Accounting Ethics & Law exam 1

Elements of a contract

1. Mutual assent

2. Consideration

3. Contractual capacity (mentally competent)

4. Legality

5. Sometimes a contract required to be in writing

Mutual assent

an agreement between the parties requires offer and acceptance

Consideration

what you give in exchange for a promise, must have it for a contract to exist and be enforceable

Two elements to consideration

Must be something of value or have legal sufficiency

Must be bargained for

Promissory Estoppel

A doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies; such a promise is binding if justice will be better served by the enforcement of the promise.

Two types of duress

physical compulsion and economic duress

Physical Compulsion

coercion involving physical force renders the agreement void

Economic Duress

Consists of threats to a person's business or income that cause him or her to enter a contract without real consent

Undue Influence

occurs when one party to a contract is in a position of trust and wrongfully dominates the other party

Fraudulent Misrepresentation

Any misrepresentation, either by misstatement or by omission of a material fact, knowingly made with the intention of deceiving another and on which a reasonable person would and does rely to his or her detriment.

Fraud in the Execution

a misrepresentation that deceives the other party as to the nature of a document evidencing the contract renders the agreement void; having them sign for one contract but it really is another

Non-Fraudulent Misrepresentation

A material misrepresentation made without knowledge of its falsity

innocent misrepresentation

false representations made without knowledge of their falsity and made with due care

Negligent Misrepresentation

false representation made without knowledge of their falsity and made without due care

Mutual (Bilateral) Mistake

where both parties are mistaken about the same facts can make contract voidable assuming mutual mistake is about basic assumption relied upon when entering into contract and doesn't involve ordinary risk of doing business

Unilateral Mistake

A mistake that occurs when one party to a contract is mistaken as to a material fact; granting of relief is rare but may be granted

Assumption of Risk Doctrine

person who assumes a business risk cannot avoid contract even though there is a mistake

Substantial unconscionability

concerns actual terms of contract and examines relative fairness of obligations assumed. is the contract so 1-sided as to oppress or unfairly surprise an innocent party?

Procedural Unconscionability

one party uses its superior power to force a contract on the weaker party

Regulatory licenses

Protect public from unqualified practitioners; if not licensed, courts unlikely to enforce contract to pay for its services

Revenue License

required license imposed by governments on certain occupations for the sole purpose of raising money

Quasi Contract

An obligation or contract imposed by law (a court), in the absence of an agreement, to prevent the unjust enrichment of one party.

Exculpatory Clause

A clause that releases a contractual party from liability in the event of monetary or physical injury, no matter who is at fault.

Adjudicated incompetent

a judge has made a formal finding that a person is mentally incompetent and has assigned the person a guardian by court order

not adjudicated incompetent

Does not need a guardian but still is incompetent so contract is voidable

Collateral Promise

Promise where one party promises to perform if another party doesn't; required to be in writing to be enforceable

condition precedent

A condition in a contract that must be met before a party's promise becomes absolute.

condition subsequent

A condition in a contract that operates to terminate a party's absolute promise to perform.

Concurrent Conditions

Conditions that must occur or be performed at the same time; they are mutually dependent. No obligations arise until these conditions are simultaneously performed.

Express Condition

A condition specifically and explicitly stated in a contract and usually preceded by words such as conditioned on, if, provided that, or when.

Implied Conditions

conditions to a contract that are implied by law rather than by contractual agreement

Material Breach

A breach that occurs when a party renders inferior performance of his or her contractual duties.

Substantial Performance Doctrine

Substantial performance occurs when a contractor has performed enough of the contract to deserve payment.

Anticipatory Repudiation

An assertion or action by a party indicating that he or she will not perform an obligation that the party is contractually obligated to perform at a future time.

Novation

Substituting a new obligation for an old one or substituting new parties to an existing obligation.

monetary damages

money compensation sought or awarded as a remedy for a breach of contract or for tortious acts

compensatory (actual) damages

a monetary amount intended to compensate injured parties for actual losses or damages they have incurred

consequential damages (special damages)

Foreseeable damages that arise from circumstances outside a contract. To be liable for these damages, the breaching party must know or have reason to know that the breach will cause special damages to the other party.

Incidental Damages

Damages that compensate for expenses directly incurred because of a breach of contract, such as those incurred to obtain performance from another source.

Reliance Damages

contract damages placing the injured party in as good a position as she would have been in had the contract not been made; when parties cannot establish compensatory damages with certainty

Nominal Damages

Small amount to recognize breach of contract not indictive of loss

Damages for Misrepresentation

Basic remedy for misrepresentation is rescission of the contract, though when appropriate, the courts also require restitution

Injured party may both rescind the contract by restoring the other party to the status quo and recover damages or obtain any other remedy

Depends on whether the misrepresentation was fraudulent or nonfraudulent

out of pocket rule

Under this, general damages equal to the difference between the value of what a person has received and the value of what they have given for it.

benefit of the bargain rule

difference between the value received and the value of the fraudulent party's performance as represented

Punitive damages (exemplary damages)

A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party's actual damages.

liquidated damages

An amount, stipulated in the contract, that the parties to a contract believe to be a reasonable estimation of the damages that will occur in the event of a breach.

Equitable Remedies

A remedy that is available if there has been a breach of contract that cannot be adequately compensated through a legal remedy or to prevent unjust enrichment.

Implied Warranty of Merchantability (made by merchant seller)

A warranty that goods being sold or leased are reasonably fit for the ordinary purpose for which they are sold or leased, are properly packaged and labeled, and are of fair quality. The warranty automatically arises in every sale or lease of goods made by a merchant who deals in goods of the kind sold or leased.

Implied Warranty of Fitness for a Particular Purpose (any seller)

Applies when seller knows the particular purpose for which the goods are being bought; and knows buyer is relying on seller's expertise to select goods

UCC 2-209

Modification, Rescission and Waiver

UCC 2-401

Passing of title

UCC 2-201

Formal Requirements; Statute of Frauds

UCC 2-403

Power to transfer, good faith purchase of goods, Entrusting

UCC 2-306

Output requirements and exclusive dealings

UCC 2-104

Definition of Merchant

UCC 2-207

Additional terms in acceptance or confirmation

UCC 2-302

Unconscionable Contract or clause

UCC perfect tender rule (2-601)

perfect tender rule

Perfect Tender Rule (UCC)

Seller must deliver perfect goods in the right place at the right time.

If tender is not 100% perfect, buyer has the right to reject the goods.

UCC 3-311

Accord and Satisfaction by Use of Instrument

Accord and Satisfaction by Use of instrument