Business Law QUIZ 2

What is strict liability?

Liability without fault. A defendant can be liable even if they used reasonable care. It applies to certain abnormally dangerous activities and defective products.

How is negligence different from strict liability?

Negligence requires proof that the defendant failed to use reasonable care. Strict liability does not require proof of carelessness.

What is product liability, and who can be liable?

Responsibility for injury or property damage caused by a product. Manufacturers, designers, distributors, and retailers in the chain of distribution can potentially be liable.

Why does the law impose strict product liability?

To protect consumers, allow recovery without a direct contract with the manufacturer, and place injury costs on businesses better able to spread those costs.

What is due care in making products?

Reasonable care in design, material selection, manufacturing, testing, warnings, and inspection of supplier components. Using due care does not automatically defeat strict liability.

What must a plaintiff prove for strict product liability?

The defendant regularly deals in the product; the product had a defect when it left the defendant’s control; the defect made it unreasonably dangerous; the defect proximately caused actual injury or property damage; and no later substantial change caused the harm.

What are the three types of product defects?

Design: the basic plan is unsafe. Manufacturing: the item was made incorrectly. Failure to warn: inadequate warnings or instructions about foreseeable risks.

What makes a product unreasonably dangerous?

For this class: danger beyond an ordinary consumer’s expectations and an economically feasible, less dangerous alternative. A sharp knife is dangerous, but that alone does not make it defective.

What are the main defenses to product liability?

Knowing and voluntary assumption of risk, later alterations that caused the injury, and unforeseeable misuse. A knowledgeable user’s existing understanding can also affect a failure-to-warn claim.

Does product misuse always defeat a product liability claim?

No. Businesses must account for reasonably foreseeable misuse. Unforeseeable misuse that caused the injury is a stronger defense.

What is a contract, and which law applies?

A legally enforceable promise or exchange of promises that establishes rights and duties. Common law generally governs services and land; UCC Article 2 governs sales of goods.

What are the elements of a valid contract?

Offer, acceptance, consideration, capacity/authority, and legality. Remember OACCL. Genuine consent and any required writing also affect enforceability.

What is mutual assent, and how is intent measured?

Agreement to the same deal, shown through offer and acceptance. Courts look at outward words and actions, not secret intentions. Obvious jokes and preliminary negotiations may lack contractual intent.

What is the common law mirror image rule?

Acceptance must match the offer. Changing the terms generally creates a counteroffer that rejects the original offer. “I accept, but for $50 less” is a counteroffer.

Can silence count as acceptance?

Usually no. Exceptions can arise from prior dealings or knowingly accepting offered services when payment is expected.

What terms should a common law contract identify?

Who the parties are, what is promised and its quantity, the consideration or payment, and when performance is due. Remember: who, what, how much, when.

What is consideration?

A bargained-for exchange of legal value. It can be money, property, services, a promise, or giving up a legal right. A gift promise generally lacks consideration.

What are pre-existing duty and past consideration?

Pre-existing duty: doing only what you already legally owe generally is not new consideration. Past consideration: something already done generally cannot support a later promise.

How do contract modifications work?

A modification changes an existing agreement. Common law generally requires new consideration. UCC sales modifications generally require good faith but no new consideration.

What is the difference between bilateral and unilateral contracts?

Bilateral: a promise exchanged for a promise, such as promising work for promised pay. Unilateral: an offer accepted by performing, such as returning a lost dog for a reward.

What is the difference between express and implied contracts?

Express contracts use spoken or written words. Implied-in-fact contracts arise from conduct, such as ordering a drink with the understanding you will pay.

Are electronic contracts enforceable, and what should they include?

Generally yes, if normal contract requirements are met. Clearly state acceptance, payment, delivery, returns, privacy practices, dispute resolution, disclaimers, and remedy limitations.

Which contracts generally require written evidence?

Land interests; agreements impossible to complete within one year of formation; promises to answer for another’s debt; certain marriage-related agreements; an executor’s personal promise to pay estate debt; and sales of goods for $500 or more. Exceptions apply.

What is the one-year rule for written contracts?

Writing generally is required if performance cannot possibly be completed within one year after the agreement is made. The test is possibility, not whether completion is likely.

What can make a contract voidable for lack of voluntary consent?

Material mistake, fraudulent misrepresentation, undue influence, or duress. The protected party can generally choose to cancel or affirm the contract.

What is a condition precedent?

An event that must occur before a duty to perform becomes due. Example: a house purchase conditioned on obtaining financing. Remember: condition first, duty second.

How do unilateral mistake, mutual mistake, and mistake of value differ?

One party’s factual mistake usually does not allow cancellation. Both parties’ mistake about the same material fact generally allows rescission. A mistaken belief about value generally does not.

What are the exceptions for a unilateral factual mistake?

Relief may be available if the other party knew or should have known of the material mistake, or if there was a substantial arithmetic error made inadvertently without gross negligence.

What are the elements of fraudulent misrepresentation?

A false statement or concealment of material fact, intent to deceive, and justifiable reliance. Harm must also be shown to recover damages. Remember: material lie, intent, reliance, harm for damages.

How do undue influence and duress differ?

Undue influence is abuse of a relationship of trust that overcomes free will. Duress involves wrongful threats that overcome free will. A threat to bring a legitimate lawsuit ordinarily is not duress.

What do performance, discharge, and breach mean?

Performance: doing what was promised. Discharge: ending contractual duties. Breach: failing to perform a contractual duty without legal excuse.

What must you establish in a breach-of-contract claim?

A valid contract, your performance or legal excuse, the other party’s breach, and resulting loss for the damages claimed. A technical breach without financial loss can support nominal damages.

How do complete and substantial performance differ?

Complete means performing exactly as required. Substantial means good-faith performance with only minor differences and essentially the promised benefit. The other party generally still owes payment, adjusted for damages.

How do minor and material breaches affect the other party?

Minor breach: the other party generally must continue performing but can claim damages; temporary suspension may be allowed until cure. Material breach: the other party is generally excused from further performance and can sue.

What is tender of performance?

An unconditional offer to perform by someone ready, willing, and able. If the other party refuses, the tendering party can generally pursue a breach claim.

What are the rules for late performance?

No stated deadline means a reasonable time. An ordinary delay is not automatically material. “Time is of the essence” makes timely performance a condition, though enforcement can be waived.

What is anticipatory repudiation?

A clear refusal to perform before performance is due. It is treated as a material breach, allowing the innocent party to act immediately rather than wait for the deadline.

How can parties agree to discharge a contract?

Mutual rescission: cancel together. Novation: all agree to a replacement party and release the original party. Settlement: replace disputed duties with a new agreement. Accord and satisfaction: agree to and complete different performance.

What is the difference between accord and satisfaction?

Accord is the agreement to accept different performance. Satisfaction is completing it. The original duty is generally suspended until satisfaction; if the accord is breached, the creditor may sue on the original duty or the accord.

How can duties be discharged by operation of law?

Examples include unauthorized material alteration, bankruptcy discharge, impossibility, commercial impracticability, and frustration of purpose. An expired statute of limitations generally bars a lawsuit.

How do impossibility, commercial impracticability, and frustration of purpose differ?

Impossibility: unforeseen events make performance objectively impossible. Impracticability: performance becomes extraordinarily burdensome. Frustration: performance remains possible, but an unforeseen event destroys the shared main purpose.

What do statutes of limitation and bankruptcy do to contract claims?

A limitation period sets the deadline to sue; the textbook gives a general four-year period for UCC sales claims. Bankruptcy discharge generally prevents personal enforcement of most covered debts.

What is the purpose of contract remedies, and what are the main damages?

Remedies provide relief for breach. Compensatory/expectation damages cover direct bargain losses; consequential damages cover foreseeable additional losses from special circumstances; incidental damages cover reasonable expenses of responding to the breach.

How do punitive and nominal damages differ?

Punitive damages punish and are rarely available for breach alone, though an accompanying tort such as fraud may support them. Nominal damages recognize a breach when no actual financial loss is proven.

What are goods, fixtures, and the scope of UCC Article 2?

Goods are tangible and movable, like cars or coffee beans. Fixtures are attached to real estate as part of the property. Article 2 governs sales of goods, including some nonmerchant sales, rather than pure services or real estate.