Business Law - Exam 3

Front 1

Contract

Back 1

A promise (or set of promises) for breach of which the law gives a remedy.

Front 2

Bilateral Contract

Back 2

A contract with 2 promises.

Ex. I'LL sell you my car for $500 IF YOU buy the car on Friday.

Front 3

Unilateral Contract

Back 3

-A contract with 1 promise.
-Usually for rewards
-Any party can accept the contract + complete the act
-Ex. If you give me info on this missing person, I'll give you a $1,000 reward.

Front 4

If you don't follow the stipulations requested in the offer, you are...

Back 4

-Rejecting the original offer + counter-offering!

Front 5

Express Contract

Back 5

A written or oral contract in which all of the elements are specifically stated.

Front 6

Implied Contract

Back 6

-Non-spoken and non-written understandings.
-Existence of the contract is assumed.
-Ex. going to the dentist - if you accept services, it is IMPLIED that you will pay for them.

Front 7

Merchant's Firm Offer

Back 7

-UCC sec. 2, 205
-An offer by a merchant in writing states that it will be kept open (and irrevocable) for up to 3 months (90 days).

Front 8

Are advertisements offers?

Back 8

NO.

Front 9

How can an offer be terminated or responded to? (2)

Back 9

1) rejection

2) counteroffer

Front 10

Mirror Image Rule

Back 10

Under Common Law, you can't change a word of the offer, it must be the "mirror image" of what was offered to you to be a valid contract.

Front 11

Mailbox Rule

Back 11

-A timing rule in contract ACCEPTANCE that provides that: acceptance is effective upon mailing (if done properly)
-Once the acceptance is in the mailbox (or faxed over) it's effective! - Even if the offeror doesn't know about it yet!

Front 12

Void vs. Voidable

Back 12

VOID
-Neither side can enforce the contract legally, usually because it's a contract to do something illegal. (ex. a contract to kill someone or buy drugs)
VOIDABLE
-To get out of the contract, one must prove that one of the elements weren't there.

Front 13

Executed Contract

Back 13

Contract has been 100% performed/completed.

Front 14

Executory Contract

Back 14

A contract that is partially performed and waiting on more to be completed.

Front 15

2 Sources of Contract Law:

Back 15

1) Common Law - old way - for real estate, copyrights, personal service contracts, insurance, employment contracts, etc. (ex. crown @ dentist, lease, mortgage,...)

2) Uniform Commercial Code - applies to tangible, moveable objects. (Ex. buying a car, selling a horse,...)

Front 16

Who are the parties involved in a contract? (2)

Back 16

1) Offeror
2) Offeree

Front 17

What are the 5 Elements of a Contract:

Back 17

1) Offer
2) Acceptance
3) Consideration (both parties give something)
4) Capacity
5) Legality

Front 18

Defenses to getting out of a contract: (6)

Back 18

-Capacity
-Misrepresentation
-Fraud
-Illegality
-Undue Influence
-Duress

Front 19

Capacity (Defense) and 3 types/limits:

Back 19

-Both parties must have capacity, which includes age (18+) and mental capacity in order to have a valid contract.

1) Intoxication
2) Mental Illness
3) Minor

Front 20

VOID OR VOIDABLE?

-Intoxication
-Mental Illness
-Minor

Back 20

-Intoxication = voidable

-Mental illness = void (IF declared by judge)

-Minor = voidable @ option of minor only

Front 21

Age Capacity:

Back 21

-voidable ONLY at option of the minor, the adult cannot get out of the contract
-They must disaffirm the contract BEFORE they are 18.
-Before 18, they're called an "infant" or "minor"
-Necessities of life must still be paid for!!! (ex. student loans, food, etc.)

Front 22

Mental Capacity:

Back 22

-If they were just in a weird mental state (in and out of lucidity) - that's voidable, must be able to prove!

-If declared legally incompetent by the judge = void.

Front 23

Misrepresentation

Back 23

-Misstatement of a material fact.
-Reliance
-Damages
-Remedy can be rescission= contract is set aside.
-Not for opinions (ex. "you didn't make this room hollywood-esque!")

Front 24

Fraud

Back 24

-Intentional misrepresentation of a physical entity.
-voidable
-Intentional failure to disclose info
-Intentional use of false info

Front 25

Illegality

Back 25

-VOID.
-Ex. contract to have someone killed.
-Contracts in violation of licensing statutes must be competency-based as opposed to revenue-raising for contracts to be void. (licensed professionals need to be competent in their field. must have license at time service is performed)
-Regulatory-based are void.
-Contracts in violation of Usury Laws (charging over legal limit for interest)
-Contracts in violation of public policy.

Front 26

Exculpatory Clauses:

Back 26

-Full liability elimination is generally invalid.
-You sign it when you valet your car, go sky-diving, etc.
-They can't be excused from EVERYTHING.

Front 27

Duress

Back 27

-When the party is deprived of a meaningful choice.
-Physical threats - void
-Social or economic threats - voidable
-Has right to rescission

Front 28

Undue Influence

Back 28

- When there is a dominant relationship over someone causing them to sign the contract.
- Contract is voidable.
- Must have confidential relationship (ex. atty/client, nurse/patient)

Front 29

What is the Statute of Limitation for a felony?

Back 29

There is none.

Front 30

Concurrent Condition

Precedent Condition

Subsequent Condition

Back 30

Concurrent - performed at the same time.

Precedent - there is a preceding condition that must be met in order to perform.

Subsequent - ex. if you don't like it in 30 days, you can return it.

Front 31

When is performance excused? (2)

Back 31

1) Impossibility of performance - ex. truckers over frozen lakes... - Commercial Frustration is not excused! (Airport example)

2) Commercial Impracticability - basic assumptions parties made are no longer realistic.

Front 32

Novation

Back 32

The two original parties agree to substitute a performance or a new party in the contract. (subleases are not novation unless all three parties are in agreement, usually the landlord doesn't know/agree.)

Front 33

Compensatory vs. Consequential Remedies:

Back 33

Compensatory = putting the party in the same position they would have been without the contract problem.

Consequential = damages experienced in relation to 3rd parties. Late fees or loss of income for delays.

Front 34

Statute of Frauds

Back 34

-Says that writing is required for contracts of real estate, contracts that can't be performed in 1 year, and contracts to pay the debt of another.
-Under UCC, sale of goods $500+ must be in writing to be enforced in court.
-Contract doesn't have to be on formal paper - it can be pieced together on a Publix bag.

Front 35

Parol Evidence Rule

Back 35

-Prevents parties from using evidence that contradicts with the existing contract.
-Doesn't matter if that wasn't what you meant, the contract is unambiguous.
-Exceptions: fraud, misrepresentation, ambiguities, can testify for typos, etc.

Front 36

London International Court

Back 36

-Often used in international disputes.
-Ex. in a dispute between US and Mexico, they often would go to London International Court instead of US or Mexico's court to be more fair.

Front 37

3 Decisions Courts can make on a breached contract:

Back 37

1) Jail/fine
2) Award $$$
3) Injunction (make them turn it over)

Front 38

What are the 7 Main types of Business Organizations?

Back 38

1) Sole Proprietorship
2) General Partnership
3) Limited Partnership
4) Limited Liability Partnership
5) Limited Liability Company
6) Corporation
7) Sub Chapter S

Front 39

How can you pierce the "corporate veil?"

Back 39

With the "alter-ego" rule.

Front 40

How much time does an S Corporation have to file with the IRS before they get double-taxed?

Back 40

90 Days

Front 41

What is the most popular type of organization filed in the US today?

Back 41

LLC's.

Front 42

Who elects the board of directors?

Back 42

Shareholders

Front 43

How many shares can an S Corporation have?

Back 43

100 or less.

Front 44

Flow-Through Tax

Back 44

-Organization doesn't pay tax, it "flows-through" to the individual.

Front 45

Taxed, Not Taxed, Double Taxed?
-Corporations
-Limited Partnerships
-Sub Chapter S
-Partnerships

Back 45

-Corps = double taxed
-Limited Partnerships = not taxed
-Sub Chapter S = not taxed
-Partnerships = not taxed

Front 46

VOID OR VOIDABLE?
-Illegal, Physical Duress, Fraud, Social or Economic Duress, Incompetent (by judge), Minor, Capacity.

Back 46

-Illegal = Void
-Physical Duress = Void
-Fraud = Voidable
-Social/Economic Duress = Voidable
-Incompetent by Judge = Void
-Minor = Voidable
-Capacity = Voidable

Front 47

When partners share property, who owns it?

Back 47

-THE PARTNERSHIP, not the person on the title.

Front 48

If someone offers to sell you their car on Friday for $400, is that a valid offer? Yes/No.

If you say, "no, I'll buy it for $375." It's a(n) ___________.

Back 48

Yes!

Counteroffer and rejection of the original offer.

Front 49

What does the mailbox rule apply to?

Back 49

ACCEPTANCES, not offers.

Front 50

Business Judgement Rule

Back 50

-The directors of a corporation must make their managing decisions in good faith and in the best interests of the corporation.

Front 51

Under which law does the mailbox rule apply?

Back 51

UCC

Front 52

FORMATION of:

Sole Proprietorship, Partnership, Limited Partnership, Corporation, S Corp, Limited Liability Company, Limited Liability Partnership

Back 52

Sole Proprietorship = no formal requirements
Partnership = Articles of partnership (40/60%, 50/50%)
Limited Parnership = Filing articles of partnership
Corporation = formal filing of articles of incorporation
S Corp = Formal filing, special IRS filing
LLC = formal filing of articles of organization
LLP = Filing of articles of LLP

Front 53

FUNDING for:

Sole proprietorship, Partnership, LP, Corp, S Corp, LLC, LLP

Back 53

Sole Prop = provided by individual
Partnership = capital contributions by partners
LP = capital contributions by general + limited partners
Corp = Debt (bonds) + equity (shareholders)
S Corp = Debt (bonds) + equity (shareholders)
LLC = capital contributions of members
LLP = capital contributions of partners

Front 54

MANAGEMENT OF:

Sole prop, partnership, LP, corp, S corp, LLC, LLP

Back 54

Sole Prop = Individual
Partnership = partners (or delegated to one)
LP = general partners only - NOT limited partners
Corp = board of directors + officers + exec. committee
S corp = board of directors + officers/exec. committee
LLC = no centralized mgmt. All members manage (or delegated to one)
LLP = all partners (or delegated)

Front 55

TRANSFER CONTROL of:

sole prop, partnership, LP, corp, S corp, LLC, LLP

Back 55

Sole prop = no transfer
partnership = transfer interest, but not partner status
LP = transfer interest, but not partner status (except RULPA)
Corp = shares are easily transferred
S corp = restrictions on transfer to comply with s corp
LLC = no transfer without majority's consent
LLP = no admission without majority's consent

Front 56

TAXES on:

Sole prop, partnership, LP, Corp, S corp, LLC, LLP

Back 56

Sole prop = individual
Partnership = partner takes profits/losses on individal return (flow-through)
LP = partners take profits/losses on indiv. return (flow through)
Corp = double-taxed! (corp pays and shareholders pay)
S corp = shareholders pay taxes on profits; take losses
LLC = flow-through
LLP = flow-through

Front 57

TERMINATION of:

sole prop, partnership, LP, corp, s corp, LLC, LLP

Back 57

Sole prop = death or voluntary
Partnership = death or withdrawal of partner
LP = death or withdrawal of partner
Corp = dissolved ONLY if limited in duration or shareholders vote to dissolve
S corp = ONLY if limited in duration or shareholders vote to dissolve
LLC = death or bankruptcy
LLP = death or bankruptcy

Front 58

LIABILITY of :

sole prop, partnership, LP, corp, s corp, LLC, LLP

Back 58

sole prop = individual
partnership = partners are personally liable
LP = general partners are liable, LP's to extent of contribution
Corp = no shareholder personal liability UNLESS watered or corporate veil is pierced!
S corp = ^^^
LLC = only liable to extent of capital contribution
LLP = varies by state. liable for acts of partners is limited

Front 59

Sole Proprietorship

Back 59

-Formed by an INDIVIDUAL!
-No requirements to form
-Individual manages, provides funding, pays tax, and is liable.
-Can be sold
-Can have a fictitious name (which may have to be published)

Front 60

Partnerships

Back 60

-An association of 2+ persons to carry on as co-owners of a business for profit.
-Can include corporations + natural persons
-Voluntarily formed by agreement.
-Must draw up 'articles of partnership'
-Partners split NET not gross profits. Not entitled to a wage.
-Personal assets are reachable if partnership assets run out!
-DOES NOT PAY TAXES.
-Uninimous consent required for most decisions.
-Fiduciary relationship + duties (no competing, best interest of partnership)

Front 61

UPA + RUPA

Back 61

-Uniform Partnership Act
-In absence of a partnership agreement, UPA controls.
-RUPA = revised version!! ***

-ULPA = Uniform Limited Partnership Act (+ RULPA)

Front 62

Limited Partnerships

Back 62

-1+ general partners and 1+ limited partners
-general partners manage + are fully liable
-limited partners are liable only for their capital contributions (up to $100,000), but CANNOT manage
-must meet statutory requirements
-must file 'certificate of limited partnership'
-Taxed the same as general partnerships - on individual returns)

Front 63

Corporations

Back 63

-Legal existence, unlimited duration, double-taxed!
-Limited liability (shareholders liability generally limited to amount of investment or full liability once corporate veil is pierced)
-Centralized management
-Board of Directors (manage, elected by shareholders, held to "business judgement rule")
-Can sue and be sued
-Domestic = in state of incorporation, Foreign = out of state
-Model Business Corporation Act (statute)

Front 64

Sub Chapter S (aka S Corporation)

Back 64

-Limits on size (no more than 100 shareholders)
-Corporate liability protection
-Partnership tax status (not taxed)

Front 65

Limited Liability Companies (LLC)

Back 65

-Most popular type filed today!!!! ****
-General partnership
-Has 'MEMBERS'
-No centralized management, all members vote
-Shield
-Costs $150
-Good for real estate

Front 66

Limited Liability Partnership (LLP)

Back 66

-General partnership with limited liability
-Usually accountants

Front 67

In a partnership, what happens if a partner dies?

Back 67

-Dissolution of partnership.

Front 68

When property is shared in a partnership, who owns the property?

Back 68

THE PARTNERSHIP.

Not the person on the title.

Front 69

UCC - Battle of the Forms

Back 69

-If acceptance conditions are expressly conditional, it is a counteroffer, not an acceptance.
-"If performance is accepted after the counteroffer, even without express acceptance, under 2-207(3), a contract will exist under only those terms on which the parties agree, together with UCC gap-fillers." -Wikipedia