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Contracts and Sales > Misc. > Flashcards

Misc. Flashcards

1
Q

What does a contract pertaining to the sale of goods typically apply to?

A

UCC

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2
Q

What defense can contract parties in Virginia raise especially where the terms are non-negotiable and egregiously one-sided?

A

unconscionability

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3
Q

What is the status of contractual waivers in Virginia?

A

not enforceable

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4
Q

What is a contract?

A

A legally enforceable agreement

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5
Q

What is an express contract?

A

Contract that results from words

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6
Q

What is an implied contract?

A

Contract that results from conduct which a reasonable person would infer a promise to pay

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7
Q

What is a quasi-contract?

A

It is not a contract. It is the remedy granted when the following elements exist:

  • P has conferred a benefit on D
  • P reasonably expected to be paid
  • D would realize unjust enrichment if P is not compensated
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8
Q

What is the measure of recovery under quasi-contract?

A

It may, as justice requires, be measured by either:

  • Reasonable value of the services rendered (i.e., quantum meruit)
  • Extent to which other party’s property increased in value or his other interests were advanced

Note: the contract price is not the measure of recovery, but it may be a ceiling

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9
Q

What is a bilateral contract?

A

Contract formed from an offer that is open as to the method of acceptance (i.e., can return a promise or just perform)

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10
Q

What is a unilateral contract?

A

Contract formed from an offer that requires performance as the method of acceptance

Two examples on bar exam:

  • Offer that expressly requires performance
  • Offer of a reward
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11
Q

When does Article 2 of the UCC apply?

A

Sale of goods

Definitions:

  • Sale: Passing title from seller to buyer for a price
  • Goods: Personal property
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12
Q

How do you determine whether the UCC applies in a hybrid contract?

A

Majority (including Virginia)

  • Predominant purpose test
    • If the contract primarily involves goods, the UCC applies to the entire contract
    • Factors:
      • Price of goods v. services
      • Amount of labor involved
      • Sophistication of labor
      • Does contract contains typical sales language?
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13
Q

What does it mean that a contract is more than an agreement?

A

It must be legally enforceable

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14
Q

What is an offer?

A

Manifestation of the intent to be bound by contract

Objective test:

  • Would a reasonable person believe that his or her assent created a contract?
  • Do not focus on the person’s subjective intention
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15
Q

What are the essential elements of an offer?

A
  1. Identity of the offeree
  2. Subject matter
  3. Price to be paid
  4. Time of payment, delivery, or performance
  5. Quantity involved
  6. Nature of work involved

The more that terms are left open, the more likely it is that courts will view the communication as mere preliminary negotiations

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16
Q

When can price be left out of a contract?

A

Real estate contract

  • Required
    • Because real estate is unique

UCC sale of goods

  • Not required
    • Because goods are fungible
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17
Q

Can a court fill in vague or material terms in a contract?

A

No. Both common law and the UCC this makes the contract insufficiently definite and clear

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18
Q

When will the courts imply the quantity for a contract?

A

Requirements contract

  • Buyer agrees to buy all of its good faith requirements

Output contract

  • Buyer agrees to buy all of the seller’s good faith output

Limitations:

  • Must be reasonably proportionate to either:
    • Stated estimate
    • Normal or comparable prior requirements/output
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19
Q

Is an advertisement an offer?

A

Generally, no.

Exceptions:

  1. An advertisement is an offer if it:
    • Is specific to quantity
    • Indicates who can accept
  2. _​_An advertisement is an offer it it:
    • Is in the nature of a reward
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20
Q

Is a price quotation an offer?

A

Only if it is sent in response to an inquiry

E.g., catalog sent after purchaser says, “I need ten of these, how much will you sell them for?”

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21
Q

What is the offer in an auction?

A

The bid, not the auctioneer asking for bids

An auction is with reserve unless the terms state otherwise

Auction without reserve

  • Auctioneer obligated to accept highest bid
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22
Q

How does an offer terminate?

A
  1. Lapse of time
  2. Revocation
  3. Rejection
  4. Death
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23
Q

If no time is expressed for acceptance of an offer, after how long will the offer terminate?

A

After a reasonable time under the circumstances

  • 2 years - yes
  • 2 weeks - probably
  • 2 days - no
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24
Q

How does a party revoke an offer?

A
  1. Statement to the offeree
    • Indicating an unwillingness to contract
  2. Conduct of the offeror
    • That is inconsistent with an intention to contract
    • And the offeror is aware of the conduct
      • Must be reliable
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25
Q

How do you revoke a public offer?

A

Give notice of termination with equal publicity to that given by the offer

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26
Q

When does revocation become effective?

A

When the revocation is received (i.e., mailbox rule does not apply)

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27
Q

When can a party revoke?

A

Anytime before acceptance, unless:

  1. Option contract
    • Promise to keep offer open
    • Supported by consideration
  2. UCC firm offer
    • Contract for the sale of goods
    • Written promise to keep offer open
    • Made by a merchant
  3. Reliance
    • Must be reasonably foreseeable
  4. Performance
    • ​Must be on a unilateral contract only
    • Must be more than mere preparation
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28
Q

Who is a merchant?

A

A person who either:

  • Deals in good of the kind
  • Holds himself out as having knowledge/skill particular to the goods
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29
Q

For how long does the UCC firm offer rule keep an offer open?

A

No more than 3 months, in the absence of additional consideration

If the promise doesn’t state a time period, it is a reasonable time less than or equal to 3 months

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30
Q

How does a party reject an offer?

A
  1. Expressly
  2. Counteroffer (but not mere bargaining)
  3. Conditional acceptance
  4. Acceptance with additional terms (but not under UCC)
  5. Acceptance with conflicting terms (but not under UCC)
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31
Q

Under the UCC, when do additional terms become part of the contracts?

A

When:

  1. Both parties are merchants
  2. Additional terms do not materially alter the contract
  3. Offeror does not object within reasonable time

Otherwise:

  • Agreed terms become part of the contract
  • Disagreed terms are left out
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32
Q

Does adding an arbitration clause materially alter a contract?

A

Majority

  • YES

Minority

  • Depending on industry standard, maybe not
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33
Q

Under the UCC, what happens when conflicting terms are added to a contract?

A
  • Knock out rule
    • The conflicting terms cancel each other out, and the UCC fills in the gaps
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34
Q

When does the death of a party not terminate the offer?

A
  1. Option contract
  2. Part performance of unilateral contract
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35
Q

Who can accept an offer?

A

Only the person to whom the offer was made, and they must be aware of it

So, the power to accept cannot be assigned

But, an option can be assigned unless it says otherwise

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36
Q

How can you accept an offer?

A
  1. Performance
    • Unilateral contract - performance must be complete
    • Bilateral contract - performance must begin
  2. Promise to perform
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37
Q

When can acceptance be done by mail?

A

Acceptance by mail is reasonable if:

  • Offer is by mail
  • Customary in similar transactions at time and place

Mailbox rule:

  • Acceptance by mail is effective when posted (i.e., dropped in mailbox)
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38
Q

What is the difference in terms of the effectiveness of acceptance and revocation?

A

Revocation - effective when received

Acceptance - effective when posted

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39
Q

What are the exceptions to the mailbox rule?

A
  1. Rejection mailed first, rejection received first
    • Acceptance is a counteroffer
  2. Acceptance mailed first, rejection received first
    • If offeror relied on rejection, estoppel may apply
  3. Option deadline
    • Acceptance must be received by deadline (i.e., mailbox rule does not apply)
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40
Q

If a party sends the wrong goods in response to an offer, do they accept?

A

Generally, yes

  • Nonconforming goods is an acceptance and a breach

Exception:
* Accomodation
* If shipper makes it clear that the nonconforming goods are an accommodation, that is a counteroffer

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41
Q

Can silence be acceptance?

A

Generally, no.

Exception:
* When reasonable to interpret silence as acceptance based on prior course of conduct/past dealings

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42
Q

What are the elements of consideration?

A
  1. Promisee must suffer legal detriment
  2. Detriment must induce promise
  3. Promise must induce detriment
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43
Q

What are the different forms of legal detriment?

A
  1. Performance
    • Doing something not legally obligated to do
  2. Forbearance
    • Not doing something legally obligated to do
  3. Promise to perform
  4. Promise to forbear
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44
Q

What is a conditional gift?

A

When promisor intends to make a gift that is conditioned on promisee doing something that doesn’t benefit promisor

It does not satisfy consideration because it is not a bargained-for-exchange

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45
Q

What is the rule regarding past consideration?

A

This is not valid consideration

It results in an unenforceable gratuitous promise

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46
Q

What is the rule regarding moral obligations and consideration?

A
  • A moral obligation is not a substitute for consideration
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47
Q

When is consideration adequate?

A

Courts generally do not inquire to the adequacy of consideration

If the consideration is grossly inadequate, there may be some flaw in the bargaining process, such as:

  • Fraud
  • Duress
  • Incapacity
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48
Q

What is the rule regarding pre-existing duties and consideration?

A

Common law

  • Performing a pre-existing duty is not consideration for a new promise unless:
    • Duty owed to a third person (not promisor)
    • Unforeseen difficulty renders performance vitally different than was originally agreed upon

UCC Article 2

  • Additional consideration not required for modification if:
    • The party modifying acts in good faith
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49
Q

When can partial payment be consideration for a promise to forgive the balance of debt?

A

Only when the debt is either:

  • Not yet due
  • Disputed

E.g., the release of the remaining balance is enforceable if the promisor pays any amount that is either disputed or not due

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50
Q

When can the promise to pay for a settlement be enforceable?

A

As long as the party giving up the claim in good faith believes it is a valid claim

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51
Q

Is a promise to pay debt barred by the statute of limitations enforceable?

A

Only if it is written, and only to the extent of the new promise, and not the original balance due

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52
Q

What is an illusory promise?

A

It is a promise in form, but not in substance

It is not consideration for the other promise

E.g., I will buy your house if I decide I want it

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53
Q

Who lacks capacity to contract?

A
  • Infants (minors)
    • Persons under 18 years old
  • Mental incompetents
    • Person who is either:
      • Unable to understand in a reasonable manner nature and consequences of transaction
      • Unable to act in a reasonable manner in relation to the transaction
  • Intoxicated persons
    • _​_Other party has reason to know that:
      • By reason of intoxication
      • The person is unable to either:
        • Understand in a reasonable manner nature and consequences of transaction
        • Act in a reasonable manner in relation to the transaction
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54
Q

What are the consequences of incapacity?

A

The contract is voidable - i.e., incapacitated party can disaffirm

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55
Q

Can a contract ever be enforced against a minor?

A

Yes, under the quasi-contract theory if the contract is for necessaries - i.e., items that the minor needs in order to live

Whether something is a necessary is a question of fact

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56
Q

What contracts fall within the statute of frauds?

A

“MY LEGS”

  • Contract in consideration of marriage
  • Contract that cannot be performed within one year
  • Promise creating interest in land
  • Promise by executor or administrator to pay own funds
  • Contract for the sale of goods $500 or more
  • Promise to act as a surety for the debt of another
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57
Q

What makes a marriage contract subject to the statute of frauds?

A

Must be a promise in consideration of marriage (not just a promise to marry)

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58
Q

What makes an executor promise subject to the statute of frauds?

A

Must be a promise by executor to pay his own funds for an obligation of the estate

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59
Q

What makes a surety contract subject to the statute of frauds?

A

Must be a promise to the creditor

Not a promise to the debtor

Not a novation - i.e., a promise to immediately pay the full debt

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60
Q

What is the main purpose rule with respect to the statute of frauds?

A

If a promise to pay the debt of another is for the main purpose of the promisor, it is not within the statute of frauds

E.g., main shareholder promises to act as a surety on the debt of the corporation

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61
Q

Is a contract within the statute of frauds if it is for multi-year employment, but can be terminated anytime?

A

Majority - yes

Minority - no

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62
Q

Is a contract to employ someone for life within the statute of frauds?

A

No. The person could possibly die within the year

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63
Q

Is a contract to grant an easement within the statute of frauds?

A

Only if the easement will last longer than a year

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64
Q

Is a lease contract within the statute of frauds?

A

Only if the lease is for more than a year

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65
Q

What is the equal dignity rule with respect to the statute of frauds?

A

If a contract is subject to the statute of frauds, and therefore must be in writing, you must have a writing in order to authorize someone else to sign it for you

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66
Q

When does the modification of a contract fall within the statute of frauds?

A

When both:

  • Contract, as modified, falls within the statute of frauds
  • Modified terms are essential to the contract
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67
Q

If a contract provides that all modifications have to be in writing, does a modification have to be in writing to satisfy the statute of frauds even if the contract would not fall within the statute of frauds?

A

Yes

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68
Q

What must a contract subject to the statute of frauds have?

A

A writing is required to authorize someone else to sign it for you.

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69
Q

When does the modification of a contract fall within the statute of frauds?

A

When both the modified contract falls within the statute of frauds and the modified terms are essential to the contract.

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70
Q

Does a modification need to be in writing if the original contract requires it?

A

Under common law, the provision is ignored. Under UCC, the provision is valid unless waived.

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71
Q

How is the statute of frauds satisfied for contracts other than for the sale of goods?

A
  1. A writing that contains the identity of parties, description of subject matter, all essential terms, and a signature by the party to be charged. 2. Part performance of an oral real estate agreement. 3. Estoppel to plead statute of frauds. 4. Promissory estoppel.
72
Q

How is the statute of frauds satisfied for contracts for the sale of goods?

A
  1. A writing that contains quantity, indication of contract for sale, and signature by the party to be charged. 2. Writing signed by party seeking enforcement under UCC 2-201(2). 3. Part performance of contract for sale of goods. 4. Specially manufactured goods. 5. Judicial admission.
73
Q

What happens if a contract fails to satisfy the statute of frauds?

A

The contract is unenforceable but not illegal.

74
Q

When does an ambiguity make a contract invalid?

A

When parties use a material term open to at least two reasonable interpretations and neither party knows or has reason to know of the other’s meaning.

75
Q

When does a mutual mistake of fact make a contract invalid?

A

When both parties are mistaken regarding a basic assumption of fact that materially affects the agreement and is not a risk either party bears.

76
Q

When does a unilateral mistake of fact make a contract voidable?

A

Generally never, unless the mistake was obvious and the mistaken party seeks avoidance before the other party relies on the contract.

77
Q

When does duress make a contract voidable?

A

When the party was left with no reasonable alternative but to enter into the contract.

78
Q

What is the key difference between entering into a contract based on a pre-existing duty and entering into a contract based on duress?

A

With duress, the contract is both voidable and you can get your money back. With the pre-existing duty, the contract is only voidable.

79
Q

When does undue influence make a contract voidable?

A

When there is unfair persuasion rather than coercion.

80
Q

What is fraud in the inducement?

A

When one party lies to induce the other party to sign, making the contract voidable.

81
Q

What is fraud in the factum?

A

When one party lies about the nature of the document signed, making the contract void.

82
Q

Does a party have to disclose facts that would discourage the other party from entering the contract?

A

Generally, no, except in specific circumstances such as active concealment or changed circumstances.

83
Q

When will a contract be deemed unconscionable?

A

When there is both procedural and substantive unconscionability at the time of contracting.

84
Q

When will a contract be void due to illegality?

A

When the subject matter or purpose is illegal.

85
Q

When will a contract be illegal because a party does not have a license required by statute?

A

When the license is required to protect public welfare.

86
Q

What are sources of contract terms other than the words of the parties?

A

Custom and usage, past dealings, UCC (if sale of goods).

87
Q

What does the parole evidence rule do?

A

It keeps terms out of the contract when there is a written contract intended as the final agreement.

88
Q

What is the difference between a partially integrated and a completely integrated contract?

A

Partially integrated means everything in here is final, but not everything is in here. Completely integrated means everything in here is final, and everything is in here.

89
Q

What determination does a judge make when considering the parole evidence rule?

A

Whether the contract is integrated and considers various factors and exceptions.

90
Q

What factors does a judge consider when determining the parole evidence rule?

A

Merger or integration clauses, completeness, length of negotiations, and whether the parties had lawyers.

91
Q

What are the exceptions to the parole evidence rule?

A

Using the earlier agreement to explain the writing, establish a defense, show the writing wouldn’t be effective until a condition, or add to the writing if only partially integrated.

92
Q

What is a collateral agreement?

A

An agreement made for separate consideration or one that would naturally be omitted from the writing under the circumstances.

93
Q

What is a shipment contract?

A

Seller’s delivery obligation is satisfied when goods are tendered to the carrier and arrangements made for shipment.

94
Q

What is a destination contract?

A

Seller’s delivery obligation is satisfied when goods are tendered to the buyer.

95
Q

When does risk of loss shift to the buyer in a shipment contract?

A

When the seller completes his delivery obligations.

96
Q

When does risk shift to the buyer if the seller is a merchant?

A

When the buyer receives the goods.

97
Q

What is a sale on approval?

A

When a buyer takes possession of goods for a trial period; risk does not shift until formal acceptance.

98
Q

What can give rise to an express warranty?

A

Must be a basis of the bargain, either through words or conduct.

99
Q

What are the implied warranties?

A

Merchantability, fitness for a particular purpose, and title.

100
Q

What warranties may be disclaimed?

A

Implied warranties of merchantability and fitness can be disclaimed with conspicuous language.

101
Q

When is a limitation of remedies clause valid?

A

So long as it is not unconscionable and does not fail of its essential purpose.

102
Q

What is the statute of limitations for breach of warranty?

A

4 years from tender of delivery unless explicitly extended.

103
Q

In Virginia, who does a warranty extend to if there is personal injury?

A

Anyone who might reasonably be expected to use, consume, or be affected.

104
Q

What is a true condition?

A

A condition that is outside the control of either party.

105
Q

What is a condition coupled with a covenant?

A

A condition within the control of one party that creates an obligation to make a good faith effort.

106
Q

Who has the burden to plead condition precedent?

A

The plaintiff.

107
Q

What is a constructive condition?

A

A condition by operation of law, such as substantial performance of the contract.

108
Q

When will a condition be excused?

A

If the person protected by the condition has done or said anything to justify taking it away.

109
Q

What is the standard used to determine if a party satisfied a condition?

A

Strict compliance for express conditions and substantial performance for constructive conditions.

110
Q

What is the standard for the performance of sale of goods contracts under UCC Article 2?

A

Perfect tender; seller must deliver perfect goods.

111
Q

When can a seller cure an imperfect delivery?

A

If a limited remedy clause gives a contractual right to cure and time for performance has not expired.

112
Q

How does a buyer reject goods?

A

By providing timely notice to the seller, either orally or in writing.

113
Q

When can a buyer reject goods?

A

If the buyer has not accepted, goods are less than perfect, and the contract is not on installment.

114
Q

What is an installment sales contract?

A

Requires or authorizes delivery in separate lots to be separately accepted.

115
Q

When has a buyer accepted goods?

A

When the buyer indicates that the goods conform or keeps them even if they don’t conform.

116
Q

What are the requirements for revocation?

A
  1. Nonconformity substantially impairs value to the buyer. 2. Excusable ignorance of grounds for revocation. 3. Revocation within a reasonable time after discovery.
117
Q

What happens if a buyer continues using the goods after rejection?

A

Yes, unless the use was necessary

118
Q

What are the requirements for revocation?

A
  1. Nonconformity substantially impairs value to buyer
  2. Excusable ignorance of grounds for revocation, or reasonable reliance on seller’s assurances
  3. Revocation within reasonable time after discovery of nonconformity
  4. Revocation before substantial change in condition of goods not caused by defect
119
Q

In what form should the buyer make payment?

A

In the absence of agreement otherwise:

  • Buyer must pay by either:
    • Cash
    • Check
  • Seller can reject check, but must give buyer reasonable time to get cash
120
Q

If a buyer has the right to reject, what is the effect on risk of loss?

A

Risk remains on seller until either:

  • Defect cured
  • Buyer accepts despite defect
121
Q

If a buyer rightfully revokes, what is the effect on risk of loss?

A

Risk is on seller to the extent of deficiency in buyer’s insurance coverage

122
Q

If a seller hasn’t shipped the goods, and buyer breaches, can risk of loss ever fall on buyer?

A

Only if seller has identified the goods (i.e., segregated them for delivery), risk is on buyer to the extent of deficiency in seller’s insurance coverage

123
Q

How do you determine whether a breach is material and therefore excuses the other party’s performance?

A

Did you basically get what you bargained for? If so, breach is only minor.

124
Q

What is anticipatory repudiation?

A

When one party manifests before his performance is due that he cannot or will not perform his duty

Effect: Excuses other party’s duty to perform and provides an immediate claim to damages for breach unless non-repudiating party fully performed, in which case, must wait until actual breach.

125
Q

If before performance is due, a party says that he will not perform based on an erroneous belief that the other has breached, what is the result?

A

Anticipatory repudiation, so the other party is excused from performing and can sue for immediate damages

126
Q

Can you retract anticipatory repudiation?

A

Yes, so long as the other party has not changed its position in reliance

127
Q

What are the ways in which performance can be excused by agreement of the parties?

A
  1. Modification - Changes duties under the contract, original duties are discharged immediately
  2. Accord and satisfaction - Substitution of performance under the contract, original duties remain until new performance
  3. Rescission - Discharges all duties under the contract, some performance must remain on both sides
  4. Novation - Substitution of parties under the contract, original party is excused immediately
128
Q

Do you need a writing to rescind a contract subject to the statute of frauds?

A

Generally, not unless:

  • Land contract
  • Sales contract
129
Q

When is a party excused by reason of impossibility or impracticability?

A
  • Post-contract occurrence
  • Not reasonably foreseeable at time of contracting
  • Not a risk assumed by either party
  • Renders performance impossible or impracticable
  • Without fault of party seeking to be excused
130
Q

What is a force majeure clause?

A

Excuses performance on the occurrence of specific types of events

131
Q

Is a builder’s duty to construct a building discharged by destruction of the work in progress?

A

No. Builders have builder’s risk insurance

132
Q

What if a farmer contracts to sell wheat, and then his crops are destroyed by a flood?

A

Farmer won’t be excused if the contract did not specifically identify his crops as the source of wheat

133
Q

If a seller’s inventory is partially destroyed, how does he decide which orders to fill with the remaining inventory?

A

Allocate remaining inventory in a way that is fair and reasonable

Buyers can refuse to accept partial delivery, but they have no breach of contract claim.

134
Q

When will the incapacity of a person be an excuse for nonperformance?

A

When the person is specific to the contract

E.g., person is necessary to the contract.

135
Q

When is a party excused by reason of frustration of purpose?

A
  • Post-contract occurrence
  • Not reasonably foreseeable at time of contracting
  • Totally or nearly destroys purpose or value of contract
  • Purpose was known to both parties at contracting
136
Q

When are liquidated damages valid?

A

Liquidated damages are enforceable if:

  • At time of contract, damages difficult to estimate
  • At time of contract, provision reasonable forecast of possible damages
137
Q

Are punitive damages recoverable for breach of contract?

A

No

138
Q

What is the general measure of damages for ordinary contracts?

A

Expectation damages - i.e., put the non-breaching party in as good a position as if the contract had been performed

139
Q

What are incidental damages?

A

Costs incurred in a reasonable effort to avoid loss resulting from the breach

140
Q

What are consequential damages?

A

Any of the following resulting from the breach:

  • Injury to person
  • Injury to property
  • Lost profits
141
Q

What is the rule regarding mitigation?

A

A party cannot recover damages that could have reasonably been avoided

However, a party is not required to take steps that involve undue burden, risk, or humiliation.

142
Q

What is the standard for determining the reasonableness of damages?

A

Damages must be reasonably certain (i.e., mathematical precision not necessary)

143
Q

What if P’s expectation damages are too speculative to measure?

A

Reliance damages may be recovered to return the party to the status quo - i.e., costs spent in preparation for performance

E.g., profit that would have been earned had the contract been performed may be very speculative, so reimburse the party for costs incurred.

144
Q

What is a lost volume seller?

A

Seller whose supply was greater than demand

So, if there is a breach, seller could have sold the original item and another, so seller gets lost profits.

145
Q

When can a buyer get specific performance for the sale of goods?

A

Either when:

  • Goods are unique
  • Other circumstances apply - e.g., inability to cover
146
Q

What is negative specific performance?

A

When a court of equity prevents a party from working for someone else because he breached a service contract

147
Q

In a UCC sale of goods contract, what can a party do if they are worried about the other’s performance?

A
  1. In writing demand adequate assurance of performance
  2. Suspend performance until assurance is received
  3. Treat as repudiation if assurance not received in 30 days
148
Q

When can a seller retain rights in goods it sells if it is not paid?

A

If the seller has either:

  • A security interest
  • A right to reclamation
149
Q

When does an unpaid seller have a right to reclamation?

A

When:

  • Credit sale
  • Buyer insolvent when received goods
  • Demand for return made either:
    • Within 10 days of buyer’s receipt
    • Within reasonable time if buyer lied about solvency
150
Q

In a third-party beneficiary situation, who is the promisor and promisee?

A

Promisor - Person who renders performance that benefits TPB
Promisee - Person bargaining with promisor for TPB’s benefit

151
Q

What is the difference between intended and incidental beneficiaries?

A

Only intended beneficiaries have contract rights as TPB

Look at the intention of the parties, including whether TPB is expressly designated in contract, whether performance by promisor is directly to TPB, whether TPB has rights under the contract, and relationship between promisee and TPB.

152
Q

What if a third party was already a creditor of a promisee when the third-party beneficiary contract was entered?

A

The third party is a creditor beneficiary

153
Q

What happens when a TPB’s rights vest?

A

The promisor and promisee can no longer terminate the TPB’s rights

154
Q

When do a TPB’s rights vest?

A

Either:

  • When the TPB brings suit to enforce the promise
  • When the TPB materially changes its position in justifiable reliance on the promise
  • When the TPB manifests assent to the promise in a way invited or requested by the promisor and promisee
155
Q

In a third-party beneficiary relationship, who can sue whom?

A
  • TPB can sue promisor
  • Promisee can sue promisor
  • Creditor beneficiary can sue promisee
    • But not regular TPB
156
Q

What can you assign?

A

Assign rights

157
Q

What can you delegate?

A

Delegate duties

158
Q

Is delegation allowed if the contract prohibits delegation?

A

Yes

159
Q

Is delegation allowed if the contract prohibits assignment?

A

Yes - prohibition of assignment is prohibition of both assignment and delegation

160
Q

Under common law, what can you not delegate?

A

Duties that arise from:

  • Special skills
  • Special reputation
161
Q

What are the requirements for delegation?

A
  1. Consent of obligee not required (unlike novation)
  2. Consideration not required
    • But:
      • No consideration - Delegate can’t be liable
      • Consideration - Delegate can be liable
162
Q

What is the difference between creating a third party beneficiary and assigning your rights?

A

Assignment substitutes a party, TPB adds someone who can sue

163
Q

What are the limits on assignment?

A

Assignment cannot substantially change the duties of the obligor

164
Q

Can you assign your rights in a requirements contract?

A

Yes. This does not substantially change the duties of the obligor because you are inherently required to have reasonably proportionate requirements

165
Q

What is the distinction between prohibition and invalidation of assignments?

A

If the contract only prohibits assignments, the assignor is in breach after assigning, but the assignment is still valid

The contract must specifically state that assignments are invalid for that to be the case.

166
Q

What are the requirements for assignment?

A
  • Must have language of present assignment
    • I assign, not I promise to assign
  • Must be in writing if:
    • Wage assignment
    • Assignment of interest in land
    • Assignment of choses in action > $5,000
    • Assignments intended as security interests
167
Q

Can the obligor and assignor modify their contract if there is an assignment?

A

Yes, until obligor receives notice of the assignment

168
Q

Can an obligor continue to pay the assignor after an assignment?

A

If he does so without notice of the assignment, obligor’s debt is discharged

If he does so with notice of the assignment, obligor still owes assignee. If assignment is gratuitous, acceptance of payment by assignor revokes assignment.

169
Q

How can a gratuitous assignment be revoked?

A

Provided no exceptions apply:

  • Directly
  • Death of assignor
  • Bankruptcy of assignor
  • Acceptance of performance by assignor
  • Subsequent assignment by assignor

So, last assignee under gift assignment wins.

170
Q

When can a gratuitous assignment not be revoked?

A
  • Obligor already performed
  • Assignee obtained a judgment against obligor
  • Assignee entered a new contract with obligor by novation
  • Assignee reasonably relied on assignment
171
Q

What is the general rule regarding the priority of assignments for consideration?

A

First in time, first in right, unless:

  • Subsequent assignee takes assignment without notice of prior assignments and it either:
    • Is first to obtain payment from obligor
    • Is first to obtain judgment against obligor
    • Enters into new contract with obligor by novation
    • Gets a token or writing from obligor, surrender of which is required by obligor’s contract
    • It can use estoppel against first assignee
172
Q

What if a subsequent assignee notifies the obligor of his rights first?

A

Majority (American rule) - Does not matter

Minority (English rule) - Subsequent assignee gets priority.

173
Q

What happens when you give goods to a merchant who deals in goods of that kind, and the merchant sells those goods without your permission?

A

The merchant has the power to transfer all rights of the entruster to a buyer in due course (i.e., good faith purchaser)

You just sue merchant for conversion.

174
Q

What happens when someone without title (i.e., thief) sells or entrusts goods to a merchant, who then sells them to a customer?

A

The customer does not have good title, and cannot keep the items even if the customer was a buyer in due course.

175
Q

A person with voidable title has power to transfer…

A

a good title to a good faith purchaser for value.

176
Q

Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to…

A

transfer all rights of the entruster to a buyer in ordinary course of business.

Contracts and Sales (8 decks)

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