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)
