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Business Legal > Test 2 > Flashcards

Test 2 Flashcards

1
Q

Freedom of contracts

A

-freedom/right to enter into a contract with terms of our choosing
-right to be stupid
-laws will not rescue from poor decisions

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2
Q

valid

A

-meets all legal requirements
-law will enforce it

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3
Q

voidable

A

-contract that appears to be valid on face
-defect that gives one party the option to cancel the contract

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4
Q

unenforceable

A

-valid contract that the law will not enforce due to a specific legal reason

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5
Q

Do contracts have to be in writing?

A

-Vast majority don’t
-some do

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6
Q

contract

A

-agreement enforceable by the law
-all contracts are agreements but not all agreements are contracts

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7
Q

Valid contract (must have all 4)

A

-mutual assent/agreement (foundation)
-capacity
-consideration
-legality/lawful purpose

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8
Q

Mutual assent

A

-two people have agreed about something

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9
Q

offeror

A

-makes the offer
-right to control terms of offer

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10
Q

offeree

A

-receives the offer

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11
Q

Four choices of the offeree

A

-yes
-no
-counter offer
-no response

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12
Q

test of contract

A

-was an offer made and an acceptance given

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13
Q

three requirements for offer

A

-offeror must show serious intent (reasonable person test)
-must be definite and certain
-offeror must communicate the offer to the offeree (everyday communication)

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14
Q

Ways on offer can terminate (6)

A

-rejection by the offeree
-revocation by the offeror
-counter offer by the offeree (switch positions)
-lapse of time
-death/mental incapacity of the offeror/offeree
-destruction of the subject matter

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15
Q

revocation by the offeror (terminate)

A

-offeror revokes the offer
-offeror can revoke at anytime prior to acceptance even if given deadline

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16
Q

lapse of time (terminate)

A

-offer will terminate after a reasonable amount of time if there is no response from the offeree
-typically 2-3 months

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17
Q

Acceptance requirements

A

-must accept all the terms/conditions of the offer
-must be absolute/unconditional (all in)
-offeree must communicate acceptance to offeror (silence isn’t acceptance)

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18
Q

Timing rules

A

-acceptance becomes effective when it is sent by the offeree
-revocation becomes effective when its read by the offeree
-offeree can accept quicker then offeror can revoke
-puts burden on offeror to act quick

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19
Q

Acceptance is defective (4)

A

-duress
-under influence
-fraud
-a mistake by one or both parties

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20
Q

duress

A

-pressure of threats of any kind that takes away the free will of the offeree
-physical/non physical

RESULT- void contract

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21
Q

under influence

A

-one party in a fiduciary relationship takes advantage of the other party in obtaining his acceptance

RESULT- voidable

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22
Q

fiduciary relationship

A

-special relationship under the law of trust where one party is legally obligated to act in best interest of the other party
-Trust fund

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23
Q

Fraud (5)

A

-misrepresentation of a material (major) fact
-opinion is not fraud
-law assumes we are sophisticated consumers
-silence is not fraud

RESULT- void/voidable

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24
Q

mistake by one or both parties (Subject matter of the contract)

A

-both parties mistaken

RESULT- voidable

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25
Q

mistake by one or both parties (Value of the subject matter)

A

-one or both parties mistaken

RESULT- valid

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26
Q

capacity

A

-power or legal authority given to you and me by the law to enter a contract

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27
Q

Capacity situations(3)

A

-minor
-intoxication
-mental illness/defect

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28
Q

minors

A

-under the minimum age to enter a contract
-a contract made by a minor is voidable at his option except for necessities
-if it is a necessity the minor does not pay contract price but pays the cost of providing

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29
Q

Necessities

A

-food
-clothing (basic)
-necessary medical care
-housing (not all)

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30
Q

minor decisions

A

-affirm (stay in)
-disaffirm (back out)

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31
Q

Minor affirm

A

-can only affirm when he reaches age of majority

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32
Q

Minor disaffirm

A

-can disaffirm at any time while he’s a minor and with reasonable time after age of majority
-failure to disaffirm leads to affirm
-minor must return purchase if he still has it in whatever condition
-adult deals with minor at their financial risk

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33
Q

cosigner

A

-second person on the contract that is fully liable to perform under contract
-100% liable

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34
Q

ways you affirm as a minor?

A

-let adult know
-keep what you bought/make payments
-stop making payments (disaffirm)

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35
Q

intoxication

A

-under the influence of mind altering substance
-civil and criminal have nothing to do with each other

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36
Q

intoxication level of measurement

A

-you don’t understand what you’re doing

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37
Q

intoxication contract RESULTs

A

-contract made by an intoxicated person is voidable at his option except for necessities
-can affirm once sober

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38
Q

mental illness/defect

A

-men/women who are declared mentally incompetent by a judge after medical testimony

RESULT: any contract made is void

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39
Q

mental illness/defect (NOT/dementia)

A

-men/women who have not been declared mentally incompetent
-trigger event is lucid (disaffirm)

RESULT: contract is voidable at his option except for necessities

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40
Q

Consideration

A

-bargain for exchange
-promises don’t have to have any money value
-measure by new obligation
-have to promise something new (pre existing duty)

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41
Q

legality/lawful purpose

A

-contract must be for a legal or lawful purpose if not its an illegal contract and the law will not enforce it
-no remedy for either party

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42
Q

Contract illegal

A

-violation of a statute
-violation of public policy

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43
Q

Violation of a statute

A

-violation of criminal law
-violation of usury law
-violation of a revenue licensing statute
-violation of a regulatory licensing statute
-violation of a Sunday blue law

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44
Q

violation of usury law

A

-sets max interest rate a lender can charge

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45
Q

violation of a revenue licensing statue

A

-gov’t charge business money for a license to operate
-no effect on the contract

RESULT: valid/enforceable

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46
Q

violation of a regulatory licensing statute

A

-gov’t entity sets minimum standards for the license holder to meet
-law will not enforce

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47
Q

violation of a Sunday blue law

A

-prohibits certain business activities on Sunday including the making of a contract

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48
Q

violation of public policy

A

-good for society as a whole
-competition in the market place
-employment contract
-sale of the business

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49
Q

employment contract

A

-can’t go to work for the competition

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50
Q

sale of the business

A

-saler must agree not to open a competing business after the sell

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51
Q

if/when restrictions (employment/sale of a business)

A

-restrictions will be enforced only if they are reasonable as to time/territory
-if a court finds the restriction to be unreasonable it will modify that restriction to make it reasonable then enforce it
-enforce with an injunction

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52
Q

time

A

-how long the restriction last
-shorter the time the more likely reasonable (1 year)

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53
Q

territory

A

-how large of a geographical area are you restricted to
-smaller the area the more reasonable

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54
Q

sale of a business restrictions

A

-can’t open a competing business for a designated time/area

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55
Q

how does common law treat contracts?

A

-verbal and written contracts are the same

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56
Q

statute of frauds

A

-law that states some things have to be written
-if on list and your contract isn’t in writing its unenforceable
-unless required by statue of fraud contract does not have to be in writing to be enforceable

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57
Q

types of contracts included in statute of frauds

A

-contract to buy/sale real property (land)
-a promise to a creditor to pay someone else debt owed to that creditor

58
Q

personal guarantee

A

-third party promises to pay existing debt not owed by them

59
Q

what has to be on a written contract?

A

-has to be a written document of some kind
-terms have to be contained in the written document
-has to be signed by the parties involved

60
Q

Discharge of a contract (6)

A

-performance
-agreement of parties
-operation of law
-impossibility
-condition
-exculpatory clause

61
Q

full (performance)

A

-both parties fully and completely perform all of their duties under the contract

62
Q

material breach (performance)

A

-major violation of the contract by one party
-non breaching party is discharged from further performance and can sue breaching party for compensatory damages

63
Q

Performance

A

-full
-material breach
-substantial performance

64
Q

substantial performance

A

-minor or insignificant breach by one party
-non breaching party is not discharged from further performance
-can sue the breaching party for compensatory damages
-if he owes money to the breaching party he gets a credit against what he owes in the amount of his compensatory damages

65
Q

agreement of parties

A

-mutual recision
-accord and satisfaction
-novation

66
Q

mutual recision (agreement of parties)

A

-both parties agree to cancel their contract
-results in both parties being discharged

67
Q

accord and satisfaction (agreement of parties)

A

-both parties agree to substitute a new performance for the original performance
-results in the discharge of the obligated party

68
Q

novation (agreement of parties)

A

-both parties agree to substitute a new obligated person for the original obligated person
-results in the discharge of the obligated party

69
Q

operation of law

A

-statute of limitations
-bankruptcy

70
Q

operation of law

A

-one party is discharged as a result of a specific legal reason

71
Q

statute of limitations (operation of law)

A

-deadline by which all lawsuits must be filed
-if you miss the deadline the obligated party is discharged from liability

72
Q

bankruptcy (operation of law)

A

-result in the debtor being discharged

73
Q

impossibility

A

-subjective
-objective

74
Q

subjective (impossibility)

A

-does not discharge the obligated party

75
Q

objective (impossibility)

A

-obligated party is discharged
-death, physical/mental of the obligated party
-destruction of subject matter

76
Q

condition

A

-specified event that will result in the discharge of the obligated party if that event occurs
-other party doesn’t have to agree to condition

77
Q

exculpatory clause

A

-clause in a contract in which one party releases the other party in advance
-get out of jail free card
-most states won’t enforce

78
Q

Business organization

A

-sole proprietorship
-partnership
-corporation

79
Q

legal entity

A

-living person or non living thing that the law recognizes as having legal rights/obligations

80
Q

characteristics of a legal entity

A

-can own land/personal property in its name
-can enter into a contract
-can sue or be sued

81
Q

sole proprietorship

A

-one owner business

82
Q

creation (sole proprietorship)

A

-don’t have to file any legal documents with state government to create
-easiest to create

83
Q

Name rules (sole proprietorship)

A

-can use any business name (trade name) you want as long as you don’t use an existing business name
-the legal name of the owner doesn’t have to be in trade name

84
Q

capital (sole proprietorship)

A

-start up money/seed money
-limited to what one owner has
-most undercapitalize
-highest failure rate

85
Q

Management (sole proprietorship)

A

-hands on and direct by the one owner

86
Q

Liability for debts (sole proprietorship)

A

-owner has unlimited personal liability for business debt
-creditor can seize and sell personal/business assets to cover debt
-even if business debt, personal assets can be taken

87
Q

legal entity status (sole proprietorship)

A

-the owner is the legal entity

88
Q

Lack of continuity (sole proprietorship)

A

-when the owner dies the legal entity is dead
-start over/shut down

89
Q

buying selling (sole proprietorship)

A

-buy or sell just like you would with personal property

90
Q

paying taxes (sole proprietorship)

A

-the owner pays income tax on the business profits on that owners personal tax return

91
Q

Partnership types

A

-general
-limited

92
Q

Partnership (G)

A

-association of two or more persons operating a business for profit as co owners

93
Q

partnership creation (G)

A

-contract between the partners
-minimum of 2
-no maximum limit

94
Q

who can be a partner

A

-human being
-partnership
-corporation
-any combination of the three

95
Q

goal/purpose of partnership (G)

A

-the business expectation is to make a profit

96
Q

profit of a partnership (G)

A

-a partners only source of compensation is his share of the partnership profits if any
-no guarantee to get paid
-profits/losses shared equally unless the partners agree otherwise

97
Q

partnership capital contribution (G)

A

-cash
-property (real/personal)
-expertise (Skill)

98
Q

naming a partnership (G)

A

-can’t use someone else’s name
-legal name of owners doesn’t have to be in name

99
Q

management of partnership (G)

A

-partners have an equal voice unless agreed otherwise
-majority rules
-can have unequal voting power

100
Q

partnership legal entity status (G)

A

-partnership is a legal entity

101
Q

debt of a partnership (G)

A

-each partner can create debt liability
-each partner has unlimited personal liability for partnership debts
-creditor can pick/choose who to collect from
-each partner owes 100% of the debts

102
Q

partnership taxes (G)

A

-partnership itself does not pay income tax on profits
-each partner pays income tax on his share of the profit on his individual tax return

103
Q

dissolution (G)

A

-legal entity ceases to exist

104
Q

triggering events of dissolution (G)

A

-death of a partner
-withdraw of a partner
-expulsion of a partner

105
Q

events after dissolution (G)

A

-liquidation
-continuation

106
Q

liquidation (G)

A

-shut business down
-sell assets

107
Q

continuation (G)

A

-business continues operating
-forms new legal entity

108
Q

what happens after liquidation (G)

A

-priority of distribution

-creditors get paid
-any loans to the partnership by a partner repaid
-capital contributions of the partners repaid
-any remaining money distributed as profits

109
Q

Liability of a partner who withdraws/expelled (G)

A

-a partner who withdraws/expelled continues to have unlimited personal liability for all debts that existed on his day of departure

110
Q

liability of a new partner (G)

A

-has unlimited personal liability only for those debts created after he became a partner

111
Q

Limited partnership

A

-some partners have limited personal liability and no management opportunities
-have both general and limited partners

112
Q

liability (L)

A

-limited partners have limited liability for partnership debts
-the limit of their liability is the amount of their capital contribution
-general has unlimited personal liability

113
Q

Negatives of limited partnership role

A

-no voice in management
-your share of the profits is less than the general partner

114
Q

loss of limited liability

A

-if a limited partner participates in management he loses his limited liability protection

115
Q

creation of limited partnership

A

-must file certain documents with state government
-if you don’t file paperwork your a general partner

116
Q

name (L)

A

-use any trade name the doesn’t already exist
-names of owners doesn’t have to be included
-must include one of the following (limited partnership, LP, Limited, LTD)
-trade name informs the public its dealing with a limited liability structure

117
Q

limited Partnership members

A

-at least one general
-at least one limited

118
Q

capital contributions (L)

A

-general partner (cash, property, expertise)
-Limited partner (cash and property)

119
Q

legal entity status (L)

A

-limited partnership is a legal entity
-plaintiff/defendant

120
Q

taxes (L)

A

-partnership itself doesn’t pay income taxes on profit
-each partner pays income tax on his share of the profit on his individual tax return

121
Q

Ability to leave a limited partnership

A

-if one of the trigger events happens to a general partner it dissolves
-if happens to limited partner it does not dissolve
-limited partners can come and go

122
Q

events after dissolve (L)

A

-liquidation
-continuation

123
Q

liquidation (L)

A

-creditors are paid (limited doesn’t owe)
-loans are repaid
-capital is repaid to limited first then general
-rest distributed as profit

124
Q

Corporation

A

-owners have indirect managerial control
-owners have limited liability for corporate debt

125
Q

corporate liability

A

-owners own stock but not assets
-owners limited liability is whatever he paid to buy his stock
-stockholder treated like limited partner

126
Q

creation (C)

A

-you must file certain documents to state government
-not created until paperwork filed

127
Q

structure/management (C)

A

-owners (stockholders)
-board of directors
-officiers

128
Q

stockholders (C)

A

-indirect control
-given right to elect board of directors
-can’t tell the officers or BoD what to do

129
Q

board of directors (C)

A

-hire/fire the officers

130
Q

officers (C)

A

-responsible for day to day management of the corporation
-make all managerial decisions

131
Q

Can someone be a stockholder, BoD, and officer?

A

-yes

132
Q

Name (C)

A

-can’t use any existing names
-doesn’t have to include owners name
-must include one (corporation, corp, incorporated, Inc) to notify public limited liability

133
Q

Make money owning stock

A

-appreciation in value (price goes up)
-Dividends

134
Q

dividends

A

-cash payment to the stockholders made out of corporate profits

135
Q

taxation (C)

A

-corporation pays corporate income tax on its profits
-dividends are paid with after tax profits

136
Q

double taxation

A

-stockholders have to pay income tax on his individual tax form after receiving a dividend

137
Q

legal entity status (C)

A

-corporation is a legal entity separate and distinct from owners

138
Q

continuity (C)

A

-owners can come and go without causing it to dissolve
-can theoretically last forever

139
Q

Vicarious liability (C)

A

-when a corp can be liable for the wrongful acts of its employee

140
Q

name for corporation (C)

A

-principle

141
Q

name for employee (C)

A

-agent

142
Q

vicarious liability requirements

A

-agent is always personally liable for a tort he commits
-principle is liable for the tort committed by the agent if he was doing his job duties while he committed it

Business Legal (3 decks)

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