HOW TO APPROACH A QUESTION: OK, so you have a contract but someone is trying to get out of it. A.

First they are going to try to avoid the contract. 1. So your first step is to see if they have the capacity to contract Are they under guardianship? Are they a minor? Are they mentally incapacitated? Are they intoxicated? 2. If none of those apply, Was there a problem in the formation of the contract Was there a mistake of some sort? Was there fraud? Was there duress or undue influence? Was the contract or parts of the contract unconscionable? Was there illegality in the contract? Ok, they have the capacity to contract and there were no problems in the formation, so now you have to see if there was a problem with the performance of the contract 1. First we need to interpret the contract. If one of the parties is trying to bring in outside evidence to supplement the meanings of what is written on the page look to see if it is allowed under the parol evidence rule. In addition make sure to follow the rules of interpretation to determine that the contract means. 2. Identify the conditions to the contract express and constructive 3. Now you need to check and see if there was a breach of the contract Was a breach of the duty of good faith? Was there a breach of a warranty (UCC sale of goods)? Was the a breach of an express condition? Was there a breach of a constructive condition? Was there an anticipatory repudation? 3. Do they have a defense for their breach Are they excused from the express condition? Was there impracticability or frustration of purpose in performing the contract? Did they substantially perform? There is a breach so what are the possible remedies 1. Can they get compensatory damages and how much? 2. Can they get damages for mental anguish or punitive damages? 3. Can they equitable remedies? 4. Were there liquidated damages and are they enforceable?

WAYS TO GET OUT OF THE CONTRACT VOID: 13: Persons under Guardianship 163: Fraud in the execution 174: Duress by physical compulsion Illegality (agreement to commit a crime)

VOIDABLE: 15: Mental Incapacity 16: Intoxication 152: Mutual Mistake 152: Unilateral Mistake 164: Fraud in the inducement 175: Duress by threat 177: Undue influence 208 / 2-302: Unconscionability

AVOIDANCE OF CONTRACTS
Rest. 12 Restatement Capacity to Contract Capacity to Contract Capacity to Contract: Ability to understand the nature, purpose, and the consequence of the contract. Voidable Contract: A contract where at lease 1 party has the ability to declare it void 12(2): (a) under guardianship = VOID (b) infant (minor) = VOIDABLE (c) mentally ill or defective = VOIDABLE (d) Intoxicated = VOIDABLE If you enter into a contract while under guardianship the contract is VOID. General Rule: The contract is voidable. When the infant reaches majority they can ratify the contract or void it. If an infant voids a contract they give back what they have in whatever condition is it in, and get back what they gave. Exceptions: (Contract is valid and enforceable) 1. Student loan 2. Military enlistment 3. Marriage 4. Sports and Entertainment contracts approved by the court 5. Some odd insurance contracts 2 Ways to Ratify: Express: saying that they ratify it

13 14

Persons Affected by Guardianship Infants

Implied: continuing to perform the contract

Voiding / Disaffirming: Can get out of it at any time before reaching minority and for a reasonable time after reaching majority. Restitution (only if they are voiding a contract and it is for a necessity) General Rule: Minors do not pay restitution. Exception: If the subject of the contract that they are avoiding is necessary then the minor has a quasi contract responsibility. (The contract is still voidable, but we are going to enforce a restitution amount based on a quasi contract responsibility). Necessaries 12 comment f: determined on a case to case basis. Normally include. 1. food 2. clothing 3. medical care 4. shelter Misrepresentation of Age: Does not take away the minors right to use the minority defense. Analysis: 1. Is the contract voidable? 2. If the minor decides to void the contract look for restitution. No Bright Line Rule The presumption in the law is capacity therefore the person claiming mental incapacity has the burden of proving the incapacity, and the other party has to reasonable in their assessment the competence. (Do not have to know about the incomepetence to be VOIDABLE) To determine mental incompetence: 1. Physical condition 2. Adequacy of consideration (79 fairness and reasonableness of the transaction.) 3. Relation of trust of confidence, fiduciary relationship 4. Weakness of the mind 15(2): If the contract is fair and the other party does not know of the mental illness, the ability to ability to void the contract die to mental illness terminates if the contract has been performed to the point that voiding it would be unjust. 1. The other person has reason to know the incapacitated person is intoxication. 2. Intoxicated person cannot understand the nature and consequences of the contract.

15

Mental Illness or Defect

16

Intoxicated Persons

3. Rest. 151 152 Restatement Mistake Defined Mutual Mistake

Unable to act in a reasonable manner DEFECTS IN THE BARGAINING PROCESS UCC UCC Mistake A belief that is not in accord with the facts Mutual Mistake = VOIDABLE by the party adversely affected unless he bears the risk under 154. Factors: 1. Both parties make the same mistake 2. Basic assumption 3. Material effect take into account if there is relief by reformation or restitution When the resulting imbalance in the agreed exchange is so severe that he cannot fairly be required to carry it out. 4. Whether the adversely affected party bore the risk un 154

153

Unilateral Mistake

Unilateral Mistake = VOIDABLE by the person adversely affected unless he bears the risk under 154 Factors: 1. One party makes a mistake 2. Basic assumption 3. Material effect 4. Enforcement of the contract would be unconscionable 5. Other party has reason to know of the mistake. 5. Whether the adversely affected party bore the risk un 154 Example: Boise subcontractor submits a bid but accidentally leaves out price of glass with is 30% of the bid. The price was so low the general contractor had reason to know there was a mistake. Court found it would be unconscionable to enforce the contract.

154

When A Party Bears the Risk of a

A party bears the risk if:

Mistake

157 158

Effect of Fault Of Party Seeking Mistake Relief Including Restitution

1-303

Course of Performance, Course of Dealing, and Usage of Trade

(a) agreed to bear the risk (b) treats his limited knowledge as sufficient (c) risk allocated by the court. Example: Beachcomber(fake dime case) The lower court said it was customary for parties purchasing the coin to bear the risk. If you dont know about this mistake this section will protect you unless your lack of knowledge does not rise to a failure to act in good faith. (1) May have restitution (2) The court may grant relief on such terms that justice requires including protection of the parties reliance interests. Course of Performance: A sequence of conduct between parties in this transaction. Course of Dealing: A sequence of conduct between parties in previous transactions. Usage of Trade: Any practice or method of dealing so regularly observed in the trade to justify and expectation that it be observed. Hierarchy: 1. Express terms 2. Course of performance 3. Course of dealings 4. Usage of trade

Rest. 159 160

Restatement Misrepresentation Defined When Action is Equivalent To An Assertion (Concealement) When Non-Disclosure is Equivalent To And Assertion

UCC

UCC

161

Fraud A misrepresentation is an assertion that is not in accord with the facts. Active concealment: Actions intended or known to be likely to prevent another from learning a fact. Non-Discloser = assertion when: (a) When you know a past assertion has changed and you do not inform the person of the change. (b) When you know someone is mistaken you may have the duty to tell them they are mistaken (c) Certain relationships can trigger a higher duty to disclose.

(d) Where the other person is entitled to know the fact because of a relation of trust and confidence between them. 162 When a Misrepresentation Is Fraudulent Or Material Misrepresentation is Fraudulent when: (a) you know what youre saying is not in accord with the facts (b) Dont have confidence in what youre saying (c) Dont have a basis to back the assertion Misrepresentation is Material if: It would be likely to induce a reasonable person to agree, or you have reason to believe it is likely to induce assent Fraud in the Execution = VOID Sign something thinking that it is something else Fraud in the Inducement = VOIDABLE If assent is induced by either a fraudulent and/or a material misrepresentation by the other party upon which they reasonably relied. A misrepresentation induces a partys assent if it substantially contributes to his decision to assent. Opinion: an assertion that only expresses a belief Reasonable to Rely on Opinion as Assertion if: (a) that the facts known to that person are not incompatible with his opinion or (b) that he knows facts sufficient to justify him informing it. 169 When Reliance on an Assertion of Opinion is not Justified Not justified in relying on an opinion UNLESS: (a) relationship of trust such that would make reliance reasonable (b) reasonably believed the person has a special skill in the subject matter Example: Vokes (old lady who believed she would be a famous dancer) (c) particularly susceptible to a misrepresentation for some special reason. 2-313 Express Warranties by Affirmation, Promise, Description, Sample The seller makes a promise about the goods, and that promise is not good or untrue you can sue on the express warranty.

163 164

When a Misrepresentation Prevents Formation Of A Contract When A Misrepresentation Prevents Formation Of a Contract. When A Misrepresentation is An Inducing Reliance on Assertions of Opinion

167 168

Express Warranties created by: (a) an affirmation of fact or promise made by the seller to the buyer and the becomes the basis of the bargain. (b) A description of goods that is the basis of the bargain (c) A sample or model 164 FRAUD ANALYSIS: - Is there a misrepresentation under 159 or - Is there active concealment under 160 or - Is there non-disclosure under 161 Fraud Someone is doing something bad Misrepresentation: as assertion that is not in accord with the facts has the wrong idea does not have the wrong idea ANALYSIS 163 / 164: Fraud requires 1. got the wrong idea from either 159 active misrepresentation 160 active concealment OR 161 silence with a duty to speak AND WAS REASONABLE ON RELYING ON THE MISREPRESENTATION 2. Induced in to the contract ( 167) 3. Fraudulent or Material ( 162) Mostly innocent Belief that is not in accord with the facts has the wrong idea gets the wrong idea from somewhere: 151 Bilateral (Mutual) Mistake 152 1. has the some wrong idea 2. Wrong idea goes to a basic assumption 3. Effects their performances 4. The sis not depend on their own knowledge as sufficient 1 54 Unilateral Mistake 153 1. Basic assumption 2. Effects performance 3. Mistake is so bad that enforcement would be unconscionable OR The other party knows the mistake is due to their fault 4. The did not depend on their own knowledge as sufficient 154 Mistake

- Was there inducement under 167

- Was the misrepresentation fraudulent under 162(1) or - Was the misrepresentation material under 162(2)

Rest. 174 175

Restatement Duress by Physical Compulsion Duress by Threat

176

When a Threat is Improper

177

Undue Influence

Duress & Undue Influence Duress by physical compulsion = VOID Duress by Threat = VOIDABLE (1) If the partys manifestation of assent is induced by improper threat by the other party that leaves the victim no reasonable alternative (2) If the partys manifestation of assent is induced by one who is NOT a party to the tranaction, the contract is voidable by the victim UNLESS the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction. A threat is improper if: (a) the threat is a crime or tort or would result in a crime or tort (b) threat of criminal prosecution (c) threat of civil action in bad faith (d) threat of a breach of the duty of good faith under a contract Example: Austin v. Loral Loral threatened to breach existing contract if Austin did not comply with terms of new proposed contract (economic duress) Undue Influence = VOIDABLE (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persaution of who because of relation between them is justified in assuming that that person will not acting a manner inconsistent with his welfare. Unfair persuasion by a person with a special relation ship (2) If a partys manifestation of assent is induces by undue influence by the other party the contract is voidabe (3) If a partys manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by

Rest. 208

Restatement Unconscionable Contract Term

the victim UNLESS the other party to the transaction in food faith and without reason to know of the undue influence wither gives value or relied materially on the transaction. UCC UCC Unconscionability 2-302 Unconscionable Contract or If a contract is deemed unconscionable the court may Clause Refuse to enforce the whole contract Pull out the terms they think is unconscionable and enforce the remainder of the contract Reformation: rewriting the contract (usually better for the ) UCC ADDS: Basic Test whether in the light of general commercial background and commercial needs of particular trade or case, the clauses are so one-sided as to be unconscionable

UNCONSCIONABILITY ANALYSIS: JUDGED FROM THE TIME THE CONTRACT WAS MADE 1. No duress, no undue influence, no fraud. 2. Still have a question about concent 3. Look for Procedural Unconscionability: Procedural Unconscionability: Unconscionable in the process of getting into the contract. When one party lacks meaningful choice. 4. Look for Substantive Unconscionability: Substantive Unconscionability: Unconscionability in the actual terms of the contract *** NEED BOTH PRECEDURAL AND SUBSTANTIVE UNCONSCIONABILITY *** *** SUBSTANTIVE WAYS HEAVIER THAN PROCEDURAL *** PROCEDURAL UNCONSCIONABILITY: SUBSTANTIVE UNCONSCIONABILITY: Includes unfair surprise, oppression, inequality of bargaining power. Involves the harshness or one-sided provisions Looks to the negotiation process Looks to actual terms Think about how the contract was formed and how it got signed Excessive prices Rule of Thumb: Procedural if one of the parties lacked a meaningful choice in Rule of Thumb: terms are oppressively one-sieded entering into the contract Rest. Restatement Illegality 178 When a Term Is Unenforceable for Have to weigh the interest of enforcement against public policy Public Policy Factors for weighing the interest in enforcement: (a) the parties justified expectations (b) any forfeiture that would result if enforcement were denied

(c) any special public interest in the enforcement of the particular term Factors for weighing public policy against enforcement of terms: (a) the strength of that policy as manifested by legislation or judicial decisions (more data makes it easier to make a decision) (b) the likelihood that a refusal to enforce will further that policy? / Does it matter if we dont enforce the provision? (c) The seriousness of any misconduct involved and the extent to which it was deliberate (the more deliberate and serious the less likely the conduct will be enforced) (d) The directness of the connection between the misconduct and the term. (look for bad behavior and how closely it related to the term in question) Contracts that violate Public Policy: Agreements for immoral acts Agreements in restraint of trade covenant not to compete EXCEPTIONS: Sale of a business, and employment agreements (trade secrets) Agreements evading or eroding statutory protection / Not allowed to give up your own rights Agreements involving conflict of interest Agreements with exculpatory clauses - excuses you from liability for your own tortuous conduct; depends on how much it excuses the writer. Agreements that are unconscionable A promise is UNENFORCEABLE on grounds of public policy if it is unreasonably in restraint of marriage. A contract that would prove detrimental to the marital relationship is UNENFORCEABLE under public policy. Ex. A prenup that encouraged divorce - Restitution is not available on a contract that is unenforceable on grounds of public policy UNLESS denial of restitution may would cause a disproportionate forfeiture. Can get restitution if: (a) he was excusably ignorant of the facts of legislation of a minor character, in the absence of which the promise would be enforceable or (b) he was not equally in the wrong with the promisor

189 190 197 198

Promise in Restraint of Marriage Promise Detrimental to Marital Relationship Restitution Generally Unavailable Restitution in Favor of Party Who is Excusably Ignorant or in not Equally Wrong

IN GENERAL: 3 Categories for Illegality. 1. Contract whose formation or performance is a tort or a crime agreement to commit a crime = VOID

2. 3.

agreement to commit a tort = VOIDABLE / UNENFORCEABLE by the party that would benefit from the contracts illegal provision Contracts that violate statutes Contracts that violate public policy ( 178) public policy usually includes such things as public welfare, health, and safety

Possibilities for Illegal contracts: Some agreements [like to commit a crime] are void. Some agreements [like those that violate regulatory licensing statutes] are voidable, and thus unenforceable by the party who would benefit from the contracts illegal provisions Some agreements can be reformed by the court to remove the illegal provision; a court may be able to sever the illegal portion from a contract and enforce the rest. Some agreements can still generate a recovery for the injured party; a court can award damages in restitution for the value of any benefit conferred in partial or full performance of an illegal contract, even though the contract itself is unenforceable. If the contract is found to be illegal the court can remove the illegal portion and enforce the rest award damages in restitution for the value of any benefit conferred in partial or full performance of an illegal contract, even thought the contract is unenforceable. ( 198)

PERFORMANCE
Rest. 209 Restatement Integrated Agreements UCC UCC Parol Evidence Rule Integrated Agreements: in writing and the writing constitutes a final expression of the terms. if it reasonably appears to be a complete agreement, it is taken as integrated unless it is established by other evidence that the writing is not a final expression. Fully integrated: Intended to serve as a final expression of all the terms. No parol evidence Partially integrated: Some of the terms are integrated Can have parol evidence as long as it is not contradicted (CONSISTANT ADDITIONAL TERMS) Restatement:

210

Completely and Partially Integrated Agreements

213

Parol Evidence Rule

2-202

Final Written Expression: Parol

or Extrinsic Evidence

Fully Integrated: prior agreements not coming in Partially integrated: prior agreements coming in if: they are not inconsistent with integrated agreements are not coming in, AND must be something that we would not expect to be in the contract UCC Fully integrated: prior agreements barred UNLESS they are a usage of trade, course of performance, or course of dealing. Partially integrated: prior agreements coming in if: they are not inconsistent with integrated terms must be something we would have expected to be in the contract

214

Exceptions to the parole evidence rule

215

Contradiction of Integrated Terms

216

Consistent Addition Terms

Prior agreements are admissible in evidence to establish: (a) that the writing is or is not an integrated agreement (b) that the integrated agreement, if any, is completely or partially integrated (c) the meaning of the writing of the writing (interpretations) (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause (e) ground for granting or denying rescession, reformation, specific performance, or other remedy. Except as stated in the preceding section, where there is a binding agreement, either completely or partially integrated, evidence or prior or contemporaneous agreements or negotiation is not admissible in evidence to contradict a tern of the writing. With a partially integrated contract, consistent terms come in with extrinsic evidence. An agreement is not completely integrated if the writing omits a consistent additional agreed term which is (a) agreed to for separate consideration; or (b) such a term as in the circumstances might naturally be omitted form the writing

PAROL EVIDENCE ANALYSIS: If the contract does not pass 33 (definiteness and certainty) then parol evidence rule does not apply 1. Is the contract fully integrated or partially integrated? fully integrated: Rest = parol evidence barred UCC = barred UNLESS usage of trade, course of performance, course of dealing (then go to next step) partially integrated: moved to the next step 2. Is the parol evidence is contradictory to the terms of the contract or consistent? - if contrary no parol evidence allowed 3. If consistent look to see if it is something that would normally be excluded

4 Corners Rule: hold the parties to what is written in the contract. Period. Collateral Agreement: An agreement that is related to bur separate from the integrated written typically has separate consideration EXCEPTIONS: ISSUES OF REALITY OF CONSENT Choice of Law provision: parties agree in advance which substantive law will govern disputes Arbitration Clause: parties agree in advance that any dispute arising from the agreement will be settled via arbitration Merger Clause: parties agree that the written contract contains their entire agreement and that no other evidence can come in to vary the agreements terms. (Merger clauses tips toward integrated) CISG: 8(1) Eliminates the parole evidence rule in international dealings and focuses on the intention of the parties EXCEPT With an indemnification clause Rest. Restatement UCC UCC Interpretation When the court has to step in to determine the meaning of the terms of the contract: Interpretation: pay attention to usage of trade, course of performance, and course of dealing Contra proferentum interpretation against the drafter ( 206) Expressio unius est exclusion alterius expression of one thing excludes the other (stay in the same category if a list goes from specific to general) Construction: construe terms as consistent, if possible 200 Interpretation of Promise of Interpretation of a promise or agreement or a term thereof is an Agreement ascertainment of its meaning. 201 Whose meaning prevails (1) When both parties have attached the same meaning go with what they attached.

 202

Rules In Aid of Interpretation

(2) When the parties have attached different meaning interpret in favor of (a) the party who did not the about the other meaning and the first party knows they have attached another meaning. (b) Or the party who have no reason to know of a different meaning and the first party had reason to know tey had attached a different meaning. Plain meaning approach: the words mean what they mean Contextual approach: determine the meaning in light of the circumstances Restatement says: (1) Words and conduct are interpreted taking all the circumstances into account, and if the parties intentions are know they are given the most weight. (2) Interpret the writings as a whole including all the writings that are part of the transaction. (3) Unless a different intention is manifested (a) interpret language in accordance with its general meaning (b) interpret terms of art in accordance with their technical meaning when used in a transaction within their technical field. (4) Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement (5) When reasonable any manifestation of intention are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade. General standards of preference: (a) interpretation which gives reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or no effect (b) Hierarchy of Interpretation

203

Standards of Preference in Interpretation

1-303

Course of Performance, Course of Dealing, and Usage of Trade

 204

Supplying An Omitted Essential Term

express terms express terms and exact terms over general language separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated. 2. course of performance 3. course of dealing 4. usage of trade The court can fill in essential terms that are missing from the contract. The comments say: The court should provide a term that comports with community standards of fairness and policy . If there is an unclear term interpret against the person who wrote it. Usage is a habitual or customary practice Agreement interpreted in accordance with relevant usage An agreement is supplemented or qualified by a reasonable usage with respect to agreements of the same type if each party knows or has reason to know of the usage and neither party knows or has reason to know that the other party has an intention inconsistent with the usage. Usage of Trade: A usage that is so regularly observed in a trade that it justifies imposing the knowledge of it on all parties. Question for the jury Matter of law = what the usage of trade intale or if its in writing. Can be binding on a party who doesnt know it. - Unless otherwise agreed, usage of trade that the parties know, or have reason to know, gives meaning to, supplements, or qualifies the agreement, (can opt out of usage of trade by expressly putting it in the contract) Course of Dealing: Conduct of the parties in contracts which can reasonably be a basis of understanding for interpreting this contract.

1.

206 219 220 221

Interpretation against the draftsman Usage Usage Relevant to Interpretation Usage Supplementing and Agreement

222

Usage of Trade

1-303

Course of Performance, Course of Dealing, and Usage of Trade

223

Course of Dealing

1-303

Course of Performance, Course of Dealing, and Usage of Trade

 224

Condition Defined 1-303 Course of Performance, Course of Dealing, and Usage of Trade

- Unless otherwise agreed, course of dealing gives meaning to, supplements, or qualifies the agreement, A condition is an event, not certain to occur, which must occur, unless its non-occurance is excused, before performance under a contract Course of Performance: A sequence of conduct between parties in this transaction. Course of Dealing: A sequence of conduct between parties in previous transactions. Usage of Trade: Any practice or method of dealing so regularly observed in the trade to justify and expectation that it be observed. Hierarchy: 5. Express terms 6. Course of performance 7. Course of dealings 8. Usage of trade Parties can choose which states law they would like to apply to their contract. if parties do not put in a choice of law provision, the UCC applies to transactions bearing an appropriate relation to this state. If one of the following (not listed) UCC provisions specifes applicable law that provision governs and a contrary agreement is effective only to the extent permitted by the law. (1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of

1-301

Territorial Applicability; Parties Power to Choose Applicable Law

2-208

Course of Performance or Practical Construction

performance and course of performance shall control both course of dealing and usage of trade (Section 1-205). (3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance. UCC must be liberally contrued Agreement distinguished from a contracts Duty of Good Faith The phrase good faith is used in a variety of contexts, and its meaning varies somewhat with the context. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving bad faith because they violate community standards of decency, fairness or reasonableness. The appropriate remedy for a breach of the duty of good faith also varies with the circumstances. Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement *** Cannot contract around the duty of good faith but can put in a provision to specify what constitutes good faith as long as it is not manifestly unreasonably *** Good faith: except otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing. Good faith: in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing

Rest. 202

Restatement Comment a:

1-101 1-201 UCC

UCC

205

Duty of Good Faith and Fair Dealing

1-304

Obligation of Good Faith

1-201 2-103

General Definitions Definitions and Index of Definitions

Implied Good Faith: Issues of contract formation tradition duties of care to refrain from misrepresentation and correct subsequently discovered errors Termination of at will employees firing someone out of malice or retaliation Cases governing discretion in contractual performance To show bad faith show that:

one of the parties has so much discretion that they deprive the other party of substantial portion of the contract value

One partys failure to perform in good faith can supply the other party w/ a defense for nonperformance UCC UCC Warranties 2-313 Effects of a Breach by NonHow to create an express warranty: Performance as Excusing the Non(a) an affirmative promise from seller to buyer, relating to the goods, that is a basis for the bargain. Occurrence of a Condition (b) Any description of the goods that is a basis for the bargain (c) A sample or model that is a basis for the bargain. - You dont need magic words to create an express warranty 2-314 Implied Warranty: Merchantability; Implied warranty of merchantability: If the seller is a merchant in the goods, there is an implied warranty that the goods Usage of Trade are merchantable Merchantable Goods: (a) pass without objection in the tract under the contract description (usage of trade) (b) for fungible goods: of fair average quality within the description (c) are fit for the ordinary purpose for which such goods are most used (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all unites involved (e) are adequately contained, packaged, and labeled as the agreement may require (f) conform to the promises or affirmations of fact made o the container label if any. Unless excluded or modified, other implied warrenties may arise from course of dealing or usage of trade. Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the sellers skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section and implied warranty that the goods shall be fit for such purchase Do not need to be a merchant (1) Implied warranty if: good fit for its ordinary purpose but not fit for the buyers specific purpose and the seller knows that the goods dont fit the buyers specific use. Breach of express warranty: incidental damages: extra stuff having to be done as a result of the breach reasonably incurred by the in attempting to deal with the breach consequential damages: flow from the breach (2) Can contract around implied warranties by using clear and conspicuous language that there is not implied warranty.

2-315

Implied Warranty: Fitness for Particular Purpose

2-316

Exclusion or Modification of

Warranties (3) Other ways to get around or modify implied warranties 1. expressions like "as is" or "without fault" 2. the buyer fully inspects the goods, or refuses to inspect and the defect would have been clear had they inspected. 3. course of dealing, course of performance, or usage of trade indicate that the warranty is excluded or modified. 3 TYPES OF WARRENTIES EXPRESS Affirmation of Fact Not opinions Description of goods Models and samples CREATES WARRANTY THAT THE GOODS ARE HOW YOU ARE REPRESENTING THEM IMPLIED WARRANTY OF MERCHANTIBILTY (fit for ordinary purpose) Only exists when the seller is a merchant in those goods WARRENTY IMPLIED BY LAW THAT THE GOODS ARE MERCHANABLE IMPLIED WARRANY FOR A PARTICULAR PURPOSE Dont have to be a merchant You educate the seller of the particular purpose you have with respect to the goods AND you rely on the sellers skill and judgment in selecting the goods. IMPLIED WARRANTY THAT THE GOODS WILL BE GOOD FOR THAT PARTICULAR PURPOSE Express Conditions A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract A condition that must be satisfied before a contractual duty comes into existence. Not really a condition Obligations of parties are binding but something happens that discharges the parties. Excuse of Express Conditions When someone is trying to get out of a contract because of the failure of the condition (1) Performance of a duty subject to a condition cannot become due unless the condition occurs or it non-occurrence is excused. (2) Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur. (3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur Courts may excuse a condition that was not a material part of the agreed exchange to avoid disproportionate forteiture.

Rest. 224

Restatement Condition Defined Condition Precedent Condition Subsequent

UCC

UCC

Rest. 225

Restatement Effects of the Non-Occurrence of a Condition

UCC

UCC

229

Excuse of A Condition to Avoid Forfeiture

 271 245

Impracticability As Excuse For NonOccurrence of a Condition Effects of a Breach by NonPerformance as Excusing the NonOccurrence oh a Condition

249

When Payment Other Than by Legal Tender is Sufficient

Waiver

2-209

Modification, Rescission and Waiver

Impracticable to excuse if it is not central to the contract and would be unfair not to excuse. Interference with the occurrence of the condition the breaching party cannot benefit from his own misconduct the court excuses the condition and the breaching party is no in the contract. Can be imposed by active efforts or passive efforts Where the payment or offer of payment of money is made a condition of an obligor's duty, payment or offer of payment in any manner current in the ordinary course of business satisfies the requirement unless the obligee demands payment in legal tender and gives any extension of time reasonably necessary to procure it. Excuse of Conditions by Waiver: A condition can be excused by the conduct by one party which falls short of an agreed modification Election Waiver Election to perform even after condition is failed Estoppel Waiver - says dont worry about the condition AND materially changes his position based on s representation Waiver w/o election or estoppel - states it will not insist upon a nonmaterial condition Modification: mutual and required consideration / not unilaterally retractable. Waiver: Unilateral and requires no consideration / retractable absent reliance UCC (1) modification does not require consideration (2-209) (5) A waiver can be retracted at by reasonable notice UNLESS the retraction would be unjust because the other party reasonably relied. dont need reliance to make a waiver valid, but if there is reliance then you cant retract the waiver. Constructive Conditions Each party has a duty to perform regardless of whether the other performs (old default rule)

Rest.

Restatement Independent Covenants

UCC

UCC

Dependent Covenants

233

Mutual Covenants Performance at One Time or in Installments

234

Order of Performance

235 236

Effect of Performance as Discharge and Non Performance as Breach Claims for Damages for Total and for Partial Breach

Either party may recover damages from the other for the injury he may receive by a breach of covenants in his favor and where no excuse for to allege that breached covenants. Performance of one depends on prior performance of the other (modern default rule) - Until the prior condition if performed the other is not liable for his performance but he can sure the first for breach Conditions are to be performed at the same time (1) If you can complete your performance at one time you should complete performance at one time, UNLESS the language of the contract or circumstances indicate the contrary. (2) If only a part of performance is due at one time, that part is due at that time UNLESS the language of the contract or circumstances indicate the contrary. (1) If both parties can render performance simultaneously then they should perform simultaneously. (2) If one parties performance takes time he must start before the other party has to perform, UNLESS there is language to the contrary (such as a payment schedule, etc). Full Performance: discharges the duty Non-performance: breach (1) A claim for damages for total breach is one for damages based on all of the injured party's remaining rights to performance. (2) A claim for damages for partial breach is one for damages based on only part of the injured party's remaining rights to performance. Except as stated in 240, it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. When a contract is divisible: If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party's

237

Effect on Other Partys Duties of a Failure to Render Performance

240

Part Performance as Agreed Equivalents

The Doctrine of Substantial Performance

performance of his part of such a pair has the same effect on the other's duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised. What Is Substantial Performance? Sometimes a party to a contract may still be paid under (or retain the benefit of) the contract even though they have not fully complied with the specific terms of the contract. If a court finds that one party has performed enough of the contract, the other party will not be able to get out of the contract. When Has a Party Substantially Performed? Failure to fully perform under the contract must not be intentional or a result of carelessness or negligence. The party must not have frustrated the purpose of the contract. For example, if you have contracted to have your house painted purple and the painter instead paints it black, since the purpose of the contract is a purple house, even though the house has been fully painted, the purpose of the contract has been frustrated. Exceptions to the Doctrine of Substantial Performance If the contract explicitly states that specific and complete performance is required as a condition of the contract, then a party must completely fulfill their obligations. If performance can be completed by a minor alteration, or if the only obstacle to complete performance is a small defect, then the party may not use the doctrine of substantial performance and must correct their mistake. What Can You Recover if a Party Has only Substantially Performed their Obligations under the Contract? If the other party has substantially performed you must pay them for the real value of their service minus what it would cost you to fix their mistakes. Or, if this remedy isnt appropriate, you must pay them the

value of their service or benefit. Although substantial performance usually applies to building and construction contracts, it can also apply to other types of contracts. For example, in an employment contract, an employee may substantially perform as a prerequisite to becoming entitled to a benefit. To determine if there has been a material breach (which will discharge the other parties duties) weigh the following factors: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected. (b) The extent to which the injured party can adequately compensate for the part of that benefit of which he will be deprived (c) The extent to which the party failing to perform or to offer to perform will suffer forfeiture (d) The likelihood that the party failing to perform or offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances (e) The extent to which the behavior of the party failing to perform or to offer to perform comports with standard of good faith and fair dealing. If the factors weigh in favor of a material breach, then the doctrine of substantial performance will not apply and the injured party will be excused from performing. What to do with the parts if the contract is divisible If performance can be apportioned into corresponding pairs of part performance, that portion of the agreement is enforceable by a party who did not engage in serious misconduct. If the seller delivers goods that do not conform with the contract the buyer may: (does not apply to installment contracts) (a) reject the whole (b) accept the whole (c) accept any commercial unit or units and reject the rest When a seller fails to deliver or repudiates or the buyer rightfully rejects the goods the buyer may cancel. (a) the buyer is required to cover before he can recover under the

241

Circumstances Significant in Determining A Failure is Material

183

When Agreement is Enforceable as to Agreed Equivalents

2-601

Perfect Tender Rule

2-711

Buyers Remedies

 2-703

Sellers Remedies

2-717

Deduction of Damages from the Price UCC

Rest. 261

Restatement Discharge by Supervening Impracticability

UCC

262 263

Death or Incapacity or Person Necessary for Performance Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for Performance

next section. (b) The buyer that recover damages for non-delivery as provided in 2713 Buyer may: (a) recover for the goods that have been identified to the contract (b) in proper circumstances obtain specific performance When buyer breaches seller may: (a) withhold delivery of such goods (b) stop delivery (c) under the next section respecting goods still unidentified to the contract (d) resell and recover damages recover damages for non-acceptance or in a proper case the price The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract. Impracticability & Frustration of Purpose Partys performance is discharged when made impracticable without his fault due to occurrence of event, the non-occurrence of which was a basic assumption Factors: 1. the event made performance impracticable 2. the non occurrence of the event was a basic assumption on which the contract was made 3. the impracticability resulted without the fault of the party seeking to be excused 4. the party had has not assumed a greater obligation then the law imposes. Example: the Hall that burned down by no fault of the Hall owner. If the existence of a particular person is necessary for the performance of a duty his death of incapacity makes performance impracticable If the property which the performing party expected to use is destroyed, that party is discharged only in the party that was specifically referred to or at least understood by both partied to be the property that would be use.

 264 265

Prevention By Governmental Regulation of Order Discharge by Supervening Frustration

The law changed, and you had no reason to believe that the law would change so it falls under 261) The promisor has the capacity to perform and performance would not produce severe financial hardship HOWEVER the promisor has no incentive to perform because the purpose for which the other partys performance was purchased changed dramatically. In light of that change, the promisor would not now enter into the same contract If a parties principle purpose is substantially frustrated without his fault, his remaining duties are discharged, Example: Krell - The guy who rented the apartment for the purpose of seeing the coronation but the coronation didnt happen. The contract was to rent the space, but the reason he rented it was to see the coronation which was not going to happen. Test from Krell: 1. What was the foundation of the contract? 2. Was the performance of the contract prevented? 3. Was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract. *** if yes to all then both parties are discharged. (1) Where, at the time a contract is made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary. (2) Where, at the time a contract is made, a party's principal purpose is substantially frustrated without his fault by a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty of that party to render performance arises, unless the language or circumstances indicate the contrary. Difference between Existing Impracticability and Mutual Mistake:

266

Existing Impracticability

 2-613

Casualty to Identified Goods

Existing Impracticability: unknowable facts that are not known contract exists and the court is dismissing it no duty to perform if conditions are met can loose the value of the defense through your own conduct tie into a basic assumption FOCUS: hardship to promior Mutual Mistake: knowable facts that are not known the contract becomes voidable have the duty to perform but the duty is voidable can loose the value of the defense through your own conduct tie into a basic assumption FOCUS: imbalance in the contract IF: 1. Goods are identified to the contract when the contract was made (2501) 2. Good suffer a casualty 3. Without the fault of eigher party 4. Before the risk shifts to the buyer (2-509) THEN: 1. if the loss is total the contract is avoided 2. if the good no longer conform, the buyer can treat the contract as avoided or accept the goods minus the depreciation price. Goods are identified to the contract if: (a) the contract is made for sale of goods already existing and identified (b) the contract is for the sale of future goods ad the foods are shipped, marked or otherwise designates by the seller as goods to which the contract refers (c) when crops are planted or otherwise become growing crops, baby animals when they are conceived 1. Non delivery in whole or in part 2. Performance is impracticable 3. Occurrence of a contingency the non occurrence of which was a basic

2-501

Insurable Interest in Goods; Manner of Identification of Goods

2-615

Excuse by Failure of Presupposed Conditions

Rest. 250

Restatement When a Statement or an Act is a Repudiation When a Failure to Give Assurance May be Treated as a Repudiation

UCC

UCC

251

2-609

Right to Adequate Assurance

assumption on which the contract was made Anticipatory Repudiation Repudiation: Statement by obligor indicating that be will not perform (express repudiation); or an affirmative act which renders obligor unable to perform without a breach. (acts = implied repudiation) If reasonable to believe that obligor will not perform, obligee can demand adequate assurance and may suspend peformance for which he has not received a benefit. If obligor does not provide adequate assurance within a reasonable time, obligee can treat that as repudiation. UCC adds: A 30 day time limit to give adequate assurance or else it is a repudiation When the obligors insolvency gives the obligee reasonable grounds to believe the obligor is going to breach under 251 the obligee may suspend performance until be receives adequate assurance. Insolvent: A person who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due 0r is insolvent within the meaning of the federal bankruptcy law. (1) When and obligor repudiates a duty before he has committed a breach, the repudiation alone gives rise to damages. (2) One parties repudiation discharges the other parties duty to perform. (1) A party's duty to pay damages for total breach by repudiation is discharged if it appears after the breach that there would have been a total failure by the injured party to perform his return promise. (2) A party's duty to pay damages for total breach by repudiation is discharged if it appears after the breach that the duty that he repudiated would have been discharged by impracticability or frustration before any breach by non-performance. Where a party's repudiation contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused.

252

Effect on Insolvency

253

Effect of a Repudiation as a Breach and on Other Partys Duties Effect of Subsequent Events on Duty to Pay Damages

254

255

Effect of Repudiation as Excusing the Non-Occurrence of a Condition

 256

Nullification of Repudiation or Basis for Repudiation

2-610

Anticipatory Repudiation

2-611

Retraction of Anticipatory Repudiation

2-711

Buyers Remedies

2-703

Sellers Remedies

(1) A repudiation can be retracted by notification as long as the other party has not materially changed their position based on the repudiation or indicates that he considers the repudiation to be final. (2) Repudiation is nullified if the injured party finds out that the conditions causing the inability to perform no longer exist. When either party repudiate a contract and performance is not yet due, the aggrieved party may: Wait for performance for a commercially reasonable time Resort to breach remedy even it hes notified repudiating party that he would wait. Suspend his own performance - then can cancel the orders and sue for damages (1) A party can retract a repudiation at anytime before the next performance is due, UNLESS the other party has materially changed their position. (2) Retraction can come in any form but MUST INCLUDE and adequate assurance under 2-609 (3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation. When a seller fails to deliver or repudiates or the buyer rightfully rejects the goods the buyer may cancel. (c) the buyer is required to cover before he can recover under the next section. (d) The buyer that recover damages for non-delivery as provided in 2713 Buyer may: (c) recover for the goods that have been identified to the contract in proper circumstances obtain specific performance When buyer breaches seller may: (e) withhold delivery of such goods (f) stop delivery (g) under the next section respecting goods still unidentified to the contract (h) resell and recover damages

(i) recover damages for non-acceptance or in a proper case the price ANTICIPATORY REPUDIATION ANALYSIS (UCC): 1. 2-609(1): Reasonable grounds for insecurity in writing 2-609(2): if there are merchants (reasonable grounds for insecurity look at commercial standards) 2. 2-609(4): waited 30 days 3. 2-610(b): possible remedies 4. 2-711: Sellers remedies

REMEDIES
Rest. 344 Restatement Purposed of Remedies UCC UCC Basics / Compensatory Damages Expectation Interest: put the in the position he would have been had there been no breach. Reliance Interest: Put the in the position he would have been had there been no contract. Reimburse the for loss caused by reliance on the contract. Restitution Interest: Give the back any benefit he conferred on the other party. Calculating Expectation Damages: (a) loss in the value to him of the other partys performance cause by its failure PLUS (+) (b) any other loss, including incidental and or consequential loss, caused by the breach MINUS (-) (c) any cost or other loess that he has avoided by not having to perform. (savings) Formula: Actual Loss + incidental & consequential loss savings = exp. damages Calculating Reliance Damages: any expenditures made in preperation for performance MINUS (-) any loess that the party in breach can reasonably prove the injured

347

Measure of Damages in General

349

Damages Based on Reliance Interest

party would have contract been performed. Formula: Amount spent in reliance amount you would have lost anyway = reliance Calculating Restitution Damages: (a) the reasonable value of the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimants position. OR (b) The extent to which the other partys property has been increased in value or his other interests advance. Foreseeability (Hadley) (1) 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 contract was made. (2) Loss may b foreseeable as a probably result of a breach because it follows from the breach (a) in the ordinary course of events or (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know. (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation

371

Measure of Restitution Interest

351

Unforseeability and Related Limitations on Damages

2-703

Sellers Remedies

2-711

Buyers Remedies

When buyer breaches seller may: (j) withhold delivery of such goods (k) stop delivery (l) under the next section respecting goods still unidentified to the contract (m) resell and recover damages (n) recover damages for non-acceptance or in a proper case the price When a seller fails to deliver or repudiates or the buyer rightfully rejects the goods the buyer may cancel.

 2-708

Sellers Damages for Nonacceptance or Repudiation

2-709 2-715

Action for Price Buyers Incidental and Consequential Damages

(e) the buyer is required to cover before he can recover under the next section. (f) The buyer that recover damages for non-delivery as provided in 2713 Buyer may: (d) recover for the goods that have been identified to the contract in proper circumstances obtain specific performance (1) the seller can recover the difference between the market price at the time and place of tender and the unpaid contract price, together with any incidental damages BUT MINUS the expenses saved in consequence of the buyers breach (2) seller can claim damages under 2-708(1) are inadequate to put it in as good a position as performance would have done entitled to damages measured by the profit which the seller would have made from full performance by the buyer PLUS incidental damages due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. (1)(b): Seller cannot recover unless are reasonable resale is not available (1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

(2) Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty. 2-716 Buyers Right to Specific Specific performance may be granted where the goods are unique or in Performance other proper circumstances. Lost Volume Seller: Seller has sufficient supply to meet demands of all customers so failure to make a sale results in lost profit of that sale

Rest. 353

Seller has the burden of proving lost volume Requires forseeability Restatement Loss Due to Emotional Disturbance Mental Anguish & Punitive Damages Cannot recover for emotional disturbance UNLESS The breach cause actual bodily harm of The contract or breach is such that that serious emotional disturbance was particularly likely to result (like foreseeability) EXCEPTIONS: Damages for mental suffering will be awarded in the following contract as long as there is willfull and wanton conduct: Contracts for carriers and innkeepers with passengers and guests Contract for the carriage or proper disposition of dead bodies Contracts for the delivery of messages concerning death No punitive damages UNLESS The conduct constituting the breach is also a tort for which punitive damages are recoverable UCC UCC Equitable Remedies The remedies available in 344 (expectation, reliance, restitution) include a judgment or order: (a) awarding a sum of money die under the contract or as damages (b) requiring specific performance of a contract of enjoining its nonperformnance (c) requiring restoration of a specific thing to prevent unjust enrichment (d) awarding a sum of money to prevent unjust enrichment (e) declaring the rights of the parties (f) enforcing an arbitration award (1) Subject to the rules stated in 359-69, specific performance of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty. (2) Subject to the rules stated in 359-69, an injunction against breach of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty

355 Rest. 345

Punitive Damages Restatement Judicial Remedies Available

357

Availability of Specific Performance and Injunction

if (a) the duty is one of forbearance, or (b) the duty is one to act and specific performance would be denied only for reasons that are inapplicable to an injunction No specific performance if damages would be adequate if damages would be adequate for one part of the contract it does not bar specific performance for the contract as a whole Specific performance will not be barred just because there may be another remedy under 357 Specific performance or an injunction will not be granted unless the terms of the contract are sufficiently certain to provide a basis for an appropriate order. A promise will not be specifically enforced if the character and magnitude of the performance would impose on the court burdens in enforcement or supervision that are disproportionate to the advantages to be gained from enforcement and to the harm to be suffered from its denial. Specific performance may be granted where the goods are unique or in other proper circumstances. Liquidated Damages Liquidated damage clauses will be enforced if: 1. not a penalty 2. hard to ascertain at the time of contracting 3. proportional to the actual harm Assignment and Delegation Forms of Assignment: operation of law: happens automatically / does not require affirmative conduct by the parties - death and everything goes to the estate - bankruptcy act of the parties Assignor cannot take more then what the assignee had -

359

Effect of Adequacy of Damages

362

Effect of Uncertainty of Terms

366

Effect of Difficulty in Enforcement of Supervivion

2-716 Rest. 356 Restatement Liquidated Damages and Penalties UCC 2-718

Buyers Right to Specific Performance UCC Liquidation or Limitation of Damages, Deposits

Rest. 317

Restatement Assignments

UCC

UCC

Notice Notice is not required to make an assignment valid, but it makes a really weird situation. If A has no notice and pays B then C cannot sue A but can sue B If A has notice and pays B then C can sue A 318 Delegations Delegation Delegator: the person delegating Delegatee: the person delegated to Obligee: the person getting the benefit Delegator always has the responsibility. UNLESS there is a novation Novation: substitution of parties (substituting B for A in the contract, but all three parties have to agree that A is out and B is in). (2) Unless Except as otherwise provided in Section 9-406, unless otherwise agreed, all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise. Third Party Beneficiaries Third Party beneficiaries Intended: 302 Intended to benefit an identified 3rd party (get to sue) does not have to be named just have to intend to benefit a person or a class of persons 1. Creditor beneficiaries: When the contract is intended to settle a debt to a third party. Third party = creditor beneficiary 2. Donee Beneficiary: Contract is intended confer a benefit on a third party by making a gift or donation. Third party = donee beneficiary (need to intend that the 3rd party has the right to enforce the contract in court) Allowed to revoke the status of the Donee UNLESS you have

2-210

Delegation of Performance; Assignment of Rights

Rest. 302

Restatement Indented and Incidental Beneficiaries

UCC

UCC

make it unrevocable or they have reasonably relied. 3rd party can get locked in if they act in justifiable reliance on the promise Incidental: incidentally benefit, but not intended to benefit (don't get to sue) 310 Remedies Of The Beneficiary Of A Promise To Pay The Promisee's Debt; Reimbursement Of Promisee (1) Where an intended beneficiary has an enforceable claim against the promisee, he can obtain a judgment or judgments against either the promisee or the promisor or both based on their respective duties to him. Satisfaction in whole or in part of either of these duties, or of a judgment thereon, satisfies to that extent the other duty or judgment, subject to the promisee's right of subrogation. (2) To the extent that the claim of an intended beneficiary is satisfied from assets of the promisee, the promisee has a right of reimbursement from the promisor, which may be enforced directly and also, if the beneficiary's claim is fully satisfied, by subrogation to the claim of the beneficiary against the promisor, and to any judgment thereon and to any security therefor. (1) Discharge or modification of a duty to an intended beneficiary by conduct of the promisee or by a subsequent agreement between promisor and promisee is ineffective if a term of the promise creating the duty so provides. (2) In the absence of such a term, the promisor and promisee retain power to discharge or modify the duty by subsequent agreement. (3) Such a power terminates when the beneficiary, before he receives notification of the discharge or modification, materially changes his position in justifiable reliance on the promise or brings suit on it or manifests assent to it at the request of the promisor or promisee. Negotiable Instrument Commercial Papers: Checks, drafts, notes, certificates of deposits

311

Variation of a Duty to a Beneficiary

UCC 3-104

UCC Negotiable Instrument

Negotiable: Can turn it over to someone who can then turn it over to another person for value To be negotiable the instrument must: 1. be in writing 2. be signed by the maker/drawer who created the instrument 3. contain an unconditional promise 4. specifically identifiable amount in money 5. contain no other promise or obligation 6. be payable on demand or at a definite time 7. be payable to order or bearer Payable to order: must state that is payable to an ascertainable person, company, or group of people Payable to bearer: must be payable to no specifically identifiably person, but can be paid to anyone who has the instrument lawfully in his/her possession Holder in Due Course: Takes a negotiable instrument for value, in good faith, and with no notice that there are any problems with the instrument if it turns out that the instrument was bad a holder in due course would not be required to return the instrument If not a buyer in due course they may be required to return the instrument.. Example: A pays B, and B pays C with As instrument. C puts it in the bank. B does not perform the contract and A sues to get her money back. If C is a buyer in due course he does not have to give the instrument back. If C has notice that B may not perform or there is a problem with the instrument, he may be required to give the instrument back.