Contracts Flashcards
1
Q
General Issues
A
Armadillos From Texas Play Tennis Riding Elephants
A - Applicable law F - Formation of contracts T - Terms of contract P - Performance T - Third-party problems R - Remedies for unexcused nonperformance E - Excuse of nonperformance
2
Q
Unilateral Contract
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A unilateral contract results from an offer that expressly requires performance as the only possible method of acceptance
3
Q
Bilateral Contract
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A bilateral contract results from all other offers. Usually offer is silent as to the method of acceptance.
Not a bilateral contract if: (1) Reward, prize, contest; (2) Offer expressly requires performance for acceptance
4
Q
Quasi Contract
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A quasi contract is an equitable remedy
(a) Not governed by contract law
(b) If contract rules create unfair outcome, look to quasi contract for equitable remedy
5
Q
Applicable Law: Common Law
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Majority rule
Applies to service provider contracts and real property
It does not apply to sale of goods
6
Q
Applicable Law: UCC Articles 1 and 2
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Art. 1: common law contracts applies to sale of goods unless displaced by particular provisions of Art. 2
Art. 2: applies to contracts that are primarily sales of goods
Art. 2 application determined by: (a) Type of transaction (sale) and (b) subject matter of transaction (good, e.g. tangible, personal property)
7
Q
Applicable Law: Mixed Deals
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General rule: all or nothing/more important part – the applicable law is that which governs the more important part of the contract
Exception: If contract expressly divides payment, the apply UCC to sale of goods part and common law to the rest
8
Q
Formation: Definition of contract
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A contract is an agreement that is legally enforceable – need offer and acceptance
9
Q
Formation: Offer
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General test: An offer is one person’s manifestation of willingness to contract; look for words or conduct showing commitment by that person. Basic test: whether a reasonable person in offeree’s position would believe his assent makes a contract.
10
Q
Formation: Offer - Specific Problems
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(1) Content
(2) Context
11
Q
Formation: Offer - Specific Problems - Content
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(1) Missing price term in sales contact:
(a) Sale of real estate: at common law, no offer if price and land description absent
(b) Sale of goods: UCC, no price requirement; intent of parties test used where no price term
(2) Vague or ambiguous material terms - not an offer under common law or UCC
(3) Requirements contracts/output contracts: contact for sale of goods can state the quantity of goods to be delivered in terms of buyer’s requirements or seller’s output (all, only, exclusively, solely)
(a) Increase in requirements: buyer can increase so long as in line with prior demands
12
Q
Formation: Offer - Specific Problems - Context
A
An advertisement or price quotation is not an offer
Exceptions:
(1) Advertisement can be a unilateral offer if it is in the nature of a reward
(2) Advertisement can be an offer if it specifies quantity and expressly indicates who can accept
(3) Price quotation can be an offer if sent in response to an inquiry
13
Q
Formation: Offer Termination - Methods
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(1) Lapse of time
(2) Death of a party prior to acceptance
(3) Revocation of offer
(4) Rejection
14
Q
Formation: Offer Termination - Lapse of Time
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An offer is terminated if the time stated or reasonable amount of time lapses
15
Q
Formation: Offer Termination - Death of a party prior to acceptance
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General rule: Death or incapacity of either party after the offer, but before acceptance terminates the offer
Exception: irrevocable offers
16
Q
Formation: Offer Termination - Revocation
A
How to revoke:
(a) Later unambiguous STATEMENT by offeror to offeree of unwillingness or inability to contract
(b) Later unambiguous CONDUCT by offeror indicating an unwillingness or inability to contract that offeree is aware of
17
Q
Formation: Offer Termination - Irrevocable Offers
A
Generally offers can be revoked, by 4 situations in which cannot be revoked:
(1) Option: offer cannot be revoked if offeror has (a) made an offer, (b) promised not to revoke/promised to keep open, and (c) promise is supported by payment or other consideration
(2) UCC “Firm Offer Rule”: Offer cannot be revoked for up to 3 months if (a) offer to buy/sell goods, (b) signed written promise to keep offer open, and (c) party is a merchant.
(3) Reliance: An offer cannot be revoked if there has been (a) reliance that is (b) reasonably foreseeable and (c) detrimental.
(4) Unilateral contract: The start of performance pursuant to an offer to enter a unilateral contract makes that offer irrevocable for a reasonable time to complete the performance. Mere preparation is not enough to make the offer irrevocable.
18
Q
Formation: Offer Termination - Rejection
A
(1) Direct rejection
Indirect Rejection
(2) Counteroffer: generally terminates the offer and creates a new offer. Distinguishable from bargaining.
(3) Conditional Acceptance: look for response with the word accept followed by “if,” “only if,” “provided,” “so long as,” “but,” or “on condition that”; (a) common law: rejects and becomes counteroffer; (b) UCC: rejects
(4) Mirror Image rule: Additional terms added to a common law contract; a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance
19
Q
Formation: Offer - Additional Terms
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(1) Common law: a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance
(2) UCC: (a) If additional terms are not made a condition of acceptance, generally treated as an acceptance (“seasonable expression of acceptance”); (b) additional terms are not a part of the contract, unless both parties are merchants and the additional term is not material or the original offeror does not object.
20
Q
Formation: Acceptance - Methods
A
Offeror can control the method of acceptance, the time that a distance acceptance is effective, or whether the offeree must give notice that is has accepted by performance – or, can be silent
Common Acceptance Patterns
(1) Offeree starts to perform: generally, start of performance is acceptance.
Exception: start of performance is not acceptance for unilateral contract – must complete performance
(2) Distance and delay in communications: (a) All communications OTHER THAN acceptance are effective only when received; (b) Acceptance is GENERALLY effective when mailed (“mailbox rule”); (c) if rejection mailed before acceptance mailed, neither effective until received; (d) Mailbox rule does NOT apply to an offer
(3) Seller of goods sends wrong goods: general rule is acceptance and breach
Exception: accommodation – counteroffer and no breach (seller acknowledges selling wrong stuff, buyer can choose to accept or reject)
21
Q
Formation: Acceptance - Who
A
An offer can generally be accepted by (a) a person who knows about the offer at the time she accepts (b) who is the person to whom it was made
Offers cannot be assigned
Options can be assigned, unless option otherwise provides
22
Q
Formation: Acceptance - Effect
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When an offer has been accepted, it is no longer possible for the offeror to revoke or for offeree to reject
23
Q
Formation: Legal reasons for not enforcing a contract
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(1) Lack of consideration or a consideration substitute for the promise at issue
(2) Lack of capacity of the person who made that promise
(3) Statute of frauds
(4) Existing laws that prohibit the performance of the agreement
(5) Public policy
(6) Misrepresentations
(7) Nondisclosure
(8) Duress
(9) Unconscionability
(10) Ambiguity in words of agreement
(11) Mistakes at the time of the agreement as to the material facts affecting the the agreement
24
Q
Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute
A
Steps: (1) ID promise breaker, (2) ask whether that person asked for something in return for her promise (bargained for), (3) did the person trying to enforce sustain legal detriment
Bargained for: asked for by promisor in exchange for her promise
-Mere promise can be consideration – except, illusory promise exception: cannot reserve right to terminate without notice because then no legal detriment
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Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute - Past Consideration
Past consideration is not consideration
Exception:
(a) Past obligation unenforceable because of techincal defense (e.g. SOL) -- obligation will be enforceable if new promise is in writing or partially performed
(b) Promisor expressly requests past consideration, and expectation of payment by promisee
(c) MODERN TREND: If a past act benefited the promise and was performed by the promisee at the promisor's REQUEST or in response to an EMERGENCY, a subsequent promise to pay for that act will be enforceable
26
Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute - Pre-Existing Contractual or Statutory Duty Rule
(1) Common Law
(a) General rule: doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that
(b) Exceptions: (i) addition to or change in performance, (ii) unforeseen difficulty so severe as to excuse performance, (iii) third-party promise to pay
(2) UCC Article 2: No pre-existing legal duty rule; new consideration is not required to modify a sale of goods contract. Good faith is the test for changes to an existing sale of goods contract.
27
Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute - Part Payment as Consideration for Release
Promise to forgive balance of debt - key issue is whether debt is due and undisputed
(a) If debt is due and undisputed, part payment is NOT consideration for release
(b) If consideration is not yet due or disputed, promise to forgive an be a substitute
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Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute - Substitutes
Promise is legally enforceable even though there is no consideration if have one of the following:
(1) A written promise to satisfy an obligation for which there is a legal defense
(2) Promissory estoppel: (a) promisor should have expected promisee to change his position in reliance on the promsie; (b) promisee did change his position; (c) change was to promisee's detriment; (d) enforcement is necessary to avoid injustice
29
Formation: Legal Reason Not to Enforce - Defendant Promisor's Lack of Capacity - Who
Promisor lacks capacity if:
(a) Infant: under 18
(b) Mental incompetents: lack ability to understand agreement
(c) Intoxicated persons: if other party has reason to know
30
Formation: Legal Reason Not to Enforce - Defendant Promisor's Lack of Capacity - Consequences
(1) Right to disaffirm by person without capacity (but, that person w/ incapacity can enforce)
(2) Implied affirmation by retaining benefits after gaining capability (ratification)
(3) Quasi-contract liability for necessaries person without capacity is nonetheless obligated to pay for things that are necessary, such as food, clothing, medical care, shelter -- but on quasi contract law (equity) not contract law
31
Formation: Legal Reason Not to Enforce - Statute of Frauds
To satisfy statute of frauds, generally can use proof of: (1) performance or (2) a writing signed by the defendant
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Formation: Legal Reason Not to Enforce - Statute of Frauds - Contracts within S/F
Within statute of frauds: contract requires objective proof
(1) Promises to answer for the debts of another (suretyship)
(a) but, very narrow; answer for means promise to pay another person's debts only if that person does not herself pay.
(b) Main purpose exception: S/F n/a if main purpose of the obligation allegedly guaranteed was to benefit the guarantor, then not in S/F.
(2) Service contract not "capable" of being performed within a year from time time of contract
(a) Specific time period more than a year, S/F applies
(b) Specific time, more than a year from date of contract, S/F applies
(c) Task (no mention of time), S/F does not apply
(d) Life contract, S/F does not apply
(3) Transfers of interests in real estate (with exception for leases of 1 year or less)
(4) Sale of goods for $500 or more
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Formation: Legal Reason Not to Enforce - Statute of Frauds - Satisfying S/F, Performance
Performance: rules vary depending on whether contract is real estate, services, or sale of goods
(a) Performance and transfer of real estate: part performance satisfies S/F; do 2/3: (i) improvements to land, (ii) payment, or (iii) possession
(b) Performance and services contracts: (i) Full performance by either party satisfies S/F; (ii) Part performance does not satisfy
(c) Part performance and sale of goods contracts: (i) Seller's part performance of ordinary goods satisfies S/F; (ii) Seller's part performance of specifically manufactured goods: S/F satisfied as soon as seller makes a "substantial beginning"
34
Formation: Legal Reason Not to Enforce - Statute of Frauds - Satisfying S/F, Writing
Not every writing satisfies S/F (and S/F can be satisfied without writing)
(1) S/F other than UCC Art. 2: Looks at contents of the writing(s) and use all material terms test - satisfies S/F (no S/F defense) if writing has been signed by defendant
(2) Art. 2 Statute of Frauds: Look at contents of writing and who signed; writing must simply indicate that there is a contract for sale of goods and contain the quantity term (how many); generally, must be signed by defendant, w/ limited exception for two merchants where there is a delay in responding
(3) Delay in responding: Merchant-to-merchant delay in responding exception; idea is that a responsible merchant would respond and say there wasn't a deal if that was the case
(4) Judicial admission: if D asserting S/F defense admits during pleading or testimony that there was an agreement, S/F satisfied (no S/F defense)
(5) Estoppel: some cases hold that the plaintiff's reliance on D's oral promise to put the agreement in writing can estop the defendant from asserting S/F defense
35
Use of Statute of Frauds other than S/F Defense not to Enforce Agreement
(1) Written proof of authorization to enter into contract for someone else is required when it is an S/F contract
(2) Written proof of contract modification: will be required if the deal with the alleged modification would be in the statute of frauds
(3) Contract provisions requiring written modification: (a) Under common law, contract provisions requiring all modifications be in writing are not effective; (b) Under UCC, contract provisions requiring written modifications are effective unless waived.
36
Formation: Legal Reason Not to Enforce - Illegality
(1) Illegal subject matter: if subject matter is illegal, agreement is not enforceable (e.g. pay to injure someone)
(2) Illegal purpose: if the subject matter is legal, the agreement is enforceable if the plaintiff did not have reason to know of defendant's illegal purpose
37
Formation: Legal Reason Not to Enforce - Public Policy
Courts can refuse to enforce an agreement because of public policy; look for 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 limtiations
38
Formation: Legal Reason Not to Enforce - Misrepresentation
Look for (1) a statement of fact before the contract, (2) by one of the contracting parties or her agent, (3) that is false, (4) that is fraudulent or material, and (5) induces the contract
No wrongdoing required for material misrepresentation
39
Formation: Legal Reason Not to Enforce - Nondisclosure
Generally, a person making a contract has no duty to disclose what she knows. Look for fiduciary-like relationship or concealment as exceptions to this general rule
40
Formation: Legal Reason Not to Enforce - Duress or Undue Influence
(1) Physical duress
(2) Economic duress: Elements: (i) bad guy (improper threat to breach existing contract), and (ii) vulnerable guy (no reasonable alternative
(3) Undue influence: look for (a) special relationship between parties and (b) improper persuasion of weaker by the stronger
41
Formation: Legal Reason Not to Enforce - Unconsionability
Empowers the court to refuse to enforce all or part of an agreement
Two basic tests: Unfair surprise (procedural) and oppressive terms (substantive) are tested as of the time the agreement was made, by the court (not the jury)
42
Formation: Legal Reason Not to Enforce - Ambiguity in the Words of Agreement
No contract 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 the term is open to at least two reasonable interpretations
43
Formation: Legal Reason Not to Enforce - Mistake of Fact Existing at Time of Contract
(1) Mutual, material mistake of existing fact: generally no relief; relief for this only if both parties are indeed mistaken (not just uncertain) about an existing fact that is material and the person seeking relief does no bear the risk of mistake
(2) Unilateral mistake of material fact: generally no relief; only relief in situations in which the other party had reason to know of the mistake (i.e. palpable/obvious mistake)
44
Terms: Written Words
Written words are contract terms
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Terms: Words of Parties Not in the Written Contract - Scenario
Triggering Facts: (1) Final written contract; (2) Earlier words of one or both parties
46
Terms: Words of Parties Not in the Written Contract - Parol Evidence Rule (terms)
The issue is whether evidence can be considered and whether parol evidence can be considered often depends on the purposes for which the evidence is to be introduced
Terms:
(a) Integration: written agreement court finds is final agreement -- triggers parol evidence
(b) Partial integration: written and final, but not complete
(c) Complete integration: written and final and complete
(d) Merger clause: contract clause such as, "This is the complete and final agreement"
(e) Parol evidence: words of party, before integration, oral or written
47
Terms: Words of Parties Not in the Written Contract - Parol Evidence Rule Scenarios
(1) Changing/contradicting terms in written deal: evidence of earlier agreements CANNOT be considered for the purpose of contradicting the terms of the written contract
(2) Mistake in integration (i.e. clerical mistake): A court MAY consider evidence of terms for the limited purpose of determining whether there was a mistake in integration, i.e. a mistake in reducing the agreement to words.
(3) Defenses: Court MAY consider parol evidence for the limited purpose of determining whether there is a defense to the enforcement of the agreement, such as misrepresentation, fraud, or duress
(4) Ambiguity, i.e. explaining a term in the written deal: a court MAY consider parol evidence to resolve ambiguities in the written contract
(5) Adding to the written deal: Court CANNOT use parol evidence as a source of consistent, additional terms UNLESS the court finds (i) written agreement was only partial integration or (ii) additional terms would ordinarily be in a separate agreement
48
Terms: Conduct
Conduct can be a source of contract terms
Forms of conduct:
(1) Course of performance: same people, same contract
(2) Course of dealing: same people, different but similar contract
(3) Custom and usage: different but similar people, different but similar contract
49
Terms: UCC for Terms in Sales of Goods Contracts ("default" terms) - Delivery Obligations by Common Carrier
(1) Shipment Contracts: Seller completes its delivery obligation when it (a) gets the goods to a common carrier, and (b) makes reasonable arrangements for delivery, and (c) notifies the buyer.
(2) Destination contracts: Seller does not complete delivery obligation until the goods arrive at the destination
Distinguishing between the two:
- FOB (city) where seller or goods destination is = shipment contract
- FOB (city) any other city = destination contract
50
Terms: UCC for Terms in Sales of Goods Contracts ("default" terms) - Risk of Loss
Risk of loss problem arises where (i) after the contract has been formed but before the buyer receives the good, (ii) the goods are damaged or destroyed, and (iii) neither the buyer nor the seller is to blame
Rules:
(1) Agreement: agreement of the parties controls
(2) Breach: breaching party is liable for any uninsured loss even though the breach is unrelated to the loss
(3) Common carrier delivery: risk of loss shifts from seller to buyer at the time the seller completes its delivery obligations
(4) Catch-all (no agreement, no breach, no delivery by common carrier): merchant status is irrelevant; risk of loss shifts from merchant-seller to buyer on buyer's receipt (physical possession) of the goods
51
Terms: UCC for Terms in Sales of Goods Contracts ("default" terms) - Warranties of Quality
(1) Express: look for words that promise, describe, or state facts (no words of opinion)
(2) Implied warranty of merchantability: When a person buys any goods from a merchant, a term is automatically added to the contract by operation of law - that the goods are fit for the ordinary purpose for which such goods are used
(3) Implied warranty of fitness for a particular purpose: buyer has a warrant of fitness for a particular purpose when relying on seller to select suitable goods and seller has reason to know of the purpose and reliance
52
Terms: UCC for Terms in Sales of Goods Contracts ("default" terms) - Warranties of Liability, Limitations
(1) Statute of Limitations: 4 year SOL, which generally starts running when the tender of delivery is made, not when buyer learns the product is defective
(2) Privity: privity of contract means P contracted with D; if P did not buy from D, possible privity of contract issue. States vary with respect to how they resolve privity issues.
(3) Buyer's examination of the goods: Look for fact pattern that buyer examined goods; no implied warranties as to defects which would be obvious on examination
(4) Disclaimer ("there are no warranties"):
(a) Express warranties cannot be disclaimed
(b) Implied warranties of merchantability and fitness can be disclaimed either through (a) conspicuous language of disclaimer or (b) "as is" or "with all faults"
(5) Limitation of remedies: does not eliminate warranties, simply limits or sets recovery for any breach of a warrant: (a) possible to limit remedies even for express warranties, (b) general test is unconscionability, (c) prima facie unconscionable if breach of warranty on consumer goods causes personal injury
53
Performance (Art. 2 Contracts): Perfect Tender
Perfect tender rule only applies to sale of goods
Perfect tender means that the goods and delivery must completely comply with the contract terms
54
Performance (Art. 2 Contracts): Rejection of the Goods
(1) Less than perfect tender generally gives the buyer the option to reject the goods so long as the buyer acts in good faith, (2) takes reasonable care of the goods and cannot continue to use the goods, and (3) the option of rejection because of a less than perfect tender is limited by the concepts of cure, installment contracts and acceptance
55
Performance (Art. 2 Contracts): Cure
In some instances, a seller who fails to make a perfect tender will be given a "second chance", an option of curing
Seller does not always have the opportunity to cure, and buyer cannot compel the seller to cure
(1) Time for performance has not yet expired
(2) But, seller can cure after delivery date with seller has reasonable ground to believe tender would be acceptable, perhaps with a money allowance (look to prior dealings between the parties)
56
Performance (Art. 2 Contracts): Installment Contracts
Installment contract REQUIRES or AUTHORIZES (1) delivery of the goods in separate lots (2) to be separately accepted.
Buyer has the right to reject an installment only where there is a substantial impairment in that installment cannot be cured.
57
Performance (Art. 2 Contracts): Acceptance of Goods
If buyer accepts the goods, it cannot later reject them.
Payment without opportunity for inspection is not acceptance. But, retention does count as acceptance.
Rejection must be timely.
58
Performance (Art. 2 Contracts): Revocation of Acceptance of the Goods
Revocation of acceptance has the same effect as rejection. Buyer returns the goods and seller returns the payments made.
Requirements:
(1) Nonconformity substantially impairs the value of 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 discover of nonconformity.
59
Third-Party Problems: Types
(1) Third-party beneficiaries
(2) Assignments of contract rights
(3) Delegations of contract duties
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Third-Party Problems: Third-Party Beneficiary - Definition & Vocab
Definition: Two parties contacting with the common intent of benefit to a third party
Vocabulary:
(a) Third-party beneficiary: not a party to the contract; able to enforce contract others made for her benefit
(b) Promisor: Person who is making the promise that benefits the third party (e.g. life insurance company)
(c) Promisee: Look for person who obtains the promise that benefits the third party
(d) Intended/incidental: only intended beneficiaries have contract law rights
(e) Creditor/donee: Intended beneficiaries are either donees or creditors. Look at whether third-party was a creditor of the promise before the contract
61
Third-Party Problems: Third-Party Beneficiary - Cancelation and Modification
Test: whether third party knows of and has relied on or assented as requested. If she has, her rights have vested and the contract cannot be canceled or modified without her consent unless the contract otherwise provides.
62
Third-Party Problems: Third-Party Beneficiary - Who can sue whom?
(a) Beneficiary can recover from promisor (e.g. life insurance company)
(b) Promisee can recover from promisor
(c) Beneficiary cannot recover from promisee, EXCEPT creditor beneficiary can recover from promisee on a pre-existing debt
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Third-Party Problems: Third-Party Beneficiary - Defenses
If the third--party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee
64
Third-Party Problems: Assignment of Rights - Definition & Vocabuulary
An assignment is a transfer of rights under a contract. It involves two steps: (1) Contract between 2 parties; (2) One of the parties later transfers rights under that contract to a third party
Vocabulary
(a) Assignor: party to the contract who later transfers rights under the contract to another
(b) Assignee: not a party to the contract; able to enforce the contract because of the assignment
(c) Obligor: other party to the contract
65
Third-Party Problems: Assignment of Rights - Limitations
(1) If there is a contract provision regarding assignment:
(a) Prohibition: language of prohibition takes away the right to assign but not the power to assign, which means that the assignor is liable for breach of contract, but an assignee who does not know of the prohibition can still enforce the assignment
(b) Invalidation: language of invalidation takes away both the right to assign and the power to assign so there is a breach by the assignor and no rights in the assignee
(2) If there is nothing in fact pattern about contract language regarding assignability, common law nonetheless bars an assignment that substantially changes the duties of the obligor
(a) Assignment of right to payment is never a substantial change
(b) Assignment of the right to contract performance other than right to payment is usually a substantial change
66
Third-Party Problems: Assignment of Rights - Requirements
Generally, consideration is not required, but (a) gratuitous assignments can be revoked and (b) non-gratuitous/for consideration assignments cannot be revoked
67
Third-Party Problems: Assignment of Rights - Who can sue whom?
(a) Assignee can recover from obligor
(b) Assignor for consideration cannot recover from obligor
(c) Obligor has same defenses against assignee as it would have against assignor
(d) Payment by obligor to assignor is effective until obligor knows of assignment. Similarly, modification agreements between obligor and assignor are effective if the obligor did not know of the assignment.
(e) Implied warranties of assignor in an assignment for consideration: assignor warrants (i) the right assigned actually exists, and (ii) the right assigned is not subject to any then existing defenses by the obligor, and (iii) the assignor will do nothing after the assignment to impair the value of the assignment; (iv) but, assignor does not warrant what obligor will do after assignment
68
Third-Party Problems: Assignment of Rights - Multiple Assignments
(1) All gratuitous assignments: last assignee generally wins
(2) Multiple assignments for consideration:
(a) General rule: First assignee for consideration wins
(b) Limited exception: Subsequent assignee takes priority over an earlier assignee for value only if he both (i) does not know of the earlier assignment and (ii) is the first to obtain (1) payment, (2) judgment, (3) novation, or (4) indicia of ownership
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Third-Party Problems: Delegation of Duties - Definition & Terms
Definition: Party to a contract transferring work under that contract to a third party
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Third-Party Problems: Delegation & Assignment
A contract creates rights and duties.
An assignment is a transfer by a party to a contract of his rights or benefits.
A delegation is a transfer by a party to a contract of his duties or burdens under the contract to a third party who was not a party to the contract.
71
Third-Party Problems: Delegation of Duties - Delegable Duties
Generally, contractual duties are delegable.
Delegations are permitted unless either (1) contract prohibits delegations or prohibits assignments or (2) "personal services contract" that calls for very special skills"
72
Third-Party Problems: Delegation of Duties - Nonperformance
If after delegation the third-party delegatee does not perform...
(1) Delegating party always remains liable
(2) Delegatee liable only if she receives consideration from delegating party
73
Remedies for Unexcused Non-Performance: Non-Monetary Remedies (in rem)
(1) Specific performance/injunction: equitable remedy; look for adequacy of remedy at law or unclean hands or other parties' or other parties' equities
(a) Contracts for sale of real estate generally, but not if there is a subsequent BFP
(b) Contract for sale of goods: unique goods - antiques, art, custom-made or other appropriate circumstances
(c) Contract for services: no specific performance, possible injunctive relief
(2) Seller's reclamation from an insolvent buyer of goods: Right of an unpaid seller to get its goods back; (i) buyer must have been insolvent at time it received goods; (ii) seller demands return of goods within 10 days or "reasonable time" if before delivery there had been an express representation of solvency; and (iii) buyer still has goods at time of demand
(3) Entrustment: voluntarily relinquishes item for performance of a service (e.g., watch to repair person) but service provider sells to BFP; later BFP prevails
74
Remedies for Unexcused Non-Performance: Money Damages - Measure of Damages, Expectation Damages
Protection of expectation: people who contract expect that the other person will not breach, and expectation damages protect that expectation. (1) Look to facts for dollar value of performance without breach, (2) look to facts for dollar value of performance with breach, and (3) compare the two to determine the amount of damages.
75
Remedies for Unexcused Non-Performance: Money Damages - Measure of Damages, Sales of Goods
Put the non-breaching party where it would have been had the contract been performed. Relevant facts: (1) Who breached, (2) Who has the goods, and (3) Was there a later "replacement" deal
(a) Damages for seller's breach:
(i) Seller breaches, buyer keeps the goods: [fair market value if perfect] - [fair market value as delivered or cost of repair]
(ii) Seller breachers, seller has the goods: whichever is greater of [market price at time of discovery of the breach] - [contract price] OR [reasonable replacement price] - [contract price]
(b) Damages for buyer's breach:
(i) Buyer breaches, buyer keeps the goods: [contract price]
(ii) Buyer breaches, seller keeps the goods: [contract price] - [resale], unless seller cannot resell in which case seller can recover contract price, and in some cases provable lost profits
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Remedies for Unexcused Non-Performance: Money Damages - Measure of Damages, Additions and Limitations
Additions: Plus...
(1) 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 services contract are always recoverable.
(2) Foreseeable CONSEQUENTIAL (special) damages: loss special to this plaintiff; limited to damages arising from P's special circumstances and recovery of consequential damages is limited to situations in which D had good reason to know of these special circumstances at the time of contract
Limitations: Less...
(1) AVOIDABLE damages: no recovery for damages that could have been avoided without undue burden on plaintiff; burdens of pleading and proof on defendant
(2) Damages that cannot be established with reasonable certainty
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Remedies for Unexcused Non-Performance: Money Damages - Measure of Damages, Contract Provisions
Liquidated Damages: Contract provision fixes the amount of damages
Concern is whether the provision is too high (i.e. a penalty)
Tests: (1) Damages were difficult to forecast at time contract was made and (2) Provision is a reasonable forecast
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Other Guy's Non-Performance
Excused from performance if other guy doesn't perform
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Anticipatory Repudiation
Anticipatory repudiation: other guy is not going to perform
(1) Unambiguous: anticipatory repudiation is an unambiguous statement or conduct (i) that the repudiating party will not perform (ii) made prior to the time that performance was due
(2) Excuse: anticipatory repudiation by one party excuses the other party's duty to perform
(3) Time of recovery: Anticipatory repudiation generally gives rise to an immediate claim for damages for breach unless the claimant has already finished her performance
(4) Retraction of anticipatory repudiation: anticipatory repudiation can be withdrawn so long as there has not been a material change in position by the other party. If repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until adequate assurance is provided
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Insecurity about whether other guy is going to perform
If the words or conduct of one party gives "reasonable grounds for insecurity," then the other party can, in writing, demand adequate assurance and, if it is "commercially reasonable," can suspend performance until it gets adequate assurance
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Improper Performance
(1) Art. 2 Perfect Tender Rule
(2) Common law and material breach rule: (a) Damages can be recovered for any breach. (b) Only material breach by one guy excuses the other guy from performing a contract governed by common law. (c) Whether a breach is material is a fact question. (d) If there is substantial performance, then the breach is not material. (If breach is material, performance was not substantial).
(i) Material breach because of quality of performance
(ii) Material breach because of quantity (amount) of performance
(iii) Divisible contract corollary: in a divisible contract, there can be a contract law recovery for substantial performance of a divisible part even though there has been material breach of the entire contract (lump sum v. per performance)
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Nonoccurrence of Express Condition - Definitions
Express condition: (a) language in a contract, (b) limits obligations created by other contract language, (c) triggering words ("if", "only if", "provided that", "so long as", "subject to", "in the event that", "unless", "when", "until", "on the condition that")
Results in an excuse, not a breach
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Nonoccurrence of Express Condition - Standard of satisfaction
General rule: strict compliance is required for "satisfaction" of a condition
(a) Exception: forfeiture - some courts refuse to require strict compliance with express conditions in situations where enforcement of the condition would cause excessive harm
(b) Exception: condition of personal satisfaction to one of the parties - honest and good faith dissatisfaction, courts look to see whether a reasonable person would be satisfied or not
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Nonoccurrence of Express Condition - Conditions Precedent and Subsequent
Almost all contract conditions are conditions precedent: conditions that excuse performance until and unless they occur
Conditions subsequent occur after the start of performance and excuse performance when they occur
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Nonoccurrence of Express Condition - Parol Evidence
If there is a written contract and prior to that written contract the parties orally agreed that performance was conditional, courts generally will consider evidence of such an oral agreement notwithstanding the parol evidence rule
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Later Contract
(1) Rescission (cancellation): key is whether performance is still remaining from each of the contract parties (executory)
(2) Accord and satisfaction: agreement by the parties to an already existing obligation to accept a different performance in satisfaction of the existing obligation
(a) If the new agreement ("accord") is performed ("satisfaction"), then the performance of the original obligation is excused.
(b) If the accord is not performed, then the other party can recover on either the original obligation or the accord
(3) Modification: Modification of an agreement by parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation
(4) Novation: an agreement by both parties to an existing contract to the substitution of a new party. Excuses the contracted performance of the party who is substituted or replaced.
- Distinguish from delegation
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Excuse of Non-Performance of Contract b/c of After Contract (Non-)Happening: Later, Unanticipated Event
(1) Damage or destruction of subject matter of contract:
(a) Common law: excused only if event impacts ability to perform;
(b) Art. 2: if sale of goods, do risk of loss first; (i) if risk of loss is on the buyer, then the buyer pays; (ii) if risk of loss is on the seller, then the buyer does not have to pay (whether buyer can recover damages depends on facts)
(2) Subsequent law or regulation:
(a) Later law makes performance of contract illegal - excuse by impossibility
(b) Later law makes mutually understood purpose of contract illegal - excuse by frustration of purpose
(3) Death After Contract: generally, death does not make a person's contract obligations disappear; exception: death of party to a contract who is "special" person excuses performance
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Implied-in-Fact Contract
An implied-in-fact contract is a contract formed by manifestations of assent other than oral or written language, i.e. by conduct
Manifestations of assent are analyzed objectively under contract law. Both parties' actions must objectively indicate assent.
Even if there is no subjective meeting of the minds, the parties will be bound if their conduct objectively appears to manifest a contractual intent
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Implied-in-Law Contract
When there is no contractual relationship between the parties, an implied-in-law contract action will prevent unjust enrichment of one party to the detriment of the other.
