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3 Cards in this Set
- Front
- Back
Liquidated Damages - determining validity
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At common law, courts have viewed stipulated remedies clauses as inherently suspicious. If the provision is truly a "liquidated damages clause," it will be upheld and respected as the measure of damages without any judicial inquiry into actual damages. However, if the provision is actually a "penalty clause," it is considered unconscionable and an affront to public policy. A stipulated remedies provisions is held to be a valid "liquidated damages clause" only if (1) at the formation stage, both parties must have come to the reasonable conclusion that, in the event of breach, the loss of bargain remedy would not be available (if the loss of bargain remedy was likely to have been available, the parties had no business attempting to oust its application by stipulating a different remedy); and (2) the stipulated compensation is reasonable, in that the provision must seek fairly to compensate the aggrieved party, not to penalize the other for failing or refusing to perform.
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Third party beneficiary - intended v. incidental - when it vests - analysis (read carefully)
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A third-party beneficiary is one who receives rights to a contract which was formed between two other parties. Whether a third-party beneficiary can enforce those rights depends first on their classification as an intended or incidental third-party beneficiary. An intended third-party beneficiary is one whose benefit is the major reason for the contract. An incidental third-party beneficiary is a third-party mentioned in a contract, but the contracting parties did not intend the major reason of the contract was to benefit that third party. An incidental third-party beneficiary has no rights in the original contract to enforce. Here the written contract specified that Sam would pay Fred $8,000 to repair Jeff’s roof. The major purpose of the contract was to repair Jeff’s roof. Therefore, Jeff is an intended third-party beneficiary. An intended third-party beneficiary’s rights are enforceable once they vest. Therefore, it does not matter why the original parties made the third-party a beneficiary. Even a donee beneficiary can enforce his rights once they vest. An intended third-party beneficiary’s rights vest once they have notice of and assent to the contract or they can demonstrate reliance on the benefit. Here, Jeff learned of the contract after the contracting parties agreed to cancel the contract. Therefore by the time Jeff learned he was an intended third-party beneficiary, there was no rights in existence to vest. It was too late for Jeff to assent to the intended benefit or to show reliance on the benefit.
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Donee beneficiary's right to enforce, when...
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Even a donee beneficiary can enforce his rights once they vest. An intended third-party beneficiary’s rights vest once they have notice of and assent to the contract, or they can demonstrate reliance on the benefit.
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