2011년 12월 8일 목요일
sample Contract Outline
i) Contract – agreement plus.
(1) Express contract – find agreement from words of parties.
(2) Implied contract – parties act as though there is a contract.
ii) Quasi-contract – an equitable remedy:
(1) Need not apply contract rules.
(2) Applies when strict application of contract law seems unjust.
(a) P has conferred a benefit on D; and
(b) P reasonably expected to be paid; and
(c) D realized unjust enrichment if P is not compensated.
(4) Measure of recovery:
(a) Contract price is not the measure of recovery.
(b) The contract price is a ceiling if P is in default or contract recovery is barred by the Statute of Frauds.
iii) Bilateral contract – results from an offer that is open as to the method of acceptance.
iv) Unilateral contract – results from an offer that expressly requires performance as the only possible method of acceptance.
(1) A contract is bilateral unless:
(a) Reward, prize, contest; or
(b) Offer expressly requires performance for acceptance.
b) Applicable Law:
i) Common law – applies to services contracts, real estate, and others not covered by UCC.
ii) Articles 1 and 2 of the UCC – apply to contracts that are primarily sales of goods (tangible personal property).
(1) Mixed deal – UCC applies to contracts that include both the sale of goods and services if the goods are the more important part of the deal (if service is more important part of the deal, then the common law applies).
(a) exception – if the contract divides payment, then the UCC applies to the goods part and common law to the services part.
iii) Article 2A of the UCC (only on NY bar) – applies to leases of goods (not leases of real property).
c) Formation of Contracts:
(1) general test: manifestation of commitment - an offer is a manifestation of an intention to contract.
(a) The basic test: whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract.
(a) general rule – an offer does not have to contain all material terms.
(i) Missing price term in sales contract:
1. Land Sale Contract (C/L) – price and description required (if missing, not an offer).
2. Sale of Goods (UCC) – Quantity required; no price requirement. (offer if parties so intend).
a. If the price is left to be agreed upon by the parties and they fail to agree, the court will supply a reasonable price at the time of delivery.
(ii) Vague or ambiguous material terms:
1. under common law and UCC - an offer using vague or ambiguous material terms is not an offer (e.g. – “I’ll sell you my car for a fair price”).
(iii) Requirements contracts/output contracts:
1. A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyer’s requirements or the seller’s output or in terms of exclusivity.
2. Requirement contract is NOT illusory because the UCC imposes a duty to purchase requirements in good faith
3. Limitation: No unreasonably disproportionate increases – buyer can increase requirements so long as the increase is in line with prior demands.
(a) General rules:
(i) Price quotation is not an offer.
(ii) An advertisement is not an offer.
(i) Price quotation can be an offer if it is in response to a specific inquiry.
(ii) An advertisement can be an offer if it is in the nature of a reward.
(iii) An advertisement can be an offer if it is specific as to quantity and expressly indicates who can accept (e.g. – “1 widget available, first come first serve”).
ii) Termination of offers:
(1) An offer cannot be accepted if it has terminated (it is “dead”).
(2) Methods of termination:
(a) Lapse of time – an offer that has not been accepted within the time stated for acceptance or within a reasonable time is considered terminated.
(b) Words or conduct of offeror – an offer can be revoked by either:
(i) an unambiguous statement by offeror to offeree of unwillingness or inability to contract; OR
(ii) unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of.
1. example 1 – (awareness). I offer to sell my car to S for $400, the next day I sell my car to C (offer not terminated b/c S is not aware of the sale to C, thus S still has power to accept).
2. example 2 – (awareness). I offer to sell my car to S for $400, the next day S sees C driving my car and learns from him that he has bought it (offer has been terminated b/c S knows of sale to C before accepting).
3. example 3 – (Double Offer Only). I offer to sell my car to S for $400 and then offer to sell my car to C, even if S learns of the offer to C, the offer to S is not terminated (the offer to C does not demonstrate an unwillingness to sell to S).
(iii) Revocation of an offer:
1. Revocation of an offer sent by mail is not effective until received.
2. An offer cannot be revoked after it has been accepted.
3. Offers that cannot be revoked:
a. C/L Option Contract: An offer cannot be revoked if the offeror has promised to keep the offer open, and this promise is supported by consideration (“option”).
b. UCC Art. 2 Firm Offer – an offer cannot be revoked for up to three months if:
i. offer to buy or sell goods,
ii. signed, written promise to keep the offer open, and
iii. party is a merchant (person in business).
1. If writing promises to keep offer open for longer than 3 months, the merchant can still revoke after 3 months.
2. If writing does not state a time period, the merchant can’t revoke for a reasonable time fixed by the court (up to 3 months).
c. Firm offers in NY – in contracts other then sale of goods contracts (like C/L K), an offer that states in writing that it will be held open is irrevocable for stated time or a reasonable time.
i. No signature requirement.
ii. No time limit.
iii. In general, NY gives greater significance to the existence of writing.
d. An offer cannot be revoked if there has been detrimental reliance by the offeree that is reasonably foreseeable (e.g. – General Contractor and Subcontractor bidding situation - subcontractor cannot revoke his bid when a general contractor who is bidding on an contract relies on that bid).
e. The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance.
i. Requires start of performance not just mere preparation (though if mere preparation, offer could be irrevocable under detrimental reliance above if preparation was reasonably foreseeable).
ii. NY distinction – start of performance does NOT make offer irrevocable (i.e., you can still revoke your offer).
(c) Words or conduct of the offeree - Rejection:
(i) Counteroffer – terminates the offer and becomes a new offer.
1. “Will you take $100?” does not constitute a counteroffer.
(ii) Conditional acceptance – operates the same way as a counteroffer (look for phrases such as “if,” “so long as,” “provided,” and “on condition that.”
(iii) Additional terms to a common law contract (“mirror image” rule) – an “acceptance” that adds new terms is treated like a counteroffer rather than an acceptance.
(iv) Additional terms under UCC article 2 – a response to an offer that adds new terms (but does not make the new terms a condition of acceptance) is generally treated as an acceptance.
1. Is the additional term part of the contract?
a. If both parties are merchants – the general rule is that the additional term is a part of the contract.
i. Exceptions – the additional terms are not part of the contract if:
1. it materially changes the offer; or
2. the original offeror objects to the change.
b. If one or both parties is not a merchant – the additional term is merely a proposal that is to be separately accepted or rejected.
(d) Death of a party prior to acceptance:
(i) General rule – death or incapacity of either party terminates the offer.
a. option contracts;
b. part performance of offer to enter into a unilateral contract.
iii) Acceptance of an offer:
(1) Who can accept? – generally, an offer can only be accepted by a person who knows about the offer who is the person to whom it was made (offers cannot be assigned; vs. options can be assigned unless option expressly provides otherwise).
(2) Methods of accepting an offer (6 fact patterns):
(a) If offeree performs – the only question is whether Notice of performance is required. This answer turns on whether offeree has reason to believe that offeror will not learn of the acceptance and whether the offer dispenses with notice.
(b) If the offeree starts to perform in bilateral contract situation – start of performance is acceptance of an offer to enter into a bilateral contract but is not acceptance of an offer to enter into a unilateral contract.
(i) Cf. Unilateral contract – completion of performance is required to constitute acceptance.
(c) If the offeree promises to perform – most offers can be accepted by a promise to perform (not offers that expressly require performance for acceptance and reward offers).
(d) Acceptance under Mailbox Rule - If the offeror and the offeree are at different places and there are conflicting communications – Acceptance by mail creates a contract at the moment of posting, unless the offer stipulates that acceptance is not effective until received, or an option contract is involved
(i) IF C mails an acceptance letter and then the offer is revoked before the letter arrives, the acceptance is valid.
1. Rejection and acceptance exception – if C mails a rejection letter but changes his mind and then mails an acceptance letter, whichever arrives first will be effective.
(e) If seller sends the wrong goods – general rule is that the seller accepted the buyer’s offer but breached the contract.
(i) Accommodation exception – if the shipment of nonconforming goods includes a note saying the shipment is offered merely as an accommodation, it is viewed as a counteroffer and not a breach (buyer can accept or reject the shipment with no other remedy).
(f) If the offeree is silent – generally, silence is not acceptance.
(i) Exception – if offeree by words or conduct agrees that silence is acceptance, then silence is acceptance.
iv) Formation (Second view):
(1) Some agreements are not legally enforceable. Legal reasons for not enforcing an agreement include: [MAD FIFFF]
(a) (1) lack of consideration or a consideration substitute for the promise at issue;
(b) (2) lack of capacity of the person who made that promise;
(c) (3) statute of frauds;
(d) (4) illegality - existing laws that prohibit the performance of the agreement;
(e) (5) Fraud/misrepresentations;
(f) (6) duress;
(g) (7) unconscionability;
(h) (8) ambiguity in words of agreement; and
(i) (9) mistakes at the time of the agreement as to the material facts affecting the agreement.
v) Consideration or a Consideration Substitute:
(1) Consideration – bargained for legal detriment to promisee (NY – also bargained for benefit to promissor).
(a) Legal Detriment:
(i) Performance (doing something not legally obligated to do);
(ii) Forbearance (not doing something legally entitled to do);
(iii) promise to perform;
(iv) promise to forbear.
(b) “Bargained for”
(i) VS. Conditional gift – there is no consideration when you say to a homeless man, “If you go around to the clothing shop there, you may purchase an overcoat on my credit.” (this is a conditional gift b/c going around the corner is necessary to get coat).
(c) Illusory promises – an illusory promise is one where the promissor has not committed herself in any manner and is not consideration.
(i) example 1 - E agrees to sell his car to C unless C changes his mind. E is not legally obligated to sell his car to C b/c there is no consideration for E’s promise b/c C’s promise was illusory.
(ii) Cf., example 2 – same facts, except C promises to buy the car on December 7th unless he notifies E by December 6th that he has changed his mind. There is consideration for E’s promise b/c C must give notice by the 6th (obligation he didn’t have before).
(d) The adequacy of consideration is not relevant in contract law.
(e) Past consideration:
(i) General rule – what you already have done is not a consideration (e.g. – A saves L’s life. H is so grateful that he promises to pay A $3,000. H later changes his mind – promise is not legally enforceable).
1. exception – past consideration was expressly requested and there was an expectation of payment. (e.g. – H sees L in danger and asks A to save her, knowing that A would expect to be paid. After A saves L, H promises to pay A $3,000 – legally enforceable).
2. NY exception – past consideration is good consideration if the promissor makes the promise in a signed writing that acknowledges the consideration (c.f., NY Option Contracts – don’t need signature).
(f) Preexisting duty rule:
(i) Common law – re: Modification
1. General rule – doing what you were already legally obligated to do is not consideration. So if you want the modification of an existing contract, then you need new consideration.
a. e.g. - the Boss contracts to perform for 15k; he refuses to sing unless paid 20k. promoter promises to pay 20; B performs; Promoter only pays B 15k; the promise to pay the additional 5k is not legally enforceable (no additional consideration).
a. Addition to or change in performance to both parties - any slight change will do; B promises to play an additional song in exchange for the extra 5k.
b. Unforeseen difficulty so severe as to excuse performance (impracticability grounds) – the sound system at the arena is inoperative but B promises to play anyway for additional 5k.
c. **3rd Party promise to pay – no existing legal duty to third party; M, a loyal fan, promises to pay the additional 5k (enforceable because no existing legal duty to M.
d. NY exception – Written modification is enough for the consideration.
(ii) UCC Article 2:
1. no pre-existing legal duty rule – good faith is the test for modification.
a. Example - S contracts to sell grits to B for $1,000. S subsequently tells B that it cannot deliver the grits for less than $1,300. B promises to pay the additional $300. S delivers. B is obligated to pay the additional $300 as long as S was acting in good faith.
(g) Part payment as consideration for release (promise to forgive balance of debt):
(i) If debt is due and undisputed – part payment is NOT consideration for release.
(ii) If debt is not yet due OR is disputed – part payment is consideration for release.
(iii) NY exception – Written release of any debt, part payment or no payment, is effective.
(h) Consideration substitutes:
(i) C/L - A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration (as a consideration substitute).
1. e.g. – D owes C $1000 but C’s claim to collect the debt is barred by the SOL. D writes C, “I know that I owe you $1000. I will pay you $600.” C can collect on the Only $600 promised.
(ii) UCC - A written release of all or part of a claim for breach of contract for sale of goods is enforceable without consideration.
(iii) Written Release – a release that will serve to discharge contractual duties is usually required to be in writing and supported by new consideration or promissory estoppel elements.
(iv) Promissory estoppel (called detrimental reliance in NY) – most important consideration substitute.
1. Exam tip: on multiple choices, first look for consideration, and only if there is none look for promissory estoppel.
b. reliance on that promise which is reasonable, detrimental and foreseeable; and
c. Enforcement is necessary to avoid injustice.
vi) Defendant/Promissor’s Lack of Capacity:
(1) Who lacks capacity?
(a) an infant (under 18);
(b) mental incompetents (lack ability to understand agreement);
(c) * intoxicated persons (if other party had reason to know).
(2) Consequences of incapacity:
(a) The person without capacity has a right to disaffirm the contract (other party cannot invalidate party, only incapacitated person can).
(b) Implied affirmation –by retaining the benefits of the contract after gaining capacity.
(c) Liability for necessaries – a person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter.
(i) This liability is based on quasi-contract law, not on contract law (thus other party can ONLY recover the value of the benefit conferred, NEVER the contract price).
vii) Statute of Frauds Defense:
(1) Contracts within the Statute of Frauds:
(a) Promise in consideration of marriage (not promise to marry).
(b) Promise by executor or administrator to pay obligation of estate from his own funds (not from estate funds).
(c) Promises to answer for (guarantee) debts of another.
(i) Not a promise to pay, but a promise to pay if someone else does not.
(ii) Main purpose exception – if purpose of underlying obligation was to benefit guarantor (SOF does not apply).
1. e.g. - S sells P paint on credit. S claims that O promised to pay for the paint if P did not pay. P’s purpose in (reason for) buying the paint was to paint O’s house.
2. NY distinction – main purpose exception requires independent duty of payment (if guarantor would have been legally obligated to pay anyway).
(d) Service contract not capable of being performed within a year from the time of the contract.
1. Employment contract for 3 years (within SOF).
2. Employment contract for 3 years that can be terminated on 30 days notice (still within SOF).
3. Employment contract for a year beginning next month (within SOF b/c can’t finish performance within year of contract date).
4. ** Contracts to perform tasks (NOT within SOF b/c in theory with unlimited resources, any task could be completed within the year).
a. It doesn’t matter if in reality the task was not completed within a year (it was still capable of being completed within the year and thus is not within SOF).
5. Contracts for life (not within the SOF regardless of health, etc.).
6. NY: K’s for life are within SOF in NY.
(e) Transfers of interest in real estate of a term for more than one year.
(i) Includes sales, leases, easements, etc. (not building house b/c not transfer of interest).
(f) Sale of goods for $500 or more.
(g) For NY exam only:
(i) Leases of goods (UCC 2A) with the payments totaling $1,000 or more.
(ii) Contract to assign insurance policy or name beneficiary.
(iii) Contract to pay finder’s fee or broker’s fee to person other than a licensed broker or a lawyer or auctioneer.
(2) 2 methods to Satisfy the SOF – Actual Performance, Writing, or Judicial Admission
(a) Performance: Full Performance vs. Part Performance
(i) Service contracts – ONLY full performance by either party satisfies the SOF.
1. Part performance does NOT satisfy the SOF (thus no remedy under contract law, though possible remedy as a quasi-contract).
(ii) Sale of goods: oral agreement + part performance
1. Ordinary goods – Part performance of a contract for the sale of goods satisfies the SOF but only to the extent of part performance
a. 효과: Seller can sue for payment for goods delivered, but buyer can’t sue compelling delivery of remaining goods.
2. Specially manufactured goods – SOF is satisfied as soon as the seller has begun substantially to perform (enough work to know that the goods were specially manufactured).
(iii) Real estate transfer contract:
1. Full payment by the buyer of real estate does NOT satisfy the SOF.
2. Part performance by buyer of real estate can satisfy the SOF if any 2 of the following 3 are satisfied: (i) payment, (ii) possession, and/or (iii) improvements.
a. e.g. – B orally agrees to buy Blackacre from S for $10,000. B takes possession of Blackacre and pays $2,000 (SOF satisfied b/c part payment and possession).
(i) Common Law SOF – all the material terms (the who and the what) of the contract must be in writing(s), and it must be signed by the D.
(ii) UCC SOF – same as above but writing must also include the quantity term.
1. **“answer the damn letter” exception – does away with signature requirement if (i) both parties are merchants and (ii) the person who receives a signed writing with a quantity term that claims there is a contract (iii) fails to respond within 10 days of receipt.
(iii) NY. UCC 2A: leases of personal property – writing must indicate that (i) it is a lease, (ii) describe what is being leased, and (iii) state the duration of the lease.
(c) Judicial Admission of sale of goods agreement – a statement in pleadings, discovery or testimony that there was an agreement.
(3) Related Issues:
(a) Authorization to enter into a contract for someone else – the authorization to enter into a contract for someone else must be in writing if the contract to be signed is within the SOF (“equal dignity” rule).
(b) Contract modification:
(i) When law requires a writing to modify – If the deal with the alleged change would be within the SOF, then the alleged modification agreement must be in writing.
(ii) when contract requires a writing to modify:
1. Common law – contract provisions requiring that all modification be in writing are ignored.
2. UCC – contract provisions requiring written modifications are effective unless waived.
viii) Illegality, Misrepresentation, Duress:
(1) Illegal subject matter/Illegal purpose:
(a) Illegal subject matter – a contract to do something illegal is void.
(b) Illegal purpose – a contract to do something that is legal but in furtherance of an illegal purpose is not void (and is enforceable, but only by a person who did not know of the illegal purpose).
(a) A misrepresentation is a false assertion of fact or a concealment of facts.
(i) A misrepresentation as to the terms of the contract (e.g. – this house has no termites) makes the agreement voidable if the misrepresentation is (i) fraudulent or material (contract misrepresentation, unlike tort, does not require fraud) and the misrepresentation (ii) induced the making of the contract.
1. A misrepresentation as to the nature of a contract (e.g. – this is just a lease when it is actually a purchase agreement) is void (it cannot be enforced).
(ii) Remedy – rescission.
(i) improper threat;
(ii) no reasonable alternative
(1) Empowers a court to refuse to enforce all or part of an agreement if there was unfair surprise or oppressive terms as tested at the time the agreement was made.
(2) Under 2A, a court may grant relief from a consumer lease even though no provision of the lease is unconscionable, if there is unconscionable conduct in inducing or enforcing the lease.
x) Ambiguity in words of agreement:
(1) There will be no contract if:
(a) Parties use a material term that is open to at least 2 reasonable interpretations;
(b) Each party attaches a different meaning to the term; AND
(c) Neither party knows or has reason to know the term is open to at least 2 reasonable interpretations.
(i) If 1 party did know that the term was open to 2 reasonable interpretations, the contract will be enforced under the terms as understood by the other party
xi) Mistake of Fact:
(1) Mutual mistake of material fact:
(a) There will be no contract if:
(i) both parties were mistaken,
(ii) as to a basic assumption of fact, which
(iii) materially affects the agreed exchange.
(b) Key is whether the agreed upon subject matter exists.
(i) Mutual mistake as to what something is – the agreement is not legally enforceable.
(ii) Mutual mistake as to what something is worth – the agreement is still legally enforceable.
(2) Unilateral mistake of material fact:
(a) General rule – courts are reluctant to allow a party to avoid a contract for a mistake made by only one party.
1. “Palpable” mistakes – if the other party to the contract knows or should have known of the mistake, courts grant relief to the mistaken party.
2. Mistakes discovered before significant reliance by the other party.
d) Terms of Contract:
i) The parol evidence rule:
(a) Integration – written agreement that court finds is the final agreement (triggers parol evidence rule).
(b) Partial integration – written and final, but not complete.
(c) Complete integration – written and final and complete.
(d) Merger clause – contract clause such as “This is the complete and final agreement.”
(2) Rule: where the parties to a contract express their agreement in a writing with the intent that it embody the full and final expression of their bargain, any other expression (written or oral) made prior to the writing, as well as any oral expression contemporaneous with the writing, are inadmissible to vary the terms of the writing.
(3) Triggering facts:
(a) Written contract that the court finds is the final agreement, and
(b) Oral statement made at the time the contract was signed or earlier oral or written statements by the parties to the contract.
(4) Parol evidence fact patterns
(a) Changing the written deal – regardless of whether the writing is a complete or partial integration, the parol evidence prevents a court from considering earlier agreements as a source of terms that are inconsistent with the terms of the written contract.
(b) Mistake Exception - The court may, however, consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration (a mistake in reducing the agreement to writing).
(c) Misrepresentation, Fraud, Duress Exception - Establishing a defense to the enforcement of the written deal - regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from considering earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement such as misrepresentation, fraud, duress (not asking the court to change the deal, asking the court to cancel it).
(d) Ambiguity Exception - Explaining terms in a written deal – earlier agreements can be considered to resolve ambiguities in the written contract (e.g. – what the word “chicken” means).
(e) Adding to the written deal – the parol evidence rule prevents the court from considering earlier agreements as a source of consistent, additional terms unless the court finds the written agreement was only a partial integration.
(f) Partial Integration Exception – e.g., S contracts in writing to sell B chickens. The written contract does not specify how the chickens are to be packaged and wrapped. The court can consider evidence of earlier agreements between S and B as to how the chickens are to be packaged and wrapped if it determines the written agreement was only a partial integration.
(g) “naturally and normally” exception – even if the writing is a complete integration a court can still consider evidence of earlier agreements for terms that would naturally be in a separate agreement.
(h) Modification exception – the parol evidence rule does not apply to subsequent oral agreement
(i) Rescission Exception – the prol evidence rule would not prevent introduction of the rescission.
1. Rescission - A contract may be discharged by an express agreement between the parties to rescind; the agreement to rescind is itself a binding contract
ii) Parol Evidence Rule “Conduct, course of performance, and custom and usage” Exception:
(1) The words of the parties are not the only source of contract terms. Courts look first to course of performance, then course of dealing, then custom and usage to explain words in contracts or to fill gaps in contracts:
(i) Course of performance – same people, same contract.
1. example – S contracts to sell 1,000 chickens a month to B for 12 months. The first three shipments are boiling hens, and B does not complain.
(ii) Course of dealing – same people, different but similar contracts.
1. example – S contracts to sell 1,000 chickens a month to B for 12 months. Under prior chicken contracts, S sent B boiling hens, and B complained.
(iii) Custom and usage – different but similar people, different but similar contract.
1. example - S contracts to sell 1,000 chickens a month to B for 12 months. It is customary in the chicken industry to use the word “chicken” when the deal covers chickens up to six pounds.
iii) UCC terms:
(1) Delivery obligations of seller of goods:
(a) No place of delivery has been agreed upon – absent an agreement as to place of delivery, the place of agreement is the seller’s place of business unless both parties know that the goods are some place else in which case that place is the place of delivery.
(b) Place of delivery by a common carrier has been agreed upon – if there is an agreement as to the place of delivery by a common carrier, then the question is what does the seller have to do to complete its delivery obligation.
(i) If shipment contract – seller completes its delivery obligation when:
1. it gets the goods to a common carrier;
2. Makes reasonable arrangements for delivery; and
3. Notifies the buyer.
(ii) If destination contract – the seller does not complete its delivery obligation until the goods arrived where the buyer is.
(iii) Determining whether contract is a shipment or destination contract:
1. If contract says “FOB – [seller’s city]” – shipment contract.
2. If contract says “FOB – [buyer’s city]” – destination contract.
(2) Risk of loss:
(a) Risk of loss issues arise where (i) after the contract has been formed but before the buyer receives the goods (ii) the goods are damaged or destroyed and (iii) neither the buyer nor the seller is to blame.
(i) If the risk of loss is on the buyer – he has to pay the full contract price for the lost or damaged goods.
(ii) If the risk of loss is on the seller – no obligation on the buyer’s part (and possible liability on the seller for non-delivery).
(b) 4 Rules for risk of loss (a hierarchy):
(i) Agreement of the parties controls.
(ii) If no agreement, look for an unrelated breach (breaching party has risk of loss).
1. e.g. – S contracts with B for coffee. Coffee is destroyed by rats (through no fault of either party). S was already 2 weeks late in delivering the coffee before it was destroyed. S has risk of loss.
(iii) Delivery by common carrier other than seller – risk of loss shifts from seller to buyer at the time that the seller completes his delivery obligations (what constitutes completion depends on whether it is a shipment or destination contract).
(iv) No agreement, no breach, no delivery by a carrier:
1. The determining factor is whether the “SELLER IS A MERCHANT” (whether the buyer is a merchant is irrelevant)
a. IF Merchant Seller – shifts from a merchant-seller to a buyer on the buyer’s receipt of the goods (taking physical possession).
b. IF Nonmerchant Seller – shifts from a nonmerchant-seller to a buyer when he tenders the goods OR makes the goods available.
(c) 2A lease of personal property – generally, risk of loss is on the lessor.
(i) exception – finance leases (the risk is on the lessee).
(3) Warranties of quality:
(a) Express warranty:
(i) Words – look for words that promise, describe or state facts (distinguish from sales talk).
1. Exam tip – look for parol evidence issues (S made statement about quality but K does not include these terms).
(ii) Use of sample or model – creates an express warranty that the goods the buyer receives will be like sample or model.
(b) Implied warranty of merchantability:
(i) When any person buys any goods from any merchant, a term is automatically added to the contract by operation of law--that the goods are fit for the ordinary purpose for which such goods are used.
1. triggering fact – S is a merchant (which for this purpose means that he deals in goods of that kind).
2. warranty – goods are fit for ordinary purposes.
(c) Implied warranty of fitness for a particular purpose:
(i) triggering facts – buyer has a particular purpose; buyer is relying on seller to select suitable goods; and seller has reason to know of the purpose and reliance.
(ii) Warranty – goods fit for a particular purpose.
(d) 2A warranties on leases:
(i) general rule – lessor of personal property makes the same warranties as a seller: express, merchantability, fitness.
(ii) finance leases – in a "finance lease", warranties made by supplier to lessor are enforceable by lessee (can only enforce against seller, not against bank – so, you can’t stop making lease payment to bank b/c of defect).
(4) Contractual limitations on warranty liability:
(a) Disclaimer (e.g. – “there are no warranties”) – eliminates implied warranties.
(i) Express warranties (words or showing model/sample) cannot be disclaimed.
(ii) Implied warranties of merchantability and fitness can be disclaimed (with words like: “as is,” “with all faults,” or conspicuous language of disclaimer mentioning merchantability).
(b) Limitation of remedies (e.g. – “warranty liability shall be limited to replacement parts” – does not eliminate warranty, simply limits or sets recovery for any breach of warranty.
(i) Possible to limit remedies, even for express warranties.
(ii) General test is Unconscionability.
(iii) Prima facie unconscionable if limitation of warranty on consumer goods does not allow for recovery for personal injury.
i) Sale of goods performance concepts:
(1) Goods related concepts –
(a) Perfect tender – is the general standard of Article 2. Subject to limited exceptions, the seller is obligated to deliver perfect goods.
(b) Cure - In some instances, a seller who fails to make a perfect tender will be given a "second chance," an option of curing. Note that every seller does not have the opportunity to "cure," and that the buyer cannot compel the seller to cure.
(i) Before the time for performance – there is a right to cure.
(ii) After the time for performance - In very limited situations, a seller has the option of curing even after the contract delivery date.
1. Statutory test - whether the seller has reasonable grounds for believing that the improper tender would be acceptable, perhaps with a money allowance (look for information in the question about prior deals between that buyer and seller with such an allowance).
(c) Rejection of the goods:
(i) Effect – if goods are non-conforming, buyer’s rejection of the goods has the effect of creating a breach in the contract so there can be a lawsuit.
(ii) When is buyer entitled to reject the goods?
1. Rejection of the goods must occur before acceptance of the goods.
a. If the goods are less than perfect, the buyer has the option to reject unless it is an installment sales contract.
b. Installment sale contracts – a contract that requires or authorizes 1) delivery in separate lots 2) to be accepted separately.
i. When can reject? - Buyer has a right to reject an installment ONLY where there is a substantial impairment in that installment that can’t be cured.
(d) Acceptance of the goods:
(i) When is there acceptance?
1. Express acceptance.
2. Implied acceptance – retention after opportunity for inspection without objection is acceptance
a. Exam Tip: bar exam rule of thumb: if buyer had goods for more than a month without complaint – acceptance
3. NOTE. Inspection – Payment without opportunity to inspect is not treated as acceptance.
(ii) Effect of acceptance:
1. If the buyer accepts the goods, he cannot later reject them.
(e) Revocation of acceptance of the goods In limited circumstances:
1. nonconformity substantially impairs the value of the goods, and
2. excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction, and
3. revocation within a reasonable time after discovery of nonconformity
(ii) e.g. - In July, B buys a sleeping bag from S insulated for temperatures as low as 10 degrees. B uses the sleeping bag for various warm weather camping adventures throughout the summer. When B goes camping in October, she learns that the sleeping bag is not insulated for temperatures as low as 10 degrees. B can revoke her acceptance of the goods.
(2) Payment: cash; check;
(a) Payment is in cash unless otherwise agreed upon.
(b) Buyer can pay by check.
(c) Seller does not have to take the check but that gives the buyer an additional reasonable time.
ii) Conditions of performance:
(1) What is an express performance condition?
(a) A condition is a mutually agreed upon promise modifier.
(i) true condition – an event beyond the influence of either of the parties to the contract that affects the duty to perform.
(ii) Covenant (duty/promise) – is not a condition.
(iii) a condition coupled with a covenant – an event that is to some extent within the influence of one of the parties to the contract that affects the duty to perform.
(iv) Condition coupled with an implied covenant – where the conditioned event is subject to the efforts of one of the parties to the contract, then the law implies a promise to use reasonable efforts (if party doesn’t make reasonable effort there is a breach of the contract).
1. e.g.- B contracts to buy H’s house. The contract provides in part “This sale is conditioned on B’s obtaining an 8% mortgage.”
a. If B makes reasonable efforts to obtain the mortgage, but cannot – no contract.
b. If B does not make reasonable efforts to obtain the mortgage – breach of contract.
(2) How can you identifying an express condition?
(a) Express conditions are created by language of contract (watch for words such as "if", "provided that", "so long as", "subject to", "in the event that", “until”, and "on condition that.").
(3) How can an express condition be satisfied?
(a) General rule – strict compliance with express conditions.
(i) e.g. - JY contracts to build K’s house. The contract provides “K’s payment for JY’s work is expressly conditioned on JY’s using Reading pipe throughout.” JY instead uses comparable Cohoe pipe.
1. The condition has not been satisfied (so K does not have to perform, i.e., pay for the house).
(b) Exception (satisfaction by approval)- condition based on approval of one of the contracting parties is treated as satisfied if a reasonable person would approve, unless subject is art or other matters that are inherently discretionary.
(i) e.g. - E contracts to paint C’s house. The contract provides that C will pay E $4,000 “subject to C’s approval of E’s work.” Even though expert painters compliment E’s work, C does not approve.
1. The condition of C’s approval has been satisfied and C has to perform (pay).
(4) How can an express condition be excused? – estoppel; waiver
(a) Estoppel – before occurrence
(i) Identify the person who benefits from or is protected by the condition. Then look for a statement by that person giving up the benefits and protection of the condition.
(ii) Estoppel is based on a statement by the person protected by the condition i) BEFORE the conditioning event was to occur and requires ii) a change of position.
(b) Waiver – after occurrence
(i) Waiver is based on a statement by the person protected by the condition AFTER the conditioning event was to occur and does not require a change of position
(5) What is a constructive condition and how is it satisfied?
(a) Constructive Condition – who goes first?
(i) Constructive conditions are less obvious, are created by operation of law, are keyed to order of performance. On the bar exam, the most common constructive condition question involves a fact pattern in which the contract is silent as to time of payment. In the real world, your understanding is that unless there is an express agreement for payment in advance, you pay for work when the work is done. On the bar exam, you need to understand that in such a situation, doing the work is a constructive condition precedent to the payment performance.
1. e.g. - E goes into a barbershop for a haircut. He must perform (pay) after the constructive condition precedent (getting the haircut) is fully satisfied.
(i) standard - substantial performance.
1. example 1 - JY contracts to build K’s house. The contract provides “All pipe in the house must be Reading pipe.”
a. express condition? – NO (language of express condition was not used).
b. constructive condition? – YES (work before payment).
c. Constructive condition satisfied? – YES (constructive conditions only must be substantially complied with).
2. example 2 - P contracts to paint 20 apartments for O for $10,000. P paints 19 of the apartments and then stops.
a. The constructive condition precedent of P’s painting 20 apartments has been satisfied so that, under contract law, O has to pay P for the 19 apartments that have been painted (b/c 19 of 20 is substantial performance – there will be a price adjustment or damages b/c of partial breach).
3. example 3 - P contracts to paint 20 apartments for O for $10,000. P paints 4 of the apartments and then stops.
a. The constructive condition of P’s painting 20 apartments has not been satisfied so that, under contract law, O does not have to pay P for the 4 apartments that she painted (4 out of 20 is not substantial performance – P could recover for the 4 apartments under quasi-contract theory of recovery).
(ii) Divisible contracts and the substantial performance rule:
1. Divisible contract – like installment contract (but not dealing with a sale of goods).
a. 의의: If the contract itself divides the performance of each party into the same number of parts with each part performance by one party serving as consideration for the corresponding part performance by the other, then the contract is a divisible contract and the substantial performance test is applied to each divisible part of the contract.
b. Example - P contracts to paint 20 apartments for $500 an apartment. P paints 4 of the apartments and then stops.
i. The constructive condition precedent has been satisfied so that, under contract law, O has to pay P for the apartments that she painted.
f) Excuse of Non-performance:
i) Excuse by a breach of the contract:
(1) Sale of goods – perfect tender.
(a) If the tender is less than perfect, the buyer can reject the goods and withhold payment (the buyer is excused from paying).
(2) Common law contracts – substantial performance and material breach rule.
(a) Common law generally requires only substantial performance.
(i) If one party to a contract substantially performs, the other party is required to perform.
(ii) A minor breach by one party to the contract will not excuse performance by the other party.
(b) At common law, only a "material breach" by one party excuses the other party's performance.
(i) "Material Breach" is the converse of "substantial performance" (material breach results from a performance that is not substantial). Whether a breach is material is a question of fact.
1. P contracts to paint O's house white, two coats, for $1,000. P neglects to put a second coat in one of the closets.
a. Material breach? – NO.
b. damages? – YES.
2. P contracts to paint O's house white, two coats, for $1,000. P paints O’s house purple.
a. Material breach? – YES
ii) Anticipatory repudiation or inability to perform:
(1) Anticipatory repudiation:
(a) Anticipatory repudiation is (i) an unambiguous statement that the repudiating party will not perform (ii) made prior to the time that performance was due.
(i) Anticipatory repudiation by one party excuses the other party's duty to perform.
(ii) It also generally gives rise to an immediate claim for damages for breach
(iii) Exception: where the claimant has already finished her performance, the claimant must wait until contract date.
(b) Retraction - Anticipatory repudiation can be reversed or retracted so long as there has not been a material change in position by the other party. If the repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until adequate assurance is provided.
(2) Inability to perform – working not for money
(a) Likely fact pattern – You are doing work for someone, not for money, but for something that the worker wants; however, that something is not available to you any more.
(i) Example - P contracts to paint O’s house with O to convey Blackacre as her payment for the work. Before P finishes her painting, O sells Blackacre to X. P is excused from continuing to perform (from doing any more painting).
iii) Excuse by reason of “Later Agreement”
(1) Rescission Agreement = Cancellation:
(a) A contract can be rescinded (both parties agree to rescind) if some performance is still remaining from BOTH parties.
(i) Example 1 – P contracts to paint O's house for $1,000 with payment to be made when the work is completed. P begins work. Before P completes the work, P and O agree to rescind the contract. P cannot later sue O for the work that she did pursuant to the contract b/c the original contract was excused by reason of a later contract (and some performance remained from each of the parties).
(ii) Cf., - P contracts to paint O's house for $1,000 with payment to be made when the work is completed. After P completes the work, P and O agree to rescind the contract. P CAN later sue O on the contract b/c one side had already completed performance.
(2) Accord and Satisfaction (substituted performance): cf. modification
(a) Accord is an agreement to an already existing obligation to accept a different performance in satisfaction of the existing obligation;
(b) Satisfaction is that different performance
(i) Example - D owes C $10,000. On January 15, D and C agree that D’s painting C’s house will excuse payment of the debt. This agreement - paint the house instead of pay the debt - is the accord. Performing the agreement - painting the house - is the satisfaction.
(c) Giving more time to perform the accord - The accord suspends legal enforcement of the original obligation to provide time to perform the accord.
(d) Optional Remedy - If the accord is not performed, then the other party can sue on either the original obligation or the accord.
(3) Modification (substituted Agreement): cf., accord and satisfaction
(a) Modification is an agreement to an existing obligation to accept a different agreement in satisfaction of the existing obligation.
(b) Issues to remember:
(i) Consideration rules for modification [CL (consideration), Art 2 (good faith), NY (writing)];
(ii) Statute of Frauds.
(4) Novation (substituted person):
(a) A novation is an agreement between both original parties to an existing contract to the substitution of a new party (same performance, different party).
(b) Novation excuses the contracted for performance of the party who is substituted for or replaced.
(c) How is delegation different from novation?
(i) Novation requires the agreement of BOTH parties to the original contract and excuses the person replaced from any liability for nonperformance.
(ii) Delegation does not require the agreement of both parties and does not excuse the party to the original contract who sought a delegate.
iv) Excuse of performance by a later unforeseen event:
(1) Performance of contractual duties (other than a contractual duty to pay money) can be excused under impossibility or impracticability or frustration of purpose:
(a) something that happens after contract formation but before the completion of contract performance; and
(b) that was unforeseen; and
(c) that makes performance impossible or commercially impracticable or frustrates the purpose of the performance.
(2) 3 Basic fact patterns where issue is likely to arise:
(a) Damage or destruction of subject matter of contract:
(i) Example 1 – P contracts to paint O’s house for $1,000. After P begins painting, the house burns down. P is excused from performing on this contract.
(ii) Example 2 – B contracts to build a house for O for $100,000. After B begins work, the house burns down. B is not excused from performing on this contract (can still build the house).
(iii) Example 3 (seller’s risk of loss and damage or destruction) – E contracts to sell C his 1973 Cadillac for $300. After the contract but before the risk of loss has passed to C, the Cadillac is destroyed by an unseasonable flood. If C sues E for breach of contract, E’s nonperformance is excused.
(iv) Example 4 (buyer’s risk of loss and damage or destruction) - Assume in #3 above that the flood occurred after the risk of loss had passed to C. C’s performance (payment) is not excused.
(v) Example 5 - in #3, if the subject matter was 100 sacks of grits instead of a Cadillac E’s performance would not be excused b/c the subject matter is fungible (replaceable).
(i) Party to contract who is special person:
1. e.g. - H delays in building his house until he is able to get F, a famous architect, to agree to design the house for $100,000. Before F is able to design the house, she dies. H hires another architect, AA to design the house for $120,000. F’s nonperformance is excused because he is a “special” person and a party to the contract.
(ii) Person not party to the contract:
1. e.g. – B contracts to build a house for O for $100,000. Before B builds the house, C, one of B’s carpenters, dies. B does not build the house. B’s nonperformance is not excused.
(iii) Party to the contract but not a “special” person:
1. e.g. - H contracts with P to paint H’s house because P’s bid, $3,000, was the lowest bid H received. P then dies. H has to pay another painter $4,000 to paint his house. H’s nonperformance is not excused (H can sue P’s estate for $1000).
(c) Subsequent law or regulation:
(i) Later law makes performance of contract illegal - excuse by impossibility.
1. e.g. – C contracts with club to be nude dancer. The town passes a new law outlawing nude dancing. C shows up to dance, the club is excused from performing (C would also be excused from performing).
(ii) Later law makes mutually understood purpose of contract illegal - excuse by frustration of purpose.
1. e.g. – C is a nude dancer. C contracts with Dr. to have plastic surgery to aid in his dancing. After the agreement but before the surgery, the town outlaws nude dancing. C is excused from performing on the surgery contract if both parties mutually understood the purpose for the surgery (aiding in nude dancing).
g) Breach Remedies:
i) Punitive damages – not generally recoverable for breach of contract.
ii) Liquidated damages - contract can stipulate damages or method of fixing damages, but a contract cannot provide for a penalty.
(1) Two general tests for determining whether a contract provision is a valid liquidated damages clause or an invalid penalty provision:
(a) the amount of possible damages from any later breach of contract is difficult to determine and
(b) the contract provision is a reasonable forecast of possible damages.
(2) Example of invalid penalty provision – On January 15, B contracts to build a store building for O Ski Rentals. Contract requires that building be completed by December 7th and provides for $10,000 damages for missing this deadline (punitive b/c must pay $10,000 regardless of how late).
(3) Example of valid liquidated damages clause - B contracts to build a store building for O Ski Rentals. Contract requires that the building be completed by December 7th and provides for damages of $500 a day (average December daily profit of O’s other, similar stores) for each day that B is late (changes based on the magnitude of breach).
(i) NY – a seller of a house may keep down payment as liquidated damages as long as down payment does not exceed 10% of K price.
iii) Damages rules for ordinary contracts:
(1) General measure of damages – injured party is entitled to recover an amount that would put him in as good a position as if the contract had been performed.
(a) These rules are based on protecting P’s expectation interests by trying to put the P in the same position as if the contract had been performed (put this in a NY essay).
(b) Example 1 – P contracts to paint O's house for $1,000. P breaches and O has to pay $1,400 to another painter for the same work. O can recover $400.
(c) Example 2 - Same facts except that O breaches shortly after P begins, after P has incurred costs of $100. P can recover costs actually incurred plus lost profits.
(2) Additions and limitations:
(a) Plus incidental damages - the injured party can also recover costs she incurs in dealing with the breach such as costs of finding a replacement.
(b) Plus foreseeable consequential damages - the injured party can also recover for consequential special damages (damages that were special to that P) that were in reasonable contemplation of both parties at the time of the contract.
(i) e.g. - P contracts to paint O's house for $1,000. P breaches and O has to pay another painter $1,400. Because the house is unpainted, O is unable to lease the house. O can recover the $400 extra she had to pay the new painter, but cannot recover lost rents unless it was in reasonable contemplation of both parties.
(c) Minus avoidable damages (mitigation) - no recovery for loss that could have been avoided by appropriate steps. Burden of proof on avoidability is on the defendant (affirmative defense).
iv) Damage rules for sales of goods:
(1) Part 7 of Article 2 reflects the general contract damages policy of putting the innocent party where it would have been had the contract been performed. There are two relevant facts: who breached and who has the goods. Thus, there are four basic Article 2 damages fact patterns and four sets of rules:
(a) Buyer’s Ordinary Damage: Seller breaches, buyer keeps the goods - fair market value if perfect – fair market value as delivered.
(i) e.g. - S sells B an antique car for $30,000. The car is defective. B keeps the car and sues for breach of contract. The jury finds that the car as delivered was only worth $20,000; the jury also finds that if the car had been delivered as contracted, it would have been worth $34,000. B can recover $14,000.
(b) Buyer’s Cover Damage: Seller breaches, seller keeps the goods – market price at time of discovery of the breach – contract price (or replacement price – contract price).
(i) e.g. - S contracts to sell B carpeting for $5,000. S never delivers the carpeting (or S delivers the carpeting and B rejects it because it is not a perfect tender). At the time of the breach, the market price of comparable carpeting is $6,600. B can recover $1,600.
1. What if B pays $7,000 for its carpeting? – B can recover $2,000 (article 2 encourages replacement deals as long as they are reasonable).
(c) Seller’s Contract Price Damage: Buyer breaches, buyer has the goods – contract price.
(i) e.g. - B contracts to buy carpeting from S. Contract price is $800. B receives the carpeting and does not pay for it. B owes $800 (always owes the contract price regardless of market price).
(d) Seller’s Resale Damage: Buyer breaches, seller has the goods – contract price – market price at time and place of delivery (or contract price – resale price) and, in some situations, provable lost profits.
(i) Example 1 - E contracts to sell his 1973 Cadillac to C for $1,000 C breaches. E then sells the Cadillac to S for $800. E can recover $200 from C.
(ii) Example 2 (lost profits) - S&M Leather contracts to sell leather clothing to C for $1,000. (Assume that C is buying goods that are part of S&M's regular inventory--"off the rack," so to speak.) C breaches. S&M sells the very same items to J for $1,000. S&M can recover damages from C.
1. critical facts in lost profits hypos:
a. regular inventory;
b. there is a breach followed by a resale at exactly the same price.
(e) Seller’s Right to Force to Buy the Goods on Buyer: The seller has a right to force goods on the buyer who has not accept them only if the seller is unable to sell the goods or if the goods have been lost or damaged after the risk of loss passed to the buyer
(1) Unjust enrichment (see above).
vi) Non-monetary remedies:
(1) Specific Performance/Injunction: Requirement – (i) subject matter is unique; (ii) legal remedy is inadequate; (iii) enforcement must be feasible & (iv) not equitable defense
(a) Contracts for the sale of real estate;
(b) Contracts for the sale of unique goods (unique – antiques, art, custom-made)
(c) Contracts for services – no specific performance, money damage is good; possible injunctive relief.
(i) Note: money damage for contract for service: cost to hire another worker + reasonable compensation for delay in performance
(ii) Covenant not to compete – it can be enforced through negative specific performance if:
1. reasonable business need for the protection;
2. reasonable time limitation;
3. reasonable geographic limitation.
(2) Laches – Laches is available as an equitable defense if the P has unreasonably delayed in bringing the action and delay is prejudicial to the defendant
(a) An equitable remedy.
(b) Changes a written contract.
(c) Facts to watch for:
(i) Mistake in writing the agreement – people make an agreement and then do not correctly express the agreement in writing (clerical errors).
(ii) Fraudulent misrepresentation as to what is in the agreement – one party’s mistake about what is in the writing is due to the other party’s fraudulent misrepresentation.
(4) Adequate assurances of future performance:
(a) Look for:
(i) one party to contract learning something after the contract that gives him reasonable grounds for insecurity about the other party's performance and;
(ii) written demand for adequate assurance.
(b) e.g. - P contracts to paint O's house for $1,000, with payment due 30 days after completion of the work. After making the contract but before performing the contract, P learns of O's record of not paying his bills. P can make a written demand for adequate assurances.
(a) Right of an unpaid seller to get his goods back.
(b) Key facts are that:
(i) the buyer must have been insolvent at the time that it received the goods, and
(ii) that seller demand return goods within 10 days of receipt (this "10‑day rule" becomes a "reasonable time rule" if before delivery there had been an express representation of solvency by the buyer), and
(iii) buyer still has goods at time of demand.
(c) e.g. - On January 15, S sells B grits on credit. The grits are delivered to B on January 22. B is insolvent on January 22nd. S learns of B’s financial difficulties and demands return of the grits on January 27th. B still has the grits on January 27th. S can recover the grits though reclamation.
(6) Rights of good faith purchaser in entrustment:
(a) If an owner leaves her goods with a person who sells goods of that kind and that person wrongfully sells the goods to a third party then such a good faith purchaser from dealer cuts off rights of the original owner/entruster.
(b) e.g. - O takes her watch to J Jewelers to be repaired. J wrongfully sells the watch to B, a bona fide purchaser for value. O cannot recover the watch from B.
h) Third-party Problems:
i) Third party beneficiaries:
(1) Identifying third-party beneficiary problems:
(a) Look for two parties contracting with the intent of benefiting a third party.
(i) Example 1 - S agrees to pay Jumbo Bagels $100 and Jumbo agrees to deliver 12 dozen bagels to E. If Jumbo refuses to deliver the bagels, E can sue on the bagel contract.
(ii) Example 2 – life insurance policies (beneficiary can sue insurance company)
(a) Third-party beneficiary – not a party to the contract. Able to enforce contracts others made for her benefit.
(b) Promissor – a person who is making the promise that benefits the third party.
(c) Promisee – person who obtains the promise that benefits the third party.
(d) Creditor/donee – third party beneficiary is usually a donee unless he was already a creditor of the promisee.
(3) Dealing with efforts to cancel or modify: “Vesting”
(a) Vesting occurs when the beneficiary:
(i) manifests assent to the promise in a manner invited or requested by the parties;단순히 알고 있다는 사실만으로 vesting이 발생하지 않아!
(ii) bring suit to enforce the promise; or
(iii) materially changes position in justifiable reliance on the promise.
(b) After the vesting, the contract cannot be cancelled or modified without consent unless the contract provides otherwise.
(4) Who can sue whom?
(a) Beneficiary can sue promissor;
(b) Promisee can sue promissor;
(c) Donee beneficiary can Not sue promisee,
(d) but Creditor beneficiary (intended 3rd party beneficiary) can sue both promissor and promisee on pre-existing debt.
(a) If the third party sues the promissor, the promissor can assert any defenses that he would have had if sued by the promisee.
(b) Note: the lack of separate consideration would not provide a defense to an action brought by the 3rd party beneficiary.
(6) Donee Beneficiary Exception – can sue promissor
(a) The promisee tells the beneficiary of the contract and should foresee reliance; and
(b) The beneficiary reasonably relies to its detriment
ii) Assignment of rights:
(1) Assignment is effective as soon as the assignor assigns his right in his written assignment to assignee. Once the assignment is effective, the assignee becomes the real party in interest, and he alone is entitled to performance under the contract. Once the obligor has knowledge of the assignment by notice, he is bound to render performance to the assignee. Once the obligor has notice, payment to any third party (even to assignor) does not discharge his duty.
(a) Assignment vs. third party beneficiary:
(i) Assignment – On January 15, Batman contracts with Gotham to provide security services for a year; the contract provides that Batman is to be paid $300,000 for the services. Batman later transfers his rights under the contract to Robin.
(ii) Third party beneficiary - On January 15, Batman contracts with Gotham to provide security services for a year; the contract provides that Gotham will pay Robin $300,000 for Batman’s services.
(a) assignor – Party to the contract who later transfers rights under the contract to another.
(b) assignee – Not a party to the contract. Able to enforce the contract because of the assignment.
(c) obligor – Other party to the contract.
(3) Limitations on assignments:
(a) Contract provisions:
(i) Prohibition – language of prohibition takes away the right to assign but not the power to assign which means that the assignor is liable for breach of contract but an assignee who does not know of the prohibition can still enforce the assignment.
(ii) Invalidation – language of invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee.
(b) Common Law Limitation:
(i) Even if a contract does not in any way limit the right to assign, common law bars an assignment that substantially changes the duties of the obligor.
1. Assignment of right to payment – this does not substantially change the duty of the obligor.
2. Assignment of other performance rights – this does substantially change the duty of the obligor (e.g., personal service)
3. C/L Requirement Contract – The right to receive goods under a requirements contract generally was not assignable
4. Cf. UCC Requirement/Output Contract: it is assignable if the quantity requirement is not unreasonably disproportionate to the quantity originally contemplated by the party.
(4) Requirements for assignment:
(a) Must have language of present assignment (“I assign” not “I promise to assign” or “I will assign”);
(b) Consideration is generally not required.
(5) Rights of assignee:
(a) Assignee can sue obligor.
(b) Obligor has same defenses against assignee as it would have against assignor.
(c) Payment by obligor to assignor is effective until obligor knows of assignment (Notice).
(d) Modification agreements between obligor and assignor are effective if the obligor does not have notice of assignment
(6) Multiple assignments:
(a) Gratuitous assignments:
(i) General rule – last assignee wins.
1. It is possible to make a gratuitous assignment. Generally, however, such a gift assignment can be freely revoked. Revocation can be accomplished directly or indirectly by bankruptcy, death, the assignor taking performance directly from the obligor, or the making of another assignment. Since a later gift assignment revokes an earlier gift assignment, the general rule for resolving claims among assignees who did not provide consideration is a last in time rule.
(ii) exception – if the gift assignment is not revocable, then it will take priority over a later assignment.
1. A gratuitous assignment is not revocable if :
a. it is the subject matter of a writing delivered to the assignee,
b. the assignee has received some sort of indicia of ownership, or
c. the assignee has relied on the assignment in a way that is reasonable, foreseeable, and detrimental.
(iii) NY rule - Gratuitous assignment is not revocable if it is in writing.
(b) Assignment for consideration:
(i) General rule – first assignee for consideration wins.
(ii) limited exception - a subsequent assignee takes priority over an earlier assignee for value only if he both
1. does not know of the earlier assignment and
2. is the first to obtain payment, a judgment, a novation, or indicia of ownership (first to notify is irrelevant).
(iii) Multiple assignments for consideration as a breach of warranty – in an assignment for consideration, the assignor makes a warranty that the rights are assignable and enforceable.
1. Losing assignee can sue assignor for breach of warranty.
iii) Delegation of duties:
(1) What is a delegation? - party to a contract transferring work under that contract to third party.
(2) Relationship of assignment and delegation:
(a) assignment – Assignment is the transfer by a party to a contract of his rights or benefits under the contract to a third party who was not a party to the contract.
(b) delegation - Delegation is the transfer by a party to a contract of his duties or burdens under the contract to a third party who was not a party to the contract.
(c) Often a contracting party makes both an assignment and a delegation of his rights and duties under the contract to a third party.
(i) Often the multistate examiners use the term “assignment” in a problem involving an assignment and a delegation and even in a problem involving only a delegation.
(3) Which duties are delegable?
(a) general rule – contractual duties are delegable.
(b) limitations (very limited) – delegations are permitted unless either:
(i) contract prohibits delegations or prohibits assignments; or
(ii) contract calls for very special skills; or
(iii) person to perform contract has a very special reputation.
(4) Consequences of delegation:
(a) Delegating party always remains liable.
(b) Delegatee is liable only if she receives consideration from delegating party.
(i) Example 1 - P contracts to paint O's house for $1,000. X then agrees with P that she (X) will do the painting for P because P is a good friend. X does not do the work.
1. O can sue P.
2. P cannot sue X (b/c delegation was not for consideration),.
(ii) Example 2 - P contracts to paint O's house for $1,000. P and X then agree that X will do the work and P will pay X $900. X does not do the work.
1. O can sue P.
2. P can sue X (b/c delegation was for consideration).
3. O can sue X (delegation for consideration creates a 3rd party beneficiary obligation).
작성자: S. KIM 시간: 오후 12:16