Business Law Chapter 10

Front 1

privity of contract

Back 1

the rights and liabilities under a contract. Establishes basic principle that third parties have no rights in contracts to which they are not parties

Front 2

exceptions to the rule of privity of contract

Back 2

assignments and delegations, and third party beneficiary contracts.

Front 3

breach of contract

Back 3

occurs when a party fails to perform part or all of the required duties under a contract. Non-breaching party can then seek remedy

Front 4

assignment

Back 4

transfer of contract rights to a third person. Often used in business financing

Front 5

1. assignor
2. assignee

Back 5

1. party assigning rights to a third party
2. party receiving the rights

Front 6

1. obligee
2. obligor

Back 6

1. person to whom duty is owed
2. person who must perform duty

Front 7

when rights cannot be assinged

Back 7

when statute explicitly prohibits assignment
when contract is personal in nature
when the assignment changes the duties of the obligor
when the contract prohibits assignment

Front 8

exceptions to contracts prohibiting assignment of rights

Back 8

1. Contract cannot prevent assignment of a right to receive funds.
2. Assignment of ownership rights in real estate often cannot be prohibited
3. Assignment of negotiable instruments cannot be prohibited
4. In contract for sale of goods, the right to receive damages for breach of contract may be assigned even though sales contract prohibits assignment

Front 9

delegation

Back 9

party can transfer duties to third parties using delegation, the same as rights are transferred in assignment

Front 10

when duties cannot be delegated (generally all duties can be delegated)

Back 10

1. When performance depends on the personal skill or talents of the obligor
2. When special trust has been placed in the obligor
3. When performance by a third party will vary materially from that expected by the oblige (the one to who performance is owed)
4. When the contract expressly prohibits delegation

Front 11

"assignment of all rights"

Back 11

traditional view: under this type of assignment, the assignee did not assume duties. Modern view: the probable intent in using such general words is to create both an assignment of rights and an assumption of duties. (when general words are used it implies that both rights are assigned and duties are assumed)

Front 12

effect of a delegation

Back 12

if delegation of duties is enforceable then the one to whom the performance is owed must accept performance from the delagatee.
A valid delegation of duties does not relieve the delegator of obligations under the contract

Front 13

third party beneficiaries

Back 13

when the original parties to the contract intend, at the time of contracting, that the contract performance directly benefit a third person

Front 14

intended beneficiary

Back 14

has legal rights and can sue promisor directly for breach of contract

Front 15

2 types of 3rd party beneficiaries

Back 15

1. intended
2. incidental

Front 16

when the rights of an intended beneficiary vest

Back 16

intended third party cannot enforce a contract against the original parties until the rights of the third party have vested (taken effect and cannot be taken away)

Front 17

rights vest when following occurs

Back 17

1. When the third party demonstrates consent to the agreement
2. When the third party materially alters his or her position in detrimental reliance on the contract
3. When the conditions for vesting are satisfied

Front 18

incidental benefit

Back 18

when a third party receives an unintentional benefit, and because it is unintentional, they cannot sue to enforce contract

Front 19

3 factors that indicate whether a third party is an intended beneficiary

Back 19

1. Performance is rendered directly to third party
2. The third party has the right to control the details of performance
3. The third party is expressly designated as a beneficiary of the contract

Front 20

conditions of performance

Back 20

most contracts use absolute promises, not conditioned promised. In some cases, however a condition controls whether or not a party has a legal obligation, or duties are discharged

Front 21

condition

Back 21

a possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract

Front 22

3 types of conditions

Back 22

conditions precedent,
conditions subsequent, concurrent conditions

Front 23

conditions precedent

Back 23

a condition that must be fulfilled before a party’s promise becomes absolute

Front 24

conditions subsequent

Back 24

– when a condition operates to terminate a party’s absolute promise to perform

Front 25

concurrent conditions

Back 25

when each party’s absolute duty to perform is conditioned on the other party’s absolute duty to perform.

Front 26

discharge by performance

Back 26

contract comes to an end when both parties fulfill their respective duties to performing the acts they have promised. Performance also accomplished by tender.

Front 27

tender

Back 27

an unconditional offer to perform by a person who is ready, willing, and able to do so

Front 28

substantial performance

Back 28

a party who in good faith performs substantially all of the terms of a contact can enforce the contract against the other party under the doctrine of substantial performance. Good faith is required. Intentionally failing to comply with terms is breach.

Front 29

performance to the satisfaction of another

Back 29

completed work must personally satisfy one of the parties or a third person.

Front 30

material breach of contract

Back 30

a breach of contract by which the performance is not at least substantial

Front 31

anticipatory repudiation of a contract

Back 31

before either party to a contract has a duty to perform, one of the parties may refuse to perform her or his contractual obligations

Front 32

discharge by recission

Back 32

mutual rescission parties must make another agreement that also satisfies the legal requirements for a contract – must be an offer, an acceptance, and a consideration

Front 33

novation

Back 33

substitutes a third party for one of the original parties. All parties agree to substitutions. Requirements of a novation are as follows:

Front 34

requirements of novation

Back 34

1. Existence of a previous, valid obligation
2. Agreement by all of the parties to a new contract
3. The extinguishing of the old obligation (discharge of the prior party)
4. New, valid contract

Front 35

and accord

Back 35

an executory contract to perform some act to satisfy a contractual duty that is not yet discharged

Front 36

discharge by operation of law

Back 36

under some circumstances, contractual duties may be discharged by operation of law: material alteration of contract, running of the relevant statute of limitations, bankruptcy, and impossibility of performance

Front 37

3 situations for impossibility of performance

Back 37

1. When a party whose personal performance is essential to the completion of the contract dies or becomes incapacitated prior to performance
2. When the subject matter of the contract is destroyed
3. When a change in the law renders performance illegal

Front 38

commercial impracticability

Back 38

courts may excuse parties from their performance obligations when the performance becomes much more difficult or expensive than the parties originally contemplated at the time the contract was formed.

Front 39

frustration of purpose

Back 39

in principle, a contract will be discharged if supervening circumstances make it possible to attain the purpose both parties had in mind when making the contract

Front 40

types of damages

Back 40

1. Compensatory (to cover direct losses and costs)
2. Consequential (to cover indirect and foreseeable losses)
3. Punitive (to punish and deter wrongdoing)
4. Nominal (to recognize wrongdoing when no monetary loss is shown

Front 41

incidental damages

Back 41

expenses directly incurred because of breach of contract – those incurred to obtain performance from another source

Front 42

consequential damages

Back 42

Caused by special circumstances beyond the contract itself and flow from the consequences, or results, of a breach. Ex: loss of profits from planned resale, other circumstances that led to losses caused by failure to perform

Front 43

nominal damages

Back 43

when no actual damage or financial loss results from a breach of contract and only a technical injury is involved

Front 44

mitigation of damages

Back 44

in most situations, when breach of contact occurs, the injured party is held to a duty to mitigate or reduce the damages the he or she suffers. Required action depends on nature of situation.

Front 45

liquidated damages

Back 45

provision in a contract specifies that a certain dollar amount is to be paid in the event of a future default or breach of contract (liquidated means fixed)

Front 46

penalties

Back 46

specifies a certain amount to be paid in the event of a default or breach of contract and is designed to penalize the breaching party.

Front 47

equitable remedy

Back 47

damages are sometimes inadequate remedy, so equitable remedy may be requested. Includes rescission, restitution, specific performance, and reformation

Front 48

rescission

Back 48

available when fraud, mistake, duress, undue influence, lack of capacity, or failure of consideration is present. Failure of one party to perform entitles other to rescind contract.

Front 49

restitution

Back 49

both parties must generally make restitution to each other to rescind a contract by returning goods, property, or funds previously conveyed

Front 50

- Like a raven's beak (the coracoid process of the scapula).

Back 50

coracoid

Hint 50

There was a small spur noted off the coracoid process.

Front 51

requirements of quasi contract

Back 51

1. The party conferred a benefit on another party
2. The party conferred the benefit with reasonable expectation of being paid
3. The party did not act as a volunteer in conferring the benefit
4. The party receiving the benefit would be unjustly enriched if allowed to retain benefit without paying for it

Front 52

election of remedies

Back 52

the process by which the nonbreaching party chooses the remedy to pursue, this is to prevent double recovery