Basic Elements of a Contract
offer, acceptance, consideration, capacity, legal
Bilateral
both parties make a promise
ex) pay rent in exchange for a leased house
Unilateral
a promise for an act
ex) reward for finding a lost dog
Valid Contract
meets legal requirements for a binding contract and are enforceable in court
Unenforceable
meets basic legal requirements, but cannot be enforced in court
Voidable Contract
one of the parties has the legal right to cancel their contract
Void Contract
no legal obligations and no remedy
Express Contract
terms of the contract are directly stated orally or in writing at the time the contract was formed
Implied Contract
surrounding facts and circumstances indicate an agreement has in fact been reached
Executed
all parties have performed their contractual duties
Executory
some duties under the contract still need to be performed
UCC
statute that represents modern contract law;
- applies only to sale of goods
- applies to contracts that deal predominantly with sale of goods
- more flexible, less weight to technical requirements like consideration
- reasonable standard and duty of good
Common Law
case law, judge-made law; applies to sale of real estate, intangibles, and services
Duty of Good Faith
honesty in fact" and fair dealing, imposed in the performance and enforcement of every contract
Unconscionable Contract
grossly unfair or one-sided, and it gives the courts broad discretionary powers to deal fairly with such contracts
Merchant
a person that regularly deals in the kind of goods being sold, or pretends to have some special knowledge about the goods, or employed an agent in the sale who fits either of those two descriptions
Quasi-Contract
Used to prevent unjust enrichment of persons who have not contracted for, but nonetheless received a benefit. It is only imposed where that benefit was knowingly received or retained by the other party.
Promissory Estoppel
protects persons who rely on the promises of others by preventing promissors from raising legal defenses to the enforcement of their promises despite the fact that technically, no enforceable contract exists;
exact elements: a promise made by a promisor,
Offer, Offeror, and Offeree
Offer: "if you agree to these terms, we have a contract"
Offeror: person who makes the offer
Offeree: person who receives the offer
Offer Requirements
present intent to contract, definiteness, communicated to the offeree
Objective Standard of Intent
An offeror's intent will be judged by an objective standard- what his words, acts, and the circumstances signify about his intent. If a reasonable person would believe that the offeror intended to make a contract , the requirements would be satisfied
Definiteness Standards
Under common law: "contract enforcers, not contract makers", all essential terms must be stated in the contract
Under UCC: if the parties are acting as though they have a contract by delivering or accepting goods or payment may create binding contract, ga
Are advertisements offers?
no, advertisements are invitations to offer or negotiate UNLESS the ad was very specific and there was nothing to negotiate
Rewards
considered to be an offer for a unilateral contract
Auctions
considered to be an offer that the seller is free to accept or reject
Bids
considered to be an offer, the offeror may reject any time before acceptances, the offeree is free to reject or accept
What terminates an offer?
notes
Lapse of Time
notes (315-316 in tb)
General Rule for Revocation
notes
When Offers Cannot be Revoked
Options, Firm Offers, Unilateral Contract Offers, and Promissory Estoppel
Options
A separate contract in which an offeror agrees not to revoke his offer for a stated time in exchange for some valuable consideration
Firm Offers
MERCHANT offeror makes WRITTEN offer to buy or sell GOODS, giving assurances that the offer will be held open
Offers for Unilateral Contract
Offeree has started to perform requested act before offeror revokes
Promissory Estoppel
Offeree foreseeably and reasonably relies on offer being held open, and will suffer injustice if it is revoked
Time of Effectiveness of Revocations
notes
Evidence of an Acceptance
1) the offeree intended to enter the contract
2) the offeree accepted on the terms proposed by the offeror
3) the offeree communiated acceptance to the offeror
Common Law: Traditional "Mirror Image" Rule
must be exactly the same; changes in terms are considered to be counteroffers
Inquiry Regarding Terms
is still an acceptance, NOT a rejection
Grumbling Acceptance
is still an acceptance, NOT a rejection
Battle of the Forms
-UCC changed the mirror image rule for contracts involving the sale of goods, allowing the formation of a contract even when there is some variance between the terms of the offer and the terms of the acceptance
-A definite and timely expression of accepta
Communication of Acceptance
-If the offeror stipulates a particular manner of acceptance, the offeree must respond in this way to form a valid acceptance; the offeror can accept anyway, but it is his choice
-If the offer merely suggest a method or place of communication or is silent
Mailbox Rule
properly addressed and dispatched acceptances can become effective when they are dispatched, even if they are lost and never received by the offeror (unless stipulated only effective on receipt)
Special Acceptance Problem Areas
notes
Who can accept an offer?
-The only person with the legal power to accept an offer and create a contract is the original offeree; an attempt to accept by anyone other than the offeree is treated as an offer
Consideration
legal value, bargained for and given in exchange for an act or a promise
Illusory Promises
does not really bind the promisee to do or refrain from doing anything, no consideration, not enforceable
ex) cancellation or termination clauses
Preexisting Duties
occur when the parties to an existing contract agree to modify the contract; the common law rule holds that an agreement to modify an existing contract requires some new consideration to be binding
Contract Modification under UCC
does not require consideration for firm offers or modifications for sale of goods contract
Liquidated Debt
a debt that is both due and certain
Unliquidated Debt
a good faith dispute about either the existence or the amount of a debt, settled w/ accord and satisfaction
Composition Agreements
agreements between a debtor and two or more creditors who agree to accept as full payment a stated percentage of their liquidated debts
Forbearance to Sue
an agreement by a promisee to refrain, or forbear, from pursuing a legal claim against a promisor (considered to be valid consideration)
Past Consideration
not considered to be consideration
Exceptions to the Consideration Requirement
1) Promissory Estoppel
2) Promises to Pay Debts Barred by Statues of Limitations (must be in writing)
3) Promises to Pay Debts Barred by Bankruptcy Discharge (can revoke reaffirmation w/in 30 days)
4) Charitable Subscriptions
Tort
a private (civil) wrong against his person or his property
Voidable
capable of being made void
Rescind
terminate the contract as to future transactions or to annul the contract from the beginning
Ratification
the adoption or affirmance by a person of a prior act that did not bind him
Scienter
in cases of fraud and deceipt, the word means knowledge on the part of the person making representations, at the time they are made, that they are false. In an action for deceit, scienter must be approved
Deceit
a tort involving intentional misrepresentation or cheating by means of some device
Concealment
taking active steps to prevent another from learning the truth (committed by conduct)
Nondisclosure
failure to volunteer information where there is a legal duty (b/c of contract, statute, or case law) to do so
Material
important; information that is sufficiently significant to influence an individual into acting in a certain way, such as entering into a contract
Mistake
an erroneous belief about some fact that exists at the time the contract was formed (knowing you are ignorant or have limited knowledge is NOT a mistake)
Unilateral Mistake
mistake made by just one of the parties
Courts will allow avoidance of a contract if the unilateral mistake:
1. meets all the elements of mutual mistakes
2. the consequences of the mistake are such that it would be unconscionable to enforce the contract OR that the other party caused or knew, or had reason to know about his mistake
Mutual Mistake
mistake made by both parties
Courts will allow avoidance of a contract if the mutual mistake:
1. relates to a fact that was a basic assumption on which the contract was made
2. the fact was material
3. the person adversely affected by the mistake does not consciously bear the risk of the mistake
Undue Influence
unfair persuasion of a person by one who stands in a legally recognized relationship of trust and confidence or has a relationship of dominance over that person
Adjudicate
to settle by judicial decree
Quasi-Contract
the doctrine by which the courts imply, as a matter of law, a promise to pay the reasonable value of goods or services when the party receiving such goods or services has knowingly done so under circumstances that make it unfair to retain them without pay
Public Policy
A principle that no person or government official can legally perform an act that tends to injure the public
Regulatory License
the purpose of the legislation is to protect the public against dishonest or incompetent practitioners; state-mandatory testing or educational requirements for this type of license; because it is in the public's interest, the unlicensed person will not be
Revenue-Raising License
a means of collecting money rather than as a means of protecting the public; failing to obtain this kind of license will not preclude them from enforcing an otherwise valid contract for those services
Ancillary Covenant Not to Compete
(Noncompetition Clause or "Noncomplete") a formal agreement asking former employees not to perform similar work within a designated area for a specified amount of time after leaving their original employer
When courts will and will not enforce ancillary covenants:
Will enforce:
-If part of a greater legitimate agreement
-If no greater than necessary in scope, time, and geographic area
-If bears a reasonable relationship to a legitimate interest owned to the party who drafted that clause
Will NOT enforce:
-If it is
Confidentiality/Nondisclosure Agreements
an agreement that prevents an employee from divulging or using certain information gained during his/her employment
Nonsolicitation Agreements
an agreement that forbids an employee from soliciting the employer's employees, clients, or customers
Exculpatory Clause
("Release" or "Liability Waiver") a provision in a contract that purports to relieve one of the parties from tort liability
An exculpatory clause is generally unenforceable UNLESS:
the clause is clearly written and readily visible
An exculpatory clause is generally unenforceable when:
-It attempts to exclude an intentional tort or gross negligence
-The affected activity is in the public interest, such as medical care, public transportation, or some essential service
-The parties have greatly unequal bargaining power
Unconscionability
Unusually harsh, grossly unfair, or "shocks the conscience of the court"; when something is judged unconscionable, a court will refuse to allow the perpetrator of the conduct to benefit
Contract of Adhesion
a contract that heavily restricts one party while leaving the other free; implies inequality in bargaining power
Procedural Unconscioncability
refers to the unconscionability in the conditions of contract formation; results from inequalities between the parties as to age, intelligence, and relative bargaining power; meaning that both parties did not freely consent to all terms proposed; the doct
Substantive Unconscionability
refers to the unconscionability in the terms of a contract; the objective terms of the contract are unfair; results when contract terms are excessively oppressive or harsh; the doctrine of unconscionability permits a court to refuse to enforce a contract
5 Contracts that are Voidable
1. misrepresentation
2. fraud
3. mistake
4. economic duress
5. undue influence
Misrepresentation
an assertion about a fact material to a contract that is not in accordance with the truth and upon which the party actually and justifiably relies
Remedy for Innocent Misrepresentation
Rescission
Fraud
misrepresentation knowingly made (scienter) with intent to deceive
Remedy for fraud (negligent misrepresentation)
Rescission or damages (California law and the UCC allow the injured party to select both)
Necessary Elements of Fraud
1. INTENTIONAL misstatement/untrue assertion of past or existing fact
2. actually relied upon
3. reliance was reasonable and justifiable
Necessary Elements of Misrepresentation
1. misstatement/untrue assertion of past or existing fact
2. actually relied upon
3. reliance was reasonable and justifiable
4. fact misstated was material
Modern Law on Innocent and Negligent Misrepresentation
One has no duty to investigate the truth of a fact represented to him/her and will not prevent rescission unless he/she failed to comply with duty of good faith and reasonable standards of commercial dealing (GROSSLY negligent)
Economic Duress
exertion of wrongful coercion that induces another person to enter a contract (the threat must be one that law considers improper)
Improper Threats/Claim of Duress
threats to commit a tort or a crime, file an unfounded criminal or civil lawsuit, or breach a contract without justification
Is a statement of opinion generally grounds for fraud?
Generally, no. The misrepresentation must be of a past or existing fact. Opinions, sales talk, and statements about the future do not count. The exception is where a fiduciary or expert is hired.
Fiduciaries
Specially recognized legal relationship of trust and confidence that gives rise to special duties which include: higher duties of disclosure toward the person whose interest they are supposed to be serving and their opinion may be grounds for a fraud clai
What are the 3 categories of people who may not have the capacity to contract? What happens to these contracts?
1. minors
2. people suffering from mental illnesses
3. intoxicated persons
The contracts become VOIDABLE
Prior Adjudication
occurs when a family member has petitioned the court to make a determination of mental incompetence of the affected person, if the court agrees, then that person's contracts from date of entry of judgement on, are VOID
Disaffirm
a party's exercise of his power to avoid a contract entered before the party reached the age of majority; a minor's cancellation of his contract
What are some contracts that a minor CANNOT disaffirm?
Marriage contracts, alimony agreements, student loans, medical insurance contracts, entertainment contracts, etc.
How can a minor disaffirm a contract?
Through words (oral or written), conduct, or a combination of both
General common law rule regarding the period during which a minor can disaffirm a contract:
A minor can disaffirm a contract before age of majority and up until a reasonable time after reaching the age of majority, although some states specify this period of time (i.e. 6 months) in statutes
Exception: contracts for the sale of real estate cannot
Minor's Obligation Upon Disaffirmance
1. return the consideration if available
2. determine if the consideration was a necessary
3. determine whether or not the minor is also liable for depreciation or destruction
Necessaries
that which is reasonably necessary for a minor's proper and suitable maintenance, in view of the income level and social position of the minor's family
Examples: food, clothing, shelter, and sometimes transportation
If the disaffirming minor has purchased something from the other party that is considered to be a necessary:
the minor is liable for the reasonable value of what he has actually received
If the disaffirming minor has purchased something from the other party that is considered to be a non-necessary:
the minor gets a full refund
*
To promote the fair treatment of innocent adults, a growing number of states require that minors pay for expenses like depreciation or repair costs
*
Ratification by minors
Minors can ratify contracts only after he/she reaches age of majority, through any way that shows his intent to be bound by the contract (cannot later be disaffirmed)
Emancipate
a parent's waiver of his rights to control and receive the services of his minor child; same laws apply to unemancipated minors
When a minor lies about their age...
Makes no difference in some states. In others, makes him liable in tort for deceit or precludes him for asserting his minority as a claim or defense
Capacity
the ability to incur legal obligations and acquire legal rights
Determining Mental Capacity
Unless there is prior adjudication, the courts will examine the individual's state of mind at the exact moment he entered the contract. If lucid, the contract is valid and enforceable. If not, the contract is voidable.
Tests:
1. cognitive test (capable of
Mentally Ill Person's Duties on Disaffirmance
Upon disaffirmance, the incapacitated person must return any consideration that remains in his possession (similar to minors)
What happens to contracts for intoxicated persons?
Persons who are SO intoxicated that they do not understand the nature and consequences of a contract are treated as lacking capacity to contract. If the other party had reason to know he was unable to understand the contract or act in a reasonable way due
Illegality
unlawfulness by virtue of violating some legal statute
Illegal agreements are generally considered:
VOID or unenforceable
ex: courts won't give remedy for buying fake cocaine
Exceptions to hands-off policy on illegal agreements:
Exception given when it is in the public interest to do so...
-Where a party has rescinded the contract prior to the doing of an illegal act, he/she may be able to get damages
-Where the parties are not parti delicto (equally guilty) but, in fact, there i
Statute of Frauds
requirement that certain kinds of contracts be memorialized in a signed writing with sufficient content to evidence the contract; a contract that fails to comply is UNENFORCEABLE
Contracts Covered by the Statute of Frauds
- Collateral
- Land
- Year
- Sale of goods $500 or more
- Executor's Promise
- Marriage
Statute of Frauds applies only to:
executory contracts. if an oral agreement is fully executed, the need for a writing becomes totally irrelevant
Collateral Contracts
A contract in which one person promises to pay the debt or obligation of another person
Statute of Frauds Exception
Main Purpose or Leading Object Rule, Full Performance by the Vendor, Part Performance (Action in Reliance) by the Vendee
Main Purpose or Leading Object Rule
If a person's primary purpose in promising to pay the debt of another is to benefit himself, the promise does not need to be evidenced by writing
Full Performance by the Vendor
An oral contract for the SALE OF LAND that has been completely performed by the vendor (seller) is enforceable without a writing
Part Performance (Action in Reliance) by the Vendee
When a vendee (purchaser of land) does an act in clear reliance on an oral contract for the SALE OF LAND and enforcement of the contract is the only way to prevent injustice, the oral contract is enforced with specific performance
Specific Performance
A remedy whereby the court orders the breaching party to perform his contract
Bilateral Contracts that Cannot be Performed within One Year
A bilateral, executory contract that cannot be performed within in one year from the day on which it comes into existence, guards against faulty or willfully inaccurate recollection of long-term contracts
Exceptions: a contract that has been fully perform
Sale of Goods for $500 or More
Contracts for sale of goods $500 or more must be in writing to be enforceable. Also applies to modifications of existing sales contracts if $500 or more.
Executor's Promise
If an executor, acting in her capacity as a private individual rather than in her representative capacity, promises to pay one of the descendent's debts out of her own funds, the contract must be in writing to be enforceable
Marriage as Consideration
Statute of Frauds does not apply to agreements that involve only mutual promises to marry, but can be used for business-like marriage contracts
ex) marriage for property, prenuptial or antenuptial agreements, etc
Writing Requirements for Statute of Frauds
Most states require only a memorandum of the parties' agreement; they do not require the entire contract to be in writing
Memorandum
The memorandum must provide written evidence that a contract was made, but it need not have been created with the intent that the memorandum itself be binding. The memorandum need not be made at the same time the contract came into being. If a memorandum
Rules for Memorandum: Contents under the UCC, Signature Requirement, and Several Writings
UCC: The writing must be sufficient to indicate that a contract for sale has been made b/w the parties, but can omit or incorrectly state a term agreed upon (but not enforceable for more than the quantity stated)
Signature Requirement: the memorandum must
UCC: Alternative Means of Satisfying the Statutes of Frauds in Sale of Goods Contracts
- Confirmatory memorandum b/w merchants (if received w/ appropriate info and not objected to w/in 10 days)
- Part payment or part delivery (only for the quantity of goods that have been delivered or paid for)
- Admission in pleadings or court
- Specially
Promissory Estoppel and the Statute of Frauds
When one of the parties would suffer serious losses because of her reliance on an oral contract, the other party is estopped from raising the statute of frauds as a defense
The Parol Evidence Rule
Says "now that the parties have entered into a mutually signed written contract, what kind of evidence will be allowed in front of the jury for the purpose of contradicting the terms of the that writing?
When can the Parol Evidence Rule be used and not used?
Cannot be used:
- when it provides that evidence of written or oral statements made prior to or during the signing of a written contract to add to, alter to, or vary the terms of the written contract.
Can be used:
- when it gives evidence of subsequent ag
Merger Clause/Integration Clause
Specifically state that the writing is the the complete statement of the parties' agreement
Condition
an uncertain future event that affects a party's duty to perform
Condition Precedent
if x, then y"; event must occur before duty is performed; if the event never occurs, then there is no duty to perform
Concurrent Condition
when the contract calls for the parties to perform at the same time, each person's performance is conditioned on the performance or tender of performance by the other
Condition Subsequent
for so long as" or "provided that"; duty will continue on, until and unless the event mentioned actually occurs and discharges any further duty to perform
Express Condition
condition that is specified in the language of the parties' contract
ex) satisfaction of third parties or personal satisfaction
Implied-in-fact Condition
not specifically stated by the parties, but is implied by the nature of the parties promises
Constructive Condition
conditions that are imposed by law rather than by the agreement of the parties
Excuse of Conditions
Excuses:
- the occurrence of the condition has been prevented or hindered by the party who is benefited by the condition
- waiver
- estoppel
Waiver
occurs when a person whose duty is conditional voluntarily gives up his right to the occurrence of the condition
Estoppel
when a person whose duty is conditional leads the other party to rely on his nonexistence on the condition
Strict Performance
standard of performance that required virtually perfect compliance with the contract terms
Substantial Performance
applies to duties that are difficult to perform without some deviation from perfection if performance of those duties is not an express condition
Effect of Material Breach
injured party has the right to withhold his own performance
Effect of Nonmaterial Breach
may sue for damages caused by breach, but must also continue with contractual duties- cannot cancel contract
Consequence of Late Performance
if parties expressly state "time is of the essence" or "vital", late performance constitutes a material breach
Anticipatory Repudiation/Breach
occurs when the promisor indicates before the time for his performance that he is unwilling or unable to carry out the contract; constitutes a material breach of contract that discharges the promisee from all further obligation under the contract
Recovery by a party who has committed material breach
1) Quasi-Contract- recover reasonable value of any benefits conferred
2) Partial Performance of a Divisible Contract- recover at contract price for the part he did perform
Excuses for Nonperformance
Impossibility and Impractibility
Impossibility
examples) illness or death of promisor, supervening illegality, or destruction of the subject matter of the contract
Impracticability
a promisor must be able to establish that the event that makes performance impracticable occurred w/o his fault and the contract was made with the basic assumption that this event would not occur
Grounds for Discharge
mutual agreement, accord and satisfaction, waiver, alteration, statute of limitations, decree of bankruptcy
Accord and Satisfaction
accord- an agreement whereby a promisee who has an existing claim agrees with the promisor that he will accept some performance different from which was originally agreed on
satisfaction- performs the accord
Types of Contract Remedies
1) legal remedies (money damages)
2) equitable remedies
3) restitution
Legal Remedy/Remedy at Law
(most common) award of money damages that will compensate the injured party for his losses
Equitable Remedies
those remedies that had their origins in courts of equity rather than in courts of law (specific performance and injunction)
Restitution
requires the defendant to pay the value of the benefits that the plaintiff has conferred on him
Interests Protected by Contract Remedies
Expectation interests
Limitations on Recovery of Damages in Contract Cases
1) a party can recover damages only for those losses that he can prove with reasonable certainty
2) a breaching party is responsible for paying only those losses that were foreseeable to hm at the time of contracting
3) plaintiffs injured by a breach of c
Compensatory Damages
damages recovered in payment for actual injury or economic loss (does not include punitive damages)
Consequential Damages/Special Damages
compensate for losses that occur as a consequence of the breach of contract, occur because of some special or unusual circumstances
Incidental Damages
compensate for reasonable costs that the injured party incurs after the breach in an effort to avoid further loss
Nominal Damages
very small damage awards that are given when a technical breach of contract has occurred
Liquidated Damages
the parties to a contract expressly provide in their contract that a specific sum shall be recoverable if the contract is breached
Punitive Damages
damages awarded in addition to the compensatory remedy that are designed to punish a defendant for particularly reprehensible behavior and deter similar future behavior
Equitable Remedy
granted when money damages alone or not adequate to fully compensate for a party's injuries, can be granted alone or in combination with a legal remedy, primary equitable remedies for breach of contract are specific performance and injunction
Specific Performance
an equitable remedy whereby the court orders the breaching party to perform his contractual duties as promised, only available when the injured party has no adequate remedy at law
Injunction
an equitable remedy that is employed in many different contexts and is sometimes used as a remedy for breach of contract, can be invoked when a breach has merely been threatened, only available when the breach or threatened breach is likely to cause irrep
Mandatory Injunction
a court order requiring a person to do something
Negative Injunction
a court order requiring a person to refrain from doing something
Specific Restitution
the defendant is required to return the exact property conferred on him by the plaintiff
Substitutionary Restitution
a court awards the plaintiff a sum of money that reflects the amount by which he benefited the defendant