BLAW110- Business Law Final Exam Prep 2
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Questions and Answers

What is the primary characteristic of strict liability?

  • Liability based on negligence
  • Liability requiring proof of intention
  • Liability limited to manufacturers only
  • Liability without fault (correct)

    • In the context of strict liability, which type of activities can lead to liability?

  • Only contractual activities
  • Hazardous activities (correct)
  • Everyday activities
  • All business activities

    • What does the plaintiff need to prove in a strict liability case?

  • That the defendant was intentionally harmful
  • That the defendant had exclusive control over the hazardous item (correct)
  • That the defendant had a duty of care
  • That the defendant was negligent in their actions

    • Which of the following scenarios exemplifies strict liability?

    <p>A fireworks display injures a beachgoer despite warning signs</p> Signup and view all the answers

    What is one reason a plaintiff might sue for multiple torts?

    <p>To allow the case to continue if one is dismissed</p> Signup and view all the answers

    What is the burden of proof in a strict liability case?

    <p>On the defendant to show they were not negligent</p> Signup and view all the answers

    Which of the following is NOT a recognized cause of action under product liability?

    <p>Inadequate security measures</p> Signup and view all the answers

    Which of the following is an example of an abnormally dangerous activity?

    <p>Storing toxic chemicals</p> Signup and view all the answers

    What is the main characteristic of a sole proprietorship?

    <p>The owner is personally liable for all business debts.</p> Signup and view all the answers

    How are profits generally split in a general partnership without a specific agreement?

    <p>Equally between partners.</p> Signup and view all the answers

    What is a primary disadvantage of a sole proprietorship?

    <p>Unlimited personal liability.</p> Signup and view all the answers

    Which document is primarily involved in forming a limited liability company (LLC)?

    <p>Articles of organization.</p> Signup and view all the answers

    What does dissolution of a partnership refer to?

    <p>Termination of the partnership and asset distribution.</p> Signup and view all the answers

    What type of tax do sole proprietors need to pay in addition to their personal income tax?

    <p>Self-employment tax.</p> Signup and view all the answers

    In a limited partnership (LP), who is fully liable for the debts of the partnership?

    <p>General partners only.</p> Signup and view all the answers

    Which of the following is a pro of establishing a franchise?

    <p>Access to established brand recognition.</p> Signup and view all the answers

    What is typically required for forming a partnership?

    <p>Obtaining a fictitious name permit.</p> Signup and view all the answers

    Which term describes a situation where two entities collaborate on a specific project?

    <p>Joint venture.</p> Signup and view all the answers

    Which of the following accurately describes tax responsibilities of partnerships?

    <p>Profits are directly passed through to individual partners for taxation.</p> Signup and view all the answers

    Which of the following accurately represents the liability of partners in a general partnership?

    <p>Equal liability among all partners regardless of contribution.</p> Signup and view all the answers

    What forms the basis for a sole proprietorship's formation?

    <p>No formal steps are needed other than starting the business.</p> Signup and view all the answers

    What element of negligence addresses whether a defendant acted with a standard of care?

    <p>Breach</p> Signup and view all the answers

    What legal principle protects music artists under the First Amendment in relation to potentially harmful lyrics?

    <p>Freedom of speech</p> Signup and view all the answers

    Which type of plaintiff negligence results in a complete bar to recovery if the plaintiff is found to have assumed the risk?

    <p>Contributory negligence</p> Signup and view all the answers

    What is the main criteria to determine if a defendant's breach led to a plaintiff's harm?

    <p>Factual causation</p> Signup and view all the answers

    What type of damages are intended to punish the defendant in tort cases?

    <p>Punitive damages</p> Signup and view all the answers

    What is the required burden of proof for the plaintiff in a negligence case?

    <p>Preponderance of the evidence</p> Signup and view all the answers

    In what scenario can a landowner be liable for injuries to a licensee?

    <p>Only for known defects</p> Signup and view all the answers

    Which legal concept relates to the responsibility of professionals to act with a heightened standard of care?

    <p>Professional duty standard</p> Signup and view all the answers

    How does the Hand Analysis in negligence law help in determining breach?

    <p>By evaluating the cost of precautions versus potential harm</p> Signup and view all the answers

    What is the general expectation of care for children engaged in adult activities?

    <p>They should act like an adult</p> Signup and view all the answers

    In comparative negligence states, what happens if the defendant is determined to be 80% responsible for the accident?

    <p>The plaintiff receives a proportional reduction of damages</p> Signup and view all the answers

    What would be a valid defense in a negligence case when the plaintiff voluntarily participates in a risky activity?

    <p>Assumption of risk</p> Signup and view all the answers

    What is the primary focus of proximate causation in a negligence case?

    <p>Foreseeability of the type of harm</p> Signup and view all the answers

    What is the annual State franchise tax that all LLCs in California are required to pay?

    <p>$800</p> Signup and view all the answers

    Which of the following is not a requirement for forming an LLC in California?

    <p>Publishing the filing in a newspaper</p> Signup and view all the answers

    What type of tax treatment does a multi-member LLC typically default to for federal taxation?

    <p>Taxed as a partnership</p> Signup and view all the answers

    Who can typically own an LLC?

    <p>Individuals, trusts, or corporations</p> Signup and view all the answers

    What document sets forth the rights and duties of the members and profit interests in an LLC?

    <p>Operating Agreement</p> Signup and view all the answers

    What is a significant disadvantage of limited liability companies (LLCs) compared to corporations?

    <p>More difficult to raise investment</p> Signup and view all the answers

    In California, which professionals are generally not permitted to form LLCs?

    <p>Doctors, bankers, and lawyers</p> Signup and view all the answers

    What must members of an LLC do to shield their personal assets from the LLC's debts?

    <p>Act within the scope of the LLC's operations</p> Signup and view all the answers

    Which process ensures that all members of an LLC are properly identified?

    <p>Filing a Statement of Information (SOI)</p> Signup and view all the answers

    In a member-managed LLC, who typically participates in the management of the company?

    <p>Members of the LLC</p> Signup and view all the answers

    What is a characteristic legal duty owed by members and managers of an LLC?

    <p>Duty of loyalty</p> Signup and view all the answers

    When forming a corporation, which document includes details about roles and meetings?

    <p>Bylaws</p> Signup and view all the answers

    What is a unique aspect of Limited Liability Limited Partnerships (LLLPs) compared to traditional limited partnerships?

    <p>General partners have limited liability</p> Signup and view all the answers

    What primary advantage does forming a single-purpose LLC provide for filmmakers?

    <p>Enhanced liability protection</p> Signup and view all the answers

    What must be proven for a product to be considered defective in a strict liability claim?

    <p>The product was dangerous and defective when sold</p> Signup and view all the answers

    Which of the following is an example of a failure to warn?

    <p>A medication without dosage instructions</p> Signup and view all the answers

    Under strict liability, what is not a valid defense for a defendant?

    <p>The seller exercised reasonable care</p> Signup and view all the answers

    Which element of negligence requires that the defendant's action was a direct cause of the harm?

    <p>Causation</p> Signup and view all the answers

    Which scenario exemplifies the concept of ‘risk’ in establishing a duty of care?

    <p>A landlord installing an unmonitored security camera</p> Signup and view all the answers

    In which situation might a court find a defendant not liable due to misuse of a product?

    <p>Attempting suicide using vehicle features</p> Signup and view all the answers

    What does UGC stand for in internet law?

    <p>User Generated Content</p> Signup and view all the answers

    Which statement about internet service providers (ISPs) is true?

    <p>ISPs are only liable if they edit user posts</p> Signup and view all the answers

    What is required for a breach of duty to be established in a negligence case?

    <p>Violation of a specific standard of care</p> Signup and view all the answers

    What does the 'HAND formula' relate to in strict liability?

    <p>Assessing liability based on cost-cutting measures</p> Signup and view all the answers

    Which hypothetical situation does not create a duty of care?

    <p>A pedestrian walking on a safe sidewalk</p> Signup and view all the answers

    In what case can a plaintiff sue both the manufacturer and retailer of a defective product?

    <p>When the product is found to be defective and harmful</p> Signup and view all the answers

    What is the primary goal of establishing a duty of care?

    <p>To determine a reasonable person's behavior under specific circumstances</p> Signup and view all the answers

    In a negligence case, what constitutes actual damages?

    <p>Physical injuries and financial loss suffered by the plaintiff</p> Signup and view all the answers

    Which legal concept allows a plaintiff to argue based on reliance in a negligence case?

    <p>Duties established by relationships</p> Signup and view all the answers

    What is the primary reason why forming a corporation may not be advantageous for tax purposes?

    <p>Corporations are subject to double taxation.</p> Signup and view all the answers

    Which of the following is a requirement for S-corporations?

    <p>The corporation can only have one class of stock.</p> Signup and view all the answers

    Who is typically responsible for managing the day-to-day activities of a corporation?

    <p>Officers</p> Signup and view all the answers

    Under what circumstance might a corporation not be liable for the actions of its employees?

    <p>The employee was performing a personal task off the job.</p> Signup and view all the answers

    What role does the doctrine of respondeat superior play in corporate liability?

    <p>It holds the company vicariously liable for actions within the scope of employment.</p> Signup and view all the answers

    What entity type can generally raise funds by issuing shares to the public?

    <p>Corporations</p> Signup and view all the answers

    What is one primary advantage of debt financing for a corporation?

    <p>It allows retaining full control of the corporation.</p> Signup and view all the answers

    Which of the following rights does a director NOT have?

    <p>Right to appoint new directors</p> Signup and view all the answers

    What fiduciary duty involves acting in good faith and exercising reasonable care?

    <p>Duty of care</p> Signup and view all the answers

    What is the typical term length for a director on a board of directors?

    <p>One year</p> Signup and view all the answers

    Which statement about shareholders is accurate?

    <p>Shareholders can sue the corporation on its behalf.</p> Signup and view all the answers

    What is the purpose of a company establishing its authorized shares?

    <p>To create a limit on the number of shares available to issue.</p> Signup and view all the answers

    What is a potential disadvantage of issuing shares to raise funds?

    <p>Partial ownership of the company is relinquished.</p> Signup and view all the answers

    Why might venture capital financing be preferred over bank loans?

    <p>Venture capital firms are less demanding about repayment.</p> Signup and view all the answers

    What is a key feature of a valid contract?

    <p>Legality</p> Signup and view all the answers

    Which act primarily addresses monopolies in the U.S.?

    <p>The Sherman Act</p> Signup and view all the answers

    What must be proven for a violation of Section 10(b)(5) of the Securities Act?

    <p>Material misrepresentation</p> Signup and view all the answers

    What is an example of a horizontal restraint of trade?

    <p>A group of suppliers agreeing to fix prices</p> Signup and view all the answers

    Which of the following is a type of exemption from securities registration under the 1933 Securities Act?

    <p>Regulation A</p> Signup and view all the answers

    Which type of contract allows one party the right to terminate it?

    <p>Voidable contract</p> Signup and view all the answers

    What is the primary purpose of antitrust laws?

    <p>To promote competition</p> Signup and view all the answers

    What does price discrimination involve?

    <p>Selling at different prices to competing buyers</p> Signup and view all the answers

    Which of the following defines a 'bilateral contract'?

    <p>Both parties make promises to each other</p> Signup and view all the answers

    What is now prohibited in most circumstances under Section 10(b)(5) of the Securities Act?

    <p>Misleading investors</p> Signup and view all the answers

    In what situation is a contract void?

    <p>When elements of capacity are missing</p> Signup and view all the answers

    In a contractual agreement, what does 'consideration' refer to?

    <p>The compensation or value exchanged</p> Signup and view all the answers

    Which group is exempt from antitrust laws?

    <p>Labor unions</p> Signup and view all the answers

    What type of financial instrument includes stocks and bonds?

    <p>Security</p> Signup and view all the answers

    What is a primary method to create an agency relationship?

    <p>Written agreement</p> Signup and view all the answers

    Which type of offering allows for up to $1M without registration?

    <p>Rule 504</p> Signup and view all the answers

    Which of the following is NOT one of the agent's duties to the principal?

    <p>Supervision</p> Signup and view all the answers

    When does an agency relationship typically NOT exist?

    <p>When the subject matter is illegal</p> Signup and view all the answers

    What is one major liability distinction between employees and independent contractors?

    <p>Employers are seldom liable for IC actions</p> Signup and view all the answers

    According to the CA Bill AB5 Test, which condition is NOT a requirement for a worker to be classified as an independent contractor?

    <p>Be affiliated with a competition</p> Signup and view all the answers

    What must a principal provide to an agent under their duties?

    <p>Safe working conditions</p> Signup and view all the answers

    What does the term 'work for hire' refer to?

    <p>Ownership of the final product by the employer</p> Signup and view all the answers

    In which scenario can a principal be liable for an agent's unauthorized acts?

    <p>If the act occurred during working hours</p> Signup and view all the answers

    What is a method of creating an agency relationship by ratification?

    <p>The agent acting outside the company's scope but receiving approval</p> Signup and view all the answers

    Which of these workers is typically entitled to employee protections under California employment law?

    <p>Employees</p> Signup and view all the answers

    Which act primarily governs unfair competition in business practices?

    <p>The Sherman Act</p> Signup and view all the answers

    What could constitute a breach of the duty of loyalty by an agent?

    <p>Diverting business to a competing third party</p> Signup and view all the answers

    What is an example of a principal’s duty in relation to expenses incurred by agents?

    <p>Reimbursement for business-related expenses</p> Signup and view all the answers

    When does an agency relationship typically end?

    <p>Through mutual termination or resignation</p> Signup and view all the answers

    What is one of the conditions that must be met for officers to utilize the business judgment rule?

    <p>They must have taken reasonable steps to become informed about the matter.</p> Signup and view all the answers

    What does the duty of loyalty require from directors and officers?

    <p>To prioritize the corporation's interests over their own.</p> Signup and view all the answers

    If a director has a conflict of interest about a transaction, what should they do?

    <p>Disclose their conflict and abstain from voting.</p> Signup and view all the answers

    What right do shareholders have regarding the inspection of corporate documents?

    <p>They have the right to inspect selected corporate documents.</p> Signup and view all the answers

    What is a direct action that shareholders can take against the corporation?

    <p>They can appoint a representative to sue for mismanagement.</p> Signup and view all the answers

    Which of the following is NOT a power of shareholders?

    <p>The right to directly manage company operations.</p> Signup and view all the answers

    What must shareholders demonstrate to bring a derivative action?

    <p>They must show that harm has been done to the corporation and make a written demand.</p> Signup and view all the answers

    What is one challenge of operating a close corporation?

    <p>Shares cannot be freely transferred to non-shareholders.</p> Signup and view all the answers

    In a situation where majority shareholders refuse to perform a valuation for a minority shareholder in a close corporation, what recourse does the minority shareholder have?

    <p>They can bring a lawsuit for breach of fiduciary duty.</p> Signup and view all the answers

    Which argument might a shareholder like Nicole use in her direct action against the corporation's directors for mismanagement?

    <p>The company has engaged in reckless spending breaching fiduciary duties.</p> Signup and view all the answers

    What underlying principle justifies the business judgment rule?

    <p>To encourage directors and officers to take risks.</p> Signup and view all the answers

    What is the legal stance of a company defending itself against a claim of mismanagement?

    <p>They can argue they were acting in good faith with the business judgment rule.</p> Signup and view all the answers

    Which of the following is a required trait for directors or officers acting in the best interest of the corporation?

    <p>Holding no personal conflicts of interest.</p> Signup and view all the answers

    What is a potential benefit of having multiple classes of shares for a company?

    <p>To provide different rights to various investor classes.</p> Signup and view all the answers

    What defines a unilateral contract?

    <p>One party makes a promise in exchange for the other’s performance.</p> Signup and view all the answers

    Which of the following best describes an express contract?

    <p>Terms are stated directly and clearly by both parties.</p> Signup and view all the answers

    What is a 'Merger/Integration Clause'?

    <p>A clause indicating no prior negotiations hold legal weight unless written.</p> Signup and view all the answers

    Under what circumstance does the Uniform Commercial Code (UCC) apply?

    <p>To the sale of goods and movable items.</p> Signup and view all the answers

    In the context of contracts, what does 'consideration' refer to?

    <p>The benefit received by one party in exchange for a promise.</p> Signup and view all the answers

    What is the 'Mirror Image Rule' in contract acceptance?

    <p>The acceptance must mirror the offer exactly in terms.</p> Signup and view all the answers

    Which of the following actions would effectively terminate an offer?

    <p>The offeror dies before the offer is accepted.</p> Signup and view all the answers

    What happens if an offer is revoked before it is accepted?

    <p>The offer is no longer valid and cannot be accepted.</p> Signup and view all the answers

    When does acceptance become effective under the Mailbox Rule?

    <p>Upon dispatch of the acceptance by the offeree.</p> Signup and view all the answers

    Which party typically holds the burden of proof in demonstrating the existence of mutual assent?

    <p>Whichever party claims the contract exists.</p> Signup and view all the answers

    In the Kirksey case, what was a critical reason for the plaintiff's success in court?

    <p>The plaintiff relied on the promise to her detriment.</p> Signup and view all the answers

    Why are price quotes not considered valid offers?

    <p>They lack the intent to create a binding contract.</p> Signup and view all the answers

    Which of the following describes unjust enrichment?

    <p>A situation where one party benefits at the expense of another without a legal reason.</p> Signup and view all the answers

    What concept allows a party to hold a promise enforceable, despite lack of a formal agreement?

    <p>Promissory Estoppel</p> Signup and view all the answers

    Which condition allows for an offer to be revoked before acceptance?

    <p>Any offer can be revoked</p> Signup and view all the answers

    What type of promise is considered an 'illusory promise' and lacks consideration?

    <p>A promise contingent on liking a product</p> Signup and view all the answers

    In which situation can a debtor legally settle a dispute over a debt for less than the full amount owed?

    <p>Unliquidated Debt with a dispute</p> Signup and view all the answers

    Which of the following is an example of past consideration?

    <p>Services already performed when a new promise is made</p> Signup and view all the answers

    What is required for the formation of an enforceable contract?

    <p>Legal benefit or detriment</p> Signup and view all the answers

    What happens when one party performs a service they are already obligated to do?

    <p>It creates an illusory promise</p> Signup and view all the answers

    What is the outcome if a creditor accepts a payment that is less than a liquidated debt?

    <p>The agreement is non-binding due to lack of consideration</p> Signup and view all the answers

    How can a plaintiff claim damages for a broken promise in a moral consideration case?

    <p>Demonstrating reliance on the promise</p> Signup and view all the answers

    What does the concept of 'consideration' specifically require?

    <p>An exchange of promises</p> Signup and view all the answers

    Which of the following best describes a liquidated debt?

    <p>A debt with no dispute about the amount owed</p> Signup and view all the answers

    What effect does a ‘preexisting duty’ have on a new contract?

    <p>It results in an unenforceable contract</p> Signup and view all the answers

    When can an option contract be said to exist?

    <p>When consideration is secured to keep an offer open</p> Signup and view all the answers

    Why is a moral consideration not enforceable in court?

    <p>It is invalid without consideration received</p> Signup and view all the answers

    What must a party show in order to seek an injunction?

    <p>Some type of irreparable harm</p> Signup and view all the answers

    Which of the following correctly describes the function of nominal damages?

    <p>A small sum awarded for a non-serious injury</p> Signup and view all the answers

    What allows a party to fix a breach in a contract before facing penalties?

    <p>A cure provision</p> Signup and view all the answers

    What is true about punitive damages in breach of contract situations?

    <p>They are NOT awarded in breach of contract lawsuits</p> Signup and view all the answers

    Under the UCC, what option is available to buyers if they breach a contract?

    <p>Cancel the contract and seek damages</p> Signup and view all the answers

    Which of the following describes a non-competition agreement that is enforceable?

    <p>A restriction on opening a competing restaurant within 8 miles for one year after selling a business.</p> Signup and view all the answers

    What could potentially allow a casino in California to collect on a $30,000 contract?

    <p>by establishing a choice of law provision to Nevada law.</p> Signup and view all the answers

    Which of the following is a requirement for the enforceability of contracts that fall under the 'MY LEGS' acronym?

    <p>They must be in writing.</p> Signup and view all the answers

    Under what condition can a court enforce a non-competition provision?

    <p>If it involves trade secrets or proprietary information.</p> Signup and view all the answers

    Which statement best captures the essence of procedural unconscionability?

    <p>It involves creating unfair contracts due to power imbalances in negotiation.</p> Signup and view all the answers

    What does the 'Cure' provision in a contract typically allow?

    <p>Time for the breaching party to correct a minor issue.</p> Signup and view all the answers

    In the context of UCC 2-207, what happens to conflicting terms in a purchase agreement?

    <p>Conflicting terms are canceled, and new terms may be added.</p> Signup and view all the answers

    What can lead to a breach of contract?

    <p>No performance or poor performance.</p> Signup and view all the answers

    What typically characterizes an exculpatory clause?

    <p>It releases a company from liability for personal injuries.</p> Signup and view all the answers

    Which term refers to an event that can temporarily suspend contractual obligations?

    <p>Force Majeure</p> Signup and view all the answers

    When must modifications to a contract be documented?

    <p>They must be in a separate signed writing.</p> Signup and view all the answers

    Which factor is NOT a component of a non-competition agreement's reasonableness?

    <p>Size of the competitor's business.</p> Signup and view all the answers

    An Executor's promise to pay debts must be in which form to be enforceable?

    <p>Written and signed.</p> Signup and view all the answers

    Which of the following best describes substantive unconscionability?

    <p>Terms that are exceedingly one-sided or harsh.</p> Signup and view all the answers

    What effect does substantially performing a contract have?

    <p>It entitles the performing party to full payment.</p> Signup and view all the answers

    What does a condition precedent in a contract signify?

    <p>A term that triggers the contractual obligations.</p> Signup and view all the answers

    Which clause ensures that ambiguities in a contract are not held against the drafting party?

    <p>Joint Drafting Clause</p> Signup and view all the answers

    What was the outcome of the dispute between Jay Leno and Conan O'Brien regarding the Tonight Show?

    <p>NBC had to pay Conan but keep Leno on air.</p> Signup and view all the answers

    What kind of interest do usury laws prevent?

    <p>Unreasonable or excessive interest on loans.</p> Signup and view all the answers

    What is the impact of a Merger/Integration Clause in a contract?

    <p>It finalizes all prior negotiations in the existing contract.</p> Signup and view all the answers

    What is an essential characteristic of a warranty in a contract?

    <p>It involves a promise that certain material facts are true.</p> Signup and view all the answers

    Which situation does NOT typically result in a breach of contract?

    <p>The contract was completed successfully.</p> Signup and view all the answers

    In the context of UCC contracts, which item is a requirement for enforceability when dealing with goods valued over $500?

    <p>Signature of the Defendant.</p> Signup and view all the answers

    In a bailment agreement, what could happen if the item is damaged despite a signed waiver?

    <p>The waiver can be voided if negligence is proven.</p> Signup and view all the answers

    What is a 'representation' in contract terms?

    <p>A statement of a past or present fact that induces agreement.</p> Signup and view all the answers

    What happens when one party indicates they will not fulfill their contractual obligations before performance is due?

    <p>It may be viewed as an anticipatory breach if it happens before the performance date.</p> Signup and view all the answers

    What is the legal effect of a 'Severability' clause in a contract?

    <p>The contract can still be enforced if one provision is invalid.</p> Signup and view all the answers

    What constitutes the situation of 'impossibility' in contract performance?

    <p>Complete destruction of the subject matter</p> Signup and view all the answers

    Which of the following correctly describes 'frustration of purpose' in contract law?

    <p>An unexpected event voids the value of the contract</p> Signup and view all the answers

    What is a primary reason why a party may not be able to delegate obligations under a contract?

    <p>Nature of the contract and the specific services involved</p> Signup and view all the answers

    What defines an 'intended beneficiary' in a contract?

    <p>A third party specifically intended to benefit from the contract</p> Signup and view all the answers

    In which scenario can a seller not withdraw from a contract due to impracticability?

    <p>Normal fluctuations in market prices</p> Signup and view all the answers

    Which type of condition requires fulfillment before a party is obligated to perform under a contract?

    <p>Condition Precedent</p> Signup and view all the answers

    In what circumstance can a creditor beneficiary enforce a contract?

    <p>If the parties intended them to benefit and it satisfies a duty</p> Signup and view all the answers

    Which defense can be claimed when the specific subject matter of a contract has been destroyed?

    <p>Impossibility</p> Signup and view all the answers

    Under what conditions is an assignment typically considered irrevocable?

    <p>The assignment is made in a written contract</p> Signup and view all the answers

    What does 'concurrent conditions' in a contract imply?

    <p>Both parties must fulfill terms simultaneously</p> Signup and view all the answers

    Which scenario exemplifies an incidental beneficiary?

    <p>A friend who benefits from a loan agreement between two parties</p> Signup and view all the answers

    Which of the following would not be considered an excuse for non-performance of a contract?

    <p>Reduction in sales due to economic downturn</p> Signup and view all the answers

    Which of the following is a common characteristic of the Uniform Commercial Code (UCC)?

    <p>It governs the sale of goods primarily</p> Signup and view all the answers

    What is a necessary condition for a contract to be considered voidable?

    <p>One of the parties was underage at the time of signing.</p> Signup and view all the answers

    Under which circumstance can Bill argue for the full contract price after completing part of the house?

    <p>If he has completed at least 90% of the construction.</p> Signup and view all the answers

    Which of the following best describes 'good faith and fair dealing' in contract law?

    <p>An implied promise to act commercially reasonable.</p> Signup and view all the answers

    What is the effect of a 'time of the essence' clause in a contract?

    <p>It requires performance to occur strictly by the deadline.</p> Signup and view all the answers

    If a party claims that they entered into a contract under duress, what must they prove?

    <p>That there was an unequal bargaining power.</p> Signup and view all the answers

    What is the legal capacity of a minor regarding contracts?

    <p>Minors can only disaffirm contracts for necessities.</p> Signup and view all the answers

    In what scenario could a party successfully claim unjust enrichment?

    <p>If they received a benefit without providing full compensation.</p> Signup and view all the answers

    What is the essential term required for a UCC contract to be enforceable?

    <p>Quantity</p> Signup and view all the answers

    What must be proved to establish fraud in a contract?

    <p>The plaintiff relied on the false statement.</p> Signup and view all the answers

    Which of the following scenarios would typically require a UCC contract to be in writing?

    <p>A contract for the sale of goods worth over $500</p> Signup and view all the answers

    What is a characteristic of a unilateral mistake in contract law?

    <p>One party must prove it was a mathematical error.</p> Signup and view all the answers

    What happens when two parties propose different terms in a UCC contract?

    <p>The different terms are cancelled out</p> Signup and view all the answers

    What happens if one party learns new information about a contract before performance?

    <p>They are obliged to disclose it to the other party.</p> Signup and view all the answers

    What is an essential characteristic of equitable remedies?

    <p>They aim to provide non-monetary compensation</p> Signup and view all the answers

    Which scenario indicates a breach of contract when only minor defects are present?

    <p>The contractor finished all work but had minor paint errors.</p> Signup and view all the answers

    What type of damages are awarded based on the unique situation of the injured party?

    <p>Consequential Damages</p> Signup and view all the answers

    What must be shown to claim rescission due to mutual mistake?

    <p>That both parties shared the same misunderstanding.</p> Signup and view all the answers

    Which of the following statements is true regarding mental incapacity in contracts?

    <p>A court ruling of incompetence allows the contract to be voidable.</p> Signup and view all the answers

    How are reliance interest damages assessed?

    <p>Based on losses incurred due to the reliance on the contract</p> Signup and view all the answers

    What document primarily guides the enforcement of contractual obligations?

    <p>The contract itself.</p> Signup and view all the answers

    What determines whether a plaintiff is entitled to restitution interest?

    <p>Benefits conferred to the defendant from the injured party</p> Signup and view all the answers

    Which of the following statements accurately reflects UCC contract modifications?

    <p>They do not require new consideration</p> Signup and view all the answers

    In the context of UCC contracts, what does 'gap filler' refer to?

    <p>Terms established by the court when parties leave them open</p> Signup and view all the answers

    Which scenario exemplifies a situation valid for a claim of mutual mistake?

    <p>Buyer believes they are purchasing a rare item that is actually fake</p> Signup and view all the answers

    What is the primary characteristic of compensatory damages under the expectation interest model?

    <p>They compensate for harm directly resulting from the breach</p> Signup and view all the answers

    What is the threshold for requiring a contract to be in writing under UCC guidelines?

    <p>$500</p> Signup and view all the answers

    An injunction is best defined as _____.

    <p>An order to refrain from specific actions</p> Signup and view all the answers

    Study Notes

    Negligence, Strict Liability, and Product Liability Intro

    • Negligence occurs when someone acts unreasonably and causes harm to another, but did not intend to do so.
    • Strict liability holds someone liable for harm, regardless of intent or negligence.
    • Companies can be sued for both strict liability and negligence.
    • Suing for multiple torts allows for a case to continue even if one claim is dismissed.

    Strict Liability (SL)

    • Plaintiffs must prove the Defendant was responsible for their injuries.
    • This is established through abnormally dangerous activities (ADA) or product liability.
    • Examples of ADA include keeping wild animals, using explosives, and transporting hazardous chemicals.
    • With SL, the burden of proof shifts to the Defendant to show they were not negligent.
    • The Plaintiff only needs to prove the Defendant had exclusive control over the object that caused injury.
    • Liability for normal activities is typically based on negligence, not SL.

    Product Liability

    • There are three main causes of action under product liability:
      • Design defects/manufacturing defects
      • Defective products
      • Failure to warn
    • Design (or Manufacturing) Defects: Occur when a product is negligently manufactured (e.g., the Tylenol case).
      • This includes situations where a product causes harm simply by existing.
    • Defective Products: Exist when the product is defective at the point of sale (e.g., the Ford Pinto case).
    • Failure to Warn: Products must include warning labels for any foreseeable dangers.
      • Examples include warning labels on Superman costumes and spray paint.
    • Under SL, companies cannot claim they took reasonable care; they are liable if:
      • The product was defective at the time of sale.
      • The Defendant sells these products.
      • The product is dangerous.
      • The Plaintiff was harmed by the product.
    • Both the manufacturer and retailer can be sued for defective products.
    • Courts use market-share liability to apportion fault to each Defendant based on their market share.
    • Exception: Companies are not liable if the risk was not foreseeable due to misuse or alteration of the product.

    Privacy and Internet/Cyberlaw

    • This area of law primarily focuses on the protection of personally identifiable information (PII) online, including financial info, addresses, phone numbers, and passwords.
    • UGC (User Generated Content): Content created and publicly available by end users (e.g., social media posts).
    • Rule: Internet Service Providers (ISPs) are not liable for content posted on their servers unless they directly edit those posts.
    • ISPs are given a "safe harbor" and are exempt from liability for hosting content.

    Negligence/Unintentional Torts

    • Definition: Unreasonable conduct that causes another person actual harm.
    • It involves lawful conduct that can be proven harmful.
    • The harm must be reasonably foreseeable.

    Policy Considerations

    • They include considerations of loss allocation, fairness, accident deterrence, economic impacts, administrative concerns, floodgate of litigation, and legislative concerns.

    Negligence Elements (the Big 4!)

    • Duty: The Defendant is obligated to exercise some care toward the Plaintiff.
    • Breach: The Defendant has violated the specific standard of care required by duty.
    • Causation: The Defendant's breach was a factual and proximate cause of the harm.
    • Damages: The Plaintiff's harm resulted in actual damages.

    Element 1: Duty of Care

    • Definition: A court determines, as a matter of law, that one person is obligated to exercise a standard of care towards another.
    • General Rule: People who do not act owe no duty of care, but people who do act, do owe a duty of care.
    • Duty of care is established through: Risk, Relationship, Reliance.

    Risk

    • If the Defendant creates a risk by their actions (e.g., speeding), a duty of care exists.
    • If the Defendant fails to reduce an existing risk (e.g., not hiring security), a duty of care may still exist.

    Relationship

    • A special relationship exists when one party has special knowledge or control over the other, and the Plaintiff is dependent on them.
    • Examples include doctor/patient, hotel manager/guest, pilot/passenger, and school/student.

    Reliance

    • A duty of care exists when someone starts to help someone at risk, but then either worsens their situation or prevents other help.

    Duty Analysis: Policy

    • Policy considerations must be weighed, including:
      • Risk of harm (e.g., music causing dangerous behavior).
      • Foreseeability of harm (e.g., someone acting on lyrics in a song years later).
      • Constitutional protections (e.g., freedom of speech).

    Element 2: Breach

    • Issue: Did the Defendant breach the standard of care?
    • Rule: A person is expected to behave as a reasonable person (RP) acting under the same or similar circumstances.
    • Hypo: A window washer bumps a can, causing it to fall on someone's head. A RP would know gravity causes things to fall.

    Special Breach Rules

    • Landowners:
      • Trespassers generally have no liability for negligence.
      • Licensees: The owner is only liable for hidden dangers.
      • Invitees: The owner is liable if they know about existing defects.
      • Landowners must warn licensees and invitees of dangerous conditions.
    • Professionals: Professionals (e.g., doctors, lawyers, accountants) have heightened duties of care.
    • Children: Children must act like a reasonable child of their intelligence, experience, age, and maturity.
      • Exception: They must act like adults when engaging in adult activities (e.g., driving).

    The Hand Analysis

    • It is a theoretical blueprint for determining breach (B < P x L)
    • "Burden < Probability of event occurring x Likelihood of the event happening"
    • Companies are negligent if they could have spent a small amount of money to prevent a larger loss in the future.

    Element 3– Factual and Proximate Causation

    • Factual Causation Rule: The Defendant's breach must have led to the Plaintiff's harm.
    • "But for" Test: If the Defendant's act is removed, would the harm still occur?
    • Proximate Causation Rule: The type of harm must be reasonably foreseeable.

    Element 4: Damages and Defenses

    • Types of Damages:
      • Compensatory: (Actual) - lost wages, medical expenses, and other harm (including current and future suffering).
      • Punitive: Designed to punish the Defendant.
    • In comparative negligence states, the Plaintiff receives damages based on the percentage of fault assigned to the Defendant.
    • In contributory negligence states, the Plaintiff receives nothing if they are partially at fault.
    • Assumption of Risk: If the Plaintiff knowingly assumes the risk of an activity, they may be barred from receiving damages.
    • Sports: Participants generally assume the risk of injury in sports activities.

    Business Organizations I

    Corporate Law Introduction

    • Corporate structures are important for building employment and wealth within society.
    • Corporate law is a global standard and is essential for understanding business structures.

    Forming an Entity

    • Step 1: Choose a name and search with the California Secretary of State.
    • Step 2: Choose a "home" state for the entity.
    • Step 3: Select the entity type (sole proprietorships, partnerships, LLCs, corporations, etc.)
    • Step 4: File the appropriate documents with the Secretary of State's office to create the entity.

    Sole Proprietorships

    • Definition: A business with no separate legal existence from its owner.
    • Formation: No formal requirements; operate under your own name
    • Profits: All income is taxed at the individual's personal rate.
    • Taxation: Sole proprietors pay tax at two rates: their personal tax rate and self-employment tax (for Social Security and Medicare).
    • Pros: More flexibility than partnerships or corporations, fewer formalities, can transition to more formal entities as needed.
    • Cons: Owner has unlimited personal liability for debts, limited capital-raising options.
    • Dissolution: Occurs when the sole proprietor passes away or closes the business.

    Partnerships

    • Definition: An agreement by two or more people to manage a business and share profits.
    • Formation: Choose a name, obtain an EIN, file a fictitious name permit, and sign a partnership agremeent.
    • Profits and Taxation: Profits are split equally unless agreed otherwise. Partnerships are pass-through entities and do not pay income tax.
    • Types: GP (all partners operate the business), LP (at least one general partner with unlimited liability; limited partners have liability limited to their investment), LLP (all partners have limited liability).
    • Pros: Flexibility in structure, some offer limited liability, can transition to more formal entities.
    • Cons: Partners still have personal liability for debts, profits are often split equally regardless of contributions.
    • Dissolution: Termination is known as "winding up" and assets are distributed.
    • Franchise: A franchise is an agreement where the owner of an intellectual property (logo, slogan) licenses its use with a franchisee.

    Franchise

    • Definition: An agreement where a business (franchisor) grants a license to another business (franchisee) to operate under its name and system.
    • Pros: Franchisee gets brand recognition, established systems, and support from franchisor. Franchisor benefits from expansion and increased brand recognition
    • Cons: Franchisee must pay fees and royalties, and often must follow strict guidelines set by the franchisor.

    Agency Relationships

    • Agents owe five duties to the principal:
      • Performance: Use ordinary care as a reasonable person
      • Notification: Communicate with the principal about all business matters
      • Loyalty: Act in the best interest of the company and not divert business to a third party or themselves
      • Obedience: Follow the law and all employer policies
      • Accounting: Keep records of all property and funds

    Employee vs. Independent Contractor

    • There is a growing trend of companies wanting to classify employees as independent contractors.
    • Companies may withhold taxes for employees but not independent contractors.
    • Independent contractors may or may not be agents of the company.
    • A "Work For Hire" arrangement occurs when someone works for a company or is hired to complete a specific job.
    • When unclear whether a worker is an employee or independent contractor, consider the level of control the employer has over the worker.
    • Factors to consider include: office facilities, knowledge and skill, employer supervision, use of equipment, and whether the worker sets their own schedule or has their own employees.

    Independent Contractor vs. Employee Court Battles

    • Companies are attempting to classify their workers as independent contractors to avoid paying benefits. This impacts companies like Uber, Lyft, and Grubhub.
    • California has recently filed a lawsuit against Lyft for misclassifying its workers.
    • The California AB5 Test determines worker classification:
      • The worker can perform services without the control or direction of the company.
      • The worker performs tasks outside the usual course of the company's business activities.
      • The worker is customarily engaged in their own independently established trade.
    • Food delivery companies like Doordash, Grubhub, and Eat24 are classifying drivers as independent contractors.
    • Gig economy drivers are not entitled to employee protections in California.

    Principal's Duties to Agent

    • Principals must compensate the agent, reimburse company-related expenses, provide safe working conditions, and assist the agent in completing tasks.
    • Employers indemnify some agents for wrongful acts, meaning the principal is responsible for legal fees incurred by the agent. This does not apply to unauthorized acts (intentional torts).
    • A principal can be liable if the agent is acting within the scope of their employment or if the principal instructs the agent to act on their behalf.
    • A principal can also be liable for unauthorized acts while on the job.
    • An agent must act with authority from the principal, which can be express or implied/apparent.
    • An agency relationship can end through: contract term ending, purpose being achieved, mutual agreement, termination, or resignation.

    Antitrust

    • Antitrust Law (Sherman Act) addresses unfair competition.
      • Section 1: Every contract in restraint of trade is illegal.
      • Section 2: Monopolizing or attempting to monopolize is a felony.
    • A market controlled by one or a few sellers constitutes a monopoly.
    • Price-fixing occurs when a company or companies control the entire market and set prices for all consumers.
    • Bundling/tying is an example of potential antitrust violation, like NBC Universal and Disney bundling high-demand and low-demand channels. A-la-carte TV could offer a solution.
    • Horizontal restraints involve agreements that restrict competition between rival firms, such as group boycotts, market divisions, and trade associations.
    • Vertical restraints of trade involve companies vertically integrated (controlling manufacturing, inventory, wholesale, and retail).
    • Section 2 of the Sherman Act focuses on monopolies, established through dominant market share and the intent to monopolize.
    • Price discrimination involves selling goods to competing buyers at different prices.
    • Exemptions from Antitrust Law include: labor unions, music industry, and insurance companies.

    Secured Transactions

    • A security is a financial instrument with monetary value, like stocks and bonds.
    • Security interests include options (puts and calls) to buy and sell stocks at a future date.
    • The 1933 Securities Act requires registering securities before offering them to the public.
    • A company prospectus outlines key securities information.
    • Corporations pay a fee to register securities based on value and quantity.
    • Specific types of securities and transactions are exempt from registration and do not require a prospectus. These include: Regulation A offerings (up to 50M),Rule504/RegulationDofferings(upto50M), Rule 504/Regulation D offerings (up to 50M),Rule504/RegulationDofferings(upto1M), Rule 505 (up to $5M to accredited investors), and Rule 506 (private placement exemption for non-solicited securities).

    Violations of the Securities Act

    • Section 10(b)(5) prohibits fraud or misleading investors during security purchase or sale.
    • Elements of a Section 10(b)(5) violation include:
      • Material misrepresentation
      • Scienter (wrongful state of mind)
      • Reliance
      • Economic loss
      • Causation
    • The goal is to prevent insider trading.

    Contracts Introduction

    • A contract is a legally enforceable agreement that outlines the rights and duties of two or more parties.
    • The plaintiff bears the burden of proof by a preponderance of the evidence (51%).
    • For a contract to be valid and enforceable, it must include:
      • Offer
      • Acceptance
      • Consideration (KSN)
    • Secondary Issues:
      • Legality
      • Capacity
      • Consent
      • Writing

    Contracts: The Big 6

    • Six key questions for contract analysis:
      • Which law applies? Common Law or Uniform Commercial Code
      • Is there a contract? Mutual assent and consideration
      • What does the contract mean? Terms, modifications, and interpretation
      • Is there performance or breach? Full, substantial, partial, poor, or no performance
      • Are there excuses for breach? Impossibility, impracticability, frustration of purpose, mistake, force majeure
      • What is the remedy for no excuse? Monetary or equitable damages

    Validity of Contracts

    • Voidable contract: One party can terminate the agreement.
    • Void contract: Neither party can enforce the agreement.
    • Promises:
      • Bilateral contract: Both parties make a promise to each other.
      • Unilateral contract: One party promises in exchange for the other's performance.

    Contract Formation Theories

    • Express contract: Parties explicitly state all material terms.
    • Implied contract: Courts infer an agreement based on the parties' words and conduct.
    • Reliance/Promissory Estoppel: Enforcing a promise based on the plaintiff's detriment in relying on the promise.
    • Unjust Enrichment: Enforcing a benefit received by the defendant that would be unjust to retain without compensation.
    • Option contract: One party pays to keep an offer open for a set period.

    Big Picture Q1: Which law applies?

    • Common Law: Governs contracts for services.
    • Uniform Commercial Code (UCC): Governs contracts for the sale of goods, movable items.
    • When a contract has both goods and services, the UCC governs if the primary purpose is the sale of goods; otherwise, common law applies.

    Big Picture Q2: Is there a contract?

    • Mutual Assent: Agreement comprised of:
      • Offer: Manifestation of willingness to enter into a bargain.
      • Acceptance: Offeree's acceptance of the same terms as the offer.

    The Offer

    • Offer elements:
      • Offeror's intent to enter into a deal.
      • Definite terms.
    • Not offers:
      • Invitations to bargain
      • Price quotes
      • Advertisements
      • Auctions

    Acceptance

    • Acceptance can occur through words, signature, or conduct.
    • Mirror Image Rule: Acceptance must mirror the offer's terms exactly, otherwise, there is a rejection/counteroffer.
    • Method and Manner: Acceptance must comply with the offer's specified method and time.
    • Mailbox Rule: Acceptance is effective upon dispatch.
    • Rejection is effective upon receipt.

    Termination of Offers

    • Once terminated, an offer cannot be accepted.
    • Termination methods:
      • Revocation: Offeror takes back the offer.
      • Rejection: Offeree declines the offer or makes a counteroffer.
      • Expiration: Offer specifies a time limit for acceptance.
      • Operation of Law: Offeror dies or subject matter is destroyed.

    Consideration

    • Consideration (KSN) is the inducement (price or promise) that causes a party to enter into a contract.
    • It forms the basis of the parties' exchange.
    • KSN Elements:
      • Value: Legal benefit to the promisor or legal detriment to the promisee.
      • Bargained-for Exchange: Actual promises exchanged between the parties.

    Element #1: "Value"

    • Value is the legal detriment to the promisee (giving up something they have a right to) or the legal benefit to the promisor (receiving something they wouldn't otherwise have).
    • Value can be an act or forbearance:
      • Act: A promise to perform a service or give something.
      • Forbearance: A promise not to do something.
    • An act cannot be something a party was already legally obligated to do.

    Element #2: Bargained-For Exchange

    • Courts do not assess the adequacy of the dollar value of consideration.
    • An unfair deal is still enforceable as a contract.

    Exceptions to KSN

    • Illusory Promise: A promise that is entirely optional is not consideration.
    • Preexisting Duty: Performing an existing legal duty is not consideration.
    • Past Consideration: An act completed before a promise is made is not consideration.

    Consideration and Promissory Estoppel

    • A promise can be enforced even without consideration if there is a justifiable reliance on the promise and the person relying on it suffered a detriment.
    • An example is a 37-year employee offered a pension and retired early, relying on this promise. When the company took the pension away, the court allowed the employee to sue under a promissory estoppel theory.

    Special Consideration Cases: Settlement of Debts

    • A liquidated debt is when both parties agree on the amount owed.
    • An agreement to take less than the full amount owed is not binding because there's no consideration to support the promise to accept a reduced payment.
    • An unliquidated debt is when the parties dispute the amount owed or whether money is owed at all.
    • Parties can enter into an agreement to settle for less, called an accord and satisfaction, which is a valid contract.
    • Accord and satisfaction is valid if both parties have a good faith dispute about the amount owed.
    • A moral consideration, like a promise to donate to a non-profit, does not constitute valid consideration.

    Legality of Contracts

    • Contracts violating statutes are unenforceable.
    • Gambling contracts are illegal in California.
    • Insurance policies on others are legal.
    • Certain professions require licenses, and an unlicensed professional cannot sue their clients for services rendered.
    • Usury laws prevent excessive interest on loans.

    Public Policy: Non-Competition Agreements

    • Non-competition agreements must accompany a bargain and require consideration.
    • An agreement between businesses not to hire each other's employees is enforceable.
    • When selling a business, a covenant not to open a competing business is enforceable if the scope of coverage-time, geography, and services- is reasonable.
    • Non-competition clauses are typically unenforceable unless they are essential to the employer, fair to the employee, and harmless to the public.
    • Non-competition provisions should be enforced when they involve trade secrets like technical specs, formulas, or customer lists.

    Public Policy: Exculpatory Clauses

    • Exculpatory clauses release a company from liability for injuries sustained, such as in a gym.
    • They are unenforceable if they pertain to intentional torts, gross negligence, or involve unequal bargaining power.
    • Exculpatory clauses in bailment cases, where someone gives up personal property, are enforceable.

    Unconscionable Contracts

    • Courts will not enforce contracts or specific clauses if they are unfair.
    • Procedural unconscionability occurs when superior bargaining power creates an unfair contract.
    • Substantive unconscionability refers to terms in a contract that are one-sided or harsh.

    UCC 2-207: Adding or Changing Terms

    • UCC 2-207 applies to sales of goods.
    • Under UCC 2-207, different terms added by the parties to the contract are canceled out, replaced with gap fillers, and new terms become part of the contract.
    • For a contract modification, new consideration is required for common law contracts but not for UCC contracts.
    • Ambiguous terms in a contract are construed against the drafting party.

    Boilerplate/Standard Contract Terms

    • Covenants are the promises and obligations undertaken by the parties in a contract.
    • A condition precedent is an event that must occur before contractual duties exist.
    • A warranty is a promise about existing or future facts or conditions.
    • A representation is a statement of present or past fact that induces a party to enter a contract.

    Interpreting Terms: Case Example

    • The "pay or play" vs "pay and play" dispute surrounding the Tonight Show illustrates the importance of accurate contract language.
    • NBC paid Conan O'Brien not to host the Tonight Show.
    • NBC paid Jay Leno to host the Tonight Show.
    • This dispute highlighted the need for precise language to prevent ambiguities.

    Boilerplate ( Non-Material) Contract Terms

    • Indemnification: A party agrees to hold another party harmless for any breach.
    • Cure Period: A party can fix minor problems or incomplete performance before a lawsuit is filed.
    • Modification: Changes to the contract must be in writing and signed by both parties.
    • Governing Law: Specifies which state’s law applies.
    • Venue: Determines the location where a lawsuit will be litigated.
    • Arbitration: Parties can waive the right to litigation and choose arbitration instead.
    • Attorney’s Fees: Legal fees and court costs can be awarded to a winning party.
    • Joint Drafting: Ambiguities are not construed against the drafting party.
    • Severability: If a provision is deemed unenforceable, the rest of the contract remains valid.
    • Force Majeure: An unforeseen event, like a pandemic, suspends contractual performance.
    • Merger/Integration Clause: All discussions between the parties are finalized in the contract.

    Statute of Frauds: Written Contracts

    • Contracts falling under these categories must be in writing and signed by the defendant.
    • "MY LEGS" is a helpful acronym for remembering the categories:
      • Marriage
      • Contracts lasting over one year
      • Land contracts
      • Agreements by executors of an estate
      • Guaranty agreements
      • Sale of goods for $500 or more

    Sale of Goods Contracts under the Statute of Frauds

    • Contracts for the sale of goods exceeding $500 must be in writing and signed by the defendant.
    • The defendant's signature is crucial, and quantity is the only essential term needed.
    • Verbal contracts between merchants are enforceable if not objected to within a reasonable time (generally 10 business days).

    Performance and Breach of Contract

    • Full performance is never a breach.
    • Partial, poor, or no performance can constitute a breach.
    • If a party is in breach, the non-breaching party must notify them of the anticipatory breach, which means one side indicates they will not perform their part of the agreement before the time for performance is due.
    • Many contracts include a cure provision, giving the breaching party time to rectify mistakes.
    • If a party breaches a contract, the non-breaching party's obligations are discharged.
    • Courts will enforce a time-of-the-essence clause, making performance due on a specific date.

    Substantial Performance and Performance Hypo

    • Substantial performance makes a party entitled to payment even if their performance is not complete but sufficient for the intended purpose.
    • If a party completes 10% of the work and then stops, they are in breach because the owner cannot use the property for its intended purpose.
    • If 90% of the work is done, the contractor is entitled to the full contract price minus any defects.
    • Minor defects are generally not considered a breach of contract if the work is otherwise complete.

    Good Faith and Fair Dealing

    • Parties to a contract have an implied covenant to act commercially reasonable.

    Contract Defenses: Void vs. Voidable

    • A void contract is unenforceable because it is illegal.
    • A voidable contract can be rescinded by one of the parties.

    Capacity Defense: Minors

    • Minors under 18 are generally presumed to lack capacity and can disaffirm contracts.
    • Contracts with minors are voidable.
    • Minors can choose to enforce or terminate contracts.
    • A minor can disaffirm a contract even after reaching majority (age 18) if the contract was entered into when they were under 18.
    • If a minor misrepresents their age, the contract is enforceable, and they cannot disaffirm it.
    • A person suffering from mental incapacity, unable to understand a contract, has voidable contracts.
    • If a court has declared a person incompetent, contracts they enter are void.
    • The intoxication defense is difficult to prove and courts analyze it differently depending on the type of contract.
    • Consent means the contracting party understood the terms of the contract.
    • Fraud: When a party makes a false statement that is material and known to be untrue, inducing another party to enter into a contract.
    • Puffery (exaggeration) is not fraud. Opinions are not fraud.
    • A material false statement is essential for fraud to exist.
    • An innocent misrepresentation allows for rescission but not damages.
    • Duress: An improper threat to coerce a party into entering a contract. Courts consider the parties' relative bargaining power.

    Unilateral and Mutual Mistake

    • Unilateral Mistake: One party mistakenly believes in a specific fact. It must be material and unconscionable, like a mathematical error in a bid.
    • Mutual Mistake: Both parties share the same mistake, making the contract voidable.

    Undue Influence

    • One party unfairly dominates the will of another party.
    • Courts consider the relationship of the parties, how susceptible one party is, and whether the transaction was fair.

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