Contracts Outline
Chapter 7: Multiparty Transactions
· Section A: Transferring rights or duties to third parties
o Part 1: Assignment of Contractual Rights; Kelly Health Care, Nance
§ Kelly Health Care: Kelly (assignee) claimed that the right to be paid by Prudential (obligor) was assigned by Green (assignor).
§ Two transaction process: 1) k b/w Green and Prudential 2) assignment.
· Vs. third party beneficiary: one transaction: beneficiary benefits by the k being made (i.e. life insurance policy)
§ This was not an assignment; Green did not give up rights of the k.
§ RSC § 317 assignment: right can be assigned (if k silent) unless: 1) personal services k, or it would materially impair chance of obtaining return performance (i.e. if A loses leverage b/c B has not delivered goods but has been paid by bank); 2) k is not silent.
§ In Re Nance: Mass law says you can’t assign wages that you have not earned. Reasons: 1) end up like slavery; 2) might cause worker to not be as productive.
§ In this case, the wages had already been earned and therefore were assignable.
o Part 2: Delegation of Contractual duties; Sally Beauty
§ Delegator (A) to deliver goods to B. A delegates to D. This does not excuse A from the k. If D does not deliver, D and A are liable.
§ Difference: assignment is like passing a football (no rights any more), delegation is like passing a disease (still have obligations).
§ Sally Beauty: If you transfer, is it an assignment, delegation, or both? It depends. Look at the k and infer it from the circumstances. Through merger, you get assigned the rights and the duties delegated to you from the company you merged with. Other party can not get out of obligation if k was validly assignable
§ UCC § 2-210 (delegation of performance, assignment of rights):
· 1) (duties delegable) delegation allowed unless not allowed by the k or if A has a substantial interest in B fulfilling the duties and not C;
· 2) (rights assignable) same as RSC rule, basically free assignment of rights;
· 3) unless clearly stated otherwise, prohibition of assignment only prohibits delegation of duties, not assignment of rights. For securities, rights and duties are not to be delegated?;
· 4) the assignee, by accepting the delegation, accepts the responsibility of fulfilling the promises. A can sue C;
· 5) the other party may insist on assurances from the delegator. Reasonable grounds for insecurity b4
· Section B: Manifesting assent through an agent: Types of authority; NEET, Sauber, Jennings, ITC
o Types of Authority: Actual and Apparent;
§ Actual: manifestations of intent from principal to agent.
· Express: manifestation through words
· Implied: manifestation through conduct
§ Apparent: manifestations of intent from the principal to a third party.
o NEET (principal gave attorney authority to negotiate a settlement, ended up settling): apparent authority? No, hiring a lawyer for negotiations is common practice, and as such it should not be viewed as a manifestation of authority from principal to third party → No binding agreement.
o Sauber (woman at insurance company answered phone, said policy would be changed): Someone whose authority to speak on behalf of the company is not doubted. The court found that answering the phone was enough.
o Result of this decision? Put a sanction on carelessness. When both are careless? Cheaper cost avoider: whoever could have avoided the cost in a cheaper way is responsible. If you make it clear that CCA will be liable, the CCA will take the precaution and economic efficiency will be achieved.
o Who is the CCA in this case? Principal: monitor who answers phone more closely. Third party: make inquiries as to whether person has authority. Only makes sense to call third party CCA for a big transaction.
o Jennings (real estate broker asked by senior VP to find a buyer for a sell and leaseback): inherent authority: WT this is actually implied or apparent authority. This was an extraordinary transaction for this business, you expect the third party to make sure there is authority.
o ITC (attorney had been “clothed in authority”, principal tried to back out): k had been signed by both parties and was only changed to remove another party. Π had every reason to believe Kirsch (agent) acted w/ authority.
o Principal bound:
§ Actual authority
· Express
· Implied
§ Apparent authority
§ Inherent authority
§ Ratification: retroactive granting of authority
o Master-servant: torts respondeat superior notion: master = principal, agent is broader than servant (all servants are agents, not all agents are servants).
· Section C: Third Party beneficiaries of a contract
o Part 1: Intended beneficiaries; Seaver
§ Seaver (husband promises wife that he will give niece equivalent of house [wife on deathbed, no time for new will]): NY had categories for intended beneficiaries:
· Pecuniary obligation from promisee to beneficiary. Example: Lawrence v. Fox: Holly owed money to Lawrence. Holly lent money to Fox in exchange for Fox’s promise to Holly that Fox will pay Lawrence. Fox left and didn’t pay money to Lawrence. Court allowed Lawrence to directly sue Fox (this is called a creditor beneficiary).
· K made for benefit of wife or children: based on legal duty to provide for spouse or child. You want to have a bright line so you don’t have to debate whether niece was truly loved. Idea behind it is that familial ties lend evidence that person intended to make a gift.
§ RSC §302 (intended and incidental beneficiaries): 1) unless otherwise agreed, beneficiary is intended if recognition of a right to pe
ion modification or destruction of a legal relation.
· RSC §81: what if the other person was not even seeking the promise, they would have done it either way? It doesn’t matter, we don’t need to look at motive. Exchange was set up as reciprocal.
§ Part 2: Past Consideration:
· Moore: you are not seeking something if you have already received it.
· “Avoid unlicensed psychics, uh, you might get cheated or something, I don’t know”
§ Part 3: Moral consideration: Mills
· Hypo: A promises to pay money to B. B delivers goods to A. Years go by and A has not paid. A makes second promise to pay. This promise is enforceable. Why?
o ½ + ½ = 1. Unjust enrichment is only half of a promise; promise without consideration is only half of a promise too. This makes one obligation. This especially makes sense in a case where the unjust enrichment is tough to put a value on. If you don’t know how much the enrichment was, the promise fills that in.
· Law is not coextensive with morality. Law picks out certain relevant facts, and doesn’t look at the actual story and all of its details. It may seem like a sympathetic story, but it needs to have certain relevant facts to make it binding.
· RSC §86: promise for benefit received:
o 1) promise can be binding if justice requires it;
o 2) not binding
§ a) if it was a gift or for other reasons showing that it was not unjust enrichment;
§ b) to the extent that promise is in proportion to the benefit
· Lon Fuller: benefits of formalities and consideration:
o 1) Evidentiary function: was there a promise and intent to be legally bound?
o 2) cautionary function: makes people realize what they are doing by having to follow the formalities
o 3) channeling function: law needs a way of determining precise contours of an agreement that is readily discernible by third parties; i.e. money or promissory note
· Europe: Causa: there needs to be a cause, or story; charitable gift has a cause. Defenses:
o In gratitude argument: make a promise to give a gift; other person not grateful; promise not enforceable (do you want litigation over how grateful a person is?)
o Change in circumstances: if you come upon hard times, promise not enforceable (how much of a change is necessary?)
