005 Contracts--02 Everything Except Formation

Front 1

Typical 3PB situation

Back 1

A (promisee) contracts with B(promisor) that B will render some performance to C (3PB)

Front 2

Intended v. Incidental 3PB

Back 2

Only intended beneficiaries have contractual rights, not incidental beneficiaries.

Determine if a 3PB is intended, consider whether the beneficiary:

1. Is IDENTIFIED in the K.

2. RECEIVES PERFORMANCE DIRECTLY from the promisor

OR

3. has some RELATIONSHIP to the promisee to indicate intent to benefit

Front 3

MBE tips 3PB

Back 3

At the time of K 3p must be mentioned IN THE K otherwise not applicable.

Vesting of 3PB rights is frequently tested on MBE. Know when they vest, b/c until they vest 3PB doesn’t have any rights; once vested, 3PB can enforce its rights .


-rights can vest through detrimental reliance.

Any ∆’s you can raise against opposing contracting party, you can raise against 3PB.

3PB have no rights beyond what the original K parties have.

Front 4

Credit v. Donee beneficiary

Back 4

Creditor beneficiary--a person to whom a debt is owed by the promise

Donee beneficiary--a person the promisee intends to benefit gratuitously

Front 5

When do 3PB's right vest?

Back 5

3P can enforce a contract only when his rights have vested.

This occurs when 3P:

1. MANIFESTS ASSENT to a promise in a manner requested by the parties

2. brings a SUIT TO ENFORCE a promise

OR

3. MATERIALLY CHANGES POSITION in justifiable reliance on the promise.

-prior to vesting, promisee/promisor are free to modify or rescind the 3PB's rights under the K.
-modifcation can be implied.
e.g. if there is K where payment is to be made to a 3PB but payment instead is made to original party, 3PB's rights have NOT vested

Front 6

C 3PB v. B Promisor

Back 6

B Promisor can raise any defense he would have against A promisee.

B Promisor's defenses against C 3PB depends on whether he promise is absolute.
--If promise is ABSOLUTE then B promisor cannot assert the A promisee's defenses

--If promise is not absolute, then B promisor may assert A promisee's defenses against C 3PB.

Front 7

C 3PB v. A Promisee

Back 7

Creditor can sue A promisee on existing obligation between them.

-Creditor can also sue B promisor but may obtain only one satisfaction.

-Donee beneficiary has no right to sue on the promise UNLESS grounds for a detrimental reliance/promissory estoppel remedy exist

Front 8

Promisee v. Promisor

Back 8

Promisee may sue promisor in both law and equity for specific performance if the promisor is not performing for the 3PB

Front 9

Typical Assignment situation

Back 9

X (obligor) contracts with Y (assignor). Y assigns his right to X's performance to Z (assignee).

-When the rights are assigned, the assigning party can receive no further benefit from those rights.

-When duties are delegated, delegating party remains secondarily liable.

Front 10

MBE tips wrt assignments/delegations

Back 10

3P doesn’t arise until after the K has formed

When the rights are assigned, the assigning party can receive no further benefit from those rights.

When duties are delegated, delegating party remains secondarily liable.

Front 11

K rights that can/cannot be assigned

Back 11

Generaly all K right can be assigned EXCEPT:

1. assignment that would SUBSTANTIALLY CHANGE X obligor's DUTY or **RISK
(e.g. personal service ks where service is unique, reqs and output ks where the assignee will substantially vary the quantity)

2. an assignment of future rights to ARISE FROM FUTURE CONTRACTS (not future rights in already existing contracts)

AND

3. assignment PROHIBITED BY LAW i.e. wage assignments

Front 12

*Non-assignment provisions

Back 12

-clause prohibiting assignment of "the K" will be construed as barring only delegation of Y assignor's duties.

-clause prohibiting assignment of CONTRACTUAL RIGHTS generally does not bar assignment, but merely gives X obligor the right to sue for damages.

BUT

if K provides that attempts to assign will be "NULL AND VOID" the parties can bar assignment OR if Y assignee has notice of the nonassignment clause, it will be ineffective.

Front 13

Gratuitous Assignments

Back 13

revocable

Front 14

Assignments for consideration

Back 14

irrevocable

Front 15

Z Assignee v. X Obligor

Back 15

X obligor has defenses inherent in the K (i.e. failure of consideration, failure of a condition and other defenses inherent in the contract)

but cannot raise any defenses Y assignor might have against Z assignee.

Front 16

Z Assignee v. Y Assignor

Back 16

Z assignee can sue Y assignor for wrongfully exercising the power to revoke in an irrevocable situation.

Z assignee can also sue Y assignor when the X obligor successfully raises a defense against Y assignor in an acton brought by the Z assignee against X obligor.

Front 17

Successive Assignments of the Same right--Priorities

Back 17

CL--1st in time 1st in right UNLESS a subsequent assignee Z actually reduces the subject matter of the assignment to possession.

UCC rule--1st to file notice with the Sec of State.

Front 18

Assignment--notice

Back 18

Once the obligor has knowledge of the assignment, he is bound to render performance to the assignee.

Front 19

Delegation of Duties typical situation

Back 19

Y (obligor/delgator) promises to perform for X(the obligee). Y delgates her duty to Z (delegate)

Front 20

What duties can/cannot be delegated

Back 20

Generally all duties EXCEPT:

1. **duties involving personal judgment and skill

2. delegation would change the X obligee's expectancy (e.g. reqs/outputs ks)

3. special trust was reposed in Y (obligor/delgator) by the other party in the K

AND

4. contractual restriction on delegation

Front 21

$ Rights/Liabilities

Back 21

obligee X must accept performance from Z delegate of all duties that may be delagated.

-Y obligor/delgator is stil liable on K. So X obligee can sue Y deligator/obligor.

-Y obligor/delgator can sue Z delagate for nonperformance but can only require Z to perform if there has been an ASSUMPTION (i.e. Z delagate promises he will perform the duty delgated and this promise is supported by consideration or equivalent)

Assumption creates a separate contract between Y obligor/delgator and Z delegate with X obligee as a 3PB.

Front 22

Delegation of Duties--UCC

Back 22

an assignment of rights carries with it an implied assumption of duties.

Front 23

Novation-

Back 23

substitutes a new party for an original party to the contract.

-requires assent of all parties and completely releases original party from the contract

-must be an executory K i.e. unperformed.

Front 24

UCC--Entrustment

Back 24

Entrusting goods to a MERCHANT who deals in goods of that kind gives him power to transfer all rights of the entruster to a BIOC

Front 25

BIOC

Back 25

is a person who:
(1) buys goods;
(2) in good faith
(3) without knowledge that the sale violates the rights of another person; (4) in the ordinary course ; and
(5) from a person in the business of selling goods of that kind(i.e. not a pawnbroker).
-Buyer must take possession or have a right to possession under Art. 2.

Front 26

Voidable Title

Back 26

Generally in a sale induce by fraud, S can rescind the sale and recover goods

UNLESS

fraudulent B sells goods to a GOOD FAITH PURCHASER FOR VALUE

Front 27

goods marked for Sale or Return

Back 27

If buyer takes goods for resale and has a right to return them if they are not sold, then the gods are subject to the claims of B's creditors when they are in possession.

Front 28

Standards of Interpretation

Back 28

Greater weight given to:
1. interpretation giving effect and utility to each K provision
2. specific terms over general terms/language
3. separately negotiated or added terms over boilerplate, standardized terms

Front 29

If the term is unclear or ambiguous?

Back 29

look to PA or contextual evidence to pinpoint the meaning using hierarchy of contextual interpretation

Front 30

Hierarchy of Contextual Interpretation

Back 30

Express Terms> course of performance > course of dealing > trade usage

Front 31

Course of Performance--Definition

Back 31

-how parties have operated under THIS CONTRACT
--------------------
when K involves repeated occasions for performance by either party any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement

Front 32

Course of Dealing--Definition

Back 32

-how parties handled PREVIOUS contracts
---------------------
a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting [their expressions and other conduct]

Front 33

Trade Usage--Definition

Back 33

-practice normal in this particular trade.

----------------
any practice or method of dealing having:

1. such regularity of observance
and
2. in a place, vocation or trade as to justify expectation that it will be observed

Front 34

Rules of K construction

Back 34

If there is an inconsistency b/t provisions:

-written or typed provisions prevail over printed provisions

-ambiguities are construed against the drafter, absent evidence of the intention of the parties.

-crts look to custom and usage in a particular business and in a particular locale to determine parties' intent when it is unclear.

-crts generally try to reach a conclusion that the K is enforceable.

Front 35

$ Parol Evidence Rule--definition

Back 35

No evidence, oral or written, of PRIOR or CONTEMPORANEOUS negotiations and agreements is admissible to contradict. modify, or vary a written contract that the parties intend as the final and complete statement or integration of that contract.

Front 36

$ PER--Merger Clause

Back 36

A clause designed to prohibit extrinsic evidence.
It is rebuttable: it only strengthens the presumption that K is an integrated agreement.

Front 37

$ PER--exceptions--CL

Back 37

1. formation defects i.e *FRAUD, illegality, duress, mistake)

2. existence of a CONDITION PRECEDENT***

3. parties' intent regarding AMBIGUOUS TERMS

4. CONSIDERATION problems (e.g. consideration stated in the K was never paid)

5. prior valid agreement which (as by mistake) is INCORRECTLY REFLECTED IN THE WRITING

6. COLLATERAL AGREEMENT if it does not contradict or vary the main contract and if it is not closely connected as to be a part of the main K.

7. Subsequent modifications.

Front 38

$ PER--Exceptions UCC

Back 38

relaxes the rule as to trade terms. you can always introduce evidence to show trade terms even if the term is not ambiguous.

Front 39

Promise/Condition defined

Back 39

Promise is a commitment to do or refrain from doing something and can be either conditional or unconditional.

Condition is an event, other than the passage of time, the occurrence or nonoccurence of which will, create, limit, or extinguish a party's obligation to perform.

--A condition is a promise modifier

Front 40

Conditions--Time of Occurrence

Back 40

1. Condition Precedent
2. Condition Subsequent
3. Condition Concurrent

Front 41

Condition Precedent

Back 41

must occur before performance is due. If it occurs, then performance is due.

Front 42

Condition Subsequent

Back 42

cuts off already existing duty.

If it occurs, duty to perform is excused.

Front 43

Condition Concurrent

Back 43

conditions are to occur at the same time. if one condition has occurred, performance of the other is due.

CL equivalent of "tender" both parties are under a mutual obligation to simultaneously tender full and complete performance.

aka "condition of exchange"

e.g. Agreement to pay 100k for Blackacre. Money and Deed are exchanged in the same transaction.

Front 44

Express, Implied, Constructive conditions

Back 44

Express-expressed in the K

Implied ("implied-in-fact")--conditions to be inferred from the evidence of the parties' intention

e.g. clause providing that auction appraiser receive 5% of gate receipts to be paid at the end of the year creates and implied condition that the bonus is conditioned upon working until the end of the year.

constructive ("implied-in-law")--read into K by the court WITHOUT REGARD TO THE P's INTENTION in order to ensure that the parties received what they bargained for.
--these may relate to time of performance.

Front 45

Excuse

Back 45

Duty of performance becomes absolute when conditions are either PERFORMED or EXCUSED.

Front 46

Excuse--types

Back 46

1. Failure to Cooperate
2. Actual Breach
3. Anticipatory Repudiation
4. Prospective inability or Unwillingness to perform
5. Substantial Performance
6. Divisibility of K
7. Waiver or Estoppel
8. Impossibility, Impracticability, Frustration of Purpose

Front 47

Excuse of a condition of Substantial Performance

Back 47

-when party has almost completely and substantially performed his duties, but has breached in some way.

-Avoids forfeiture of return performance, but substantially performing party may be required to pay damages to the compensate for incomplete performance

-applies only in construction contracts?

Front 48

$ Excuse of a condition by Anticipatory repudiation

Back 48

-must be unquivocal(not a mere expression of doubt)

-applies only if there are executory(unperformed) duties on both sides of a bilateral contract

-provides the non-breaching P with 4 remedies:

1. Sue Immediately
2. Suspend his own performance and wait until performance is due to sue(i.e. excused from further performance)
3. treat repudiation as an offer to rescind and treat K as discharged

OR

4. IGNORE the repudiation and urge performance-->this does not constitute a waiver i.e. can still sue on due date

--Repudiation can be retracted until it has either been accepted (by non-repudiating party) or detrimentally relied upon.

Front 49

Excuse of a condition by Failure to Cooperate

Back 49

A party who wrongfully prevents a condition from occurring will no longer be given the benefit of it

Front 50

$ Anticipatory breach--what constitutes?

Back 50

--language may constitute an EXPRESSION of DOubt as to one's inability to perform under the k without being an outright refusal.

This will not be an anticipatory repudiation but an a prospective inability to perform.

Front 51

Anticipatory breach--Construction k

Back 51

when a contractor tells owner that he cannot perform his obligations on a binding K, he commits anticipatory breach.

This gives the owner the right to both 1. terminate the K and 2. engage a new contractor to complete the work

Front 52

Excuse of a condition by Actual Breach

Back 52

An actual. material breach by one party excuses the other party's duty of counterperformance (minor breach may suspend but wont excuse it)

Front 53

$ Excuse of a condition by Prospective Inability or Unwillingness to perform

Back 53

Available when reasonble grounds for insecuirty arise

May demand adequate assurance of due performance in writing

Until assurance is rec'd. may suspend own performance

If adequate assurance is not rec'd within a reasonable time(not exceeding 30 days) may consider it a repudiation contract.

Front 54

Excuse of a condition by waiver or estoppel--Estoppel Waiver

Back 54

--occurs before the date of performance

--------------
P may waive a condition indicating that he will not insist on it.

-waiver can be retracted at any time unless the other party relies on the waiver and changes his position to his detriment.

Upon such detrimental reliance, the waiving party is estopped from asserting the condition

Front 55

Excuse of a condition of by waiver or estoppel--Election Waiver

Back 55

-occurs at time of the breach

--------
if a condition is broken, the party who is to have the benefit may either:

1. terminate his liability or

2. continue under the K.

Continuing under the K waives the condition

Front 56

Excuse of a condition of Waiver and Estoppel--consideration

Back 56

if no consideration is given for waiver then the condition must be ancillary or collateral to the main purpose otherwise it is considered a gift and therefore not enforceable.

Front 57

Waiver wrt damages

Back 57

waiver does not waive the right to damages under the K.

Front 58

Excuse of a condition by divisibility of K

Back 58

where a party performs one of the units of a divisible contract, she is entitled to the agreed equivalent for that unit even though she fails to perform the other units.

Front 59

When is a K divisible?

Back 59

1. performance of each party is divided into 2 or more parts under the K

2. # of parts due from each party is the same

AND

3. performance of each part by one party is the agreed equivalent of the corresponding part by the other party.

Front 60

Excuse of a condition by divisibility of K--installment K's UCC

Back 60

a K that authorizes or requires delivery in separate lots is an installment K.

B may declare a total breach only if defects in an installment are such as to SUBSTANTIALLY IMPAIR the value ENTIRE CONTRACT

Front 61

Excuse of a condition by Impossibility, Impracticability, frustration

Back 61

conditions may be excused according to tests under discharge

Front 62

Discharging Duty to perform

Back 62

once an immediate duty to perform has been established, that duty must be discharged by:

1. Performance or Tender Performance
2. Condition Subsequent
3. illegality
4. Impossibility, Impracticability, Frustration
5. Recission
6. Partial Discharge by Modification of K
7. Novation
8. Cancellation
9. Release
-requires additional consideration or some substitute(e.g. signed writing or reliance by the offeror on the discharge)
10. Substituted contract
11. Accord and Satisfaction
12. Account Stated
13. Lapse
14. Operation of law
15. SOL

Front 63

$ Impossibility

Back 63

Objective Standard--NO ONE could have performed

must arise after K is entered into

-party who has rendered part performance can recover in quasi-K********

-death or physical incapacity of a person necessary to effectuate a K
UNLESS K was for personal services of a UNIQUE kind

-subsequently enacted law making K illegal

-subsequent destruction of K's subject matter or means of performance, as long as promisor was not at fault and it is truly impossible to fulfill K at any price.

Front 64

Impractibility

Back 64

Subjective standard

- P must encounter an ExTREME and UNREASonable difficulty or expense that was not anticipated

Front 65

Frustration of Purpose

Back 65

requires:
1. a superseding event
2 that was not REASONABLY FORESEEABLE at the time of K
3. which completely or almost completely DESTROYS the purpose of the K
AND
4. purpose was understood by BOTH PARTIES.

Front 66

Rescission

Back 66

Contract must be executory on both sides.

Party accepted rescission must know that an enforceable K has, in fact, been formed.

Front 67

$ Specific Performance--Rule--Goods

Back 67

SP granted:
1. where there is a valid K
2. remedy at law is inadequate
3. enforcement is feasible
4. mutuality of remedy is present

Should be granted only when legal damages would be inadequate

-will not be granted if subject matter of the K has been transferred to a BFP for value.

Front 68

Specific Performance--When Legal Damages Inadequate?--Goods

Back 68

K involving goods of unique character

or

has a peculiar or unique value not measurable by money damages

All Land sales are unique

Front 69

Specific Performance--Rule--Definition of unique

Back 69

irreplacable

Front 70

Specific Performance--Rule--Services

Back 70

SP not available but INJUNCTIVE RELIEF may be.

Front 71

Enforceable Liquidated Damages Provision

Back 71

fixed damage amount must be reasonable in light of anticipated or actual loss caused by breach and difficulties of proof of loss
---
enforceable if:
1. damages are difficult to ascertain at time of K
AND
2. damages are a reasonable forecast of compensatory damages.

Front 72

Unenforceable penalty liquidated damages provision

Back 72

fixed damage amount must be unreasonably large or grossly disproportionate to anticipated probable or actual harm
-e.g. $200 per day was grossly disproportionate to anticitapatable or actual harm

Front 73

$ Expectation Damages--CL

Back 73

put injured P in as good a position as full perforance. Expectation damages are the general rule

Front 74

Expectation Damages--UCC--Buyer's damages

Back 74

1. Cover
2. Market
3. Loss in Value

Front 75

Expectation Damages--UCC--Buyer's Cover Damages

Back 75

IF B covers in GOOD FAITH

Usual measure of damages

cover price-K price

Front 76

Expectation Damages--UCC--Buyer's Market Damages

Back 76

IF B doesn't cover in good faith or doesn't cover at all.

market price-contract price

Front 77

Expectation Damages--UCC--Buyer's

Back 77

If B keeps non-conforming goods.

value as promised-value as delivered

Front 78

Expectation Damages--UCC--Seller's Damages

Back 78

1. Resale
2. Market
3. Lost Profit
4. K Price

Front 79

Expectation Damages--UCC--Seller's Damages--Resale

Back 79

If S resells in GOOD FAITH

k price - sale price

Front 80

Expectation Damages--UCC--Seller's Damages--Market Damages

Back 80

If S does not sell in Good Faith or does not resell at all

k price-market price

Front 81

Expectation Damages--UCC--Seller's Damages-- Lost Profit

Back 81

If seller is a LOST VOLUME DEALER, then it can recover the LOST PROFIT

Front 82

Expectation Damages--UCC--Seller's Damages--K Price

Back 82

if S is not able to resell goods

S can recover the full K price

Front 83

Incidental Damages

Back 83

-cost of transporting or caring for goods after breach
-costs associated with arranging a substitute transaction

-available to both buyer and seller

Front 84

$ Consequential Damages

Back 84

damages that are:

1. special to this plaintiff and
2. were reasonably foreseeable by the breaching party at the time of K
AND
3. could not be prevented by buying substitute goods or otherwise.

--not available to Seller under art. 2

Front 85

Avoidable Damages

Back 85

an injured party cannot recover damages that he could have avoided i.e. mitigated with reasonable support.

Front 86

Mitigation Rule

Back 86

Employment Contracts--Duty to Mitigate

Construction Ks--if the owner breaches there is no duty to mitigate.

BUT contractor cannot continue to work on project in order to build up damages.

Front 87

$ Damages in Construction Contracts--Owner Breach

Back 87

After completion--K price plus interest

If owner breaches K after builder has begun performance, builder gets:
any profit he would have derived from the K plus any costs incurred

Front 88

$ Damages in Construction Contracts--Builder Breach

Back 88

Contract Damages equal the cost of completion plus reasonable compensation for delay.

Builder can offset or recover for work performed to date (to avoid unjust enrichment)

If breach is only a result of late performance then owner is only entitled to damages incurred because of late performance.

Exception--diminished value rule is often applied where the cost of completion measure of damages would result in economic waste.

Front 89

Restitution Damages/Unjust Enrichment--elements

Back 89

1. One party has conferred a benefit by rendering service or expending properties on the other

2. person has a reasonable expectation of being compensated

3. person conferring benefit was not a "volunteer" or an "officious intermeddler"

4. If ∆ is allowed to retain the benefits without compensating the π, ∆ would be unjustly enriched

**benefit measured by the benefit to enriched party(in cases of breaching contractor--K price) not the detriment to claimant
UNLESS
it would achieve an unfair result
-benefit never measured by detriment to the breaching party.

Front 90

ACCORD AGREEMENT--one party to an existing K agrees to accept, in lieu of performance she is supposed to receive, some other, different performance

Back 90

accord must be supported by consideration but any consideration, even of lesser value, is sufficient

performance of accord cuts off the parties' rights to enforce the original k

Front 91

Creditor Breach of an Accord Agreement

(if Debtor breaches, Creditor can enforce original K)

Back 91

Debtor has option of either raising the accord as an equitable defense and asking that creditor's action be dismissed OR waiting until creditor is successful in suit on original K and then bringing action for damages for breach of accord