R5, M3-M6 Flashcards
What three criteria need to be met to have a merchant’s firm offer?
- seller is a merchant
- offer must be in writing and signed by the merchant, and
- offer gives assurance that it will be kept open for a certain time
What is different about a merchant’s firm offer as compared to the common law?
No consideration is required to keep the offer open. In a firm offer, the offer is irrevocable for the time period stated.
How long does an offer stay open in a firm offer? What is the maximum?
time stated or reasonable time, but not more than 3 months
If the acceptance has minor changes in the UCC, what governs the contract, the original offer or the acceptance?
the original offer
If the acceptance has minor changes in the UCC, what governs the contract, the original offer or the acceptance (if the contract is between merchants)?
the terms of acceptance control, unless the changes are material
If there is a unilateral contract, a shipment of nonconforming goods is both a … and a …
an acceptance and a breach of contract
If there is a unilateral contract, a shipment of nonconforming goods with a more that the goods are shipped only as an accommodation, this is a …
counterfoffer
In a bilateral contract, a shipment of nonconforming goods is a …
breach of contract.
In a bilateral contract, a shipment of nonconforming goods with a note is a …
breach of contract still.
In an auction, the bid (raising your number) is the ___. The fall of the hammer is the ___.
offer, acceptance
What is an auction with reserve?
Seller does not have to sell unless an adequate bid is made.
What is an auction without reserve?
Seller must sell goods to the highest bidder.
Can a sales contract be paid using check? What if the sller demands cash?
Check is acceptable, but if the seller demands cash they need to give the buyer sufficient time to obtain the cash.
If there is fraud in a UCC case, the defrauded party can get what damages?
rescind contract AND money damages
What is the statue of limitations for the UCC?
four years
What acronym tells you the four exceptions to the statute of frauds requirement for a contract in writing?
SWAP
What does the S stand for in SWAP (Statute of Frauds Exceptions)?
specially manufactured goods
What does the W stand for in SWAP (Statute of Frauds Exceptions)?
written confirmation of a contract that is sufficient to bind the sender
A written confirmation will bind the recipient if they do not object within __ days.
10
What does the A stand for in SWAP (Statute of Frauds Exceptions)?
admitted to the K in court
What does the P stand for in SWAP (Statute of Frauds Exceptions)?
performed contracts, to the extent they have been accepted
What are the two exceptions to needing the quantity term in a UCC contract?
- requirements contract: seller agrees to supply all the buyer’s needs for a period of time
- output contract: sell everything the seller makes over a period of time
Under common law, an event that makes the contract _____ to perform to discharged. Under the UCC, the contract can be discharged for ___ ______.
Common: impossible
UCC: mere impracticability
What does impracticable mean?
extremely more burdensome than anticipated due to an unforeseen event
If the method of transportation is unavailable or commercially unreasonable, can the seller avoid the contract?
No, they can use another means of transportation.
What is the seller’s basic duty (related to risk of loss and title)?
- hold conforming goods for the buyer, and
- give buyer reasonable notice to take delivery
What is the first step always for risk of loss to pass?
goods must be identified (segregated for the buyer)
If parties agree to when risk of loss and title passes, what governs - the agreement or the rules of the UCC?
the agreement; The UCC rules are uesed when there is no agreement.
When there is no agreement on when risk of loss passes, what two types of cases does the UCC divide into? Which of these is the default?
- noncarrier cases (default)
- carrier cases
What does a seller’s tender of delivery of goods to a buyer mean in simple words?
Seller says: “You can come take these goods now.”
In a non-carrier case, when does risk of loss pass if a seller is not a merchant?
seller tenders delivery of goods to the buyer (you can take these now)
In a non-carrier case, when does risk of loss pass if a seller is a merchant?
when the seller actually delivers goods to the buyer (buyer takes physical possession)
FOB seller’s city is the same as FOB (shipping point/destination).
shipping point
FOB buyer’s city is the same as FOB (shipping point/destination).
destination
If a seller ships non-conforming goods, when does risk of loss pass?
risk of loss remains on the seller regardless of the shipping terms, unless the buyer accepts the defective goods
In any case, always remember that the non-breaching party always has …
all the options
What are the two types of non-final sales?
- sale on approval
- sale on return
What is a sale on approval?
the buyer has the right to return within X number of days (trial period)
For a sales on approval, the title and risk of loss belong to the (buyer/seller) during the trial period.
seller
If the buyer approves of the goods in a sale on approval, does the title and risk of loss pass to the buyer?
Yes, upon approval.
A sale on return is also called a …
sale on consignment.
For a sales on approval, the title and risk of loss belong to the (buyer/seller). When can this shift?
buyer; If the buyer returns goods, they can go back to the seller.
If there is no agreement as to when title passes, when does title pass.
when the seller completes delivery requirements (if any)
If the buyer rejects the goods received, who does the title belong to? What if the buyer rejects the goods wrongfully?
it reverts to the seller, regardless of whether rejected rightfully or wrongfully
What is an express warranty?
an explicit (oral or written) statement made before the sale to induce the buyer to purchase the goods
Does a sample or model shown by the seller constitute an express warranty?
Yes.
Does a statement of value or an opinion constitute an express warranty?
No, because it must be a statement of fact.
What does it mean for an express warranty to be part of the basis of the bargain?
made before the sale to induce the buyer to purchase the goods (played a role in their decision)
Express warranties are only made (before/after) the sale.
before
How can an express warranty be disclaimed?
It cannot be disclaimed.
What is the implied warranty of title?
seller has good title and the right to transfer title
If the seller is a merchant, the implied warranty of title further promises that the goods …
do not infringe on any patent or trademark
What are the only two ways to disclaim implied warranty of title?
- specific language, or
- circumstances that indicate the seller is not guaranteeing title (ex: judicial sale, auction)
Can a general disclaimer disclaim title (“as is”, “with all faults”)?
No, you have to say “I do not warrant title.”
What is the implied warranty of merchantability?
goods are fit for ordinary purposes
The implied warranty of merchantability only applies in sales by _____.
merchants
Can a general disclaimer disclaim merchantability (“as is”, “with all faults”)?
Yes.
Can an oral disclaimer disclaim merchantability (“as is”, “with all faults”)?
Yes.
When does the implied warranty of fitness for a particular purpose come about?
buyer relies on the seller to select goods suitable for the buyer’s purpose
What is anticipatory repudiation?
before performance, a buyer or seller says they will not perform
What options are available to the non-breaching party when the other party anticipatorily repudiates the contract?
- sue today (immediately)
- sue later if they do not perform
- cancel the contract
- demand assurances
The repudiating party can withdraw their repudiation before the other party does what?
file a lawsuit
What does it mean to demand assurances?
If you think the other pary will not perform, ask for a written assurance that they will perform.
If you demand assurance from the other, what happens if the other party does not respond in a reasonable time?
This is treated like an anticipatory repudiation.
When can the seller sue the buyer for the entire contract price (plus damages) (2 OR)?
- if goods cannot be resold (specially manufactured),
- if risk of loss had already passed to the buyer
Even if there is no liquidated damages clause in a UCC contract, the seller can keep what amount if the buyer made a down payment?
- $500, or
- 20% of the sales price
If a buyer accepts nonconforming goods, can they still sue the seller?
Yes, for the differnece in the value only.
What is replevin?
the right to recover goods wrongfully in the hands of the seller
When can replevin be used (2 AND)?
- goods are identified, and
- buyer cannot reasonably cover (buy similar goods)
If a buyer has paid for part or all of the price of the goods and the seller becomes insolvent, when can the buyer recover the goods from the seller?
if the goods are insolvent
If your goods get stolen and then sold to a third party can you get your things back?
Yes.
If your goods are entrusted to a merchant who then sells the goods to an innocent third party in the ordinary course of business, can you get your things back?
Not unless it is a family heirloom.
Is writing required to create an agency relationship?
No.
Is consideration required to create an agency relationship?
No.
To form an agency relationship, the principal must be (competent/consenting/both). The agent must be (competent/consenting/both).
Prinicpal: competent (having capacity) and consenting
Agent: consenting only
Agency agreements only need to be in writing in what two situations from MYLEGS?
“YL”
Year (agency cannot be completed in one year)
Land (real estate transactions to buy or sell interests in land)
Does an agency agreement to find a buyer (but not sell to them) need to be in writing?
No.
What is a power of attorney?
a written agency agreemenet
Who needs to sign the power of attorney?
only the principal is required to
Is the power of attorney all-encompassing or limited to certain transactions?
usually limited
Does the agent in a power of attorney agreement need to be a lawyer?
No.
What acronym helps you remember the key fiduciary duties of an agent?
LORA
What do each of the letters in LORA stand for (fiduciary duties of agent)?
Loyalty
Obedience
Reasonable Care
Accounting
When is the duty of loyalty breached?
self-dealing, competing with the principal, taking kickbacks
Kickbacks received from a third party to an agent should be held in a ___ ____ and returned to the ___.
constructive trust, principal
T/F: The agent must obey all directions from the principal.
False, they only need to obey all reasonable directions.
What two things are involved in the duty to account?
- keep track of money in and out
- do not commingle funds
Can an agent hire other employees to help them out?
Yes, these assistants are referred to as subagents.
What duties does a subagent have and to whom?
duty of care to the agent and the principal
Can a principal sue an agent for breach of contract if the agent is not receiving compensation?
No
Can a principal sue an agent for breach of contract if the agent is receiving compensation?
Yes.
Can a principal sue an agent for tort damages if the agent is not receiving compensation?
Yes.
Can a principal sue an agent for tort damages if the agent is receiving compensation?
Yes.
What remedy does the principal have if an agent committed an intentional tort?
withhold compensation (refuse to pay the agent)
What two duties does the principal have to the agent?
- compensation (unless the agent agress to act for free)
- indemnification/reimbursement
The principal and agent have the (right/power) to terminate their agreement, but not necessarily the (right/power).
power, right
What is an agency coupled with an interest (use an example to explain)?
Agent is the principal’s creditor, and they were given the ability to take the principal’s property and sell it as their agent.
Who can terminate an agency coupled with an interest?
the agent only, not the principal
T/F: Death, incapacity, or bankruptcy of the principal will end an agency coupled with an interest.
False, these will not end the agency.
With actual authority, the agent has the (power/right/both/neither) to bind the principal.
both the power and the right
With apparent authority, the agent has the (power/right/both/neither) to bind the principal.
the power but not the right
With ratification, the agent has the (power/right/both/neither) to bind the principal.
neither the pwoer or right
What is the definition of actual authority?
authority the agent reasonably believes they have based on the principal’s communication to the agent
What implied authority does a business manager have?
- run the business
- hire and fire employees
- purchase inventory
- pay business debts
What implied authority does a business manager NOT have?
- sell or mortgage business fixtures
- borrow money on the principal’s bealf
What are the three ways to terminate actual authority?
- act of the parties (agent quits or gets fired)
- accomplishment of the objective, or expiration of stated period
- by operation of law
Do third parties need to be notified when the agency relationship is terminated by law?
No.
What acronym tells you the ways that actual and apparent authority can be terminated by operation of law?
BID LID
What do each of the letters in BID LID stand for (termination by operation of law)?
B - Bankruptcy of the principal (only P)
I - Incapacity of the principal (only P)
D - Death of either the principal or agent
L - Failure of agent to acquire necessary License
I - Subsequent Illegallity
D - Destruction of subject matter of agency
The death of a principal does not terminate the agency until the agent has …
notice of the principal’s death
What is apparent authority?
principal’s conduct caused third parties to reasonably believe that the agent had authority
Apparent authority requires one of two things by the principal:
- negligent inaction (not saying something), or
- a holding out (saying something that causes them to reasonably believe the agent had authority)
Can the principal still recover from a contract made with apparent authority? Who will they recover from?
Yes, but they will recover from the agent, not the third party.
If an agent had actual authority, can the principal recover damages from the agent?
No.
How do you typically destroy apparent authority?
by giving notice to the third parties
Secret instructions to the agent limit the (actual/apparent) authority, but not the (actual/apparent) authority.
actual, apparent
Who has a broader apparent authority, a general agent or a special agent?
General
How do you give notice sufficient to destroy apparent authority to old and current customers?
giving actual oral/written notice
How do you give notice sufficient to destroy apparent authority to potential customers?
constructive notice (advertisement in news)
When does estoppel to deny existence of agency come into play?
- you intentionally or carelessly cause a third party to believe someone is your agent, and
- they detrimentally and justifiably rely on that belief, so
- you cannot deny that they aren’t your agent
What does ratification allow a principal to do?
become bound by previously unauthorized acts of the principal
What are some requirements of ratification?
- agent indicated that …
- … is disclosed to principal
Agent indicated that they were acting on behalf of a principal.
All material facts disclosed to the principal.
Do you need to notify the third party that you are ratifying the contract, as the principal?
No.
T/F: The principal must ratify the entire transaction.
True, there can be no partial ratification.
Can an undisclosed principal ratify a contract?
No, because the requirement that the agent made it clear they were acting on behalf of the principal is not met.
If the existence and identity of the principal is disclosed to the third party, can the third party hold the agent liable for the contract?
No, they must go after the principal.
What is an unidentified versus undisclosed principal?
Unidentified: 3rd party knows that agent is acting on behalf of a P, but does not know who the P is
Undisclosed: 3rd party does not know that agent is acting on behalf of a P
An agent is always liable to a third party for damages if they do what?
lie to the third party
If the existence and/or identity of the principal is NOT disclosed to the third party, can the third party hold the agent liable for the contract?
Yes, the 3rd party can hold either the agent or principal liable.
Can an agent sue a third party for breach of the contract?
No, the principal has to sue.
What is the general rule for whether a principal is liable for torts committed by their agent?
Generally, not liable.
What does the doctrine of respondeat superior say?
An employer can be held liable for an employee’s torts committed within scope of employment.
In general, is an employer liable for an employee’s intentional torts when committed within the scope of employment?
No.
When is an employer liable for an employee’s intentional torts (2 OR)?
- tort is authorized, or
- use of force is authorized (ex: bouncer)
Do small detours from an employer’s directions fall within the scope of employment?
Yes.
Do major deviations from an employer’s directions fall within the scope of employment?
No.
Can you limit liability for the torts of employees by making an agreement that you will not be held liable?
No, this cannot limit an employer’s liability.
When is an employer liable for torts committed by independent contractors (2 OR)?
- employer authorized the act, or
- ultrahazardous activity
What is the major difference between a surety and a guarantor?
A surety can be held liable for a debt before attempting to collect from the principal or exhausting other legal remedies.
What is exoneration?
The surety compels the debtor to pay the creditor when they have the capability to pay but refuse to.
What three rights does a surety have against the principal debtor? Which of these come before the surety pays the creditor and which come after?
- exoneration (before)
- subrogation (after)
- reimbursement (after)
What is subrogation?
After paying the creditor, the surety steps into the shoes of the creditor to collect from the debtor (priority in bankruptcy, etc.).
What is reimbursement for a surety?
They can bring a lawsuit against the principal debtor to get their payment back.
What are co-sureties?
2+ sureties of the same obligation who are jointly and severally liable for the obligation
What two rights do co-sureties have against their other co-sureties? Which of these come before the surety pays the creditor and which come after?
- exoneration (before)
- contribution (after)
What is the end goal of both exoneration and contribution (co-sureties)?
get people to pay their pro-rata share
If the agreement does not specify the dollar amount that each surety is liable for, how do you determine the liability of each co-surety?
pro-rata, based on the number of solvent sureties
The maximum amount a creditor can recover from sureties is the lesser of what two numbers?
- the amount promised by the co-sureties, and
- the settlement amount (remaining debt balance)
If the default amount and settlement amounts are different, which value should be used to determine the payment to a creditor?
settlement amount
The surety can use asa defense that the (principal debtor/creditor) was a bad guy (acting in bad faith, duress, etc.).
creditor, not the principal debtor (They entered into an agreement with the principal debtor, and were expected to do their due diligence.)
Is the surety liable if the debtor offers to pay, but the creditor declines it and then goes after the surety?
No, this discharges the principal obligation.
If the creditor releases the principal debtor’s obligation, is the surety still liable?
No.
When is an unpaid surety bound, since the general rule is that surety agreements should be supported by legal consideration?
Bound if they agreed to be a surety as a condition that allowed the creditor to give money the borrower. (agreement before the loan)
When does a variation of a contract release a compensated surety?
only when the change is material and increases their risk of loss
When does a variation of a contract release a gratuitous surety?
anytime the surety’s risk is changed (good or bad)
If the principal debtor and creditor agree to extend the time to payment, is a free surety discharged? Is a compensated surely discharged?
Same idea as before. Free is discharged for any change. Compensated is only discharged if material and increases risk of loss.
If the extension of time to pay is just a few days (delay in collection), are the sureties discharged?
No.
Is the surety released if the principal debtor becomes bankrupt or incapacitated?
No, this is the whole reason there is a surety in place!
Is the surety released if the principal debtor defrauded the surety? Are there any exceptions to the rule?
No, only if the creditor knows of the lie.
What are two alternatives to going to bankruptcy court?
- creditors’ composition
- make an assigment for benefit of creditors
What is a creditor’s composition?
2+ creditors gathered and the debtor makes an offer for how much they can pay in full settlement of the debt
What is an assignment for benefit of creditors?
Debtor transfers property to a trustee who disposes the property and distributes money to the creditors.
Does a creditor’s composition result in discharge from the remaining unpaid balance?
Yes.
Does an assignment for benefit of creditors result in discharge from the remaining unpaid balance?
No, because the creditors do not agree to the discharge.
What legal options does a creditor have when the debtor defaults but there is no surety and no collateral?
- judicial lien
- garnishment
What is a lien?
issuing a writ to a local sheriff to seize a property held by the debtor, sell it, and turn over the proceeds to the creditor
What is garnishment?
orders the person holding a debtor’s property (a third party) to turn it over to the creditor
What is a prejudgment attachment? Does this happen before or after judgment?
before the final judgement
If they believe the debtor will not pay, attach a writ of attachment to the property and seize it so that it can be sold if the creditor prevails.
When does the homestead exemption NOT apply (3)?
- PMSI in personal property (because you are agreeing they can take it back)
- purchase money mortgages against real property
- failing to pay taxes
Can social security payments held by the government be garnished?
No, but SS held by you (already paid to you) can be taken.
What is a mechanic/artisan’s lien? What is the value? How long does it last?
If a mechanic/artisan works on a property for you, they have a lien on it (up to the price of the repairs) as long as they hold onto the property
What is a fraudulent conveyance?
attempting to hide your property by selling it off so that creditor’s cannot take it
(property is transferred with the intent to hinder, delay, or defraud creditors)
What does the fair debt collection practice act do (FDCPA)?
curb abuses by collection agencies in collecting consumer debts
Does the FDCPA protect from creditor efforts to collect on debts?
No, it only protects from credit agencies.
A collection agency can contact third person’s only to ask about what? What can they not disclose (2)?
They can only ask about their whereabouts.
They cannot disclose that this is a collection agency, or that the debtor owes a debt.
Can the debtor be contacted directly by a collection agency if they have an attorney representing them?
No, they have to talk to the attorney.
Can the collection agency call someone’s employer if the employer says they no longer want to receive the calls?
No.
A debtor can notify the collection agency in writing of what two things to get them to stop trying to collect?
- they will not pay the debt, and
- stop further communication
What amount of award can a debtor collect under a violation of the FDCPA?
$1,000
Collateral includes what type of property?
personal property that the credit can take possession of
What two types of transactions can be secured transactions?
- borrowing on a loan and assigning some security interest to it, or
- buying an item on credit (the security interest is the item purchased)
A security interest is effective between two parties as soon as the interest ____. What does this not provide rights to, however?
attaches; if there are multiple third parties with an interest, it does not give you a right over them.
What do you need to do to gain rights over third parties to the subject of a security interest?
perfect the interest
What is perfection of a security interest, in simple words?
a form of notice that this creditor has a security interest and that their security interest is superior
Can wage claims (garnishment), land security interest (mortgage), and statutory liens (mechanic lien) be subject to Article 9 of the UCC over secured transactions?
No.
What types of agreements give rise to a PMSI?
- creditor sells the item to the debtor on credit (retaining a security interest in the item), OR
- creditor lends the debtor the money to purchase the collateral
What is special about a PMSI?
has priority over all other types of security interests, if properly perfected
The category that a piece of collateral falls into depends on (how the debtor uses the item/the nature of the item).
how the debtor uses the item.
What are the four broad categories of collateral?
- goods
- intangible collateral
- investment property, and
- proceeds from disposition of collateral
Attachement is completed when what three requirements are satisfied?
- agreement of the secured property, AND
- creditor gives value (the loan), AND
- debtor has rights to the collateral (title or possession)
Can the agreement for a security interest be oral?
Yes, only if the credits takes possession of the collateral.
If a security agreement is in writing, who needs to sign it?
the debtor (who would be sued for payment in case of default)
Can a creditor obtain a security interest in property acquired after the loan?
Yes.
What are some duties of the secured creditor after attachment?
- … when the debt is paid
- confirm …, and
- use reasonable care to …
- send a termination statement when the debt is paid
- confirm the unpaid amount through statements
- use reasonable care to preserve any collateral in the creditor’s possession
Can you perfect an interest before you attach it?
No, you must attach it first.
What are the five methods of perfecting a security interest?
- filing
- taking possession of collateral
- control
- automatic perfection
- temporary perfection
What do you file when perfecting the security interest by filing?
a financing statement
What information does the financing statement give?
- names and addresses of the debtor and creditor
- indication of type of collateral covered
Do the debtor and creditor need to sign the financing statement?
No.
Does the financing statement need to include a copy of the security agreement or terms of the loan?
No.
Does the debtor need to give authorization for the creditor to file the financing statement?
Yes, either explicitly or implied.
If you file a financing statement on Jan 1, and the interest attaches on Feb 1, what is the date of perfection?
Feb 1 (perfection cannot be before attachment)
Can you take possession to perfect a security interest for intangible items?
No, for this you take control. Possession only applies to tangible items.
What are two ways to demonstrate control over an intangible asset?
- possession of certificate, or
- notice to the broker
A secured creditor is considered to have control when they can …
sell the item without further action from the owner (debtor)
What two items can be automatically perfected?
- PMSI In consumer goods (personal use)
- small-scale assignment of accounts (A/R)
T/F: A PMSI in inventory or equipment is automatically perfected.
False, you need to file.
What does temporary perfection apply to? How long is the period?
proceeds from sold collateral, for 20 days
What do you have to do before the 20-day temporary perfection period ends?
re-file for new collateral
If the debtor moves to another state, the perfection is valid for how many months before needing to re-file?
four months
A secured creditor can take the collateral and sell it on their own only if …
there is no breach of the peace.
If the secured creditor is about to sell the asset, what do they need to do?
provide a notice to sale to the debtor and other 3rd parties
Does the secured creditor have to sell the secured asset?
No.
A sale of collateral wipes out all ____ interests.
subordinate
The person purchasing a collateral takes the asset free of ___ interests, but still is subject to ___ interests.
subordinate, superior
If the creditor says they are about to sell, can the debtor stop the sale by paying off their indebtedness before the sale?
Yes, as long as they also pay the additional costs of the sale (like an auction that was going to happen).
What is the order of where proceeds go to in a sale of collateral?
(1) pay expenses of repossession and sale
(2) pay creditors with a security interest in the collateral (in order of priority)
(3) surplus to debtor
What happens if the sale of collateral does not bring in enough money to pay off all creditors?
The creditors will have to go to court and sue.
If a secured creditor wants to keep the collateral of a consumer debt, do they keep it in full or partial satisfaction of the debt?
full satisfaction
If a secured creditor wants to keep the collateral of a non-consumer debt, do they keep it in full or partial satisfaction of the debt?
full, or partial (based on FMV of the item)
When is a sale of the collateral required? In how many days do they need to pay?
consumer goods, where debtor paid at least 60% of the loan, must pay within 90 days of repossession
