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Business Law Exam 1 Study Guide 31 QuestionsChapter 1 Business
and Its Legal Environment 7 Questions
Law- Rules of conduct established by the government of a society
to maintain, harmony, stability, and justiceo May impose duties or
confer rights
o Sanctions for noncompliance
Jurisprudence- study of law and legal ethics through learning
about different schools of jurisprudential thought in each school
to make a judicial decisiono How judges apply law to specific
dispute depends in part on their philosophical approaches to
laws
Positivist school- Judge with positivist leanings would usually
defer to existing law rather than use legal reasoning to find new
law
Natural Law School- judge using natural rights that everyone is
entitled to, what is right and just
Historical School- judges strictly follow decisions made in past
cases
Legal realism- given that all judges have different beliefs they
will bring different reasoning processes to the same case
Positivist schools o Positive Law- comprised of the written laws
of a given country or society
Provides bright lines for conduct
Provides order and structure for society, but it ignores natural
rights
Valid Laws must be obeyed regardless of whether they are just in
a situationo Issued by the Government
Ex. Statues, judicial decisions, administrative agency rules
Natural Law School- Philosophers: Aristotle, Thomas Jeffersono
Natural Law- assumes that law, rights and ethics are based on
universal moral principles
inherent in nature that people can discover through intelligence
or reasono One of the oldest and most significant schools of
jurisprudential thought
o Defines law in terms of justice- what is fair, right &
just according to individuals own
sensibilities.o Recognizes the existence of natural rights
o Weakness: lack of agreement on what is just due to different
beliefs and ideas of justice
o Ex. Civil rights activists, whistle blowers, civil
disobedience
Historical School- legal thought emphasizes the evolutionary
process of law by concentrating on the origin and history of the
legal system
Legal Realism- based on the idea that law is just one of many
institutions in society and that it is shaped by social forces and
needs
Many laws may be applicable to a single business transaction
Primary Sources of American Law
o 1. U.S. and State Constitutions
Define the form and basic principles of government and create
individual protectionso 2. Statutes
Statutory Law- laws passed by congress and state
legislatures
Model statutes are not law until adopted by states
Ex. Uniform Commercial Code (UCC)- set of rules governing
commercial transactionso Adopted by all fifty states and U.S.
territories
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Ordinances- laws passed by municipal governments to govern
matters not covered by federal or state law
Ex. Zoning ordinanceso 3. Administrative Regulations
Administrative Law-rules, orders, and decisions of
administrative agencies
Administrative Agency- federal, state, or local government
agency established to perform a specific function
Ex. FDA and FCCo 4. Case Law and Common Law Doctrines- judge
made law
Case Law- judicial interpretations of constitutions, statutes
and regulations announced in prior court decisions
Also includes judge-made law based on common law doctrines in
areas not covered by statutes or regulations
Ex. Torts and contracts Common Law- based on English legal
tradition meaning rules generally applied in all of the
courts in the countryo Judges establish common law through
written opinions that are binding on future decisions of
lower courts in the same jurisdictiono Typically addresses
situations not covered by statutes
o Historical distinction between courts of law and courts of
equity are no longer applicable in
the American judicial systemo Legal Remedies vs. Equitable
remedies
Common law- based on doctrine of precedent, which requires that
judges decide current cases based on the legal principles and
decisions established within their jurisdiction in previous cases
with the same or similar factso General legal principles that
evolved over time through court decisions
Stare Decisis( to stand by that which is decided)- legal
doctrine based on precedent that makes law more stable and
predictableo Cornerstone of both the American and English legal
system
Binding Precedent vs. persuasive precedent U.S. common law is
derived from written court decisions opinions, generally from
appellate
courts
Legal Reasoning- reasoning process used by judges in deciding
what law applies to a given dispute and then applying that law to
specific circumstances in a case
IRAC Method- basic steps in legal reasoningo Issue- lay out
facts and identify issues
o Rule- apply rules to case
o Application- how the rules of law apply to the particular
facts and circumstances of this case
o Conclusion- what conclusion should be drawn
Legal controversies rarely clear-cut Restatements of the Law-
ruling based on previous rulings, summarizes common law rules
followed by most states
Substantive Law- define, describe, regulate, and create legal
rights and obligationso Rules that govern people relations with
each other
o Ex. Contracts, torts, property
Procedural Law- establish the processes for enforcing the rights
established by substantive law and settling disputes
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o Rules of Legal administration
o Ex. Procedures for filing civil lawsuits, statutes of
limitation for bringing legal actions
Civil Law- rules that define and regulate the rights and duties
that exist between persons and between persons and their
government, as well as relief when they are violatedo Compensatory
objective
o Legal remedies- compensatory damages, punitive damages,
nominal damages
Remedies- Legal means used to recover a right or redress a
wrongo Equitable remedies- injunction, specific performance
o Plaintiff may be a private party or a government
o Burden of proof- preponderance of the evidence (more than
50%)
Criminal Law- Rules designed to protect and vindicate societys
interest with respect to the individualso Punitive Objective
o Goals of punishment: retribution, restraint, deterrence,
rehabilitation
o Plaintiff is national, state or municipal government, which is
represented by a prosecutor,
district attorney or attorney generalo Burden of Proof: beyond a
reasonable doubt (a higher burden of proof than required for
civil
cases)
Double Jeopardy clause of the 5 th Amendment- nor shall any
person by subject for the same offence to be twice put in jeopardy
of life or limb- prevents a government from prosecuting a defendant
more than once for the same criminal offenseo Not applicable to new
trial due to mistrial or hung jury
o A State and the federal government could both prosecute
someone for an act that violates
different state and federal statutes without subjecting the
defendant to double jeopardyo Not double jeopardy if a trial in a
civil lawsuit is based on the same wrongful act that was
prosecuted as a crime by the state
Finding Statutory Law- Laws are collected in a publication
titled United States Statutes at Largeo Citation- reference to a
publication in which a legal authority can be found
o U.S. Code- compilation of all federal statutes organized into
50 titles that are grouped by
broad subjects
Ex. 11 U.S.C. 109
11 is the title number 109 is the section number Annotated
version cites relevant cases
o State Codes (annotated)
Tennessee Code Annotated (T.C.A.)o Code of Federal Regulations
(C.F.R.)- compilation of rules and regulations issued by
Federal
administrative agencies (updated annually)
Organized into 50 titles
Citation ex. 26 C.F.R.1.183
Rules and regulations are initially published in the Federal
Register (published every government business day).
Finding Common Lawo Common Law is comprised of published court
opinions
o Courts that typically issue written opinions: U.S. Supreme
Court, federal district courts,
federal court of appeals, state supreme courts and state
appellate courtso Reporters- Chronological sets of books containing
opinions for courts by region/state/court
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o Case citations tell you where to find a particular case
including name of parties, reporter
where case is published, court, and date
Ex. Berger v. city of Seattle, 512 F. 3d 582 (9th Cir.
2008).
Computer Based Legal Researcho Private subscription services-
Lexis and Westlaw
o Internet (free services): Library of congress, Findlaw.com,
Law school databases
Chapter 2 The Court System 9 Questions
Sources of Law- U.S. constitution is Americas social compacto
Federalism- form of government where lawmaking authority is divided
between two
sovereigns (Federal and State governments)o Constitution
provides that Federal government has the power to make laws in
enumerated
area (interstate commerce); all other powers are reserved to the
states
Ex. Of reserved area in police power- power to legislate for
health, safety and welfare of the states citizens
o Legislature (federal and state)
o Administrative agencies (federal and state)
o Courts (federal and state systems)
Case law and common law are judge-made law
52 separate court systems (1 federal, 50 states, and D.C.)
Article III of U. S. constitution establishes the Supreme Court
and gives Congress power to create other inferior federal
courts
Judiciarys Role- courts interpret laws and apply them to
specific cases filed in the courts Judicial Review- process by
which the Supreme Court determines whether statutes passed by
Congress and actions of the executive branch are constitutionalo
Provides a check of power on the legislative and executive
branches
o Not in the constitution but establish after the Supreme Court
case Marbury v. Madison (1803)
Judicial Requirements: A court must have jurisdiction in order
to hear a case and render an enforceable judgmento State where a
lawsuit is filed is the forum state
o
Jurisdiction- the authority of a court to hear and decide a
specific actiono To have jurisdiction the court must have
jurisdiction over the subject matter of the dispute
AND either over the defendant, personal jurisdiction or over the
property involved in the lawsuit
In personam jurisdiction- personal jurisdiction over any person
or business that resides in a certain geographic area, within the
states borders when process is served on them, or consent to courts
authorityo Ex. State trial court normally has jurisdictional
authority over residents or businesses of a
particular state, such as a county or districto Long Arm
Statute- personal jurisdiction over certain out-of-state defendants
based on the
activities that took place within the state
Must meet a minimum contact requirement to justify the
jurisdictiono Ex. Mastondrea v. Occidental- where the plaintiff was
injured at a Mexican hotel sued the
hotel and its owners (both foreign companies) in a NJ state
court
Ruling: NJ court had personal jurisdiction due to NJs long arm
statue, the defendants contract and marketing activities met the
sufficient minimum contacts requirements
In rem jurisdiction- jurisdiction over property that is located
within its boundaries
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o Ex. Ownership disputes in Florida where both parties live in
other states
Subject Matter Jurisdiction: Courts of General (unlimited)
jurisdiction- can decide cases on wide range of issues
o Ex. State trial courts and federal district courts
Courts of Limited jurisdiction- can only hear cases involving
specific matterso Ex. State- probate court, juvenile court
o Ex. Federal Bankruptcy Court, Tax Court
Original Jurisdiction vs. appellate jurisdiction- 1st time
hearing original jurisdiction wins, appeal get appellate
Jurisdiction
Probate Courts- state courts that handle only matters relating
to the transfer of a persons assets and obligations after that
persons death, including issues relating to the custody and
guardianship of children
Bankruptcy Courts- handle only bankruptcy proceedings, which are
governed by federal bankruptcy law
Federal Court Jurisdiction- Constitution limits the types of
cases over which the federal courts have subject-matter
jurisdictiono Federal Courts have exclusive subject matter
jurisdiction on certain cases
Ex. Copyrights, patents, admiralty, bankruptcy, military,
federal crimeso Federal Courts will have personal jurisdiction over
a defendant if the state in which the
federal court sits would have personal jurisdiction over the
persono Federal Courts can hear criminal cases for violations of
federal criminal laws and civil cases
o Federal courts may only hear cases involving a federal
question or there is diversity of
citizenshipo Federal Question- cases that involve rights or
obligations of a party that are created or defined
by the U.S. constitution, a treaty or a federal lawo Diversity
of Citizenship- plaintiff and defendant are citizens of different
states and the
amount in controversy is greater than $75,000o
Concurrent Jurisdiction- when both the federal and state courts
have the power to hear a caseo Ex. Cases involving federal laws,
contract and tort cases where there is diversity of
citizenship, employment discrimination caseso When concurrent
jurisdiction exists a party may choose to bring a suit in either a
federal or
state court
Exclusive Jurisdiction- when cases can be tried only in federal
courts or only in state courtso Federal exclusive jurisdiction
exists in: federal crimes, bankruptcy, and most patent and
copyright claims, and suits against the United Stateso State
exclusive jurisdiction exists in: divorce and adoption claims
Venue- the most appropriate location for a trial Standing to
Sue- Plaintiff must have a significant stake in case in order to
sue, the party must
have suffered a legal injury
Justiciable controversy- controversy that is real and
substantial, as opposed to hypothetical or academico Requirement to
go to court
State Court Systems- consist of several levels or courtso 1.
Local trial courts of limited jurisdiction
Ex. Small Claims Court with a limit on the amount of up to
$25,000 in Tennessee
Ex. General Sessions court with a limit of $27,000
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Ex. Municipal court and Juvenileo 2. State Trial courts of
general jurisdiction
Questions of fact- focus of trial courts where the determine
what really happened in regard to the dispute being tried
Ex. Did the party actually burn the flag Chancery Courts- or
equity courts historically heard lawsuits where legal damages
(money) were not adequate
Chancery and Circuit Court generally have concurrent
jurisdiction over most civil matters, so civil lawsuits can be
filed in either
Superior (circuit) courts appeals are conducted in state courts
of appeals
Most lawsuits are filed hereo 3. State court of appeals
(intermediate appellate courts)
3 or more judges review the record of the case on appeal and
then determine whether the trial court committed an error
Question of Law- focus of appellate courts concerning the
application or interpretation of the law
Ex. Is flag burning protected in your 1st Amendment right to
free speecho 4. States highest court(state supreme court)- review
proceedings conducted in the trial court
based on court record to determine validity
Decisions of each states highest court on all questions of state
law unless overturned by the U.S. Supreme Court
Decisions are final on questions of state law
3 of 5 Supreme court justices for Tennessee are womeno Federal
Court System- Divided into 3 tiers
o 1. U.S. district Court (Trial courts of general jurisdiction)-
Federal equivalent of state trial
courts with general jurisdiction
94 U.S. Districts
Federal judges nominated by the president and confirmed by the
Senate
Must retire or be impeached to leave officeo 2. U.S. courts of
appeals(intermediate court of appeals)- hear appeals from the
federal district
courts located within their respective judicial circuits
Consist of 13 Circuits
Tennessee is in the 6th circuit located in Cincinnati
Most cases are final but appeal to the U.S. Supreme court is
possibleo 3. United States Supreme Court- highest court in the
United States
Consist of 9 Justices (1 Chief Justice and 8 associated
justices)
Final arbiter of the Constitution and federal law
Writ of certiorari- order issued by the Supreme Court to lower
courts requiring them to send its record of the case for review
Rule of 4- must have 4 of the 9 justices approval to issue a
Writ Typically cases involving important constitutional
decisions
In rare cases the court will overturn its own prior decision
Attorney- acts as his or her clients advocate, presenting the
clients view of the facts in a way as to convince the judge or jury
that this version is correcto Pro Se Alternative- clients are
allowed to represent themselves
o Attorney will be appointed by the court in criminal cases if
the defendant cannot afford one
Cannot be appointed in Civil cases
Attorney Fee Arrangements vary:
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o Hourly- standard arrangement typically costing between $175-
$300 an hour
o Fixed Fee- typically with Wills, POA( power of attorney)
o Contingent fees for plaintiff council- personal injury cases
where attorney will receive a
percent of the gains ranging from 25% to 40%
Not permitted in criminal caseso American Rule- each pay own
attorney
o English Rule- Loser pays for attorney
o A contract may stipulate who pays the legal cost in the event
of a dispute
o Certain Statutes allow successful plaintiffs to recover legal
fees from defendant
Rules of Civil Procedure- Substantive law governs the legal
rights of parties, procedural laws govern how lawsuits are
conducted
Federal Rules of Civil Procedure- procedural laws that govern
lawsuits conducted in federal courtso Rule 1- shall be construed
and administered to secure the just, speedy, and inexpensive
determination of every action
Each state has its own rules of civil procedure governing
lawsuits in state courts Steps in a Civil Lawsuit: 1. Cause of
Action- Facts that indicate that a party has been legally wronged
and is entitled to
have a court provide a remedyo Standing- must be a party who has
directly suffered a legal wrong
o Acts as a control on the amount of litigation
o Statute of Limitation- can bar a lawsuit that is not commenced
within time period specified
by Law
Torts- 1 Year
Contracts- 4-6 Years
Property actions- up to 20 Yearso Plaintiff bears burden of
proof >50%
o Must have subject matter jurisdiction and personal
jurisdiction
2. Complaint filed- short and plain statement of the claim
showing that the plaintiff is entitled to the relief soughto
Pleading- consist of the complaint and the answer
o Includes: facts, alleged violations by the defendant, injuries
suffers, request for relief, demand
for jury trial
3. Defendant Served- Defendant receives the summonso Summons-
notice prepared by the plaintiff and issued by the court to inform
a defendant that
he has been suedo States a date you must respond by and must be
properly served or the case will likely be
dismissed
4. Defendant Answers- defendant responds to the complaint by
filing an answer in the required time periodo Admits or denies
allegations and places any counterclaims and affirmative
defenses
o Failure to file an answer will likely result in a default
judgment
5. Discovery- process by which parties search for information
from the other party relevant to the caseo Depositions- sworn
testimony by either party or witness
o Interrogatories- parties write answers to questions to aid
their attorney
o Request for admissions, documents, or other information
related to the case
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6. Pretrial Conference to address scheduling matters 7. Motions
e.g. - Motion for Summary Judgment- same as the motion for judgment
but allows for
supported evidence such as testimony
8. Trial, Verdict, and judgmento Trial takes place with or
without a jury depending on request by either party
Right to a jury in civil cases depends on the court and the
matter and whether requested by either party
Voir Dire- attorney may challenge a juror for the belief that
they are biased
Opening arguments, then plaintiff presents his case, then
defendant presents his defense to the plaintiffs charges
o Verdict- after judge instructs jury prior to deliberations of
limitations
Additur- judge increases damages reward
Remittitur- decreases damages rewardo Judgment- entry of the
verdict by the judge in the court records
o Motion for a new trial- granted only if the judge is convinced
that the jury was in error but
does not believe that it is appropriate to grant judgment for
the other side
9. Appeals and res judicata- Post-Trial Mattero Appeals-
referral of case to higher courts for review upon the
application
Appellate court may affirm or reverse the lower court decision
or remand the case to the lower courts for further action such as a
rehearing
o Res Judicata- doctrine for civil lawsuits baring subsequent
litigations over the same dispute
that has already been litigated
Collecting the Judgment:o Judgment creditor (successful
plaintiff) must collect from the judgment debtor (losing
defendant)o Judgment Proof defendants- they do not have money to
pay if they lose
These cases often not even brought to trial cause their wont be
any material gaino Taking judgment debtors property
Exempt property (defined by state law) cannot be seized
Writ of execution- court authorized seizure of debtors nonexempt
property by sheriff to sell it and then turn proceeds over to
creditor
Writ of garnishment- directs an employer to withhold a
percentage of debtors wages which will then be remitted to the
creditor
o Consumer Protection act of 1968- limits amount of wage
garnishments
o Judgment creditor may put a lien on judgment debtors real
property by recording the
judgmento Bankruptcy filing by judgment debtor may discharge the
obligation, making it non-
collectibleo Fraudulent Transfers- illegal to transfer property
of debtors to third parties to avoid payment
of creditors
Chapter 3 Alternative and Online Dispute resolution 4
Questions
Litigation Considerations:o Substantial pre-trial and trial
cost
o Time consuming
o Processes handled by attorney
Leaves plaintiff feeling left out of the legal processo
Settlement Discussions often occur late in the process (after
discovery)
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o Appeals can extend litigation beyond the trial
o Collection on judgment can be difficult
Alternative Dispute Resolution (ADR)- any means of settling a
dispute outside of courto ADR can take place either before or after
lawsuit is filed
o Advantages: higher success rate, speedier, less expensive,
direct involvement of parties to
reach a solution, confidential, applicable for most civil
matters, sanctioned by federal and state courts
Three types: Negotiation- simplest form of ADR, parties come
together with or without attorneys, where the
parties air their differences and try to reach a settlemento
More likely to reach a favorable agreement if each party comes
prepared
o Mini-trial- private proceeding in which partys attorney
briefly argue their partys case before
the other partyo Early neutral Case evaluation- a neutral third
party evaluates each parties strengths and
weaknesses and forms a basis for negotiating a settlemento
Facilitation- third party assists parties in reconciling their
differences
Mediation- oldest form of ADR, in which a mediator works with
both sides in a dispute to facilitate a resolutiono Essentially a
form of assisted negotiation
Advantages: greater chance of collection, and each party agrees
on the mediator
Disadvantages: Mediator will charge a fee, informality and
absence of third party referee, and no time line so could be time
consuming
Mediator- 3rd party who tries to facilitate a resolution by
listening to each parties side separately and then jointly and not
imposing a solution
There are requirements by the state to be a mediator, typically
a lawyer
Arbitration- Formal method of ADR, parties present their
arguments and evidence before an arbitrator at a hearing and the
arbitrator imposes a resolutiono Arbitrator- third party or panel
of experts that hears parties arguments in arbitration then
imposes a resolutiono Process: submission, hearing, award
Parties may jointly select an arbitrator (or panel of
arbitrators), subject to the arbitration provision in an existing
contract
Arbitration hearing is run like a trial, but with simplified
rules of evidence and limited discovery
Arbitrators decision (known as an award) is final and binding on
the parties case (unless the parties have specifically agreed upon
non-binding arbitration- which is rare)
Losing party may appeal the award to a court Disadvantages:
result is unpredictable, must make decision on rules rather than
what is
fair, can be as expensive as litigation, and no discovery
stage
Federal Arbitration Act (FAA)- provides the means for enforcing
the arbitration procedure that the parties have established for
themselves
Sec. 04 a party may petition a federal district court for an
order compelling arbitration where this a contractual agreement to
arbitrate disputes
Buckeye Check Cashing, Inc. v. Cardegna (2006)
Rule: a challenge to the validity of a contract as a whole, and
not specifically to an arbitration clause contained in the
contract, must be resolved by an arbitrator
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Courts generally enforce arbitration agreements contained in
contracts however, courts may invalidate or modify certain
provisions in consumer contracts that are oppressive for
consumers
NCR Corp. v. Korala Asoc. Ltd. (6th cir. 2008)
Rule: under federal law, any doubts concerning the scope of
arbitrated issues should be resolved in favor of arbitration
Provisions in contracts my require that all disputes be
submitted to arbitration instead of litigated
Clauses in contracts may specify choice of arbitrators and/or
location of hearing, and may exclude some matters from the
arbitration requirements
Widely used in banking, credit, brokerage, employment, and
purchase agreements. Almost always used in labor union
contracts
Arbitration in Employment Agreements:o Mandatory arbitration
clauses in employment contracts are generally enforceable
o Some courts have overturned provisions in employment contracts
requiring the parties to split
costs when an employee cannot afford to pay arbitration cost
Setting Aside Arbitration Awards:o If a losing party appeals an
award to a court, the court will not review the merits of the
case,
but will only determine whether a valid award exist- and if so
the court will order the parties to comply with the award
o Possible grounds for invalidating an award:
Public policy and illegality
Defects in the arbitration process (ex. Fraud, bias)o Winning
party may ask court to compel the other party to comply with the
award
Federal and State Courts support ADR because it means less cases
for them to try Court-Annexed Arbitration- main difference is that
rulings here are not final and either party can
reject the rewardo If the reward is rejected the case will
proceed to court and begin de nuvo, as though no
arbitration had taken place
Summary Jury Trial- mock trial that takes place in a courtroom
before a judge and juryo Verdict is only advisory
o Goal is to let each party see how they will fair in a real
trial
Forum-Selection Clause- designates the jurisdiction (court or
country) in which any dispute arising under the contract will be
litigated
Choice-of-law Clause- allows parties to choose a particular
state law to govern their arbitration agreement
If ADR is successful a written settlement agreement will follow
If ADR fails then litigation will follow
Chapter 5 Constitutional Law 7 Questions
Confederal Government- form of government that was established
immediately after the Revolutionary War
Federal Form of Government- national government and the states
share sovereign powero Constitution sets out specific powers that
can be exercised by the national government with
the rest being reserved to the states under the 10th
amendment
Police powers- broad right of state governments to regulate
private activities to protect or promote the public order, health,
safety, morals, and general welfare
Separation of powers among the three branches
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Federalism- allocation of power between federal and state
government Checks and Balances- system that allows each branch to
limit the actions of the other two
branches, thus preventing any branch from exercising too much
powero Legislative branch can enact laws but they must be approved
by the executive branch
(president)o Executive branch sets foreign policy but must have
consent of senate to enact treaties
o Congress determines federal jurisdiction, president appoints
federal judges, but the judicial
branch can rule their actions unconstitutional
Articles of Confederation- 7 Articles Article 1: Legislative
Power- Formed Congress (house and senate), rules for the passage
of
legislation, and enumerated powers(taxing and spending
money)
Article II: Executive Power Article III: Judicial Power- vested
in the Supreme Court and such inferior courts as the Congress
may ordain and establisho Jurisdiction of Federal Courts- cases
under the constitution, U.S. laws and treaties, citizens of
different jurisdiction(diversity jurisdiction) and cases with
foreign officials and governments
Article IV- Relations among the Stateso Privileges and
Immunities Clause- prevents states from imposing unreasonable
burdens on
citizens of another state
Substantial reason required for a state to treat nonresidents
differently from its own residents
o Full Faith and Credit Clause- ensures that judicial decisions
(judgments) of a state will be
honored and enforced in all states
Applies to civil matters
Ex. Rights established under deeds, wills, contracts Article V-
Amendment Process Article VI Supremacy Clause- constitution, laws,
and treaties of the United States are the
supreme Law of the Lando When there is direct conflict between
federal and state law the state law is invalid
o Preemption- congress chooses to act exclusively in an area in
which federal and state
governments have concurrent powers
Article VII- Ratification of Constitution Interpretation of the
Constitution
o Constitution is amended and/or its meaning changed by USSC
Decisions:
Some provisions lack clear meaning due to obscure or ambiguous
language
Social changeso U. S. Supreme Court interprets and provides
meaning to the Constitution
o Doctrine of judicial review- courts are permitted to declare
actions by other government
entities to be unconstitutional, and therefore unenforceable
Article I Section 8- congress has the power to lay and collect
taxes, duties, imposts, and excises, including the power to make
all laws necessary and proper for carrying into execution the
foregoing powers, and all other powers vested by this constitution
in the Government of the U.S., or any department or Officer
thereofo Primary source of revenue
o Also given the power to spend to pay debts and provide for the
common defense and general
welfareo Congress may make conditions that states must meet to
get funding
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Ex. Highway funds for speed limits and DUI level
Article 1 Section 8 Commerce Clause- gives congress the power to
regulate commerce with foreign nations, among several states, and
with Indian tribeso May promote any objective they deem worthwhile,
so long as it does not violate the Bill of
Rightso Commerce power further expanded to permit congress to
legislate regarding intrastate matters
affecting interstate commerce
Ex. Authority for legislation prohibiting racial discriminationo
Recently USSC cases have curbed congresss use of the commerce power
by invalidating
federal laws regulating and/or criminalizing certain intrastate
actions
Ex. Lopez (1995) fed laws banning guns in school was struck down
because had nothing to do with commerce
o Also covers commerce with activities that substantially affect
interstate commerce
Ex. Gibbons v. Ogden- Ruled that that commerce within the states
could also be regulated by the national government as long as the
commerce substantially affected commerce involving more than one
state
Article 1 Section 10- prohibits states from certain actions Bill
of Rights(1791)- first ten amendments that embody a series of
protections for the individual
against various types of interference by the federal governmento
Over time the Supreme Court incorporated most of these rights into
protections against
certain state actions found in the 14th Amendmento Though
incorporation most of the Bill of Rights now apply to the states
and the 14th
amendment equal protection guarantee applies to the federal
governmento 1st Amendment- freedoms of religion, speech, and the
press and the rights to assemble
peaceably and petition the governmento 4th Amendment- Prohibits
unreasonable searches and seizures of persons or property
o 5th Amendment- due process guarantee, prohibits self
incrimination and double jeopardy, and
right to jury, and fair payment for property taken by
governmento 8th Amendment- prohibits excessive bail and fines as
well as cruel and unusual punishment
o 10th Amendment- Powers neither delegated to the federal
government nor denied to the states
are reserved to the states and to the people
Under Federal Law possession of Marijuana is illegal but under
some states medical Marijuana is legal
Supreme court ruled state laws that allow the use of medical
marijuana do not insulate the users from federal prosecution
14th Amendment- equal protection guarantee gives protection from
state and federal governmento No protection from private activities
only government ones
Limits on Government Actions:o Even though the government is
acting within its powers, it cannot enact laws that violate the
Bill of Rights, which are independent checkso Constitutional
protection of individual rights only protects people against
government activity
(not private activity).
Public Function Doctrine- extend constitutional protections to
cover private entities deemed to be government actorso Ex. TSSAA
case- court ruled TSSAA was a government actor but its actions did
not violate
1st Amendment
Commercial Speech- increases the flow of consumer info and
promotes free competition and economic efficiencies, has some
protection but not as much as noncommercial speech
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o Subject to intermediate Scrutiny
o Ex. Advertising and marketing
o Ex. Some restrictions such as cigarette companies not allowed
to advertise
o Bad Frog Brewery, Inc. v. New York State Liquor Authority- NY
denied approval for a beer
label them deemed as vulgar display
Rule: NY denial was invalid because they were not making a
substantial effort to advance a valid state interest
Unprotected Speech- speech that violates criminal laws is not
constitutionally protectedo Ex. Threatening speech, pornography,
fighting words, or speech that harms others good
reputation
1st Amendment:o Establishment Clause- prohibits the government
from establishing a state-sponsored religion,
as well as from passing laws that promote religion or that show
a preference to one religion over another
Ex. Praying in school and using government scholarships for
religious schools
blue laws- make use of some commercial speech illegal on
Sunday
Rules legal due to need for a day of rest to promote the health
and welfare of workerso Free Exercise Clause- guarantees that no
person can be compelled to do something that is
contrary to his or her religious beliefs
Government can act when religious practices violate public
policy or endanger public welfare
Ex. Employers must make reasonable accommodations to an employee
who needs certain days off for his or her religion
Belief must be religious in nature and sincerely held by
employee 4th Amendment- right of people to be secure in their
persons, houses, papers, and effects
o Search Warrant- order from a judge or other public official
authorizing the search and seizure
of items based on probable cause
To get a search warrant there must be probable cause
Exceptions come when the items sought are likely to be removed
by the time a warrant can be obtained
Ex. Police officer having probable cause the automobile has
evidence of a crime Ex. U.S. v. Moon- tried to get evidence of his
files suppressed since they did not have a
search warrant
Rule: search warrant was not needed since the defendant
volunteered the fileso Probable Cause- must have trustworthy
evidence that would convince a reasonable person
that the proposed search or seizure is more likely justified
than not o Warrants not required for businesses when: seizure of
spoiled or contaminated food, or in
highly regulated business such as liquor, guns, and strip
mining
5th Amendment- no person shall be compelled in any criminal case
to be a witness against himselfo Extends only to natural persons so
corporations and partnerships can no plead the fifth, but a
sole proprietor can o Property- real or personal property or an
entitlement to a benefit
Ex. Disability benefits, professional licenses, income from
tenured jobo Liberty- physical freedom or Bill of Rights freedoms,
or various fundamental freedoms
Ex. Right to have children, practice a professiono Takings
Clause- prohibits the federal government form taking private
property for public use
without just compensation
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o Due Process Clause- Consist of aspects in procedural and
substantive
Procedural- requires that any government decision to take life,
liberty, or property must give person proper notice and a fair
trial or hearing before the government can deprive the person of
life, liberty or property
Substantive- focuses on the content or substance of
legislation
Laws limiting fundamental rights must be based on a compelling
state interesto Ex. Speech, privacy, religion, interstate travel,
marriage
Laws limiting non-fundamental rights require only a rational
basis Violating Due Process involves: deprivation of life, liberty,
or property, by a government
without due process of law
14th Amendment- may not deny to any person within its
jurisdiction the equal protection of the lawso Provides a check
against arbitrary and unjustified government discrimination
against
classifications of individuals, groups, or activitieso Equal
Protection Clause- government cannot enact laws that treat
similarly situated
individuals differently
Standards of Review- when laws are challenged under the
constitutions individual rights provisions, the restrictions are
evaluated using these tests:o Strict Scrutiny- law must be
necessary to achieve a compelling government purpose and must
use the lease restrictive means to accomplish it
Highest standard- applied to protections in Bill of Rights and
other fundamental rightso Intermediate Scrutiny- law must be
substantially related to an important government interest
and restrictions must be narrowly tailored
Ex. Commercial Speech restrictions, discrimination cases,
legitimacyo Rational Basis test- law must be rationally related to
a legitimate government purpose
Almost impossible for a law to fail, most lenient generally
applied to matters of economic or social welfare
Ex. Law prohibiting certain cart venders might be legitimate if
they say to help traffic in certain areas
Ex. Law prohibiting unemployment benefits to people under five
feet tall would be illegal
16th Amendment Authorized the current Income Tax system we have
Privacy Rights- fundamental right not expressly found in the
constitution, but derived from 1st,
3rd, 4th, 5th, 9th, 14th, amendment according to the USSC
interpretationso Laws and policies affecting privacy are subject to
the strict scrutiny (compelling interest) test
o Federal Privacy Act (1974)- protects against misuses of
personal information obtained by
federal agencieso Health Insurance Portability and
Accountability Act (HIPAA)- defines and limits
circumstances in which an individuals protected health
information may be used or disclosed
o Patriot Act- allows government officials to monitor internet
activity and to gain access to
personal financial information and student information without
prior proof of any wrongdoing
Chapter 6 Administrative Law 4 Questions
Administrative Agencies- non-legislative, non-judicial
government lawmaking bodyo Created by federal and state governments
but only worry about federal
o Sometime referred to as the fourth branch of the U.S.
government because of their power
o Agencies regulate many areas of business, and the cost of
compliance is significant
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o Article I of the U.S. Constitution authorizes Congress to
delegate such powers to
administrative agencies
Administrative Law- consists of legal rules that define the
authority and structure of administrative agencieso Sources of Law
include:
o Enabling statues of administrative agencies
o Administrative Procedures Act
o Rules issued by administrative agencies
o Court decisions reviewing the validity of agency actions
Enabling Legislation- how administrative agencies are created,
specifying the name, purposes, functions, and powers of the agency
being createdo Enabling statute- defines an agencies legal
authority
Ex. Federal Trade Commission Act of 1914- that give the Federal
Trade Commission authority to prohibit unfair methods of
competition or deceptive trade practices
Types of Agencies:o Federal Executive agencies- cabinet
departments of the executive branch, which were formed
to assist the president in carrying out executive functions, and
the sub-agencies within the cabinet departments
Ex. Occupational Safety and Health Administration is a
sub-agency within the U.S. department of labor
o Independent Regulatory Agencies- outside of major executive
departments, and thus do not
report directly to the president
Ex. Federal Trade Commission and SEC
Enabling Statute- how congress creates federal agencies which
grants three times of authority/powerso Legislative authority- make
regulations in a particular area
o Judicial Authority- for agency to hear cases dealing with
agency subject matter
o Executive power- to administer the statute and related rules
and regulations and to investigate
violations
Administrative Procedure Act (APA) 1946- establishes procedural
requirements for federal agencies in their rulemaking,
adjudication, and enforcement functionso In response to criticism
that agencies were out of control, and it standardized federal
agency
procedureso Provides for due process in hearings before federal
agencies and provides for judicial review
of agency decisions
Rulemaking- formulation of new regulations or rules
Notice-and-comment rulemaking- involves 3 basic steps:
o 1. Notice of the proposed rulemaking- agency publishes a
notice of the proposed rulemaking
proceedings in the Federal Register
States where and when the proceedings will be held, the agencys
legal authority for making the rule, and terms or subject matter of
the proposed rule
Must make certain info available to the public such as
scientific data underlying the proposal
o 2. Comment Period- ample time given for persons to comment in
writing on the proposed
rule
Purpose to give interested parties time to express their
views
The agency does not have to respond to all comments but it must
respond to significant comments that bear directly on the rule
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The Agency responds by modifying the rule or accompanying the
final rule with a statement on why they did not make the change
o 3. The Final rule- drafting the final rule and publishing it
in the Federal Register
Must contain a concise general statement on basis and purpose
that describes the reasoning behind the rule
Can make some changes in light of the public comments but cannot
be to radically or will have to start the process over
Rules are final unless overturned by a court then later included
in the Code of Federal Regulations
Legislative Rules- substantive in that they affect legal rightso
These are administrative laws and have full force and effect of
law
Interpretive rules- simply declare policy and do not affect
legal rights or obligationso Exempt from the APA requirements and
are not directly legally binding
Agency Regulation are expected to be known by all persons that
are applicable to their activitieso Regulation is binding on
persons and entities regardless of their actual knowledge of what
is
in the regulation or the hardship resulting from innocent
ignorance of the regulation
Agency Enforcement- enforces by identifying violators and
pursuing civil remedies against them in a proceeding held by the
agency
Investigation- takes place after the final rule in effect, where
they monitor companies compliances with the lawo Inspection- how
agencies gather info from companies usually through on-site
inspections
with the companies compliance
Ex. Inspecting an underground mine, safety test on equipment,
and measuring factory emissions
o Subpoena ad testificandum- to testify is an ordinary subpoena
compelling a witness to
appear at an agency hearingo Subpoena duces tecum- bring it with
you compels an individual or organization to hand
over books, papers, records, or documents to the agency
To determine if an agency is abusing power they consider the
following:
Purpose of the investigation Relevance of the information
Specificity of the demand for testimony or documents Burden of the
demand on the party from whom the info is sought
o Searches- Agencies dont need a warrant if is a highly
regulated industry, hazardous
operations, and emergency situations
Ex. Firearms, liquor, coal mines, and waste facilities
Adjudication- process of resolving a dispute by presenting
evidence and arguments before a neutral third party decision makero
Most actions are resolved without formal adjudication
o Negotiated Settlement- purpose to rectify the problem to the
agencys satisfaction and avoid
additional proceedings
Consent Decrees- alleged violator does not admit guilt, but
agrees to take certain actions to settle issues in the agencys
complaint
Appealing to firms- avoid appearing uncooperative and avoid the
expenses from future proceedings and appeals
Appeals to Agency- conserve their own resources and avoid formal
actionso Formal Complaints- issued if negotiations fail, public
document with possible press
conference
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Leads to a hearing before an administrative law judge if a
settlement is not reached
Firm then responds and if a settlement is not reached the case
will adjudicated
Administrative Law Judge (ALJ)- presides over the hearing and
has the power to administer oaths, take testimony, rule on
questions of evidence and make determinations of facto ALJ is
typically a neutral employee of the agency who is not involved in
the investigation or
prosecution of the complaint
Hearing Procedures- can be informal with people in a conference
room, or can be formal resembling a trialo Agencies hold hearings
to resolve disputed matters, where the hearings is a trial-like
arbitration proceeding before an administrative law judgeo Prior
to the hearing the parties may conduct discovery
o Agency is the prosecutor at the hearing and has the burden of
proof
o Parties introduce evidence, witnesses, and arguments to
support their case
o Initial order- decision on the case by the Administrative Law
Judge
o Final Order- same as the initial order if nobody appeals or
the ruling after the case has been
appealed
Judicial appeals- courts grant significant weight to an agencys
judgment because of the agencys expertise, this deference
especially applies to factual questionso Ex. Chevron case- the USSC
considered whether courts should defer to an agencys
interpretation of the law, and held that courts should defer to
an agencys reasonable interpretation of the law as well as
facts
APA: Judicial review gives courts power to invalidate agencies
actions that are arbitrary, capricious, and abuse of discretion, or
not in accordance with the lawo Criteria for what makes agencies
rules arbitrary and capricious:
Failed to provide a rational explanation for its decision
Changed its prior policy without justification
Considered Legally inappropriate factors
Entirely failed to consider a relevant factor
Rendered a decision plainly contrary to the evidenceo Ex. Fox
Television Studios v. FCC- court found that the FCCs new policy of
fleeting
expletives failed to provide a reasoned analysis for departing
from prior policy.
Rule: in favor of Fox and court vacated the FCCs order
Limitations of Agency Powers:o Judicial Controls- in addition to
the judicial review of agency decisions; agencies are also
subject to the following judicial doctrines
Exhaustion Doctrine- requires that a regulated party use all of
its potential administrative remedies before going to court
Ripeness Doctrine- parties must show that they have a standing
to sue and that there is an actual controversy
o Executive Controls- President appoints federal officers and
can veto enabling legislation by
congresso Legislative Controls- creates and funds the agency,
can investigate the agency to make sure
they are implementing laws created, and can freeze enforcement
before regulations take effect
Freedom of Information Act(FOIA) 1966- requires the federal
government to disclose certain records to any person or entity on
written requesto Purpose is to give transparency to what federal
agencies are doing by granting access to
information agencies have in their possession
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o Nine exemption: ex. Trade secrets, information related to
nation defense matters
Government in the Sunshine Act(1976)- requires every portion of
every meeting of an agency to be open to public observationo Closed
meetings are authorized in a limited number of instances
o Actions taken at unauthorized closed meeting will be
invalid
o Adequate notice of meetings must be given to the public
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Business Law Exam 2 Study GuideChapter 9 Contract Formation 13
Questions on Ch. 9/10
Contract - a promise or set of promises for the breach of which
the law gives a remedy, or the performance of which the law in some
way recognizes a dutyo Play a vital role in the market economy by
providing stability, predictability, and certainty for
buyers and sellers in the marketplace by giving parties
confidence that their bargained-for exchanges will be
enforceable
o May be created by words in formal writing or through oral
agreement express contracts
o Implied contracts- may be inferred by actions of the
parties
o Contract law- deals with the formation and enforcement of
contracts
o Governed primarily by state common law (court opinions) as
modified by state statutes such
as the Uniform Commercial Code (UCC)
UCC, Article 2 only covers contracts for the sale of goodso
Other state statutes may govern other specific types of contracts
(e.g. real estate)
Promise - manifestation of the intention [of a party] to act or
refrain from acting in a specified manner
Objective theory of contracts - courts adhere to when enforcing
contract to determine whether a contract has been formedo A partys
intention to enter into a contract is judged by outward, objective
facts as interpreted
by a reasonable person- rather than secret intention (E.g. what
a party said, how they acted, or appeared, circumstances
surrounding the transaction)
Ex. Lucy v. Zehmer illustrates how courts apply this theory
Defendant asserted that he was joking when he agreed to sell his
farm, was rejected by the court
Valid Contracts must meet 4 requirements to be formed:o 1.
Agreement- mutual assent to a bargain
Reached through the process of offer and acceptanceo 2.
Consideration
Something of value given or promised (such as money) to convince
a person to make a deal; the consideration must be bargained
for.
Promise of a gift not a contract because no consideration is
giveno 3. Contractual Capacity- legal ability to enter into a
contractual agreement
Intoxicated persons and the insane have limited capacity to
contract
Although minors can enter into contracts, they are generally
able to avoid it at their election
o 4. Legality- propose of the contract must be to accomplish a
legal goal and not against public
policy
Defenses to enforceability - even when all four requirements are
met it may not be enforceable if one of these requirements are not
met:o Genuineness of assent - consent must be genuine and voluntary
( no fraudulent inducement,
duress, or undue influence)o Form - contract must comply with
any law that requires it to be in a specified form
Ex. Each state has a statue of Frauds that requires certain
types of contracts to be in writing
Offer - first step in making a contract where one party makes an
offer to anothero Offeror- party making offer
o Offeree- party receiving offer
o Once the offer is accepted the offeror is bound to a
contract
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Bilateral Contracts - two people exchange promises: a promise
for a promiseo Offeree can accept the offer by promising to perform
some act, such as make a payment or
provide services
Promise- declaration that something will or will not happen in
the futureo Once the offer is accepted, it cannot be revoked by the
offeror
o Provides more protection to offeree because all it takes to
accept the offer- and bind the other
party to a contract- is to make a return promise (do not have to
perform the act in order to accept the offer
o When in doubt about what type of contract it is, there is a
presumption that the offeror
intended a bilateral contracto Ex. Sally offering someone $50
for their text book
o Formal Contract- require a special form or method of creation
(formation)
o Informal Contracts- typically no special form required, all
other contracts
Unilateral Contracts - offeror makes a promise, and asks for a
return act by the offeree: a promise for an acto Ex. If you cut my
grass ill pay you $50
o Offeree can accept the offer only by completing the requested
act therefore, the contract is
formed only when the contractual act is performed by the
offereeo Offer cannot be revoked once performance has begun
Express Contract - state completely in words(may be oral or
written); parties explicitly agree on all important terms of their
agreement
Implied-in-fact contract - implied contract, inferred from the
parties conduct, not from anything written or saido Based on a
legal doctrine that allows a judge to impose a contract between
parties where a
contract did not existo Purpose is to prevent unjust enrichment,
if a party accepts a benefit, then payment equal to
the reasonable value of the benefit is required- even though
there was no contract between the parties
o Requirements:
Plaintiff furnished some service/property to defendant
Plaintiff expected to be paid for service/property, and
defendant knew or should have known payment was expected
Defendant had a chance to reject the services/property and did
not
Void Contract - a contract that does not exist at law( no
contract at all), so it cannot be enforces e.g. contract with
illegal purpose, party lacked legal capacity, no consideration
Voidable contract - contract where one party has the right to
avoid or rescind the contract however, the party with such right
may choose to perform the contracto Ex. Where one party is a minor,
party induced to enter contract by fraud
o Minors can enter contracts but they have the option to rescind
in which case is unenforceable
against the minor
Unenforceable contract - valid contract that is unenforceable by
a court because of a legal defense against it (such as not
complying with a statute of frauds)
Executed contract - contract that has been fully performed by
both parties Executory contract - contract that has not yet been
performed by one or both parties Agreement - (or mutual assent) by
the parties as to the terms of a contract is a required
o Two components: an offer by one party and acceptance by the
other
-
o Once there is agreement a contract is formed, provided that
the other required elements
(consideration, capacity, and legality) are satisfied
Offer- made by one party (offeror) to another party (offeree) o
Indication of what the offeror will do or refrain from doing and
what he wants in return from
the offereeo Communication of an offer gives the offeree the
power to form a binding contract by
accepting the offero Requirements:
1. Offeror must intend to become bound by the offer
Intent of the part of the offeror is determined by a persons
words and actions and not by their secret, unexpressed thoughts or
feelings( objective theory of contracts
2. Terms of the offer must be reasonable certain and
definite
3. Offer must be communicated to the other party, who then has
the power to accept and bind the offeror
o Not offers:
Offers mad in anger, jest, or undue excitement are usually not
offers
Expressions of opinions, statements of intention, and
preliminary negotiations are not offers
Ex. Advertisements such as catalogues are not offers, they are
treated as invitations to negotiate or invitations to make an
offer
Preliminary agreements- in some cases may be held as contractso
Ex. Basis technology Corp v. Amazon.com Inc.- terms of proposed
settlement sent by one
party via email and approved by opposing party were held to be
binding even though the parties could not reach a settlement
Definiteness of Terms- second requirement for an effective offer
thato Essential terms includes:
Identification of the parties
Object or subject matter of the contract
Consideration to be paid
Time of payment, delivery, or performanceo If an essential term
is missing a court may refuse to enforce the contract
Ex. Baer v. Chase- implied-in-fact contract was not found by the
court because the compensation terms were not definite enough
Termination of offers- offers may be terminated by actions of a
party (revocation rejection or counter offer) or by operation of
lawo Revocation - offeror may revoke an offer any time before
acceptance
Revocation is effective when offeree receives offerors
revocation
Some offers may be irrevocable( options contracts, doctrine of
promissory estoppel)o Rejection- offeree refuses the offer, then
the offer ends
Offer cannot be effectively accepted after it has been rejectedo
Counteroffer- offeree rejects the offer and makes a new offer
Offerees alteration to the original offer constitute a
counteroffer
Common law mirror image rule vs. UCCo Operation of Law- offer
may be terminated for the following reasons
Time lapse- based on time for acceptances stated in offer
If offeror does not state how long the offer is open, then a
reasonable time Death or incompetence of offeror or offeree-
triggers termination of offer
Destruction of essential subject matter
-
Supervening illegality of the proposed contract
Ex. Hiring a hitman Acceptance of offer- voluntary act by the
offeree that shows agreement to the terms of the terms
of the offero Can accept by word or act
o Must be unequivocal- non new conditions or terms can be
added
o Upon acceptance, the offer and acceptance are merged into a
binding contract (provided the
other contract elements are satisfiedo Offer must be accepted by
offeree alone
o To accept an offer, the acceptance must be made in the same
way, and within the timeframe,
that the offeror requests that acceptance be madeo Silence is
generally not acceptance
Exceptions: trade customs and previous dealings
Under federal law, unordered goods delivered via USPS may be
treated by recipients as gifts, and do not have to be returned or
paid for
o Acceptances adding to or varying from offer may be a
rejection, depending on whether the
common law or the UCC governs
UCC Art. 2 applies to contracts for the sale of goods the common
law rule exactness rule applies to other agreements
o Common Law exactness rule mirror image rule- terms as stated
in the acceptance must
exactly mirror the terms in the offer; changes are treated as a
rejection and a counteroffero UCC Article 2- governs only sale of
goods, modifies the common law mirror image rule for
acceptances
Under the UCC, as long as there is a definite expression of
acceptance, a contract is formed on the original terms, even if the
acceptance contains additional or different terms
i.e. offeror has the option to accept or reject the additional
terms proposed by the offeree
o An acceptance is effective when sent via an authorized
method(deposit in a mailbox), if
method is not indicated by offeror, then any reasonable method
is acceptableo Once an offer is accepted, the offer cannot be
revoked because the contract has been formed
Consideration- both sides to the contract are giving something
to the other party that has been bargained for, makes agreement
bindingo Something of legal value given in exchange for a
promise
o Offeror and offeree must bargain for and give up something of
legal value in order to make
the others promise or act enforceable
Promise of a gift not a contract because there is no
considerationo Consideration for a promise must be either
detrimental to the promisee or beneficial to the
promissoro As long as the consideration is bargained for by the
parties the value of the consideration
usually wont be questioned by a courto Generally, consideration
takes the form of money, property, or services but can be in
other
forms such as a promise not exercise a legal right
Ex. Right to sue, right to engage in a legal activity
Ex. Hamer v. Sidway uncle offered to pay nephew $5,000 if he
would not drink or use tobacco till he was 21 but he died before
his nephew turned 21 and the executor of the estate refused to
pay
Rule- court rules nephew won
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o A waiver of any legal right by one party at the request of
another party is a sufficient
consideration for a promise (even if the waiver does not benefit
the requesting party)
Adequacy of consideration- fairness of the bargain- courts
rarely question so long as the consideration has been bargained for
by the partieso Law does not protect a person from entering into an
unwise contract
In rare cases, a court may find that a contract was
unconscionable because excessive payments are required by an
individual
Preexisting Duty- a promise to do something you are already
obligated to do is not considerationo Typically occurs where there
was a previous contract
Contracts that are invalid due to illegality:o Contrary to a
statute governing the subject matter of the contract(e.g. criminal
laws, usury
laws, gambling prohibitions)o Contrary to public policy
Contracts in restrain to trade (covenants not to compete)
Unconscionable contracts or clauses- highly unfair contracts
Exculpatory Clauses - releases a party from liability in the
event of monetary or physical injury no matter who is at fault
Voluntary Consent- genuineness of assent, lack of voluntary
consent is a defense to the enforceability of a contract
Circumstances voluntary consent may be lacking:o Mutual
(bilateral) mistake regarding a material fact- contract can be
rescinded by either party
o Unilateral mistakes - regarding a material fact- contract is
enforceable unless (i) other party
knew or should have know there was a mistake or (ii) mistake was
due to substantial math error, and made inadvertently without gross
negligence
o Fraudulent misrepresentation - of a material fact; intent to
deceive; innocent party justifiable
relies on the misrepresentationo Non-fraudulent
misrepresentation - no intent to deceive is required
Innocent- person makes a statement they believe to be true but
actually misrepresents material facts
Guilty only of innocent misrepresentation not fraud Negligent-
failure to exercise reasonable care in uncovering or disclosing the
facts or
does not use skill or competence requiredo Undue Influence- one
party can greatly influence another party overcoming there free
will
Ex. Cases with minors and elderly where a guardian is presento
Duress- forcing another party to do something including entering
into a contract
Statute of Frauds - requires that contracts dealing with certain
subjects be written and signed by the person against whom
enforcement is sought in order for the contract to be enforceableo
Most states have a statute of frauds
o Contract must be signed by the person to be charged with the
contractual obligation (i.e. the
defendant)o Even though it is a valid contract, a contract that
violates the SOF is an unenforceable
contracto SOF prevents persons from trying to fraudulently prove
the formation of contracts dealing
with important, costly complex matterso Writing must identify
the parties and subject matter, indicate that a contract exists,
and state
the essential termso Contracts that fall under the SOF
requirement for a signed writing include:
Transfers of interest in real estate (including long-term
leases)
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Sale of goods priced over $500
Guaranty contract- where one person guarantees the debt of
another
Contracts that cannot be completed within one year- starting on
date contract was formed
Promises in consideration of marriage
Chapter 10 Contract Performance, Breach, and Remedies
Discharge- performing the duties required by the contracto
Failure to perform is a breach of contract
The contract comes to an end when both parties fulfill their
respective duties by performing the acts they have promised
Other ways a party may be discharged from contractual duties
include: 1. Failure of a condition- possible future event, the
occurrence or nonoccurrence of which will
trigger the performance of a legal obligation or terminate an
existing obligation under a contract( ex. House sale contingent on
appraisal/financing)o Contractual obligation contingent on the
occurrence of a future event
o If a required condition is not satisfied, the parties are
released from their obligations, unless
the condition is excused(as in the case where a party who does
not want to perform tries to ensure that a condition wont be
satisfied) or waived by the party whose performance is contingent
on the condition
2. Material breach by the other party- promissor fails to give
substantial performanceo Breach - nonperformance of a contractual
duty by a party to a contract
o If no time for performance is stated, then a reasonable time
is assumed
o If a material breach occurs, the non-breaching party is
excused from performing their
obligations under the contract and may sue the breaching party
for damageso A minor breach may suspend the non-breaching partys
obligation but not excuse them,
however it does entitle them to sueo Anticipatory Repudiation -
treated as a material breach (even though the time for the
performance has not expired), and the non-breaching party can
sue for damages immediately instead until waiting for the
performance deadline
Ex. Football player sued for not showing up
Ex. Not delivering lumber could be suedo Non-breaching party may
sue for one of the following to enforce a right to compensate
for
injuries
Remedies at low- monetary damages
Equitable remedies- usually not awarded unless money damages are
not adequate
Rescission and restitution Specific performance of a contract
Reformation of the contract Recovery based on implied-in-fact
contract
3. Agreement of the parties 4. Operation of law Damages- goal of
monetary damages in contract cases is to compensate non-breaching
party for
their loss on a bargain
Types of Monetary damages: o Compensatory damages - relate to
direct losses of the non-breaching party and is the most
common type of damages awarded
-
Ex. In Breach involving failure to deliver goods, compensatory
damages would be the difference between contract price and market
price for replacement goods
o Consequential (special) damages - foreseeable losses related
to the contract breach (loss of
profits)
Relate to special circumstances beyond just the contract and are
hard to prove, and if damages are awarded they would be in addition
to any compensatory damages
To be award plaintiff must prove defendant was aware or should
be aware that the breach would cause the injury party additional
loss(burden of proof)
Hadley v. Baxendale Defendant wins due to the fact that to be
liable for consequential damages defendant must reasonable foresee
the loss (in this case loss profits due to shutdown of mill)
o Punitive damages - designed to punish or deter future conduct,
and generally are not available
for mere breach of contracto Nominal damages - awarded where
there is no financial loss to plaintiff
o Mitigation of damages - when breach of contract occurs, the
innocent injured party is held to
a duty to reduce the damages he or she suffered
Ex. If I a tenet moves out before end of lease the landlord is
required to make a reasonable effort to find another tenet to
replace them and lessen the cost to the tenet. If he doesnt then
damages awarded may be reduced
o Liquidated Damages - contract provides specific amount to be
paid as damages in the event of
future default or breach of contract
Types of Equitable remedies: o Rescission - contract is canceled
and the parties are restored to the original position that they
occupied prior to transactiono Restitution - both parties must
return goods, property, or money previously conveyed to each
othero Reformation - contract is reformed or rewritten to
reflect the parties true intentions
o Specific Performance - performance of the act promised by the
breaching party in contract
Only granted if money damages are not adequate to compensate
non-breaching party
Rarely awarded in sale of goods cases, but typical in contracts
for sale of land
Not an available remedy in contract for personal services
Chapter 12 Torts 11 Questions
Tort Law- designed to compensate those who have suffered a loss
or injury due to another persons wrongful act o Primarily state
common law governs tort actions
o Liability is imposed for conduct that unreasonably interferes
with the interests of another
party, even if the conduct was accidental
Tort- civil wrong (not arising from a breach of contract)
against persons or propertyo Breach of a legal duty owed to another
that causes harm or injury
o Torts are private wrongs whereas crimes are public wrongs
o People owe duties of care to other persons, and they also owe
a duty to society not to commit
crimeso Civil action filed by an injured party
Criminal law- objective is to protect the publico Criminal
action is prosecuted by the state
Damages awarded in tort actions:
-
1. Compensatory Damages - compensate or reimburse a plaintiff
for actual loss and make them whole for these loss or return them
to their prior positiono Special(economic) damages - compensate the
plaintiff for quantifiable monetary loss
Compensatory damages must be reasonably certain, but future
damages can be estimated
Ex. Medical expenses, lost wages and benefits(now and future)o
General( non-economic) Damages - compensate individuals not
companies for nonmonetary
aspects of the harm suffered such as pain and suffering
2. Punitive Damages - to punish the wrongdoer and deter others
from similar wrongdoing Only appropriate when defendants actions
were particularly egregious or reprehensive
and very rare
Not awarded in negligence cases, unless there is gross
negligence
Cant be grossly excessive; must be reasonable in proportion to
the compensatory damages (less than 10X)
Tortfeasor - one committing the tort Intentional tort -
tortfeasor intended to commit an act, the consequences of which
interfere with
the personal or business interest of another in a way not
permitted by lawo Evil or harmful motive not required
Negligence Torts - occurs when the defendants actions were
unreasonably careless or unsafe Strict Liability Torts - (liability
without fault) do not depend on the degree of carefulness or
fault
of the defendant, but are established when a particular action
causes damage
Product liability torts- arise from manufacturing or selling
defective products Intentional Tort types of Victims: 1.
Persons:
o Assault - intentional, unexcused act that creates in another
person a reasonable apprehension
of immediate harmful or offensive contact
Intent is to cause the harmful or offensive contact or the
apprehension of such contact
Fear not required just apprehension of immediate contact
Ex. Stalking or threatening someoneo Battery - intentionally
causing of an actual bodily contact that is harmful or
offensive
Intent is to cause the contact or the apprehension of the
contact
Physical injury does not have to be intended or incurred
Ex. Actually doing the act that was threatened o Defenses to
Assault and Battery:
Consent- whether the person consented to the act that was
alleged
Self-defense- individual was defending their life or physical
well-being
Defense of others- acted to protect others who were in real or
apparent danger
Defense of property- reasonable force can be used in attempting
to remove intruders from ones home as long as it is not likely that
it will cause death or great bodily injury
False Imprisonment - intentional confinement or restraint of
another persons activities without justification, can be for any
period of time if against their willo Victim must be aware of the
confinement when it happens
o Can be accomplished by physical barriers, restraints, or
threats of physical force
o shopkeepers privilege- allows merchants to detain a suspected
shoplifter in a reasonable
manner for a reasonable period of time while the matter is
investigated, provided there is a reasonable basis for
suspicion
Defamation - wrongfully hurting a persons good reputationo Libel
- committing defamation in writing
-
General damages availableo Slander - committing defamation
orally
o Slander Per Se - exceptions to burden of proof
Statement that another person has a loathsome disease
Statement that another committed improprieties in a profession
or trade
Statement that another has committed a serious crime
Statement that a person has engaged in serious sexual
misconducto Elements of defamation claim:
Statement about a persons reputation, honesty, or integrity that
is untrue
Must be punished(communicated in some way) to a third party
Special damages must be proven for slander except for slander
per se
General damages are presumed as a matter of law in cases of
libelo Defenses to defamation:
Truth is an absolute defense to a defamation charge
Privileged speech(absolute or qualified)- even if all elements
are satisfied, defendant may not be liable if he enjoys a privilege
(immunity)
Absolute privilege- judicial proceedings; legislative debate
Qualified privilege- good faith statements with limited publication
to persons with a
legitimate interest in the communicationso Ex. Discussing an
employee with managers
Statements about public figures are generally not actionable
unless made with actual malice( knowledge of falsity or reckless
disregard of the truth)
Invasion of Privacy - violating someones right to solitude and
privacyo Acts that qualify as invasion of privacy:
1. Appropriation of identity- using someones identity for
commercial purposes without permission
2. Intrusion into an individuals affairs or seclusion- invading
someones home or searching their computer without authorization
3. False light- publication of information that puts a person in
a false light
4. Public Disclosure of private facts that an ordinary person
would find objectionableo Defenses: matter published is of public
or general interest; consent to publication
Appropriation - use of another persons name, likeness, or other
identifying characteristic for commercial purposes, without
permission and for the benefit of usero Often arise in context of
photos used in advertising
o Public figures have the right to sue anyone who uses their
likeness for commercial purposes
without consent
The fight to ones likeness is inheritable if decedent
specifically provided of it in his willo Exception exists for
parody and satire, celebrity imitator performers are exempt for
appropriation claims under some state laws (e.g. Nevada)
Ex. SNL skits
Fraudulent Misrepresentation - Intentional deceit for personal
gain, that leads someone to believe in a condition that is
different from the condition that actually existso Accomplished
through false or incorrect statement
o Can occur in inducing a party to enter a contract or
concealment of material facts
o Elements of Misrepresentation:
1. Misrepresentation of fact or conditions they know are
false
2.Intent to induce another party to rely on the
misrepresentation
3. Justifiable reliance on the misrepresentation by the deceived
party
-
4. Damages suffered as a result of that reliance
5.Causal connection between the misrepresentation and the injury
suffered
Business tort - wrongful interferences with the business rights
of others Wrongful interference with a Contractual relationship
elements :
o 1. A valid enforceable contract must exist between two
parties
o 2. A third party must know that this contract exists
o 3. The third party must intentionally induce a party to the
contract to breach the contract
Ex. Hiring a employee who has another employment contracto Case:
Pennzoil v. Texaco- Pennzoil accused Texaco of interfering with
their contract with
Getty Oil by making an offer to buy themo Rule: Pennzoil won and
ultimately settled for 3 Billion
Negligence Torts - tortfeasor neither wishes to bring about the
consequences of the act nor believes that they will occuro Risk
must be foreseeable it that a reasonable person engaging in the
same activity would
anticipate the risk and guard against it
Plaintiff must prove the following for a negligence action: o 1.
Defendant owed a duty of care to the plaintiff
Duty of care - people are free to act as they please so long as
their actions do not infringe on the interest of others
There is no duty for rescue, therefore if you see an injury
about to happen and you dont act then you are not guilty of
negligence
Reasonable person standard - societys judgment of how an
ordinarily prudent person should act
Landowner must exercise reasonable care to protect people from
harm on their property
Must protect tenants and their guest from harm in common areas
Certain Professionals are held to a higher standard of care based
on their knowledge of
the particular profession
Malpractice - essentially professional negligence
Ex. Accountant being not familiar with GAAP Business Invitees -
persons invited to come on to the premises by retailers and other
firms
Must use reasonable care to protect these people Ex. If you
slipped on the floor of a business when a sign was not up then you
would
have a negligent caseo 2. Defendant breached that duty-if the
tortfeasor has not acted in accordance with the
appropriate standard of care
Standard is what an ordinary, reasonable, prudent person would
do in the same situation
But professionals are held to standard applicable with
professiono 3. Plaintiff suffered a legally recognizable injury
Must have suffered some loss, harm, wrong, or invasion of a
protected interest
Compensatory damages are the norm and must be reasonably
certain
Punitive damages only in cases of gross negligenceo 4.
Defendants breach caused that injury
Must prove both for causation of an injury:
Causation in fact - injury would not have occurred without the
defendants act
Use the but for test Proximate Cause - connection between an act
and an injury is strong enough to justify
imposing liability
-
Defendants carelessness must be close in time and space to have
caused plaintiffs damages
Harm suffered must have been foreseeable Ex. Palsgraf v. Long
Island Railroad Co.- plaintiff was injured when fireworks
exploded
that a rider was carrying after RR attendant pushed him into the
train so he would make it.
Rule- Defendant won because there was no way to foresee this
event happening Defenses to Negligence Torts: 1. Assumption of
Risk- voluntarily enters into a risky situation, knowing the risk
involved, will
not be allowed to recovero Knowledge of risk and the voluntary
assumption of the risk are required for this defense
Ex. Driver entering a car race knows there is a risk of being
injured or killed
2. Superseding Cause- unforeseeable event breaks the causal
connection between the wrongful act and an injury to anothero Ex.
You hit someone on your bike causing her injury, but while she
waits a plane crashes
nearby causing her serious burns. You would be liable for the
bike injuries but not the plain injuries
3. Contributory negligence (minority rule)- plaintiffs own
carelessness partly caused his injuries then he is barred from
recovering any damages from defendant
Old and majority of states have adopted the comparative
negligence rule
4.Comparative negligence (majority rule)- enables both the
plaintiffs and the defendants negligence to be computed and the
liability for damages to be distributed accordingly
Ex. A plaintiff who is 35% at fault could recover 65% of the
damages
50% rule- if plaintiff is more than 50% at fault then they
cannot receive any damages
Only some states have this Res ipsa loquitur - the facts speak
for themselves presumption of the defendants negligence,
leaving the burden of proof with the defendanto Occurs only in
events where damage or injury is one that does not ordinarily
happen without
negligenceo Event must be within the defendants power to control
and must not be due to any voluntary
action or contribution on the part of the plaintiff
Ex. Getting sick from drinking a soda that had a rat in it cause
the bottler had to be negligent for the rat to get in it
Negligence per se - in or of itself- individual violates a
statute or an ordinance providing for a criminal penalty and the
violation causes another to be injuredo Injured person must
prove:
o 1. That the statute clearly sets out what standard of conduct
is expected, when and where it is
expected and of whom it is expectedo 2. He or she is in the
class intended to be protected by the statute
o 3. Statute was designed to prevent the type of injury that he
or she suffered
o Ex. Statute against inattentive driving and an inattentive
driver causes multiple car wreck.
The driver is found guilty he could then be sued by the injured
party under Negligence per se
Danger invites Rescue Doctrine- person who is injured while
going to someone elses rescue can sue the person who caused the
dangerous situation
Good Samaritan Statutes - persons who are aided voluntarily by
others cannot turn around and sue the good Samaritan for
negligence
-
Dram Shop Acts - tavern owner or bartender may be held liable
for injuries caused by a person who becomes intoxicated while
drinking at the bar or who was already intoxicated when served by
the bartender
Social Host statute - holds persons having parties responsible
for intoxicated guest that cause others injury on their way
home
Strict Liability - defendant liable for harm even though no
negligence is shown, liability is imposed on the defendant as a
matter of public policyo Ex. Liability for defective products
o Abnormally dangerous activities involve a high degree of risk
that cannot be completely
protected against even with reasonable careo Highly hazardous
activities are allowed because their social value outweighs their
hazard
Theory that the cost of damages should be borne by the party
that benefits economically from the activity
o Keepers of wild animals are strictly liable for any harm
caused by the animals
o Manufacturers and sellers of harmful or defective products due
to the fact:
Can spread the cost throughout society by increasing prices
Since they profit from their production activities, the cost of
related injuries should be treated as an operating cost
Chapter 25 Property Rights 7 Questions
Property - rights that people have with respect to something,
not the thing itselfo Gives the owner the right to possess, control
or transfer property
o Long-standing custom in the U.S. and is protected by the
constitutions due process and
taking clauseso Violations may result in civil actions and/or
criminal charges
Property Law - generally governed by state law, including some
UCC statuteso Federal law governs trademark, copyright and patent
property rights
o Property rights may be restricted by other laws(e.g. zoning,
criminal tort