Contracts And Sales Flashcards
(161 cards)
1
Q
What is a contract
A
A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law recognizes as a duty
2
Q
What law are contracts governed by
A
For contracts involving the sale of goods article 2 of the UCC applies.
For all other contracts common-law rules apply.
3
Q
What are goods for purposes of contract law
A
Goods are all things movable at the time they are identified as the goods to be sold under the contract.
4
Q
Who is a merchant
A
A merchant is one who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved.
5
Q
Quasi contracts
A
Remedy constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant
6
Q
Unilateral contract
A
A contract where the offeror clearly indicates that completion of performance is the only manner of acceptance.
7
Q
Bilateral contract
A
All other contracts that are not unilateral.
On the bar assume contract questions involve bilateral contracts.
8
Q
Void contract
A
A contract that is totally without any legal effect from the beginning. It cannot be enforced by either party.
9
Q
Voidable contract
A
A contract that one or both parties may elect to avoid.
10
Q
Seven general contract issues
A
1) applicable law
2) formation of contracts
3) terms of contracts
4) performance
5) remedies for unexcused nonperformance
6) excuse of nonperformance
7) third-party problems
11
Q
Applicable law mixed deals
A
The general rule is that the UCC applies to all of the contract or none of the contract. When deciding whether not the UCC applies look to the more important part of the contract.
Exception contracts divides payment, then apply UCC to sale of goods part and common law to the rest of the contract.
12
Q
What is an offer
A
An offer creates a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.
13
Q
How to determine if an offer is made
A
Ask:
1) was there an expression of a promise, undertaking, or commitment to enter into a contract?
2) were there certainty and definiteness in the essential terms?
3) was their communication of the above to the offeree?
14
Q
Advertisement as offers
A
Advertisements and the like containing price quotations are usually construed as mere invitations for offers.
15
Q
Missing price term in sales contract
A
For sale of real estate price and description required or it is not an offer.
For the sale of goods price is not required for an offer.
16
Q
Offers with vague or ambiguous terms
A
Vague or ambiguous material terms do not constitute an offer under either the common law or the UCC.
Three words that are vague or ambiguous are appropriate, fair, reasonable.
17
Q
Requirement contracts
A
Contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyer’s requirements or seller’s output. Look for words like all, only, exclusively, and solely.
Requirements or output contracts are not vague or ambiguous and are valid
18
Q
Increases in requirements
A
Buyer can increase requirements so long as the increase is in-line with prior demands.
Meaning that the increase is not unreasonably disproportionate.
19
Q
Where advertisements may be an offer
A
1) an advertisement can be a unilateral offer if it is in the nature of a reward.
2) An advertisement can be an offer if it specifies the quantity and expressly indicates who can accept.
3) Price quotation can be an offer if sent in response to an inquiry.
20
Q
Lapse of an offer
A
An offer may be terminated by the offeree’s failure to except within the time specified by the offer or, if no deadline was specified within a reasonable period.
21
Q
Death of a party prior to acceptance
A
Death or incapacity of either party after the offer, but before acceptance, terminates the offer.
Exception: irrevocable offers
22
Q
Revocation of an offer
A
An offer is revoked:
1) by an unambiguous statement by the offeror to the offeree of unwillingness or inability to contracts, or
2) later unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of.
Only an offerer can revoke an offer, requires awareness of the offeree.
Multiple offers does not constitute revocation.
23
Q
Irrevocable offer
A
1) option contracts
2) firm offer
3) reliance
4) unilateral contract
24
Q
Option contract
A
An offer cannot be revoked if the offeror has not only made an offer but also (1) promised to not revoke and (2) this promise is supported by payment or other consideration.
25
Firm offer
An offer cannot be revoked for up to three months if (1) offer to buy or sell goods, (2) signed, written express promise to keep the offer open, and (3) party is a merchant.
26
Reliance
An offer cannot be revoked if there has been (1) reliance that is (2) reasonably foreseeable and (3) detrimental.
27
Irrevocability of a unilateral contract
Start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance.
Mere preparation does not count as part performance.
28
Three ways to terminate an offer
1) counteroffer
2) conditional acceptance
3) additional terms
29
Counteroffer
Generally a counteroffer terminates the offer and creates a new offer.
Counteroffers do not terminate options.
Bargaining is not a counteroffer. On the bar is always bargaining when what was said was a question.
30
Conditional acceptance
Under the common-law a conditional acceptance rejects the offer and becomes a counter offer that can be accepted by conduct.
Under the UCC a conditional acceptance rejects the offer.
Look for a response to an offer with the word accept followed by one of these words or phrases if, only if, provided, so long as, but, or on condition that.
31
Additional terms to a common-law contract
A response to an offer the ads and new terms is treated like a counter offer rather than an exceptions.
This is known as the mirror image rule.
32
Additional or different terms for the sale of goods. (UCC 2-207)
A fact pattern in which there is an offer to buy or sell goods and a response with additional or different terms raises two separate questions:
1) Is there a contract?
Under the UCC a response to an offer that adds additional or different terms, but does not make the new terms a condition of acceptance is generally treated as an excepted.
2) Is the additional term a part of the contract?
The additional term is a part of the contract only if (1) both parties are merchants and (2) additional term is not material and (3) the additional term is not objected to by the original offeror.
33
Acceptance of an offer
The offeror can control the method of acceptance, the times that a distance acceptance is effective, or whether the offeree must give notice that it has accepted by performance.
34
Common acceptance fact patterns
1) offeree starts to perform
2) distance and delay in communications
3) the seller of goods sends the wrong goods
35
Performance as acceptance
General rule is the start of performance is acceptance.
Start of the performance is not acceptance of unilateral contract offers. Completion of performance is required.
36
Distance and delay in communications
All communications other then acceptance effective only when received.
Acceptance is generally effective when mailed.
If a rejection is mailed before an acceptance is mailed, then neither is effective until received.
You cannot use the mailbox rule to meet an option deadline.
37
When a seller of goods sends the wrong good
General rule is that this is an acceptance of the offer and breach of the contract.
When wrong goods are sent with an explanation there is no contract and no breach.
38
Who can accept an offer
Generally an offer can be accepted only by
(1) a person who knows about the offer at that time she accepts it
(2) who is the person to whom it was made.
Offers cannot be assigned; options can be assigned unless the option otherwise provide.
39
Three steps to analyze a consideration problem
1) identify the promise breaker
2) ask whether that person asked for something in return for her promise
3) look at the person who's trying to enforce a promise and ask what requested legal detriment that person sustained.
40
Adequacy of consideration
Not relevant in contract law.
41
Where consideration can be found
1) it's bargained for
2) there's legal detriment
3) promise as consideration.
42
Past consideration
Things done in the past are not consideration unless they are expressly requested by the promissor and expectation of payment by the promisee
43
Pre-existing duty as consideration
Under the common-law doing what you are already obligated to do is not new consideration for a new promise to pay you more to do merely that. Unless there is addition to or change in performance, an unforeseen difficulty so severe as to excuse performance, and third-party promise to pay.
For the sale of goods new consideration is not required to modify a sale of goods contract. Good faith is a test for changes to an existing sale of goods contract.
44
Part payment as consideration for release i.e., promise to forgive balance of debt
Key is whether debt is due and undisputed. If debt is due and undisputed, then part payment is not consideration for release.
45
What are considerations substitutes
1) a written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration.
2) Promissory estoppel.
46
Elements of promissory estoppel
1) promise
2) reliance that is reasonable, detrimental, and foreseeable, and
3) enforcement necessary to avoid in just
47
Capacity to contract
A person must be over the age of 18 to have the capacity to contract.
A mental incompetent or an intoxicated person, the other party has reason to know is intoxicated, lack capacity to contract.
If capacity is lacking the person without capacity has the right to disaffirm the contract unless they gain capacity later and retain the benefits of the contract.
48
Quasi-contract and incapacity
A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter, but that liability is based on quasi-contract law not contract law.
49
Four contracts within the statute of frauds
1) promises to answer for the debt of another.
2) service contract not capable of being performed within a year from the time of the contract
3) transfers of an interest in real estate (with exception for leases of year or less)
4) sale of goods for $500 or more
50
Promises to answer for the debts of another
Not merely a promise to pay but rather a promise to pay someone if someone else does not. Look for a guarantee. Look also for the main purpose exception.
51
Main purpose exception
If the obligation allegedly guaranteed was to benefit the guarantor, then not even that guarantee is within the statute of frauds
52
Specific contract not capable of being performed within a year from the time of the contract
1) if the contract is for a specific time, more than a year in length the statute of frauds applies.
2) if the contract is for a specific time, more than a year from date of contract the statute of frauds applies.
3) if the contract is for a specific task the statute of frauds does not apply.
4) if the contract is for life statute of frauds does not apply
53
Transfers of interest in real estate
Transfers of interest in real estate with the exception for leases of a year or less fall within the statute of frauds.
54
How is the statute of frauds satisfied
1) performance
2) writing
3) judicial admission
4) estoppel
55
Performance rules for transfer of real estate to satisfy the statute of frauds
Part performance satisfies the statute of frauds in transfers of real estate.
Part performance requires any two of the following three: (1) improvements to land, (2) payment, and (3) possession
56
Performance rules for service contracts to satisfy the statute of frauds
Full performance by either party satisfies the statute of frauds.
Part performance of the services contract does not satisfy the statute of frauds.
57
Performance in contracts for the sale of goods to satisfy the statute of frauds
Generally part performance of a contract for the sale of goods satisfies the statute of frauds, but only to the extent of part performance (Meaning the statute does not apply to the delivered goods)
58
Seller's part performance in a specially manufactured goods contract to satisfy the statute of frauds
If the contract is for the sale of goods that are to be specially manufactured, then the statute of frauds is satisfied as soon as the seller makes a substantial beginning.
This means that the seller has done enough work that is clear that what she's working on is specially manufactured, i.e., custom-made or made to order.
59
Requirements for a writing to satisfy the statute of frauds under the common-law
1) writing must contain all material terms.
| 2) if the writing has been signed by the person who is asserting the statute of frauds defense
60
When a writing contains all material terms
Must be able to look at the writing and determine who the parties are and what they agreed to.
61
Requirements for a writing to satisfy the statute of frauds for the sale of goods
Writing must indicate that there is a contract for the sale of goods and contain the quantity term.
If you are a merchant who receives a writing from another merchant with a quantity in it, you will respond within 10 days or there would be an agreement.
62
Judicial admission to establish statue of frauds
If the defendant asserting a statute of frauds defense admits in a pleading or testimony that he entered into agreement with the plaintiff, the purpose of the statute of frauds is fulfilled and so the statute of frauds is satisfied
63
Estoppel to satisfy statute of frauds
Plaintiff's reliance on the defendant's oral promise cannstop the defendant from asserting a statute of frauds defense.
64
When proof of authorization to execute a contract exists
Written proof of authorization to execute a contract for someone else is only required for statute of frauds contracts.
65
Test to determine if written proof of contract modification is required
1) look at the deal with the alleged change
2) determine whether the deal with the alleged change would be within the statute of frauds.
If the deal with the alleged change would be within the statute of frauds, then the alleged modification agreement must be in writing.
66
Contract provisions requiring written modification
Under common law contract provisions requiring that all modifications be in writing are not effective.
Under the UCC contract provisions requiring written modifications are effective unless waived.
67
Illegal subject matter of the
If the subject matter is illegal, the agreement is not enforceable.
68
Illegal purpose of the contract
If the subject matter of the contract is legal, the agreement is enforceable if the plaintiff did not have reason to know of the defendant's illegal purpose.
69
Not enforcing an agreement because of public policy
Courts can refuse to enforce an agreement because of public policy.
On the bar exam look for exculpatory agreement that exempts intentional or reckless conduct from liability or a covenant not to compete that is unreasonable.
70
Not enforcing a contract due to misrepresentation
1) a statement of fact before the contract
2) by one of the contracting parties or her agent
3) that is false
4) induces that contract.
No wrongdoing required for material misrepresentations.
71
Not enforcing a contract due to non-disclosure
Generally a person making a contract has no duty to disclose what she knows.
Wrongdoing is required for a contract not to be enforced due to nondisclosure.
Look for concealment on the bar exam.
72
Not enforcing an agreement due to duress
Contracts not enforced were entered into for the following reasons:
1) physical address
2) economic direct
73
Elements of economic duress
1) improper threat which is usually threat to breach existing contract
2) no reasonable alternative for person who threat is made to
74
Not enforcing a contract due to undue influence
Look for a special relationship between the parties and improper persuasion of the weaker by the stronger.
75
Unconscionability
Basic test:
1) unfair surprise and oppressive terms
2) tested as of the time the agreement was made
3) by the court
76
Not enforcing an agreement because of ambiguity
There will be no contract if the parties use a material term that is open to at least two reasonable interpretation and each party attaches a different meaning to the term and neither party knows or has reason to know the term is open to at least two reasonable interpretations.
77
Not enforcing an agreement because a mistake of fact
Mutual material mistake of existing fact not legally enforceable.
Unilateral mistake of fact relief is given in cases where the other party had reason to know of the mistake.
78
Parol evidence for contradicting terms
Regardless of whether the writing is a complete or partial integration evidence of earlier agreement is not admissible for the purpose of contradicting the terms in the written contract.
79
Parol evidence for mistake in integration
A court may consider parol evidence for the limited purpose of determining whether there was a mistake in integration, i.e., a mistake in reducing the agreement to writing
80
Parol evidence for rescission
Regardless of whether the writing is a complete or partial integration parole evidence may be used by a court for the limited purpose of determining whether there is a defense to the enforcement of the agreement, such as misrepresentation, fraud, or duress.
81
Parol evidence for ambiguity
Regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from admitting evidence of earlier agreements to resolve ambiguities in a written contract.
82
Parol evidence to add to the written deal
Parol evidence rule prevents a court from admitting evidence of the earlier agreements as a source of consistent, additional terms unless the court finds (1) that the written agreement was only a partial integration or (2) that the additional terms would ordinarily be in a separate agreement.
83
Conduct as a source of contract terms
Courts look first to course of performance, second to course of dealing, third to custom and usage to explain words in contracts or to fill gaps in contracts.
84
Course of performance
If a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance any course of performance accepted or acquiesced to is relevant in determining the meaning of the contract
85
Course of dealing
Sequence of conduct concerning previous transactions between the parties to a particular transaction that may be regarded as establishing a common basis of their understanding
86
Custom and usage
Practice or method of dealing regularly observed in a particular business setting so as to justify an expectation that it will be followed in a transaction.
87
Determining the delivery obligation of seller of goods
Depends on whether it is a shipment contract or a destination contract.
If it is a shipment contract seller's delivery obligations include (1) gets the goods to a common carrier, (2) make reasonable arrangements for delivery, and (3) notifies the buyer.
If it is a destination contract the seller does not complete its delivery obligations until the goods arrive at the destination.
88
Determining between a shipment and destination contract
If it is FOB followed by a city where the seller is located it is a shipment contract.
If it is FOB followed by any other city it is a destination contract.
89
Risk of loss rules
1) agreement of the parties controls.
2) breaching party is liable for any uninsured loss even though breach is unrelated to problem
3) risk of loss shifts from seller to buyer at the time the seller completes its delivery obligations
4) risk of loss shifts from a merchant seller to the buyer on the buyer's receipt of the goods. Risk of loss shifts from a nonmerchant seller when he or she tenders the goods.
Tender means makes the goods available.
Receipt means physical possession of the goods.
90
Warranties of quality
1) express warranties
2) implied warranty of merchantability
3) implied warranty of fitness for a particular purpose
91
Express Warranties
Look for words that promise, describe or state facts. Distinguish from sales talk which is more general, an opinions. Or look for sample or model.
92
Implied warranty of merchantability
Warranty that the goods are fit for the ordinary purpose for which such goods are used.
Implied warranty exists where the seller is a merchant which here means it deals in goods of that kind.
93
Implied warranty of fitness for a particular purpose
Warranty that says the goods are fit for a particular purpose.
Implied warranty exists when the buyer has a particular purpose, the buyer is relying on seller to select suitable goods, seller has reason to know purpose and reliance.
94
Limitations on warranty liability
1) four-year statute of limitations
2) plaintiff did not buy the goods from the defendant, there is a possible privity issue
3) No implied warranties as to defects which would be obvious on examination
4) disclaimers
95
Disclaimer to limit warranty liability
1) express warranties cannot be disclaimed.
2) implying warranties can be disclaimed in either of the following ways:
A) conspicuous language of disclaimer mentioning merchantability, or
B) ass is or with all faults.
96
Limitation of remedies for breach of warranties
1) possible to limit remedies even for express warranties
2) general test is Unconscionability
3) prima facie case unconscionable a breach of warranty on consumer goods causing personal injury.
97
Perfect tender
1) perfect tender only applies to sale of goods
2) the goods and the delivery must conform to the contract terms to have perfect tender
3) less than perfect tender by the seller generally gives the buyer the option of rejection of the goods delivered so long as the buyer acted in good faith
98
Rejection of the good
1) need to be able to distinguish rejection of an offer from rejection of the goods
2) if the seller does not meet the perfect tender standard, the buyer has the option to retain and sue for damages or reject all or any commercial unit and sue for damages
3) rejection alternative is limited by cure, installment contract, and acceptance
4) buyer must take reasonable care of the rejected goods
99
Cure
In cases where the seller has reasonable grounds to believe the tender would be acceptable, perhaps with a money allowance or time for performance has not yet expired, a seller who fails to make a perfect tender will be given an option of curing
100
Installment contract exception to perfect tender
Buyer has the right to reject an installment only where there is this a substantial impairment and that installment that can't be cured.
101
Acceptance exception to perfect tender
If the buyer accepts the goods it cannot later reject them.
Payment without opportunity for an inspection is not acceptance.
Effect of buyer's keeping goods is implied acceptance.
102
Revocation as acceptance of the goods
In limited circumstances, a buyer can affect a cancellation of the contract by revoking its acceptance of the goods
103
Requirements for revocation of acceptance
1) nonconformity substantially impairs the value of the goods
2) excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction
3) revocation within a reasonable time after discovery of nonconformity
104
Specific performance
Situations where specific performance apply include:
1) contracts for sale of real estate
2) contract for sale of goods if the goods are unique goods meaning they are antiques, art, or custom-made.
3) contract for services no specific performance but possible injunctive relief.
105
Reclamation
A seller can get back it's good if the buyer was insolvent at the time it received the goods and the seller demands return of goods within 10 days of receipt
106
Buyers recovery of paid for goods
If buyer made payment while seller was solvent and seller has since become insolvent buyer may recover identifiable paid for goods from the seller
107
Expectation damages
Accordingly look for dollar value of performance without breach, look for dollar value of performance with breach, and compare the two to determine the amount of damages.
108
Expectation damages for sale of good
1) If the seller breaches and the buyer keeps the good damages are the fair market value if perfect minus the fair market value as delivered or the cost of repair
2) if the seller breaches and the seller keeps the goods damages are the market price at the time of discovery of the breach minus the contract price or the reasonable replacement price minus the contract price, whichever is higher.
3) if the buyer breaches and the buyer keeps the good damages are the contract price.
4) if the buyer breaches and the seller has the goods damages are the contract price minus resale unless the seller cannot resell in which case the seller can cover the contract price and in some situations provable lost profits
109
When lost profits applies
If the contract called for sale of inventory or regular inventory lost profits applies to allow the seller to recover as if there would have been two sales and two profits
110
Incidental damages
Cost incurred in dealing with the breach such as cost of storing rejected goods in a sale of goods or finding a replacement in a service contract are always recoverable
111
Consequential damages
Consequential damages are limited to damages arising from plaintiff's special circumstances and recovery of consequential damages is limited to situations in which defendant had reason to know of the special circumstances at the time of the contract
112
Avoidable damages
No recovery for damages that could have been avoided without undue burden on plaintiff
113
Damages and certainty
Damages that cannot be established with reasonable certainty are not recoverable.
On the bar look for plaintiff to be in a new business or a new business activity
114
Liquidated damages
Look for contract provision fixing amount of damages. Concern is whether provision is too high constituting a penalty and therefore being unenforceable.
Test to determine if enforceable:
(1) damages were difficult to forecast at time contract was made and
(2) provision is a reasonable forecast
115
Excuse of performance because of other guys nonperformance
If one party does not perform their duties of the contract the other party does not have to perform
116
Anticipatory repudiation excuse of performance
Unambiguous statement or conduct that the repudiating party will not perform made prior to the time that performance was due will excuse the other parties duty to perform
117
Time of recovery for an anticipatory repudiation
Anticipatory repudiation generally gives rise to an immediate claim for damages for breach unless the claimant has already finished her performance.
118
Retraction of anticipatory repudiation
Anticipatory repudiation can be retracted so long as there has not been a material change in position by the other party.
119
Excuse because of insecurity
In a contract for the sale of goods if the words or conduct of one party give reasonable grounds for insecurity, the other party can in writing demand adequate assurance and if it is commercially reasonable can suspend performance until it gets adequate assurance.
120
Excuse because of improper performance for the sale of goods
If there is not perfect tender than the buyer does not have to perform.
121
Excuse because of improper performance under common-law
1) damages can be recovered for any breach
2) only a material breach by one guy excuses the other guy from performing a contract
3) whether a breach is material is a fact question and therefore not likely to be on the bar
4) if there is a substantial performance than the breach is not material.
122
When a breach in quantity is likely to be material
If less than half of the work has been done it is a material breach because of quantity of performance
123
Divisible contract exception
In a divisible contract 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.
124
Excuse because of nonoccurrence of an express condition
The general rule is that strict compliance is required for satisfaction of the condition.
Exception for a condition of personal satisfaction of one of the parties, requires honest and good faith dissatisfaction.
125
Elimination of an express condition
1) waiver
| 2) prevention
126
Waiver of a condition
Identify the person who benefits from or is protected by the express condition.
Then look for a statement by that person giving up the benefits and protection of the express condition.
127
Prevention
Look for the person protected by the express condition hindering or preventing the occurrence of the express condition
128
Conditions precedent versus condition subsequent
Conditions precedent are conditions that excuse performance until and unless they occur.
Condition subsequent occur subsequent to the start of performance and excuse performance when they occur.
129
Excuse by later contract
1) rescission
2) accord and satisfaction
3) modification
4) novation
130
Accord and satisfaction
An agreement by the parties to an already existing obligation to accept a different performance in satisfaction of the existing obligation.
If the new agreement is performed, performance of the original obligation is excused.
131
Modification
An agreement by parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation
132
Novation
Innovation is an agreement between both parties to an existing contract to the substitution of a new party, i.e., same performance, different party.
133
Who is liable after a novation
A novation excuses the contracted for performance of the party who is substituted for or replaced.
134
Excuse of performance by reason of a later unanticipated event
1) which party is arguing that her performance is excused
2) what her performance is
3) whether post contract occurrence affected her ability to perform not just the cost of her performance
135
Damage or destruction of subject matter of contract
Under the common-law a party is excused if the unanticipated event causes her not to be able to perform.
For the sale of goods do risk of loss first if the risk of loss is on the buyer then the buyer pays. If the risk of losses on the sellers in the buyer does not have to pay.
136
Death after contract
Death does not make a person's contract obligations disappear.
Death of party to a special person contract excuses performance.
137
Change in subsequent law or regulation
If a later law makes performance of contract illegal excuse by impossibility.
If the later law makes mutually understood purpose of contract illegal excuse by frustration of purpose.
138
Third-party beneficiary
Not a party to the contract.
Able to enforce contract others made for her benefit.
139
Promisor
Look for person who is making the promise that benefits the third party.
140
Promisee
Look for person who obtained the promise that benefits the third-party.
141
Intended beneficiaries
Only intended beneficiaries have contract law right.
Intended beneficiaries are always named in the contract.
142
Creditors/Donee
To be a creditor the third-party must be a creditor of the promisee
Otherwise they are a donee.
143
Ability to cancel or modify a third party beneficiary contract
If the third-party knows of and has relied on or assented as requested to the contract the contract cannot be canceled or modified without her consent unless the contract otherwise provides.
144
Who can sue whom in a third-party beneficiary contract
1) beneficiary can recover from Promisor
2) promisee can recover from Promisor, but beneficiary and promisee cannot both recover from Promisor
3) generally beneficiary cannot recover from promisee unless creditor beneficiary can recover from promisee but only on pre-existing debt.
145
Defense is in third-party beneficiary contract
If the third-party beneficiary sues the Promisor the Promisor can assert any defense that he would have if sued by the promisee.
146
Assignment
An assignment is a transfer of rights under a contract.
Assignment involves two separate steps:
1) contract between only two parties and
2) one of the parties later transfers right under the contract to a third-party.
147
Assignor
Party to the contract who later transfers right under the contract to another.
148
Assignee
Not a party to the contract.
Able to enforce the contract because of the assignment.
149
Obligor
Other party to the contract
150
Limitations on assignment
A prohibition takes away the right to assign but not the power to assign. Meaning the assignor is liable for breach of contract, but an assignee who does not know of the prohibition can still enforce the assignment.
An invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee.
Common law bars an assignment that substantially changes the duties of the obligor. An assignment of the right to payment is never a substantial change, an assignment of right to contract performance other than right to payment is a substantial change
151
Requirements for assignment
General rule is that consideration is not required, but gratuitous assignments and only gratuitous assignments can be revoked.
152
Who can sue whom in an assignment of a contract
1 the assignee can recover from the obligor
2) the 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 assignee is effective until obligor knows of assignment.
5) in an assignment for consideration the assignor warrant (1) the right assigned actually exists, and (2) the right assigned is not subject to any existing defenses by the obligor, and (3) the assignor would do nothing after the assignment to impair the value of the assignment. Assignor does not want what the obligor will do after the assignment.
153
Multiple assignments
For gratuitous assignments the last assignee generally wins.
For assignments with consideration the first assignee with consideration wins. Unless the assignee does not know of the earlier assignment and is the first to obtain payment, a judgment, a novation, or indicia of ownership.
154
Delegation
Transfer by a party to a contract of his duties or burdens under the contract to a third-party who is not a party to the contract.
155
When are duties delegable
Delegations are permitted unless either (1) contract prohibits delegation or prohibits assignments or (2) personal services contract that calls for very special skills.
156
Nonperformance by delegate
Delegating party always remains liable.
Delegatee liable only if she receives consideration from delegating party.
157
Specially manufactured goods exception to statute of frauds
All three elements required:
1) goods must be specially manufactured for the buyer
2) seller must have started work on the goods or else entered into a commitment to purchase them from someone else
3) good must not be sellable in the seller's ordinary course of business
158
Rejection of an installment contract for goods
Buyer may reject an installment that is nonconforming only if it substantially impairs the value of that installment and cannot be cured.
If adequate assurances of cure, shipment must be excepted.
159
Consideration in a contract
Look for consideration in the contract as a whole even if two components present.
160
Time in contracts
Unless nature of contract is such to make performance important or contract provides that time is of the essence, failure to perform at the stated time is a minor breach
161
damages for minor breach
Only damages, not an excuse not to perform your obligations.
