CONTRACTS II OUTLINE EXPRESS CONDITIONS Terms: Promise/Covenant o A contractual undertaking, breach of which leads to liability for damages or equitable

relief Condition o An event, the occurrence or nonoccurrence of which determines when and if a party must perform o Precedent Condition occurs then parties must perform I will pay you five dollars if it rains tomorrow o Subsequent very rare Parties perform until condition is meant (ceases performance) I will pay you five dollars, but if it rains tomorrow I will not pay o Concurrent If one condition has occurred, performance of the other is due Express Condition o When parties have expressed an intent that performance is dependent upon the occurrence of nonoccurrence of an event not certain to occur o Passage of Time is not a condition Constructive/Implied Condition o Where the intent is unclear these may be used to fill in the blanks concerning the timing of performances Forfeiture (loss) o Occurs after a party has relied substantially by preparation OR performance on the promised compensation for the exchange and such compensation is denied

Rules: Intent of the Parties o 1. Construe against the drafter (when ambiguous) o 2. Courts abhor forfeiture o 3. Even if doubtful = promise Words that Trigger a Condition o It shall be a condition precedent o Shall not be payable until o Provided that, when, so that, while, as long as, after Words that Trigger a Promise o Shall be submitted to o Shall not be destroyed

Types of Express Conditions Satisfaction Clauses - On satisfaction of or suitable to - Use the objective standard test to determine whether it is valid o Used in the following situations Commercial value or commercial in nature Mechanical utility - Use the subjective standard ONLY in these situations o Personal taste or fancy o When the K expressly states this will be measured by a subjective standard This standard MUST be used in good faith - If there is a 3rd party whose satisfaction must be met, he uses the subjective method Pay When Paid Clauses - Is typically a condition vs. term fixing time for performance - First look at the intent of the parties (the plain language) - Use the same rules as stated for determining conditions or promises - Note for construction contracts o It is a rule of construction that a forfeiture, by finding of a condition precedent, is to avoided when possible under another reading of the K o Be sure to look at the four corners Time is of the Essence Clauses

UCCs TARR Rules Delivery -

Unless otherwise agreed all goods called for by a K for sale must be tendered in a single delivery and payment is due only on such tender But where the circumstances give either party the right to make or demand delivery in pieces the price (if it can be apportioned) may be demanded for each piece

Improper Delivery Buyers Rights - If the goods or the tender of delivery fail in any respect to the K, the buyer may o Reject in whole o Accept in whole o Accept in part/reject in part Sellers Right to Cure - When the sellers goods are rejected due to a nonconformity and the time for performance has not yet expired, the seller may reasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery - If the buyer rejects and the seller had reasonable grounds to believe the goods were in fact acceptable with or without money allowance the seller may if he reasonably notifies the buyer have a further reasonable time to substitute the goods to cure them

Acceptance of Goods - Occurs when the buyer (after a reasonable opportunity to inspect the goods) signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity OR - If the buyer fails to make an effective revocation, BUT

Such acceptance does not occur until the buyer has had a reasonably opportunity to inspect the goods Does any act inconsistent with the sellers ownership, BUT o If such act is wrongful as against the seller it is an acceptance only if ratified by the seller Acceptance in part = acceptance of the whole unit

Revocation of Acceptance - Buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it: o On the reasonable assumption that its non-conformity would be cured and it hasnt o Without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the sellers assurances Revocation must occur within a reasonable time after the buyer discovers (or should have discovered) the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. NOT EFFECTIVE UNTIL BUYER NOTIFIES SELLER OF IT. A buyer who revokes has the same rights and duties with regard to the goods involved as if he had rejected them

Perfect Tender Rule (applies to goods) - Requires that the goods conform to the K in every aspect - Substantial performance DOES NOT APPLY to the UCC - Does NOT apply to installment contracts - Violation of the PTR is a material breach, and the non breaching party has a right not to pay

CONSTRUCTIVE CONDITIONS Express promises giving rise to a constructive condition *Remember express conditions can give rise to an implied duty to use reasonable efforts to make the condition occur*

Constructive Condition Precedent - There is no duty to perform until the other duty is completed Constructive Concurrent Condition - Tender by one party means the other one has to tender too, or vice versa - If the time for performance has passed, either party can treat the duty to perform as discharged by the delay and they can terminate the contract Examples: - Residential Leases o You pay rent and the landlord promises to upkeep the house. This promise to upkeep the house is independent of your promise to pay. - Child Support/Visitation o Regarded as independent promises Rs 234 In the event a K is unclear and performance cant be simultaneous o Tender is the concurrent condition imposed on each party o Until one party tenders, neither is in breach

Where the performance of only one party under such an exchange requires a period of time his performance is due at an earlier time than that of the other party, unless the language or circumstances indicate otherwise

Constructive Conditions of Exchange where K is Silent as to Who Goes First - Can it be done simultaneously? - Whichever performance takes the longest goes first

Constructive Condition of Performance Performance is complete based upon these two theories: - Substantial Performance OR - Perfect Tender How it works: - Express Promises give rise to constructive conditions of exchange o Choices are constructive condition precedent or constructive conditions of concurrent conditions - Constructive Conditions of Performance o Choices are substantial performance or perfect tender

How to Figure out if Substantial Performance has been satisfied in a Constructive Condition (*Remember EXPRESS CONDITIONS are ONLY SATISFIED by 100% performance) - Purpose to be served - Desire to be gratified - What is the excuse for the deviation? o If it isnt willful and just an oversight then its OK - What is the cruelty of enforced adherence? - GOOD FAITH is the ultimate question after everything else has been considered Magnitude of Breach Material (failure to pay is almost always a total breach) o Less than substantial performance o Material breach is a total breach Minor o Good for substantial performance o Up to the injured party to decide whether they want to terminate the K or not

EXCUSE DOCTRINES If we find ourselves in a situation where we cant avoid a condition by construing it as a promise we can use the excuse doctrine - Example: if we have dependent promises that give rise to a constructive condition of performance or if we have an express condition Prevention and Cooperation - In every K, there is an implied duty to cooperate. You must act in good faith. - Failure to cooperate will justify an excuse doctrine Extreme or Disproportionate Forfeiture - For something to be an extreme forfeiture, the condition that causes it cannot be essential to the contract - Condition may be excused if its requirement o Will involve extreme forfeiture or penalty o Its occurrence forms no essential part of the exchange for the promisors performance Public Policy - Freedom to contract is not without any restriction - Bargains will NOT be enforced where one party unconscionably takes advantage of another Waiver Intentional relinquishment of a known right Non-Waiver Clause: if a party wants to reinstate the non waiver clause, they have to give notice and enforce it

Estoppel Election -

Waiver + Reliance No reinstatement allowed Person precluded from asserting a right Can be used for material and immaterial conditions

Waiver + time expired You elect to go forward as if the condition has been excused

Impossibility - Condition can be excused if there is the happening of an unexpected or unforeseen event Anticipatory Repudiation Effect: excuses the condition of being ready, willing, able to perform and allows one party to sue the other immediately instead of waiting until the actual breach occurs. Only applies to bilateral contracts. UCC 2-610 - Goods o When either party repudiates the K with respect to performance not yet due the loss of which will substantially impair the value of the K to the other, the aggrieved party may: For a commercially reasonable time await performance by the repudiating party OR Resort to any remedy for breach but he must notify the repudiating party that he would await on the latters performance and has urged retraction In either case, suspend his own performance or proceed on the sellers right to identify goods to the K notwithstanding breach or to salvage unfinished goods

Restatement Services o A repudiation is: A statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach OR A voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach o When a Failure to Give Assurance May be Treated as a Repudiation Where reasonable grounds arise to believe that the obligor will commit a breach by nonperformance that would of itself give the obligee a claim for damages for total breach, the obligee may Demand adequate assurance of due performance AND If reasonable, suspend any performance for which he has not already received and the agreed exchange until he receives such assurance The obligee may treat as a repudiation the obligors failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case o 2-609 Right to Adequate Assurance of Performance A K for sale imposes an obligation on each party that the others expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise, the other party may demand adequate assurance of due performance and until he receives such assurance may suspend any performance for which he has not already received the agreed return With AR, there is NO EFFECT, unless the other party acts on it If you are in breach you cant demand assurances If you demand assurances you cant request unreasonable assurances Acceptance of any improper delivery or payment does not prejudice the aggrieved partys right to demand adequate assurance of future performance After receipt of a justified demand failure to provide within a reasonable time not exceeding 30 days such assurance of due performance as is adequate under the circumstances is a repudiation of the K o 2-611 Redacting a Repudiation You can redact until the other party has relied on your repudiation or the other party expressly cancels the K or the victim of the repudiation files suit Insolvency: someone is going broke o The insolvent has to give the obligee reasonable grounds to believe that the obligor will be in breach

Prospective Inability to Perform (PIP) The other party MIGHT not perform. Rules: Cant treat as a breach so you must wait until the time of the performance to sue Ask for assurance If another party has not relied on the repudiation, you can still take it back The non-breaching party MAY provide a time to repent

Step by Step Guide for A/R and PIP Non-Goods - Is it repudiation under the restatement? o Look at the Rs two circumstances o If no circumstances, can we ask for assurances? Maybe only if we have a reasonable doubt o Then we demand adequate assurances they have to be reasonable

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Can only suspend performance for work yet to be done How long until they have to answer the assurance question? reasonable time If he doesnt give me adequate assurances I can treat his failure to give me adequate assurances as a repudiation and I can sue no need to wait.

Goods Is it a repudiation under the UCC? o Is the statement by the goods supplier an anticipatory repudiation? Look at 2-610 to determine o If it is not, make sure you have the right to demand assurances Use 2-609 to make a letter demanding adequate assurances o Assurances must be in hand in 30 days If not, the repudiation turns into a breach and I can sue

THIRD PARTY BENEFICIARIES Steps to Take with TPB Problems: - Label the parties (Promisor, Promisee, and TPB) specifically identify the beneficiary o Do this by looking at the relationship b/n the promisee and the TPB o Ask yourself, what is the main purpose of the promise? Was it intended to benefit the third party? This is a requirement. o If the TPB is an intended beneficiary he can sue the promisor or the promisee unless there is a novation which requires a substitution and agreement to discharge o If the TP is incidental he has no rights under the K Creditor Beneficiaries - Even if there is no privity they are allowed to bring suit. They are intended beneficiaries and can sue the promisee or the promisor Donee Beneficiaries - Can only sue the promisor and not the promisee Rights are Derivative - Whatever the promisee had against the promisor, the third party has against the promisor no more. - The promisor can raise all the same defenses in a suit from the TPB as they would in a suit brought by the promisee Defenses Against the TPB - Formation Defenses o Consideration, SOF, lack of mutual assent, misunderstanding, mistake, duress, undue influence, illegality, incapacity, unconscionability, capacity Novation - A term used to describe the act of either replacing an obligation to perform with a new obligation or replacing a party to an agreement with a new party - It essentially substitutes a new party and discharges one of the original parties to a K by agreement of all 3 parties o Two types: Substitution of one party Agreement to discharge the party that is leaving

Vesting To give an immediately secured right of present or future enjoyment Goal o Determine when the TPs rights vest to determine when and how the promisor and promisee can change the original K The promisor and promisee can change the K to the detriment of the TP, up until the moment that the TPs rights vest o Once a partys rights vest the original K cant be changed think of the vest as a straight jacket Rs 2 Intended Parties o Vest when there is reliance o Such power terminates when the beneficiary before he receives notice of the discharge, materially changes his position (reliance) or brings suit on it or when he assents to the benefit under the request of the promisor or promisee

Effect of TPBs on Mortgages Technically, the mortgage is a deed transferring the legal interest in the realty to the lender. Assuming the Mortgage: The new owner promises to pay off the bank and the bank becomes a TPB o In order to rid yourself of liability you need a novation o Without it, the bank can come after you if the new owner defaults Subject To o Does not make someone a TPB. They can only sue the original mortgage holder and NOT someone who takes the mortgage subject to purchase

ASSIGNMENT AND DELEGATION You assign rights and delegate duties Mode of Assignment o It is essential to that the obligee manifest an intention to transfer the right to another person without further action or manifestation of intention by the obligee. o The manifestation may be made to the other person or to a 3rd person on his behalf and may be made either orally or by writing Pure Assignment o Be sure to properly label the parties (assignee, assignor, and obligor) o The person who the assignment is made is going to be a stranger to the original K o The original contracting party whose obligation is assigned is the obligor o If you see they are transferring rights and duties it is called assigning the whole K Partial Assignment o These are allowed, but no lawsuit enforcing the assigned rights can be brought unless all of the parties are joined in the proceeding. o They also cant materially change the obligors burden or materially change the duty of the other party Pure Delegation o Properly label the parties (delegatee, delegator, and an obligee) o Delegator will be one of the original contracting parties o The person getting the duties (the stranger) is the delegatee o The original contracting party whose duties are being moved is the obligee o When there is a delegation of duties, someone promises to assume duties *An effective delegation of rights/duties almost always creates a TPB* Caveat: o Black Letter Law regarding Delegation: duties may be delegated except under a K to provide personal services those cant be delegated

Gratuitous Assignments - They are effective assignments, but since they are gratuitous they are revocable unless an exception applies - GAs are automatically revoked if one of this situations occurs o Death o Makes a subsequent assignment of the same right to a different person OR o Give notice to the assignee that the assignees rights are terminated - Can be revocable at any time, unless an exception applies: o Writing o Payment o Judgment o Novation o Reliance Anti-Assignment Clauses - These only affect duties - Are narrowly construed - The trend is to hold them ineffective unless the party has a legitimate interest in the assignment Defenses of the Obligor - Rights of assignee are derivative assignee gets no better rights against the obligor than the assignor had. - Obligor can assert contractual defenses against the assignee just like TPB defenses

SETOFF AND RECOUPMENT Setoff Is money the non-breaching party is trying to deduct that is unrelated to the claim Court allows setoffs only when: o The obligor gets notice of the assignment and compare that date to when the claim accrued Requires you to figure out when the cause of action accrued Use the date of notification, not date of assignment to determine accrual date o If notice comes before accrual cant deduct o If notice comes after accrual can deduct

Recoupment - Damages that are trying to be deducted that arise from the same contract - Recoupment in an assignment is allowed all day every day - Accrual date means nothing MODIFICATION OF AN ASSIGNMENT Importance of Good Faith o Vesting in TPB contracts determines when a TPBs rights cant be modified what about assignments? o If it is made in good faith then it is ok

Warranties by the Assignor - Assignor or one who purports to assign a right by assignment for value warrants to the assignee o He will do nothing to defeat or impair the value of the assignment and has no knowledge of how o The assigned right actually exists and is subject to no limitations or defenses against the assignor other than those stated or apparent at the time of assignment

Any writing evidencing the right which is delivered to the assignee is genuine and what it purports to be An assignment does not of itself operate as a warranty that the obligor is solvent or that he will perform his obligation An assignor is bound by affirmations and promises to the assignee with reference to the right assigned in the same way and to the same extent that one who transfers goods is bound in like circumstances An assignment of a right to a sub-assignee does not operate as an assignment of the assignees rights under his assignors warranties unless an intention is manifested to assign the rights under the warranties Caveat o An assignment of the K or an assignment of all my rights under the K is an assignment of rights and delegation of duties when you have this a promise is inferred o Since a promise is inferred this will create a TPB

*ASSIGNMENT leads to DELEGATION leads to ASSUMPTION leads to TPBs*

PAROL EVIDENCE RULE Is a question of law = judge decides whether the evidence is admitted or not In general, PE bars the introduction of negotiations or agreements made prior to the formation of the contract. Rs 123 A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope

What does it mean to be integrated? - Integrated: you have a contract, but you have to see to what extent it is FINAL - Fully = writing is final on all terms o Cant use PER - Partially = writing is final to some terms o Can use PER so long as it doesnt contradict the terms of the agreement How do you know if the K is fully or partially integrated? - Corbin: ask the parties to find their intent - Williston: four corners rule look at K only Two Questions to see if PER Applies - 1. Did the agreement occur prior to the signing of the contract? o If it came after the formation of the K = no PER o If it came before = PER can be admitted - 2. Is the K integrated? o If yes, then it is a question of law to see if it is partial or full Fully Integrated means no PER Partially Integrated allows PER to be submitted so long as it doesnt contradict the K o If not integrated then no PER The Exceptions Collateral Agreement can only be used on a fully integrated contract and partially integrated - Evidence must be collateral (it is a side part of the agreement)

Cant contradict provisions of the contract Must be one that parties would not ordinarily be expected to embody in the writing (remember icehouse case that should have been in the K) o Use the reasonable person standard

To Prove an Agreement Supported by Separate Consideration - It is its own contract To add UCC Construction Terms - Trade/performance/dealing To Prove grounds for Avoidance Reformation - A sellers error: you order 1,000 umbrellas but you get 10,000 To Prove a Condition Precedent to Formation of Contract Merger Clauses - These explicitly state that all terms are final = fully integrated = no PE admitted, unless exception - Makes PE very difficult to be admitted since you have to meet an exception - These can be bad because sometimes you need the ability to orally modify a contract UCC 2-202 Regarding PER - PE cant be admitted into an integrated K, unless it deals with: o Course of dealing or usage of trade or course of performance AND o By evidence of consistent additional terms unless the court finds the writing to have been intended and also as a complete exclusive statement [fully integrated] of the terms of the agreement Consistent Additional Terms - PE can be brought in so long as it contains a consistent additional term o Inconsistent as defined by the court: the absence of reasonable harmony in terms of the language AND respective obligation of the parties Look to see if the evidence changes the obligation of the parties Narrow: contradiction negates a K term Broad: absence of a reasonable harmony AVOIDANCE DOCTRINES Mistake - If both parties are mistaken about the same thing and that goes to the root of the K then you can argue that the mistake doctrine applies - Typical remedy is to permit either party to elect recission - Rs Definition o A belief that it not in accordance with the facts o If it is a belief it must be an affirmative belief If the facts change later on it wont be a mistake - Mutual Mistake o Only the aggrieved party can take advantage of the K if they so choose o Mistake has to be by both parties has to effectuate the K has to be a mistake o Categories Misunderstanding No mutual assent set aside K Court Allocated Risk Mistake as to existence or identity of the subject matter = put K aside

Mistake in value of subject matter = do NOT put K aside Mistake in operation of subject matter = put K aside

Unilateral Mistake o Courts are not likely to grant rescission unless if the other party Knew of or caused the mistake or The facts fit the mistaken bidder profile

Fraud If the assertion is a deliberate lie, then it does not have to be about something that is material to the K o If the assertion is innocent or negligent then it must have to deal with something that is MATERIAL to the K Material = something likely to induce a reasonable person to assent Misrepresentation (innocent or negligent fraud) o An assertion not in accordance with the facts o Must be of a fact, unless: Given by one with superior knowledge Fiduciary relationship between the parties Where the parties are not dealing at arms length Representee does not have equal opportunity to get the truth Remedies o Intentional = damages & avoidance o Negligent/Innocent = avoidance

Duress Requires that the act is one that is wrongful or the threat of a wrongful act that overcomes the free will of a party. Victim must also show they had no other reasonable alternative Examples: o Violence or threat of violence o Impairment or threat of impairment o Wrongfully seizing or withholding goods o Extortion, blackmail, etc.

Undue Influence - A combination of the victims weakness AND another partys taking advantage of those weaknesses o Showing of a confidential relationship NOT required, BUT If you can shifts burden to dominant party to prove the transaction was in good faith Illegality - A K can be avoided for illegality when it is: o A violation of law o Cohabitation Very rarely works in court Only way one can recover is if they can prove the services were not gratuitous Either put it in a K or get married Only business can be compensated (work done outside of the home) o Lack of a license o Non-compete clauses - Guilty party of an illegal K cannot sue on the K for any reason because they are a true outlaw