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Contract lawFraud5 types of contracts in mindParole evidence rule – cannot introduce oral evidence or testimony if it contradicts what you put in writingIf written terms of contract are ambiguous or you are trying to say that the other party tried to get you to commit fraud > you can bring in oral evidenceDischarge of contract – treated if it doesn’t existAll parties substantially perform under the contractMaterial breech of contract – you have not substantially performedYou can assign rights in contract to other personDelegate duties to a third partyCannot delegate dutiesMaterial breech – party that did not do anything wrong to mitigate damagesNeed to go out and find another supplier – higher price, part of damagesAnticipatory breechSomeone breeches before the end of the contractContract discharges > look for damages/new supplierRecession – all parties get together and decide to cancel itNo damagesNovation – new contract createdOne party released and another party gets let inImpossibility – person dies, incompetent, etc.No damagesSubject matter illegalDischarged by lawSubject matter destroyedEx. House burning down while being soldImpracticability/frustration – extremely more difficult / expensive to be completed > can be dischargedEx. Rock on concrete buildingRemedies – puts people in same economic condition as beforeMonetaryCompensatory damages – cost/losses incurred by non breeching partyExpectancy damages – Lost profits because other party breechedLiquidated damages – Damages specified in the contractIncentive to not breech the contractIf there is a breech – makes damages easier in courtNominal damages – agree laws have been breeched but no economic loss sufferedCost more to suePunitive damages – rareIf you can show the breech was done maliciously or fraudEquitable remediesSpecific performance – telling someone to do something (court order)Cannot get it if the contract is service basedInjunction – telling someone not to do something (court order) – rare in contract disputesEx. Actor in movie and other studio offered him more but got injunction against studio b since he was in actor b Didn’t say he had to perform in movie ABut can get sued for damages if he doesn’tUnjust enrichmentRestitutionYou ought to pay someoneQuasi contractBeing unjustly enriched (court created remedy)Ex. Someone paying your driveway and seeing without signing a contractImplies you are someone at faultInternational contractsUS system fairly quick with disputesOther countries have verbal agreementsEx. JapanEUSome use US type contractsMost other foreign countries don’t document like US does3 Q’s5Deals w/ minor who bought new carThen decided he didn’t want the car anymoreUsually says minors don’t have legal capacity to enter into a contractCan be voidable but it does existContract is damagedDamages = money paid – value lost when you drove it offSell it as a used carWill only sign to minors if a parent cosigns8Company w/ 5 year contract to install washers/dryersOwner of apartment decided they didn’t want him anymoreMaterial breechBrought washers to new places then sued for lost profits of 5 yearsEntitled to compensation of : cost to remove and install into new places, profits entitled to difference between profits you would have gotten vs. what you actually got in new places10GE supplied appliances to apt. contract. GE says mistake made and they actually owe more. If they don’t end contract or pay more, the apt. owner will be unjustly enriched. Judge doesn’t see unjust enrichment. Only applies if there is mistake on part of apt complex. Not the apt. complex fault.Put appliances inOr pay difference between new company putting appliances inChapter 11Uniform Commercial CodeArticle 2 applies to contracts for the sale of goods between merchantsGoods = tangible itemsMerchants = selling goodsFederal law but most states have adopted itDoes not apply to real property, intellectual property, provision of servicesMixed properties only subject to Article 2 if the majority of the contract is Article 2Much more flexible than common lawSpecific provisions designed to promote commerceThere to complete contracts for the partiesSays Article 2 can be formed in any manor that helps the partyCan be revoked at any time before acceptanceImpose upon parties to act in good faithFirm offer – seller assures buyer it will remain open for certain period of timeAcceptance made in any term neededStatue of frauds under Article 2- totally differentAny contract for sales of goods over 500 have to be in writing to be enforceableParole evidence rule – more flexibleCannot introduce oral evidence/testimony if it goes against the contractYou can introduce oral evidence/testimony if you are trying to clarify terms/fill in blank/explain trade practiceLeave price, quantity outTrade practice – what other companies deal onFilling in the gapsAssume a reasonable priceQuantityDelivery termsUsually 30/90 daysPayment termsHow soon you want to get paid30/60 days/10 days = 2% discountPunitive on buyer, cash on delivery if not includedRequirements contract – Seller says to buyer they can provide all the product they needQuantity can’t go up – need new contractOutput contract- Quantity neededCertain rightsSellers primary obligationsDeliver goods on timeHas right to cure defect if time of contract have not passedBuyers primary obligationMake good on paying on timely basisInspect goods to make sure they meet contract requirementsIf no >Accept all of the goodsReject all of the goodsAccept some goods, reject othersHas to notify the seller as quickly as possibleSales Warranties – Express/Implied (Seller > Buyer)Implied – warranty of good title3 ways to create an express warranty Any promise/statement of fact made about their productIf items don’t meet this they are deemed unreliableDescription of goods sellers give to buyersEvery item produced meets that descriptionSeller gives sample of product to buyerImplied warrantyImplied warranty of merchantabilityExists in every contract subject of article 2 regardless of what it saysItems are fit for use in businessImplied warrenty of fitness for a particular purposeIf buyer is relying on sellers expertise for propertyAlll 6 warranties have strict liabilityDisclaim warranties under 2 conditionsClear/conspicuousMust be signed by buyer Cap for breech of warrantyBreeching party pays damages for x for this amountIf cancelledNotify breeching party they consider the contract voidIf buyer breeches – seller has right to get items back, cost incurred are part of damagesIf seller breeches – Buyer has obligation to mitigate damages, get deposits backARTICLE 2 Does not provide for attorney feesDoes not provide for payment of punitive damagesFederal law but most states have adoptedInternational salesOnly applies to contracts in the USSigned by large number of countriesNegotiable Instrument – something transferred for value (Art. 3) – Only applies if there is a negotiable instrumentFunctionsSubstitute for cashCan get a lot more businessTypes of negotiable instrumentsNormal Holder of negotiable instrumentCheck – ContractContract defects fraud, under duress could limit you from getting paidHolder in Due Course – more preferred statusWill not prohibit you from getting paid – assures youHave to give value to get paidHave to take instrument w/ no knowledge that it is not goodHave to take the instrument in good faithBearer negotiable instrumentWhoever has it can get valueRequirements to be a negotiable instrumentWritten instrumentHas to be unconditional order/promise to payHas to be signed by maker/drawerHas to be payable on demand or at specified time in the futureHas to be made out to “the order of” or “bearer”Has to state a certain amount of money to be paidTypesOrders to pay (3 party instruments) Drawer – person who creates the negotiable instrumentDrawee – entity/person who will make paymentPayee – beneficiary who gets paid Drafts – legally binding order to pay a fixed sum of money currently or in the futureCan be any entityTypesSight draft – requires immediate pmtCashiers check – guaranteed to get paid, arrange through fin institutionBill of exchange – international transactions: used to be that it could be ? weeks before they get paid. Guarantees pmt for goodsChecksType of draft*****Two characteristics that make it more specific than a draftCan only be payable now on demandDrawee can only be a bank/financial institutionPromise to pay (2 party instruments)NotesLender (Creditor)Borrower (Debtor)TypesPromissory notes – promises to pay (principal + interest)Collateral note – Assets to secure/backup to pledges to back up paymentReal estate mortgage note – borrow money from bank to borrow a house w/ interestInstallment note – Note promised to make periodic payments before you pay back the debtWhen you buy a carBalloon note – Big amount of principal due at end of noteCertificates of Deposit – note signed by your bank that they will pay you back for the money you put inMost provide liquiditySome will charge a fee based on TV of moneyCreditIncrease their business/get more customersCreditorDebtor – who owes moneyDecide what your credit policy isCredit checksTypes of Credit accountsOpen account – Open but full pm expected w/in set timeInstallment credit account – Pay principal/interest and then when you pay it all off it’s closedCredit card – Limit but you can continue to use it. Continued acct. Must decide collection policyWhat do I do if someone is late paying meCall youSend a letterSuing the personPlace the account w/ a collection agencyCredit with securityVerbal statement you will payWritten noteSecurity interest – if you don’t pay, sign fin stmt. > then filing it w/ sec. of state. Taking it if no pmt.W/ PropertyRepossessionCollateral to back it upCredit with security – creates contractible obligationsDefenses availableFraud, duress, illegalBankruptcy is not a defenseSurety – you are primarily liable (B) More money more wealthTwo rights to protect yourselfExonerationIf A refuses to pay but A is capable, the surety can get a court order for them to paySubrogationB can then sue A if A doesn’t payYou get rights if you cosign and payGuarantor – Secondarily liable . If A doesn’t pay, B has to first sue A, then can sue BSecured transactionFin stmt. signedOther collateralTwo ways to finance a businessDebt financingEquity financingSelling shares of stockNo legal obligation to pay backDividends to shareholdersOn PDFChapter 10Common law of contract that applies to everyoneCommon/court made lawStatutory lawUniform commercial codeFederal law adopted by most of the statesPurpose: to provide clarity of what the law isEncourage business and enforce agreementsContract – legal agreement between partiesBinding promise – meets req. of contractNonbinding promise – doesn’t5 elements of an enforceable contractAgreements – clear and unconditionalOfferWays to terminate offersWithdrawn before acceptanceTerminated by a rejectionTerminated by counter offerLapse of timeSpecific time limit on offerAfter reasonable period of time every offer terminatesJudge can decideOperation of the lawIf subject matter becomes illegalIf it becomes impossible to perform the contractIf it becomes extremely more difficult/expensive to perform the court can terminate itCounteroffer – terminates original offerConsideration – to value bargain forCourt doesn’t want to get involvedExceptions: fraud, duress, etc.Promissory estoppel – if someone relied on contract and it wasn’t fulfilledLegal capacity of the partiesMinors/intoxicated are deemed not to have the legal capacity of contractStill a contract > voidable contractOne w/ it can decide to cancel or go through with itLawful subject matterVoid contract – subject matter illegal > doesn’t exist ever3 types of contracts (legal) but courts will look @Exculpatory contractsUnconscionable contractsContracts in restraint of tradeGenuine consentFully understand facts you were agreeing toStatue of fraudsIdentify what they are***Parole evidence ruleRelates to oral evidence / testimonyCannot introduce these if they contradict the written evidence of the contractHome solicitation statutesIf you sign a contract w/ door to door salesperson you have 3 days (72 hrs.) to revoke the contractWays contracts can be dischargedBoth parties substantially performing the contractNo material breechIf material breech > dischargedNon breeching party has right to sue for damagesObligation to mitigate damagesDamages for material breech – back in same economic state as beforeMaterial damagesCompensatory damages – compensate for lost profits/costsExpectancy damages**- profits you expected to make had the contract been performedLiquidated damages**- agreed to by parties and put in contract in advanceNominal damages – no damages, doesn’t pay to sue (cost more to sue)Punitive damages (rare on contract cases) – if breeching party acted maliciously/fraudEquitable remediesSpecific performance – court order to do somethingIf subject matter is unique asset/piece of propertyNot for services (forced labor)Injunction – court order to not do somethingRare in contract disputesEx. Actor couldn’t perform for other studioEquitable (unjustly enriched) – by their fault/inactionRestitution – not fair because byQuasi contractChapter 11Article 2 of the contract law – only for merchants (goods tangible personal property). Designed to promote businessMore liberal in finding/enforcing contractsDesigned to act in good faithHelp w/ delivery terms, contract help, etc.Courts will try to fill in the blanks in contractsCan look at previous pricesLook at trade practicesContract can be formed in any manner that form agreement between partiesStatute of frauds **** (different than common law)*****Any contract for sales of goods over $500 has to be enforceable**Parole evidence ruleOral evidence/testimony cannot be enforced if it contradicts***A little more flexible. You can if:Contract is missingExplain trade practice/previous dealingsShow fraud/undue duressBuyer and sellers rightsSeller rightsDeliver goods at contract to the buyerBuyers rightsTo pay for the goods by the contractInspect the goods to make sure they conformIf not (3 options)Accept all goodsReject all goodsAccept some / reject someObligation to notify seller as quickly as possibleSeller has right to cure/fix problem if time in contract has not passedWarranties that apply (Seller > Buyer)Implied warranty of good titleGood clear title to goods, nobody else has claim to them2 waysImplied warranty of merchantabilityGoods fit to be used in the buyers businessWarranty of fitnessBuyer relies on seller for their productIf breeches > right to damagesDisclaimersClear/conspicuousBuyer signs written contractExpress warranties3 waysPromises/facts to buyersDescription of goods given to buyerAny sample/model given to buyerDamages: Deem contract voidRights to repossess, etc.Convention on international sale of goodsOptions:Specify in written contract how to resolve disputesArbitrationProvide for litigationWhich court/which law to useIf neither: resident of ratified convention – you can use it to try to help your caseNegotiable instrumentsTransfer it for valueTo expand customer baseRequirements ** find them in listWritingUnconditional promise to paySigned by maker/drawerPayable on demand or on specific timeCheck – on demandDraft – specific timeMade out to order of /bearerBearer – more risky, anyone can cashMust state certain amount of $TypesDrafts/checksDraft – 3 party order to payNow/in the futureCan be about anything to pay toCheck – type of draft w/ 2 restrictionsOnly payable on demandDrawee (make pmt) only bank/financial institutionNotes/certificates to payEx. Promissory noteCertificate of deposit – issued to bank to youCredit policiesCredit checksPersons ability to pay you backCollection policySelling on secured interest – prefer to do thisSign financing statementTake it and filing it w/ secretary of statePledge assets as collateralFinancingDebt financingEquity financingCosigningAssuriaites – primarily liableGuarantors – secondary liableBankruptcyFederal law3 changes madeBefore they have to have credit counselingWhich bankruptcy to file forDebtor education courseUndergo Chapter 7 you can only do it every 8 yearsBankruptcy courtTrustee assignedAssets frozen3 typesReorganization of debt – Chapter 135 years extension of time to get current on debtChapter 11 – Business can’t payChapter 7 – Liquidating bankruptcyAll assets sold to creditors judged by courtsPriorities of debt1st priority > secured creditorsLowest priority > general unsecured creditorsDebt not paid off > legally dischargedExceptions: debts incurred shortly before, alimony and child support, back taxes, student loansNo bankruptcy alternatives – quicker/cheaperVoluntaryIf all creditors don’t agree it won’t workDebt extensionMore time to payCreditors to take less than 100%Bank workoutExtended period of time to payBank to lend you more $AssignmentInformal chapter 7If creditors agree, all assets to assetee gives them to creditors as previously sagred ................
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