Business Law Exam 3 (Cook, MSU) – Flashcards

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What is a contract?
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1) Judicially enforceable agreement 2) An agreement that can be enforced by a court 3) An agreement that creates duties and obligations
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What is mutuality of obligation?
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1) Each party has a duty or obligation to perform
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What source of law deals with contracts?
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1) Common law
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What subject matters do contracts cover?
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1) Real estate 2) Insurance 3) Services 4) Employment
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What do contracts do?
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1) Provide stability and predictability
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What are the two parties of a contract?
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1) Promisor 2) Promisee
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What are the elements of a contract?
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1) Agreement 2) Consideration 3) Contractual capacity 4) Legal purpose
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What is the most important element of a contract?
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1) The agreement
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How is an agreement created?
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1) Created by an offer and an acceptance
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What are the two legal defenses to a contact?
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1) Mutual ascent 2) Proper form
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What is mutual ascent?
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1) A meeting of the minds
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Contracts can be __(1)__ or __(2)__.
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1) Unilateral 2) Bilateral
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What is a bilateral contract?
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1) Created by an exchange of promises
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What is a unilateral contract?
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1) Accepted by performance Ex. Someone cuts your grass. You don't own them anything until the grass has been cut
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What is an expressed contract?
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1) Agreement is fully stated
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What is an implied in fact contract?
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1) Created by actions of the parties
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What are the 4 requirements for an implied in fact contract?
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1) One party offers services 2) Other party accepts those services under conditions knowing payment is expected 3) It would be unjust not to require payment 4) Services could have been rejected
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How are contracts classified?
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1) Formation 2) Performance 3) Enforceability
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Is an executed contract completed?
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1) Yes
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Is an executory contact completed?
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1) No
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What makes a valid contract?
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1) All elements are present
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Does a void contract have legal force?
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1) No
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What makes a contract voidable?
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1) One of the parties has the power to avoid their obligations
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What do we look at to determine if a contract is voidable?
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1) The facts and circumstances at the time of the contract
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What is a quasi contract?
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1) Implied in law contract 2) It's as of there's a contract when there's no contract at all
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What is the purpose of a quasi contract?
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1) Avoid unjust enrichment
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What is quantum meruit?
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1) Amount that is deserved
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What are the requirements for payment?
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1) One party receives benefit 2) Knowing of the benefit 3) Only fair that payment is made
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What is privity?
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1) Direct relationship between the contracting parties 2) Only the parties in privity have rights in the contract and the right to force the agreement
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What is the implied covenant of good faith and fair dealing?
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1) Applies to relationship between parties 2) Neither party will hinder the other
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What is the heart of a contract?
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1) Agreement
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What is an agreement?
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1) The reflection of the parties assent to the terms of the agreement
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What is an offer?
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1) The offerors commitment to voluntarily act or remain from acting
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What are the three requirements in a valid offer?
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1) Intent 2) Definite and certain 3) Communicated
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What essential terms must an offer have?
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1) Names of parties 2) Subject matter 3) Time of performance 4) Consideration
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What ways can an offer be terminated by the action of the parties?
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1) Rejection 2) Revocation 3) Counter offer
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What ways can an offer be terminated by operations of law?
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1) By death or disability of either party 2) Death or destruction of the subject matter 3) Statute of limitation 4) Lapse of time
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When can revocation be made?
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1) Anytime before the offer is accepted
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What is acceptance?
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1) Voluntary assent of the offeree to the terms of the offer
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Acceptance must be __(1)__.
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1) Unequivocal
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__(1)__ is not a way to accept an offer.
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1) Silence
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What is consideration?
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1) What each party gives up in order to reach the agreement
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What are the two requirements for a valid consideration?
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1) Legally sufficient value 2) Bargained for exchange
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What are three kinds of legal value?
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1) Return promise (consideration for bilateral) 2) Voluntary performance of an act (consideration for unilateral) 3) Forbearance
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What is forbearance?
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1) Giving something up you have the legal right to do
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What case established forbearance?
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1) Case of Hamer Vs. Sidway
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What is bargained for exchange?
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1) Something was voluntarily exchanged
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What three instances lack consideration?
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1) A gift 2) A preexisting legal obligation 3) A past consideration: Act is already done before payment was made
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What are three exceptions to consideration?
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1) Statute of limitation 2) Charitable subscriptions 3) Doctrine of promissory estoppel
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What are the two kinds of charitable subscriptions?
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1) Operating funds 2) Building funds
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What is the problem with mutual ascent?
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1) If there is a mistake
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Does a mistake of value effect a contract?
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1) No
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What is unconscionability?
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1) Parties must be in an unequal bargaining position
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What are two kinds of unconscionability?
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1) Procedural 2) Substantive
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What is procedural unconscionability?
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1) Form of the agreement 2) Generally agreements prepared by the stronger party Ex. "Here are the terms. Take it or leave it"
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What is substantive unconscionability?
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1) Affect/result of the agreement 2) So unfair they "shock the court"
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What is a unilateral mistake?
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1) Mistake by one party 2) Does not effect the contract, unless the other party knew or should have known there was a mistake
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What is a bilateral (mutual) mistake?
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1) Mistake by both parties 2) Complete miscommunication between parties
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What does fraud do?
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1) Negates to voluntarily entering agreement
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What are the elements to fraud?
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1) False statement of material fact 2) Made knowing the statment is false 3) Promisor knows the promisee relies on the promise 4) Damage
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What is undue influence?
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1) A strong party and a weak party 2) One party is being taken advantage of
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What is a fiduciary relationship?
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1) Relationship of utmost confidence, legality, and trust
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Undue influence is presumed in __(1)__ if the stronger party benefits.
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1) Fiduciary relationships
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What does duress involve?
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1) Threats
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What is extreme duress?
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1) Physical threats/threats of physical harm
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What is ordinary/economic duress?
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1) Threat of economic harm
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What is capacity?
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1) Legal ability to enter a contract
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Who are the protected classes to contracts?
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1) Minors 2) Intoxicated people 3) Mentally incompetent/ill
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When can minors disaffirm a contract?
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1) During minority 2) For a reasonable time after reaching majority
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How can minors void an agreement?
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1) Not paying
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What is the effect of disaffirming an agreement?
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1) We return parties to their original agreement
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Does misrepresentation of age affect a minors ability to disaffirm an agreement?
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1) No
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Minors and intoxicated persons can disaffirms necessaries, but must pay __(1)__.
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1) For the services used
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What must intoxicated (drugs/alcohol) persons do to void an agreement?
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1) Prove that they were intoxicated at the time of the agreement
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What makes the agreement valid with mentally incompetent persons?
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1) Diagnosis doesn't render the agreement anything but valid
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What makes the agreement void with mentally incompetent persons?
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1) If there is a guardian appointed to them
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Can mentally incompetent persons, that have a guardian, enter an agreement without that guardian present?
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1) No
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If the contract deals with something illegal it is __(1)__.
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1) Void
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How do revenue generating licenses affect agreements?
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1) Failure to have a license doesn't effect the agreement
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What does a regulatory license do?
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1) Assures competence 2) Voidable by either party
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What are covenants not to compete?
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1) Agreements that limit and restrict trade
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What are the terms to covenants not to compete?
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1) Must be a reasonable distance 2) Time 3) Unconscionability
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When was the act to prevent frauds and perjuries under written requirments passed?
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1) 1635
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What contracts must be in writing?
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1) Any contract dealing with land 2) A Contract that cant be completed within 12 months of the date of the agreement 3) Secondary or collateral promise to pay someone elses debt 4) Promise where marriage is the consideration; "If you marry me I'll buy you a house"
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What is a primary promise?
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1) I borrowed money from you, and I'll pay you back
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What is a secondary promise?
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1) My son borrowed money from you, he can't pay, so I pay his debt for him
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Contracts in writing can be __(1)__ or very __(2)__.
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1) Informal; like on a napkin 2) Formal
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What must be in the writing of a contract?
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1) The essential terms (name parties, subject matter, consideration, and time of performance) 2) Signature by both parties
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What is the parol evidence rule?
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1) Brings finality to written agreements 2) It says that oral testimony wont be heard to change the terms of a written agreement
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What are the exceptions to the parol evidence rule?
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1) Duress 2) Unconscionability 3) Undue influence 4) Mistake 5) Fraud
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Contracts create absolute __(1)__.
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1) Promises to perform
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What is condition precedent?
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1) Condition happens first, and then the obligation to perform happens Ex. "When you graduate college, I'll buy you a new car"
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What is condition subsequent?
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1) Condition ends obligation to perform Ex. "Here is a company car, but you must under go random drug and alcohol screenings. If you fail, you're fired"
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What is concurrent condition?
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1) Simultaneous performance Ex. " You can have the car, when you pay me"
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What are the two ways to look at discharging contractual obligations?
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1) By agreement 2) Operation of law
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Contracts in writing fall under what statute?
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1) The statute of frauds
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What are the three ways operations of law discharges contractual obligations?
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1) Statute of limitations 2) Bankruptcy 3) Impossibility (harshest): Means it's impossible for anyone anywhere to perform
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What are the exceptions to impossibility?
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1) Death or incapacity of one of the parties if it's a personal service contract 2) Destruction of the subject matter
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What is a breach of contract?
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1) Failure to perform contractual duties according to the term of the agreement
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What are the types of monetary damages are available if someone breaches a contract?
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1) Compensatory damages 2) Consequential damages
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What are compensatory damages?
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1) "Actual Damages" 2) Damages we can put a money value on
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What are consequential damages?
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1) Damages that happen as a consequence of a breech of contract
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Consequential damages must be __(1)__ and __(2)__.
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1) Foreseeable 2) Known by the breeching party
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What are the four equitable remedies?
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1) Specific performance 2) Reformation 3) Rescission 4) Injunction
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When is specific performance available?
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1) Available when subject matter is unique 2) Applies to anything rare
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Land always falls under __(1)__.
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1) Special performance
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What is reformation?
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1) Asking court to reform of rewrite the agreement
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When is reformation appropriate?
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1) Noncompete agreements 2) Violation of usury laws
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What is rescission?
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1) Asking the court to cancel or resend the agreement
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What does restitution mean?
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1) Return of consideration
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What is litigation of damages?
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1) Lessen the damages
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Whos duty is litigation of damages?
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1) Duty of the breeching party
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What are liquidated damages?
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1) Damages that are contained within the terms of the agreement
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What contracts are liquidated damages almost always found in?
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1) Construction contracts
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What must happen for liquidated damages to be enforceable?
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1) Actual damages must be difficult to determine 2) Amount must be reasonable
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