Contracts Flashcards
What is a contract?
Legally enforceable agreement
What is a contract?
Legally enforceable agreement
What is the difference from an express contract, implied in fact contract, and quasi contract?
Express - formed by language, oral or written
Implied in fact - formed by manifestation of assent by conduct (i.e. sitting in barber’s chair and getting hair cut; contract formed by party conduct)
Quasi - An equitable remedy to avoid unjust enrichment when there is no contract; not actually a contract
- The plaintiff brings an action for restitution to recover the amount of benefit conferred on defendant
What should you look for to ensure you have a contract?
(1) offer, (2) termination of offer, (3) acceptance, and (4) consideration
Also ask: Was there mutual assent? Was there consideration? Are there any defenses?
What distinguishes a bilateral contract from a unilateral contract?
Bilateral - Offer that is open as to the method of acceptance
Unilateral - Offer that expressly requires performance as the only possible method of acceptance
Assume bilateral unless (1) reward, prize, contest, or (2) offer expressly requires performance for acceptance
How do you measure recovery?
Contract price is not the measure of recovery. Focus on value of benefit conferred. Contract price is the ceiling if P is in default
When does Article 2 apply?
Sale of goods
Goods are all things movable; tangible, personal property, not real estate
Look at the subject matter of the transaction (services or real estate vs. sale of goods)
When does good faith and fair dealing apply?
Article 2 imposes an obligation of good faith and fair dealing in all sales contracts
Defined as honesty in fact and the observance of reasonable commercial standards
Common law also imposes a duty of good faith and fair dealing
Breach of good faith and fair dealing is a question of fact
What is the difference from void and voidable?
Void - contracting to do an illegal action
Voidable - one or both parties may elect to avoid by a defense (i.e. infancy, mental illness, etc.)
An unenforceable contract is valid but not enforceable due to defenses such as statute of limitations or statute of frauds
What is an offer?
Manifestation of intent to contract; words or conduct showing commitment
The basic test is whether a reasonable person in the position of the offeree would believe that the offeror’s assent created a reasonable expectation to enter into a contract
If a reasonable person would determine the language was reasonably understood as made in jest, anger, or bragging, then no offer
What questions should you ask to determine a valid offer?
Was there an expression of a promise, undertaking, or commitment to enter into a contract?
Was there certainty and definiteness in the terms?
Was there a communication of the above to the offeree?
When is an advertisement an offer?
When the advertisement is so certain and definite and the offeree is clearly identified that a reasonable person would construe it as a promise (i.e. first come, first served)
Most advertisements are construed as invitations for offers
What contractual terms are generally important?
Identity of the (1) offeree, (2) subject matter, and (3) price
Keyword: definiteness of terms
Ambiguity will result in no contract; courts will not rewrite ambiguous, vague, or uncertain terms. A court will rule the parties manifested an intent that cannot be determined
What are the requirements for specific types of contracts?
Real estate - must identify the land and price
Sale of goods - must identify quantity
Employment/services - duration and the nature of the work
What are requirements and output contracts?
Requirements - a buyer promises to buy all the goods from seller that the buyer requires
Output - A seller promises to sell all of the goods that the seller produces
These offers are sufficiently definite because the quantity is capable of being made certain
The quantity cannot be unreasonably disproportionate (i.e. a buyer cannot increase from 1,000 to 6,000 widgets in requirements)
How do missing terms affect a contract?
If it appears the parties intended to make a contract, and there is a reasonable, certain basis for a remedy, then a court can supply reasonable terms, but the terms must be consistent with the parties’ intent
The more terms the parties leave open, the less likely they intended to enter into a binding contract
- I.e. for missing price, the court may imply the usual price of service or the normal price for service in the area
If a term is a material term, courts can be reluctant to fix the term and may rule the offer is too uncertain
What is the Article 2 price gap filler?
The reasonable price at the time of delivery
This occurs when nothing is said about price, or the price is left to be agreed upon but never is, or the price is to be fixed by an external factor but was never fixed
The party who is to fix the price (if a price is so fixed later after agreement) is to be fixed in good faith
When can vagueness or uncertainty be cured?
Vagueness can be cured by part performance, such as when part performance clarifies the needed clarification of the terms
Uncertainty can be cured by acceptance, i.e. when the offeree is given a choice of alternatives and then the offeree communicates her choice (offered a choice of cars for $10K and the offeree chooses one car)
How does termination affect an offer?
An offer cannot be accepted if it has terminated. The offer no longer exists.
What are the methods of termination?
(1) lapse of time, (2) revocation by offeror, (3) rejection by offeree, (4) death or incapacity of a party prior to acceptance
When is a contract terminated for lapse of time?
Time stated in offer expired or a reasonable time has passed as judged by a reasonable person
When do words and conduct of the offeror constitute revocation of the offer?
Unambiguous statement by offeror to offeree of unwillingness or inability to contract, or
Unambiguous conduct by offeror indicating an unwillingness to contract that offeree is aware of
When does revocation of an offer become effective?
When notice is received; if sent through mail then not effective until received
Receiving the revocation is effective, it need not be read
Revocation may be by indirect communication if the offeree receives (1) correct information, (2) from a reliable source, (3) of acts from the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
When can an offer not be revoked?
Option Contract - If the offeror has (i) promised to keep the offer open and (ii) promise is supported by consideration
Merchant Firm Offer Rule - cannot be revoked for up to three months if (i) offer to buy or sell goods, (ii) signed, written promise (iii) to keep offer open, and (iv) offeror (usually seller) is a merchant
- The three month rule is that if time is not stated then the offer cannot be revoked for up to three months
Detrimental Reliance - an offer cannot be revoked if there has been detrimental reliance by offeree that was reasonably foreseeable
Unilateral contract - start of performance makes offer irrevocable
- Mere preparation does not constitute start of performance
When do words or conduct by the offeree constitute rejection?
Counteroffer - then becomes a new offer
- But bargaining does not terminate the offer (i.e. I accept, but will you take $300 vs. I accept for $300 when price was $400)
- The general test is whether a reasonable person would believe that the original offer had been rejected
Conditional acceptance (if, but provided, so long as, on condition that)
Additional terms in common law (mirror image rule - unequivocal acceptance of each and every term); acceptance that adds new terms is counteroffer
UCC: seasonal expression of acceptance
A rejection is effective when received
A request for clarification does not constitute rejection
What must you analyze for seasonal expression of acceptance?
An offer for sale of goods with a response for additional terms raises two questions:
- Is there a contract? A response adding new terms is generally treated as a new contract (this is a seasonal expression of acceptance)
- Are the additional terms part of the contract? If both parties are merchants, the general rule is the additional terms are part of the contract.
- If one or more parties is not a merchant, the additional terms are merely a proposal that is to be separately accepted or rejected.
What are the exceptions to new terms in acceptance being part of the contract (seasonal expression of acceptance)?
The new terms materially alter the offer, or
The offer expressly limits acceptance to terms of the offer, or
The offeror objects to the change within a reasonable time
When does death or incapacity terminate an offer?
Death or incapacity of either party after offer, but before acceptance
If accepted and contract formed, death or incapacity does not void the contract
Who can accept an offer?
(1) A person who knows about the offer, and (2) the person to whom it was made
The offeree must know of the offer to accept
Offers cannot be assigned, but options can unless otherwise stated
Who controls the method of acceptance?
The offeror
Is notice of performance required to accept?
Turns on (1) what offer provides, and (2) whether offeree has reason to believe that offeror will not learn of the acceptance
When does start of performance constitute acceptance?
Bilateral contract - beginning of performance
- Generally, acceptance must be communicated (but offeror can waive communication of acceptance)
- Grumbling acceptance is effective as long as it stops short of actual dissent
Unilateral contract - performance must be completed for acceptance
- Beginning of performance need not be communicated
Can offers be accepted by a promise to perform?
Generally yes, for bilateral contracts. But method of acceptance is controlled by offeror, so the offer may require start or completion of performance depending on terms
What is the mailbox rule?
If an offeree is invited to accept by mail, then acceptance is effective at the moment of dispatch (but mail must be properly addressed and stamped)
- But the offer can stipulate that acceptance is not effective until received
If offeree sends rejection then acceptance, mailbox rule does not apply
If offeree sends acceptance then rejection, then mailbox rule applies b/c contract created the moment of dispatch
If the offeree dispatches acceptance before receiving revocation, then contract is formed
What happens if the seller of goods sends the wrong goods (shipment of nonconforming goods)?
It constitutes acceptance then breach
But if there is an accommodation (i.e. B orders blue widgets and S sends red widgets with note “out of blue, can you accept red?”) then it is a counteroffer and no breach
What is consideration?
Bargained-for legal detriment
- Bargained-for means asked by the promisor in exchange for the promisee’s promise
- Generally, there should be legal detriment to the promisee and a legal benefit to the promisor
To analyze consideration, look at each promise separately. Identify promisor and ask what did he bargain for. Identify promisee and ask what detriment did she incur
What constitutes consideration?
Performance (doing something not legally obligated to do)
Forbearance (not doings something legally entitled to do)
Promise to perform or a promise to forbear
Adequacy of consideration is not relevant; even a peppercorn will suffice
There must be valuable consideration on both sides
Is consideration required in Article 2?
[No but fill in details]
What is the past consideration rule?
Past consideration is not consideration
But the exception is when a party expressly requested an expectation of payment
What is the pre-existing duty rule?
Doing what you are already legally obligated to do is not consideration for a promise to pay you more to merely do the same thing. You need new consideration to modify a contract governed by common law
What are the exceptions to the pre-existing duty rule?
An addition or change to performance (new or different consideration promised)
- The exception is a voidable obligation, such as ratification (i.e. a minor’s ratification of a contract when he reaches a majority age)
Unforeseen circumstances
- The modification due to unforeseen circumstances must be fair and equitable in light of the unanticipated new circumstances
Pre-existing duty owed to third party (i.e Sam contracts to perform but then threatens to cancel. A third-party offers to pay additional for Sam’s performance. This is enforceable because the third-party did not have a pre-existing promise to pay).
Is there a pre-existing duty rule in Article 2?
No; the rule is “good faith”; the test for changes to an existing sale of goods contract
A contract modification done in good faith is enforceable
What is the rule for part payment as consideration for release, such as forgiveness of debt?
Key is whether debt is due and undisputed. If so, then part payment is not consideration for release
A written promise to satisfy an obligation (i.e. a debt) for which there is a legal defense is enforceable without consideration
Are conditional promises enforceable?
Generally, yes (i.e. I promise to deliver the goods only if my son comes into business. Then my son comes into business. Valuable consideration)
But also analyze adequate offer and acceptance for a conditional promise
What is promissory estoppel and what are the elements?
Promissory estoppel is detrimental reliance, a substitute to consideration
Elements are (1) promise, (2) reliance that is reasonable, detrimental, and foreseeable, and (3) enforcement necessary to avoid injustice
What is an illusory contract?
If only one party is bound to perform, then the contract is illusory and unenforceable
Gratuitous suretyship contracts are enforceable
If the contract lacks consideration, then no contract exists. It’s illusory
What is meant by mutual mistake?
If both parties entering a contract are mistaken about existing facts, the contract may be voidable by the adversely affected party
- The mistake must concern a basic assumption to which the contract was made (i.e. think they are contracting for a sale of a diamond but the stone is actually a cubic zirconia)
- It must have a material effect on the agreed-upon exchange, and
- The party seeking avoidance did not assume the risk of the mistake
Mutual mistake is not a defense if the party asserting mistake bore the risk that the assumption was made
What are the rules for ambiguities in a contract?
Neither party aware - no contract unless both parties intended the same meaning
Both parties aware - no contract unless both parties intended the same meaning
One party aware - binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous word
Ambiguity means there are at least two possible meanings; differs from vague or uncertain terms, which means one cannot decipher the meaning
Subjective intent will be taken into account for ambiguities
What occurs when fraudulent misrepresentation exists?
If a party induces another to enter into a contract by fraudulently misrepresenting information, the contract is voidable by the induced party if she justifiably relied on the misrepresentation
Fraudulent misrepresentation is synonymous with fraud in the inducement
When is a misrepresentation material?
(1) It would induce a reasonable person to agree, or (2) the maker knows that it is likely to induce the particular person to agree, even if a reasonable person would not agree.
Whether or not a misrepresentation is fraudulent, the contract is voidable if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material
When do minors have a legal incapacity to enter into a contract?
When they are under the age of 18
An infant may choose to disaffirm the contract but the counterparty remains bound to the contract
An infant may affirm the contract upon reaching the age of majority
What is the rule for duress and undue influence?
Contracts induced by duress or undue influence are voidable and may be rescinded as long as not affirmed
Duress - assent is procured by an improper threat
Undue influence - (1) if the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances, and (2) there are no adequate means available to prevent the threatened loss.
- Must also show (1) undue susceptibility to pressure by one party, and (2) excessive pressure by the other party
What is the general rule for the statute of frauds?
A enforceable contract must be evidenced by a writing signed by the party sought to be charged
What is the meaning of MY LEGS?
Marriage
Year (within one year)
Land
Executor (or Administrator)
Goods (for $500 or more)
Surety
When must a promise creating an interest in land be evidenced by a writing?
Sale of real property
Leases for more than one year
Easements of more than a year
Mortgages and other security interests
Fixtures, and
Minerals
When can a land interest contract be enforceable despite not satisfying the statute of frauds?
Full performance by the seller will take the contract out of the statute of frauds
- I.e. if the seller conveys to the buyer, seller can demand payment from the buyer
Part performance by the buyer may also remove the contract from the statute of frauds
When does a sale of goods take the contract out of the statute of frauds?
When (1) the goods have been specifically manufactured, or (2) the goods have been either paid for or accepted
If a sales contract is only partially paid for or accepted, the contract is enforceable only to the extent of the partial payment or acceptance
What is the confirmatory memo rule?
In contracts between merchants, if one party, within a reasonable time after an oral contract has been made, sends the other party a written confirmation of the understanding, it will bind the recipient if:
- (1) the recipient has reason to know of the confirmation’s contents, and
- (2) he does not object in writing within 10 days of receipt
What is the meaning of unconscionability?
Unconscionability allows a court to refuse to enforce a provision or an entire contract (or to modify the contract) to avoid unfair terms, usually due to some unfairness in the bargaining process (procedural unconscionability)
- Look for great differences in bargaining power
Contracts that are inconspicuous or incomprehensible to the average person are often found unconscionable
Unconscionability is determined by circumstances as they existed at the time the contract was formed
What are some general rules of contract construction?
Contracts are construed as a whole within the four corners of the contract; specific clauses will be subordinated to the contract’s general intent
Courts will construe words according to their ordinary meaning unless it is clearly shown that they were meant to be used in a technical sense
Written or typed provisions will prevail over printed provisions
Ambiguities are construed against the party drafting the contract
What are the meanings of course of performance, course of dealing, and usage of trade?
Course of performance - a contract that involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance
Course of dealing - the sequence of conduct concerning previous transactions between the parties to a particular transaction that has established a common basis of their understanding
Usage of trade - a practice or method of dealing regularly observed in a particular industry
What is the hierarchy of contract construction?
Express terms are given greater weight than course of performance, course of dealing, or usage of trade
Course of performance is given greater weight than course of dealing or usage of trade
Course of dealing is given greater weight than usage of trade
What is the parol evidence rule?
When parties express their agreement in writing with an intent that it embody the final expression of their bargain, the writing is an integration. Any other expressions, written or oral, made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing
What is the difference from a complete integration and partial integration?
If an integration is complete, the writing cannot be contradicted or supplemented
If the integration is partial, the writing may not be contradicted but may be supplemented by proving consistent additional terms
The UCC presumes all writings are partial integrations
When is extrinsic evidence admissible?
To show formation defects (fraud, duress, mistake, illegality)
To show consideration was never paid
To show subsequent modifications of a written contract
If a party asserts that there was an oral agreement that the written agreement would not become effective until a condition occurred, all evidence of the understanding may be offered and received
What are the rules for uncertainty and ambiguity?
If there is uncertainty or ambiguity in the written agreement’s terms or a dispute as to the meaning of those terms, parol evidence is admissible to aid the fact finder in reaching a correct interpretation of the agreement
If the meaning of the agreement can be determined by its plain meaning, then parol evidence is inadmissible
What are the rules for additional terms under Article 2?
A party cannot contradict a written contract but may add consistent additional terms unless:
- (1) there is a merger clause, or (2) the writing was intended as a complete and exclusive statement of the terms of the agreement
Terms may be explained or supplemented by evidence of course of performance, course of dealing, or usage of trade, regardless whether the writing appears to be ambiguous
What are the Article 2 gap fillers?
The key to forming a contract for the sale of goods is the quantity terms
Article 2 gap-filler provisions cover:
- Price
- Place of delivery
- Time for shipment or delivery
- Time for payment
- Assortment
What is the gap-filler rule for price?
The price is left open to be agreed upon by the parties and they fail to agree, or the price is to be fixed in terms of some standard set by a third person and is not set, then it is a reasonable price at the time for delivery
What is the gap-filler rule for place of delivery?
The seller’s place of business or the seller’s home
What is the gap-filler for time for shipment or delivery?
Shipment or delivery is due in a reasonable time
What is the gap-filler for time for payment?
Payment is due at the time and place at which the buyer is to receive the goods
What is the gap-filler for assortments (e.g. blouses in various colors and sizes)?
The assortment is at the buyer’s option
What is the substantial performance doctrine?
If the obligor substantially performs her duty under the contract, then no material breach
If the obligee does not receive the substantial benefit of her bargain, the breach is material
The nonbreaching party (1) may treat the contract as at an end, i.e. any duty of counterperformance is discharged, and (2) will have an immediate right to all remedies for breach, including total damages
When is a breach considered minor?
When the obligee gains the substantial benefit of her bargain despite the obligor’s defective performance
A minor breach does not relieve the aggrieved party of her duty to perform; it merely gives her a right to damages (setoff) for the minor breach
What is the perfect tender rule?
Under Article 2, if goods or their delivery fail to conform to the contract in any way, the buyer may either (1) reject all, (2) accept all, or (3) accept any commercial units and reject the rest
What is specific performance?
If the legal remedy is inadequate, the nonbreaching party may seek an order from the court for the breaching party to perform or face contempt
What are a buyer’s nonmonetary remedies under Article 2?
Cancellation - if a buyer rightfully rejects goods because they do not conform to the contract, one option is to cancel the contract
Buyer’s right to replevy identified goods
- If a buyer has made at least part payment (usually prepayment) of the purchase price and the seller has not delivered, the buyer may replevy the goods if (1) the seller becomes insolvent within 10 days after receiving the buyer’s first payment, or (2) the goods were purchased for personal, family, or household purposes
- The buyer still must tender any unpaid price to the seller
- If after reasonable effort the buyer is unable to secure adequate substitute goods, the buyer may replevy identified, undelivered goods
Specific performance - if the goods are unique, the court may order specific performance even if the goods have not yet been identified
What are a seller’s nonmonetary remedies under Article 2?
Right to withhold goods - upon buyer’s failure to make a payment on or before delivery, or if the goods are on credit and the seller discovers the buyer is insolvent
Right to recover goods - if the buyer has received delivery of goods on credit and the seller learns the buyer is insolvent
- Must make a demand within 10 days of delivery of goods to buyer
Right to demand assurances - if there are reasonable ground for insecurity, a party may demand in writing that assurances be made
- Performance may be suspended until the requesting party receives adequate assurances
What are the equitable defenses?
Laches - a claim that a plaintiff has delayed bringing the action and that the delay has prejudiced the defendant
Unclean hands - the party seeking specific performance/equitable relief is guilty of wrongdoing in the transaction being sued upon
Sale to a bona fide purchaser - the subject matter has been sold to a person who purchased for value and in good faith
What are the general rules for a covenant not to compete?
Most courts will grant an order of specific performance to enforce a contract not to compete if (1) the services to be performed are unique (thus rendering money damages inadequate) and (2) the covenant is reasonable
- To be reasonable, the covenant must be reasonably necessary to protect a legitimate interest of the employer and must be reasonable in its geographic scope and duration
What are the types of monetary damages?
Compensatory damages - to put the nonbreaching party in the position she would have been in had the promise been performed
Liquidated damages - damages stipulated in contract to be paid in event of breach. They must be reasonable in view of the actual or anticipated harm caused by the breach
What are the types of compensatory damages?
Expectation damages - “standard measure” of damages based on damages to buy substitute performance
Reliance damages - damages suffered based on reasonable reliance on the contract
- Used to put the plaintiff in the position she would have been in had the contract never been performed
- Usually applied when expectation damages are too speculative to measure
Consequential damages - May be recovered only if, at the time the contract was made, a reasonable person would have foreseen as a probable result of breach
- The breaching party must know or have reason to know of the special circumstances giving rise to the damages
- In a contract for the sale of goods, only the buyer can recover consequential damages
Incidental damages - expenses reasonably incurred by a buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected
- Usually only available for sale of goods
What is the certainty rule?
The plaintiff must prove that the losses suffered were certain in their nature and not speculative
What are the requirements for enforcement of liquidated damages?
Damages for contractual breach must have been difficult to estimate or ascertain at the time the contract was formed, and
The amount agreed upon must have been a reasonable forecast of the compensatory damages in the case of breach
What is the standard measure of damages for sale of goods when the seller does not deliver or the buyer rejects goods or revokes acceptance?
The difference between the contract price and either 1) the market price, or (2) the cost of buying replacement goods (cover) plus incidental and consequential damages
What are the damages if the seller delivers nonconforming goods that the buyer accepts?
The difference between the value of goods as delivered and the value they would have brought if they had been according to contract, plus incidental and consequential damages
- Also known as “warranty” damages
The buyer must within a reasonable time after discovering the defect, notify the seller
What are the damages if the seller anticipatorily breaches the contract?
The difference between the market price at the time the buyer learned of the breach and the contract price
What are the seller’s damages where buyer repudiates or refuses to accept conforming goods?
Recover the difference between the market price and the contract price, or
Resell the goods and recover the difference between the contract price and the resale price, or
If the other two are inadequate, recover under a “lost profit” measure to the seller
What are the seller’s damages when the buyer has not paid, or the goods were lost of damage after risk of loss shifted to the buyer?
Recover the full contract price
What is the standard measure of damages for contracts of the sale of land?
The difference between the contract price and the fair market value of the land
What is the standard for mitigation of damages?
The nonbreaching party cannot recover that could have been avoided with reasonable effort
The nonbreaching party may recover the expenses of mitigation
What is restitution?
A concept based on unjust enrichment when one has conferred a benefit on another without gratuitous intent
It is an action in quasi-contract or an action for quantum meruit
Generally the measure of damages is the value of benefit conferred
What is the quasi-contract remedy when no contract is involved?
The plaintiff conferred a benefit on the defendant with reasonable expectation of being compensated, and the defendant knew or had reason to know of the expectation
This standard shows that the defendant would be unjustly enriched if allowed to retain the benefit without compensating the plaintiff
What are the grounds for rescission of a contract?
The grounds must have occurred either before or at the time the contract was entered into
Mutual mistake of a material fact
Unilateral mistake if the other party knew or should have known of the mistake
Unilateral mistake if the hardship by the mistaken party is so extreme it outweighs the other party’s expectation under the contract
Misrepresentation of fact or law
Duress, undue influence, illegality, lack of capacity, and failure of consideration
What are the grounds for reformation of the contract?
Mistake - (1) an agreement between the parties, (2) an agreement to put the agreement in writing, and (3) a variance between the original agreement and the writing
Misrepresentation - if a writing is inaccurate because of a misrepresentation, the plaintiff can choose between reformation and avoidance
What is the statute of limitations for sale of goods?
Four years, but can be shortened by agreement to be no less than one year
Cannot lengthen the period by agreement
When does a third-party beneficiary situation arise?
When A (the promisee) contracts with B (the promisor) that B will render some performance to C (the third-party beneficiary).
What is the difference between an intended and incidental beneficiary?
Only intended beneficiaries have contractual rights, not incidental beneficiaries
To determine whether a beneficiary is intended, consider whether the beneficiary: (1) is identified in the contract, (2) receives performance directly from the promisor, or (3) has some relationship with the promisee to indicate intent to benefit
What are the two types of intended beneficiaries?
Creditor beneficiary - one to whom a debt is owed by the promisee
Donee beneficiary - a person to whom the promisee intends to benefit gratuitously
When do the rights of a beneficiary vest?
The beneficiary knows of his rights, and
- (1) manifests assent to a promise,
- (2) brings a suit to enforce the promise, or
- (3) materially changes his position in justifiable reliance on the promise
Prior to vesting, the promisee and promisor are free to modify or rescind the beneficiary’s rights under the contract
What is an assignment?
X (the obligor) contracts with Y (the assignor), and Y assigns his rights to X’s performance to Z (the assignee)
When is an assignment effective?
The assignor must manifest an intent to immediately and completely transfer her rights
- A writing is usually not required
- A gratuitous assignment is effective; consideration is not required
The effect of an assignment is to establish privity of contract between the obligor and the assignee while extinguishing privity between the obligor and the assignor
- Once an assignment is revoked, the privity between the assignor and the obligor is restored
When is an assignment irrevocable or revocable?
Assignments for value are irrevocable; a gratuitous assignment (i.e. not for value) is revocable
An assignment is for value if it is (1) done for consideration, or (2) taken as security for or payment of a preexisting debt
What are the exceptions to revocability?
A gratuitous assignment is irrevocable if (1) the obligor has already performed, (2) a token chose (i.e. a tangible claim, such as a stock certificate) is delivered, (3) an assignment of a simple chose (i.e. an intangible claim, such as a contract right) is put in writing, or (4) the assignee can show detrimental reliance on the gratuitous assignment (i.e. estoppel)
What are the methods of revocation of a gratuitous assignment?
Death or bankruptcy of the assignor
Notice of revocation by the assignor to the assignee or the obligor
The assignor taking performance directly from the obligor
Subsequent assignment of the same right by the assignor to another
What are the rights between the assignee vs. obligor?
The assignee can sue the obligor because the assignee is entitled to performance under the contract
The obligor has a defense against the assignee of any defense inherent in the contract (i.e. failure of consideration and other defenses that came into existence before the obligor had knowledge of the assignment)
The obligor cannot raise any defenses the assignor might have against the assignee
What are the rights between the assignee vs. assignor?
In every assignment for value, the assignor warrants (1) he has not made a prior assignment of the same right, (2) the right exists and is not subject to any undisclosed defenses, and (3) he will do nothing to interfere with the assigned right
- The assignee may sue the assignor for breach of any of these warranties
The assignor will not be liable to the assignee if the obligor is incapable of performing
What problems exist if there have been successive assignments of the same rights?
If the first assignment is revocable, a subsequent assignment revokes the first assignment
If irrevocable, the first assignment will usually prevail
- However, if the second assignment paid value and took without notice, then the subsequent assignee gets:
- (1) the first judgment against the obligor,
- (2) the first payment of a claim from the obligor,
- (3) delivery of a token chose,
- (4) is the party to a novation releasing the assignor, or
- (5) can proceed against the first assignee on an estoppel theory (estoppel could also operate against the second assignee by the first assignee)
What is a delegation?
Y (the obligor/delegator) promises to perform for X (the obligee). Y delegates her duty to Z (the delegate)
What duties may not be delegated?
Duties involving personal judgment or skill
Delegations that would change the obligee’s expectancy (e.g. requirements and output contracts)
A special trust has arisen between the original parties to the contract (e.g. attorney/client relationship)
A contractual restriction on delegation
What is required to make a delegation?
The delegator must manifest a present intention to make a delegation
No special formalities are required, no consideration required
It may be written or oral
What are the rights and duties of the parties to a delegation?
The obligee must accept performance from the delegate of all duties that may be delegated
The delegator remains liable on the contract
- The obligee may sue the delegator for nonperformance of the delegate
The obligee may require the delegate to perform only if there has been an assumption (i.e. the delegate expressly or impliedly promises he will perform the duty delegated and this promise is supported by consideration)
The promise creates a contract between the delegator and the delegate in which the obligee is a third-party beneficiary
What is a novation?
It substitutes a new party for an original party to the contract
A novation discharges any rights and duties under the old contract
What are the elements for novation?
(1) A previous valid contract
(2) An agreement among all the parties, including the new party (or parties) to the new contract
(3) The immediate extinguishment of contractual duties as between the original contracting parties, and
(4) A valid and enforceable new contract
What does entrusting do?
Entrusting goods to a merchant who deals in goods of that kind gives the merchant the power (but not the right) to transfer all rights of the entruster to a buyer in the ordinary course of business
- Buying in the ordinary course of business buying in good faith and without knowledge that the sale is in violation of the owner’s rights
What is the voidable title concept?
If a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer
However, a defrauded seller may not recover from a good faith purchaser for value who bought from the fraudulent buyer
The rights of a defrauded seller are cut off both by a buyer and by a person who takes a security interest in the goods
A thief is unable to pass title; title is void.
