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Business Law I > Quiz 4 > Flashcards

Quiz 4 Flashcards

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1
Q

Voidable

A

When a contract is voidable, the injured party may choose to terminate it
(Problems with capacity and consent)
can be canceled by a party who lacks legal capacity or who did not give true consent

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2
Q

Capacity

A

the legal ability to enter into a contract

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3
Q

Because a minor lacks legal capacity…

A

she normally can create only a voidable contract

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4
Q

Disaffirm

A

To give notice of refusal to be bound by an agreement
(A minor who wishes to escape from a contract generally may)

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5
Q

Rescind

A

To cancel a contract

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6
Q

A minor who disaffirms a contract…

A

return the consideration he has received, to the extent he is able

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7
Q

Restitution

A

Restoring an injured party to its original position

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8
Q

A minor may disaffirm a contract any time before she reaches age…

A

18

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9
Q

Ratification

A

Words or actions indicating an intention to be bound by a contract

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10
Q

On a contract for necessaries, a minor must pay for…

A

the value of the benefit received
(Exception: Misrepresentation of Age)

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11
Q

A person suffers from a mental impairment if…

A

by reason of mental illness or defect, he is unable to understand the nature and consequences of the transaction

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12
Q

A party suffering a mental impairment usually creates only a…

A

voidable contract

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13
Q

The law creates an exception: If a person has been adjudicated incompetent, then…

A

all of his future agreements are void

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14
Q

When one party is so intoxicated that he cannot understand the nature and consequences of the transaction…

A

the contract is voidable

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15
Q

A mentally infirm party who seeks to void a contract must make

A

restitution

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16
Q

An injured person must show the following:

A
  1. The defendant knew that his statement was false, or that he made the statement recklessly and without knowledge of whether it was false;
  2. The false statement was material; and
  3. The injured party justifiably relied on the statement.
    (fraud!)
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17
Q

What does not amount to fraud

A

Opinions and “puffery”
(An opinion is not a statement of fact, A statement is puffery when a reasonable person would realize that it is a sales pitch, representing the exaggerated opinion of the seller. Puffery is not a statement of fact. Because puffery is not factual, it is never a basis for rescission)

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18
Q

For fraud, the injured party must show

A

grounds for rescinding a contract
Intentional or Reckless Misrepresentation of Fact
Materiality
Justifiable Reliance

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19
Q

In the case of fraud, the injured party generally has a choice of

A

rescinding the contract or suing for damages or, in some cases, doing both
(UCC §2–721 permits a party to rescind a contract and then sue for damages when fraud is committed)

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20
Q

Nondisclosure of a fact amounts to misrepresentation in these four cases:

A

where disclosure is necessary to correct a previous assertion,

where disclosure would correct a basic mistaken assumption that the other party is relying on,

where disclosure would correct the other party’s mistaken understanding about a writing, or

where there is a relationship of trust between the two parties.

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21
Q

A seller generally must report

A

any latent defect he knows about that the buyer should not be expected to discover himself

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22
Q

When one party naturally expects openness and honesty, based on a close relationship…

A

the other party must act accordingly

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23
Q

Unilateral mistake

A

Occurs when only one party enters a contract under a mistaken assumption
The injured party may rescind only upon a showing that the other party knew or had reason to know of the mistake, the mistake was solely mathematical or mechanical, or that enforcement would be unconscionable

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24
Q

To rescind for unilateral mistake, the mistaken party must demonstrate that he entered the contract because of a basic factual error and that:

A

The nonmistaken party knew or had reason to know of the error, or
The mistake is mathematical or mechanical alone, or
Enforcing the contract would be unconscionable.

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25
Q

If the nonmistaken party knows or has reason to know of the other party’s error…

A

courts will not allow him to profit by snapping it up

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26
Q

Mutual mistake

A

occurs when both contracting parties share the same mistake, if the contract is based on a fundamental factual error by both parties, the contract is voidable by either one

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27
Q

Duress

A

An improper threat made to force another party to enter into a contract
The victim had no reasonable alternative, the contract is voidable

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28
Q

In analyzing a claim of economic duress, courts look at these factors:

A

Acts that have no legitimate business purpose

Greatly unequal bargaining power

An unnaturally large gain for one party

Financial distress to one party

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29
Q

To prove undue influence, the injured party must demonstrate:

A

A relationship between the two parties either of trust or of domination and

Improper persuasion by the stronger party

30
Q

Innocent misinterpretation

A

Allows an injured party to rescind a contract, but it does not allow a plaintiff to sue for damages. It has the same elements as fraud, but it does not require intent or recklessness.

31
Q

Silence

A

Silence amounts to misrepresentation only in four instances:

When disclosure is necessary to correct a previous assertion,

When disclosure would correct a basic mistaken assumption on which the other party is relying,

When disclosure would correct the other party’s mistaken understanding about a writing, or

Where there is a relationship of trust between the two parties.

32
Q

Undue influence

A

Once again the injured party may rescind a contract, but only upon a showing of a special relationship of trust and improper persuasion.

33
Q

The Statute of Frauds requires certain agreements to be in writing to be enforceable. The agreements that must be in writing are those:

A

For the transfer of an interest in land,

That cannot be performed within one year,

In which a party promises to pay the debt of another,

Made by an executor of an estate to pay a debt of the estate,

Made in consideration of marriage, and

For the sale of goods of $500 or more.

34
Q

Once a contract is fully executed…

A

it makes no difference that it was unwritten

35
Q

If the seller completely performs her side of a contract for an interest in land…

A

a court is likely to enforce the agreement even if it was oral

36
Q

The buyer of land may be able to enforce an oral contract if…

A

she paid part of the purchase price and either entered upon the land or made improvements to it

37
Q

If a promisor makes an oral promise that should reasonably cause the promisee to rely on it, and the promisee does rely…

A

the promisee may be able to enforce the promise

38
Q

When one person agrees to pay the debt of another as a favor to that debtor, it is called

A

a collateral promise, and it must be in writing to be enforceable

39
Q

When the promisor guarantees to pay the debt of another and the leading object of the promise is some benefit to the promisor himself…

A

then the contract will be enforceable even if unwritten

40
Q

An executor’s promise to use her own funds to pay a debt of the deceased must

A

be in writing to be enforceable

41
Q

What must the writing be?

A

Be signed by the defendant; and
State with reasonable certainty the name of each party, the subject matter of the agreement, and all of the essential terms and promises.

42
Q

The UCC requires a writing for the sale of goods priced at

A

$500 or more (or else not enforceable)

43
Q

Within a reasonable time of making an oral contract, if a merchant sends a written confirmation to another, and if the confirmation is definite enough to bind the sender herself…

A

then the merchant who receives the confirmation will also be bound by it unless he objects in writing within ten days

44
Q

UCC §2-201(3)—Special Circumstances
An oral contract may be enforceable, even without a written memorandum, if:

A

The seller is specially manufacturing the goods for the buyer, or

The defendant admits in court proceedings that there was a contract, or

The goods have been delivered or they have been paid for.

45
Q

Integrated contract

A

A writing that the parties intend as the final, complete expression of their agreement

46
Q

The parol evidence rule:

A

When two parties make an integrated contract, neither one may use parol evidence to contradict, vary, or add to its terms.

47
Q

If a court determines that a written contract is incomplete or ambiguous, it will permit…

A

Parol evidence

48
Q

A court will permit parol evidence of

A

fraud, misrepresentation, or duress

49
Q

UNIFORM COMMERCIAL CODE (UCC) A contract or memorandum for the sale of goods may be less complete than those required by the common law.

A

The basic UCC rule requires only a memorandum signed by the defendant, indicating that the parties reached an agreement and specifying the quantity of goods.

Between merchants, even less is required. If one merchant sends written confirmation of a contract, the merchant who receives the document must object within ten days or be bound by the writing.

In the following special circumstances, no writing may be required: the goods are specially manufactured, one party admits in litigation that there was a contract, or one party pays for part of the goods or delivers some of the goods.

50
Q

A third party beneficiary

A

someone who was not a party to the contract but stands to benefit from it

51
Q

Intended beneficiary

A

Someone who may enforce a contract made between two other parties if either
- enforcing the promise will satisfy a duty of the promisee to the beneficiary or
- the promisee intended to make a gift to the beneficiary.

52
Q

Promisor

A

Makes the promise that a third party seeks to enforce

53
Q

Promisee

A

The contract party to whom a promise is made

54
Q

Incidental beneficiary

A

Someone who might have benefited from a contract between two others but has no right to enforce that agreement

55
Q

Assignment

A

Transferring contract rights

56
Q

Delegation

A

Transferring contract duties

57
Q

Obligor

A

The party is obligated to do something

58
Q

Any contractual right may be assigned unless the assignment:

A

Would substantially change the obligor’s rights or duties under the contract,

Is forbidden by law or public policy, or

Is validly precluded by the contract itself.

59
Q

An assignment for consideration is

A

irrevocable

60
Q

Gratuitous assignment

A

One made as a gift, for no consideration
generally revocable if it is oral and generally irrevocable if it is written

61
Q

Once the assignment is made and the obligor notified…

A

the assignee may enforce her contractual rights against the obligor

62
Q

The obligor may generally raise all defenses against the assignee that…

A

she could have raised against the assignor

63
Q

Security interests

A

Rights in personal property that assure payment or the performance of some obligation

64
Q

Under UCC §9-404, the obligor on a sales contract may generally assert

A

any defenses against the assignee that arise from the contract, and any other defenses that arose before notice of assignment

65
Q

Under UCC §9-403, an agreement by a buyer (or lessee) that he will not assert against an assignee any claim or defense that he may have against the seller (or lessor) is generally…

A

enforceable by the assignee if he took the assignment in good faith, for value, without notice of the potential defenses

66
Q

Most duties are delegable. But delegation does not by itself…

A

relieve the delegator of his own liability to perform the contract

67
Q

Novation

A

A three-way agreement in which the obligor transfers all rights and duties to a third party

68
Q

Enforcement

A

Once the assignment is made and the obligor notified, the assignee may enforce her contractual rights against the obligor. The obligor, in turn, may generally raise all defenses against the assignee that she could have raised against the assignor.

69
Q

THE UCC AND SECURITY INTERESTS

A

Article 9 of the UCC governs security interests, which are the legal rights to personal property that assure payment of a debt. Under Article 9, obligors may assert defenses against assignees that arise from contracts, and agreements not to enforce such defenses are generally valid.

70
Q

Duties delegable

A

Duties are delegable unless delegation would violate public policy, the contract prohibits delegation, or the obligee has a substantial interest in personal performance by the obligor.

71
Q

Discharge

A

Unless the obligee agrees otherwise, delegation does not discharge the delegator’s duty to perform.

Business Law I (6 decks)

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