Fin 240 Allveri Midterm 2

Front 1

Contract Definition

Back 1

Legally enforceable exchange of promised, or the exchange of a promise for an act.......... Brings predictability to business transactions

Front 2

Promise <-> Promise
Promise <-> Act

Back 2

bilateral K
unilateral K

Front 3

Case Law

Back 3

The origin of K law; has been modified by statutes and summarized in Restatement of the Law of Contracts

Front 4

Uniform Commercial Code (UCC)

Back 4

Purpose is to obtain uniformity in state contract laws (all states have adopted UCC in whole or part); applies to sales of goods

Front 5

Contract Classification: Express/Implied Ks

Back 5

(written/verbal words v. conduct)

Front 6

Contract Classification Void, Voidable, Valid Ks

Back 6

(illegality/defect in formation)

Front 7

Contract Classification Unilateral/Bilateral Ks

Back 7

(promise for act v. promise for promise)

Front 8

Contract Classification Executed/Executory Ks

Back 8

(all terms performed)

Front 9

Contract Classification Quasi-K

Back 9

Contract that the court implies

Front 10

Offer (Initiates possible K)

Back 10

1) Must be communicated (by offeror to offeree)
2) Must be evidence of intent to enter K
3) Offer must be definite (subject matter/quantity/price)
4) Can be terminated

Front 11

Contracts can be terminated by....

Back 11

•Lapse of time (must respond w/in reasonable time)
•Death of offeror or offeree
•Destruction of subject matter
•Offeree’s rejection/counteroffer
•Revocation by offeror b/4 acceptance

Front 12

Offeree’s rejection/counteroffer

Back 12

Common Law- An offeree sends a counteroffer, there is no contract until both sides come to a complete full agreement
UCC- As long as some terms match the original offer, a contract can be made

Front 13

Revocation by offeror b/4 acceptance

Back 13

if offeree pays an option, offer held for 30 days; UCC 2-205 imposes 90 days for written offers by one merchant to another

Front 14

Elements of a Legal Contract

Back 14

•Offer
•Acceptance
•Consideration
•Genuine Assent
•Competency
•Legal Object (K's subject must be lawful)

Front 15

Acceptance of a K

Back 15

Offeree must show intent to accept (words/conduct/writing)
Intent must be communicated by reasonable means
Must mirror the terms of the offer (common law, not UCC)

Front 16

Contracts that Must be in Writing (laws come from Statute of Frauds)

Back 16

1) Real Estate contract (interest in land)
2) Contracts to Pay Debts of Another
3) Contracts not Performable in 1 Year (date)
4) Sale of Goods $500 or More (3 exceptions)
5) Certain Non-business Ks
(marriage & debts of deceased)

Front 17

Sale of Goods $500 or More need a writen contract(3 exceptions)

Back 17

One party admits to oral K (in writing or court)
Buyer accepts and uses the goods
K between merchants (when merchant got written confirm of oral K and did not object w/in 10 days)

Front 18

Parol (Oral) Evidence Rule

Back 18

When parties have a written K, any prior or contemporaneous oral Ks with different terms are invalid and inadmissible in court

Front 19

Parol (Oral) Evidence Rule.... Main Exceptions....

Back 19

Oral agreements to clear up ambiguity in written K
Oral agreements to prove fraud, duress, mistake, lack of capacity, illegality, undue influence

Front 20

Donee-Beneficiary K

Back 20

Type of 3rd Party Beneficiary Ks Promisor gives promise to promesee to make gift to a 3rd person (ex. Life insurance)

Front 21

Creditor-Beneficiary K

Back 21

Type of 3rd Party Beneficiary Ks Creditor-Beneficiary K
• Promisor gives promise to promisee to fulfill promisee’s legal obligation to a 3rd party

Front 22

Case 10-2

Back 22

o Citation:
The Private Movie Company, Inc v. Pamela Lee Anderson et al. Superior Court of California, County of Los Angeles (1997)
o Facts:
 Pamela Anderson sueed for alleged breach of contract for her failure to perform in movie
 Plaintiff’s original script was sent to Lee, which she indicated that she liked very much except for the nudity and sexual content.
o Issue:
 Did Pamela Lee agree to perform in a movie
 Did Pamela Lee enter a binding contract with Private Movie Company
 Does an acceptance of an offer have to be absolute and unconditional in order for a contract to be created?
o Conclusion
Plaintiff did not prove that a contract existed

Front 23

Material breaches

Back 23

are substantial and often intentional; substantial performance will not be recognized; injured party may sue for damages (breaching party may get chance to cure)

Front 24

Accord & Satisfaction

Back 24

Type of way to void an existing contract: Parties may wish to substitute a totally new agreement

Front 25

Novation

Back 25

Type of way to void an existing contract: Parties may wish to substitute new parties and keep the same duties

Front 26

Condition Precedent

Back 26

event that must take place to give rise to duty of performance (attorney approval)

Front 27

Condition Subsequent

Back 27

an event, following execution of K, that terminates K (act of war)

Front 28

Commercial Impracticality

Back 28

Type of way to void a Contract: Unanticipated situation that makes performance unreasonably expensive, injurious, or costly

Front 29

Ex- plastic manufacturer becomes short of raw materials b/c of war & embargo, and can’t find alternative source for similar price

Back 29

Commercial Impracticality

Front 30

Impossibility of Performance

Back 30

1) Situation in which the party cannot legally or physically perform the K
2) Performance must be “objectively impossible” (no person or company could perform the K)
3) Three most common situations:
•Death or illness
•Change of law making the performance illegal
•Destruction of K’s subject matter

Front 31

Mutual Agreement

Back 31

Type of way to void a contract: both parties withdraw and walk away, Novation, Accord & Satisfaction

Front 32

Compensatory Damages

Back 32

If injury occurs, money can replace the value of work or materials promised in a K

Front 33

Punitive Damages

Back 33

to punish and frighten D (rare in K case)

Front 34

Liquidated Damages

Back 34

interest stipulated in K when payments are made late

Front 35

Nominal Damages

Back 35

small amount awarded when damages can’t be proven; P can try and win court fees and charges

Front 36

Rescission

Back 36

cancellation of K (fraud/duress/undue influence)

Front 37

Injunction

Back 37

temporary or permanent order that prevents a party on a contract from doing something specific or anything at all

Front 38

Reformation

Back 38

correction of K terms to help and create a better understanding between parties

Front 39

Tort

Back 39

injury to another person or property

Front 40

Tortfeasor

Back 40

the wrongdoers (person who commits the tort)

Front 41

Compensatory Damages

Back 41

To put person in same position he/she would have been in if tort had not occurred (makes the victim “whole”)
E.x.--> medical expenses, lost wages, pain and suffering, property repair

Front 42

Nominal Damages

Back 42

Recognizes that P was wronged by D
P cannot prove damages that require compensation
Usually a small amount (like $1); allows for punitive damages

Front 43

Punitive Damages

Back 43

To punish D for unconscionable, obvious, or offensive act(s)
Must accompany compensatory or nominal damages
Punitive award violates US Constitution if “grossly excessive”

Front 44

Defamation

Back 44

Saying/publishing something false about someone’s reputation/charter

Front 45

False Imprisonment

Back 45

Detaining/confining someone without justification

Front 46

EX: Telling lady that her son is lying dead in the street when you know it is not true

Back 46

Intentional Infliction of Emotional Distress

Front 47

EX: Wiretapping; Using someone’s password to hack into their home computer’s email

Back 47

Invasion of Privacy

Front 48

EX: Shooting/stabbing/punching/ groping/spitting on someone

Back 48

Battery

Front 49

EX: Pointing a gun at someone

Back 49

Assault

Front 50

EX: Borrowing neighbor’s car without permission

Back 50

Trespassing

Front 51

EX: Borrowing car without permission and totaling it

Back 51

Conversion

Front 52

EX: Offending or insulting a business product or service

Back 52

Disparagement

Front 53

EX: Luring employee to work for you when you know they have an existing employment K with current company

Back 53

International Interference w/a Contract

Front 54

Unfair Competition

Back 54

Going into business in order to harm someone else’s business (no genuine profit motive)

Front 55

EX: Father wants son to go to college. Son wants to open a painting business (and does so). Father goes into painting business and underbids son on all jobs in order to put son out of business (hopefully forcing him to go to college)

Back 55

Unfair Competition

Front 56

EX: A customer tells Starbucks manager a good idea for business, which the company uses successfully and makes increase profits. Starbucks fails to compensate the customer for his/her idea.

Back 56

Misappropriation

Front 57

Misappropriation

Back 57

Using someone’s unsolicited idea in a business, and then failing to compensate them if the idea is successful (does not include employees, who are expected to come up with ideas to help business)

Front 58

Res ipsa loquitor

Back 58

Act can’t be explained any other way than defendant’s negligence (no witnesses present)

Front 59

Negligence per se

Back 59

Defendant violated rule and is inherently negligent
Ex- selling Nyquil to minors
**Violates a law that provides safety**

Front 60

Contributory Negligence

Back 60

If any percent is P's fault, they cannot win a lawsuit

Front 61

Product Liability: 3 Theories of Recovery

Back 61

Strict Product Liability (most common)
Negligence
Breach of Warranty

Front 62

Product Liability: Negligent Warning

Back 62

-If a product is dangerous in its ordinary use or reasonably foreseeable use, warning required
-Sometimes a warning must be accompanied by graphics (children/illiterate)

Front 63

Product Liability: Negligent Design

Back 63

If risk of harm outweigh utility/use of product

Front 64

Express Warranty

Back 64

written or verbal—seller tells buyer that a ladder will support a 200 pound person

Front 65

Implied warranty of fitness for particular purpose

Back 65

seller knows buyer wants good for particular purpose—farmer needed special engine oil for a John Deere Engine

Front 66

Implied warranty of merchantability

Back 66

goods reasonably fit for ordinary use— latex rubber gloves

Front 67

Strict Product Liability, protects

Back 67

Protects against a defective product that made the product unreasonably dangerous, and caused P's injury

Front 68

Strict Product Liability, how to prove a product is defective (hardest part)

Back 68

• Some flaw or abnormality in construction (dead mouse in bottle of Squirt; shattering jar of peanuts)
• Failure to adequately warn of potential risks
• Defective design (entire product line becomes questionable; recall may result)

Front 69

Market Share Liability

Back 69

used when it is difficult to trace a product to a particular manufacturer

Front 70

EX: A child chokes on a small toy and dies. But there was no proper labeling allowing the family to pinpoint the one company responsible for the production of the toy.... The liability to pay the suing family relies upon the plastic company, the assembly company, and the shipping company

Back 70

Market Share Liability

Front 71

Service Liability

Back 71

Applies against Doctors, Accts, Lawyers, generally malpracticed actions based on negligence, breach of K, or fraud.

Front 72

Ultamares Doctrine

Back 72

accountants are liable only to those in privity-of-contract relationship with the accountant (i.e., the client)

Front 73

Restatement (2nd) of Torts (new standard)

Back 73

expands liability to include intended users of the information (i.e., anyone who will rely on the accountant’s work)

Front 74

Revocation

Back 74

an offeror can revoke the offer any time before acceptance

Front 75

3 Kinds of Property

Back 75

Real, Personal & Intellectual Property

Front 76

Estate in Land

Back 76

determines duration/extent of property rights

Front 77

Estate: Fee Simple Absolute

Back 77

write to own and possess land against all others, without conditions

Front 78

Estate: Conditional Estate

Back 78

same as F.S.A. except subject to a condition (event or nonevent) that terminates the interest

Front 79

Estate: Easement

Back 79

irrevocable right to use portion of someone’s land for specific purpose. Arises in 3 ways:
• by express agreement (utility company runs power lines)
• by prescription (when one openly uses portion of property)
• by necessity (when a property is divided and one portion becomes landlocked)

Front 80

Estate: License

Back 80

temporary, revocable right to be on property (public has a license to enter business property)

Front 81

Estate: Life Estate

Back 81

right to own and possess until death
• Holder cannot “waste” property (do something that destroys value, or fail to make necessary repairs)
• The “future interest” usually passes in F.S.A. to next person

Front 82

Estate: Leasehold Estate

Back 82

Right to possess property temporarily
• Lease – K that transfers the possessory interest
• Owner- lessor/landlord, Leaseholder – lessee/tenant

Front 83

Fraud

Back 83

misrep of fact with intent to deceive

Front 84

Duress

Back 84

wrongful act or threat that prevents free will

Front 85

Undue Influence

Back 85

mental coercion by stronger party

Front 86

Real Property: Attached

Back 86

if removal would cause damage, or if essential to the functioning of the structure

Front 87

Real Property: Fixture

Back 87

personal property that becomes part of real property when permanently attached (except by written agreement, or if a “trade fixture”)

Front 88

Personal Property

Back 88

may be tangible or intangible

Front 89

Intellectual Property

Back 89

created by mental processes

Front 90

Co-Ownership Joint Tenancy

Back 90

own = shares; may sell w/out other’s consent; upon death share divided among other joint tenants


Front 91

Co-Ownership: Tenancy in Common

Back 91

may have unequal shares; can sell w/out other’s consent; upon death heirs receive share

Front 92

Co-Ownership: Tenancy by the Entirety

Back 92

for married couples; cannot sell w/out other’s consent; upon death all goes to surviving spouse

Front 93

Co-ownership: Condominium

Back 93

owner gets title to unit & undivided interest in all “common areas”; CC&Rs govern the property

Front 94

Co-Ownership: Cooperative

Back 94

resident is an investor who acquires stock in corp that owns apt bldg; gets permanent lease for 1 unit

Front 95

Involuntary Transfer of R.P: Condemnation

Back 95

-Process by which government acquires ownership of property for public use (under “Takings Clause”)

Front 96

Involuntary Transfer of R.P: Adverse Possession

Back 96

Person openly treats property as his/her own (actually resides on or uses it)
Owner doesn’t give permission, but doesn’t protest either
Must be done for a defined legal period

Front 97

Variance

Back 97

the permission to use land in manner prohibited by zoning

Front 98

Personal Property

Back 98

Any property that is not real property: furniture, cars, bank account, stocks

Front 99

Most transfers of Personal Property don't require formalities, except...

Back 99

motor vehicles, watercraft, airplanes

Front 100

Voluntary Transfer of Personal Property:
Involuntary Transfer of Personal Property:

Back 100

Sales & Gifts
Abandoned, Lost, Mislaid (person who owns property where item was left, now owns it)

Front 101

Trade Dress

Back 101

Overall appearance/image of product; gets same protection as trademark (Ex- copying famous golf holes; restaurant design; shampoo bottle)

Front 102

Trade Secret

Back 102

Process, product, method use in a business that is not known to public (may bestow a competitive edge)............ Competitor can discover lawfully (reverse engineering, public tour)

Front 103

Tying arrangement

Back 103

patent holder gives license to use the patented object only if licensee agrees to buy a non-patented object from the holder

Front 104

Cross-licensing

Back 104

2 patent holders license each other to use their patents, on condition that neither licenses to anyone else w/out other’s consent

Front 105

Principal-Agent (mostly employer-employee; not always)

Back 105

• Expressed Authority
o Authority arising from specific statements made by the principal to the agent
• Actual Authority
o Expressed authority + authority customarily given to agent in an industry/trade/profession

Front 106

Expressed Authority

Back 106

Authority given directly by principal to agent (employee)

Front 107

Actual Authority

Back 107

Expressed authority + authority that is implied with the job or task at hand

Front 108

Expressed Agency

Back 108

If agreement longer than 1 year, must be in writing
 Power-of-Attorney document often establishes relationship

Front 109

Agency Through Ratification

Back 109

When person misrepresents himself as agent, and principal accepts (ratifies) the unauthorized act
-Two conditions necessary for ratification to be effective:
-P must have full knowledge of A’s action -3rd party must be made aware before

Front 110

Agency by Implied Authority

Back 110

Express agreements often fail to cover every detail
Custom and circumstances determine A’s authority
Courts have allowed As to receive payments of $ due to P, hire/fire employees, buy equipment/supplies, enter in Ks

Front 111

Duty Compensation

Back 111

Principal Duty to Agent: even if no written agreement, it is implied that P will compensate A for services (flat fee, hourly fee, contingency fee)

Front 112

Duty of Reimbursement (Indemnification)

Back 112

Principal Duty to Agent: P must reimburse A for losses/expenses incurred while acting on P’s behalf

Front 113

Duty of Cooperation

Back 113

Principal Duty to Agent: P cannot interfere with A’s reasonable conduct (allowed conduct usually defined in agreement)

Front 114

Duty to Provide Safe Working Conditions

Back 114

Principal Duty to Agent: P must comply with basic safety standards, like those mandated by OSHA

Front 115

Duty of Obedience

Back 115

Agent Duty to Principal: A must follow all of P’s reasonable and lawful instructions

Front 116

Duty of Performance

Back 116

Agent Duty to Principal: A must use reasonable care and skill in performing work; live up to standards customary in the trade

Front 117

Duty of Accounting

Back 117

Agent Duty to Principal: if P requests accounting of property or money, A must do it/deliver it

Front 118

Duty of Loyalty

Back 118

Agent Duty to Principal: most important duty; arises from fiduciary duty (avoid conflicts of interest; communicate all material info to P; refrain from acting in a manner adverse to P’s interests)

Front 119

Contractual Liability: Disclosed Principal

Back 119

one whose ID is known by the 3rd party when 3rd party enters agreement negotiated by A

Front 120

Contractual Liability: Undisclosed Principal

Back 120

P’s ID and existence are both unknown to the 3rd party

Front 121

Contractual Liability: Partially Disclosed Principal

Back 121

P’s ID is not specifically known, but 3rd party knows A represents someone (P exists)

Front 122

P is liable for crimes committed when A is acting on P's behalf when....

Back 122

1) When P participates directly in A's crime
2) When P has reason to know that A is violating the law

Front 123

Liability for Torts Committed w/in Scope of Employment

Back 123

-Was A (employee) acting in P’s (employer’s) interests?
-Was A authorized to be in that particular place at that time?

Front 124

Notice to 3rd party about Termination of Principal-Agent relationship, by law is not required when...

Back 124

-Death of one of the parties
-Insanity of one of the parties
-Bankruptcy of P
-Impossibility of performance (due to loss of subject matter or change in the law)
-Outbreak of war (especially b/t A and P’s countries)

Front 125

Global Agency Law: Japan

Back 125

-Agents must disclose who they represent
-3rd parties often require proof that A represents P
-A must have expressed authority

Front 126

Global Agency Law: European Union (EU)

Back 126

-P and A must act in good faith toward each other
-A must follow P’s instructions quite literally
-Agency agreements require notice of termination

Front 127

Sole Proprietorship

Back 127

-Person goes into business alone
-Responsible for all profits and losses (personally liable)

Front 128

General Partnerships

Back 128

-Each partner makes initial contribution of cash/realty/services
• Management & profits are normally divided equally
• All partners are personally liable for the partnership’s debts

Front 129

Partnerships Generally

Back 129

-Voluntary association of 2 or more people, formed to carry on a business as co-owners
• Partners have fiduciary duty to each other (trust/confidence)
• Often no written agreement at the beginning (p. 437 has typical items); UPA controls if no written agreement
• No perpetual existence (dissolution and winding-up occur at end)

Front 130

Limited Partnerships

Back 130

• Has 1 general partner, responsible for management
• Has 1 or more limited partners that merely invest (their liability is limited to the amount they invested)
• Must include “limited” or abbreviation in the name

Front 131

The Basics

Back 131

• Entity created by state law; raises capital by issuing stock to investors (who own the corp)
• Corporation is legally treated as a single person

Front 132

Corporation: Closely Held

Back 132

(private corporation) usually owned by small group; stock not traded on securities exchange; usually restrict sale of stock to initial shareholders

Front 133

Corporation: Publicly Held (C Corp)

Back 133

stock traded on the national exchanges; numerous shareholders are merely investors; real control is with officers and managers (who may also own stock)

Front 134

Corporation: Subchapter S

Back 134

hybrid of corp and partnership; operates like corp but taxed like partnership; no more than 35 shareholders; only 1 class of stock; no corps/partnerships can own stock

Front 135

“Articles of incorporation”

Back 135

create the entity (name, address, agent, purpose, stock, incorporators, directors)

Front 136

“Bylaws”

Back 136

are the governing regulations

Front 137

Equity financing

Back 137

-corp sells stock (equity securities)
o Stock gives shareholders right to vote and get dividend income
o Stock is generally either common or preferred

Front 138

Debt Financing
o Notes
o Bonds
o Debentures

Back 138

Debt Financing
o short term
o secured long term
o unsecured long term

Front 139

Capital structure

Back 139

percentage of debt capital, common stock and preferred stock

Front 140

Shareholders

Back 140

vote for the Directors (in person or by substitute)

Front 141

Board of Directors

Back 141

have formal management responsibility; set corporate policy; hire/fire managers and officers

Front 142

Corporate Officers/Managers

Back 142

appointed by the directors; manage corporation daily affairs

Front 143

Corporate Opportunity Doctrine

Back 143

corporate officers and directors cannot take personal advantage of an opportunity that belonged to the corporation (if they do, it’s a breach of the duty to act in best interests of corporation)............ EX: selling all of your stock because you know the value is going to fall

Front 144

Business Judgment Rule

Back 144

courts will not second-guess business decisions made in good faith by officers/directors; they are not liable for honest mistakes of business judgment

Front 145

Joint Venture

Back 145

Two or more individuals, partnerships, or corps (foreign and/or domestic) agree to finance/produce/sell something for a specific purpose or time (pool labor and/or capital)

Front 146

Franchising

Back 146

Franchisor owns trade name or trademark and allows franchisee to sell/market or distribute the good; franchisee usually pays % of gross sales to franchisor