B-Law Exam 1
What information must be contained in a deed of real property for it to be enforceable?
"1. The names of the grantor (the giver or seller) and the grantee (the donee or buyer). 2. Words evidencing the intent to convey (for instance, "I hereby bargain, sell, grant, or give"). No specific words are necessary, and if the deed does not specify the type of estate being transferred, it presumptively transfers the property in fee simple absolute. 3. A legally sufficient description of the land. The description must include enough detail to distinguish the property being conveyed from every other parcel of land. The property can be identified by reference to an official survey or recorded plat map, or each boundary can be described by metes and bounds. metes and bounds is a system of measuring boundary lines by the distance between two points, often using physical features of the local geography—for example, "beginning at the southwesterly intersection of Court and Main Streets, then West 40 feet to the fence, then South 100 feet, then Northeast approximately 120 feet back to the beginning." 4. The grantor's (and usually his or her spouse's) signature. 5. Delivery of the deed."
4 Elements of Contract Formation
1) An agreement on all material terms. Offer and acceptance 2) Consideration - what value is being exchanged for a promise to do something. Adequacy of consideration is not relevant. 3) Capacity - contracts with minors (?). Party's ability to enter into a contract. 4) Legality - if a contract is illegal, it is not enforceable.
What are the 5 elements of securities fraud?
1) Material misrepresentation or omission during the purchase or sale of contract 2) Scienter - knew the statement was false or omission was material. 3) Reliance [by the plaintiff] on info [material misrepresentation] 4) An economic loss 5) Causation - meaning that there is a causal connection. Must be a connection between omission and the loss sustained. If there is a misrepresentation, then all of the market falls, can you prove causation? Must tie omission to the loss.
What are the 6 requirements for "negotiability" of an instrument?
1) Must be in writing 2) Must be signed 3) Unconditional promise or order to pay 4) Fixed amount of money 5) Payable on demand or at a definite time (don't need to pay before it is due) 6) Payable to order or bearer
3 Prong Test for determining the enforceability of a non-compete
1) Narrowly drawn to protect the legitimate business interests 2) Not unduly burdensome on the employee. 3) Not against public policy.
What are the 4 elements from SEC v. W.J. Howrey in determining whether an investment is an "investment contract" (a type of "security") for purposes of the Securities Act of 1933?
1) Person invests 2) In a common enterprise 3) Reasonably expect profits 4) Drives from others managerial efforts.
2 Prong test to determine if a contract has been formed even if open terms exist
1) did the parties intend to enter into a contract and 2) can the court fashion a reasonable remedy.
Definition of a "good"
1) tangible 2) moveable
What are some factors a court will consider in determining whether or not to "pierce the corporate veil" and impose personal liability
1. A party is tricked or misled into dealing with the corporation rather than the individual. 2. The corporation is set up never to make a profit or always to be insolvent, or it is too "thinly" capitalized. That is, it has insufficient capital at the time it is formed to meet its prospective debts or potential liabilities. 3. The corporation is formed to evade an existing legal obligation. 4. Statutory corporate formalities, such as holding required corporation meetings, are not followed. 5. Personal and corporate interests are mixed together, or commingled, to such an extent that the corporation has no separate identity.
Under what circumstances might specific performance be awarded as a remedy for breach of contract?
A buyer or lessee can obtain specific performance if the goods are unique OR the remedy at law (monetary damages) is inadequate. When the contract is for purchase of a work of art or a similarly unique item, damages may not be sufficient. Under these circumstances, equity requires that the seller or lessor perform exactly by delivering the particular goods identified in the contract."
What happens to definiteness and contract formation if "quantity" is an open term?
Contract can even leave a price out. Open price term is enforceable. Court will set the price to a reasonable price at time of delivery, with payment due when goods are received. (But you don't want to leave these terms open). BUT court will not supply term of Quantity, court can't guess what you were thinking when you made the order.
Compensatory Damages
Direct damages (e.g., if contract for $2/gal, have to buy from someone else for $2.5/gal, damages are $0.5/gal
What is the 3 prong test for determining whether an officer or director is protected by the business judgment rule?
Due diligence - establish that you did your research. If a real estate transaction, have an appraisal of the real estate, know the appraised value of holding the property long term. Rational basis for decision - not flipping coin. Need to explain why you did it, how you came to conclusion. Lack of conflict of interest.
Two concepts in all UCC Concepts
Good faith and fair dealing - honesty of fact and observance of reasonable commercial standards.
Consequential Damages
If reselling, difference between the resell price and the price you would have bought it for and the price you would have paid... CONFIRM DEFINITION
Punitive Damages
Money damages that may be awarded to a plaintiff to punish the defendant and deter future similar conduct
Why was non-compete unenforceable in Daston?
Non-compete - "nationwide" wasn't a problem, but "substantially similar" was too vague, wasn't narrowly drawn. When management is dealing with non-competes, don't make it too broad, be as specific as you can be.
Nominal Damages
Small amount of money awarded to a plaintiff in a lawsuit to show he/she was right but has suffered no significant losses
What is the difference between a warranty and puffery? Can puffery be enforced?
[from Ben's notes] Express warranty - a statement of fact about quality/description of good. Key - buyer must have relied on this infor when entered into the contract. Statements of value - " this is a reliable car" - don't create express warranties. Example - car salesman says that it is the "best car." (Puffery) This is not a warranty of fact. Warranty of fact = it has four tires and an engine. Puffery is a non-binding promise concerning the quality of goods.
What are a seller's possible remedies if buyer breaches and the goods are still in the seller's possession (at least 2)? Calculate possible resale damages.
[Ben's notes from 1/31] Anticipatory repudiation: when one party says in advance, "I am not doing it." If truckload of widgets is due 3/1, and X says, "I am not doing it," so the counterparty can treat it as a breach, the counterparty's duties have ended. The counterparty (buyer) can find the goods somewhere else and seek damages, OR could wait and see what happens. Why would someone do that? They might expect damages to increase OR see if the seller changes their mind. Can repudiation be retracted? Yes, can retract repudiation as long as the contract is not cancelled and as long as the buyer had not taken action that relied on the repudiation, such as buying goods elsewhere. Retraction - "I will conform and honor the contract." Remedies - from the seller's standpoint (where the seller is performing and the buyer is not), if the goods are still in the hands of the seller, if goods are identified and ready to ship and conforming goods, then you have the right to find another buyer and seek damages if you can sell the goods for less (a loss). The buyer is responsible for the loss. Should be able to cancel the contract when materially breached, and then you can pursue remedies such as reselling. Suppose you sell to someone else for MORE. The gain belongs to the seller! None of it goes to the original gain. Say you have expenses such as warehousing costs - these are incidental damages. Compensatory damages are only the loss/gain. [CONFIRM WITH STAUFFER WHAT HE MEANT BY "GAIN"] To summarize, can resell the goods, sue for losses and keep the gains. But what if you can't resell the goods? Say you have a ton of political campaign pens, buyer cancels the contract. Up until the buyer pays for them the seller must take care of them, there are no windfalls in contract damages. Can't sue for price and keep the pens. If the goods are in the hands of a carrier and find out the buyer is insolvent, should be able to stop the delivery, tell the carrier to stop delivery and bring them back. Once goods are in the hands of the buyer and find out that the buyer can't won't pay, remedy - you should be able to tell the buyer to send them back. Low chance of this. As seller, can't break into warehouse to take your goods back if it breaches the peace. You can sue for the purchase price. Remedies become less when you don't have control of the goods... you are just an unsecured creditor.
Can warranties be disclaimed and liability limited? How?
[frm Ben's notes, 2/2] Disclaimed warranties must be understandable, conspicuous, must be done at or before the time of the contract. [from Sarah's notes] an "as is" clause disclaims a warranty of merchantability and warranty of fitness for a particular purpose. If a store requests that a buyer inspect an item before purchase and a buyer refuses this, the store is not liable for any damages caused by defects in product that would have been seen if buyer had inspected.
What does the implied warranty of merchantability mean about the quality of the goods being sold?
[from Ben's notes from 2/2] Implied Warranty of Merchantability - reasonably fit for purposes usually used for. Shoe v. Chrysler. For food and drink must be... [edible? CONFIRM WITH STAUFFER]. [from Sarah's notes] Merchantability: automatic when sold by merchant who deals in goods of kind. Is a warrant that good is reasonably fit for ordinary purpose for which such goods are used. Goods are average quality, adequately packaged. Applies to food/drink. "As is" clause nulls warranty. In Chrysler case, at the time of purchase, the car had been diminished by 35% - this created a breach of warranty of merchantability. Ex, buyer ordered coffee from drive thru. Coffee was extremely hot, damaged travel cup. Cup broke and coffee burned buyer. Court held: warranty of merchantability breach because average temperature for good (coffee) is lower
Explain the duty of loyalty expected of an officer or director?
[from Ben's notes, 2/14] Can't compete with the company at which you serve as director because... [didn't catch what he said]conflict of interest. Say you are on the board of ABC Corp, looking for parcels of ground to build building on, you own some. You are not barred from selling to the corporation, but should have independent appraisal to back up that price, full disclosure, don't vote on the transaction, make sure minutes reflect all of this. But can do a transaction as long as in the best interests of the company. [from Cornell.edu] The duty of loyalty stands for the principle that directors and officers of a corporation in making all decisions in their capacities as corporate fiduciaries, must act without personal economic conflict. The duty of loyalty can be breached either by making a self-interested transaction or taking a corporate opportunity. In order to prevent a violation of the duty of loyalty, if a fiduciary wishes to make a self-interested transaction, or take a corporate opportunity, the fiduciary must first fully disclose both the facts of the conflict, and the details of the transaction. The transaction must then be approved by either a majority of disinterested directors or a majority of disinterested shareholders.
Explain the duty of care expected of an officer or director.
[from Ben's notes, 2/14] Duty of care - acting in good faith, exercising care that an ordinary, prudent person would exercise, do what is in the best interest of the corporation - look out for the interests of the principle. [from Cornell.edu] The duty of care stands for the principle that directors and officers of a corporation in making all decisions in their capacities as corporate fiduciaries, must act in the same manner as a reasonably prudent person in their position would. Courts will generally adjudge lawsuits against director and officer actions to meet the duty of care, under the business judgment rule. The business judgment rule stands for the principle that courts will not second guess the business judgment of corporate managers and will find the duty of care has been met so long as the fiduciary executed a reasonably informed, good faith, rational judgment without the presence of a conflict of interest. The burden of proof lies with the plaintiff to prove that this standard has not been met. If the the plaintiff meets the burden, the defendant fiduciary can still meet the duty of care by showing entire fairness, meaning that both a fair process was used to reach the decision and that the decision produced a substantively fair outcome for the corporation's shareholders.
If you were a director, how would you effectively deal with a personal conflict of interest and what are the steps you should take?
[from Ben's notes, 2/14] [same answer from Duty of Loyalty, above] Say you are on the board of ABC Corp, looking for parcels of ground to build building on, you own some. You are not barred from selling land to the corporation, but should have independent appraisal to back up that price, full disclosure, don't vote on the transaction, make sure that the minutes reflect this. But can do the transaction as long as in the best interest of the company.
What is the general standard for determining whether a matter should be disclosed by an issuer in offering materials?
[from Ben's notes, 2/16, section on Litwin v. Blackstone, see above] Would a reasonably responsible investor want to know this? Would statement have been considered significant by a reasonable investor making the investment decision (or the omission of the statement)?
What is an accredited investor and the financial tests involved in that determination?
[from Ben's notes, 2/16] An accredited investor must have a net worth of $1 million excluding their primary residence, and $200,000 of income for the past two years. If you hit one of the above you are an accredited investor.
What did Mr. Guft (in Guft v. Loft) do to breach his duty of loyalty to Loft, Inc.?
[from Ben's notes, 2/16]. Gruth v. Loft. Gruth is president of Loft, Coca Cola provides syrup. Gruth is also in Grace Company. Gruth uses Loft's building, people to help Grace Company. He misappropriated the Pepsi opportunity to Grace. Was he disloyal? Yes. Hi misused Loft's credit, people, and facilities to enhance the value of Grace. But was Pepsi related to Loft's business? Yes. And they had enough financial ability to take the opportunity. He should have just resigned from Loft, but he stole from Loft. This opportunity would have worked well for Loft - he should have presented it to Loft's board. He needed Loft's credit to do the deal but didn't want to tell Loft's board.
What are 3 elements of a gift?
[from Ben's notes, 2/21] 1) Delivery 2) Donative intent 3) Donee accepts the gift
What is a bailment?
[from Ben's notes, 2/21] Bailor delivers property to bailee. But not a gift because no transfer of title. At end of bailment, must turn back over to bailor. Say someone borrows a book from you. This is a bailment situation. At the end of the bailment period required to give it back, but during the bailment term have the right to use the property. *Additional notes - Say you lend a car to someone, bailment is established. There is no benefit to the bailor. Degree of care is the highest. But if X asks for you not to use the car while you keep it [storage?], no benefit to the bailee, so lesser degree of care is required. [from e-book glossary, G-3] Bailment - A situation in which the personal property of one person (a bailor) is entrusted to another (a bailee), who is obligated to return the bailed property to the bailor or dispose of it as directed. [from e-book page 550] "Not all transactions involving the delivery of property from one person to another create a bailment. For such a transfer to become a bailment, the following three elements must be present: 1. Personal property. 2. Delivery of possession (without title). 3. Agreement that the property will be returned to the bailor or otherwise disposed of according to its owner's directions."
What is the degree of care a bailee must exercise when the bailment is for the mutual benefit of the bailor and the bailee?
[from Ben's notes, 2/21] Mutual benefit of bailor and bailee - say you check coat for $5. Benefit to bailor - get coat taken care of. Bailee's duty of care is reasonable care. [from e-book page 552] "The most common kind of bailment is for the mutual benefit of the bailee and the bailor, and involves some form of compensation for storing items or holding property. It is a contractual bailment and is often referred to as a bailment for hire or a commercial bailment. In a commercial bailment, the bailee must exercise ordinary care, which is the care that a reasonably prudent (careful) person would use under the circumstances. If the bailee fails to exercise reasonable care, he or she will be liable for ordinary negligence." [from Sarah's notes] Reasonable care if bailee receives benefit
Describe the differences between tenants in common, joint tenants with the right of survivorship, and tenants by the entirety.
[from Ben's notes, 2/23] Tenants in common - 3 people buy a piece of property, hold it as tenants in common, then all have an undivided interest in the property. If one person dies then it passes to that person's heirs, not the other 2. Can also sell interests - another becomes a tenant in common. Joint tenants - if one dies, the other joint tenants own that person's share. You can sell a joint tenancy interest, but there will no longer be a joint tenancy, all tenants become tenants in common. Tenants by entirety - husband and wife own as tenants by entirety. Difference with joint tenancy - requires both people to sign off on the conveyance of the property. A creditor of one spouse cannot look to the tenancy by entirety, cannot look to the property held by tenancy by entirety to satisfy the debt of one. [from e-book page 563] "Joint Tenancy: In a joint tenancy, each of two or more persons owns an undivided interest in the property, but a deceased joint tenant's interest passes to the surviving joint tenant or tenants. Right of Survivorship. The right of a surviving joint tenant to inherit a deceased joint tenant's ownership interest—referred to as a right of survivorship —distinguishes a joint tenancy from a tenancy in common. ▶ example 29.3 Jerrold and Eva are married and purchase a house as joint tenants. The title to the house clearly expresses the intent to create a joint tenancy because it says "to Jerrold and Eva as joint tenants with right of survivorship." Jerrold has three children from a prior marriage. If Jerrold dies, his interest in the house automatically passes to Eva rather than to his children from the prior marriage."
What is an easement?
[from Ben's notes, 2/23] Easements - non-possessory interests. You have the authority to do something for some specific purpose - drive/walk - a limited use of property. Shared driveway. [from glossary, G-7] Easement: A nonpossessory right to use another's property in a manner established by either express or implied agreement. [from Sarah's notes] Dominant estate is beneficiary of easement, servient is one that has easement. Conveyed by deed.
Why should deeds be recorded (in land records) even if the deed has been delivered to the grantee?
[from Ben's notes, 2/23] Record these deeds because it is 1) in public policy and 2) to keep the seller from selling it to someone else. [from e-book page 570] "Recording a deed gives notice to the public that a certain person is now the owner of a particular parcel of real estate. By putting everyone on notice as to the true owner, recording a deed prevents the previous owners from fraudulently conveying the land to other purchasers."
Who are the 3 parties to a check?
[from Ben's notes, 2/28] Drawer - signs the check Drawee - (us. the bank) the person who pays Payee - the person who is paid
How did the loss of the original promissory note in the Silicon Valley Bank case affect the Bank's ability to enforce that indebtedness?
[from Ben's notes, 2/28] Bank had a copy but not the original note. Court said that the loss of the note did not inhibit collection. Court said that it is just evidence of the debt. Bank should have protected itself by having a loan agreement for every debt. [from Sarah's notes] Bank won by producing other evidence of the arrangement.
When the marker in the Las Vegas Sands case was left blank, what did it cause the instrument (the marker) to become and why?
[from Ben's notes, 2/28] Mr. N took out gambling marker for $500.000, "pay to the order of ___" was left blank. Las Vegas Sands tries to cash it, bounced. Sands goes back to Mr. N to recover cash. Mr. N claims it is not a negotiable instrument. Court says that it is a bearer instrument. [Ben's thoughts - because it was left blank, it is like cash, could be payable to any bearer,
What are the elements of a negotiable instrument?
[from Ben's notes, 2/28] Negotiable instruments are something in writing, signed, contains an unconditional promise to pay (a note) or an order to pay (a check) an exact amount of money, and has to be payable on demand or at a specific future date. [from e-book glossary, G-14] "Negotiable instrument - A signed writing that contains an unconditional promise or order to pay an exact sum of money, on demand or at an exact future time, to a specific person or order, or to bearer." [from Sarah's notes] Function as substitute of cash or extension of credit and are freely transferable. Must be a permanent document. Signature: symbol used by person who intends to authenticate doc. Promise to pay is not "I owe you" - must be promise - need word "pay". Should not refer to another agreement (ex, no see terms and conditions) unless mortgage. Exact amount: variable interest ok as long as can be calculated
What are two types of "promises to pay?"
[from Ben's notes, 2/28] Promises to Pay - promissory notes and certificate of deposits. ... Promise to Pay - All it has to say is "I promise to pay...," a written promise, signed (makes you the "maker" of the note), to pay a certain sum of money at a certain time. Certificate of Deposit - bank is the "maker" of the note, promises to pay a certain sum of money at the end of a length of time, depositor is the payee.
Is the promise, "I owe you," an unconditional promise or order to pay and why?
[from Ben's notes, 2/28] Regarding unconditional promise or order to pay [see above], an IOU is NOT a promise to pay. Promise to pay is a promise - must say, "I promise to pay you $XXX." The word "pay" is mandatory, must be an order.
What are two types of "orders to pay"
[from Ben's notes, 2/28] Two types of "orders to pay" - checks and drafts. [from e-book page 221] "A draft is an unconditional written order that involves three parties. The party creating the draft (the drawer) orders another party (the drawee) to pay money, usually to a third party (the payee). The most common type of draft is a check, but drafts other than checks may be used in commercial transactions." [from Ben's notes, 2/28] Difference between a draft and a check is that for a check, drawee is always a financial institution. "Draft" is broader than a check. [from Sarah's notes] Draft: unconditional written order by drawer ordering drawee to pay payee. Ex, cashiers check. Bank is drawer and drawee.
What is the effect of a check being "undated" on the negotiability of a check and why?
[from Ben's notes, 2/28] Undated check - does this affect negotiability? No. Deemed dated as of the date the drawer delivers it to the payee. The fact that the check is undated is not a problem with negotiability.
Why was the fish bone "lurking" in a fish chowder not a breach of the implied warranty of merchantability in Webster v. Blue Ship Tea Room?
[from Ben's notes, 2/2] Blue Ship Tea Room, lady orders fish chowder, choked on fish bone. Supreme Court of MA says that expect to have fish bones in fish chowder. Should be prepared to cope with fish bones. Natural.
What does it mean to buy goods in "as is" condition? What warranty is the buyer receiving?
[from Ben's notes, 2/2]"As is" - disclaiming everything, not promising anything. But if other things in the contract are inconsistent with the disclaimer, warranty overrides. Roberts Case - buy car "as-is." Buyer takes all of risk. Though misrepresentation is fraud. If lied, could rescind contract or sue for damages.
What are the disadvantages of operating as a sole proprietorship?
[from Ben's notes, 2/7] Downsides - unlimited liability, difficult to raise capital, succession planning - when owner dies, the business dies. Also for Sole-prop, if you operate any business with a name other than your own you must file a fictitious name certificate. Failing to file is a misdemeanor.
What 2 duties arise in general partnerships?
[from Ben's notes, 2/7] Fiduciary duties to partnership - CARE, LOYALTY, as well as to other partners. Duty of Loyalty - put interest of others ahead of your own. Duty of Care - .... [Definition from Investopedia - One of the two primary fiduciary duties required to be discharged by directors of a company. The duty of care requires directors to make business decisions after taking all available information into account, and then act in a judicious manner that promotes the company's best interests. Directors are required to exercise the utmost care in making business decisions in order to fulfill their fiduciary duty. The other main fiduciary duty is the duty of loyalty.] [from Sarah's notes] Fiduciary duties in partnership: duty of care and duty of loyalty. Care: partners must refrain from grossly negligent or reckless conduct, intentional misconduct, or knowing violation of laws. Not liable for negligence. Loyalty: partners must account to partnership for any property, profit, or benefit derived by partner in conduct of business. Breached by misusing property, disclosing trade secrets, or usurping business opportunity.
What are the liabilities of a limited partner in limited partnerships?
[from Ben's notes, 2/7] For a limited partnership, a loss in excess of assets results in no personal liability to the creditor. Still personally liable for your own negligence (torts). Not liable for the torts of others. Limited partner is not liable for the debts of the LP. If partnership goes under, you lose your investment but not personally liable. Limited partners must be passive. *NOTE - you are more protected in an LLC than an LLP* [from Sarah's notes] Limited partner is funding party, not involved in mgmt, not liable for debts beyond amt of investment. Can forfeit limited liability if takes part in mgmt, still can review finances and business docs. If operate as an LLP, partners avoid personal liability for malpractice of other partners, but still liable for own acts or acts of direct reports
What acts did Mr. Salmon take that the court found to be a breach of loyalty in Meinhard v. Salmon? What should he have done to avoid that serious problem?
[from Ben's notes, 2/7] Toward the end of the lease, one partner signs deal to build something else, didn't tell the other partner. Even if it takes place after the partnership is over, he didn't act in the best interests of the other partner. Undivided loyalty is relentless. Salmon was obligated to pass on info of this opportunity. If he had told him there would be no problem. Fiduciary duty must make everything transparent. When in doubt disclose it, but look in the agreement to see if you don't have an obligation to disclose. Court held: Salmon was approached for the opportunity because he was a partner in the land lease. Thus Salmon had duty to approach Meinhard. Usurped business opportunity.
What are the liabilities of a general partner in a general partnership?
[from Ben's notes, 2/7] Unlimited liability for the obligations of the partnership. [from Google] In a general partnership, each partner has unlimited personal liability. Partnership rules usually dictate that whatever debts are incurred by the business, it is the legal responsibility of all partners to pay them off. This is true even if one partner enters into a bad contract, or rear-ends another car while working. All partners are responsible for paying the debts. Further, in many states partners are held severally liable. This means that if the partner who signed the bad contract can't afford to pay it, but another can, the judgment will come out of the other partner's pocket. If you are the other partner, your percentage of ownership will not affect the judgment. [from Sarah's notes] General partner assumes management responsibility and debt. Some states allow corporation to be GP.
What are the benefits of operating as a limited liability company?
[from Ben's notes, 2/9] Benefits of being an LLC - there is no personal unlimited liability for the debts and obligations of the LLC. Also tax benefits. 2 or more people can elect to be a corporation, but otherwise taxed as a partnership, pass through entity. If you elect to be treated as a corporation, must pay self-employment taxes [sic]? [ASK STAUFFER ABOUT THIS] [from Sarah's notes] Also, can have foreign investors in an LLC (cannot in S-corp)
Why is it important to identify the full name of your entity when dealing with 3rd persons?
[from Ben's notes, 2/9] Formation of LLC. Must contain the words LC or LLC. Must identify that you are an LLC in all your written communication. Not dealing with you personally but an organization. [from Sarah's notes] Must include "LLC" in business title in order to inform public that business is its own entity.
What are fiduciary duties of officers and directors?
[from Ben's notes, 2/9] Managers in a manager-managed LLC owe fiduciary duties of loyalty and care to the entity and its members. Other members have no fiduciary duties. [from Ben's notes, 2/14] Directors and officers are fiduciaries. Duty of care and duty of loyalty. Discharge duties in good faith business judgement (care), and in the best interests of the corporation (loyalty).
What are the differences between blank, special, qualified and restrictive endorsements?
[from Ben's notes, 3/4/2017] Endorsement In Blank. Just have a signature [of payee]. So it is no longer an order instrument or a bearer instrument [sic]. Once you put name on it and lose it it is like losing cash. When an order instrument is signed by a payee, becomes bearer instrument. Special endorsement example - "Pay to Fred, signed Sarah." Now it is still an order instrument by signing "pay to." So Fred must endorse and deliver it. Qualified endorsement - "Pay to Fred, without recourse, signed Sarah." Sarah insulates herself from liability if the drawer and drawee don't pay. If the check is returned for insufficient funds, completely returned. Restrictive endorsement - "For deposit only to account XXXX, signed Sarah." [from e-book page 242] "A restrictive indorsement requires the indorsee to comply with certain instructions regarding the funds involved but does not prohibit further negotiation of the instrument [UCC 3-206(a)]. Although most indorsements are nonrestrictive, many forms of restrictive indorsements exist, including those discussed here: Endorsements to pay only a named payee - "Pay to Jamie Diaz only, signed Jack." Conditional endorsements - "Pay to Lars if he completes the renovation of my kitchen by March 1" Endorsements for deposit or collection - "for deposit only", "for collection only" - makes the indorsee (almost always a bank) a collecting agent for the indorser.
What are the requirements for negotiating (transferring) an "order" instrument?
[from Ben's notes, 3/4/2017] To negotiate a negotiable instrument, must be: 1) endorsed 2) delivered
What is the requirement for negotiating (transferring) a "bearer" instrument?
[from Ben's notes, 3/4/2017] To transfer a bearer instrument, only need delivery, no endorsement required.
What are the 2 ways a negotiable instrument can be transferred and what is the difference/benefit to the holder of that instrument?
[from Ben's notes, 3/4/2017] Two ways to transfer: Assignment - no step up in rights. If you transfer a note by assignment, the person who receives instrument is the assignee, gets no more rights than you have. By negotiation - holder may have superior rights. May have increase in status as a "Holder."
What are a buyer's possible remedies if seller breaches and the goods are still in seller's possession (at least 2)? Calculate possible "cover" damages.
[from Ben's notes, continuation of above] From the buyer's perspective, if the seller hasn't delivered the goods then you should be able to cancel the contract. Buyer no longer has any further obligations. What do you do next? Say you ordered a truckload of widgets and the seller doesn't ship. When you have been damaged, you have an obligation to mitigate the damages, so go out and find another seller. Sue for losses, keep the gains. Where money damages don't make an adequate remedy, specific performance. "Cover" - if buy from someone else, must mitigate damages. [CONFIRM 2nd ANSWER W/ STAUFFER] [from Sarah's notes] a buyer can also seek incidental damages when a seller breaches from the effort of finding a new seller. Ex, Bright images agrees to sell poster shop 5,000 posters to be delivered May 1. On April 1, Bright repudiates contract. Poster shop informs bright that it expects delivery. Poster shop can sue Bright without waiting until May 1 because repudiation is breech. Can seek remedies of cost of new seller (incidental damages) and difference in price if new seller is more expensive (compensatory damages).
Why was the 2 year period a reasonable period for Fitl (the buyer) to revoke his acceptance of the 1952 Mickey Mantle Topps baseball card? Fitl v. Strek.
[from Ben's notes] Card was supposed to be in mint condition, but it had actually been doctored. Buyer thought he had accepted conforming goods. Under the UCC good have already been accepted. Generally speaking, no reason to disbelieve representation, so a reasonable period of time can vary. He had no reason to believe that he was being lied to. Part of timely rejection is to allow the [sic] buyer [seller?] to be able to cure but there is no way to fix the card. So the seller couldn't fix the problem. The purpose of "reasonable time" is for the seller to cure a contract breach. With the baseball card, the seller could not cure, no matter the time.
What does it mean to have an insurable interest in identified goods?
[from Ben's notes] Insurable interest is sufficient interest. Do you have sufficient interest in the item to have a valid policy. If goods exist and are identified, buyer may have interest. If seller has title, could also have interest at the same time. [from e-book glossary, G-11] "Insurable interest - an interest in a person's life or well being or in property that is sufficiently substantial that insuring injury to (or death of) the person or against damage of the property does not amount to a mere wagering (betting) contract."
What is the effect of the "entrustment rule" for merchants dealing in goods of the kind in question when a good faith purchaser buys a good from that merchant which the merchant did not actually own?
[from Ben's notes]: Entrustment Rule: entrust goods to a merchant that deals in goods of that kind. Merchant can transfer all rights of owner. Say X takes a necklace to jeweler for repair, by mistake jeweler sells it to Y. Y has no knowledge. Under UCC, Y acquired a good title because she dealt with a merchant and bought it in good faith. She bought X's title. X cannot re-acquire it. X can file a claim against the jeweler. BUT if X's name was on the necklace, Y can't buy it in good faith (probably). This rule doesn't apply to Pawn Shop. If you buy something from a pawn shop, you take the risk of purchase. [from Sarah's notes] Allows innocent buyers to obtain legitimate title to goods purchased from merchant even if merchant did not have good title
What are the 3 types of warranties which automatically arise in any contract for the sale of goods?
[from Ben's notes]: For the sale of goods: 1) Guarantee of good title. Guarantee means that the seller owns the goods, and that a buyer can seek remedies if the seller's title is not valid. 2) Guarantee of absence of liens - there are no creditor claims. Protects buyers who are unaware of encumbrances (ex, creditor's interest) against goods. If creditor repossesses, buyer can recover from seller for breach of warranty. 3) No infringement on intellectual property - no one else has IP rights on the goods you are buying. These warranties are included unless stated otherwise.
Was Maple Farm's performance of its contractual obligations (to supply milk to the City Schools) "commercial impracticable" such that it excused Maple Farms' breach of its supply contract? Why? How should Maple Farms have protected itself in its supply contract with the City Schools?
[from Ben's notes]: In Maple Farms case, entered into contract with school to sell milk. Price of milk went up. Price increase was foreseeable. The seller lost money for every gallon delivered. Court was not sympathetic. Court said, "you should have dealt with it at the time the contract was formed." Should have agreed that if costs exceeded a certain threshold or if price drops (for the sake of the buyer) then the seller has the right to void the contract without penalty. Court says that seller should have been aware of risks of general inflation, address and allocate the risk.
What is the perfect tender rule and how has the seller's right to cure a nonconforming shipment affected that rule?
[from Ben's notes]: Perfect tender rule - buyer must accept and pay for conforming good. Delivery place is the seller's place of business unless specified otherwise, shipment contract. Notify buyer, put conforming goods in the hands of the buyer. Risk of loss passes as soon as goods are placed in the hands of a carrier (v. destination contract, delivered to the buyer). [from e-book page 343] "As previously noted, the seller or lessor has an obligation to ship or tender conforming goods, which the buyer or lessee is obligated to accept and pay for according to the terms of the contract. Under common law, the seller was obligated to deliver the goods that conformed with the terms of the contract in every detail." [from Sarah's notes] Cure: seller has right to fix problem if time remains before deadline specified in contract. Buyer has right to inspect good within reasonable time. "Reasonable time" depends on type of goods and nature of contract. In the Wilson golf balls case, the buyer added a clause to the contract regarding receiving the lowest price on golf balls. Court determined that buyer received lowest price, thus buyer was obligated to pay under the perfect tender rule.
What is the difference between shipment and destination delivery contracts and the effect on risk of loss in the event a shipment of goods in destroyed in transit?
[from Ben's notes]: Shipment and Destination contracts. Depending on which determines when the title passes. Shipping contract - title passes at the time of delivery to the carrier. Unless agreed differently, under UCC if you haven't identified shipment or destination contract, assume it is a shipment contract. Under a destination contract, goods are tendered at destination, when title passes. If goods aren't involved, title passes when document of title is delivered to the buyer OR when the contract is entered into. If goods don't involve a document of title, then title passes at the time you enter into the contract. [from Ben's notes]: Risk of loss: who bears the loss when goods are sold in transit? This issue can be addressed. Unless a destination contract it is viewed as a shipment contract. Risk of loss passes to the buyer when delivered to the carrier. If a destination contract, risk of loss stays with the seller until arrive at destination. Example: Say X buys a painting from auction house, pays for it. Auction house delivers it to carrier, the carrier loses it. The buyer has the problem. Risk of loss is passed to the buyer. Buyer protects themselves by buying insurance. Once risk of loss passes, you have insurable interest. [from Sarah's notes] Delivery without movement: title passes when seller deliver title document (bill of lading, etc). Risk of loss transfer when tender of delivery if seller; or when buyer picks up if merchant. When title required: title pass when doc delivered. When title not required: title pass when contract made, if goods are identified
What is the difference between a sale of goods and a bailment of goods?
[from Sarah's notes] A bailor delivers to a bailee, but is not gift, no title transfer. At end of bailment period, bailee has to return. Bailee has responsibility for degree of care depending on benefit to bailee. Bailee has reasonable care if receives benefit (ex, money for coat check). Bailee can limit exposure for care negligence as long as within public policy - disclaimer cannot be too broad to include damage from own negligence. (Think of bailments as leases) A sale of goods involves title passing.
Why was the contract in Jones v. Star Credit Corp. determined to be unconscionable (and therefore unenforceable)?
[from Sarah's notes] Details: Jones signed a contract for a good that was worth less than the contract price. Had made payments, not in full but above FMV of asset. When Jones found out about the good's real price, Jones claimed "unconscionable", which is typically not enforced under UCC because the consideration amount for a good is not required to be FMV. However, the court held that the amount in the contract was exorbitant and that the seller knowingly took advantage of the buyer. Court reformed contract to amount already paid. An extra consideration: this is concerning for the creditor because other debtors had same contract
What are the benefits of HDC status versus non-HDC status to a holder of an instrument?
[from Sarah's notes] HDC allows the holder of an instrument immunity to most defenses and claims that could otherwise be asserted against the transferor. I'm not too sure about this one. Maybe it has something to do with immunity from things like giving a bad title. Maybe we will cover it on Tuesday? Pg 246 [from page 246] " When an instrument is transferred, an ordinary holder obtains only those rights that the transferor had in the instrument, as mentioned previously. In this respect, a holder has the same status as an assignee. Like an assignee, a holder normally is subject to the same defenses that could be asserted against the transferor. In contrast, a holder in due course (HdC) takes an instrument free of most of the defenses and claims that could be asserted against the transferor. An HDC is a holder who meets certain acquisition requirements (to be discussed shortly) and therefore receives a higher level of protection from defenses and claims asserted by other parties."
If a seller ships nonconforming goods in response to an offer to purchase from a buyer, what is the effect of that shipment on that offer? Was a contract formed? What are the buyer's remedies (options)?
[from Sarah's notes] If a buyer makes an offer, a seller can show acceptance simply by delivering the goods. However, said goods do not have to be conforming in order to create a contract - we should assume for purposes of the class that whatever goods the seller delivered were in response to the contract offer. When the seller delivers nonconforming goods, is a breach of contract. Thus: contract created when seller delivers goods and contract breached because goods weren't conforming. When a seller breaches a contract, a buyer seeks remedies of: compensatory damages if buys goods from another seller at hire price; can force the seller to deliver the goods under doctrine of specific performance if goods were unique; incidental damages for the effort of finding a new seller
What are the requirements for a holder of an instrument to become a holder in due course ("HDC")?
[from Sarah's notes] Requirements for HDC: holder of negotiable instrument and taken instrument 1) for value, 2) in good faith, 3) without notice that it is defective. Inheritance and gifts do not qualify for HDC. A person who does not qualify for HDC obtains rights and privileges of HDC through the shelter principle when obtains a negotiable instrument through someone who has HDC. HDC passes to new owner. Based on theory that transferee receives at least the rights of the transferor.
What are the liabilities of shareholders in a corporation?
[from Sarah's notes] shareholders do not have liability, but some majority shareholders may have a fiduciary duty.
What is the effect of the statute of frauds on sale of goods at $500 or more in value and how to satisfy the statute of frauds requirement.
[from e-book page 314]: "The UCC contains Statute of Fraud provisions covering sales and lease contracts. Under these provisions sales of goods priced at $500 or more and lease contracts requiring total payments of $1,000 or more must be in writing to be enforceable." [from Ben's notes]: Oral contracts are every bit as enforceable except in real estate, personal guarantees, and sale of goods over $500. Exception - if between merchants, can be oral. [from Sarah's notes] Another exception: if goods are a custom order, is enforceable even when contract is oral.
What are the liabilities of members of a limited liability company?
[from e-book page 36] The owners of an LLC, who are called members, enjoy limited liability. [from Ben's notes, 2/9] There is no personal unlimited liability for the debts and obligations of the LLC. If the LLC harms someone, no liability. [from Sarah's notes] members only receive liability if a court can pierce the corporate veil. This happens when there's commingling of assets and poor record keeping of distinguishing the entity from owners. When veil pierced, member has unlimited liability.
What is the difference between a bailment and a gift of personal property?
[see above, from Ben's notes, 2/21] At end of bailment, must turn back over to bailor. Say someone borrows a book from you. This is a bailment situation. At the end of the bailment period required to give it back, but during the bailment term have the right to use the property. [from Sarah's notes] In a bailment situation, the bailor will receive the property back. In a gift, the good is donated without the intent of having it returned.
