CONTRACT LAW - Preparation
|What is the sequence for Ks problem solving|| "Armadillos From Texas Play Bad Rap Eating Tacos"|
A- Applicable Law
R- Remedies for Unexcused Nonperformance
E- Excuses of Nonperformance
T- Third Party Problems
| 1. APPLICABLE LAW|
| UCC Article 2 applies to SALE OF GOODS problems. (Does not apply to real estate, services, intangibles, or construction contracts)|
In all/nothing K, applies to most important part.
In division of payments K, applies to each part separately.
Note: The UCC always requires good faith.
| 2. FORMATION OF K|
|List of issues:|
1) Offer & Termination/Revocation/Rejection of Offer
3) Sufficient consideration & consideration substitutes
Defenses to Formation:
1) Statute of Frauds
2) Misrepresentation & Nondisclosure
9) Public Policy
|Formation of K: Is the initial communication an offer?||An offer is:|
(1) a manifestation of present intent to enter into a contract,
-- Whether a reasonable person in the position of the offeree would believe that his/her assent creates a K. (Actual intent irrelevant!)
(2) with certain and definite terms,
-- Missing terms (besides price in sale of land or no duration in employment K) is OK
-- "Appropriate", "fair", "reasonable" are disqualifying vague terms
-- "All", "exclusively", "only", "solely" manifest commitment and give rise to requirements/output Ks (UCC only valid if made in good faith and quantity is not disproportionate to any estimate or any normal prior output)
(3) communicated to an identifiable and ascertainable offeree.
-- Generally, an ad or price quote is NOT an offer.
-- Ads are usually invitations to deal, UNLESS:
------- It is a reward in the nature of a bounty, OR
------- It states a specific quantity and indicate who can accept it
|Types & Examples of Offers||Types of Offers|
- Bilateral K: Most offers can be accepted by promise or the implied promise resulting from start of performance
- Unilateral K: Start of performance pursuant to offer makes offer irrevocable, but it is not acceptance (requires completion of performance)
- Installment K: A K that requires delivery of goods in separate lots to be separately accepted (even if the K contains a clause that "each delivery is a separate K")
Examples of Offers:
- Real Estate offer: Must identify land and price
- Employment offer: Must have duration
- Public offer: requires specific definiteness to qualify as an offer. Needs language of an offer and quantity term.
- Auctions: "without" reserve: the auctioneer makes an offer to sell at any price bid by the highest bidder and, after he calls for bids, the goods can't be withheld.
- Crossing offers: if offers stating precisely the same terms cross in the mail, they do not give rise to a K because there was no meeting of the minds.
|Formation of K: Was the offer revoked?||Means of Revocation|
(1) Direct revocation: offeror expressly revokes the offer directly to the offeree
(2) Indirect revocation: offeree finds out the offeree is acting inconsistent with the offer
(3) Public revocation: offer is revoked by the same means of publication as was the offer made (its effective when published -- not when the offeree receives it!)
Irrevokable by the Offeror:
- Options: Promises to revoke w/payment or consideration are held open for a reasonable period of time.
- "Firm Offer Rule" (UCC ONLY): Writing signed by merchant expressly promising to keep offer open can't be revoked for up to 3 months.
- Detrimental Reliance on Offer: Offers that create reliance that is reasonably foreseeable/detrimental
- Unilateral Ks once performance starts: Irrevocable for a reasonable period of time for the offeree to complete performance. BUT Mere Preparation doesn't count.
- Sub-contractor: If sub-contractor makes a bid to a general contractor, the bid is irrevocable for a certain period of time.
|Formation of K: Was the offer terminated?||"LOODI"|
(1) Lapse of Time: If there is a failure to accept within the time specified in the offer (or for a reasonable period of time, if not stated), terminates the offer.
(2) Offeree dies or goes insane
(3) Offeror's unambiguous words/conduct TO offeree
(4) Destruction of K subject matter/it becomes illegal
-- If illegality @ time of offer -> offer not valid
-- If illegality arises after offer but b4 acceptance -> offer is revoked
-- If illegality after formation of valid K -> discharges performance.
-- Minors lack the capacity to enter into Ks binding on themselves
-- Disaffirmance discharges the minor's liability under the K (e.g., to disaffirm, the minor must return the item and refuse to pay)
|Formation of K: Was the offer rejected?|| - Express rejection (effective when received)|
- Counteroffers (DOES NOT include bargains) - effective when received
- Conditional acceptances (At CL: terminate and becomes a counter offer; at UCC: rejects offer)
- Option Ks: offeree can reject and accept later on until K expires, UNLESS offeror detrimentally relies on offeree's rejection.
- Lapse of time
|Formation of K: Acceptance of Offer||Generally: Acceptance is a manifestation of assent to the terms of the offer, in the manner that was specified by the offer |
- Assignability of Offers: You can assign OPTIONS, but not OFFERS.
COMMON LAW ACCEPTANCE
"Mirror Image Rule": Acceptance must be a "mirror image" of the offer, otherwise it's a counteroffer.
Acceptance needs to be definite and seasonable expression of acceptance and can be in any medium reasonable under the circumstances, OR occurs when both parties begin to perform.
- Acceptance (and only acceptance) effective when sent unless (1) meeting option deadline; or (2) following a rejection.
- Letter must be properly addressed/stamped, otherwise effective on receipt.
- Invalid if offer expressly says no mailbox rules.
- If the seller sends the wrong goods, there is still a K. However, not if the wrong goods are accompanied by a request. ("Can you use blue instead?")
- Offeree fully performs/ships goods
- Offeree starts to perform in a bilateral K
- Unilateral: offeree must know of offer to accept and be motivated by it.
- Silence is acceptance if: (1) offeree agreed to it in advance or (2) offeree silently takes offered benefits
|Formation of K: Sufficient Consideration / Consideration Substitutes||Consideration requires a bargained for exchange between the parties involving a legal benefit and a legal detriment.|
(1) Bargained for
-- gifts and past/moral consideration is NOT bargained for, so it's not good consideration
(2) Legal value (courts don't question the value of consideration unless its sham/token consideration)
(a) Pre-existing legal duty is NOT consideration, Unless
----- Owed to 3rd person
----- Honest dispute
----- Unforeseen circumstances
----- New or different consideration was promised
(b) Forbearance to sue
----- Good consideration if the promisor honestly and reasonably believed the claim to be valid even if the claim turns out to be invalid.
(c) Written promise to satisfy an obligation where there is a defense without consideration
----- A subsequent promise to pay a debt that has been barred by defense (ex: the SOL) does NOT revive the original debt but the subsequent promise is enforceable.
(d) Part payment for release: if the debt is due and undisputed, then part payment is NOT consideration.
(e) Promises as consideration: can be consideration unless its "illusory" (e.g., I buy all I want). It MUST be mutual.
(f) Best efforts: only consideration where the party promising best efforts is to be the exclusive distributor.
(g) Promissory estoppel is a substitute for consideration, where:
----- The promisor should reasonably expect to induce reliance (action/forebearance)
----- That is definite/certain AND
----- Such action is, in fact, induced.
|Defenses to Formation of K: Statute of Frauds||Statute of Frauds designed to prevent fraudulent claims of existence of K. |
Step 1: What fits within the Statute of Frauds? (Only certain Ks qualify) "MYLEGS"
(1) In consideration of MARRIAGE
(2) Ks that cannot be performed in one YEAR with unlimited resources
(3) Interests in LAND (leases more than a year, title, rights of first refusal)
-- Unless there is payment (in whole or in part), possession plus/or improvements made
(4) EXECUTORS' promises to pay estate debts out of their own pockets
(5) Sale of GOODS of $500 or more (unless part payment/acceptance)
(6) SURETYSHIP -- promise to pay suretyships (aka: promise to answer the debts of another)
--- A guarantee ("I promise to pay IF X doesn't") is required.
--- Exception: The main purpose was to benefit the guarantor.
Step 2: What satisfies the Statute of Frauds (No defense)
- Transfers of real estate = PART PERFORMANCE. Requires 2 of the 3: (i) improvements on the land, (ii) payment, (iii) possession.
- Services Ks = FULL PERFORMANCE (NOT PART PERFORMANCE)
- Sale of Goods Ks = Part performance satisfies (Partly delivered goods = satisfied/no defense; Partly undelivered goods = not satisfied/defense)
- Sale of Goods Ks = "Substantial beginning" satisfies when the goods are specially manufactured (e.g., bespoke cowboy boots)
- Common Law: All material terms (who and what) & who signed. The breaching party has to have signed.
---- K provisions requiring that modifications be in writing are NOT effective.
- UCC Article 2: Only needs the quantity term.
---- Writing, both merchants, with quantity terms, signed by P, and D never objected to the writing within 10 days of receiving it.
---- K provisions requiring written modifications are effective unless waived.
(3) Judicial Admission
- If the D asserting a Statute of Frauds defense admits in pleading or testimony that he entered into an agreement with the P, Statute of Frauds is satisfied.
- Some cases hold that the P's reliance on the D's oral promise can estop the D from asserting a Statute of Frauds defense.
STEP 3: Impact of not fitting within Statute of Fraud
- Written proof to enter into K for someone else is NOT REQUIRED unless it would fit within the Statute of Frauds
- Written proof of an alleged modification is NOT REQUIRED if the modification would not be within Statute of Frauds.
|Defenses to Formation of K: Misrepresentation as a reason not to enforce agreement|| - Can rescind K if: (1) statement of fact before K; (2) by one of the contracting parties or her agent; (3) that is false; and (4) induces the K.|
Distinguish with Nondisclosure: must be wrongful, e.g., painting over car rust
|Defenses to Formation: Mistake||(1) MUTUAL MISTAKE|
-- Mistake by both parties are voidable by the adversely affected party if: (1) mistake concerns a basic assumption on which the K was made; (2) That has material effect on agreed upon exchange; AND (3) Party seeking avoidance did not assume the risk of mistake.
-- Mistake in value of subject matter is not a defense because fixed price Ks are per se assumption of risk that prices will change.
(2) UNILATERAL MISTAKE
-- Is still a binding K unless the other party knew/had reason to know of the mistake and was using this to "snap up the offer."
-- Courts will grant relief for unilateral mistake if he/she should have been aware/know of the mistake.
(3) MISTAKE BY INTERMEDIARY
-- K is operative as transmitted unless knew/should have known of the mistake
|Defenses to Formation of K: Promisor's Lack of Capacity||Lacking capacity: (1) Under 18, (2) Mental incompetents; (3) Intoxicated persons (if other party has reason to know)|
Notes on Minors
-- A minor who enters into a K for a non-necessary and who ratifies the K at/after he is 18 is liable but only to the extent he ratifies the K. BUT, a minor, prior to ratification, can disaffirm a K.
-- A K entered into by a minor is voidable by the minor/guardian during his minority or within a reasonable time after reaching majority
-- A minor's parents are liable to pay for the minor's necessaries (food, clothing, medical care or shelter)
|Defenses to Formation: No Consideration||Moral obligations|
-- OK for consideration IF:
(1) Old promise unenforceable because of a technical defense AND
(2a) New promiose is made in writing
(2b) OR is partially performed
(2c) OR the past act was made at promisor's request
Promise not to sue
-- Only is consideration if claim is valid OR Person believed in good faith that she had a valid claim.
Pre-existing legal duty
-- No new consideration is irrelevant for UCC so long as change was made in good faith
-- Exception: New promise is a ratification of an otherwise voidable K; The pre-existing duty is owed to a third person; There is an honest dispute over whether the pre-existing duty is really owed.
|Defenses to Formation of K: Latent & Patent Ambiguity||LATENT AMBIGUITY|
-- Something that is not obvious, on its face
-- Neither/Both parties aware of ambiguity --> No K unless both parties intended same meaning
-- One party aware of ambiguity --> Binding K based on what the ignorant party reasonably believed was the meaning.
-- Something that is, on its face, ambiguous
-- Parol evidence may be used to explain only what has been written not what it was intended to write.
|Defenses to Formation of K: Illegality|| Illegality of consideration of subject matter voids the K. |
Illegal purpose does not void the K.
|Defenses to Formation of K: Unconscionability|| Unconscionability makes the K or provision unenforceable where unequal bargaining power (e.g., Adhesion Ks or inconspicuous provisions).|
Two basic tests: (1) unfair surprise (procedural) and oppressive terms (substantive) are (2) tested as of the time the agreement was made (3) by the court.
|Defenses to Formation of K: Statute of Limitations||4 years from breach of UCC K|
|Defenses to Formation of K: Duress||Improper motive on D's part to induce P into K and P vulnerably relies/performs.|
|Defenses to Formation of K: Fraud||Intentional misrepresentation of a material fact inducing K is voidable. (BUT: Puffing is OK)|
|Defenses to Formation of K: Public Policy|| Courts can refuse to enforce an agreement because of public policy. |
Look for an exculpatory agreement that exempts intentional or reckless conduct from liability or a covenant not to compete without a reasonable need or reasonable time and place limits.
|Defenses to Formation: Illusory Promise|| -- Condition entirely within promisor's control|
-- Right to cancel with no notice
-- Gratuitious suretyships before debtor gets the money
-- Promisor can choose several options and one is of no detriment.
| - Pre-contract words of parties & parol evidence rule|
- Delivery Terms & Risk of Loss
|Terms: Pre-K words of parties and parol evidence rule||Vocabulary|
- Integration - Final agreement triggers (ignore partial/complete integration)
- Parol evidence - Pre-integration words of the parties (ORAL or WRITTEN)
- Merger clause - K clause saying the K is final (persuasive, but not conclusive)
Admissibility of Parol evidence
(1) Admissible to:
--- explain ambiguity
--- establish evidence (for limited purpose of determining enforcement defense)
--- establish mistake in integration (clerical error)
--- add term, if partial integration OR additional terms would ordinarily be in a separate agreement
-- show course of deal, performance, and/or trade usage.
(2) BUT: Inadmissible to contradict or otherwise change
|Terms: Conduct|| 1st: course of performance: Same people, same K|
2nd: course of dealing: same people, earlier K
3rd: custom and usage: other people, similar Ks
|Terms: UCC||-- If one merchant: Additional/different term is a proposal and the terms of the original offer govern.|
-- If 2 merchants: Additional term becomes part of K, unless offer expressly says otherwise, additional terms materially alter K, or offeror reasonably rejects. (Different terms have authority split, some apply like with additional)
If no K but performance begins, terms are the ones on which the writings agree plus UCC gap fillers
|Terms: Delivery Terms & Risk of Loss||(1) Seller's delivery obligations|
--- Shipment K (FOB Seller/Goods City): Meets delivery obligations when: (1) gets the goods to a common carrier; (2) makes reasonable arrangements for delivery; (3) notifies the buyer
--- Destination K (FOB Other City): Doesn't meet delivery obligations until the goods arrive at the destination.
(2) Risk of Loss (after K is formed, before buyer gets damaged/destroyed goods that buyer/seller not to blame for)
- If risk of loss is on the buyer, he has to pay the full K price for lost/damaged goods. If seller has risk of loss, no obligation on buyer and possible liability on the seller for nondelivery
- Risk of loss rules:
#1 - Agreement of the parties controls
#2 - Breaching party is liable for any uninsured loss even though breach is unrelated to problem
#3 - Common carrier delivery: Risk of loss shifts from seller to buyer at the time the seller completes its delivery obligations (shipment or destination K)
#4 - "Catch-all": Risk of loss shifts from merchant-seller to buyer on buyer's receipt of the goods; Risk of loss shifts from non-merchant seller when he tenders the goods.
Note: Title is the wrong answer in UCC questions
(3) Disputes over quality of delivered goods.
--- Express Warranty: Arises from any statement of fact or promise.
--- Implied Warranty of Merchantability: Arises in every sale of goods by a merchant and ensures that goods are fit for ordinary purposes.
--- Implied Warranty of Fitness for a Particular Purpose: Arises when the seller knows the buyer is relying on the seller to pick suitable goods for the buyer and the buyer relies on the seller's expertise.
| Seller's Performance of Sale of Goods K|
|This ONLY applies to UCC Article 2 - GOODS. |
- Perfect tender (read literally)
- Generally, buyer can reject less than perfect tender, unless
--- Seller has option to CURE: Early delivery or reasonable given past deals, as long as buyer notifies seller.
--- Installment K with minor, NON-SUBSTANTIAL, impairments
--- Already accepted the goods (BUT: payment without opportunity for inspection is not acceptance)
- Revocation of Acceptance
--- Requirements: (1) Substantial impairment (i.e., something really bad wrong); (2) Not discoverable earlier; (3) Revocation within reasonable time after discovery.
- Installment Ks: Buyer can't reject a defective installment if the defect can be cured.
- Shipment of non-conforming goods: A simultaneous acceptance and breach UNLESS seller includes a notice that they are offered as an accommodation.
|BREACH OF CONTRACT||In a breach of contract, a breach takes place when a party fails to perform when (1) conditions precedent to performance are satisfied, (2) time to perform arrives, and (3) performance is not discharged.|
-- Where the promisor has substantially failed to perform his K obligations. If a material breach occurs, the other party's duties are discharged.
-- To put someone into material breach, non-breaching party must show he was willing and able to perform.
-- If the promisee gains the substantial benefit of her bargain despite the promisor's defective performance, a minor breach has occurred.
-- Note, however, the aggrieved party is entitled to a remedy for the minor breach (a "setoff") but she must still counter-perform (pay the breaching party)
-- Therefore, a minor breach may allow other party to delay, but not completely abandon performance.
Choosing between Material v. Minor Breach
-- Amount of benefit received by non-breaching party
-- Adequacy of compensation for damages
-- Extent of part performance by the breaching party
-- Hardship to the breaching party
-- Negligent or willful behavior
-- Likelihood that breaching party will complete performance
-- Breach as to one unit of a divisible K still entitles the party to payment for other, performed units.
-- K is divisible if: (1) performance is divided up in the TERMS of the K; (2) Same number of parts for each party; (3) Performance of each part is the agreed equivalent of the corresponding part.
-- Breach of one unit of installment K is a material breach as to the whole K only if it substantially impairs the value of the entire K.
| Breach of Contract Remedies|
1) Specific performance (only if money damages inadequate; generally wrong answer)
2) Reclamation (delivery of goods on credit to buyer insolvent at time of receipt; timely - generally 10 days from buyer's receipt of goods) - This is good for the SELLER ONLY.
Money Damages (requires definite/certain, foreseeable, unavoidable, and caused by breach)
(1) Generally expectation damages - compensate by putting P in same position as if K had been performed without breach
-- Market price - K price
(2) UCC Damages Rules
- Seller breaches, seller has goods [Mkt price at time of discovery of breach - K price] OR [reasonable replacement price - K price] (whichever is greater)
- Seller breaches, buyer keeps goods [FMV if perfect - FMV as delivered] or [Cost of repair]
- Buyer breaches, seller has goods [K price - resale unless seller can't resell in which case seller can recover the K price and in some situations provable lost profits]
- Buyer breaches, buyer keeps goods [K price]
(2b) More UCC Damages
-- Lost volume sellers get lost profits
-- Specific performance for unique goods unless BFP
(3) Sale of Land
-- Specific performance since all land is presumed unique, UNLESS already sold to BFP.
-- Seller can also get specific performance even though money not unique.
(4) Services Ks
-- Specific performance never available BUT court may enjoin D from working elsewhere.
(5) Additional Damages
-- Reasonable expenses incurred that flow from the breach. (e.g., The seller get these when the buyer breaches a K to purchase.)
-- Awards P the cost of his performance (e.g., his expenditures in performing his duties under the K.)
-- Recoverable when expectation damages too uncertain
Consequential Damages [foreseeable]
- Damages that arise from the breach because of the special needs of the buyer.
- They must be contemplated by the parties, naturally flow from the breach and can't be speculative and must be foreseeable.
- Test for validity: (1) Damages were difficult to forecast at time K was made, and (2) provision is a reasonable forecast.
- Can't be punitive
- UCC: The amount is close to what the actual damages were.
-- NEVER allowed in K actions.
(6) Quasi-K Relief (may exceed K price)
-- Promissory Estoppel: promisor must have reasonably expected promisee would detrimentally rely AND the reliance is of a definite and substantial character.
-- Unjust enrichment: One party has conferred a benefit on the other, with a reasonable expectation of being compensated, and the benefits were conferred at the request of the other person, and not rewarding damages would result in unjust enrichment.
(7) Important Note
-- Always a duty to mitigate.
-- In employment Ks, employee must use reasonable diligence to find a like position.
-- Construction Ks: Must cease work, not keep building and racking up costs
|Breach of Contract Remedies: Special Remedies||LEGAL RESTITUTIONARY DAMAGES|
(1) If expectation/compensatory measure too speculative, restitution awards the P the cost of her performance and puts the P in the position had the K not been performed.
(i) Restitutionary Damages (Two ways in which a K fails after P renders performance)
-- Unenforceable K = P can recover the value of her services even if it is greater than the K price.
-- Breached K = If the P is the non-breaching party, she can get restitution; if the P is the breaching party, modernly she can get restitution but no greater than K price.
-- Allows P to recover possession of a specific item of personal property that was wrongfully taken from him. P must show (1) Right to Possession; AND (2) D wrongfully withheld property.
-- Remedy allows P to take possession of chattel prior to trial by posting a bond, unless D defeats immediate recovery by posting a redelivery bond, in which D keeps chattel until trial.
-- Allows P to recover possession of his real property that was wrongfully taken from him. P must show: (1) P has a right to possession, AND (2) D wrongfully withheld property.
RESCISSION (Good Dog) [Puts parties back in the pre-K position.]
(i) Step 1: Determine if there are grounds for rescission
[Mistake (bilateral, and unilateral if non-mistaken party knew or should have known of mistake), misrepresentation, Coercion, Undue influence, lack of capacity, failure of consideration, illegality, impossibility]
(ii) Step 2: Defenses
-- Unclean Hands
-- Election from remedies (it's an affirmance of the K)
REFORMATION (Very Good Dog) [court reforms K to make it conform to original intent]
-- Step 1: Determine if there is a valid K
-- Step 2: Determine if there are grounds for reformation [Mistake/misrepresentation]
-- Step 3: Determine if there are valid defenses [Unclean hands/laches, BUT negligence, SoF, or Parol Evidence Rule will not work]
INJUNCTION (See next slides)
SPECIFIC PERFORMANCE (See next slides)
|Breach of K Remedies: Injunction||(1) Temporary Restraining Order: Sought at the first stage of request. Purpose is to maintain status quo pending issuance of preliminary injunction. Burden on P is to show irreparable harm. (Lasts 10-15 days.)|
(2) Preliminary Injunction: Provisional remedy to maintain status quo pending trial. Issued after notice/adversary hearing.
-- Elements: (i) Irreparable injury, weighed against any hardship to the D to make sure that the hardship to the D does not greatly outweigh the benefit that the P may get from relief sought AND (ii) Likelihood of success.
(3) Permanent injunction:
-- Inadequate legal remedies
-- Property right is involved
-- An injunction is feasible
-- Balance of hardships
-- No defenses: laches, unclean hands, impossibility, no injunctions on free speech or criminal acts (except for public nuisance)
|Breach of Contract Remedies: Specific Performance||(1) Is there a valid K?|
(2) Are the terms of the K sufficiently definite and certain?
-- P must show how it was to be performed.
(2) Is there mutuality of obligation?
-- P must show the party seeking SP is ready and able to perform (e.g., P will pay the purchase price).
(3) Are the legal remedies inadequate?
-- Damages are too speculative, too small to compensate, unique land.
(4) Is specific performance feasible?
- P must show the court has jurisdiction over property/parties; will require minimal supervision by the court, etc.
(5) Equitable Defenses
-- Laches: The effect of the passing of time. Has the P's inaction encouraged or allowed the D to act to her detriment?
-- Unclean Hands: P must come into equity with "clean hands." Must be related to the transaction in the suit.
-- Unconscionability: A "smell factor" problem with the K, tested at the time of K formation.
(6) K defenses
-- Mistake/Misrepresentation: Person won't be compelled to perform if there was concealment, fraud, etc.
-- Statute of Frauds (where there was valuable part performance in reliance of the K): If wasn't met because of lack of SOF, not entitled to SP (But IF there was part performance, it is entitled to SP).
-- No SP for free seech or criminal acts
| Things Happening After K that Excuse Nonperformance|
|1- Other party's material breach|
2- Other party's anticipatory repudiation (**)
3- Insecurity about other party's performance (UCC Only)
4- Nonoccurrence of express condition (**)
5- Later agreement
6- Improper performance
7- Later occurrences that affect the ABILITY to perform or MUTUALLY UNDERSTOOD PURPOSE of performance
|Things Happening After K that Excuse Nonperformance: Other Party's Material Breach||Another party's nonperformance (material breach) excuses performance.|
|Things Happening After K that Excuse Nonperformance: Other Party's Anticipatory Repudiation||Common Law Anticipatory Repudiation: |
An unambiguous statement or conduct (1) that the repudiating party will not perform, (2) made prior to the time the performance was due.
-- Entitles non-repudiating party to: sue immediately, suspend performance and sue when performance is due, treat repudiation as a rescission and a discharge, OR ignore the repudiation and urge performance.
-- Anticipatory Repudiation can be withdrawn (retracted) so long as there has not been a material change in position by the other party.
UCC Anticipatory Repudiation
If seller learns that buyer is insolvent, he can:
-- refuse to deliver except for cash
-- permit the seller to reclaim the goods upon demand within 10 days after the buyer receives them IF the buyer received the goods on credit while the buyer was insolvent.
|Things Happening After K that Excuse Nonperformance: Insecurity About Other Party's Performance (UCC Only)|| Requires:|
(1) Reasonable grounds for insecurity; and
(2) Written demand for adequate assurance; and
(3) Commercially reasonable to stop performance
|Things Happening After K that Excuse Nonperformance: Nonocurrence of An Express Condition||(1) Is there an express condition?|
-- Modifies other K duties, not create new duties.
-- Key words: "If", "only if", "provided that", "so long as", "in the event that", "unless", "when", "until", "and on condition that".
-- If in doubt, not a condition.
(2) Strict compliance test for satisfying condition.
-- If the condition is personal satisfaction, then focus on whether a reasonable person would be satisfied.
(3) Excuse of condition: Focus on word or conduct of person protected by condition:
-- Waiver: The person protected by the condition can voluntarily give it up
-- Prevention Doctrine: Prevents person protected by express condition hindering/preventing occurrence of the express condition
|Things Happening After K that Excuse Nonperformance: Later K||- Modification (replaces the K, no if-then statement)|
- Rescission (Cancellation): Mutual agreement to rescind is only valid if performance is not completed.
- Accord AND Satisfaction:
---- Accord: A new agreement between parties that already have an existing K. It requires new consideration (of lesser value, different consideration, or consideration given to third party)
---- Satisfaction: Is the performance of the new accord if satisfaction doesn't happen, the P can sue under the original K or the new accord.
---- Cashing a check as "payment in full" where there is a bona fide dispute as to the amount owed will establish an accord and satisfaction.
---- An accord and satisfaction releases parties from their obligations on the original K.
- Novation: Mutually agreed upon replacement party that excuses.
- Delegation: One party delegates to replacement party, does not excuse.
|Things Happening After K that Excuse Nonperformance: Improper Performance|| Under UCC, follow the Perfect Tender Rule|
At Common Law, follow the material breach rule: If there is substantial performance, then there is no material breach.
- Doing less than ½ of the work = no K righto recover, but quasi-K (unless it is a divisible K)
|Things Happening After K that Excuse Nonperformance: Later, Unanticipated Event||Destruction of subject matter of K is two part reading comprehension test: (1) What is the K performance obligation; (2) How does later occurrence affect ability to perform?|
Impossibility Excuses (Objective):
- Death or physical incapacity of a special person
- Later illegality of performance of purpose
- Destruction of subject matter of K (at common law)
- Frustration of purpose (Unforeseeable supervening event which destroys the purpose or value of the K, and the purpose was understood by both parties at the time of the K)
- Death of a party after the K
- Later performance becoming more expensive
- Nonoccurrence of what was a basic assumption for the parties.
*UCC - Apply risk of loss principles. Is it possible for the seller or the buyer to perform? (Compare grits to the 1973 Cadillac)
| Third Party Problems|
| - Third Party Beneficiary|
- Assignment of Rights
|Third Party Problems: Third Party Beneficiary||TWO KINDS|
(1) Incidental Beneficiaries: Have no K rights
(2) Intended Beneficiaries: Only intended beneficiaries have K rights under a K if his rights have vested.
-- Traits: Identified in K, receives performance directly from promissor, has some relationship with the promisee evidencing intent to benefit
-- When rights vest and 3rd party can enforce: When assent is requested and given, when he brings suit to enforce, detrimental and justifiable reliance.
-- Prior to vesting, promisor and promisee can modify or rescind 3PB rights.
- Who recovers from whom?
--- Beneficiary & Promisee (but not both) can recover from promisor.
--- Beneficiary cannot recover from promisee (UNLESS: Creditor beneficiary recovery from promise but only on pre-existing debt)
- Defenses: If beneficiary sues promisor, promisor can assert any defense that he would have had if sued by promisee.
|Third Party Problems: Assignment of Rights||(1) Definition: Two people contracting and then, later, one of the two (the assignor) transfers to a third party (the assignee) his rights under the K against the other party to that K (the obligor).|
--- Ks can be assigned (but offers can't be assigned!)
(2) Limitations on Assignment
- Language of Prohibition: Takes away right to assign but not power to assign, which means that the assignor is liable for breach, but an assignee who does not know of the prohibition can still enforce the assignment.
- Language of 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.
- No Language: Assignment cannot "substantially change duties of obligor" (Not an issue in assignment of right to payment. However, this is an issue in right to services)
(3) Requirements for assignment
- No consideration required, but assignments without consideration can be revoked and have no implied warranties.
(4) Who can sue whom?
- Assignee can recover from obligor.
- Assignor cannot recover from obligor unless assignment was without consideration.
- Obligor has same defenses against assignee & assignor.
- Implied warranties of assignor: the right actually exists, and the right assigned is not subject to any then-existing defenses by the obligor, and the assignor will do nothing after the assignment to impair the value of the assignment.
-- However, there is no warranty of what the obligor will do after the assignment.
(5) Multiple Assignments
--- Gratuitous assignments: Last assignee wins.
--- Assignments for consideration: First assignee wins.
(6) What Can't be Assigned
-- Personal service Ks that are unique
-- Requirement or output Ks where assignee will substantially vary the quantity
-- Assignment of future rights to arise from K
-- Assignments prohibited by law (wages)
|Third Party Problems: Delegation||(1) Definition: Two or more people contracting, and then later one of the two transfers duty to perform.|
(2) Limitations on Delegation:
- Generally allowed unless (1) K prohibits delegations or prohibits assignments, (2) "personal services contract" that calls for very special skills, (3) substantial changes to obligee's required performance; (4) special trust of delegating party.
(3) What happens if a Delegatee does not perform?
- Delegating party is always liable after delegation.
- Delgatee is legally obligated only if delegation and assignment or delegation for consideration