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BLAW 3201 Final: BLAW Final Notes (Mark Fry)

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Business Law
BLAW 3201
Mary Fry

BLAW FINAL Chapters 15-18; Ch.6 CHAPTER 15 – Contracts in Writing • Contracts o An oral contract is in every way as enforceable as a written contract unless otherwise provided by statute ▪ Sam, a shopkeeper, dies unexpectedly at the age of 46. His lifelong business associate, Paul, is appointed the administrator of the estate. Sam had a personal debt of $8,000 which he owed to Art's Appliance Store. Paul says to Art, "If there isn't enough money in the estate, I'll personally see that the bill is paid." Which of the following is correct? – An oral statement such as this is not enforceable because this promise is within the statute of frauds ▪ Although most contracts are not required to be in writing to be enforceable, it is highly desirable that significant contracts be written ▪ Written contracts avoid the numerous problems that proving the terms of oral contracts involves ▪ The terms of a written contract do not change over time, while the parties’ recollections of the terms might o When the parties do reduce their agreement to a complete and final written expression, the law (under the parol evidence rule) honors this document by not allowing the parties to introduce any evidence in a lawsuit that would alter, modify, or vary the terms of the written contract ▪ The parties may differ as to the proper or intended meaning of language contained in the written agreement where such language is ambiguous or susceptible to different interpretations ▪ To ascertain the proper meaning requires an interpretation, or construction, of contract ▪ The rules of construction permit the parties to introduce evidence to resolve ambiguity and to show the meaning of the langue employed and the sense in which both parties used it • Statute of Frauds  contracts must be in writing ▪ Only deals with executory contracts, not excuted contracts (contracts already fully performed) ▪ Requires that certain designated types of contracts to be evidenced by a writing to be enforceable • The following does NOT have to be evidenced by writing in order to be enforceable – Mindy’s agreement with Susan to buy her bike for $400 Page 1 BLAW FINAL Chapters 15-18; Ch.6 ▪ It has no relation to any kind of fraud practiced in the making of contracts • The purpose of the statute is to prevent perjured testimony in court from creating fraud in the proof of certain oral contracts, which purpose the statute accomplishes by requiring that certain contracts be evidenced by a signed writing ▪ The statute does NOT prevent the performance of oral contracts if the parties are willing to perform ▪ It only relates to the proof of evidence of a contract • It has nothing to do with the circumstances surrounding the making of a contract or with a contract’s validity o Contracts Within the Statute of Frauds ▪ Many more types of contracts are NOT subject to the statute of frauds than are actually subject to it ▪ Most oral contracts are as enforceable and valid as a written contract • If a given contract is subject to the statute of frauds, the contract is said to be within the statute o To be enforceable, it must comply with the statutes requirements • All other types of contracts are said to be “not within” or “outside” the statute and need not only comply with its requirements to be enforceable ▪ Rule  contracts within the statute of frauds must be evidenced by a writing to be enforceable ▪ Electronic Records  full effect is given to electronic contracts and signatures • In states have adopted it, the UETA – encourages and gives full effect to electronic contracts • E-Sign provides consumers must – receive a “clear and conspicuous” statement informing them of their right to withdraw consent to receiving electronic records • E-Sign – ensures that electronic form of Internet and e-mail agreements will not make them unenforceable because of the statute of frauds • The statute enacted by Congress which makes electronic records and signatures valid and enforceable for many transactions affecting interstate or foreign commerce is the – Electronic Signatures in Global and National Commerce Act ▪ Suretyship Provision  applies to promises to pay the debt of others • Original promise – promisor must be secondarily, not primarily, liable Page 2 BLAW FINAL Chapters 15-18; Ch.6 • Main Purpose Doctrine – if primary object is an economic benefit to surety, the promise is not within the statute o Another name for the main purpose doctrine – the leading object rule • Promise Made to Debtor – not included in suretyship provision • The following is an exception to the suretyship provision requirement under the statute of frauds – a promise, the leading object of which is to obtain an economic benefit for oneself ▪ Executor-Administrator Provision  applies to promises to answer personally for duties of decedents ▪ Marriage Provision  applies to promises made in consideration of marriage but not to mutual promises to marry • The following promises in consideration of marriage would be outside the statute of frauds – John and Joan mutually promise to marry each other in a formal ceremony on June 23. ▪ Land Contract Provision  applies to promises to transfer any rights, privileges, powers, or immunities in real property ▪ One-Year Provision  applies to contracts that cannot be performed within one year • The Possibility Test – the criterion is whether it is possible, not likely, for the agreement to be performed within one year • Computation of Time – the year runs from the time the agreement is made • Full Performance by One Party – makes the promise of the other party enforceable under majority view ▪ Sale of Goods  a contract for the sale of goods for the price of $500 or more must be evidence by a writing or record to be enforceable • Admission – an admission in pleadings, testimony, or otherwise in court makes the contract enforceable for the quantity of goods admitted • Specially Manufactured Goods – an oral contract for special manufactured goods is enforceable • Delivery or Payment and Acceptance – validates the contract only for the goods that have been accepted or for which payment has been accepted Page 3 BLAW FINAL Chapters 15-18; Ch.6 ▪ Modification or Rescission of Contracts within the Statute of Frauds  oral contracts modifying existing contracts are unenforceable if the result contract is within the statute of frauds ▪ General Contracts Provision  the writing(s) or record must: • Specify the parties to the contract • Specify the subject matter and essential terms • Be signed by the party to be charged or by her agent ▪ The following would be contained in memorandum, which satisfies the general statute of frauds writing requirement – • Names of the parties to the contact • Signature of the party being used • Subject matter and essential terms of the unperformed promises ▪ Under the UCC statute of frauds, the following terms would be included in a writing in order to satisfy a writing requirement – Quantity of the goods o Compliance with the Statute ▪ Sale of Goods  provides general method of compliance for all parties and an additional one for merchants • Writing(s) or Record must: o Be sufficient to indicate that a contract has been made between the parties o Be signed by the party against whom enforcement is sought or by her authorized agent o Specify the quantity of goods to be sold • Written Confirmation between merchants, a written confirmation that is sufficient against the sender is also sufficient against the recipient unless the recipient gives written notice of his objection within 10 days • On March 1, Sara, a student, received a telephone call from ComputerChip, Inc. offering her a job for one year beginning on June 15, after completion of the school year. According to the personnel manager, she will have to move to California and be ready to start work at 8:00 a.m. on June 15. Should Sara ask for a letter confirming the telephone conversation if she accepts the offer immediately – Yes, because the job offer is for longer than one year from March 1. o Effect of Noncompliance ▪ Oral Contract within Statute of Frauds  is unenforceable ▪ Full performance  statute does not apply to executed contracts ▪ Restitution  is available in quasi contract for benefits conferred in reliance on the oral contract Page 4 BLAW FINAL Chapters 15-18; Ch.6 ▪ Promissory Estoppel  oral contracts will be enforced where the party seeking enforcement has reasonably and justifiably relied on the promise and the court can avoid injustice only by enforcement o The following require writing under the statute of frauds – ▪ Where the buyer of a five-acre lot pays the $40,000 purchase price, thus fully performing his obligation ▪ Where a renter agrees to rent a building for a 5 year period ▪ Where a contractor enters into an agreement for an easement across adjoining land to run cables o The following would be subject to the writing requirements of Article 2 of the UCC – ▪ An unborn puppy whose mother is an AKC champion ▪ Trees that will be cut from a ten-acre tree farm ▪ Food served in the banquet room of a Florida resort • Parol Evidence Rule o The Rule  when parties express a contract in writing that they intend to be the complete and final expression of their rights and duties, evidence of their prior oral or written negotiations or agreements of their contemporaneous oral agreements that vary or change the written contract are not admissible o Situations to Which the Rule Does Not Apply – ▪ A contract that is not integrated document ▪ Correction of a typographical error ▪ Showing that a contract was void or voidable ▪ Showing whether a condition has in fact occurred ▪ Showing a subsequent mutual rescission or modification of the contract o Supplemental Evidence may be admitted – ▪ Course of Dealing – previous conduct between the parties • Under the UCC, a – course of dealing – is a sequence of previous conduct between the parties to an agreement which may be fairly regarded as establishing a common basis of understanding for interpreting their conduct under the contract ▪ Usage of Trade – practice engaged in by the trade or industry ▪ Course of Performance – conduct between the parties concerning performance of the particular contract • Under the UCC, a – course of performance – is a practice or method of dealing, regularly observed and followed in a place or vocation or trade ▪ Supplemental Consistent Evidence o Under the parol evidence rule, what type of evidence may be used to vary or contradict the written agreement – subsequent oral or written agreements modifying the original agreement Page 5 BLAW FINAL Chapters 15-18; Ch.6 o The following would be admissible under the parol evidence rule – assume the written contract was made on June 1, 2007, and that it is an integrated document – A letter dated July 9, 2007, reciting agreement to new delivery terms o Barry's Sport Shop calls Champs Tee Shirt Company to order 200 designer tee shirts at $2 per shirt. The next day, Barry decides he can easily sell 100 more. Before the order is filled, he calls to change the order to 300 tee shirts. Champs sends 200. Can Barry force Champs to send the additional 100? – No, because Barry does not have a writing signed by Champs Tee Shirts o The parol evidence rule does not apply to – ▪ A typographical error that obviously does not represent the agreement of the parties ▪ Evidence showing one of the parties to the contract lacks contractual capacity o A contract contains a provision that states it will be effective for a "year." The plaintiff in a lawsuit claims that a "year" is obviously 12 months. The defendant claims that the contract meant a 10-month school year – The term “year” in the contract is ambiguous, and the parties can bring in parol evidence to clarify their intent • Interpretation of Contracts o The ascertainment of the meaning of a promise or agreement or a term of the promise or agreement o Rules of Interpretation include: ▪ Words and conduct are interpreted in light of all circumstances, and the principal purpose is given great weight ▪ A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together ▪ Language that has a commonly accepted meaning is interpreted in accordance with that meaning ▪ Technical terms and words of art are given their technical meanings ▪ Manifestations of intention of the parties are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade ▪ An interpretation that gives a reasonable, lawful, and effective meaning to all the terms is preferred over an interpretation that leaves a part unreasonable, unlawful, or of no effect ▪ Specific terms and exact terms are given greater weight than general language ▪ Separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated Page 6 BLAW FINAL Chapters 15-18; Ch.6 ▪ Express terms, course of performance, course of dealing, and usage of trade are weighted in that order • In determining the meaning of a contract under the UCC, the following will have first priority – Express Terms ▪ Where a term or promise has several possible meanings, it will be interpreted against the party who supplied the contract or the term. Restatement, Sections 201, 202, and 203 ▪ Where written provisions are inconsistent with typed or printed provisions, the written provision is given preference. Likewise, typed provision are given preferences to printed provisions ▪ If the amount payable is set forth in both figures and words and the amounts differ, the words control the figures o The following is true with regard to the interpretation of contracts – ▪ Express terms prevail over the course of performance, and course of performance prevails over course of dealing ▪ Handwritten or typed terms are given greater weight that preprinted terms ▪ All writings that are part of the same transaction are interpreted together EXTRA QUESTIONS (CH.15) 1. Chris receives a printed form in the mail from Wyandott Heating indicating that he has placed a telephone order for a $600 heater. He doesn’t recall placing the order. – Chris can hold Wyandott to the order 2. Most states have statutes requiring the following contracts to be evidenced by a writing to be enforceable – a. Contracts to make wills b. Contracts for the sale of securities c. Contracts for the sale of personal property for more than $5000 d. Contracts creating certain types of security interests 3. Blevins, Inc. calls the Widget Corporation of America to order 400 widgets at $2 a widget. Widget accepts the oral order and then sends out an order confirmation form, with the pre-printed name Widget Corporation of America on the top of the form. The form states that an order has been received for "300" widgets and that it will be filled promptly – Belvins can enforce the contract for 300 widgets, but not for 400 widgets Page 7 BLAW FINAL Chapters 15-18; Ch.6 Chapter 16 – Third Parties to Contracts - Up until this point, contracts have been between 2 people - People that were not a part of the original deal, but now they are in the deal: o Require rights o Take on obligations • Assignment of Rights o Assignments [of Rights]  the voluntary transfer of a contractual right to a third party o Notice of an assignment – cuts off any defenses based on subsequent agreements between the obligor and assignor, precludes subsequent setoffs and counterclaims of the obligor that arise out of entirely separate matters o Noel and Lyle have a contract whereby Noel is to perform routine construction services according to the blueprints that Lyle has provided. Noel assigns the contract to David. As a result of this assignment – Noel no longer has any rights under the contact, but he remains responsible for the duties he agreed to perform o Odessa owes Kevin $2,000. On July 1, Kevin assigns the right to the $2,000 to Troy. Thereafter, on July 15, Kevin assigns the same right to Donna, who in good faith gives value for it and knows nothing about the first assignee. – The rule differs in different states. Depending on which rule a state follows, the answer will vary o An effective assignment terminates the assignor’s right to receive performance by the obligor. After an assignment, only the assignee has a right to the obligor’s performance. • It is not being forced on anyone else • The person who assigns the contract right to a third party is no longer enforceable to get the debt ▪ Assignor – party making an assignment • Person who makes an assignment of rights to a third party • Ex: student owes Mark $1000 – Mark assigns the right to Mark’s brother – the contract between the student and Mark Page 8 BLAW FINAL Chapters 15-18; Ch.6 is assignable – Student will pay the money to the brother, not Mark. o Mark = assignor, obligee; Brother = assignee; Student = obligor o The third party (Mark’s brother) had nothing to do with the deal ▪ Assignee – party to whom contract rights are assigned ▪ Obligor – party owing a duty to the assignor under the original contact – [a person who owes an obligation of performance to another party] ▪ Obligee – party to whom a duty of performance is owed under a contract – [Party to whom the performance is obligated] ▪ Ex: student brings in John to show up and mow Mark’s lawn – John actually performs the lawn care – this is called a delegation of an obligation or duty • Student = delegator; John = delegatee ▪ There are limitations and restrictions on the assignment of rights and delegation of an obligation Original Contract Assignment Result Obligor  obligee Obligee  Assignee Obligor  Assignee Mark owes Jeff $10,000 Jeff  Ben Mark owes Ben $10,000 Right to $10,000 o Law Governing Assignments  primarily under Article 2 of the UCC ▪ The law governing assignments arises principally from the common law contracts, Article 2 of the UCC – Article 2 applies to assignments of rights under a contract for the sale of goods. • Article 9 of the UCC covers all assignments made to secure the performance of an obligation and all assignments involving rights to payment for goods sold or leased or for services rendered. ▪ The law governing assignments is found in Articles – 2 and 9 – of the Uniform Commercial Code (UCC), as well as the common law. o Requirements of an Assignment  includes intent but not consideration. Page 9 BLAW FINAL Chapters 15-18; Ch.6 • No special form or particular words are necessary to create an assignment • Any words that fairly indicate an intention to make the assignee the owner of the right are sufficient • Unless otherwise provided by the statute, an assignment may be oral. o Article 9 requires certain assignments to be in writing ▪ If the statute of frauds requires it to be in writing, then the assignment must be in writing • Consideration is not required for an effective assignment – therefore, gratuitous assignments are valid and enforceable o A gratuitous assignment is rendered irrevocable if, prior to the attempted revocation, the assignee – obtains a judgment against the obligor, receives payment of the claim from the obligor • Anita owes Brad $75,000. Brad signs a written statement granting Glen a gratuitous assignment of his rights from Anita. Brad delivers the signed statement to Glen before Brad dies. – The delivery of the statement makes the assignment irrevocable • Anita owes Brad $75,000. Brad signs a written statement granting Carla a gratuitous assignment of his rights from Anita. Brad dies prior to delivering the statement to Carla. – The assignment is terminated upon Brad’s death • Mr. Homayer hired Blake Painters to paint his house. Blake decides it has too many jobs and delegates the duties to the Andrews Company. Andrews does a poor job, and drips paint on the Homayers' flowers and windows. – Mr. Homayer can sue both Blake and Andrews ▪ Revocability of Assignment – when the assignee gives consideration, the assignor may not revoke the assignment without the assignee’s consent • When the assignee gives consideration in exchange for an assignment, a contract exists between the assignor and the assignee. Page 10 BLAW FINAL Chapters 15-18; Ch.6 ▪ Partial Assignment – transfer of a portion of contractual rights to one or more assignees • Although these were not enforceable at early common law, such assignments are now permitted and enforceable ▪ True concerning the requirements for an effective assignment – • The assignment must be voluntary • There must be an intention to make the assignee the owner of the right • The assignment may be either written or oral o Assignability  most contract rights are assignable ▪ Rights that are Assignable  • The most common contractual right that may be assigned is the right to the payment of money such as: an accounts receivable or interest due or to be paid. • The right to property other than money, such as goods and land, is also frequently assignable ▪ Rights that are NOT Assignable  • Assignments that materially increase the duty, risk, or burden upon the obligor o An assignment is ineffective when performance by the obligor to the assignee would differ materially from her performance to the assignor – that is: when the assignment would significantly change the nature or extent of the obligor’s duty o The following involves an invalid assignment that a court would not enforce – an assignment of an automobile liability insurance policy accompanied by the delivery of the policy • Assignments of personal rights o When the rights under a contract are highly personal, in that they are limited to the person of the obligee, such rights are not assignable. ▪ Ex: a contract of an agreement of 2 people to marry one another ▪ Ex: if LSU tries to transfer Mark Fry to LSU Alexandria (assignment), it will not be enforceable because of this. Page 11 BLAW FINAL Chapters 15-18; Ch.6 • This does not prohibit Mark from doing this, but it is not enforceable if it is not agreed upon • Assignments expressly forbidden by the contract o Contract terms prohibiting assignments of rights under the contract are strictly construed. – Most courts interpret a general prohibition against assignments as a mere promise not to assign. ▪ When contract terms prohibiting the assignment of rights exist, most courts will – strictly construe them • Assignments prohibited by law o Various Federal and State statues, as well as public policy, prohibit or regulate the assignment of certain types of contract rights. o Prevent wage-earners from assigning your future wages ▪ Cannot assign away wages today that you will earn in the future ▪ Example - Robert gets a DWI • He goes through the system • His automobile insurance will go up 2-3 times • His liability insurance from that point will triple • He cannot get insurance for accidents for many years, which means he cant get a new car unless he pays cash because the dealer will require collision insurance • Mitch is Robert’s friend and has a perfect driving record • Mitch adds Robert to his car insurance policy • Assignability prevents this transaction from occurring • Under an insurance contract, an insurance company is an obligor o Rights of Assignee  the assignee stands in the shoes of the assignor • He acquires the rights of the assignor, but no new or additional rights, and takes the assigned rights with all of the defenses, defects, and infirmities to which they would be subject were the assignor to bring an action against the obligor. Page 12 BLAW FINAL Chapters 15-18; Ch.6 ▪ Defenses of Obligor – may be asserted against the assignee ▪ Notice – is not required but is advisable o Implied Warranty  obligation imposed by law upon the assignor of a contract right ▪ Bill has a right against Heather and assigns it for $100 to Dan. Later, Bill grants Heather a release. Bill: - is liable to Dan for damages because he breached an implied warranty o Express Warranty  explicitly made contractual promise regarding contract rights transferred ▪ The assignor is further bound by any express warranties he makes to the assignee with respect to the right assigned – the assignor does not guarantee that the obligor will pay the assigned debt or otherwise perform, unless such a guarantee is explicitly stated. o Successive Assignments of the Same Right  the majority rule is that the first assignee in point of time prevails over later assignees; minority rule is that the first assignee to notify the obligor prevails ▪ The following is correct with regard to successive assignments of the same right – in England, the first assignee to notify the obligor prevails ▪ Barbara owes Arturo $2,000. On July 1, Arturo assigns the debt to Charles. Thereafter on July 15, Arturo assigns the same right to Dennis, who in good faith gives value for it and knows nothing about the first assignee. Dennis immediately notifies Barbara of the assignment. – Under the English Rule, Dennis has priority. • Delegation of Duties – Contractual duties are not assignable, but their performance generally may be delegated to a third person o Delegation of Duties  transfer to a third party of a contractual obligation ▪ Delegator – party delegating his duty to a third party
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