CHAPTER 7 Conditions and Promises Performance and Breach

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BASIC CONCEPTS Promise:


An undertaking to act or refrain from act in a specified way at some future time. A contractual undertaking, breach of which leads to liability for damages or equitable relief

Condition:


An event that is not certain to occur. A fact, the occurrence or nonoccurrence of which determines when and if a party must perform

A promised performance under a contract is subject to a condition if the parties agree that the performance is contingent on the occurrence of the uncertain event.
Uncertain Event: An event whose occurrence would not be regarded as strongly predictable.

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In other words, an occurrence that is strongly predictable, it is NOT a condition. If the parties do not intend the performance to be contingent upon the event, it should not be treated as a condition. Express Condition: • Expression of the parties of an intent that performance is dependent upon the occurrence or nonoccurrence of an event not certain to occur. A condition is express if the language of the contract, on its fact, and without reference to extrinsic evidence, articulates the intent to make performance contingent on the event. For Example: ○ On condition that ○ Subject to ○ Provided that ○ If

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they reasonable would have intended it to be part of their contract. Constructive Conditions: • • Exists if the circumstances and nature of the contract compel the conclusion that the condition should exist as a matter of policy. its conditional nature must also be apparent from the language used. The insurer’s duty to reimburse for loss is conditional upon the insured giving it written notice of the loss within 10 days of the loss. or that if the parties had addressed the issue.In order to be expressly conditional. 4 . Where the intent is unclear. a court may use a condition implied in law to fill in the blanks concerning the timing of performances There is no actual evidence that the parties discussed the question or expressed this intent to each other.

Condition of the Contract as a Whole: if the condition relates to the contract as a whole. 5 . the party can chose to perform despite its nonoccurrence and may fully enforce the contract against the other.Condition of One Party’s Performance: if a condition is intended to relate only to the performance of one of the parties. its non-occurrence discharges the right of both parties to demand performance. and neither can unilaterally waive it.

Law or Rule(s): When it is doubtful whether words create a promise or a condition precedent. The Policy Concerns Howard v. Provisions of a contract will not 6 . It is established once contextual evidence is introduced to cast light on what was meant.EXPRESS CONDITIONS AND IMPLIED IN FACT CONDITIONS Conditions Implied in Fact: contextual evidence that supports the inference that the parties intended a performance to be conditional. Federal Crop Insurance Corp. they will be construed as creating a promise.

the subject matter and objective of the contract. Jones Associates v. all the circumstances surrounding the making of the contract. Eastside Properties Law or Rule: Determination of the intent of the contracting parties is to be accomplished by viewing the contract as a whole. The Policy Concerns. cont. Contract provisions will not be construed as conditions precedent unless the contract explicitly says so. Time Sequence 7 . the subsequent acts and conduct of the parties to the contract. and the reasonableness of respective interpretations advocated by the parties.be construed as conditions precedent in the absence of language plainly requiring such construction.

Conditions Precedent: fulfillment must precede the performance contingent upon it. Time Sequence. If performances are not capable of being rendered simultaneously because one of them requires a period of time to perform and the other can be rendered instantly. cont. It is a prerequisite to the duty arising. Conditions may relate either to the formation of contracts or liability under them. is that the performance that takes time must go first and must be concluded before the instantaneous one is due. A condition precedent may be either a condition to the formation of a contract or to an obligation to perform an existing agreement. 8 . unless the contract indicates a different sequence. the general presumption. The completion of the longer performance is a condition precedent to the instantaneous one.

The duty to perform arises immediately upon contracting but is discharged if the condition occurs. and the contract does not prescribe a sequence of performances.Concurrent Conditions: If a contract provides for counter-performances in exchange for each other. they are due at the same time. Gardner 9 . Condition Subsequent: terminates a duty that came into existence when the contract was formed. cont. Gray v. the general presumption is that if the performances are capable of being rendered simultaneously. Time Sequence.

Time Sequence. To entitle himself to enforce the promise. and not otherwise. the promise was to be binding. on the occurrence of a certain contingent event. Self 10 . v. Gulf Construction Co.Law or Rule: In regard to the condition precedent. the plaintiff must show that the contingent event has actually occurred. cont.

then the agreement should be interpreted as creating a covenant rather than a condition. PERFORMANCE AND CONSTRUCTIVE CONDITIONS 11 . a writing is construed most strictly against its author and in such a manner as to read a reasonable result consistent with the apparent intention of the parties.Law or Rule: Conditions precedent to an obligation to perform are those acts or events which occur subsequently to the making of the contract that must occur before there is a right to immediate performance and before there is a breach of contractual duty. Terms: • • • If Provided that On condition that However. Generally. where the intent of the parties is doubtful or where a condition would impose an absurd or impossible result.

Breach A breach can only occur when the promised performance falls due. The Effects of Material Breach on Performance A breach is material if the failure or deficiency in performance is so central (important) to the contract that it substantially impairs its value and deeply disappoints the reasonable expectations of the promisee. In other words, one must consider the entirety of the exchange contemplated in the contract and decide if the defective or absent performance forms a significant part of the consideration bargained for by the promisee.

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The Effects of Material Breach on Performance, cont. Things considered:


The extent of the performance affected by the breach- measured both by its value and its proportion to the performance as a whole The equities between the parties ○ A court may look not only at the deprivation suffered by the promisee as a result of the breach, but also at the degree of hardship that would be suffered by the breacher if termination were allowed.

A breach at the outset of performance that affects the value of the entire exchange is patently more material than one occurring near the end of the performance and having an impact on only a small aspect of what was promised.

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Note: Although a breach does not need to be deliberate or willful to be material, in balancing the equities, courts may give some weight to the willfulness or innocence of the breacher.
Circumstances Significant in Determining Whether a Failure is Material

1. The extent to which the injured party will be deprived of the benefit which he reasonably
2. 3. 4. 5. expected The extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived The extent to which the party failing to perform or to offer to perform will suffer forfeiture The likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances The extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

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Where there is substantial performance the harmed party may not recover the cost of completion. including the right to withhold her own performance. and the performance that has been rendered is substantial. Once it is determined that a breach is not material. However.NOTE: If a party chooses to treat a breach as partial. 15 . Occurs when the contract was not performed exactly. it is partial. Substantial Performance It is a non-material breach. she forgoes the remedies for total breach. By electing not to pursue her right to declare total breach. but rather the difference in market value. but was performed to the extent that the difference in the end result is insubstantial. she must normally render her own performance when it becomes due. she is entitled to an offset for the damages caused by the breach when those damages for partial breach are likely to be extensive and may equal or exceed her obligation to the other party.

16 . but performance is sufficient to qualify as substantial. NOTE: the doctrine of substantial performance is not applicable to a sale of goods. the completion cost is the proper measure. Relief for Substantial Performance The usual measure of damages is the cost to place the promisee in the position he would have been in had the performance been in full compliance with the contract. If the breach lies in a failure to complete performance.General Rule: when one party’s performance falls short of that promised in the contract. compensation is appropriately measured by determining the loss caused by the delay. If the breach involves a delay in performance. the other party is not entitled to withhold any return performance that is due but has the right to claim damages for the breach.

but would provide a windfall to the promisee and impose an unfair forfeiture on the breacher. circumstances surrounding transaction and subject matter of the contract.If the court feels that damages measured by the cost of rectification are not an accurate measure of actual harm. determination as to whether time is of the essence depends on intention of parties. This measure of damages is based on the different in value between what was promised and what was performed. the court may adjust the damages to better represent the true harm to the promisee. 17 . Time is of the Essence Where parties have not expressly declared their intention as to whether time is of the essence of a contract.

usually the duty to pay for the performance rendered.Where time is of the essence of contract. Generally time is not of the essence in a building or construction K in the absence of an express provision. performance on time is a constructive condition of the other party's duty. SUBSTANTIAL PERFORMANCE UNDER UCC ARTICLE 2 Perfect Tender Rule 18 .

the buyer may reject the whole.106(2): Defines conforming as meaning in accordance with the obligations under the contract. §2.The buyer is entitled to perfect tender of the goods ordered and has the right to reject goods that fail to conform exactly to what was called for by the contract.601: If the goods or tender of delivery fail in any respect to conform to the contract.508: Permits the seller to avoid rejection of non-conforming goods by curing the deficient tender. The breadth of the seller’s right to cure depends on whether the goods are rejected prior to or after the due date for their delivery. §2. *** See Page 80 *** SUBSTANTIAL PERFORMANCE UNDER UCC ARTICLE 2 Cure 19 . §2.

20 . the cure must be made at the seller’s expense. and the conforming tender must be made within the time for performance agreed to in the contract. §2. Cure.If the seller delivers non-conforming goods before the delivery time stipulated in the contract.508 (1): gives the seller an unconditional right to notify the buyer seasonably of intent to cure and to affect the cure by substituting a conforming delivery before that time expires. the delivery date may not have passed by the time the buyer exercises the right of rejection. the seller must compensate the buyer for reasonable expenses cause by the breach and cure. cont. Note: The Seller’s initial nonconforming performance must have been in good faith.

but a qualified right to cure still exists for a reasonable time. this unrestricted ability to cure is no longer available. §2.508(2): permits the seller to notify the buyer seasonably of intent to cure and to affect the cure within a reasonable time.* (see UCC for changes) 21 .If the contractual delivery date has passed. provided that the seller had reasonable grounds to believe that the tender of delivery would be acceptable with or without money allowance.

after the contract has been made. before he may validly rely upon a clause to declare a default and effect repossession.EXCUSE Waiver and Estoppel A secured party who has not insisted upon strict compliance in the past. A waiver is a voluntary abandonment of a contractual right. the beneficiary of a condition agrees to perform even if the condition is not satisfied. who has accepted late payments as a matter of course. 22 . give notice to the debtor that strict compliance with the terms will be demanded henceforth if repossession is to be avoided. Waiver A waiver occurs when. must.

ancillary. if the right relinquished is non-material. Estoppel Its purpose is to prevent the unfair assertion of rights by a person who has acted inconsistently with those rights. Its abandonment must be exchanged for consideration in a fully fully-fledged contractual modification. cont. and not a central part of the contractual exchange. However. 23 . the consideration requirement is dispensed with and it can be validly waived. Waiver.It is one-sided: one of the parties unilaterally gives up a contractual right without asking for or receiving anything in exchange. General Rule: if the right to be given up is an important part of the exchange under the contract it cannot be validly relinquished by a unilateral waiver.

24 . the actor causes the other party detriment by inducing the justifiable belief that the right does not exist or that it will not be asserted.It precludes a person from asserting a right when. by deliberate words or conduct. and with knowledge or reason to know that the words or conduct will likely be relied on by another.

CHAPTER 8 Anticipatory Repudiation 25 .

De la Tour Rule: Where there is a K to do an act on a future date. 26 . Repudiation may occur after performance under the contract has begun. the party makes it clear by words or actions that she will breach when performance falls due. there is a relation between the parties. that they impliedly promise that in the meantime neither will do any thing to the prejudice of the other inconsistent with that relation. Hochster v. before the time for performance. a party may repudiate her obligation in anticipation if. Repudiation: a breach in advance of performance.The Distinction Between Breach and Repudiation Breach: can only occur when the promised performance falls due. and before either party has begun performance under the contract. but before the due date of the repudiated performance.

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Doctrine of Anticipatory Repudiation Per Hochster, when one of the parties clearly repudiates a material promise in advance, the other may treat this as a breach immediately and may seek relief for breach without delay. UCC and the Anticipatory Repudiation • Leaves the issue of repudiation to common law, even in regards to the sale of goods. A clear, unequivocal, and voluntary repudiation by one of the parties is recognized as the equivalent of a material and total breach, provided that the threatened action or failure to act would be a material and total breach if it happened at the time due for performance.

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Response to Repudiation The other party may: • Accept the repudiation by treating it as an immediate breach ○ Party is entitled to refuse to render her own performance, to terminate the contract, and to sue for relief for total breach. ○ Party risks the chance that the other party will deny that he repudiated, and declare termination to be a breach.  The more equivocal or unclear the alleged repudiation, the greater this risk becomes. Delay responding to the repudiation to see if the repudiating party repents. ○ Party may, to encourage retraction of the repudiation, notify the promisor that he has a specified time to recant, failing which the repudiation will be accepted.

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31 . If party does this. he may change her mind at any time before retraction and accept the repudiation.

Response to Repudiation. The prospective action or inaction indicated by the promisor must be serious enough to qualify as a material and total breach of the contract. ○ Party risks the court finding that she aggravated her damages by not terminating immediately and taking action to mitigate her loss. This intention could be communicated by words or conduct. 1. 32 . Elements of Repudiation The promisor must clearly. and voluntarily communicate an intention not to render the promised performance when it falls due. The following rules inhibit the promisee’s ability to react to a prospect of future breach.  The clearer and firmer the repudiation. cont. unequivocally. the greater this risk becomes.

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34 . The law is not so much concerned with the promisor’s actual intent or the promisee’s subjective interpretation of the statement or action. that is. cont. The promisor’s statement or conduct must clearly indicate to the reasonable promisee that the promisor intends to breach materially when the time for performance arrives. but with the way in which the promisee should reasonably have understood it.Elements of Repudiation. a. The promisor’s statement or conduct in repudiating must be voluntary. 3. it must have been deliberate and purposeful rather than inadvertent or beyond the promisor’s control. 2.

the promisor’s ability to retract is lost as soon as the promisee notifies the promisor that the repudiation has been accepted. suspend any of her own performance for which she has not already received the agreed return.Retraction of Repudiation • • Because the promisee does not have to wait for a retraction. Prospective Non-Performance and Assurance of Performance • UCC §2. she may make a written demand for an adequate assurance of due performance. if commercially reasonable.609: provides that if a party has reasonable grounds for insecurity regarding the other’s performance. ○ Until that assurance is received. Even in the absence of such notification. the party requesting it may. the promisor cannot take back the repudiation if the promisee has treated it as final and has taken action in reliance on it. 35 . resulting in a significant change in her position.

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37 . not exceeding 30 days. defendant must: 1.609 by demanding assurances.Prospective Non-Performance and Assurance of Performance. Have had reasonable grounds for insecurity regarding plaintiff’s performance under the contract 2. ○ • Hopes Architectural Products Case: To suspend its performance pursuant to 2-609. Have not received from plaintiff such assurance. Have demanded in writing adequate assurance of plaintiff’s future performance and 3. cont. Restatement §251: is largely similar to the UCC. The party receiving a justified demand for assurance must provide an adequate assurance within a reasonable time. A party already in breach is not entitled to invoke §2.

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his satisfaction must be based upon reason and must not be arbitrary or capricious. Policy: To hold otherwise would allow a party to avoid liability for breaching its contract by invoking §2. the seller must exercise good faith and observe commercial standards. cont. Rule: What constitutes adequate assurance is to be determined by factual conditions. A non-breaching party in need of prompt performance could be coerced into giving up its right to damages for the breach by giving in to the demands in order to receive the needed performance. the court may find that the demanding party was in breach or a repudiator. If the assurances he demands are more than adequate and the other party refuses to accede to the excessive demands.609 to extract from the non-breaching party an assurance that no damages will be sought for the breach.Prospective Non-Performance and Assurance of Performance. 39 .

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cont. the obligee may suspend any performance for which he has not already received the agreed exchange until he receives assurance in the form of performance itself.Prospective Non-Performance and Assurance of Performance. Where the obligor’s insolvency gives the obligee reasonable grounds to believe that the obligor will commit a breach under the rule states in §251. or adequate security. 41 . an offer of performance. A person is insolvent who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due or is insolvent within the meaning of the federal bankruptcy law. 2. RESTATEMENT §252: Effect of Insolvency 1.

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CHAPTER 9 Third Party Beneficiaries 43 .

○ If the contract is breached.Third. A beneficiary who is not an intended beneficiary. • 44 .Party Beneficiary Incidental Beneficiary: • • Someone who indirectly obtains a benefit as the result of the main purpose of the trust. ○ The benefit anticipated was purely a fortuitous and incidental result of a transaction between others. he or she can sue the promisor When the intended contract is for the benefit of the third party. Intended Beneficiary: • One for whose benefit a contract is made.

and that person can sue the promisor to enforce the performance undertaken to the promisee for his benefit. Fox: Even where no agency or trust is established. the parties to a contract do have the power to create rights enforceable by a person who is not a party to a contract. Promisee: the contracting party whose right to performance has been conferred on the beneficiary Lawrence v. • • Creditor Beneficiary: a nonparty to a contract who receives the benefit when a promise is made to satisfy a legal duty Donee Beneficiary: a non-party who benefits from a promise that is made for the purpose of making a gift to him or her.Promisor: when a contract is intended to confer a benefit on and create enforcement rights in a third-party beneficiary. cont. Third-Party Beneficiary. 45 . the contracting party who is to render the performance to the beneficiary is referred to as the promisor.

Concept of the third-party beneficiary doctrine: the third party only acquires the right to enforce the benefit if it is apparent that the parties intended to give him that right – they have elected to create the beneficiary status as part of their agreement. a. The intent to establish third-party enforcement rights is a matter of interpretation. it must manifest the intention to give the third party the right to enforce the performance if it is not rendered. Contract calls for performance to be rendered to the third party. recognizes a right to performance (right to enforce the performance) in the beneficiary only when it is appropriate to effectuate the intention of the parties. Elements: 1. Third-Party Beneficiary. Restatement §302(1). b. 46 . cont.

For mutual intent to exist. Third-Party Beneficiary. There must be some relationship between the promisee and the beneficiary from which it can be inferred that the parties had the beneficiary’s interest in mind when entering the contract. cont. the promisee must have communicated this intent to the promisor sufficiently for the promisor to have reasonably understood that she was assenting to it. rather than incidental. Or it must be clear that the promisee intended to make a gift of the benefit to the beneficiary.c. A beneficiary can be regarded as intended. 2. only if one of two conditions is satisfied: 1. The beneficiary must be a creditor of the promisee 2. Restatement §280: Novation 47 .

Seaver v. but to give her a gift. Ransom: recognized that a person could qualify as an intended beneficiary when the purpose of conferring the benefit was not to pay any debt. Third. A donee beneficiary (GIFT PROMISE) if it appears from the terms of the promise that 48 . The court found that there was no reason in principle to confine the third party beneficiary doctrine to cases involving creditor beneficiaries. cont.Party Beneficiary.A novation is substituted contract that includes as a party one who was neither the obligor nor the obligee of the original duty. Restatement §133 1. that person is: a. Where performance of a promise in a contract will benefit a person other than the promise.

b. Purpose of the promisee in obtaining the promise of all or part of 49 .the performance thereof is to make a gift to the beneficiary ii. Restatement §133 i. A creditor beneficiary (PROMISE TO DISCHARGE THE PROMISEE’S DUTY) if i.Or to confer upon him a right against the promisor to some performance neither due nor supposed to be asserted to be due from the promisee to the beneficiary. No purpose to make a gift appears from the terms of the promise in view of the accompanying circumstances and performance of the promise will satisfy an actual or supposed or asserted duty of Third. cont.Party Beneficiary.

or a right of the beneficiary against the promisee which has been barred by the Statute of Frauds c. and not the beneficiary under the trust. An incidental beneficiary if neither the facts stated in Clause (a) nor those stated in Clause (b) exist. 2. is a beneficiary within the meaning of this Section. The Promisor’s Defenses 50 . the trustee.the promisee to the beneficiary. Where it appears from the terms of the promise in view of the accompanying circumstances that the purpose of the promisee is to benefit a beneficiary under a trust and the promise is to render performance to the trustee.

Unless the contract expresses a contrary intent. 51 . it does not impose any liability on the beneficiary. Any recourse that the promisor has must be pursued against the promisee. the promisor cannot raise against the beneficiary any defense that is purely personal against the promisee.General Rule §309 (READ IT): Unless the contract makes it clear that it confers rights on the beneficiary free of defenses. the beneficiary’s rights are subject to any limitations inherent in the contract. The promisor may raise against the beneficiary any defense that would have been available against the promisee: • • • Arising out of a defect in the formation of the contract Based on the promisee’s breach of contract Arising out of post-formation occurrences that affect the very basis of the contract ○ Supervening impracticability ○ Nonoccurrence of a condition Although a wrongful act of the promisee can be raised by the promisor as a defense against the beneficiary.

or she materially changes her position by acting in justifiable reliance on it. It does not affect the rights of the beneficiary. who can enforce the performance as it vested under the original agreement Restatement §311(3): • • Seeks to clarify and standardize the rule for vesting. the benefit vests in the beneficiary. but it binds only them.it becomes irrevocably settled on her so that it cannot be changed or withdrawn by the contracting parties without her consent. the rule has been developed that at some point after the contract is made. or she sues on it.Vesting of the Beneficiary’s Rights To protect the beneficiary’s actual or potential reliance on the contract. irrespective of the nature of the underlying relationship between the promisee and the beneficiary. this agreement binds the parties beween themselves. Provides that the benefit vests in the beneficiary when she manifests assent to it at the request of one of the parties. Note: if the parties do agree to modify or discharge the contract after the benefit has vested. 52 .

When she accepts it by manifesting assent to it. 53 . cont. The right vests in the beneficiary either: 1. or 2.Vesting of the Beneficiary’s Rights. the contracting parties can confer it subject to whatever limitations and conditions they see fit. As creators of the benefit. When she detrimentally relied on it.

Mortgages and Third Party Beneficiaries Mortgage: a consensual lien on real property (a deed transferring the legal interest in the realty to the lender) given by the mortgagor (the fee simple owner) to the mortgagee (the financing entity) Equity of Redemption: a right to redeem the property. SEE WHAT HE WANTS YOU TO KNOW. 54 . by paying off the mortgage and recovering the property. DO THE PROBLEMS FOR THIS IN THE CASE BOOK. even if the debt was recently defaulted.

CHAPTER 10 Assignment and Delegation 55 .

The law favors the free transferability of contractual rights and obligations and inclines to uphold the right of a party to make such a transfer. and in regard to the sales of goods §2.Terminology See EE. (Established under common law. p 700 for Delegator/Delegate(e)) definitions of (Assignor/ Assignee. General Rule: Unless a contract specifically prohibits a party from transferring her rights acquired and duties assumed under it. a party has the power to transfer contractual rights and obligations.210(2). Obligor/Obligee. and §317(2). or the nature of the contract is such that the transfer would impair the other party’s reasonable expectations or would offend public policy. 56 . Note: Assignment and Delegation are only possible once a contract has been made and those rights and obligations have come into existence.

so that the assignor retains no control over it and no power to revoke it. The transfer must be a complete relinquishment of the right by the assignor in favor of the assignee. The transfer of the right must actually be accomplished. so that the transferee acquires it immediately. Components: 1. a. The right must be in existence at the time of assignment and its transfer must take effect immediately.Assignment A voluntary manifestation of intention by the holder of an existing right to make an immediate transfer of that right to another person. The assignor must voluntarily manifest intent to assign the right 2. b. 57 .

Herzog Case Rule: An assignment is an act or manifestation by the owner of a right indicating his intent to transfer that right to another.A clause that prohibits assignment of the contract should. i. §322 and UCC §2. the assignor must make clear his intention to relinquish the right to the assignee and must not retain any control over the right assigned. Any doubt or ambiguity should be resolved in favor of transferability ii. the contractual bar must be clearly expressed. Assignment. 58 . An assignment cannot be validly made if the contract prohibits it. Restrictions: 1. if possible. and to be valid and enforceable against the assignor’s creditor.210(3) call for a restrictive interpretation of contract provisions that appear to preclude assignment. be taken to forbid only the delegation of duties. a. cont.

Assignment.b. Effect of Assignment: 59 . cont.210(2) recognize that unless the contract specifically authorizes assignment. §317(2) and UCC §2. nor rights be assigned under a contract where the choice of the person was an ingredient of the bargain. rights and duties under an executory bilateral contract may be assigned and delegated. subject to the exception that duties under a contract to provide personal services may never be delegated. impair her prospects of getting return performance. Macke Case Rule: In the absence of contrary provision. or otherwise substantially reduce its value to her. rights may not be assigned if this would materially change the obligor’s duty. Even in the absence of a clear prohibition. increase the burden or risk imposed by the contract.

The notice must be received by the obligor either: • • Come to obligor’s attention Or. be delivered so that she reasonably should be aware of it.Note that the obligor must be notified of the assignment in order to know the person to whom performance is due. • If the contract is avoidable by the obligor or unenforceable because of a defect in formation of the contract The obligor’s duty is subject to an unsatisfied condition The assignor breached the contract The obligor’s performance has become impracticable • • • 60 . Examples: Assignment. cont. Defense Against the Assignee The assignee takes the rights subject to any conditions and defenses that the obligor may have against the assignor arising out of the contract.

Rule: The the Assignee’s rights are subject to any such right of set off that arose before a notice of assignment. Assignment GIFTS §332 Revocability of Gratuitous Assignments Unless a contrary intention is manifested.The obligor may only use the assignor’s breach defensively against the assignee. a gratuitous assignment is irrevocable if: 61 . Unless the assignment indicates intent to the contrary. the assignor impliedly warrants to the assignee that the rights assigned are valid and not subject to any defenses. but cannot be defeated by one that arose afterwards. the assignee has no liability for the obligor’s damages to the extent that they exceed the amount of the offset. However.

62 . A payment or satisfaction of the obligation. by a subsequent assignment by the assignor. or The assignment is accompanied by delivery of a writing of a type customarily accepted as a symbol or as evidence of the right assigned A gratuitous assignment is revocable and the right of the assignee is terminated by the assignor’s death or incapacity. 2. The assignment is in writing either signed or under seal that is delivered by the assignor. A gratuitous assignment ceases to be revocable to the extent that before the assignee’s right is terminated he obtains 1. or Judgment against the obligor. 2. or A new contract of the obligor by novation A gratuitous assignment is irrevocable to the extent necessary to avoid injustice where the assignor should reasonably expect the assignment to induce action or forbearance by the assignee or a sub-assignee and the assignment does induce such action or forbearance. or by notification from the assignor received by the assignee or by the obligor.1. 3.

ASSIGNMENTS FOR CONSIDERATION §324 Mode of Assignment in General In an assignment of a right. the obligee must manifest an intention to transfer the right to another person without further action or manifestation of intention by the obligee. 63 . In exchange for a performance or return promise that would be consideration for a promise Or as security for or in total or partial satisfaction of a preexisting debt or other obligation.An assignment is gratuitous unless it is given or taken 1. 2.

§326 Partial Assignment An assignment of a part of a right. is operative as to the part to the same extent and in the same manner as if the part has been a separate right. unless all the persons entitled to the promised performance are joined in the proceeding.An assignment of an interest in real property requires a writing under the Statute of Frauds. Limitations on the Assignment Chose in action: a right of a contracting party to performance under an executory contract  the right to sue someone in contract or tort. whether the part is specified as a fraction. as an amount. or otherwise. If the obligor has not contracted to perform separately the assigned part of a right. or unless joinder is not feasible and it is equitable to proceed without joinder. 64 . no legal proceeding can be maintained by the assignor or assignee against the obligor over his objection.

there must be a reasonable justification for doing so.Cheney Case: Where a contract provides that the matter of approval of performance is reserved to a party.” When a matter in a contract is left to the determination of one party alone. the seller must act reasonably and in good faith in withholding his consent to a propsed assignment. condititioned upon obtaining the consent of the seller. Holding: when a contract grants the purchaser the right to assign his interest in the contract. or in the property in issue. he must “act fairly and in good faith in exercising that right. He has no right to withhold arbitrarily his approval. Defenses of the Obligor WAIVE OF THE DEFENSE CLAUSES 65 . that party’s determination is conclusive if he acts in good faith.

66 . Unless the obligee agrees to release the delegator from any further responsibility. Owen (page 822) Delegation Restatement §317 and UCC §2. delegation does not result in a complete substitution of the delegate for the delegator. he remains obligated under the contract.210(1): An obligor is entitled to delegate his contractual duties unless this violates the contract or public policy.Read Unico v. The law’s general approach to delegation is that a party should be given the freedom to engage someone else to perform his contractual duties unless the contract prohibits this or the delegation otherwise impairs the obligee’s reasonable expectations. Unlike assignment.

CHAPTER 6 Avoidance of the Contract Mistake 67 .

An incorrect prediction of future events if not a mistake 3. An error in judgment does not qualify as a mistake 2. 68 .Definition: • • Errors of fact Error about some thing or event that actually occurred or existed and can be ascertained by objective evidence. so that a mistake in law IS covered by mistake doctrine 5. General Rule: A mistake must relate to a fact in existence at the time of contracting. Mistake doctrine is not concerned with mistaken understandings between the parties 4. Observations: 1. Situations that appear to call for the application of Mistake Doctrine may be more properly treated as a breach of a contractual commitment. The law is a fact.

and the other ahs reason to know the meaning attached by the first party • 69 . or Each party knows or each party has reason to know the meaning attached by the other The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if: • That party does not know of any different meaning attached by the other. or That party has no reason to know of any different meaning attached by the other.Misunderstanding Restatement §20: Effect of Misunderstanding There is no contract if each party has a different understanding about the manifestations of the contract if: • • Neither party knows or has reasons to know the meaning attached by the other. and the other knows the meaning attached by the first party.

there is no mutual assent to contract. Mistake Mutual Mistake: • • • The error is shared by both parties A mistake is only mutual if it relates to a factual assumption so shared by the parties.Raffles Rule: • • If a latent ambiguity arises that shows that there had been no meeting of the minds. Parol evidence is admissible to determine the meaning each party had assigned regarding a latent ambiguity. that it is a joint premise of their bargain. Exists when the contract has been written in terms that violate understanding of both parties 70 .

The erroneous fact was a basic assumption on which the contract was made 71 . At the time of contracting.Unilateral Mistake: • A mistake of only of the parties ○ One party knows the true facts and the other does not ○ Both parties may be unaware of the truth. the parties must have shared an erroneous belief concerning a fact 2. Elements of Mutual Mistake Restatement §152: A mutual mistake is avoidable by the adversely affected party if the following prerequisites are satisfied: 1. yet the fact in issue affects the decision of only one of the parties and is of no interest or relevance to the other.

How can one tell who assumed the risk of the mistake: 72 . cont. as shared with the other party 3. The mistaken fact must be so fundamental to the shared intent and purpose of both parties that it is reasonable to conclude that they would Elements of Mutual Mistake. The mistake must have a material effect on the agreed exchange of performances a. Materiality calls for an assessment of the mistake’s impact on the balance of the exchange to see if it substantially deprived the adversely affected party of the value expected. The court examines the effect of the mistake on both the parties to decide the fairness of enforcing the contract despite the mistake. b. a. Examines the aggrieved party’s motivation. b. The adversely affected party must not have borne the risk of the mistake.a. 4. not have had the contract at all or on the present terms had they known the truth.

and this can be done when the mistake is mutual. or the K made. 73 . upon the mistake of a material fact -such as the subject matter of the sale. or he may avoid if after it has been completed. .a mistake in fact as to the identity of the thing sold with the thing delivered. the price. Wood Case Rule: The only reasons for rescinding a sale and revesting title for the recovery of possession against the vendee are 1) that the vendee was guilty of some fraud in procuring the sale to be made to him. or some collateral fact materially inducing the agreement.Risk allocation may be inferred from the contract terms in context by the usual process of interpretation or construction Sherwood Case Rule: A party who has given an apparent consent to a K of sale may refuse to execute it.i. 2) that there was a mistake made by the vendor in delivering an article which was not the article sold. IF the assent was founded. The contract expressly addresses the risk ii.

or misplaced confidence. surprise. and subject to avoidance on grounds such as fraud. The mistake must be material or so substantial and fundamental as to defeat the object of the parties. mistake. Elements of Unilateral Mistake Restatement §153: Because only one party has made a mistake.Williams Case Rule: A release is a K. the agreement will be avoided. Bailey Case Rule: A mistake is an unintentional act or omission arising from ignorance. the expectations of the non-mistaken party must be protected insofar as they are reasonable and legitimate. When the parties have Ked under a misconception or ignorance of a material fact. 74 . and mutual mistake does not preclude a person from intentionally assuming the risk of unknown injuries in a valid release. PER does not bar extrinsic proof of mutual mistake. A unilateral mistake is not normally grounds for the mistaken party. Unilateral mistake is grounds for relief only if the equities favoring release of the mistaken party outweigh the need to uphold the rights of the non-mistaken party.

2. 4. cont. If negligent conduct inevitably placed the risk of error on the mistaken party. a recklessness or a dereliction of duty owed to the other party. or worse. is likely to lead to the conclusion that the mistaken party took the risk of mistake. Would avoidance impose an unfair hardship on the non-mistaken party 75 . a serious degree of negligence. 3. Would enforcement of the contract result in such severe hardship on the mistaken party that it would be unconscionable to uphold it b. The equities must favor relief for the mistake a. 5. The error concerns a fact The fact is a basic assumption on which the mistaken party made the contract The mistake has a material effect on the exchange. Elements of Unilateral Mistake. unilateral mistake would seldom permit relief. However. adverse to the mistaken party The mistaken party must not bear the risk of the mistake a. b.1.

Relief will be granted even in cases of negligence if the opposing party will not be prejudiced. The mistake must be an unintentional act. imposition. surprise. or misplaced confidence. omission.First Baptist Church of Moultrie Rule: Rescission of a contract is permitted where there has been a mistake of fact by only one party. Relief for Mistake Avoidance • Brings the contract to an end and both parties must restore any benefit resulting from performance that was rendered prior to termination Reformation 76 . or error arising from ignorance.

Party seeking reformation must: ○ Show that an error was made in recording the terms agreed ○ May also occur when the parties chose words in their writing that do not have • 77 . cont. ○ Remedy involves a declaration by the court that the contract is on terms other than reflected in the writing.• • An equitable action whereby the court is asked to rewrite the contract so that it represents the true agreement of the parties. the desired relief is to have the writing changed to reflect what was actually good. but that it is false in itself. and enforcement on those terms Relates to the way in which the agreement is expressed in writing ○ The problem is not that the manifestation is based on a faulty premise. ○ When the mistake is in transcription. the legal effect intended. Reformation.

A written agreement is presumed to express the intention of the parties and will not be reformed unless the evidence of mutual mistake or other ground for reformation is strong. 78 . Have existed at the time of the execution of the instrument 2. Have been such that the parties intended to say one thing but by the written instrument expressed another Reformation. the mistake must: 1. cont. Beynon Building Corp Rule: In order to be considered a mistake.○ ○ Explain why the error was made and why he failed to notice it when signing the document NOTE: Parol evidence rule does not bar the introduction of evidence for the purpose of showing a mistake in transcription. Have been mutual and common to all parties 3.

cont. Fraud. Fraud Occurs if at the time of the assertion. prediction. whether of fact. the party making it has no genuine belief in the correctness of the prediction. and convincing. the victim of a misrepresentation. 79 .clear. and the mistake mutual and common to both parties to the instrument. The mistake must be one of fact rather than law. or no intention of performing as promised To claim fraud. the proof clear and convincing that a mistake was made. opinion. or promise must prove that the misrepresentation was dishonest.

either written or oral ○ Non-disclosure:  Fraud misrepresentation made by conduct or silence.  General disclosure is required when it is demanded by reasonable standards of fair dealing  Restatement §161: When Non-Disclosure is Equivalent to an Assertion • A person can be held liable for non-disclosure only when: 80 .Fraudulent Misrepresentation: • Types: ○ Affirmative False Statement:  Deliberate conduct to hide a fact  Deliberate action to conceal the truth  Often an affirmative statement in the form of words.

○ The party knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing. The party knows that the fact’s disclosure is necessary to prevent some previous assertion from being a misrepresentation. or from being fraudulent or material ○ The party knows that the fact’s disclosure would correct the other party’s mistake to a basing assumption on which the party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing. evidencing or embodying an agreement in whole or in part ○ 81 .Fraud. cont.

Cont. nondisclosure constitutes a basis for rescission as a matter of equity. The other person is entitled to know the fact because of a relation of trust and confidence between them A guilty state of mind is essential to fraud ○ Knowledge of falsity (scienter) ○ Intent to mislead ○ • Vokes Rule: A statement of a party having superior knowledge may be regarded as a statement of fact although it would be considered as opinion if the parties were dealing on equal terms.Fraud. Stambovsky Rule: Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction. 82 .

the recipient must have been justified in relying on the misrepresentation 83 .Cousineau Rule: A K may be rescinded if there was a misrepresentation. and which induced the recipient to make the K. which was fraudulent or material.

CHAPTER 3 Remedies 84 .

Damages Purposes which may be pursued in awarding contract damages: 1. The plaintiff has. in reliance on the promise of the defendant. it treats the breach as having caused the contract to fall away ii. Restitution interest: The goal may be termed the prevention of gain by the defaulting promisor at the expense of the promisee. The plaintiff has in reliance on the promise of the defendant changed his position 85 . Restitution is premised on the theory of disaffirmance. i. the prevention of unjust enrichment. conferred some value on the defendant a.It seeks to return to the plaintiff the value of any benefit conferred on the defendant under the breached contract 2.

Note: When the plaintiff would have made a loss in full performance of the contract. ii. Without insisting on reliance by the promisee or enrichment of the promisor. the defendant’s breach is a lucky breach. a negative expectation. Reliance interest: The goal is to put the non-breaching party in the position as he was in before the promise was made. Damages.a. 3. i. a. Damages are made up of expected profit on the whole contract plus expenditure already incurred in reliance on the contract. General Rule: when the defendant can prove that the plaintiff would have suffered a loss in the event of 86 . Expectation interest: Puts plaintiff in the position as if contract had been performed. cont. 1. the promisee may be given the value of the expectancy which the promise created.

Restatement §347: Measure of Damages in General Subject to the limitations states in §§350-353.complete performance. including incidental or consequential loss. less 3. the plaintiff’s reliance damages should cut back to bring his recovery into line with his expectations. plus 2. caused by the breach. Any cost or other loss that he has avoided by not having to perform Hawkins Rule: The damages that should be awarded are the difference between the value of what the plaintiff would have received if the contract had been carried out and the 87 . the injured party has a right to damages based on his expectation interest as measured by: 1. The loss in the value to him of the other party’s performance caused by its failure or deficiency. Any other loss.

The basis of awarding reliance damages is waste. thereby restoring her to the status quo ante. This is known as expectation interest. which means damages shall be awarded such that the plaintiff will be as well off as he would have been if the contract had not been breached. 88 .value the plaintiff currently possesses (plus incidental losses resulting from the contract being breached).the position she would have been in had no contract been entered. Reliance Interest Reliance is a remedy based on affirmation of the contract. Reliance damages aim to refund expenses wasted or equivalent losses by the plaintiff in reliance on the contract. The expense or loss must cause prejudice to the plaintiff in that something of value had been wasted and cannot be salvaged. it is an enforcement of the contract.

for example. CERTAINTY 89 . including expenditures made in preparation for performance.Sullivan Rule: Reliance damages should be granted when expectation damages are seen as excessive (because. Restatement §349: Damages Based on Reliance Interest As an alternative to the measure of damages states in §347. less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. the defendant was not liable for negligence) but restitution damages are seen as insufficient (because the agreement ought to be at least minimally enforced). the injured party has a right to damages based on reliance interest. Limitations on the Recovery Consequential damages are expenses or other losses beyond general damages that the plaintiff would never have occurred but for the breach.

and must give the factfinder enough basis for calculating a monetary award. ○ Restatement §352: although damages cannot be recovered for loss beyond the amount established with reasonable certainty. 90 . Inquiries: ○ Whether the plaintiff has proved injury ○ Whether the plaintiff has provided sufficient evidence to enable the factfinder to determine the amount of the loss General Rule: the more clearly the plaintiff can demonstrate the first element (the fact that some injury was suffered). the policy of holding the breacher accountable for her wrongful act requires that doubts should generally be resolved against her once it is established that a significant injury has occurred. the greater effort the court (or jury) will make to come up with some kind of compensation figure.• • • The evidence must be sufficient to persuade the factfinder that the loss is more likely to have occurred than not.

Freund Rule: Damages are not awarded based on the benefit to the breaching party. Damages are foreseeable when: at the time of making the contract. Hadley Rule: Damages for breach may only be recoverable if one of two conditions is satisfied: 91 . FORESEEABILITY • • An objective concept. but rather according to the consequences of the breach to the plaintiff. but what she would have foreseen had she reasonably contemplated the course of likely future events. concerned not with what a particular person actually did foresee. the party who ultimately breached reasonably should have realized that those damages would be a likely consequence of the breach.

Or it must be one that may reasonably be supposed to have been contemplated by the parties at the time of contract as a reasonable consequence of breach AVOIDABILITY Rockingham Country Rule: If a man engages to have work done.1. DAMAGES BY AGREEMENT Restatement §356(1): Liquidated Damages and Penalties 92 . Either the loss must be one that may fairly and reasonably be considered to arise naturally in the ordinary course of thing from the breach 2. it is inflicting damage on the defendant without benefit to the plaintiff to allow the latter to insist on proceeding with the contract. and afterwards repudiates his contract before the work has been begun or when it has been only partially done.

it has the effect of settling in advance what damages will be due in the event of a breach. Liquidated (Agreed) Damages A term in a contract under which the parties agree that in the event of a breach by one of them. If valid. A term fixing unreasonably large liquidated damages in unenforceable on grounds of public policy as a penalty. 93 .Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. the breacher will pay damages in a specified sum or in accordance with a prescribed formula.

606: If the buyer holds on to nonconforming goods for too long or uses them without regard to the seller’s rights.Liquidated damage’s purpose. Lake River Corp Rule: Liquidated damages must be a reasonable estimate at the time of contracting of the likely damages from breach. 94 .acceptance has occurred. is to discourage breach by imposing a penalty designed to make breach too costly. and the need for estimation at that time must be shown by reference to the likely difficulty of measuring the actual damages from breach after the breach occurs. sometimes. Damages under the UCC Buyer’s Damages (See Index Card #17 for rejection of nonconforming goods) §2. the right to reject the goods disappears.

cont. Damages under the UCC. §2.712 or §2.713: if the buyer has rightfully rejected or revoked acceptance or the seller never delivered the goods at all. the buyer’s actual damages are determined by these sections of the UCC. Seller’s Damages 95 .718 or §2.715: the buyer may also be entitled to incidental and consequential damages §2.608: Even after the acceptance.§2. the buyer may still be entitled to revoke acceptance of the goods depending upon the nature of the defect and exactly when the buyer attempts to revoke acceptance. §2.719: the amount of damages may e limited by provisions in the sales contract that set a max amount for damages.

but must deduct any expenses saved Teradyne Case: It is universally agreed that in a case where after the buyer’s default a seller resells the goods.706.708(2): If the buyer breaches before acceptance or wrongfully revokes the acceptance. could and would have had the benefit of both the original contract and the resale contract.708(1). Restitution 96 . §2. the proceeds of the resale are not to be credited to the buyer if the seller is a lost volume seller—that is.706: The seller is entitled to resell the goods. one who had there been no breach by the buyer.§2.710: The seller may add any incidental damages. the seller’s right to damages is determined by this section. §2. §2. the measure of damages is the difference between the resale price and the contract price. §2.

QUASI CONTRACT • • • Contract is implied in law for the purposes of giving a remedy It is not a real contract It is to be distinguished from a contract implied in fact ○ A contract implied in fact is an actual contract in which agreement is inferred from conduct rather than express words Quantum Meruit: the value of services rendered to another Quantum Valebant: the value of property delivered to another Money had and received: money held by one person but belonging to another 97 .

and recovery is undiminished by any loss which would have been incurred by complete performance. it may as justice requires be measured by either: He reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position.Restitution for Breach of Contract Algernon Rule: The impact of quantum meruit is to allow a promisee to recover the value of services he gave to the defendant irrespective of whether he would have lost money on the contract and been unable to recover in a suit on the contract. Restatement §371: Measure of Restitution Interest If a sum of money is awarded to protect a party’s restitution interest. The measure of recovery is the reasonable value of the performance. or 98 .

8 Fundamental Principles of Contract Damages When a beach of contract is established. cont. or the reasonable value of services performed prior to discharge. Equitable Remedies §4. Rosenberg Rule: The measure of damages is the full contract price. The expectation loss 99 . 1. the issue becomes one of the proper remedy. services and expenses not expended by the discharged attorney. The promisee’s reliance loss 2. Restitution for Breach of Contract.The extent to which the other party’s property has been increased in value or his other interests advances. minus damages.

6. or other punitive damages Centex Homes Corp Rule: Specific performance should be confined to those special instances where a vendor of real estate will otherwise suffer an economic injury for which his damage remedy at law will not be adequate or where other equitable considerations require that relief. Mutuality of remedy is not the basis for granting or denying specific performance.3. Liquidated damages Consequential damages Restitution Specific performance A money penalty specified in the contract. 4. 5. 7. 10 0 . Lumley Rule: An injunction compelling specific performance shall issue to a true and literal performance of their agreements.

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