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Commercial law Q&A
- What are the names of the "industrialized" world's two primary legal systems? - answer: Civil Law, Common Law, and "Hybrids" of the two systems are acceptable answers. Of Common Law and Civil Law, which is the primary legal system on the continent of Europe? - answer Civil Law
- Name two of the three major groupings of civil law in Europe? - Answer: French, German (Austrian), and Scandinavian True or false -- Civil law does not provide the source of the law in any part of the United States? - answer: False. Louisiana's law is based on a draft of the Napoleonic civil code, and the laws of California and Arizona are based in part on Spanish civil law. In what country did the common law originate? - answer: England. Name two countries that have a common law legal system today? - answerAnswer: England, Wales, Ireland, Canada, US, Australia, New Zealand, India, Pakistan, & Israel Name one country with a hybrid common law & civil law system. - answerAnswer: Quebec, Louisiana, Scotland, South Africa, etc. What is a Civil Code? - answerAnswer: A systematic compilation of laws designed to comprehensively deal with the core areas of law. Successful civil codes have included: Mesopotamia Code of Hammurabi (ca. 1780 BC), Corpus Juris Civilis of Emperor Justinian, Medieval Church Law (Jus canonicum), French Code (1804), Austrian Allgemeines bürgerliches Gesetzbuch (1812),and the German Bürgerliches Gesetzbuch (1900) Which legal system does this describe: "Includes extensive non-statutory law reflecting centuries of decisions by judges hearing real cases" - answerAnswer: Common law
- True or false -- Law is based on logic and completely independent of the culture from which it arises. - answerAnswer: False. True or false -- French civil law has more similarities to English common law
than does Scandinavian civil law. - answerAnswer: False. (asså, scandinavian law är mer lik english common law än vad fransk lag är) Adversarial - answerfientlig (opposed, adversed) statutory - answerlagstadgad In which system does legal procedure tend to be adversarial? - answerAnswer: Common law. In which legal system do courts give scholarly opinions virtually no weight in deciding important legal questions? - answerAnswer: Common law. In _______ law countries, judges are often seen as balancing the power of the other branches of government. - answerAnswer: Common Name three things to consider in deciding upon the legal structure for a business? - answerAnswer: Any 3 of these:
- Who will participate?
- Where will this business operate?
- Who will provide investment?
- Where will this business be formed?
- Who will run this business?
- How will the managers be supervised?
- Number & types of owners
- The nature of the business
- Capital requirements
- Costs to form & operate
- Estimated income of the business
- Estimated appreciation of assets
- Structure of management
- Compensation
- Personal Liability
- Restrictions on transferability
- Exit strategy
- How will the entity be taxed What do business organizations attempt to achieve? - answer• Avoid certain business costs/risks
- Facilitate resource contributions:
- Investment capital,
- Knowledge, &
- Relationships True or false -- In a partnership (common law), the general partners are liable for all the business' debts, however the debts arise. - answerAnswer: True.
A, B, & C form a partnership D. They hire E to pilot an oil tanker from a platform in the North Sea to a port facility in Bergen. E runs the tanker aground. The resulting oil spill kills all marine life in a 300-km wide swath. Under principal-agent rules, who is responsible for the damage caused by E? - answerAnswer: A, B, & C, personally, once all the partnership's assets have been exhausted. A, B, & C form a corporation D. As corporate directors, they hire E to pilot an oil tanker from a platform in the North Sea to a port facility in Bergen. E runs the tanker aground. The resulting oil spill kills all marine life in a 300-km wide swath. Under principal-agent rules, who is responsible for the damage caused by E? - answerAnswer: The corporation D only, assuming it was properly formed.
- True or false -- Corporations never have the same rights as real people. - answerAnswer: False.
- True or false -- A corporation cannot own property. - answerAnswer: False. If the laws of a jurisdiction allow a corporation to have the same freedoms of speech as a natural person, then would it be easy or difficult to regulate the content of advertisements produced by the corporation? - answerAnswer: Regulation of ad content becomes extremely difficult when corporations have the same rights to free speech as natural persons. You buy 4 shares of stock in EvilCo, a multinational corporation specializing in tobacco, alcohol, gambling, high-fat snacks, and sugary candies. On the day you bought the stock, each share was valued at 1000 SEK. Two days later, the United Nations, on behalf of all the governments of the world, sues EvilCo because it has been learned that EvilCo is singularly responsible for global warming, the ozone hole, road rage, world hunger, and most violent crime. The UN seeks damages closely approximating the world's entire economic output for 10 years. If EvilCo loses its lawsuit, what is your maximum personal liability to the United Nations? - answerAnswer: The 4000 SEK you spent buying 4 shares of EvilCo stock. True or false: Like natural persons, corporations age and eventually enter a governmental category known as "corporate life support" before they expire peacefully on the following anniversary of their incorporation date. - answerAnswer: False. Corporations may live forever.
- Kongo Gumi - founded 578
- Stora-Kopparberg - founded 1288
- The President & Fellows of Harvard College - founded 1650
- Hudson Bay Company - founded 1670 What business structures are these: Acme AG, Acme AB, Acme KK, Acme SA? - answerAnswer: Public companies in Germany, Sweden, Japan, & France.
What business structures are these: Acme GmbH, Acme GK, Acme Srl? - answerAnswer: Limited liability companies in Germany, Japan, and Italy. True or false: The directors of public companies are elected yearly by popular vote of the citizens from the legal jurisdiction of the company's registration? - answerAnswer: False. The shareholders elect the directors annually. Who has the fiduciary duty of looking after the corporation's interests? - answerAnswer: The directors. fiduciary - answerförtroende, pålitlig, trofast True or false: Good directors should defer to management on most issues, as the managers are trained professionals, and limit their role to policy setting tasks. - answerAnswer: False. The directors should be proactive. Director A of Acme, Inc. learns that a copper mining company needs to sell a huge amount of copper ore quickly in order to avoid defaulting on a loan. Acme buys tremendous amounts of copper ore each year. Director A buys the copper ore through an investment firm that he controls for 50% of its normal price and then sells the copper ore to Acme for 80% of its normal price. Should Acme be pleased with Director A? - answerAnswer: No. Director A violated his duty of loyalty to the company. He essentially cheated the shareholders out of the 30% difference between the price of the copper ore's purchase and sales price. Describe a director's duties of care. - answerAnswer: A director's duties must be performed in "good faith" and in the "best interests" of the corporation, with the care of an "ordinarily prudent person" in a "like position" under "similar circumstances" including "reasonable inquiry" prudent - answerklok True or false: Like shareholders, directors have no liability for the company's actions. - answerAnswer: False. Directors and officers may be liable for:
- Their own negligent acts
- Crimes & torts committed individually as well as those committed by employees under their supervision
- Shareholder derivative suits where shareholders sue directors on behalf of corporation. Describe the "business judgment rule." - answerAnswer. The Business Judgment Rule creates a strong presumption in favor of the directors, freeing them from liability for decisions that result in harm to the corporation. Thus, a board will not suffer legal action simply from a bad decision. The rule recognizes the inherently risky nature of business & that boards must be free
litigation - answerjuridisk process True or false: Because commercial parties are generally aware that the law lurks in the shadows of every action they take, the greatest effect of contract law may lie more in creating boundaries for all participants, rather than deciding actual disputes. - answerAnswer: True. True or false: Contract law is necessary to ensure compliance with the agreed upon "promises" between the contracting parties. - answerAnswer: True. In contract formation, describe how the parties' intent to enter into a contract is determined. - answerAnswer: The parties' intent to enter into a contract (and/or the intent to be bound by an agreement) is determined by: What a reasonable person would believe, based on the outward, objective manifestations of intent. It is not determined by their subjective intent. In classical common law contract, for two parties to be in contract what things must be present? - answerAnswer: There must be:
- An Agreement
- Offer and
- Acceptance of the offer
- Consideration
- Contractual Capacity
- Legality of the contract (e.g., the contract cannot be an agreement to commit a crime) consideration - answeravseende When do contract formation issues tend to become disputes? - answerAnswer: Formation issues tend to arise
- During disputes between parties
- When one or more parties
- Argues that a contract never existed
- Or that its terms are substantially different The task - determining the offer, the acceptance, & the consideration out of a long series of communications over time A tells B that he will pay 50000 SEK for 5 TVs on November 1st if he can obtain the TVs immediately. B says that A can buy the TVs whenever he wants, but the purchase will be subject to available inventory. A tells B that he must have assurances that the products will be available. B says that he is happy to serve A but that as a businessman, he cannot reasonably be expected to set aside 5 TVs since someone might want to buy them at any time. A says that his 50000 SEK offer includes a premium for just such a purpose. B says that he would be delighted to do business with A someday. On November 5th, B calls A and asks him why he hasn't picked up the TVs. A says that he bought them elsewhere. B says that he must be
compensated for the harm caused him by keeping the TVs in inventory. Is there a contract between A and B? - answerAnswer: No. B rejected A's offer. B's counteroffer was not accepted by A. A's subsequent arguments for the original offer were not unequivocally accepted by B. B cannot be said to have detrimentally relied upon A's promise either. unequivocally - answerklart, entydigt detrimentally - answerskadligt Name one of the two other terms for "agreement." - answerAnswer: "Bargained for exchange" and "meeting of the minds." Reaching an "agreement" requires what two things? - answerAnswer: An offer and acceptance of the offer. What is an offer? - answerAnswer: An offer is a promise to do something in exchange for the other party's promise to do something. The offer manifests the willingness to enter into an agreement. True or false, offers made in anger, jest or excitement are usually considered valid offers. - answerAnswer: False. A says to B, "That's a nice boat, bet she's worth $50,000." B says that he'll have the boat delivered to A within a week and shakes A's hand. Have A and B entered into a contract for the sale of a boat? - answerAnswer: No, without more. A made a statement of opinion. B made an offer, and there are no enough facts to indicate that A accepted B's offer. A tells B that he will sell him "something really good" for 1500 SEK that will make him "look cool" when he "wears it." Has A made B a valid offer? - answerAnswer: No. The subject matter of the contract has not been sufficiently identified. A calls B at 1400 and tells him that he would like to sell B his car for 100, SEK. B says that he will think about the offer and call him back the next day. A calls B back at 2200 and says that he's had a change of heart and that he can only sell the car if he received at least 125,000 SEK. Does this terminate A's original offer? - answerAnswer: Yes. A has terminated the original offer and replaced it with another offer. If B had accepted the original offer, then A would not have been able to modify it later, without at least having to compensate B. A says that he will sell B 50 TVs for 10,000 SEK in two weeks, provided that B give him 500 SEK today as a deposit. B pays A 500 SEK. Can A modify the
What is the difference between a bilateral contract and a unilateral contract? - answerBilateral
- The offeree promises to perform
- Contract formed when promises are exchanged Unilateral
- The offeree accepts the offer only by performing the act required by the contract
- "Lost Dog. Reward $500"
- A unilateral contract exists when a promise is exchanged for an action
- Offers for unilateral contracts are generally revocable until the act is performed What is the difference between an express versus and implied contract? - answerAnswer: Express
- Written or oral agreement Implied
- Factual circumstances suggest that an agreement has been reached
- Conduct of the parties creates & defines the contract's terms What is the difference between a formal versus an informal contract? - answerAnswer: Formal contracts follow strict rules required of certain kinds of agreements
- Contracts for the sale of real property
- Forms established by statute & law Informal contracts are ones that do not require a specific form to be enforced
- Most contracts are informal What is the difference between an executory versus an executed contract? - answerAnswer:
- An "executory" contract is one that is not yet fully performed
- Likely of most interest to purchasers of the company during due diligence phase
- An "executed" contract is one whose terms have been performed
- Note: "executed" also refers to the act of signing a written agreement What is the difference between a valid, a void, and a voidable contract? - answerAnswer: A valid contract is enforceable
- Includes all essential terms A void contract is one that cannot be enforced
- Illegal or against public policy A voidable contract is one that will not be enforced at the option of one of the parties
- A valid contract that can be avoided or rescinded rescinded - answerupphäva, avskaffa
What is "the plain meaning rule" of contract interpretation? - answerAnswer: The words of a contract will normally be given their plain/ordinary/customary meanings as used in the relevant business or trade. Unless a different intention is shown, language is interpreted according to the prevailing meaning. True or false: A party to a contract may later be assumed to know the general meanings of the terms in the contract. - answerAnswer: True. A & B make a contract regarding the sale and delivery of a large pizza. However, they write their contract in the ancient Mayan language and use the word for "parrot" rather than "pizza." If the contract is interpreted according to the German Civil Code (the BGB), have they made a contract about pizza or parrots? - answerAnswer: Pizza. They were both mistaken about the word chosen -- falsa demonstratio non nocet. True or false: Once an agreement has been written, then evidence of earlier oral or written expressions is generally not admissible to vary the terms of the agreement. - answerAnswer: True. The parol evidence rule. True or false: A legal presumption is an inference established by law or the court from a known fact to an unknown fact. - answerAnswer: True. True or false: To be a contract, an agreement must be titled "contract." - answerAnswer: False. Contracts can have many titles:
- Contract
- Agreement
- Purchase Order
- Memorandum of Understanding
- Terms and Conditions
- Appointment Letter
- Handbook ("implied contract")
- License
- Ticket Or no formal title at all
- Identify the offer, acceptance, consideration in a child care agreement. - answerAnswer: Offer: I will pay 140 SEK an hour for childcare for my 3-year-old. Acceptance: I will mind your child for 140 SEK an hour. Consideration: 140 SEK in exchange for 1-hour of skilled labor.
- Identify the offer, acceptance, consideration in lunch at a restaurant. - answerOffer: Menu Acceptance: I want beef from the menu for 190 SEK Consideration: 190 SEK in exchange for a meal as well as service
obliged to make any payments to B until the licensing proceeds reach $10 million." A consistently sells 100,000 units per quarter. The contract was signed today, and today is the first day of a new quarter. How many quarters will pass before A must pay B? Answer: $10,000,000 ÷ $100,000 = 100 quarters or 25 years. (Not a good deal for B.) - answerAnswer: $10,000,000 ÷ $100,000 = 100 quarters or 25 years. (Not a good deal for B.) What are "compensatory" damages? - answerAnswer:
- Compensatory: actual or real damages; compensate for the injury sustained & nothing more ("benefit of the bargain") What are "consequential" damages? - answerAnswer:
- Consequential: damage, loss or injury that does not flow directly and immediately from the act of breach but from a consequence of the breach What are "liquidated" damages? - answerAnswer:
- Liquidated: specific sum of money expressly stipulated by the parties in the contract to cover damages
- Note: Common law courts tend to disfavor liquidated damages. A liquidated damages clause may not be enforced if its purpose is to punish the wrongdoer/party in breach rather than to compensate the injured party. Civil law jurisdictions generally accept penalty clauses but may lower the damages specified in a contract if they are excessive. True or false - Punitive damages are common in breach of contract cases. - answerAnswer. False What is "specific performance"? - answerAnswer:
- When money damages are inadequate to give the plaintiff the "benefit of the bargain," the court may order the defendant to perform, e.g., provide the goods at issue.
- This remedy is more common when the item is unique, such as a piece of property or artwork What is the "battle of the forms"? - answerAnswer: Large companies each using their own forms in the purchase of a good or service. The courts have particular rules to determine which set of terms form the actual contract between the parties. True or false: Competition law concerns the imperfections of real world competition. - answerAnswer: True. In actual markets, some restrictions on a firm's actions may be needed to ensure that the overall economic effects reach optimum levels. Competition law sets general rules that restrict a firm's universe of possible actions in order to enhance competition & market decentralization.
True or false: Market power is the sole determinant for whether one has obtained a monopoly. - answerAnswer: False. It is one important factor, but not the only one. Airline A operates the only air service between Erehwon and Utopia. A just raised its price for a roundtrip ticket from 5000 SEK to 6000 SEK. A's market studies indicate that this will not cause a significant drop in the number of customers flying between these two cities. A's costs have not changed appreciably. Is the public regulator likely to be concerned about A's behavior or will he leave the solution to the market? - answerAnswer: The regulator will likely be concerned unless it is possible for a competitor to start flying between these two cities at a price near the 5000 SEK price. Why may competition law care about horizontal mergers? - answerAnswer: Horizontal Mergers & Anti-Competitive Activity
- Prevents concentration in one market
- Prevent the possibility of oligopoly
- Efficiencies may be harmful because they make it difficult for small competitors
- Courts view concentration as one factor that may be significant in merger Why may competition law care about vertical mergers? - answerAnswer: Vertical Mergers & Anti-Competitive Behavior
- Occurs between two firms in different levels of the market, e.g., distributor & retailer
- May foreclosure rivals by restricting markets or source of supply
- May create barriers to entry
- Some economists argue that vertical mergers represent just a reshuffling of the market Courts may look at both elasticity of supply & demand
- The merger must unreasonably restrict some competitors True or false - Market share always equals market power. - answerAnswer: False.
- What are "structural" remedies for monopolistic behavior? - answerAnswer:
- Court changes company's structure
- Break company into pieces & sell them
- What are "behavioral" remedies for monopolistic behavior? - answerAnswer:
- Court alters specific behavior of the company
- True or false - The basis of competition law is seeking society's vengeance against monopolists. - answerAnswer: False. Competition law is about fixing market imperfections.
- Why do companies accused of anti-competitive behavior often argue for a broad definition of the relevant market? - answerAnswer: Their role/power in the market is diminished.
IBM v. Telex: Relevant product market & cross elasticity of supply Telex makes IBM peripherals
- Telex claims that IBM wants relevant market to include IBM peripheral devices only
- IBM wants market to include peripheral devices in general (high cross elasticity of supply) Court: No monopoly power because mere interchangeability of demand is insufficient
- Must also look at whether suppliers can enter the market when there is a price change
- Low cost to change non-compatible peripheral devices to become compatible,
- Potential producers matter in determining market True or false -- The European Union has no treaties regarding competition law. - answerAnswer. False. Treaties include:
- European Coal and Steel Treaty (Paris) 1951
- EEC Treaty (Rome) 1957
- European Treaty (Rome) 1957
- Single European Act (Luxembourg) 1987
- European Union (Maastricht) 1992
- Treaty of Amsterdam 1997
- Treaty of Nice 2001 Identify a goal of EU competition law. - answerAnswer: EU competition law attempts to:
- Protect market conditions that allow economic entities equal opportunities to compete & gain access to the market
- Protect consumers by encouraging lower prices & improving the quality of products via free market forces True or false - Agreements that impede competition are not regulated by treaty in the European Union. - answerAnswer: False. Article 101 of the Treaty of Rome. True or false - abuses of a dominant position are not regulated by treaty in the European Union. - answerAnswer: False. Article 102 of the Treaty of Rome. Name one exception to Article 101's prohibition on agreements that impede competition. - answerAnswer: Article 101 does not apply to agreements which have an effect on competition but which:
- Contribute to improving the production & distribution of goods or promoting technical or economic progress
- While allowing consumers a fair share of the results
- Which do not impose restrictions that are dispensable to the attainment of these objectives
- Nor allowing the participants to eliminate competition in a substantial part of the relevant products True or false -- A market concentration occurs when one company merges with another, or acquires control over another, enabling it to exercise a decisive influence on its operations. - answerAnswer: True.
Summarize the European Commission's antitrust case against Microsoft. - answerAnswer: Microsoft Antitrust Case:
- Began in 1993
- Licensing practices (suppliers had to pay MS whether or not computers sold had Windows)
- Complaint about lack of interface disclosure
- Windows Media Player
- Complaints by Novell, Sun et al.
- 2004 EU ordered MS to:
- Pay €497 M
- Offer Windows with & without Media Player
- Release compatibility information
- MS paid fine but appealed
- Microsoft lost its appeal. The €497 million fine was upheld, as were the requirements regarding server interoperability information and bundling of Media Player.
- 2008, the EU fined Microsoft an additional €899 million for failure to comply with the March 2004 antitrust decision.
- Aspects of the case still continue today. Explain the philosophy behind Japanese competition law. - answerAnswer: Japan employs a complicated system of industrial policies that aim to promote industrial development and involve shifting resources to specific industries to gain international competitive advantage. Administrative guidance is a principal instrument of enforcement. The government selects a few areas in which to develop high-quality goods that can be sold at competitive prices. What is the difference between "employment law" and "labor law"? - answerAnswer:
- Employment laws
- Regulate employment relationships
- Establish terms of employment
- May relate to benefits
- Health insurance
- Seniority
- Vacation
- Labor law
- Tends to concerns labor/trade unions
- Collective bargain agreements Explain minimum wage laws. - answerAnswer: Minimum Wage:
- Sets a floor for wages
- Lower than floor set by supply & demand
- Minimum wage laws were introduced in the US (1938), France (1950), & UK (1999)
- 21 of 28 EU member states have national minimum wages
- Wage may not be adequate
Explain what it means to say that property is a "bundle of rights". - answerAnswer:
- Property rights are often conceptualized as a bundle of rights that can be individually transferred to different parties
- Example:
- Sell mineral rights to A
- Sell timber rights to B
- Lease cottage to C
- Grant right of way to D
- Sell apple-picking rights to E
- Or sell ALL rights to F Property Law
- Many things have a range of attributes
- These attributes form the bundle of rights
- Consider "land" as "property"
- Till - grow crops
- Pasture - graze
- Timber - harvest
- Fruits - gather
- Wildlife - harvest
- Minerals - extract
- Improvements - buildings
- Access - recreation Property Law The "Bundle" of Property Rights -
- Another way of conceptualizing the rights "bundle"
- The right to use
- The right to exclude
- The right to transfer
- The right to destroy Which rights are enforceable against everyone - property or contract? - answerAnswer:
- Property rights are rights enforceable against "all" persons
- Contract rights are rights enforceable against specific persons
- But property rights may arise from a contract True or false - For many commercial entities "Property" disputes are in reality another type of dispute. - answerAnswer: True. Example:
- Receiving payment for the sale of a 1,000 refrigerators to A
- Is about personal property (refrigerators)
- But the dispute lies in contract law
- Not property law True or false - In most developed countries, the sale of real property does not need to be recorded in form that would make the title to the property public, as such sales are considered to be solely matters between two parties. - answerAnswer: False.
- Title to property must typically be recorded with the government in order to protect the rights holder
- Example:
- Real property transactions - recorded in county offices in the US A loans money to B and holds widgets Z as collateral. A properly records the lien on widgets Z. B obtains a loan from C and also uses widgets Z as collateral. Between A and C, who can seize widgets Z should B default on the loan? - answerAnswer:
- Only A can seize widgets Z should B default on the loan
- C could have researched the title and found the lien held by A In common law countries, what is a "tenancy in common"? - answerAnswer. Tenancy in Common:
- Under this form of ownership, two or more persons own undivided fractional interests in the whole property
- If one owners dies, his interest passes to his heirs
- The owners can transfer their ownership interests to others In common law countries, what is a "joint tenancy"? - answerAnswer. Joint Tenancy:
- Under this form of ownership, two or more persons own undivided fractional interests in the whole property
- If one of the owners dies, the interest passes to the surviving owners
- This form of ownership is often called a joint tenancy with right of survivorship
- If an owner transfers her ownership interest to another, the joint tenancy ends and a tenancy in common is created What is a "deed"? - answerAnswer.
- A deed is the instrument setting forth the interests in real property being transferred.
- Requirements of a deed:
- Names of grantor and grantee
- Words evidencing intent to convey
- Legally sufficient description of the land
- Grantor's signature
- Delivery of the deed What is "trespass"? - answerAnswer:
- Using another party's property without permission
- Various forms
- "Spidering" another's website can be "trespass to chattels"
- Owner may seek damages What is "Eminent Domain"? - answerAnswer:
- The government's power to take private property for public uses with compensation
- Schools
- Roads
