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CPA REG > R6 - Business Law 1 (Contracts) > Flashcards

R6 - Business Law 1 (Contracts) Flashcards

1
Q

What is defined as a promise that the law will enforce?

A

Contract

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2
Q

What is defined as a contract formed by language, oral or written?

A

Express contract

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3
Q

If Ann promises to give Barb $10 if Barb will wash Ann’s car, what type of contract is that?

A

Express contract

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4
Q

What is defined as a contract formed by conduct?

A

Implied-in-fact contract

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5
Q

What is an implied-in-law contract or quasi-contract?

A
  • A remedy that allows a plaintiff to recover a benefit unjustly conferred upon the defendant
  • A remedy to prevent unjust enrichment
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6
Q

What is defined as “one promise which is given in exchange for performance; contract is not formed until performance is completed”?

A

Unilateral contract

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7
Q

What is defined as “two promises - a promise is exchanged for a promised; contract is formed as soon as the promises are exchanged”?

A

Bilateral contract

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8
Q

What is the difference b/w executory and executed contract?

A

Executory: duties remain to be performed
Executed: all duties under contract performed

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9
Q

What are the two sources of contract law?

A
  • Common law

- UCC

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10
Q

What type of contracts are governed by common law (RISE)?

A

Real estate
Insurance
Services
Employment

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11
Q

UCC Article 2 governs contracts for what?

A

Sale of goods (moveable things)

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12
Q

What are the three requirements of a legally enforceable contract?

A

1) an offer and acceptance;
2) an exchange of consideration (something of legal value); AND
3) a lack of defenses

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13
Q

What is often said to be agreeing to the “same bargain at the same time”?

A

Mutual assent

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14
Q

The offer can be express or implied. What is an express offer?

A

Oral or written

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15
Q

The offer can be express or implied. What is an implied offer?

A

Based solely on conduct

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16
Q

True or false.

To be an offer, the communication must create a reasonable expectation in the offeree that the offeror intends to make a contract.

A

True

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17
Q

What are the three components of an offer?

A
  • intent
  • definiteness and certainty
  • communication
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18
Q

Steve places an ad in a local paper announcing the grand opening of his store and quoting the price of certain items. Is such an ad an offer?

A

NO

EXPLANATION: Such an ad is not an offer but is only an invitation seeking offers.

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19
Q

Is an advertisement that limits the scope of the persons who can accept considered an offer?

A

YES

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20
Q

An offer to create a contract under common law (RISE) must include what five things?

A

1) Identity of offeree and subject matter
2) Price to be paid
3) Time of performance
4) Quantity involved
5) Nature of work to be performed

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21
Q

An offer to create a contract under the UCC must include what?

A

Quantity

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22
Q

What are three ways to terminate an offer?

A
  • revoke (offeror)
  • reject (offeree)
  • automatic
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23
Q

True or false.

To create a contract, an offer must be accepted before it is terminated.

A

True

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24
Q

Alex offers to sell his car to Bailey for $500. Bailey tells Alex that he wants to think about it. The next day, Carol, a friend of Bailey’s, drives over to Bailey’s house to show Bailey the car she just purchased from Alex. Is the offer to Bailey considered revoked?

A

YES

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25
Q

A limitation on an offeror’s power to revoke is in a situation where consideration is paid to keep the offer open. What is this called?

A

Option contract

EXPLANATION: Offeree “buys” time.

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26
Q

A limitation on an offeror’s power to revoke is in a situation where there is a substantial start on a _________ contract.

A

Unilateral

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27
Q

A limitation on an offeror’s power to revoke is a _________ firm offer under the UCC.

A

Merchant

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28
Q

If consideration was not given to keep the offer open, is it an option?

A

NO

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29
Q

Alex offers to sell Barb his car for $450. Barb asks Alex if he’d consider taking $425, Alex says no. Barb accepts the offer for $450. Is there a contract here?

A

YES

EXPLANATION: Barb’s initial question was not a counteroffer, but rather was mere inquiry.

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30
Q

Is an option contract terminated by the death of a party?

A

NO

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31
Q

An offeree’s silence is generally understood as _______ of the offer.

A

Rejection

32
Q

Offers, rejections, revocations, and counteroffers become effective on the date ______ .

A

Received

33
Q

Acceptances are generally effective when they are _____.

A

Dispatched

EXPLANATION: The Mailbox Rule

34
Q

Common law contracts follow the _____ ____ rule which requires an acceptance to mirror the offer to be effective.

A

Mirror image

35
Q

Does the UCC have a mirror image rule?

A

NO

36
Q

The offeror can opt-out of the mailbox rule by stating in the offer that acceptances must be _____ to be effective.

A

Received

37
Q

True or false.

Both sides of the contract must be supported by legally sufficient consideration.

A

True

38
Q

What are the two elements of consideration?

A

1) Something of legal value given by each party

2) Bargained for exchange

39
Q

Does the consideration need have monetary value?

A

NO

40
Q

Is it sufficient to promise to do something for or give something to a third party?

A

YES

EXPLANATION: Need not flow to party

41
Q

True or false.

Fairness is usually not required so long as the consideration is not unconscionable and it is arm’s length.

A

True

42
Q

To make a modification enforceable, UCC = ?

A

Good faith

43
Q

To make a modification enforceable, RISE = ?

A

Give consideration

44
Q

Richie Rich hears that his local hospital needs a new MRI machine. He calls the hospital and promises to donate $100k to enable the purchase. Richie’s promise is not supported by consideration; it’s a gift. Will Richie be bound if the hospital detrimentally relies on the promise by ordering an MRI machine?

A

YES

EXPLANATION: A promise made by one party and detrimentally relied upon by another can be enforced w/o consideration. For the doctrine to apply the promise must be reasonably relied upon and detrimental.

45
Q

A component to have a legally enforceable contract is no defenses.

A

True

46
Q

Defenses can make a contract ________.

A

Unenforceable

47
Q

What is defined as “unenforceable by either party”?

A

Void

48
Q

What is defined as “may be avoided at the option of the party adversely affected”?

A

Voidable

49
Q

A contracting party can establish the defense of fraud if she can prove MAIDS. What does MAIDS stand for?

A 
Misrepresentation of material fact
Actual and justifiable reliance
Inducement 
Damages
Scienter  (reckless disregard for the truth)
50
Q

Punitive damages are unique to _____.

A

Fraud

51
Q

What type of fraud?

Derek Jeter signs what he thinks is a fan’s autograph book but is in fact a contract.

A

Fraud in the execution

EXPLANATION: Makes a contract void, not voidable because there is no “meeting of the minds”

52
Q

An innocent misrepresentation has all the elements of fraud except ________.

A

Scienter

EXPLANATION: The misrepresentation is made innocently, not intentionally. May have to pay compensatory damages, but no punitive damages.

53
Q

Duress arises when a party’s free will to contract is overcome by an ______ use of a threat of harm.

A

Unlawful

54
Q

Generally, is a unilateral mistake a defense to a contract?

A

NO

EXPLANATION: One exception is that a unilateral mistake as to a material fact is a defense if the other party knew or should’ve known of the mistake (e.g. Big 4 bids)

55
Q

Failure to have a license required to protect the public (e.g. CPAs) makes a contract ______.

A

Void

56
Q

Barry, a 16-year-old, purchased a used car from Paul. Ten months later, the car was stolen and never recovered. May Barry disaffirm the contract and get his money back?

A

YES

EXPLANATION: minors may generally disaffirm or cancel contracts.

57
Q

A person can become bound by the contracts he or she enters into as a minor upon reaching the age of majority by ________ the contract.

A

Ratifying

58
Q

Although contracts statutes of limitations vary, what is typical for RISE?

A

4-6 years from date of breach

59
Q

In determining whether the consideration requirement to form a contract has been satisfied, the consideration exchanged by the parties to the contract must be what?

A

Legally sufficient

60
Q

Valid, voidable, or void.

Fraud in the execution

A

Void

61
Q

Valid, voidable, or void.

Fraud in the inducement.

A

Voidable

62
Q

Although the general rule is that contracts need not be in writing, ____ contracts require some type of writing to be enforceable.

A

Six

EXPLANATION: Need to be signed by defendant to be enforceable.

63
Q

Statute of Frauds. What does the M in MYLEGS stand for?

A

Marriage

EXPLANATION: Require a writing - contracts where the consideration is marriage (e.g. If you get married, I’ll buy you a house.

64
Q

Statute of Frauds. What does the Y in MYLEGS stand for?

A

Years

EXPLANATION: Require a writing - contracts which by their terms cannot be performed within a year (e.g. I’ll coach your football team for the next five years).

65
Q

Statute of Frauds. What does the L in MYLEGS stand for?

A

Land

EXPLANATION: Require a writing - contracts involving interests in land (includes all contracts for the sale of an interest in real property and leases of real property of more than a year)

66
Q

Statute of Frauds. What does the E in MYLEGS stand for?

A

Executors

EXPLANATION: Require a writing - contracts by executors or similar representatives to pay estate debts out of personal funds

67
Q

Statute of Frauds. What does the G in MYLEGS stand for?

A

Goods

EXPLANATION: Require a writing - contracts for the sale of goods for $500 or more (services can be oral regardless of price if it can be completed w/i a year)

68
Q

Statute of Frauds. What does the S in MYLEGS stand for?

A

Suretyship

EXPLANATION: Require a writing - contracts to act as surety (i.e. to pay the debt of another)

69
Q

Alex agrees to sell his car to Steve for $450. The parties agree to sub a contract for the sale of Alex’s bike to Steve for $100. What is the new agreement called?

A

Accord

EXPLANATION: The new agreement is the accord, when it is performed is the satisfaction.

70
Q

Sam agrees to build a garage for Barb, but then gets a more lucrative construction job. Sam asks Barb if it’s okay to substitute Dee to build the garage. The parties agree to substitute Dee and release Sam. There has been a _____.

A

Novation

EXPLANATION: Same agreement, substituted party

71
Q

Bob contracts to build a garage for Barb for $5,000. Bob gets a more lucrative construction job and refuses to build Barb’s garage. Barb hires Jim to build a garage for $6,000. How much can Barb collect from Bob in compensatory damages?

A

$1,000

EXPLANATION: The standard measure of damages for personal service contracts awards the nonbreaching party enough money to obtain substitute performance. Barb may also collect all damages that are reasonably foreseeable as a result of the breach (e.g. extra weathering of Barb’s car resulting from no garage)

72
Q

What are liquidated damages?

A

Damages agreed to in the contract

73
Q

Are punitive damages generally available for breach of contract?

A

NO

74
Q

True or false.

The UCC requires “perfect tender” by the seller. Under the UCC, the buyer may cancel for any breach.

A

True

75
Q

Offers cannot be assigned but _____ contracts can be assigned.

A

Option

CPA REG (17 decks)

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