R6 - Business Law 1 (Contracts) Flashcards
What is defined as a promise that the law will enforce?
Contract
What is defined as a contract formed by language, oral or written?
Express contract
If Ann promises to give Barb $10 if Barb will wash Ann’s car, what type of contract is that?
Express contract
What is defined as a contract formed by conduct?
Implied-in-fact contract
What is an implied-in-law contract or quasi-contract?
- A remedy that allows a plaintiff to recover a benefit unjustly conferred upon the defendant
- A remedy to prevent unjust enrichment
What is defined as “one promise which is given in exchange for performance; contract is not formed until performance is completed”?
Unilateral contract
What is defined as “two promises - a promise is exchanged for a promised; contract is formed as soon as the promises are exchanged”?
Bilateral contract
What is the difference b/w executory and executed contract?
Executory: duties remain to be performed
Executed: all duties under contract performed
What are the two sources of contract law?
- Common law
- UCC
What type of contracts are governed by common law (RISE)?
Real estate
Insurance
Services
Employment
UCC Article 2 governs contracts for what?
Sale of goods (moveable things)
What are the three requirements of a legally enforceable contract?
1) an offer and acceptance;
2) an exchange of consideration (something of legal value); AND
3) a lack of defenses
What is often said to be agreeing to the “same bargain at the same time”?
Mutual assent
The offer can be express or implied. What is an express offer?
Oral or written
The offer can be express or implied. What is an implied offer?
Based solely on conduct
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.
True
What are the three components of an offer?
- intent
- definiteness and certainty
- communication
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?
NO
EXPLANATION: Such an ad is not an offer but is only an invitation seeking offers.
Is an advertisement that limits the scope of the persons who can accept considered an offer?
YES
An offer to create a contract under common law (RISE) must include what five things?
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
An offer to create a contract under the UCC must include what?
Quantity
What are three ways to terminate an offer?
- revoke (offeror)
- reject (offeree)
- automatic
True or false.
To create a contract, an offer must be accepted before it is terminated.
True
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?
YES
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?
Option contract
EXPLANATION: Offeree “buys” time.
A limitation on an offeror’s power to revoke is in a situation where there is a substantial start on a _________ contract.
Unilateral
A limitation on an offeror’s power to revoke is a _________ firm offer under the UCC.
Merchant
If consideration was not given to keep the offer open, is it an option?
NO
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?
YES
EXPLANATION: Barb’s initial question was not a counteroffer, but rather was mere inquiry.
Is an option contract terminated by the death of a party?
NO
An offeree’s silence is generally understood as _______ of the offer.
Rejection
Offers, rejections, revocations, and counteroffers become effective on the date ______ .
Received
Acceptances are generally effective when they are _____.
Dispatched
EXPLANATION: The Mailbox Rule
Common law contracts follow the _____ ____ rule which requires an acceptance to mirror the offer to be effective.
Mirror image
Does the UCC have a mirror image rule?
NO
The offeror can opt-out of the mailbox rule by stating in the offer that acceptances must be _____ to be effective.
Received
True or false.
Both sides of the contract must be supported by legally sufficient consideration.
True
What are the two elements of consideration?
1) Something of legal value given by each party
2) Bargained for exchange
Does the consideration need have monetary value?
NO
Is it sufficient to promise to do something for or give something to a third party?
YES
EXPLANATION: Need not flow to party
True or false.
Fairness is usually not required so long as the consideration is not unconscionable and it is arm’s length.
True
To make a modification enforceable, UCC = ?
Good faith
To make a modification enforceable, RISE = ?
Give consideration
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?
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.
A component to have a legally enforceable contract is no defenses.
True
Defenses can make a contract ________.
Unenforceable
What is defined as “unenforceable by either party”?
Void
What is defined as “may be avoided at the option of the party adversely affected”?
Voidable
A contracting party can establish the defense of fraud if she can prove MAIDS. What does MAIDS stand for?
Misrepresentation of material fact Actual and justifiable reliance Inducement Damages Scienter (reckless disregard for the truth)
Punitive damages are unique to _____.
Fraud
What type of fraud?
Derek Jeter signs what he thinks is a fan’s autograph book but is in fact a contract.
Fraud in the execution
EXPLANATION: Makes a contract void, not voidable because there is no “meeting of the minds”
An innocent misrepresentation has all the elements of fraud except ________.
Scienter
EXPLANATION: The misrepresentation is made innocently, not intentionally. May have to pay compensatory damages, but no punitive damages.
Duress arises when a party’s free will to contract is overcome by an ______ use of a threat of harm.
Unlawful
Generally, is a unilateral mistake a defense to a contract?
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)
Failure to have a license required to protect the public (e.g. CPAs) makes a contract ______.
Void
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?
YES
EXPLANATION: minors may generally disaffirm or cancel contracts.
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.
Ratifying
Although contracts statutes of limitations vary, what is typical for RISE?
4-6 years from date of breach
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?
Legally sufficient
Valid, voidable, or void.
Fraud in the execution
Void
Valid, voidable, or void.
Fraud in the inducement.
Voidable
Although the general rule is that contracts need not be in writing, ____ contracts require some type of writing to be enforceable.
Six
EXPLANATION: Need to be signed by defendant to be enforceable.
Statute of Frauds. What does the M in MYLEGS stand for?
Marriage
EXPLANATION: Require a writing - contracts where the consideration is marriage (e.g. If you get married, I’ll buy you a house.
Statute of Frauds. What does the Y in MYLEGS stand for?
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).
Statute of Frauds. What does the L in MYLEGS stand for?
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)
Statute of Frauds. What does the E in MYLEGS stand for?
Executors
EXPLANATION: Require a writing - contracts by executors or similar representatives to pay estate debts out of personal funds
Statute of Frauds. What does the G in MYLEGS stand for?
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)
Statute of Frauds. What does the S in MYLEGS stand for?
Suretyship
EXPLANATION: Require a writing - contracts to act as surety (i.e. to pay the debt of another)
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?
Accord
EXPLANATION: The new agreement is the accord, when it is performed is the satisfaction.
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 _____.
Novation
EXPLANATION: Same agreement, substituted party
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?
$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)
What are liquidated damages?
Damages agreed to in the contract
Are punitive damages generally available for breach of contract?
NO
True or false.
The UCC requires “perfect tender” by the seller. Under the UCC, the buyer may cancel for any breach.
True
Offers cannot be assigned but _____ contracts can be assigned.
Option
