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Business Law Test 3 Chesson
Terms in this set (63)
English Rule concerning multiple assignments
The first bona fide assignee for value to notify the debtor of assignment prevails, regardless of whether he/she is the 1st person to receive the assignment in point of time. Followed by majority of jurisdictions.
American Rule concerning multiple assignments
1st assignee in point of time prevails, regardless of which assignee gives notice first.
When we are dealing with assignment...
we say the assignee stands in the shoes of the assignor
What does "The assignee stands in the shoes of the assignor" mean?
The obligor can raise any defense to the contract that the obligor could have raised against the assignor
The parties to an assignment
-Assignor: Person who transfers his contractual right (Original party)
-Assignee: The person to whom the right is transferred
-Obligor: Party to the contract against whom the right may be exercise (Original party)
What can and can't be assigned?
- You CAN assign contractual rights
- You CANNOT assign contractual duties
When do 3rd parties rights get vested?
Generally, when 3rd party beneficiary has been accepted, adopted, or acted upon the agreement, the parties may not change it without his/her consent
3rd Party Creditor Beneficiary
Occurs when the promisor obligates himself to satisfy a duty owed by the promisee to his creditor.
Ex: Mortgage Assumption
3rd Party Donee Beneficiary
No-Debtor-Creditor Relationship; where the intent of promisee is to confer a gift upon a 3rd person
Ex: Life Insurance Policy
3rd Party Incidental Beneficiary
Where the 3rd party is only an incidental beneficiary. Also they may not sue to enforce any of the contractual provision.
Ex: Matternes vs. City of Winston-Salem
One may not introduce oral evidence at a trial to contradict the clear, unambiguous terms of a written agreement
Effect of the Parol-Evidence Rule in common law
Contracts that fall within the State of Fraud
-Promise by Executor or Administrator
-Promise to answer to the debt of another
-Agreement made upon Consideration of Marriage
-Contracts for the sale of an Interest in Land
-Agreements not to be performed within one year from the time of their making
Promise by Executor or Administrator (Nuances)
-In order for a creditor to bind a personal representative to a contract requiring him or her to pay a decedent's debt out of his own assets, the contract must be written, or there be a written memorandum signed by the personal representative.
-If a personal representative makes a contract on behalf of the estate, there's no writing requirement.
Promise to answer the debt of another (Nuances)
-When one promises to pay the debt incurred by another, the contracts most comply with the statue to be enforceable. Limited to collateral promises (in nature of guarantee) rather than primary promise.
-Collateral Promise: "Sell goods to Jones, & if Jones does not pay. I will pay." (Writing required)
-Primary Promise: "Let Jones have the goods & I will pay." (no writing required)
-Main-Purpose-Doctrine: changes what appears to be a collateral promise to a primary promise which falls outside the statues (no requirement) when the main purpose for promising to pay another's obligation is for his or her own benefit
-Indemnity Contracts and Novations: "fall outside the Statue" (no writing requirement) both are considered primary promises
Agreement made upon Consideration of Marriage (Nuances)
-Does Not apply to mutual promises to marry or engagement agreement
-Only occurs when marriage is part of the consideration given in return for some other performance
Contracts for the sale of an Interest in Land (Nuances)
-Not only sale of land, but also any interest in land (real estate sales contract, easement, mortgage, rights-of-way) falls within the statues.
-Does a license to hunt on real estate full the statues? No! permission rather than sale
Agreements not to be performed within one year from the time of their making (Nuances)
-Courts hold that only contracts on which performance within a year from date of making is impossible fall within the statue (required in writing)
-Statue of Frauds Section of UCC: any contract for sale of goods are UCC at a price of $500 or more must be in writing, or there be in writing on indication of the terms of agreement signal by party against whom enforcement is sought.
-No particular form necessary - may be a letter, or series of letter, containing the terms of agreement
Statue of Fraud
-First enabled by the English Parliament in 1677
-Is adopted in almost every State, including NC
-If a contract needs to be in writing to be enforceable, it is said "to have fallen within the statue" (Enforceable)
-If the Statue does not apply, the contract is said to "fall outside the statue" (not enforceable)
-The statue does not render an oral contract that falls within the statue void -just unenforceable
Contracts in Restraint of Trade
- Under the "Old Common Law" of agreement that placed a restraint on a man's right to pursue his trade or profession was void as against public policy
-Recently, courts have permitted the enforcement of restrictive covenants as long as they meet the requirements
a. For reasonable length of time
b. Reasonable in geographic area of restriction
c. Have the element of consideration
Charging a greater interest rate than allowed by law
Punishment if a court in NC found that the parties have entered in a contract for usury
-Forfeiture of the entire amount of interest charge. (Preferred approach)
-Both interest and principal are forfeited
-Only that mount of interest that exceeds the usury limit is forfeited
Duty of Migration
Duty to keep the amount of loss sustained to a minimum
Mitigation of damages
A party may have a duty to take positive step in order to mitigate his damage
The amount that places the injured party in the same position he or she would have been if there had not been a breach. Includes damages that was the natural and probable consequence of the breach. They may NOT be speculative or hypothetical. If the injured party is placed in a better position due to the breach, he or she is entitled to only nominal damages.
Is a term in the law of contracts that describes a declaration by the promising party to a contract that he or she does not intend to live up to his or her obligations under the contract.
When does Anticipatory Repudiation apply
As a general rule, it only applies executory bilateral contracts.
The innocent party may rescind the agreement and sue for damages
The innocent party may not rescind contract and must still perform his/her promise - the remedy is to bring an action for damages caused by partial breach.
This is a party's failure to perform a major part of the contract. The breach is substantial and prevents the contract from being completed or defeats the purpose of the contract. A non-breaching party is thus no longer obligated to finish their performance under the contract.
Statue of Limitation
When the period elapses, any lawsuit is barred. A number of events may stop statue of limits from running. When this happens, the running of statues is said to be Tolled. A partial payment on debt will toll the Statue of Limitation and it will begin running again from the date of partial payment.
When a person fails to perform under contract due to an Act of God
The general rule: so called Act of God, or even Unavoidable accidents rendering performance impossible will not allow one to escape liability for damages, absent a contractual provision excusing performance under such circumstances.
Doctrine of Substantial Performance
A legal principle which says that if a good faith attempt is made to perform the requirements of the agreement even if it does not precisely meet the terms of the agreement or statutory requirements, the performance will still be considered complete if the essential purpose is accomplished. However this is subject to claim of damages for shortfall. A defendant when sued for non performance cannot avoid paying damages by showing he substantially performed or came near to performing the requirements of the contract.
Ex: Construction Contract
Doctrine of Partial Performance
-When a portion of required performance is not completed, generally intentionally.
a. When innocent party has done nothing to prevent full performance and has not waived his or her right to full performance. There can be no recovery under the contract. However, if the innocent party accepts the benefits of a partially performed contract he or she waives right to full performance and must pay reasonable or fair value of performance accept.
Types of Conditions found in a Contract
A specified condition that must occur before the agreement between the parties can become binding or before a party is required to perform a duty or obligation under the contract. Frequently used to shift the risk that a certain event will or will not occur from one party to another.
An event that occurs after or subsequent to the point in time when one is obligated under a contract.
When the parties under a contract are required to perform simultaneously.
A contract that contains an exculpatory clause, releasing one of the parties from any liability for negligent or wrongful behavior is generally nonenforceable as a matter of public policy.
Sale under UCC
"A Sale" is defined as the passing of title from the seller to the buyer for a price.
When does personal property become a fixture under UCC
Acceptance by the buyer under UCC
Can be done by the Seller promising to ship the goods or a prompt shipment of goods.
Unilateral contract under UCC
When there is a unilateral offer the UCC states that when the beginning of the performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. (no contract)
Good Faith Requirement
-UCC states that "every contract or duty within the Act imposes an obligation of good faith in its performance or enforcement".
-For nonmerchants it means honesty in fact.
-For merchant it means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
Parol Evidence Rule
If the parties to a contract set forth its terms in a confirmatory memorandum or in a writing intended as their final expression, the terms of the contract cannot be contradicted by evidence of any prior agreements of contemporaneous oral agreements. If the Court finds an ambiguity in the writing, it may accept evidence of consistent additional terms to clarify or remove the ambiguity.
An unconscionable contract is one that is so unfair and one sided that is would be unreasonable to enforce it. The UCC allows the Court to:
a. Refuse to enforce the contract
b. Enforce the remainder of the contract without the unconscionable clause
c. Limit the application of the unconscionable clause to avoid an unconscionable result
What has to happen first before an interest in specific goods, pass from buyer to seller
1. The goods must be in existence
2. They must be identified as the specific goods designated in the contract
When does the Title pass
- Once goods exist and are identified, title passes to the buyer at the time and place the seller performs the physical delivery of the goods
- In the absence of agreement delivery arrangements can determine when title passes from the seller to the buyer.
The seller is required only to deliver the goods into the hands of a carrier, and title passes to the buyer at the time and place of shipment.
General Rule (Shipment Contract)
All contracts are assumed to be shipment contracts if nothing to the contrary is stated in the contract.
The seller is required to deliver the goods to a particular destination. Title passes to the buyer when the goods are tendered at that destination.
Delivery without movement of Goods
When a document of title is required, title passes to the buyer when and where the document is delivered. The goods never move.
The Entrustment Rule
When goods are entrusted to a merchant who deals in goods of that kind, and the merchant sells the goods to a buyer in the ordinary course of business that buyer obtains good title to the property.
Risk of Loss
Under the UCC, risk of loss does not necessarily pass with title. It is used in the law of contracts to determine which party should bear the burden of risk for damage occurring to goods after the sale has been completed, but before delivery has occurred.
When there is a warehouse receipt, when does title change from the seller to the buyer?
Once the seller has tendered delivery, the buyer is obligated to accept and pay for the goods in accordance with the contract.
Unless otherwise agreed, the buyer must pay for the goods at the time and place of receipt, unless sale is made on credit.
Risk of Loss when Sales Contract is Breached
1. When Seller Breaches. If the goods are so nonconforming that the buyer has the right to reject them, the risk of loss does not pass to the buyer until the defects are cured, or until the buyer accepts goods in spite of their defects.
2. When Buyer Breaches. General Rule - risk of loss immediately shifts to the buyer.
At what point can the buyer obtain insurance
1. The buyer has an insurable interest in identified goods.
2. The seller has an insurable interest in goods as long as he/ she retain title to the goods.
3. Therefore, both buyer and seller can have an insurable interest in identical goods at the same
Perfect Tender Rule
Delivery of goods in conformity with terms of the contract in every detail. If the goods or tender of delivery fail in any respect to conform to the contract, the buyer or lessee has the right to accept the goods, reject the entire shipment or accept part and reject part.
Exceptions of the Perfect Tender Rule
2. Substitution of Carriers
3. Installment Contracts
4. Commercial Impracticability
5. Partial Performance
6. Destruction of Identified Goods
7. Right of Assurance
8. Duty of Cooperation
Buyer may accept goods when:
1. If, after having a reasonable opportunity to inspect, signifies agreement that the goods conform, or acceptable in spite of nonconformity
2. Buyer has a reasonable opportunity to inspect and fails to reject them within a reasonable time.
3. Buyer performs any act inconsistent with seller's ownership (uses or resells them).
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