Lecture 10: Ny & Multistate Contracts Part Iv

Front 1

When are the parties free to orally cancel a contract?

Back 1

If a contract satisfies the S/F (a written signed real property contract), the parties are free to orally cancel it unless that contract expressly prohibits its oral cancellation by requiring a writing signed by the parties.

Front 2

The following contracts must be in writing and signed by the party to be charged. SMART FLYS
What does the S from SMART FLYS stand for?

Back 2

S - Surety contracts
A surety promises to pay a creditor if the debtor does not pay the debt or breaches the executory contract.

Front 3

The surety relationship involves 3 separate contracts. What are they?

Back 3

1. D & C (debtor & creditor)
2. S & C (surety & creditor)
3. S & D (a claim for indemnification)

Front 4

What must be in writing under a surety?

Back 4

The surety's promise to the creditor must be in a writing signed by the surety, but a signed writing is not required on the contract between the surety and the debtor.

Front 5

Under the "main purpose rule" where the surety's intent (main purpose) is to benefit the surety herself, then is signed writing needed?

Back 5

Then no signed writing is required for the creditor to enforce the surety's oral promise. NY is the only state not to follow the main purpose rule!

Front 6

What does the M from SMART FLYS stand for?

Back 6

M - contracts in consideration of a marriage promise
Where the consideration supporting a promise to pay money or property is the other party's promise to get married, then the promise to pay must be in a signed writing and part performance (the marriage) does not take the contract out of the S/F.

Front 7

What does the A from SMART FLYS stand for?

Back 7

A - to answer for debts dischargeable in bankruptcy
A dischargeable debt can survive a bankruptcy proceeding, but only if the debtor's intent is evidenced by a pre-discharge signed writing, but no new consideration is required. The debtor must be advised as to the document's legal effect and allow 60 days to change her mind.

Front 8

What does the R from SMART FLYS stand for?

Back 8

R - real property contracts
An oral agreement to convey an interest in real property except for a lease term that does not exceed 1 year is unenforceable because of the S/F.

Front 9

What does the T from SMART FLYS stand for?

Back 9

T - testamentary promises
To be enforceable, a promise to make a testamentary distribution must be conveyed in a valid will or in a writing signed by the testator.

Front 10

What does the F from SMART FLYS stand for?

Back 10

F - finders fee arrangements (NY and other jurisdictions, but not NJ)
A promise to pay another for services in negotiating the purchase or sale of a business must be in a signed writing.
NY's GOL expressly precludes a quasi contract claim if the finders fee arrangement was not in a signed writing.
NY attorneys, real estate brokers, or real estate persons are excused from this S/F requirement. Thus, they may enforce an oral finders fee agreement for negotiating the sale or purchase of an interest in another business.

Front 11

What does the L from SMART FLYS stand for?

Back 11

L - leases longer than 1 year must be in writing and signed by the party to be charged with its breach or signed by her agent whose authority must also be in a signed writing.

Front 12

What does the Y from SMART FLYS stand for?

Back 12

Y - 1 year
A bilateral contract which by the contract's express terms has absolutely no possibility of full performance within 1 year from its execution, must be in a signed writing.
The S/F requirement does not apply to contracts capable of being completed within a year, but which may extend beyond a year.
To determine whether an oral contract can be performed within 1 year is not determined by looking back at how long it took to perform the contract, but instead whether full performance was possible by looking forward from the date the contract was entered.
The one year S/F for leases is measured from the tenant’s possession and not when the lease was agreed to.
In MBE, a lifetime contract does not fall within the 1 year S/F since by its terms, it is capable of complete performance within 1 year (a party could die within 1 year). NY requires a signed writing for lifetime employment contracts or a promise to support another for life.

Front 13

.
Problem: On June 1, 2013, in a bilateral agreement, R orally agreed to employ E for 10 months from September 1, 2013 to June 30, 2014. Does this 9 month employment contract have to be in a signed writing?

Back 13

Yes, because by its terms, it is not capable of complete performance within 1 year from when the contract was entered (June 1, 2013, but the 9 month period expired June 30th 2014). However, in a real property lease, the S/F period is measured from the date of the tenant's first possession and not from the date the oral lease was agreed to.

Front 14

Ordinarily part-performance of a SMART FLYS oral contract will not excuse the S/F requirement. However, part-performance of an oral contract that the S/F requires to be in a signed writing can result in what 3 things?

Back 14

1. a quasi contract claim to prevent unjust enrichment or to compensate the performing party for a detrimental reliance on the unenforceable oral contract
2. specific performance of a real property contract, but here the performance must be more than just taking possession of the realty or making a part-payment on the purchase price. The buyer's performance must unequivocally refer to the alleged oral agreement to sell the realty and the buyer's performance must convincingly evidence the existence of the oral agreement to buy (PIP) or
3. enforcement of a contract for the sale of goods (SWAMP)

Front 15

IN MBE (bot no NY), what is considered reliable evidence of the oral agreement?

Back 15

In MBE, but not in NY, one party's full performance is considered reliable evidence of the oral agreement, removing the 1 year S/F as a defense to such an oral contract.

Front 16

Does full performance the contract out of the 1 year S/F requirement in NY?

Back 16

In NY, full performance does not take the contract out of the 1 year S/F requirement. Instead, it leaves the plaintiff with a claim for quasi contract for her detrimental reliance on the unenforceable oral promise to prevent the other party's unjust enrichment or to reimburse a party for detrimental reliance on the oral contract.

Front 17

What does the last S in SMART FLYS stand for?

Back 17

S - UCC Sale of Goods Contracts for $500 or more
See lecture 12 and SWAMP.

Front 18

If an oral SMART FLYS contract is not put in a signed writing, then the following doctrines should be considered. What are they?

Back 18

Where injustice or an injury of "unconscionable proportion" cannot be avoided because of a party's detrimental and substantial reliance on the other party's oral promise or a promise that is not supported by consideration, then the court may invoke the estoppel doctrine to estop the other contracting party from asserting that the promise was not supported by consideration or that the oral promise violates the S/F. To invoke estoppel, the plaintiff's performance must unequivocally refer to a defendant's oral promise to pay or to perform and the circumstances render it unconscionable not to enforce the oral promise.

Front 19

If the oral contract is executory and neither side has yet detrimentally relied or performed, then what?

Back 19

Then the estoppel doctrine (or the quasi contract doctrine) cannot be invoked.

Front 20

Even though most jurisdictions do not invoke the estoppel doctrine, NY will invoke it for COMB. (disjunctive) (NY doesn’t recognize the estoppel doctrine except for COMB). Define COMB.

Back 20

C - charitable pledges.
Even though a promise to make a charitable contribution is not supported by consideration, such promises are enforceable under the estoppel doctrine which displaces the need for consideration. NY requires a charity's detrimental reliance on the charitable pledge and a change in position by the charity, but Restatement (MBE) enforces oral charitable pledges without requiring any detrimental reliance by the charity.
O - to avoid outrageous, unconscionable results.
M - oral marriage contracts
B - promises by gratuitous bailees to obtain insurance on bailed goods.

Front 21

Problem: P purchased 2 antique desks for $4,000 each. P asked her sister, S, to store them in S's basement and to get insurance on the desks because P was leaving for Europe the next day. S agreed to do so, but she forgot. A month later, a non-negligent fire destroyed the desks. Can P sue S to recover her loss?

Back 21

Yes.

Front 22

Generally, a bailee (S) is under no duty to insure bailed goods, but what can happen to cause an estop?

Back 22

But if the bailor and bailee agree that the bailee will insure the goods, then even though the bailee's promise is not supported by any consideration, will be estopped from asserting lack of consideration to support her promise.

Front 23

What is frequently invoked as an exception to the S/F?

Back 23

Constructive trust theory

Front 24

What is a constructive trust theory?

Back 24

A constructive trust is imposed by equity based on an oral promise and the abuse of a confidential relationship in which property was transferred and the transferee of that property has been unjustly enriched. Thus, when property has been acquired under circumstances that the holder of that property should not in good conscious retain it, then equity converts that person into a trustee.

Front 25

What does a constructive trust theory arise?

Back 25

A CT frequently arises in intrafamily oral real property agreements in which a family member agrees to later reconvey all or part of the realty to another family member, but then refuses to do so.

Front 26

There are 4 T-CUP elements for a CT, which must be proven by clear and convincing evidence. (conjunctive) What does T-CUP stand for?

Back 26

T - transfer of property ($) in reliance on promise
C - existence of confidential or fiduciary relationship arising out of trust and confidence requiring one party to act for the other’s benefit. Parties in a business contract generally are not fiduciaries.
U - unjust enrichment to the transferee or to some other 3rd party.
P - promise, express or implied to hold the property for the plaintiff's benefit, which promise is breached.

Front 27

How is T-CUP used?

Back 27

The T-CUP elements are not rigidly applied by courts. T-CUP is used by equity to compel someone who unfairly holds property to convey it to another to whom it justly belongs.

Front 28

A defense to a CT claim is equitable to what?

Back 28

Equitable defense of unclean hands.

Front 29

S stands for what?

Back 29

S - statute of limitations

Front 30

I stands for what?

Back 30

I – illegality

Front 31

What happens in court in illegal contract disputes between co-conspirators or accomplices who are in pari delicdo (equal fault)?

Back 31

Courts generally refuse to assist either party in enforcing their contract rights. Frequently, the pari delicdo defense and the unclean hands defense are used interchangeably.

Front 32

When is a contract considered illegal?

Back 32

A contract is illegal if at the time it was entered, either its enforcement, formation, or performance was criminal, tortious, or otherwise contrary to public policy.

Front 33

How does illegal performance affect a contract?

Back 33

If after entering a legal executory contract, its performance becomes illegal by a change in the law, then it is an impossibility of performance defense that excuses a party's performance.

Front 34

If a contract contains both lawful and unlawful objectives, but the legal part can be severed, then what will happen?

Back 34

Then when one party has performed and the performance was not illegal, then the performance can be enforced in a claim for restitution or quasi contract.

Front 35

Where an illegal contract violates a statute, but the conduct is not inherently dangerous or evil (it is not a common law felony), courts do not automatically deny one party of recovery, but instead will consider THUG. What does THUG stand for?

Back 35

T - the type of illegality involved and the extent the public is harmed. (e.g. a contract to produce child porn vs. a contract involving tax avoidance).
H - the harm that forfeiture of the illegal contract would cause. That is, has the illegal contract been substantially performed by the other party?
U - unjust enrichment (a windfall) to the party asserting the illegality defense if the contract isn’t enforced.
G - the relative guilt of each party.

Front 36

Charging a usurious rate of interest on a loan results in canceling the loan and freeing the borrower from the debt. What is usury on a loan in NY to an individual? What about to a corporation?

Back 36

Usury on a loan to an individual in NY is an interest rate that exceeds 16% and a loan to a corporation cannot be greater than 25%, which in NY is criminal usury and a crime.

Front 37

It is not usury when what 2 things occur?

Back 37

It is not usury 1. if late fees are charged by a creditor after the maturity of a loan or a bill because the law does not deem late fees to be interest on a loan and 2. where realty or goods are sold on credit.

Front 38

P stands for what?

Back 38

P - the parol evidence rule (aka the extrinsic evidence rule).

Front 39

What does PER indicate if the S/F speaks of an agreement where there is no required signed writing?

Back 39

But PER indicates the existence of a writing and whether the writing can be supplemented with prior parol evidence of the parties' per-contract negotiations.

Front 40

What is PER?

Back 40

The PER is not a rule of evidence, but it is a rule of contract law to assist courts in interpreting written contracts. If the terms of that contract are clear and unambiguous and the written agreement was intended by the parties as a complete and final expression of their agreement, then it is called a totally "integrated" (complete) contract and PER prohibits one party from contradicting or supplementing the writing as to what was allegedly stated prior to or contemporaneous at the time of its execution.

Front 41

Is a “merchant memorandum” an “integrated” contract?

Back 41

A simple "merchant memorandum" (SWAMP), which is sent to confirm an oral sale of goods contract is not an "integrated" contract because the parties generally do not intend such a brief memorandum to completely contain all of the terms of the contract.

Front 42

What happens when a partial integrated contract exists under PER?

Back 42

A partially integrated contract, which is final and binding, but is incomplete as to all the terms may be supplemented with parol evidence, but only with consistent additional terms.

Front 43

What happens if the writing contains “merger clause?

Back 43

Then this is very strong evidence that the writing was intended by the parties to be a completely integrated expression of their agreement. "This writing represents the entire understanding between the parties and they are not relying on any prior representations by the other party unless they are expressly set forth in this writing."

Front 44

What is a private PER?

Back 44

It is a private PER imposed by the parties to expressly prevent one party from later attempting to change the contract with terms that were not set forth in that contract.

Front 45

What does the merger clause state?

Back 45

In essence, the merger clause states that the contract language supersedes all prior agreements between the parties and it is strong evidence that the contract was intended as a fully integrated contract. Absent an ambiguity in the contract's language, an integrated contract with a merger clause invokes full application of PER to prohibit the introduction of ANY evidence outside the four corners of the document.

Front 46

What occurs when a term in the contract is ambiguous or the contract is incomplete?

Back 46

Then prior CONSISTENT parol evidence terms are admissible provided it does not contradict an existing contract term.

Front 47

What doesa court look at in determining whether a term is ambiguous?

Back 47

a court looks at whether on its face, it is reasonably susceptible to more than 1 interpretation.

Front 48

T OR F: Even though a writing cannot be contradicted by parol evidence, its terms MAY BE explained to establish the meaning of the words used.

Back 48

True.

Front 49

When can usage in the trade be introduced?

Back 49

Usage in the trade can be introduced to show that ordinary words have acquired a trade meaning.

Front 50

Even if an agreement is completely integrated, PER does not prohibit what?

Back 50

Introducing evidence of a prior separate and distinct collateral independent agreement (CIA), provided it does not contradict any term in the main agreement and it is the type of side agreement that would not necessarily have been placed in the main contract. Especially, where a printed standard form contract was used.

Front 51

Even if an agreement is completely integrated, what is still considered the best evidence for determining the party’s intent?

Back 51

the parties' prior dealings or their repeated past performance during the course of the disputed contract are the best evidence for determining the party's intent. Even if that performance is inconsistent with the express terms of the contract because it is admissible to show the parties may have manifested an intent to modify that contract or to waive a particular contract term, which evidence is not barred by PER.

Front 52

Under the UCC and Restatement of Contracts, where an existing contract involves repeated occasions for performance and repeated opportunities for objections, then what is considered relevant and admissible?

Back 52

Then any course of performance accepted without objection shall be relevant and admissible to determine the meaning of the agreement. "The parties themselves know best what they meant by their words in the agreement and their actions during the agreement is the best indication of what that meaning was."

Front 53

Neither a merger clause nor the PER prohibits what?

Back 53

Proof of a SUBSEQUENT modification of the existing written contract.

Front 54

PER applies only to what?

Back 54

Contemporaneous (at the contract signing) or prior oral or written negotiations in the contract's formation, but it does not apply to subsequent negotiations to modify terms in the existing contract. Thus, the contract can be modified by the agreement, a course of performance or by conduct amounting to a waiver, estoppel, or a modification of the contract. However, if a contract expressly precludes oral modification or rescission, then generally any modification or rescission must be contained in a signed writing. However, in a sale of goods contract, to bind a non-merchant to such a clause, it must have been separately signed or initialed by the non-merchant in the original contract. Otherwise, it is not enforceable against the non-merchant.

Front 55

When would such a clause not be enforceable?

Back 55

Such a clause is not enforceable if a party has materially changed its position in reliance on the other part's oral "waiver" of the required writing (estoppel).

Front 56

The PER does not prohibit evidence to prove OF MICEE. MLO What does OF MICEE stand for?

Back 56

O - The contract itself was not to become effective unless an oral condition precedent occurred provided that oral condition precedent did not contradict an express term in the contract. When introducing evidence of an oral condition precedent, it is not being offered to alter or contradict a contract term, but to show the contract never became legally effective because the condition failed.
F - PER cannot be invoked to prevent evidence of another party's fraud (SIR M) in the inducement of the contract. Parol evidence can always be introduced to show this.
M - mutual mistake or a claim for reformation
I - evidence to show the contract is illegal
C - to show a failure of consideration. Thus, even though the contract states that the buyer's consideration was paid, parol evidence may be introduced to show the purchase price was never paid.
E - to explain ambiguous terms
E - to show that no enforceable agreement was ever intended by the parties.
To contradict a realty deed or an installment contract of sale to real property to show it was not a deed or a contract, but was intended as an equitable mortgage.

Front 57

When do contract remedies of damage occur?

Back 57

A plaintiff suing a defendant for breach of contract may seek legal or equitable remedies.

Front 58

What do contract damages seek to compensate?

Back 58

Contract damages seek to compensate the plaintiff for the gains that were prevented by the breach and for the losses sustained by the defendant's breach. The damages remedy is intended to put the plaintiff in a position economically equivalent to the position she would have been in if the contract had been fully performed and had not been breached.

Front 59

The parties are free to do what?

Back 59

The parties are free to alter the rules for damages and to allocate them differently. For example, by inserting an exculpatory damage clause or a liquidated damages clause.

Front 60

Is it possible for the prevailing party in a breach of contract action to recover attorney costs?

Back 60

The prevailing party in a breach of contract action may not recover the cost of her attorney’s fees from the loser unless it is expressly allowed in the contract or is authorized in the statute.

Front 61

What about attorney’s fees?

Back 61

Although attorney's fees incurred by a plaintiff to sue on a breached contract are not recoverable from the loser in the absence of a contrary statute or a contractual provision.

Front 62

What happens In a NY consumer contract involving a lease of residential property where the lease provides that if the landlord is successful?

Back 62

The tenant will pay the landlord's attorney's fees, then it is implied in law that the tenant can recover attorney's fees if he successfully defends against the landlord's claim or successfully sues that landlord.

Front 63

Contract law does not allow a recovery for damages for CAPS. What does CAPS stand for?

Back 63

C - consequential damages that were not within the contemplation of the parties because those damages were not apparent and not foreseeable when the contract was entered. Unlike in tort law where the defendant takes the plaintiff as he finds her, contract damages must have been within the contemplation of both parties when the contract was entered. Consequential damages are a party’s lost economic opportunities caused by the breach.
A - Damages that a non-breaching party could have avoided. Thus, there is a duty by the non-breaching party to mitigate contract damages whenever possible, but any expenses incurred in attempting to mitigate damages are recoverable by the non-breaching party. A plaintiff who stubbornly continues to perform after the contract has been repudiated cannot recover those damages that could have been avoided.
P - aggravation damages for pain and suffering or emotional distress resulting from a breached contract even though such damages were foreseeable.
S - Speculative damages are not recoverable. Contract law like tort law requires that any damages claimed by a plaintiff must be proven with reasonable certainty.

Front 64

What about things such as lost profits?

Back 64

Lost profits that would have been made by opening a new bar or a new restaurant if the defendant had not breached the contract, are purely speculative and not recoverable because of the absence of sufficient proof.

Front 65

When a contract has been breached, there are 3 basic damages remedies that a plaintiff may recover, what are they?

Back 65

1. Restitution damages that seek to recover to the extent of any benefit bestowed on the breaching party by the plaintiff's part-performance (the return of a buyer's deposit) or for the fair market value of any services performed.
Restitution does not seek to enforce a contract but seeks to prevent an unjust enrichment of the defendant by compensating the plaintiff for the value of the part performance (the services) received by the defendant.
2. Reliance damages are similar to restitution damages, but they are out of pocket expense wasted by the plaintiff's reliance on the contract. These damages are recoverable provided they were foreseeable and ascertainable. Reliance damages seek to pay back the plaintiff for the out of pocket expenses incurred in getting ready to perform the contract. It seeks to put the non-breaching party in as good a position as if the contract had not been entered, but it does not include lost profits.
3. Expectation damages are to recover the benefit of the bargain if the contract had not been breached by the defendant. It is the bargain or the profit that would have been made if the contract had been fully performed by both parties. It seeks to place the non-breaching party in the same financial condition that she would have been in if the contract had been performed.

Front 66

When are damages measured?

Back 66

Generally, damages are measured at the time of the breach for the loss of value to the non-breaching party based upon what that party should have received under the contract terms and the value of what was in fact received plus any incidental and foreseeable consequential damages, but less any expenses that the non-breaching party would have incurred to fully perform the contract (but did not incur).

Front 67

What is a Liquidated Damages (LD) Clause?

Back 67

Liquidated Damages (LD) Clause is a reasonable estimate fixing anticipated damages in the event of a breach by the contracting parties in the original contract under circumstances where damages would be difficult to precisely determine.

Front 68

What are these examples of?
1. When a business is sold and the seller breaches the covenant not to compete.
2. The lessee of a large fleet of trucks breaches the lease or
3. In a franchise agreement, the franchisee breaches the agreement.

Back 68

Liquidated Damages (LD) Clauses

Front 69

What are LD clauses inserted in the contract?

Back 69

To avoid the difficulty and expense of proving damages.

Front 70

A party challenging the enforceability of a LD clause must show one or the other of what 2 things?

Back 70

1. the LD amount is grossly disproportionate to any foreseeable damages. Thus, rendering it a "penalty" or
2. Proving damages would not be difficult

Front 71

What does UCC and Article 2 do when concerning an LD?

Back 71

To determine whether the LD amount is reasonable and not a penalty, Restatement and UCC Article 2 examine the amount fixed as damages in light of both the harm anticipated at the time of the contract as well as looking forward to the actual loss suffered by the plaintiff when the contract was breached. Under this approach, even though the amount initially fixed may have been a penalty, it will nevertheless be enforced by the court if at the time the contract was breached, that amount was not unreasonable in light of the plaintiff's actual damages. NY does not follow this approach and looks exclusively to the date the agreement was signed as to whether the amount is grossly disproportionate and thus a penalty.

Front 72

What happens is a court voids the LD clause?

Back 72

Even if a court voids the LD clause as a penalty, the non-breaching party can still sue to recover any actual or consequential damages it can prove

Front 73

.
Will the existence of an LD clause automatically preclude injunctive relief or specific performance?

Back 73

It will not automatically preclude injunctive relief or specific performance unless the LD clause specifically states that liquidated damages are to be the sole and exclusive remedy.

Front 74

What are punitive damages intended to do?

Back 74

PDs are not intended to compensate a plaintiff, but to punish a defendant and to deter others from similar reprehensible conduct. PDs are not available for breach of a contract because breaching a contract usually is an economic decision, which is not considered so morally reprehensible as to warrant PDs.

Front 75

What is Exculpatory Clauses?

Back 75

An exculpatory clause in a contract is the opposite of a liquidated damages clause. It allows parties to limit or to waive a party's liability for breach of contract. Such clauses are strictly construed and they must be expressed in clear and unambiguous language. ECs are frequently asserted in burglar and fire alarm service contracts.

Front 76

What does NY require in the case of exculpatory clauses?

Back 76

NY requires that the word "negligence" be used in the exculpatory clause in order to exculpate a party from its own negligence.

Front 77

What does public policy forbid?

Back 77

A contractual waiver of liability for a party's intentional torts or reckless conduct. Thus, a party cannot contract away its liability for conduct that amounts to a reckless disregard for the safety of others.

Front 78

What are the primary equitable remedies for breach of contract?

Back 78

The primary equitable remedies for breach of contract are injunction (LIE) and specific performance.

Front 79

What 3 things can be asserted as an equitable defense?

Back 79

Estoppel, laches or unclean hands

Front 80

What is specific performance judgment?

Back 80

A specific performance judgment is a court order compelling the defendant to perform according to the terms of the contract.

Front 81

To successfully obtain specific performance, the plaintiff must show what 2 things?

Back 81

1. the subject matter of the suit is unique (i.e. irreplaceable chattel) or any contract involving the transfer of an interest in real property since the law deems all realty to be unique or
2. where money damages are not an adequate remedy. Damages are inadequate where the calculation is too uncertain or where the plaintiff cannot replace the subject matter of the contract by recovering damages.

Front 82

In contracts that do not involve the sale of realty, the deciding factors for specific performance are what 2 things?

Back 82

1. the uncertainty of valuing damages as well as
2. weighing the relative hardship of each party if specific performance is or is not granted by the court (the "relative hardship test")
Thus, a court will balance the equities before it grants specific performance.

Front 83

Traditionally, courts have not granted specific performance for what? (4 things)

Back 83

1. Contracts to lend or borrow money because a plaintiff has an adequate remedy at law to borrow it somewhere else and then sue the breaching bank for the damages for the borrower's higher cost of interest on the new loan, but see pg. 282 NYAA.
2. Construction contracts, but NY and Restatement of Contracts have allowed specific performance for construction contracts.
3. Contract clauses allowing a party to seek specific performance, but a clause in the contract prohibiting specific performance will be enforced by the courts.
4. Personal service contracts even though the personal services involved are unique because (a) the difficulty the court would encounter in overseeing the quality of the performance and (b) the 13th Amendment's prohibition against involuntary servitude.

Front 84

When may a court enjoin a breaching defendant from performing similar SUE (special unique or extraordinary) services elsewhere?

Back 84

During the balance of the term of the breached contract, and it will also award money damages to the non-breaching party.

Front 85

A plaintiff suing for specific performance can also sue for what?

Back 85

money damages

Front 86

Generally, parties can put whatever terms they like into a contract except for PLUS. What does PLUS stand for?

Back 86

P – terms that violate public policy
L – terms providing for an excessive amount of liquidated damages
U – terms that are unconscionable
S – clauses providing that one party can seek specific performance in the event of a breach. The contract doesn’t have to enforce these clauses!

Front 87

What is the defense of laches?

Back 87

Laches is a defense to an equitable claim where the plaintiff has timely commenced the action within the 6 year s/l, but it would be unfair and unjust to grant equitable relief because the plaintiff has waited too long to seek relief.

Front 88

To successfully assert laches, defendant must show what 2 items?

Back 88

1. A substantial delay by plaintiff in seeking equitable relief and
2. Substantial prejudice to defendant if court grants equitable relief.

Front 89

How many covenants are there restricting competition?

Back 89

4

Front 90

What is covenant 1?

Back 90

1. An express covenant in employment contracts restricting an employee from competing with an employer after quitting or being fired for cause.
Courts use the TISSUE test to determine whether to enjoin a former employee from competing.

Front 91

Under covenant 1 what does TISSUE stand for?

Back 91

T - the time must be reasonable (usually 2 years or less)
I - inability of the employee to work elsewhere because of the restriction. That is, the hardship on the employee.
S - the geographic space (the area of the restriction) can only be as broad as needed to protect the employer's business interest.
SUE - the employee's services must be S (special ) U (unique which focuses on the employee's importance to the employer's business) E (extraordinary value to the employer)
Equity will not enjoin an ordinary employee who has signed such a contract because of the absence of SUE services.

Front 92

Where an employee is fired without cause how does TISSUE play a role? (think covenant 1)

Back 92

Then the TISSUE non-compete clause will not be enforced by the court. Likewise, under the "constructive discharge" doctrine, where an employer makes the employee's working conditions so intolerable, that a reasonable person would be forced to quit, then courts treat this as if the employer had fired the employee without cause.

Front 93

Why can’t lawyers sign restrictive covenants? (think covenant 1)

Back 93

Because a lawyer cannot restrict her own right to practice law and cannot restrict the right of a client to choose that lawyer's services. Any attempt to do so is unethical and unenforceable.

Front 94

What can some employers do with bonus options? (think covenant 1)

Back 94

Another device employers used to restrict employee competition is to grant bonuses to an employee, but then wait 2 or 3 years before the bonus is paid and in an incentive stock option agreement, make the bonus conditional on the employee not competing with the employer. Thus, an employee would lose the bonus if he quits and competes with the employer because under the employee choice doctrine, the employee is given the choice of getting the bonus or competing with the employer.

Front 95

What is covenant 2?

Back 95

2. An Implied in law Restrictions preventing current or former employees from disclosing the employer's confidential trade secrets, when the employee leaves an employer and takes trade secrets to a competitor, then the court will enjoin that employment and order the employee not to make any disclosures. A trade secret is a formula, a process, a customer list, or any device that provides an advantage over competitors who do not have the trade secret.

Front 96

What is covenant 3?

Back 96

3. When a business is sold, the contract should expressly provide a covenant prohibiting the seller from competing with a purchaser. Its time and geographic area must be reasonable and the restriction will be enforced to the extent necessary to protect the buyer's interest in the purchase business.

Front 97

What is covenant 4?

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4. When the good will of a business is sold, there is an implied in law covenant that forever the seller will not solicit former customers, but former customers are always free to return to the seller's new business provided they have not been solicited. The seler is always free to respond to their inquiries, to answer factual questions and to accept them back as customers to his new business. NYAA pg. 254.!

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What is presumed if an employment contract fails to include a "definite fixed duration"?

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Then it is presumed to be "an employment at will" and the employee may be fired or may quit at any time for any legal cause or no cause at all.

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What is definite duration not?

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Definite duration is not a contract clause providing for "permanent employment", "full time employment", or a payment clause providing for a specific amount per month or per year since such a clause fixes only the rate of pay. Likewise, fixing a salary per day, per month, or per year is not a guarantee for employment even for a day.

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What is considered employment disloyalty?

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Employees cannot act in a manner inconsistent with a duty owed to the employer. That is, the employee must exercise good faith and loyalty to the employer. If the employee breaches this duty, then she must account for any secret profits and she must forfeit any salary that was paid by the employer during the employee's period of disloyalty.
An employee can incorporate a competing business prior to quitting, but she cannot use her employee's time, facilities, or trade secrets to build a competing business. She cannot divert any business opportunities.

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What does UCC Article 9 (secured transactions) entail?

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UCC Article 9 allows lenders or the sellers of goods on credit to place a chattel mortgage on the debtor's personal property to secure repayment of the indebtedness in the event of the debtor's default or bankruptcy.

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What form of security interest does UCC Article 9 apply to?

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Except for security interest in "fixtures", Article 9 applies only to security interest in personal property.

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As part of a loan or credit transaction, a lender or creditor can demand a detailed signed security agreement giving the creditor a security interest in specifically described property, but the creditor must also do what? What is UCC Form 1?

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file a financing statement in Albany (UCC Form 1), which does not have to be signed by the debtor, but which prefects the security interest giving the creditor priority over other creditors on the personal property described in the security agreement. The filed Form 1 financing statement only has to describe the secured collateral by category.

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What must the filled financing statement indicate?

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The filed financing statement must indicate whether the debtor is an individual or is a business organization. It must be filed alphabetically under the debtor's correct name contained in her driver's license or a state identification card, which NY calls the “license name”.

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What does a filing statement share in common with a mortgage or a lis pendens?

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Similar to a mortgage or a lis pendens, a filed financing statement publicly warrants 3rd parties that the debtor has granted a creditor a security interest (a chattel mortgage) in its property.

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Who prevails over other creditors?

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The first creditor to file a financing statement or to otherwise perfect a security interest prevails over other creditors.

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What happens ff a lender first files a financing statement, but fails to execute the security agreement?

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It nevertheless prevails over other creditors who subsequently filed in Albany i the creditor belatedly obtains the signed security agreement.

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In classification of personal property a security interest can attach to 3 categories of PIG personal property. What does PIG stand for?

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P - commercial paper such as negotiable instruments or shares of corporate stock. To perfect a security interest in such paper, the creditor can either (1) take possession of the paper or (2) file a financing statement, but by filing the security interest may be cut off by a subsequent BFP of the paper. Thus, the best way to protect security interest in stock is to take physical possession of the shares, which is called a possessory security interest
For a creditor to perfect an SI in shares of stock of NY cooperative apartment corporation (which is not considered realty), the bank takes possession of the shares AND must also file a financing statement (not in Albany) in the county clerk's office where the co-op is located.
I - intangible property such as accounts receivable, contract rights of executory contracts, commercial bank accounts, or a hospital or doctor's health care insurance receivables or a commercial tort claim are perfected by filing.
G - goods, which have 5 subcategories
1. consumer goods used for personal, family, or household purposes
2. equipment used in a business
3. inventory held for resale as well as the raw material used to make the inventory
4. fixtures attached to realty. Carpets, and kitchen appliances are not considered fixtures under Article 9, but with this exception, if a screw driver is needed to remove it from the realty, it is considered a fixture. If it can be unplugged and removed, it is not a fixture.
5. Farm products including crops, livestock, timber, or minerals
Look at the PIG properties principal use by the debtor to determine its classification.

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What does perfecting the security interest do?

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Except for consumer goods, the signed security agreement must be "perfected" in order to cut off the interest of a subsequent purchaser, another secured creditor, the debtor's judgment creditor, or a trustee in bankruptcy if the debtor files for bankruptcy.