BUSINESS law Final

federal statute vs. state constitution provision

Federal Statute

federal statute conflicts with the US Constitution

US Constitution

state constitutional amendment vs. US Constitution

US Constitution

ABC Clothiers, Inc., has a contract with Taylor & Sons, a retailer, to deliver one thousand summer suits to Taylor's place of business on or before May 1. On April 1, Taylor receives a letter from ABC informing him that ABC will not be able to make the delivery as scheduled. Taylor is very upset, as he had planned a big ad campaign. Now suppose that Taylor's son, Tom, tells his father that they cannot file a lawsuit until ABC actually fails to deliver the suits on May 1. The second group will decide who is correct, Taylor senior or Tom.

Taylor senior is correct. He can immediately file suit for breach of contract, even though actual performance is not due until May 1. He does not have to wait until May 1, as Tom insists. An anticipatory breach legally permits the nonbreaching party to suspend performance without legal liability, and to take his or her choice of either waiting until the performance date to treat the contract as in breach or immediately pursuing a remedy.

What does stare decisis mean, and why has this doctrine been so fundamental to the development of our legal tradition?

means " to stand on decided cases"; The doctrine of stare decisis is fundamental to the development of our legal tradition because without the acceptance and application of this doctrine, the evolution of any objective legal concepts—and thus a legal "tradition"—would have been impossible

A Georgia state law requires the use of contoured rear-fender mudguards on trucks and trailers operating within Georgia state lines. The statute further makes it illegal for trucks and trailers to use straight mudguards. In approximately thirty-five other states, straight mudguards are legal. Moreover, in Florida, straight mudguards are explicitly required by law. There is some evidence suggesting that contoured mudguards might be a little safer than straight mudguards. Discuss whether this Georgia statute violates any constitutional provisions.

violates the commerce clause; According to the facts in this hypothetical, the contoured mudguard is not clearly superior in safety to the straight mudguard.

Violations of the 1934 Act. Matrixx Initiatives, Inc., makes and sells over-the counter pharmaceutical products. Its core brand is Zicam, which accounts for 70 percent of its sales. Matrixx received reports that some consumers had lost their sense of smell (a condition called anosmia) after using Zicam Cold Remedy. Four product liability suits were filed against Matrixx, seeking damages for anosmia. In public statements relating to revenues and product safety, however, Matrixx did not reveal this information. James Siracusano and other Matrixx investors filed a suit in a federal district court against the company and its executives under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, claiming that the statements were misleading because they did not disclose the information regarding the product liability suits. Matrixx argued that to be material, information must consist of a statistically significant number of adverse events that require disclosure. Because Siracusano's claim did not allege that Matrixx knew of a statistically significant number of adverse events, the company contended that the claim should be dismissed. What is the standard for materiality in this context? Should Siracusano's claim be dismissed?

An omission or misrepresentation of a material fact in connection with the purchase or sale of a security may violate Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The key question is whether the omitted or misrepresented information is material. A fact, by itself, is not automatically material. A fact will be regarded as material only if it is significant enough that it would likely affect an investor's decision as to whether to buy or sell the company's securities. For example, a company's potential liability in a product liability suit and the financial consequences to the firm are material facts that must be disclosed because they are significant enough to affect an investor's decision as to whether to buy stock in the company. In this case, the plaintiffs' claim should not be dismissed. To prevail on their claim that the defendants made material omissions in violation of Section 10(b) and SEC Rule 10-5, the plaintiffs must prove that the omission was material. Their complaint alleged the omission of information linking Zicam and anosmia (a loss of the sense of smell) and plausibly suggested that reasonable investors would have viewed this information as material. Zicam products account for 70 percent of Matrixx's sales. Matrixx received reports of consumers who suffered anosmia after using Zicam Cold Remedy. In public statements discussing revenues and product safety, Matrixx did not disclose this information. But the information was significant enough to likely affect a consumer's decision to use the product, and this would affect revenue and ultimately the commercial viability of the product. The information was therefore significant enough to likely affect an investor's decision whether to buy or sell Matrixx's stock, and this would affect the stock price. Thus, the plaintiffs' allegations were sufficient. Contrary to the defendants' assertion, statistical sampling is not required to show materiality—reasonable investors could view reports of adverse events as material even if the reports did not provide statistically significant evidence.

Adam's checks are imprinted with the words "Pay to the Order Of" followed by a blank. He does not write anyone's name on the blank line but fills it out for an amount. He gives it to Beth. On another check, he writes "Carl or bearer" in the blank. Which, is either, of these checks is a bearer instrument and why?

Both are bearer instruments Blank checks and checks including "or bearer" or considered bearer instruments

Under what circumstances might a judge rely on case law to determine the intent and purpose of a statute?

Case law includes courts' interpretations of statutes, as well as constitutional provisions and administrative rules. Statutes often codify common law rules. For these reasons, a judge might rely on the common law as a guide to the intent and purpose of a statute

State X requires people serving and preparing liquor be licensed. Mickey serves Gerald and his friends a bill of $600. When Gerald learns Mickey doesn't have a license he claims the contract is unenforceable.

Contracts made with unlicensed persons may or may not be enforceable; In this case, it appears that the license requirement is not tied to any skill necessary for the protection of the welfare of society. The only requirement is that the person be 21 years of age, but this is also the requirement for any person to be able to purchase liquors dispensed. Therefore, most courts would enforce the barbill contract Gerald owes, but would rule that Mickey is guilty of a misdemeanor.

The Caplans contract with Faithful Construction to build a house for $360,000. The specifications state "all plumbing bowls and fixtures...to be Crane brand." The Caplans leave on vacation and during their absence Faithful is unable to buy Crane brand and installs Kohler. On completion of the builiding, the Caplans inspect and refuse to accept the house claiming Faithful has breached the contract.

If, however, the specifications are merely promises (implied conditions), justice and fairness require only substantial, rather than full, performance for the Caplans' obligation to become absolute. This does not mean that Faithful has not committed a breach. Faithful is liable for any damages that can be proved to have resulted from its less than full performance. In this case, the specifications were stated not as express conditions but as mere promises (implied conditions).

In which of the following situations would specific performance be an appropriate remedy? Discuss fully. ) Thompson contracts to sell her house and lot to Cousteau. Then, on finding another buyer willing to pay a higher purchase price, she refuses to deed the property to Cousteau.

In the sale of land, the buyer's contract is for a specific piece of real property. The land under contract is unique, because no two pieces of real property have the same legal description. In addition, money damages would not compensate a buyer adequately, as the same land cannot be purchased elsewhere. Specific performance is an appropriate remedy.

Peggy helped care for Melvin's wife and aunt until their death. Then Melvin asked Peggy to care for him for the rest of his life and he conveyed his house to her for 10 dolars and other good and valuable consideration according to the deed and executed a power of attorney in her favor. When Melvin returned Peggy had locked him out. he filed a suit alleging fraud. He claimed that had deeded her the house in exchange for her promise of care, but argued she had made no promise. Peggy said Melvin gave her the house when he couldn't sell it and the trip had been intended as a move. Is this fraud?

In this case, the court declared the deed void and canceled it. On Williams's appeal, a state intermediate appellate court affirmed this judgment`

Jimenez, a famous singer, contracts to perform in your nightclub. He dies prior to performance.

Jiminez's contract is personal, requiring his services for full performance of the contract. His death makes performance totally impossible, thereby discharging his estate from liability.

Heather opted to try internet service from Clearwire Corp. They sent her a confirmation email with a link to its website and sent her a modem. In the enclosed materials, at the bottom of a page in small type was the website URL. When Heather plugged in the modem, an I accept terms box appeared. without accepting she quit the page. A clause in Clearwire's terms of service accessible only through its web site, required its subscribers to submit any dispute to arbitration. Is Heather bound to this clause?

NO, In Reasonover's situation, the confirmation e-mail sent by Clearwire was not adequate notice of its "Terms of Service" (TOS). The e-mail did not contain a direct link to the terms— accessing them required clicks on further links through the firm's homepage

Evangel Temple leased a facility from Wood Care to house evacuees after Katrina. One clause in the lease said they could terminate the lease at anytime by giving Wood Care notice and paying 10% of the balance remaining. Another clause stated that if the facility was not given a property tax exemption as a church they had the option to terminate without paying the 10%. 9 months later the last of the evacuees left. Wood Care demanded the 10%. Is parol evidence admissible to interpret this lease?

No. Evangel asserted that when it moved out, the facility lost the tax exemption, and Evangel could simply terminate the lease. In Wood Care's subsequent suit against Evangel, the court held that parol evidence was not admissible, and that according to the reasoning stated above, Evangel could end the lease without making the 10-percent payment.

Lyle contracts to sell his ranch to Marley, who is to take possession on June 1. Lyle delays the transfer until August 1. Marley incurs expenses in providing for livestock that he bought for the ranch. When they made the contract, Lyle had no reason to know of the livestock. Is Lyle liable for Marley's expenses in providing for the cattle?

No. To recover damages that flow from the consequences of a breach but that are caused by circumstances beyond the contract (consequential damages), the breaching party must know, or have reason to know, that special circumstances will cause the nonbreaching party to suffer the additional loss. That was not the circumstance in this problem.

GamesCo orders $800 worth of game pieces from Midstate Plastic, Inc. Midstate delivers, and GamesCo pays for, $450 worth. GamesCo then says it wants no more pieces from Midstate. GamesCo and Midstate have never dealt with each other before and have nothing in writing. Can Midstate enforce a deal for $350 more?

No. Under the UCC, a contract for a sale of goods priced at $500 or more must be in writing to be enforceable. In this case, the contract is not enforceable beyond the quantity already delivered and paid for.

Kolchek bought a spa from Porter, a dealer selling spas at the state fair. Kochek signed an installment contract. Porter than handed her the manufacturer's paperwork and arranged for the spa to be delivered and installed. 3 months later, Kolchek left her 6 yr old daughter alone in the spa. She stuck her hand into one of the jet holes and was unable to remove her finger. She yanked hard, injuring her finger and then called for help. Kolchek had to call the local police and rescue team. After a 3 hour operation that included draining the spa, sawing out a section and slicing the jet casing the finger was freed. Spa was no longer functional. Her daughter broke her finger in two places. Under which theories of product liability can Kolchek sue Porter to recover for Litisha's injuries?

Product liability based upon negligence; and upon design defects associated with the spa and inadequate warnings with respect to its use

Bill and Betty Ma owned half of a two-unit residential building. Betty lived in the unit, but Bill did not. To collect a judgment against the Mas, Mei-Fang Zhang obtained a writ of execution directing the sheriff to seize and sell the building. State law allowed a $100,000 homestead exemption if the debtor lived in the home and $175,000 if the debtor was also disabled and "unable to engage in gainful employment." Bill argued that he could not work because of "gout and dizziness." How much of an exemption are the Mas entitled to have?

The Mas owned half of a two-unit residential building. Bill did not live in the residence, but asserted that he was entitled to the higher exemption because he could not work due to "gout and dizziness." State law required that to obtain the greater exemption, the disabled debtor must live in the home. Because Bill did not live on the property, the Mas are not entitled to the $175,000 exemption, but only to the amount of $100,000.

In which of the following situations would specific performance be an appropriate remedy? Discuss fully. Amy contracts to sing and dance in Fred's nightclub for one month, beginning May 1. She then refuses to perform.

The basic criteria for specific performance do not apply well to personal-service contracts. If the identical service contracted for is readily available from others, the service is not unique, and monetary damages for nonperformance are adequate. If, however, the services are so personal that only the contract party can perform them, the contract meets the test of uniqueness; but the courts will refuse to decree specific performance if (1) the enforcement of specific performance requires involuntary servitude (prohibited by the Thirteenth Amendment to the U.S. Constitution), or (2) it is impractical to attempt to force meaningful performance by someone against his or her will. In the case of Amy and Fred, specific performance is not an appropriate remedy

Paula orally agrees to work with Next Corporation in New York City for two years. Paula moves her family and begins work. Three months later, Paula is fired for no stated cause. She sues for reinstatement and back pay. Next Corporation argues that there is no written contract between them. What will the court say?

The court might conclude that under the doctrine of promissory estoppel, the employer is estopped from claiming the lack of a written contract as a defense. The oral contract may be enforced because the employer made a promise on which the employee justifiably relied in moving to New York, the reliance was foreseeable, and injustice can be avoided only by enforcing the promise. If the court strictly enforces the Statute of Frauds, however, the employee may be without a remedy

In which of the following situations would specific performance be an appropriate remedy? Discuss fully. ABC Corp. has three shareholders: Panozzo, who owns 48 percent of the stock; Chang, who owns another 48 percent; and Ryan, who owns 4 percent. Ryan contracts to sell her 4 percent to Chang. Later, Ryan refuses to transfer the shares to Chang.

The key issue here is that this is a closely held corporation. Therefore, the stock is not available in the market, and the shares become unique. The uniqueness of these shares is enhanced by the fact that if Ryan sells her 4 percent of the shares to Chang, Chang will control the corporation. Because of this, monetary damages for Chang are totally inadequate as a remedy. Specific performance is an appropriate remedy.

The Wilcoxes hired Esprit Log to build a house they ended to sell. They paid for the materials, and eventually sold the house, but sued Esprit due to construction delays. The Wilcoxes claimed the the interest they paid on the loan for the extra time was $200,000. The jury agreed and awarded that plus $250,000 in punitive damages and attorney fees. Esprit appealed claiming the evidence did not support the verdict because the Willcoxes sold the house for a good price.

The fact that the house was later sold successfully had nothing to do with the extra costs incurred by the Wilcoxes as they had borrowed about a million dollars to finance the project and Esprit knew that

Austin buys an entertainment system by signing a note promising to pay $150 per month for the next six months. The note read "I promise to pay Friedman Electronics of its order the sum of $150 per month for the next six months". A week later, Friedman Electronics needed cash so he signed the back of the note and sold it to a bank. Give the specification designation of each of the three parties on this note

The instrument is a promissory note - two party instrument Austin is the maker of the note Friedman Electronics is the Payee After signing becomes the indorser The bank is a holder and also the indorsee

May 1, Yu offers to hire Benson to perform personal services by phone. May 5: Benson returns the call and accepts the offer. The contract calls for Benson to be employed for 9 months with performance to begin Sept 1.Does this contract fall under the state of frauds?

The one-year period here begins with the formation of the contract, so it is measured from the day after the contract is made, May 6. Because performance is for nine months and cannot begin until September 1, however, the contract cannot be fully performed until midnight on May 31. Thus, the contract is impossible to perform within the one-year period and therefore comes under the Statute of Frauds. A writing is required for enforceability.

May 1, Yu offers to hire Benson to perform personal services by phone. May 5: Benson returns the call and accepts the offer. The contract calls for Benson to be employed for one year with the right to begin performance immediately. Does this contract fall under the state of frauds?

The one-year period is measured from the day after the contract is made. Because Benson has the right to begin the one-year contract immediately, it is possible to perform the contract within one year. Therefore, the contract falls outside the Statute of Frauds and can be legally enforced without a writing.

Raglione contracts to sell you her land. Just before title is to be transferred, she dies.

The passage of title to this land can be by Raglione or any person so authorized. Therefore, the death of Raglione does not render the contract impossible to perform, because a representative of her estate can perform it in her place. The contract is not discharged.

David Gain was the chief executive officer (CEO) of Forest Media Corp., which became interested in acquiring RS Communications, Inc. To initiate negotiations, Gain met with RS's CEO, Gill Raz, on Friday, July 12. Two days later, Gain phoned his brother Mark, who bought 3,800 shares of RS stock on the following Monday. Mark discussed the deal with their father, Jordan, who bought 20,000 RS shares on Thursday. On July 25, the day before the RS bid was due, Gain phoned his parents' home, and Mark bought another 3,200 RS shares. The same routine was followed over the next few days, with Gain periodically phoning Mark or Jordan, both of whom continued to buy RS shares. Forest's bid was refused, but on August 5, RS announced its merger with another company. The price of RS stock rose 30 percent, increasing the value of Mark and Jordan's shares by $664,024 and $412,875, respectively. Did Gain engage in insider trading? What is required to impose sanctions for this offense? Could a court hold Gain liable? Why or why not?

There is likely enough evidence in the facts of this problem to find that David violated the law because there was a clear pattern—every time David called his brother or father, Mark or Jordan bought more RS stock. To establish liability under Section 10(b) and SEC Rule 10b-5 requires proof of an intent to defraud or knowledge of misconduct with respect, in this case, to a failure to disclose material facts used at the time of a trade. People generally buy when they believe the price of a stock is going up and sell when they believe it is going down. Insider trading can be established when it can be inferred that the most likely source of that belief was an insider. For example, a stock purchase or sale's proximity in time to a phone conversation between a trader and one with inside information provides a reasonable basis for inferring an exchange of that information. Thus, in this problem, on this basis, a court could hold David liable for insider trading.

Mallory promises a store she will pay for a lawn mower her brother is purchasing on credit if he fails to pay his debt. Must this promise be in writing to be enforceable?

This kind of collateral promise, in which the guarantor states that he or she will become responsible only if the primary party does not perform, must be in writing to be enforceable. There is an exception, however. If the main purpose in accepting secondary liability is to secure a personal benefit—for example, if Mallory's brother bought the mower for her—the contract need not be in writing.

ABC Clothiers, Inc., has a contract with Taylor & Sons, a retailer, to deliver one thousand summer suits to Taylor's place of business on or before May 1. On April 1, Taylor receives a letter from ABC informing him that ABC will not be able to make the delivery as scheduled. Taylor is very upset, as he had planned a big ad campaign. The first group will discuss whether Taylor can immediately sue ABC for breach of contract (on April 2)

When either party repudiates the contract with respect to a performance not yet due, the party's repudiation constitutes an anticipatory breach. An anticipatory breach legally permits the nonbreaching party to suspend performance without legal liability, and to treat the contract as in breach and immediately pursue a remedy.

Schmidt owns a small business, has a large piece of used farm equipment for sale. He offers to sell to Barry for $10,000. Barry pays $100 for a 30 day option to purchase the equipment. During this period, Barry dies and Barry's estate accepts Schmidt's offer within the time period.

When the offer is irrevocable, under an option contract, death of the offeree also does not terminate the offer. Because the option is a separate contract, the contract survives and passes to the offeree's estate, which can exercise the option by acceptance within the option period. Thus, acceptance by Barry's estate binds Schmidt to a contract for the sale of the equipment.

Angela Brock borrowed $544,000 and signed a note payable to Amerifund Mortgage Services, LLC, to buy a house in Silver Spring, Maryland. The note was indorsed in blank and transferred several times "without recourse" before Brock fell behind on the payments. On behalf of Deutsche Bank National Trust Co., BAC Home Loans Servicing LP initiated foreclosure. Brock filed an action in a Maryland state court to block it, arguing that BAC could not foreclose because Deutsche Bank, not BAC, owned the note. Can BAC enforce the note?

Yes, BAC can enforce the note. Under the UCC, the right to enforce an instrument and the ownership of the instrument are two different concepts. The holder of a note is entitled to enforce the instrument even if it is not the owner of the instrument or is in wrongful possession of it. An instrument indorsed in blank can be transferred by delivery alone. the note was indorsed in blank and thus could be transferred by delivery alone. There was no dispute that BAC was in possession of the note. BAC was therefore the holder of the note and entitled to enforce it. There is no additional requirement that BAC prove that it was the owner of the note—whether or not it was the owner is irrelevant—or otherwise how it came into possession of the note

Thomas worked in the nonmilitary operations of a large firm; his dept was closed and he was moved to a military dept; quit his job b/c military violated religious beliefs; Did the state's denial of unemployment benefits to Thomas violate the free exercise clause of the First Amendment? Explain.

Yes, Employers are obligated to make reasonable accommodations for their employees' beliefs, right or wrong, that are openly and sincerely held.

Charter One Bank owned a 15 story commercial building. A fire inspector told Charter that the buildings drinking water and fire suppression systems were linked, without disclosing this info Charter sold the building to Northpoint. They had to spend $280,000 to repair the water and fire systems and filed a suit against Charter. Is the seller liable for not disclosing the building defects?

Yes. Ordinarily, neither party to a contract has a duty to disclose facts about the object of their deal. If a seller knows of a serious problem that a buyer cannot reasonably be expected to discover, however, the seller has a duty to speak if the defect is latent and could not readily be ascertained

Suppose that a state imposes a higher tax on out-of-state companies doing business in the state than it imposes on in-state companies. Is this a violation of equal protection if the only reason for the tax is to protect the local firms from out-of-state competition? Explain.

Yes. The tax would limit the liberty of some persons (out of state businesses), so it is subject to a review under the equal protection clause. Protecting local businesses from out-of-state competition is not a legitimate government objective. Thus, such a tax would violate the equal protection clause.

DVG (a minor) was injured in a one car auto accident in AL. The vehicle was covered by Nationwide. Stan, DVG's attorney, accepted Nationwide's offer of $50,000 on DVGs behalf. Before the settlement DVG died from an unrelated accident. Nationwide argued that it was not bound because a minor lacks the capacity to contract and so cannot enter into a binding settlement without court approval. Should Nationwide be bound to this settlement?

it is clear that a contract existed at the time of D.V.G.'s death. As a minor, she did not lack the capacity to enter into a binding settlement of her potential claims. She would not have been liable on the contract, however, if she had chosen to avoid the deal. But she was the only party to the settlement that had this option. At the time that the settlement was agreed to, the contract was binding on Nationwide, notwithstanding that it was voidable at D.V.G.'s option. Nationwide was bound to the agreement

state statute vs. common law of that state

state statute

AOL made public personal info of members. Members filed suit alleging violations of Cali law. AOL asks courts to dismiss on basis of "forum-selection" clause within member agreement that designates VA courts for disputes. Under US Supreme Court, forum-selection clause is unenforceable. If court applies the doctrine of stare decisis will dismiss the suit?

yes

Schmidt owns a small business, has a large piece of used farm equipment for sale. He offers to sell to Barry for $10,000. Schmidt dies prior to acceptance, and at the time he accepts, Barry is unaware of the death.

Death of either party automatically terminates offer

Leo loaned Lewis $100000. Lewis made 15 payments, but not then entire amount. More than 10 years after the loan, but less than 2 after the last payment, Leo filed a suit agains Lewis to recover the outstanding balance. Lewis claimed the suit was barred by a 10 year statute of limitations. Does Leo need to prove a new promise with new consideration to collect the unpaid debt?

No, Kranzler does not need to prove a new promise with new consideration to collect the unpaid debt. A statute of limitations requires a creditor to sue within a specified period to collect a debt. If the creditor fails to sue in time, recovery is barred by the statute. Even if recovery is barred by the statute, a debtor who promises to pay the debt makes an enforceable promise. This promise does not need new consideration. The promise extends the limitations period, and the creditor can sue to recover; Each one of the payments triggered a new ten-year limitation period. Kranzler filed his suit less than two years after the date of the last payment. This was well within the time limit.

Rabe is suing Sanchez for breaching contract in which Sanchez promised to sell Rabe a painting by Vincent Van Gogh for $30 million. Rabe wants to cancel the contract because Sanchez fraudulently misrepresented the painting as an original Van Gogh when in fact it is a copy. What remedy would Rabe seek?

Recisssion

Yeagle is an Asst. to the VP of student affairs at VA tech. The student newspaper published an article about the success of a program that Yeagle assisted with. There was a block quotation attributed to Yeagle with the phrase "Dir. of Butt Licking". Yeagle sued for defamation. What is the paper's defense?

The newspaper's defense was that the statement was not actionable defamation because it did not convey any factual information about Sharon Yeagle. The court noted that the phrase was disgusting and in extremely bad taste, but agreed with the newspaper.

Access hired Andy to sell produce. Andy signed an agreement not to compete with Access for 2 years following termination of his employment. He did not receive a pay increase or any other new benefits in return for signing. When Access encountered financial trouble, Andy left and began to compete with his former employee. Access filed a lawsuit. Is the noncompete agreement enforceable?

The non-compete agreement fails for lack of consideration. Promises made in return for actions that have already taken place are unenforceable. They lack consideration because the element of bargained-for exchange is missing;

Brendan created and marketed Clinex, a software billing program. Retina, a medical practice hired Brendan as a software engineer. Together they created Clinex-Re. Brendan signed an agreement stating he owned Clinex and Retina owned Re and he would not market in competition to Retina. After he quit he withdrew funds from Retina account and marketed both softwares. At trial the court entered a judgment enjoining (preventing) Brendan from marketing the software that was in competition and obligated Brendan to return the taken funds. Coleman appealed.

A. The appellate court did not uphold the non-compete clause because it was invalid and unenforceable because it contained no time or territorial limitations. B. Quite clearly, Coleman had converted funds that were in a joint account that the company and Coleman had used. Therefore, it was reasonable for the court to require return of these funds. C. Coleman's unethical behavior upon leaving the company's employ probably was a convincing factor in both the trial and the reviewing courts' decisions.

Voluntary versus Involuntary Bankruptcy: Burke has been a rancher all her life, raising cattle and crops. Her ranch is valued at $500,000, almost all of which is exempt under state law. Burke has eight creditors and a total indebtedness of $70,000. Two of her largest creditors are Oman ($30,000 owed) and Sneed ($25,000 owed). The other six creditors have claims of less than $5,000 each. A drought has ruined all of Burke's crops and forced her to sell many of her cattle at a loss. She cannot pay off her creditors. (See page 600.) (a) Under the Bankruptcy Code, can Burke, with a $500,000 ranch, voluntarily petition herself into bankruptcy? Explain.

Any person, including a rancher or farmer, can voluntarily petition himself or herself into bankruptcy. The person has only to be a debtor. This includes partnerships and corporations that are liable on a claim held by a creditor, as well as individuals. The debtor does not have to be insolvent to file a petition. Under the Code, a debtor is presumed to be insolvent when his or her debts exceed the fair market value of nonexempt assets. Thus, even though Burke owns a $500,000 ranch and has debts of only $70,000, she can voluntarily petition herself into bankruptcy.

Simmons finds a stone in his pasture he believes to be quartz. Jenson who also believes it contracts to purchase it for $10. Just before delivery the stone is discovered to be a diamond worth $1000

Because both parties were mistaken as to the true character of the subject matter, the contract can be rescinded by either;

David Desgro hired Paul to inspect a house that he wanted to buy. Pack had David sign a standard form contract that included a 12 month limit for claims based on the agreement. Pack reported that the house had no major problems ,but after David bought it he discovered issues with the plumbing, insulation, heat pump and floor support. 13 months after the inspection David filed a suit in TN against Paul. Was his complaint too late?

Desgro's complaint was filed too late—the contract's twelve-month limit was enforceable.

The Kleins were injured when a fireworks display went astray and exploded near them. They sued the pyrotechnic company that was hired to set up and discharge the fireworks. The Kleins alleged that the company should be strictly liable for the damages caused. Will the court agree? What factors will the court consider?

Furthermore, no matter how much care pyrotechnicians exercise, they cannot entirely eliminate the high risk inherent in setting off powerful explosives such as fireworks near crowds; The court agreed with the Kleins, applying the rule that "any party carrying on an 'abnormally dangerous activity' is strictly liable for ensuing damages."

Estrada Hermanos, Inc., a corporation incorporated and doing business in Florida, decides to sell $1 million worth of its common stock to the public. The stock will be sold only within the state of Florida. José Estrada, the chair of the board, says the offering need not be registered with the Securities and Exchange Commission. His brother, Gustavo, disagrees. Who is right? Explain.

Gustavo is right. Under Section 3(a)(11) of the Securities Act of 1933, stock offerings that are restricted to residents of the state in which the issuing company is organized and doing business are exempt from registration requirements. Therefore, the Estrada Hermanos offering need not be registered with the SEC. The offering will, however, be subject to state securities legislation. Unless it qualifies for exemption from state registration requirements, the stock offering will have to be registered with the appropriate state official.

GeoEx requires climbers to sign a release to participate in an expedition. The form mandated the arbitration of any dispute in San Fran and limited damages to the cost of the trip. GeoEx told climbers the terms were nonnegotiable and the same for other travel firms. Jason died on a climb. His mother filed a suit and GeoEx sought arbitration. Was the arbitration clause unconscionable?

Here, GeoEx told customers that the arbitration terms in its release form were nonnegotiable and that climbers would encounter the same requirements with any other travel company. This amounted to procedural unconscionability, underscoring the customers' lack of bargaining power. The imbalance resulted in oppressive terms, with no real negotiation and an absence of meaningful choice. Furthermore, the restriction on forum (San Francisco) and the limitation on damages (the cost of the trip)—with no limitation on GeoEx's damages—amounted to substantive unconscionability. In the actual case on which this problem is based, the court ruled that the agreement was unconscionable.

Michael Scotto borrowed $2,970 from Cindy Vinueza. Both of their signatures appeared at the bottom of a note that stated, "I Michael Scotto owe Cindy Vinueza $2,970 (two thousand and nine-hundred & seventy dollars) & agree to pay her back in full. Signed on this 26th day of September 2009." More than a year later, Vinueza filed a suit against Scotto to recover on the note. Scotto admitted that he had borrowed the funds, but he contended—without proof—that he had paid Vinueza in full. Is this note negotiable? Which party is likely to prevail? Why?

In order for the note to be negotiable it must be in writing, be signed by the maker or drawer, be an unconditional promise or order to pay, state a fixed amount of money, be payable on demand or a definite time, and be payable to order or bearer (unless it is a check) - it is a promissory note (negotiable) Vineuza is likely to prevail because she has evidence of the promise, and Scotto admitted he borrowed the money but he had no proof that he paid the note

Timothy Martinez, owner of Koenig & Vits, Inc. (K&V), guaranteed K&V's debt to Community Bank & Trust. The guaranty stated that the bank was not required to seek payment of the debt from any other source before enforcing the guaranty. K&V defaulted. Through a Wisconsin state court, the bank sought payment of $536,739.40, plus interest at the contract rate of 7.5 percent, from Martinez. Martinez argued that the bank could not enforce his guaranty while other funds were available to satisfy K&V's debt. For example, the debt might be paid out of the proceeds of a sale of corporate assets. Is this an effective defense to a guaranty?

No, Martinez's argument that the bank could not enforce his guaranty while other funds were available to satisfy K&V's debt—for example, that the debt might be paid out of the proceeds of a sale of corporate assets—is not an effective defense to the guaranty in the Community case. The guaranty contract terms determine the extent and time of the guarantor's liability. Thus, a defense such as Martinez asserted might be defeated by the language of the guaranty—for example, it might state or indicate that payment is "unconditionally guaranteed" or that the creditor "is not required to seek payment of the principal's debt from any other source to enforce the guaranty."

David Hall, a convicted sex offender in New York, moved to Virginia, where he did not update his registration. He was charged with violating SORNA. He claimed that the statute is unconstitutional, arguing that Congress cannot criminalize interstate travel if no commerce is involved. Is that reasonable? Why or why not?

SORNA—which makes it a crime for a sex offender to fail to re-register as an offender when he or she travels in interstate commerce—is a legitimate exercise of congressional authority under the commerce clause. In the actual case on which this problem is based, a federal district court dismissed Hall's indictment. On the government's appeal, the U.S Court of Appeals for the Second Circuit reversed the dismissal and remanded the case for further proceedings, based on the reasoning stated above.

Monica Sexton filed a petition for Chapter 13 reorganization. One of her creditors was Friedman's Jewelers. Her petition misclassified Friedman's claim as $800 of unsecured debt. Within days, Friedman's filed proof of a secured claim for $300 and an unsecured claim for $462. Eventually, Friedman's was sent payments of about $300 by check. None of the checks were cashed. By then, Friedman's had filed its own petition under Chapter 11, Bankruptcy Receivables Management (BRM) had bought Friedman's unpaid accounts, and the checks had not been forwarded. Sexton received a discharge on the completion of her plan. BRM was not notified. BRM wrote to Sexton's attorney to ask about the status of her case, but received no response. BRM demanded that Sexton surrender the collateral on its claim. Sexton asked the court to impose sanctions on BRM for violating the discharge order. Was Sexton's debt to Friedman's dischargeable? Should BRM be sanctioned?

Sexton's debt to Friedman's was dischargeable. It does not fall into any of the categories of exceptions or objections to discharge. Because the debt was discharged, a creditor's attempt to collect it is prohibited. BRM tried to collect the debt after Sexton's discharge. But there were mitigating circumstances. There were the mistakes with respect to Sexton's debt to Friedman's—the misclassification of the claim and the failure to forward the payment checks, for example. BRM was not notified of Sexton's discharge. BRM wrote to her attorney to ask about the status of her case, but received no response. It does not appear that Sexton suffered any harm from BRM's contact. These circumstances indicate that BRM was not aware its contact with Sexton would violate a discharge order. Thus, without more, BRM should most likely not be sanctioned.

After submitting the high bid at a foreclosure sale, David Simard entered into a contract to purchase real property in Maryland for $192,000. Simard defaulted (failed to pay) on the contract. A state court ordered the property to be resold at Simard's expense, as required by state law. The property was then resold for $163,000, but the second purchaser also defaulted on his contract. The court then ordered a second resale, resulting in a final price of $130,000. Assuming that Simard is liable for consequential damages, what is the extent of his liability? Is he liable for losses and expenses related to the first resale? If so, is he also liable for losses and expenses related to the second resale?

Simard is liable only for the losses and expenses related to the first resale. Simard could reasonably anticipate that his breach would require another sale and that the sales price might be less than what he agreed to pay. Therefore, he should be liable for the difference between his sales price and the first resale price ($29,000), plus any expenses arising from the first resale. Simard is not liable, however, for any expenses and losses related to the second resale. After all, Simard did not cause the second purchaser's default, and he could not reasonably foresee that default as a probable result of his breach.

Rabe is suing Sanchez for breaching contract in which Sanchez promised to sell Rabe a painting by Vincent Van Gogh for $30 million. Rabe wants Sanchez to perform the contract as promised. What remedy would Rabe seek from the court?

Specific Performance

William and Maxine Miller were shareholders of Claimsco International, Inc. They filed a suit against the other shareholders, Michael Harris and Kenneth Hoxie, and the accountant who worked for all of them—John Verchota. The Millers alleged that Verchota had breached a duty that he owed them. They claimed that at Harris's instruction, Verchota had adjusted Claimsco's books to maximize the Millers' financial liabilities, falsely reflect income to them without actually transferring that income, and unfairly disadvantage them compared to the other shareholders. Which duty are the Millers referring to? If the allegations can be proved, did Verchota breach his duty? Explain

The Millers are referring to the duty of loyalty that an agent owes a principal. And yes, if the Millers can prove their allegations, Verchota was in breach of this duty. The Millers might also allege that Verchota breached the agent's duty of notification. Under the duty of loyalty, an agent has the duty to act solely for the benefit of his or her principal. Under the duty of notification, an agent is required to notify the principal of all matters that come to her or his attention concerning the subject matter of the agency.

Forged Signatures: Roy Supply, Inc., and R. M. R. Drywall, Inc., had checking accounts at Wells Fargo Bank. Both accounts required all checks to carry two signatures—that of Edward Roy and that of Twila June Moore, both of whom were executive officers of both companies. Between January 2009 and March 2010, the bank honored hundreds of checks on which Roy's signature was forged by Moore. On January 31, 2011, Roy and the two corporations notified the bank of the forgeries and then filed a suit in a California state court against the bank, alleging negligence. Who is liable for the amounts of the forged checks?

The UCC requires customers to discover and report forgeries to their banks within one year of the time the checks and a statement of account showing payment of the checks are made available to the customer Roy and the two corporations can only be held liable for the amounts of any forged checks that were reported less than one year after the bank statement showing payment of the checks.

Main Co agrees to buy Merrick's crops of blueberries under a contract that left the price unliquidated. Merrick delivers, but there is a dispute over price. Maine sent a check saying it was the final settlement. Merrick cashed the check but filed for breach of contract, claiming that he was owed more. What will the court likely decide?

The accord and satisfaction created by Merrick's cashing the check would bar any recovery. An accord and satisfaction is created by cashing a check that is accompanied by a letter with restrictive language. In this case, the language in the letter is unambiguous

Hartford Mutual Insurance Co. issued a check for $60,150 payable to "Andrew Michael Bogdan, Jr., Crystal Bogdan, Oceanmark Bank FSB, Goodman-Gable-Gould Company." The check was to pay a claim related to the Bogdans' commercial property. Besides the Bogdans, the payees were the mortgage holder (Oceanmark) and the insurance agent who adjusted the claim. The Bogdans and the agent indorsed the check and cashed it at Provident Bank of Maryland. Meanwhile, Oceanmark sold the mortgage to Pelican National Bank, which asked Provident to pay it the amount of the check. Provident refused. Pelican filed a suit in a Maryland state court against Provident, arguing that the check had been improperly negotiated. Was this check payable jointly or in the alternative? Whose indorsements were required to cash it? In whose favor should the court rule?

The court granted a summary judgment in favor of Provident. Pelican appealed to the Maryland Court of Appeals, the state's highest court, which affirmed the lower court's judgment. The subject check was drawn to the order of three payees, listed in stacked format, with no grammatical connector, punctuation or symbol indicating their relationship or how the check was intended to be paid Accordingly, we further hold, it was proper for the appellee to have negotiated the check . . . . The indorsement of any one of the payees was sufficient.

Frances Morelli agreed to sell Judith Bucklin a house in Rhode Island for $177,000. The sale was supposed to be closed by September 1, when the parties were to exchange the deed for the price. The contract included a provision that "if Seller is unable to convey good, clear, insurable, and marketable title, Buyer shall have the option to: (a) accept such title as Seller is able to convey without reduction of the Purchase Price, or (b) cancel this Agreement and receive a return of all Deposits." An examination of the public records revealed that the house did not have marketable title. Bucklin offered Morelli additional time to resolve the problem, and the closing did not occur as scheduled. Morelli decided "the deal is over" and offered to return the deposit. Bucklin refused and, in mid-October, decided to exercise her option to accept the house without marketable title. She notified Morelli, who did not respond. She then filed a lawsuit against Morelli in a state court. A second group will assume that Morelli did breach the contract and will determine what the appropriate remedy is in this situation.

The court should order the remedy of specific performance. Specific performance is an available remedy when a purchaser of real estate under a written contract demonstrates that he or she was at all times ready and willing to perform the contract or when a party unjustifiably refuses or fails to perform under the agreement. In this case, a valid agreement existed and Bucklin was ready, willing, and able to pay the price and accept the property with its title as is.

Schmidt owns a small business, has a large piece of used farm equipment for sale. He offers to sell to Barry for $10,000. Barry pays $100 for a 30 day option to purchase the equipment. During the period, Schmidt dies and later Barry accepts offer knowing of Schmidt's death.

When the offer is irrevocable, under an option contract, death of the offeror does not terminate the option contract, and the offeree can accept the offer to sell the equipment, binding the offeror's estate to performance. Performance is not personal to Schmidt, as the estate can transfer title to the equipment.

Janine hospitalized with severe ab pain and placed in ICU. Dr. told nurses to order around-the-clock nursing car for her. Nursing Services Unlimited provided 2 weeks in-hospital care and 2 weeks additional care once Janine was back home. During the at-home period, Janine was fully aware that she was receiving these services. Nursing Services billed her $4000, and she refused to pay on the ground that she had never contracted for the services, either orally or in writing. In view of the fact that no express contract was ever formed, can Nursing Services recover the $4,000 from Janine? If so, under what legal theory?

This is known as a quasi contract and provides a basis for Nursing Services to recover the value of the services it provided while Janine was in the hospital; As for the at-home services that were provided to Janine, because Janine was aware that those services were being provided for her, Nursing Services can recover for those services under an implied-in-fact contract;

For employment with Firestorm Smokejumpers, crew of elite paratroopers, applicants must complete a series of tests. The crew chief sends an acceptance letter to the most qualified candidates. Jake received a letter and passed the exams, but a new crew chief changes the selection process and rejects him. Is there a contract b/w Jake and Firestorm? What type if so?

This was a unilateral contract. Here, Scott accepted the offer by passing the medical exam. Firestorm breached the contract when the new crew chief rejected Jake, who had already received the offer and accepted it. The appropriate remedy would be to allow Jake to attend Firestorm's training sessions.

Juan lives with his nephew, Sam and is totally dependent on his support. Sam tells Juan that unless he transfers land that he owns to him for 35% below market value, Sam will no longer support him. Juan enters into a contract. Can Juan set aside this contract?

Undue influence arises from a relationship in which one party can, through unfair persuasion, greatly influence or overcome the free will of another; Any contract entered into under excessive or undue influence lacks genuine assent and is therefore voidable

Vaks and Mangano had a written contract with Ryan and her Auction company to auction their furnishings. The 6 page contract provided a very detailed summary. After a falling out Vaks and Mangano sued Ryan for Breach of Contract. They asserted that before the executed the contract Ryan made various oral representations that were inconsistent with the written terms. Assuming their written contract is valid, can they recover for a breach of oral contract?

Vaks and Mangano may not recover for breach of an oral contract. Under the parol evidence rule, if there is a written contract representing the complete and final statement of the parties' agreement, a party may not introduce any evidence of past agreements.

Ralph had car and house insurance through Allstate. Bank of America had a mortgage on the house and paid the premiums on the homeowner's policy from Ralph's account. After Ralph died, Allstate cancelled the car insurance, but the bank continued to pay house. Doug inherited the house. When a fire destroyed the house, Allstate denied coverage claiming the policy was still in Ralph's name. Douglas filed a suit in fed court. Was Allstate liable?

Yes, Allstate was liable under the homeowner's policy. A contract that is implied from the conduct of the parties; the homeowner's policy was a mix of express and implied terms. As for the elements showing the existence of the implied terms, the payments for the premiums on the policy continued after Ralph's death, but the amounts were paid from Douglas's account. Undoubtedly, Douglas expected to receive coverage under the policy in return for his payments.

With a loan of 1.4 million euros from Barclays Bank, PLC, Thomas Poynter bought a yacht. The loan agreement gave Barclays multiple stand-alone options on default. One option required the lender to give ten days' advance notice of a sale. A different option permitted the lender to avoid this requirement. When Poynter did not repay the loan, Barclays repossessed the yacht, notified Poynter that it would be sold—but did not specify a date, time, or place—and sold the yacht two months later. The sale price was less than Poynter owed, and Barclays filed a suit in a federal district court for the deficiency. Is Barclays entitled to collect even though it did not give Poynter ten days' advance notice of the sale?

Yes, Barclays was entitled to collect even though it did not give Poynter ten days' advance notice of the sale. A loan agreement, like any contract, must be interpreted according to the plain and obvious meaning of its terms.

After World War II, several Nazis were convicted of "crimes against humanity" by an international court. Assuming that these convicted war criminals had not disobeyed any law of their country and had merely been following their government's orders, what law had they violated? Explain

natural law: legal systems should reflect the moral and ethical ideals that are inherent in human nature

Costello hires Sagan to race a car. Gideon, Sagan's friend, promises to pay$3000 if Sagan wins. He wins, and Gideon refused to pay. Sagan sued for breach of contract. What rule would support Gideon?

no contract existed because Sagan had given no consideration for Gideon's promise—is supported by the preexisting duty rule.

Ford Motor Credit Co. is a subsidiary of Ford Motor Co. with its own offices, officers, and directors. Ford Credit buys contracts and leases of automobiles entered into by dealers and consumers. Ford Credit also provides inventory financing for dealers' purchases of Ford and non-Ford vehicles and makes loans to Ford and non-Ford dealers. Dealers and consumers are not required to finance their purchases or leases of Ford vehicles through Ford Credit. Ford Motor is not a party to the agreements between Ford Credit and its customers and does not directly receive any payments under those agreements. Also, Ford Credit is not subject to any agreement with Ford Motor "restricting or conditioning" its ability to finance the dealers' inventories or the consumers' purchases or leases of vehicles. A number of plaintiffs filed a product liability suit in a Missouri state court against Ford Motor. Ford Motor claimed that the court did not have venue. The plaintiffs asserted that Ford Credit, which had an office in the jurisdiction, acted as Ford's "agent for the transaction of its usual and customary business" there. Is Ford Credit an agent of Ford Motor?

A corporation does not become an agent of another corporation merely because a majority of its voting shares is held by the other. Therefore, an agency relationship between a parent and its subsidiary may only be established if the elements of an agency relationship exist Ford Motor is not a party to any of Ford Credit's financing contracts and that Ford Credit is not subject to any agreement with Ford Motor "restricting or conditioning" its ability to finance the dealers' inventories or the customers' purchases or leases of vehicles.

Jr owes creditor Iba $1,000, which due and payable on June 1. Jr has been in a car accident, missed a lot of work and will not have funds on June 1. Jrs father, Fred, offers to pay Iba $1100 in four equal installments if Iba will discharge Jr from any further liability on the debt. Iba accepts. Is this transaction a novation or an accord and satisfaction.

A novation exists when a new, valid contract expressly or impliedly discharges a prior contract by the substitution of a party. Accord and satisfaction exists when the parties agree that the original obligation can be discharged by a substituted performance. In this case, Fred's agreement with Iba to pay off Junior's debt for $1,100 (as compared to the $1,000 owed) is definitely a valid contract. The terms of the contract substitute Fred as the debtor for Junior, and Junior is definitely discharged from further liability. This agreement is a novation.

Peaslee is not known for his business sense. He started a greenhouse and nursery business two years ago, and because of his lack of experience, he soon was in debt to a number of creditors. On February 1, Peaslee borrowed $5,000 from his father to pay some of these creditors. On May 1, Peaslee paid back the $5,000, depleting his working capital. One creditor, the Cool Springs Nursery Supply Corp., had extended credit to Peaslee on numerous purchases. Cool Springs pressured Peaslee for payment, and on July 1, Peaslee paid Cool Springs half the amount owed. On September 1, Peaslee voluntarily petitioned himself into bankruptcy. The trustee in bankruptcy claims that both Peaslee's father and Cool Springs must turn over to the debtor's estate the amounts Peaslee paid to them. Discuss fully the trustee's claims.

A trustee is given avoidance powers by the Bankruptcy Code One situation in which the trustee can avoid transfers of property or payments by a debtor to a creditor is when such transfer constitutes a preference. A preference is a transfer of property or payment that favors one creditor over another. For a preference to exist, the debtor must be insolvent and must have made payment for a preexisting debt within ninety days of the filing of the petition in bankruptcy. the trustee has an excellent chance of having both payments declared preferences. The payment to Cool Springs was within ninety days of the filing of the petition, and it is doubtful that Cool Springs could overcome the presumption that Peaslee was insolvent at the time the payment was made. The $5,000 payment was made to an insider, Peaslee's father, and any payment made to an insider within one year of the petition of bankruptcy is a preference—as long as the debtor was insolvent at the time of payment

Bret was an experienced skier when he rented equipment to ski at Hunter Mountain Ski Bowl in NY. Bret entered a difficult trail and immediately noticed it was mostly ice, not snow. Tried to exit by making a sharp right turn, but his left ski snapped off. he lost his balance, fell and slid down the mountain striking his face and head against a fence along the trail. According to a report by a rental shop employee, one of the bindings on Bret's skis had a "cracked heel housing." Bret filed a lawsuit against the bindings' manufacturer on a theory of strict product liability. The manufacturer filed a motion for summary judgment.

A. The court should grant the manufacturer's motion for summary judgment and dismiss D'Auguste's complaint; no proof that the crack was substantial enough to cause the ski to come off; no proof that the crack was in the binding attached to the ski; no evidence that the crack constituted a defect; the "snap off" of the left ski may have been caused, not by a defect in the binding, but by negligence in the setting of the bindings. B. The court should deny the manufacturer's motion for summary judgment and allow D'Auguste's claim to proceed. Despite the lack of proof with respect to the cracked heel housing noted in the previous answer, D'Auguste could still shoe that there was a defect in the binding and succeed in his action if he could prove that the product did not perform as intended and exclude all other causes for the product's failure that are not attributable to the defendant.

Paul Gett is a well-known, wealthy financial expert living in the city of Torris. Adam Wade, Gett's friend, tells Timothy Brown that he is Gett's agent for the purchase of rare coins. Wade even shows Brown a local newspaper clipping mentioning Gett's interest in coin collecting. Brown, knowing of Wade's friendship with Gett, contracts with Wade to sell a rare coin valued at $25,000 to Gett. Wade takes the coin and disappears with it. On the payment due date, Brown seeks to collect from Gett, claiming that Wade's agency made Gett liable. Gett does not deny that Wade was a friend, but he claims that Wade was never his agent. Discuss fully whether an agency was in existence at the time the contract for the rare coin was made.

Agency is usually a consensual relationship in that the principal and agent agree that the agent will have the authority to act for the principal, binding the principal to any contract with a third party. If no agency in fact exists, the purported agent's contracts with third parties are not binding on the principal. In this case, no agency by agreement was created. Brown may claim that an agency by estoppel was created; however, this argument will fail. Agency by estoppel is applicable only when a principal causes a third person to believe that another person is the principal's agent.

Suppose that the trial court finds in Rabe's favor and grants one of these remedies. Sanchez then appeals the decision to a higher court. On appeal, which party will be the appellant (or petitioner), and which party will be the appellee (or respondent)?

Appellant- Sanchez; Appellee- Rabe

While gambling at PMC, Troy became angry and smashed a slot machine. He was banned. He came back despite the ban and won $9387. When he tried to collect his winnings, the casino refused to pay. Troy filed a suit for breach of contract, arguing they had a contract because he had accepted its offer to gamble. Did they have a contract?

Blackford had been banned for life from the casino. ... Under an objective test, unless the ban had been lifted, Blackford could not have reasonably believed he was among the class of individuals invited to accept Prairie Meadows's offer. The jury found that the ban against Blackford had not been lifted, and, therefore, Prairie Meadows had not extended him an offer to wager. Because there was no offer to him, no contract could result

Ready Foods contracts to buy two hundred carloads of frozen pizzas from Speedy Distributors. Before Ready or Speedy starts performing, can the parties call off the deal? What if Speedy has already shipped the pizzas? Explain your answers.

Contracts that are executory on both sides—contracts on which neither party has performed—can be rescinded solely by agreement. Contracts that are executed on one side—contracts on which one party has performed—can be rescinded only if the party who has performed receives consideration for the promise to call off the deal. Thus, in this question, if neither party starts to perform, the deal can be rescinded solely by agreement. If Speedy already shipped the pizzas, however, the contract can be rescinded only if Speedy receives consideration to call off the deal.

What is diversity of citizenship?

Diversity of citizenship exists when the plaintiff and defendant to a suit are residents of different states (or similar independent political subdivisions, such as territories). When a suit involves multiple parties, they must be completely diverse—no plaintiff may have the same state or territorial citizenship as any defendant. For purposes of diversity, a corporation is a citizen of both the state in which it is incorporated and the state in which its principal place of business is located.

Dodona I, LLC, invested $4 million in two securities offerings from Goldman, Sachs & Co. The investments were in collateralized debt obligations (CDOs). Their value depended on residential mortgage-backed securities (RMBS), whose value in turn depended on the performance of subprime residential mortgages. Before marketing the CDOs, Goldman had noticed several "red flags" relating to investments in the subprime market, in which it had invested heavily. To limit its risk, Goldman began betting against subprime mortgages, RMBS, and CDOs, including the CDOs it had sold to Dodona. In an internal e-mail, one Goldman official commented that the company had managed to "make some lemonade from some big old lemons." Nevertheless, Goldman's marketing materials provided only boilerplate statements about the risks of investing in the securities. The CDOs were later downgraded to junk status, and Dodona suffered a major loss while Goldman profited. Assuming that Goldman did not affirmatively misrepresent any facts about the CDOs, can Dodona still recover under SEC Rule 10b-5?

Even if Goldman did not affirmatively misrepresent any facts about the CDOs, Dodona can recover if Goldman failed to disclose material facts. An omission is regarded as material if it is significant enough that it would have affected an investor's decision concerning the securities. Here, Dodona might recover by showing that Goldman did not fully disclose the risks of investing in the CDOs. Goldman may have misled Dodona by providing only boilerplate statements about investments that it knew were particularly risky.

Lothar has been trying to get a contract with Martha. Starts advertising campaign. Campaign is so persuasive that Martha tries to break current contract. Is Lothar liable for the tort of wrongful interference with a contractual relationship? Is Martha liable for this tort?

Even though Lothar hoped that his advertisements would persuade Martha to break her contract with Harley, the question states that Martha's decision to change bakers was based solely on the advertising and not on anything else that Lothar did. Lothar's advertisements did not constitute a tort. Note, though, that while Harley cannot collect from Lothar for Martha's actions, he does have a cause of action against Martha for her breach of their contract.

Rob, a sports marketing expert, met with George the owner of the NY Yankees to discuss th Yankees Entertainment and Sports Network (YES). Rob was paid as a consultant. later he filed a suit seeking an ownership share in YES. There was no written contract for the share, but he claimed that there were discussions about this being a part owner. Does Rob have a valid claim for payment?

Gutkowski does not have a valid claim for payment, nor should he recover on the basis of a quasi contract. Quasi contracts are imposed by courts on parties in the interest of fairness and justice; Gutkowski was compensated as a consultant; his claim was dismissed

Farr signed a purchase agreement to buy a building owned by Berenstein for $2 million. They deposited $115000 toward the purchase. Before the deal closed, an environmental assessment of the property indicated the presence of chemicals used in dry cleaning which reduced its value. Do the Farr's have a good argument for the return of their deposit and rescission of the contract?

Here rescission is appropriate because the contracting parties were mutually mistaken as to the condition of the property.

Brenda signed a document that purported to compel arbitration of any disputes that she might have with the chiefs on her first day of work. IN the doc, she agreed to comply at all times with and be bound by the constitution and bylaws of the NFL. SHe agreed to refer all disputes to the commissioner for a binding decision. On the commissioner's decision she agreed to release the chiefs and other from any related claims. Nowhere in the doc did the Chiefs agree to do anything. Was their consideration for the arbitration provision?

In this problem, the arbitration "agreement" contains promises made only by Sniezek; there was no consideration for the arbitration provision. Consideration is required to create a bilateral contract. Consideration is something of legally sufficient value given in return for a promise;

Lemen referred to Aric's wife as "Madam *****" and told neighbors that the owners were involved in illegal drugs and prostitution. Lemen told the inn's bartender Ewa Cook that Cook "worked for Satan." She repeated her statements to potential customers, and the inn's sales dropped more than 20 percent. The inn filed a suit against Lemen. Are her statements protected?

In the Balboa case, the court issued an injunction against Lemen, ordering her to, among other things, stop making defamatory statements about the Inn. On appeal, a state intermediate appellate court invalidated this part of the injunction, ruling that it violated Lemen's right to freedom of speech under the Constitution because it was a "prior restraint"—an attempt to restrain Lemen's speech before she spoke. On further appeal, the California Supreme Court phrased "the precise question before us [to be] whether an injunction prohibiting the repetition of statements found at trial to be defamatory violates the First Amendment." The court held it could enjoin the repetition of such statements without infringing Lemen's right to free speech.

Fidelity offers to hire Ron to replace Monica, who has given her one month notice. Fidelity gives Ron a week to accept. 2 days later, Monica decided not to quit and signs a contract for another year. Monica tells Ron of the contract and Ron immediately faxes a formal letter of acceptance. Do Fidelity and Ron have a contract?

No, an offer may be implied by conduct inconsistent with the offer. When the corporation hired someone else, and the offeree learned of the hiring, the offer was revoked. The acceptance was too late

Dyna tells Ed that she will pay him $1,000 to set fire to her store so that she can collect under a fire insurance policy. Ed sets fire to the store, but Dyna refuses to pay. Can Ed recover?

No, contract is illegal and therefore void.

Wooden sent an email to alderwoman that was threatening. Feeling threatened, the alderwoman called the police. Wooden was convicted of harassment under a state criminal statute. Was this conviction unconstitutional under the First Amendment?

No, speech that violates criminal laws is not protected under first amendment

Redford is a seller of electric generators. He purchases a large quantity of generators from a manufacturer, Mallon Corp., by making a down payment and signing an agreement to make the balance of payments over a period of time. The agreement gives Mallon Corp. a security interest in the generators and the proceeds. Mallon Corp. properly files a financing statement on its security interest. Redford receives the generators and immediately sells one of them to Garfield on an installment contract, with payment to be made in twelve equal installments. At the time of the sale, Garfield knows of Mallon's security interest. Two months later, Redford goes into default on his payments to Mallon. Discuss Mallon's rights against Garfield in this situation

Mallon has no rights at all in the generator possessed by Garfield. Mallon is entitled to proceeds (the payments Garfield is making to Redford), however.

American International Group, Inc. (AIG), an insurance company, issued a check to Jermielem Merriwether in connection with a personal injury matter. Merriwether presented the check to A-1 Check Cashing Emporium for payment. A-1's clerk forgot to have Merriwether sign the check. When he could not reach Merriwether and ask him to come back to A-1 to sign the check, the clerk printed Merriwether's name on the back and deposited the check for collection. When the check was not paid, A-1 sold it to Robert Triffin, who is in the business of buying dishonored checks. When Triffin could not get the check honored, he sued AIG, contending that he, through A-1, had the right to collect on the check as a holder in due course (HDC). The trial court rejected that claim. Triffin appealed. On what basis could he claim HDC status?

Neither Triffin nor A-1 could claim holder in due course status and therefore had no right to have the check cashed. Merriwether never signed the check. Even though this was apparently just an oversight, the printing of his name on the check by an A-1 employee was not a proper signature, so there was no requirement that it be paid.

David bought a new Ford truck. 1 year later the truck spontaneously caught fire in the driveway. Truck was destroyed, no other other property damage and no one was injured. David filed a suit in Nebraska against Ford on a theory of strict liability to recover the cost of the truck. Nebraska limits the application of strict product liability to situations involving personal injuries. Is Chris's claim likely to succeed? Is there another basis for liability on which he might recover?

No, the claim is not likely to succeed; The purpose of strict product liability is to ensure that the costs of injuries resulting from defective products are borne by the manufacturers rather than by the injured persons. Recovery can be sought on a contract theory for breach of warranty. Product value and quality are the purposes of warranties. Thus, even though the court is likely to deny Dobrovolny's strict product liability claim, he might seek to recover for breach of warranty on contract principles for the loss of his truck. If there were no express warranties that the truck would not spontaneously combust, relief may be possible for breach of the implied warranty of merchantability or fitness for a particular purpose. In the actual case on which this problem is based, the court issued a decision in Ford's favor.

Huron Corp. has 300,000 common shares outstanding. The owners of these outstanding shares live in several different states. Huron has decided to split the 300,000 shares two for one. Will Huron Corp. have to file a registration statement and prospectus on the 300,000 new shares to be issued as a result of the split? Explain

No. Under federal securities law, a stock split is exempt from registration requirements. This is because no sale of stock is involved. The existing shares are merely being split, and no consideration is received by the corporation for the additional shares created.

Joan who is 16 years old, moves out of her parents' home and signs a 1-year lease at Kenwood. Joan's parents tell her she can move home anytime. Unable to pay rent, Joan moves back to her parents' 2 months later. Can Kenwood enforce the lease?

Nope, she is a minor; contract is voidable at her option

Negotiable instruments: Sabrina writes "I, the undersigned do hereby acknowledge that I owe Leo $1000, with interest, payable out of the proceeds of the sale of my horse next month. Payment is to be made on or before six months from date" Discuss why this is not a negotiable instrument.

Not signed by the maker Maker did not make a definite promise to pay, she only acknowledged debt Note is not payable at a definite time as the note is undated Note is payable only to Leo and not his order or bearer

Jabil Circuit, Inc., is a publicly traded electronics and technology company headquartered in St. Petersburg, Florida. In 2008, a group of shareholders who had owned Jabil stock from 2001 to 2007 sued the company and its auditors, directors, and officers for insider trading. Jabil's compensation for executives included stock options. Some stock options were backdated to a point in time when the stock price was lower, making the options worth more to certain company executives. Backdating is legal as long as it is reported, but Jabil did not report that backdating had occurred. Thus, expenses were understated and net income was overstated by millions of dollars. The shareholders claimed that by rigging the value of the stock options by backdating, the executives had engaged in insider trading. The shareholders also asserted that there was a pattern of stock sales by executives before unfavorable news about the company was reported to the public. The shareholders, however, had no specific information about these stock trades or when (or even if) a particular executive was aware of any accounting errors related to backdating. Were the shareholders' allegations sufficient to assert that insider trading had occurred under SEC Rule 10b-5?

No. These allegations are not sufficient to show a violation of Rule10b-5 for insider trading claims because the complaint was too general. The allegations were insufficient to state Section 10(b) and Rule 10b-5 insider trading claims against corporate insiders, who had traded in stock during the period when the corporation was allegedly underreporting its expenses due to its failure to treat backdated options that it granted to executives as compensation when problems at corporation allegedly prevented it from making its quarterly projections. Given the lack of any particular factual assertions indicating that any individual defendant knew about accounting errors at the time of trading, and the dearth of facts indicating any individual defendant's knowledge about problems during the relevant times, make the allegations insufficient to support a claim. Scienter of a kind required for a Section 10(b) or Rule 10b-5 insider trading claim necessarily requires that (1) insiders have possession of material, nonpublic information at time of insider trades and (2) specific allegations about trades must be made (and not a general attack on purchase and sale practices that are not specified).

Bertram writes a check for $200 payable to "cash." He puts the check in his pocket and drives to the bank to cash the check. As he gets out of his car in the bank's parking lot, the check slips out of his pocket and falls to the pavement. Jerrod walks by moments later, picks up the check, and later that day delivers it to Amber, to whom he owes $200. Amber indorsed the check "For deposit only, [signed] Amber Dowel" and deposits it into her checking account. In light of these circumstances, answer the following questions: (a) Is the check a bearer instrument or an order instrument? (b) Did Jerrod's delivery of the check to Amber constitute a valid negotiation? Why or why not? (c) What type of indorsement did Amber make? (d) Does Bertram have a right to recover the $200 from Amber? Explain

On issue yes it was a bearer instrument After indorsed by Amber - it was no longer a bearer instrument Yes - all that is required for the negotiation of a bearer instrument is voluntary delivery Restrictive No - drawer can not recover the proceeds from the person to whom the finder delivered the check but he can recover from the finder

Rabe is suing Sanchez for breaching contract in which Sanchez promised to sell Rabe a painting by Vincent Van Gogh for $30 million. Who is Plaintiff? Who is the Defendant?

Plaintiff- Rabe; Defendant- Sanchez

Hughes had a contract with Medtronic as a sales manager that prohibited him from working for a competitor for one year after leaving. St. Jude told Hughes his contract was unenforceable and offered him a job. Hughes accepted. Medtronic filed a suit, alleging wrongful interference. Which type of interference was most likely the basis for this suit? Did it occur here? Explain.

St. Jude offered Hughes a sales position that he was prohibited from accepting due to this agreement, and Hughes accepted the position before he had resigned from Medtronic. These actions by St. Jude resulted in Hughes's breach of his contract with Medtronic. St. Jude intentionally induced Hughes's breach of his Medtronic employment contract by making the offer that Hughes accepted. In the facts as stated in the problem, St Jude had nothing to show that its actions were justified. In the actual case on which this problem is based, the court held that Medtronic was entitled to judgment on the reasoning stated above. On appeal, a state intermediate appellate court affirmed this judgment.

In December 1999, Spacemakers of America, Inc., hired Jenny Triplett as a bookkeeper. Triplett was responsible for maintaining the company checkbook and reconciling it with the monthly statements from SunTrust Bank. She also handled invoices from vendors. Spacemakers' president, Dennis Rose, reviewed the invoices and signed the checks to pay them, but no other employee checked Triplett's work. By the end of her first full month of employment, Triplett had forged six checks totaling more than $22,000, all payable to Triple M Entertainment, which was not a Spacemakers vendor. By October 2000, Triplett had forged fifty-nine more checks, totaling more than $475,000. A SunTrust employee became suspicious of an item that required sight inspection under the bank's fraud detection standards, which exceeded those of other banks in the area. Triplett was arrested. Spacemakers filed a suit in a Georgia state court against SunTrust. The bank filed a motion for summary judgment. On what basis could the bank avoid liability? In whose favor should the court rule, and why?

SunTrust could argue that it should not be held liable for Spacemakers's loss on two grounds: Spacemakers failed to timely report the forgeries to the bank, and the bank did not fail to exercise ordinary care.

Before buying a house, Dean and Donna Testa hired Ground Systems, Inc. (GSI), to inspect the sewage and water disposal system. GSI reported a split system with a watertight septic tank, a wastewater tank, a distribution box, and a leach field. The Testas bought the house. Later, Dean saw that the system was not as GSI described—there was no distribution box or leach field, and there was only one tank, which was not watertight. The Testas arranged for the installation of a new system and sold the house. Assuming that GSI is liable for breach of contract, what is the measure of damages?

The Testas may recover compensatory damages and consequential damages for the breach of their contract with GSI. In the actual case on which this problem is based, the court issued a judgment in the Testas' favor on their claim.

A water pipe bursts, flooding a Metal Fabrication Company utility room and tripping the circuit breakers on a panel in the room. Metal Fabrication contacts Nouri, a licensed electrician with five years experience, to check the damage and turn the breakers back on. Without testing for short circuits, which Nouri knows that he should do, he tries to switch on a breaker. He is electrocuted and his wife sues Metal Fabrication for damages, alleging negligence. What might the firm successfully claim in defense?

The company might defend against this electrician's claim by asserting that the electrician should have known of the risk and, therefore, the company had no duty to warn. According to the problem, the danger is common knowledge in the electrician's field and should have been apparent to this electrician, given his years of training and experience. In other words, the company most likely had no need to warn the electrician of the risk. The firm could also raise comparative negligence. Both parties' negligence, if any, could be weighed and the liability distributed proportionately. The defendant could also assert assumption of risk, claiming that the electrician voluntarily entered into a dangerous situation, knowing the risk involved.

Kiwanuka signed an employment contract with Anne and moved to the US to work as a babysitter and maid. When she arrived, Anne confiscated her passport, held her in isolation and forced her to work long hours under the threat of being deported. K worked 7 days a week with no breaks and was subject to verbal and psych abuse. K filed a complaint against Anne for intentional infliction of emotional distress, among other claims. Anne wanted the complaint dismissed b/c allegations were insufficient. If you were the judge whose favor would you rule?

The court found that the facts alleged in the complaint, if true, were sufficient to establish Kiwanuka's claim of intentional infliction of emotional distress. There was evidence that Bakilana, on a daily basis, used her position of power and control over Kiwanuka to engage in an intentional pattern of outrageous verbal abuse against her. The complaint further alleged that Bakilana intentionally interfered with Kiwanuka's attempts to form relationships or acquaintances, thereby deepening Kiwanuka's suffering of isolation and distress. These allegations were sufficient to show extreme and outrageous conduct, intentionally committed, that resulted in severe emotional distress to Kiwanuka. Therefore, the court held that Kiwanuka's claim for intentional infliction of emotional distress could be tried.

Brandon was driving a golf car made by Textron, Inc to transport guests at a Christmas Party. Golf car didn't have lights, but there was a warning not to use it on public roads at night. When Brandon attempted to cross a road at 8:30 PM he was struck by Joe and was killed. His estate filed a suit against Textron, alleging strict product liability and product liability based on negligence. The charge was that the golf car was defective and unreasonably dangerous. What defense might Textron assert?

To establish a strict product liability claim, a plaintiff must show among other things that the product was in a defective condition, unreasonably dangerous to the user. For example, a bicycle is safer when it is equipped with lights, but a bicycle not so equipped is not defective and unreasonably dangerous. Textron could argue that the same reasoning could be applied here: the golf car was not defective and unreasonably dangerous merely because it did not have light; Textron could contend that the operation of an unlighted golf car on a public highway at night presents a commonly known risk; As for the negligence claim, there is similarly no duty to warn of a danger that is commonly known. Against the negligence claim, Textron might also assert a defense of comparative negligence, contending that Stroud was negligent in driving the unlit golf car at night on a public road. On these defenses, the court granted a summary judgment in Textron's favor. On the plaintiffs' appeal, a state intermediate appellate court affirmed.

Rim Corporation makes tire rims that it sells to Superior Vehicles, Inc., which installs them on cars. One set of rims is defective, which an inspection would reveal. Superior does not inspect the rims. The car with the defective rims is sold to Town Auto Sales, which sells the car to Uri. Soon, the car is in an accident caused by the defective rims, and Uri is injured. Is Superior Vehicles liable? Explain your answer.

Yes, A manufacturer is liable for its failure to exercise due care to any person who sustains an injury proximately caused by a negligently made (defective) product. In this problem, the failure.

Joli receives a letter from Kerin saying that he has a book at a certain price. Joli signs and returns the letter to Kerin. When Kerin delivers the book, Joli sends it back, claiming that they do not have a contract. Kerin claims they do. What standard determines whether these parties have a contract?

Under the objective theory of contracts, if a reasonable person would have thought that Joli had accepted Kerin's offer when she signed and returned the letter, then a contract was made, and Joli is obligated to buy the book.

Real Chocolate Company makes a box of candy and sells it to Sweet Things, Inc., a distributor. Sweet sells the box to a Tasty Candy store, where Jill buys it. Jill gives it to Ken, who breaks a tooth on a stone the same size and color as a piece of the candy. If Real, Sweet, and Tasty were not negligent, can they be liable for the injury? Why or why not?

Yes. Under the doctrine of strict liability, persons may be liable for the results of their acts regardless of their intentions or their exercise of reasonable care (that is, regardless of fault).

Negotiability: Juan writes the follow note on the back of an envelope "I promise to pay Katy or bearer $500 on demand" Is this a negotiable instrument and why or why not?

Yes - it is in writing, signed by the maker or drawer, an unconditional promise to pay, states a fixed amount, is payable on demand and is payable to bearer or order

Anne is a reporter for DBJ. She uses the internet for research. While visiting the Web site of Cyberspace Investments Corp, Anne reads a pop-up window that states, our business newsletter, E commerce Weekly is available at a 1 year subscription for a rate of $5 per issue. To subscribe enter your email. By subscribing you agree to terms and conditions. To read, click agreement. Anne enters her address, but does not read agreement. Has Anne entered into an enforceable contract to pay?

Yes, she chose not read the agreement button when she selected "subscribe

While driving on Interstate 40 in North Carolina, Carroll Jett became distracted by a texting system in the cab of his tractor-trailer truck. He smashed into several vehicles that were slowed or stopped in front of him, injuring Barbara and Michael Durkee and others. The injured motorists filed a suit in a federal district court against Geologic Solutions, Inc., the maker of the texting system, alleging product liability. Was the accident caused by Jett's inattention or the texting device? Should a manufacturer be required to design a product that is incapable of distracting a driver?

accident was caused by Jett's inattention, not the texting device; in a product liability case on design defect, the plaintiff has to prove the product was defective at the time of the accident; must also show the defective condition made it "unreasonably dangerous to the user; plaintiffs could arge that the manufacturer owed them a duty of care b/c injuries to vehicle drivers and passengers was reasonably foreseeable due to the products design; But manufacturers are not required to design a product incapable of distracting a driver; he duty owed by a manufacturer to the user or consumer of a product does not require guarding against hazards that are commonly known or obvious or protecting against injuries that result from a user's careless conduct

Under the doctrine of stare decisis, courts are obligated to follow the precedents established in their jurisdictions unless there is a compelling reason not to. Should U.S. courts continue to adhere to this common law principle, given that our government now regulates so many areas by statute?

even though more common law is being turned into statutory law, stare decisis is still valid; even statutes have to be interpreted by courts contrast: federal and state governments increasingly are regulating more aspects of commercial transactions between merchants and consumers, perhaps the courts should simply stick to statutory language when disputes arise

Joanne's family is worried she may have Alzheimer's disease. No diagnosis or court order. One day, Joanne enters into a 15 year installment contract for a grand piano. When it arrives, Joanne is confused and repeatedly asks why it is being delivered. She claims she does not recall the purchase. Explain whether the contract is void, voidable or valid.

her buying an expensive piano on a limited budget and repeated questioning of the delivery person seems to indicate incompetence. She has not yet apparently disaffirmed the contract, however. If she does, and it is determined that she is incompetent, the store's best defense might be that she was experiencing a lucid interval at the time of the purchase

Ohio University announced in a press conference that it had found "rampant and flagrant plagiarism" in the theses of mechanical engineering graduate students. Faculty singled out for "ignoring their ethical responsibilities" included Jay Gunasekera, chair of the department. Gunasekera was prohibited from advising students. He filed a suit against Dennis Irwin, the dean of Russ College, for violating his due process rights. What does due process require in these circumstances? Why?

question is what process is due to deprive a faculty member of this interest and in this case whether Gunasekera was provided it. When an employer inflicts a public stigma on an employee, the only way that an employee can clear his or her name is through publicity. The court held that Gunasekera was entitled to a public name-clearing hearing.

Kim borrowed 4750 from her sister to make a mortgage payment. Hours latered Kim asked to borrow 1100. Kris took a cash advance for this amount. When Kim didn't pay it back, Kris filed a suit arguing that she had "loaned" Kim thre money. Can the court impose a contract b/w the sisters?

the court in this case could impose a quasi contract to avoid the unjust enrichment of Kim at Kris's expense. To recover on this basis, one party must confer a benefit on another party, the other party must appreciate or know of the benefit, and the other party must retain the benefit under circumstances that would make it inequitable to do this without paying for it.

Weatherford Hotel in Arizona, in Room 59, a balcony extends across thirty inches of the room's only window, leaving a twelve-inch gap with a three-story drop to the concrete below. A sign prohibits smoking in the room but invites guests to "step out onto the balcony" to smoke. Toni was a guest when she climbed out of the window and fell to her death. Patrick McMurtry, her estate's personal representative, filed a suit against the Weatherford. Did the hotel breach a duty of care to Locario? What might the Weatherford assert in its defense? Explain.

the hotel owed her a duty of reasonable care to make its premises safe for her use; And it could be concluded that the hotel created or knew of the condition and failed to take reasonable steps to warn of it or correct it; Of course, the Weatherford might argue that the window/ balcony configuration was so obvious that the hotel was not liable for Lucario's fall; In the actual case on which this problem is based, the court concluded that the Weatherford did not breach its duty of care to Lucario. On McMurtry's appeal, a state intermediate appellate court held that this conclusion was in error, vacated the lower court's judgment in favor of the hotel on this issue, and remanded the case

Waldo makes out a negotiable promissory note payable to the order of Grace. Grace indorsed the note by writing on it "Without recourse, Grace" and transfers the note for value to Adam. Adam, in need of cash, negotiates the note to Keith by endorsing it with the words "Pay to Keith, Adam." On the due date, Keith presents the note to Waldo for payment, only to learn that Waldo has filed for bankruptcy and will have all debts (including the note) discharged. Discuss fully whether Keith can hold Waldo, Grace, or Adam liable on the note.

-From all the facts given, Keith qualifies as an HDC. He gave value, took in good faith, and was without notice of a defense, dishonor of the instrument, or of the instrument being overdue. Only real defenses claimed by a party are good as against an HDC. One such defense is a party's discharge in bankruptcy, as the purpose of bankruptcy is to settle finally all of the debtor's debts -Keith made a proper presentment (presented the note to Waldo for payment on the due date); the instrument was not paid (it was dishonored); and if Keith gives Adam notice of this dishonor within thirty business days of dishonor (three business days under the unrevised Article 3), Adam is liable on his unqualified special indorsement A qualified indorser, "without recourse," is not liable on his or her signature [UCC 3-415]. Thus, Grace cannot be held liable on her indorsement.

Stephen Hemmerling was a driver for the Happy Cab Co. Hemmerling paid certain fixed expenses and abided by a variety of rules relating to the use of the cab, the hours that could be worked, and the solicitation of fares, among other things. Rates were set by the state. Happy Cab did not withhold taxes from Hemmerling's pay. While driving the cab, Hemmerling was injured in an accident and filed a claim for workers' compensation benefits in a state court. Such benefits are not available to independent contractors. On what basis might the court hold that Hemmerling was an employee?

A court might hold that Hemmerling and Happy Cab have an employment relationship primarily on the basis of control. Happy Cab clearly has the right to control the methods or means used by Hemmerling in the course of operating the taxicab by virtue of its exclusive control over the taxicab. Happy Cab exercises its control by establishing and enforcing a variety of rules relating to the use of the cab, solicitation of fares, and so on. Other factors supporting the existence of an employment relationship include that Hemmerling was not engaged in a distinct occupation or business from that of Happy Cab, and the type of work is that which can be done by em-ployees rather than specially skilled independent contractors. Also, Happy Cab supplied the instrumentality of the trade (the cab), and given that the rates were set by the state, Hemmerling's ability to control his profit was limited. The only factor that supports an inde-pendent contractor relationship is that Happy Cab did not withhold taxes?

In which of the following situations would specific performance be an appropriate remedy? Discuss fully. Hoffman contracts to purchase a rare coin owned by Erikson, who is breaking up his coin collection. At the last minute, Erikson decides to keep his coin collection intact and refuses to deliver the coin to Hoffman.

A rare coin is unique, and monetary damages for breach are inadequate, as Hoffman cannot obtain a substantially identical substitute in the market. This is a typical case in which specific performance is an appropriate remedy.

Kanahara is employed part-time by the Cross-Bar Packing Corp. and earns take-home pay of $400 per week. He is $2,000 in debt to the Holiday Department Store for goods purchased on credit over the past eight months. Most of this property is nonexempt and is now in Kanahara's apartment. Kanahara is in default on his payments to Holiday. Holiday learns that Kanahara has a girlfriend in another state and that he plans to give her most of this property for Christmas. Discuss what actions are available to and should be taken by Holiday to collect the debt owed by Kanahara.

Attachment—a court-ordered seizure of nonexempt property prior to Holiday's reducing the debt to judgment. Writ of execution, upon reducing the debt to judgment. The writ is an order issued by the clerk directing the sheriff or other officer of the court to seize (levy) nonexempt property of the debtor located within the court's jurisdiction Garnishment of the wages owed to Kanahara by the Cross-Bar Packing Corp

Baxter manufactures hair dryers. Julie purchased one from Ace Drugstore. Cox, a friend, took a shower and wants to dry her hair. Julie gives her the new hair dryer to use. As Cox plugs it in, sparks fly from the motor and continue as she operates it. Cox still begins to dry her hair. Suddenly, the entire dryer ignites into flames, severely burning Cox's scalp. Cox sues Baxter on the basis of negligence and strict liability in tort. Baxter admits that the dryer was defective but denies liability, particularly because Cox was not the person who purchased the dryer. In other words, Cox had no contractual relationship with Baxter. Discuss the validity of Baxter's defense. Are there any other defenses that Baxter might assert to avoid liability

Baxter's claimed defense of lack of privity of contract is invalid. Privity is not a requirement for an action either in negligence or in strict liability. Baxter's best defense is Cox's assumption of risk, which is a defense to both negligence and strict liability actions. There is no question that Cox knew of the defect in the dryer when she saw sparks upon plugging in the dryer. She also voluntarily continued to use the dryer with knowledge of the potential danger. Thus, unless such conduct would be expected from a reasonable person, Baxter has a good defense.

Debbie Brooks and Martha Tingstrom lived together. Tingstrom handled their finances. For five years, Brooks did not look at any statements concerning her accounts. When she finally reviewed the statements, she discovered that Tingstrom had taken $85,500 through Brooks's checking account with Transamerica Financial Advisors. Tingstrom had forged Brooks's name on six checks paid between one and two years earlier. Another year passed before Brooks filed a suit against Transamerica. Who is most likely to suffer the loss for the checks paid with Brooks's forged signature?

Brooks is most likely to suffer the loss for the checks paid with her forged signature. Brooks did not exercise reasonable care in handling her accounts. She did not look at any statements for five years. When she finally examined the statements and realized that Tingstrom had taken money from her account by forging Brooks's name on checks drawn on the account, at least two years had passed since the first forged signature

Gary goes grocery shopping and carelessly leaves his checkbook in his shopping cart. His checkbook, with two blank checks remaining, is stolen by Dolores. On May 5, Dolores forges Gary's name on a check for $100 and cashes the check at Gary's bank, Citizens Bank of Middletown. Gary has not reported the loss of his blank checks to his bank. On June 1, Gary receives his monthly bank statement and copies of canceled checks from Citizens Bank, including the forged check, but he does not examine the canceled checks. On June 20, Dolores forges Gary's last check. This check is for $1,000 and is cashed at Eastern City Bank, a bank with which Dolores has previously done business. Eastern City Bank puts the check through the collection process, and Citizens Bank honors it. On July 1, on receipt of his bank statement and canceled checks covering June transactions, Gary discovers both forgeries and immediately notifies Citizens Bank. Dolores cannot be found. Gary claims that Citizens Bank must recredit his account for both checks, as his signature was forged.

Citizens Bank will not have to recredit Gary's account for the $1,000 check and probably will not have to recredit his account for the first forged check for $100. Generally, a drawee bank is responsible for determining whether the signature of its customer is genuine, and when it pays on a forged customer's signature, the bank must recredit the customer's account Gary also failed to notify his bank of the forgeries within 30 days of the issued statement with the initial forgery

Kolchek bought a spa from Porter, a dealer selling spas at the state fair. Kochek signed an installment contract. Porter than handed her the manufacturer's paperwork and arranged for the spa to be delivered and installed. 3 months later, Kolchek left her 6 yr old daughter alone in the spa. She stuck her hand into one of the jet holes and was unable to remove her finger. She yanked hard, injuring her finger and then called for help. Kolchek had to call the local police and rescue team. After a 3 hour operation that included draining the spa, sawing out a section and slicing the jet casing the finger was freed. Spa was no longer functional. Her daughter broke her finger in two places. What defenses to product liability might Porter or Great Lakes be able to assert?

Comparative negligence allows the jury to compute the contributions of both parties to the situation. This results in the reduction or elimination of the plaintiff's recovery, depending on the state rule and the percent of negligence contributed. Leaving a six year old unattended in the spa may be deemed negligent and thereby reduce the plaintiff's ultimate recovery. ed from the time it was sold to the time the injury occurred.

Through negotiation, Emilio has received from dishonest payees two checks with the following histories: (a)The drawer issued a check to the payee for $9. The payee cleverly altered the numeral amount on the check from $9 to $90 and the written word from "nine" to "ninety." (b) The drawer issued a check to the payee without filling in the amount. The drawer authorized the payee to fill in the amount for no more than $90. The payee filled in the amount of $900. Discuss whether Emilio, by giving value to the payees, can qualify as a holder in due course of these checks

Emilio is a holder, has given value, and there is no evidence he took it in bad faith, he also took the checks without notice and qualifies as a holder in due course

Peter hires Alice as an agent to sell a piece of property he owns. The price is to be at least $30,000. Alice discovers that the fair market value of Peter's property is actually at least $45,000 and could be higher because a shopping mall is going to be built nearby. Alice forms a real estate partnership with her cousin Carl. Then she prepares for Peter's signature a contract for the sale of the property to Carl for $32,000. Peter signs the contract. Just before closing and passage of title, Peter learns about the shopping mall and the increased fair market value of his property. Peter refuses to deed the property to Carl. Carl claims that Alice, as Peter's agent, solicited a price above that agreed on when the agency was created and that the contract is therefore binding and enforceable. Discuss fully whether Peter is bound to this contract

Failure to disclose to Peter the knowledge of the shopping mall and the increased market value of the property also was a breach of Alice's fiduciary duties. When an agent breaches fiduciary duties owed to the principal by becoming a recipient of a contract, the contract is voidable at the election of the principal. Neither Carl nor Alice can hold Peter to the contract, and Alice's breach of fiduciary duties also allows Peter to terminate the agency relationship.

Cohen contracts to sell his house and lot to Windsor for $100,000. The terms of the contract call for Windsor to pay 10 percent of the purchase price as a deposit toward the purchase price, or a down payment. The terms further stipulate that if the buyer breaches the contract, Cohen will retain the deposit as liquidated damages. Windsor pays the deposit, but because her expected financing of the $90,000 balance falls through, she breaches the contract. Two weeks later Cohen sells the house and lot to Ballard for $105,000. Windsor demands her $10,000 back, but Cohen refuses, claiming that Windsor's breach and the contract terms entitle him to keep the deposit. Discuss who is correct.

Generally, the courts will enforce liquidated damages clauses under the principle of freedom of contract if damages resulting from breach would have been difficult to estimate at the time the contract was entered into and, more importantly, if the amount set is a reasonable estimate of what such damages would be. If the amount is excessive, the court will declare the clause to be a penalty and unenforceable, and only the amount of actual damages proved will be allowed. If, however, the amount in the clause is a reasonable estimate, the court will enforce the clause, even if the actual damages proved to be less

Hotel Lux contracts with a famous chef, Chef Perlee, to become head chef at $30,000 per month. The contract states that if he leaves for any reason, he will not work as a chef for any hotel or restaurant in NY, NY, PA for 1 year. Perlee terminates his employment and is hired by a NJ restaurant. Lux seeks to enjoin (prevent) Perlee from working in that restaurant as a chef for one year. How successful will Lux be?

In the case of Hotel Lux, the primary contract concerns employment; the covenant is ancillary and desirable for the protection of the hotel. The time period of one year may be considered reasonable for a chef with an international reputation. The reasonableness of the three-state area restriction may be questioned, however. If it is found to be reasonable, the covenant probably will be enforced. If it is not found to be reasonable, the court could declare the entire covenant illegal, allowing Perlee to be employed by any restaurant or hotel, including one in direct competition with Hotel Lux. Alternatively, the court could reform the covenant, making its terms reasonable for protecting Hotel Lux's normal customer market area.

On a weekday, Tamara Cohen, a real estate broker, showed a townhouse owned by Ray and Harriet Mayer to Jessica Seinfeld, the wife of comedian Jerry Seinfeld. On the weekend, when Cohen was unavailable because her religious beliefs prevented her from working, the Seinfelds revisited the townhouse on their own and agreed to buy it. The contract stated that the "buyers will pay buyer's real estate broker's fees." What obligation do parties involved in business deals owe to each other with respect to their religious beliefs? How might the situation in this case have been avoided?

It does not seem unreasonable that parties in business transactions should respect each other's religious beliefs. It does seem, however, that a party owes a concomitant duty to inform others, when necessary, of those beliefs and what their practice may involve. This would seem especially to be warranted when, as in the Cohen case, none of the other parties indulged in the same practices.

Nabil is the owner of a relatively old home valued at $105,000. The home's electrical system is failing and the wiring needs to be replaced. He contracts with Kandhari Electrical to replace the electrical system. Kandhari performs the repairs, and on June 1 submits a bill of $10,000 to Nabil. Because of financial difficulties, Nabil does not pay the bill. Nabil's only asset is his home, but his state's homestead exemption is $60,000. Discuss fully Kandhari's remedies in this situation.

Kandahari's has basically two remedies in this situation. The best remedy would be to file a mechanic's lien on the home of Nabil. When a person furnishes labor and materials to improve the realty of the owner and does not receive payment, that person can file a mechanic's lien against the property. The second remedy would be to reduce the $10,000 debt to judgment and then obtain a writ of execution (levy) on Nabil's property. Nabil's only property is his homestead and its contents. In this state, the homestead is exempt up to an amount of $60,000. Because the value of the homestead exceeds this amount, Kandahari's could exercise the writ by having the homestead sold at public auction.

Janell Arden is a purchasing agent employee for the A&B Coal Supply partnership. Arden has authority to purchase the coal needed by A&B to satisfy the needs of its customers. While Arden is leaving a coal mine from which she has just purchased a large quantity of coal, her car breaks down. She walks into a small roadside grocery store for help. While there, she encounters Will Wilson, who owns 360 acres back in the mountains with all mineral rights. Wilson, in need of cash, offers to sell Arden the property for $1,500 per acre. On inspection of the property, Arden forms the opinion that the subsurface contains valuable coal deposits. Arden contracts to purchase the property for A&B Coal Supply, signing the contract "A&B Coal Supply, Janell Arden, agent." The closing date is August 1. Arden takes the contract to the partnership. The managing partner is furious, as A&B is not in the property business. Later, just before closing, both Wilson and the partnership learn that the value of the land is at least $15,000 per acre. Discuss the rights of A&B and Wilson concerning the land contract

No express authority was given, and certainly no implied authority exists for a purchasing agent of goods to acquire realty. Moreover, A & B did nothing to lead Wilson to believe that Arden had authority to purchase land on its behalf. In addition, there was no emergency creating a need for Arden to purchase the land. Therefore, although Arden indicated in the contract that she was an agent, she acted outside the scope of her authority. Because of this, the contract between Arden and Wilson is treated merely as an unaccepted offer. As such, neither Wilson nor A & B is bound unless A & B ratifies (accepts) the contract before Wilson withdraws (revokes) the offer

C&D Services contracts with Ace Concessions, Inc., to service Ace's vending machines. Later, C&D wants Dean Vending Services to assume the duties under a new contract. Ace consents. What type of agreement is this? Are Ace's obligations discharged?

Novation substitutes a new party for an original party, by agreement of all the parties. The requirements are a previous valid obligation, an agreement of all the parties to a new contract, extinguishment of the old obligation, and a new, valid contract. Novation revokes and discharges the previous obligation. Here, C&D delegated its duties under its contract with Ace to Dean, with Ace's consent. Ace's obligation to pay C&D for the execution of those duties is discharged, but its obligation under the new contract to pay Dean for those services will not be discharged until Dean is paid. The novation did, however, discharge C&D's obligation under the contract.

Ball emails Sullivan and inquires the price of a 40 acre tract of land she owns. Sullivan says she will not take less than 60000. Ball sends a fax stating " I accept your offer". Discuss whether Ball can hold her to a contract for the sale.

Sullivan stated only a price from which to bargain further, not an intention of a definite commitment to sell at $60,000. There is no contract between Sullivan and Ball

Rabe is suing Sanchez for breaching contract in which Sanchez promised to sell Rabe a painting by Vincent Van Gogh for $30 million. Will the remedy Rabe seeks in either situation be a remedy at law or a remedy in equity? What is the difference b/w legal and equitable remedies?

Remedies in equity

To display desserts in restaurants, Mario Sclafani ordered refrigeration units from Felix Storch, Inc. Felix faxed a credit application to Sclafani. The application was faxed back with a signature that appeared to be Sclafani's. Felix delivered the units. When they were not paid for, Felix filed a suit against Sclafani to collect. Sclafani denied that he had seen the application or signed it. He testified that he referred all credit questions to "the girl in the office." Who was the principal? Who was the agent? Who is liable on the contract? Explain.

Sclafani was the principal and "the girl in the office" was his agent. Sclafani testified that he referred all credit questions to "the girl in the office." Sclafani's referral of credit matters to his agent gave her the authority to enter into legally binding credit contracts on his behalf. Thus, if Sclafani or "the girl in the office" signed Felix's credit application beneath the guaranty clause, Sclafani is bound to the contract. Because he was a disclosed principal—Felix knew his identity at the time the contract was made—he is liable on the contract and his agent is not.

Homeowners Jim and Lisa Criss hired Kevin and Cathie Pappas, doing business as Outside Creations, to undertake a landscaping project. Kevin signed the parties' contract as "Outside Creations Rep." The Crisses made payments on the contract with checks payable to Kevin, who deposited them in his personal account—there was no Outside Creations account. Later, alleging breach of contract, the Crisses filed a suit in a Georgia state court against the Pappases. The defendants contended that they could not be liable because the contract was not with them personally. They claimed that they were the agents of Forever Green Landscaping and Irrigation, Inc., which had been operating under the name "Outside Creations" at the time of the contract and had since filed for bankruptcy. The Crisses pointed out that the name "Forever Green" was not in the contract. Can the Pappases be liable on this contract?

The disclosure of a principal by an agent who is acting within the scope of his or her authority when entering into a contract with a third party absolves the agent of liability for the nonperformance of the contract. This is the principle that the Pappases cited in their defense to the Crisses' suit. If a principal is partially disclosed or undisclosed, the principal and the agent may both be liable for nonperformance. These are the principles that the Crisses might cite to make their case.

10 Commandments hung in court room; ACLU filed a suit alleging the poster violated the establishment clause. Judge responded with purpose of sign was not to promote religion, but to express his view about "warring" legal philosophies—moral relativism and moral absolutism. "Our legal system is based on moral absolutes from divine law handed down by God through the Ten Commandments." Does this poster violate the establishment clause? Why or why not?

The establishment clause prohibits the government from passing laws or taking actions that promote religion or show a preference for one religion over another. In assessing a government action, the courts look at the predominant purpose for the action and ask whether the action has the effect of endorsing religion. Although here DeWeese claimed to have a nonreligious purpose for displaying the poster of the Ten Commandments in a courtroom, his own statements showed a religious purpose. This plainly constitutes a religious purpose that violates the establishment clause because it has the effect of endorsing Judaism or Christianity over other religions. In the case on which this problem is based, the court ruled in favor of the American Civil Liberties Union.

Sheila Bartell was arrested on various charges related to burglary, the possession for sale of methamphetamine, and other crimes. She pleaded guilty in a California state court to some charges in exchange for the dismissal of others and an agreement to reimburse the victims. The victims included "Rita E.," who reported that her checkbook had been stolen and her signature forged on three checks totaling $590. Wells Fargo Bank had "covered" the checks and credited her account, however, so the court ordered Bartell to pay the bank. Bartell appealed, arguing that the bank was not entitled to restitution. What principles apply when a person forges a drawer's signature on a check? Is the bank entitled to recover from the defendant? Explain

The general rule is that the forgery of a drawer's signature does not bind the person whose name is forged [UCC 3-403]. When a bank pays a check on which the drawer's signature is forged, generally the bank must recredit the customer's account and suffer the loss. In some circumstances, a bank may be able to recover from the forger of the check because it was the bank's money that the forger took. In this problem, Wells Fargo Bank paid out $590 as a result of the forgeries. Because Wells Fargo Bank could not legally debit Rita E.'s account once it learned the checks were forged, it had to absorb the loss. The bank was a direct victim of the defendant's crimes of forgery and is entitled to restitution.

While working, Richard backs into a passenger vehicle driven by Green. Richard's second accident in 6 months. Owner Dun learns of accident and fires Richard. He also writes a letter to the union speaking negatively of Richard and telling people not to hire him. Richard files a suit against Dun, alleging libel on the basis of the statements made in the letters. Discuss results.

The legal issue is whether Dun has libeled Richard's character. For Richard to recover in a legal action, he must prove the following elements: (a) that the defendant's writing contained a false statement, not privileged, presented as fact (called a false statement of fact), or a statement of opinion that was overpublicized, or even a true statement of fact that was overpublicized; (b) that the writing was made known to others besides the plaintiff; and (c) that damage occurred, if damages are sought by plaintiff. In this case, the writing of the letter and its distribution could not be considered privileged. One could argue that privilege may be extended to Dun if a union contract required that specific notice and reasons for firing union members be given to union officials. Such privilege, however, would not extend to the other construction businesses. Dun could also argue that the statements were true. Truth is a defense against a defamation suit. Richard would then argue that the statements were presented as facts, not merely opinion, and were false, or that even if they were true, they were overpublicized. Proof of publication is already established. Finally, if Richard cannot secure comparable work because of the letters, he might be able to recover lost wages. (Note here that if compensatory damages are proved, Richard will probably also be awarded punitive damages.)

LaSalle Bank loaned $8 million to Cypress Creek 1, LP, to build an apartment complex. The loan was secured by a mortgage. Cypress Creek hired contractors to provide concrete work, plumbing, carpentry, and other construction services. Cypress Creek went bankrupt, owing LaSalle $3 million. The contractors recorded mechanic's liens when they did not get paid for their work. The property was sold to LaSalle at a sheriff's sale for $1.3 million. The contractors claimed that they should be paid the amounts they were owed out of the $1.3 million and that the mechanic's liens should be satisfied before any funds were distributed to LaSalle for its mortgage. The trial court distributed the $1.3 million primarily to LaSalle, with only a small fraction going to the contractors. Do the liens come before the mortgage in priority of payment?

The purpose of the Mechanics' Lien Act is to protect those who, in good faith, furnish material or labor for construction of buildings. However, following a judicial foreclosure, the priority of claims between a mortgagee and a mechanic's lien claimant depends on the date the mortgage was recorded and the date the underlying construction contract was executed. When a lien claimant's contract predates the recording of the mortgage, the lien has priority over the mortgage, but when the recording of the mortgage occurs before the construction contracts are executed, the mechanic's lien is preferred only in proportion to the value of the improvements forming the basis for the lien.

PEMS agreed to find a buyer for Rupp for a commission of 2% of the purchase price, which was to be paid by the buyer. Using PEMs services, an investment group bought Rupp for 20 million and changed its name to Temp Air. PEMS asked Temp Air to pay the commission and they refused claiming that PEMs acted as a broker in the deal without a license. The applicable statute defines a broker as any person who deals with the sale of a business. If this statute was intended to protect the public, can PEMs collect its commission?

Whether a contract with an unlicensed person is legal and enforceable depends on the purpose of the statute. If the purpose is to protect the public from unauthorized practitioners, then a contract involving an unlicensed practitioner is generally illegal and unenforceable; In the actual case on which this problem is based, the court dismissed PEMS's claim on the ground that the unlicensed firm was acting as a broker.

Kim went to Ling's Market. It was stormy, weather had blown through the door when it opened. Kim slipped and fell. Manager knew of weather conditions, but had not posted any warning sign. Kim injured back and sued Ling. Can Ling be held liable for negligence?

Yes. An occupier of the premises has a duty to use ordinary care to keep its premises in a reasonably safe condition and to warn customers of any foreseeable hazards.

Thomas and Joe developed Psycho Chihuahua, a caricature of a dog with a "do not back down" attitude. It was promoted through Wrench LLC. Reps of Taco Bell learned of psycho chihuahua and met with the guys to talk about using it as a taco bell icon. Wrench sent TB art work, merchandise, and ideas. TB didn't accept Wrenchs terms but still promoted the character within. TB hired a new agency which proposed a campaign involving a chihuahua. Wrench filed a suit in the federal court claiming that it had an implied contract . Do these facts satisfy the requirements for an implied contract?

implied contract; "Taco Bell concedes that there is sufficient evidence in the record to support Plaintiff's allegation that the parties had a basic understanding that if Taco Bell used the Psycho Chihuahua idea, concept, or image, that Taco Bell would compensate Plaintiffs for the fair value of such use

Martin has a contract with Tabor for delivery of 50 file cabinets at $40 per cabinet in 5 equal installments. After delivery of two installments, Martin informs Tabor that b/c of inflation they are losing money. They promise to deliver the remaining cabinets for $50 per cabinet. Tabor agrees in writing. Can Martin legally collect the additional money on deliver to Tabor of the next installment of 10 cabinets?

modifying a contract for the sale of goods needs no consideration to be binding [UCC 2-209(1)]. Therefore, the agreement by Tabor to pay the additional $10 per cabinet (a good) may be binding, even though no consideration (detriment) is given by Martin for the increase in price.

Stoller was killed at a railroad crossing when a train hit his car. The crossing was marked with a stop sign and a railroad crossing symbol, but no flashing lights. Stoller's parents filed a suit against AMTRAK and Railroad Corp, alleging negligence in the design and maintenance of the crossing. Defendants argued that Galen hadn't stopped at the stop sign. Was AMTRAK negligent? What was the proximate cause of the accident?

the evidence did not show that the defendant breached its duty of reasonable care to make the crossing safe for motorists. The crossing was properly marked with signs that were not obstructed by vegetation. Because the law requires a complete stop, and because the crossing was adequately marked, Galen's failure to stop could be considered the proximate cause of the accident. In the case on which this problem is based, the court granted a summary judgment in favor of the railroad, and the plaintiffs appealed. The U.S. Court of Appeals for the Tenth Circuit affirmed the judgment.

Judy, Kristy and their mother Joyce owned 78 acres of land on Eagle Creek in Montana. When Joyce died, she left her interest in the property to Kristy. Kristy wrote to Judy offering to buy Judy's Interest to sell her own interest to Judy. Letter said to respond to Bruce. In a letter to Kristy, not Bruce, Judy accepted the offer. Kristy had also made the same offer to their brother Dave, and he had accepted. Did judy and Kristy have an enforceable binding contract? Or did Kristy's offer specifying one exclusive mode of acceptance mean that Judy's reply was not effective?

the offer didn't limit its acceptance to one exclusive mode; thus judy's reply was acceptance of an offer; court ruled for specific performance

A check drawn by Cullen for $500 is made payable to the order of Jordan and issued to Jordan. Jordan owes his landlord $500 in rent and transfers the check to his landlord with the following indorsement: "For rent paid, [signed] Jordan." Jordan's landlord has contracted to have Deborah do some landscaping on the property. When Deborah insists on immediate payment, the landlord transfers the check to Deborah without indorsement. Later, to pay for some palm trees purchased from Better-Garden Nursery, Deborah transfers the check with the following indorsement: "Pay to Better-Garden Nursery, without recourse, [signed] Deborah." Better-Garden Nursery sends the check to its bank indorsed "For deposit only, [signed] Better-Garden Nursery." Classify each of these endorsements.

"For rent paid [signed jordan]" - blank "Pay to Better_Garden Nursery without recourse [signed deborah]" - special qualified "For deposit only [signed better-garden nursery]" - restrictive

Jacoby's barn burns down. he accuses Goldman's son of arson and threatens to have the prosecutor bring a criminal action unless Goldman pays him $5000. Goldman agrees.

A contract entered into through a threat of criminal prosecution is generally held to be made under duress and is voidable, regardless of whether Goldman's son is guilty of arson

How does the presence—or lack—of diversity of citizenship affect a lawsuit?

A federal district court can exercise original jurisdiction over a case involving diversity of citizenship. There is a second requirement to exercise diversity jurisdiction—the dollar amount in controversy must be more than $75,000. In a case based on diversity, a federal court will apply the relevant state law, which is often the law of the state in which the court sits.

Greg contracts to build a storage shed for Haney, who pays Greg in advance, but Greg completes only half the work. Haney pays Ipswich $500 to finish the shed. If Haney sues Greg, what would be the measure of recovery?

A nonbreaching party is entitled to his or her benefit of the bargain under the contract. Here, the innocent party is entitled to be put in the position she would have been in if the contract had been fully performed. The measure of the benefit is the cost to complete the work ($500). These are compensatory damages.

Primesouth Bank issued a loan to Okefenokee Aircraft, Inc. (OAI), to buy a plane. OAI executed a note in favor of Primesouth in the amount of $161,306.25 plus interest. The plane secured the note. When OAI defaulted, Primesouth repossessed the plane. Instead of disposing of the collateral and seeking a deficiency judgment, however, the bank retained possession of the plane and filed a suit in a Georgia state court against OAI to enforce the note. OAI did not deny that it had defaulted on the note or dispute the amount due. Instead, OAI argued that Primesouth Bank was not acting in a commercially reasonable manner. According to OAI, the creditor must sell the collateral and apply the proceeds against the debt. What is a secured creditor's obligation in these circumstances? Can the creditor retain the collateral and seek a judgment for the amount of the underlying debt, or is a sale required?

A secured creditor can repossess and retain a debtor's collateral in full or partial satisfaction of the debt. The collateral does not have to be disposed of first unless the parties have agreed otherwise. If the collateral satisfies the debt only partially, the creditor can seek a judgment for the balance due. The creditor must act in a commercially reasonable manner and take steps to sell, lease, retain, or otherwise dispose of the collateral It does not appear that the bank has failed to proceed in a commercially reasonable manner.

James Maciel leased an apartment in Regent Village, a university-owned housing facility for Regent University (RU) students in Virginia Beach, Virginia. The lease ran until the end of the fall semester. Maciel had an option to renew the lease semester by semester as long as he maintained his status as an RU student. When Maciel completed his coursework for the spring semester, he told RU that he intended to withdraw. The university told him that he could stay in the apartment until May 31, the final day of the spring semester. Maciel asked for two additional weeks, but the university denied the request. On June 1, RU changed the locks on the apartment. Maciel entered through a window and e-mailed the university that he planned to stay "for another one Business or two weeks." When he was charged with trespassing, Maciel argued that he had "legal authority" to occupy the apartment. Was Maciel correct?

According to the facts in the problem, Maciel decided to withdraw from the university at the end of the spring semester. This rendered him ineligible to remain in the apartment. In other words, this decision resulted in non-compliance with the condition for the university's provision of an apartment, and the university was thus no longer bound to perform. Contrary to Maciel's argument in court, he did not have the "legal authority" to continue to occupy the apartment. In the actual case on which this problem is based, the court convicted Maciel of trespassing. In response to Maciel's argument, a state intermediate appellate court applied the reasoning set out above to affirm the conviction.

NYC enacted an ordinance to regulate locations of commercial establishments that featured adult entertainment; only applied to females; Buzzetti and an anonymous dancer filed a suit in a federal district court against the city, asking the court to block the enforcement of the ordinance. The plaintiffs argued, in part, that the ordinance violated the equal protection clause. Under the equal protection clause, what standard applies to the court's consideration of this ordinance? Under this test, how should the court rule? Why?

According to the standards applied to determine compliance with the equal protection clause, this ordinance's classification—a gender-based distinction—is subject to intermediate scrutiny. Under this standard, the court could dismiss the plaintiffs' complaint. Gender-based distinctions are acceptable in circumstances in which the two genders are not similarly situated. The city's objectives of preventing crime, maintaining property values, and preserving the quality of urban life, are legitimate and important. Regulation of female, but not male, topless dancing, in the context of the overall regulation of sexually explicit commercial establishments, could reasonably be interpreted as substantially related to achieving these objectives. The court might point out, for example, that males are often topless on beaches, in sporting events, during performances at the ballet, and in magazine photos without sexual suggestiveness. Female breasts are rarely exposed in public venues without sexual overtones, however. This arguably makes it permissible for the law to regard female toplessness differently from male toplessness.

BR crimestoppers offer a reward for info about the LA Serial Killer. The info was to be provided via a hotline. Dianne survived an attack by a suspect, she was able to id the man in a lineup and sought to collect the reward. BR crime refused to pay because she did not provide the info through the hot line. Did Alexander comply with the terms of the offer?

Alexander did not comply with the terms of this offer, and thus the offerors were not bound to pay her. She provided information to the police related to the arrest and indictment of the killer. But there was no indication in the offer that the police were the offerors or that they were authorized to receive acceptance of the requested information on behalf of the offerors.

In September 2001, Cory Babcock and Honest Air Conditioning & Heating, Inc., bought a new 2001 Chevrolet Corvette from Cox Chevrolet in Sarasota, Florida. Their retail installment sales contract (RISC) required monthly payments until $52,516.20 was paid. The RISC imposed many other conditions on the buyers and seller with respect to the payment for, and handling of, the Corvette. Cox assigned the RISC to General Motors Acceptance Corp. (GMAC). In August 2002, the buyers sold the car to Florida Auto Brokers, which agreed to pay the balance due on the RISC. The check to GMAC for this amount was dishonored for insufficient funds, however, after the vehicle's title had been forwarded. GMAC filed a suit in a Florida state court against Honest Air and Babcock, seeking $35,815.26 as damages for breach of contract. The defendants argued that the RISC was a negotiable instrument. A ruling in their favor on this point would reduce any damages due GMAC to less than the Corvette's current value. What are the requirements for an instrument to be negotiable? Does the RISC qualify?

Appellate court ruled that RISC was not a negotiable instrument A negotiable instrument is "an unconditional promise or order to pay" - payment cannot be conditional on the occurrence or nonoccurrence of some event or agreement

ABC Tire Corp. hires Arnez as a traveling salesperson and assigns him a geographic area and time schedule in which to solicit orders and service customers. Arnez is given a company car to use in covering the territory. One day, Arnez decides to take his personal car to cover part of his territory. It is 11:00 a.m., and Arnez has just finished calling on all customers in the city of Tarrytown. His next appointment is at 2:00 p.m. in the city of Austex, twenty miles down the road. Arnez starts out for Austex, but halfway there he decides to visit a former college roommate who runs a farm ten miles off the main highway. Arnez is enjoying his visit with his former roommate when he realizes that it is 1:45 p.m. and that he will be late for the appointment in Austex. Driving at a high speed down the country road to reach the main highway, Arnez crashes his car into a tractor, severely injuring Thomas, the driver of the tractor. Thomas claims that he can hold ABC Tire Corp. liable for his injuries. Discuss fully ABC's liability in this situation.

Arnez is an employee, hired by ABC, which controls Arnez's physical conduct in soliciting orders and servicing customers. The only issue in this case is whether Arnez was acting within the scope of his employment at the time the tort was committed or whether he was on a frolic of his own. The use of his personal car has no effect on this decision. The question to be decided is whether Arnez's visit to his friend constituted a substantial departure from the performance of his employer's business. Points that should be discussed are:(a) All travel time of a traveling salesperson on a business trip is usually considered within the scope of employment (b) At the time the tort was committed, Arnez was on his way to an appointment on behalf of ABC (whereas the negligent act could have taken place on the way to visit his friend). (c) Because of the time between appointments and the distance, this is probably not a substantial departure from ABC's business.

Wesley Hall, an independent contractor managing property for Acree Investments, Ltd., lost control of a fire he had set to clear ten acres of Acree land. The runaway fire burned seventy-eight acres of Earl Barrs's property. Russell Acree, one of the owners of Acree Investments, had previously owned the ten acres, but he had put it into the company and was no longer the principal owner. Hall had worked for Russell Acree in the past and had told the state forestry department that he was burning the land for Acree. Barrs sued Russell Acree for the acts of his agent, Hall. In his suit, Barrs noted that Hall had been an employee of Russell Acree, Hall had talked about burning the land "for Acree," and Russell Acree had apologized to Barrs for the fire. Barrs also pointed out that Acree Investments had not been identified as the principal property owner until Barrs filed his lawsuit. Barrs argued that those facts were sufficient to create an agency by ratification to impose liability on Russell Acree. Was Barrs's agency by ratification claim valid?

Barrs' argument is not correct. The evidence that Mr. Acree, the presumed landowner. instructed Hall, his alleged employee, to clear the land by controlled burn, was insufficient to establish that an actual agency relationship existed between the parties. Hall was the property manager; Mr. Acree only observed what happened. There was no evidence that Mr. Acree, visiting at the time of burn, had the right to control the time and manner of burn. Mr. Acree testified that Hall worked independently for Acree Investments. Mr. Acree could express regret for Hall's conduct without ratifying Hall's acts such that an agency relationship was created. Similarly, Barrs' claim of agency creation by Hall's saying he was doing the burn "for Acree" was not sufficient to establish an agency. The forestry department that allowed the burn did not know or care if Hall was acting for Mr. Acree, Acree Investments, or himself as property manager

On a weekday, Tamara Cohen, a real estate broker, showed a townhouse owned by Ray and Harriet Mayer to Jessica Seinfeld, the wife of comedian Jerry Seinfeld. On the weekend, when Cohen was unavailable because her religious beliefs prevented her from working, the Seinfelds revisited the townhouse on their own and agreed to buy it. The contract stated that the "buyers will pay buyer's real estate broker's fees." Is Cohen entitled to payment even though she was not available to show the townhouse to the Seinfelds on the weekend? Explain.

Both parties filed motions for summary judgment. The court granted Cohen's motion and issued a judgment of liability against the Seinfelds for breach of contract. The court denied the Seinfelds' motion, in which they had contended that Cohen was not a licensed broker—she was. The court reasoned, "[T]he evidence clearly indicates that [Cohen] served as the Seinfelds' real estate broker. Indeed, she located several townhouses at Galistino's request, showed the premises in question to Galistino and Jessica Seinfeld on [Friday} February 11, 2005, and made arrangements to have the Seinfelds see the premises the following week." The court emphasized, "[T]he contract clearly provided that the sellers would pay Sanchez's brokers fees and the buyers (the Seinfelds) would pay the buyers' broker's fees. These facts . . . establish that there was a co-brokerage agreement whereby plaintiff would receive one half of the broker's fee. The only real issue here, as far as the Court is concerned, is whether the broker's fee was five or six percent." Thus "[t]he matter will proceed to trial on the issue of whether the broker's fee was five or six percent." In other words, the court determined that Cohen was entitled to the full amount of her fee and that the Seinfelds were liable to pay it. The court did not comment on Cohen's unavailability on Friday evenings and Saturdays. It would seem, however, that the court did not interpret Cohen's temporary unavailability due to her religious practices as any more significant than any party's scheduling conflicts would be with respect to any business deal.

Springer was a political candidate running for Congress. He was operating on a tight budget and instructed his campaign staff not to purchase any campaign materials without his explicit authorization. In spite of these instructions, one of his campaign workers ordered Dubychek Printing Co. to print some promotional materials for Springer's campaign. When the printed materials arrived, Springer did not return them but instead used them during his campaign. When Springer failed to pay for the materials, Dubychek sued for recovery of the price. Springer contended that he was not liable on the sales contract because he had not authorized his agent to purchase the printing services. Dubychek argued that the campaign worker was Springer's agent and that the worker had authority to make the printing contract. Additionally, Dubychek claimed that even if the purchase was unauthorized, Springer's use of the materials constituted ratification of his agent's unauthorized purchase. Is Dubychek correct?

Dubychek may very well be correct in his claim. Implied ratification by a principal of an agent's unauthorized action occurs when a principal accepts the benefits of the unauthorized transaction and/or does not object to or repudiate the action within a reasonable time.

To comply with accounting principles, a company that engages in software development must either "expense" the cost (record it immediately on the company's financial statement) or "capitalize" it (record it as a cost incurred in increments over time). If the project is in the pre- or post-development stage, the cost must be expensed. Otherwise it may be capitalized. Capitalizing a cost makes a company look more profitable in the short term. Digimarc Corp., which provides secure personal identification documents, announced that it had improperly capitalized software development costs over at least the previous eighteen months. The errors resulted in $2.7 million in overstated earnings, requiring a restatement of prior financial statements. Zucco Partners, LLC, which had bought Digimarc stock within the relevant period, filed a suit in a federal district court against the firm. Zucco claimed that it could show that there had been disagreements within Digimarc over its accounting. Is this sufficient to establish a violation of SEC Rule 10b- 5?

Five elements are required to establish a violation of Rule 10b-5. A plaintiff must show (1) a material misrepresentation or omission of fact, (2) scienter or intent to defraud, (3) a connection with the purchase or sale of a security, (4) causation, and (5) economic loss. In this case, Zucco could likely establish the requirement of material misrepresentation with Digimarc's announcement about the improper capitalization of the software development costs. The third, fourth, and fifth elements—connection with the purchase or sale of a security, causation, and economic loss—might be demonstrated by the plaintiff's purchase of Digimarc stock within the relevant period and the probable drop in the stock's price when the company's earnings were restated. The most difficult element to prove on these facts would likely be scienter. To prove scienter, the plaintiff must show that the defendant made a false or misleading statement intentionally or with deliberate recklessness. This is more than a mistake or negligence. In departing from a standard of ordinary care, the defendant must, or should, have known that buyers or sellers would be misled. Here, Zucco claimed only that it could show there had been some disagreement within the company over its accounting. This is not a sufficient allegation of scienter. And, in fact, the court in the case on which this problem is based dismissed Zucco's suit for this reason. The U.S. Court of Appeals for the Ninth Circuit affirmed.

Niles sold Kennedy a small motorboat for $1,500, maintaining to Kennedy that the boat was in excellent condition. Kennedy gave Niles a check for $1,500, which Niles indorsed and gave to Frazier for value. When Kennedy took the boat for a trial run, she discovered that the boat leaked, needed to be painted, and required a new motor. Kennedy stopped payment on her check, which had not yet been cashed. Niles has disappeared. Can Frazier recover from Kennedy as a holder in due course?

Frazier can recover the $1,500 from Kennedy if he is a holder in due course (HDC). He will be an HDC only if he, as a holder, took the check (a) for value, (b) in good faith, and (c) without notice that the check was overdue or dishonored or that a claim or defense against it exists. In this instance, Frazier qualifies for HDC status. First, he is a holder as the check was properly negotiated to him (by indorsement). Second, the facts indicate that he gave value. Third, there is nothing to indicate that he took the instrument in bad faith. Fourth, he was unaware of Niles's fraud (claim or defense), and he took the check before it was overdue (within thirty days of issue). Thus, Frazier is a holder in due course and can hold Kennedy liable.

ABC Clothiers, Inc., has a contract with Taylor & Sons, a retailer, to deliver one thousand summer suits to Taylor's place of business on or before May 1. On April 1, Taylor receives a letter from ABC informing him that ABC will not be able to make the delivery as scheduled. Taylor is very upset, as he had planned a big ad campaign. Assume that Taylor & Sons can either file immediately or wait until ABC fails to deliver the goods. The third group will evaluate which course of action is better, given the circumstances.

From Taylor & Sons's perspective, the chief consideration is the effect that their choice of action will have on their business. Should they cut their losses by immediately finding another party to suit their needs and suing ABC for breach? Could they obtain damages? Should they instead attempt to obtain their order more quickly from ABC by working with the supplier? Generally, until a nonbreaching party does actually pursue a remedy, the repudiating party can, with notice, retract the repudiation, reinstating that party's rights under the contract.

Dorothy suffered from dementia and chronic confusion. When she became unable to manager hew own affairs her son Eddie arranged for assisted living. She signed a residency agreement that included an arbitration clause. After she sustained injuries in a fall at the facility a suit was filed to recover damages. The facility asked the court to compel arbitration. Was Dorothy bound to the residency agreement?

No. Contracts made by mentally incompetent persons can be void, voidable, or valid. Mentally incompetent persons not previously so adjudged by a court may enter voidable contracts if they do not know they are entering into a contract or if they lack the mental capacity to comprehend its subject matter, nature, and consequences.

What did the court conclude with respect to the parties' "diversity of citizenship" in this case?

In the Mala case, the court concluded that the parties did not have diversity of citizenship. A plaintiff who seeks to bring a suit in a federal district court based on diversity of citizenship has the burden to prove that diversity exists. Mala—the plaintiff in this case—was a citizen of the Virgin Islands. He alleged that Crown Bay admitted to being a citizen of Florida, which would have given the parties diversity. Crown Bay denied the allegation and asserted that it also was a citizen of the Virgin Islands. Mala offered only his allegation and did not provide any evidence that Crown Bay was anything other than a citizen of the Virgin Islands. There was thus no basis for the court to be "left with the definite and firm conviction that Crown Bay was in fact a citizen of Florida.

Claudia received a bank loan to buy a house. 2 years later she can't afford the payments. The bank notified her of foreclosure. Claudia filed for bankruptcy. Bank offered to modify the mortgage if she would forego bankruptcy. she agreed, but once she withdrew the filing the bank foreclosd.

In the actual case on which this problem is based, the court concluded that the bank promised to work on a loan modification if Aceves did not seek relief in bankruptcy, Aceves reasonably relied on this promise when she withdrew her filing, and this decision allowed the bank to foreclose on the property.

Can a state, in the interest of energy conservation, ban all advertising by power utilities if conservation could be accomplished by less restrictive means? Why or why not?

No. Even if commercial speech is not related to illegal activities nor misleading, it may be restricted if a state has a substantial interest that cannot be achieved by less restrictive means. In this case, the interest in energy conservation is substantial, but it could be achieved by less restrictive means. That would be the utilities' defense against the enforcement of this state law

Like many students, Barbara Hann financed her education partially through loans. These loans included three federally insured Stafford Loans of $7,500 each ($22,500 in total). Hann believed that she repaid the loans, but when later, she filed a Chapter 13 petition, Educational Credit Management Corp. (ECMC) filed an unsecured proof of claim based on the loans. Hann objected. At a hearing at which ECMC failed to appear, Hann submitted correspondence from the lender that indicated the loans had been paid. The court entered an order sustaining Hann's objection. Despite the order, can ECMC resume its effort to collect on Hann's loans?

No, ECMC cannot now resume its effort to collect on Hann's loans. Hann financed her education partially through loans. When she filed a Chapter 13 petition, Educational Credit Management Corp. (ECMC) filed an unsecured proof of claim based on the loans. Hann believed that she had repaid the loans in full and objected. The court held a hearing at which ECMC failed to appear, and Hann submitted correspondence from the lender indicating the loans had been paid. The court then entered an order sustaining Hann's objection to ECMC's claim, in effect declaring that there was no obligation and the underlying debt was satisfied. By later attempting to renew efforts to collect on the loans, ECMC would violate the court's order.

Sun Airlines prints that it is not liable for any injury caused by the airline's negligence on its tickets. If the cause of an accident is found to be the airline's negligence, can it use the clause as defense to liability?

No. Generally, an exculpatory clause (a clause attempting to absolve parties of negligence or other wrongs) is not enforced if the party seeking its enforcement is involved in a business that is important to the public as a matter of practical necessity, such as an airline. Because of the essential nature of such services, the parties have an advantage in bargaining strength and could insist that anyone contracting for its services agree not to hold it liable

5 year old Stark was in the backseat of her parents Ford, not in a booster seat. She was using a seat belt, designed by Ford, but with the shoulder belt behind her back. There was an accident and she suffered a spinal cord injury and was paralyzed from the waist down. The family filed a suit against Ford Motor Co., alleging that the seat belt was defectively designed. Could Ford successfully claim that Cheyenne had misused the seat belt?

No, Ford could not succeed on a claim that Cheyenne had misused the seat belt. Product misuse occurs when a product is used for a purpose that was not intended. Manufacturers and suppliers are required to expect reasonably foreseeable misuses and to design products that are safe when misused or marketed with a protective device, such as a childproof cap. In the facts of this problem, Cheyenne was too young to be negligent, and it is reasonably foreseeable that a child would wear a seat belt incorrectly without understanding the risks. In the actual case on which this problem is based, the court issued a judgment in Cheyenne's favor.

Basic Research, L.L.C., advertised its products on television networks owned by Rainbow Media Holdings, Inc., through an ad agency, Icebox Advertising, Inc. As Basic's agent, Icebox had the express authority to buy ads from Rainbow on Basic's behalf, but the authority was limited to buying ads with cash in advance. Despite this limit, Rainbow sold ads to Basic through Icebox on credit. Basic paid Icebox for the ads, but Icebox did not pass all of the payments on to Rainbow. Icebox filed for bankruptcy. Can Rainbow recoup the unpaid amounts from Basic?

No, Rainbow cannot recoup the unpaid amounts from Basic. Basic Research advertised its products on television networks owned by Rainbow Media Holdings through an ad agency, Icebox Advertising. Basic paid Icebox for the ads, but Icebox did not make all of the payments to Rainbow. Icebox filed for bankruptcy. Rainbow cannot recover what it was owed from Basic. As Basic's agent, Icebox had the express authority to buy ads from Rainbow on Basic's behalf, but that authority was limited to purchasing ads with cash in advance. Thus, Icebox did not have the authority—express or implied—to buy ads on Basic's credit. And Basic did not ratify the contracts that represented purchases on credit.

Germanie Fequiere executed and delivered a promissory note in the principal amount of $240,000 to BNC Mortgage. As security for the note, Fequiere executed and delivered a mortgage on real property. BNC indorsed the promissory note in blank. Later, Chase Home Finance, LLC, became the holder in due course of the note and holder of the mortgage. When Fequiere failed to make payments on the note, Chase sought to foreclose on the property. Fequiere asserted that Chase could not foreclose on the property because the mortgage on the property had not been properly transferred from BNC to Chase. Assuming that is true, does it mean that Chase, as holder of the negotiable note, cannot foreclose on the collateral (the property secured by the mortgage)?

No, even if the assignment of the mortgage was not done properly, Chase, as holder of a negotiable instrument secured by the mortgage, had the right to foreclose on the mortgage. Fequiere has no defense on that basis. Collateral, such as the mortgage, follows the note, is the general rule. Chase is the bona fide holder of the promissory note. The holder of a note has the right to enforce the instrument. Since it was endorsed in blank, it was "payable to the bearer and may be negotiated by transfer of possession alone"

Rob and Mary divorce. They admitted to a prenup in court. Rob had farmland and Mary had nothing. During the marriage they acquired 10 different parcels, totaling about 600 hundred acres and two corporations were formed. A copy of the prenup could not be found. Can the court enforce the agreement without a writing?

No, the court cannot enforce the Tuttles' prenuptial agreement without a writing. A prenuptial agreement is an agreement made before marriage that defines each partner's ownership rights in the other partner's property. A prenuptial agreement must be in writing to be enforceable.

Caroline McAfee loaned $400,000 to Carter Oaks Crossing. Joseph Harman, president of Carter Oaks Crossing, signed a promissory note providing that the company would repay the amount with interest in installments beginning in 1999 and ending by 2006. Harman signed a personal guaranty for the note. Carter Oaks Crossing defaulted on the note, so McAfee sued Harman for payment under the guaranty. Harman moved for summary judgment on the ground that McAfee's claim against him had been discharged in his Chapter 7 bankruptcy case, filed after 1999 but before the default on the note. The guaranty was not listed among Harman's debts in the bankruptcy filing. Would the obligation under the guaranty have been discharged in bankruptcy, as Harman claimed?

No. Harman owes McAfee under the guaranty. The obligation was not discharged in his bankruptcy proceedings. No determination of the status of the obligation was made during bankruptcy proceedings, because Harman did not list the guaranty obligation. While such matters are normally determined by the bankruptcy court, a state court can decide whether a creditor has a viable claim. Because McAfee was never informed of the bankruptcy proceedings, a state court can uphold the validity of the obligation and declare that it was not discharged in bankruptcy.

Edward owned a retail sporting goods shop. A new ski resort was being constructed in his area, and to take advantage of the potential business, Edward decided to expand his operations. He borrowed a large sum from his bank, which took a security interest in his present inventory and any after-acquired inventory as collateral for the loan. The bank properly perfected the security interest by filing a financing statement. Edward's business was profitable, so he doubled his inventory. A year later, just a few months after the ski resort had opened, an avalanche destroyed the ski slope and lodge. Edward's business consequently took a turn for the worse, and he defaulted on his debt to the bank. The bank then sought possession of his entire inventory, even though the inventory was now twice as large as it had been when the loan was made. Edward claimed that the bank had rights to only half of his inventory. Is Edward correct?

No. The bank will prevail because it held a properly perfected security interest in Edward's entire inventory, not just in specific items or in the value of the inventory at the time the loan was made. The entire inventory (the present inventory and any inventory thereafter acquired) was given as collateral for the loan, and, regardless of the fact the inventory is now twice as large, the bank can rightfully take possession of the entire inventory on Edward's default in his payments on the loan.

Daniel is on his way home and gets caught in a snowstorm. An elderly couple takes him in and provides food and shelter. When the roads are cleared, Daniel goes home. Daniel's father is appreciative and writes a letter promising to pay the couple $500. The couple accepts, but because of a feud b/w Daniel and his dad, he pulls the support. Can the couple hold Fred liable in contract for the services rendered to David?

Nope, promise to pay for an event that has already happened is not enforceable; Also, there is no consideration if the promise is based on a moral duty (obligation) to pay. Because Daniel is presumed to be an adult responsible for his own care, Fred has no legal duty of care to Daniel

Jana leaves her truck's motor running while she enters a Kwik-Pik Store. The truck's transmission engages and the vehicle crashes into a gas pump, starting a fire that spreads to a warehouse on the next block. The warehouse collapses, causing its billboard to fall and injure Lou, a bystander. Can Lou recover from Jana? Why or why not?

Probably, To recover on the basis of negligence, the injured party as a plaintiff must show that the truck's owner owed the plaintiff a duty of care, that the owner breached that duty, that the plaintiff was injured, and that the breach caused the injury. In this problem, the owner's actions breached the duty of reasonable care. The billboard falling on the plaintiff was the direct cause of the injury, not the plaintiff's own negligence. Thus, liability turns on whether the plaintiff can connect the breach of duty to the injury. This involves the test of proximate cause—the question of foreseeability. The consequences to the injured party must have been a foreseeable result of the owner's carelessness.

Just Homes, LLC (JH), hired Mike Building & Contracting, Inc., to do $1.35 million worth of renovation work on three homes. Community Preservation Corporation (CPC) supervised Mike's work on behalf of JH. The contract stated that in the event of a dispute, JH would have to obtain the project architect's certification to justify terminating Mike. As construction progressed, relations between Mike and CPC worsened. At a certain point in the project, Mike requested partial payment, and CPC recommended that JH not make it. Mike refused to continue work without further payment. JH evicted Mike from the project. Mike sued for breach of contract. JH contended that it had the right to terminate the contract due to CPC's negative reports and Mike's failure to agree with the project's engineer. Mike moved for summary judgment for the amounts owed for work performed. Mike claimed that JH had not fulfilled the condition precedent—JH never obtained the project architect's certification for Mike's termination. Which of the two par ties involved breached the contract?

Summary judgment for Mike. JH breached the contract because it failed to fulfill the condition precedent requiring it to obtain certification from the architect that sufficient cause existed to justify its termination. Hence, JH is liable to Mike for losses it can demonstrate. "Where a contract provides that a party must fulfill specific conditions precedent before it can terminate the agreement, those conditions are enforced as written and the party must comply with them." The clause in the construction contract is a standard clause and should have been followed. Of course, if JH can show that Mike acted improperly, then there may be no damages owed to Mike, but JH failed to follow the procedure provided in the contract by bringing the architect into the situation to decide if termination was in order for failure to perform properly

Roberto and Raquel do not speak english, and responded to a spanish TV sponsored ad for Dodge. Dodge's staff understood they didn't speak English and explained the English contract in spanish, leaving out the accompanying arbitration agreement. The agreement limited the amount of damages the buyer could seek to less than $5000 but didn't limit Dodges right to pursue greater damages. They bought the car and left parts of the contract blank. Dodge later filled in a lower trade in allowance than agreed and refused to change it. The buyers returned the van, having driven only 7 miles and asked for a return of their trade in vehicle, but it had been sold. Buyers filed a suit. Dealer sought arbitration. Was the arbitration agreement unconscionable?

The arbitration agreement in this case was both procedurally and substantively unconscionable. Procedural unconscionability concerns the manner in which a contract is entered into. Here, the buyers did not speak or read English, and the sale was conducted in Spanish. The written contract was in English and explained in Spanish, but the accompanying arbitration agreement was not explained in any language. Having undertaken to explain the terms of the contract in Spanish, the dealer's staff was obliged to do so accurately to give the buyers a meaningful opportunity to understand the contract and bargain. Substantive unconscionability can occur when a contract leaves one party to the agreement without a remedy for the nonperformance of the other. The contract in this case limited the buyers' right in a court to seek relief for no more than $5,000 against the dealer. The dealer, however, had the right to seek a higher amount of damages in a court against the buyers. This made the agreement substantively unconscionable. The court refused to compel arbitration. On the dealer's appeal, a state intermediate appellate affirmed the ruling.

Oppenheim contracts to sell you 1000 bushels of apples from her orchard in the state of Washington. Because of a severe front, she is unable to deliver the apples

The contract called for apples to come from a specific orchard. Through no fault of Oppenheim's, the specific subject matter of the contract is destroyed by the frost. Therefore, Oppenheim cannot deliver the apples called for in the contract, rendering the contract impossible to perform.

IBM hired Jensen as a software sales rep. The brochure for the sales incentive plan (SIP) says the more you sell, the more earnings for you. But the SIP doesn't constitute a promise by IBM, and they reserve the right to change the program at any time. Jensen was given a quota letter that said base salary of $75000 and if he achieved quota an additional $75000. Jensen closed on a deal worth more than $24 million dollars and was given less than $500000 as commission. Jensen filed a suit arguing that the SIP was a unilateral offer that became a binding contract when he closed the sale.

The court issued a summary judgment in favor of IBM, holding that there was no contract between the parties because they had not agreed on the commission arrangement; The terms of IBM's Sales Incentive Plan make clear that they are not to be construed as an offer that can be accepted to form a contract; Under the terms displayed on the intranet and stated in the letter, IBM indicated that Jensen could not rely on the description of potential commissions in the SIP brochure because "IBM could modify or cancel the Sales Incentive Plan at any time

Puerto Rico enacts law that requires specific labels on cement sold in Puerto Rico and imposes fines for any violations. Law prohibits the sale or distribution of cement mfg outside of PR that does not carry required label. Firm that imports cement filed a complaint in Fed court, claiming that this restriction violated the dormant commerce clause. Did the 2001 PR law violate the clause?

The court ruled that like a state, Puerto Rico generally may not enact policies that discriminate against out-of-state commerce. The law requiring companies that sell cement in Puerto Rico to place certain labels on their products is clearly an attempt to regulate the cement market.

Heublein, Inc., makes wines and distilled spirits. Tarrant Distributors, Inc., agreed to distribute Heublein brands. When problems arose, the parties entered mediation. Under a settlement agreement, Heublein agreed to pay Tarrant the amount of its "net loss" as determined by Coopers & Lybrand, an accounting firm, according to a specified formula. The parties agreed that Coopers & Lybrand's calculation would be "final and binding." Heublein disagreed with Coopers & Lybrand's calculation, however, and refused to pay. The parties asked a court to rule on the dispute. Heublein argued that the settlement agreement included an implied condition precedent that Coopers & Lybrand would correctly apply the specified formula before Heublein would be obligated to pay. Tarrant pointed to the clause stating that the calculation would be "final and binding." With whom will the court agree, and why?

The court should refuse to imply a condition precedent in the settlement agreement, and order Heublein to pay Tarrant. The settlement agreement's use of the terms "final and binding" meant that both parties gave up the right to probe the correctness of Coopers & Lybrand's determination unless Heublein presented evidence of fraud, misconduct, or a serious mistake to imply bad faith or a failure to exercise an honest judgment, or evidence of an undisputed mistake of fact in the determination. An error in computing the net loss under the formula set out in the settlement agreement was a foreseeable event, and the settlement agreement between Heublein and Tarrant did not provide any review procedure. Instead, it expressly stated that Coopers's determination would be "final and binding upon the parties.

Frances Morelli agreed to sell Judith Bucklin a house in Rhode Island for $177,000. The sale was supposed to be closed by September 1, when the parties were to exchange the deed for the price. The contract included a provision that "if Seller is unable to convey good, clear, insurable, and marketable title, Buyer shall have the option to: (a) accept such title as Seller is able to convey without reduction of the Purchase Price, or (b) cancel this Agreement and receive a return of all Deposits." An examination of the public records revealed that the house did not have marketable title. Bucklin offered Morelli additional time to resolve the problem, and the closing did not occur as scheduled. Morelli decided "the deal is over" and offered to return the deposit. Bucklin refused and, in mid-October, decided to exercise her option to accept the house without marketable title. She notified Morelli, who did not respond. She then filed a lawsuit against Morelli in a state court. One group will discuss whether Morelli breached the contract and will decide in whose favor the court should rule.

The court should rule in Bucklin's favor—Morelli was to convey the house with whatever title she had. In this problem, a valid agreement existed and Bucklin was ready to pay the price and obtain the property with its less than marketable title. Morelli's effort to return Bucklin's deposit should have no effect on the outcome. The option of a return of all deposits belonged to Bucklin, not Morelli.

Jason, an experienced hunter, bought a paintball gun. He practiced with the gun, and chose not to buy protective eye wear. He had taken safety classes and understood it was "common sense" not to shoot anyone in the face. Chris also owned a paintball gun and was also familiar with its use and risks. They played a game that involved shooting at each others cars. One night Chris shot at Jason's car and hit him in the eye. Clark filed a product liability lawsuit against the manufacturer of Wright's paintball gun to recover for the injury. Clark claimed that the gun was defectively designed. During the trial, Wright testified that his gun "never malfunctioned." In whose favor should the court rule?

The court should rule in favor of the manufacturer, finding that the gun did not malfunction but performed exactly as Clark and Wright expected; The court should also point out that Clark and Wright appreciated the danger of using the guns without protective eye wear. Clark offered no proof that the paintball gun used in the incident failed to function as expected.

How did the court's conclusion affect the outcome in the Mala case?

The court's conclusion determined the outcome in this case. Mala sought a jury trial on his claim of Crown Bay's negligence, but he did not have a right to a jury trial unless the parties had diversity of citizenship. Because the court concluded that the parties did not have diversity of citizenship, Mala was determined not to have a jury-trial right. The outcome very likely would have been different if the court had concluded otherwise. The lower court had empaneled an advisory jury, which recommended a verdict in Mala's favor. This verdict was rejected, however, and a judgment issued in favor of Crown Bay. On appeal, the U.S. Court of Appeals for the Third Circuit affirmed the lower court's judgment.

Perfection of a Security Interest: Marsh has a prize horse named Arabian Knight. Marsh is in need of working capital. She borrows $50,000 from Mendez, who takes possession of Arabian Knight as security for the loan. No written agreement is signed. Discuss whether, in the absence of a written agreement, Mendez has a security interest in Arabian Knight. If Mendez does have a security interest, is it a perfected security interest? Explain

The creditor has a security interest in the collateral and is a perfected secured party Mendez has given value and has taken possession of the collateral owned by the debtor (rights in the collateral). Thus, the creditor has a security interest even though no security agreement was signed by the debtor. Once a security interest attaches, perfection can be made by a transfer of possession to the secured party without a filing

May 1, Yu offers to hire Benson to perform personal services by phone. May 5: Benson returns the call and accepts the offer. The contract calls for Benson to submit a written research report with a deadline of 2 years for submission. Does this contract fall under the state of frauds?

The likelihood or probability of a person performing according to the terms of a contract within a year is irrelevant to the question of whether such performance is possible. If it is possible for Benson to submit the written research report within one year, beginning May 6, the contract is outside the Statute of Frauds and legally enforceable without a writing—despite the fact that Benson is permitted two years to submit the report.

Planned Pethood Plus, Inc., is a veterinarian-owned clinic. It borrowed $389,000 from KeyBank at an interest rate of 9.3 percent per year for ten years. The loan had a "prepayment penalty" clause that clearly stated that if the loan was repaid early, a specific formula would be used to assess a lumpsum payment to extinguish the obligation. The sooner the loan was paid off, the higher the prepayment penalty. After a year, the veterinarians decided to pay off the loan. KeyBank invoked a prepayment penalty of $40,525.92, which was equal to 10.7 percent of the balance due. The veterinarians sued, contending that the prepayment requirement was unenforceable because it was a penalty. The bank countered that the amount was not a penalty but liquidated damages and that the sum was reasonable. The trial court agreed with the bank, and the veterinarians appealed. Was the loan's prepayment charge reasonable, and should it have been enforced

The prepayment penalty is not improper. The word "penalty" is used in many contracts when in fact liquidated damages are being assessed. "Where there is a breach of a contract, liquidated damages provisions must be 'reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss.' A liquidated damages provision must not be 'unreasonably large for the expected loss from a breach of contract,' or 'unreasonably disproportionate to the expected loss on the very breach that did occur and was sued upon.' In an action for breach of contract, a liquidated damages provision that fails the above tests amounts to an unenforceable penalty." Planned Pethood had the right to prepay the loan principal, but that triggered the prepayment penalty that was clearly stated in the contract. The alternative for Pethood was to pay the loan annually, year by year, for 10 years as the note called for. When it took advantage of the alternative, the prepayment penalty was not unreasonable. This is a common feature of many loan agreements and the sum required does not violate some notion of equity and is not unconscionable.

MIllers had a son, Landon. When they divorced they entered into a joint plan. Under the JP Darrell agreed to "begin setting funds aside for Landon to attend college". After Landon's 18th bday, Lisa asked the court to order Darrell to pay college based on the JP. Darrell contended that the JP was not clear on this point. Do the rules of contract interpretation support Lisa or Darrell?

The provision is ambiguous. Lisa, however, did not offer any evidence to support her asserted interpretation of the provision. Without such evidence, the ambiguity should be interpreted in favor of Darrell. In this case, the court ordered Darrell to pay, but on appeal, a state intermediate appellate court reversed the order.

Karen and Gerald Bladavich own property in South Dakota that they lease to Wyoming Alaska Corp. (WACO) for use as a gas station and convenience store. The lease obligates the Bladavichs to pay for repairs, but WACO is authorized to make necessary repairs. After seventeen years, the property was run-down. The store's customers were tripping over chunks of concrete in the parking lot. An underground gasoline storage tank was leaking. The store's manager hired Cortez Construction, Inc., to install a new tank and make other repairs. The Bladavichs saw the new tank sitting on the property before the work began. When WACO paid only a small portion of the cost, Cortez filed a mechanic's lien and asked a court to foreclose on the property. The Bladavichs disputed the lien, arguing that they had not requested the work. What is the purpose of a mechanic's lien? Should property owners who do not contract for improvements be liable for the cost under such a lien?

The purpose of a mechanic's lien is to provide security or protection to persons who improve the property of others by furnishing materials and labor. Even if a property owner has not actually authorized an improvement, the owner's authority will be inferred if he knew about an improvement and did not act to avoid liability for it. Owners are required to take action rather than remain silent when they have notice that improvements are being made on their property or they will be estopped from attacking a mechanic's lien The Bladavichs knew that the improvements were going to be made to their property because they saw the tank. They could have protected themselves against Cortez's eventual lien by, for example, notifying Cortez immediately. Because they did nothing to protect themselves, the court should hold that Cortez is entitled to foreclose on the mechanic's lien.

Middleton Motors, Inc., a struggling Ford dealership in Madison, Wisconsin, sought managerial and financial assistance from Lindquist Ford, Inc., a successful Ford dealership in Bettendorf, Iowa. While the two dealerships negotiated the terms for the services and a cash infusion, Lindquist sent Craig Miller, its general manager, to assume control of Middleton. After about a year, the parties had not agreed on the terms, Lindquist had not invested any funds, Middleton had not made a profit, and Miller was fired without being paid. Lindquist and Miller filed a suit in a federal district court against Middleton based on quasi contract, seeking to recover Miller's pay for his time. What are the requirements to recover on a theory of quasi contract? Which of these requirements is most likely to be disputed in this case? Why

The requirements for recovery on a quasi-contract theory are: (1) one party must confer a benefit on another party, (2) the party must confer the benefit with the reasonable expectation of being paid, (3) the party must not act as a volunteer in conferring the benefit, and (4) the party who received the benefit would be unjustly enriched if it were retained without being paid for. In this case, most of these requirements are apparent—Lindquist lent its manager Miller to Middleton, Lindquist did not do this as a volunteer but at Middleton's request, and Middleton would be unjustly enriched if Miller's services accrued to its ultimate benefit without being paid for. The most likely requirement to be disputed is whether Lindquist reasonably expected to be paid if Miller did not make Middleton profitable. If Lindquist did not expect to be paid unless its manager made the Wisconsin dealership profitable, the Iowa dealership could not recover on a quasi-contract basis, because Miller did not make a profit for Middleton. The court awarded damages on a quasi-contractual basis, but the U.S. Court of Appeals for the Seventh Circuit reversed and remanded the case to determine what Lindquist's reasonable expectations were.

Summerall Electric Co. and other subcontractors were hired by National Church Services, Inc. (NCS), which was the general contractor on a construction project for the Church of God at Southaven. As work progressed, payments from NCS to the subcontractors were late and eventually stopped altogether. The church had paid NCS in full for the entire project beforehand, but apparently NCS had mismanaged the project. When payments from NCS stopped, the subcontractors filed mechanic's liens (see Chapter 29) for the value of the work they had performed but for which they had not been paid. The subcontractors sued the church, contending that it was liable for the payments because NCS was its agent on the basis of either actual or apparent authority. Was NCS an agent for the church, thereby making the church liable to the subcontractors? Explain your reasoning.

The subcontractors should have filed liens before the church made its final payment to NCS. Their liens were not timely. NCS was not the agent of the church such that the church could be held liable to the subcontractors for costs owed to subcontractors by NCS. NCS did not give the church authority to contract on its behalf, and the church did not exercise any authority over the subcontractors. Apparent authority exists when a reasonably prudent person, having knowledge of the nature and the usages of the business involved, would be justified in supposing, based on the character of the duties entrusted to the agent, that the agent has the power he is assumed to have. Subcontractors did not rely on alleged apparent authority conferred by the church onto NCS to bind the church such as to create an agency relationship in which the subcontractors could hold the church liable for costs owed to subcontractors by NCS, where there was no evidence that any of the subcontractors believed that they were employed by the church or worked on its behalf.

Cuesport Properties, LLC, sold a condominium in Anne Arundel County, Maryland, to Critical Developments, LLC. As part of the sale, Cuesport agreed to build a wall between Critical Developments' unit and an adjacent unit within thirty days of closing. If Cuesport failed to do so, it was to pay $126 per day until completion. This was an estimate of the amount of rent that Critical Developments would lose until the wall was finished and the unit could be rented. Actual damages were otherwise difficult to estimate at the time of the contract. The wall was built on time, but without a county permit, and it did not comply with the county building code. Critical Developments did not modify the wall to comply with the code until 260 days after the date of the contract deadline for completion of the wall. Does Cuesport have to pay Critical Developments $126 for each of the 260 days?

Yes, Cuesport has to pay Critical Developments $126 for each of the 260 days that elapsed between the contract deadline and the date of the completion of the wall. A liquidated damages provision in a contract specifies a certain dollar amount to be paid in the event of a future default or breach of contract. A penalty provision also specifies a certain amount to be paid in the event of a default or breach of contract but is designed to penalize the breaching party. Liquidated damages provisions are usually enforceable. In the actual case on which this problem is based, Critical Developments filed a suit in a Maryland state court against Cuesport for breach. The court awarded the liquidated damages stipulated in the parties' contract. On Cuesport's appeal, a state intermediate appellate court affirmed.

The Northeast Independent School District in Bexar County, Texas, hired STR Constructors, Ltd., to renovate a middle school. STR subcontracted the tile work in the school's kitchen to Newman Tile, Inc. (NTI). The project had already fallen behind schedule. As a result, STR allowed other workers to walk over and damage the newly installed tile before it had cured, forcing NTI to constantly redo its work. Despite NTI's requests for payment, STR remitted only half the amount due under their contract. When the school district refused to accept the kitchen, including the tile work, STR told NTI to quickly make the repairs. A week later, STR terminated their contract. Did STR breach the contract with NTI?

Yes, STR breached the contract with NTI. A breach of contract is the nonperformance of a contractual duty. A breach is material when performance is not at least substantial. In the actual case on which this problem is based, when STR refused to pay Newman and then terminated their contract, the subcontractor filed a suit in a Texas state court to recover. From a jury verdict in Newman's favor, STR appealed. A state intermediate appellate court affirmed. "The evidence presented was legally sufficient for the jury to conclude that STR materially breached the contract.

Damion and Kiya Carmichael took out a loan from Ameriquest Mortgage Co. to refinance their mortgage. They signed a note to make monthly payments on the loan. Later, Deutsche Bank National Trust Co. acquired the note. The Carmichaels stopped making payments and filed for bankruptcy. Deutsche asked the court to foreclose on the mortgage. The Carmichaels asserted that they had been fraudulently induced to make the loan and sign the note. Was the bank free of this defense?

Yes, the bank was free of the defense asserted in these facts. A holder in due course (HDC) is a special-status transferee of a negotiable instrument who, by meeting certain acquisition requirements, takes the instrument free of most defenses and all claims to it. A holder can become an HDC if the holder takes the instrument for value, in good faith, and without notice of any defects. Defenses against payment fall into two categories. Universal defenses are good against all holders, including HDCs. Personal defenses are used to avoid payment to an ordinary holder, but not an HDC. Fraud in the inducement is a personal defense. Here, Deutsche was an HDC—it took the loan for value, in good faith, and without notice of any defects before the Carmichaels defaulted. The Carmichaels claimed fraudulent inducement—a personal defense that applies only to holders, not HDCs—and this defense did not apply to Deutsche. None of the defenses against the payment of a negotiable instrument to which an HDC is subject were otherwise alleged in these facts. Of course, the Carmichaels could raise a fraud claim against AMC.In the actual case on which this problem is based, the court issued a ruling in the bank's favor.

Stephen Patterson held an account with Suntrust Bank in Alcoa, Tennessee. Juanita Wehrman—with whom Patterson was briefly involved in a romantic relationship—stole his debit card and used it for sixteen months (well beyond the length of their relationship) to make unauthorized purchases in excess of $30,000. When Patterson learned what was happening, he closed his account. The bank refused to reimburse him more than $677.46—the amount of unauthorized transactions that occurred within sixty days of the transmittal of the bank statement that revealed the first unauthorized transaction. Is the bank's refusal justifiable?

Yes, the bank's refusal to reimburse Patterson more than $677.46 was justified. Under the Electronic Fund Transfer Act (EFTA), if a customer's debit card is lost or stolen and used without her or his permission, the customer does not have to pay more than $50. But for this limit to apply, the customer must notify the bank of the loss or theft within two days of learning about it. Otherwise, the liability increases to $500. The customer may be liable for more than $500 if the unauthorized use is not reported within sixty days after it appears on the customer's statement.

In June 1995, Michael and Debra Boudreaux, doing business as D&J Enterprises, Inc., bought a retail electronics store operated under a franchise from Radio Shack. The Boudreauxes borrowed from Cabool State Bank to pay for the business and signed loan documents and a financing statement, which identified the Boudreauxes as "Debtors." Elsewhere on the financing statement, the bank identified "D&J Enterprises, Inc., Radio Shack, Dealer, Debra K. Boudreaux, Michael C. Boudreaux" as "Debtors." The statement covered, in part, the store inventory. Before the end of the year, the Boudreauxes changed the name of their business to Tri-B Enterprises, Inc. In January 1998, the store closed. The next month, Radio Shack terminated the franchise and, despite the lack of a security interest, took possession of the inventory, claiming the Boudreauxes and Tri-B owed Radio Shack $6,394.73. The bank filed a suit in a Missouri state court against Radio Shack, claiming a perfected security interest in the inventory with priority over Radio Shack's claim. Did the bank's security interest take priority over Radio Shack's claim?

Yes, the bank's security interest has priority over Radio Shack's claims. The Boudreauxes bought the original inventory in their individual names, and gave the bank a security interest in the original and future inventory. Furthermore, the bank perfected its security interest in existing and future inventory owned by Boudreauxes by filing financing statements that listed Boudreauxes and D & J Enterprises, Inc. Radio Shack was not misled by the debtors' change of their business name, because the bank's financing statement was filed under the "true name" of at least one of the debtors with whom Radio Shack admitted doing business.

In Sept, Sharyn agrees to work for Totem Productions at $500 per week beginning January 1st. In October, Sharyn is offered the same work at $600 per week bu Umber. When Sharyn tells Totem about the offer they tear up their contract and agree to $575, is the new contract binding?

Yes, the original contract was executory; If Sharyn had broken the contract to accept a contract with another employer, she might have been held liable for damages for the breach.

PRA Aviation, LLC, borrowed $3 million from Center Capital Corp. to buy a Gates Learjet 55B. Center perfected a security interest in the plane. Later, PRA defaulted on the loan, and Center obtained possession of the jet. The market, design, and mechanical condition of similar aircraft were reviewed to estimate the jet's value at $1.45 million. The jet was marketed in trade publications, on the Internet, and by direct advertising to select customers for $1.595 million. There were three offers. Center sold the jet to the high bidder for $1.3 million. Was the sale commercially reasonable?

Yes, the sale was commercially reasonable. Once default has occurred and the secured party has obtained possession of the collateral, the secured party can sell the collateral in any commercially reasonable manner and apply the proceeds toward satisfaction of the debt. Business Air (the broker) reviewed the market and the condition of the aircraft to estimate a reasonable value, and aggressively marketed the plane. Center rejected two low bids and sold the jet for the best offer under the circumstances. This conduct seems to satisfy the standard for a commercially reasonable sale.

TracFone sells phones for less than their cost, which TracFone recoups by selling prepaid airtime for their use on its network. The phones cannot be used on other networks. The phones are sold subject to the condition that the buyer agrees not to tamper with or alter the software. It is printed on the packaging. Beq Corp bought at least 18,000 phones, disabled the software so that they could be used on other networks and resold them. Is Beq liable for breach of contract?

Yes. A shrink-wrap agreement is an agreement whose terms are expressed inside the box in which the goods are packaged. The party who opens the box may be informed that he or she agrees to the terms by keeping whatever is in the box. by including the terms with the product, the seller proposed a contract that the buyer accepted by using the product after having an opportunity to read the terms

Newmar contacted 17 street realty to lease a property on behalf of a client. Newmark emailed the landlord a separage agreement for the payment of Newmark's commission. The landlord emailed it back with a separate demand to pay the commission in installments. Newmark revised the agreement and emailed a final copy to the landlord. Does the agreement qualify as a writing under the statute of frauds?

Yes. A writing to satisfy the Statute of Frauds can consist of any order confirmation or other document, alone or in combination with other items, in hard copy or electronic copy, including email. The item or items need only contain the essential terms of the contract to bind both parties to the writing. agreement to pay Newmark's commission with a demand to pay the amount in installments. Newmark e-mailed a revised version of the agreement that set out all of the essential terms to the landlord, who did not object to it. This met the requirements of a writing under the Statute for Frauds. Thus, Newmark was entitled to the payment of its commission.

Matt tells Ann that the wiring, fixtures and appliances are of a certain quality, knowing nothing about the quality but it isn't specified. Ann buys the house. Ann confronts Matt once she learns the true quality. He says he wasn't trying to fool her, just make a sale. can she rescind the sale?

Yes. Rescission may be granted on the basis of fraudulent misrepresentation.

Elle, an accountant, certifies audit reports for Flite knowing they use them to obtain loans from GCC. Elle believes the reports are true and doesn't check before certifying them. Can Elle be held liable to GCC?

Yes. The accountant may be liable on the ground of negligent misrepresentation. A misrepresentation is negligent if a person fails to exercise reasonable care in disclosing material facts or does not use the skill and competence required by his or her business or profession

Before Maria starts her first year of college, Fred promises to give her $5000 when she graduates. She goes to college borrowing and spending far more than $5000. At the beginning of the Spring semester of her senior year, she reminds Fred of the promise. Fred sends her a note that says I revoke the promise. Is Fred's promise binding?

Yes. Under the doctrine of detrimental reliance, or promissory estoppel, the promisee is entitled to payment of $5,000 from the promisor on graduation.

Steven divorced Laura, they agreed to split their assets equally. They owned an account est. to be worth 5.4 million. Steven kept the account and paid Laura 6.5 million, including 2.7 to offset the amount of funds they believed were in the account. Later they learned the account had no funds due to its managers fraud. Could they agreement be rescinded on the basis of a mistake?

Yes. When both parties to a contract are mistaken about the same material fact, the contract can be rescinded by either party. If, however, a mistake concerns the later market value of the object of the contract, the contract normally can be enforced by either party

Chow tried to unclog a floor drain in the kitchen where he worked. He used a cleaner called Lewis Red Devil Lye that contained crystalline sodium hydroxide. Product label said to wear eye protection, to put one tbs of lye into the drain and to keep face away because of dangerous backsplash. W/out eye protection, Chow mixed 3 tbs and poured it down the drain while bending over it. Liquid splashed back into his face, causing injury. He brought a product liability suit based on inadequate warnings and design defect. The trial court granted summary judgment to the manufacturer, and Chow appealed. An expert for Chow stated that the product was defective because it had a tendency to backsplash. Is that a convincing argument?

inadequacies in the warning label, or not a substantial factor in bringing about the injuries; it was Chow's responsibility to read the label, claim of an expert that backsplash is a common problem does not mean there is a safer design; no evidence of a safer design so claim was dismissed

Kolchek bought a spa from Porter, a dealer selling spas at the state fair. Kochek signed an installment contract. Porter than handed her the manufacturer's paperwork and arranged for the spa to be delivered and installed. 3 months later, Kolchek left her 6 yr old daughter alone in the spa. She stuck her hand into one of the jet holes and was unable to remove her finger. She yanked hard, injuring her finger and then called for help. Kolchek had to call the local police and rescue team. After a 3 hour operation that included draining the spa, sawing out a section and slicing the jet casing the finger was freed. Spa was no longer functional. Her daughter broke her finger in two places. Would privity of contract be required for Kolchek to succeed in a product liability action against Great Lakes?

injured consumers may bring claims sounding in product liability or strict liability against manufacturers despite the absence of a direct contractual relationship. Potential defendants to such actions include manufacturers, sellers, and lessors.

Kolchek bought a spa from Porter, a dealer selling spas at the state fair. Kochek signed an installment contract. Porter than handed her the manufacturer's paperwork and arranged for the spa to be delivered and installed. 3 months later, Kolchek left her 6 yr old daughter alone in the spa. She stuck her hand into one of the jet holes and was unable to remove her finger. She yanked hard, injuring her finger and then called for help. Kolchek had to call the local police and rescue team. After a 3 hour operation that included draining the spa, sawing out a section and slicing the jet casing the finger was freed. Spa was no longer functional. Her daughter broke her finger in two places. For an action in strict product liability against Great Lakes, what six requirements must Kolchek meet?

must show the product was in a defective condition when it was sold, the defendant sells or distributes such products in the ordinary course of business, the product was unreasonably dangerous, the plaintiff suffered physical harm or injury to property as a result of use of the product, the injury was proximately caused by the defect, and the product was not substantially changed from the time it was sold to the time of the injury

A county court in Illinois is deciding a case involving an issue that has never been addressed before in that state's courts. The Iowa Supreme Court, however, recently decided a case involving a very similar fact pattern. Is the Illinois court obligated to follow the Iowa Supreme Court's decision on the issue? If the United States Supreme Court had decided a similar case, would that decision be binding on the Illinois court? Explain.

not obligated to follow Iowa's decision; US Supreme Court is binding

Schmidt owns a small business, has a large piece of used farm equipment for sale. He offers to sell to Barry for $10,000. night before Barry accepts, fire destroys equipment.

offer terminated by destruction

Sue lived with her 4 daughters (Amanda, 11, Victoria, 5, Jenna and Jillian, 3). Sue bought an Aim N Flame utility lighter which she stored on the top shelf in the kitchen. trigger can ignite once On/off switch is slid into "on" Position. On the night of March 31, Calles and Victoria left to get videos. Jenna and Jillian were in bed, and Amanda was watching television. Calles returned to find fire trucks and emergency vehicles around her home. Robert Finn, a fire investigator, determined that Jenna had started a fire using the lighter. Jillian suffered smoke inhalation, was hospitalized, and died on April 21. Calles filed a suit in an Illinois state court against Scripto-Tokai Corp., which distributed the Aim N Flame, and others. In her suit,which was grounded, in part, in strict liability claims, Calles alleged that the lighter was an "unreasonably dangerous product." Scripto filed a motion for summary judgment.

the expectations regarding the Aim N Flame's use and safety must be viewed from the point of view of the adult consumer." The court held that the lighter met this test; the Aim N Flame did not fail to perform as an ordinary consumer would expect when used in a reasonably foreseeable manner. Thus, as a matter of law, no fact finder could conclude that the Aim N Flame was unreasonably dangerous under the consumer-expectation test.

Rocky Mountain Races, Inc., sponsors the "Pioneer Trail Ultramarathon" with an advertised first prize of $10,000. The rules require the competitors to run 100 miles from the floor of Blackwater Canyon to the top of Pinnacle Mountain. The rules also provide that Rocky reserves the right to change the terms of the race at any time. Monica enters the race and is declared the winner. Rocky offers her a prize of $1,000 instead of $10,000. Did Rocky and Monica have a contract?

there was a unilateral contract, but it was not breached because Rocky could change the terms at anytime