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Overview of Contracts
- Armadillos from TX play rap, eating tacos
- 1) Applicable Law
- 2) formation of contracts
- 3) terms of contract
- 4) performance
- 5) remedies for unexcused nonperformance
- 6) excuse of nonperformance
- 7) third-party problems
results from an offer that expressly requires performance as the only possible method of acceptance
everything other than a unilateral contract and rewards/prizes/contests
- equitable remedy
- 1) P has conferred a benefit on D; and
- 2) P reasonably expected to be paid; and
- 3) D realized unjust enrichment if P is not compensated
- Recovery: focus on the value of the benefit conferred; contract price is a ceiling if P is in default.
Art 2 of the UCC v. Common law
Art 2 covers the SALE of GOODS (i.e.
tangible, personal property)
Common law covers everything else.
- Mixed Deal (e.g. goods and services): general rule is that agreements are governed by one or the other; all or nothing, dependent on which part is more important.
- Exception: if K divides payment, then apply UCC to sale of goods part and common law to the rest.
- manifestation of an intention to contract.
- Basic test is whether a reasonable person in the position of the offeree would believe that his or her assent created a contract.
Offers: Missing Price term in sales contract
- Sale of real estate - common law - price and description are required; missing price term makes it not an offer.
- sale of goods - Art 2 - no price requirement
Offer: vague or ambiguous material terms
not an offer under common law or UCC
offer: requirements contracts
- characterized by language such as "all, only, exclusively, or solely"
- Increases in requirements K: buyer can increase requirements so long as the increase is in line with prior demands, i.e. not unreasonably disporportionate.
- general rue is that ads are not offers
- 1) ad is an offfer if it is in the nature of an award
- 2) ad is an offer if it specifies the quantity and expressly indicates who can accept.
Four methods of termination
- 1) lapse of time
- 2) death of a party prior to acceptance
- 3) revocation by offeror
- 4) rejection by the offeree
Termination: lapse of time
offer must be accepted in the stated or a reasonable time.
Generally, 30+ days b/t offer and acceptance means that the offer has lapsed.
termination: death of parties
- General: death or incapacity of either party after the offer but before acceptance terminates the offer.
- exception: irrevocable offers
Termination: Offeror Revocation
- 1) unambiguous statement by offeror to offeree of unwillingness or inability to contract; or
- 2) unambiguous conduct by offeror indicating unwillingness or inability to contract that offeree is aware of.
- Note - multiple offers is not revocation.
- 1) offer
- 2) promise not to revoke/keep the offer open; and
- 3) promise is supported by payment/consideration
- UCC Firm Offer Rule:
- Offer cannot be revoked for up to three months if (i) offer to buy/sell goods; (ii) signed, written promise to keep the offer open; and (iii) party is a merchant/business person.
- Detrimental Reliance: (1) reasonably foreseeable (2) reliance (3) to the detriment of the offeree
- start of performance pursuant to a unilateral K: start of performance to a unilateral K makes the offer irevocable for a reasonable time to complete performance (note that performance does not represent acceptance until the performance is complete). Mere preparation is not enough.
- 3 methods of indirect rejection:
- 1) counteroffer;
- 2) conditional acceptance;
- 3) additional terms
- generally terminates the offer and becomes a new offer.
- no express contract unless the counteroffer is accepted.
- Distinct from bargaining.
- For the purpose of MBE, if the response is a statement, then it is likely a counteroffer.
- If however, it is a question ("will you take X?"), then it is probably bargaining.
- option exception: counteroffers in option contracts do not constitute a rejection of the option contract.
- typically characterized by phrases such as [if; only if; provided; so long as; but; on condition that]
- conditional acceptance terminates the offer.
Rejection: Additional Terms
- Mirror Image Rule - Only applies at common law.
- response to an offer that adds new terms is treated as a counteroffer rather than an acceptance.
- Under Article 2:
- First, is there a K? a response to an offer that adds new terms, but doesn't make it a condition of acceptance, is generally treated as acceptance.
- Second, is the additional term part of the K? Added terms are part of the K only if (i) both parties are merchants; and (ii) added term isn't material; and (iii) added term is not objected to by the offeror.
acceptance via performance
- General rule: start of performance is acceptance.
- exception: start of performance is not acceptance of a unilateral contract offer. Completion of performance is required.
Acceptance & Rejection through mail
- 1) all communications other than acceptance are effective only when received
- 2) acceptance is generally effective when mailed
- 3) if rejection is mailed before an acceptance is mailed, then neither is effective until received.
- 4) can't use the mailbox rules to meet an option deadline.
Sending the "wrong goods" as acceptance
- General Rule: acceptance and breach
- Accommodation exception: requires an explanation. Treated as a counteroffer and no breach.
who can accept
- generally, offers can only be accepted by (1) a person who knows about the offer at the time she accepts; (2) who is the person to whom the offer was made.
- offers can't be assigned.
- options can be assigned unless prohibited by the terms
reasons for not enforcing an agreement
- 1) lack of consideration or substitute;
- 2) lack of capacity of the promisor
- 3) statute of frauds
- 4) existing laws that prohibit performance of the agreement
- 5) public policy
- 6) misrepresentations
- 7) nondisclosure
- 8) duress
- 9) unconscionability
- 10) ambiguity of the agreement
- 11) mistakes at the time of the agreement as to the material fact affecting the agreement.
Three-step analysis for consideration
- 1) identify the promise-breaker
- 2) ask whether that person asked for something in return for her promise, i.e. bargained for something
- 3) look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained.
- Bargained for: asked for in exchange for her promises. people doing stuff they were asked to do.
- Legal detriment:
Promises as consideration
- promises can be consideration
- Exception: illusory promises (e.g. promise to sell unless she changes her mind).
adequacy of consideration
irrelevant in contract law
- generally not consideration.
- exception: expressly requested by promisor and expectation of payment by the promisee.
Modification and the 'preexisting contractual or statutory duty rule'
- common law: generally, new consideration is required for contract modification
- exception: addition to or change in performance
- exception: unforeseen difficulty so severe as to excuse performance
- exception: third party promise to pay
- Art. 2: new consideration is not required to modify a sale of goods, so long as the modification is in good faith
part payment as consideration for release
- If the debt is due and undisputed, then part payment is no consideration for release.
- If the debt is not yet due (i.e. early) or disputed, then partial payment is consideration
seal is not a consideration substitute
written promise to satisfy an obligation for which there is a legal defense
enforceable without consideration
Promissory Estoppel (Detrimental Reliance)
- 1) promise
- 2) reliance that is reasonable, detrimental and foreseeable
- 3) enforcement is necessary to avoid injustice
who lacks capacity?
- who lacks capacity?
- 1) infant - under 18
- 2) mental incompetents - lacks ability to understand
- 3) intoxicated person if other party has reason to know
consequences of incapacity
- 1) right to disaffirm by the person without capacity
- 2) implied affirmation by retaining benefits after gaining capacity (ratification)
- 3) quasi-contract liability for necessaries - not contract liability
Proof required by the Statute of Frauds
proof of either (1) performance; or (2) a writing signed by the person who is asserting there was no such agreement
Contracts within the statute of frauds
1) promises to answer for the debts of another (suretyship; guarantee)
2) service K not capable of being performed within a year of the time of the contract
3) transfers of interest in real estate
4) sales of goods for $500 or more
5) lease of goods for $1,000 or more (measured by total payments
Service K not capable of being performed within a year from the time of the contract
- 1) K for performance in a specific time period, more than one year... S/F applies
- 2) K for performance at a specific time more than a year from the date of K.. S/F applies.
- 3) if the K merely calls for a task and makes no reference to time, S/F doesn't apply.
- 4) life contracts... S/F does not apply.
S/F doesn't apply
S/F & Performance
performance satisfies S/f, depending on the circumstnaces
performance and transfer of real estate
part performance satisfies s/f in transfers of real estate if two of the three present: (i) improvements to the land; (ii) payment; and (iii) possession.
If plaintiff has only done one or none of the three, then D has a s/f defense
performance & service Ks
- full performance by either party satisfies s/f
- partial performance of service k does not satisfy s/f
partial performance and sale of goods contracts
- Seller's partial performance:
- General rule is that partial performance for a K to sell goods satisfies s/f, but only to the extent of the partial-performance.
- E.g. Delivered goods - if seller delivers some goods and buyer doesn't pay, seller can sue for payment on the partial delivery.
- Undelivered goods - if buyer sues seller for the unsold goods, he cannot recover. Seller will have a s/f defense.
Seller's partial performance of specially manufactured goods
- satisfies s/f as soon as the seller makes a 'substantial beginning'
- i.e. enough work that it is clear that the product is specially manufactured/custom made/made to order
Writings & S/f
writings that satisfy the "all material terms test" satisfy s/f.
Writings signed by one party in satisfaction of s/f
- writings signed by one party only satisfies s/f so that there is no s/f defense only if the writing has been signed by the person who is asserting the s/f defense (i.e. the person who argues there is no agreement; the defendant).
- Note - this is a defense to the s/f defense.
Art 2 & S/f
- 1) writing must indicate that there is a K for sale of goods and the quantity term.
- 2) Generally, the writing must be signed by the person asserting the s/f defense, except where both parties are merchants and the person (D) who receives a signed writing with a quantity terms claims that there is a contract fails to respond w/in 10 days of receipt.
Art. 2A Leases of personal Property & Writing Requirements for S/f
writing must (i) indicate that it is a lease; (ii) describe what is being leased; and (iii) state the duration of the leas
Judicial Admission & S/f
- An alternative mechanism for satisfying s/f.
- if the defendant asserting a s/f defense admits in a pleading or testimony that he entered an agreement w/ P, the purpose of s/f is satisfied (preventing fraud) and the s/f defense will be unavailable
Authorization to enter into contract for someone else
the rules of law require that the authorization for an agent to contract on behalf of the principal only if the K to be signed is within the s/f, i.e. the authorization must be of 'equal dignity' with the K.
- In order to determine whether modification of an agreement is required to be in writing:
- 1) look at the deal w/ the alleged change;
- 2) determine whether the deal with the alleged change would be within s/f
- Rule: if the deal with the change would be within the s/f, then the alleged modification must be in writing
Contract terms requiring all modifications to be in writing
- Common Law: provisions requiring all modifications be in writing are not effective; we simply ignore that language.
- Art. 2: provisions requiring written modifications are effective unless waived
Reasons for not enforcing an agreement
- public policy
Illegal Subject Matter/Purpose
- if the subject matter is illegal, the agreement is not enforceable.
- if the subject matter is legal, but the purpose is illegal, the agreement is enforceable only by the person who did not know of the illegal purpose
K that violate public policy
- courts can refuse to enforce b/c a k violates public policy.
- look for an exculpatory agreement that exempts intentional or reckless conduct from liability or a covenant not to compete without a reasonable need or reasonable time and place limits
Misrepresentation in K formation
- (1) statement of 'fact' before the contract
- (2) by one of the contracting parties or her agent
- (3) that induces the contract
- (4) that is false
No wrongdoing required for material misrepresentations
Note - this is always about rescission of the K
Honest and innocent misrepresentations still give rise to rescission
- Generally, no duty to disclose what she knows.
- Exceptions: fiduciary-like relationship; concealment... generally requires some time of wrongdoing.
- Can be either physical or economic
- economic duress:
- 1) bad guy - improper threat which is usually a threat to breach an existing K; and
- 2) vulnerable guy - no reasonable alternative
Reasons for not enforcing an agreement: unconscionability
- applies to all Ks and empowers a court to refuse to enforce all or part of an agreement
- 2 basic tests:
- 1) unfair surprise (procedural)
- 2) oppressive terms (substantive)
Court analyzes the agreement as of the time of formation
Under Art. 2A, the court can grant relief from a consumer lease even though no provision of the lease is unconscionable, if there is unconscionable conduct in inducing or enforcing the lease.
Ambiguity in words of the agreement
- there will be no K if:
- 1) parties use a material term that is open to at least two reasonable interpretations; and
- 2) each party attaches different meaning to the term; and
- 3) neither party knows or has reason to know that the term is open to at least two reasonable interpretations
Mistake of fact at formation
- Mistake of fact is different from mistake of judgment or uncertainty or risk allocated to a party asserting mistake
- (1) Mutual mistake of material fact and not assumed risk - no enforceable K.
- (2) Unilateral Mistake of Material Fact - generally, courts are reluctant to allow a party to avoid a K for a mistake made by only one person unless there is a situation in which the other party had reason to know of the mistake, i.e. a palpable mistake.
Parol Evidence Rule
- General: the issue is whether and for what purpose parol evidence is admissible.
- The underlying premise is that the final written version is more reliable.
- Parol Evidence - words of a party/parties before integration, i.e. before agreement was put into written form; can be either written or oral
- Triggering facts: (1) written K the court finds is the final agreement; and (2) oral statement made at the time the K was signed or an earlier oral or written statement by the parties to the K.
- Rule: cannot use parol evidence to change/contradict the K.
written agreement that the court finds is the final agreement, triggers the parol evidence rule.
Partial Integration: written and final, but not complete
Compete Integration: written and final and complete
Parol Evidence: mistake in integration
court may consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration, i.e. a mistake in reducing the agreement to writing
Parol Evidence: Getting out of a written deal
parol evidence rule does not prevent a court from admitting evidence of earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement, such as misrepresentation, fraud, duress.
Parol Evidence: explaining term in the written deal
regardless of whether the writing is a complete or partial integration, the parol evidence rule doesn't prevent a court form admitting evidence of earlier agreements to resolve ambiguities in the written K.
Parol Evidence: Adding to the written deal
parol evidence rule prevents a court from admitting evidence of earlier agreements as a source of consistent, additional terms unless the court finds (i) that the written agreement was only a partial integration; or (ii) that the additional terms would ordinarily be in a separate agreement.
Conduct and course of performance in determining the terms of an agreement
- Ranked in order of persuasiveness:
- 1) course of performance - same people, same K
- 2) course of dealing - same people, different, but similar K
- 3) custom and usage - different but similar people, different but similar k
Delivery obligations of seller of goods if delivery by common carrier
- Shipment K - seller completes its delivery obligation when it (i) gets the goods to a common carrier; and (ii) makes reasonable arrangements for delivery; and (iii) notifies the buyer
- Destination K - seller does not complete the delivery obligation until the goods arrive to where the buyer is
- Shipment or Destination K?
- most Ks with delivery obligations are shipment Ks.
- Watch for the use of FOB [city] (Free on board) as a source for determining whether it is a shipment or destination K.
- IF FOB [city] is where the seller is or the goods are, it is a shipment K.
- If FOB [city] is followed by any other city indicates a destination K
Risk of Loss for Sale of Goods
- In order, risk of loss rules are determined by
- 1) Agreement
- 2) Breach - breaching party is liable for any uninsured loss even though the breach is unrelated to the problem.
- 3) delivery by common carrier other than seller - risk of loss shifts from seller to buyer at the time that the seller completes its delivery obligations
- 4) Is the seller a merchant - Note that whether buyer is a merchant is irrelevant. Risk of loss shifts from a merchant-seller to the buyer on the buyer's 'receipt' of goods; risk of loss shifts from a non-merchant seller when he or she 'tenders' the goods.
- Note - Title is irrelevant.
Art. 2A leases of personal Property: risk of loss
General Rule: unallocated risk of loss is on the lessor unless it is a finance lease.
Expres Warranty of quality
- look for words that promise, describe or state facts or for use of sample or model.
- Distinguish form sales talk, which is more general or an opinion
Implied warranty of merchantability
- when buying any goods from any merchant, a term is automatically added to the K by operation of law - that goods are fit for their ordinary purpose for which such goods are used.
- Triggering fact: seller is a merchant, which means here that it deals in goods of that kind.
- Warranty: goods are fit for ordinary purposes
Implied Warranty for fitness for a particular purpose
- triggering facts: buyer has a particular purpose and buyer is relying on the seller to select suitable goods; seller has reason to know of the purpose and reliance.
- Warranty: goods fit for a prticular purpose
Warranty on Art. 2A Leases
- implied warranty of merchantability in leases of goods.
- in finance leases, lessee must continue lease payments but can proceed against the seller.
Contractual limitations on warranty liability
- Express warranties generally cannot be disclaimed
- Disclaimer eliminates implied warranties:
- 1) conspicuous language of disclaimer mentioning merchantability
- 2) 'as is' or 'with all faults'
Contractual limitation on remedies
- limits recovery for any breach of warranty
- possible to limit remedies for express warranties
- general test is unconscionability
- prima facie unconscionable if the breach of warranty on consumer goods causes personal injury.
Sale of Goods Performance: Perfect Tender
- 1) perfect tender only applies to sale of goods
- 2) perfect tender means that seller's performance must be perfect goods and perfect delivery
- 3) less than perfect tender by the seller generally gives the buyer the option of rejection of the delivered goods
- 4) if there is perfect tender, the buyer must perform by paying the contract price
Sale of Goods Performance: rejection of the goods
- if seller does not meet the perfect tender standard, the buyer has the option to retain the goods and sue for damages or to reject 'all or any commercial unit' of the goods and sue for damages.
- This is limited by any right of seller to cure, the existence of an installment K, and buyer's acceptance.
- Note - rejection of the goods is different from rejection of an offer.
Sale of Goods Performance: cure
- seller who fails to make perfect tender may have an option of curing.
- 1) seller's reasonable ground to believe that the improper tender would be acceptable, perhaps with a money allowance (e.g. past dealings); and
- 2) time performance has not yet expired.
Sale of Goods Performance: installment contracts
- installment Ks require or authorizes goods to be delivered in separate lots and to be separately accepted.
- buyer has the right to reject an installment only where there is a substantial impairment in that the installment can't be cured.
Sale of Goods Performance: acceptance of the goods
- effect of acceptance: buyer can't reject them later
- effect of payment: payment without the opportunity to inspect the goods is not acceptance
- effect of buyer's keeping goods' as implied acceptance: look for buyer's keeping the goods without objection...
Sale of Goods Performance: revocation of acceptance of the goods
- in limited circumstances, buyer can effect a cancellation of the K by revoking its acceptance of the goods.
- 1) nonconformity substantially impairs the value of the goods; and
- 2) excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction; and
- 3) revocation within a reasonable time after discovery of nonconformity
sale of goods performance: payment
- two payment problems:
- 1) open price terms means reasonable price at the time of delivery
- 2) price to be fixed by buyer or seller means the price must be so fixed in good faith
Common law performance
if one party substantially performs the other party must pay or otherwise perform
- Equitable remedy. Look for adequacy of remedy at law or unclean hands or other parties' equities
- real estate - specific performance is available unless the land is later transferred to a bona fide purchaser
- sale of unique goods - available for antiques, art, custom-made or other appropriate circumstances
- services - no specific performance; possible injunctive relief
- Right of an unpaid seller to get its goods back
- 1) buyer must have been insolvent at the time it received the goods; and
- 2) seller demands return of goods within 10 days of receipt (or within a 'reasonable time' if buyer made an express representation of solvency)
- 3) the buyer still has the goods at the time of the demand
Money Damages for Breach - General
- the goal is to protect the non-breaching party's expectation.
- To determine expectation damages, (1) determine the dollar value of performance w/o breach; (2) the dollar value of performance with breach; and (3) compare the two to determine the amount of damages.
Damages for Sales of Goods: Seller breaches, buyer keeps the goods
fair market value if perfect minus fair market value delivered.
Damages for Sales of Goods: seller breaches, seller has the goods
market price at the time of discovery of the breach minus contract price
repacement price minus contract price
Damages for Sales of Goods: buyer breaches, buyer keeps goods
Damages for Sales of Goods: buyer breaches, seller has goods
contract price minus resale price plus (in some cases) provable lost profits
provable lost profits would be available in the instance of a merchant with regular/unlimited inventory
Damages for Sales of Goods: Recovery of Incidental Damages
- costs incurred in dealing with the breach such as costs of storing rejected goods in a sale of goods or finding a replacement in a service K.
- Always recoverable
Damages for Sales of Goods: Recovery of foreseeable consequential damages
- definition: kind of loss that is special to this plaintiff.
- Limited to situations in which D had reason to know of these special circumstances at the time of the K.
- If the special damages were foreseeable, they are recoverable (e.g., buyer notified seller that if he didnt get the rotor, the factory would close). If it was unforeseeable, consequential damages are not recoverable
Damages for Sales of Goods: Avoidable Damages
- no recovery for damages that could have been avoided without undue burden on P.
- Burdens of pleading and proof is on D.
- If proven, this amount will be deducted from the overall recovery.
Damages for Sales of Goods: reliance recovery
- In order to recover damages incurred as a result of P's reliance on the K, P must show he was reasonably certain to recover the amount sought.
- Look for fact patterns involving services K and the P engaged in a new business or a new business activity, in which case, there would not be reasonable certainty.
Damages for Sales of Goods: Liquidated Damages
- definition: implicated by contract provisions regarding damages.
- Two-part Test: (1) damages were difficult to forecast at the time of formation; and (2) provision is a reasonable forecast.
Excuse of nonperformance of K b/c of something that happened after formation
- 1) the other party's failure to perform
- 2) improper performance
- 3) non-occurrence of an express condition
- 4) Anticipatory repudiation
- 5) insecurity
- 6) modification/a later contract
- 7) later, unforeseen event
Improper performance: common law and material breach rule
- 1) damages can be recovered for any breach
- 2) only a material breach by one guy excuses the other's performance
- 3) materiality is a question of fact
- 4) if there is substantial performance, then the breach is not material; if the breach is material, then performance was not substantial
improper performance: problems with quantity of performance
- look to the numbers; if the performance is less than 50%, then there's a material breach and the non-breaching party does not have to pay anything.
- Breaching party may be able to recover for partial performance under quasi-contract.
- Divisible Contract exception: if a divisible contract exists, there can be a contract law recovery for substantial performance of a divisible part even though there has been a material breach of the entire contract.
- look at whether the price is stated as a lump sum or on a per-performance basis.
improper performance: sale of goods & perfect tender rule
never do material breach or divisible contracts in a sale of goods problem. the perfect tender rule applies.
Non-occurrence of an express condition
- an express condition is a mutually agreed upon promise modifier. it limits obligations created by other K provisions. This different from a conditional acceptance.
- Watch for words such as:
- only if
- provided that
- so long as
- subject to
- in the event that
- and on condition that
- Standard for determining whether an express condition has been satisfied: strict compliance
Eliminating an express condition
- Estoppel: The person w/ the benefit/protection of the express condition can give it up, excusing performance, via estoppel (before the condition was to occur) or waiver (after the condition was to occur).
- Prevention: if the party protected hinders or prevents the occurance of the express condition, the condition is excused and the contract must be performed.
- definition: an unambiguous statement or conduct indicating (i) that the repudiating party will not perform, (ii) made prior to the time performance was due.
- excuses the non-repudiating party's performance
- also generally gives rise to an immediate claim for damages for breach unless the claimant has already finished her performance.
- Anticipatory repudiation can be reversed/retracted so long as there has not been a material change in position by the other party.
- if timely retracted, the duty to perform is reimposed, but performance can be delayed until adequate assurances have been made.
- Occurs where words or conduct of one party give "reasoanble grounds for insecurity."
- the other party can demand adequate assurance.
- If it is "commercially reasonable" the other party can suspend performance until it gets adequate assurance.
Excused non-performance by reason of a later contract
- Rescission: cancellation. The key is whether performance is still remaining from each of the parties.
- Accord & Satisfaction: (substituted performance)
- Modification: (substituted agreement)
- Novation: (substituted person).
Accord & Satisfaction
- Definition: accord questions involve an agreement by parties to an existing obligation to accept a different performance in satisfaction of the existing obligation
- Effect: if the new agreement (accord) is performed (satisfaction), the performance of the original obligation is excused.
- if the accord is not performed, the other party can sue on either the original K or the accord.
- definition: an agreement between both parties to an existing K to the substitution of a new party, i.e. same performance, different party
- liability: novation excuses performance of the party who is substituted for or replaced.
- Cf. Delegation: novation requires the agreement of both parties to the original K and excuses the person replaced from any liability for nonperformance. Delegation does not require the agreement of both parties and does not excuse the original obligor.
Excuse of performance under impossibility or impracticabilty or frustration of purpose
- (i) something happens after formation, but before complete performance; and
- (ii)something that happens was unforeseen; and
- (iii) that occurrence makes performance impossible, commercially impracticable or frustrates the purpose of performance.
Damage or destruction of subject matter of contract after formation
- Destruction excuses performance
- Note - destruction only excuses performance if the subject of the K is somehow irreplaceable. If the subject is fungible, e.g. grits, then performance is not excused.
Death after formation
- general effect of debt on K obligations - death doesn't make a person's K obligations disappear
- Party to K who is a 'special person' will be excused, e.g. Owen Wilson
Effect of subsequent law or regulation
- Later law that makes performance of a K illegal provides excuse by impossibility
- Later law that makes mutually understood purpose of a K illegal excuses performance by frustration of purpose.
- not a party to the K
- able to enforce K others made for her benefit
look for a person making a promise that benefits the third party
look for a person who obtains the promise that benefits the third party
- only intended beneficiaries have contract law rights.
- Intent of parties to K determines whether intended or incidental
intended beneficiaries are either donees or creditors. Usually donees. Look at whether the beneficiary was a creditor of the promisee.
Efforts to cancel or modify Ks that benefit third parties
Test: if the third party knows of and has relied on or assented as requested to the K, his rights have vested and the K cannot be canceled or modified w/o her consent unless the K otherwise provides.
Third Party Ks: Who can sue whom?
- 1) beneficiary can recover from promisor
- 2) promisee can recover from promisor
- 3) generally, beneficiary cannot recover from the promisee, except, a creditor beneficiary can recover from promisee but only on a pre-existing debt
Defenses for third party Ks
if the third party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee.
- transfer of rts under K.
- involves two steps:
- 1) K b/t only two parties;
- 2) one of the parties transfers rts under the K to a third party
- Note - there's a difference b/t assignment of an offer and assignment of a K.
party to the K who later transfers rights under the K to another
- not a party to the original K
- able to enforce the K b/c of the assignment
the remaining party to a K that has been assigned to a third party
Limitations on assignment
- if there is a K provision regarding assignment:
- prohibition of assignment: language of prohibition takes away the right to assign, but not the power to assign; thus assignor remains liable for breach of K,
- but assignee who doesn't know of the prohbition can still enforce the assignment.
- This is the default.
- Invalidation of assignment: takes away both the right and power to assign, so there is a breach by assignor and no rights vest with the assignee.
- If there is no language about assignability:
- common law bars assignment that substantially changes the duties of the obligor.
- assignment of right to payment is never a substantial change.
- assignment of rt to K performance other than the right to payment (usually substantial change)
Requirements for assignment
general rule is that consideration is not required but gratuitous assignments (only) can be revoked
Right of the assignee
- 1) assignee can recover from the obligor
- 2) assignor for consideration cannot recover from obligor
- 3) obligor has same defenses against assignee as it would have against assignor
- 4) payment by obligor to assignor is effective until obligor knows of the assignment. likewise, modification agreements b/t obligor and assignor are effective if the obligor doesn't know of the assignment.
- 5) implied warranties of assignor in an assignment for value: (i) the right assigned actually exists; (ii) the rt assigned isn't subject to any then-existing defenses by obligor; and (iii) the assignor will do nothing after the assignment to impair the value of the assignment.
- Assignor does not warrant what the obligor will do after the assignment.
- all gratuitous assignments: last assignee generally wins
- assignments for consideration:
- first assignee for consideration wins
- exception subsequent assignee takes priority over an assignee for value only if he both (i) doesn't know of the earlier assignment; and (ii) is the first to obtain payment, judgment, novation, or indicia of ownership.
party to K transferring work under the K to a third party
Assignment v. Delegation
- a K creates both rights and duties. Delegation is the transfer by a party to a contract of his duties or burdens under the K to a third party who was not a party to the K
- Often, bar examiners use the term assignment to refer to an assignment & concurrent delegation.
what duties are delegable?
- generally, K duties are delegable
- limits: delegations are permitted unless
- 1) K prohibits delegations or prohibits assignments; or
- 2) personal services K that call for very special skills
nonperformance by delegate
- 1) delegating party always remains liable
- 2) delegatee is liable only if she receives consideration from the delegating party.
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