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
2
Q
valid
A
-meets all legal requirements
-law will enforce it
3
Q
voidable
A
-contract that appears to be valid on face
-defect that gives one party the option to cancel the contract
4
Q
unenforceable
A
-valid contract that the law will not enforce due to a specific legal reason
5
Q
Do contracts have to be in writing?
A
-Vast majority don’t
-some do
6
Q
contract
A
-agreement enforceable by the law
-all contracts are agreements but not all agreements are contracts
7
Q
Valid contract (must have all 4)
A
-mutual assent/agreement (foundation)
-capacity
-consideration
-legality/lawful purpose
8
Q
Mutual assent
A
-two people have agreed about something
9
Q
offeror
A
-makes the offer
-right to control terms of offer
10
Q
offeree
A
-receives the offer
11
Q
Four choices of the offeree
A
-yes
-no
-counter offer
-no response
12
Q
test of contract
A
-was an offer made and an acceptance given
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)
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
15
Q
revocation by the offeror (terminate)
A
-offeror revokes the offer
-offeror can revoke at anytime prior to acceptance even if given deadline
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
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)
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
19
Q
Acceptance is defective (4)
A
-duress
-under influence
-fraud
-a mistake by one or both parties
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
21
Q
under influence
A
-one party in a fiduciary relationship takes advantage of the other party in obtaining his acceptance
RESULT- voidable
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
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
24
Q
mistake by one or both parties (Subject matter of the contract)
A
-both parties mistaken
RESULT- voidable
25
mistake by one or both parties (Value of the subject matter)
-one or both parties mistaken
RESULT- valid
26
capacity
-power or legal authority given to you and me by the law to enter a contract
27
Capacity situations(3)
-minor
-intoxication
-mental illness/defect
28
minors
-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
29
Necessities
-food
-clothing (basic)
-necessary medical care
-housing (not all)
30
minor decisions
-affirm (stay in)
-disaffirm (back out)
31
Minor affirm
-can only affirm when he reaches age of majority
32
Minor disaffirm
-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
33
cosigner
-second person on the contract that is fully liable to perform under contract
-100% liable
34
ways you affirm as a minor?
-let adult know
-keep what you bought/make payments
-stop making payments (disaffirm)
35
intoxication
-under the influence of mind altering substance
-civil and criminal have nothing to do with each other
36
intoxication level of measurement
-you don't understand what you're doing
37
intoxication contract RESULTs
-contract made by an intoxicated person is voidable at his option except for necessities
-can affirm once sober
38
mental illness/defect
-men/women who are declared mentally incompetent by a judge after medical testimony
RESULT: any contract made is void
39
mental illness/defect (NOT/dementia)
-men/women who have not been declared mentally incompetent
-trigger event is lucid (disaffirm)
RESULT: contract is voidable at his option except for necessities
40
Consideration
-bargain for exchange
-promises don't have to have any money value
-measure by new obligation
-have to promise something new (pre existing duty)
41
legality/lawful purpose
-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
42
Contract illegal
-violation of a statute
-violation of public policy
43
Violation of a statute
-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
44
violation of usury law
-sets max interest rate a lender can charge
45
violation of a revenue licensing statue
-gov't charge business money for a license to operate
-no effect on the contract
RESULT: valid/enforceable
46
violation of a regulatory licensing statute
-gov't entity sets minimum standards for the license holder to meet
-law will not enforce
47
violation of a Sunday blue law
-prohibits certain business activities on Sunday including the making of a contract
48
violation of public policy
-good for society as a whole
-competition in the market place
-employment contract
-sale of the business
49
employment contract
-can't go to work for the competition
50
sale of the business
-saler must agree not to open a competing business after the sell
51
if/when restrictions (employment/sale of a business)
-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
52
time
-how long the restriction last
-shorter the time the more likely reasonable (1 year)
53
territory
-how large of a geographical area are you restricted to
-smaller the area the more reasonable
54
sale of a business restrictions
-can't open a competing business for a designated time/area
55
how does common law treat contracts?
-verbal and written contracts are the same
56
statute of frauds
-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
57
types of contracts included in statute of frauds
-contract to buy/sale real property (land)
-a promise to a creditor to pay someone else debt owed to that creditor
58
personal guarantee
-third party promises to pay existing debt not owed by them
59
what has to be on a written contract?
-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
Discharge of a contract (6)
-performance
-agreement of parties
-operation of law
-impossibility
-condition
-exculpatory clause
61
full (performance)
-both parties fully and completely perform all of their duties under the contract
62
material breach (performance)
-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
Performance
-full
-material breach
-substantial performance
64
substantial performance
-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
agreement of parties
-mutual recision
-accord and satisfaction
-novation
66
mutual recision (agreement of parties)
-both parties agree to cancel their contract
-results in both parties being discharged
67
accord and satisfaction (agreement of parties)
-both parties agree to substitute a new performance for the original performance
-results in the discharge of the obligated party
68
novation (agreement of parties)
-both parties agree to substitute a new obligated person for the original obligated person
-results in the discharge of the obligated party
69
operation of law
-statute of limitations
-bankruptcy
70
operation of law
-one party is discharged as a result of a specific legal reason
71
statute of limitations (operation of law)
-deadline by which all lawsuits must be filed
-if you miss the deadline the obligated party is discharged from liability
72
bankruptcy (operation of law)
-result in the debtor being discharged
73
impossibility
-subjective
-objective
74
subjective (impossibility)
-does not discharge the obligated party
75
objective (impossibility)
-obligated party is discharged
-death, physical/mental of the obligated party
-destruction of subject matter
76
condition
-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
exculpatory clause
-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
Business organization
-sole proprietorship
-partnership
-corporation
79
legal entity
-living person or non living thing that the law recognizes as having legal rights/obligations
80
characteristics of a legal entity
-can own land/personal property in its name
-can enter into a contract
-can sue or be sued
81
sole proprietorship
-one owner business
82
creation (sole proprietorship)
-don't have to file any legal documents with state government to create
-easiest to create
83
Name rules (sole proprietorship)
-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
capital (sole proprietorship)
-start up money/seed money
-limited to what one owner has
-most undercapitalize
-highest failure rate
85
Management (sole proprietorship)
-hands on and direct by the one owner
86
Liability for debts (sole proprietorship)
-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
legal entity status (sole proprietorship)
-the owner is the legal entity
88
Lack of continuity (sole proprietorship)
-when the owner dies the legal entity is dead
-start over/shut down
89
buying selling (sole proprietorship)
-buy or sell just like you would with personal property
90
paying taxes (sole proprietorship)
-the owner pays income tax on the business profits on that owners personal tax return
91
Partnership types
-general
-limited
92
Partnership (G)
-association of two or more persons operating a business for profit as co owners
93
partnership creation (G)
-contract between the partners
-minimum of 2
-no maximum limit
94
who can be a partner
-human being
-partnership
-corporation
-any combination of the three
95
goal/purpose of partnership (G)
-the business expectation is to make a profit
96
profit of a partnership (G)
-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
partnership capital contribution (G)
-cash
-property (real/personal)
-expertise (Skill)
98
naming a partnership (G)
-can't use someone else's name
-legal name of owners doesn't have to be in name
99
management of partnership (G)
-partners have an equal voice unless agreed otherwise
-majority rules
-can have unequal voting power
100
partnership legal entity status (G)
-partnership is a legal entity
101
debt of a partnership (G)
-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
partnership taxes (G)
-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
dissolution (G)
-legal entity ceases to exist
104
triggering events of dissolution (G)
-death of a partner
-withdraw of a partner
-expulsion of a partner
105
events after dissolution (G)
-liquidation
-continuation
106
liquidation (G)
-shut business down
-sell assets
107
continuation (G)
-business continues operating
-forms new legal entity
108
what happens after liquidation (G)
-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
Liability of a partner who withdraws/expelled (G)
-a partner who withdraws/expelled continues to have unlimited personal liability for all debts that existed on his day of departure
110
liability of a new partner (G)
-has unlimited personal liability only for those debts created after he became a partner
111
Limited partnership
-some partners have limited personal liability and no management opportunities
-have both general and limited partners
112
liability (L)
-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
Negatives of limited partnership role
-no voice in management
-your share of the profits is less than the general partner
114
loss of limited liability
-if a limited partner participates in management he loses his limited liability protection
115
creation of limited partnership
-must file certain documents with state government
-if you don't file paperwork your a general partner
116
name (L)
-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
limited Partnership members
-at least one general
-at least one limited
118
capital contributions (L)
-general partner (cash, property, expertise)
-Limited partner (cash and property)
119
legal entity status (L)
-limited partnership is a legal entity
-plaintiff/defendant
120
taxes (L)
-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
Ability to leave a limited partnership
-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
events after dissolve (L)
-liquidation
-continuation
123
liquidation (L)
-creditors are paid (limited doesn't owe)
-loans are repaid
-capital is repaid to limited first then general
-rest distributed as profit
124
Corporation
-owners have indirect managerial control
-owners have limited liability for corporate debt
125
corporate liability
-owners own stock but not assets
-owners limited liability is whatever he paid to buy his stock
-stockholder treated like limited partner
126
creation (C)
-you must file certain documents to state government
-not created until paperwork filed
127
structure/management (C)
-owners (stockholders)
-board of directors
-officiers
128
stockholders (C)
-indirect control
-given right to elect board of directors
-can't tell the officers or BoD what to do
129
board of directors (C)
-hire/fire the officers
130
officers (C)
-responsible for day to day management of the corporation
-make all managerial decisions
131
Can someone be a stockholder, BoD, and officer?
-yes
132
Name (C)
-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
Make money owning stock
-appreciation in value (price goes up)
-Dividends
134
dividends
-cash payment to the stockholders made out of corporate profits
135
taxation (C)
-corporation pays corporate income tax on its profits
-dividends are paid with after tax profits
136
double taxation
-stockholders have to pay income tax on his individual tax form after receiving a dividend
137
legal entity status (C)
-corporation is a legal entity separate and distinct from owners
138
continuity (C)
-owners can come and go without causing it to dissolve
-can theoretically last forever
139
Vicarious liability (C)
-when a corp can be liable for the wrongful acts of its employee
140
name for corporation (C)
-principle
141
name for employee (C)
-agent
142
vicarious liability requirements
-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
