Business Law Exam 1

Constitution - Supreme Law of the land

• Constitutional law
• Statutory Law
•  - State law
• Administrative Law
•  - Agencies

Case Law: The rules of law announced in court decisions.

Common Law: general rules, body of law developed from custom or judicial decisions in English and U.S. courts

• Judges stand on a decided case
• following the rules of precedent

Equitable Remedies: Specific performance, injunction, or rescission

Court/legal Remedies: Monetary damages

• permits congress to regulate commerce
• enabled the national government to wield extensive powers over the economic life of the nation.

reserves states all power not expressly delegated to the national government

• First 10 amendments to the US constitution. 
• Protects individuals rights

Court must have jurisdiction over the person as well as jurisdiction over the subject matter

A requirement that a party must have a legally protected and tangible interest at stake sufficient to justify seeking relief through the court system.

A state statute that permits a state to exercise jurisdiction over nonresident defendants

• Supreme court
• Intermediate court - Court of Appeals
• Trial court

• Pleadings
• Pretrial motions
• Discovery
• Pretrial Conference
• Trial
• Posttrial motions
• Appeal

• Complaint - plaintiff files a complaint with the court
• Answer - Defendant response 
• Motion to dismiss - request the court to dismiss the case

• Motion for judgment on the pleadings - how the law applies to the facts
• Motion for summary judgment - question of law

• Depositions - Sworn testimony
• Interrogatories - written questions and answers
• Requests - request for documents
•  - Electronic discovery - email, voice mail, documents

identify the matters in dispute after discovery has taken place and to plan the course of the trail

• Motion for judgment n.o.v (notwithstanding the verdict) - jury was in error
• motion for a new trial - jury was in error

• negotiation 
• mediation - neutral third party
• arbitration - submit disputes to a neutral third party (may or may not be legally binding)
• Other types of ADR - assisted negotiation 
• Providers of ADR services - not for profit
• Online dispute resolution

• Sole Proprietorship
• Partnership
• Limited Liability Partnerships
• Limited partnerships
• corporations
• limited liability companies

• select a state of incorporation
• secure the corporate name
• prepare the articles of incorporation
• file the articles with the secretary of state

a document containing basic information that is filed with the appropriate state official, usually the secretary of state, when a business is incorporated.

if a third party is suing the court can consider the business a corporation by estoppel

The corporation has the implied power to do all acts reasonably appropriate and necessary to accomplish its corporate purposes

courts can hold shareholders personally liable.

Prohibits fraud and stabilizes the securities industry by requiring disclosure of all essential information relating to the issuance of securities to the investing public.

• Regulation and registration of securities exchanges, brokers, dealers, and national securities associations. 
• Maintain a continuous disclosure system

• Trading of securities
• Insider trading
• Liability for insider trading
• Disclosure of material facts
• Violation can cause civil or criminal law suite

Requires officers, directors, and shareholders owning 10% or more of the issued stock of a corporation to turn over to corporation all short-term profits realized from the purchase and sale or sale and purchase of corporate stock within any 6 mn period.

• SEC regulates proxy statements sent to shareholders
• disclosure law

Regulate the offer and sale of securities within state borders

Increase corporate accountability by imposing strict disclosure requirements and harsh penalties for violations of securities law

• Prohibits contracts, combinations, and conspiracies in restraint of trade
• Horizontal Restraints: price-fixing, group boycotts, trade association agreement
• Vertical Restraints: territorial or customer restrictions, resale price maintenance agreements, refusal to deal

applied to restraints on trade that are so inherently anti competitive that they cannot be justified and are deemed illegal as a matter of law

Applied when an anti competitive agreement may be justified by legitimate benefits

Prevents monopolization

an agreement that can be enforced in court. Formed by two or more parties who agree to perform or to refrain from performing some act now or in the future

common law unless modified or replaced by statutory law (UCC)

establishes what kind of promises will be legally binding and supplies procedures for enforcing legally binding promises or agreements

determine by objective facts, not by the personal or subjective intent, or belief of a party

• agreement
• consideration - money
• contract capacity
• legality

Promise for a promise

A promise for an act - performance contract

Special form for contract formation

Requires no special form for contract formation

Formed by words

Formed at least in part by the conduct of the parties

A fully performed contract

A contract not yet fully perfomed

A contract that has the four necessary contractual elements of agreement, consideration, capacity, and legality.

A contract in which a party has the option of avoiding or enforcing the contractual obligation

A valid contract that cannot be enforced because of legal defense

No contract exists, or there is a contract without legal obligations

No contract exists, but a court imposes a contract on the parties to prevent unjust enrishment

• Intent
• Definitness
• Communication

serious, objective intention by the offeror to become bound by the offer.

• expression of opinion
• statements of future intent
• preliminary negotiations
• generally, advertisements, catalogs, price lists, circulars
• agreement to agree in the future

terms of the offer must be sufficiently definite to be ascertainable by the parties or by a court

the offer must be communicated to the oferee

• revocation
• rejection
• counteroffer
• lapse of time
• destruction of the specific subject matter of the offer
• death or incompetence of the offeror or offeree
• illegality

the offer can be revoked at any time before acceptance without liability. unless irrevaocable

• words or actions that demonstrate a clear intent not to accept the offer
• not effective until it is received by the offeror

Rejection of the original offer and the making of a new offer

• At the end of the time period specified
• A reasonable time period, if no time period is specified

• Can be made only by the offeree or the offeree's agent
• Must be unequivocal

effective on full performance of the requested act

buyer completes a transaction on a computer is required to indicate his/her assent to be bound by the terms of an offer by clicking on a box that says "I agree"

• Agreement terms are expressed inside a box in which goods are packaged.
• keeping the goods, he/she agrees to the terms of the shrink-wrap agreement

no contract, record, or signature may be denied legal effect because it is in an electronic form

create rules to support the enforcement of e-contracts.

• Voidable at the option of the minor
• Disaffirmance: his/her intent not to be bound to the contract
• Ratification: When a minor reaches a major they're able to ratify a contract to be bound
• Parents' liability: Unless it's a necessity  parents are not liable

• voidable at the option of the intoxicated person, intoxicated to lack mental capacity
• Enforceable if the person understood the legal consequences of entering into the contract

• void
• Has not been declared incompetent by a court, voidable at the option of that person

• Usury: occurs when a lender makes a loan at an interest rate above the lawful maximum
• Gambling: contravene state statutes 
• Licensing Statutes: contracts entered into by-persons who do not have a license, not enforceable

• Restraint of trade: reduce or restrain free competition 
• Unconscionable: so unfair that it is oppressive to one party 
• Exculpatory clause: releases a party from liability in the event of monetary or physical injury

• Unilateral: mistaken party is bound by the contact unless
• - the other party knows or should have known of the mistake
• - the mistake is an inadvertent mathematical error committed without gross negligence 
• Bilateral: both parties are mistaken about the same material fact, either party can avoid the contract

• a misrepresentation of a material fact must occur
• there must be an intent to deceive 
• the innocent party must justifiably rely on the misrepresentation

The contract is voidable if a party's free will has been overcome by the undue influence exerted by the other party

• The tactic of forcing a party to enter a contract under the fear of a threat 
• The party forced to enter the contract can rescind the contract

• contracts that fall under the statute of frauds 
• - interest in land (sales, leases, mortgages)
• - contracts that cannot be performed within one year
• - collateral promises
• - marriage (Prenuptial)
• - UCC: a contract for a sale of goods priced at $500 or more

• The transfer of rights under a contract to a third party
• Assignor: person assigning the rights
• Assignee: rights are assigned
• Assignee has a right to demand performance from the other original party to the contract

• When a statute expressly prohibits assignment
• When a contract is personal in nature (tutor)
• When an assignment will significantly change the risk or duties of the obligor
• The contract prohibits assignment

Transfer of duties under a contract to a third party, who then assumes the obligation of performing the contractual duties previously held by the one making the delegation

• Performance depends on the obligor's personal skills or talents, or special trust has been placed in the obligor. 
• performance by a third party will vary materially from that expected by the obligee
• contract prohibits delegation

one made by the purpose of benefiting a third party

• Benefit a contract is created. 
• Third party can sue promisor directly

• third party who indirectly benefits from a contract but for whose benefit the contract was not specifically intended 
• Have not rights to the benefits received and cannot sue to have the contract enforced

• Condition precedent: condition that must be fulfilled before a party's promise becomes absolute. Take a physical before insurance company will perform
• Condition subsequent: a condition that operates to terminate a party's absolute promise to perform. As long as you have your licencese you can work. 
• Concurrent conditions: Conditions that must be performed simultaneously. Buy and deliver goods

• complete performance
• substantial performance
• performance to the satisfaction of another
• Inadequate performance constitutes a material breach of the contract

• Rescission: The parties mutually agree to rescind (cancel) the contract
• Novation: A new party is substituted for one of the primary parties to a contract and anew contract is formed
• Accord and Satisfaction: Parties agree to render and accept performance different from that on which they originally agreed

• Material alteration
• Statutes of limitation
• Bankruptcy
• Impossibility of performance
• Impracticability of performance
• Frustration of purpose

Damages that compensate the nonbreaching party for injuries actually sustained and proved to have arisen directly from the loss of the bargain resulting from the breach of contract

• Damages that result from special circumstances beyond the contract itself
• consequence of a breach
• damages must be foreseeable result of a breach of contract, and the breaching party must have known at the time the contract was formed that special circumstances exited that would cause the nonbreaching party to incur additional loss on breach of the contract

• Damages awarded to punish the breaching party
• tort is involved

damages small in amount that are awarded when a breach has occurred but no actual injury has been suffered

Specified in the contract as the amount to be paid if the contract is breached

A remedy whereby a contract is canceled and the parties are restored to the original position that they occupied prior to the transaction.

• When a contract is rescinded both parties must return the goods, property, or funds previously conveyed.
• Prevents unjust enrichment of either party

equitable remedy

Equitable remedy allowing a contract to be reformed or rewritten to reflect the parties true intentions

• A benefit was conferred on the other party
• the party conferring the benefit did so with the expectation of being paid
• the benefit was not volunteered
• The party receiving the benefit would be unjustly enriched if allowed to retain the benefit without paying for it

• provide consistent, uniform, and integrated framework of rules to deal with all phases ordinary arising in a commercial sale or lease transaction 
• - contract formation
• - passage of title and risk of loss
• - performance
• - remedies
• - payment for goods
• - Warehoused goods
• - Secured transactions

• Governs contract for the sale of goods (tangible, movable property). 
• Common law of contracts applies to sale of contracts unless modified by the UCC
• UCC prevails

Governs contracts for the lease of goods

• Sale: Passing of title to property from the seller to the buyer for a price
• Lease: a transfer of the right to possess and use goods for a period of time in exchange for payment

• Offer: Only the subject matter and quantity term must be specified 
• Acceptance: 
• - any reasonable means of communication
• - promise to ship or prompt shipment of confirming goods
• - by performance -  notice within a reasonable amount of time
• - definite expression of acceptance creates a contract even if the terms of the acceptance differ from those of the offer 
• Consideration
• - modification of a contract does not require consideration
• Statue of Fraud - must be in writting if the sale of good is greater than $500
• Parol evidence rule - terms of a written contract cannot be contradicted
• Unconscionability - court deems a sales contract to be so unfair and one sided, unreasonable to enforce it

• Refuse to enforce the contract
• refuse to enforce the unconscionable clause 
• limit the application of any unconscionable clauses to avoid an unconscionable result

title and risk pass on the seller's or lessor's delivery of conforming goods to the carrier

title and risk pass on the seller's or lessor's tender delivery of conforming goods to the buyer or lessee at the point of destination

• Title passes on the formation of the contract 
• Risk passes on the buyer's or lessee's receipt of the goods if the seller or lessor is a merchant or on the tender of delivery if the seller or lessor is a nonmerchant

• Void Title: Seller is a thief, the title is void. The real owner can reclaim the goods from the buyer
• Voidable Title: A seller has the power to transfer good title to a good faith purchaser for value. Purchased an item with a insolvent check
• Entrusted to a merchant: The merchant has the power to transfer all rights to a buyer in the ordinary course of business

• Seller or lessor breaches because the buyer or lessee rejects the goods. The risk of loss does not pass to the buyer or lessee until the defects are cured 
• Buyer or lessee breaches the contract, the risk of loss immediately shifts to the buyer or lessee for goods that are identified to the contract.

Governs international sale contracts

• Must tender confirming goods to the buyer or lessor
• if the seller or lessor tenders non-confirming goods before the performance date the seller or lessor may have until the performance date to cure the non-confirming goods 
• If the agreed upon delivery method is unavailable a different carrier must be used
• The entire installment contract is breached only when on or more nonconforming installments substantially impair the value of the whole contract
• When performance becomes commercially impracticable owing to circumstances that were not foreseeable when the contract was formed, the perfect tender rule no longer holds

• Buyer and lessee must pay for the goods at the time and place the goods are received 
• Buyer and lessee have an obligation to inspect the goods before acceptance
• Buyer and lessee can manifest acceptance by expressing it in words, conduct, or failing to reject the goods within a reasonable amount of time
• They can make a partial acceptance if some of the goods do not conform to the contract and the seller or lessor failed to cure

• before the time for performance, one party clearly indicates to the other an intention not to perform the aggrieved party may do the following:
• - Await performance by the repudiating party for a commercially reasonable time 
• - resort to any remedy for breach
• - In either situation, suspend performance

• Goods are in the possession of the seller or lessor:
• - Cancel the contract
• - withhold deliver
• - Resell or dispose of the goods
• - Sue to recover the purchase price or lease payments due 
• - sue to recover damages
• When the goods are in transit:
• - stop the carrier or bailee from delivering the goods under certain conditions
• When the seller or lessor delivers or tenders delivery of nonconforming goods:
• When the goods are in the possession of the buyer or lessee:
• - Sue to recover the purchase price or lease payments due
• - Reclaim the goods

• Seller or lessor refuses to deliver the goods
• - Cancel the contract
• - Recover the goods
• - Obtain specific performance
• - Obtain cover
• - Replevy the goods 
• - Sue to recover the goods
• When the seller or lessor delivers or tenders delivery of nonconforming goods
• - Reject the goods
• - Revoke the acceptance of the goods if the nonconformity impairs the value of the unit or lot and one of the following factors is present
• 1) acceptance due to the assumption that the nonconforming goods would be cured within a reasonable time
• 2) Buyer or lessee did not discover the nonconformity before acceptance, difficult to discover 
• - accept the goods and recover damages

• The parties of a sales and lease agreement can limit remedies
• UCC - 4 year statue of limitations. Can reduce this limit to not less than 1 year

• Good Title: Seller warrants that he/she has the right to pass good and rightful title to the goods. 
• No liens: A seller warrants that the goods sold are free of any liens, and a lessor warrants that the lessee will not be disturbed in her/his possession of the goods by the claims of a third party
• No infringements: A merchant-seller warrants that the goods are free of claims that a patent, trademark, or copyright has been infringed.

• When a seller or lessor indicates any of the following:
• - An affirmation or promise of fact
• - A description of the goods
• - A sample shown as conforming to the contract goods

• Express written warranties covering consumer goods priced at more than $25, if made, must be labeled as one of the following:
• - Full Warranty: Free repair or replacement of defective parts. Refund or replacement if the part cannot be reparied in a reasonable time 
• - Limited Warranty: when less than a full warranty is being offered

• When seller or lessor are merchants
• Seller or lessor warrants that the goods sold or leased are properly packaged and labeled, are of proper quality, and are reasonably fit for the ordinary purposes for which such goods are

• Express warranties take precedence over implied warranties
• Samples take precedence over general descriptions and exact or technical specifications displace inconsistent samples or general descriptions

• Oral express warranty can be disclaimed in writing if the disclaimer is clear, conspicuous, and called to the buyer's or lessee's attention at the time the contract is formed.
• Disclaimer of the implied warranty of merchantability must specifically mention the word merchantability

• manufacture must use due care in designing the product, selecting materials, using the appropriate production process, assembling and testing the product, and placing adequate warnings on the label or product 
• Privity (relationship between two parties) of contract is not required. manufacturer is liable for failure to exercise due care to any person who is injured due to defective product
• Fraudulent misrepresentation of a product may result in product liability based on the tort of fraud

• Defendant must have sold the product in a defective condition
• Defendant must normally be negaged in the business of selling that product
• the product must be unreasonably dangerous to the user or consumer because of its defective condition 
• plaintiff must incur physical harm to self or property by use or consumption of the product
• defective condition must be the proximate cause of the injury or damage
• goods must not have been substantially changed from the time the product was sold to the time the injury was sustained

• In its manufacture
• In its design
• In the instructions or warnings that come with it

• Manufacturers and other sellers are liable for harms suffered by bystanders as a result of defective products
• Suppliers of components parts are strictly liable for defective parts that, when incorporated into a product, cause injury to users

• Preemption: injured party cannot sue the manufacturer of a product that is subject to comprehensive federal safety regulations such as medical devices 
• Assumption of risk: consumer knew the risk of harm and voluntarily assumed it
• Product Misuse
• Comparative negligence: plaintiff injury resulted in a  commonly known danger. Danger associated with using a sharp knife.
• Knowledgeable user: danger is or should be commonly known by particular users of the product, the manufacturer of the product need not warn these users of the danger

• Advertising claim will be deemed deceptive if it would mislead a reasonable consumer
• Bait and Switch Advertising: Advertising a lower-priced product to lure consumers into the store and then telling them the product is unavailable or of poor quality and urging them to buy a higher-priced product is prohibited by the FTC
• Online deceptive advertising: the FTC has issued guidelines to help online businesses comply with the laws prohibiting deceptive advertising

• Cease and desist orders: requiring the advertiser to stop the challenged advertising
• Counteradvertising: requiring the advertiser to advertise to correct the earlier misinformation

• Manufacturers must comply with the labeling or packaging requirements for their specific products 
• All labels must be accurate and not misleading

Federal and state statutes regulate and govern certain practices of sellers who solicit over the telephone or through the mail and protect consumers to some extent against fraudulent and deceptive online sales practices

• Food and Drugs: The federal food, drug, and cosmetic act protects consumers against adulterated and misbranded foods and drugs. Establishes food standards Specifies safe levels of potentially hazardous food additives, and sets classification of food and food advertising.
• Consumer product safety: The consumer product safety act seeks to protect consumers from injury from hazardous products. Has the power to remove products that are deemed imminently hazardous from the market and to ban the manufacture and sale of hazardous products

• Disclosure law that requires sellers and lenders to disclose credit terms or loan terms in certain transactions, including  retail and installment sales and loans, car loans, home-improvement loans, and certain real estate loans.
• Equal Credit Opportunity: Creditors are prohibited from discriminating on the basis of race, religion, marital status, gender, national origin, color, or age
• Credit-Card protection: Liability of cardholder for unauthorized charges is limited to $50 notice requirements must be met

Entitles consumers to request verification of the accuracy of a credit report and to have unverified or false information removed from their files

Combats identity theft by establishing a national fraud alert system. One free credit report/yer to consumers

Prohibits debt collectors from using unfair debt-collection practices, such as contacting the debtor at his/her place of employment if the employer objects or at unreasonable times, contacting third parties about the debt, and harassing the debtor.

• Drafts
• Checks
• Promissory Notes
• Certification of Deposits

• Demand VS Time instruments
• Order to pay VS promises to pay

• Demand instrument: payable on demand
• Time instrument: payable at a future date

• Order to pay: checks and drafts,
• - order a third party to pay the payee 
• Promise to pay: Notes and CDs 
• - a written promise made by one person to pay a fixed amount of funds to another person on demand or on a specified date

• Be in writting
• signed by the maker or drawer
• unconditional promise or order to pay
• State a fixed amount of money
• payable on demand or at a definite time
• payable to order or bearer

• Transfer by assignment: gives the assignee only those rights that the assignor possessed. Defenses can be raised against the assignee
• Transfer by negotiation: Order instrument is negotiated by endorser and delivery. Bearer instrument is negotiated by delivery only

• Blank endorsement
• Special endorsement: contains the signature of the endorser and identify the endorsee
• Qualified endorsements contain language "without recourse": indicates the endorser is not guaranteeing payment of the instrument
• Restrictive endorsement: "For deposit only" require the endoresee to comply with certain instructions regarding the funds involved, but do not prohibit further negotiation of the instrument

takes an instrument free of most defenses and claims to which transferor was subject

• take the instrument
• - for value
• - in good faith
• - without notice

A holder who cannot qualify as an HDC has the rights of an HDC if the holder derives his/her title through an HDC unless the holder engaged in fraud or illegality affecting the instrument

• every party who signs a negotiable instrument is either primarily or secondarily liable for payment of the instrument when it comes due
• Primary: makers and acceptors
• Secondary: drawers and endorsers

Any person who transfers an instrument for consideration makes five warranties to subsequent transferees and holders

Any person who presents an instrument for payment or acceptance makes three warranties to any person who in good faith pays or accepts the instrument

• forgery
• fraud in the execution
• material alteration
• discharge in bankruptcy 
• minority - if the contract is voidable under state law
• illegality and mental capacity

• Breach of contract or breach of warranty
• Lack or failure of consideration
• fraud in the inducement
• Illegality and mental incapacity
• ordinary duress or undue influence that renders the contract voidable

• Cashier's Check: check drawn by a bank on itself
• Traveler's check: financial institution is both the drawer and the drawee
• Certified check: the bank certifies in writing that it has set aside funds from the drawer's account to ensure payment of the check on presentation

consumer and bank relationship

• bank is the agent for the customer
• Bank must take orders from the customer

bank and the consumer assume certain contractual duties

• Overdraft: bank has a right to charge an overdraft fee
• Postdated checks: the bank may charge a postdated check against a customer's account, unless the customer notifies the bank of the postdating in a reasonable amount of time
• Stale Check: bank is not obligated to pay a check that has been presented more than 6 months after its date, but the bank may do so in good faith without liability 
• Stop-Payment Order: customer must make the order in a reasonable amount of time for the bank to act
• Death or incompetence of a customer: so long as the bank does not know of the death or incompetence of a customer, the bank can pay an item without liability 
• Forged signature or alteration: customer has a duty to examine account statements and notify the bank. Bank is only liable if failed to exercise reasonable care

• Accept deposits made by its customers into their accounts
• Funds deposited must be made available according to Expedited Funds Availability Act of 1987
• Collect payment on any checks deposited by its customers

• ATM
• Point-of-sale system
• Direct Deposit and withdrawals
• Internet payment systems

• disclosure law that sets forth the rights and duties of the bank and the customer with respect to EFT systems.
• govern consumer fund transferes

Article 4A of the UCC, which has been adopted by almost all of the states, governs fund transfers not subject to the EFTA or other federal or state statutes

• The creditor must possess the collateral, or there must be a written security agreement signed by the debtor and reasonably identifying the collateral
• The secured party must give value to the debtor
• The debtor must have rights in the collateral

filing a financing statement that contains the names and addresses of the secured party and the debtor, describes the collateral, and is signed by the debtor

• First security interest to be perfected
• the interest that was first to perfect has priority

• repossess the collateral and retain it in part or full satisfaction of the debt
• sell or dispose of the collateral in any commercially reasonable manner
• secured party can choose any judicial remedy available

• Mechanic's Lien: nonpossessory, filed lien on an owner's real estate for labor, services, or materials furnished for making improvments on the realty
• Artisian's lien: possessory lien on an owner's personal property for labor performed or value added
• Judicial liens:
• 1) writ of attachment: court order to seize a debtor's nonexempt property prior to a court's final determination of the creditor's rights to the property 
• 2) writ of execution: a court order directing the sheriff to seize and sell a debtor's nonexempt real or personal property to satisfy a court's judgment in the creditor's favor

A collection remedy that allows a creditor to attach a debtor's funds and property that are held by a third party

a contract between a debtor and his/her creditors by which the debtor's debts are discharged by payment of a sum less than the amount actually owed

Under a contract, a third party agrees to be primarily a secondarily liable for the debt owed by the principal debtor. A creditor can turn to this third party person for satisfaction of the debt

each state permits a debtor to retain the family home, either in its entirety or up to a specified dollar amount, free from the claims of unsecured creditors or trustees in bankruptcy