Part 2: Business Law Flashcards
Bilateral Contract
A promise for a promise
Unilateral Contract
A promise for an act
“I promise to give you $15 if you mow the lawn” the acceptance of the agreement is the performance of the act
Void Contract
Not enforceable against either party i.e. not a legal contract
Voidable Contract
A legal contract wherein one or both of the parties has the right to disaffirm or rescind the contract
Consideration
Anything of legal value promised to another party when making a contract; must be mutually bargained
Parol Evidence Rule
Evidence (oral or written) developed PRIOR to or during the writing of a contract that contradicts the written contract is INADMISSIBLE in court
Subsequent agreements (oral or written) are admissible
Material Breach
A material breach by one side of a contract releases the other side from performing; the nonbreaching party did not receive the “substantial performance” of the bargain
Anticipatory Breach
Occurs when one party, before the time of performance, indicate they will not perform
Mutual Rescission
BOTH parties agree to release each other from further obligations under the existing contract
Novation
The parties agree to replace an obligation to perform with a new obligation, add an obligation to perform, or replace a party in the contract with a new party
- Will release the original debtor from the liability
- Rights under the old contract will be terminated
~Substitution
Accord and Satisfaction
The contracting parties agree to change a contract where some different performance will replace the original performance
-Discharges the contractual obligation
Anticipatory Repudiation
When either the buyer or seller states they will not perform prior to the performance time
A contract for $500 or more MUST contain
Writing specifying a quantity; does NOT have to include price
Exception - No writing to specify quantity IF
- Seller has specially manufactured goods for the buyer
- Partial or full payment of goods OR receipt of goods
- Party admits in court that the contract was made
- Merchants confirming letter: between merchants if there is no objection in 10 days to the writing confirming an oral contract; both of the merchants are bound
If a BUYER breaches, the seller can
Sue for all the damages they suffer as a result
If a SELLER breaches, the buyer can
- Reject all non-conforming goods,
- Accept goods and sue the seller for all costs they incur to correct the goods, OR
- Ask for specific performance
Secured Transaction
Debt secured with collateral: goods, financial instruments, or intangibles (accounts receivable)
Attachment
Creditor’s security interest that is valid and enforceable against the debtor
What are the three requirements for attachment?
- MUST be a security agreement (oral or written) between the debtor and the secured party
- The secured party must give value
- The debtor must have rights in the collateral
*“RAV”
R: Rights
A: Agreement
V: Value
If you “rav” about someone, you are attached
Perfection
Method by which the creditor ensures the security interest is valid against most subsequent third parties
What are the three methods of perfection?
- Attachment alone - PMSI in consumer goods is perfected by attachment alone
- Possession - Common law/UCC filing is not required if the creditor has possession
- Filing a Financing Statement - Gives public notice to third parties of creditors’ security interests in collateral
*“PAF”
P: Possession
A: Attachment alone (PMSI)
F: Financing Statement
Actual authority
The principal conveys to the agent the right and power to act on the principal’s behalf with third parties.
May be expressed or implied.
Express authority
Principal expressly tells the agent that they have authority
Implied authority
The agent’s authority is inferred from the principal’s conduct (i.e. agent has implied authority to do what is needed to accomplish assigned tasks)
Apparent Authority or Agency by Estoppel
The principal gives the appearance to third parties that an agent is authorized
What is the liability of an agent when the principal is
A. Disclosed
B. Partially disclosed
C. Undisclosed
A. Principal disclosed - Agent not liable
B. Principal partially disclosed - Agent liable; once the principal’s identity is discovered, the third party could also sue the principal but cannot recover from both
C. Principal undisclosed - Agent liable
A principal is liable on a contract if the agent
- Had actual (express or implied) authority
- Had apparent authority
- Did not have authority but the act was later ratified by the principal
Doctrine of Respondeat Superior
A principal is liable for all torts committed by an agent, if the agent was acting within the scope of the agency
Promissory Estoppel
Equitable legal doctrine applied to contracts designed to prevent injury to a party from reliance on a promise made - consideration is not necessary
Ex: An individual promises a charity $100,000 to repair a roof. The charity repairs the roof but the individual changes their mind and does not give the money.
Fraud in the inducement
A false representation of material fact, intentionally made, justifiable relied upon, and results in injury
*MIRR M: Material fact I: Intentional R: Relied upon R: Resulting injury
Chapter 7 Voluntary Bankruptcy
The debtor voluntarily files for liquidation
- Trustee appointed
- Automatic order of relief when filed
Chapter 7 Involuntary Bankruptcy
Creditors file to force a liquidation
- If 12 or more creditors: 3 or more creditors must file and their unsecured claims are at least $16,750
- If less than 12 creditors: 1 or more need to file and their unsecured claims are at least $16,750
-Trustee appointed
Chapter 9 Bankruptcy
- Only available to municipalities
- Must be voluntary
- NO trustee appointed
Chapter 11 Bankruptcy
Restructures the debtor’s debts so they may continue to operate the business; no liquidation occurs
-Trustee may or may not be appointed
Chapter 13 Bankruptcy
Applies only to an individual with regular income who owes unsecured debts of less than $419,375 and secured debts of less than $1,257,850
Preferential Transfer
Transfers that benefit one creditor over another creditor
- Payment of antecedent debt within 90 days BEFORE filing
- Payment made when debtor was insolvent
Suretyship
Surety promise to be responsible and equally liable for the debt
-Creditors can demand payment from the surety and need NOT to collect from the debtor first
Subrogation
Surety remedy - Once a surety pays the creditor in FULL, they get all of the creditor’s rights
Exoneration
The right of a surety to get a court order that the debtor pay prior to default
Surety
Promise to do the same thing the debtor promises
-Surety is primarily liable
“I will pay if the debtor does not”
Guarantor
Promise to perform if the debtor cannot perform
-Guarantor is secondarily liable
“I will pay if the debtor cannot pay”
Cosuretors
Two or more sureties of the same debt even if unaware of each other
Jointly and severally liable to the creditor
Writ of Attachment
Places a lien on the debtor’s property so the property will be available to satisfy a judgement
Writ of Execution
Issued by a court to a creditor upon obtaining judgement, served by a sheriff on the debtor demanding payment of the judgement
Also includes a sheriff taking possession of property owned by a debtor
Garnishment
Court order permitting the creditor to collect money from a debtor’s wages or bank accounts
Fair Debt Collection Practices Act
Makes illegal abusive, deceptive, and unfair debt collection by collection agencies (only covers collection agencies, not the original creditor)
Under the UCC, if a debtor is in default under a payment obligation secured by goods, the secured party has the right to
- Peacefully repossess the goods without judicial process
- Reduce the claim to a judgment
- Sell the goods and apply the proceeds toward the debt
To file a voluntary petition for bankruptcy under Chapter 7, the debtor
- Need NOT be insolvent
- Needs only to show that they have debts
- Does NOT have to have a specific amount of creditors or total debt
What four elements MUST be present to form a contract?
- Agreement
- Consideration
- Competent parties
- Legal purpose
“ACCL”
