business law ii professor pamela gershuny fall 2011

Business Law II

Professor Pamela Gershuny

Fall 2011

BUSINESS LAW II

Contract Relationships

BUSINESS LAW II

Contract Relationships

1. Collateral Promises

2. Assignment Relationships

3. Delegation Relationships

Contract Relationships (3)

BUSINESS LAW II

Contract Relationships

Third Party Rights

• Privity of Contract– Only parties have rights and duties under the K

• Two Exceptions:

– Assignment = right to demand performance

– Delegation = duty to perform

BUSINESS LAW II

Contract Relationships

Collateral Promises

BUSINESS LAW II

Contract Relationships

Original ContractA (Debtor) B (Creditor)

Collateral Promises

BUSINESS LAW II

Contract Relationships

Original ContractA (Debtor) B (Creditor)

C (Third Party)

Collateral Promises

BUSINESS LAW II

Contract Relationships

Promise to Answer for A

’s Debt

(Requires a Signed Writin

g to Be Enforceable Against C)

Original ContractA (Debtor) B (Creditor)

C (Third Party)

Collateral Promises

BUSINESS LAW II

Contract Relationships

BUSINESS LAW II

Assignment Relationships

Contract Relationships

BUSINESS LAW II

Assignment Relationships

Step 1: Original Contract FormedHorton

(obligee-assignor)Brower (obligor)

Contract Relationships

BUSINESS LAW II

Assignment Relationships

Step 1: Original Contract FormedHorton

(obligee-assignor)

Kuhn (assignee)

Brower (obligor)

Contract Relationships

BUSINESS LAW II

Assignment Relationships

Step 1: Original Contract FormedHorton

(obligee-assignor)

Kuhn (assignee)

Brower (obligor)

Step 2: Horton Assigns

Rights under Contract to

Kuhn

Contract Relationships

BUSINESS LAW II

Assignment Relationships

Duties Owed after Assignment

Step 1: Original Contract FormedHorton

(obligee-assignor)

Kuhn (assignee)

Brower (obligor)

Step 2: Horton Assigns

Rights under Contract to

Kuhn

Contract Relationships

Third Party Rights• Assignments

– Unconditional Assignment• Rights of assignor extinguish

• Assignee has the right to demand performance

• Subject to defenses, e.g. fraudulent misrep

• Mortgage loans, accounts receivable

• Oral or written

Third Party Rights• Assignments

– Rights that cannot be assigned• Express prohibition by statute

• Personal services

• Material alterations of risks or duties of performance

• Antiassignment clauses» Except: right to receive money,

» real estate,

» negotiable instruments

» damages for breach or payment in a sale of goods

Third Party Rights• Assignments

– Assignment is effective immediately, before notice is given. However, if notice is delayed

• and two assignments are made, Check the jx for– first in time, first in right or

– first to receive notice rule.

• performance can be rendered to assignor before notice is received

BUSINESS LAW II

Contract Relationships

BUSINESS LAW II

Delegation Relationships

Contract Relationships

BUSINESS LAW II

Delegation Relationships

Horton (obligee)

Brower(obligor-delegator)

Step 1: Original Contract Formed

Contract Relationships

BUSINESS LAW II

Delegation Relationships

Horton (obligee)

Brower(obligor-delegator)

Kuhn (delegatee)

Step 1: Original Contract Formed

Contract Relationships

BUSINESS LAW II

Delegation Relationships

Horton (obligee)

Brower(obligor-delegator)

Step 2: Brower Delegates

Contract Duties To Kuhn

Kuhn (delegatee)

Step 1: Original Contract Formed

Contract Relationships

BUSINESS LAW II

Delegation Relationships

Horton (obligee)

Brower(obligor-delegator)

Step 2: Brower Delegates

Contract Duties To Kuhn

Kuhn (delegatee)

Step 1: Original Contract Formed

Performance Owed after Delegation

Contract Relationships

Third Party Rights• Delegations

– General rule: Obligee must accept performance

– Obligee can only legally refuse performance if duty cannot be delegated

– Breach makes delegatee liable to obligee– Delegatee and delegator can be sued

Third Party Rights• Delegations

– Delegator is not relieved of duty to perform is delegatee fails to perform.

– Duties that cannot be delegated• Special trust in obligor

• Personal skill or talents of obligor

• Material alteration in performance

• Express contractual prohibitions

Third Party Rights

• Assignment of “all rights”

– Assignment + Delegation– Assignor remains liable if assignee fails to

perform

Third Party Rights• Third Party Beneficiaries

– At formation, parties can create intended beneficiaries with legal rights who can sue promisor for breach.

– Intended beneficiaries• Creditor beneficiary

• Donee beneficiary

• Holsapple v. McGrath

Third Party Rights• Vesting of an Intended Beneficiary’s

rights– Rights vest upon

• Manifest assent

• Material alteration in position to his detriment

– Rights subject to• Express reservations of rights to parties

– Example: beneficiary to life insurance K

Third Party Rights• Intended beneficiaries occur when

– performance is rendered directly to the third party

– the third party has the right to control performance

– the third party is expressly designated as beneficiary

– Contrast: Incidental/Unintended Beneficiaries Caswell v. Zoya International, Inc.

End of Contract Relationships

BUSINESS LAW II

Damages

Availability

A party sustains and proves an injury arising directly from the loss of the bargain.

Result

The injured party is compensated for the loss of the bargain.

Remedy: Compensatory Damages

BUSINESS LAW II

Damages

Sale of Goods

Seller breach = KP - MP

Buyer breach = lost profits

Sale of Land

Seller breach = specific performance

If sold: Majority jx = KP-MP

Non-deliberate breach = down payment + expenses

Remedy: Compensatory Damages

BUSINESS LAW II

Damages

BUSINESS LAW II

Damages

BUSINESS LAW IIMeasurement of Damages

Breach of Construction Contracts

Measurement of Damages: Profits. (Contract price less cost of material and labor.)

Owner in Breach Before Construction has begun

BUSINESS LAW IIMeasurement of Damages

Breach of Construction Contracts

BUSINESS LAW IIMeasurement of Damages

Breach of Construction Contracts

Measurement of Damages: Profits plus costs incurred up to time of breach.

BUSINESS LAW II

Owner in Breach During construction

Measurement of Damages Breach of Construction Contracts

BUSINESS LAW IIMeasurement of Damages

Breach of Construction Contracts

Measurement of Damages: Contract price plus interest.

BUSINESS LAW II

Owner in Breach After construction is completed

Measurement of Damages Breach of Construction Contracts

BUSINESS LAW IIMeasurement of Damages

Breach of Construction Contracts

Measurement of Damages: Generally, all costs incurred by owner to complete construction.

BUSINESS LAW II

Contractor in Breach Before construction is completed

Measurement of Damages Breach of Construction Contracts

Availability

Special circumstances, of which the breaching party is aware of, should

be aware, cause the injured party additional loss. Hadley v. Baxendale

Result

The injured party is given the entire benefit of the bargain.

Remedy: Consequential Damages

BUSINESS LAW II

Damages

BUSINESS LAW II

Damages

Availability

Damages are normally available only when a tort is also involved.

Result

The wrongdoer is punished, and others are deterred from committing similar acts.

Remedy: Punitive Damages

BUSINESS LAW II

Damages

BUSINESS LAW II

Damages

Availability

There is no financial loss.

Result

Wrongdoing is established without actual damages being suffered. The plaintiff is awarded a nominal

amount (such as $1) in damages.

Remedy: Nominal Damages

BUSINESS LAW II

Damages

BUSINESS LAW II

Damages

AvailabilityA contract provides a specific

amount to be paid as damages in the event that the contract is later breached.Result

The non-breaching party is paid the amount stipulated in the contract for the breach, unless the amount is construed as a penalty.

Remedy: Liquidated Damages

BUSINESS LAW II

Damages

Parker v. Twentieth Century

Mitigation of Damages

BUSINESS LAW II

Damages

BUSINESS LAW II

Equitable Remedies

Rescission and Restitution

BUSINESS LAW II

Equitable Remedies

Rescission and Restitution

The injured party is entitled to recapture a benefit conferred.

Availability

BUSINESS LAW II

Equitable Remedies

ResultThe contract is terminated. The parties are returned to the positions they occupied before the contract was made. Racicky v. Simon

BUSINESS LAW II

Equitable Remedies

Specific Performance

BUSINESS LAW II

Equitable Remedies

Specific Performance

The subject matter of the contract is unique. (The legal remedy, money damages, is inadequate.)

BUSINESS LAW II

Equitable Remedies

The injured party gets the bargain promised in the contract.

Availability

Result

Specific Performance

No collection action

No need to cover

Performance worth more than money

BUSINESS LAW II

Equitable Remedies

No involuntary servitude

Benefits

Paintings, sculptures, rare books, coins, land

BUSINESS LAW II

Equitable Remedies

Reformation

BUSINESS LAW II

Equitable Remedies

Reformation

BUSINESS LAW II

Equitable Remedies

The written contract imperfectly expresses the parties’ agreement.

The contract is rewritten to reflect the parties’ true intention.

Availability

Result

BUSINESS LAW II

Equitable Remedies

Quasi-contractual Recovery

BUSINESS LAW II

Equitable Remedies

Quasi-contractual Recovery

BUSINESS LAW II

Equitable Remedies

The parties have no contract, but unjust enrichment cannot otherwise be avoided.

The party who conferred the benefit gets the reasonable value of the benefit conferred.

Availability

Result

Quasi-contractual Recovery

BUSINESS LAW II

Equitable Remedies

Conferring a benefit on the other party

With the reasonable expectation of payment

Without volunteering

Unjust enrichment of the recipient

Elements

Election of Remedies

• No double recoveries

• UCC 2-703, 2-711

• Waiver of Breach– Acceptance of defective performance– Pattern of conduct/course of dealing– Partial waivers

Contract Provisions Limiting Remedies

• Express clauses may rule out or limit damages

• Limitation of liability clauses - limit remedy for breach to replacement, repair, refund

• Exculpatory clauses - equal bargaining positions?

End of Equitable Remedies