Chapter 13

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Almost all business relationships are formed by a(n): _______.

contract

Rob promised Rupert that he would paint the inside of his house for $5,000. Rupert agrees to Rob's offer. If Rob fails to perform, a court could enforce the promise or award damages to Rupert. The enforceable promises between Rob and Rupert are known as a(n): _______.

contract

The four types of formal contracts are: _______.

contracts under seal, recognizance, letters of credit and negotiable instruments

The legal ability to enter a contract is known as: ________.

contractual capacity

An employment contract that restricts what an employee may do after leaving a company is known as a(n): _______.

covenant not to compete

Stella told Jozsef that if he would pick up her mail when she was on vacation, she would pay him $30. Jozsef did as he promised and was paid $30. Since all of the terms were fully executed, this contract has been fully: _______.

executed

When a contract has been fully performed, we call it a(n): _______.

executed contract.

A contract is ______ if some of the terms have not yet been performed. (Choose the BEST answer)

executory

A contract that has yet to be performed is known as a(n): _______.

executory contract

The terms of ______ contracts are all clearly set forth in either written or spoken terms.

express

Susan contracted with the owner of a local clothing shop to sell her knitted hats and gloves. All terms -- delivery date, quantity, selling price, etc., -- were clearly specified. When terms are clearly specified in the contract, this is known as a(n): _______.

express contract

Negotiable instruments are an example of ______ contracts.

formal

When there are requirements to the manner and look of a contract, then it is considered a(n) ______ contract.

formal

Contracts that have a special form or must be created in a specific manner are known as a(n): _______.

formal contracts

Sometimes the offeror convinces the offeree to accept the offer using improper means, such as fraud. If any party does not enter freely into the contract it is said to lack

genuine assent.

Article 2 of the Uniform Commercial Code (UCC) governs contracts for the sale of: _______.

goods

In a conflicting versions of a contract, a(n) ________ contract will prevail over a typed contract.

handwritten

Darla was experiencing a great deal of pain. The pain was so bad that she went to the emergency room where she underwent emergency surgery for the removal of her appendix. The kind of contract that requires her to pay for the services she received, even though there was no prior negotiation of payment, is known as a(n): _______.

implied contract

When a court determines that there was a contract between two parties in a situation where there was no opportunity to negotiate payment, the contract between the parties is known as a(n): _______.

implied contract

Ed and two of his friends created a lawn service business. All the neighbors knew of the business and several of them had used the service in the past. Ann, a neighbor of Ed's, was aware of the service and knew how much Ed charged for cutting the lawns of the various neighbors. One day, she was complaining to Ed that she was tired of cutting her own grass. Ed asked her if she would like him to cut her grass. Ann did not say a word, but smiled at the suggestion. Ed proceeded to cut Ann's lawn and then asked Ann for payment. Ann refused, saying that she had not formed a contract with Ed. The matter went to court and the court found that there was a contract and Ann must pay Ed. The court said that any reasonable person would have expected payment as Ed had expected. Such a contract is known as a(n)

implied-in-fact contract.

Quasi-contracts are sometimes called: _______.

implied-in-law contracts

A couple of painters came to the door offering to paint the house numbers on the homeowner's curb for $10. Barbara answered the door and the painters made their offer. Barbara did not say anything at all, but watched the painters paint her house number on her curb. When they came to the door for their $10, she refused, telling them that she had never formally agreed to their price. If a court requires Barbara to pay the painters the $10, this would be called recovery: _______.

in quasi-contract

If recovery can be obtained when (1) a benefit is conferred by the plaintiff upon the defendant, (2) the defendant has knowledge of the benefit that is being bestowed upon her, and (3) the defense retains the benefits under circumstances in which it would be unjust to do so without payment, then that recovery is known as recovery: _______.

in quasi-contract

letter of credit

A binding document that a buyer obtains from his or her bank to guarantee that payment for goods will be made to the seller.

Express Contract

A contract in which all the terms are clearly set forth in either written or spoken words.

Which of the following is true of a contract? (Check all that apply.)

A contract that has all four elements of a contract may not be legally binding if it lacks genuine assent. A party can defend against the enforcement of a contract even if it has all four elements of a contract.

simple contract

A contract that is not a formal contract. Also called an informal contract.

informal contract

A contract that requires no formalities. Also called simple contract.

Which of the following covenants is a company likely to use to restrict an employee from working for other companies in the same field after leaving the current company?

A covenant not to compete

lack of genuine assent

A defense to the agreement of a contract in which the offeree claims that the offeror secured the agreement through improper means, such as duress, fraud, undue influence, or misrepresentation.

Acceptance

A key factor in the agreement element of a contract; consists of the agreement of one party, the offeree, to the terms of the offer in the contract made by the other party, the offeror.

offer

A key factor in the agreement element of a contract; consists of the terms and conditions set by one party, the offeror, and presented to another party, the offeree.

Bilaterial Contract

A promise exchanged for a promise

unilteral contract

A promise exchanged for an act

contract

A promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

Plain Meaning Rule

A rule of interpretation which states that words in a contract should be given their ordinary meaning.

Uniform Commercial Code (UCC)

A statutory source of contract law in the United States that is applicable to transactions involving the sale of goods. The UCC was created in 1952 and adopted by all 50 states, the District of Columbia, and the Virgin Islands; it may be modified by each state to reflect the wishes of the state legislature.

valid

A term applied to a contract that includes all four elements of a contract- agreement (offer or acceptance), consideration, contractual capacity, and legal object, thus enforceable

void

A term applied to a contract that is not valid because its object is illegal or it has a defect that is so serious that it is not a contract.

executed

A term applied to a contract whose terms have all been fully performed.

convenant not to compete

An agreement not to compete against a party for a set period of time within a designated geographic area.

Sybil and Mary had drawn up a contract about Sybil selling some dresses to Mary. The original contract was handwritten. It was then copied to a printed form. However, one of the terms was in conflict with the original handwritten contract. A judge would use the rules of interpretation and say that the prevailing term would be

in the handwritten contract.

recognizance

An obligation in which a party acknowledges in court that he or she will perform some specified act and/or pay a price on failure to do so.

If a contract is for the sale of goods, the part of the UCC that governs the contract is: _______.

Article 2, which governs contracts for the sale of goods

A ______ is a binding document that a buyer obtains from his or her bank to guarantee that payment for goods will be made to the seller.

letter of credit

_____ refers to the legal ability to enter into a binding agreement.

Contractual capacity

An agreement by the issuer to pay another party a sum of money on receipt of an invoice and other documents is called a(n): _______.

letter of credit

An unconditional written promise to pay the holder a specific sum of money on demand or at a certain time is known as a(n) _______.

negotiable instrument

The fourth element of a binding legal contract is that it should be a legal object. This means that to be enforceable the contract must ______.

not be against public policy

In determining whether parties intended to enter into a contract, the courts look at their ______.

objective behavior

The party that accepts the offer of another party is called a(n): _______.

offeree

Knowing the proper classification is important -- whether the contract is bilateral or unilateral -- because it determines when the: _______.

offeree is legally bound to perform

A contract for land was under scrutiny in the court. There appeared to be a disagreement as to what the term "corner property" actually meant. If the court only looks at the words and they are clear and unambiguous, and the court will only interpret the terms using the agreement itself, the court is said to use the: _______.

plain-meaning rule of interpretation

One of the best known rules of contract interpretation states that if a writing, or a term in question, appears to be plain and unambiguous on its face, we must determine its meaning from just the four corners of the document, without resorting to outside evidence and give the words their ordinary meaning. This rule is known as the

plain-meaning rule.

One defense against the enforcement of a contract is if there is a lack of a writing (if one is required). This defense is known as a lack of: ______.

proper form

In order to prevent one party from being unjustly enriched at the expense of another party, the courts impose contractual obligations on one of the parties as if that party had entered into a contract. This is known as a(n): _______.

quasi-contract

If multiple interpretations are possible, the court should adopt the interpretation that makes the contract: _______. (Choose all that apply.)

reasonable definite lawful operative

A(n) ______ arises when a person acknowledges in court that he or she will perform some specified act or pay a price upon failure to do so.

recognizance

Bart had to post $500 bond to ensure that he would show up for his trial in two months. This kind of contract is known as a(n): _______.

recognizance

To find that there is an implied contract or an implied-in-fact contract, the court must deem that (1) the plaintiff provided some property or service to the defendant, (2) the plaintiff expected to be paid for such property or service, and (3) the defendant had an opportunity to

reject the property or service, but did not.

The concept that comes to mind most often when people think about a formal contract is a contract under: _______.

seal

A contract that does not require any formalities in making the contract is known as a(n): _______.

simple contract

If a contract involves the sale of goods, it is governed by the Uniform Commercial Code (UCC). All other contracts are governed by: _______.

the common law

A rule of contract interpretation is that the judge should interpret an ambiguous contract against the interests of: _______.

the drafter of the contract

Contractual Capacity

the legal ability to enter into a binding agreement

Basing the existence of a contract on the parties' outward manifestations of intent and basing the interpretation of that intent on how a reasonable person would interpret it is known as: ________.

the objective theory of contracts

In the context of the objective theory of contracts, the existence of a contract is based on ______.

the parties' outward manifestations of intent

A contract before the court needed interpretation. The contract contained many technical words. A general rule in interpreting technical terms is that the court should interpret technical words as

they are usually understood by persons in the profession.

True or false: A judge should interpret a contract so as to give effect to the parties' intentions at the time they entered into the contract.

true; Reason: One of the general rules of interpreting contracts is that a judge should interpret the terms of the contract in light of the parties' intentions at the time of the writing of the contract.

Justin had contracted with Acme Construction Company to build a huge chicken coop adjacent to his house. Acme discovered that if they built the chicken coop, they would be violating the local zoning laws. Acme refused to perform the contract. The court also refused to make Acme honor the contract, since to do so would mean they had to order Acme to violate the zoning laws. Such a contract is considered to be: _______.

unenforceable

A contract where the object of the contract is illegal or against public policy is: _______.

unenforceable by the courts

All contracts are either bilateral or: _______.

unilateral

In a(n) ______ contract, the offeror wants the offeree to do something, not to promise to do something.

unilateral

Lucy put up a poster advertising a $25 reward for the return of her lost dog. This is an example of a(n): _______.

unilateral contract

Jack and Jill entered into a contract with Farmer Dell to fetch pails of water from his well to the barn. For each pail of water they delivered down the hill and to the barn, they were to be paid $10 per pail. The contract specified that they were to work five days a week for a whole month. During the last week, Farmer Dell failed to pay Jack and Jill. The matter went to court, and the court ordered Farmer Dell to pay Jack and Jill because the contract was: _______.

valid

When a contract has all of the required elements and is enforceable, it is known as a(n): _______.

valid contract

A(n) ______ contract is not a contract at all, and either its object is illegal or it has some defect so serious that it is not a contract.

void

Don put out a contract to a hit man to knock off a business competitor. This kind of contract would be defined as a(n): _______.

void contract

A contract is ______ if one or both parties has the ability to either withdraw from the contract or enforce it.

voidable

Under a(n) ______ contract, one or both parties can withdraw from the contract.

voidable

What should a judge do if a contract contains ambiguity?

Interpret the contract against the interests of the drafter.

Which of the following is true of Restatement of the Law Second, Contracts?

It contains the principles of the common law of contracts.

Which of the following statements best describes a negotiable instrument?

It is an acceptable medium for exchanging value from one person to another.

Identify a defense to the enforcement of a contract.

Lack of genuine assent

______ is a defense to the enforcement of a contract based on the lack of a written document.

Lack of proper form

The authors of the Uniform Commercial Code (UCC) are the: _______.

National Commissioners on Uniform State Laws and the American Law Institute

agreement

One of the four elements necessary for a contract; consists of an offer made by one party, the offeror, and the acceptance of the offer by another party, the offeree.

Prominent legal scholars, recruited by the American Law Institute, organized the principles of the common law of contracts into the original: _______.

Restatement of the Law, Contracts

______ terms to a contract will be interpreted as understood by persons in the profession using the contract.

Technical

Which of the following govern all contracts? (Check all that apply.)

The Uniform Commercial Code Common law

Consideration

The bargained-for exchange; what each party gets in exchange for his or her promise under a contract.

In determining whether parties objectively intended to enter into a contract, at which of the following aspects of parties do the courts look? (Check all that apply.)

Their objective words Their behavior

The most important sources of contract law are the: _______. (Check all that apply.)

UCC CISG case law

Identify examples of a lack of genuine assent. (Check all that apply.)

Undue influence Fraud Duress

Martin sold his coffee makers to Edwin, a coffee store owner. The law that would govern this contract for the sale of goods is the: _______.

Uniform Commercial Code

The National Conference of Commissioners on Uniform State Laws and the American Law Institute drafted a set of commercial laws that could be applicable to all states. This effort was called the: _______.

Uniform Commercial Code

Implied Contract

a contract that arises not from words of agreement but from the conduct of the parties

Formal Contract

a contract that must have a special form or must be created in a specific manner

Quasi Contract

a court-imposed contractual obligation to prevent unjust enrichment

Michael was the head of a construction company. Meghan owned a piece of property, and she offered Michael $500,000 to construct a shopping mall on the property. Michael agreed and went to the zoning commission to purchase the required building permits. He was told that Meghan's property was not zoned for commercial enterprises. Michael went back to Meghan and returned her money, saying he couldn't fulfill the contract because it lacked: _______.

a legal object

Executory

a term applied to a contract in which not all of the terms have been fully performed

Voidable

a term applied to a contract that one or both parties have the ability to either withdraw from or enforce

Unenforceable

a term applied to a contract that, because of a law, cannot be enforced by the courts

negotiable instrument

a written document signed by a person who makes an unconditional promise to pay a specific sum of money on demand or at a certain time to the holder of the instrument; an acceptable medium for exchanging value from one person to another

Suppose Kathy makes an offer to Sandy to buy his antique clock for $1,000. Sandy accepts Kathy's offer, and the result is known as: _______.

an agreement

If a contract is not a formal contract, it is considered to be: _______.

an informal contract

A judge has to decide how to interpret a contract that was a bit ambiguous in its terms. One general rule of interpretation is that the terms should reflect the intentions of the parties: _______.

at the time the contract was made

A contract was under review because it had multiple interpretations of its terms. According to a general rule of contract interpretation, the judge should recognize the interpretation that makes the contract lawful, operative, definite, reasonable, and capable of: _______.

being carried out

Candy was bidding on a piece of jewelry that was for sale on eBay. At the end of the bidding process, Candy was the highest bidder, so in exchange for her promise to pay, the seller will send her the merchandise. This kind of contract is known as a(n): _______.

bilateral contract

The type of contract in which the offeror wants a promise from the offeree to form a binding contract is called a(n): _______.

bilateral contract

Alyssa was a severe schizophrenic who had to be institutionalized. Alyssa's cousin, Marlene, told Alyssa that she would buy her house for $10,000. Alyssa agreed and Marlene gave her the $10,000. Just as she was going to take possession of the house, Alyssa's brother stepped in and claimed that there was no contract between Alyssa and Marlene. The matter went to court and the court agreed with Alyssa's brother, stating that there was no contract due to one missing element. The missing element is: _______.

capacity

The law of contracts is primarily ______ law.

common

The law of contracts is made up mainly from: _______.

common law

The two sources of law governing contracts are the: _______.

common law and the Uniform Commercial Code (UCC)

Generally, today contracts do not require that contracts be under seal. However, ten states still allow a contract without ________ to be enforced if it is under seal.

consideration

Liza and Maryann were at a flea market. Liza had an antique vase that caught Maryann's eye. Maryann said to Liza that she would give Liza the antique necklace she had in exchange for the vase. Liza agreed. The antique vase and the antique necklace are called: _______.

consideration

The bargained-for exchange or what each party gets in exchange for his or her promise under a contract is known as: _______.

consideration


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