Bilateral Contracts 9
Exceptions to Communication Requirement 10
Mailbox Rule 10
Mistake in Transmission 10
Termination of Power to Accept 11
Unilateral Contracts 11
Adhesion Contracts 22
Anticipatory Repudiation 38
Invalid Assignments 45
Rights of The Parties 44
Assurance of Due Performance 39
Bargained for Exchange 1
Bargaining Process 6
Battle of the Forms 8
Knockout Rule 9
Minority Rule 9
Building Contracts 30
Minor Breach/Substantial Performance 38
Intoxicated Persons 18
Mental Incompetents 18
Conditional Promises 4
Constructive Conditions 35
Excuse of a Condition 36
Test for Express Conditions 34
Confidential Relations 20
Forbearance to bring suit 3
Consequential Damages 27
Foreseeability 27, 31
Liquidated Damages 27
Mental Suffering 26
Nominal Damages 26
Punitive Damages 26
Non-delegable Duties 47
Right of the Parties 47
Divisible & Separate Contracts 38
Filling Gaps 33
Finding the Law of the Contract 31
First Shot Rule 8
Frustration of Purpose 41
Illegality 13, 23
In Pari Delicto 23
Malum In Se 23
Malum Prohibitum 23
Not In Pari Delicto 23
Illusory Promise 4
Impracticability of Performance 40
Last Shot Rule 8
Legal Detriment 2
Mutual Mistake 20
Unilateral Mistake 21
Meeting of The Minds/Mutual Assent 4
No Oral-Modifications Clause 33
Certainty of Terms 7
Detrimental Reliance 12
Firm Offers 12
How to determine if one was made 6
Irrevocable Offers 12
Option Contracts 12
Option Contract 5
Output Contracts 5
Parol Evidence Rule 31
Determining Integration 32
Merger/Integration Clauses 32
Partial Integration 32
Partial payment 3
Payment in Full 3
Policing the Bargain 18
Pre-existing Duty Rule 2
Precontractual Liability 13
Price Quotations 6
Promissory Estoppel 5, 14, 30
Quasi Contract 6, 26
Reliance (Detrimental) 25
Limitations on Damages 30
Materiality of the Breach 23
Promissory Estoppel Recovery 30
Specific Performance 28
Types of Relief 24
UCC RULES 28
Restitution 25, 28, 40
Restitution/Quasi Contract 6
Satisfaction Clauses 34
Specific Performance 28
Statute of Frauds 14
Dispensing w/the requirement of a writing 17
Joining Several Writings 17
Missing Terms 18
Requisites of Writing & Signing 17
Sub-contractor Bids 5
Substantial Performance 37
Termination Clauses 4, 17
Third party beneficiaries 42
Promisee Suing Promisor 43
Vesting of 3rd party’s rights 43
Adhesion Contracts 22
Unjust Enrichment 13
Voidable Promises 4
Written Confirmation 9
TYPES OF CONTRACTS:
EXPRESS: formed by writing or oral language
IMPLIED: manifested by actions of parties even though it is not explicitly written or stated
QUASI-CONTRACT: court-created obligation which is created in the absence of a real K for “reasons of justice.” No negotiations
Implied in Law: plumber walks by a dwelling & fixes a burst pipe which is causing flooding – homeowner is not present/plumber may be able to recover under an IMPLIED IN LAW quasi-contract. [Implied in Fact Contracts are real K's & formed by the parties]
Void Contract: no legal effect (e.g. involving crime or illegal activity)
Voidable Contract: has legal effect unless one party (e.g. a minor) chooses to void it
Unenforceable Contract: invalid because of a legal technicality (e.g. violates SoF’s)
Void v. Unenforceable K’s: Parties cannot take corrective measures to make a void K enforceable. But, a n unenforceable K can be validated by the efforts of both parties (e.g. if the agreement is reduced to writing to satisfy the SoF’s)
ELEMENTS OF A CONTRACT: Consideration, Meeting of the Minds, & an Absence of Defenses
Consideration: comprised of 2 elements;
Bargained for Exchange: performance/return promise is bargained for if it is sought by the promisor in exchange for his promise & is given by the promisee in exchange for that promise [R2d § 71(2)]
Bargaining distinguishes enforceable promises from gifts. Gifts lack consideration & are not enforceable at law.
Distinguish from Pre-condition(s); performing a precondition IS NOT consideration, The promisor does not give his promise in exchange for performance of a pre-condition! (i.e. travel expenses incurred to get to the family home promised to the promisee)
“Past Consideration is no consideration at all” . . . not bargained for. 2 exceptions!
Pre-existing Debt: a promise to repay a pre-existing debt which is excused because of a technical defense (i.e. SOL’s have run) [R2d §§ 82, 83]
New promise to pay for received benefits: will sometimes be enforced out of “moral obligation” to prevent injustice [R2d § 86]
Courts usually don’t examine adequacy of consideration EXCEPT when it is obviously nominal & only given to make a gratuitous promise enforceable. It’s evidence that there was no bargained for exchange.
Legal Detriment: either a promise to do something that one is not legally obligated to do OR to resist doing something that one has a legal right to do (i.e. benefit to promisor, detriment to promisee).
Bilateral K: detriment = a promise
Unilateral K: detriment = performance
Pre-existing Duty Rule: this is the exception & has no legal detriment [R2d § 73]; e.g. modifications of rents & wages. Example: An agreement to accept payment of a lesser sum on or after the due date of a money debt is not binding for lack of consideration. The following are exceptions;
UCC 2-201(a): modification agreements don’t require consideration (most common defenses to this are one party claiming duress in agreeing to the mod. OR non-compliance w/SoF’s)
original K is rescinded, new K is executed/mutual promises = consideration
contract modification is treated as partial recision, thus supported by consideration
find new detriment for the consideration
[R2d § 89(a)] modification is OK if compelled by unforseen circumstances
reliance on modification/injustice only preventable by enforcement
(Some states) if modification is written/signed it’s enforceable
Agreement to accept partial payment: a promise to pay part of a pre-existing debt is NOT consideration for a promise to relinquish the debt. The promisee is still bound to the original debt amt. EXCEPTIONS . . .
Cashing of a check marked “Payment in Full”:
Common Law: creditor forfeits no rights as to the rest of the debt
UCC: entire debt is discharged unless creditor expressly reserves his rights by writing “with recourse”, etc., on the back [UCC § 1- 207]
Forbearance to bring suit: promise not to sue made in exchange for some return benefit, is VALID CONSIDERATION if:
The claim WAS valid
The claim was NOT valid BUT:
Majority: parties reasonably believed the claim WAS valid
R2d § 74: validity was uncertain to forbearing party OR they subjectively believed that it was valid
Mutual Assent: ea. party must provide consideration (incur a legal detriment) to the other in exchange for the other’s promise. [Cohen = "Meeting of the Minds"]
Illusory Promise: R2d § 77: not binding because it only appears to bind the promisor when it commits him to nothing (often found where a unilateral power to terminate exists!).
Termination Clauses: promisor’s promise which allows himself a power to terminate is valid consideration IF:
After Performance: Unilateral Termination is allowed ONLY after performance is rendered (A promises to be B’s agent, B promises to hire A & reserves rt. to fire A upon 30 days notice.
Contingent on Ability: Unilateral Termination is allowed where it is contingent on ability to perform (A gives a return promise to pay for B’s performance subject to his ability to pay.
Notice Period: Unilateral Termination which requires notice period is usually allowed; A promises to pay B $x per week subject to A’s rt. to terminate w/7 days notice.
Voidable Promises: made by minors/incompetents/etc. ARE valid consideration & satisfy mutuality [R2d § 78]
Conditional Promises: where performance is contingent upon the occurrence of a future event there is valid consideration IF:
Condition is outside promisor’s control & promisor doesn’t know of it’s actualization
Condition is partially w/in promisor’s control: IF promisor uses reasonable efforts to satisfy the condition (B will sell his house to A if he can find a new one w/in 1 yr.)
Option Contract: [R2d § 87, UCC § 2-205] Consideration is not always required where promisee receives an irrevocable offer (option K OR “firm offer”). Even where consideration IS recited.
Output Contracts: Traditionally a promise to buy what one “requires” was not sufficient consideration for the return promise to provide said product. No mutuality because buyer doesn’t have to buy where there’s no need, but seller must provide.
UCC/Modern View: such promises are valid/mutual, but UCC § 2-306 requires good faith duty to maintain reasonable requirements level – especially that the buyer buys from one seller & buyer can’t raise amt. to take advantage of market fluctuations
This WILL make promises by a seller to give all output to one buyer valid (good faith implied that there WILL be some reasonable output)
Unilateral K’s: Part Performance of a unilateral K is sufficient consideration to keep promisee’s acceptance OPEN, but he is not obligated to finish performance. Promisor can not w/draw his promise unless promisee rejects.
Promissory Estoppel: “A promise which the promisor would reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise (R2d § 90(1))”
Charities: R2d § 90: donations don’t require consideration – EVEN W/O DETRIMENTAL RELIANCE FROM THE DONEE!
Sub-contractor Bids: R2d § 87: sub-contractors must give generals a reasonable time to accept even where NO consideration is given to keep the offer open (due to nature of general’s position)
Restitution/Quasi Contract: If one supplies goods/services w/expectation of compensation & recipient who benefits from those goods/services would presumably have promised to pay for them if able to do so or should have done so by standards of community, court may recognize a right to recover in quasi-contract for the reasonable value of the goods delivered.
Use this theory when a K is partly performed, but is unenforceable due to Statute of Frauds.
p must have expected compensation or the act may be treated as a gift.
Measure of damages is the reasonable market value
Offer: a manifestation of willingness to enter into a bargain done to create the understanding in the offeree that his assent is invited & will conclude the arrangement [R2d § 24]
Objective Test: Courts consider whether a reasonable person would so understand the communication to be an offer regardless of the parties’ subjective understanding
Price Quotations: not an offer UNLESS quoter specifies quantity he is willing to sell (NOT JUST A “PER UNIT COST”) & quote is made to a specific person not a general offer
Promise/Committment: an offer must contain a promise or committment as opposed to an intention or preliminary negotiation. Courts look to the following to determine if an offer was made; MNEMONIC: M LIPS
Method of Communication: if on broad media (tv/newspaper) it’s often held to be an invitation for an offer, not a specific offer
Language: If “offer” or “promise” was used – it’s often held to be an offer. Courts will also look to the definiteness of the terms, e.g. if it says “first come, first serve” it’s sufficiently definite because a specific method of acceptance is in the offer.
Industry Custom: this may often show an offer which otherwise would not have been recognized
Prior practices between the parties: will weigh current statements in relation to prior transactions
Surrounding Circumstances: manner/context in which ‘offer’ was made can give/negate it’s effect, e.g. jest, anger & whether under the circumstances it was reasonable to construe the statement as an offer
Certainty of Terms: communication must be definite/certain so that if it is enforceable as an offer the court can determine the terms of the K. The consequences of missing/vague terms are as follows;
Time of payment/performance: absence of these is not fatal, court will imply that performance is due w/in a reasonable time [UCC § 2-309]
Identity of parties/subject matter: MUST BE CERTAIN – quantity must also be specified (exceptions; output & requirement K’s don’t require specific quantity figures & employment K’s don’t need a specific duration).
Price: price & other missing terms can be implied [UCC § 2-305]. But, if parties clearly show that w/out agreement on prices there will be no K, then prices will not be implied
Part-Performance: if parties have already begun performing the K, the manner in which they handled vague terms can be used
Acceptance: if uncertain, acceptance of ONE POSSIBLE INTERPRETATION will establish the K’s terms
Terms to be agreed upon in the future: if an offer specifically specifies this, it is too vague if the omitted terms are material to the agreement (e.g. quantity) & no K is formed from acceptance
Output/Requirement K’s: valid w/o terms so long as parties act in good faith.
Communication to the Offeree: offeree must have knowledge of the offer
Acceptance: a manifestation of assent to the terms of an offer in the manner required by the offer. Must meet the following;
Acceptor: only the person to whom the offer was made can accept. The power of acceptance cannot be assigned, but an option CAN be assigned
Variation: variations from the offer’s terms can be treated in the following ways;
Common Law: any variation = rejection/counter offer
Last Shot Rule: due to common law rule, ea party would send altered acceptances to induce the other party to performance under a false premise & thusly create a K on their terms
aa.UCC § 2-207: a written acceptance of an offer is valid even if terms vary UNLESS acceptance is expressly made conditional on assent to the additional or different terms
First Shot Rule: incentive to get first shot out against which future terms are to be judged
Battle of the Forms: inconsistency between standardized forms create problems as to which terms are valid;
If a party sends an acceptance that’s conditional upon the offeror’s assent to new or conflicting terms that are included in the acceptance, no K is made unless the offeror manifests his acceptance to this
Where acceptance contains additional terms:
K terms = original offer terms
One party is NOT a merchant: additional terms become part of K only if offeror explicitly assents
Both parties are merchants: additional terms become part of the K UNLESS:
Offeror objects OR
Term is material alteration
Offer & Acceptance differ on particular issue: (for varying, NOT additional terms)
Knockout Rule: (MAJORITY) disputed terms are knocked out of both offer & acceptance & UCC “gap fillers” are used
Minority Rule: offeror’s clause overrides (“first shot”)
Written Confirmation of Oral Agreement:
UCC § 2-207: ADDITIONAL TERMS in written confirmation are same as when contained in acceptance (SEE ABOVE)
UCC § 2-207: when confirmation contains DIFFERING TERMS from an oral agreement, the oral agreement usually controls
If acceptance terms so materially deviates from the offer, they will not be valid;
Material deviations usually involve price, quality, quantity or delivery terms
Though there is no K, conduct of parties may establish one – terms consist of those which were written & in agreement & gap fillers [UCC § 2-207(3)]
Communication of Acceptance for (BILATERAL K’S);
Acceptance is not effective until communicated to offeror
Objective manifestation of assent is required
MAILBOX RULE: (MAJORITY) acceptance is effective upon dispatch of acceptance (rejection is effective on receipt). Example: if rejection is mailed Tues., acceptance mailed Wens., Rejection is received Thurs, acceptance received Fri., A K IS formed. HOWEVER: if offeror relies on rejection, which arrived 1st, by making offer to another, he can avoid K formation by estoppel.
MINORITY RULE: no K is formed if rejection is received 1st (reverses the above example)
2 exceptions to Mailbox Rule;
Offer explicitly states that acceptance is not effective until actually received
Options K’s: exercise of an option K (i.e. acceptance) is ONLY effective upon receipt by offeror
If not specified in offer, any reasonable means is acceptable. But, even when specified in a certain way – if acceptance is RECEIVED in a different way before revocation, a K is formed
An acceptance lost in transmission may create a K if it was validly sent as long as it doesn’t cause undue hardship to offeror
Mistake in Transmission: (MAJORITY) if an offer is mistakenly changed in transmission & the offeree cannot reasonably be expected to know of the change, then the offer can be accepted on its mistaken terms
Exceptions to Communication Requirement: Mnemonic: SAWED
Silence: where prior dealings/industry customs dictate that an offeree’s silence & his acceptance of the benefits of the offer creates a K, it is treated as such
Act: (bilateral only) if offer specifies that a certain act will constitute acceptance then performing said act = a K
Waiver Expressly Contained in Offer: where offeror expressly waives communication of acceptance
Dominion: where offeree accepts unsolicited goods (i.e. didn’t ask for them) & exercises dominion over them, he has accepted an offer & made a K (some states, e.g. N.Y., has statutes specifying unsolicited goods as gifts
Communication of Acceptance of Unilateral K’s: performance of an act constitutes acceptance ONLY IF;
Offeror has knowledge & act was motivated by offer
Offeree must completely perform the act; partial performance creates an option for the offeree.
(Majority) If it would not otherwise come to the offeror’s attention, the offeree must notify the offeror of his intended acceptance.
Termination of Power to Accept:
By the Offeror/REVOCATION: can be revoked so long as it has not been accepted by offeree. Can be terminated in the following ways;
Direct/Indirect Communication: Indirect = 3rd party informs offeree of offeror’s revocation (must be correct, given by reliable source, & understood by a reasonable person). A can offer to sell X to B, but then sells X to C – that sale is a reasonable indication of revocation – but if B is not reasonably notified before he accepts, his acceptance IS valid
Publication: offers made by publication can be revoked by publication, revocation effective when published NOT when received
! An offeror CAN terminate his offer even if he promised not to do so ! The following are exceptions: MNEMONIC: DROP FU
Detrimental Reliance: offers are irrevocable for a reasonable time if the offeree relied to his detriment that the offer would be held open & it’s reasonably foreseeable to the offeror that the offeree would so rely (e.g. General contractor’s reliance on sub- contractor’s offer in determining the overall cost of the job)
Options: offeree gave consideration for the promise that the offer would be kept open. !R2D § 87 HOLDS THAT AN OPTION K IS VALID EVEN IF NO CONSIDERATION IS GIVEN, AS LONG AS IT’S RECITED IN WRITTEN/SIGNED DOCUMENT)
Partial Performance of Unilateral K:
MAJORITY/R2d View: K is formed when performance BEGINS provided that it is completed w/in a reasonable amt. of time. The offeror can’t revoke, but offeree can discontinue performance at any time w/out obligation. NOTE: preparation to begin performance IS NOT partial performance (i.e. preconditions)
TRADITIONAL View: revokable any time prior to completion of performance
Firm Offers [UCC § 2-205]: signed writing by a merchant to buy/sell goods w/firm terms & assures offer will be held open is enforceable even w/o consideration. The DURATION = 1) period stated, not to exceed 3 mons. OR 2) period not stated, reasonable period not to exceed 3 mons.
By the Offeree/REJECTION: Rejections are only good upon reception! done in 3 ways;
Express Rejection: ” ”
Counter-Offer: when offeree tries to add/change terms in offer
Mere Inquiries are not counter-offers, e.g. “how do you feel about lowering the price?” As long as offeree suggests that he is still considering the original offer.
Irrevocable Offers: a counter-offer DOES NOT revoke an irrevocable offer
Battle of the Forms: another exception (discussed at III, B, 2, c)
Passage of time/Lapse: if offer specifies time w/in which it must be accepted, failure to accept as such = lapse/rejection. If no time is specified, then a reasonable time period is given. In either case the period begins when offeree ACTUALLY RECEIVES THE OFFER
Offers made face to face lapse at the end of conversation.
Termination by Law:
Death/Incapacity: (e.g. insanity) of either party before acceptance = termination. Does NOT have to be communicated to the other party. BUT an irrevocable offer is not terminated by death/incapacity [R2d § 48]
Impossibility of Performance: subject matter of the offer is destroyed prior to acceptance = termination [R2d § 35]
Illegality: K becomes contrary to law prior to acceptance = termination [R2d § 35] (if AFTER acceptance, creates void K)
Unjust Enrichment: if one party, in reliance on the expectation of a K, confers a benefit on the other, the former party can seek restitution to prevent unjust enrichment
Promissory Estoppel: detrimental action/forbearance by promisee, in reliance on a promise, constitutes a substitute for consideration and renders the promise enforceable to some extent
R2d § 45: an option-K is created when the offer invites acceptance by performance and the offeree tenders or begins the invited performance. Offeror’s duty is conditional on completion or tender of the invited performance according to terms of offer.
Definiteness: terms of offer must be sufficiently clear and complete so that the court can determine what the parties intended and can fix damages in case of nonperformance [R2d § 33]
Essential Terms: Parties, Price, Time (of performance), & Subject Matter. These must be express OR capable of reasonable implication
Implied Terms: courts will imply reasonable terms where none are expressly covered.
Price completely omitted: courts imply reasonable price (fair market)
Price is indefinite: so vague it’s unintelligible, courts will NOT enforce these K’s (e.g. “pay not to exceed $200 per week”).
UCC § 2-204: THIS IS PRIMARILY THE SAME AS R2D, USE SAME RULES.
Statute of Frauds: (SoF’s) to prevent frauds some K’s MUST be written, BUT, even some oral K’s that fall w/in the SoF’s MAY BE enforced on grounds of equity! K’s which fall w/in the SoF’s = Mnemonic: MAD SIP
Marriage as consideration for promise Administrator or Executrix Debt of Another (Suretyship Agreement) Sale of Goods > $500 Interest in Land Performance NOT POSSIBLE in LESS THAN ONE YEAR.
Statutory Scope: these MUST be written;
Marriage as Consideration: promise to give property in exchange for marriage – BUT a promise to marry in return for a promise to marry is not w/in SoF’s; MUST INVOLVE SOME PROPERTY!
Administrator/Executrix: promise by administrator/executrix of an estate to PERSONALLY pay the debts of the estate
Debt of Another/Suretyship Clause: promise to pay debt of another OR Surety (promise to pay for services/goods which are given to another) will fall w/in SoF’s if;
Promisee intended the third party to be the primary debtor and the promisor to be only secondarily liable
Promise was made to the creditor (NOT debtor!)
Promise to pay another’s debts is only binding if promisor is not acting for his own benefit (Main Purpose Rule)
NOVATIONS: promise to pay another’s debt in exchange for a promise that the relieved debtor will no longer be liable if promisor fails to pay – THESE ARE OUTSIDE THE STATUTE/ENFORCEABLE EVEN IF ORAL.
R2d § 116: for a suretyship to fall w/in SoF’s, the main purpose of the promisor must be to benefit the 3rd party whose debts he guarantees, if it’s to further his own interests then such promise is enforceable EVEN IF ORAL.
Sale of Goods > $500: [UCC § 2-201(a)] K’s for goods OR securities > $500. THE FOLLOWING ARE EXCEPTIONS; MNEMONIC= SAG
Specifically manufactured goods not suitable for others: can be oral, a seller would not produce these goods if there was no agreement – no market for them
Admission by party against whom enforcement is sought: [UCC § 2- 201(3)]if a party admits that an agreement existed then no written memo is required. But the K is limited to those terms that are admitted
Goods accepted or paid for by the buyer: [UCC § 2-201(3)(c)] No written evidence is needed w/respect to goods that have been paid for or have been received & accepted
Interest in Land: K for sale of land MUST be in writing. However, an initially unenforceable oral land K may become binding if a party acts in reliance of it. These DO NOT include K’s which incidentally involve land (i.e. build a house). The types of interests covered are as follows; Mnemonic: MELT
Mortgages: promise to give mortgage as security for a loan must be in writing. BUT an assignment of rights of a mortgage is valid if oral
Easements: all easements
Leases: this applies to leases > 1 yr.
Timber: K’s for sale of timber must be written if buyer will cut wood after title to land passes to him. K’s involving minerals, oil, etc., must be in writing if they are to be removed
Performance NOT POSSIBLE in LESS THAN ONE YEAR: [R2d § 130]
1 yr. period starts to run from signing of K, not date set for beginning performance
Question is whether the performance COULD BE PERFORMED w/in 1 yr. – IF YES, then it DOESN’T have to be written; Performance v. Discharge: the fact that a K could be discharged thru impossibility or performance, death of a party, etc w/in the 1 yr. doesn’t take it outside the SoF’s (Example: A hires B for 3 yrs., B dies w/in 1 yr.). HOWEVER, if termination is preceded by full performance, the K does fall outside the statute (EXAMPLE: A promises to hire B for life, B works 6 mons. & dies – thus performance could be w/in a yr.)
Termination Clauses: a K that may not be completed w/in a yr., BUT has a termination clause which provides for termination w/in 1 yr. IS w/in SoF’s
In the same situation, but where the power to terminate is bilateral – Courts are split
Requisites of Writing & Signing: [R2d § 131] The following must be in the writing when required; Mnemonic: STIRS
Subject Matter: what the purpose of the K is
Terms & Conditions of the agreement which are essential
Recital of Consideration
Signature of Party to be Charged: initials or typed name may suffice
UCC § 2-201: separate requirements for a sale of goods K are as follows: written memo must be “sufficient to indicate that a K for sale has been made between the parties & it is signed by the party against whom enforcement is sought” or his agent.
Dispensing w/the requirement of a writing:
Promissory Estoppel: party can be estopped from asserting defense of SoF’s against another who relied on an oral promise, which unjustly enriched the party trying to invoke the statute
2-201(2): an unsigned written confirmation of an oral agreement is satisfactory if it is between merchants and (1) it’s sent w/in a reasonable time after the oral agreement (2) it’s sufficient to bind the sender (3) it’s received (4) no objection was made w/in 10 days of receipt AND recipient had reason to know of its contents
Joining Several Writings: several writings can be joined to form a memorandum that satisfies the SoF’s if they all refer to the same transaction or subject matter, are properly signed, and describe the terms of the agreement.
Missing Terms: Courts will reform a K that has missing terms, by use of extrinsic oral evidence if it is satisfied that the terms were omitted due to mistake, oversight or fraud.
Modifications & SoF’s: modifications must be in same form as original K requirements EXCEPT when a party acts in reasonable reliance on an oral modification that is minor is character.
Policing the Bargain:
Capacity: the following parties can only make voidable K’s;
Minors: can disaffirm any K, except for necessities, during minority AND a reasonable time after reaching majority [R2d § 14]
Exceptions: statutory OR involve K’s dealing w/duties imposed by law, e.g. marriage K, agreement to support an illegitimate child, etc.
When a minor disaffirms, other party can only recover in restitution AND this requires that the minor still has the goods.
Minor can ratify K after reaching majority expressly OR by conduct which induces reliance
Mental Incompetents: Can disaffirm a K if by reason of mental illness or defect they are unable to understand in a reasonable manner the nature and consequences of the transaction OR they are unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of the condition [R2d § 15]
Intoxicated Persons: can avoid K duties if he does not understand the transaction (Majority)
Unfairness: Conventional Controls:
Unreasonableness: inadequacy of consideration, disproportionate benefits, and oppressive nature of a K may make it unenforceable in equity
To determine this a K is examined prospectively. But, past performance and relations may be looked at to determine this.
However, ” . . . relative values or the consideration in a K between business men dealing at arm’s length w/o fraud will not affect the validity of a K.”
Overreaching: Conventional Controls:
Duress: restraint or danger, actually inflicted or impending, which is sufficient in severity or apprehension to deprive a person of free choice, destroy his volition, OR obtain consent only in form.
A K is voidable if made under duress and the claimant can seek restitution
To prove duress, the claimant must prove that the immediate possession of needed goods is threatened and that the goods could not be obtained from another source
W/o a fiduciary relationship, there is no liability for bare non- disclosure of known latent defects
But, half-truths are actionable as whole lies and grounds for rescission.
Misrepresentations: the following misrep.’s are grounds for rescinding, even where innocent (negligent, etc.) IF;
must involve a material factor
this applies to Ù’s failure to investigate facts which he knows are likely to reveal facts that would affect p’s decision (e.g. Ù notices the subject boat is sinking but doesn’t check for a leak before selling to p)
complainant justifiably relied
misrep. must be of facts, not opinion or law
BUT, opinions are actionable if from a fiduciary
Confidential Relations: these are grounds for avoiding a K if used to overreach during the bargaining process
such a relation exists whenever the relative positions of the parties gives one the power and means to take advantage of or exert undue influence over the other (usually disparities in age, education, business experience)
Mutual Mistake: [R2d § 152]
Material Effect: mistake under which both are acting must have a material effect on exchange
It is not enough that the party would not have entered the K but for the mistake
must be unfair to require performance
availability of other remedies may lead a court to determine it’s not material
Basic Assumption: it must involve a basic assumption (determined by magnitude of mistake, degree of certainty in parties, attitude towards transactions involved) e.g. that the bargained-for thing exists
courts are divided on whether quality is a basic assumption.
No Risk Allocation: p can’t recover if he assumed the risk of the mistake [R2d §§ 152,154]
risk can be allocated by K terms
risk IS allocated to a party who has some doubt about the mistaken terms but enters K anyway
the negligent failure of a party to discover facts upon which both parties are mistaken DOES NOT preclude rescission
Remedy = rescission
Unilateral Mistake: [R2d § 153] courts rarely allow rescission because it deprives the non-mistaken party of the benefit of the bargain
same elements required as for mutual mistakes AND either enforcement would be unconscionable or other party had reason to know of the mistake or actually caused it
courts are more likely to grant rescission if a clerical error is made rather than a mistake in judgment
Unconscionability: terms which cause oppression in their one- sidedness, determined at time of contracting only [UCC § 2-302, comment 1]; usually only applies for consumers
Common Law: unconscionability = K’s which were manifestly unfair or oppressive/no sensible person would enter them
UCC § 2-302(1): if judge as a matter of law decides K was unconscionable he may; (a) refuse to enforce whole K, (b) only the defective part(s), (c) limit application of defective part to avoid unconscionable result or (d) redraft clause or entire K
UCC § 2-302(2): parties have reasonable opportunity to present evidence of the circumstances (e.g. commercial setting, purpose and effect) to aid the court in its decision
R2d § 208: allows court to refuse to enforce all/part of a defective agreement
2 Types; (1) Procedural = unfairness in bargaining process, courts usually require this to allow recovery! (2) Substantive = unfairness in bargaining outcome. Some courts have allowed price unconscionability.
Liquidated Damages clauses that fix unreasonably large damages in the event of breach as a penalty are void. [UCC § 2-718]
Parties, by agreement, may limit consequential damages unless unconscionable. UCC § 2-719(2) substitutes remedies when the agreed-to remedies are unconscionable.
Limitations can NEVER be placed on consequential personal injuries from consumer goods (i.e. product liability) This constitutes a prima facie case for unconscionability.
Exculpatory clauses which excuse negligence on the drafter’s part ARE enforceable – BUT, a current trend is moving away from this
courts may void provisions which a person with superior bargaining power introduced and cause the other party great hardship because he was forced to adhere to the terms due to the necessity of the goods/services (e.g. loans, insurance, leases, etc.)
R2d § 212: party IS bound if he signs or otherwise manifests assent
for exculpatory clauses, the drafter must show that he gave adequate notice of the special contract.
R2d § 211(3): if issuer has reason to believe the other party would not assent if he was aware of the provisions, the provisions are void
statutes require K’s and regulations to control terms/remedies to be written in “plain language”
industry standards usually suffice (stated expressly or by reference)
blanket provisions which limit liability for negligence by Ù either on tickets or large signs are not applicable where p receives personal injuries as a result
If subject matter is legal at time of offer, but then becomes illegal before acceptance, the offer is terminated as a matter of law
If subject matter becomes illegal after offer/acceptance, K is discharged thru impossibility of performance
If severable the legal part will still be enforced
In Pari Delicto: (both parties equally culpable) if this is the case, courts will not aid either party, executory K’s not enforceable, benefits/damages which are conferred/sustained are not recoverable.
Not In Pari Delicto: recovery of conferred benefit depends on wrongfulness of K.
Malum In Se: (against good morals) no party can recover because courts want to discourage such K’s
Malum Prohibitum: (violates statute/regulation, though not against good morals) less culpable party may recover, but K is not enforceable
Remedies for Breach:
Materiality of the Breach: in ea. case, the factual issue of whether the breach was material or minor must be determined. Restatement First § 275 lists 6 factors for this decision;
BREACHING PARTY extent to which breaching party has performed
whether breach was willful, negligent, innocent
likelihood that breaching party will finish performance
degree of hardship by terminating K rights in the breaching party
NON-BREACHING PARTY extent to which non-breaching party will or has obtained benefit he bargained for
extent to which non-breaching party can be adequately compensated for in damages
Effects of a Material Breach: excuses non-breaching party (NBP) from any duty to perform AND allows him a remedy for breach of the entire K, not just a portion
Effects of a Minor Breach: NBP gets damages limited to those caused by the breach but NBP must perform remainder of K, then sue for damages, he’s not excused.
Under UCC § 2-601, buyer can reject goods if they fail in any respect.
4 Types of Relief: DAMAGES, SPECIFIC PERFORMANCE, RESCISSION/RESTITUTION, REFORMATION
Damages: this remedy is designed to put the NBP is position he would have been if the K was fully performed
Expectancy: (the most common) puts p in position he would have been in had K been performed – best choice because it allows the Benefit of the Bargain.
Measuring Expectation: when damages are based on the benefit of the bargain, 2 formulas are used;
Damages = [(loss in value) - (costs avoided) + (other losses)] Example: p expected $100 for a job that would have cost him $80 to perform & after Ù breached, p paid $10 to return materials he got to perform the job. Damages = $100 – $80 + $10 . . . or $30
if part performance had been given, the cost to p for that performance would be subtracted from the costs avoided amt. [$100 - ($80 - amt. already spent) + $10]
Damages = [(cost of reliance) + (profit) + (other losses)] Example: if p in example above didn’t start performance; Damages = $0 + ($100 – $80) + $10 . . . or $30
if part performance was given as above, it would be inserted where the $0 amount is ($10 + $20 + $10)
Reliance (Detrimental): puts p in position he would have been, had the K not existed. The theories of recovery are Promissory Estoppel/Quasi-K. The magic language;
“A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a 3rd person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires” [R2d § 90(1)]
Offers & Reliance: the rule applies to offers as well.
“An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.” [R2d § 87(2)]
Restitution: Ù is put in position he would have been had no benefit been bestowed upon him by p. The theory of recovery is unjust enrichment.
Quasi-Contract: Court-imposed equitable remedy:
Even if a K exists – p may recover more than the K price if court finds it equitable. EXAMPLE: A is to make X for B for $500, A underestimated costs, and X costs $1000 to make. If B repudiates and A has fully performed, A is NOT limited to $500/he can get quantum meruit of $1000
Quasi-K recovery is allowed where impossibility forbids completion of performance: (e.g. A has spent $100 on labor and supplies to build X for B, hurricane destroys it, A can recover $100)
A breaching party can recover in Quasi-K if he has substantially performed OR the NBP has accepted work. But the most he can recover is the K price, even if the work so far has exceeded it. [K price] – [cost to complete] + [consequential & incidental damages]
Nominal Damages: “token damages” awarded where there is a clear breach, but no proof of actual damages.
Punitive Damages: allowed only if expressly required & authorized by law (e.g. antitrust), not usually allowed in K breach unless it also involves a tort
usually allowed where the breach was intentionally malicious
Mental Suffering: Is allowed where;
K is non-commercial
Both parties could contemplate the mental aspects of the K at the time of K formation AND
The financial loss is not significant
Foreseeability: (from Hadley v. Baxendale) money recovery allowed for damages which;
necessarily, naturally or probably resulted from the breach OR
at the time of formation, may reasonably be w/in the contemplation of both contracting parties
3 elements of a valid liquidated damages clause are;
clause must reasonably forecast the probable loss due to breach (e.g. K can’t just say ‘you owe $10k if late’ it should say ‘you owe $1k for every week late’)
harm caused by breach must be difficult to calculate AND
clause must be customized, not just a penalty
When it’s valid, p doesn’t have to prove actual damages!
No duty to mitigate damages under valid liquidated damages clause,
Innocent party can recover even if he didn’t actually suffer any damages
If the clause gives party a choice of liquidated damages OR actual damages, the clause is probably unenforceable
This clause only limits damages claim – NBP can still seek other relief (rescission, restitution, specific performance, reformation)
Consequential Damages: Damages resulting from the special situation/needs of the buyer, not capable of mitigation by injured party (e.g. loss due to stoppage in manufacturing due to Ù’s failure to deliver a machine part on time).
These are recoverable when they are reasonably foreseeable.
These can be excluded from a K by the language UNLESS it’s unconscionable . . . e.g. limiting personal injury recovery in consumer goods K [UCC § 2-719(3)].
Specific Performance: equitable remedy which is only allowed when there’s no remedy at law (i.e. money damages). Typically occurs where subject is unique.
never allowed for personal service K’s (e.g. employment K’s)
Rescission/Restitution: measured as the value rendered to Ù regardless of cost to p and regardless of p’s injury due to Ù’s breach. This usually amounts to market value of p’s performance anyway.
3 situations where this is allowed;
Unilateral Mistake from duress, fraud, or undue influence
Reformation: allowed when fraud/mistake results in a written K that doesn’t reflect the parties’ agreement, court will reform K so that it’s accurate . . . an equitable remedy.
UCC RULES: (NOTE: these can be excluded by express language in the K)
UCC § 2-703: When a buyer wrongfully rejects goods/fails to pay, seller can;
Stop delivery by carrier/bailee
Finish unfinished goods & identify them to the K [UCC § 2-704]
Resell & recover damages [§ 2-706]
if he doesn’t resell, damages are limited to difference between K price and market value at time set for performance
Recover damages for non-acceptance [§ 2-708]
Recover price of the goods [§ 2-709]
Cancel the K
UCC § 2-711: ALWAYS NOTE WHETHER BUYER ACCEPTED OR NOT! IF HE DID, HE MUST FIRST PAY THE K PRICE, THEN SEEK RECOVERY. When a seller breaches, a buyer can;
Cancel K (recover anything already paid)
“Cover” and get [Cover $ - K $]
if buyer doesn’t attempt to cover, his recovery is limited to [K $ - Market $], not entitled to consequential damages [§ 2-715]
If all or part of goods are paid for: recover goods identified by the K
Specific Performance [§ 2-716]
Damages for Non-Delivery [Market $ at time buyer learned of breach - K $ PLUS incidental/consequential damages]
UCC § 2-601: acceptance of part of a “commercial unit” is acceptance of all of it (e.g. accepting 1 box from a truck full)
UCC § 2-608: buyer can revoke prior acceptance of non-conforming goods w/in a reasonable time after discovering their non- conformity if defect has substantially impaired their value, IF;
acceptance included reasonable assumption that defects would be cured in reasonable time OR
acceptance predicated on seller’s assurances of conformity OR
defect was difficult to discover
NOTE: when a non-merchant takes possession of goods before rejection, he’s under a duty of reasonable care once he’s rejected them (i.e. he’s responsible for unreasonable damages)
Promissory Estoppel Recovery: is limited to amount necessary to;
prevent injustice OR
replace party’s actual losses as a result of change in position
Building Contract Recovery:
Builder’s Breach: where builder has substantially performed and buyer has received non-conforming construction work, buyer has 2 formulas for recovery;
The cost to correct the mistake + consequential damages
[K $ - Tendered $] + consequential damages
Note: a builder IS under a duty to mitigate by selling or using (for another job) his remaining supplies for the breached K.
Buyer’s Breach: where buyer breaches and builder has begun construction;
Recovery = [Unpaid K price - Cost to complete the job]
Mitigation: If NBP can mitigate but doesn’t, his damages are reduced by the amount which he could have saved through mitigation
Limitations on Damages:
Avoidability: a court will not compensate an injured party for loss that the party could have avoided by making efforts appropriate in the eyes of the court
Once a party has reason to know that the other’s return performance will not be forthcoming, the former is ordinarily expected to avoid further cost by stopping performance. UNLESS;
Breaching party (BP) has assured that even though he breached, performance IS forthcoming OR
Continuing performance is still in NBP’s best interests (e.g. complete half-finished goods and sell to another)
Foreseeability: “damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the K was made” [R2d § 351] Loss IS foreseeable if;
it follows in the ordinary course of events
if follows as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know
Certainty: R2d precludes recovery “for loss beyond an amount that the evidence permits to be established with reasonable certainty.” UCC says damages don’t have to be mathematically correct, but must be proved to whatever accuracy the facts permit
Finding the Law of the Contract:
Interpreting K language:
Parol Evidence Rule:
2 Separate Rules:
Common Law: a writing that is completely integrated can’t be contradicted or supplemented with prior written/oral agreements, or contemporaneous oral agreements.
Completely Integrated = parties intended the K to be the final and complete statement of the agreement
UCC § 2-202: no evidence is admissible to show prior written or oral agreements, or contemporaneous oral agreements contradicting the K
A K can be explained or supplemented by evidence of trade usage or course of dealing or performance.
Types of evidence always allowed;
Evidence which shows that the K was not intended to be a final representation of the agreement (i.e. not a total integration)
Evidence which clears up an ambiguity in terms
when one party knows/has reason to know of the ambiguity, it will be resolved in the other’s favor
Evidence of subsequent agreements is ALWAYS ALLOWED
Evidence of defects in K formation: duress, lack of consideration, mistake, fraud
Partial Integration: Evidence of consistent additional terms is allowed where the K is found to be only a partial integration.
Determining Integration: Integration is determined by face of K language only. If the evidence is of an agreement to a term which is not in the K but doesn’t contradict, it’s a partial integration. If agreement was to a term which is present in the K, but different, there is a total integration (evidence not allowed because it contradicts)
Merger/Integration Clauses: these say that only the terms within the written K are valid, there are no others. These are given effect unless found unconscionable.
The rule is interpreted narrowly, so that nearly all evidence is allowed; due to the fact that the K can almost always be called a partial integration or that there is an ambiguous term.
No Oral-Modifications Clause: similar to parol rule except applies to subsequent agreements.
Common Law: any prior agreement, including the no-oral-mod. clause itself can be modified by a later agreement. They are usually only given effect when there is reliance
UCC § 2-209(2): “a signed agreement which excludes mod. or rescission except by assigned writing cannot be otherwise modified or rescinded…” BUT an attempt at modification or rescission can act as a waiver of the clause if a party acts in reliance to it.
Implied/Constructive Terms: when agreement of the parties doesn’t resolve the dispute that has arisen, the court may supply terms. Usually, if the problem at hand is considered to have been foreseeable to the parties when they contracted, the K (as it is) is NOT supplemented with new terms because the risk was probably assumed.
Performance & Breach:
Conditions: the occurrence or non-occurrence of an event, which must occur, before performance under a K becomes due or excused. [R2d § 224]
Failure to perform a condition will thus discharge the other party’s duty to perform
Conditions Concurrent: parties are bound to perform at same time so that performance of ea. one is dependent on the simultaneously occurring performance of the other
Condition Precedent: an event, other than a lapse of time, which must occur before the other party has an absolute duty of performance.
Condition Subsequent: an event, which discharges an already existing absolute duty of performance (very rare)
Precedent v. Subsequent: R2d does not distinguish. There is a burden of proof difference;
Party to whom duty is owed must prove condition precedent has occurred
Party who owes duty must prove that condition subsequent has occurred
Express Conditions: expressly agree that an event must occur before a party’s duty to perform arises
Strict Compliance: usually ALL ELEMENTS of express conditions must be met to create a duty of performance
[R2d § 229] BUT, courts dislike forfeiture & may excuse non- occurrence of the condition if it was not a material part of the exchange or may not strictly enforce the condition if substantial performance can be proven
Test for Express Conditions: to determine if one exists, courts look at;
Language: words such as “provided that” “when” “as soon as” etc., suggest a condition
Intent: of the parties is culled from the K, circumstances surrounding its formation, & conduct subsequent to its formation
Control: if occurrence of an event is w/in the control of one of the parties, it is more likely to be a condition
Satisfaction Clauses: an agreement can make a party’s performance conditional upon his satisfaction w/the other’s performance
Objective Satisfaction: is used when the condition calls for satisfaction as to commercial value or quality, operative fitness, or mechanical utility
Subjective Satisfaction: required where the condition involves fancy, taste, or judgment (dissatisfaction can be unreasonable as long as it’s in good faith)
Satisfaction of 3rd Party: e.g. architect’s approval; Majority Rule: to suspend an architect’s approval as a condition, a party must show that the refusal was made in bad faith, not merely unreasonably/unfairly w/held. Minority: unreasonable refusal of architect’s approval is grounds for excusing it as a condition
Exchanges of Performances: a party’s failure to render performance or its failure to offer performance may be an excuse for non- performance by the other party (a prospective failure may have the same effect)
Constructive Conditions: for fairness, courts sometimes imply events to be conditions which must occur prior to rendering future performance. Where duties have been agreed upon, but a sequence of performance has not – the duties are usually treated as constructive conditions of each other (Kingston v. Preston). Where the order of performance HAS NOT been agreed upon, the following rules are used;
If performance can be rendered simultaneously, courts view performances as constructive concurrent conditions; i.e. precedent to each other [R2d § 234(1)]. Both must be performed simultaneously.
If performance of one requires longer time, its’ performance is due first & is a constructive condition precedent to the other’s performance [R2d § 234(2)]
NOTE: where a K is made to perform work & no agreement is made as to time of payment, work must be substantially performed before payment can be demanded (Stewart v. Newbury)
Bilateral K’s: modern rule is that the mutual promises are dependent (K & G Construction v. Harris)
Excuse of a Condition: non-occurrence of a condition is sometimes legally excused;
Non-material Breach: a constructive condition may be satisfied by substantial performance instead of complete performance (i.e. NOT a material breach) – paid $499 instead of $500. Injured party must perform, but can then recover any damages caused.
Where a MATERIAL BREACH is made, the party alleging the breach gets a very favorable outcome because he can rescind the entire K. He has the option to repudiate the K (but this will be a material breach itself if the other breach is found to BE minor. (Walker & Co. v. Harrison). The factors to determine the materiality of a breach are;
to what extent has K been performed prior to breach
was breach willful
extent to which injured party will be deprived of benefit expected
adequacy of damages
extent to which breaching party would suffer forfeiture
likelihood failure will be cured
did breaching party’s behavior comport w/good faith & fair dealing
An injured party can request an assurance of due performance if there is a reasonable grounds for insecurity [UCC § 2-609/R2d § 251] e.g. breaching a 2nd separate K, declaration by other party that they plan not to perform/anticipatory breach
Doctrine of Substantial Performance: usually building K’s excuse conditions of complete performance if the work is substantially performed. The test of whether breach was material is the same as above (a-e). Substantial performance = no material breach [R2d § 241]
If minor breach, then damages may be awarded, but performance is still required
Prevents forfeiture where breach is minor
Usually applied to constructive conditions
UCC § 2-601: if goods are defective “in any respect” buyer is entitled to reject entire shipment, only defective goods, or accept all. The rule is usually applied to limit the buyer’s right to rejection
parties can otherwise agree, instead of rejection
buyer can’t reject goods under installment K unless non-conformity substantially impairs value of that installment or of the whole K [UCC § 2-612]
rejection by buyer must take place w/in a reasonable time [UCC § 2-602(1)]
after buyer has accepted under UCC § 2-606;
there is no right of rejection
revocation of acceptance is valid only if non-conformity substantially impairs its value to him & takes place w/in reasonable time [UCC § 2-608]
If goods were rejected & time for performance has not expired, seller may cure defect [UCC § 2-508]
Materiality of Breach:
Substantial Performance: Building Contracts: where a party’s performance is a constructive condition of the other’s performance, a substantial performance by the former will make the latter’s performance due. EXAMPLE: A contracts to build house for B for $100k, A’s obligation to build is a constructive condition of B’s promise of payment. If A completes all but installing storm drains – he has substantially performed (minor breach). This means B CAN recover damages, he will pay [$100k - damages]. Substantial Performance is determined by the same elements as material breach, see VIII,B,2,a,(1),(a) thru (g) herein. [R2d § 241];
Delayed Performance: Sales of Goods:
Divisible & Separate Contracts: a K is construed as severable if the part to be performed by one party consists of several distinct items and the price to be paid by the other 1) is apportioned to ea. item to be performed OR 2) is left to be implied by law
When only part performance is rendered, but the sum to be paid is not a lump some, the portion which reflects what WAS rendered is due.
Conduct that alters expectations:
Anticipatory Repudiation: if a party to an executory bilateral K, repudiates the K by words manifesting apparent intent not to perform as he has promised, before his performance is due, the other party may treat this as a present material breach and sue for entire value of the performance [R § 318]
Amount of Damages [UCC § 2-713] buyer’s damages = difference between market price at time he learned of breach & K price
Doesn’t apply to unilateral K’s
Words must unequivocally refuse future performance. If the words are ambiguous and only create doubt, p can request an assurance of performance and suspend his own performance until it is given
an unjustified failure to give assurance w/in 30 days = repudiation
Repudiator may retract his repudiation by notifying that he will perform, this revives p’s duty to perform UNLESS p has accepted the repudiation or has detrimentally relied on it.
ALL forms of relief are available to the NBP
Prospective Inability to Perform: conduct which indicates a party will not be able to perform. Example: A promises to sell X to B on Feb. 1, A sells X to C on Jan. 1. B’s duty to pay is excused because there is a prospective failure of condition (i.e. delivery of the deed).
Voluntary Disablement: conduct by a party prior to time his performance is due which makes it appear to a reasonable person that he will be unable to perform. Prospective failure of the condition = excuse of p’s performance. Some courts hold that performance is permanently excused, others hold that disablement can be cured by notice to p (before detrimental reliance) prior to performance, which states that Ù will again be able to perform
Prevention of Performance: Cooperation: if Ù’s actions prevent p’s performance, p has an excuse for nonperformance. Issue is usually whether it was prevention OR increased difficulty.
Assurance of Due Performance: traditionally p had no right to demand that Ù provide reassurance of his performance.
UCC § 2-609: adequate assurance of performance can be demanded if there are reasonable grounds for insecurity w/respect to the other’s performance. p’s performance is suspended until Ù give said assurance. If assurance is not given w/in a reasonable amount of time or 30 days, it’s a repudiation
Waiver, Estoppel, & Election:
Waiver: a party intentionally relinquishes her rights by knowingly accepting defective performance and giving some indication by conduct that she intends to forgo insistence on full performance. She waives her right to insist on full performance – she must still perform, but she can claim damages for the defective performance.
Estoppel: a party represents to the other by words or conduct that she will not insist on other’s literal performance on which her own duty to perform depended – she’s thus estopped from asserting requirement of full performance. THIS REQUIRES THAT THE OTHER PARTY DETRIMENTALLY RELIED ON THE REPRESENTATION
Election: choice between two inconsistent rights that only the chooser may assert, choosing one equals waiving the other
Restitution for a defaulting plaintiff: A breaching p can recover if he has substantially performed OR Ù has accepted the work. The most he can recover is the K price, even if the work completed so far has cost more. [K price] – [cost to complete] + [consequential & incidental damages]
Impracticability of Performance & Frustration of Purpose: Impracticability of Performance (IoP): modern courts discharge duties that are commercially impracticable to perform, even if they may be possible. 2 Part test for impracticability is; 1). Extreme & unreasonable obstacle which hinders performance AND 2) Obstacle was unforseen at time K was made.
Performance discharged if:
It’s rendered impracticable, w/o fault of one of the parties, by the occurrence of an event
Non-occurrence of the event was a “basic assumption” on which the K was made AND
Party did not expressly/impliedly assume the risk of the occurrence
Sale of Goods: delay or non-delivery by seller is not a breach “if performance as agreed” has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the K was made, PROVIDED THAT SELLER DID NOT ASSUME A “GREATER OBLIGATION” (i.e. didn’t assume the risk of unforseen developments)
Government regulations CAN be a cause of impracticability
INCREASED COSTS ARE NOT GROUNDS FOR IMPRACTICABILITY: This is usually true UNLESS;
increase is extreme and non-performing party did not assume the risk of the increase
UCC § 2-615: increased cost alone doesn’t excuse performance unless the rise in cost is due to some unforseen contingency which alters the essential nature of the performance. . .
e.g. shortages due to war, embargo, crop failure, power failure, etc.
rises or collapses in market prices don’t qualify
Frustration of Purpose: if the essential purpose of a K is frustrated, ea. party’s duty of performance is discharged even if performance is not impossible. The 4 elements sufficient to discharge the parties are [R2d § 265];
A supervening act or event
.Act/event wasn’t reasonably foreseeable at the time the K was entered
Purpose/object of the K was known and recognized by both parties at the time they contracted
Act/event totally or nearly totally destroys purpose or object of the K
Third party beneficiaries:
Common Law: 3rd party could not enforce the promise since he was not in privity of K
Creditor v. Donee Beneficiaries (Restatement 1st):
Creditor Beneficiary (CB): promisee’s intent was to discharge a duty he owed to the 3rd party. This duty need not be a debt, but merely an obligation the promisee feels he owes
Suing the Promisee: a CB can always sue the promisee on the original debt unless there was a novation (defined at IV, A, 3, a above) OR unless the debt really WASN’T owed/promisee only FELT he owed it.
Donee Beneficiary (DB): promisee’s intent was to confer a gift
Suing the Promisee: a DB can’t sue the promisee, even if he detrimentally relied on the K. Exception: a DB can sue a promisee for performance promisee received which should have gone to the DB.
NOTE: a 3PB is NOT always paid directly, Example: A owes B $100, C contracts w/D to do work for $200 and asks D to pay $100 of his money to B to extinguish A’s debt. A is a 3PB.
Incidental Beneficiary: A promises to buy a car for B if he can fart in 3-part harmony, B emits a lovely ballad from his ass and A refuses to pay. The incidental beneficiary is the car dealer. He fails the factors used to determine whether a beneficiary is intended (below).
R2d Beneficiary Types: merged both creditor & donee into Intended Beneficiary. A beneficiary is intended if the primary intent of the promisee was to give a benefit to him – otherwise, he’s incidental. The factors to determine if he’s intended are;
A statement of intent by the promisee in the K
Close Relationship: where a close relationship exists between the promisor and the beneficiary the 3rd party can enforce [Seaver v. Ranson]
Identifiability of the beneficiary before the K is discharged (NOT at formation)
Promisor’s performance directly to 3P.
3rd Party Enforcement & Vesting: the critical test is whether the 3rd party was intended to have enforceable rights under the K. Intended beneficiaries have enforceable rights, incidentals don’t.
A 3P’s rights are only enforceable once they vest, before vesting, the contracting parties can modify or rescind the K w/o 3P’s consent. To determine if an intended beneficiary’s rights have vested he first must know of the K, and one of the following must occur;
beneficiary manifests assent to the promise
beneficiary sues to enforce the promise
beneficiary justifiably relies on the promise to his detriment
When a 3P’s rights have vested, his consent is necessary for the other parties to rescind or modify the K. UNLESS: the agreement explicitly mentions the right to rescind/modify at any time by the original parties
Promisee Suing Promisor: if the beneficiary is a;
Creditor Beneficiary: a promisee can sue a non-performing promisor for the K amount OR he can demand specific performance (unique goods)
Donee Beneficiary: a promisee can ask a non-performing promisor for specific performance because he has no money damages because he didn’t owe a debt. However, he can of course get nominal damages.
Assignment: (an OBLIGEE’S transfer of a contract right); the OBLIGEE, as the ASSIGNOR transfers to an ASSIGNEE a right that the ASSIGNOR has against an OBLIGOR.
REQUIREMENTS: Present Transfer & Adequate Description of the Right to be Assigned;
Present Transfer: must manifest an intention to make a present transfer of the right w/o further action by the owner or by the obligor. No specific words written/oral are required to show intent – it can be said to a 3rd party. Intent is determined from all the circumstances the K & conduct.
Description of Assigned Right:
No writing is required for an assignment (exceptions = Interest in Land, Sale of Goods > $500, Chose in Action > $5000, Security Interests w/in UCC Article 9, Wages)
Consideration is not required, but a gratuitous assignment is revocable.
Rights of The Parties:
Assignee: can directly enforce the K (“steps into shoes of Assignor”)
Obligor: can assert any defense against assignee which he would have been able to assert against the assignor (e.g. lack of consideration)
Assignee v. Assignor: if assignee is unable to recover from obligor, he may seek to try to recover from the assignor;
Gratuitous Assignment: no recovery w/o detrimental reliance
Assignment for Value: warranty against; assignor impairing enforcement of the right, invalid right/not encumbered, & invalid documents evincing the right.
Before Obligor Received Notice of Assignment: modifications can be made in good faith
After Obligor Received Notice of Assignment: good faith mod.s can be made if assignor has not fully performed all of his duties under the K.
Assignments NOT allowed in the following ways: Mnemonic: POP FRED Prohibited by Law OPtion to enter bilateral K w/impermissible delegation of duties
Future rights Risks to obligor substantially altered Express agreement prohibiting assignment Duty of obligor would be altered
Prohibited by Law: rights can’t be assigned if a statute or public policy prohibits it (alimony payments, torts claims)
OPtions: when accompanied by an impermissible delegation of duties, these can’t be assigned; Example: A says to B; “I’ll give you 30 days to promise me that you will buy my house for $25K AND play the tuba at my wedding as part of the deal” B can assign his option to X, but X’s acceptance is only valid if B plays the Tuba, NOT X.
unilateral options may be assigned (e.g. A says to B; “if you give me $25K w/in 30 days, I will sell you my home”)
Future Rights: rights which are expected to arise in the future. Rights which are to arise from an existing K ARE assignable, but rights which are to arise from a K which is yet to be formed ARE NOT assignable.
Risks to Obligor Substantially Altered: if obligor’s risk will be materially varied, assignment is not allowed (not just increased risks, but different ones).
Express Clause Prohibiting Assignment: UCC/R2d hold that the clause is valid, but assignments are breaches of the K. The following are exceptions w/in the R2d (assignable even w/the clause);
Duty of Obligor would be Altered: material change to obligor’s duty is not allowed
Personal Service Contracts: can assign rts. to receive services if the services are unique or based on special relationship
Output Contracts: Common Law = not assignable, UCC = allowed if output is not unreasonably disproportionate to assignor’s estimate of eh likely quantity.
Rt. to sue for a breach of K
Rt. to return performance where assignor has fully performed his obligations
Anti-assignment clause is waivable by party for whose benefit it was made
Agreement not to “assign the K” is held to bar delegation only, not assignment.
UCC: ADVERSE EFFECTS ON OBLIGOR; a purported assignment is ineffective if the rights assigned in the sale of goods K:
“materially change the [obligor's] duty,”
“increase materially the burden or risk imposed in him by his contract,” OR
“impair materially his chance of obtaining return performance.”
NOTE: Even if assignment affects obligor adversely, it will be effective if the obligor agreed in the original K that the obligee’s rights would be assignable or the obligor later consented to it.
NOTE: if an obligee directly orders the obligor to pay a 3rd person – no assignment is made . . . however, if obligor does pay the 3rd person, his duties to the obligee are terminated anyway.
Delegation: (an OBLIGOR’S empowering of another to perform the OBLIGOR’S duty); OBLIGOR, as DELEGATING PARTY empowers a DELEGATE to perform a duty that the DELEGATING PARTY owes to an OBLIGEE.
Delegator is still liable under the K should the delegatee improperly perform.
K’s involving performance requiring special skills (e.g. singer)
“Special Trust” relationship (e.g. Doctor/Patient)
K provision expressly prohibits delegation
Right of the Parties:
Obligee must accept services which were lawfully delegated
Delegator remains liable for performance after delegation unless obligee specifically consented to delegation (i.e. novation)
Delegatee may perform the duties if he pleases, at his option
Assumption: delegatee must perform because he agreed to do so in exchange for consideration (obligor becomes a 3PB to delegatee’s agreement to perform)
Transfer: This occurs when both assignment and delegation were made (a TRANSFEROR both assigns his rights and delegates performance to another, recipient = TRANSFEREE)
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