Commercial Law Survey Outline - M. Spak - Fall 2009: Body

Downloaded From OutlineDepot.com Commercial Law Survey Outline - M.
Spak - Fall 2009
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Formation (Is there a Contract?) A. Subject Matter 1. Real Estate a) You agree to purchase Blackacre. Which law applies? b) Since real estate is involved, we apply common law. 2. Services a) You hire Chemlawn to spray your lawn and Lawncutter to mow the lawn. Which law applies? b) Since services are involved, we apply common law. 3. Goods a) You purchase lawn chemicals and a lawn mower at Ace Hardware. Which law applies? b) Since goods is involved, we apply UCC. 4. Structures to be removed a) Assume you purchase a farmers outhouse, to remove it from his farm and place it in your living room as a great conversation piece. Which law applies? b) Since structure to be removed is involved, we apply UCC (2-107). 5. Crops, sand, gravel, water, and electricity a) We apply UCC because it says so. 6. Mix a) De minimis (1) You purchase the famous Parot Diamond. The seller agrees to polish it. Which law applies? (2) We apply the UCC because services are de minimis. b) Apportionment (1) You purchase an air conditioner from Sears ($500) and have it installed ($400). Which law applies? (2) We apply both if we can apportion each. c) Preponderance (1) What if you cant apportion? For example, you purchase a $20M bridge. A steel beam breaks. You want the warranty protection of the UCC. Can you get it? NO. (2) Since we cant apportion, we will ask which is greater and apply the appropriate body. (3) Only apportionment applies both bodies. De minimis and preponderance will have you in or out of the UCC. Secondary Inquiry: (What Type of Contract?) A. From a standpoint of Formation, there are Three Types: 1. Express (means language contract) a) For example, I orally, or in writing, agree to represent you in traffic court tomorrow for $50. 2. Implied (Means Conduct) 3. Quasi (Constructive) (Means Law) (Quasi-contractual relief) a) Elements (1) P has conferred a benefit on D, and (2) P reasonably expects to be paid, and
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Downloaded From OutlineDepot.com Commercial Law Survey Outline - M. Spak - Fall 2009
(3) D realizes unjust enrichment if P is not compensated. b) Measure of Recovery (1) The contract price is a ceiling, e.g. Contract recovery is barred by the Statute of Frauds. B. From a standpoint of validity, there are Four Types: 1. Void a) Nullity from the beginning b) E.g. Kill Conviser 2. Voidable a) Defect in formation. One of us Minor, Insane, under duress. b) The contract can be voided. 3. Unenforceable a) No defect in formation. On extrinsic grounds, the court can refuse to enforce. Look for Statute of Frauds and statute of limitations. 4. Valid a) Only 1,2, or 3 on bar. C. From a standpoint of Performance, there are Two Types: 1. Executed (means fully performed) 2. Executory (means not fully performed) III. There are Four Requisites to a Contract Remember LACC L - Legality A - Agreement Meaning Offer and acceptance C - Capacity C - Consideration A. Legality of Object If contract has an illegal subject matter (e.g. Gambling, in many states) it is void 1. Examples 2. Illegal Purpose = voidable a) Hertz rents a car to Spak to transport illegal aliens B. Agreement or Assent (Arising out of offer and acceptance) Test applied is reasonable person or objective test. Would this person believe that his or her assent creates a contract? 1. Offer - Willingness to make a contract. General Test : Would a reasonable offeree believe that his or her assent creates a contract? Problems a) Surrounding circumstances (1) Anger vitiates offer (2) Jest vitiates offer b) Auction (1) Auctioneer holds up an item for bids. (2) Results: Not an offer. Merely a preliminary. (3) You bid $25
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(4) Results - Offer. c) Is the offer communicated? (1) This means actual knowledge. (2) E.g., I wrote you a letter. I offer to sell you my Lincoln for $5,000. (3) Offer effective? NO. (4) I mail it. Offer effective? NO. (5) Mailperson puts it in your mailbox. Offer effective? NO. (6) You open it and read it? Offer effective? YES. d) Unilateral (At common law, a promise for an act. Modernly, a contract where there is one right and one duty.) (1) Common Law (a) Complete performance is required by one party, before contract is formed. (2) U.C.C. A party can accept a unilateral offer, forming a contract, by shipping (the traditional method) or by promising to ship. (a) Conforming goods (b) Non-conforming goods i) Acceptance ii) Simultaneous breach Exception: Accommodation (1) Counter-offer (2) Acceptance or rejection by other party e) Open terms (UCC 2-204) (1) Common Law (a) Real estate requires description and price i) E.g., I offer to sell you my house for a fair price. Offer? NO. (b) Service offer requires duration (time or task). (2) UCC (a) If parties intend it, a contract is formed, with open terms, except or quantity, because without it, there would be no way to fashion a remedy for breach thereof. f) Requirements contracts/output contracts A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyers requirements or sellers output. (1) Valid B agrees to buy all plastic that he requires from S for six years. B can increase requirements so long as the increase is in line with prior history. Problems: (a) B agrees to buy all the plastic he wants/mandates/desires/wishes from S. Results NO. (b) B buys 1,000 pounds of plastic in each of the first three years of the agreement. B then orders 20,000 pounds the fourth year. Results - NO. g) Advertisements (1) General Rule : An advertisement is not an offer. It is a preliminary.
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(2) Exception : An advertisement is an offer if it is specific as to quantity and indicates who can accept. Target publishes the following advertisement: 100 mink-like stoles, worth $150 .$1. (Limit if 1 per customer -- sale is limited to a total of 100 stoles -- first come, first served.) This advertisement is an offer because it specifies quantity and who can accept. h) Termination of offers (four methods) An offer cannot be accepted if it has terminated. An offer that has been terminated is dead. An offer must be viable. (1) First method of termination : lapse of time (a) During the break, Spak writes in our notes that he will sell me his 1993 Cadillac for $4,000. The writing fails to indicate how long the offer will be kept open. Can I accept the offer five years from now? Results: No, terminated by an unreasonable lapse of time. (2) Second method of termination : words or conduct of offeror, i.e. Revocation of an offer (a) How? i) Statement by offeror to offeree indicating an unwillingness or inability to contract, or ii) Conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of: (1) On January 10, Spak offers to sell to Conviser his 1993 Cadillac for $4,000. The next day, while standing in the shower, Spak exclaims, I have changed my mind. I do not want to sell my Cadillac to Conviser. Can Conviser still accept the January 10th offer? Results : YES. (2) On January 10, Spak offers to sell Conviser his 1994 Cadillac for $4,000. The next day I offer my Cadillac to Rossi. Can Conviser still accept the January 10th offer? Result : YES. (3) Same facts as above except Conviser sees Rossi driving Spaks former Cadillac on January 11 and learns from him that he has bought it. Can he still accept the offer? Result : NO. (4) Same facts except Conviser simply learns that Spak offered the car to Rossi but he has not accepted? Results : YES. iii) If public offer, by same or comparable publication. (1) On January 10, Spak places the following ad in the Chicago Tribune. $5,000 reward to whomever finds my lost dog. How can Spak revoke this offer? An ad in the same paper? YES. An ad on channel 7 canceling the offer? NO. (b) When does revocation of an offer become effective? i) Revocation of an offer sent through the mail is not effective until communicated. (LEVEL II). (1) Here it means received (in mailbox). (2) S offers to sell her car to B. On Tuesday, S mails B a letter revoking the offer. The letter arrives on Thursday. When is the revocation effective? Thursday. ii) An offer cannot be revoked after it has been accepted.
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(1) S offers to sell his car to B for $4,000. B immediately accepts. Because B so quickly accepts, S decides that the car must be worth more than $4,000 and tells B that he has revoked the offer. Result : Cant revoke. (c) Offers that cannot be revoked (4 different situations) i) An offer cannot be revoked if the offeror has (1) promised to keep the offer open AND (2) this promise is supported by consideration. (OPTION) (No time or subject matter limit) (1) S offers to sell B her car for $400. B pays S $10 for her promise to keep the offer open for a week. Can S still revoke the offer? Irrevocable for a week. (2) S offers to sell her car to B for $4,000. S promises to keep the offer open for a week. Can S still revoke? Results : YES, can revoke, it is not an option since there was no consideration. ii) Merchant firm offer (UCC 2-205, did away with consideration) (1) Merchant (literally) (2) Writing (tangible) (3) Signed (4) Words of firmness This is a firm offer. I will keep offer open for (5) Irrevocable (a) Time promiosed (b) Reasonable (c) Maximum three months (d) E.g., assuming you get an offer from Sears. Dear Student: We offer to sell you the Model X2 Air Conditioner that you expressed an interest in for $3,000. This offer will be held open for one year. /s/ Sears. Four months later, I send a letter saying I accept. Am I the owner of the air conditioner? YES. Illustrates the difference between viability and irrevocability. An offer is usually viable a reasonable time (but not here, it was specified). Although this offer was now revocable, it wasnt. iii) An offer cannot be revoked if there has been detrimental reliance by the offeree that is reasonably foreseeable. (1) A is a general contractor who is bidding on a contract to build a new hotel, using various subcontractors. B, a subcontractor, bids to do the painting work for $100,000. A uses Bs bid in making its bid and is awarded the hotel construction contract. Can B still revoke its bid? Results : NO, detrimental reliance. iv) The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance. (1) Unilateral (a) O offers P $1,000 to paint Os house. Os offer states that it can be accepted only by performance. P starts painting. Can O still revoke? No, irrevocable for a reasonable period of time.
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(2) Is a unilateral offer irrevocable for a reasonable time? Results : NO, only if started to perform. (3) This is one-sided. Contract not formed until finished - dont have a duty to perform. (3) Third method of termination of an offer: words or conduct of the offeree - rejection. Three methods of indirect rejection: counteroffer, conditional acceptance, and additional terms to a common law contract. (a) Counteroffer i) Terminates the offer and becomes a new offer. Thus, where a counteroffer has been made there is no express contract unless that counteroffer has itself been accepted. Counteroffers need to be distinguished from bargaining. Bargaining does not terminate the offer. ii) I offer to sell you my tie for $10. You respond, I will only pay $9. I refuse to sell it for $9. Can you accept my offer? (1) No, terminated by counteroffer. iii) What if you respond with Will you take $9? I refuse to sell it for $9. Can you accept my offer? (1) Yes. Bargaining. (b) Conditional Acceptance i) A conditional acceptance operates the same way as a counter-offer: it terminates the offer and becomes a new offer. ii) When a NY law firm calls to offer you a position as an associate, your response is that you accept on the condition that you do not get assigned to the tax team. Has a contract been formed? If not, can you still call back and accept? (1) No, killed by conditional acceptance. (c) Additional Terms to a Common Law Contract (mirror image rule) i) Under common law, an acceptance that adds new terms is treated like a counteroffer rather than an acceptance. ii) L sends T a signed real estate lease that is silent about arbitration of disputes. T adds a paragraph providing for arbitration of disputes and signs. Has T accepted Ls offer creating an express contract? (1) No, additional terms = counter offer. (4) Fourth method of termination of an offer: Death of a party prior to acceptance (a) General rule: Death or incapacity of either party terminated offer. i) On 2/2, A sends B a written offer. A dies on 2/4. B, not knowing of As death, mails his acceptance on 2/6. Is the acceptance effective? (1) No, offer dead by death of A. (2) Does not terminate a contract. (b) Exceptions i) Option ii) Part performance of offer to enter into unilateral contract 2. Acceptance
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a) Who can accept? Generally, an offer can be accepted only by (1) a person who knows about the offer (2) who is the person to whom it was made. Offers cannot be assigned; options can be assigned. (1) Spak posts a reward for whomever finds his lost dog. I find and return his dog, not knowing of the reward. What result? (a) Cant accept if dont know. (2) Spak offers to sell his 1993 Cadillac for $4,000. I tell Conviser of the offer. Can he accept? (a) No, not assignable. (3) Spak offers me an option to buy his car for $25 (one week). I assign this to Conviser. Can he accept? (a) Yes, options are assignable. b) How? (1) E.g. Spak offers his suit for $100. I say I accept. I would like it cleaned and pressed first. (a) Common law - NO, mirror image. (b) UCC i) Parties intention (1) Contract (2) Counter-offer (only on condition that you first clean and press it. NO ii) Terms (1) Non-merchant (a) Use offered terms; therefore contract is for dirty suit. Additional terms are merely a proposal to modify. The additional terms do not become part of the contract. (2) Merchants (a) Use acceptance terms; therefore contract is for cleaned suit. What happens to the additional terms? (b) They become part of the contract. (c) Exceptions: (i) Offer expressly limits (e.g. Spak offers his suit for $100. Dont make any additions or changes in my reply. Simply say Yes or No. (ii) Material alteration - e.g. I accept, but I would like it shipped to my home in South Africa in a wooden box made of mahogany - with you to bear the cost of shipment.; (iii) Objection - e.g. Spak offers his suit for $100. I say I accept. I would like it cleaned and pressed first. Spak says Sorry, I have no cleaning or pressing capabilities. (d) Note: Not part of contract. These exceptions do not prevent the contract from being formed. (c) Acceptance by silence? i) Prior dealings - e.g. B says, Ill take my usual 10 widgets. S says nothing. One month later, he ships 10 widgets. Two months later, same events. Four months later, same events. Eight months later, B says Ill take my usual 10 widgets. One month later, S says, I;m not sending them to you.
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Ss reply is too late. Here there was an acceptance by silence from prior dealings. ii) Affirmative duty to speak - e.g. Williams 199 year old case; updated for inflation and political correctness. Should have told P not to mow his lawn. iii) Agreement - in advance. (d) When is acceptance effective? Upon communication. Here it means dispatched. (Timing - mailbox rule). i) Preconditions (1) Proper mode (2) Properly dispatched - wrong address, improper postage, then upon receipt. ii) Exceptions: (1) Opt out - malpractice exception - should always opt out of mailbox exceptions. (2) Option - exercise of the option - 5-day, and mail 3 days later (3) Rejection first - on receipt, so no mailbox rule. (e) Auctions i) Offer - bids (can be revoked) ii) Acceptance - Sold! Bang of gavel, or any other method iii) Methods iv) Reserve presumed - unless advertised without reserve v) Close case (1) Common law - jury (2) UCC - Auctioneer decision final vi) Disregard shills (a confederate) - subsequent to auction, disregard his bids. c) Capacity of Parties (1) When incapacitation ceases, party can avoid (voidable) for a reasonable time or affirm. New consideration needed? NO (2) Infants make voidable contracts (a) Exceptions for necessities of life - family expense. Enforceable under quasicontract. States do it statutorily. (b) Reaffirmation: i) No new consideration needed ii) Bound only to extent or reaffirmation (3) Insane parties (4) Intoxicated parties (5) Others. e.g. defects? d) Consideration or a Consideration Substitute (1) What is consideration? (a) Bargained for legal detriment (b) Look at each promise separately (c) Identify promisor (defendant) and ask what did he bargain for. Identify the promisee (plaintiff) and ask what detriment did she incur. (d) The doctrine of consideration is of limited practical significance. In most transactions, particularly most commercial agreements, there will be no issue
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as to consideration. Article 2 of the UCC has further reduced the practical significance of consideration. (2) Forms of Consideration (a) Performance; i.e. Doing something not legally obligated to do (b) Forbearance; i.e. Not doing something legally entitled to do (c) Promise to perform (d) Promise to forbear (3) Possible Issues (a) Is action bargained for which results in a contract or merely a condition of a gift which does not result in a contract? The answer depends more on the surrounding circumstances that the words. i) Spak wants me to have his Cadillac and so he tells me come to my house and I will give you my 1993 Cadillac. Contract or gift? GIFT ii) Spak wants you in his house. Having tried the usual lines about view, etchings, wine, and music with no success, he says come to my house and I will give you my 1993 Cadillac. Contract or gift? CONTRACT (b) Legal detriment i) Stop listening to Kinky Friedman records and Ill pay you $100 (What is the promise? Is there consideration, i.e. bargained for legal detriment, supporting the promise?) YES (c) Adequacy of consideration i) Not relevant in contract law. ii) I sign a contract to purchase Spaks 1993 Cadillac for $10. Is this agreement legally enforceable? iii) YES, do not consider adequacy (d) Past consideration i) General rule - not consideration ii) A saves Bs life. C is so grateful that he promises to pay A $3,000. C later changes his mind. Is his promise legally enforceable? NO iii) Exception: expressly requested and expectation of payment (e) Preexisting contractual or statutory duty rule (common law different from Article 2) i) Common law (1) General rule: performance of preexisting contractual or legal duty not consideration. (2) Kinky Friedman contracts to perform at Town Hall for $15,000. Notwithstanding the contract, the Kinkster refuses to sing unless he is paid $20,000, not $15,000. The promoter promises to pay Kinky $20,000. Kinky performs. The promoter only pays $15,000. Is the promise to pay the additional $5,000 legally enforceable? NO. Preexisting legal duty. (3) What if the promoter promised to pay Kinky the additional $5,000 if Kinky is accompanied by the original Texas Cowboys? SURE, consideration added.
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(4) House exam question: Buy house for $100k. Dont want to move, what you want. $110k. Give $100k. Get extra $10K? NO. But if change closing? YES. ii) Exception: unforeseen difficulty so severe to excuse performance: e.g. Quicksand, and/or solid bedrock discoveries. Limit to these two cases. iii) Exception third party, e.g. Peter OToole and/or Babe Ruth (4) Mutuality/Illusory (a) Requirement--output i) These are valid articulations of the quantity - requirement, output. ii) What isnt? All I want, precatory terms, desire (b) Satisfaction i) I promise to prepare an estate plan for you; and you will pay me $3,000 if satisfied. ii) What am I getting? Good Faith Presumption - a condition precedent to satisfaction. Not illusory. (c) Exclusive agency i) I promise to give you an exclusive agency for all of the USA to sell Spak Donuts. ii) What is Spak getting? Presumed best effort. Not Illusory. (d) Notification required i) Either side can cancel. Results? Illusory. ii) Either side can cancel by giving the other side five days notice. Result? Not Illusory. (5) Statutory Modifications (a) Seal. Majority rule. The seal is not a consideration substitute. (b) Written promise to pay debt barred by technical defense such as statute of limitations as consideration substitute. i) A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration. ii) D owes C $1,000. Legal action to collect this debt us barred by the statute of limitations. D writes C I know that I owe you $1,000. I will pay you $600. Can C collect either the original $1,000 or the new $600 promise? (1) Credit managers trick rule. Can kill a technical defense bar. SOL, bankruptcy. (c) Written release of claim for breach of sale of goods contract i) Under 1-107, a written release of all or part of a claim for breach of a contract for sale of goods is enforceable without consideration. (6) Promissory Estoppel (detrimental reliance) is the most important consideration substitute. (a) Elements i) Promise ii) Reliance that is reasonable, detrimental, and foreseeable iii) Enforcement necessary to avoid injustice (b) Difference - Damages
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IV.
(c) Which is better? Promissory estoppel (always same or better than detrimental reliance) - legal bar from denying promise (d) Detrimental reliance - what was the extent of the reliance THREE DEFENSES A. Statute of Frauds - the purpose of the SoF was evidentiary - provide proof that the alleged agreement was made. Four SoF issues: 1. Is the contract within the Statute of Frauds? The SoF does not cover all contracts. At common law, six kinds of contracts were covered by i.e. within the SoF. (MY LEGS) 2. If so, is the SoF satisfied? It is evidentiary and the requirement of proof that the alleged agreement is made is generally satisfied by either performance or by a writing. 3. Was this an exception to the Statute of Frauds ? (SWAP) 4. What is the legal consequence of the failure to satisfy the Statute of Frauds? The Statute of Frauds is a defense to enforcement of the agreement. It does not void the agreement. 5. Therefore, SoF must be plead, or it is waived. 6. Contracts within the Statute of Frauds a) Marriage (1) A promise in consideration of marriage (If youll marry me, Ill give you a car.) (2) Not mutual promises (These can be oral - although remedy abolished in many states.) Including IL, still have breach of promise to marry. Damages - deposits for wedding stuff. b) Year (contract cannot be performed within a year) (1) Lifetime - IL only exception (2) Two Minutes. Depends - time from formation to performance. c) Land (1) Nine-month lease? Can be oral (2) Two-year lease? No, cant be oral (year, not land) d) Executors promise to pay estate debt (from executors funds) (1) Estate funds? (2) Executors debts? e) Goods of $500 or more (1) Exactly $500? Writing (2) Final? $1000 modified to $300? No writing (3) Telegram? One with quantity was enough to show that there was a deal f) Suretyship (1) Three parties: Debtor, Creditor, and Surety (back stopping the debt of the debtor) (2) Called a Guarantee (3) 1 cent - requires a writing (4) When main purpose is for benefit of of surety - not debtor - promise is enforceable through oral. (5) A orally agreed to backstop the debt of B for $365. A trick wrong answer: Since it is for <$500, it is enforceable if oral. NO. Suretyship in writing for one penny. g) Satisfaction of the Statute of Frauds - Requires writing, signed by party to be charged (1) Writing? Telegram? Ok. (2) Party to be charged? Defendant.
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(3) Note the equal dignity rule (majority rule) (a) Typically, agency contracts can be oral, except for real estate agency - the principal, not the agent should be bound h) Exceptions to the Statute of Frauds (1) Specially Manufactured Goods (with beginning) 2-201 (a) Felt Schmatlzagen letters (2) Written Merchants Confirmation of an oral deal (Signed by plaintiff, but holds the defendant). D can respond, but if dont will be bound. (a) Is a farmer a merchant. In IL yes, but in 490 other states, no. (3) Admission (a) Consider hypo involving contract for 1,000 Spak books. I am called as witness. Spak asks, Did you agree to buy 1,000? i) Privilege of self-incrimination. (1) Limited to fear of criminal prosecution, so bad defense. ii) Privilege of Statute of Frauds (1) No, must answer iii) Irrelevant and immaterial (1) Arguable, because question is was there a writing, but, a loser. (2) Lie? (3) Yup. Effective answer because: didnt admit, so SoF applies. No admission. No writing. (4) Professional Responsibility note: Pretrial motion - plead SoF, but if not, stuck, cannot counsel to lie. (4) Performance (a) Common law: requires full performance by either party. (b) U.C.C.: partial performance to the extent of the performance i) Note: With specially manufactured goods, the entire contract is enforceable; however, with the other three exceptions, they are only to the extent. If multiple exceptions, pick specially manufactured goods. (c) Part of a unit is an entire unit. $0.25 for the car? B. Mistakes, Misrepresentations, and Fraud 1. Unilateral mistake is not a defense (tough shit) a) Exception: No snap-ups (1) $43 for a garage - knew or should have known it was a mistake 2. Bilateral mistake is a defense a) There will be no contract if: (1) Both parties mistaken (2) Basic assumption of fact (3) Materiality affects the agreed exchange C. Unconscionability - no definition in the code, so it is state-by-state. (In Texas, regarding oil, it is never unconscionable.) 1. When? a) Time entered into contract (Southwest Airlines and fuel prices) 2. Examples a) Inconspicuous risk shifter
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V.
(1) Last clause shifts all risk to other party b) Contract of adhesion (1) Take it or leave it. One sided. Warranty not on engine/power train in all auto companies. John Deere major offender. c) Unreasonable covenant not to compete (N.B. not law) (1) Restraint of trade - Sherman Act, but courts will often enforce non-compete, if reasonable distance/time. (2) Cannot be a lawyer covenant not to compete. Cannot agree not to practice against them. RIGHTS AND DUTIES OF NONPARTIES TO THE CONTRACT A. Third Party Beneficiaries 1. Assuming a contract, is there a chance a non-contract party has rights or duties? Yup. 2. B works for A, gets paid $100. Pays $100 to C. (???) C (Bs creditor) (Bs son) a) Intended beneficiary can hold promisor (1) C can hold A b) Promisor can use defenses c) Creditor beneficiary can hold promisee on original debt (1) Excludes donee beneficiary under gift law. Donative intent, delivery, acceptance. d) Incidental beneficiary cant hold anybody (1) Also called unintended or unnamed (a) Orange grower, processor, distributer (b) Rambler repairs, gas stations - no rights e) Modifications permitted until vesting (1) Vesting upon knowledge of beneficiary and reliance. f) Promisee can also enforce a contract against promisor (but only pay once - still in privity) B. Assignment of Rights and Delegations of Duties 1. Spak will paint my portrait a) Me - Right = get portrait - Assign to C?, Duty = Pay $ Delegate to C? b) Spak - Right = Get $ - Assign to C, Duty = Paint portrait - Delegate to C? 2. The law a) All rights may be assigned. (1) Exceptions (a) If prohibited by law or contract (Canada --> bombs to Libya) (b) Unique personal service (c) Substantial change b) What is necessary for assignment? Present transfer. (Not I plan to give this to you.) (1) Not necessary: (a) Consideration (b) A writing c) Revocable? (1) Yes, if gratuitous (2) No, if paid for d) Rights and duties of parties? (1) Assignee (passive) can hold obligor unless he performed without notice
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(2) Assignor (active) cant - no more privity - already paid assignor. e) Successive assignment of same right? (1) First irrevocable assignee prevails f) Duties: similar, but assignor is out of picture, but delegator is not. (1) What duties may be delegated? ALL (a) Exceptions: i) If prohibited ii) Unique personal service (Trick question - even if better, cannot delegate) iii) Substantial change (2) What is necessary? Present tense delegation (a) Not necessary: i) Writing - unless in SoF ii) Consideration (3) Rights and liabilities of parties? (assuming valid delegation) (a) Obligee must accept (b) Delegator remains liable (4) Difference between delegation of duty and novation - substituted contract (discharged) requires consent of all three, but for delegation not a substituted contract and not discharged. VI. PERFORMANCE AND RULES OF CONSTRUCTION (What Are Its Terms?) A. Parol Evidence Rule Assume I agree to buy from Spak 1,000 chickens, 1,000 months, $1,000. I send a check for 980. Spak calls and demands the $20. I claim 2/10 net 30. 1. Rule: Where written integration, extrinsic evidence inadmissible 2. Common law exceptions: a) Clarify ambiguity b) Fraud/duress, etc.. c) Subsequent agreement 3. U.C.C. Exceptions a) Usage of trade b) Course of dealings c) Course of performance d) Also ECCUGL, where G = gap filling, L = litigate B. Performance 1. Sellers obligations - tender perfect goods in a single delivery a) Non-carrier (1) Where? Presumed sellers place of business/residence b) Carrier Where? (Shipment or destination) (2-319) (1) F.O.B. (free on board) underline next word, without is incomplete (a) FOB Chicago - Spak only to his loading dock (b) FOB Point of origin (c) FOB Final Destination (2) F.A.S. (free along side) port (a) FAS sellers port
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(b) FAS ORD c) Price? (1) C & F (cost and freight) - not insurance (2) C.I.F (cost, insurance, and freight) or C.A.F (cost, assurance, freight) (a) But not all risk is covered by insurance (3) Shipment - $5,000 C&F + $250 insurance 2. Buyers obligations - pay (2-511) a) Delivery and Payment - concurrent (1) Delivery is a condition precedent to payment and vice versa, so they become concurrent. b) Check OK; seller can demand cash, but must then give time (1) Assume contract for 1M barrels of oil, price at time of extraction from well head. I request oil. Computer shows $28. I tender a check for $28M. Spak demands cash. I return hours later with cash. Spak says computer now says $30. (2) Owner of oil? Yes. At what price? $28. 3. Identification a) What is it? Designation of specifics b) What does it do? Allows buyer insurability. 4. Risk of loss (2-509) a) Absence of breach (2-509) - perfect goods (1) Non-carrier (buyer as a merchant is irrelevant) (a) Seller-merchant; on possession (purse at Macys. Macys suffers - didnt take possession) (b) Seller-non-merchant; on tender - ready for buyer (2) Carrier (a) Destination or shipment (b) Non-destination; risk on buyer b) Breach (1) Risk remains on seller, unless: (a) Acceptance - despite breach (b) Cured i) Within proper time ii) Additional time if seller believed buyer would accept (prior history, new model/old price) (c) Sales presumed final i) Sale or return (Bookstore. Never returned burned books, risk passes to buyer) ii) Sale on approval - risk remains on seller (dresses gone in fire) (d) Building contracts - who suffers? Sale only on approval. i) New - builder suffers ii) Repairs - builders discharged by impossibility (farmer suffers) C. Rules of Contract Construction 1. Against maker 2. Handwriting prevails over type; type prevails over print (forms) 3. Words over figures (numbers)
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VII.
CONDITIONS (Occurs where both parties have agreed that performance depends on an event beyond the control of the parties to a contract that affects a partys duty to perform under the contract.) A. Types 1. By timing a) Precedent (must occur before) - inspection b) Concurrent - 2-507/2-511 not literally possible c) Subsequent (must not occur during) 2. By formation a) Express b) Implied c) Constructive - from the law B. Satisfaction or Excuse of Conditions 1. Satisfaction of condition a) Test: Substantial performance 2. Excuse of conditions: a) Prevention - person imposing the condition acts to prevent the condition from occurring doesnt apply for mortgage. b) Anticipatory breach - performance of both parties are executorial (next month), Spak says I wont do it, can wait, or sue now. c) Breach d) Substantial performance is test for common law conditions (1) Under U.C.C: (a) Perfect tender rule applies to the goods (b) Substantial performance for conditions e) Divisibility (U.C.C.: Installment) (1) Performance is divided into two or more parts (2) Number of parts is the same for both (3) Performance of each part is the equivalent of the other Herein, there is a substantial impairment requirement f) Waiver - after This is based on a statement by the person protected by the condition before the conditioning event was to occur. C. Warranties (always on the bar) are covenants, contractual promises. 1. Title (merchancy irrelevant) - constructive a) Sold this watch which was hot b) Can get around with quit claim - disclaim warranty of title 2. Infringement (only by merchant) - Constructive a) A merchant seller warrants against copyright/trademark/patent infringement. 3. Merchantability (2-314) - implied a) Merchants only b) Fitness for ordinary purpose (definition of merchantability) (1) Bone in chicken salad - ok (2) Chicken bone in fish soup - recover (3) Free water bad - recover (part of overhead)
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VIII.
Jewel - warranty liability is absolute liability Rat feces in pepper - ok Restaurant - soup with a pen - recover Bar trick - free champagne on casino boat - recover - cant get out of it just because it is free 4. Fitness for a particular purpose (merchancy irrelevant) - Implied (2-315) a) Buyer has particular purpose (2x4 for scaffolding purpose) b) Seller has reason to know (Be chatty at Ace Hardware) c) Buyer relying on seller to select or furnish such 5. Express (affirmation of fact) a) Distinguish puffing (1) This tie is terrific! - commendation - an allowable lie. Sound as a dollar! Will make his mark as a foal getter! But gay. Too bad - future b) Sample or model c) Distinguish fraud (tort fraud can get punitive damages, not with contract) 6. Disclaimers a) Can all warranties be disclaimed? Yup. b) To expressly disclaim the implied warranty of merchantability, it must explicitly use Merchantability conspicuously in writing. c) To impliedly disclaim either (merchantability or fitness for a particular purpose), the goods can be sold AS IS. This does not disclaim warranty of title or infringement. d) You can limit remedies. Test: Uncounscionability. (1) Kodak replacement cost was unconscionable. 7. Beneficiaries (2-318) (warranties extend to any natural person that is family, household, or guests in home. Not car, driveway, only home. CA extends to burglar) 8. Federal consumer product warranties law of 1975 a) No disclaimer of implied warranties - if you give any warranty (usually limited) b) Lemon problem - resolved in favor of consumer - a factual determination - damages are a choice of consumer - fix/replace/rescission. c) No TY-ins (1) If serviced by anyone else, warranty dead, except if it is without cost. DISCHARGE (Excuse of Nonperformance) A. Performance 1. Assume A & B contract 2. A performs perfectly 3. B sues him anyway 4. Who wins? B. Tender - I dont want Spaks pen. C. Condition subsequent - law school, smoking. D. Impossibility 1. Common law - objective impossibility 2. U.C.C. a) Destruction (2-613) of subject matter or casualty of goods without fault b) Transportation failure (2-614) must tender a reasonable substitute and buyer must accept
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(4) (5) (6) (7)
IX.
c) Failure of presupposed conditions (2-615) Allowing an appropriate allocation - oil embargo, Persian rugs, burning trash E. Commercial Frustration (e.g. Hurricane) 1. An event (1) occurring after contract formation, but before performance; (2) that was unforeseen; (3) affecting either partys ability to perform or the value of the performance. F. Rescission 1. If performance is still remaining from each of the contract parties (executory x2 and cancel). 3rd party until vesting (knowledge or reliance) G. Novation 1. An agreement between both parties to substitute a new party, i.e. same performance, different party. After novation, parties discharged. Must be consent of all 3. (Bar trick). Contrast with delegation of duty, which doesnt require consent, plus there is no discharge of the delegating party. H. Cancellation 1. If performance by 1 side and cancel. I. Accord and Satisfaction (Compromise) - The parties will do something different that will satisfy the existing obligation. 1. Accord. The executory promise to make a change. 2. Satisfaction. The performance of the accord. 3. Effect of the accord alone is not a discharge. It suspends the legal enforcement of the prior obligation. 4. Therefore, if no satisfaction, the non-breaching party can sue on the accord or original contract. J. Account Stated 1. Unliquidated claim - not fixed (uncertain) 2. Amount offered in payment - the $1.3M dentistry bill at U of I 3. Amount accepted 4. Note: if liquidated amount, no account stated discharge K. Lapse - wait 2 years to sue. General statute of limitation of goods = 4 years. 1. Short of statute of limitations. 2. Prevent lapse by complaining, otherwise laches. L. Judgment. Contract is merged in the judgment. BREACH A. When? (1) When there is a contract; and (2) non-performance without a discharge. B. What? 1. Common law a) Requires substantial performance, therefore (1) Material breach - excuses other partys performance (2) Minor breach - does not excuse other partys performance. Hardship, purpose, willful or not. (3) This is a question of fact 2. U.C.C. a) Requires perfect tender (2-601) - if it fails in any respect, including timing. C. Remedies
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1. Land - specific performance, and equitable writ, for both buyers and sellers (no reason for sellers). 2. Damages - money a) Compensatory. (1) Standard measure, foreseeable - example of when foreseeability dies (?): farmer burns down other property when he burns the coop b) Nominal (1) No actual loss. Traditional = $1 c) Stipulated/liquidated Contract can stipulate damages or method of fixing damages. A contract cannot provide for a penalty. Two general tests for determining whether a contract provision is a valid liquidated damages clause or an invalid penalty provision: (test to allow liquidated damages) (1) At time of contract, the amount of possible damages from any later breach of contract is difficult to determine; and (2) At time of contract, the contract provision is a reasonable forecast of possible damages. d) Punitive (1) No, not in private contract law. 3. Remedies if goods - part of Article III a) Buyers remedies - seller in default - bad seller (1) No goods (Price goes up). Example: contract for $75k. Seller doesnt produce widgets because price was increased. If you are going to cover it, must be reasonable and seasonable. (a) Cover - Buy substitute goods. Assign damages by difference between the contract price and the purchase price. i) Reasonable? 6 year warranty for $6, original was 5 year for $5 ii) Seasonable? Timely. Cant wait around for better prices. (b) Contract (2-713) Sue for the difference between the contract price and the fair market value at the time of discovery of the breach as well as consequential damages. i) How do you show fair market value went up without buying: (1) Look at catalog (2) Bring in expert (c) Specific Performance (2-716) Inadequate remedy at law i) Reasons: Unique or couldnt cover elsewhere. (2) Non-conforming goods (2-601) (a) Reject. Standard: i) Single delivery (nonperfect) (unless curable) (1) Cure requires original time (2) Additional time if seller had reason to believe buyer would accept the non-conforming goods. (a) e.g. History and prior dealings, new model/old price. Buyer doesnt have to take it but give seller additional time ii) Installment (substantial impairment) 2-612 Pyramid and bricks. (1) Substantial impairment to value of installment.
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(2) Whole thing: Substantial impairment to value of entire product (b) Accept i) Knowingly (damages) (1) Measure: the difference between what the goods are worth versus what they would have been worth had the warranty not been breached. Difference between a 3 and a 4 fry. (2) Contract price irrelevant. Getting rid of treating goods like yours to dont open container right away. (a) Why is price irrelevant? Ex.: Spaks pen for $5, Previous owner was Sean Penn = warranty. Mr. Penn didnt own pen. Expert says it would be worth 1 mil if not owned, $10 difference between two prices ii) Not-knowingly - revoke acceptance (1) Standard is substantial impairment (2) Following revocation of acceptance - same position if you had originally rejected (a) Cover, contract, or specific performance (3) Examples: (a) Strawberries, 2nd layer is bad. Revoke acceptance because berries inedible. (b) Boutique, top dresses are ok, goes back to find other dresses had water damage. Revoke acceptance because cant sell dresses. b) Sellers Remedies (buyer in default). Note: any kind of breach other than insolvency is limited to carload/truck load lot of goods. For insolvency, any size carrier, even 1 single package. (1) Insolvent (a) Breach? Not necessarily a breach if buyer went bankrupt. Why? Because trustee could follow through with deal (ratified the contract) (b) No delivery (2-702) i) Unless they pay, no delivery (c) Stop the goods in transit (d) Reclaim i) Potent remedy. Taking back goods when the trustee and owners are waiting. ii) Rule: 10 days of possession, only 10 day window. iii) Reclamation - sole remedy - there is no other remedy available. (2) Bad Buyer - wrong rejection (price dropped) (a) Sell to another (opposite of cover) and assign damages by difference between the contract price and the sale to another price. (b) Contract (no forcing goods). The difference between the fair market value and the contract price. Its easier for the seller to sell to someone else. (c) No specific performance (you want $) (d) Profits? Volume seller i) Actions for profits
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X.
(1) Car dealer can say, if you hadnt breached, I could have sold 2 cars = lost profit (doesnt work for guy selling car by newspaper ad. (e) 2-709 - you can sue on the price if you cant sell goods to someone else, but a high burden to show you are in the business of selling. c) Remedies available to both buyer and/or seller (whoever innocent party is) (1) Right to demand assurances (letter from accounting) (a) Requires worry/writing, cant be oral. e.g. Carpenters are on strike, will you be able to carry out end of deal. (b) If no response with 30 days, it becomes an anticipatory breach (2) Anticipatory repudiation (a) Requires: i) Executory promises (not performed) ii) Unequivocal (no way will I give you $/widgets) (b) Choices: i) Some now ii) Wait iii) Suspend your performance - stop producing widgets or cancel loans d) Incidental/consequential minus savings (it might take more than 1 remedy to make you whole) (1) Incidental (a) What? i) Transportation, upkeep, storage, commissions (b) Who gets? i) Buyer or seller (2) Consequential (2-715) (a) What? i) Foreseeability damages (b) Who gets? i) Buyers, not sellers. (1) Stock purchase is made impossible because of buyers breach --> no damages for stock price going up (2) McNames case e) Mitigation (deduction/savings) (1) Affirmative duty to mitigate an innocent party (2) If buyer breaches, seller cannot continue to send product and ask for $ cost. THIRD-PARTY RIGHTS A. Buyer Gets Title of Seller - Except Buyer May Achieve Better Title B. Accession or 1. Added value to a chattel, fixtures to real estate 2. Limited to fair market value a) R.R. tie into a cuckoo clock. Get $20 for tie C. Cash 1. Mugger buys something, store owns cash (federal law) D. Holder in due course 1. Negotiable instrument
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XI.
2. Negotiated 3. Holder in due course 4. Takes free of personal defense and claims E. Intermingling (confusion) F. Entrustment 1. Owner 2. Merchant 3. Buyer in ordinary course (BFP) 4. Result: Gets title G. Voidable title 1. Can go to valid. Check bounced, get back watch unless sold to bona fide purchaser H. Estoppel 1. A/V guy sees Spak sell microphone, says nothing. 2. Assigned title of car over to borrower who sells it. Buyer gets title. COMMERCIAL PAPER A. Introduction: Two functions of commercial paper: 1. As a substitute for cash a) Mugger takes watch, cash, and indorsed paycheck. Mugger sells them to Purchaser who didnt know of mugging (BFP). Can Muggee get his cash, watch, and/or paycheck back from BFP? (1) Yes, as to watch. (2) No, as to the cash. Federal public policy allows even a thief to convey title to cash to an innocent purchaser. (3) As to the paycheck, No. Holder in due course rule b) Holder in Due Course (1) Negotiable instrument (2) Negotiated (3) Holder in due course (4) Takes free of personal defenses and claims - subject only to real defenses. 2. Commercial paper is also used for credit. a) The Rule: (1) Negotiable Instrument (2) Negotiated (3) Holder in Due Course (4) Takes free of personal defenses and claims - subject only to real defenses B. Types 1. Note a) Instrument where maker promises to pay payee. (1) Where the promise by a bank to repay is a certificate of deposit b) The two parties are: (1) Maker (2) Payee c) Liability of maker (3-412) - promise to pay, primary promise, unconditional promise d) More than one? E.g. One is infant, other parent - co-makers. Still two parties (roles). Joint and several liability.
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e) To each other? (1) Contractual, presumed equal 2. Draft (Three-Party Paper) a) Instrument where drawer orders drawee to pay payee. b) Where payable on demand and drawable on a bank - even without words of negotiability = check c) The three parties are: (1) Drawer (2) Drawee (3) Payee d) Liability of drawer? (1) Secondary (conditional) (a) Conditions precedent: i) Presentment to drawee ii) Dishonor by drawee iii) Notice of dishonor e) Inconsistent words and figures, words take precedence. C. Parties 1. Makers 2. Drawers 3. Indorsers a) Signature other than that of maker, drawer, or acceptor. (1) Acceptor is drawee who has agreed to pay the instrument - certified check b) Special - Special indorsement identifies the person to whom payable, Blank does not. c) Unrestrictive - Restrictive indorsement limits payment; Unrestrictive does not. d) Unqualified - Qualified indorsement (without recourse) negates secondary liability, Unqualified doesnt. e) Nonanomalous - Anomalous indicates accommodation (out of chain). (1) Accommodation parties are liable in capacity in which they sign (2) Surety has right of recourse against accommodated party f) Liability of indorser? 3-415 - Secondary - conditions precedent unless words without recourse D. HOLDER VS. MAKER 1. Holder in Due Course Rule a) Negotiable Instrument (Form) b) Negotiated (A kind of transfer) c) Holder in Due Course d) Takes free of personal defenses and claims - subject only to real defenses. 2. Negotiable Instrument (If non-negotiable, Article 3 doesnt apply, use regular contract law.) a) Writing - not necessarily paper, but tangible - not oral. b) Signed by maker (2-party note) or drawer (3-party draft) c) Agency (1) Principal liable if agent authorized.
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(2) Agent liable only if signed without showing represented party (or representative capacity) d) Unconditional (1) No express conditions (a) Implied or constructive conditions permissible i) Express means language on the instruments ii) Implied means conduct off the instrument iii) Constructive means law (2) Not subject to another writing (a) Secured by mortgage on house.. permissible (3) Limitation of funds OK (a) Funded from the sale of my house e) Promise (two party) or Order (three party) f) To Pay a Fixed Amount (with or without interest) (1) Fixed or variable rate (2) w/interest - presumed rate (3) 6% - constructive per annum g) Of Money (1) Foreign OK h) No other Unauthorized Promise (1) Additional authorized promises concern security or attorneys fees i) On Demand or at a Definite Time (1) If note doesnt say anything, its demand paper (Silence is demand) (2) Any acceleration clause OK (3-108) (a) Conditions modify promise to pay: acceleration clauses modify time to pay (b) Could be malpractice not to include, e.g. If one payment missed, payable now (c) Otherwise negotiable instrument payable on death of my rich uncle, Sam Dough is NOT Negotiable. (d) Otherwise negotiable instrument payable on 1/1/9999, accelerated by death of my rich uncle, Sam Dough is Negotiable j) To Bearer or To Order at Time of Issue (unless check) (1) The words of negotiability create two types of negotiable instruments - Order and Bearer (2) Pay to the order of Seth (3) To the order of Cash (4) Cash 3. Negotiated a) Effective even if impediment (1) Assume payee is 5 years old. She signs over her birthday check with a smiley face. b) Must transfer entire instrument (1) Assume Employee indorses check 50% to Albert; 50% to Betty c) Rules for Negotiation (1) Order = proper indorsement plus delivery (a) Assume instrument payable to order of Sue Jones (b) In order for Sue to negotiate it to Isobel, she must
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i) Indorse; and ii) Deliver (2) Bearer = mere delivery alone (a) Assume instrument payable to cash. In order for Sue to negotiate to Isobel, Sue must merely deliver. (3) Last Indorsement Rule (a) Assume instrument payable to order of Sue Jones. She indorses it, Pay Bob /s/ Sue Jones, and delivers it to Bob (holder). i) In order for Bob to negotiate it to Sally, Bob must indorse and deliver (b) Must show last indorsement of one of these: i) Special/Order ii) Blank/Bearer (1) If Sue would have indorsed it, /s/ Sue, and delivered it to Bob, what would Bob have to do to negotiate it to Sally? Deliver. 4. Holder in Due Course a) For Value (not consideration) (1) Executed consideration (a) Lawyer receives a $1,000 negotiable instrument as an advance on fees. This is not value, but is executory consideration. (2) Antecedent claim (a) Lawyer earned $1,000 three years ago but was not paid. Yesterday, he received a $1,000 negotiable instrument for the work done. This is value. (b) Old debts (c) Performed consideration (3) Partial HDC (a) Swindler swindles a $1,000 note from Maker. Swindler sells it to HDC for $500. HDC is a full HDC (not partial, discount OK). (b) HDC is to pay $250 today, and $250 tomorrow. Tonight he finds out about the swindle. HDC is a partial HDC for $500. i) Some states say to the extent you give value - $250 - proportional) (4) Time of payment governs status (a) First notice, then payment - NOT HDC (b) First payment, then notice - HDC (5) Is your bank an HDC? (a) Typically NO. You get provisional credit when deposited - must clear. (b) But YES, can be, if they give value. i) Easy: You ask them to cash check, and they do ii) Realistic: You have sufficient funds, and they give you cash, they could be an HDC for that amount. b) In Good Faith (1) Honesty-In-Fact (a) Subjective standard - if you believe the bum with a $10k note that you buy for $2, sure. (b) Observance of reasonable commercial standards of fair dealing (merchants test) - No for the note from the bum.
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c) Without Knowledge or Notice of overdueness (check over 90 days old), dishonor, claim, defense, forgery, irregularity, or incompleteness which questions authenticity. d) Non-holders in due course (1) Bulk - buy a major part of a business out of the ordinary course of business (buy Marshall Fields). Not an HDC of all the checks. (2) Estate (3) Judicial Sale - the check from Johns pants that the sheriff took after a judgment 5. Free From Personal Defenses and Claims, But Subject to Real Defenses (3-305) Separates Article 3 paper from common law contract a) F - Forgery, Fraud In Fact (not regular fraud, but where you didnt know what you were doing (use an autograph and insert into a $25M draft) (1) Key: Switch Document fraud b) A - Alteration, Adjudicated Insanity (1) Alteration - partial forgery - change $5 to $5000, still liable for $5, if not negligent. c) I - Infancy, Illegality (1) Key: Void illegality (Illegal subject matter, not illegal purpose - find out they are going to use little bottles for crack) (a) Not licensed to do business in a state makes voidable, not void, except in AR. d) D - Duress, Discharge in insolvency. (1) Key: Void duress - Imminent fear of great bodily harm to you or someone to which you have a legal duty e) S - Suretyship, Statute of Frauds f) FTC amelioration - Human buys consumer goods or services on credit = NO HDC Rule (1) Human? Not a corporation (2) Consumer goods - family use goods (3) Services? (4) Credit? More than 4 installments g) Shelter Rule - Anyone who takes after HDC gets rights of HDC, except participant (Umbrella Doctrine) (1) HDC gives, as a wedding present, a negotiable note to Sonny, who knew the instrument was issued because of a fraud perpetrated on maker. Is Sonny an HDC? NO, but has rights of an HDC, so no legal difference. E. HOLDER VS. INDORSER - Contract of Secondary Liability (at time of indorsement) Innocence indorses a note for $1000 It is altered to $2000. Maker is bankrupt. Holder can hold Innocence for $1000 (time of indorsement) 1. Presentment (3-501) a) Holder goes to primary party (maker of note or drawee of draft) and demands payment. 2. Dishonor (3-502) a) Primary party refuses 3. Notice of Dishonor (3-503) a) Holder tells secondary party (Indorser unless said without recourse) 4. Harry Holder buys, and then sells, two negotiable instruments. The first was bearer, so Harry never indorsed it. The second was order paper, so Harry indorsed it without recourse, Harry. What possible liability would Harry have to the holder if Maker is
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bankrupt? If without recourse or no signature (negotiation by delivery alone) must discuss warranty liability. 5. Warranty liability off instrument. 6. Stages in life: a) Issuance - No warranties b) Transfer (movement for consideration). Applies even if there is no signature - e.g., delivery of bearer paper. (1) Right to enforce (title) (2) Signature genuine (3) No alteration (4) No defenses (5) No knowledge of insolvency c) Presentment - final surrender (1) Key: Presenter makes warranty #1 of transfer, but not warranty #2. F. HOLDER VS. DRAWEE - None unless acceptance (certification) 1. If certification, drawee liable for consequential damages a) Bank has no reason not to pay and they have to if certified 2. If certification, drawer discharged. a) Other than checks, drawer remains secondarily liable G. DRAWER VS. DRAWEE - Contractual Relationship - Drawer puts money in drawee (drawee will act as agent for collection), and drawee pays out according to drawers order. 1. Properly Payable - When can bank pay when you didnt really want it? a) Overdraft (4-401) If bank wants to pay, they can, and charge you interest. b) Date irrelevant c) Not over stop payment - except shelter and subrogation (1) Banks have to follow stop payment other than two exceptions - Shelter - get rights of HDC d) Drawer whos dead - bank can pay even though you are dead 2. Where drawee doesnt pay, but should have, drawee is liable to drawer for wrongful dishonor. a) Bank owes holder nothing, but owes you 3. Where drawee does pay, but shouldnt have, drawee is liable to drawer for breach of contract. a) Exceptions: (1) Fictitious indorsements are effective (a) Imposter (3-404(a)) (b) Corporate comptroller (3-405) (c) Payroll padding (3-404(b)) (2) Drawer negligent in the drafting (a) Use of pencil - NO (b) Leaves blank checks on top of table in restaurant - NO (c) Leaves amount blank or lots of space following the word One YES (d) Leaves spaces and says and says I trust you to put in right amount? YES (3) Drawer negligent in the notifying (a) Exception to exception?
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XII.
(b) Limits? i) Forged drawer? 1 year ii) Forged indorsement? 3 years iii) Multiple forgeries by same wrongdoer? 30 days H. BANK RECOVERY (Finality) 1. Where the bank pays on a forged drawers signature or other mistake (e.g. insufficient funds - extension of Price v Neal), payment is final and no recovery is permitted from the innocent party whom the bank paid. (Price v Neal) 2. Where the bank pays on a forged indorsement, payment is not final and the bank can recover from the innocent party whom it paid. (Breach of warranty presentment.) (Right to enforce (title)). I. ACCORD AND SATISFACTION 1. Unliquidated or disputed claim (if no dispute, no accord and satisfaction) 2. Instrument tendered as full satisfaction (conspicuously) 3. Collection is discharge of debtors obligation (accord and satisfaction) 4. Exceptions: a) Organization designated agent (conspicuously) (3-311) (Prevents accord and satisfaction - unless sent to the agent) b) Claimant tenders repayment within 90 days (avoids inadvertent accord and satisfaction). J. LOST, DESTROYED, OR STOLEN INSTRUMENTS 1. Replacement issue - enforcement - mandate a bond 2. Adequate protection - flexible - not a bond requirement 3. Cashiers, tellers, or certified check (3-312) a) Payment upon claim made before check paid to another (warranty - no bond) (1) After 90 days - bank pays claimant (2) Afterwards, if paid to HDC, claimant must repay SUMMARY A. MEMORIZE THE SUMMARY ON PAGES 66-68
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