Chapter 8
bilateral contract

contract

executed contract

executory contract

express contract

formal contract

implied-in-fact contract
informal contract

objective theory of contracts

offeree

offeror

promise

promisor

quasi contract
unenforceable contract

unilateral contract

valid contract

void contract

voidable contract

Chapter 9
acceptance
agreement

counteroffer

course of dealing

mailbox rule

mirror image rule

offer

option contract

revocation

Chapter 10
accord and satisfaction
consideration

covenant not to sue

estopped

forbearance

liquidated debt
past consideration

promissory estoppel

release

rescission
 

Chapter 11
adhesion contract

blue laws

blue sky laws

contractual capacity

covenant not to compete

disaffirmance
emancipation

employment contract

exculpatory clause

necessaries

ratification

reformation
unconscionable contract or clause

usury

 
Chapter 12

scienter
Knowledge
by the
misrepresenti
ng party that
material facts
have been
falsely
represented or
omitted with
an intent to
deceive.
bilateral Mistake that occurs when both parties to a contract are mistaken about
mistake the same material fact and the mistake is one that a reasonable person
would make; either party can rescind the contract.
material fact A fact to which a reasonable person would attach importance in
determining his or her course of action.
unilateral Mistake that occurs when one party to a contract is mistaken as to a
mistake material fact; the contract normally is enforceable.
Chapter 13
collateral promise

integrated contract

parol evidence rule

prenuptial agreement
Statute of Frauds
Chapter 14
anticipatory repudiation
breach of contract
commercial impracticability
concurrent conditions
condition
condition precedent
condition subsequent
discharge
frustration of purpose
impossibility of performance
mutual rescission
novation
performance
tender
Chapter 15
consequential damages

incidental damages

liquidated damages
mitigation of damages

nominal damages

penalty

restitution
specific performance
Chapter 16
alienation

assignee
assignment

assignor

delegate

delegation of duties

delegator

incidental beneficiary
intended beneficiary

oblige

obligor

privity of contract

third party beneficiary

Chapter 28
respondeat superior
agency
apparent authority
disclosed principal
e-agent
equal dignity rule
fiduciary
independent contractor
notary public
partially disclosed principal
power of attorney
ratification
undisclosed principal
vicarious liability
Chapter 29
entrepreneur

franchise

franchisee

franchisor
sole proprietorship
Chapter 30
articles of partnership
buyout price
certificate of limited partnership
charging order
confession of judgment
dissociation
dissolution
family limited liability partnership (FLLP)
general partner
information return
joint and several liability
limited liability limited partnership (LLLP)
limited liability partnership (LLP)
limited partner
limited partnership
partnership
pass-through entity
winding up
Chapter 31
articles of organization

business trust

cooperative
joint stock company

joint venture

limited liability company (LLC)

member

operating agreement
syndicate
Chapter 32
ultra vires

alien corporation

articles of incorporation

bond
bond indenture

bylaws

close corporation

commingle

common stock
corporation

dividend

domestic corporation

foreign corporation

holding company
piercing the corporate veil

preferred stock

private equity capital

retained earnings

S corporation
securities

stock

venture capital
Chapter 33
business judgment rule

inside director
outside director

preemptive rights

proxy

quorum
shareholder’s derivative suit

stock certificate

stock warrant

watered stock
Chapter 34
appraisal right
consolidation

dissolution
merger

parent-subsidiary merger

receiver
short-form merger

takeover

target corporation

tender offer
winding up
Chapter 44

adverse possession
condemnation
constructive eviction
conveyance
deed
easement
eminent domain
eviction
fee simple absolute
fixed-term tenancy
fixture
implied warranty of habitability
leasehold estate
license
life estate
nonpossessory interest
periodic tenancy
profit
quitclaim deed
recording statutes
special warranty deed
sublease
taking
tenancy at sufferance
tenancy at will
warranty deed
Ch. 8: Nature and Classification

2A. What are the four basic elements necessary to the formation of a valid contract?

The basic elements for the formation of a valid contract are an agreement, consideration, contractual
capacity, and legality. Defenses to the enforcement of an otherwise valid contract include the lack of
genuineness of assent and improper form.

4A. How does a void contract differ from a voidable contract? What is an unenforceable contract?

A void contract is not a valid contract; it is no contract. A voidable contract is a valid contract, but one
that can be avoided at the option of one or both of the parties.

An unenforceable contract is one that cannot be enforced because of certain legal defenses against it.

Ch. 9: Agreement

2A. What are some examples of nonoffers?

Nonoffers include expressions of opinion, statements of intent, preliminary negotiations,

advertisements, catalogs, and circulars. In an auction, the bidder, not the seller, is the offeror.

 
 

4A. What elements are necessary for an effective acceptance?

An acceptance is a voluntary act on the part of the offeree that shows assent, or agreement, to the terms
of an offer. The acceptance must be unequivocal and must be timely communicated to the offeror.

Ch. 10: Consideration

2A. What is required for consideration to be legally sufficient?

To be legally sufficient, consideration must be “something of legal value.” This may include (1) a
promise to do something that one has no prior legal duty to do, (2) the performance of an act that one is
otherwise not obligated to do, or (3) the refraining from an act that one has a legal right to do.

4A. What is an accord and satisfaction?

In an accord and satisfaction, a debtor offers to pay in satisfaction of an obligation, and a creditor
accepts, a lesser amount than the creditor originally claimed to be owed. The accord is the agreement to
pay and to accept less, and the satisfaction is the execution of the accord.

Ch. 11: Capacity and Legality

 
 

2A. Does an intoxicated person have the capacity to enter into an enforceable contract?

If a person who is sufficiently intoxicated to lack mental capacity enters into a contract, the contract is
voidable at the option of that person. It must be proved that the person’s reason and judgment were
impaired to the extent that he or she did not comprehend the legal consequences of entering into the
contract.

4A. Under what circumstances will a covenant not to compete be enforceable? When will such
covenants not be enforced?

If a covenant not to compete is ancillary to an agreement to sell an ongoing business (enabling the
seller to sell, and the purchaser to buy, the “goodwill” and “reputation” of the business) or is contained
in an employment contract, and is reasonable in terms of time and geographic area, it will be
enforceable. A covenant not to compete that is not ancillary to an agreement to sell an ongoing business
will be void, because it unreasonably restrains trade and is contrary to public policy.

Ch. 12: Genuineness of Assent

2A. What is the difference between a mistake of value or quality and a mistake of fact?

A mistake as to the value of a deal is an ordinary risk of business for which a court normally will not
provide relief. A mistake concerning a fact important to the subject matter of a contract, however, may
provide a basis for relief.

 
 

4A. Does a party to a contract ever have a duty to disclose information to the other party?

Generally, a party to a contract can keep silent without liability, unless a serious potential problem or
latent defect (a crack in a building’s foundation, for example) is known to the seller but would not
reasonably be suspected by the buyer. Failure to disclose may constitute fraud in a fiduciary
relationship.

Ch. 13: The Statute of Frauds

2A. If it is possible for a contract to be performed within one year, must it be in writing?

If performance of a contract within a year is possible, even if that performance is improbable, the
contract need not be in writing to be enforceable.

4A. If a written contract is required, what terms are considered essential and must be contained in
the written document?

Under the UCC, to be an enforceable contract, a writing need only name the quantity. Under statutes of
frauds covering transactions other than sales of goods, to be enforceable as a contract, a writing must
name the parties, the subject matter, the consideration, and the essential terms with reasonable
certainty. In some states, a contract for a sale of land must include the price and describe the property
with sufficient clarity to allow these terms to be determined without reference to outside sources.

 
Ch. 14: Performance and Discharge

2A. How are most contracts discharged?

The most common way to discharge, or terminate, a contract is by the performance of contractual
duties.

4A. When is a breach considered material, and what effect does that have on the other party’s
obligation to perform?

When performance is not substantial, a breach is material. The nonbreaching party is excused from
performing and can sue the breaching party for damages caused by the breach.

Ch. 15: Breach and Remedies

2A. What is the standard measure of compensatory damages when a contract is breached? How are
damages computed differently in construction contracts?

In a contract for the sale of goods, the usual measure of compensatory damages is an amount equal to
the difference between the contract price and the market price. When the buyer breaches and the seller
has not yet produced the goods, compensatory damages normally equal the lost profits on the sale
rather than the difference between the contract price and the market price. On the breach of a contract
for a sale of land, when specific performance is not available, the measure of damages is also the
difference between the contract and the market price.

 
The measure on the breach of a construction contract depends on who breaches, and when. Recovery
for an innocent contractor is generally based on funds expended or expected profit, or both; and for a
nonbreaching owner, the cost to complete the project.

4A. When do courts grant specific performance as a remedy?

Specific performance might be granted as a remedy when damages are an inadequate remedy and the
subject matter of the contract is unique.

Ch. 16: Third Party Rights

2A. If a contract requires a part to perform personal services, can the right to receive those services
be assigned?

A right under a contract that is uniquely personal cannot be assigned (unless it is only a right to receive
payment).

4A. What factors indicate that a third party beneficiary is an intended beneficiary?

A beneficiary will be considered an intended beneficiary if a reasonable person in the position of the
beneficiary would believe that the promisee intended to confer on the beneficiary the right to bring suit
to enforce the contract. Other factors include whether performance is rendered directly to the third
party, whether the third party has the right to control the details of performance, and whether the third
party is expressly designated as a beneficiary in the contract.

Ch. 28: Agency Relationships in Business

2A. How do agency relationships arise?

Agency relationships normally are consensual: they arise by voluntary consent and agreement between
the parties.

4A. When is a principal liable for the agent’s actions with respect to third parties? When is the agent
liable?

A disclosed or partially disclosed principal is liable to a third party for a contract made by an agent who
is acting within the scope of her or his authority. If the agent exceeds the scope of authority and the
principal fails to ratify the contract, the agent may be liable (and the principal may not).

When neither the fact of agency nor the identity of the principal is disclosed, the agent is liable, and if
an agent has acted within the scope of his or her authority, the undisclosed principal is also liable. Each
party is liable for his or her own torts and crimes. A principal may also be liable for an agent’s torts
committed within the course or scope of employment. A principal is liable for an agent’s crime if the
principal participated by conspiracy or other action.

Ch. 29: Sole Proprietorships and Franchises

 
 

2A. What is a franchise? What are the most common types of franchises?

A franchise is any arrangement in which the owner of a trademark, a trade name, or a copyright
licenses others to use the trademark, trade name, or copyright in the selling of goods or services. The
majority of franchises are distributorships, chain-style business operations, or manufacturing or
processing-plant arrangements.

4A. What terms and conditions are typically included in a franchise contract?

A franchise contract typically covers such issues as the franchisee’s payment for the franchise, any
lease or purchase of the business premises, any lease of purchase of equipment, the location of the
franchise, the territory to be served, the business organization of the franchisee, quality standards to be
met, the degree of supervision and control by the franchisor, pricing arrangements, and termination of
the franchise.

Ch. 30: Partnerships

2A. What are the rights and duties of partners in an ordinary partnership?

The rights and duties of partners may be whatever the partners declare them to be. In the absence of
partners’ agreements to the contrary, the law imposes certain rights and duties. These include a sharing
of profits and losses in equal measure, the ability to assign a partnership interest, equal rights in
managing the firm (subject to majority rule), access to all of the firm’s books and records, an
accounting of assets and profits, and a sharing of the firm’s property. The duties include fiduciary
duties, being bound to third parties through contracts entered into with other partners, and liability for
the firm’s debts and liabilities.

 
 

4A. What advantages do limited liability partnerships offer to businesspersons that are not offered
by general partnerships?

Advantages of limited liability partnerships over general partnerships include that, depending on the
applicable state statute, the liability of their partners for partnership and partners’ debts and torts can be
limited to the amount of the partners’ investments. Another advantage is the flexibility of these entities
in regard to taxation and management.

Ch. 31: Limited Liability Companies and Special Business Forms

2A. How are limited liability companies formed, and who decides how they will be managed and
operated?

To form a limited liability company (LLC), articles of organization must be filed with a central state
agency (usually the secretary of state’s office). A few states also require that a notice of the intention to
form an LLC be published in a local newspaper. The members can decide how to operate the business.
If there is no agreement, the state LLC statute will govern the outcome, and if there is no statute on the
issue, partnership law principles apply.

4A. What is a joint venture? How is it similar to a partnership? How is it different?

A joint venture is an enterprise in which two or more persons or business entities combine their efforts
or their property for a single transaction or project, or a related series of transactions or projects.
Generally, partnership law applies to joint ventures, although joint venturers have less implied and
apparent authority than partners because they have less power to bind the members of their
organization.
 

Ch. 32: Corporate Formation and Financing

2A. What steps are involved in bringing a corporation into existence? Who is liable for
preincorporation contracts?

The steps to bring a corporation into existence are (1) preliminary organizational and promotional
undertakings and (2) the legal process of incorporation.

A promoter (one who takes the preliminary steps in organizing a corporation) is liable on
preincorporation contracts unless the other contracting party agrees not to hold the promoter liable or
the corporation assumes the contract by novation.

4A. In what circumstances might a court disregard the corporate entity (“pierce the corporate veil”)
and hold the shareholders personally liable?

Generally, when the corporate privilege is abused for personal benefit or when the corporate business is
treated in such a careless manner that the corporation and the shareholder in control are no longer
separate entities, a court will require an owner to assume personal liability. Commingled assets, fraud,
noncompliance with corporate formalities, and thin capitalization are among the circumstances that
may justify piercing the corporate veil.

Ch. 33: Corporate Directors, Officers, and Shareholders

2A. Directors are expected to use their best judgment in managing the corporation. What must
directors do to avoid liability for honest mistakes of judgment and poor business decisions?

 
Directors and officers must exercise due care in performing their duties. They are expected to be
informed on corporate matters. They are expected to act in accord with their own knowledge and
training. Directors are expected to exercise a reasonable amount of supervision when they delegate
work to others. Directors are expected to attend board of directors’ meetings. In general, directors and
officers must act in good faith, in what they consider to be the best interests of the corporation, and
with the care that an ordinarily prudent person in a similar position would exercise in similar
circumstances. This requires an informed decision, with a rational basis, and with no conflict between
the decision maker’s personal interest and the interest of the corporation.

4A. If a group of shareholders perceives that the corporation has suffered a wrong and the directors
refuse to take action, can the shareholders compel the directors to act? If so, how?

The shareholders cannot compel the directors to act to redress a wrong suffered by the corporation, but
if the directors refuse to act, the shareholders can act on behalf of the firm by filing what is known as a
shareholder’s derivative suit. Any damages recovered by the suit normally go into the corporation’s
treasury, not to the shareholders personally.

Ch. 34: Corporate Acquisitions, Takeovers, and Termination

2A. What are the four steps of the merger or consolidation procedure?

First, the board of directors of each corporation involved must approve the merger or consolidation
plan. Second, the shareholders of each corporation must approve the plan, by vote, at a shareholders’
meeting. Third, the plan (articles of merger or consolidation) is filed, usually with the secretary of state.
And fourth, the state issues a certificate of merger to the surviving corporation or a certificate of
consolidation to the newly consolidated corporation.

 
 

4A. What actions might a target corporation take to resist a takeover attempt?

To resist a takeover, a target company may make a self-tender, or resort to one of several other tactics,
which have colorful names, including “taking” a poison pill, selling a crown jewel, imposing a lobster
trap on shareholders, using a Pac-Man defense, practicing a scorched earth policy, amending its articles
to add shark repellent, or soliciting a merger with a white knight. Among other things, these involve
selling company assets, restricting the conversion of corporate stock, attempting a takeover of the
acquiring firm, and merging with a firm that offers a more favorable price for stock.

Ch. 44: Real Property and Landlord-Tenant Law

2A. What are the requirements for acquiring property by adverse possession?

The adverse possessor’s possession must be (1) actual and exclusive; (2) open, visible, and notorious,
not secret or clandestine; (3) continuous and peaceable for the statutory period of time; and (4) hostile
and adverse.

4A. What is a leasehold estate? What types of leasehold estates, or tenancies, can be created when
real property is leased?

A leasehold estate is property in the possession of a tenant. Leasehold estates include tenancies for
years, periodic tenancies, tenancies at will, and tenancies at sufferance.