CONTRACTS SEMESTER #2 Flashcards
3PB Diagram
K
Promissee ⎯ ⎯ ⎯ ⎯Promisor
(PEE) (POR)
⧹ ↓
⧹ ↓
⧹ ↓
Intent to ⧹ ↓ Performance
Benefit ⧹ ↓
⧹ ↓
⧹ ↓
3pb3PB
The parties in a third party beneficiary (3P3) contract are the promisee, the promisor and the 3PB. To have rights under a contract, a 3PB must be intended and vested.
How is a 3PB intended?
To be intended, a two-prong test must be satisfied: (1) The PEE must intend to benefit the 3PB (either as a creditor or a donee beneficiary) and (2) the POR’s performance must run to the 3PB. For a creditor beneficiary, intent is presumed; for a donee beneficiary, intent must be established either through contractual language or a legal/social relationship between the promisee and the third party.
How is someone VESTED in a 3PB?
To be vested, the 3PB must have knowledge of the contract and must either assent to the benefit, detrimentally rely on it, or bring suit. The promisor and the promisee can rescind or modify the contract at any point prior to the 3PB becoming vested.
3PB Defenses
The promisor can raise any defense to the 3PB that the promisor could raise as a defense against an action by the promisee. An intended and vested creditor beneficiary can sue both the promisee and the promisor, but is only entitled to one recovery.
ASSIGNMENT Diagram
K
Obligor —————— Assignor
↘ ↓
↘ ↓
Performance ↘ ↓ Right to Performance
↘ ↓
↘ ↓
↘ ↓
Assignee
Assignment
An assignment is the present and immediate transfer of a right to receive performance. The assignor assigns the right of performance to the assignee and the obligor must then perform for the assignee. Assignments are favored by the court and have only 4 limitations: prohibition in contract (anti-assignment clauses destroy the right but not the power to assign), legal prohibition, and you cannot assign a contract for personal services and the assignment cannot materially alter the obligor’s risk or the character of his performance. Under the UCC, all anti-assignment clauses are unenforceable.
Multiple Assignments
When multiple assignments exist, the first irrevocable assignment is honored unless one of the subsequent assignees is able to secure performance without the knowledge of the previous assignments. Any gratuitous assignments are revoked by any subsequent irrevocable assignments. An assignment can be made irrevocable by being in writing, detrimental reliance, a token chose or consideration.
Obligor Defenses
An obligor can assert any defense against the assignor that he could with the assignee. One the obligor has notice of the assignment, they must deal with the assignee.
DELEGATION Diagram
K
Delegor--------------Obligee
Duty to ↓ ↗
perform ↓ ↗
↓ ↗
↓ ↗ Performance
↓ ↗
DelegateDelegation
A delegation is a transfer of duties to be performed. A valid delegation requires that the delegor identify/communicate the duties to be performed and then the delegate promises to perform those duties either expressly or impliedly. Even though there’s a valid delegation, the delegor remains responsible as a surety under the contract.
Obligee
The obligee must accept performance form the delegate in a valid delegation. If the delegation is gratuitous, the obligee cannot sue the delegate and the delegor remains a surety. When there is a delegation for consideration, it forms a 3PB contract and allows the obligee/3PB to sue both the delgor and the delegate if there is a breach, but is limited to one recovery.
Delegation Limitations
A delegation can be limited and deemed improper: Contrary to assignments, a contract provision will prohibit a delegation and the obligee can ignore performance by the delegate. If the K is for personal services or depends on trust or confidence (e.g. lawyer) or the delegation substantially changes the nature of the performance it cannot be delegated. Output K generally cannot be delegated. If it varies the K terms of a different time or place, it cannot be delegated.
There can be both an assignment and delegation at the same time (e.g. sale of business). Assuming it is for consideration, this creates a 3PB and the delegor remains a surety.
COVENANT
A Covenant is a promise to perform and create duties. Covenants do not forfeit the entire contract.
Words/phrases that often create 3 covenant (and not a condition) includf-! “I agree,” “I promise,” and “I covenant.”
Words that often create a condition include: “If,” “provided,” and “unless.”
CONDITIONS
CONDITIONS are events which set the time and the order for performance. Satisfaction or excuse of a condition matures the other party’s obligation to perform. Failure to perform a matured obligation is a breach of contract which excuses counter-performance and is subject to contractual remedies. Conditions are categorized by Time: Precedent, Concurrent, Subsequent and Type: Express, Implied, Constructive. Express and Implied conditions must be strictly complied with while Constructive conditions can be satisfied by substantial performance.
Conditions Precedent
Conditions Precedent must occur before a party’s duty to perform matures.
Conditions Concurrent
Conditions Concurrent require the parties to mutually perform or tender.
Conditions Subsequent
Conditions Subsequent occur after some other condition or obligation and extinguish a duty or condition that had previously matured (e.g. insurance company’s duty to pay matures when death certificate is produced but is extinguished subsequently if they find death was caused by suicide). For a condition subsequent, the defendant has the burden to prove, by the preponderance of the evidence, that the condition subsequent has occurred, in order to excuse the defendant’s performance.
Express conditions
Express conditions are those imposed by the parties themselves.
Implied conditions
Implied conditions of “good faith” are contained in all contracts and require strict compliance to be satisfied.
Constructive conditions
Constructive conditions are imposed as a matter of law and held to a substantial performance threshold. When one party’s performance takes longer than the other, the duty that takes longer goes first and becomes a constructive condition precedent to the shorter performance (typically, duty to pay).
UCC Rule of Perfect Tender
In a contract for the sale of goods, the UCC Rule of Perfect Tender gives a buyer the right to insist upon “perfect tender” or exact performance by the seller (you get what you pay for — not only quantity and quality but also details of shipment). If the goods fail to conform exactly to the description in the contract, the buyer must give the seller notice and opportunity to correct. If the seller does not correct, the buyer may reject the goods and rescind the contract
Conditions can be EXCUSED by
(PEWFIR)
(PEWFIR)
Wrongful Prevention, Estoppel, Waiver, Relief of Forfeiture, Impossibility, and Repudiation.
Wrongful Prevention
Wrongful Prevention occurs when the obligee prevents the obligor from performing.
Estoppel
Estoppel is a release form duty to perform a specific obligation before the condition to mature that obligation occurs. Estoppel can be revoked and the condition can be re-instated as long as the other party has not detrimentally relied.
Waiver
Waiver is a release from duty to perform after the maturing condition has occurred.
Relief from Forfeiture
Relief from Forfeiture is an inadvertent and innocent failure to perform a condition of strict compliance (e.g. you used the wrong pipe or the mailman dropped your payment)
Jacobs v. Young (“pipes case”) used relief from forfeiture and standard of substantial performance. Public policy is to avoid economic waste.
Impossibility
Impossibility is when the condition becomes objectively legally or physically impossible by anyone.
Repudiation
Repudiation includes Anticipatory Repudiation and Voluntary Disablement. Anticipatory repudiation is an express renunciation of performance (one party unequivocally makes known that he will not perform). Voluntary Disablement occurs when, by words or conduct, non-performance becomes a real concern. It entitles the other party to demand further assurances in writing of the intent to perform and failure to provide those assurances creates an express renunciation.
Conditions of Satisfaction:
Conditions of Satisfaction:
Non-personal items with a condition of personal condition of satisfaction are subject to a Reasonable (objective) test of satisfaction. Personal items with a personal condition of satisfaction are subject to a Good Faith (subjective) test. Items subject to the satisfaction of a third party (e.g. an architect) are also subject to a Good Faith (subjective) test.
Recovery for less than substantial performance can be gained if the performance is either divisible or under quasi contract (e.g. builder builds foundation and walks off job — he’s entitled to be paid for work/materials prior to leaving).
Discharge of a K
There are three things that will discharge a contract by operation of law — Frustration, Impossibility, and Impracticability. Discharge releases all parties from the obligations they have under the contract.
Agreement of Parties: written release, mutual rescission, Accord & Satisfaction.
Frustration of Purpose
Frustration of Purpose is an unforeseen destruction of value of the contract, by no fault of either party. Both parties must have known of the purpose of the K when the K was made.
Impossibility
Impossibility is an unforeseen supervening physical and/or legal obstacle that prevents performance, by no fault of either party. It must be objectively impossible for anyone to perform the duty. Usually occurs when the subject matter is destroyed, illness or death of the performer, or a supervening illegality.
Impracticability
Impracticability is an unforeseen and disproportional increase in risks or costs of performance, by no fault of either party. The risks/costs must be grossly disproportionate (3X is not enough, 10X may be suficient) to what the parties had agreed upon so that it becomes commercially impracticable to perform.
Damages
The purpose of damages is to give the non-breaching party the benefit of the bargain, subject to those damages being FORESEEABLE, UNAVOIDABLE, and CERTAIN. We grant the non-breaching party all foreseeable damages that flow from the breach (any obvious loss profits) plus any consequential damages and any incidental damages (cost of cover or resale not mitigated) that are obtained in an attempt to substitute performance.
Foreseeable
Foreseeable damages include general and special damages.
General damages are those that flow from the contract. They can include expectancy damages (lost profits). When expectancy damages are hard to calculate (e.g. no historical sales data) the party can at least recover reliance damages (out-of-pocket damages). You CANNOT recover both reliance and expectancy damages; you get one or the other. However, you CAN recover reliance and special damages.
Special damages are those that are foreseeable based on a special knowledge that the breaching party has (or should have known) regarding a loss that the non-breaching party sufers (e.g. “special salmon supper” planned).
Unavoidable damages
Unavoidable damages are those which the non-breaching party was unable to mitigate. The non-breaching party has an obligation to mitigate damages (cover contract or resale). Breaching party has burden to show failure to mitigate (standard = POE). Damages that could have been avoided are subtracted from the non-breaching party’s damage reward.
Certain
Certain damages are those that can be measured or valued reliably. The non-breaching party must show that the damages they have suffered have value and what that value is.
Measure of Damages
Measure of Damages can be calculated based on (a) Cover Contract (entitled to the difference required to cover) OR (b) Market Price (you are entitled to difference between contract price and market price if market price is higher)
Equitable Remedies
Equitable Remedies include Specific Performance and Injunction and will only be granted when legal remedies prove inadequate.
Specific Performance
Specific Performance may be granted when there is a breach of contract, with very certain and definite terms, a legal remedy is inadequate (because the product/service is unique) and specific performance is still feasible to enforce specific performance. Note: Long term requirements contracts can be specifically enforced.
Injunction: IFPIB
An Injunction is when the court orders someone to do or not to do something and may be granted if the court finds there is irreparable injury, it is feasible, the parties are easily identifiable, legal remedies are inadequate, and the court has conducted a balancing of the interests (harm to P, impact on D, community, etc.)
Injunctions include covenants not to compete. Covenants not to compete must be reasonably limited in time, geographic area, and scope. Covenants not to compete on employment contracts are generally not enforced unless they involve trade secrets, customer lists, or unique services.
Equitable Defenses
Equitable Defenses include Clean Hands (you don’t quite have to prove outright fraud or outright material misrepresentation), Laches (unreasonable delay in bringing the action), and Inadequate Consideration (not a fair deal even though it wasn’t a same considerations, it’s not adequate).
Full Performance
Full performance by one party entitles that party to the contract price.
Liquidated Damages
Hard to calculate and reasonable estimate. Punitive Damages are generally not allowed in contracts cases unless there’s fraud, malice or depression? (will need to know for bar, not law school exam)
Intended 3PB vs. Incidental 3PB (no rights)
- Promissor obligation performance runs to 3PB
- Promissee intent to benefit 3PB:
a. creditor: discharge duty owed 3P
b. donee: confer gift/right on 3P
Intent to benefit:
a. Contract Language: contract for benefit of 3rd party / Incidental beneficiary has no rights under contract
b. Contract requires performance directly to 3PB
c. Legal/Social relationship between Promisee and 3PB
If intent to discharge duty owed 3rd party, creditor beneficiary
If intent to confer gift or right on 3rd party, donee beneficiary
Intent presumed: creditor
Intent must be established: donee
Rights of 3pb against Promisee
a. Donee has none
b. creditor can assert original claim against promisee
UCC buyers Breach
UCC
Sellers:
satus quo: keeps control when buyer breach
during Manufacturer: Seller can do anythign reasonable : a. Sell as scrap b. sell as complete
Goods in transit: stop delivery
After Delivery: reclaim form insolvent buyer within 10 days (before other creditors)
Once seller has goods:
resale & difference in price
or
2. Sue for difference between K price & market price
Lost volume sales: lost profits
UCC Seller’s Breach
Buyers on Seller Breach: a. non delivery b. conforming c. Defective Goods
rejection: before buyer accepts
revocation of acceptance
Then notice & opportunity to correct
IF not corrected
Cover (K price)
or
2. Market Price difference
Semester Outline
o oo a c 90 D: r i c c u w
UCC: t,p mfo -207 (good faith and mutually agreed upon) modification: PE/sf
3P
Condition
Dis
Dam
UCC: 3p - cant prohibit assigntment cond. : rule of perfect tender dis: dam: seller breach/buyer breach
assignment throwdown:pimk d
present & immediate transfer of rights to perf. invalid if... multiple assignmens K provisions: defenses
Rights of 3PB against Promissor
a. When rights vested, donee or creditor can sue on contract
Promissor may assert any defenses available to 3PB v. Promisee but not defenses to Promisee v. 3PB
Discharge throwdown
Law I I I Agree of p's :
Damages throwdown:
F
U
C
UCC:
UNIQUE GOODS
seller price action
lost volume
specific performance
Delegation throwdown:
transfer of duty Delegor id duties delegate promises Invalid: delegor is surety Delegation for C:
Conditions Throwdown:
time type satisfaction excues breach UCC: rule of perfect tender condition of satisfaction divisible
Equitable remedies
S/Performance- CIF
Injunction: IFPIB
DEFENSES: Laches, clean hands, inadequate consideration
