LAW 231 - Exam 2

Jeff contracts to buy cattle from Donley, Inc., for $17,000 but Donley fails to deliver. Jeff buys the cattle elsewhere for $20,000. Jeff's measure of compensatory damages is

$3,000 plus incidental damages

To be Statue of Frauds the limit must be over

$500

Mutual Assent

(valid contract) the broad underlying requirement that the parties much reach an agreement using a combination of offer and acceptance and that the assent must be genuine.

Which of the following statements is most consistent with the broad view of corporate social responsibility (CSR)?

A company's primary responsibility is to serve the public good and promote the triple bottom line.

Which of the following is not true regarding UCC firm offers?

A firm offer automatically occurs when an offer or promise is made by one merchant to another.

Which of the following agreements is most likely to be subject to the Uniform Commercial Code (UCC) and represents a merchant transaction?

A sales agreement made by Helen, a car dealer, who sells a car to Larry.

Which of the following does not fall within the statue of frauds?

Agreement to provide office cleaning services for a period of six months.

The Fair Debt Collection Practices ACT (FDCPA) prohibits agents of a creditor from which practice(s) when collecting a debt?

All the above.

Which of the following statements regarding business ethics is generally true?

Stakeholders include a company's owners, investors, employees, customers, suppliers, and the wider community.

Both parties must be merchants for

Statue of Frauds

Which of the following is an illegal practice wherein a seller advertises a good for an artificially low price but intends on convincing buyers to buy a different good?

Bait and switch

When one merchant sends another merchant a preprinted purchase order and the receiving merchant then issues a preprinted invoice that has additional terms, this is know as:

Battle of the forms

If the parties have not agreed otherwise, what are the delivery terms in a contract for sale of goods?

Buyer takes delivery at seller's place of business.

What is a legal offer?

Serious, objective and subjective.

Unconscionability

Small print Legalese No opportunity to read before signing Form contract Terms are one-sided

In a contract to install network cable in a new office building, the parties allocate the price as follows: 75 percent for the installation and 25 percent for materials. What source of law governs the contract?

Common law

The owner of an office building hires an architect to design plans to renovate the building for a $5,000 fee. What source of law governs this contract?

Common, because it is a contract of services.

Widower contracts with Artist to paint a portrait of his late wife. The portrait is done on time and professionally, but the likeness, while resembling her, does not look exactly like the woman.

Substantial performance.

Book publisher agrees to sell and deliver certain named textbooks to a college bookstore with delivery on July 1, eight weeks before classes are to begin. Delivery occurs on July 5.

Substantial performance. The delay likely causes no harm to the bookstore with so much time before classes begin.

Wholesaler contracts with Delicatessen to deliver 50 cases of bottled beverages each week in exchange for a $3,000 monthly payment. Due to heavy holiday volume, the December shipment contains only 45 cases.

Substantially performed, but Delicatessen is entitled to a reduction in price.

A(n) _______ system of morals holds that an action is ethical if it promotes good outcomes overall.

Consequences-based

Which remedy compensates a nonbreaching party for foreseeable indirect losses?

Consequential damages

The night before his commencement ceremony, Leland's uncle promises to buy him a new car after he actually sees Leland receive his diploma. Leland gladly accepts. After the ceremony, Leland's uncle says, "Just kidding, no car!" Leland cannot prevail in a breach of contract claim because the agreement lacks______.

Consideration

Other open terms

Delivery Payment Price

The use of the words "as it" or "with all faults" are typically sufficient to ______ express and implied warranties.

Disclaim

Ultrawidgets agrees to purchase 1,000 Grade-B widgets from SupplyCo for $10 per part to be delivered by December 1. On November 30, SupplyCo realizes it has only 800 Grade-B widgets. SupplyCo gives Ultrawidgets seasonable notice and ships 800 Grade-B and 200 Grade-A widgets as substitute goods. Grade-A widgets are worth 20 percent more than Grade-B widgets. Ultrawidgets rejects the Grade-A widgets on December 1 and sues. Who prevails?

SupplyCo because the cure period is extended past the date of performance.

Ginsberg signs an agreement with Roberts to lease a 1,000 square foot warehouse for one year. Which of the following categories does this contract fall into?

Express and bilateral

T/F: If a merchant sells goods to a buyer who is not a merchant, the Uniform Commercial Code will not apply.

False

T/F: Uncle Phineas loaned you $10,000 to pay tuition and other school-related costs. You've now graduated, and Uncle Phineas is asking you to begin repaying the loan. The load was never put in writing and you could repay it at any time. Pursuant to the Statue of Frauds, this transaction must be in writing to be enforced.

False

T/F: When making a business decision, business owners and managers should not consider how the decision might affect the company's stakeholders.

False

What makes a contract enforceable?

Formation must be met Must be in writing under certain circumstances Be the product of genuine assent

The key difference between misrepresentation and fraud is:

Guilty Knowledge

What did Milton Friedman say?

He proposed that the only responsibility a business has is to maximize shareholder wealth.

Which warranty applied when a buyer relies on a seller's promises that a product can be used in a certain way that is not necessarily its ordinary use?

Implied-fitness for a particular purpose

Junior is 17 years old and has entered into an agreement to purchase a vintage Ford Mustang from his neighbor. Which of the following is true about the transaction?

Junior has the right to void the contract until he turns 18.

Augstein v. Leslie

Leslie a singer, had his laptop stolen and said he would give a $1 million reward for finding it. Augstein found the laptop and returned it. Augstein wanted the $1 million reward. The court ruled in favor of Augstein because the videos Leslie put out was a unilateral offer to contract.

Linda has signed a two-year-long contract with HNS Inc., a clothing retail store, to work as a sales trainee. Linda's parents are outraged because Linda is 15 years of age (which she disclosed to HNS). In this scenario,

Linda can enforce the contract.

Lucy v. Zehmer

Lucy wanted to buy Zehmer's farm for $50,000. They were drinking and talked about it for awhile and even wrote things down and signed it. At the end of the evening Zehmer told Lucy that he was just joking. The court ruled in favor of Lucy. Zehmer was bound by the contract even if he had no actual subjective intent to sell the farm and may have been joking. The course used objective standard because a reasonable person would have construed Zehmer's actions and words as a serious intent to contract. Actual mental intent is not required for formation of a contract.

Common traits of effective values management

Management articulates a clear vision of ethics and moral integrity through all levels of the organization. Management's vision of ethics and integrity is implemented at all levels of the decision-making process of the organization. The reward systems, policies, and practices of the organization are aligned with management's vision of ethics and integrity.

In order to claim discharge through substantial performance, the deviation cannot be ______.

Material

Who can't contract?

Minors and mental incapacity.

Benefits and detriments may take form of

Money Goods Services Giving up of a legal right

A vegetable cannery contracts with Farmer to buy 54 units of "fancy-grade" spinach, defined as "dark green in color, firm in texture and with a leaf/stem ratio of less than 15 percent stem." Farmer delivers spinach with a leaf/stem ratio of 25 percent stem.

No substantial performance. It is more valuable than the 15 stem.

The Yellow Pages agrees to publish a half-page advertisement for Local Dry Cleaner in exchange for $20,000. The advertisement is published, but one digit in the telephone number is incorrect.

No substantial performance. Now there is no value of contract.

Juliet sees a newspaper advertisement by a car manufacturer: "The sexiest convertible on the market."

No this is puffery.

A contract for consulting services for $10,000 over the next 90 days.

No writing required. Service can be done in less than one year.

Johnson watches a TV ad for running shoes that shows scenes of a jogger in a park and then switches the scene to the same runner on a snow-covered hiking trail. The catchphrase "A sneaker for all seasons," flashes on the screen. No mention is made of the shoes' suitability for use on a particular surface. Johnson purchases the shoes, and when he runs on a snowy trail, they fall apart and Johnson suffers foot injuries as a result.

No, no express promise was made about quality.

UCC defines goods as:

Tangible Moveable from place to place NOT: services, real property or intangible personal property (copyright, stocks, bonds)

Operation of law

Termination of an offer by the occurrence of certain happenings or events, which generally include lapse of time, death or incapacity of the offeror or offeree, destruction of the subject matter of the contract prior to acceptance, and supervening illegality.

Which of the following does not result in the termination of an offer.

Renunciation???

These are NOT offers

Opinions Statements of future intent Preliminary negotiations

Jackson agrees to provide consulting services to Frankfurer Industries for a period of two years. Before he begins his services, Jackson finds out he has won the lottery and decides he no longer wants to work for Frankfurter. Frankfurter agrees. The parties have discharged their obligations through:

Rescissions

Objective intent

Parties Subject matter Consideration Time of payment, delivery or performance

The UCC requires that seller to tender the goods in a manner that matches the contract terms in every respect. This reqirement is called:

Perfect tender rule

What are the 3 ethical traditions?

Principles, Consequences and contracts

Contract-Based Approach

Rawlsian approach to ethical decision making imagines what ethical rules people would agree to if they could negotiate these rules ahead of time, from behind a veil of ignorance.

Kitchen Clean contracts to provide services for Chef Rave's restaurants at a rate of $1,000 per month to begin next month. In the interim, Chef Rave hears of a cheaper cleaning service, and Kitchen Clean hears of Chef Rave's bad temper and slow payment habits. The parties mutually agree to cancel the contract before it begins. The parties have discharged their contract via what method?

Recission

Substantial performance

performance can be considered complete less damages for anything still unperformed.

Natural Law

philosophers claim that humans have certain inherent moral rights and duties that from their ability to reason and choose freely what they do with their lives.

The UCC's purpose is to

promote commercial efficiency by providing standardized procedures that merchants and consumers may rely upon.

The UCC's Statue of frauds must have

quantity the signature of the party against whom enforcement is sought (signed by plantiff) language that would allow a reasonable person to conclude that the parties intended to form a contract.

A merchantable good is one that is:

reasonably fit for general purpose use- generic properly packaged & labeled of proper quality

Business ethics

recognizing right and wrong business behavior and acting responsibly toward the business's stakeholders.

Material breach

refers to some deviation from the contract that results in a substantial change in the value of the contract or that changes a fundamental basis of the agreement.

Equitable relief

relief granted in the form of "do it" or "stop doing it"

Restitution

restores the value of the performance that has already rendered to the breaching party they have been unjustly enriched.

Contracts that are governed by UCC Article 2

sale of goods

The statue of frauds applies to

sale of interest in land cannot be performed in under one year Pay debt of another Consideration (marriage) Sale of goods for $500 or more

Ian agrees to sell Todd a cat in 60 days. At the planned time, Ian breaches the agreement by refusing to sell the cat. Because Todd wanted that particular cat for its unique pedigree, he cannot be compensated with another cat. In this case, the court will most likely require Ian to:

sell Todd the cat as promised.

Express warranty

seller makes a representation of fact about a product.

Money damages

sums levied on the breaching party and awarded to the nonbreaching party to remedy a loss from breach of contract.

Undue Influence

terms of the contract are unfair and the parties had some type of trusted relationship.

The Magnuson-Moss Act requires

that warranties be written conspicuously and in plain and clear language. ($10 or more)

Fitness for a Particular Purpose

the buyer must prove that the seller knew of the buyer's desire to use the product in a specified way and the buyer relied on the seller's advice and recommendation.

The Statue of Frauds

the law governing which contracts must be in writing in order to be enforceable. Sometimes email and texts will satisfy.

CR Construction contracts to repair the turf on a soccer field for MSU. CR knows that without the repair, MSU will have to cancel an upcoming tournament. CR does not perform as promised. As consequential damages, MSU can recover

the loss of profit from the canceled tournament.

Acceptance

the offeree's expression of agreement to the terms of the offer. The power of acceptance is created by a valid offer.

Genuine Assent

the parties must have voluntarily agreed on terms of contract.

Capacity

the requirement that both parties have the power to contract.

Discalim

the seller must do in a conspicuous writing by using, for example, capital letters, bold print, or a larger font that stands out from the rest of the writing.

Open terms

unspecified terms in a sales contract. So long as there is evidence that the parties intended to enter into a contract.

Critics of _____ argue that the approach amounts to a mathematical formula to decide how ethical decisions affect individuals.

utilitarianism

A(n) _______ is best defined as a contract that neither party may enforce.

void contract

AIG Bounsgate

was in debt, received taxpayer money and then gave bonuses out to executives.

Valid

when a contract has the required elements

Breached

when a party to an agreement owes a duty to perform and fails to fulfill her obligation.

Void

when an agreement lacks one of the required elements or has not been formed in conformance of the law from the outset.

Discharge of a contract

when both parties have "discharged" their obligations to the other by performing the agreed-upon duties.

Voidable

when the law gives on or more parties the right to cancel an otherwise valid contract under the circumstances. Lack of mutual assent Minor Intoxicated Lack of mental capacity

novation

when the parties agree to substitute a third party for one of the original parties to the contract.

Types of social responsibility

The Narrow view: Greed is Good The Moderate View: Just Follow the Law The Broad View: Good Corporate Citizenship

Sharon has contracted with Craig to buy Craig's car. She has agreed to pay $5,000 in cash in exchange for the title and registration of the vehicle. Sharon and Craig agree to meet at 10 am on Wednesday to exchange their consideration. Unfortunately, Craig dies Tuesday evening.

The contract is still valid and Craig's heirs must go through with it based on the agreed terms.

Hadley v. Baxendale

The court ruled in favor of Baxendale because Hadley had not shown that a reasonable person could have FORESEEN Hadley's ongoing damages.

Jacob & Youngs v. Kent

The court ruled in favor of JY under the doctrine of substantial performance. Focused on practical application to obtain fairness rather than a strict application of performance. The Reading pipe was not the result of fraud or willfulness.

The main difference between the moral minimum view of business ethics and the maximizing profits model is _____.

The moral minimum theory requires business to take active steps to avoid harm, even at the expense of some additional profits. The maximizing profits model encourages companies to make as much money as possible as long as no laws are broken.

Who is entitled to remedies if they decide to sue.

The party who did not breach.

Which of the following is true of open-price-term contract for the sale of goods?

The price becomes the reasonable price at the time the goods are delivered.

In a shipping contract, the risk of loss shifts to the buyer when:

The seller delivers to the hands of the carrier.

T/F: Susan offered to pay Roger $50 to walk her dog for the next 8 days. Roger responded that he will walk the dog for the next 8 days for a fee of $50. roger's statement is an acceptance of Susan's offer.

True

A two-year advertising contract between a retail store and a local newspaper.

Writing required. A two-year contract for a service cannot be performed in less than one year.

A contract whereby the president of NewCo gives a personal guarantee (i.e., uses personal assets as collateral) for a $150,000 revolving line of credit loan to NewCo from First National Bank.

Writing required. Promise to pay the debt of another.

An agreement of sale for a piece of real estate for a corporation to build a new warehouse for $500,000.

Writing required. Real estate/land.

Philip purchases a small piece of lan for $499.

Writing required. even though the price is below $500, it is for the purchase of an interest in land.

Benjamin buys a watch that bears this sticker on the packaging: "100 percent waterproof."

Yes

Randall has been the victim of several robberies in his store. He purchases a chemical weapon spray called Repel that is advertised to "instantly stop attackers" and "incapacitate groups of people instantly." Randall is robbed and attempts to use repel to stop the crime, but the robber is not stopped. Rather, he becomes enraged and assaults Randall during the robbery.

Yes

Catelyn offers to pay Rickon $50 if he agrees to pick up and deliver to her a package from her accountant within 30 minutes. Rickon agrees to the price and the deadline. When Catelyn and Rickon exchange their promises, these parties will have

a bilateral contract.

Quasi-contract

a classification that permits a contract to be enforceable in cases where no express or implied contract exists and one party suffers losses as a result of another party's unjust enrichment.

Ethics

a conscious system used for deciding moral dilemmas.

Implied contract

a contract in which the agreement is reached by the parties' actions rather than their words.

Output contract

a contract in which the buyer agrees to buy all the goods that the seller produces for a set time and a set price and the seller may sell only to that one buyer.

Requirements contract

a contract in which the buyer agrees to buy whatever he needs from the seller during a set period and the buy may buy only from that one seller.

Unilateral contract

a contract involving one promise followed by one performance, which then triggers a second performance from the offeror.

Bilateral contract

a contract involving two promises and two performances. (most contracts)

Hybrid contract

a contract that involves terms for both goods and services; the source of law is established by determining the predominant thrust of the subject matter.

Express contract

a contract that is created when the parties have knowingly and intentionally agreed on the promises and performances.

Injunctive relief

a court order to refrain from performing a particular act.

Moral Minimum

a ethical philosophy where a company strives to act as ethically as possible as long as a reasonable profit is made. "do no harm" or "do the least harm"

Maximizing Profits

a ethical philosophy where a company strives to make as much money as possible with an emphasis on not breaking the law.

Express warranties can sell

a house or sell goods or services.

KL Decors is an interior designing company. Anthony contracts with KL Decors to renovate his home. KL Decors agreed to complete the work on January 20, 2017. However, due to improper scheduling, KL notified Anthony that they would not begin work until March 1, 2018. This level of performance is most likely:

a material breach

Offer

a promise or commitment to do (or refrain from doing) a specified activity such as selling a good at a certain price or offering to provide services at a given rate.

Warranty

a seller's legally enforceable promise to a consumer concerning the quality and/or functionality of a product.

Implied warranty

a warranty that exists even when the seller does not make a specific representation about the product.

A non-breaching party is not entitled to recover consequential damages when:

all losses are covered by compensatory damages. the losses are caused by unforeseeable factors. the losses are directly due to factors within the content of the contract.

Unenforceable

although a contract may have met the required elements and be considered valid, because one party asserts a legal defense to performing the contract. Statue of Limitations & Statue of Frauds

substitute agreement

an agreement that replaced the original contract when the two parties agree to different duties. The new duties then replace and dissolve the obligations of the original contract.

Specific performance

an equitable remedy whereby a court orders the breaching party to render the promised performance by ordering the party to take a specific action.

Unilateral mistake

an erroneous belief held by only one party about a basic assumption in the terms of an agreement.

Merchants firm offer

an offer in writing between merchants to buy or sell goods along with a promise without consideration to keep that offer for a stated amount of time or, if unstated, no longer than three months.

Express warranties can be

anyone

Fitness for Particular Purpose the seller can be

anyone

Merchantability

applies to every sale of a product from a merchant to a buyer. (the buyer may or may not be a merchant) and requires the seller to warrant that the product is fit for its ordinary use.

Mutual mistakes

both parties that concerns a basic assumption on which a contract was made.

The Broad View: Good Corporate Citizenship

business should strive to promote the economic, legal ethical and philanthropic social responsibilities expected of it by its stakeholders.

Mutual consent

circumstance under which contracting parties may be discharged from their obligation although neither party has fully performed because they agree to cancel the contract.

Fair Debt Collection Practices Act applies to:

collection agencies and secondary debt collectors.

The Moderate View: Just Follow the Law

comply with the law and pursue objectives that are legal

Reformation

contract modification in which the court rewrites the contract to conform to the parties' actual intentions.

State statutory law

contracts for goods or products (based on the UCC)

State common law

contracts for services or real estate

The Fair Debt Collection Practices Act does not apply to:

creditor

Liquidated damages

damages that the parties agree to ahead of time.

Compensatory damages

direct or actual damages suffered.

Consequences-Based Approach

emphasizes that the ethical course of action is the one that provides the greatest good (happiness) for the greatest number of people and has the least harmful consequences for the majority of the community.

Contract

enforceable agreements between parties, that obligates the parties to perform.

Religion

ethical decisions that are made according to a set of established principles or standards such as religious tenets or codes.

Virtue

ethical theory evaluates conduct based on whether it promotes good moral character. (Aristotle)

Consequential damages

foreseeable indirect losses

Morals

generally accepted STANDARDS of right and wrong in a given society or community.

Rescission

if neither party has fully performed, the parties may agree to cancel the contract.

Hansel goes to see a physician concerning a particularly harsh flu. The doctor examines him, prescribes medication, and gives him a bill for medical services. This agreement falls into which of the following categories of contracts?

implied

Values management

managerial system that emphasizes prioritizing moral values for the organization and ensuring that behaviors are aligned with those values.

Written vs Oral

many contracts are not in writing and yet enforceable.

Truth-in-Lending Act

max to pay $50 for stolen card used until you notify the company

The Narrow view: Greed is Good

maximizing profits

Utilitarian

model of moral philosophy which holds that an action is ethically sound if it produces positive results for the most people.

Principle-Based Aprroach

moral theories, which include religion, virtue, natural law and universal moral duties.

Consideration

mutual exchange of benefits and detriments.

Puffery is

non-fact-based statement used in advertising that does not create an express warranty.

Serious intent

not made in anger, jest or undue excitement

Rejection

offeree rejects the offer

Counteroffer

offeree rejects the original offer and proposes a new offer with different terms.

Revocation

offeror revokes (withdraws) the offer prior to acceptance

Subjective intent

offeror's actual intent (not relevant)

Good faith performance

parties agree on terms and the parties perform the contractual obligations in order to complete the contract.

The UCC allows a contract to be enforced when

past commercial conduct correspondence or verbal exchanges between the parties industry standards and norms