Contracts Law for BAR Flashcards
Armadillos From Texas Play Rap, Eating Tacos
Applicable Law Formation of Contracts Terms of Contract Performance Remedies for unexcused nonperformance Excuse of nonperformance Third-party problems
Contract is a legally enforceable agreement (not just an agreement)
Quasi K / Quantum Meruit is an equitable remedy (restitution), requires elements of:
P has conferred a benefit on D, AND
P reasonably expected to be paid, AND
D realized unjust enrichment if P not be compensated
Recovery in quasi K is value ob benefit conferred.
Bilateral K…
offer that is open as to the method of acceptance.
offerree can return promise or go out and perform
Unilateral K
offer that expressly requires performance as the only possible method of acceptance
(return promise doesn’t cut it)
usually reward/prize or offer requires performance for acceptance and uses words ‘offer’ ‘only’ ‘by’
Common law applies to..
everything except the sale of goods
Article 2 of the UCC applies to….
sale of goods (tangible personal prop)
IF transaction is mixed, goods and services.. use ‘all or nothing/more important part’ predominant purpose test
Court factors:
1) worth of goods versus service
2) time spent on service portion (less time = UCC)
3) sophistication of service (surgery)
4) typical sales language in the K
In looking for a legally enforceable agreement, look for 3 things:
1) the initial communication (offer)
2) what happens after the initial communication (termination o the offer)
3) who responds and how (acceptance)
basic test for an offer..
whether a reasonable person in the position of the offer would believe that his/her assent creates a K
Sale of real estate requires…..
price and description of land.. or else not an offer
Sale of goods, article 2 has no price requirement, still an offer if the parties so intend
price can be filled in later via gap fillers in UCC (FMV)
Vague or ambiguous material terms not an offer under UCC or common law
3 magic words:
- appropriate
- fir
- reasonble
Requirements/output K’s are valid. Magic words include…
Requirements, All, Only, Solely
But no unreasonably disproportionate increase is allowed. Buyer can increase output requirements so long as increase is in line with prior demands.
An AD is not an offer, but an invitation to deal. 2 exceptions…
1) ad can be an offer it is in the nature of a reward
2) ad can be offer if it is specific as to quantity and expressly indicates who can accept.
Four methods to terminate an offer…
1) lapes of time (time stated or reasonable time)
2) words or conduct of offerror (revocation of an offer)
3) Words or conduct of offerree (rejection)
4) Death of a party prior to acceptance
Lapse of time to terminate an offer
if more than 30 days between offer and acceptance on exam then raise lapse of time rule.
Words or conduct of offeror to terminate an offer (revocation) can be:
- an unambiguous statement by Offeror to offeree of unwillingness or inability to contract OR
- unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of.
Offeree has to know/hear/see about oferorr revocation for it to be effective.
Offer terminated only if reasonable/resliable source informs ofereee. If unreliable source, then possible ofer still open.
Revocation of an offer becomes effective when received.
An offer cannot be revoked after it has been accepted = breach.
Four types of offers that CANNOT be revoked by offeror
1) if the offeror has promised to keep the offer open AND this promise is supported by consideration (OPTION K)
2) Merchant Firm Offer Rule - offer can’t be revoked for up to 3 monhts if (i) offer to buy or sell goods, (ii) signed, written promise to keep offer open, and (iii) party is a merchant.
3 Reliance: an offer cannot be revoked if there has been detrimental reliance by the oferee that is reasonably foreseeable on the offerors part. (using sub’s bid in construction K)
4) The start of performance pursuant to an offer to enter into unilateral K, makes that offer irrevocable for a reasonable time to complete performance. Requires start of performance, not mere prep to perform.
third method of termination: words or conduct of offeree (rejection).
Three methods of indirect rejection (counteroffer, conditional acceptance, and additional terms (common law only)).
1) counteroffer terminates offer and becomes a new offer. Bargaining does not terminate the offer.
2) conditional acceptance operates same as counter offer. terminates the offer and becomes a new offer. Look for phrases such as ‘if’ ‘but’ ‘provided’ ‘ so long as’ ‘on condition that’
3) additional terms to a COMMON law K: Mirror Image Rule. Under Common Law, an acceptance that adds new terms is treated like a counteroffer.
* additional terms still acceptance under UCC (2-207), seasonable expression of acceptance. If BOTH parties MERCHANTS, the additional term is part of the K. Two exceptions: 1) additional term not part of K between merchants if it materially changes the offer. 2) additional term is NOT part of K between merchants if the Offeror objects to the change.
* Knock out rule: conflicting terms deleted.
Fourth method to terminate an offer: death of party prior to acceptance:
death or incapacity terminates the ofer.
2 exceptions…
1) Option: if party dies during option K, it doesn’t terminate. Oferee can still accept.
2) Part performance of offer to enter into unilateral K: if offeror dies while party starts performing - party still has right to complete K and be paid.
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 CANNOT be assigned. Options can be assigned unless the option otherwise provides.
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Six methods of accepting an Offer…
1) Oferee fully performs (notice may be required depending on what the offer provides and whether the oferee has reason to believe that offeror will not learn of acceptance.
2) Offeree starts to perform (acceptance in bilateral K, not acceptance in unilateral K. Unilateral K requires completion of performance, start of performance is not acceptance).
3) offeree promises to perform (note, offers that expressly require performance must have performance for acceptance and reward offers required performance.)
4) Offeror and Offeree are at different places and there are conflicting communication between parties.1) Generally communications are effective only when received. 2) Generally acceptance is effective when SENT. 3) If rejection sent first, then ignore rule 2.
5) Seller of goods sends “wrong goods” = acceptance and breach. Note: Accommodation Exception when seller provides an explanation, that is a counteroffer and no breach.
6) Offeree is silent. Silent is not Acceptance. Exception: if custom between parties indicates acceptance is reasonable, or offeree by words or conduct agrees that silence is acceptance then silence is acceptance.
Legal reasons for not enforcing an agreement include
1) lack of consideration or a consideration substitute
2) lack of capacity of the person who made that promise
3) statute of frauds
4) existing laws that prohibit performance of agreement
5) misrepresentation
6) duress
7) unconscionability
8) ambiguity in words of agreement
9) mistakes at time of agreement as to the material facts of agreement
Consideration is bargained for legal detriment. Legal Value.
Look at each promise separately. typically not an issue
Forms of consideration:
1) performance (doing something not obligated to do)
2) forbearance (not doing something entitled to do)
3) promise to perform
4) promise to forbear
Possible consideration issues include…
1) consideration must be bargained for (asked for by the promisor in exchange for her promise)
A promise along is consideration
Seller promises to sell house. Buyer promises to buy house. K formed.
If S promises to sel louse unless she changes her mind = illusory promise which lacks consideration.
Past consideration is NOT consideration. One exception…..
Exception: when act expressly requested and party knew in advance there would be an expectation to be paid for it.
Preexisting contractual or statutory duty rule (common law and UCC different)
Common law: doing what you are already legal obligated to do is not consideration for a promise to pay you more to do merely that. need new consideration to modify K governed by common law.
3 exceptions to common law Preexisting contractual or statutory duty rule
1) addition to or change in performance
2) unforeseen difficulty so severe as to excuse performance
3) a third party promises to pay
Article 2 does not have a Preexisting contractual or statutory duty rule
Good faith is the test for changes in an existing sale of goods K.
Part payment as consideration for release (promise to give balance of debt) - requires debt be not yet due or disputed to be valid.
if debt is due and undisputed, then part payment is NOT consideration for release.
If debt not yet due or disputed, then part payment is consideration.
A written promise to pay debt for which there is a legal defense (such as statute of limitations) is enforceable without new consideration
legal action on debt barred by SoL, but person with debt writes letter offering to make a payment = enforceable even though no consideration.
Promissory Estoppel (detrimental reliance) is the most important consideration substitute.
elements of promos. estop:
1) promise
2) reliance that is reasonable, detrimental, and foreseeable
3) enforcement necessary to avoid injustice (someone does great deal of work in reliance on promise)
Three persons that lack capacity to contract….
1) infant, under 18
2) mental incompetents
3) intoxicated persons, IF the other party has reason to know(linsday lohan)
These persons have a right to disaffirm; can’t be sued.
IMplied affirmation by retaining benefits after gaining capacity (buys car when 17, doesn’t pay, but keeps and enjoys after turning 18)
A person who doesn’t have capacity is legally obligated to pay for things necessary such as food, clothing, med car or shelter, but that liability is based on quasiK law, not K law.
Statute of Frauds (SOF) is a statute designed to prevent fraudulent claims - to make it harder to make a false claim that there is a contract.
SOF makes it harder to make such a false or fraudulent claim by requiring special proof that a K exists.
Three primary SOF issues…
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1 is K within SOF (common law covers 5 kinds of K within sof; UCC brings an additional K within SOF)
2 if so, is SOF satisfied? SOF is evidentiary. requires special proof that the alleged agreement is made… generally satisfied by either performance or by a writing.
3 is there a SOF defense? SOF is defense to enforcement of agreement that is within the statute if the SOF is not satisfied.
The K’s within the SOF (1-3)
1) Promise in consideration of marriage (not a promise to marry, but a promise to do something or refrain from doing something if we marry)
2) promise by executor or administrator to pay obligation of estate from his own funds (not merely promise to pay estate expenses but promise to pay the estates expenses from other funds)
3) Promises to answer for (guarantee) debts of another. Not merely a promise to pay but rather a promise to pay if someone else does not. MUST BE GAURANTEE. (Main purpose Exception - SOF n/a b/c can look to see job done)
The K’s within the SOF (4-6, the heavily tested ones)
- 4) Service K not capable of being performed within 1 year from the time of the K (subject to SOF if more than 1 year)> More than 1 year from date of K then SOF applies. If task and nothing said about time, then SOF DOE NOT Apply (what might have happened with unlimited resources = job complete within 1 year). Lifetime K = SOF does not apply b/c P could die tomorrow.
- 5) Transfers of Interest in Real Estate of a Term More Than One Year. (does not include construction condition to build something). Lease for one year not covered by SOF.
- 6) Sale of goods for $500+ (on the nose).
If SOF satisfied then there is no SOF defense. If SOF not satisfied then there is a SOF defense.
SOF can be satisfied by…
1) PERFORMANCE
a) service K = full performance by either party satisfies SOF; part performance of service K does not satisfy SOF.
b) Sale of goods K
(I) ordinary goods - part performance of a K for sale of gods satisfies SOF but only to the extent of the part performance.
- SOF satisfied with respect to already delivered goods. Court can see you have the goods. If goods undelivered, then seller has SOF defense.
(II) specially manufactured goods exception - if K for goods to be specially made, SOF satisfied as soon as seller makes a substantial beginning of making or obtaining the goods.
(C) Real Estate Transfer K - part performance by buyer can satisfy SOF if any 2 of following 3 met: i payment (full or close to full) ii possession and/or iii improvements.
SOF can be satisfied by… I performance and 2….
2) WRITING
a) when not UCC, look at contents of writing(s) - all material terms (who and what ) and ii) who signed the writing - must be signed by party to be sued (defendant) (WHO, WHAT, SIGNED BY D)
b) when UCC, look to contents of writing and who signed the writing. Writing must contain the quantity term (how many).
—- UCC exception to rule that writing must be signed by Def. Merchant Confirmatory Memo Rule (Answer Damn Letter Exception) Both parties must be merchants, person receives signed writing with quantity term claiming a K and fails to resound within 10 days of receipt.
SOF can be satisfied by… I performance and 2 Writing and 3….
3) Judicial admission of sale of goods agreement
Admission - statement by D acknowledging the agreement
Judicial - statement appeared in pleadings or testimony or in response to discovery.
Equal Dignity Rule (auth to enter into K for someone else)
Authorization must be in writing IF the K to be signed is within the SOF.
Contract Mods - when is there a legal requirement of written evidence for a contract mod
1) loook at the deal with the alleged change and
2) determine whether the deal with the alleged change would be within the SOF. If so, then as a matter of law, the alleged mod must be in writing.
(lease mod less than 1 year = no writing; lease mod more than 1 year = writing). Mod to Goods K over $500 = writing; Mod too goods K under $500 = no writing.
Under COMMON LAW, contract provisions requiring all mods to be in writing are IGNORED.
Under UCC, K provisions requiring written Mod are effective unless waived.
If subject matter illegal then agreement void.
If subject matter legal but purpose is illegal then agreement enforceable only by person who did NOT know of the illegal purpose.
Misrepresentation - False assertion of fact OR concealment of facts. No requirement of fraud
Even honest misrepresentation allows Buyer to cancel K.
Duress: physical or economic
Economic duress includes (a) a bud guy with improper threat (b) vulnerable guy with no reasonable alternative but to agree to the threat.
Unconsionability applies to all K law and empowers a court to refuse to enforce all or part of an agreement. Two basic tests…
Unfair surprise and oppressive terms are tested as of the time the agreement was made. Q for the judge.
Along term K that now looks one sided is NOT unconscionable.
Ambiguity in words of agreement.
No K if (1) parties use a material term that is open to at least 2 reasonable interpretations AND (2) each party attaches a different meaning to the term AND (3) Neither party knows or has reason to know the term is open to at least 2 reasonable interpretations.
If one party knew of the ambiguity, then K is valid under the innocent party’s terms.
Mistake of fact existing at time of K
No K if (1) both parties mistaken and (2) basic assumption of fact, and (3) materially affects the agreed exchange.
if mutual mistake as to what it is, the existence of the subject matter then agreement not legally enforceable.
if mistake is to value/worth then agreement still enforceable.
Unilateral mistake of fact (1 party). Courts releunctat to allow a party to avoid K for a mistake made by only one party. 2 exceptions
1) palpale (obvoius) mistakes - if other party to the K should have known of mistake, courts grant relief to unmistaken party.
2) mistakes discovered before significant reliance by the other party.
parol evidence rule
final writing supersedes prior oral negotiations and written agreements.
Integration = written agreement that court finds is the final agreement, triggering the parol evidence rule
partial intergration = written and final but not complete for the entire deal.
complete integration = written and final and complete
Merger clause
K clause saying this is complete and final agreement.
Parol evidence ….triggered when there is a writing…..
1) is limited to the words of 1 or both of the parties
2) can be oral or written
3) comes before the integration
parol evidence rule prevents a court from considering earlier agreements as source of terms that are inconsistent with the terms of the written K.
Court may consider evidence of such terms for limited purpose of determining whether there was a mistake in integration (mistake in in reducing agreement to writing)
PAROL EVIDENCE NOT ADMISSABLE TO CHANGE THE TERMS OF A WRITTEN K.
If Clerical error, mistake in integration, evidence of earlier writings can be considered so court can fix clerical error
Defense exception: court can consider earlier words of parties for the limited purpose of determining whether there is a defense to enforcement of an agreement, such as misrepresentation, fraud, duress.
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Earlier agreements can be considered to resolve ambiguities in the written K. Explanation exception.
Court can consider oral or written evince to explain the ambiguous term in the K.
parol evidence rule prevents court from considering earlier agreements as a source of constant, additional terms UNLESS the court finds the written agreement was only a partial integration.
Partial integration you can add to the deal.
complete integration, court will not allow additional terms.
to fill gaps in K’s courts will first look to..
1) the words of the parties (k terms)
2) course of performance - same people, same K
3) course of dealing - same people, different but similar K
4) custom and usage in the industry - different but similar people, different but similar K
UCC - absent agreement for place of delivery - delivery is sellers place of business unless parties know goods some place else, then that place is place of delivery.
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Delivery by common carrier: shipment K and Destination K
FOB (CITY). Seller city = shipment K. Any other city = destination K.
Shipment K: seller completes delivery obligation when (1) gets goods to common carrier, (2) makes reasonable arrangements for delivery, and (3) notifies the buyer.
Destination K: seller does not complete delivery obligation until goods arrive where buyer is.
Risk of loss rules:
(if risk of loss on B, he has to pay full K price)
(if risk of loss on S, no obligation on buyer; possible liability on seller for nondelivery).
1) agreement allocates risk
2) breach (breaching party liable
3) delivery by common carrier other than seller (risk of loss shifts from S to B at time S completes its delivery obligations)
4) no agreement, no breach, no delivery by carrier. Then IF Seller Merchant, risk of loss shifts from merchant S to B on B’s receipt of goods; risk of loss shifts from non-merchant S when he ‘tenders’ the goods.
Express warranty
look for words that promise, describe or state facts. distinguish from sales talk.
CANNOT BE DISCLAIMED.
Implied warranty of merchantability - automatically added as operation of law when any person buys from a merchant.
Goods are fit for ordinary foreseeable purpose for which such goods are used.
Seller is merchant dealing in goods of that kind.
CAN BE DISCLAIMED>
implied warranty of fitness for a particular purpose
buyer has particular purpose; B is relying on S to select suitable goods; S has reason to know of purpose and reliance.
CAN BE DISCLAIMED>
Dislaciming implied warranties, possible by stating -
1) as is or with all faults
2) conspicuous language of disclaimer, mentioning merchantability.
It is possible to limit remedies, even for express warranties.
test is unconsionability.
prima facie unconscionable if breach of warranty on consumer good causes peronsal injury.
PERFORMANCE: at common law, look to terms of K.
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PERFORMANCE IN UCC SALE OF GOODS HAS 6 CONCEPTS
1) PERFECT TENDER RULE. S obligated to deliver perfect goods. Close not good enough.
2) Rejection of the goods - if goods less than perfect ,B has option t reject unless cure or installment sale K. Rejection MUST occur before acceptance.
3) CURE - second chance for S. Buyer cannot compel. A) If prior deals between B and S with prior allowances, cure likely even if time of performance has expired. *B) IF time of performance not expired then cure allowed (improper tender early).
4) Installment Sale K - delivery in separate lots to be separately accepted. B has right to reject only if substantial impairment in that installment that CANT be cured.
5) Acceptance of the Goods - If B accepts, cannot later reject. B accepts by express acceptance. Payment without opportunity to inspect is not acceptance. If buyer keeps good without objection = IMPLIED ACCEPTANCE.
6) REVOCATION of Acceptance of the Goods. (i) nonconformity substantially impairs values of the goods to the B, (ii) excusable ignorance of grounds for revocation or reasonable reliance on S assurances, (iii) revocation within a reasonable time after discovery of nonconformity.
Payment, 3 rules…
1) cash unless otherwise agreed
2) B can pay by check
3) S does not have to take check but that gives B additional time.
Courts relunctant to grant equitable remedy of specific performance (SP).
RULE: equitable remedies available only if legal remedy ($ damages) is inadequate. Secondly, judicial administration of SP decree would be difficult
Land is always SP b/c all land unique. Easy for court to supervise.
Generally no SP for sale of goods K. If unique goods (antique, custom made) and can’t get goods anywhere else then can get SP.
No SP for a K for services, possible injunctive relief.
Reformation: equitable remedy where court changes/reforms the K.
(not very common)
if mistake in writing the agreement, omission or clerical error, reformation possible.
Fraudulent misrep as to what is in the agreement then reformation is available. one party’s mistake about what is in the writing is due to other party’s fraudulent misrep.
Reclamation - right of unpaid seller to get goods back.
B must have been insolvent at time it received goods
2) S demands return of goods within 10 days of receipt and
3) B still has the goods at time of demand.
Entrustment - if owner leaves goods with person who sells goods of that kind and that person wrongfully sells the goods to a 3P…… such a good faith purchaser from dealer cuts off rights of original owner.
owner will have to go against the person entrusted with the goods to get item back.
*if thief stole the good and resold that is N/A here.
Compensatory Damages…
compensate P, not punish D.
Expectation Interest…
Put P in same economic position as if K has been performed.
Reliance Interest….
Put P in same economic position as if K had never happened
Restitution Interest…
Put D in same economic position as if K had never happened (prevent unjust enrichment)
Look at what D unjustly gained.
$ damages for sale of goods - Part 7 of Art. 2- put innocent party where it would have been had K been performed.
Look at 1) who breached and 2) who has the goods:
1) seller breaches, buyer keeps goods (B gets FMV if Perfect Tender, minus FMV as delivered) FMV - actual delivery (preserves B benefit of bargain
2) S breaches, S keeps goods (B gets market price at time of discovery of the breach minus K price OR replacement price minus K price)
3) B breaches, B has goods (S gets K price)
4) B breaches, S has goods. (S gets K price minus market price at time and place of delivery OR K price minus resale price and in some situations, provable lost profits.
* Lost volume seller rule = provable lost profits.
Incidental damages = cost of finding replacement K. cost of dealing with breach = always recoverable.
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Foreseeable Consequential (special) damages = damages arising from P’s special circumstances
recoverable only if D had reason to know at time of K.
Fairness to D so they know what they getting into.
Avoidable damages (subtracted) - no recovery for damages that could have been avoided without undue burden on P. burdens of pleading and proof on D.
duty to take substantially similar employment.
duty to mitigate rule.
Damages cannot be speculative.
reasonable certainty limitaiotn, show damages with reasonable certainty.
K provision regarding damages = liquidated damages
must make sure not too high as to be penalty. Look for
1) damages difficult to forecast at time K made and 2) provision is a reasonable forecast.
Single set lump sum that doesn’t vary with severity of breach = penalty and invalid.
limitation of remedies provision is generally valid unless so low its uncionsianable.
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Common Law Material Breach Rule (3 General Rules)
1) damages can be recovered for any breach, no matter how slight (expectation interest)
2) only a material reach by one guy excuses the other guy from performing
3) whether breach is material is a fact Q
Divisible K exception: for divisible K, apply material breach rule on unit by unit basis.
ARticle 2 perfect tender rule (no material brach rule in Art 2)
Close not good enough. Must perfectly tender goods or breach and B excused from performing.
Always consider opportunity to cure.
Performance condition: a condition is a mutually agreed upon promise modifier.
language in a K that does not create a new obligation but limits obligations created by other language in the K.
hypo will have the K already formed.
A covenant (duty/promise) is NOT a condition
keys to identifying an express condition: ‘if’ ‘provided that’ ‘so long as’ ‘subject to’ ‘in the event that’ ‘unless’ ‘when’ ‘until’ ‘on condition that’
Most bar exam Qs do not have express conditions
Rule: strict compliance required to satisfy an express condition.
reasonable person exception: condition based on approval of a party to K is satisfied if reasonable person would approve.
Unless subject is art or other matter inherently discretionary.
express condition can be excused by estoppel. (before)
estoppel is baed on a statement by the person protected by the condition BEFORE the conditioning event was to occur and requires a change of position.
express condition can be excused by waiver. (after)
waiver is based on a statement by person protected by condition AFTER the conditioning event wa to occur and does not require a change of position.
Anticipatory Repuidation is an unambiguous statement (i) that the repudiating party will not perform (ii) made prior to the time that performance was due.
Excuses the other party’s duty to perform. Gives rise to immediate claim for damages and breach.
*CAN be retracted so long as no material change in position by the other party. if timely retracted, duty to perform is reimposed but performance can be delayed unit adequate assurances provided.
inability to perform: performance excused. look for person getting/buying a thing as performance but thing is gone.
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Rescission (cancellation) of K. Key is whether performance is still remaining from each of the other partees.
party that performed work with some work remaining can get quasi K restitution for job performed.
if work already performed/completed, parties can’t cancel deal even if they agreed to do so.
Accord: an agreement by parties to already existing obligation to accept DIFFERENT PERFORMANCE in satisficaton of the existing obligation.
Satisfication: that different performance
If accord not performed, other party can sue on either rthe original obligation or the accord. Cant sue on both, but can sue on either.
Modification (substituted agreement)
Modification is an agreement by parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation.
deliver widgets instead of owing $1k.
Novation (substited person)
an agreement between BOTH parties to an existing K for sub of a new party.
Same performance, different party.
Novation excuses the contracted for performance of the party who substituted for or replace, no longer on the hook.
Delegation is only 1 party, not both (thats novation). Delegation does not require agreement of both parties and does not excuse the original party
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Impossibility/Impractability/Frustration of purpose can excuse performance of K duties
(1 something happens after K formation but before completion of K performance
2) event unforeseen
3) makes performance impossible or commercially impractaabiel or frustrates the purpose of performance.
impossibility is objective, can’t be done.
impracticability is subjective, can only be done with extreme and unreasonable difficulty and expense
Damage or destruction of subject matter of K
K to paint house then house destroyed = impossibility
K to build house, after starting house burns down = NOT impossible, B can still build just take longer.
Car destroyed while risk of loss still on seller
nonperformance excused due to impossibility. Car no longer exits.
Car destroyed while risk of loss on buyer
B still has to pay, not impossible to pay $.
Death excuses only when party to K is special person (famous architect).
if person not a party to K (carpenter) then no excuse. If party to K but not a special person, no excuse = still possible to perform.
Later law makes performance of K illegal….
excuse by impossibility
Later law (or other event) makes mutually understood purpose of K illegal
excuse by frustration of purpose
Third party Beneficiary (someone trying to enforce K she did not make). 3P not a party to K, but able to enforce K others made for her benefit.
Two parties contract with intent to benefit a third party.
person making promise that benefits 3P = promisor.
Person who obtains the promise that benefits the 3P = promisee.
**ONLY intended 3P has K rights. Incidental do not have rights.
Creditor 3P beneficiary if owed $ by promise.
Otherwise, donee beneficiary.
3P rights VEST when 3P knows of AND has relied on or assented as requested.
Once 3P vested the K cannot be canceled or modified w/o her consent unless the K otherwise provides.
3P beneficiary can sue promisor directly.
Promisor can assert any defense against 3P that he would have had if sued by promisee.
promisee can sue promisor directly.
Donee beneficiary CANNOT sue promisee but creditor beneficiary CAN sue promisee on pre-existing debt.
An Assigment: a transfer of rights under a K in 2 separate steps:
1) K between only 2 parties
2) one of the party’s later transfer of RIGHTS under that K to a 3P.
Assignor
party to K who later transfers rights under K to another
Assignee
NOT a party to K. Able to enforce K because of assignment
Obligor
Other party to the K.
Prohibition
Takes away right to assign but not the power to assign. Assignor liable for breach but Assignee who doesn’t know of prohibition can still enforce the assignment
Invalidation
Takes away both the right to assign and the power to assign. Breach by assignor and NO RIGHTS IN ASSIGNEE
Common law bars an assignment that substantially changes the duties of the obligor.
even if k does not limit right to assign.
applies to performance rights, not right to payment.
Requirements for assignment…
1) must be present assignment, can’t say i promise to assign
2) no consideration required, can make a gift assignment.
Assignee can sue the obligor.
Obligor has same defense against assignee as it would have against assignor.
Payment by obligor to assignor is effective until obligor knows of assignment.
Multiple assignments:
Last GRATUITOUS assignee wins.
gift assignment can be freely revoked.
Revocation accomplished directly or indirectly by bankruptcy, death, assignor taking performance directly from obligor, or making of another assignment.
Multiple assignments:
First assignee for consideration wins. Must be valid assignmetn
Limited exception: subsequent assignee takes priority over an earlier assignee for value only if he both (1) does not know of earlier assignment and 2) is first to obtain payment, a judgment, novation, or indicia of ownership.
Multiple assignments for consideration as breach of warranty - assignor makes a warranty tha the ights assigned are assignable and enforceable
A beech of warranty can be brought against an assignor who violates.
Delegation: party to K transferring work/duty under that K to a third party
Assignment = transfer of rights
Delegation = transfer of duties or burdens
K duties are delegable.
delegations permitted unless either (1) K prohibits delegations or prohibits assignments or (2) K calls for dry special skills or (3) person to perform K has very special reputation.
If 3P does not perform delegating party always remains liable.
delegetee liable only if she receives consideration from delegating party.
delegation for consideration creats 3P beneficiary situation/obligation.
