Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/164

Click to flip

164 Cards in this Set

  • Front
  • Back
  • 3rd side (hint)
Overview
Armadillos from Texas play rap eating tacos.
1. Applicable Law
2. Formation of contracts
3. Terms of contract
4. Performance
5. Remedies for unexcused nonperformance
6. Excuse of nonperformance
7. Third-party problems
Introductory Vocabulary
Contract
Quasi-Contract
Bilateral K
Unilateral K
Contract
Legally enforceable agreement
Quasi - K
b. Quasi contract: Equitable remedy
i. Elements
1. P has conferred a benefit on D, and
2. P reasonably expected to be paid, and
3. D realized unjust enrichment if P not be compensated
ii. Measure of Recovery
1. Contract price is not the measure of recovery. Focus on value of benefit conferred. The contract price is a ceiling if P is in default.
Bilateral Contract
results from an offer that is open as to the method of acceptance
Unilateral K
d. Unilateral contract - results from an offer that expressly requires performance as the ONLY possible method of acceptance
iii. Bilateral contract unless
1. reward, prize, contest – b/c only way you can accept is by performance.
2. offer expressly requires performance FOR ACCEPTANCE.
APPLICABLE LAW
Common Law and the UCC
Article 2 of the UCC
i. Article 2 applies to contracts that are primarily sales of goods → something other than dirt or buildings. Most, but not all, UCC rules are the same as the common law rules. The factors that determine whether Article 2 applies are thus:
1. type of transaction—sale
2. subject matter of transaction--goods, i.e., tangible, personal property
UCC - Mixed Deal
i. general rule – We either do all of article 2 or nothing depending on the most important part of the deal. **
1. Example → Under Conviser's agreement with Epstein to buy Epstein's car, Epstein is also obligated to give Conviser two lessons in parallel parking a 1973 Cadillac. Does Article 2 still apply? – yes b/c under the more important part test this is basically about the sale of the car.
2. Example → Conviser contracts to buy a new Duncan Glo-Yo yo-yo and receive ten lessons from Yo-Yo Ma for $40,000. Does Article 2 apply? – No, b/c the more important part of the deal is the lessons.
ii. Mixed deal - exception -- IF CONTRACT DIVIDES PAYMENT, then apply UCC to sale of goods part and common law to the rest
FORMATION OF A CONTRACT (Overview and Analysis Steps)
a. Overview of Formation - Remember, a contract is an agreement that is legally enforceable.
i. Analysis Steps → Accordingly, look first for an agreement → THEN determine whether the agreement is legally enforceable.
1. In looking for an agreement, watch for information in the question about
a. (i) “level one”--the initial communication (“offer”) and
b. (ii) “level two”--what happens after the initial communication (“termination of the offer”) and
c. (iii) “level three”--who responds and how she responds (“acceptance”)
FORMATION OF A K

General Test
i. General Test: Manifestation of Commitment
1. RULE → An offer is a manifestation of an intention to contract – words or conduct showing commitment. The basic test is whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract.
FORMATION OF A K

Specific Problems to Watch For
Content
- Missing price Term
- Vague or ambiguous material terms
- Requrement K / Output Contracts

Context
- Advertisements
FORMATION OF A K

General Rule
Offer is not required to contain all material terms
FORMATION OF A K

Missing Price Term
Missing price term in sales contract
i. SALE OF REAL ESTATE - COMMON LAW - price and description required w/out - not an offer.
ii. SALE OF GOODS - ARTICLE 2 - no price requirement, offer if parties so intend.
FORMATION OF A K

Vague or Ambigious Terms
Vague or ambiguous material terms NOT AN OFFER under either common law or UCC. Watch for the words “appropriate,” “fair,” or “reasonable.”
FORMATION OF A K

Requirements contracts / Output contracts
Requirements contracts/output 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 or in terms of exclusivity. Watch for “all,” or “only,” or “solely.”

ii. NOT UNREASONABLY DISPROPORTIONATE LIMITATION ON INCREASES - Buyer can increase requirements so long as the increase is in line with prior demands.
FORMATION OF A CONTRACT

Advertisement
: An advertisement is not an offer.
b. Exceptions
i. An advertisement can be an offer if it is in the nature of a REWARD, PRIZE OR CONTEST.
ii. An advertisement can be an offer if it is specific as to quantity and expressly indicates who can accept.
LEVEL 2 - TERMINATION OF OFFERS

General Rule
An offer cannot be accepted if it has terminated. An offer that has been terminated is "dead."
First Method of Termination
OF TIME - time stated or **reasonable time

If you notice a gap of a month or more, I’m looking for an answer that says the offer has lapsed.
Second Method of Termination
Words or Conduct of Offeror; i.e., REVOCATION of an Offer
How can the offeror terminate / revoke the offer?
a. Unambiguous statement by offeror to offeree of unwillingness or inability to contract, OR
b. Unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of.

NOTE - The mere making of additional offers is NOT revocation of offers already made
When does the revocation of an offer become effective
a. Revocation of an offer sent through the mail is not effective until RECEIVED.
b. An offer cannot be revoked after it has been accepted.
Offers that cannot be revoked
The Option

Firm Offer Rule

Detrimental Reliance

Unilateral K
4
The Option
An offer cannot be revoked if the offeror has (i) promised to keep the offer open AND (ii) this promise is supported by consideration (“option”)
Firm Offer Rule
ii. Firm Offer Rule: Offers by merchants in a signed writing are not revocable during the time stated or if no time stated for a reasonable time. In no event can that time exceed three months w/out consideration.

Forms supplied by the offeree must be seprately signed by the offeror.

***An offer cannot be revoked for up to three months if (i) offer to buy or sell goods, (ii) signed, (iii) written promise to keep the offer open, and (iv) party is a merchant.
Detrimental Reliance
iii. Detrimental Reliance: An offer cannot be revoked if there has been detrimental reliance by the offeree that is reasonably foreseeable.
Unilateral K
iv. Unilateral K: The 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 is NOT enough - it may be enough however for an estoppel, however.
The Third Method of Termination of an Offer
Words or Conduct of the Offeree –REJECTION - Watch for one of the following three methods of indirect rejection - (1) counteroffer, (2) conditional acceptance and (3) additional terms (common law only).
Third Method of Termination of an Offer

First Method of Indirect Rejection
Counteroffer – Counter offers kill.
a. Rule: Counteroffer terminates the offer and becomes a new offer. Thus where a counteroffer has been made there is no express contract unless that counteroffer has itself been accepted. Counteroffers need to be distinguished from bargaining. Bargaining does not terminate the offer.
Third Method of Termination of an Offer

Second Method of Indirect Rejection
Conditional Acceptance
a. General Rule: A conditional acceptance operates the same way as a counter offer: it terminates the offer and becomes a new offer. Look for phrases such as “if,” “but,” “provided,” “so long as,’ or “on condition that.”
Third Method of Termination of an Offer

Third Method of Indirect Rejection
Additional Terms to a Common Law Contract: Mirror Image Rule
a. Rule: Under common law, an "acceptance" that adds new terms is treated like a counteroffer rather than an acceptance. It kills the offer!
Additional Terms Under the UCC
4. Additional Terms Still Acceptance Under UCC Article 2 (2-207): seasonable expression of acceptance - A fact pattern in which there is (i) offer to buy or sell goods and (ii) a response with additional terms raises two separate questions:
a. First question: Is there a contract?
i. Rule: Under the UCC, a response to an offer that adds new terms, [BUT DOES NOT MAKE THE NEW TERMS A CONDITION OF ACCEPTANCE], is generally treated as an acceptance.

b. Second question: Is the additional term a part of the contract?
i. Rule: Look to see whether both parties are merchants. If both parties are merchants, the GENERAL RULE is that the additional term is a part of the contract.
1. Exceptions to this general rule: (1) the additional term is NOT a part of the contract between merchants if it materially changes the offer or (2) if the offeror objects to the change.

1. NOTE → If one or both parties is not a merchant, the additional term is merely a proposal that is to be separately accepted or rejected
Fourth Termination of an Offer
DEATH OF A PARTY Prior to Acceptance
1. General Rule: Death or incapacity of either party terminates offer.

2. Exceptions
a. Option
b. Part performance of offer to enter into unilateral contract
LEVEL THREE - ACCEPTANCE OF AN OFFER (Overview)
i. OVERVIEW OF ACCEPTANCE - Look at the offer for information about who can accept offer and how offer can be accepted.
LEVEL THREE - ACCEPTANCE OF AN OFFER

Who Can Accept
a. Rule → Generally, an offer can be accepted only by (1) a person who knows about the offer (2) who is the person to whom it was made. Offers can not be assigned; BUT options can be assigned unless the option otherwise provides.
LEVEL THREE - ACCPETANCE

Methods of Accepting an Offer / How
if the offeree fully performs

If the offeree starts to perform
- Bilateral offer
- Unilateral offer

If the offeree promises to perform

If the offeror and the offeree are at different places and there are conflicting communications (Mailbox Rule)

Seller of Goods Sends the Wrong goods

Offeree is Silent
6
Methods of Accepting an Offer - If the offeree fully performs
i. Only possible issue is whether notice of performance is required.
ii. Answer to question turns on (i) what offer provides and (ii) whether offeree has reason to believe that offeror will not learn of the acceptance.

***Example → What if P fails to notify O that she painted the house and O pays X 1K to paint the house? O’s contractual duty to P is discharged by Os lack of notice
Methods of Accepting an Offer - If the offeree starts to perform
Start of performance is acceptance of an offer to enter into a bilateral contract (seen as an implied promise to finish) but is not acceptance of an offer to enter into a unilateral contract.
i. Bilateral-Offer is open as method of acceptance so start of performance is acceptance.
ii. Unilateral - Offers require “performance” for acceptance. “Performance” means completion of performance. Start of performance is not acceptance; completion of performance is required.
Methods of Accepting an Offer - The Offeree Promises to Perform
i. Most offers can be accepted by a promise to perform. Exception → offers that expressly require performance for acceptance and reward offers require performance.
Methods of Accepting an Offer - O/or and O/ee are at different places and there are conflicting communications (Mailbox Rule)
i. If an offeree is "invited" to accept by mail, acceptance is effective when posted. For example, if the offer arrives by mail, a mailed acceptance will be effective when posted.
1. For all communications other than acceptance – all that matters is when it gets there.
ii. revocation and then acceptance - mailbox rule rules

iii. rejection and then acceptance→ if a rejection is sent first then nothing matters until it arrives. - whichever arrives first, wins.
Methods of Accpeting an Offer - Seller of Goods Sends the Wrong Goods
i. General Rule: Acceptance and Breach

ii. Accommodation (i.e., explanation) Exception: Counteroffer and No Breach. Sending the wrong stuff w/ an explanation.
Methods of Accepting an Offer - The Offeree is Silent
i. General rule: silence is not acceptance
ii. Exception: If offeree by words or conduct agrees that silence is acceptance then silence is acceptance.
FORMATION - SECOND VIEW (KEY QUESTION / THEMES)
Is this a K that will not, legally be enforced? Defenses to Formation

Consideration
Defendant/Promissor's Lack of Capacity
Statute of Frauds Defense
Illegality, Misrepresentation, Duress
Unconscionability
Ambiguity in Words of Agreement
Mistake of Fact Existing at the Time of the K.
7
Consideration (def + method of analysis)
1. Bargained-for legal detriment – either doing something or refraining something you have a legal right to do or promising. A PROMISE CAN BE CONSIDERATION FOR ANOTHER PROMISE.
2. Tip → Look at each promise separately
3. Method of Analysis → Identify promisor (defendant) and ask what did he bargain for. Identify the promisee (plaintiff) and ask what detriment did she incur.
Forms of Consideration
1. Performance, i.e., doing something not legally obligated to do
2. Forbearance; i.e., not doing something legally entitled to do
3. Promise to perform
4. Promise to forbear
Considerations - Possible Issues (List 7)
Bargained For
Legal Detriment
Promise As Consderation
Adequacy of Considreation
Past Consideration
Preexisting Contractual or Statutory Duty Rule
Part Payment
Bargained For (re. Consideration)
Bargained for” - Asked for by the promisor IN EXCHANGE for her promises
Legal Detriment (re. Consideration)
2. "Legal detriment" – the person trying to enforce the K must show legal detriment
Promise as Consideration
This is typical

b. ILLUSORY PROMISE EXCEPTION →
i. Example → B promises to buy S’s house. S promises to sell unless she changes her mind. Is there consideration for B’s promise to buy? No, this is an illusory promise.
BUT
→ Conditional promises are not illusory no matter how remote the contingency unless the condition is w/in the promisor’s control.
Adequacy of Consideration
4. Adequacy of consideration - Not relevant in contract law
Past Consideration
a. General rule: not consideration

b. Exception: Expressly Requested and expectation of payment
Preexisting Contractual or Statutory Duty Rule (re. Consideration) + 3 Exceptions
" **** [Common law different from Article 2]
a. Common law- you need new consideration to change a K.
i. General Rule: doing what you are already legally obligated to do is NOT consideration for a promise to pay you more to do that.
ii. Exception: addition to or change in performance
iii. Exception: Unforeseen Difficulty So Severe as to Excuse Performance:
iv. Exception: third party promise to pay
b. Article 2 - Article 2 does not have a pre-existing legal duty rule; good faith is the test for changes in an existing sale of goods contract.
Part Payment of a Debt as Consideration for Release
***, i.e., promise to forgive balance of debt
a. KEY IS WHETHER DEBT IS DUE AND UNDISPUTED. If debt is due and undisputed, then part payment is not consideration for release.
c. Not yet due (or disputed) - part payment = consideration.
Consideration Substitutes (3)
1. Written Promise To Pay Debt Barred By The Statute Of Limitations
a. Rule: A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration.
2. Majority Rule Is Now That Seal Is Not a Consideration Substitute
3. Promissory Estoppel (Detrimental Reliance) Is the Most Important Consideration Substitute.
a. Elements
i. Promise
ii. Reliance that is reasonable, detrimental and foreseeable
iii. Enforcement necessary to avoid injustice
b. Comparison of consideration and promissory estoppel
FORMATION DEFENSES - Defendant / Promissor's Lack of Capacity
i. Who lacks capacity to contract?
1. infant - under 18
2. mental incompetents - lacks ability to understand agreement
3. intoxicated persons IF OTHER PARTY HAS REASON TO KNOW
ii. Consequences of incapacity
1. Right to disaffirm by person without capacity
2. Implied affirmation by retaining benefits after gaining capacity
3. Liability for necessaries ***- 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.
FORMATION DEFENSES - Statute of Frauds - purpose
i. Purpose → Concern is that people are making things up so the court requires some extra proof that the agreement existed.
Overview of the three primary SOF issues
Is the K w/in the SOF
Is the SOF satisfied
Is there an SOF defense?
Contracts w/in the SOF (6)
1. Promise in Consideration of Marriage - Not merely a promise to marry but rather a promise to do something or refrain from doing something if we marry
2. Promise By Executor or Administrator to Pay an Obligation of the Estate From His Own Funds - Not merely a promise to pay the estate’s expenses but rather a promise to pay the estate’s expenses from his own funds
3. Other Promises to Answer for [Guarantee] the Debts of Another - Not merely a promise to pay but rather a promise to pay if someone else does not – guarantee
c. → MAIN PURPOSE EXCEPTION: though (1) it is a guarantee but (2) the principal purpose of the K guaranteed was to benefit the guarantor.
4. Service contract not capable of being performed within a year from the time of the contract. (i.e., MORE THAN ONE YEAR)

5. Transfers of an Interest in Real Estate of a Term of More than a Year
6. Sale of goods for $500 or more
How is the SOF Satisfied?
Remember, if statute of frauds is satisfied, then there is no statute of frauds defense
1) Performance
2) Writing
3) Judicial Admission of Sale of Goods Agreement
Satisfying the SOF by Performance
a. Services Contracts
i. FULL PERFORMANCE BY EITHER PARTY SATISFIES THE STATUTE OF FRAUDS.
ii. PART PERFORMANCE OF A SERVICES CONTRACT DOES NOT SATISFY THE STATUTE OF FRAUDS.
b. Sale of Goods Contracts
i. ORDINARY GOODS - GENERAL RULE IS THAT PART PERFORMANCE OF A CONTRACT FOR THE SALE OF GOODS SATISFIES THE STATUTE OF FRAUDS BUT ONLY TO THE EXTENT OF THE PART PERFORMANCE.
ii. SPECIALLY MANUFACTURED GOODS EXCEPTION
1. Rule → 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" of making or obtaining the goods.
c. Real Estate Transfer Contract
i. "PART PERFORMANCE" BY BUYER OF REAL ESTATE CAN SATISFY THE STATUTE. IF ANY TWO OF THE FOLLOWING THREE ARE PRESENT: PAYMENT, POSSESSION AND/OR IMPROVEMENTS.
ii. FULL PAYMENT BY BUYER OF REAL ESTATE DOES NOT SATISFY THE STATUTE.
Satisfying the SOF by a Writing
a. Statutes of Fraud other than the UCC’s
i. Analysis Steps: Look at
1. All Mateial Terms Test (content based) - who and what should be answered] and
2. who signed the writing—must be signed by the person to be charged, i.e., the defendant.
b. UCC Statute of Frauds
i. Rule → Again, look to the contents of the writing and who signed the writing. The writing must contain the quantity term [how many].
a. NOTE → It does not have to mention the sale price!
ii. Writing Signed by ∆ Twist → The UCC has an exception to this general rule: the “answer the damn letter exception.” Both parties must be (1) merchants and (2) the person who receives a signed writing with (3) a quantity term that (4) claims there is a contract (5) fails to respond within ten days of receipt.
a. NOTE → in this case ∆ does not have to sign.
Satisfying the SOF by a Judicial Admission of Sale of Goods Agreement
What makes it judicial is we are talking about something that is in pleadings, sworn testimony or discovery. The admission piece is that, we made an agreement, but we never put it in writing. The admission = no SOF defense.
SOF - Related Issues
Authorization to Enter a K for Someone Else

Contract Modification
SOF - Authorization to Enter a K for Someone Else.
a. Equal Dignity Doct → When do you need a written authorization in order to execute a contract for someone else. The authorization must be in writing if the contract to be signed is within the statute of frauds.
SOF - Contract Modification
a. When is there a LEGAL requirement of a written evidence of a contract modification?
i. Analysis Steps → Resolve this issue by (1) looking at the deal with the alleged change and (2) determining whether the deal with the alleged change would be within the statute of frauds. IF SO → as a matter of law, the alleged modification agreement must be in writing.
b. Under common law, contract provisions requiring that all modifications be in writing are ignored. *** This is the only place on the bar exam where what the K says is irrelevant – doctrine controls!
c. Under the UCC contract provisions requiring written modifications are effective unless waived.
FORMATION DEFENSES - Illegal Subject Matter v. Illegal Purpose
1. Rule → If the subject matter is illegal, the agreement is void. If the subject matter is legal but the purpose is illegal, the agreement is enforceable only by the person who did not know of the illegal purpose.
FORMATION DEFENSES Misrepresentation
ii. Misrepresentation - Look for a false assertion of fact (S tells B house has no termites when it does) or concealment of facts (S puts carpet over termite damage) that endures the contract. No requirement of fraud.
1. Key Distinction b/n K and Tort: Let me out of the deal = recession = K law, so an HONEST MISREPRESENTATION MATTERS. But if wants money damages = Tort = would have to prove a wrong such a fraud, negligence, etc.
FORMATION DEFENSES - Duress: physical or economic
iii. Duress: Physical or Economic
1. Elements of economic duress
a. “bad guy” - improper threat
b. “vulnerable guy” - no reasonable alternative
FORMATION DEFENSES - Unconscionability
i. Rule: This doctrine, originally applicable only to sales of goods but (1) now a part of contracts law generally (2) empowers a court to refuse to enforce all or part of an agreement. The two basic tests, (3) unfair surprise and oppressive terms, are (4) tested as OF THE TIME THE AGREEMENT WAS MADE (5) by the court.

(looking for one sided contracts usually coupled w/ disproportionate bargaining positions).
FORMATION DEFENSES - Ambiguity in words of agreement
k. Ambiguity in words of agreement
i. [Raffles v. Wichelhaus] There will be 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.
FORMATION DEFENSES - Mistake of fact existing at the time of the K.

Mutual Mistake of Fact
i. Mutual Mistake of Material Fact [Sherwood v. Walker]
1. There will be no contract if:
a. both parties mistaken, about a
b. basic assumption of fact, and the mistake
c. materially affects the agreed exchange.
2. Key →
a. Subject matter, i.e., what it is
i. Example → S contracts to sell B a painting for $50,000. Both believe that it is a genuine Warhol. It is not. What result? Mutual mistake defense to enforcing the agreement.
b. Value, i.e., what it is worth
i. Example → Same facts as above except the painting is a Warhol but is worth $1,000, not the $50,000 that both S and B believed. What result? No mutual mistake defense, the agreement is still enforceable b/c the mistake is not basic or material, it is merely about what something is worth.
1. Mistake about what something is worth is NOT ever material.
FORMATION DEFENSES - Mistake of fact existing at the time of the K.

Unilateral Mistake of Material Fact
1. General rule: Generally, courts have been reluctant to allow a party to avoid a contract for a mistake made by only one party.
2. Exceptions
a. “Palpable" (i.e. obvious) mistakes, or
i. If the other party to the contract knows or should have known of the mistake, courts grant relief to the mistaken party.
b. Mistakes discovered before significant reliance by the other party
TERMS OF THE CONTRACT (themes)
Conflict is over what the agreement is

Parole Evidence
Conduct and Course of Performance
UCC Terms
Parol Evidence (Overview)
i. Overview: It’s always about admissibility of the evidence! So treat this like an evidence rule. All turns on the PURPOSE for which the evidence is being admitted.
1. No “e” in parol
2. Basic Premise → If there is a final version of the deal in writing that is thought to be more reliable than anything that was said or written earlier, so that effects the admissibility of evidence that was said or written earlier.
3. (ONLY HAS TO DO W/ PRIOR OR CONTEMPORANEOUS EVIDENCE).
TERMS - Vocabulary of Parol Evidence (6)
1. Integration - Written agreement that court finds is the final agreement → triggers the parol evidence rule
2. Partial integration - Written and final, but not complete (i.e. doesn’t provide for everything).
3. Complete integration - Written and final and complete.
4. Merger clause - Contract clause such as “This is the complete and final agreement.” On the bar exam – highly persuasive but not conclusive!
5. Parol Evidence- words of the parties from before the time of the written agreement. NOT LIMITED TO ORAL STATEMENTS.
6. Reformation – used when you try to get the court to modify the written K for an equitable reason.
TERMS - Parol Evidence - Triggering facts
iii. Triggering facts
1. Written contract that court finds is the final agreement; AND
2. Oral statement made at the time the contract was signed OR earlier oral or written statements by the parties to the contract
TERMS - Parol Evidence - Fact Patterns (list)
Changing the Written Deal

The Defense Exception

The Explanation Exception

Additing to the Written Deal
TERMS - Parol Evidence - Fact Patterns

Changing the Written Deal
1. Changing the Written Deal – P/E not admissible to change the deal or to contradict the written agreement, admissible only if there is a typographical error/mistake in integration.
TERMS - Parol Evidence - Fact Patterns

The Defense Exception
2. The Defense Exception: Regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from considering earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement such as misrepresentation, fraud, duress.
TERMS - Parol Evidence - Fact Patterns

The Explanation Exception
3. The Explanation Exception : Explaining term in the written deal - Notwithstanding the parol evidence rule, earlier agreements can be considered to resolve ambiguities in the written contract.
TERMS - Parol Evidence - Fact Patterns

Adding to the Written Deal
4. Adding to the Written Deal - The parol evidence rule prevents a court from considering earlier agreements as a source of consistent, additional terms unless the court finds that the written agreement was only a partial integration.
TERMS - Other sources of contract terms
The words of the parties are not the only source of contract terms. Conduct can add to and explain the terms of the agreement. Courts look first to course of performance, then to course of dealing and finally to custom and usage.

PER DOES NOT BAR THIS EVIDENCE
TERMS - Course of Performance
Info in the fact pattern about what has already been done w/ regard to this contract.
TERMS - Course of dealing
same parties but not the same K – similar K only.
TERMS - Custom and Usage
different people. Regarding how this type of K is normally done.
UCC TERMS - Delivey Obligations of Seller of Goods

No place of delivery has been agreed upon
1. No place of delivery has been agreed upon - Absent an agreement as to place of delivery then the place of delivery is the seller's place of business unless both parties know that the goods are some place else in which case that place is the place of delivery
UCC TERMS - Delivery Obligations of Seller of Goods

Place of Delivery by a Common Carrier has been agreed upon
a. SHIPMENT CONTRACTS – seller must do three things: (I) gets the goods to a common carrier, and (ii) makes reasonable arrangements for delivery and (iii) notifies the buyer. KEY → in a shipment K the seller completes its deliver obligation b/4 delivery is complete.

b. DESTINATION CONTRACTS - The seller does not complete its delivery obligation until the goods arrive @ the destination.
c. DETERMINING WHETHER CONTRACT IS A SHIPMENT OR DESTINATION. - Most contracts with delivery obligations are shipment contracts. Watch for the use of FOB--free on board (city) - If it is followed by a city where the seller is or the goods now are it is a shipment K, anything else is a destination K.
UCC TERMS - Risk of Loss

When the issue arises
1. Risk of loss issues arise where (I) after the contract has been formed but before the buyer receives the goods (ii) the goods are damaged or destroyed and (iii) neither the buyer nor the seller is to blame.
UCC TERMS - Risk of Loss

Consequences
i. If the risk of loss is on the buyer, he has to pay the full contract price for the lost or damaged goods.
ii. If the seller has the risk of loss, no obligation on the buyer; possible liability on seller for non-delivery.
UCC TERMS - FOUR Risk of Loss Rules
1. Agreement - Agreement of the parties controls
2. Breach - Breaching party is liable for any uninsured loss even though breach is unrelated to problem.
3. **Delivery by common carrier other than seller - Risk of loss shifts from seller to buyer at the time that the seller completes its delivery obligations. → Is it a shipment K or a Delivery K?
4. No agreement, no breach, no delivery by a carrier. - The determining factor is whether the seller is a merchant. whether the buyer is a merchant is irrelevant.
a. MERCHANT RULE → Risk of loss shifts from a merchant-seller to the buyer on the buyer's "receipt" of the goods.
b. NON-MERCHANT RULE → risk of loss shifts from a non-merchant seller when he or she "tenders" the goods.
UCC TERMS - Warranties of Quality (3)
Express
Implied Warranty of Merchantability
Implied Warranty of fitness for a particular purpose.
SEE TORTS FOR RULES.
UCC TERMS - Contractual Limitations on Warranty
Liability

DISCLAIMER
1. Disclaimer - A contract provision that says “there are no warranties”. Eliminates only IMPLIED warranties. Express warranties cannot be disclaimed
a. IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS CAN BE DISCLAIMED
i. Watch for these words → ** "as is" or "with all faults" or
ii. Conspicuous language of disclaimer, mentioning merchantability
UCC TERMS - Contractual Limitations on Warranty
Liability

LIMITATION OF REMEDIES
a. Distinguishing from Disclaimer → Does not eliminate warranty, simply limits or sets recovery for any breach of warranty. It is possible to limit remedies even for express warranties
b. General Test Is Unconscionability - prima facie unconscionable if breach of warranty on consumer goods causes personal injury
PERFORMANCE - Common Law Performance Concept
Look to Terms of the K
PERFORMANCE - UCC Performance Concepts (6)
Perfect Tender
Rejection of the Goods
Cure
Installment Sales
Acceptance of the Goods
Revocation of Acceptance of the Goods
PERFORMANCE - UCC CONCEPTS

Perfect Tender
"Perfect tender" is the general standard of Article 2. Subject to limited exceptions, the seller is obligated to deliver perfect goods.

IF THERE IS LESS THAN A PERFECT TENDER THE BUYER HAS THE OPTION OF REJECTING THE GOODS!
PERFORMANCE - UCC CONCEPTS

Rejection of the Goods - General Rules
2. Rejection Of The Goods: General Rules - Rejection of the goods must occur before acceptance of the goods. BUT if the goods are less than perfect, the buyer has the option to reject unless cure or an installment sale contract.
a. IF BUYER CHOOSES TO REJECT → Buyer can reject all of the goods or any commercial unit – cases v. bottles example.
PERFORMANCE - UCC CONCEPTS

Cure
3. Cure - In some limited instances, a seller who fails to make a perfect tender will be given a "second chance," an option of curing. Note → every seller does not have the opportunity to "cure," and the buyer cannot compel the seller to cure.
a. TIME FOR PERFORMANCE HAS EXPIRED - The statutory test is whether the seller has reasonable grounds for believing that the improper tender would be acceptable, perhaps with a money allowance. → Look for information in the question about prior deals between that buyer and seller with such an allowance.

b. TIME FOR PERFORMANCE HAS NOT YET EXPIRED.
PERFORMANCE - UCC CONCEPTS

Installment Sales Contracts
4. Installment Sales Contracts - An installment sales contract requires or authorizes (i) delivery in separate lots (ii) to be separately accepted. The buyer has the right to reject an installment only where there is a substantial impairment in that installment that can't be cured.
PERFORMANCE - UCC CONCEPTS

Acceptance of the Goods
a. Effect Of Acceptance Of The Goods - *** If the buyer accepts the goods, it cannot later reject them.
b. When Has The Buyer Accepted
i. Express Acceptance
ii. * Payment without opportunity for inspection NOT acceptance (reasonable time test)
1. Example → Conviser orders clothing from Frederick's of Hollywood. The goods arrive in a plain brown box, C.O.D. Conviser pays the mail carrier. Not an acceptance!
iii. *** Implied Acceptance--retention after opportunity for reasonable inspection without objection
1. LOOK FOR THE BUYER'S KEEPING THE GOODS WITHOUT OBJECTION
PERFORMANCE - UCC CONCEPTS

Revocation of Acceptance of the Goods
a. Remember that if a buyer accepts the goods, it can NOT later reject the goods. In limited circumstances, a buyer can effect a cancellation of the contract by revoking its acceptance of the goods.
b. The requirements for revocation are as follows:
i. nonconformity substantially impairs the value of the goods, and
ii. excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction, and
iii. revocation within a reasonable time after discovery of nonconformity
PERFORMANCE - UCC

Payment Concepts
1. Three rules
a. Cash unless otherwise agreed
b. Buyer can pay by check and
c. Seller does not have to take the check but that gives the buyer an additional reasonable time.
REMEDIES FOR AN UNEXCUSED NONPERFORMANCE (2 kinds)
Non-monetary remedies (in rem)

Money Damages for Breach of K.
REMEDIES FOR AN UNEXCUSED NONPERFORMANCE - Non-monetary remedies
Specific Performance
Reformation
Reclamation
Entrustment
REMEDIES FOR AN UNEXCUSED NONPERFORMANCE

Specific Performance
i. Specific Performance/Injunction - Equitable remedy. Only if $ damages would not be adequate → only if unique.
- K for the sale of real estate
- Unique goods: antiques, art, custom-made – only if you are told it is one of these should you use S/P for goods
- Services NEVER - sometimes an injunction.
REMEDIES FOR UNEXCUSED NON PERFORMANCE

Reformation
1. Nature of remedy
a. Equitable remedy
b. Changing (i.e. reforming) a written contract
c. Courts (and bar examiners) are slow to go with reformation
2. Facts to watch for
a. Mistake in writing the agreement
i. People make an agreement and then do not correctly express the agreement in writing. Look for problems in the wording of the written agreement such as omissions, “clerical errors,” etc.

b. Fraudulent misrepresentation as to what is in the agreement
i. Reformation is also available when one party’s mistake about what is in the writing is due to the other party’s fraudulent misrepresentation.
REMEDIES FOR UNEXCUSED NON PERFORMANCE

Reclamation
*** Right of an unpaid seller to get its goods back.
1. Key facts are that (i) the buyer must have been insolvent at the time that it received the goods, and (ii) that seller demand return goods within 10 days of receipt (this "10-day rule" becomes a "reasonable time rule" if before delivery there had been an express representation of solvency by the buyer), and (iii) buyer still has goods at time of demand.
REMEDIES FOR UNEXCUSED NON PERFORMANCE

Entrustment
→ Rights of good faith purchaser in entrustment
1. Rule: If an owner leaves her goods with a person who sells goods of that kind and that person wrongfully sells the goods to a third party then such a good faith purchaser from dealer cuts off rights of the original owner/entruster.
REMEDIES FOR UNEXCUSED NON PERFORMANCE

Money Damages for Breach - purpose
i. Purpose - Compensate plaintiff, NOT PUNISH defendant
REMEDIES FOR UNEXCUSED NON PERFORMANCE

Money Damages for Breach - measure of damages
1. Expectation**** - Put plaintiff in same economic position as if contract had been performed. The expectation is that when I make a K the other guy is going to perform w/out breaching, so to protect my expectation interest the law should put me in the same dollar position as if the other guy had performed w/out breaching.

Use this in ANY CAL ESSAY. → “Expectation is the general basis of money damages in CA.”
REMEDIES FOR UNEXCUSED NON PERFORMANCE - Money Damages

Measure of Damages (2 and 3)
2. Reliance - Put plaintiff in same economic position as if contract had never happened.

3. Restitution - Put defendant in same economic position as if contract had never happened. Making the ∆ return ill-gotten gains.
REMEDIES FOR UNEXCUSED NON PERFORMANCE - Damage Rules for Sales of Goods

(General Rule / Approach)
All expectation damages.
1. There are two relevant facts: (1) who breached, and (2) who has the goods.
REMEDIES FOR UNEXCUSED NON PERFORMANCE - Damage Rules for Sales of Goods

Seller Breaches, Buyer Keeps the Goods
a. Seller breaches, buyer keeps the goods [Fair market value if perfect minus fair market value as delivered].

NOTE - FMV may not be the K price.
PERFORMANCE - Damage Rules for Sales of Goods

Seller Breaches, Seller Keeps the Goods
b. Seller breaches, seller keeps the goods ([market price at time of discovery of the breach-contract price] or [replacement price-contract price]).
PERFORMANCE - Damage Rules for Sales of Goods

Buyer Breaches, Buyer Has the Goods
K price
PERFORMANCE - Damage Rules for Sales of Goods

Buyer Breaches, Seller Has the Goods
d. Buyer breaches, seller has the goods ([contract price--market price at time and place of delivery] or [contract price--resale price]) and, in some situations, provable lost profits.

iii. Example → S&M Leather contracts to sell leather clothing to Conviser for $1,000. (Assume that Conviser is buying goods that are part of S&M's regular inventory--"off the rack," so to speak.) Conviser breaches. S&M sell the very same items to John Ashcroft for $1,000. Can S&M recover any damages from Conviser? Yes. If so, how much? The provable lost profit; not $0 and not $1K. What if S&M’s profit margin is 20% of the sales price? We would have $200 in damages.

IOW, if the FP tells you S has an unlimited supply, buyer breaches, and seller sells another to another buyer look for LVS.

Key words - "regular inventory", "unlimited supply"
PERFORMANCE - Money Damages

Additional Damages / Limitations (4)
Incidental Damages

Consequential (special) Damages

Avoidable Damages

Certainty
PERFORMANCE - Money Damages

Additional Limitations

Incidental Damages
1. Incidental Damages - Costs incurred in dealing with breach (usually finding a replacement after a breach) – ALWAYS RECOVERABLE
PERFORMANCE - Money Damages

Additional Limitations

Consequential / Special Damages
2. Consequential (Special) Damages - **** Damages arising from P’s SPECIAL CIRCUMSTANCES; recoverable only if D had reason to know at time of contract
PERFORMANCE - Money Damages

Additional Limitations

Avoidable Damages
3. Avoidable Damages – Where the π could have done something or refrained from doing something that would have reduced the amount of damages. But it must be something that the π could have done without an undue burden. Burdens of pleading and proof on defendant.
PERFORMANCE - Money Damages

Additional Limitations

Certainty
4. Certainty – (not on the MBE) K damages must be established w/ reasonable certainty. Maybe worth a sentence or two on an Essay test
PERFORMANCE - Money Damages

Contract Provisions Regarding Damages
1. Liquidated Damages – A contract provision fixing amount of damages.
a. Issue will be validity. Concern is whether provision is too high = a penalty.
b. Tests are (1) damages were difficult to forecast at time contract was made and (2) whether the money damages provided for in the K represented a reasonable forecast.
Limitation of remedies - Look for contract provision limiting amount that can be recovered. Concern is whether provision is too low.
VI. EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE (Major Issues)
a. Excuse Because Other Guy’s Improper Performance

b. Excuse Because of Failure of a Performance Condition

c. Excuse of Performance by Reason of the Other Party’s Anticipatory Repudiation or Inability to Perform

d. Excuse by Reason of a Later Contract

e. Excuse of Performance by Reason of a Later, Unforeseen Event
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse Because Other Guy’s Improper Performance
Material Breach

Article 2 - Perfect Tender Rule
Material Breach
i. Material Breach – Common Law only. This lets you walk away from the deal.
1. Three General Rules.
a. Damages can be recovered for any breach.
b. Only a material breach by one guy excuses the other guy from performing.
c. Whether a breach is material is a fact question (and so whether a breach is material is not likely to be a bar exam question).
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse Because of Failure of a Performance Condition

What is a Performance Condition
i. What A Performance Condition Is - A condition is a mutually agreed upon (i.e. language in a K) promise modifier (so this does not create a new obligation, but merely limits obligations created by other language in the contract). Words such as “if,” “provided that,” “so long as,” “subject to,” “in the event that,” “when,” “until,” “on the condition that.”
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse Because of Failure of a Performance Condition

What is the Standard for Satisfying an Express Condition
General rule – strict compliance with express conditions

Exception -- condition based on approval of one of the contracting parties is treated as satisfied if reasonable person would approve, unless subject is art or other matters that are inherently discretionary
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse Because of Failure of a Performance Condition


How can an express condition be excused.
1. Estoppel
a. Basic
i. Identify the person who benefits from or is protected by the condition. Then look for a statement by that person giving up the benefits and protection of the condition.
ii. Estoppel is based on a statement by the person protected by the condition BEFORE the conditioning event was to occur and requires a change of position.

Waiver
a. Waiver is based on a statement by the person protected by the condition AFTER the conditioning event was to occur and does not require a change of position
b. Same contract but different facts. Instead, B neglects to obtain an architect’s certificate for his first month’s work. O tells B that she will pay even though he did not provide the required certificate. THIS IS WAIVER -- NOT ESTOPPEL
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse of Performance by Reason of the Other Party’s Anticipatory Repudiation or Inability to Perform
(1) Anticipatory Repudiation

(2) Inability to Perform
Anticipatory Repudiation
1. Rule → Anticipatory repudiation is an unambiguous statement (i) that the repudiating party will not perform (ii) made prior to the time that performance was due. Anticipatory repudiation by one party excuses the other party's duty to perform. It also generally gives rise to an immediate claim for damages for breach unless the claimant has already finished her performance.

2. A/R Retraction Rule → Anticipatory repudiation can be reversed or retracted so long as there has not been a material change in position by the other party. If the repudiation is timely retracted, the duty to perform is re-imposed but performance can be delayed until adequate assurance is provided.
Innability to Perform
ii. Inability To Perform
1. Example → P contracts to paint O’s house with O in exchange for a unique autographed photo of Janet Reno that O owns. Before P finishes her painting, O sells the Janet Reno photo to Conviser. Is P excused from continuing to perform, i.e., from doing any more painting? Yes, but now it is not called A/R it is inability to perform. Why? b/c this is a barter-type K.
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse by Reason of a Later K
Recission (cancellation)

Accord and Satisfaction

Modification (substituted agreement)

Novation (substituted person)
4
CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse by Reason of a Later K

Recission (cancellation)
Rescission (cancellation) – The recission must occur b/4 either party has finished the K. (executory). This is an agreement b/n the two parties to end the K.
CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse by Reason of a Later K

Accord and Satisfaction
ii. Accord and Satisfaction (substituted performance) - You need to know (i) what an accord is and what a satisfaction is and (ii) the effect of the making of the accord, and (iii) the effect of getting no satisfaction.
1. Meaning of "accord", "satisfaction" - Accord is an agreement by the parties to an already existing obligation to accept a different performance in satisfaction of the existing obligation satisfaction that different performance. - not less of the same thing.

Satisfaction is completion of the new agreement.
Effect of accord and satisfaction
D’s original DEBT OBLIGATION IS EXCUSED by accord and satisfaction!
b. If the accord is not performed, then the other party can sue on either the original obligation or the accord.
CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse by Reason of a Later K

Modification (substituted agreement)
iii. Modification (substituted agreement) - Modification is an agreement by parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation.
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse by Reason of a Later Contract

Novation (substituted person)
1. What is a novation? - A novation is an agreement between BOTH parties to an existing contract to the substitution of a new party, i.e., same performance, different party. Having somebody new do the same thing.

2. Who is liable after a novation? Novation excuses the contracted for performance of the party who is substituted for or replaced.
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse of Performance by Reason of a Later, Unforeseen Event
Requirements

Impossibility/Impractibility

Damage or Destruction of the Subject Matter

Death

Subsequent Law or Regulation
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse of Performance by Reason of a Later, Unforeseen Event

Requirements
i. Requirements:
1. Something that happens after contract formation but before the completion of contract performance; and
2. That was unforeseen; and
3. ** That makes performance impossible or commercially impracticable or frustrates the purpose of the performance.
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse of Performance by Reason of a Later, Unforeseen Event

Possible differences b/n impossibility and impractabiity
ii. Possible differences between impossibility and impracticability former means can't be done while latter means can only be done with extreme and unreasonable difficulty and expense
EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

Excuse of Performance by Reason of a Later, Unforeseen Event

Damage or destruction of the subject matter of the K
b. Example → *** B contracts to build a house for O for $100,000. After B begins work, the house burns down. Is B excused from performing on this contract so that B is now free to take another construction job? NO, b/c thought there was a later unforeseen occurrence, performance is NOT impossible.
2. SALE OF GOODS CONTEXT → Seller’s risk of loss and damage or destruction
a. Example → Epstein contracts to sell Conviser his 1973 Cadillac for $300. After the contract but before the risk of loss has passed to Conviser, the Cadillac is destroyed by an unseasonable flood. If Conviser sues Epstein for breach of contract, is Epstein’s nonperformance excused? Risk of loss was on Epstein, but the non-performance is excused b/c it fits all the requirements including that it makes performance impossible.
3. SALE OF GOODS CONTEXT → Buyer’s risk of loss and damage or destruction
a. Example → Assume in (2)(a) above that the flood occurred after the risk of loss had passed to Conviser. Is the buyer Conviser’s performance excused? No b/c the buyer’s performance obligation is simply to pay money, and it is not impossible to pay money.
b. Example → What result in (2)(a) if the subject matter was 100 sacks of grits instead of a Cadillac? Non-performance is no longer excused! B/c now performance is not impossible, just get grits from someone else and deliver!
Excuse of Performance by Reason of a Later, Unforeseen Event

Death
Death → Death does not make your contract obligations disappear!

2. EXCEPTION → Party to contract who is “Special” person – excused!
THE ONLY TIME THAT DEATH EXCUSES IS WHERE THERE IS SOMETHING IN THE FACT PATTERN THAT TELLS YOU THE PERSON WHO DIED WAS SPECIAL.
Excuse of Performance by Reason of a Later, Unforeseen Event

Subsequent Law or Regulation
1. Later law makes performance of contract illegal – Excuse By Impossibility
Later law makes performance of contract illegal – Excuse By Impossibility

2. Later law makes mutually understood purpose of contract illegal - Excuse By Frustration Of Purpose
WHERE A LATER LAW, DOESN’T MAKE PERFORMANCE ILLEGAL BUT IT TAKES AWAY THE MUTUALLY UNDERSTOOD PURPOSE.
THIRD PARTY PROBLEMS
Where two people make an agreement with the shared intent to benefit a third person. (Classic example → life insurance).
a. A Person Trying to Enforce a Contract She Did Not Make: Third Party Beneficiary
b. A Person Trying to Enforce a Contract She Did Not Make: Assignment of Rights
c. Dispute Arising from a Person’s Performing a Contract she did not Make: DELEGATION of Duties
THIRD PARTY PROBLEMS

A Person Trying to Enforce a Contract She Did Not Make: Third Party Beneficiary (list)
Identifying 3d P. Beneficiary Problems

Knowing the Vocabulary

Dealing w/ Efforts to Cancel or Modify

Who Can Sue Whom

Defenses
5
THIRD PARTY PROBLEMS

Identifying 3d. P. Beneficiary Problems
Identifying Third-Party Beneficiary Problems - Look for two parties contracting with the intent of benefiting a third party.
THIRD PARTY PROBLEMS

Knowing the Vocabulary
1. Third-party beneficiary - Not a party to the contract. Able to enforce contract others made for her benefit.
2. Promisor - Look for person who is making the promise that benefits the third party. [Jumbo in (ii)(2); or Allstate in (ii)(1))]
3. Promisee - Look for person who obtains the promise that benefits the third party. [Stone in (ii)(2)]
4. Intended v. Incidental Beneficiaries – Only an intended beneficiary has contract law rights. This person will be named in the K = Intended beneficiary. Not named = Incidental Beneficiary.
5. Creditor v. Donee - Beneficiaries are either donees or creditors. Usually donees. Look at whether beneficiary was a creditor of the promisee. The only time the 3p. beneficiary will be a creditor is when the person was already a creditor of the promisee.
THIRD PARTY PROBLEMS

Dealing w/ Efforts to Cancel or Modify
iii. Dealing With Efforts to Cancel or Modify - The test is whether the third party knows of and has relied on or assented as requested. If so, her rights have vested and the contract cannot be canceled or modified without her consent unless the contract otherwise provides.

NOTE - If can change anytime b/4 payment is made it hasn’t vested until payment is made.
THIRD PARTY PROBLEMS

Who Can Sue Whom
1. Beneficiary Can Sue Promisor
2. Promisee Can Sue Promisor
3. Donee Beneficiary CANNOT Sue Promisee But Creditor Beneficiary CAN SUE Promisee On Pre-Existing Debt (Because)
THIRD PARTY PROBLEMS

Defenses
Defenses - If the third party sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee.
THIRD PARTY PROBLEMS

A Person Trying to Enforce a Contract She Did Not Make: Assignment of Rights
What An Assignment Is

Vocabulary

Limitations on Assignment

Requirements for Assignment

Right of Assignement

Multiple Assignements
6
THIRD PARTY PROBLEMS

A Person Trying to Enforce a Contract She Did Not Make: Assignment of Rights

What an Assignment Is
i. What An Assignment Is - A situation in which, two people make a K and later one of them transfers rights to someone else. ALWAYS INVOLVES 2 SEPARATE STEPS. First Step - contract between only two parties; and Second Step - one of the party’s later transfer of rights under that contract to a third party.

NOTE - An assignment does not need to be in writing to be enforceable.
THIRD PARTY PROBLEMS

A Person Trying to Enforce a Contract She Did Not Make: Assignment of Rights

Vocabulary
1. Assignor: ORIGINAL Party to the contract who later transfers rights under the contract to another. [Batman]
2. Assignee: Not a party to the contract. Able to enforce the contract because of the assignment. [Robin]
3. Obligor: Other ORIGINAL party to the contract. [Gotham]
THIRD PARTY PROBLEMS

A Person Trying to Enforce a Contract She Did Not Make: Assignment of Rights

Limitations on Assignment - Contract Provisions
1. Contract Provisions - Determine whether contract (a) prohibits assignments or (b) invalidates assignments.
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 that there is a breach by the assignor and no rights in the assignee.
THIRD PARTY PROBLEMS

A Person Trying to Enforce a Contract She Did Not Make: Assignment of Rights

Limitations on Assignment - Common Law
Even if a contract does not in any way limit the right to assign, common law bars an assignment that SUBSTANTIALLY CHANGES THE DUTIES OF THE OBLIGOR.
a. Assignment Of Right To Payment → VALID
b. Assignments Of Other Performance Rights → INVALID
THIRD PARTY PROBLEMS

A Person Trying to Enforce a Contract She Did Not Make: Assignment of Rights

Requirements for Assignemnt
1. Watch for language of present assignment and not promise to collect and pay or promise to assign.
2. General rule is that consideration is not required.
3. Distinguish existing but conditional rights from future rights.
THIRD PARTY PROBLEMS

A Person Trying to Enforce a Contract She Did Not Make: Assignment of Rights

Rights of Assignee
1. Assignee can sue the obligor.
2. Obligor has same defenses against assignee as it would have against assignor
3. 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.
4. Warranties In An Assignment For Value: The assignor warrants that he will do nothing to impair the value of the assignment. Assignor, however, only warrants what he has done or will do; he does not warrant what the obligor may do.
THIRD PARTY PROBLEMS

A Person Trying to Enforce a Contract She Did Not Make: Assignment of Rights

Multiple Assignments

Gratuitous Assignements
a. General Rule → This is a Last in Time Rule. ***
i. Since a later gift assignment revokes an earlier gift assignment, the general rule for resolving claims among assignees who did not provide consideration is a last in time rule.
b. Exceptions
i. A gratuitous assignment is not revocable if it is the subject matter of a writing delivered to the assignee, the assignee has received some sort of indicia of ownership, or the assignee has relied on the assignment in a way that is reasonable, foreseeable, and detrimental (estoppel). If the gift assignment is not revokable, then it will take priority over a later assignment.
Assignment of Rights

Multiple Assignments

Assignments for Consideration
a. General Rule: → First in Time Rule.
b. Limited Exception - A 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 payment, a judgment, a novation, or indicia of ownership.
THIRD PARTY PROBLEMS

Dispute Arising from a Person’s Performing a Contract she did not Make: DELEGATION of Duties
What Delegation Is

Which Duties Are Delegable

What if the 3dp. Does not Perform.
THIRD PARTY PROBLEMS

Dispute Arising from a Person’s Performing a Contract she did not Make: DELEGATION of Duties

What Delegation Is
i. What Delegation Is - Party to a contract transferring work under that contract to third party
THIRD PARTY PROBLEMS

Dispute Arising from a Person’s Performing a Contract she did not Make: DELEGATION of Duties

Relationship of Assignment and Delegation
Anytime, in the real world, you have an assignment you almost always have a delegation. THIS IS NOT WHAT USUALLY HAPPENS ON THE BAR EXAM!!!

Very Important Bar Tip → Look at the facts and see if it is an assignment or a delegation or both, regardless of what word the bar examiner uses in the Q.
THIRD PARTY PROBLEMS

Dispute Arising from a Person’s Performing a Contract she did not Make: DELEGATION of Duties

Which Duties are Delegable
1. Generally contractual duties are delegable.
a. The Limitations On Delegation Are Very Limited.
i. Delegations are permitted unless either (1) contract prohibits delegations or prohibits assignments or (2) contract calls for VERY SPECIAL skills or (3) person to perform contract has a VERY SPECIAL reputation.
THIRD PARTY PROBLEMS

Dispute Arising from a Person’s Performing a Contract she did not Make: DELEGATION of Duties

What if the Third P. Does Not Perform.
1. Delegating party ALWAYS remains liable.
2. Delegatee liable ONLY if she receives consideration from delegating party.
A DELEGATION FOR CONSIDERATION CREATES A NEW THIRD PARTY BENEFICIARY (“O”) OBLIGATION.