R7 - Business Law: Part 1 Flashcards
Agency: What is available to principal when fiduciary duty is broken fraudulent?
-Termination of agency
-Constructive Trust
-To ensure principal can
recover secret profits
Agency: Agent Relationship is terminated when?
-Principal is declared “incompetent”
Agency: When does a contract have to be in writing?
- ONLY HAS TO BE SIGNED BY PRINCIPAL!!
- If it cannot be performed within one year. If it can then it doesn’t have to be in writing.
- If the agent is to purchase interest in land.
Agency: Termination of relationship by principal
Can be terminated at any time but may be liable for damages if its a breach of contract.
Agency: When is the “agent” liable?
- Undisclosed principal
- Typically the agent isn’t liable when their is a disclosed principal
Agency: When is the principal liable for the agent?
- When they are employees
- Not typically liable for sub-contractors
Agency: Apparent Authority
- Third parties reasonable belief that an agent has the Actual authority even when they may not.
- Agent can buy up to 300 tv’s, but buys 500 tvs. Principal will still be liable to third party if the third party was at one time told the agent had the authority to buy 500.
Agency: Third Party Withdrawal
Can withdrawal at any time when entered into a contract
Agency: When does an Agent breach their duty to the principal?
When they have interest that are adverse to the principal.
-Take unauthorized money
from them.
Agency: Undisclosed Principal NOTE
After third party finds out who principal is, they can either continue or end agreement with agent and principal
Agency: Respondeat Superior
When an employer is liable for their employee’s negligent acts during the normal course of business
Agency: What is need to create an Agency Agreement
- Contractual capacity
- Consent
NOT NEEDED:
- Writing (unless land)
- Consideration
Agency: If principal violates duty owed the agent, what remedies does the agent have?
- Withhold further performance
- Recovery of future damages
- Recovery for past services
CAN’T:
-Demand specific performance from principal
Contracts: Consideration
“price of contracting”
-2 things must be given:
-Something of legal value:
-“Detriment to the
promise or benefit to
the promisor”
-Has to be something
the promisor isn’t
already obligated to
do
-Bargained for exchange:
-Need not me monetary
-Need not flow to party
-Courts will not inquire
into adequacy of
consideration
-Contract price terms
cannot be modified
unless new
consideration is given
for changes
Contracts: Advertisements
“ARE NOT OFFERS!”
-Only promise to negotiate
Contracts: Keeping an Offer Open
-One must give consideration in order to keep an offer open, even if seller states the offer is valid to a certain point in time. If the seller doesn’t receive consideration, they may revoke the offer and sell the product to someone else.
Contracts: NOTE
Offer from seller must create a reasonable expectation in the offeree that the offeror intends to sell the product.
-Selling a computer for $1 doesn’t do this.
Contracts: Option Contract
Oral promise (consideration) given not buy another similar product in order for the seller to keep an offer open for a longer period of time.
- Seller offers to sell computer for $500, buyer asks to keep offer open until next day and seller makes him promise not to buy another computer until that time.
- Valid consideration given
Contracts: Unilateral Contract
-When a promise is made in exchange for an act. Contract not formed until act is done (bilateral = promise in exchange for another promise. Contract formed once promises are made)
Offering to pay for a friend’s dog to get groomed out of pity and the friend actually taking it to be done.
-Valid consideration
Contracts: Offeror’s Death
Contract will terminate prior to acceptance by buyer but not after acceptance between a contract would be formed and enforceable
Contracts: ACCEPTANCE
The Acceptance: -Who can accept: who was offered -Method: any reasonable method "unless" specified method in contract -Unequivocal: Mirror Image rule (acceptance must mirror offer), any change in acceptance constitutes a "counteroffer" -Acceptances are effective "WHEN DISPATCHED" (MAILBOX RULE!!!)
Contracts: MAILBOX RULE
-Specified Method: offeror required acceptance by a specific method - "acceptance is effective WHEN SENT if correct method is used"
-No method specified: any
reasonable one can be used
and is effective upon
dispatch
-Offeror May opt out: stating
in offer that acceptance
must be received to be
effective
Only makes ACCEPTANCES valid upon dispatch (revocations, counteroffers and rejections are only valid upon receipt).
Contracts: Statue of Limitations
Period of time in which a case must be filed.
- Commences on the date of breach of contract
- The “running” of the statue of limitations means the
Contracts: Merchant to Merchant
Counteroffer’s become part of the contract and don’t void it. Unless it is a material change to the contract.
Contracts: Statue of Frauds
Mainly applies to the sale of goods (contracts for services too if they can be completed in one year, these must be in writing as well)
- Only relates to contracts for the sale of goods of $500 or more (these must be in writing), $500 or less can be verbal
- Terms can be stated on more than one document (this is really the only part that has to be in writing)
- Only signature needed is the one being sued
- When selling land, both parties must sign the contract for it to be enforceable to both of them
- Service related contracts don’t apply this statue
Contracts: Novation
A defense to a party who has been released from a contract.
-Occurs when new contract subs a new party for an old party in an existing contract. All parties must agree to the release.
Contracts: Substituted Contracts
Both parties are released from old contract but are bound by a new one.
Contracts: Consequential Damages
Are only recoverable to the extent they are foreseeable. The non-breaching party is obligated to mitigate the damages though.
Contracts: Mistakes
Uni-Lateral:
- Defense if the non-
mistaken party knew or
should have known of the
mistake
-Subcontractor bidding a
materially wrong bid and
it getting accepted
Mutual:
- Voidable if a mutual
mistake of “value”
Contracts: Parol Evidence Rule
Prohibits introduction of prior (contemporaneous) written statements to vary the terms of a contract.
-Does not bar the introduction of subsequent oral agreements
Contracts: Conditions
Precedent: must occur “before” the other party must perform
Concurrent: must occur simultaneously, perform at the same time. Monetary exchange for goods
Subsequent: must occur after a party’s duty to perform has arisen and will cut off that duty
Contracts: What will discharge a party from a contract?
-Accord and Satisfaction
-Accord: sub one contract
for another
-Satisfaction: execution of
accord
-Prevention of performance
Contracts: Common Law and Construction Contracts
Minor breaches (different light bulbs installed that are very similar) do not constitute rescission but limit the non-breaching party to recovery of damages
Contracts: Minors
- May typically dis-affirm a contract anytime while a minor.
- They may become bound to the contract by ratifying it, this can be done by:
-Failing to dis-affirm in a reasonable amount of time -Expressly ratifying the entire contract -Retaining or accepting the benefits (implied ratification)
Contracts: Liquidation Damages
Enforceable if damages would be difficult to assess and do appear to be because of the breach and not just a penalty.
Contracts: Fraud Defense
Must Prove: -Misrepresentation of material fact -Scienter (intent to deceive) -Intent to induce reliance -Reasonable reliance -Damages
Contracts: Rescission
“Undoes” a contract and restores the parties to their positions before the contract
Contracts: Sale of Real Property is breached
Recovery can include either:
-Compensatory damages (compensate for the breach)
OR
-Specific performance (forced performance)
Contracts: Duress
When one party overcomes the will of another through wrongful force or threats of imminent force.
-Economic duress is not typically a defense
Contracts: Specific Performance NOTE
Only available in contracts for unique or rare property like:
-Patent
-Contract breach of sale of
real property
Contracts: Paying the debt of another
Must be in writing somewhere to be enforceable.
Contracts: Statue of Frauds 6 Contracts Requiring a Writing
M: Marriage
Y: CANNOT be done in one
year
L: Land
E: Executors paying estate
debts out of personal
income
G: sale of goods
S: Surety (pay the debt of
another)
Contracts: Renders a Contract “Void”
Physical compulsion (harm done to someone)
-This is VOID not just voidable
Contracts: Fraud “Inducement vs Execution”
Inducement: - defrauded into a contract because it's terms are not accurate to the real situation (contract is "voidable")
Execution:
- didn’t know you were
signing a contract
(contract is “void”)
Surety and Guarantor:
Surety: directly liable on his contract and is distinguished from a guarantor, who is liable to the creditor only if the debtor does not perform his duty
Surety: Defenses
If a creditor changes anything about a contract, the surety is released of their obligation.
Surety: Liens - Judicial
- If someone hasn’t paid their debt the government will issue a lien on property and if need be a “writ of attachment” to seize the property.
- Their is a “homestead exemption” that allows certain property to not be seized
- IRS can put these on your personal property for not paying federal taxes
Garnishment:
-Writ of garnishment can be sought to force person
holding debtor’s property to hand it over.
-Certain things like “social security can’t be garnished
and employee wages is limited as well.
Surety: Liens - Mechanical and Materialman’s
Applies to people that work on cars or contractors. They have a possessory lien until they are paid for the services provided.
Surety: When is surety released from obligation?
Principal debtor pays off debt (performs obligation)
Surety: When Surety has to pay creditor off - Defenses Against Debtor to pay back
Exoneration:
- suit to compel payment from debtor (surety doesn’t
pay)
Subrogation:
- Surety forces creditor to give him the same benefits
offered to the debtor when he pays off the debt
Reimbursement:
-Surety pays debt to creditor and wants
“indemnification” from debtor (pay him back)
Surety: Fraud
From by the debtor to the surety isn’t a defense unless the creditor knew about it.
Surety: Debtor and Creditor NOTE
Creditor Composition:
- New creditors are added, and each agree to take a
lesser amount from debtor
Assignment for Benefit of Creditors:
- Debtor transfers property to trustee who then pays of
creditor
Surety: Co-Sureties
If one surety is released from the debt, the remaining surety is still only liable for their percentage of the debt (not the one released as well)
Surety: Fraud by Debtor (when Creditor tries to satisfy a judgment)
- Remaining in possession after conveyance
- Secret conveyance
- Retain a benefit in property after conveyance
Surety: Homestead Exemption NOTE
- Doesn’t relate to lien on:
- Home mortgages
- IRS taxes paid
Surety: Statue of Frauds
Surety agreements must be in writing!!
Surety: Co-Surety
-Two or more with the same obligation (jointly liable)
Defenses:
-Exoneration (one surety
dips)
-Contribution
-If one surety pays the debt
off, he has the right to the
pro-rata share of the other
sureties
Surety: Fair Debt Collections Practices Act (FDCPA)
Prohibited acts:
- Contacting at inconvenient times
- Contacting debtor directly if their is an attorney
- Using harassing or abusive language
- Making false of misleading claims
- Contacting at place of employment if employer objects
Secured Transactions: Requirements for Interest Attachment
- Debtor has rights in collateral
- Value given by the creditor
- Parties agree to create interest
Secured Transactions: Perfecting Interest In Collateral and its moved
If perfected collateral is moved to another state, it is perfected in the other state for a period of 4 months
Secured Transactions: When does a security interest attach?
- When a Security Agreement is created
- Debtor has interest in collateral
- Creditor gives value
Secured Transactions: Seller Retaining a Security Interest for the sales price of the good
Automatically perfects the interest
Secured Transactions: Purchase Monty Security Interest (PMSI)
- Arises from creditor selling the collateral to the debtor on credit or advances the funds used to purchase the collateral
- Has priority over all other security interests in the same collateral if the PMSI is filled within 20 days of the debtor getting possession.
Secured Transactions: Perfecting an interest for manufactures/retailers
Their interest is automatically perfected when selling to consumers on credit. This creates a PMSI.
Secured Transactions: Included vs Excluded
Included: - Contractual security interests in personal property or fixtures - Outright sale of A/R
Excluded: - Security interests in land (mortgages) - Wage claims - Statutory liens (mechanic)
Secured Transactions: Filing Financial Statements
- Period of effectiveness is 5 years but can be indefinite if continuation statements are filed
- Timing, can be done before all steps of attachment are complete. Priority will date back to filing date.
Secured Transactions: PMSI
Can only be perfected in consumer goods without the creditor taking possession. Thus having to file financial statements.
Secured Transactions: Financing Statements Must Include
- Name and mailing address of debtor and secured party
- Indication of collateral covered
- description of the type of collateral (property)
- debtor must authorize filing using an “authenticated record”
