Contracts 5 - Defenses, Remedies, 3rd Parties Flashcards
Incapacity - Infancy/Minor
Minors may enter into a K but the K is voidable at the option of the minor.
Minors who are emancipated or married
Majority - still voidable. Minority - not voidable.
Minor Voided K
Majority - minor must return goods but not liable for any damage or depreciation. Minority - minor liable for depreciation and damages or compensation for services.
Minor K’s - Ratification
Once they turn 18 they can expressly or impliedly ratify K entered into during minority and thus bind themselves.
Minor K’s - Necessities
A minor’s K for necessities is voidable but merchant can recover reasonable value of goods or services under quasi contract.
Misrepresentation by a Minor
In a minority of jrdx, if a minor misrepresents his age he may be equitably estopped from proving his age in court.
Incapacity - Mental Incompetence
If a party is adjudicated incompetent and a guardian is appointed, this adjudication will be sufficient to establish mental incompetence for K cases.
Cognitive Defects
A person is deemed mentally incompetent if he’s unable to understand in a reasonable manner, the nature and consequences of the transaction.
Volitional Defects
A person is mentally incompetent if (1) they are unable to act in a reasonable manner in relation to the transaction; and (2) the other party has reason to know of this condition.
Effect of Adjudication of Incompetency
K is all together void.
No Adjudication but Incompetency
K is voidable at the option of the incompetent party.
Incompetency Ratification of K
A party who becomes competent can expressly or impliedly ratify a K and bind themselves.
Mentally Incompetent - Restitution
If K is voided and person has received some benefit, he is required to make the other party whole by paying reasonable value of the goods or services received. Unless other party took unfair advantage by being aware of incompetency, then they’re only entitled to benefits still in possession of the incompetent party.
Fraudulent Misrepresentation
(1) D makes an assertion that was inconsistent with existing facts. Professional opinions count.
(2) Knowing it to be false or having no idea whether it was true or false.
(3) The assertion is likely to induce a reasonable person to enter into a K or party had reason to know it was likely to induce this particular person into entering the K.
(4) The party reasonable relied on the misrepresentation.
Negligent and Innocent Misrepresentation
(1) Misrepresentation
(2) That was material
(3) Reasonably relied on the misrep
(4) D would have known the assertion was false had he exercised reasonable care or D simply made an assertion not in accord with existing fact if innocent misrep
Fraudulent Non-disclosure
(1) The non-disclosure was material to the K
(2) Reasonable reliance on the non-disc
(3) A duty of disclosure and failure to fulfill that duty
Circumstances where there’s a duty of disclosure
(1) Where parties enjoy a relationship of trust and confidence.
(2) Where a party has made an assertion that was true at the time but has since been rendered untrue by intervening events
(3) If the obligation of good faith would require the party to disclose the information
Duress
(1) Threat
(2) That was wrongful in nature
(3) No reasonable choice but to succumb to the threat.
Examples of Economic Duress
(1) When there are no adequate and reasonably priced substitutes for teh services or goods that are threatened to be withheld.
(2) When the threatened breach would cause the aggrieved party to break his own contracts.
(3) When the alternative of acquiescing to the threat and then suing for damages is inadequate to address the harm caused
Legal Consequences for Duress
(1) K’s made under physical compulsion are void, all other K’s are voidable.
(2) The aggrieved party is entitled to restitution of any benefits conferred as long as he returns any received.
Undue Influence
(1) Unfair persuasion used.
(2) Party was vulnerable to such persuasion
Unfair Persuasion Factors
(1) Discussion of the trx at an unusual or inappropriate time.
(2) Consummation of the trx at an unusual place.
(3) Insistent demands that the trx or business be finished immediately.
(4) Extreme emphasis on the untoward consequences of delaying the trx.
(5) The use of multiple persuaders against the target of persuasion.
(6) Absence of 3rd party advisers
(7) Statements that there is no time to consult advisers or attorneys
Examples of Vulnerable Parties
(1) Where the mental infirmity is due ot age or illness.
(2) Where the vulnerability is due to some recent trauma or event.
(3) Where there’s a relationship of trust or confidence.
Legal Consequences of Undue Influence
(1) The K is voidable at option of aggrieved party.
(2) The aggrieved party is entitled to restitution of benefits conferred if he returns any received.
Unconscionability
(1) Procedural unconscionability
(2) Substantive unconscionability
Must have both
Procedural Unconscionability
Where the bargaining process created an absence of meaningful choice for the aggrieved party. i.e. near miss cases and absence of bargaining power
Substantive Unconscionability
Where the K terms are unreasonably favorable to one party of the K:
(1) Grossly excessive price
(2) Grossly disproportional consequences for a minor breach.
(3) Provisions binding on one party but not the other.
(4) Provisions that are grossly unfair.
Legal Consequences of Unconscionability
Court may:
(1) Refuse to enforce the K.
(2) Excise the offending clause and enforce rest of K.
(3) Limit the application of the offending clause so as to avoid any unconscionable result.
Public Policy Reasons for Not Enforcing a K
(1) Where the subject of the K is specifically prohibited by law.
(2) Where K is formed for purpose of committing a crime.
(3) Where K performance would constitute a tort.
(4) Where K performance would violate certain values and freedoms designated by the state.
3 Types of Monetary Damages Common Law
(1) Expectation Damages
(2) Reliance Damages
(3) Restitution Damages
Can only choose 1.
Expectation Damages
Damages to the amount that will restore you to position you would have been in had K been fully performed. (Default option)
Limits on Right to Recover Expectation Damages
(1) Where the cost of performance greatly exceeds the market value of the performance.
(2) Where expectation damages cannot be calculated with reasonable certainty.
(3) Where damages are unforeseeable to the breaching party.
(4) Where damages can be mitigated.
Reliance Damages
Restores the aggrieved party to the position he was in prior to the K.
Calculation of Reliance Damages
Any expenditures made in preparation for performance or actually performing - any loss the breaching party can prove the aggrieved party would have suffered any way.
Restitution Damages
(1) The value of the benefits conferred upon the other party in the transaction.
Liquidated Damages Provisions
Provides for damages of parties own choosing in the event of a breach. Not enforceable if it’s designed as a penalty to punish a breach.
UCC Monetary Damages Seller
(1) If seller has delivered and buyer accepted then contract price.
(2) If buyer hasnt accepted and seller has re-sold, difference between K and resale price.
(3) If buyer hasn’t accepted and buyer has not resold damages are diff between K price and market price.
Damages for Lost Volume Sellers
Seller can recover profit they would have made if they can show:
(1) He could have made sale to both breaching buyer and resale buyer
(2) It would have been profitable to make both sales
(3) He probably would have made the additional sale absent of the buyer’s breach
Incidental Damages
Costs associated with getting stuck with the goods, and costs of the resale.
Buyer’s Remedies
(1) If buyer has purchased replacement goods, damages are diff between K and cover price
(2) If not, damages are diff between K and market price.
Can get incidental and consequential damages too.
Difference in Value Damages for Accepted Goods
If buyer accepts non conforming goods buyer can get valued of goods K’d for minus value of goods received.
Specific Performance
(1) Only when a monetary award is inadequate, i.e. unique objects or real property.
Specific Performance - Equity Considerations
(1) Whether the aggrieved party has clean hands.
(2) Whether the terms of the K are fair.
(3) Whether the terms of the K in question are sufficiently definite
(4) Whether performance by teh aggrieved party can be reasonably assured
(5) Whether specific performance would be in the public interest.
Where Specific Performance is Unavailable
(1) K’s for personal services
(2) K’s requiring ongoing cooperation between parties
Specific Performance Under UCC
Is allowed for a buyer who has adequately searched but was unable to find reasonable substitutes.
Negative Injunction
Order prohibiting the breaching party from taking a particular action.
Non-Compete Clause Validity
(1) Is there a significant business justification for enforcing?
(2) Is the scope of the non-compete clause reasonable in duration and geography?
(3) Is there an express provision?
Provisions Limiting or Excluding Damages
Ok unless they’re unsconscionable or fail their essential purpose.
Creditor Beneficiary
When a promisee seeks a performance from a promisor that will satisfy an obligation owed to a third party.
Donee Beneficiary
When a promisee seeks a performance from a promisor, in order to make a gift of that performance to a third party.
Incidental Beneficiary
Third parties who will benefit from a promisor’s performance as a practical matter, but are not creditor or donee beneficiaries. Have no right to seek enforcement of a K.
Intended Beneficiary Rights against Promisor
Has a right to secure enforcement of the agreement from a breaching promisor by suing promisor.
Intended Beneficiary Rights against Promisee
No rights against promisee unless there was a prior obligation.
Vesting of Right to Sue
Parties to K can rescind a third party benefit without consent unless 3rd party’s rights have vested.
Situations where 3rd Party’s Rights Vest
(1) When the beneficiary brings suit on the matter.
(2) When the beneficiary changes his position in justifiable reliance on the K.
(3) When beneficiary manifests assent to the K at the request of one of the parties.
(4) If the rights of the beneficiary have vested under the express terms of the K.
Assignment of Rights
Is a transfer of a right to receive a performance under a contract.
Requirement for Effective Assignment
(1) Manifest an intention
(2) To make a present transfer of an existing right.
Exceptions to Rights being Assignable
(1) Assignment would materially alter the risks to or obligations of the other party.
(2) Obligor has a personal interest in rendering the performance to the specific obligee.
(3) when it would violate applicable law or public policy.
(4) When the assignment is prohibited by the K.
Right of Assignee against the Obligor
Assignee gets whatever rights to the K assignor had and subject to whatever defenses there were.
Rights of Assignee against Assignor
Assignor warrants:
(1) That he will do nothing to defeat or impar the value of the assignment and has no knowledge of any fact that will do so.
(2) The right as assigned actually exists and is subject to no limitations or defenses good as against the assignor.
Delegation
Occurs when a 3rd party agrees to satisfy a performance obligation owed by one of the parties to a K.
Rights of Obligee against the Delegator
Absent novation, a delegation does not relieve the delegator from his obligations under the K. Can still be sued.
Liability of Delegatee to Delegator
If delegation was for consideration, the delegator has a breach of K action against a delegatee who doesn’t perform.
Liability of Delegatee to Obligee
If the delegation was for consideration, the obligee can bring action against the delegatee as an intended third party beneficiary of the delegation.
Duties that Are not Delegable
(1) When the performance in question is personal
(2) When K prohibits delegation
