ACTG 2P40 Lecture Notes - Lecture 5: False Statement

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greycattle984

7 Nov 2015

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Chapter 8 impeaching contracts: misrepresentation, undue influence and duress. Classification as terms or representations: stage of negotiations, written contract. If something is that important than he will have written it in the contract: parole evidence role where you have a written contract it is only that which part of the contract, special skills or knowledge. If you have special knowledge or skill it is more likely to be a term: cavear emptor buy beware, anyone who is a purchaser, it is their responsibility to research and investigate to satisfy themselves. Importance to the buyer that it communicated to the seller. Looking for reliance: types of misrepresentation, fraudulent misrepresentation. If you plead fraud and you don"t succeed, you will pay the other parties charge as well. If the party had known the truth they wouldn"t have entered: statement must be intended to be acted upon. Inequality of bargaining power: onus, presumption in specific relationships, common contracts where it arises.

Related Questions

B offered to sell a boat to C for $35,000. Câs response statedâI accept your offer but I will also need the boat moved to my boatslip at the same marina.â Is there a contract? If so what are theterms? Explain.

4. Perfect Poultry Company offers to sell a specified number ofchickens and turkeys to Quick Markets. Without including anyadditional terms in the proposal it is a valid offer to form acontract? Explain.

5. Daveâs uncle tells Dave that if âhe feels thatDave deserves it,â he will give Dave $10,000 when Dave graduatesfrom college. Dave agrees to the deal. Is the uncleâs promiseenforceable if Dave graduates? Explain.

6. Jennifer was about to be struck by a speeding car. Eva pushedher out of the carâs path, just in time to save her from beingstruck. However, Eva was herself struck by the car and wasseriously injured. Several weeks later, Jennifer promised Eva thatshe would pay her $1,000 per month for life. Is Jenniferâs promiseenforceable? Explain.

7. Vincent entered into a contract to sell his laptop to Millie,age 17. Millie took possession of the computer and continued to useit for five months after reaching her 18^th birthday. Howsignificant is her continued use of the computer?

8. Baker, a real estate broker, only licensed in Oregon,concluded a land sale in California. If the California clientrefuses to pay Baker the commission on the sale may he successfullysue the client for breach of contract? Explain.

9. DG Corp. has recently created a genetically modified cow,which they named Elsie. The MJ Dairy Co. contacts DG about buyingElsie. On November 1st, DG and MJ sign a contract stating that DGwill sell Elsie to MJ for $50,000. What neither party knows is thatElsie died during the preceding night. Explain the significance ofthat event.

10. Gene sells a trail bike to Hollis without disclosing thatthe odomeÂter, which reads 10,000 miles, was disconnected 90,000miles ago. Does Hollis have to pay the contract price? Discuss.

11. Mona is induced by her guardian Newt to sign acontract to invest her student loan funds in Overseas Bank throughNewtâs investment firm. Unknown to Mona, Newt realizes ongoingcommissions from the investment. On what basis could Mona rescindthe contract? Discuss.

12. Carl leases 2 acres of land to his friend, Larry. Larryintends to build a house on the property which will significantlyincrease its value. Larry applies for a $1 million loan from FleetBank to build the house. Carl orally promises the bank that he willbe responsible for paying back the loan if Larry does not. On thatbasis the loan is approved.

Is Carlâs promise enforceable if Larry fails to pay back theloan? Explain.

13. Guardian Security, Inc., and Hedge Fund Corporation enterinto an oral contract under which Guardian Security agrees toprovide security services for Hedge Fund offices for as long asHedge Fund needs them. This contract is/is not enforceÂ¬able?

14. The Caplans contract with Fain Construction tobuild a house on their lot for $300.000. The written contractspecifies that Fain is to satisfactorily install Crane brandbathroom fixtures. Fain completes construction but the Caplansrefuse to pay the full contract price because they are notsatisfied with the bathroom fixtures installations. Discuss whetherFain is or is not entitled to the full contract price.

15. Polly agrees to buy Quinnâs Cycle World but only ifRidgeline Credit Union approves the financing. This approval isa:

a. Condition precedent.

b. Condition subsequent.

c. An illusory promise.

16. Edâs Electric substantially performs its contract withForest Hills Apartments, Inc., to deliver and install an alarmsystem and parking lot lighting. Edâs is entitled to

a. Nothing due to the breach of contract.

b. Payment to the extent that it performed the contract.

c. Full payment of the contract price since it did substantiallyperform.

17. Gliding Light, LLC, and Hang Gliders, Inc., are parties to acontract. They subseÂquently agree that High Riders Inc. shouldtake Gliding Lightâs place and assume all of its rights and dutiesunder the contract. This is:

a. A mutual agreement to rescind.

b. An accord and satisfaction.

c. A novation.

d. A settlement agreement.

18. Omar and Penn want to discharge their contract by executinga new agreement with performance by Penn to be different from whatwas originally promised. This can best be accomplished by:

a. A mutual agreement to rescind.

b. An accord and satisfaction.

c. A novation.

19. Nina contracts with Office Suites Corporation to buy a suitein its Prospect Point Tower at a premium because of its undisturbedview of Quay Harbor. Unforeseeably, the town of Quay Harbor changesthe zoning law, and Resort Hotels, Inc., constructs Seaview Resort,blocking what would have been Ninaâs view. Ninaâs best argument fora change in the Office Suites contract or its price is:

a. Frustration of purpose.

b. Objective impossibility of performance.

c. Anticipatory repudiation.

d. Commercial impracticability.

erinhyena731

Lewis Securities Inc. has decided to acquire a new market dataand quotation system for its Richmond home office. The systemreceives current market prices and other information from severalonline data services and then either displays the information on ascreen or stores it for later retrieval by the firmâs brokers. Thesystem also permits customers to call up current quotes onterminals in the lobby. The equipment costs $1,000,000 and, if itwere purchased, Lewis could obtain a term loan for the fullpurchase price at a 10% interest rate. Although the equipment has a6-year useful life, it is classified as a special-purpose computerand therefore falls into the MACRS 3-year class. If the system werepurchased, a 4-year maintenance contract could be obtained at acost of $20,000 per year, payable at the beginning of each year.The equipment would be sold after 4 years, and the best estimate ofits residual value is $200,000. However, because real-time displaysystem technol- ogy is changing rapidly, the actual residual valueis uncertain. As an alternative to the borrow-and-buy plan, theequipment manufacturer informed Lewis that Con- solidated Leasingwould be willing to write a 4-year guideline lease on theequipment, including mainte- nance, for payments of $260,000 at thebeginning of each year. Lewisâ marginal federal-plus-state tax rateis 40%. You have been asked to analyze the lease- versus-purchasedecision and, in the process, to answer the following questions: a.(1) Who are the two parties to a lease transaction? (2) What arethe five primary types of leases, and what are theircharacteristics? (3) How are leases classified for tax purposes?(4) What effect does leasing have on a firmâs balance sheet? (5)What effect does leasing have on a firmâs capital structure? b. (1)What is the present value cost of owning the equipment? (Hint: Setup a time line that shows the net cash flows over the period t 5 0to t 5 4, and then find the PV of these net cash flows, or the PVcost of owning.) (2) Explain the rationale for the discount rateyou used to find the PV. c. What is Lewisâ present value cost ofleasing the equipment? (Hint: Again, construct a time line.) d.What is the net advantage to leasing (NAL)? Does your analysisindicate that Lewis should buy or lease the equipment? Explain. e.Now assume that the equipmentâs residual value could be as low as$0 or as high as $400,000 but $200,000 is the expected value.Because the residual value is riskier than the other relevant cashflows, this differential risk should be incor- porated into theanalysis. Describe how this could be accomplished. (No calculationsare necessary, but explain how you would modify the analysis ifcalculations were required.) What effect would the residual valueâsincreased uncertainty have on Lewisâ lease-versus-purchasedecision? f. The lessee compares the cost of owning the equipmentwith the cost of leasing it. Now put yourself in the lessorâsshoes. In a few sentences, how should you analyze the decision towrite or not to write the lease? g. (1) Assume that the leasepayments were actually $280,000 per year, that Consolidated Leasingis also in the 40% tax bracket, and that it also forecasts a$200,000 residual value. Also, to furnish the maintenance support,Consoli- dated would have to purchase a maintenance contract fromthe manufacturer at the same $20,000 annual cost, again paid inadvance. Consolidated Leasing can obtain an expected 10% pre-taxreturn on investments of similar risk. What would be ConsolidatedâsNPV and IRR of leasing under these conditions? (2) What do youthink the lessorâs NPV would be if the lease payment were set at$260,000 per year? (Hint: The lessorâs cash flows would be aâmirror imageâ of the lesseeâs cash flows.) h. Lewisâ managementhas been considering moving to a new downtown location, and theyare con- cerned that these plans may come to fruition prior to theequipment leaseâs expiration. If the move occurs, then Lewis wouldbuy or lease an entirely new set of equipment, so management wouldlike to include a cancellation clause in the lease contract. Whateffect would such a clause have on the riskiness of the lease fromLewisâ standpoint? From the lessorâs standpoint? If you were theles- sor, would you insist on changing any of the other lease termsif a cancellation clause were added? Should the cancellation clausecontain provi- sions similar to call premiums or any restrictivecovenants and/or penalties of the type contained in bondindentures? Explain your answer.

Kola Corporation (âKolaâ) leases quality weapons to customers. She gains a loyal following of customers because quality is of limited supply but high demand due to its usefulness for the upcoming winter. Further, Kola tends to offer more favorable financing terms than competitors offering substitutive products (e.g., Walnut, LLC).

Kola was recently approached by the Noodle, Inc. (Noodle) which is interested in leasing a substantial stock of weapons over a potentially lengthy period of time. Noodle has indicated a willingness to pay any rate that Kola Corporation demands for its quality products, but generally receives an interest rate of 12% on all other borrowing transactions. Noodleâs management are a very noble group, so payments are reasonably assured. Further, there are no material cost uncertainties.

Kola has gathered its council to discuss entering into such a contract with Noodle and has invited you to provide financial council. Kolaâs board has proposed several alternative sets of lease terms (below) and would like you determine what Noodleâs annual payments will be under each scenario, if payments are made at the beginning of the period.

	A	B	C	D
Fair value of weapons to be leased	$365,760	$365,760	$365,760	$365,760
Book value of weapons to be leased	$365,760	$290,760	$365,760	$365,760
Desired Profit on Lease Initiation	$0	$75,000	$0	$0
Lease Term	11 years	11 years	6 years	6 years
Useful Life of leased assets	13 years	13 years	6 years	6 years
Desired rate of return	10%	10%	10%	13.225%
Residual Value (guaranteed)	$24,350	$24,350	$25,000	$75,000

REQUIRED:

Prepare a schedule for Kola which uses Excel to compute Noodleâs necessary annual payment under each of the scenarios listed in the chart above. The schedule should list for each scenario above the desired present value of lease payments, future value of the leased asset, the lease term, and the interest rate and utilize an Excel formula to compute a payment. Kola is a high paying client of your firm, so the schedule should be extremely organized and professional looking (e,g., include a title, date, description in the top left-hand corner and utilize borders, font effects, etc. in cells to make the worksheet look visually appealing).

(Note: You must use only Excel to prepare and present all parts of this table. Do not use a hand-held calculator, and do not use the compound interest tables to solve any part of this problem. Points will be deducted if Excel formulas are not used for each necessary computation.)

Prepare a worksheet that determines the type of lease for each party to the transaction. The purpose of this worksheet is to automate the determination of lease type. This worksheet should show:

The particulars for each lease scenario.

List each capital lease requirement and indicate whether or not it is met

Use Excel formulas where meeting a particular criteria requires a calculation or is contingent on one of the lease criteria (e.g., âifâ statements). The only items that should be hard-keyed in here are the particulars for the lease scenario and the answers to the first two capital lease criteria (ownership transfer, and bargain purchase option) for the lessee/lessor and the answers to the two lessor-only capital lease criteria.

For the requirements below, assume Kola Corporation chooses lease option A and enters into an agreement with Noodle on 1/1/18. Noodle should return the weapons on 12/31/2028.

Prepare a lease amortization schedule describing the pattern of payments and interest over the lease term for both Kola and Noodle.

(Note: You must use only Excel to prepare and present all parts of this table. Do not use a hand-held calculator, and do not use the compound interest tables to solve any part of this problem.)

Prepare the appropriate entries for both Kola and Noodle on 1/1/18. Numbers in journal entries should be linked to the table prepared in number 3 above or computed using Excel formulas.

Prepare the appropriate entries for both Kola and Noodle through 1/1/21. Numbers in journal entries should be linked to the table prepared in number 3 above or computed using Excel formulas.

Prepare the appropriate entries for both Kola and Noodle on 12/31/2028. Assume the weapons returned to Kola have a residual value of $500.

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ACTG 2P40 Lecture Notes - Lecture 5: False Statement

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