You are on page 1of 18

Contracts

Outline

1

& Frustration Impossibility of Performance Impracticability of Performance Frustration of Purpose 16 17 17 17 17 Statute of Frauds 17 2 .Table of Contents Offer Acceptance 3 4 Effects of Partial Performance 5 Employment Contracts Mailbox Rule Consideration 5 5 5 Option Contracts Contract Modifications 6 6 Moral Obligation Promissory Estoppel Equitable Estoppel Parol Evidence Rule Conditions 6 7 7 7 8 Express Constructive Precedent Subsequent Concurrent 8 9 9 9 9 Breach Remedies 10 10 Specific Performance Damages Injunction 10 11 12 Third Party Beneficiaries 12 Intended Beneficiaries Incidental Beneficiaries Vesting 12 12 12 Assignment 13 Assignment of Rights Equitable Assignment Delegation Novation 13 14 14 14 Capacity of Parties 14 Infancy Mental Incompetency Intoxication Illegality Undue Influence Duress 15 15 15 15 16 16 Avoidance: Misconduct or Mistake Impossibility. Impracticability.

power to accept. only he can revoke it. definite terms. and cannot be accepted. in Zemmer. etc. then its an offer. their secret intentions are irrelevant in establishing an agreement. even if its accepted by the offeree. and can prescribe the specific method of acceptance. would a reasonable person in the other person’s position think that the first party’s objective manifestation demonstrated his intent? If both parties intend for the contract to be legally enforceable. Intent is tested by a reasonable person standard. In the event that the evidence is ambiguous about whether the parties intended to be bound. the preliminary agreement is considered binding so long as the parties’ intent that they be bound at the time is expressed. The offeror can revoke his offer at any time before the offeree accepts it. & induce acceptance.. A party is only held to the intent they express. but (2) in a social or domestic situation (husband & wife). (Ex.” However. the court will follow the following rules on presumption: (1) In a business context. even if the parties mistakenly believe that it isn’t.. then it will be. this solicitation is not considered an offer. A solicitation merely serves as a basis for preliminary negotiations. the court will presume that legal enforceability is not intended. if two parties agree (orally or in informal writing) on all essential terms. An offer must have the following elements: essential terms. the court will presume that the parties intended their agreement to be legally enforceable.) If a party that wants to contract preliminarily solicits bids (auctions or subcontractors). advertisements are not considered offers. Doctors’ promises regarding a specific outcome.) INTENT TEST: Would a reasonable person in the shoes of the offeree believe that the offeror intended legal consequences? If YES. The offeror is master of his offer. An offer which the offeree knows or should know is made in jest is not a valid offer. press releases. and the offeree is the person who the initial offer is made to..” 3 . Penzoil: memorandum of agreement. (We don’t care about the gerbil inside one’s head. they are merely “an invitation to an offer. when advertisements are so specific that they leave no ambiguity or terms to be negotiated. The offeror is the person who makes the initial offer. the offeree claimed to have contracted to sell his land in jest.Offer An offer is a promise to undertake or commit to do something. Generally speaking. but decide to memorialize the agreement at a later time through a more formal writing. then they can be considered offers. there’s still no contract. = Texaco v. any unexpressed intentions cannot be held to defeat the purpose of the contract in court. However. all we care about are the outward manifestations of their intent. Regarding intent to be bound. but never made those intentions known to the offeror at the time both parties signed the contract. an offer can be revoked indirectly when revocation is communicated by a reliable source.. Regarding the intent of the contracting parties. Price quotations are usually not offers. For example. Unless a party’s intentions are expressed at the time of contracting. so the court denied the offeree’s request to cancel the contract. board meetings. unless they contain promissory language. Look for language like “I’ll pay at least $100.

then the seller can accept by either shipping the goods (performance). then his power of acceptance is terminated. The prior course of dealing may make it reasonable for the offeree’s silence to be construed as consent. an offer cannot be accepted by silence.) When an offeree receives goods. If the offeree doesn’t accept the offeror’s offer within the time specified by the offeror. Method of acceptance Acceptance of an offer must be demonstrated in the method expressly specified by the offeror. case where whip company was sent snake skins. and keeps them. and the offeree assents to accepting the offer BUT requests that certain terms be changed. Silence as a method of acceptance Generally. after the offeror extends his offer to the offeree. then acceptance may be given in a reasonable time. (Ex. are referred to as impliedin-fact contracts. An offeree who silently receives the benefit of services (but not goods) will be held to have accepted a contract for them if he: (1) had a reasonable opportunity to reject them. Unilateral Contracts A bilateral contract is a promise for a promise. In order to accept the offer. but will consider the offer for possible future acceptance. The offeree must return the goods in order to demonstrate denial of the offeror’s offer. A unilateral contract is a promise for performance. If an offer doesn’t specify the method of acceptance. However. rejection doesn’t terminate an offeree’s power of acceptance if (1) the offeror indicates that the offer still stands despite the rejection. but instead indicate their understanding that a contract is being formed by their conduct. and the initial offeree’s counteroffer is now considered to be THE offer. and the offer is considered dead to him. Where the method of acceptance is ambiguous. This “kills” the offeror’s initial offer. a contract is formed upon the second party’s assenting to the offeror’s offer by promising. a contract is formed upon the second party’s assenting to the offeror’s offer by performing a specified act. and (2) knew or should have known that the provider of the services expected to be compensated. In situations where contracting parties don’t expressly exchange an offer for acceptance. Bilateral v. If the offeree rejects the offer. Power of acceptance An offer can only be accepted by a person in whom the offeror intended to create a power of acceptance. When offeree’s power of acceptance dies The offeree’s power of acceptance may be terminated through different means. or promising to ship the goods (promise). then that acceptance is not considered acceptance and is instead considered a counter-offer.If. unless it is expressly stated in the contract that it may. the offeree must know about the offer at the time of acceptance. Silence can constitute acceptance if the offeror has given the offeree reason to understand that silence constitutes acceptance. the offeree can accept by either promising or performance. or (2) if the offeree expresses that he doesn’t want to accept the offer now. In the case of shipping goods. if a buyer placed a purchase order that doesn’t state how acceptance is to occur. this exercise of dominion is likely to be held as acceptance. then the offeree’s power of acceptance is automatically 4 . Acceptance Acceptance of an offer is a manifestation of assent to the terms made by the offeror in a manner that is required/invited by the offeror.

The offeree’s beginning performance acts as consideration to keep the offeror’s option open. if the offeree relies on the initial rejection by entering into a contract with another party. but the offeror can chose not to continue performance without being held in breach. the second the acceptance drops to the bottom of the mailbox. There is implied-in-law. Acceptance can be valid.ARRA. Effects of Partial Performance There are 3 theories about the effect of partial performance on an offer looking to a unilateral contract. and rejection is received before acceptance . a contract is not formed. and the offeree may cease performance without being held in breach. if the language of the acceptance demonstrates that the acceptance is distinct from the condition. Mailbox Rule Acceptance is valid upon dispatch. where by the offeree beginning performance. Rejection is valid upon receipt. Partial performance creates an implied-in-fact promise to fulfill the contractual duty. a contract is formed. In this case. rejection is effective the second its in the offeror’s hands. Partial performance creates an option contract. (3) Implied-in-fact promise to complete.RARA. If the offeror revokes the offer after the offeree begins performance. despite conditional language. (2) No effect. If there is no specified time in the offer. then the power of acceptance terminates after a reasonable time. the exception applies to provide the employee with a remedy. 5 . the rejection kills the offer. but not bad reason. a contract is formed. the offeror cannot revoke his offer. If the offeree ceases performance after beginning performance then he is held in breach. Partial performance does not constitute acceptance. An exception to this is where the termination of an employee violates public policy. The exception to the mailbox rule is where rejection is sent before acceptance. However. The mailbox rule itself is where acceptance is sent before rejection. Performance requires a clear and unequivocal act indicating acceptance. then he is held in breach.terminated. and rejection is received before acceptance . but there is evidence to support that the employee was fired for a bad reason. In this case. If an employer terminates an at-will employee for no-reason. Consideration Gratuitous promises are not consideration. the offeror may revoke his offer at any time before performance has been 100% completed. then the existing contract can be estopped. (1) Option contract. Employment Contracts An at-will employee can only be fired for good reason or no reason.

if he had been given the time and opportunity. The mailbox rule does not apply to option contracts. or without having enough time to consider their promising to compensate the promisee. which obligates a person to bring legal action within a certain period of time. the offer can no longer be revoked. 6 . then the promisor is morally obligated from that point on to provide the promisee with such compensation. the subsequent promise is implied to be a requested act by the promisee. and the promisee accepts the promisor’s offer to be compensated for providing such benefit. Factors regarding materiality: 1. However. So a person’s desire to exercise an option is not considered as soon as it is mailed. Consideration keeps the offer open exclusively to the person providing consideration. A humanitarian and voluntary act does not count as consideration when it is performed at an earlier date. TEST: Would the promisor. If the promisor receives a material benefit and makes a subsequent promise to the person who performed the act. You can’t offer consideration when its something that you’ve already done. (3) the modification must be voluntarily agreed to. Moral Obligation When the promisee provides the promisor with a material benefit (like saving his life).The forbearance of asserting a legal claim must be made in good faith in order for it to qualify as consideration. the more likely it is that the breach was material. then by beginning performance. A written promise to pay a debt at a later time will negate the statute of limitations time requirement. even when the option is exercised. request the act to be performed? If a person morally obligates themselves to compensate a promisee immediately after the material benefit is provided. (2) the modification must be fair and equitable. Generally speaking. and (4) the modification was brought about because of unanticipated circumstances. If there is no time term. then the option expires at that time. If consideration is performance. Deprivation of expected benefit: THe more the non-breaching party is deprived of the benefit which he reasonably expected. Contract Modifications Contracts that require modification during the life of the contract require consideration. Part performance: The greater the part of the performance. a promise given in exchange for something already performed will not satisfy the bargain requirement. If there’s a time term to the option’s expiration. then courts tend not to enforce the promisor’s promise to compensate the promisee. 2. Option Contracts An offer in an option contract becomes irrevocable once consideration is provided. which is decided by the court. then the option expires at a reasonable time. An option is considered to be exercised when the consideration is provided. modification does not require consideration when 4 conditions are met: (1) the contract cannot be fully performed.

and that injustice can’t be avoided by enforcing the agreement as justice requires. If the evidence is so similar and related to the contract then that would presumably be something the parties discussed prior to the contract’s formation. So if the evidence varies. then it would have been included. or supplement the integration. get a lot.its a minority rule. The promise is one which the promisor should reasonably expect to induce action or forbearance on the part of the promisee (or a third person) and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise. just by partially performing. or injustice can only be avoided by applying Statute of Frauds Parol Evidence Rule The parol evidence rule is an exclusionary rule which bars the use of parol (oral) evidence issued prior to the signing of the written contract. when no consideration is tendered toward a contract. and therefore would have included it in the integration if they intended to. The promisee must reasonably rely on the promisor’s promise in order to enforce it. then the evidence will be excluded. The promisee can recover only the amount that they relied on the promise . then the offeror’s promise will be enforced in order to prevent injustice on the part of the offeree. The idea behind the parol evidence rule is that if the contracting parties intended on including it in the final written agreement. If the evidence will vary. The purpose of the parol evidence rule is to prevent fraud and make sure that neither party is taken advantage of. Rely a little. 1st Restatement 2nd Restatement Reliance must be of a definite and substantial character. The promisee can recover 100% of the amount they were promised. contradict. or supplements an integration. 7 .the amount that justice requires. partial performance. On the test: Talk about how both restatements would apply to the promisee’s situation. get a little. rely a lot. Charitable subscriptions are not enforceable. contradicts. Promissory Estoppel Under the doctrine of promissory estoppel. then it is excluded from being used in court. Equitable Estoppel Equitable estoppel is a way to get around the Statute of Frauds. A party can get around the Statute of Frauds if they show reliance.Some jurisdictions don’t apply the material benefit rule . but the offeree relies on the offeror’s promise. Charitable subscriptions are enforceable only with consideration and reliance. The promisee must act or forbear a lot in order for the promise to be enforced.

. they wouldn’t have entered into the contract unless that oral agreement was made. and it is completed by 1:01pm.If total integration = EVIDENCE EXCLUDED • If contradict > The parol evidence would negate a term all together = EVIDENCE EXCLUDED • If interprets > Parol evidence is always allowed. and is therefore considered a breach. Defense to Parol Evidence If a party raises the parol evidence rule in order to exclude a prior oral agreement.. i. but that is also intended to include all details of the agreement. the party trying to allow the parol evidence would argue that the oral agreement was a condition precedent to formation of the contract. A written contract may always be modified after its execution by an oral agreement.Integration A written document is said to be an integration of the parties’ agreement if it is intended as the final expression of the agreement. Therefore.If partial integration = EVIDENCE ALLOWED . . but that is not intended to include all details of the parties’ agreement. supplement. does oral agreement vary. then the express condition was not literally complied with. When a writing is a total integration. final expressions of the agreement. Conditions Express Express conditions require literal compliance. Partial integration A partial integration is a document that is intended to be final. When a writing is a partial integration. or contradict the written K? • If varies > The parol evidence would change a term in the K = EVIDENCE EXCLUDED • If supplement > The parol evidence would add a term to the K. Steps to tackling a parol evidence rule problem: (1) Was there an oral (parol) agreement? (2) Was there a written contract? (3) Was the oral agreement made prior/subsequent/contemporaneously to the written agreement? (4) If prior (or contemporaneous). Total (complete) integration A total integration is a document that is not only a final expression of agreement. An express condition can also be implied-in-fact.e. The parol evidence rule never bars consideration of subsequent oral agreements. no evidence of prior or contemporaneous agreements may be admitted if this evidence would contradict a term of the writing. unless there’s a “no oral modification” clause in the agreement. courts determine what the intent of the parties was from the facts and circumstances surrounding the performance of the contracts. the party trying to allow the parol evidence would raise the defense that the prior oral agreement induced them to enter into the contract. contradict or supplement the writing. if a contract term specifies that performance must be completed by 1pm. In an implied-in-fact condition. For ex. The parol evidence rule only applies to documents that are integrations. If the facts and circumstances imply that the parties intended for one party’s duty 8 . no evidence of prior or contemporaneous agreements may be admitted that would either vary.

is that precedent conditions must be pled and proved by the person wanting performance of the condition. an implied condition. Precedent A condition precedent is where one party’s performance of an act. Questions to ask to confirm if its a promissory condition or a condition: (1) Did the parties intend for the performance to be excused if an event does not occur? If no.k. This applies where the condition involves the taste of the person. Subsequent A condition subsequent is where one party’s failure to perform an act. If a party was dissatisfied with a known fact prior to entering into the contract. If a forfeiture would result. then they can’t assert that they were dissatisfied later on. then they are in breach.a. and insistence on strict compliance with the condition would cause him to fail to receive the expected benefits from the deal. Concurrent 9 . then the other party has a reasonable time to gain the ability to perform. Promissory conditions identify an event that must occur for performance to be due. then the court will avoid applying the express condition’s literal compliance. With constructive conditions. then the other party’s duty will not arise. or causing an event to occur. and that it contains a promise by one of the parties that an event will take place. So if a person fails to literally comply with the condition.A forfeiture occurs when one party has relied on the bargain. pure condition. Constructive A constructive condition. If no. The difference between subsequent and precedent. Constructive conditions require substantial performance. Such inability demonstrates that their promise cannot be relied on. In the event that a party suspends their performance. Where conditions being met are dependent on the party’s taste. whereas subsequent conditions must be pled and proved by the party that doesn’t want the condition to be enforced. If yes. Where the party who is unable to perform never becomes able to perform. a party can suspend performance when the other party demonstrate prospective inability to perform. and established by the court. a. causes the other party’s duty to arise. promissory condition. (2) DId the parties intend that one of them is responsible for the event occurrence and will be liable for breach of contract if the event does not occur? If yes. extinguishes the other party’s duty. If the parties clearly intend that one party’s subjective satisfaction should control whether a condition was met. aside from the former extinguishing the duty. the event is a condition of the performance. Whether a constructive condition existed is determined after the performance toward a contract. the event is not a condition of the performance. the court will honor that intent. as performance being completed is uncertain at the time. dissatisfaction made in good-faith is required in order for the condition to be considered met. The “condition” part is the performance of causing the event to occur. or failure to cause an event to occur. it’s a promise. Literal compliance is not required since the condition’s performance would not be known until after it is impliedin-law. is implied-in-law.

where such benefit requires personal services being performed. and able to perform in cases of the concurrent performance by the other party with present ability to do so.ready. If he breaches he stands to gain. the non-breaching party must prove that they were ready. Breaching party pays the least expense.A condition concurrent is where both parties’ performance causes each other’s duty to arise. An opportunistic breach is one that tries to take advantage of the breach. Breaching communicates to nonbreaching party intention to breach. 10 . specific performance is not recommended. If material breach is proved. so that the non-breaching party does not have to sue. Any costs incurred by the non-breaching party that could have been avoided are not awarded. and compensate. and even if they could. The breaching party has a duty to mitigate damages. A material breach occurs when a person causes a huge breach . There must be a clear and unequivocal statement from the breaching party that they wont perform in order to put them in anticipatory breach. Where the benefit the non-breaching party is to receive is so unique and damages won’t be able to provide the party with that benefit. An anticipatory breach exists when the non-breaching party puts the other party in breach prior to the date that their performance is due. For ex. since a person cannot be forced to perform. and able. Efficient breach . Non-breaching party then gets a benefit of the bargain.. willing. then the breaching party will be forced to provide the non-breaching party with that benefit.it causes a lot of damage. as well as damages. the quality of their performance may be compromised (since they’re being forced to perform). the suing party must tender performance . then the person proving the material breach gets cancelation of the contract. Breach In order to put the other party in breach. In order to put the other party in breach. Remedies Specific Performance Specific performance is only used where damages will not suffice in giving the non-breaching party what they bargained for. and notice to the other party of such readiness. where both parties must deposit valid deeds and stocks in escrow. and able to perform. its basically like the opposite of an efficient breach. Elements required to enforce specific performance: subject matter is unique.Breaching party shows he will be incurring a loss if he does not breach.they must prove that they are ready. willing. However. Tender . The breaching party will pay off the non-breaching party (expectancy compensatory damages). no adequate remedy at law. then both parties’ duty to buy/sell arises. willing.

) Interests: Expectancy. Can’t be punitive. But because metalsmith didn’t tell courier that not having the crank would result in their loss of business. Even though the amount of damages are not specifically defined in the contract. the non-breaching party would suffer a specific kind of damages. Liquidated/Stipulated Damages clause . but if they are neither. at the time the contract was signed. as well as for expenses that do not directly flow from the contract. where the metalsmith sued the courier for loss of profits for failing to deliver a crank required by the metalsmith in order to continue working. & Restitution Damages seek to protect one or more of three interests: expectancy.pre-specified amount of damages written explicitly in the K payable to non-breaching party upon breach of K. Difficult to ascertain? Is it a reasonable pre-estimate? Covenants not to compete . Reliance. because they want the benefit they conferred upon the non-breaching party back. Is the injury caused by the breach one that is difficult/impossible of accurate estimation? 3. Reliance damages compensate the non-breaching party for expenses that directly flow from the contract. Damages can be both general and specific. both parties can foresee the amount of damages that would result from breach. (Ex. they must be proven with reasonable certainty. they must fall into one of two categories: general or special. the breaching party must have known that by breaching the contract.balance the employer and employees interests. then damages are not awarded. In order to recover any damages. so at least they’re in the same position as if the contract hadn’t even existed. Restitution damages aim to compensate the non-breaching party for any benefits they conferred onto the breaching party. 11 . area. and restitution. Special damages are those that are contemplated by the parties . these damages were neither special nor general. its the amount of the profit you bargained for (revenue-costs).Damages General v. Did the person intend for the provision to be a penalty? (Can’t be entered into through duress). otherwise. Reliance damages may include restitution. Ordinarily. The covenant covers the time. Ways to tell if Liquidated Damage Clause OR Punitive Damages 1. the non-breaching party gets back any benefit from the contract they have already tendered toward the breaching party. In other words. Special In order for damages to be awarded. Reliance damages aim to compensate the non-breaching party for all expenses incurred in relying on the performance of the contract.. the non-breaching party receives the benefit the bargained for from the contract.taken into account. 2. General damages are those that naturally flow from the contract. it is is held as punitive and is not allowed. In order for special damages to be awarded. Breaching party is normally the party to plead and prove that they deserve restitution. reliance. If it is truly a liquidated damages clause then the court will enforce it. In other words. so metalsmith couldn’t collect damages from courier’s delaying shipment. and scope in which the employee cannot work after the employee has finished his employment with the employer enforcing the covenant. and provide a reasonable penalty for breaching the covenant not to compete. Expectancy damages aim to put the non-breaching party in the same position as if the contract had been fully performed.

or a class of people. and the promisee is know as the donor. Intended Beneficiaries An intended beneficiary is a beneficiary who is intended by the promisee to receive the benefit of the promisor’s promise. Injunction Third Party Beneficiaries A third party beneficiary is a person who is not a contracting party but becomes a contracting party when they were intended to receive some benefit from one of the contracting parties. If the benefit does not flow directly to the third party. the donee benny is also known as the donee. malicious. all the promisor must know is that the promisee intended for the benefits of the promise to go to another person.Blue pencil rule . When a party’s rights vest. A donee beneficiary is an intended benny who is owed a gift (such as money from a will) from the promisee.Make a covenant not to compete reasonable by removing terms. The promisor is the person whose promise we are trying to enforce. The significance of being an intended benny rather than an incidental benny is that having the status of the former substitutes the promisee’s privity of contract. and claim and defense against the promisor that the promisee would have been able to use against the promisor. Punitive damages . and the promisee is also known as the debtor. but does so anyway. In such a case. they are entitled to that right (receiving the right) no matter what. This allows the intended benny to sue on the contract. the creditor benny is also known as the creditor. An incidental benny cannot sue on a contract because they don’t have the intended benny status necessary to substitute for privity of contract. rather than through the promisee. fraudulent. if the benefit flows directly to the third party. then that indicates that the third party benny is more likely the intended benny. tortious. In order for the intended benny to be able to sue/use promisee’s defenses. then it is less likely that they are the intended benny.The idea is to make the party whole with punitive damages. grossly negligent. Vesting When a party’s rights vest. A creditor beneficiary is an intended benny who is owed money (a debt) from the promisee. In such a case. it could be a specific person. the rights are unable to be removed from them. oppressive. Incidental Beneficiaries An incidental beneficiary is a person who was not intended by the promisee to receive the benefit of the promisor’s promise. the original contracting parties cannot 12 . Also. The restatement abandoned the blue pencil rule and now calls it the limited enforcement rule. Has to prove its only one of the following: willful. The promisee is the person who wants the benefit of the promise to be conferred upon the third party beneficiary. Used when covenant employs terms that are too broad. We look at the language of the contract to determine the intent of the parties.

The assignor is the party to an existing contract that transfers their right to a third party. he and the assignor may modify the contract only if the assignor has not yet fully performed. and counterclaims which the obligor could have asserted against the assignor. All rights from a contract can be assigned. Creditor’s rights vest when they detrimentally rely on the promisor’s promise. Assignments do not require consideration. 13 . Once the obligor receives notice of the assignment. and the assignment can no longer be revoked or changed. then the obligor cannot thereafter provide the right to the assignor. to a third party. then that is not an assignment. he and the assignor may modify the contract. both parties must detrimentally rely. then the assignee gets whatever new rights are given to the assignor by the modification. 1st Restatement Donee’s rights are vested immediately upon the formation of the K. Vesting Once the assignee demonstrates that they have substantially relied on the assignor’s promise to transfer future rights. Language such as “will assign” or “promise to assign” do not indicate valid assignments. the obligor’s performance becomes owed to the assignee. as consideration is already tendered for the contract that the right is coming from. If a person promises to assign. but through assignment. if he does. Assignment of Rights An assignment is a present transfer of rights under a contract. Before the obligor receives notice of the assignment. then the assignment won’t be allowed. 2nd Restatement There’s no difference between a donee and creditor in vesting their rights. and assignments transfer rights immediately. then they will still receive whatever benefit comes about from that modification. the obligor is in breach. either from the assignor or assignee. as their promise to transfer rights implies a later transfer. and all duties can be delegated. If the third party agrees to the modification. where a special relationship of trust or confidence exists between the parties that prevents the assignor from assigning a right/duty to a third party whose performance would materially change the obligor’s performance. The assignee stands in the shoes of his assignor. the obligor’s performance was originally owed to the assignor. Assignment All parties to a contract have both rights and duties. This is most often seen in personal service contracts. Certain rights cannot be assigned. And if the contract is modified before the assignor fully performs. (1) If the obligor’s duty would be materially changed by the assignment. set-offs. and can take subject to all defenses. The assignee is a third party to the contract that the right is coming from. and is the person who is to receive the rights assigned by the assignor from that contract.modify the original K unless the third party agrees to the modifications. then those rights have vested upon the assignee. The obligor is the person whose performance provides the right that is assigned to the assignee. Most jurisdictions use the second restatement. Obligor’s receipt of notice locks him into assignment Once the obligor has received notice of the assignment.

even when a party delegates their duty to a third party. 3. Duties not delegable when 1. contracts made by minors or the mentally infirm are voidable at the option of the party lacking capacity. • The right to sue for damages from breach may always be assigned. not assignment. if a contract contains a provision prohibiting assignment. Equitable Assignment An equitable assignment is a present transfer of a conditional right. Parties manifest an intention contrary to the K. the obligor would not be able to receive the same benefit of their bargain. and these rules hold no bearing. Receiving the benefit is conditioned on some kind of performance first. most commonly found in insurance policies. Delegation A party to a contract can delegate their contractual duties when they wish to have another person perform them. Capacity of Parties Generally speaking. as opposed to an assignment where assignor is still liable in a K where the assignor assigns his rights/duties to another person. General presumption that duties are assigned along with rights. 14 . but are subject to the following rules: • Assignment is allowed when the assignor has fully performed their contractual duty. Normally. anti-assignment clauses are generally enforceable. Novation A novation is a complete substitution of another party. If assignment by assignor is to pay a debt to assignee. 4. the original contracting party is liable. so if the third party fails to perform the delegated duty. Essentially. Under the Restatement. then the courts will enforce the clause. that the duties are not to go along with the rights. (3) Assignment will also not be allowed where it would materially impair the obligor’s probability of obtaining return performance. then that intent will be followed. The assignee takes subject to all defenses against the obligor that the assignee can raise against the assignor. If assignee gives assignor consideration. it creates a new contract. However. • **If the contracting parties clearly manifest an intent regarding with assignment. Duties are part of a personal service K 2. • If the anti-assignment clause states that “the contract may not be assigned.” then the contract will be interpreted to bar only delegation. they are still liable for the performance of the duty. All parties must assent to the substitution meaning all original contracting parties and the new party.(2) Assignment will also not be allowed where it would materially vary the risk assumed by the obligor.

and there is no remedy for partial performance. Will the other party be returned to the status quo if the K is avoided? 5. Illegality If the consideration or performance that is to occur is illegal. or knew of the illegal purpose but didn’t facilitate that purpose. As long as the minor is not subject to undue influence or duress (taken advantage of) in forming or performing the K. Recovery is under a theory of a quasi K (implied-in-law) . The infant must restore any benefit conferred to them by the other party. it is said that he ratified the K. Does the other party know or have reason to know of the other party’s mental incapacity? Intoxication A contract entered into by an intoxicated party is voidable only if the person didn’t understand the nature of the transaction and the other party had reason to know that the intoxicated party was intoxicated. TEST: If the mentally incompetent party can void a K (when no guardianship or adjudication): 1. If the person is unable to understand the nature and consequences of the transaction. Statutory exceptions may include insurance or student loans. restitution is not awarded for consideration. it is void. food). then the non-minor party can recover restitution damages. where promises are not conditioned upon one another? If the K is whole. 2. the other party can recover if he didn’t know of the illegal purpose. gas. When a minor enforces a K. Of the contract is not made void by the infant within a reasonable time after the infant reaches the age of maturity. Ks made by the individual are void. at the option of the infant. and the minor can no longer void the K. implied-in-law. and the other party knows about his mental incapacity. This means the infant may void the K and avoid any liability from it or chose to hold the adult party the K (stay in the K). Ignorance . not the agreed upon price. Illegal transactions are not recognized or enforceable. The intoxicated party will be liable for the fair value of goods and services furnished. When necessities are furnished by the non-minor party (like water. then it is not divisible. or unable to act in a reasonable manner in regard to the transaction.the judge decides what the reasonable value of the services/goods are.Infancy Infants (under 18) don’t have capacity to K. Party lacks illegal purpose . Party may recover if other party acted with the knowledge of illegality.Some K an be separated into legal and illegal parts so that the legal parts can be recoverable. 3. recovery of the non-minor party can only encompass the reasonable value of the services or goods. A void K results in the K being nullified and is non-enforceable. then the K is voidable. (2) Is the legal promise is no so bad that it taints the entire agreement? 15 . the K is illegal and unenforceable. Did the party asserting the lack of capacity enter into the K as a result of his mental illness? 3. Did the party understand the nature of the agreement? 4. or the purpose doesn’t involve serious wickedness.where one party is justifiable ignorant of the fact making the K illegal. where court determines reasonable value. then the K is no longer voidable. Mental Incompetency If a party is adjudicated mentally incompetent and is under guardianship. Is it fair to enforce the K? 2. Ks entered into by infants are voidable. Exceptions: 1. TEST: (1) Is consideration apportionable. Divisible K (partial illegality) . Intoxication can be by drugs or alcohol. If there is no adjudication or guardianship.if only one party has an illegal purpose.

The threat was either an unlawful threat or a legal threat made in an unlawful manner. Unconsciounability includes an absence of a meaningful choice on the part of one of the parties together with K terms which are unreasonably favorable to the other party. otherwise they ratify the K. . because there is no other financially viable way to satisfy the objective of the K. Avoidance: Misconduct or Mistake If a party can show that the other party made a misrepresentation to him prior to the signing of the K. (2) The party asserting misrepresentation must show that they justifiably relied on the misstatement. Economic duress occurs when a party is forced to enter into a K. etc. 2. the burden of proof is shifted to the dominant party (normally the ∆) to establish that the agreement in question was fair and reasonable. with little or now knowledge of its terms.Examples: 1. the party must demonstrate that they made a reasonable attempt to find an acceptable alternative. Mandatory elements to prove misrepresentation (1) The P doesn’t need to prove that the party alleged to have made the misrepresentation did so intentionally.. Prostitution .?) . or even an objective manifestation of his assent was even given to all the terms.Were the terms so extreme as to appear unconscionable according to the mores and business practices of the time and place? .When a party of little bargaining power signs a commercially unreasonable K.The manner in which the K was entered. A confidential relationship where there is a relationship of trust. 2. To claim economic duress.sex is not valid consideration. or (2) as the grounds for recission or damages in a suit in which he is the plaintiff. or perform under an existing K. The party under duress must disaffirm to objecting into the K. it is hardly likely that this is consent. 16 . a negligent or even innocent misrepresentation is usually sufficient to avoid the contract. One party enters into the K because of excessive persuasion by the dominant party. Duress Duress is a threat that precludes the party from using their free will. but only if the misrepresentation is in regard to a material fact of the contract.Was the K understandable? (Were there hidden terms. TEST for unconsciounability: .. . Against public policy Undue Influence A K entered into through undue influence is voidable. One the confidential relationship is proved. and there is no other legal alternative that would satisfy the objective of the K.***Meaningfulness of choice can be negated by a gross inequality of bargaining power. Whether a meaningful choice is present is determined by looking at the circumstances surrounding the transaction to determine the reasonableness and fairness of the K. he can use misrepresentation (1) as a defense to a breach COA brought by the other party. Undue influence is proved by: 1.

(3) The misrepresentation must be one of fact. A party’s failure to disclose information generally doesn’t justify recission of the K or recovery of damages by the other party. the promisor may be excused just as he would be if performance were literally impossible. (a) the defense of impossibility of performance only excuses the performance of an executory K.. sale of goods of $500 or more. his purpose for entering the agreement no longer exists. For Both parties’ purpose in contracting must be frustrated. Then . Frustration of Purpose A party can argue that although his performance is possible.. If a fiduciary relationship exists.” and have no basis for the party asserting misrepresentation to justifiably rely. • If one party knows the other party is making a mistake as to a basic assumption of the K. to perform. K that cannot possibly be performed within one year of making the agreement. • If the parties have some sort of fiduciary relationship. even if the action is non-verbal. sale of real property or an interest in real property. • If a party takes positive action to conceal the truth. when guarantors agree to pay a certain debt. then this can constitute misrepresentation. the party must show: (1) The reason he entered into the K no longer exists. but only if such failure amounts to a failure to act in good faith. performance would be infeasible from a commercial viewpoint. where one believes that the other is looking out for their best interests. not opinion. then the former’s failure to correct that misunderstanding will be actionable for misrepresentation. it is impossible for him. Impossibility. 17 . there will be a duty to disclose material facts. and (2) the other K party knew of his reason and purpose in entering into the K. and not the full truth. & Frustration Impossibility of Performance A party can argue that due to the subject matter of the K no longer being in existence. Actionable exceptions to non-disclosure • If a misleading representation is made by only telling part of the truth. Misrepresentations of opinion are considered “puffing. Impracticability. Impracticability of Performance If due to changed circumstances. (b) If it is impossible to performa a K according to its terms. a party cannot insist on another type of performance to obtain the same result that would have been obtained if the K had been performed instead of being discharged. Statute of Frauds Certain K need to be in writing in order for a court to enforce the K: marriage. then the failure to disclose is actionable for misrepresentation. or anyone for that matter. For a frustration of purpose defense. this is actionable for misrepresentation. and material facts are not disclosed. Non-disclosure Only affirmative statements can serve as the basis for an action in misrepresentation.

18 . Possibility of completing performance could be termination of the K.General rule: The year starts from the time the agreement is made. but does not necessarily mean that termination is always completed performance.