I.
Remedies for breach of K A. Three types of remedies 1. Recovery of expectation damages – position would have been in had the K been performed a. Loss in value + other losses – cost avoided – loss avoided 2. Reliance – position had there been no K (typically allows for recovery of any expenses occurred, as opposed to expectation which typically gives lost profits) 3. Restitution damages – benefit conferred, unjust enrichment (ex: getting refund of purchase price, getting deposit back) a. Mainly expectancy this semester b. First – how do you measure ? 1) Loss in value: Difference in value b/w what received and what should have received. a) Look at cost to repair or replace what received in order to get to standard of what should have received i. Ex: difference in value of roof that should have received, ii. Cost of repairing roof. b) Courts normally give cost of repair or replacement – how much does it cost to fix the problem (put in position if K had been performed. i. Economic waste – if cost of repair or replacement is grossly disproportionate when compared with difference in value, only get difference in value – to do otherwise would encourage waste. Remember pipe case – wrong pipe installed in walls, so a breach, but pipe was essentially equivalent in value to what should have received – so difference in value was zero, but π wanted cost of repair and replacement – court says it won‟t allow economic waste ii. Except: where K is for personal taste – then get cost of repair and replacement You want a red and blue roof – they put on a brown one – can get cost to replace 2) Other losses a) Incidental damages – out of pocket expenses – general damages b) Consequential damages – losses that you sustained b/c of the breach (as opposed to out of pocket – pain and suffering, damage to property) 3) Cost saved: (didn‟t have to pay shipping charged 4) Loss avoided: amt. you received from another party because of breach (b/c of mitigation) B. Limitations 1. Avoidability: a. Increase in damage: injured party cannot recover a loss that could have been avoided by taking no further acts. Innocent party can‟t affirmatively increase its damages – if it could avoid damages by doing nothing, it must do nothing. b. Decrease in damage (mitigation): as a general statement, there is an affirmative duty to do what is reasonable to avoid further loss – to lessen damages 1) Only reasonable to mitigate if it can be done by taking a comparable K act (only required to do what is comparable to what would be required to do under the K. a) (ex: lawyer has to find comparable employment in law firms – but doesn‟t have to go work at McD. – not comparable) 2) It is not reasonable for you to do anything that would cause undue risk, humiliation, burden or hardship. Or increased duty
II.
2. Foreseeability: innocent party can only recover those damages for breach that were reasonably foreseeable by promissor at the time the K was entered into a. Those damages that naturally flow from the breach – b. Special damages – that don‟t naturally flow, only if promisee notifies promisor. (those that you tell promisee about ) 1) Shaft – if don‟t get it back next week, have to close the plant – not reasonably foreseeable, expect mfrs to have an extra shaft, unless you let them know 3. Certainty: you can only recover those damages that you can prove to a reasonable degree of certainty – speculative damages are not recoverable. (you have to prove the amount of your loss) 4. Liquidation damage provision – clause in K to avoid these limitations setting out what amt of liability in even of breach. a. Doesn‟t mean party will recover that amt – court will enforce it only if three requirements are met 1) At the time the K was made, damages for breach were difficult or impossible to estimate. 2) The amount set as liquidated damages must be a reasonable pre-estimate of the damages. 3) The liquidated damages amount must bear a reasonable relationship to the actual or anticipated harm. a) Policy: K law is not punitive – a court will not enforce penalties, even if the parties agree. (amt to punish someone, deter them for breaching – can only be sure of that if all 3 of these requirements are met. K construction and interpretation /Law of the K – rules that govern A. Parol evidence Rule – a rule of extrinsic evidence (evidence outside the K) [can be used to show whether all the elements of a K have been met or to fill in gaps when some terms are silent] 1. Absent fraud or [mutual] mistake, all prior and contemporaneous negotiations, documents, discussions, writing, all merge into the final written K. a. Anything outside K is unenforceable and court can‟t even consider it. b. Parol evidence can‟t be used to modify K – it is the final expression of intent and agreement of parties, c. Can always used to determine whether there even was a K in the first place 1) Can be used to prove duress, fraud, mutual mistake 2) Can be used to show that there was a condition precedent which was not met, and therefore is not an enforceable K 2. Exceptions: a. Subsequent agreements – will allow (PER only relates to prior or contemporaneous) b/c parties can agree to change a K, -- do it all the time. b. Ambiguous terms – will allow PE to Clarify/Explain a K [PLAIN LANGUAGE / PLAIN MEANING RULE: If looking @ K, the language is clear, there is no ambiguity, so extrinsic matters cannot be heard]; PE can be used to determine if ambiguity exists, but it can‟t resolve it, so use: 1) “Subjective Theory of Interpretation Test: if there is an ambiguity that can‟t clarify and if each party subjectively interpreted the K to mean something different” 2) CONTRA “Objective Theory of Interpretation: how a reasonable person would have interpreted, ct will interpret the term as a reasonable person would have” 3) Article 2: if parties acted as though there was a K, there is a K, thus subjective theory cannot be used to address whether c. Latent ambiguity - when it‟s not obvious on K face (what is a chicken, which Peerless Ship?) so let PE in to determine IF there is an ambiguity. Ct will not admit evidence to show that there is one.
d. Missing terms – PE allowed to supply missing term e. No Assent – use PE to show if the agreement was valid – if mutual mistake, Fraud, duress f. Trade usage – PE can be used to admit trade usage – strictly speaking may not be right to say trade usage subject to PE, b/c if K is silent , trade usage is part of K – so not extrinsic to the K B. Implied terms. (What terms are implied in a K? what are the gap fillers) a. Trade usage (industry practice)– if it is so well known, that a party outside of the trade should have known, it will apply to that party [actual or constructive knowledge] b. Custom of the trade: The Code defines uses of trade as “any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.” 1) NOT Operative against a party who was not a member of the trade unless he actually knew of it or the other party could reasonably believe he knew of it. UCC § 1-205(3); additionally, 2) Usage of the trade is only binding on members of the trade involved or persons who know or should have known about it. Persons who should be aware of the trade usage doubtless include those who regularly deal with members of the relevant trade, and also members of a second trade that commonly deals with members of a relevant trade. c. Course of performance: how dealt with each other on this K; Code defines it as, “action of the parties in carrying out the contract at issue” d. Course of dealing: how parties dealt with each other on other Ks; Code defines it as, “relations between the parties prior to signing that contract” e. Reasonableness f. Good faith/Fair Dealing: giving a party discretion does not give them the right to perform dishonestly as good faith is implied in ALL CONTRACTS and cannot be refuted 1) Satisfaction Guaranteed: if one is claiming they are not satisfied – present testimony of others to refute or documents to show one actually is satisfied g. Best efforts h. Right to Terminate 1) At reasonable time after K entered into, but after reasonable notice of termination 2) With or without cause or reason i. Reasonable efforts – all gap fillers j. Hierarchy of the Implied Terms: 1) If trade Usage conflicts course of dealing or course of performance, etc.: a) Look to the one which is most specific to this contract i. Course of Performance controls Trade Usage ii. Course of Dealing controls Trade Usage iii. Course of Performance controls Course of Dealing [because it is direct to THIS K] iv. Trade Usage controls Silence in the K [as a gap filler] b) Only look to this when there is a GAP c) Only look to this to explain an ambiguity or to assess the intention of the parties 2. When implied? a. Implied only if K is silent b. Only implied if necessary in order to interpret the K c. Implied terms not used if vague, impractical, uncertain or not contemplated by parties or conflicts with expressed terms or unnecessary to effectuate intent of parties
III.
3. Policy a. Start with proposition that courts favor the enforcement of Ks, so courts will look for ways to enforce the K – court has to determine what the K terms are – can‟t determine there‟s a breach unless know what term is – how can court determine?? If K is ambiguous b/c term is missing, these gap fillers will be implied by the court to see if it makes the k enforceable 1) In case of ambiguity, the court will construe the K against the person who drafted it b. Court feels if the K is silent, these implied terms realistically set forth the intent of the parties – courts want to enforce intent of parties 1) Resolve any ambiguity 2) Determine the intent of the parties [only if a gap exists] c. When court will not imply: 1) Court will not imply a term if the implied term is necessarily vague – no reason to imply it. 2) Court also will not imply if unnecessary to effectuate the intent of the parties or impractical to implement 3) Will not imply term not in contemplation of the parties 4) Won‟t imply term where K addresses that issues (only implies where the K is silent) d. K can‟t be enforced if the duty and intent of parties can‟t be determined. Terms are implied to achieve dual purpose of filling a gap and determining intent of parties, and if after implying terms, K is still ambiguous, then the K is not enforceable (vague and therefore not enforceable, so therefore no meeting of the minds – no assent) 1) Looking for way to make unambiguous Performance and Breach of the K A. Condition Precedent: occurs where an event must happen before performance is due – so until that event happens, performance is not due, and non-performance is not a breach. Must be EXPRESS and 100% EXPRESS COMPLIANCE must be had before performance is required. 1. For $500, I will sell my Plymouth Valiant – if not money… 2. Also called “Dependent Covenant” 3. Differs from a duty under the K – still has to be performed and is not a condition; if it is not expressly stated in the K, then it is a duty under the K 4. Condition precedent can also occur based on the interpretation of the K language – no magic words need to be present for condition precedent to be found 5. “Time is of the Essence” – time is a condition precedent – the word “Condition” is not an absolute requirement to create a condition precedent 6. Must be express and strictly complied with; equivalent compliance is not sufficient 7. Third-party approval as condition precedent: [discretion of that 3rd party] is reasonableness, good faith implied? Absent fraud, mistake or collusion, reasonableness is not implied when discretion of satisfaction is granted in a 3 rd party [such as an architect], only good faith; BUT a. Doctrine of Waiver: If a party waives this discretion, and acts differently [such as acts without the opinion of the architect], then the condition precedent was waived based upon the actions of the parties during performance of the contract 8. Reasonableness and good faith implied – if one is dissatisfied when a condition precedent has not been met a. Exception if aesthetics involved, but if personal taste is found to be in bad faith, then this exception is stricken B. Independent Condition: One has to perform whether or not the other has to perform 1. e.g., leases – tenant HAS to pay rent and landlord HAS to repair the property – these conditions are independent of each other. Tenant has to pay rent regardless
of whether landlord repairs and landlord has to repair regardless of whether or not the tenant pays rent C. Concurrent condition/Mutual condition precedent: Each party‟s performance is a condition precedent to the other party‟s performance. 1. Agree to sell plymouth. I agree to buy it for $500. We both have an obligation; however, each side is condition precedent to the other. SO neither side can breach till other side performs. 2. Each has an obligation; if one side is ready to perform and the other side refuses to perform, then the side refusing to perform is in breach D. Constructive condition precedent – implied condition precedent - often not clear in K whether or not a condition precedent 1. Unless it‟s clear in K that there is a condition precedent (express), there isn‟t one – but court will imply a constructive condition precedent – a condition precedent implied by law a. Ex; building K – is a service K – even if K doesn‟t address it, performance of the service is a condition precedent to payment. Building the building is condition precedent. b. Court may imply a condition precedent because it would be a just interpretation of the K and the parties‟ intentions c. Does justice require it? And did the parties intend it to be a condition precedent? d. Work is a condition precedent to payment 1) But what when the condition is to build a building? No one can wait until the whole thing is built – see substantial performance 2. Main difference from true condition precedent: a. True condition precedent, no performance is due until condition is performed entirely and has to be express [no magical words necessary]. (until entire house is painted, I pay nothing – even if 99.9 % finished) b. Implied – upon substantial performance, payment is due (so builder doesn‟t have to build entire house perfectly – just substantially) 1) When justice requires and if parties had thought about it, they would have included it 2) When something or person is required for performance it is an implied term of the K that that thing or person will be available 3) Substantial performance occurs when essence of K has been met, although less than perfect – central purpose is performed. Not a mathematical equation, but depends case-by-case. a) So counterclaim for damages of breach – so it‟s entire price of K minus damages from breach. i. Can be cost of repair or replacement unless the defect is so substantial, repair would create economic waste – cost is disproportionately large [injured party would only get diminished value] b) Person performing is entitled to payment, unless… i. Independent of a K – if a person renders valuable svcs, if those svcs conferred a benefit, then the value of those services is available to them c) Always implied when services rendered and payment due d) Damages may be more than the substantial performance, so no $ awarded – in a case where someone quits working and it costs more $ to hire someone else, then the damages outweigh the amount owed for substantial performance 4) Material breach – (also major breach/total breach) has not substantially performed, not entitled to payment; also called a total breach; Courts look at:
E.
F.
G.
H.
How much has been performed How well was it performed How serious is it that it was not performed Was breaching party breaching because of negligence, or was it willful – this does not have a lot to do with the essence of the K being performed, but it allows the ct to determine whether or not the breach is material 5) Immaterial Breach – (also minor breach/partial breach) substantially performed, but not fully performed; essence has been met c. What‟s the measure of damages? He is entitled to get 100% of price for substantial performance, but then other side can get damages for non performance 1) Expectancy Damages - Cost of repair and replacement (unless grossly proportionate to difference in value); when substantially performed but not fully performed 2) Difference in Value - No damages which would create economic waste; so difference in value between what injured party received and what it should have received Divisible K: If K can be divided into separate parts, and to each part the parties got benefit of the bargain, then for each part, party is entitled to payment (Even without substantial performance, to get paid) 1. Entire – K to build house is to build whole house 2. Divisible – to buy 100 bricks for $1 a brick – K to buy individual (log case); if performance can be reasonably divided into two or more parts, and with respect to each part, each party receives the benefit of the bargain with respect to that part a. Important to look at how the K was divisible – maybe not how far something was driven, but whether it was actually delivered b. E.g., unit contracts Quantum meruit: (or Quantum Meruit in Restitution) Courts don‟t like someone rendering services, other side receiving and not paying – so even with K that isn‟t even divisible – at the very least one is entitled to value of services rendered – there is a K so we‟ll pay you based on the K price. 1. Independent of a K – if a benefit is conferred, then contractor is entitled to recover in quantum meruit [value of services rendered from contractor‟s perspective] for a benefit conferred [can‟t be determined – from perspective of recipient] a. Contractor gets damages of Quantum Meruit OR Restitution - WHICHEVER IS LESS: Recipient must pay value of services rendered not to exceed the value of the benefit conferred on the injured party 1) Restitution and Quantum Meruit are Interchangeable Terms most of the time – and unless proved otherwise 2) Which can be apportioned in labor-related cases 9 ½ months @ $10 per hour = $95 benefit conferred (absent any other evidence) b. Defense to this Argument: There was a contract, so no cause of action in Restitution; but may fail because always will grant amount of svcs rendered for benefit conferred Condition Subsequent: condition to discharge a duty that has already arisen; subsequent condition occurs which discharges duty to perform 1. Duty to a condition subsequent: Insurance – carrier has an obligation to pay if you damage your car, however duty [happening of the condition subsequent] is discharged if you do not place your claim within 30 days a. If claim is denied, and you do not file a lawsuit within a year, the duty is permanently discharged How to Determine Which Condition Exists:
a) b) c) d)
1. Is it independent? If yes, then both have to perform whether or not the other performs. 2. Look at course of performance 3. Look at language of K to see if it speaks to the essence of the K and tells us if there is a condition which is precedent [then whether it is constructive or actual] to performance 4. Once the condition is identified, then see if a breach is material or partial 5. Whenever the breach happens, if one side breaches, if it will excuse the other side, then they may be excused from performance – don‟t have to pay anyway 6. Contractor rendered services – pay for it. But if the value of those services does not exceed the benefit conferred [quantum meruit], the breaching contractor gets nothing. 7. Was the K divisible? Then pay me for the individual part. No it wasn‟t divisible, look at the essence of the K – I was paying for a building, you didn‟t build me a building, or, progress payments/time payments don‟t make a K divisible. IV. Breach A. Anticipatory repudiation: When a party in respect to a future performance gives you a clear, definite, unambiguous, absolute, and unequivocal statement that they either will not or cannot perform a future obligation 1. Allows you, even through no breach yet, to treat the K as already breached. (gives promisee all the rights of a victim of a breach, even though the breach has not occurred) a. Ex: farmer supposed to plant in April to harvest in June– doesn‟t – no way farmer can perform – do you have to wait around till June? No – impossible to perform, so anticipatory repudiation. 2. Based on a future obligation of a K that one party denounces before it happens a. Injured party can bring a suit against an anticipatory breaching party because if one party has to wait until performance was to be performed, then the other party will claim that the P did not mitigate damages b. P must show that he was ready, willing, and able to perform and would have performed but for the breach and in some cases must show that P tendered performance 1) So the D could also wait and see if the P obtained work, then the D could come back and say that D was the one unable to perform because D is working for someone else 2) Tender requirement is excused if that tender would be futile or useless 3. The party repudiating has a reasonable time to retract the repudiation as well as the other party may refuse to accept the repudiation a. You can revoke your retraction until the other side relies on the Anticipatory Repudiation, then it is too late; A retraction can be done until the other side has relied on the repudiation and changed its position in reliance on that repudiation 4. Counteroffer or change to the K to assert a condition on one‟s performance on the K, it is an anticipatory repudiation 5. In Order to Recover: a. Show you are ready, willing and able to perform, you either tendered or tender was excused because such tender would have been unnecessary/futile 6. Options: a. P can wait until time for performance is due, but it is not required b. Sue immediately for breach and not wait – breach of K, anticipatory repudiation c. Injured party can treat the K as breached and change their position; other party can retract before the injured party has changed its position (detrimentally relied on the repudiation)
V.
d. Performance due by P is excused or suspended if the D anticipatory breached (why perform if you know the other side is going to breach?) 7. Damage Calculation a. Buyer – if they cover, they can get difference between cover and contract (expectancy damages); if they don‟t cover, then they can get difference between K price and market price at time of breach Article 2.713 of UCC b. Seller – action for price, resale price/contract price differential or decide not to sell and get difference between market price and contract price (when the buyer learned of the breach – could be when the performance was due, not necessarily always when repudiated) c. Market price at a reasonable time after the repudiation 1) Gives the innocent party time to investigate cover 2) Gives the repudiating party a chance to retract their repudiation 3) This time falls some time between Market Price @ time of breach or Market Price @ time of repudiation, encourages parties to mitigate d. Courts won‟t usually use the following methods because they can be interpreted inconsistently with the code and lead to unfair results: 1) Can be calculated at the time of the breach a) Allows parties to speculate 2) Can be calculated at the expected time of repudiation a) Does not allow parties to realize true damages in a declining market B. Article 2-609 – same definition of anticipatory breach, but says if you have reasonable grounds to feel insecure, then you have the right to demand from the promisor adequate assurance even in the absence of an unequivocal statement of repudiation 1. Question of fact what reasonable person would think adequate assurance – right to demand a letter a. Adequate assurance is a question of fact for the jury based upon the circumstances of the case 2. May sit back, and if in 30 days you don‟t get that assurance, you may treat K as anticipatory repudiated a. So code if a little softer than regular K law b. If the code does not apply, you don‟t have to reply to the letter 3. Long-term, complex commercial contracts where one cannot anticipate everything that might happen or make a K insecure, then the right to demand adequate assurance can apply to non-UCC cases C. Estoppel: A party cannot be estopped from asserting a defense that is different from their original defense unless: 1. Another party would have had to do an act in reliance on the other party‟s assertion (you don‟t have enough workers, so I declare a breach – if the other party went out to get more workers to satisfy and the first party still declared the worker situation a breach, then it is not an appropriate defense, that party is estopped from bringing it) a. A reliance had to have taken place to validate an estoppel 2. Waiver: voluntarily relinquishment of a known legal right a. When a party asserts one defense, it does not waiver his right to another defense b. No one else relied on an assertion of the party, so a waiver is appropriate; determined by the fact finder 3. Election: a choice between two options which are inconsistent rights, remedies or causes of action a. It‟s a yes or no option b. NO LONGER A VIABLE DEFENSE; used to be that you had to choose either contract claim or tort claim but couldn‟t choose both but now you can Basic Assumptions of the K
A. Mutual mistake – if both parties are mistaken about a basic assumption of a K, then the K is voidable by one person or unenforceable by the other because of no assent 1. Both parties made the mistake 2. Does not excuse performance – it says there is no contract 3. Mistake relates to past or existing fact which is a basic assumption of K then that mistake enables parties to rescind K a. Rose of ableon – both thought cow was pregnant, later found out it wasn‟t– mutual mistake, K was voidable 1) Buyer pays for cow, finds out not pregnant, and sues to get money back -voids it 2) Cow buyer may say I‟m not going to pay, seller sues for breach – unenforceable b. Voidability: I want to have K set aside and get my money back (sword) – parties go back to status quo ante; no damages though c. Unenforceable – I won‟t perform – but it isn‟t a breach (shield) 4. Absent mutual mistake, performance is not excused by unforeseen circumstances, hardship, difficulty 5. Performance is excused by Act of God, the Law (Zoning ordinance), or the other contracting party prevents performance (fencing property off from contractor), performance is absolutely under any circumstances impossible a. Act of God, Force of Nature b. Law (Zoning Ordinance) c. Implied duty to cooperate to assist performance d. Absolutely impossible to perform under any circumstances or conditions, then performance is excused B. Frustration of purpose [K defense]: where an event occurred that substantially frustrated a party‟s principle purpose in entering K, which purpose is known by both parties, then performance is excused. 1. Elements: a. Event must occur which substantially frustrates the parties‟ principal purpose of the contract and principal purpose is known by both parties to the K [ask if there could have been another purpose?] b. Non-occurrence of the event was a basic assumption of the K (event was not foreseeable and what did the parties assume in entering the K or did they believe they would get paid no matter what happened) [counter – there was no assumption] c. Party asserting frustration did not assume the risk by K or otherwise d. Frustration was not caused by the party alleging frustration of purpose 2. Performance is possible but the value is diminished – if the purpose is frustrated because an unforeseen even that is not your fault then performance is excused 3. Rent apartment to watch coronation – coronation canceled. Both sides assumed coronation would occur, and it didn‟t, so really no purpose of K 4. Look at what the person who is not alleging frustration would have reasonably assumed C. Impossibility of performance [K defense] – performance is excused where through no fault of either party, performance becomes impossible, and it was a basic assumption of K that performance wouldn‟t be impossible. 1. If impossible, it is excused and there is no obligation to perform. But impossible means a lot of different things a. Absolutely impossible 1) Act of god – flood or force of nature 2) Violation of law a) One side‟s performance to pay money is not illegal 3) Hindrance, prevented from the other side or tells you that you cannot perform
4) Literally it is impossible under any circumstances to perform 5) When it depends upon the continued existence of a person or thing and that person or thing perishes (did the K contemplate that something in the K would exist, not that somewhere else you could have gotten something – can‟t anticipate a breach because of the discontinued existence of the thing until an anticipatory repudiation actually happens) 6) When it becomes commercially impracticable to perform – a) something unexpected occurs and, the risk of the unforeseeable [BREACHES ARE GENERALLY FORESEEABLE] was b) not allocated to either party by contract, custom or otherwise c) the occurrence of the unforeseen circumstance has caused performance to be commercially practicable (can only be done at excessively and unreasonably expensive – NOT SO when especially if the price doesn‟t change) b. Outlawed c. Hindrance: Other side prevents performance; it is implied that there is an AFFIRMATIVE DUTY TO COOPERATE in order to allow a party to perform (do what is reasonable, practical to enable performance) 1) When a party interferes, court looks at why: if not uncooperative then if something happens to make it hard for one party to perform, sorry – too bad 2) 3rd Party Interference: Tort action – punitive damages [limited only by the enlightened mind of the jury] called INTENTIONAL INTERFERENCE WITH A CONTRACT d. Performance depends on the continued existence of a particular person or a thing, and both parties contemplated or anticipated that the person or thing would be there, and that person or thing perishes or is destroyed or incapacitated, performance is excused, so long as the destruction of that thing is not the fault of either party. Force of Nature – such as a fire destroying a venue. 1) With respect to a person, it also applies whether or not they are disabled or incapacitated – illness or some other affliction which makes it impractical to perform a) Personal Service Contract: Only when this is a personal service K when a specific person is to perform 2) Sometimes an implied term of a K that the K depends upon the existence of the thing – it perishes when it is destroyed; in cases of companies, it is when they go out of business a) DEFENSE TO IMPOSSIBILITY: Cannot claim impossibility as a defense if it was foreseeable by the person not asserting the defense: i. Suppliers bear the risk of their suppliers not coming through – they should include an escape clause to allocate this risk elsewhere e. Commercially impracticable [defense] – excuses performance if the following elements are present: 1) b/c of unexpected occurrence, 2) the K can only be performed at an unreasonably excessive cost 3) Risk not assumed by either party (either by K or otherwise) a) Ex: could sail around cape, rather than through canal f. Escape Clause: Excuses performance 2. Note: impossibility is never a K defense where your only requirement is to pay money, b/c it‟s never impossible to pay money (never impracticable – less profitable not enough) a. So if b/c of unforeseen event, payment of money would be foolish, the correct defense is frustration of purpose.
3. Force Majeure/Escape Clause [contractual defense]: Contingency clause which excuses performance if an event occurs beyond the parties‟ control which prevents performance a. Defines how risk is allocated, whether foreseen or unforeseen b. Eliminates the requirement to prove that something was unforeseeable c. The clause has to apply to preventing performance, not making it uneconomical [as in a regulation causing a plant to close versus a plant closing because it wasn‟t making any money] d. Often used to protect employers from labor strikes 4. UCC §2-615: Excuse by Presupposed Conditions [defense]: if principal purpose of K was for the sale of goods; predominant character of the K determines if sale of goods v. services (when goods are incidental to a K for services, Article 2 does not control) a. Contingency occurs b. Contingency made performance impracticable (a – impossible; b - commercially impracticable – so expensive it is unjust to enforce; c – frustration of purpose) c. Non-occurrence of the contingency was a basic assumption of the K 5. FOB: When goods are placed with the shipper the title, owner, and risk of loss of the goods transfers to the buyer D. K to Build v K to Repair: contractor entitled to the costs of the repairs VI. 3rd Party Beneficiaries: Where a 3rd party is set to benefit from a K and the promisor breaches to the promisee, then the 3rd party may sue the promisor A. Privity – only the contracting parties have a cause of action for breach. Only the promisee in K has cause of action against promisor. B. Modifying/Vesting 3rd Party Interests: Restatement says that modification OK up to the point when: (Because K law favors the freedom to contract) 1. The K prohibits it 2. Before notice of modification a. Beneficiary materially changes position in reliance upon the benefit (detrimental reliance) [if you didn‟t know you had the benefit – you couldn‟t have relied on it] b. Beneficiary brings suit 3. Beneficiary assents to the modification C. Third party beneficiaries – if the purpose of a promisee, in obtaining the promise of promisor, was either to give gift or discharge duty, the 3 rd party may bring action for breach of promise against a promisor. Allows that 3rd party to stand in the shoes of the promisee and sue both the promisor and the promisee who owed that beneficiary also. 1. Donee beneficiary – 3rd party is daughter – to give as gift – she has cause of action; look at it from promisee 2. Creditor beneficiary – owe x money, enter K with D, tell D to pay X – X is a creditor beneficiary – purpose of giving money to third party to discharge a debt; look at it from promisee 3. Intended beneficiary – 3rd party was the intended party to benefit from the K, the intent has to be from both parties 4. Incidental beneficiary – no cause of action (enter K to cut grass, which is 3 ft high, benefits neighbors, but only incidentally – benefiting neighbors is not the purpose of the K) D. Attorneys: When making a will, the attorney owes a duty to the client but when the client is dead, that duty shifts to the beneficiaries because they are enforcing the will; intent of the attorney is presumed as the promisor because he has knowledge of the transaction E. Allows one to sue for breach: the Defendant has the same defenses as any normal breach claim
F. Restatement: Intended 3rd party B‟s have a cause of action, incidental beneficiaries don‟t (allows another person to bring an action when they are not one of the contracting parties) 1. Who is intended? Either donee or creditor – restatement clarifies the intent rule – clear promisee intends to benefit the 3rd party – his intent to benefit the 3rd party?? a. Is it sufficient that only the promisee intended to benefit the 3rd party? K law is unclear, but seems like the promisor and promisee must both intend to benefit the 3rd party in order for 3rd party to have a cause of action b. Even if the Promisee INTENDS and the Promisor only KNOWS that the 3rd party will benefit, then the beneficiary will realize the benefit - intent is not necessarily specific c. Restatement makes clear, both sides must intend the benefit 1) What if promisor doesn‟t care? Caused problem w/restatement. So over time, courts developed rule that if promisee intends to benefit 3rd party, and promisor knows about that, then impute intent to promisor. If is sufficient for promisee to intend the benefit if promisor knows about (so although knowledge doesn‟t always equal intent , it does in this case) 2) Purpose to allow a 3rd party to stand in the shoes of the promisee, so the promisor can assert any defenses it could have asserted against the promisee 2. Differs from Basic Contract Law in that both the Parties must have INTENDED the Beneficiary to receive the benefit: a. It is intention of the parties that the 3rd party benefit to do either of the following (can bring an action against the promisor): 1) Performance of the obligation of the promisee to pay money to beneficiary; or 2) Creditor or donor beneficiary was intended to receive a benefit from the promisee 3. Incidental Beneficiaries do not have a cause of action against the promisor under the Restatement 4. Beneficiary stands in the shoes of the Promisee and the Promisor can assert any defenses they would usually be allowed 5. Beneficiary‟s rights are FIXED unless: a. K prohibits it b. Before notice of the modification, the beneficiary detrimentally and justifiably relies [changes position] on the K G. Assignment of right and delegation of duties 1. Assignment – of right [Obligor is the person who did not make the assignment] a. Elements: 1) Intent in Assignment to relinquish all of assignor‟s benefits under K/right 2) Assignor does not retain control 3) Assignor has no right to revoke assignment – it is final b. K benefits/rights can be freely assigned to assignee (3rd party to K) (usually right to receive money or property); transfer of a K right 1) Limited to the rights available in the K c. Assignor gives the benefit/right; Assignee receives the right d. Assignment must be of all of the interest, not a portion of 1) Assignor must clearly indicate relinquishment of all of his rights and each element of an assignment, thus must state: a) Relinquish all rights of assignor b) Do not retain control c) Will not revoke control e. Once assigned, the assignor no longer has a right to receive the benefit -1) Assignment extinguishes the rights of the Assignor 2) Benefit transferred to the Assignee (who can then sue on that right)
3) Payment to the Assignor by the Obligor does not release his right to the Assignee unless he does not have notice of the assignment a) Requirement to pay on the assignment only once notice received if the assignment included it b) If given notice of the Assignment, and Obligor pays the Assignor, then his obligation is not released and pays assignor at his risk because it does not discharge obligor‟s requirement to pay assignee c) Obligor does not have to „accept or agree‟ to the assignment for it to be valid i. Unless the K states that the debt is not assignable, it will revoke Assignor‟s „right‟ to assign but probably not the „power‟ to assign ii. Or unless it increases the duty, risk or burden on the obligor f. Only limitation – the other contracting party does not have to honor it (unenforceable) if assignment (also delegations) increases his duty. 1) Ex: assign right to paint your small house to someone with mansion 2) Duty, risk, burden or performance cannot be changed by the assignment g. Right to Assign v Power to Assign 1) If one is not granted the power to assign, it must be explicitly stated in the K – an intent to deprive a party the power to assign rights under the K; (“Any assignment shall be void” or “Assignee will not retain any rights under assignment”) 2) Right to assign is limited only when language is present in the K but their right to assign is retained a) As long as the right is present, it is valid, Assignor is liable for breaches resulting from the breach – absent the power to assign the assignment is not valid h. Assignee stands in the shoes of the assignor 1) Can assert any defenses the assignor would be able to use against the obligor 2. Delegation – transfer of performance duties a. Generally 1) Duties are delegated by delegator to someone else, but delegator is not released from performance 2) If the delegate does not perform, the delegator is still liable for performance b. A K duty cannot be delegated if the duty relates to one‟s personal skill, judgment, or unique abilities or even discretion; obligation to perform something (such as employment Ks). 1) Personal duties cannot be delegated a) When looking to a specific person for performance; if only that person can perform that K 2) Ex: hire Sears to put vinyl siding on house – they delegate that to a subcontractor – that‟s fine unless there is something special about the way they do it – if nothing special – they can delegate that duty freely 3) However, if have K with Madonna to sing at wedding, can‟t delegate duty to Brittany Spears 4) Desecration: hire famous lawyer to defend in case – can‟t delegate b/c hires for his special talent c. If a duty is delegated, doesn‟t extinguish rights of transferor/delegator 1) So if Sears delegates siding to Taylor – then Sears and Taylor are both liable. Delegation gives me a second party to sue. 2) Delegator remains liable even after the delegation d. Delegator/Obligor assigns the duty; person with the duty is the Delegatee /Obligee 1) Only has to pay for what was done after the delegation
VII.
A.
VIII.
A. B. C. D.
IX.
A. B. C. D. E. F.
G.
2) Delegation of a duty with a liability - If payment was past-due e. Only limitation – the other contracting party does not have to honor it (unenforceable) if delegation increases his duty. 1) Ex: delegate duty to paint your small house to someone with mansion 2) Duty, risk, burden or performance cannot be changed by the delegation 3. Security Interest: an interest in property which secures the payment of an obligation; if debtor defaults, the collateral is security for the party owed the debt Consumer Rights Consumers: Individual who purchases/leases goods or services for his own personal use 1. Waivers: not enforceable against consumers; a. Non-consumers: effective if assignee gives value, takes in good faith, and without notice to the obligor of claims or defenses he may assert against assignee b. Waiver of Defense Clauses: When a non-consumer signs a waiver of defense clause it protects lending institutions from loaning money to poorly-run businesses. The effect of this is that the businesses will be forced to improve their products or go out of business due to suits by the lending institutions – the latent effect of this would be that as businesses fold, the consumers slowly lose out because there is access to fewer companies – keeps the credit extension system honest. 2. Non-consumers: assignments, waivers, etc. are enforceable against obligors/nonconsumers when the assignment was for value, in good faith, and the assignment was made without notice of a claim or defense 3. TILA: Truth in Lending Act/FTC: Federal Trade Commission: FTC regulates consumer credit contracts: a. FTC [happened first]: The holder of the K (the assignee creditor) is subject to the claims and defenses the debtor could assert against the seller of goods, BUT: 1) TILA [happened after the regulation – AND because this is a STATUTE versus a REGULATION the STATUTE will control]: law bars recovery in civil action against assignee when a violation is apparent on the face of the disclosure statement, except where the assignment was involuntary; or the disclosure was not made according to the TILA Breach of K - Must show: There was an enforceable K The party was ready, willing, and able to perform and that you tendered performance unless your tender is excused because it was hindered by the other party There was a breach Damages Defenses to not having pay [for a bridge that burned down]: Divisible K: K wasn‟t divisible, it was for the whole performance you can‟t ask for partial payment if you didn‟t completely perform Condition Precedent: performance is a condition precedent to payment Constructive Condition Precedent – someone didn‟t substantially perform: we don‟t have to pay because you didn‟t substantially perform Restitution: benefit conferred v. no benefit conferred Quantum Meruit: value of svcs from perspective of provider of svcs If the court rules against you: 1. Appeal 2. Bring another cause of action for promissory estoppel/detrimental reliance [assignment – because obligor agrees through the assignment to pay the assignee, so the assignee suffers a detriment by waiting for payment from obligor instead of assignor] Was no K 1. Inadequate Consideration
a. Gross disparity b. Must be valuable consideration, not a mere token