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English Rule- the first bona fide assignee for value to notify the debtor of the assignment prevails, regardless of whether he/she is the first person to receive the assignment in point of time. Followed by the majority of jurisdictions.
American Rule- the first assignee in point of time prevails, regardless of which assignee gives notice first.
(a) Assignor- When the assignor transfers a contractual right to the assignee, he/she gives up the ability to exercise that right against the obligor.
(b) Assignee- The assignee takes the assignment of the contractual right subject to all the defenses that the obligor could raise against the assignor i.e. the “assignee stands in the shoes of the assignor”.
Future accounts or earnings that are not founded on an existing contract are generally not assignable because the account or debt is merely speculative and has no potential existence.
As a general rule, one may assign contractual rights, but may not assign contractual duties. May “delegate” contractual duties if they do not involve personal service or the personal attention of the obligor. Only delegate duties that are not personal in nature.
Assignor- Person who transfers his contractual right. (Original Party)
Assignee- The person to whom the right is transferred.
Obligor- Party to the contract against whom the right may be exercised. (Original Party)
Recission and Vesting
Generally, when a third-party beneficiary has accepted, adopted, or acted upon the agreement, the parties may not change it without his/her consent. The rights of the third-party is said to have “vested”. Question: How about change of beneficiary on an insurance policy?
Third-Party Incidental Beneficiary
a. Where the third party is only an incidental beneficiary.
b. May not sue to enforce any of the contractual provisions.
c. Matternes v. City of Winston-Salem.
3rd party donee benificiary
One may not introduce oral evidence at a trial to contradict the clear, unambiguous terms of a written agreement. Does not prevent all oral testimony concerning a contract from being introduced at trial, only oral testimony that contradicts the clear, unambiguous terms of a written agreement. Car Wash Case. Parol (not in writing)
1. Promise by Executor or Administrator.
2. Promise to Answer for the Debt of Another.
3. Agreement made upon consideration of marriage.
4. Contracts for the sale of an interest in land.
5. Agreements not to be performed within one year from the time of their making.
Executor, Debt, Marriage, Land, 1 year
No- it involves permission to use land rather than the sale of land.
Agreement made upon consideration of marriage does not apply to mutual promises to marry or engagement agreements.
Only occurs when the marriage is part of the consideration given in return for some other performance. Example: prenuptial agreements (must be in writing to be enforceable).
The statute does not render an oral contract that falls within the statute void, just unenforceable.
The Statute of Frauds requires that certain types of contracts be in writing, or there be a written memorandum concerning the contract, signed by the party being sued.
First enacted by the English Parliament in 1677. Why? Prior to, if someone wanted to sue, they could go to a storefront and hire a witness.
Duty of Mitigation: Duty to keep the amount of loss sustained to a minimum.
· A party may have a duty to take positive steps in order to mitigate his damages.
Example: Lease. If someone leaves 1 month into a lease, you cannot just wait and go to a court to recover the $11k that was not paid for. You have to go out and try to rent that property. You can only sue for the amount of actual loss you have.
Punitive or Exemplary Damages. Assessed against a defendant beyond that amount necessary to compensate the plaintiff for the injuries suffered by him/her.
· Awarded in civil cases when there is malice or vindictive behavior shown on the part of the defendant.
· Awarded in addition to any compensatory or nominal damages.
Compensatory and Nominal Damages. Actual or compensatory damages is an amount that places the injured party in the same position he/she would have been if there had not been a breach, including any damage that was the natural and probable consequence of the breach- however they may not be speculative or hypothetical. If the injured party is placed in a better position as a result of the breach, he/she is only entitled to nominal damages.
Anticipatory Repudiation occurs when one of the parties in clear and unequivocal terms indicates that he does not intend to render the contractual performance when it is due.
· As a general rule, the doctrine of anticipatory repudiation applies only to executor bilateral contracts.
If the breach is material and total, the innocent party may rescind the contract and sue for damages.
Statute of Limitations. When the period elapses, any lawsuit is barred. A number of events may stop the statute of limitations from running. When this happens, the running of the statute is said to be tolled. A partial payment on a debt will toll the statute of limitations and it will begin running again from the date of the partial payment.
Subsequent Unforeseeable Events. The General Rule is: So called acts of God, or even unavoidable accidents rendering performance impossible will not allow one to escape liability for damages, absent a contractual provision excusing performance under such circumstances.
Exceptions to Rule: Destruction of Subject Matter, Death or incapacity of the parties, Change of Law
Doctrine of Substantial Performance. Applicable where full and exact performance of every detail of the contract has not been rendered but where there has been a good-faith attempt to perform the agreement, resulting in substantial compliance. When applicable, the party substantially performing under the contract is entitled to recover but subject to the right of the innocent party to be compensated for the damages occasioned by the defects in performance, but is not excused from performance.
Doctrine of Partial Performance. When a portion of the required performance is not completed, generally intentionally. When the innocent party has done nothing to prevent full performance and has not waived his/her right to full performance, there can be no recovery under the contract. However, if the innocent party accepts the benefits of a partially performed contract he/she waives right to full performance and must pay the reasonable or fair value of the performance accepted.
Conditions Precedent: A specified condition that must occur before the agreement between the parties can become binding or before a party is required to perform a duty or obligation under the contract.
o Frequently used to shift the risk that a certain event will or will not occur from one party to another.
o Often an event that must occur prior to or preceding a contractual obligation.
Conditions Subsequent: An event that occurs after or subsequent to the point in time when one is obligated under a contract.
· Operates to cut off contractual liability.
Example: Goods sold under a “sale or return” policy. Retailer purchases watches on “sale or return” policy.
Conditions Concurrent: When the parties under a contract are required to perform simultaneously.
· Farmer agrees to sell 100 bushels of corn to retailer for $10 per bushel, payment on delivery. The delivery of the corn and the payment take place simultaneously.
Covenants not to compete are generally OK if they are:
1) for a reasonable length of time
2) reasonable in geographic area of distribution
3) have the element of consideration
Time, area, consideration
Charging a greater interest rate than allowed by law. Courts closely scrutinize agreements to prevent parties from circumventing the law- calling interest something else, such as penalty. Truth in Lending
· Penalties vary by state:
1. Forfeiture of the entire amount of interest charged. Preferred approach and the approach used in NC.
2. Both interest and principal are forfeited.
3. Only that amount of interest that exceeds the usury limit is forfeited.
Article 2 applies to transactions in goods.
“A Sale” is defined as the passing of title from the seller to the buyer for a price.
1. A contract for the sale of minerals, or a structure is a contract for the sale of goods if severance, or separation, is to be made by the seller. If the buyer is to sever, the contract is considered to be a sale of real estate (not governed by the UCC),
2. A sale of growing crops or timber to be cut is a contract for sale of goods regardless of who severs.
3. Others attached to realty but capable of severance w/o material harm to the land are considered to be goods regardless of who severs them
1. A person who deals in goods of the kind involved in the transaction.
2. One who, by occupation, holds himself or herself out as having knowledge and skill unique to the practices of goods involved in the transaction.
3. One who employs a merchant as a broker, agent, or other intermediary has the status of merchant in the transaction.
Acceptance- A buyer may accept goods:
1. If, after having a reasonable opportunity to inspect, signifies agreement that the goods conform, or acceptable in spite of nonconformity.
2. Buyer has a reasonable opportunity to inspect and fails to reject them within a reasonable time.
3. Buyer performs any act inconsistent with seller’s ownership (uses or resells them).
If the unforeseen event only partially affects the capacity of the seller to perform (seller is able to partially fulfill the contract), the seller is required to allocate in a fair and reasonable manner, any remaining production and deliveries among its regular customers and those to whom it is contractually obligated. Buyer must be given notice and has the right to reject allocation.
When an unexpected event, such as a fire, totally destroys goods through no fault of either party, and they were identified at the time the contract was formed, the parties are excused from performance. If only partially destroyed, the buyer can inspect them and either treat the contract as void or accept damaged goods with price reduction.
Delay in delivery or non-delivery is not a breach when performance is made impractical by the occurrence of a contingency the nonoccurence of which was the basic assumption of the contract. The unforeseen contingency must be one that would have been impossible to contemplate in a given business situation. 9/11
If one of the parties has "reasonable grounds" to believe the other party will not perform, he/she may in writing demand adequate assurance of due performance. Until such assurance is received, he/she may suspend further performance without liability. If not forthcoming within a reasonable time (not to exceed 30 days) the failure to respond may be treated as a repudiation of the contract.
When performance by one party depends on cooperation from the other, and such cooperation is not forthcoming, the other party can suspend his/her own party in breach, or proceed to perform in a reasonable manner.
Unconscionability – An unconscionable contract is one that is so unfair and one sided that is would be unreasonable to enforce it. The UCC allows the Court to:
1. Refuse to enforce the contract. or
2. Enforce the remainder of the contract without the unconscionable clause, or
3. Limit the application of the unconscionable clause to avoid an unconscionable result
Two conditions must prevail:
(1) the goods must be in existence, and
(2) they must be identified as the specific goods designated in the contract. Identification is a designation of goods as the subject matter of sale or lease contract – it is significant because it gives the buyer the right to insure the goods. Once the goods are in existence, the parties can agree in their contract when identification will take place.
•Perfect Tender Rule: Delivery of goods in conformity with terms of the contract in every detail. If the goods or tender of delivery fail in any respect to conform to the contract, the buyer or lessee has the right to accept the goods, reject the entire shipment or accept part and reject part.
•Perfect tender means what the buyer ordered is what is being delivered in every detail.
Agreement of the Parties
Substitution of Carriers
Destruction of Identified Goods
Right of Assurance
Duty of Cooperation
The parties often obtain insurance coverage to protect against damage, loss, or destruction of goods.
The buyer has an insurable interest in identified goods.
The seller has an insurable interest in goods as long as he /she retains title to the goods.
Therefore, both a buyer and seller can have an insurable interest in identical goods at the same time.
Right of Inspection- Unless otherwise agreed or for C.O.D. (or in some cases where there is an agreement to pay upon receipt of documents of title prior to receipt of goods) the buyer has the right to inspect the goods, and such inspection is a condition precedent to the right of the seller to enforce payment. Cost of inspection is borne by buyer unless otherwise agreed. If goods are shipped C.O.D. without buyers agreement, buyer may reject the goods.
Frequently used in international transactions. In a simple letter of credit transaction, a financial institution agrees to issue a letter of credit and to ascertain whether the seller performs, in return for the buyer reimbursing the financial institution for the amount paid to the seller.
–Shipment Contracts require/authorize the seller to ship goods by carrier. Unless otherwise agreed the seller must:
•Place goods into the hands of the carrier
•Contract for their reasonable transportation
•Obtain and promptly deliver or tender any documents to buyer necessary for possession.
•Promptly notify buyer that shipment has been made.
Seller agrees to see that conforming goods are tendered to buyer at a particular destination at a reasonable hour and held at his/her disposal for a reasonable length of time. Seller must also provide notice of shipment and documents of title necessary from obtaining delivery from carrier.
1. A seller, who orally agrees to sell real estate; takes a down payment, and; allows the buyer to take possession, will not be able to defend (win) an action for specific performance by the buyer on the grounds that the agreement is not in writing.
In a personal services contract, illegality of the services to be performed will cause the discharge of a party’s duties.
3. A contract in violation of licensing statute that is intended to raise revenue is not as likely to be declared illegal, as: a contract to commit a crime; a contract requiring the commission of a Tort, or; an exculpatory clause that seeks to relieve one of the parties of liability for fraud.
4. A contract that contains an exculpatory clause releasing one of the parties from any liability for negligent or wrongful behavior is generally nonenforceable as matter of public policy.
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