Contracts 101: Remaining Steps

Remaining Steps
Michael DeBlis III, Esq.
Partner
DeBlis Law

Step 3
• Examine fact pattern and ask: “Do the terms
of this K or the subsequent actions of either or
both of the parties who formed it confer any
rights or impose any duties upon non-
traders?”

Step 3
• If you conclude that the traders have formed
an agreement and that agreement has the
legal status of a contractual relationship, ask:
do the terms of that K or the subsequent
conduct of either of the parties who formed it
confer any rights or impose any duties upon
non-traders?

Step 3
• This issue deals w/ third party beneficiaries –
persons whose rights are defined by terms of
original K
• Assignees of rights and delegors of duties
enter picture subsequent to formation of K in
consequence of an action of one of the parties
who formed it

Step 3
• A non-trader is any person who, at formation
stage of agreement, was neither the offeror
nor the offeree. Where the non-trader’s rights
arise by the initial terms of the K, the
relationship involved is that of a potential
intended TPB.

Step 3
• But if the terms of the original K are silent w/
respect to any non-traders, but subsequent to
the formation of that bargain, one of the
traders takes the unilateral step of identifying
a stranger and then seeks to transfer to that
stranger the right to receive performance
owed to the party by the other trader to the
bargain, you have an attempted assignment of
K rights.

Step 3
• Another possibility: The original K makes no
reference to non-traders, but subsequent to
the formation of the bargain, one of the
traders takes the unilateral step of identifying
a non-trader and seeks to make an
arrangement w/ that non-trader under the
terms of which the non-trader will assume the
obligation to perform the duties owed by the
trader to the other party under the terms of
the K (delegation of K duties)

Summary of Steps for an Assignment
• Step 1: Is there a present assignment? Intent,
suitable steps, suitable subject matter.
• Step 2: If yes, is the assignment operative
focusing on common law notion that you can
n/ unilaterally use an assignment to materially
alter the nature of duty or risks assumed by
party in forming K. If the K provisions have
been altered, determine whether they have
succeeded in making assignment illicit or
whether they have extinguished the power

• Step 3: Look to facts to see if there is
revocation. This is appropriate when there is
evidence that the assignor has changed her
mind either by attempting to personally
reacquire dominion over subject matter or by
setting it up in rival subsequent assignees. In
the latter case, identify which of the rival
assignees possesses the prevailing claim

• Step 4: In the event that there is a present
operative assignment, the right to that subject
matter is exclusively in the province of the
assignee. In the event that the obligor
breaches by failing, refusing, or by defectively
performing, the cause of action at law or in
equity to cure the breach of K belongs to
assignee.

• Obligor may raise any defense that could be
asserted against the assignor had there never
been an assignment. May be used to defeat
liability on grounds that K was void or obligations
voidable b/c since the assignee stands in shoes of
assignor, she could never have rights greater than
the assignor. Assignee is vulnerable to any
counterclaim and to setoffs if they accrued prior
to the date on which assignee made her presence
and demand known to the obligor

Step 4
• Step 4: Once you have determined all of the
persons who may have rights or duties on this
K, have the performance obligations created
by the K matured?

Step 4
• Fix a time and order for the performance of the
promises which the parties have exchanged
• Law of conditions
• Once you have determined the identity of all
persons – traders and nontraders – who might
have rights or duties on a K ask: “Have the
performance obligations created by the K
matured?” This q requires fixing a schedule under
which the performance should take place. This is
accomplished by applying the law of conditions.

Step 5
• Step 5: If the K obligations have matured, has
performance been excused? Canvass fact pattern
for the potential presence of doctrine of
excusable non-performance.
– We have been speaking about excuse of
conditions. We are now speaking about excusable
non-performance
– The refusal of a party to perform what is
otherwise a fully matured K promise may be a
matter of legal privilege if it has been discharged
or excused on the theory of (1) impossibility, (2)
impracticability, or (3) frustration of purpose

Step 5
• Excusable nonperformance can arise in three
fact patterns
–Objective impossibility
–Commercial impracticability
–Frustration of purpose

Objective impossibility
• If, subsequent to the formation of the bargain,
either physical or legal barriers arise so as to
render the obligor’s promised performance
objectively impossible, such an obligor is
excused by operation of law

• Critical factor: Performance must be
objectively impossible. Means that given the
circumstances as they have changed
subsequent to formation of the bargain, n/
only must the pr/or be unable to perform, but
there must be no person on the face of the
earth who could carry out the terms of the
pr/or’s obligation.

• If the only consequence of the after arising
barriers are that pr/or cannot perform, though
another person w/ greater capacity could, that
is called “subjective impossibility” and is no
excuse at all

• Example of an obligation which has become
objectively impossible: Suppose Fox has
agreed to paint the inside of Brown’s house
and midway through the work, w/o fault of
either party, Brown’s house is destroyed by
fire. This destruction would discharge Fox’s
obligation to complete the painting. N/ only
could Fox n/ paint what is now a pile of ruble,
but there is no one on the face of the earth
that could give a pile of ashes a coat of paint.

• If it’s impossible, it can’t be done

Commercial Impracticability
• If essence of objective impossibility is physics
and the barriers that physics present,
commercial impracticability has as its essence
economics

• Something is impracticable when it cannot be
accomplished except by an expenditure of
funds grossly disproportionate to the agreed-
upon stage. Party is not claiming that, “I can’t
do it.” Instead, the party is claiming that, “To
do it would cost me so much more than either
you or I anticipated at the formation date that
it is unfair to hold me to my promise.”

• To claim an excuse based on commercial
impracticability, a party must show that the
factors that arose subsequent to formation
were not foreseen by either party at the
formation stage.

• UCC makes more readily available the doctrine
of excuse premised on CI. It is sufficient if:
– I can prove that at the formation stage neither you
nor I anticipated these after-arising factors, and
– Show that these after-arising circumstances have
thrust upon me costs which are wholly
disproportionate to what we had assumed

• Then I am legally privileged n/ to perform

• If it’s impracticable, it now costs too much to
do it

Frustration of Purpose
• Does n/ involve a claim that performance is
physically impossible or legally impossible or
economically impracticable
• Subsequent to formation of bargain,
circumstances have so drastically changed that
your performance is no longer of any value or
utility to the other party. The other party asks
to be excused from having to perform his
promise to you on the grounds of
“frustration.”

Frustration of Purpose
• If it’s frustrated, it’s no longer worth the
original cost

Contact Information
Website: www.DeBlisLaw.com
Email:
MJDeBlis@DeBlisLaw.com
Office: 973-783-7000

Contracts 101: Remaining Steps

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