Wednesday March 26, 2003 Contracts Day One Notes
What is a Contract: A legally enforceable agreement between 2 or more parties. Legally enforceable separates from a promise. A contract can be legally enforced.
The Core of a K consists of a set of mutual promises; promises define mutual rights and obligations between parties.
Breach if one party meets their contractual obligations and the other does not, that party is in breach and the non-breaching party is entitled to relief. Types of relief vary.
Offer: Express manifestation of intent to form a bargain with express articulation of the essential terms communicated to offeree with certain definite terms.
Agreement Process the manifestation of mutual consent by words, actions or a combination thereof.
- Express written or recorded form
- Implied by conduct
- Quasi implied in law, a device created by common law in order to avoid unjust enrichment of a person who has received and retained valuable goods and services where it is socially reasonable to expect payment for those goods and services.
Requisites of a K
1. A real mutual assent of two or more
2. competent parties, in a
3. form required by law, supported by
4. a valid consideration, and having a
5. valid purpose and a valid subject matter.
Elements of a Contract
- Offer
- Express manifestation of intent
2. Communicated to Offeree
3. With certain, definite terms that are defined
- Intent Would reasonable person believe it? Has an opportunity been extended. The issues of intent would include:
· State of mind
· Social setting
· Preliminary negotiations
Communication of Essential Terms failure to communicate the essential terms renders the proposal to indefinite to constitute a valid offer regardless of the intent of the offer.
Essential Terms
1. Parties
2. Subject Matter
3. Time of Performance
4. Price
Duration of Offer
The offer lasts until; the offer is free to revoke at any time until or unless it is accepted and lasts until it is rejected. Duration of offer can be unvalidated by an operation of law:
Example: destruction of the subject matter or suveneing illegality of the subject matter.
Termination of Offer:
- Rejection
- Revocation
- Varying terms (counter-offer)
- Operation of Law
The Legal Significance of the offer
The offer creates in the offeree the capacity to form a bargain by a timely and effective acceptance.
When is valid acceptance made? It is called the Deposited Acceptance Rule, in common law it is called the Mail Box Rule. A K is formed upon the dispatch of offerees acceptance by any reasonable channel.
ACCEPTANCE
The offerees assent to the terms of the original offer, communicated to the offeror at a time prior to revocation or termination of the offer.
What is effective acceptance
1. a person must be an offeree to accept agency who represents another/parties must know the principals and the agency relationship or else there is no legitimate offer made.
2. A mistake in the identity of the offeree may invalidate the offer.
3. Offeror must accept agreement with the terms of the offer expressed in certain terms
Formation Types of Agreemens
Bilateral - offer and acceptance each contain a promise of performance that is favored by law.
Mail box rule
Unilateral acceptance by performance or non-performance. Offer that specifies acceptance is to take the form of conditions of some act or forbearance. This is the exception to the rule.
Ambiguity If a word or phrase is subject to one or more interpretations creating equally reasonable expectations in both parties, it is fatal to formation. If the offorer know what the term means, ambiguity is not stricken. Taking advantage of ambituity does not terminate a K. Mistake such as mechanical miscalculations, may be a defense to formation of a K. land surveys miscalcs are not a remedy. However, errors in business judgment are no defense
We do not have the negotiating power to negotiate contracts with retail salesman.
You limit your rights to the courts and place yourself under binding arbitration clauses in accordance to the terms of the contracts.
We have equal rights and our rights have been limited to the courts.
The courts are very unfriendly
Adhesion contract signing off on numerous K obligations
Diminished bargaining capacity
Ambiguous terms in the K that the more sophisticated terms
Consideration:
Benefit or benefits of the bargain. Legal detriment is necessary for formation from both parties.
Detrimental Reliance (below)
Economic adequacy is not an issue. So long as any bargain for element can be identified on either side of the exchange would become valid consideration.
What is not consideration:
- Past consideration what prompts promissor is a benefit conferred or given by promise in the past.
- Moral obligation or honor the bargain element is missing.
- Gifts the bargain element is missing.
- legal duties there is no bargain if the promossor or promissee is subject to a legal duty to perform an act (I will let you do this if you pay child support)
- illusory promises if one party retains the right to perform or not to perform, there is a lack of consideration, this is a one sided bargain.
CONSIDERATION
Benefit of the bargain, what one party co a K will receive from the other party of the K in return for performance of the K obligations, often referred to as legal detriment necessary for formation from both parties. .
Past consideration is not valuable.
- Legal Detriment is necessary for formation between both parties
- Detrimental reliance may be a cause of action.
- Economic adequacy is not an issue: so long as any element is bargained for in legal detriment courts are disinterested in legal or economic gain.
Valid Consideration as long as any bargain for element can be identified by either side of the exchange.
Each party must give and receive, bargain for consideration
Promissory Estoppel deals with the impact of detrimental reliance on a breached promise, not the breached promissor: essence of an Estopoel claim is the promissees dr on a promisors promise An action for breach of K is precluded because there was no bargain. Will the breach of promise leave the promisee worse off than before the promise was ever given provided that the detrimental reliance was reasonably foreseeable to promisor. So the promisor may be held pliable for promises, expense or losses not withstanding the absence of valuable consideration.
Reliance on that promise to a partys detriment doesnt mean that we have to rely on the terms of that promise. term so K are not enforceable. An action for breach of K is precluded because there was no bargain supporting promisors undertaking.
Contractual Capacity of the Parties- doesnt necessarily preclude the formation of the K but it does result in the offeree having an election to avoid his obligations by raising defense lack of capacity.
1. minors may form contracts but their obligations are voidable.
2. mental incompetents
Dissaffirmance may be obtained before or after K
· Avoidable even after K is wholly executed
· Unaffected by promises to do so. Example: party lies about their age
· May not be used by a third party, however,
Disaffirmance may void a wholly executed K. minor may request restitution
Right to disaffirm may not be executed by a third party. Legal rights are held by parents.
Ratification after attaining legal majority the minor may agree to be bound by the terms of the K formed during his minority. This can be accomplished expressly by words or deeds or a combination of both which reasonably signifies the decision of the adult to abide by the terms of the agreement.
Silence with retention of subject, the courts are divided but they are leaning towards ratification if you retain the subject matter. Mental competence is voidable if promises from persons suffering from mental competence.
- Infirmiity is based on mental and cognizant behavior: question is are they in control of their behavior.
If one of the parties lacks the ability to appreciate the nature and consequences at the time of the transaction a valid K is formed.
Incapacity need not be permanent. The incapacity may not be permanent and the disability may be self-induced.
Legality of the subject matter if the subject matter of the bargain or the participation of one or both of the parties is illegal there are important distinctions based on the time and the nature of the offense.
Time and nature of the offense: the effect of the illegality depends on whether the illegality exists prior to the formation of the K. This destroys the K if the illegality arises after the offer is made but prior to acceptance of that offer, the offer is rejected by operation of law. If the illegality arises subsequent to formation, but prior to performance, we have a valid K, both parties are discharged on a theory of objective impossibility.
If the illegality exists prior to the attempted formation, the bargain is void. Neither party need see it as any source of legal of obligation or legal right.
Two types of time: in se subject matter is intrinsically evil.
Test is whether any reasonable person could detect the intrinsic wrongfulness by merely consulting personal consciousness.
Illegality is malum in se
The courts will refuse to intervene regarding for any purpose to enforce any legal obligations of the K
Malum prohibitum matters that are regulated for the convenience of society but are intrinsically evil.
If both parties are aware of the illegality prior to the formation, their conscious defiance of the law precludes any recovery for damages.
If neither party of aware of the illegality, they may proceed to If only one party is aware, the innocent party may be entitled to reimbursement in quasi-contract.
1. Quasi-K: A quasi-contract is not a contract. It is an obligation imposed by law which rests on the equitable principle that one should not be unjustly enriched
Monday March 31, 2003 Contracts: Discharge of Obligations
Real Defense: renders contracts void
Personal defense: renders the obligations of the victim void able at his election.
Failures of Contractual Intent
Proper contractual intent must be present for formation of a contract. Defenses are available based on deception or coercive formation tactics (duress or fraud)
Fraud in the real factum (Real Fraud)
- Deceptive strategy which results in a contract not contemplated by the victim.
- Subject to a real defense = contract is void.
Conditions to determine the time and order for the performance of promises
Fraud in the Inducement (gives rise to personal defense)
- Victim is aware contract is in contemplation but consent is seduced by lies or deliberate half truths. (e.g. used car)
- Misrepresentation of a fact material to the bargain at formation state (offer
- Misrepresentation of a fact by a victim in which named person of reasonable intelligentce was not known.
- Misrepresentation must be intended to deceive and induce victim into the contract. Burden with alligator to prove.
- Victim must have relied on the misrepresentation of the other party when entering the contract(K).
- Victim relied to his or her detriment
Fraud In the Execution: Victim is aware of contract. Fraud takes place when oral agreement of the partners is committed to writing. E.g., Victim didnt read contract. Some courts refuse recovery for the purpose of demonstrating importance of reading documents before signing.
Duress: No Contract if induced by duress.
Duress: Coercive force used or threatened against the victims to induce apparent consent.
Physical duress: Threats or acts of physical harm against victim or 3rd party.
Economic duress: Result in a threat or act against the victims property or business interests that create pressure in a victim.
Mental duress: Referred to as undue influence
The deployment of over-persuassive bargaining strategies designed to overcome the will without convincing the judgment of the weaker party.
- Discussing at inappropriate or unusual time
- Consummation of transaction at unusual time
- Insistence transaction be oncluded at once
- Extreme emphasis or disadvantages of delay
- Use of multiple persuaders example: good cop/bad cop
- Denied assistance of advisors example: lawyer, accountants, patients
- Adhesion Contract: Contract attached to a contract. Are allowed significantly
- Affects the rights by oppression
- Terms grossly out of line with market expectations or which seek to curtail protections otherwise accorded consumers
Discharge Obligations
Breach failure to fulfill contractual obligation
Discharge of Obligations: Conditions to determine the time and order of the performance of promises in a contract
The longer the time gap between contract and delivery of performance the greater the degree of assumed risk.
In order to shift the risk conditions to determine the time and order for the performance of promises in a contract.
Adhesion Contract Contract attached to a contract. Are allowed significantly
- Affects the rights by oppression
- Terms grossly out of line with market expectations or which seek to curtail protections otherwise accorded consumers
Making promises subject to conditions precedent.
- Condition precedent
- Sets the time and the order of performance:
- Established who is entitled to damage remedies as a result of this condition.
- Court can determine who had a present duty of performance at a given time. Any contingency (condition) which must either be satisfied or excused before liability on the promise becomes a present duty.
- No impact on maturing the duty of the other party
- Condition Concurrent Is identical to condition precedent with some contingency that must be satisfied or excused before liability on the promise becomes a present duty.
· Scheduling of the respective performance of the parties.
· Matures the duties of both parties simultaneously
Both parties are capable of performing at the same under the conditions of the K. The court can demand compliance in order to compel mutual performance. The impact of the Condition Concurrent is identical to The difference is in regard to the scheduling of the respective performance of condition precedent. It is some contingency that must be satisfied or excused before liability on the promise becomes a present duty. The difference is in regard to the scheduling of the respective performance of the parties. A condition precedent has no impact on maturing the duties of the other party, whereas a condition concurrent matures the duties of both parties simultaneously. K needs to set a schedule of performance. Example: waiting for check to clear in order to start repair work on a car. Court can call for the mutual performance, mutual tenders in order to compel the mutual obligations of the parties simultaneously
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- Condition Subsequent Extinguishes the duty (rare) what had, until the condition was triggered, been a present duty of performance. I am liable to perform this obligation until clause is usually located in an insurance policy.
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Sources of Conditions: |
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Express Condition |
A partys deliberate promise designed to allocate risk. |
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Implied in Fact |
Based on the intentions of the parties, though unexpressed in the language of the bargain. |
Conditions that arise by physical or moral inference from what the parties have expressly promised. |
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Implied in Law (constructive conditions |
Constructive conditions to fix the order of performance when the express terms of the bargain have not settled the question |
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Excused conditions:
Prevention Attemps by party at advantage to prevent condition from occurring.
Waiver Voluntary relinquishment of the condition.
Anticipatory Breach Defiant and definite renunciation of willingness to be bound by contract duty prior to satisfaction of a condition. The condition is excused. Party is in breach.
Impossibility of Performance of Condition Precedent. Often a party being sued for non-perfomance of his duty defends on the ground that a condition precedent to his duty has not been performed. We have seen that when the duty to perform is subject to a condition precedent, there can be no breach of duty unless the condition is performed. But it the performance of the condition precedent excused where it has become impossible? A building contract provides that payment by the owner shall be made upon the production of an architects or engineers certificate that the work was done in accordance with contract, plans, and specifications. Due to the death, insanity, or disability of the architect or engineer, it is impossible to produce the certificate. It is true that it is of paramount importance to the owner that the building be erected as agreed, but the work has been properly done is available, it is sound to dispense with the requirement of the certificate rather than to deprive the contractor of payment.
In many cases, the performance to be rendered as a condition precedent has been bargained for by the other party. The duty to perform the condition precedent has been bargained for by the other party.
Preventive Action: attempt by that party to prevent the condition from occurring.
Anticipatory breach breach before the breach occurs. defiant and definite renunciation of willingness to be bound by the contract duty prior to satisfaction of a condition. The condition is excused and the party is in breach.
Waiver voluntary relinquishment of the condition.
Breach a disappointment of the reasonable expectations created by the terms of the K.
Present Breach:
· If a K promise is unconditional for all conditions have been satisfied or refused, a parties failure to perform constitute a breach.
· A defective rendition of performance also constitutes a breach.
Material Breach (major, total breach) failure or refusal to perform extinguishes the expectations of the aggrieved party.
This is a question of fact.
Legal Question: Whether the defect of performance of the aggrieved party is a question of fact.
Aggrieved
- effect of a material breach:
- executory duties of aggrieved party are discharged excused
- creates duty to mitigatge
Effects of a Material Breach
- The executory duties of the aggrieved party are excused
- Creates a duty to mitigate (take self help steps)
- Aggrieved party may sue to recover expected interest for the loss of the bargain.
Minor/Partial Breach: Fault a defect in promisors promise(s) that does not occur.
-aggrieved party may sue to recover damages (the expectation interest for the lost of the bargain.
Effects of Minor/Partial Breach
- effect: substantial performance may mature an obligation to render counter performance
- contract duties of aggrieved party are not discharged.
- Aggrieved party may bring action for damages to protect his expectations/interest.
Remedies:
- Restitution Interest
- Reliance Interest
- Expectation Interest
Damages: Compensates the other party not punish
- Limitations: to protect breaching party
1. Consequential
2. Forseeable generally/specifically
3. Unavoidable
4. Certainty
Equitable Relief:
Only available when money is not an adequate remedy/relief.
- Specific performance: Breaching party is ordered by the court to literally carry out the terms of the broken bargain.
- Injunctive relief
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Parol Evidence |
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Contractual Provisions |
- Statutes of Fraud: 1667 English law requires certain types of contracts be in writing in order to be enforced.
- Agreement which by its terms is nto to be performed within one year form the date of formation.
- Promise to answer for the debt of another
- contracts and consideration of marriage
- contracts for interests in real property
- contracdt for the sale of good of $50 or more (UCC)
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Typical Contract Provisions |
- Duties and obligations: detailed description of the duties and obligations of the parties and deadlines of the performance.
- Representation and warranties: legal promises that certain facts are true. Typical ownership of subject matter (e.g. copywrite agreement)
- Termination clauses: Clauses that ensure that one or both parties have the right to terminate the contract under certain circumstances. |
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Describe breach of contract events |
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Describe methods of giving notice of the exercise of termination rights and whether there is an opportunity to cure before the contract is terminated. |
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Remedy Clauses: |
State the rights of a non-breaching party in the even of a breach. |
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Specific performance is not found by law but we can contract for the financial amount usually in the sale of goods. |
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Arbitratioin clause and Mediation Clause: |
Mediatioin: organized settlement agreement |
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Merger Clause |
Exists to avoid parole evidence clause language within the K states: Written docume t contains the entire understanding of the parties. |
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Types of Drafting Contract: |
1. Write it down: all contracts should be written to protect both parties including all promises
2. Remember Murphys Law what can go wrong will go wrong.
- Consider all possibilities
- What could make performance a problem
- Insert conditions to account for that.
Note: difficulty in performing doesnt excuse
3. Dont leave anything out
- Include all terms of oral agreement
- Dont rely on promise of the party
- Dont leave anything out
4. Define ambiguous terms
5. Be careful using terms of art, a particular word that has legal meaning
6. use terms consistently; use one terminology for the thing
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Minor Breach (Partial Breach)
Fault or defect in the promissors notice
Effect: substantial performance may mature the obligation to render counter performance.
Contract duties on the aggrieved parties arent discharged.
The aggrieved party may bring actions for damages to protect his expectation interest.
Wednesday April 2, 2003-Contracts: Remedies
Note: these notes are unedited and will be corrected by Saturday April 5, 2003 at 12pm.
neburns@netcarrier.com
Exam due April 9, 2003
Remedies:
- Restitution Interest
- Reliance Interest
- Expectation Interest
Damages compensate the other party, not punishment
- Limitations to protect breaching party
1. consequential
2. foreseeable generally or specifically
3. Unavoidable
4. certainty must be illustrated
Equitable Relief only available when money is not an adequate remedy. Not available as a choice to force a party to perform or provide monetary relief. We must prove the inadequacy of monetary damages.
- Specific Performance breaching party is prescribed by the courts to literally carry out the bargain.
- Injunctive Relief enjoins the breaching party from disposing of the subject matter in any manner other in compliance with the terms of the contract.
Parole Evidence
If parties of a K have reduced that agreement to a writing, we have a K.- intended to represent the full and final expression of their bargain, then any evidence whether or oral of prior or contemporaneous promises or understandings is legally irrelevant if it would vary, add to or contradict the terms of that right
Contractual Provisions
- State of Frauds certain types of K must be in writing in order to be enforced. If the subject matter of that agreement falls into that category:
a. Agreement w/o performance for one year from date of formation
b. A promise to answer for the debt of another. (co-signer)
c. Contract in consideration of marriage
d. Contracts for interest in real property
e. K for the sale of goods of $500 or more (UCC concerns)
Typical Contract Provisions
- Duties and Obligations detailed description outlined and deadlines for performance
- Representations and warranties legal promises that certain facts are true. Typical: ownership of the subject matter
- Termination Clauses clauses that ensure that one or both parties have the right to terminate the K under certain circumstances.
- Remedy Clauses
- Arbitration Clauses and Mediation Clause
- Merger clause to avoid parole evidence problems (evidence outside the K) states that the written documents represents the entire agreement of the parties.
Tips for Drafting
a. Write it Down
b. Remember Murphys law
c. Dont leave anything out
d. Define ambiguous terms
e. Be careful using terms of art
f. Use the terms consistently
UCC Uniform Commercial Code
Represent a body of statutory law that governs important categories of Ks, primarily :
- Article II Sales of Goods
- Article IX Secured Transactions (collateral)
Restatement is a document
When the terms of a K are set forth in a writing which the parties regard as the complete agreement between them, that is, an integration, evidence of prior agreements, statements, promises, or negotiations, whether oral or in writing is not admissible for the purpose of contradicting or adding to or varying the written K.
Whether the writing is intended to operate as the complete agreement is a questions of fact which may be determined by resort to any material evidence even if it be oral. A determination that it is the complete contract has the effect of nullifying and discharging any inconsistent oral or written agreements, understandings, or statements that previously took place, or oral agreements made at the same time.
If language in the integration is ambiguous, the court must represent it, and the parole evidene rule does not prohibit any relevant evidence of understandings or statements for that purpose. Such evidence does not vary or contradict the integration; it merely explains it. Also, evidence tending to prove lack of consideration, fraud, duress, undue influence, illegality, or mistake is not barred by the rule. Such evidence is offered to show that integration is either void or voidable, rather than to vary or contradict it. The rule does not prohibit evidence justifying a recession.
The following are the unedited notes from above.
Proper contractual intent must be present for formation of a contract. Defenses are available based on deception or coercive formation tactics (duress or fraud)
The deployment of over-persuassive bargaining strategies designed to overcome the will without convincing the judgment of the weaker party.
In order to shift the risk conditions to determine the time and order for the performance of promises in a contract.
Making promises subject to conditions precedent.
Impossibility of Performance of Condition Precedent. Often a party being sued for non-perfomance of his duty defends on the ground that a condition precedent to his duty has not been performed. We have seen that when the duty to perform is subject to a condition precedent, there can be no breach of duty unless the condition is performed. But it the performance of the condition precedent excused where it has become impossible? A building contract provides that payment by the owner shall be made upon the production of an architects or engineers certificate that the work was done in accordance with contract, plans, and specifications. Due to the death, insanity, or disability of the architect or engineer, it is impossible to produce the certificate. It is true that it is of paramount importance to the owner that the building be erected as agreed, but the work has been properly done is available, it is sound to dispense with the requirement of the certificate rather than to deprive the contractor of payment.
In many cases, the performance to be rendered as a condition precedent has been bargained for by the other party. The duty to perform the condition precedent has been bargained for by the other party.
Anticipatory breach breach before the breach occurs. defiant and definite renunciation of willingness to be bound by the contract duty prior to satisfaction of a condition. The condition is excused and the party is in breach.
Waiver voluntary relinquishment of the condition.
If a K promise is unconditional for all conditions have been satisfied or refused, a parties failure to perform constitute a breach.
A defective rendition of performance also constitutes a breach.
-aggrieved party may sue to recover damages (the expectation interest for the lost of the bargain.
Contract duties on the aggrieved parties arent discharged.
The aggrieved party may bring actions for damages to protect his expectation interest.
