question 53

Directors and officers have a duty to to avoid (1). Stockholders may inspect (2) and may vote for (3) and for (4).

Answer 53

1. conflicts of interest
2. books and records
3. directors
4. major actions (mergers, consolidations)

Question 54

Corporations whose shares are widely held by the general public are (1). Blue sky laws are state laws requiring (2) to make certain (3) and penalize use of (4).

Answer 54

1. publicly traded corporations
2. issuers of securities
3. disclosures
4. insider information

Question 55

A modern form of business is the (1), which has characteristics of a partnership and corporation. It is created under (2) and is controlled by an (3). Both members are liable for (4) but one may be insulated from (5) of the other.

Answer 55

1. limited liability company
2. state law
3. operating agreement
4. debts/obligations
5. actions (negligence, etc)

Question 56

The (1) placed limits on monopolistic practices to avoid concentration of power in few corporations. Other modern regulation of corporations include (2) and (3).

Answer 56

1. Sherman Antitrust Act (1890)
2. right to strike/collectively bargain
3. Civil Rights Act of 1964

Question 57

Lecture: The key term of a contract is (1), which does not have to mean (2). Almost all (3) deal with contracts.

Answer 57

1. enforceable
2. written (though oral is a matter of proof)
3. areas of law

Question 58

Lecture: The three requirements of a contract.1

Answer 58

1. offer
2. acceptance
3. consideration

Question 59

Lecture: The offer and acceptance requirements of the contract make up (1). An offer is a (2) of a (3) to enter into a (4) which justifies another person in understanding that his or her assent can (5). Sometimes this is more than just words–it can include (6).

Answer 59

1. mutual agreement (mutual assent)
2. manifestation
3. willingness
4. bargain (agreement)
5. conclude the bargain
6. actions

Question 60

Lecture: Acceptance is a (1) of (2) to the (3) made by the offeror in a manner (4) or (5) by the offeror.

Answer 60

1. manifestation
2. assent
3. terms
4. invited
5. required

Question 61

Lecture:The offeror of a contract is the (1) because he sets (2) and (3).

Answer 61

1. master
2. conditions
3. how offer can be accepted

Question 62

Lecture: A contract is generally not enforceable if not supported by (1). This is usually some kind of detriment, in which each person (2), (3), or (4). It can also be described as (5) or (6).

Answer 62

1. consideration
2. suffers something
3. gives up something
4. refrains from doing something
5. “bargain for exchange”
6. “give and take”

Question 63

Lecture: Courts often uphold contracts, finding (1) even where it doesn’t exist. Courts do not look into (2). An act already performed cannot be part of a contract–this is (3). The person must also have to (4) before accepting and acting, to, for example, cash in an award. (5) also prevent additions to contracts with no added benefits from being considered consideration.

Answer 63

1. consideration
2. adequacy of consideration
3. past consideration
4. know of an offer
5. pre-existing duties (house-building example)

Question 64

Lecture: If consideration lacks, it is a (1). But if one person acts in reliance on a promise, the contract will be (2) by (3).

Answer 64

1. gift
2. enforced
3. promissory estoppel

Question 65

Lecture:Contracts can be (1) or (2), and (3) or (4).

Answer 65

1. express (written properly)
2. implied (sitting in a chair for a haircut)
3. bilateral (promise for a promise)
4. unilateral (promise for an act)

Question 66

Lecture:Unilateral failures are not (1) and unilateral contracts can be (2) at any time before the act. Because bilateral contracts include a (3) and the other may rely on it, this is breach.

Answer 66

1. breach
2. withdrawn
3. promise

Question 67

Lecture:A void contract has no (1), as if it (2). This includes (3) and (4).

Answer 67

1. legal effect
2. never existed
3. gambling contracts
4. extra marriages

Question 68

Lecture: In a (1), one party may choose to enforce or not to enforce a contract. This includes (2) and (3)–the latter of which may be (4) when the person is legal.

Answer 68

1, voidable

2. drunk marriage
3. sale to minors
4. disaffirmed

Question 69

Lecture:6 contracts that must be in writing according to statutes of frauds

Answer 69

MYLEGS

1. Marriage (eg prenup)
2. Year - date of contract to action is longer than a year
3. Land - offers to sell, easements, leases over a year
4. Estate debts of another - funeral costs, etc.
5. Goods over $500 - contracts with same seller are aggregated
6. suretyships

Question 70

Lecture:In (1), each person is liable for a debt if the other doesn’t pay. (2) say that you must have exhausted all efforts to get the other person to pay before going after the co-signer. This is also called (3).

Answer 70

1. co-signing
2. suretyships
3. jointly liable, severally payable

Question 71

Lecture: Once a contract is (1), or embodied in a written agreement, a contract cannot be considered (2) because of something said (3). This is called the (4)

Answer 71

1. integrated
2. breached
3. prior
4. parol evidence rule

Question 72

Lecture: Assignment is transfer of (1) or (2) and can be done in almost any situation. (3), (4) and (5) are exceptions.

Answer 72

1. property
2. rights
3. booking of singers (irreplaceable professionals)
4. personal service (sending a new employee to another employer)
5. wages

Question 73

Lecture: A breach is the (1) without (2) to perform any (3) of a contract. The breach creates a (4) for (5).

Answer 73

1. failure
2. legal excuse
3. promises
4. cause of action
5. damages

Question 74

Lecture: Delegation is transfer of (1) and (2) and is generally ok, but the (3) is responsible. Again, a (4) may not delegate that duty.

Answer 74

1. obligations
2. duties
3. delegator
4. singer

Question 75

Lecture: 4 legal remedies for breach of contract

Answer 75

1. compensatory/expectation - put person in position that would have been in had contract been carried out
2. reliance - as if contract had never been made (when compensatory are too speculative)(pay back what non-breaching party paid on their end)
3. nominal (affirms breach, but no damges)
4. punitive - NOT in contract–torts ONLY

Question 76

Lecture: 3 equitable remedies for breach of contract

Answer 76

1. specific performance (perform contract)
2. injunction
3. mandatory injunction (prevent singer making money off other contract)

Question 77

Lecture: THe Uniform Commercial code is the (1) and exists because of (2). It asks the question of whose (3) in the case of a (4). It is (5) adopted from a model.

Answer 77

1. law of sales
2. interstate commerce
3. law applies
4. breach
5. state law

Question 78

Lecture: The two articles the UCC refers to for contracts is (1) and (2).

Answer 78

1. 2 - sales

2. 9 - secured transactions

Question 79

Lecture: 6 things sole proprietorships mean for the owner

Answer 79

1. pay expenses
2. pay taxes on money made
3. no separate identity from business
4. no shares
5. EIN number - “social security”
6. registration of fictitious name

Question 80

Lecture: 4 things partnerships mean for owners

Answer 80

1. each has own skills
2. liable for action of partner
3. income tax paid separately by partners
4. limited partnership - liability limited to investment