Contracts and Business Organizations
Contracts and Business Organizations
This domain tests formation, enforceability, and remedies, plus the agency and entity rules that determine who is liable on a business obligation.
Formation and the UCC
Common law governs services and real estate; UCC Article 2 governs transactions in goods. Under UCC § 2-205, a merchant's signed written offer to hold an offer open is irrevocable without consideration. Section 2-207 resolves the battle of the forms: differing terms drop out unless the contract is between merchants and the term does not materially alter the deal. The UCC statute of frauds covers sales of goods of $500 or more (§ 2-201); the common law statute of frauds covers land, contracts not performable within one year, suretyship, marriage, and executor promises.
Defenses and remedies
Defenses include fraud, mistake, duress, unconscionability, and lack of capacity. The parol evidence rule bars prior or contemporaneous oral terms that contradict a fully integrated writing. Remedies are expectation, reliance, restitution, specific performance (unique goods, land), and liquidated damages, which must be a reasonable forecast rather than a penalty.
Entities and agency
Sole proprietorship, general partnership, LP, LLP, LLC, and corporation. An LLC is a state-law creature formed by articles of organization and governed by an operating agreement. Corporations form through articles of incorporation, operate under bylaws, and are managed by a board owing fiduciary duties of care and loyalty. Agency rests on actual authority (express or implied), apparent authority, or ratification; respondeat superior makes a principal liable for employee torts within the scope of employment.
Worked example
A merchant signs a purchase order for $4,000 of goods stating the offer is irrevocable for 60 days. Under UCC § 2-205 the offer is firm and cannot be revoked for lack of consideration because a merchant signed a writing promising to hold it open. Had the parties exchanged forms with conflicting arbitration clauses, § 2-207 would knock out both terms rather than adopt either one.
Traps
- Applying common law to a sale of goods.
- Confusing apparent authority with actual authority.
- Ignoring the integration requirement of the parol evidence rule.
- Treating LLC members as personally liable by default.