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October 31, 2013 Legal Study Guide Exam #2: Ch 4 - 8 50 multiple choice questions

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Chapter 4: Business Ethics and Social Responsibility (10-12 questions)

*Only 1 question that doesn't come straight from the textbook. *Don't study Negotiable Instruments Ethics: The study of how people ought to act i.e. Ford Pinto controversy, EXXON oil spill, Nestle formula Things go wrong because of pressure on management to make $$$ Law and ethics are often in harmony, but law and ethics are not always compatible In some cases, it might be ethical to commit an illegal act; it might be unethical to be legal. Examples: 1. "Bank Robber in Wheelchair Has an Alibi: His Medicine," New York Times 1991: George Hart, a 75-year-old man confined to a wheelchair, robbed a bank in San Diego of $70 so that he could buy heart medicine. He entered the branch of the HomeFed Bank, where he had $4 in his account, and apologized while demanding $70 from a teller, threatening to blow up the bank if she did not comply. Hart was arrested minutes later when he tried to buy a $69 bottle of heart medicine at a nearby drugstore. Hart said he "hated to have to go to this extreme," but insisted he had tried every other way to find money to buy the medicine. 2. In 1963, Martin Luther King, Jr., was arrested in Birmingham, Alabama, for leading illegal sit-ins and marches to protest laws that discriminated against African Americans. His Letter from Birmingham Jail offered an eloquent defense of these actions. He described the burdens of being an African-American in the 1960s. How, when traveling, he was forced to sleep in his car because no hotel would take him. Or how his daughter cried when he told her that she was not allowed to go into the local amusement park. King argued he had no obligation to obey laws that permitted such wrongdoing. He quoted Saint Augustine: "an unjust law is not law at all." The rest of the examples from the text ARE LEGAL, but are they ETHICAL? Some people argue that, in the long run, ethical behavior does pay off. HOWEVER, to date, there is little evidence that ethical behavior necessarily pays financially, either in the short or long run. i.e. When a fire destroyed the Madden Mills factory in Lawrence, Massachusetts, its 70 year-old owner, Aaron Feuerstein, could have shut down the business, collected the insurance money, and sailed off into retirement. But a layoff of the factory's 3,000 employees would have been a major economic blow to the region. So instead Feuerstein kept the workers on the payroll while he rebuilt the factory. These actions gained him a national reputation as a business hero. Five years after the fire, Madden Mills filed bankruptcy papers. The company was not able to pay off the loans it had incurred to keep the business going. Likewise, many socially responsible funds are now available to the investor who wants to make ethical choices... (However, these investments earn a lower return than standard index funds.) a. The Amana Fund: buys stocks that comply with Islamic laws. It will not invest in holdings that earn interest. b. The Ava Maria Fund: is designed for Catholic investors, c. The Timothy Plan: for evangelicals, d. The Sierra Fund: focuses on environmentally-friendly investments e. The Women's Equity Fund: chooses companies that promote women's interests in the workplace.

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It also appears that unethical behavior is no bar to financial success. (i.e. John D. Rockefeller) SO THEN... WHY BOTHER WITH ETHICS?! a. Society as a whole benefits from ethical behavior: without ethical behavior, a society cannot be economically competitive. b. Money does not buy happiness: Good relationships, satisfying work, and ties to the community make people happy in the long run. c. People feel better when they behave ethically: Managers value their reputations more than profitability d. Unethical behavior can be very costly: Unethical behavior does not always damage a business, but has the potential to destroy an entire company overnight. (reduced productivity, job stability, and profits; creates a cynical, resentful, and unproductive workforce.) e. Ethical behavior is more likely to pay off: no guarantee, but there is evidence! Ethical companies have better reputations, more creative and cooperative employees, and higher returns than those who behave unethically. What is Ethical Behavior? Ethics Checklist: What are the facts? (get both sides of the story) What are the critical issues? (include all important issues) **Who are the stakeholders? (includes all the people potentially affected by the decision) What are the alternatives? **What are the ethical implications of each alternative? Is it legal? How would it look in the light of day? What are the consequences? (am I hurting anyone? Which will cause the greatest good (or least harm?) Does it violate important values? What kind of world would this be if everyone behaved this way? Is more than one alternative right? Which values are in conflict? Which of these values are most important? Can you find an alternative that is consistent with your values? Almost universal Common values: a. Compassion: being aware of and concerned about other's feelings, desires, and needs. b. Courage: the strength to act in the face of fear and danger. (dramatic action, quiet strength) c. Fairness: requires that decisions be made without fraud, prejudice or favoritism. d. Integrity: being sincere, honest, and loyal. e. Responsibility: being trustworthy and dependable f. Self-control: the ability to resist temptation An organization has responsibilities to customers, employees, shareholders, and society. Organization's responsibility to Society: i.e. Alcohol advertisements & "Uptown" cigarettes targeted at African Americans. To its Customers: i.e. Sheldon's elderly apartment tenants To its Employees: i.e. James Kilt, CEO, Gillette Co. To its Shareholders: i.e. Staples Soul Report Responsibility Overseas: Sweatshops & Child labor

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To their Organization: New York Times Co., Fall 2008 Conclusion: Many U.S. companies have created formal ethics codes & training programs. In the end, the surest way to infuse ethics throughout an organization is for top executives to behave ethically themselves. (Exam Review Questions/Scenarios: pg.104-106)

Chapter 5: Introduction to Contracts (Heavy area for exam questions)

Parties enter Contracts attempting to control their future. Contracts exist to make business matters more predictable. Judicial Restraint: A courts reluctance to interfere with the terms of a contract. (Even if the contract results in serious harm to one party, a court will generally enforce it.) Judicial Activism: A court's willingness to change or ignore a contract that it perceives as unjust; more flexible but less predictable. A contract has 4 elements: 1. Agreement: One party must make a valid offer, and the other party must accept it. 2. Consideration: There must be bargaining that leads to an exchange between parties. 3. Legality: The contract must be for a lawful purpose. 4. Capacity: The parties must be adults of sound mind. Important Contract Issues: Consent Written Contracts Third-party Interests Performance and Discharge Remedies A Contract is a promise that the law will enforce. Is it certain that the defendant promised to do something? If she did promise, is it fair to make her honor her word? If she did not promise, are there unusual reasons to hold her liable anyway? Types of Contracts: Bilateral: both parties make a promise. (The vast majority of contracts are bilateral.) Unilateral: one party makes a promise that the other party can accept only by doing something. Express: the two parties explicitly state all important terms of the agreement. (The great majority of binding agreements are express contracts.) Implied: the words and conduct of the parties indicate that they intended an agreement. (employment setting, "at-will" agreements. Courts routinely enforce at-will contracts, but employees are guaranteed certain rights.) Executory: when one or more parties have not fulfilled their obligations. A contract is Executed when all parties have fulfilled their obligations Valid, Unenforceable, Voidable, and Void Agreements A valid contract is one that satisfies all the law's requirements. A court will therefore enforce it. An unenforceable agreement occurs when the parties intend to form a valid bargain but a court declares that some rule of law prevents enforcing it. A voidable contract occurs when the law permits one party to terminate the agreement. A void agreement is one that neither party can enforce, usually because the purpose of the deal is illegal or because one of the parties had no legal authority to make a contract.

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Remedies Created By Judicial Activism In each case, a sympathetic plaintiff can demonstrate an injury. But there is no contract! In promissory estoppel cases, the defendant made a promise that the plaintiff relied on. In quasi-contract cases, the defendant did not make any promise, but did receive a benefit from the plaintiff. Promissory Estoppel Even when there is no contract, a plaintiff may use promissory estoppel to enforce the defendant's promise if he can show that: o The defendant made a promise knowing that the plaintiff would rely on it; o The plaintiff did rely on the promise; and o The only way to avoid injustice is to enforce the promise. Quasi-Contract Even when there is no contract, a court may use quasi-contract to compensate a plaintiff who can show that: o The plaintiff gave some benefit to the defendant; o The plaintiff reasonably expected to be paid for the benefit and the defendant knew this; and o The defendant would be unjustly enriched if he did not pay. The damages are called quantum meruit, meaning that the plaintiff gets "as much as he deserved." When is the enrichment "unjust?" CASE: NOVAK V. CREDIT BUREAU COLLECTION SERVICE o A benefit was rendered to Novak to prevent serious bodily injury or death under circumstances where equity demands compensation in order to prevent unjust enrichment. Sources of Contract Law Common Law: (Judge-made Law) o Executives, lawyers and judges wanted a body of law for commercial transactions that reflected modern business methods and provided uniformity throughout the United States. The Uniform Commercial Code (UCC) was created in 1952. o The Code governs many aspects of commerce, including the sale and leasing of goods, negotiable instruments, bank deposits, letters of credit, investment securities, secured transactions, and other commercial matters. o UCC Article 2 governs the sale of goods. "Goods" means anything movable, except for money, securities, and certain legal rights. Goods include pencils, commercial aircraft, books, and Christmas trees. Goods do not include land or a house, because neither is movable, nor do they include a stock certificate. Restatement (Second) of Contracts: o 1979, the ALI issued a new version of the Restatement of Contracts, the Restatement (Second) of Contracts. o Is not the law anywhere, and in this respect differs from the Common law and the UCC o However, judges often refer to the Restatement (Second) when they decide cases, so we too will seek its counsel from time to time. Agreement Meeting of the Minds: Two parties can form a contract only if they have had a meeting of the minds. This requires that they (1) understood each other and (2) intended to reach an agreement.

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Offer: An offer is a serious matter because it permits the other party to create a contract by accepting. An offer is an act or a statement that proposes definite terms and permits the other party to create a contract by accepting those terms. The person who makes an offer is the offeror. The person whom he makes that offer to is the offeree. Two questions determine if a statement is an offer: 1. Did the offeror intend to make a bargain? 2. Are the terms of the offer definite? Problems with Intent: o An Invitation to Bargain is not an offer. o A Letter of Intent (A letter that summarizes the negotiating process,) can help summarize the progress made thus far and assist the parties in securing necessary financing. But a letter of intent contains a built-in danger: one party may regard it as less than binding. CASE: Cochran v. Norkunas (p.117) An advertisement is generally not an offer, but rather a request for offers. The consumer makes the offer by selecting merchandise in a store and taking it to the cashier. o However, consumers do have protection from shopkeepers intent upon deceit. Every state has some form of consumer protection statute. These statutes outlaw false advertising. Problems with definiteness: The terms of the offer MUST be definite. If the offer is indefinite, there is no binding agreement. (Exam Strategy example, p. 119) Termination of Offers: The power of an offeree to accept an offer is lost when the offer is terminated, which can happen in several ways: o Revocation - the offeree may revoke the offer any time before it has been accepted. Revocation is effective as soon as the offeree receives it. o Rejection - If an offeree rejects an offer, the rejection immediately terminates the offer, (power to accept is ended.) o Counteroffer - A counteroffer is a rejection, The parties have no contract... o Expiration - When an offer specifies a time limit for acceptance, that period is binding. If the offer specifies no time limit, the offeree has a reasonable period in which to accept. o Destruction of the Subject Matter Acceptance: o The offeree must say or do something to accept, Silence is not acceptance! o When the offer is for a bilateral contract, the offeree generally must accept by making a promise. o When the offer is for a unilateral contract, the offeree must accept by performing. o Mirror Image Rule: requires that acceptance be on precisely the same terms as the offer. The problem is, in business, the "battle of forms." UCC and the Battle of Forms UCC 2-207 dramatically modifies the mirror image rule for the sale of goods. Under this provision, an acceptance that adds additional or different terms will often create a contract. o For the sale of goods, the most important factor is whether the parties believe they have a binding agreement. If their conduct indicates that they have a deal, then they probably do. o If the offeree ADDS NEW TERMS to the offer, acceptance by the offeror generally creates a binding agreement.

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If the offeree CHANGES THE TERMS of the offer, a court will probably rely on general principles of the UCC to create a fair contract. i.e. 'Clickwraps & Shrinkwraps' p. 121 CASE: Specht v. Netscape Communication Corp. p. 122 Consideration: The doctrine of consideration exists for one purpose: to distinguish promises that are binding from those that are not. Consideration is a required element of any contract. Consideration means that there must be bargaining that leads to an exchange between parties. o Bargaining indicates that each side is obligating itself in some way to induce the other side to agree. If one party makes a promise without some kind of bargaining, there is generally no contract The thing bargained for can be for another promise or action, i.e. Ben's promise to go to Chicago was consideration. The parties have a deal that either one can enforce (p. 123.) The thing bargained for can also be action, rather than a promise. i.e. If Sandra connects the TV on time, her work is consideration and the parties have a binding deal (p. 123.) The thing bargained for can be a promise to do something or a promise to refrain from doing something, i.e. CASE: Hamer v. Sidway p. 124 Illusory Promise: An illusory promise, that is, not really a promise at all, is not consideration. Conclusion: Contracts govern countless areas of our lives, from family issues to multi-billion dollar corporate deals. The very purpose of a contract is to achieve greater control over our affairs. (Exam Review Questions/Scenarios p.128-129)

Chapter 6: Legality, Consent, and Writing (In-class Review...)

Legality (Illegal ~ aka void/unenforceable) Generally, Restraint of Trade is illegal under our anti-trust laws, BUT there are exceptions (p. 131-133.) Exculpatory Clauses - negligence o CASE: Ransburg v. Richards p. 136 Capacity - capable of contracts o Minors o Mentally-Impaired Intent/Consent to bargain must be given freely and knowingly CASE: Fimbel v. DeClark (exception to the silence rule, p.142.) Statute of Frauds: an attempt of judges telling our legislatures in every state that are unenforceable contracts (VERBAL): o Interest in land o Cannot be performed within one year o Pay the debt of another o Made by an executor of an estate o Made in consideration of marriage o Sale of goods $500+ Parol Evidence Parol Evidence Rule: once you have that writing, you're stuck with it.

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Chapter 7: Conclusion to Contracts (In-class Review...)

Discharge NOVATION: (not in textbook, but will be on exam)

From Wikipedia:
In contract law and business law, Novation is the act of either: 1. replacing an obligation to perform with a new obligation; or 2. replacing a party to an agreement with a new party. In contrast to an assignment, which is valid so long as the obligee (person receiving the benefit of the bargain) is given notice, a novation is valid only with the consent of all parties to the original agreement: the obligee must consent to the replacement of the original obligor with the new obligor.[1] A contract transferred by the novation process transfers all duties and obligations from the original obligor to the new obligor. For example, if there exists a contract where Dan will give a TV to Alex, and another contract where Alex will give a TV to Becky, then, it is possible to novate both contracts and replace them with a single contract wherein Dan agrees to give a TV to Becky. Contrary to assignment, novation requires the consent of all parties. Consideration is still required for the new contract, but it is usually assumed to be the discharge of the former contract. Another classic example is where Company A enters a contract with Company B and a novation is included to ensure that if Company B sells, merges or transfers the core of their business to another company, the new company assumes the obligations and liabilities that Company B has with Company A under the contract. So in terms of the contract, a purchaser, merging party or transferee of Company B steps into the shoes of Company B with respect to its obligations to Company A. Alternatively, a "novation agreement" may be signed after the original contract[2] in the event of such a change. This is common in contracts with governmental entities; an example being under the United States AntiAssignment Act, the governmental entity that originally issued the contract must agree to such a transfer or it is automatically invalid by law. The criteria for novation comprise the obligee's acceptance of the new obligor, the new obligor's acceptance of the liability, and the old obligor's acceptance of the new contract as full performance of the old contract. Novation is not a unilateral contract mechanism, hence allows room for negotiation on the new T&Cs under the new circumstances. Thus, 'acceptance of the new contract as full performance of the old contract' may be read in conjunction to the phenomenon of 'mutual agreement of the T&Cs.[1] Strict/Substantial Performance Good Faith - Brunswick Case p. 158 Time is of the Essence Clause Breach o CASE: O'Brien v. Ohio State University p. 160 Statute of Limitations Know all about Impossibility** Remedies o Contracts generally; Expectation interest o p. 113 Promissory Estoppel; Reliance interest o p. 113 Quasi-Contract; Restitution interest o Unique (land); Equitable interest - Specific Performance An injunction Kinds of Damages o CASE: Lake Ridge Academy v. Carney p. 169

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Chapter 8: Sales and Product Liability (In-class Review...)

p. 176, Good explanation of the UCC o promote commerce p. 178 Merchant Quantity has to be there (can be different for every merchant.) Within 10 days ~ automatic contract CASE: Jannusch v. Naffziger p. 179 Added terms or different terms BOTH ARE ON UCC THE EXAM o Added or different? o What is the law? o What are the exceptions? Buyers and Sellers Remedies - 1 question on the exam Expressed warranties (merchant) Implied warranties - disclaimed Warranties will also Negligence: be on the Exam o Design o Manufacture o Failure to Warn In Strict Liability, the injured person need not prove that the defendant's conduct was unreasonable. o Product/good sold with defect and defect caused harm Stop study after "Contractual Relations," on p. 191