Law Exam 4
equitable doctrine
"A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promissee . . . and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise." Restatement (2nd) of Contracts
Quantum Meruit
"As much as he deserves" - the damages awarded in a quasi-contract case -legal concept used by courts to prevent injustice.
Fordyce Bank & Trust v. Bean Timberland
- Fordyce Bank made series of loans to Bean so it could buy timber from landowners - Bean would cut timber & sell logs to Potlatch and Idaho Timber (P&I) which milled logs into timber - Bean's proceeds from timber sales would repay loans - bank perfected its interest by filing UCC Financing Statement with the Secretary of State's Office of Arkansas - Bean sold timber but failed to repay loans; went bankrupt - bank sued P&I because bank had a priority interest in the timber sale proceeds - bank said P&I was negligent in its dealings for failing to do a lien search & did not "exercise good faith" required under the UCC - Trial court held for P&I, ruling they were not negligent (said that P&I was not required to perform a security interest search in the "ordinary course of business" (nobody ever does UCC search)) - bank appealed
Certified Fire Protection v. Precision Construction HOLDING
- a contract requires offer and acceptance, meeting of minds and consideration. -certified argued progress bill it sent to precision established the price term. Said precisions urging that certified get started on designs established some scope of work for express design-work only contract. -testimony establish that precisions would not execute a contract only for design drawings. Such drawings are specifically tailored for a company - not useful to another installer. -price and scope of work terms missing. parties never agreed to performance time. -certified also argued it should recover under implied contract. -such a contract must be MANIFESTED BY CODUCT - SHOWING INTENT BY PARTIES TO CONTRACT. NOT TRUE HERE. HELD: AFFIRMED. NO CONTRACT WAS EVER MADE. TOO MANY GAPS TO FILL. -precisions never agreed to a contract for only design related work. This was a design and install contract for a sprinkler system. No agreed upon price; disputes included time of performance. The designs are installer-specific.
In Re 1545 Ocean Avenue, LLC
-1545 ocean avenue LLC formed real estate project. -owned 50/50 by two companies. -Each company had membership certificate in 1545. Operating agreement had no dissolution provisions. -Two managers appointed to operate 1545; crown royal appointed King; ocean suffolk appointed Van Houten. -King and Van houten argued; king announced crown royal would pull out. -King sued for work to stop and the LLC to be dissolved. -trial court granted King's request. -Ocean Suffolk and Van Houten appealed.
Parol of evidence (UCC)
-2-202 says parol evidence cant usually be used in writing. -BUT can explain customary trade dealings of the meaning of certain terms. However, If the intent that the original writing is a complete and exclusive statement of terms, parol evidence may not be used to change the terms. Must explain the standard.
Zhou v. Bickley
-Bickley worked at Yamaha shop. Frequently ate lunch at a Chinese restaurant where Zhou and Zhang worked. Bickley told Zhou and Zhang that the Yamaha shop was going out of business. Suggested they help him open a new motorcycle repair shop. -Three of them signed two-year leases on building for the shop. Zhou and Zhang paid security deposit and 1st months rent. They helped pay for inventory; helped get the shop ready. Gave Bickley more money when he asked for it. -Soon after Zhou and Zhang asked for keys to building; Bickley refused. Asked to see receipts and invoices, he refused. Asked to work at the shop; he fused. Demanded a written agreement, he refused. Attorney sent a demand letter on behalf of Zhou and Zhang; he ignored it. -Suit was filed. Demanded return of funds expended. -Bickley filed a counterclaim for breach of contract by his partners. -Trial court held: no partnership. Only a vague agreement to open a motorcycle repair shop. -Bickley operated as a sole proprietor who borrowed money that he owed to Zhou and Zhang. BICKLEY APPEALED.
Buyer damages
-Cover -Incidental damages -Consequential damages
Eagles Landing Development, LLC v. Eagles Landing Apartments, LP
-Eagles landing development LLC (eagles) contracted to build apartments for Eagles Landing Apartments (ELA) for $1.4 million. -ELA general partner was Bluff City. Two limited partners PNC and Columbia. -Eagles completed work but was still owed $913,000. Agreement stated that Bluff City's contribution wouldn't exceed net cash flow from rental of apartment. -Cash flow was not good; no money there. All cash invested in ELA by partners was gone. -Eagles sued for contribution by PNC and Columbia. -Trial court held: ELA owed the $931,000 -ELA appealed.
QVC, Inc. v. MJC America, Ltd.
-GVC offered customers soleus-brand electric heaters. Made in China for Soleus. QVC sold 19,100 heaters in 2007-2008. -Customers reported safety problems. QVC stopped sales and had product evaluated. Showed quality problems. -QVC ordered a recall; refunded money to customers who returned the product or returned electric cord to heater. -QVC's contract with soleus contained strong warranty terms. holding seller responsible for all costs related to defects, including recall costs. -Soleus disputed there was a problem. -QVC sued. District court: Soleus breacher warranty so awarded damages to QVC.
Zhou v. Bickley HOLDING
-HELD: affirmed-parties did not intend to do things that would constitute a partnership. -mere fact the parties called themselves partners and refer to the business as one doesn't make them partners or a partnership. -Zhou, Zhang, and Bickley contributing money for expenses and signed a lease, is no binding contract, much less a partnership. A reasonable person would conclude that Zhou and Zhang simply intended to enter into a partnership agreement in the future. -Bickley denied Zhou and Zhang access to the building; denies them access to financial records; refused to let them participate in the operations of business. Such actions are not consistent with a partnership. -intent to do things which constitute a partnership determines if parties are partners.
Surety's rights against the principal
-If borrower could pay creditor but refuses to, surety is entitled to exoneration. -surety is entitled to rights of the creditor against the debtor.
Conflicting Terms - "battle of forms"
-If offerree's form doesn't match the offeror's there is acceptance, but use offeror's terms unless special action is take. -Offeree must specifically note that acceptance is contingent on offeror accepting changed terms for the different terms to become part of the deal.
Crest Ridge Construction v. Newcourt INC.
-John and Joe Brower worked for a construction company. They set up their own company, Crest Ridge and were awarded a subcontract to provide wall panels for a job. -Wanted to use the panel made by Newcourt. After some discussion, price was $760,000 "subject to credit department approval". -Because crest ridge was a new company, not much credit info. -Over the next 6 month, detailed discussions re: panel specs and shipment was set. -Right before delivery, Newcourt demanded payment in full. Industry practice is 45 days after shipment (so subcontractor can give goods to general contractor who would pay the pill) -Crest ridge could not make advance payment and had to find another supplier at a higher price. -Crest Ridge sued Newcourt. -Jury awarded $70,214 in damages. -Newcourt appealed.
Lee v. R&K Marine, INC.
-Lee bought new boat from R&K Marine. Agreement contained a disclaimer for all warranties, express or implied. -Three years later cracks and deterioration discovered in the hull. Appraiser determined manufacturing defects - boat was a complete loss. -Manufacturer was bankrupt; Lee sued R&K, claiming a breach of warranties of merchantability and fitness for particular purpose. -Summary judgement for R&K; Lee appealed.
Corporations
-Legal entity/persons -Can be sued and sue -has liability -has constitutional rights -MUST meet formal requirements according to state statutes. -Liable for agents' actions and contracts. -each state has its own corporation laws
Breach of contract remedies
-Monetary Damages -Equitable remedies -Mitigation of Damages
Formation of partnership
-Not required to enter into a formal agreement for the partnership to exist at law. -However, agreements are preferable, especially regarding finances, management and dissolution issues. -if the partnership is silent UPA governs. -Each of the partners has a fiduciary duty to other partners. -If the agreement does not state otherwise, the profits of the partnership are divided equally.
K.C. Roofing Center v. On Top Roofing, Inc.
-Nugets owned a series of roofing companies. Russell and wife only shareholders, directors, and officers. 1977: Russell Nugent Roofing inc. was incorporated 1985: corporation name changed to on top roofing. 1987: on top roofing ceased doing business. 1987: Nugents did business through new corporation. RNR inc. 1988: Replaced RLN construction inc. 1989: RLN construction was replaced by Russell Nugent inc. -Business was ran out of Nugent's home. -in 1986 they paid themselves salaries over $100,000 each. -Charged the corporation $99,290 in rent for space in their home. -K.C roofing was owed $45,000 for roofing supplied sold to On Top Roofing which no longer existed. -K.C asked court to pierce the corporate veil and hold nugents personally liable. -District held for K.C Nugents appealed.
Intent to Contract (UCC)
-Offer and acceptance rule relaxed. -Indefinite offer -Courts require good faith dealing -Merchants firm offers are irrevocable.
Orkal Industries v. Array Connector Corp.
-Orkal (NY) bought products from array (Florida). -Orkal would send purchase oder forms. Array would confirm orders with customer order acknowledgement" forms that contained a forum selection clause. -Clause stated that in case of disputes, Orkal would have to bring the suit to Florida. -Orkal did not object to the clause. -Later Orkal sued Array in NY for breach of contract. -Array moved to dismiss due to forum selection clause. -Trial court agreed. Case was dismissed. Orkal would have to sue Array in Florida. -Orkal Appealed
Paramount Contracting v. DPS Industries
-Paramount needed hundreds of truckloads of dirt for a construction project. -DPS offered to sell dirt and haul it to the construction site. DPS claimed that Paramount accepted the offer; Paramount denied it did and hired another company. -Question: Was case governed by Article 2 of the UCC or common law? Easier to form a contract under Article 2. Article 2 applies to contracts for sale of goods. Does not apply for services or labor. -When a transactions involves both goods and services, whether Art. 2 applies, depends of "predominant purpose" of the transaction. -DPS said: Sale and delivery of dirt (goods), so Art. 2 applies. -Paramount said DPS to perform services such as placing and compacting the dirt at the site. -DPS sued for breach of contract. -JURY found for DPS - awarded damages for sale of goods under UCC. -PARAMOUNT APPEALED.
S corporation
-Regular C corp can elect with IRS to be classified as S corp. -have only one class of stock. -no more than 100 shareholders -only natural persons can be shareholders - not another company. -primarily for tax considerations. -Profits/losses allocated to shareholders who pay income taxes. -very popular in smaller business.
Scheerer v. Fisher
-Scheerer a real estate agent, helped arrange to buy commercial real estate for $20 million. -Seller and Fisher each promised to pay Scheerer 2%. Deal fell apart. -Fisher formed a new company and had a 3rd party, Antonio, buy the property and then sell it to Fisher's new company. -Scheerer learned of the deal and sued for breach of contract on quantum meruit compensation. -Trail court held no contract or basis of payment. -SCHEERER APPEALED.
Functions of Negotiable Instruments
-Substitute for cash (checks for example) -Provides way to extend credit (promissory note)
In Re Darby
-after darby filed chapter 13 bankruptcy, Time warner canceled cable service. Darby filed a motion with bankruptcy court to compel time warner to reinstate his service, with his assurances of future payment. -bankruptcy court and district court rules that cable service was not a utility that must be provided as a necessity under law. -Darby appeaked.
limited liability
-allows a person to invest in a business without placing their personal wealth at risk. -Allows investors to be passive toward internal management. -Sole proprietors and general partners have unlimited personal liability for debts of business, including torts. -Liability of limited partner is limited to the capital contributed to limited partnership.
Managers
-appointed by directors to manage day-to-day decisions. -have broad duties of care and loyalty to directors.
Certificates of Deposit
-banker is maker of certificate and promises to repay customer payee. -Most large cetificates are negotiable which allows them to be sold, used to pay debts or used as collateral.
What makes in instrument negotiable?
-be written -be an unconditional order or promise to pay. -Be signed by the marker or drawer. -Be payable on demand or at a specified time. -Be made out payable to order or to bearer. -Must state a certain sum of money.
Seller repudiates before delivery of goods
-cancel contract -obtain goods from another supplier -sue seller
Buyer repudiates before receiving goods
-cancel contract -ID goods, minimize losses by completing or stopping manufacture mitigation. -Withhold or stop delivery. -Resell goods in commercially reasonably manner. -Sue buyer for losses incurred.
seller fails to deliver
-cancel contract -obtain goods from another supplier -Sue seller
Seller delivers nonconforming goods, buyer rejects
-cancel contract -obtain goods from another supplier -sue seller -sell rejected goods to recover advance payments. -If no advance payments, store or reship goods.
Griffith v. Clear Lakes Trout Co.
-clear lakes, a fish hatchery, had a 6-year deal with Griffith, a trout grower. Griffith would buy small trout from clear lakes and sell them back when they had grown to market size. -After 3 years, Clear Lake's customers demanded bigger fish than 12-16 oz fish delivered by Griffith. -Clear lakes began to take fewer fish; waited longer to get them. -Griffith sued Clear lakes for breach of contract for not accepting the trout that Griffith had grown to "market size". -Clear lakes claimed no contract ever existed because the parties differed as to what market size was. NO MEETING OF MIND! -district court ruled in favor of Griffith. -Court held that parties knew that "market size" was 12-16oz. When formed contract. -Clear lakes APPEALED. .
contracts in restraint of trade
-contracts that restrain trade or unreasonably restrict competition. -covenant not to compete may be restraint of trade.
What if a contract is a mix of goods and services?
-court determines if common law of UCC applied. -in such a contract, parties can agree that UCC will apply to any disputes.
Adequacy of Consideration
-courts do not examine much. -if a party bargains poorly, courts usually wont interfere. -those who bargain take on the risk of their own errors. -THE MAIN CONCERN IS AN EXCHANGE OF MUTUAL PROMISES AND OBLIGATIONS BY THE PARTIES.
Damages of Economic Loss
-damages are only those related to lost profits and costs due to the breach. -accounting evidence and specific calculations are necessary evidence to be presented. -No punitive damages or mental distress awards.
Seller delivers nonconforming goods, buyer accepts
-deduct damages from price -sue seller for damages -sue for breach of warranty.
First meeting of a corporation
-elect board of directors -enact bylaws or rules that govern internal operations. -Issue the corporation's stock.
To be holder in due course transferee must:
-give value for instrument -take instrument without knowledge it is overdue or defective. -Take instrument in good faith.
Floating Lien Inventory
-goods held for sale as well as raw materials -inventory is constantly changing
Acceptance (UCC)
-greater flexibility in communication of acceptance. -"Any reasonable manner" under the circumstances. -May be valid even if new terms are added or existing terms are changed.
Caley v. Gulfstream Aerospace Corp.
-gulfstream adopted a dispute resolution policy as the only procedure to resolve disputes between gulfstream and the employees. Mailed policy to employees. -Policy said that DRP would begin in 2 weeks, and would be a condition of continued employment. If an employee continued to work, the he/she accepted the DRP. -group of employees sued, saying there was no contract and DRP could not be enforced. -District court held for Gulfstream. -Employees appealed. -HELD: AFFIRMED
Board of Directors
-have management power over large decisions. -Can be removed from office by shareholders for cause. -Have fiduciary duty of loyalty to the shareholders.
Buyer repudiates after receiving goods
-if buyer wont pay, sue for payment and damages. -If buyer wrongfully rejects, can reclaim goods and remedy as above. -If buyer cant reclaim goods, sue for payment and damages.
operation of law
-intervening legally -destruction of subject matter -death or insanity of offeror or offeree.
Limited partners
-investors only. Do not manage the business; are not liable for debts beyond their contributions.
traditional rule of consideration
-legal detriment to the promisee. -legal benefit to the promisor. -actually the legal detriment and benefit usually occur at the same time.
covenant not to compete may be restraint of trade unless:
-limited by time, territory, and ancillary to the contract. -Different states differ on this subject.
Business judgement rule
-makes directors and managers immune from liability. -WHEN problems result from honest mistake in judgement, if there is a reasonable basis for their decisions, and if they act in good faith.
limited partial capacity to contract
-minors -drunk people -insane people
Contract modification
-need not provide new consideration, but must have "good faith dealing" -Modification must usually be in writing.
Requirements for negotiable instruments
-only negotiable instruments fall under the UCC. -if nonnegotiable common law applies.
Paramount Contracting v. DPS Industries HOLDING
-paramount had a contract for construction at Atlanta airport. It used quote of dirt and hauling by DPS in its airport bid. -Contacted DPS about the volume of dirt and number of trucks needed to haul the dirt. -DPS believed, at that point, there was an agreement to sell and deliver the dirt. -memorialized the understanding in a letter to paramount. -No response to writing from paramount, and it later denied there was an agreement. -Paramount decided to buy dirt elsewhere. HELD: evidence is consistent that the sale of dirt was predominant purpose of the transaction. Predominantly a sales transaction. UCC applies. Trial court decision affirmed.
Certified Fire Protection v. Precision Construction
-precision construction is a general contractor that bid on a job. -solicited bids from subcontractors for things such as design and installation of a sprinkler system for fire prevention. -certified fire submitted a bid of $480,000. Won the bid. -Precisions begins construction. -DEC 5: certified got a copy of the contract from precision, along with set of construction plans and sprinkler requirements. -contract required certified to have preliminary design draws for system within 2 weeks and provide an insurance certificate. -JAN 19: no signed contract or insurance certificate, but certified billed precision for $33,575 although the plans were not even ready. -JAN 26: precision told certified that it was holding up the project and it would move ahead without certified. -FEB 1: certified submitted drawing but objected to terms in the contract. -FEB 8: precision told of mistakes in sprinkler system drawings. -FEB 16: precision told certified that it was ending the relationship because contract wasn't signed. There was no insurance certificate, and the drawings were incorrect. Certified sued for BREACH OF CONTRACT. -contented it was due payment for sprinkler system drawings.
Terminating an offer
-revocation -rejections -operation of law
contracts that require writing
-sale of land or interests -contracts that cannot be performed within 1 year. -promise to pay the debt of another -promises made in consideration of marriage.
Title passes when (article 2) unspecified
-seller completes all obligations regarding the delivery of goods. -when seller delivers title documents.
equitable remedies
-specific performance -injunction -restitution
unconscionable agreements
-unequal bargaining power -outcome is grossly unfair to an innocent party
Agreement provided in Deschamps v. Treasure State Trailer Court
1. Rasmussen had not conducted an inspection nor warranted property's condition. 2. Deschamps had right/duty to inspect property prior to purchase. 3. special disclaimer of reliance on Rasmussen's assurances. 4. inspection was waived or satisfied. 5. clause in agreement said this was entire agreement or superseded any oral arrangements. 6. agreement could only be amended in writing.
Elements of a Contract
1. an agreement through offer and acceptance 2. consideration 3. contractual capacity 4. legality 5. genuine consent 6. writing
security interest (secured transaction)
1. attachment -signed by customer -seller provided value -customer has legal, transferable rights in collateral. 2. perfected -filing w proper official.
Can hold title if:
1. goods exist 2. goods have been identified to contract.
Three policies of economic loss rule
1. maintain fundamental distinction between tort and contract law. 2. protect commercial parties' freedom to allocate risks by contract. 3. encourage the party best situated to assess the risk of economic loss.
General rule of minor (contracts)
1. minors may disaffirm contracts at their opinion. 2. if a minor disaffirms a contract after receiving benefits. restitution must be paid for the benefits.
A seller or buyer is a merchant when:
1. regularly deals in goods of the kind involved in the transaction. 2. by occupation presents himself or herself as having knowledge or skill specialized to the transaction. 3. employs an agent or broker who holds himself or herself out as having the requisite knowledge or skill. -Merchants are treated differently from other parties because they possess business expertise.
The acceptance
1. unconditional 2. unequivocal 3. legally communicated
Limited partnership
2 or more persons who have entered into an agreement to carry on a business venture for a profit. -MUST have a written agreement that is filed with the state. Called certificate of limited partnership. Puts 3rd parties on notice that limit partners assets not available to satisfy claims against the LP.
Quantity - filling the gap
2-306 recognizes requirements contracts and output contracts, where quantities may not be clear.
deliver term - filling the gap
2-309 states delivery must be within a reasonable time.
Types of Negotiable Instruments
3rd party instruments used instead of cash and as credit device. Orders to pay: drafts Orders to pay: checks Promises to pay: notes Promises to pay: certificates of deposit.
mortgagor
A borrower in a mortgage loan transaction.
writ of execution
A court's order, after a judgment has been entered against the debtor, directing the sheriff to seize (levy) and sell any of the debtor's nonexempt real or personal property. The proceeds of the sale are used to pay off the judgment, accrued interest, and costs of the sale; any surplus is paid to the debtor.
Writ of Attachment
A document filed during a lawsuit that prevents a debtor from conveying the property
mortgagee
A lender in a mortgage loan transaction.
Uniform Limited Partnership Act (ULPA)
A model statute setting forth principles governing limited partnerships, which has been adopted by many states
Compensatory Damages
A monetary award equivalent to the actual value of injuries or damage sustained by the aggrieved party.
Contract
A promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty.
Rescission
A remedy whereby a contract is canceled and the parties are returned to the positions they occupied before the contract was made.
Revised Uniform Limited Partnership Act (RULPA)
A revision of the ULPA that provides a comprehensive law for the formation, operation, and dissolution of limited partnerships.
credit counseling
A service to help consumers manage their debt load and credit more wisely. taken before filing bankruptcy.
credit policy
A set of rules that include the firm's capacity, capital, character, collateral, conditions.
nominal damages
A small monetary award (often one dollar) granted to a plaintiff when no actual damage was suffered.
bilateral contract
A type of contract that arises when a promise is given in exchange for a return promise.
bill of exchange
An order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.
bearer instrument
Any instrument that is not payable to a specific person, including instruments payable to the bearer or to "cash." -Drawer may create "to bearer", "to the order of bearer", "payable to bearer", "to cash" or "pay to the order of cash". risky - if lost, can be cashed by finder. -transfer bearer instrument by delivery.
Voluntary termination of corporation
Approval of the shareholders and the Board of Directors Articles of Dissolution are filed with the state
Interests inventory
As collateral, equipment, inventory, raw materials (tangible property) are used as security
duration - partnership and LLC
At common law, they are dissolved by death, retirement, or incapacity of a partner, but are not necessarily terminated.
Statute of Frauds
Basic rule that sale of goods for $500 or more is not enforceable unless in writing and signed by the party against whom enforcement is sought.
Implied warranty of Fitness for a particular purpose
Buyer communicates to seller, or seller "had reason to know" buyer's particular needs; buyer relies on on seller's expertise; then may have warranty.
Forming a sales contract
Common law governs unless UCC changes or modifies the rules; that is, if parties do not specify which law governs a contract, the courts look to see if it fits under common law or under UCC, as in Paramount Contracting case Mostly, UCC reduces the formality required
Express Warranties
Created by seller's promise as to quality, safety, performance or durability of goods. May be created: -From sample of model -By description of attributes. -By seller's statements or promises.
The offer
Creates an offeror and offeree. 1. Manifestation of intent 2. definite terms and conditions 3. communication
actual damages
Damages DIRECTLY related to breach.
Fiduciary Duty
Directors must place the interests of the corporation before personal interest. they are not expected to make decisions purely on the merits for the business itself, not taking into account other business interest.s
require good faith dealing
Don't allow one party to profit from bad fortune of other party due to unexpected large changes in circumstances.
Merchantability
For sales by merchants: -Goods must be of quality generally acceptable in trade. -Must be able to do what is expected.
Consequential Damages
Foreseeable damages that result from seller's breach. -May be with third parties, not necessarily seller.
Warranty of title
Good title will be transferred free of claims against it.
Arthur J Gallagher & Co v. Babcock HOLDING
HELD: AFFIRMED -defendants said non-competitions provisions were not valid because (1) their language (2) their geographic scope. -agreements unambiguously prohibited defendants from competing against Gallagher or soliciting its clients for 2 years after employment was terminated. -provisions in the agreement were less restrictive than allowed under state law. -Gallagher allowed former employees to work in similar business, just no on accounts they worked on while employed by Gallagher. -In LA non-compete clauses are limited to geographic areas under a like business and agreement must specify where the employer operates. -courts may rely on contractual severability clause to excise the geographic areas in which an employer does not conduct such a business. -district court agreed with defendant. Eliminated 55 parishes where Gallagher did not provide insurance service. This was not an error made by the district court.
Caley v. Gulfstream Aerospace Corp HOLDING
HELD: AFFIRMED. -DRP is an offer and states it is a contract. -terms of acceptance are continued employment by employees. -acceptance can be through a promise or an act. -here the action of continuing employment = acceptance of the offer and contract. -employees had choice to (1) continue employment or (2) terminate employment. -There is bargained consideration by mutual promises and obligations.
Hinson v. N&W Construction Company HOLDING
HELD: AFFIRMED. -Hinson admitted he provided a verbal quote. Also testified that he reviewed plans and specs for the building and was satisfied with his quote of $92,000. -Hinson refused to do plumbing because he "had a lot going on" -promissory estopped arises when "making of a promise, even through without consideration" the plantinff (N&W) relied upon. -refusal to enforce it would be virtually to sanction the the perpetuation of fraud or would result in other injustice."
Eagles Landing Development, LLC v. Eagles Landing Apartments, LP HOLDING
HELD: Affirm trial court's judgement and amount of $ owed. -Reverse assessment of judgment to PNC and Columbia. -Remand to trial court for purpose of entering judgment against only the partnership, ELA. -Columbia and PNC argue that if full developer's fee is due under the development agreement, they were not parties to it. They were only limited partners. -contended they can't be charged for liability of partnership under development agreement. Court agreed. -unlike general partners, a LLP protects partners registered as limited liability partnerships. Partner in registered LLP is not liable. As partners in an LLP neither Columbia nor PNC can be held liable for partnership debts. -Trial court appeared to disregard PNC and Columbia's status as LLP's.
Fordyce Bank & Trust v. Bean Timberland HOLDING
HELD: Affirmed. - a buyer in the ordinary course of business (P&I) "takes free of a security interest created by the buyer's seller [Bean], even if the security interest is perfected [by the bank] and buyer knows of its existence" - if P&I were buyers in "ordinary course of business", they had no duty to perform a lien search; even if they know of bank's security interest, P&I can take free of Bank's security interest - clear evidence that purchasing logs from timber cutters without performing a lien search is standard timber industry practice
Crest Ridge Construction v. Newcourt INC. HOLDING
HELD: Affirmed. Breach of contract by Newcourt. -The phrase "subject to credit department approval" did not illustrate that there was no contract. Did not create a refusal to grant credit. -UCC looks at "any manner sufficient to show agreement, including conduct by both parties..." to recognize contract was made. -Parties exchanged price quotes and purchase order, and documents usually binding in construction industry. -For 6 months, parties exchanged designs designs to clarify project. Newcourt sent materials samples; three revisions of shop drawing; fastening details; stipulations re: color, final drawings concerning installation. -Parties left terms of payment blank. Payment was therefore due either on delivery or according to general usage in the industry. to ask for full payment in advance, was a breach of contract by Newcourt
QVC, Inc. v. MJC America, Ltd. HOLDING
HELD: QVC receives such damages for $1,681,806.84 -Section 4 of purhcase orders: Soleus agreed to indemnify QVC from "direct, special, exemplary, and consequential damages and losses of any kind" including lost profits and attorneys fees "based upon or resulting from any alleged or actual defect." in heaters... -QVC sought damages for cost price of heaters, lost profits, refunded customer shipping costs, shipping costs and several other center processing and recall costs.
Griffith v. Clear Lakes Trout Co. HOLDING
HELD: affirmed HELD: both parties understood the "market size" -parties intended to make a contract, and the contract will not fail for indefiniteness. -Course performance between Griffith and Clear lakes of 3 years dealing with 1 lb trout indicates an understanding of the marker size of trout. -There is similar trade usage predating their contract.
Kmart HOLDING
HELD: affirmed. -Kmart argued that the district court's reversal order was too late - money had already changed hands. TO order payment to critical vendors it is necessary to show: 1) disfavored creditors will be as well off with reorganization as with liquidation. 2) the critical vendors would cease deliveries if old debts were left unpaid during litigation. This was not always true i.e some of the critical vendors must continue business due to have long-term contracts.
In Re Darby HOLDING
HELD: affirmed. Cable service is not a necessity. -Bankruptcy laws give protections to debtors from cut-off of service by a utility after they file for bankruptcy. -Utilities are necessities and must be provided to debtors. Includes electric company, gas supplier, or telephone company that is a monopoly in the area. -Cable service is not a necessity, and bankruptcy court need not require its reinstatement to Darby.
K.C. Roofing Center v. On Top Roofing, Inc. HOLDING
HELD: affirmed. Nugents must pay K.C. -when corporation is used for an improper purpose to perpetuate injustice and avoid its legal obligations, the corporate veil is pierced. Here: 1. Nugents had control of all aspects of the business. 2. Control was used to commit fraud or wrong or other positive legal duty including an unjust act. 3. Breach of duty caused unjust loss or injury to the plaintiff. -Nugents were avoiding debts to plaintiffs. -Refused On Top obligations to creditors. -this is unfair, unjust and inequitable to allow Nugent to hide behind corporate shield and avoid legal obligations to plaintiffs.
Lee v. R&K Marine, INC. HOLDING
HELD: affirmed. UCC 2-316 states to exclude these warranties, writing must be conspicuous. -Here writing was in capital letters -A reasonable person would have noticed.
Deschamps v. Treasure State Trailer Court HOLDING
HELD: affirmed. When language of contract is clear and unambiguous, look at the substance of the contract itself. -Here contract clearly, expressly stated, that Deschamps did not rely on any oral assurances or presentations by Rasmussen. -He cannot now claim otherwise. -Deschamps signed a contract prepared by is real estate agent, containing statement that Dsschamps had not relied upon assurance by Rasmussen.
In Re 1545 Ocean Avenue, LLC HOLDING
HELD: lower court ruling reversed; proceeding dismissed. -Dissolution not granted. -LLCL 702 states that court must examine the LLC's operating agreement. -unilateral action of a single manager was permitted in Article 4.1 and 1545 LLC operating agreement. -Lets each manager act autonomously to bind LLC in furtherance of business of the LLC. -1545 can only be dissolved if it cannot further purpose of LLC.
Scheerer v. Fisher HOLDING
HELD: reversed. -defendants took action to deny Scheerer compensation for services rendered. -although original contract failed, law implies a promise to pay some reasonable compensation for services rendered. -allegations state a valid Quantum Meruit Claim.
Orkal Industries v. Array Connector Corp. HOLDING
HOLDING: reversed -additional terms become a part of a contract unless: 1. specifically objected within a reasonable time or 2. unless additional terms materially alter the contract. -here the circumstances of the case/distance made it material. -party opposing inclusion of additional terms must prove the that terms are material changes. -Inclusion of forum selection clause constitutes a material alteration to initial contracts.
Rule to be considered a contract
If all elements are present, the contract is generally termed valid.
Nontraded Entities
In sole proprietorship, selling the business ends the existing proprietorship. Price is FMV to be determined. -if a partner sells or assigns interest in the partnership, the partnership continues, but the new person doesn't automatically become a partner.
indefinite offer
It is okay to be missing major terms like price, delivery, payment terms, if parties intended to be bound. -Usually need quantity, unless 1) output contract or 2) requirements contract.
k-mart case
Kmart consists of parent company and 37 affiliates and subsidiaries. -Kmart requested to pay, in full, claims of critical vendors. Kmart said that if it didn't pay these vendors, they would not do business in the future and were necessary for kmart to stay in operation. -Bankruptcy judge agreed -granted order. No notice to disfavored creditors. -Kmart determined the critical vendors, paying 2330 suppliers $300 million. -Other 2000 vendors had not paid. and 43,000 additional unsecured creditors received 10 cents on the dollar. -Some of the creditors appealed. -District court reversed order of payments to critical vendors. Decision was appealed.
punitive damages
Monetary damages that may be awarded to a plaintiff to punish the defendant and deter similar conduct in the future.
sales draft
Often used in the discussion of sales involving credit cards, a sales draft is a summary document indicating that a cardholder has made a purchase.
Holder in Due Course
One who acquires a negotiable instrument in good faith and for consideration, and thus has certain rights above the original payee.
winding up
Partners complete unfinished partnership business, collect and pay debts, collect partnership assets, and take inventory
The parole evidence rule
Restricts use of oral evidence when that evidence is contrary to terms of written contract. -Oral evidence cannot contradict, change, or add terms to written contracts. -If a written contract is incomplete, ambiguous, proves fraud, mistake, or misrepresentation then oral evidence may explain the contract.
Terminating a limited partnership
Similar to the termination of a general partnership. -Death, insanity, withdrawal of a limited or general partner will terminate. -Bankruptcy of general partner = termination. -Bankruptcy of a limited partner does not. -Organization must wind up the business. -Creditors are paid and profits are dispersed according to the agreement.
novation
Substituting a new obligation for an old one or substituting new parties to an existing obligation.
debtor education
The "instructional course in personal financial management" that an individual debtor must complete before a discharge is entered. taken after bankruptcy filing.
Piercing the Corporate Veil
The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations. -Affects limited liability organization. -Prove corporation is a sham -owners actually intend to operate the business as a proprietorship or partnership. -Can involve fraud, undercapitalization or failure to follow corporate formalities. RESULT: owners are personally liable for all corporate liability - torts, contracts, debt
Drawee
The bank which has the funds to cover, and will give money for.
UCC and Mixed transactions
The courts generally look to see if the dominant feature of the contract "as a whole" is of a sale of goods or of services.
Subrogation
The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss.
Freedom of Contracts
There are responsibilities to those who create legally binding relationships.
Shareholders
Think about their liability to own a business. -owners of the company. No day-to-day control. -shareholder meetings need a quorum. -most shareholders give their proxy to 3rd parties to represent them. -shareholders elect board of directors. -no legal relationship to creditors.
Reality and Genuineness of Consent
This concept deals with an individual's choice of entering into agreements. -If reality is missing, there is no meeting of minds. -without this element, the contract is void or voidable.
Manifestation of Intent
To make an offer, the offeror must have the intent to be bound to the contract, and that intent must be clearly expressed or manifested.
Transferred by negotiation
Transferee takes instruments free of transferor's responsibilities
DeRosier v. Utility Systems of America HOLDING
Trial court held for DeRosier. Awarded him $22,829 in damages and another $8,000 in consequential damages. -USA appealed. -consequential damages usually refers to items of damages which can be distinguished from general damages. -Special or consequential damages flow naturally from the breach but are not recoverable unless they are reasonably foreseeable by the parties at the time of the breach. -USA contended no claim for delay damages was in pleading and no evidence of monetary loss caused by delay was introduced at trial. HELD: district court erred in awarding DeRosier $8,000 in consequential damages. HELD: district court had sufficient basis for calculated and granting $22,829 in general damages. HELD: regarding Derosier's duty to mitigate: non-breaching DeRosier could decline the offer of USA to remove the dirt for $9,500. -did not unreasonably reject USA's offer and did not fail to mitigate his general damages. HELD: REVERSED IN PART; AFFIRMED IN PART.
Filling the Gaps
UCC instructs judges to fill parts of contract left open or unclear, i.e price, quantity, and delivery terms.
drafts
Unconditional written promise to pay.
UCC
Uniform Commercial Code All states have adopted it in its entirety except Louisiana. Covers contracts for sale of goods.
promissory estoppel (detrimental reliance)
Use of this doctrine avoids injustice due to the promisee's reasonable reliance on the promisor's promise. -Promisor is estopped (prevented) from denying a promise.
Disclaimers
Warranties may be disclaimed, but disclaimers must be specific to the type of warranty and must be conspicuous.
sufficiency of writing
Writing must set out the material terms of contract Names of parties Consideration Subject matter, etc. Invoices, E-mails, sales orders, checks, confirmations may satisfy this requirement
statutory close corporation
a corporation with a limited number of owners that operates under simpler, less formal rules than a C corporation. -20 states allow -limited number of shareholders (20-50) -share not sold openly -shareholders must have agreement that governs affairs. -Not subject to formal rules regarding shareholder and director meeting.
exoneration
a court order requiring the principal to pay
Income test
a determination of whether an individual or family is eligible for government assistance based on their level of income
exculpatory agreement
a part of a contract that releases one of the parties from liability for their wrongdoings; not favored at laws
anticipatory breach or repudiation
a party indicates inability or lack of desire to perform.
lien
a right to keep possession of property belonging to another person until a debt owed by that person is discharged.
mortgage
a specific type of loan that is used to buy real estate
homestead exemption
a state law that gives homeowners a tax break for property that is their primary residence
Breach
a violation; a gap or break
articles of incorporation
a written legal document that defines ownership and operating procedures and conditions for the business -name and address -name and address of registered agent. -purpose of business -classes of stock and and par value. -name and addresses of incorporators.
implied contracts
actions and circumstances infer and define the terms of the contract. May be words, conduct, gestures. These contracts are implied at law.
Goods
all things which are moveable at the time of identification to contract. Must be: -moveable -tangible
Chapter 11
allows businesses to keep operating, without liquidation of assets.
Covenants not to compete
an agreement in which one party agrees not to compete directly with the business of the other party; may be limited by geography or length of time. -often used in sale of business or other employment contracts.
accord and satisfaction
an agreement made and executed in satisfaction of the rights one has from a previous contract
Partnership
an association of two or more persons to carry on as co-owners of a business for profit. Equal control unless agreed differently. -Under most state laws, a partnership may be sued as an entity.
Discharge by impossibility
an unforeseeable, unanticipated event occurs that makes performance impossible. -the impossibility doctrine has been extended to commercial impracticability of frustration.
assigned
assignee has same rights and responsibilities as assignor
debt financing
borrowing money evidenced by contract.
void contracts
contract does not exist at law. -one of the elements is missing - lacks a requirement of a contract.
No capacity?
contract is void
partial capacity?
contract is voidable, may disaffirm.
Attatchment Lien
court-ordered seizure of goods through writ of attachment.
counteroffer
created by rejecting the original offer but keeping negotiations open by presenting new conditions.
Banker Acceptances
creates a guarantee by a bank that the draft is good.
Prepackaged Bankruptcy Filings
debtor and creditors settle issues before debtor files, and court then approves.
sales covered by CISG
default rule of law for commercial sale of goods by parties in countries that have adopted CISG. China accepted. -parties can specify to exclude application of CISG and choose another law to govern the contract. -ONLY COVERS SALES BETWEEN MERCHANTS.
Express contracts
direct statements by the parties of the promises made. May be oral or written. All important terms are expressly stated between the parties.
rejections
done by offeree -lapse of time -counteroffer
Checks
draft drawn on a bank and payable on demand -on a cashiers check the bank is both drawer and drawee.
Uniform Commercial Code
governs contracts for sale of goods.
ordinary holder
has same contract responsibilities as assignee
Legality
if a contract is lacking legality, courts will not enforce it. -subject matter must be lawful.
Deficiency Judgment
if proceeds from foreclosure are not sufficient, a seperate legal action against debtor is maintained.
Price - filling the gap
if the contracts are not clear, 2-305 tells courts to determine a reasonable price - fair market value, past dealings, etc may be used.
How do limited partners become general partners?
if they participate in or manage the business
Economic Loss Rule
in breach of contract case, if there is no tort involved, damages are only those related to economic losses suffered by the breach.
Mitigation of Damages
injured party is required to make efforts to mitigate or lessen losses.
Common Law
judge made law, each state differs, there is a uniformity about general contract principles that run throughout most states' laws.
usury laws
laws that impose an upper limit on the interest rate that lenders can charge
non-recourse debt
lender can seize the collateral (property) but not seek a deficiency judgement for any money owed not covered by the sale of the property
creditor
lends money
certificate of incorporation
license to form a corporation issued by state government
How does UCC fill gaps?
look to trade usage and past business dealings of the parties in determining the outcome of unclear terms. -It will also apply reasonableness standard.
revolving account
make minimum payment and add new debt.
General partners
manage the business, are personally liable to creditors, have the duty to account to the limited partners.
open account
must pay within fixed time period -net 60 days from invoice.
nonconsensual lien
obtained by operation of law no need for debtor's consent
Dissolution
occurs when an event takes place to dissolve the partnership. -Change of the composition of the partners. -Withdrawal of a partner -Bankruptcy of a partner concerning the business. -Death of a partner.
Judgment Lien
occurs when creditor has successful action against debtor; If debtor doesn't pay judgment, creditor asks court for writ of execution
voidable contract
one party to the contract has right to avoid legal obligation. -Is valid but capable of being voided by a circumstance.
Bankruptcy
orderly resolution where debtor owes more money than can be paid.
Third-Party Beneficiary
party not part of original contract who acquires rights under the contract.
Machanics Lien
party that finished material, labor, or services for construction or repair the building or other real property places the lien.
transfer order instrument by:
payee endorses and delivers instrument to third party.
material breach
performance is substantially less than the contract provides.
statutory redemption
period of time mortgagor has the right to redeem the property by paying the debt (normally within 6 months after default).
Requirements for holder in due course
person in possession of negotiable instruments may be ordinary holder or holder in due course.
Minors
person under the age of 18
cover
price paid for substitute goods or market price for measure of damages.
secured transaction
product may secure debt
Suretyship
promise by a third party to pay debt if debtor does not.
Notes
promise by the maker to pay certain money to payee. -usually called promissory notes.
unilateral contract
promise in exchange for an act
Guarantor
provides a guarantee of payment to creditor should the principal debtor fail.
incidental damages
reasonable costs of inspecting, receiving, transporting and taking care of goods.
Sufficiency of writing (UCC)
relaxed. -not every material term needs to be specified.
installment account
repay through regular payments-car payment.
Statue of frauds
requires certain contracts to be in writing.
duty of loyalty
requires relevant partners to place the success and interests of their partnership above their own personal or other business interests.
means testing
requiring that those who receive federal benefits show a need for them
Discharge by Agreement of the Parties
rescission, novation, accord and satisfaction.
equity financing
sale of stock in company or sale of negotiable instruments subject to securities regulation.
Failure to respond to a writing (UCC)
section 2-201(2) says that if a writing in confirmation of the contract is received, it satisfies the writing requirement unless "written notice of objection" is within 10 days after the writing is received.
Convention on Contracts for the International Sale of Goods (CISG)
sets up a multilateral treaty that establishes a unified framework for international commerce.
purpose of the UCC
simplify, clarify, and modernize the law governing commercial contracts
Defenses of Sureties
since debt falls under contract law, there are the same defenses that the principal has - including, impossibility, illegality, duress, and fraud.
consideration
something of value or something bargained for in exchange for a promise. If absent, neither party may enforce the promise or agreement.
Reorganization
stays further action by creditors -debtor acts as trustee, called debtor in possession, to run business for benefit of all parties. -Creditors are satisfied by class in order of priority of claims.
Transferability of Ownership
the ability of an owner in a business to sell or pass interest to others
duration
the ability to continue to operate in event of death, retirement, or incapacity of owner of business. -Sole proprietorship terminates with death or incapacity of proprietor.
capacity to contract
the legal ability to create a contract
drawer
the person who signs a check
payee
the person who the check specifies should be paid.
involuntary termination of corporation
the state dissolve it, bankruptcy.
principal
the sum of the debt owed
debtor
to whom money is lent
delegation
transfer of duties to another
Assignment
transfer of rights to another
duration - corporation
unless articles of incorporations provide for period of duration, corporation has perpetual existence.
difference between draft and check
unlike a draft, which may be payable at a later date and have a bank, an individual or a corporation as a drawee, a check must be paid on demand and have a bank as its drawee.
Article 2 of UCC
uses the principals of common law contracts, makes some important changes. Common law contracts governs unless the UCC specifically overrides it.
Secured creditor
when creditor can take property of debtor to satisfy debt - can happen by agreement or by operation of law.
meeting of minds
when parties have agreed the contract's essential terms.
default
when the buyer doesn't repay
revocation
withdrawing of offer by offeror.
