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234 Cards in this Set
- Front
- Back
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Contract Law(Intro)
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1. Distinguishes between morally binding and legally binding promises.
2. Must provide rules as to what contract terms will be enforced and which promises must be kept. |
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Sources of Contract Law
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The common law governs all contracts except when it has been modified or replaced by statutory law, such as the Uniform Commercial Code(UCC), or by administrative agency regulations.
ex: Services, real estate, employment, and insurance governed by common law, while sale and lease of goods governed by UCC. |
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Function of contracts
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1. Contractual relationships are intertwined with modern life.
2. Contract law is designed to provide stability and predictability to buyers and sellers in the marketplace 3. Assures the parties to private agreements that the promises they make will be enforceable 4. Provides a legal framework(duty and good faith aren't sufficient) for the existence of a market economy, in which it ensures that a party of a contract complies with a promise or receives relief. |
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Freedom of Contract and Freedom from Contract
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1. Freedom of contract is protected in Article 1, Section 10, of the U.S. Constitution.
2. U.S. courts rarely interfere with contracts that have been voluntarily made, but there are many exceptions(such as illegal bargains). 3. Freedom from contract is provided by these exceptions to protect persons who may have been pressured into making contracts unfavorable to their interests. |
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Valid Contract: 4 Elements
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1. Agreement
2. Consideration 3. Contractual Capacity 4. Legality |
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Agreement(Element of valid contract)
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An agreement to form a contract includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer.
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Consideration
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Any promises made by the parties must be supported by legally sufficient and bargained–for consideration.
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Contractual capacity
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Both parties entering into the contract must have the contractual capacity to do so, meaning the law must recognize them as possessing characteristics that quality them as competent parties.
Short ver: Parties must be competent(mentally) to enter a contract. |
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Legality
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The contract's purpose must be to accomplish some goal that is legal and not against public policy.
short ver: contract can't be illegal |
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Contracts may not be enforceable if these requirements are not met:
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1. Voluntary Consent
2. Form |
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Voluntary consent
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The apparent consent of both parties must be voluntary.
Contract may not be enforceable if formed as a result of fraud, mistake, or duress. |
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Form(Contract)
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The contract must be in whatever form the law requires, such as in writing.
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Types of Contracts
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1. Formation
2. Performance(executed contracts and executory contracts) 3. Enforceability |
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Classifications based on contract formation
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1. Bilateral
2. Unilateral 3. Formal 4. Informal 5. Express 6. Implied |
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Revocation of offers for unilateral contracts
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1. Problem arises when promisor attempts to revoke the offer after the promisee has began performance before the act has been completed.
2. Offers are normally revocable, but once performance has been substantially undertaken, the offeror cannot revoke the offer because of the harsh effect it can have on the offeree. |
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Mixed Contracts with Express and Implied Terms
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A contract can be a mixture of an express contract and implied contract.
Contract may contain some express terms, while other terms are implied. |
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Types of Valid Contracts
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1. Enforceable Contract
2. Voidable Contract 3. Unenforceable Contract |
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Unjust enrichment
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Based on the theory that individuals should not be allowed to profit or enrich themselves inequitably at the expense of others.
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Quantum meruit
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The extent of compensation due to plaintiff under a quasi contract, which is due to a plaintiff
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Limitations on Quasi–Contractual Recovery
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A party who has conferred a benefit on someone else unnecessarily or as a result of misconduct or negligence cannot invoke the doctrine of quasi contract; enrichment will not be considered unjust in these situations.
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Quasi contract can't be used when an actual contract exists
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Doctrine of quasi contract generally cannot be used when an actual contract covers the area in controversy.
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Interpretation of Contracts
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1. Parties agree that a contract has been formed but may not agree on its meaning or legal effect.
2. May occur because one party is not familiar with legal terminology used in the contract, thus plain language laws have been enacted. 3. Rights or obligations under the contract may not be expressed clearly, despite the use of plain language in the contract. |
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Plain Language Laws
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Federal government and majority of the states have enacted plain language laws to regulate legal writing and eliminate legalese.
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The plain meaning rule
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When a contract's language is clear and unequivocal, a court will enforce the contract according to its obvious terms, in which the meaning of the terms will be determined from the face of the instrument––from the written document alone.
Words––and their plain ordinary meaning–– determine the intent of the parties at the time that they entered into the contract. Court gives effect to contract according to this intent. |
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Ambiguity(related to contracts)
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Contract considered ambiguous:
1. When the intent of the parties cannot be determined from its language. 2. When it lacks a provision on a disputed issue 3. When a term is susceptible to more than one interpretation 4. When there is uncertainty about a provision. |
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Extrinsic Evidence
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*is any evidence not contained in the document itself, and may include the testimony of the parties, additional agreements or communications, or other information relevant to determining the parties' intent
1. Court may consider extrinsic evidence when a contract term is ambiguous 2. Also may interpret the ambiguity against the party who drafted the contract term 3. Can significantly affect how a court interprets ambiguous contractual provisions and thus can affect the outcome of litigation. 4. Extrinsic evidence cannot be considered when the contract is unambiguous. |
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Other rules of Interpretation
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Primary purpose of contract interpretation is to determine the parties' intent from the language used in their agreement and to give effect to that intent, not to make or remake a contract and not to interpret the language of the contract according to what the parties claim their intent was when they made the contract.
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Rules the Courts use when interpreting contractual terms
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1. Reasonable, lawful, and effective meaning will be given to all of a contract's terms
2. Contract will be interpreted as a whole, while individual, specific clauses will be considered subordinate to the contract's general intent. 3. Terms that were the subject of separate negotiation will be given greater consideration than standardized terms and terms that were not negotiated separately 4. A word will be given its ordinary, commonly accepted meaning, and a technical word or term will be given its technical meaning, unless the parties clearly intended something else 5. Specific and exact wording will be given greater consideration than general language 6. Written or typewritten terms prevail over preprinted terms 7. A party that uses ambiguous expressions is held responsible for the ambiguities. Thus, when the language has more than one meaning, it will be interpreted against the party that drafted the contract 8. Evidence of a)trade usage, b)prior dealing, and c)course of performance may be admitted to clarify the meaning of an ambiguously worded contract. What each of the parties does pursuant to the contract will be interpreted as consistent with what the other does and with any relevant usage of trade and course of dealing or performance. |
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Express Terms usually given most weight
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Express terms are given the most weight, followed by course of performance, course of dealing, and custom and usage of trade.
When considering custom and usage, a court will look at the trade customs and usage common to the particular business or industry and to the locale in which the contract was made or is to be performed. |
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Intention(offer)
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First requirement for an effective offer.
Is not determined by the subjective intentions, beliefs, or assumptions of the offeror, but rather it is determined by what a reasonable person in the offeree's position would conclude the offeror's words and actions meant. Not offers through intention: 1. Expressions of opinion 2. Statement of future intent 3. preliminary negotiations 4. Advertisements, catalogues, and circulars(ads can be offers in certain situations) Can be offers 1. agreements to agree 2. preliminary agreements |
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Expressions of opinion(not an offer)
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An expression of opinion is not an offer; it does not demonstrate an intention to enter into a binding agreement.
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Statements of future intent(not an offer)
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A statement of intention to do something in the future is not an offer because a reasonable person would conclude that the statement of future intent is not the same as a promise.
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Preliminary negotiations(not an offer)
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A request or invitation to negotiate is not an offer; it only expresses a willingness to discuss the possibility of entering into a contract.
Invitation to submit bids is not an offer, such as when the government invites contractors to submit bids to do construction work. |
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Advertisements and Catalogues and Circulars(treated as invitations to negotiate; not offers)
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Are treated as invitations to negotiate, not as offers to form a contract; this applies whether the ads and the like are in traditional media or online.
Price lists are another form of invitation to negotiate or trade and are not an offer to sell at that price, but rather an invitation to buyers to offer to buy at that price. Ads can sometimes be offers, as evidenced by the occasions where courts have construed ads to be offers because the ads contained definite terms that invited acceptance(such as a reward for a lost dog) *Ads are not binding, but they cannot be deceptive |
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Agreements to Agree
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*Agreements to agree to the material terms of a contract at some future date
used to not be considered binding, but now may be enforceable agreements(contracts) if it's clear that the parties intended(emphasis on intent of parties rather than form) to be bound by the agreements. |
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Preliminary Agreements
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Courts are holding that a preliminary agreement constitutes a binding contract if the parties have agreed on all the essential terms and no disputed issues remain to be resolved
However, if the parties agree on certain major terms but leave other terms open for further negotiation, a preliminary agreement is binding only in the sense that the parties have committed themselves to negotiate the undecided terms in good faith in an effort to reach a final agreement. |
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Definiteness(2nd requirement of offer)
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1. Offer must have reasonably definite terms so that a court can determine if a breach has occurred and give an appropriate remedy.
2. Specific terms required depend on the type of contract 3. Must include the following terms: a. Identification of the parties b. Identification of the object or subject matter of the contract, including the work to be performed, with specific identification of such items as goods, services, and land. c. Consideration to be paid d. The time of payment, delivery, or performance. |
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Communication(3rd requirement for offer)
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Third requirement for an effective offer is communication.
Offer must be communicated to the offeree. |
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Termination of the offer
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1. After communication of the offer, the offeree can transform the offer into a binding, legal contract(obligation) by an acceptance.
2. However, this power of acceptance doesn't last forever, and it can be terminated either by the action of the parties or by operation of law 3. Termination by the action of the parties can involve a revocation by the offeror or a rejection or counteroffer by the offeree. |
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Termination by action of the offeree
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If the offeree rejects the offer by words or by conduct, the offer is terminated.
Any subsequent attempt by the offeree to accept will be construed as a new offer, giving the original offeror(now the offeree) the power of acceptance. |
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Inquires about an offer
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Merely inquiring about an offer does not constitute rejection.
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Termination of offer by operation of law
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Acceptance power of offeree can be terminated by operations of law through these events:
1. Lapse of time 2. Destruction of the specific subject matter 3. Death or incompetence 4. Supervening illegality of the proposed contract. |
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Lapse of time(Termination of offer by operation of law)
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1. An offer terminates automatically when the period of time specified in the offer has passed.
2. Offer can terminate on a specific date at midnight. 3. When offer states that it will be left open for a number of days, this time period normally begins to run when the offer is actually received by the offeree, not when it is formed or sent 4. If the offer does not specify a time for acceptance, the offer terminates at the end of a reasonable time period. 5. Reasonable time period is determined by subject matter of the contract, business, and market conditions, and other relevant circumstances |
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Destruction or death(Termination of offer by operation of law)
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An offer is automatically terminated if the specific subject matter of the offer is destroyed before the offer is accepted.
Offeree's power of acceptance terminated when the offeror or offeree dies or becomes legally incapacitated unless the offer is irrevocable. |
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Irrevocable offers
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Courts refuse to allow an offeror to revoke an offer when the offeree has changed position because of justifiable reliance on the offer.
In some cases, firm offers made by merchants are irrevocable. |
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Unequivocal acceptance
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To exercise the power of acceptance effectively, the offeree must accept unequivocally, which relates to the mirror image rule.
If acceptance is subject to new conditions or if the terms of the acceptance materially change the original offer, the acceptance may be deemed a counteroffer that implicitly rejects the original offer. |
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Silence as Acceptance
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Generally, silence cannot constitute acceptance, since an offeree should not be put under a burden of liability to act affirmatively in order to reject an offer.
However, in some instances, the offeree does have a duty to speak if his or her silence or inaction will operate as an acceptance. Silence may be an acceptance when an offeree takes the benefit of offered services even though he or she had an opportunity to reject them and knew that they were offered with the expectation of compensation. |
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Communication of Acceptance
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Notification of acceptance to an offeror depends on the nature of the contract, such that a unilateral contract doesn't require it, while a bilateral one does.
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Mode and Timeliness of Acceptance
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Acceptance in bilateral contracts must be timely; made before the offer is terminated.
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Authorized means of acceptance
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A means of communicating acceptance can be expressly authorized by the offeror or impliedly authroized by the facts and circumstances of the situation.
An acceptance sent by means not expressly or impliedly authorized normally is not effective until it is received by the offeror. When an offeror specifies how acceptance should be made the contract is not formed unless the offeree uses that mode of acceptance. Both the offeror and offeree are bound in contract the moment the specified means of acceptance is used. If the offeror does not expressly authorize a certain mode of acceptance, then acceptance can be made by other reasonable means. Usually, the offeror's choice of a particular means in making the offer implies that the offeree can use the same or faster means for acceptance. Courts look at the prevailing business usages and the surrounding circumstances to determine whether the mode of acceptance used as reasonable. |
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Substitute method of acceptance
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If the offeror authroizes a particular method of acceptance, but the offeree accepts by a different means, the acceptance may still be effective if the substituted method serves the same purpose as the authorized means.
Not effective on dispatch though and no contract will be formed until the acceptance is received by the offeror. |
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Online Offers
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Online sellers can protect themselves from liabilities by creating offers that clearly spell out the terms that will govern transactions if the offers are accepted, making all important terms clear and easy to view.
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Displaying the online offer
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Seller's website should include a link to a page containing the full contract(in a easy to read format) so that buyers are made aware of the terms that they are accepting.
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Provisions to include
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Seller controls the contract, should anticipate the terms to include in a contract and provide for them in an offer. At minimum, online offer should include:
1. Acceptance of terms 2. Payment 3. Return Policy 4. Disclaimer 5. Limitation on remedies 6. Privacy policy 7. dispute resolution |
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Acceptance of terms(Online offer provision)
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I accept; clause indicating what constitutes the buyer's agreement to the terms of the offer.
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Payment(Online offer provision)
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How payment must be made
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Return policy(Online offer provision)
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Seller's return and refund policies
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Disclaimer(Online offer provision)
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Disclaimers of liability for certain uses of the goods.
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Limitations on remedies(Online offer provision)
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Specifies remedies for buyers if goods are found to be defective or if the contract is otherwise breached; any limitations should be clearly spelled out
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Privacy policy(Online offer provision)
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Indicates how seller will use information about buyer.
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Dispute resolution(Online offer provision)
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relating to dispute settlement, such as an arbitration clause.
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Dispute–Settlement Provisions
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1. Might include an arbitration clause that specifies that any arising dispute under the contract will be arbitrated in a designated forum.
2. Forum Selection clause 3. Choice–of–law clause |
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Forum Selection clause
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Indicates forum or location for the resolution of any dispute arising under the contract.
Fixes significant jurisdictional issues related to parties that are separated by large distances because of contracts formed over the internet. |
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Choice–of–law clause
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specifies that any dispute arising out of the contract will be settled in accordance with the law of a particular jurisdiction, such as a state or country.
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Online Acceptances
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Restatement (second) of contracts(compilation of common law principles) states that parties may agree to a contract "by written or spoken words or by other actions or by failure to act."
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Shrink–Wrap agreements and enforceable contract terms
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In some cases, courts have enforced the terms of shrink–wrap agreements because a buyer's failure to object to the terms may constitute acceptance of the terms by conduct.
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Shrink–Wrap terms that may not be enforced
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Sometimes courts refuse to enforce certain terms in a shrink–wrap agreement because the buyer did not expressively consent to them.
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Federal Law on E–signatures and E–Documents(Federal E-Sign Act)
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E–sign act provides that e–signatures are as valid as signatures on paper, and an e–document can be enforceable as a paper one.
For e–signature to be enforceable, parties must have agreed to its use E–sign act does not apply to all types of documents(court papers, divorce decrees, evictions, etc.) Expanding possibilities of contracting online. |
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The Uniform Electronic Transactions Act(UETA)
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Adopted by 48 states
Primary purpose is to remove barriers to e–commerce by giving the same legal effect to electronic records and signatures as is given to paper documents and signatures. |
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The scope and Applicability of the UETA
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1. UETA does not create new rules for electronic contracts, but rather establishes that they may not be denied enforceability due to their electronic form.
2. Does not apply to all writings and signatures 3. Covers only electronic records and signatures relating to a transaction 4. Specifically does not apply to wills or testamentary trusts or to transactions governed by the UCC. 5. Allows states to exclude its application to other areas of law |
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Transaction
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Interaction between two or more parties relating to business, commercial, or governmental activities.
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Federal E–sign act and UETA and their effect on state law
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1. Uniform version(no modification) of UETA enacted by states is not preempted by federal e–sign act.
2. When states modify the UETA through exclusions of areas of state laws from UETA terms, the e–sign act preempts those exclusions to the extent they are inconsistent with the e–sign act's provisions. 3. States are allowed to enact alternative requirements for the use of electronic records or e–signatures so long as they are consistent with the provisions of the e–sign act, and the state must not give one specific type of technology greater legal status. 4. If alternatives have been enacted after e–sign act, then state law must specifically refer to the e–sign act. |
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Attribution
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Under the UETA, if an electronic record or signature is the act of a particular person, the record or signature may be attributed to that person.
In some contexts, a record may have legal effect even if no one has signed it. |
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Authorized Signatures(Highlights of UETA)
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The UETA does not contain any express provisions about what constitutes fraud or whether an agent is authorized to enter a contract.
Other state laws control if any issues relating to agency, authority, forgery, or contract formation arise. If existing state law requires a document to be notarized, the UETA provides that this requirement is satisfied by the e–signature of a notary public or other person authorized to verify signatures. |
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The effect of errors(Highlights of UETA)
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The UETA encourages the use of security procedures(encryption) to verify changes to electronic documents and to correct errors.
If the parties have a agreed to a security procedure and one party doesn't detect an error because he or she did not follow the procedure, the conforming party can legally avoid the effect of the change or error. To avoid the effect of errors, the party must promptly notify the other party of the error and of her or his intent to not be bound by the error. Party must take reasonable steps to return any benefit received. |
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Timing(Highlights of UETA)
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Electronic record is considered sent(Once it leaves the control of the sender) when it is properly directed to the intended recipient in a form readable by the recipient's computer system .
A record is considered received when it enters the recipient's processes system in a readable form(even if nobody is aware of its receipt). |
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Legally Sufficient value
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1. A promise to do something that has no prior legal duty.
2. Performance of an action that one is not otherwise obligated to undertake. 3. Refraining from an action that one has a legal right to undertake(forbearance). |
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Bargained–for Exchange
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1. Must provide the basis for the bargain struck between the contracting parties.
2. The item of value must be given or promised by the offeror in return for the promisee's promise of performance. 3. Distinguishes contracts from gifts. |
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Adequacy of consideration
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1. Involves how much is given
2. Is concerned with the fairness of a bargain 3. Courts typically do not question the adequacy of consideration. 4. However, if there is a large difference in the amount of consideration exchanged, the court may feel uneasy about enforcing it because it may indicate that the contract was formed out of fraud, duress, or undue influence. |
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Agreements that lack consideration
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Sometimes parties to a contract think that they have exchanged consideration when they have not.
1. Preexisting duty a. unforeseen difficulties b. rescission and new contract 2. Past Consideration 3. Illusory promises a. option-to-cancel clauses 4. Accord and satisfaction for liquidated debts |
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Preexisting duty
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A promise to do what one already has a legal duty to do does not constitute legally sufficient consideration.
Intended to prevent extortion and so–called holdup game. a. unforeseen difficulties b. rescission and new contract |
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Unforeseen difficulties(Exception to preexisting duty)
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A court may allow an exception to preexisting duty, if during the performance of a contract, an unforeseen difficulty is encountered.
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Rescission and new contract
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Sometimes parties rescind a contract and make a new contract at the same time.
This makes it difficult to decide whether there is consideration for the new contract or preexisting duty from the old contract. The new contract will be invalid if there is preexisting duty(no consideration). |
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Illusory promises
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If the terms of the contract express uncertainty of performance, meaning the promisor has not really promised to do anything, then the promise is said to be illusory.
Illusory promises are without consideration and unenforceable. Option–to–cancel clauses in contracts can make contracts illusory and thus present problems regarding consideration, but if the wording is clear in the contract, then it can be enforceable. |
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Settlement of claims
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Claims may be settled through:
1. accord and satisfaction a.liquidated debts b. unliquidated debts 2. signing a release 3. covenant not to sue |
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Unliquidated debts
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The amount of debt that is not settled, fixed, agreed on, ascertained, or determined.
Acceptance of a lesser amount than the total amount of unliquidated debt is satisfaction because there is valid consideration. |
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Exceptions to consideration requirement
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Promises may be enforced despite the lack of consideration:
1. Promises that induce detrimental reliance, under the doctrine of promissory estoppel 2. Promises to pay debts that are barred by a statute of limitations 3. Promises to make charitable contributions |
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Requirements to establish promissory estoppel
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1. There must be a clear and definite purpose
2. The promisor should have expected that the promisee would rely on the promise 3. The promisee reasonably relied on the act by acting or refraining from some act. 4. The promisee's reliance was definite and resulted in substantial detriment 5. Enforcement of the promise is necessary to avoid injustice. Similar to quasi contract in that the court is acting in the interests of equity; however, with a quasi contract, no promise was made, while with promissory estoppel, a promise was made and relied on. |
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Application of promissory estoppel
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Originally applied to gifts and charitable donations, but has been recently applied in business contexts to prevent inequities.
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Promises to pay debts barred by a statue limitations
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Statutes of limitations require that creditors sue within a specified period of time to recover the debt; if creditor fails to use in time, recovery of debt is barred by statute of limitations.
A debtor who promises to pay a previous debt even though recovery is barred by the statute of limitations makes an enforceable promise, extending the limitations period and allowing the creditor to sue to recover the full amount. When a debtor promises to pay a previous debt, no consideration is necessary. |
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Charitable Subscriptions(Promissory estoppel)
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Traditionally, charitable subscription promises were unenforceable because they lack legally sufficient consideration, but the modern view applies promissory estoppel where a charity may be put in a position of detrimental reliance because of the promises made by donators.
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Covenant not to compete
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The employee agrees to not compete with the employer for a certain period of time after employment; however, the employee's employment is not sufficient consideration for the covenant because it requires new consideration.
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Minors(CHP 11; Contractual capacity)
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Age of majority is 18.
Minors can petition courts for emancipation or treated as adults for business purposes in several jurisdictions Minors can enter contracts an adult can with the exception of contracts that are prohibited by law for minors Contracts entered into by a minor are voidable at the option of minors though(subject to certain exceptions); a minor disaffirms a contract by showing an intention not be bound by it. Minors are bound by a contract unless they disaffirm it during minority or a reasonable time after reaching the age of majority. |
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A Minor's obligation to disaffirmance
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State laws differ on the extent of obligations for minors in disaffirmance.
Courts in most states hold that minors can disaffirm a contract as long as they return the goods or other consideration, even if the goods are damaged. In other states, courts hold that minors have the additional duty of putting the other party back in the position they were in before the contract had been formed, such as paying for damages on goods. |
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Exceptions to a minor's right to disaffirm
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Includes:
1. Marriage Contracts or enlistment into armed services on the grounds of public policy 2. Some state laws have prohibited minors from disaffirmance in cases where they have misrepresented their age, including in situations when engaged in business as adults. 3. Minors can disaffirm a contract when related to necessaries, but they remain liable for the reasonable value of the goods. |
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Parent's liability
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Generally, parents are not liable for contracts that minors entered into on their own except for necessaries.
This is why businesses ask parents to cosign on contracts formed with minors, making the parents personally liable for the contract, even when the child avoids liability for it. |
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Intoxicated Persons(valid or voidable contract)
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A contract formed with an intoxicated person as a party can either be valid or voidable, depending on the circumstances.
A contract may be voidable, if an intoxicated person proves that the intoxication impaired his judgement or mental capacity so severely that he couldn't understand the legal consequences of the contract. If the intoxicated person understood the legal consequences of the contract, then the contract is valid and enforceable. Courts look at the objective indications of the situation to determine if the intoxicated person possessed or lacked the required legal capacity. |
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Contracts and Mentally Incompetent Persons(void, valid, or voidable)
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Contracts entered into by mentally incompetent persons may be void, valid, or voidable, depending on the circumstances.
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When a contract is void(Mental Incompetency)
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When the court has previously determined that person to be mentally incompetent and has assigned a guardian to him, then any contract made by that person is void. Thus, only the guardian can enter a legally binding contract on the person's behalf.
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When a contract is voidable(Mental Incompetency)
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If a court has not previously determined a person to be mentally incompetent, a contract formed with that person may be voidable.
A contract is voidable if the person lacked the mental capacity to understand the legal consequences of the contract. The contract is voidable(or may be ratified) at the discretion of the mentally incompetent party. |
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When a contract is valid(Mental Incompetency)
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A contract may be valid, if the mentally incompetent party had the mental capacity at the time he or she formed the contract.
Some people may have lucid intervals in which they will have periods of legal mental capacity. |
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Legality(4th requirement of contract)
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4th requirement for a valid contract to exist.
A contract to do an illegal act(tortious act, prohibited by state and federal statutory law) is rendered void from the onset. |
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Contracts contrary to statute(Legality)
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Statutes set forth rules establishing the terms and clauses that may be included or prohibited.
Contracts that are contrary to statute include: 1. Contracts to commit a crime 2. Usury 3. Gambling 4. Licensing statutes |
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Contracts to commit a crime
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Any contract to commit a crime is contrary to statue, such as a contract to hide a corporation's violation of the SOX act.
If the object or performance of a contract is rendered illegal by statute after the contract has been formed, the contract is considered discharged. |
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Usury
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Lenders charging an interest rate higher than the prescribed limit set by a state statute are contrary to statute.
In a few states, lender may recover only the principal and not the interest Exceptions are made to facilitate business transactions, such as the exemption of corporate loans and the allowance of higher interest rates on small loans for borrowers who need funds but otherwise cannot receive loans. |
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Gambling
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Is the creation of risk for the purpose of assuming it.
Any scheme that results in the distribution of property by chance in which parties paid a valuable consideration to receive that property by chance is gambling. Traditionally has been deemed illegal by state courts, but it's difficult to distinguish between a gambling contract and the risk sharing inherent in contracts All states have statutes that regulate gambling, and most states have statutes that allow certain forms of gambling, such as horse racing. Even in certain states that permit certain types of gambling find gambling contracts illegal. |
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Licensing Statutes
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All states require professionals, such as doctors, lawyers, and accountants to have licenses.
Some licenses require extensive schooling and examinations, while others simply require a person with good moral character and a fee. The enforceability of a contract with an unlicensed person depends on the purpose of the licensing statute. If the statute's purpose is to protect the public, then that contract would be unenforceable, but if it's just for government revenue purposes(as an example) then it may be enforceable with the unlicensed individual paying a fine. |
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Contracts contrary to public policy
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Contracts that are unenforceable because of the negative impact they would have on society, such as contracts related to barring a marriage or selling a child.
Business contracts that are contrary to public policy include 1. contracts in restraint of trade a. Covenant not to compete and the sale of an ongoing business b. covenants not to compete in employment contract -enforcement problems -reformation 2. unconscionable contracts or clauses. a. procedural unconscionability b. substantive unconscionability 3. exculpatory clauses |
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Contracts in restraint of Trade
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The US has a strong public policy favoring competition in the economy.
Contracts that restrain trade are generally unenforceable because they are anticompetitive, thus making them contrary to public policy. Exception is recognized when the restraint is reasonable and an integral part of the contract. |
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Covenants not to compete and the sale of an ongoing business
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Seller agrees not to open a new store in the geographic area of the old store, thus allowing the buyer to buy the goodwill and reputation of an ongoing business.
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Covenants not to compete in employment contracts
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Are legal in most states so long as the specified period of time is not excessive and the geographical restriction is reasonable.
To be reasonable, the restriction must protect a legitimate business interest and it must not be greater than necessary to protect that interest. What's reasonably restrictive may be different in an online environment than in conventional employment contracts. Time restrictions may be shorter, since geographical restrictions are applied worldwide. |
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Enforcement Problems related to covenant not to compete
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The laws are different in each state for governing the covenant not to compete.
If an employee receives no benefit, even if the time and area are reasonable, the contract will be void(Texas). |
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Reformation(Remedy for covenant not to compete; CHP 11)
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Depending on the jurisdiction, courts may reform a contract if they deem the time and geographical area to be unreasonable in a covenant not to compete.
A judge does this sparingly because he or she implicitly becomes a party to the contract. |
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Unconscionable contracts or clauses
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Generally, courts do not bother with the adequacy of consideration of contracts, assuming that the parties entering into contracts are reasonably intelligent and just have made foolish bargains.
However, courts relieve innocent parties of oppressive bargains, as evidenced by an unconscionable contract The Uniform Commercial Code(UCC) incorporates this concept with the sale and lease of goods on substantive and procedural grounds. 1. procedural unconscionability 2. Substantive unconscionability |
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Procedural unconscionability
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Involves inconspicuous print, unintelligible language(legalese), or one party's lack of opportunity to read the contract or ask questions about its meaning.
The lack of knowledge or understanding of the contract terms deprives a party of any meaningful choice. Often involves an Adhesion contract in which a standard-form contract written by the more dominant party is given to the weaker party on a take-it-or-leave it fashion. |
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Substantive unconscionability
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Occurs when contracts or portions of contracts are oppressive or overly harsh. Courts generally focus on the provisions that leave the party without remedy or deprive him of the benefits of the agreement.
Ex: 1. Gives one party unrestricted access to the courts, but the other party has to arbitrate any dispute with the firm. 2. One sided contracts drafted by cellphone providers and insurance companies. |
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The Effect of illegality on Contracts
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generally, illegal contracts are void, both parties are equally at fault, an executory contract is not enforceable by either party, and damages cannot be recovered in an executed contract.
Courts generally do not care if the wrongdoer is unjustly enriched in an illegal contract because the plaintiff who broke the law by entering into the illegal contract should not be able to receive help from the courts, and it's a deterrent for the plaintiff to enter into similar illegal bargains in the future. Exceptions: 1. Justifiable ignorance of facts 2. Members of protected classes 3. divisible or severable contracts 4. withdrawal form an illegal agreement 5. fraud, duress, or undue influence |
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Justifiable ignorance of the facts(exception to illegality of contract)
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If an innocent party enters into an illegal contract without knowledge of the facts, that party can recover any benefits in a partially executed contract.
The court will restore the parties to their original positions and not enforce the contract. |
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Members of protected classes(exception to illegality of contract)
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An illegal contract can be enforced by a member of a protected class, while the other party cannot enforce it.
Blue sky laws protect particular class of people |
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Withdrawal from an illegal agreement(exception to illegality of contract)
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If the illegal part of a bargain has not been performed, the party rendering performance can withdraw from the contract and recover the performance or its value.
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Severable or divisible contracts(exception to illegality of contract)
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Consists of distinct parts that can be performed separately, with separate consideration for each part.
Court may enforce the legal portions, but not the illegal one so long as the illegal portion does not affect the essence of the bargain. Consistent with the basic policy of enforcing the legal intentions of the contracting parties whenever possible. |
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Induced by Fraud, Duress, or Undue Influence(exception to illegality of contract)
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When a party has been induced to enter an illegal bargain through fraud, duress, or undue influence, that party will be allowed to recover for the performance or its value.
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Indivisible contract
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Complete performance by each party is essential, even if the contract contains a number of seemingly separate provisions.
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in pari delicto
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both parties considered to be equally at fault in illegal contracts.
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Exceptions to general rule of illegal bargains, which is that neither party can sue for breach or recover for performance rendered
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1. Justifiable ignorance of facts
2. Members of protected class 3. Withdrawal from an illegal agreement 4. severable, or divisible, contracts 5. fraud, duress, or undue influence |
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Mistakes(of material fact in contracts)
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In certain circumstances, contract law allows contracts to be avoided on the basis of mistake.
Contract is voidable on the basis of mistake of fact, not mistake of value. Mistake of fact occurs in two forms: 1. Unilateral 2. Bilateral |
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Fraudulent Misrepresentation
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1. affects voluntary consent of innocent party, meaning contract is voidable by innocent party because he did not voluntary consent to its terms
2. rescind, restored to original position, enforce contract and seek damages 3. Consciously false and intended to mislead others 4. 3 elements: a. A misrepresentation of a material fact must occur b. There must be an intent to deceive c. Innocent party must justifiably rely on misrepresentation Short ver: 1. Misrepresentation of material fact 2. Deceitful intent 3. Justifiable reliance on misrepresentation Can occur both offline and online |
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Misrepresentation(of material fact) has occurred(1st element of fraud)
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Element 1–– Misrepresentation of material facts can occur through words or actions
1. Misrepresentation by conduct 2. statements of opinion 3. misrepresentation by law 4. misrepresentation by silence |
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Misrepresentation by conduct
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Can occur through parties conduct, when a party takes a specific action to conceal a fact that is material to the contract, such as a seller preventing a buyer from learning of some fact that is material to the contract.
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Statements of Opinion
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1. Generally not subject to claims of fraud
2. People expected to exercise care and judgement and avoid unwise bargains 3. Fact is objective and verifiable, while opinion is subject to debate. 4. Seller is allowed to use puffery to sell product without being liable for fraud 5. In certain situations, a buyer who relies on an opinion from an expert may be entitled to rescission or reformation. |
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Misrepresentation of Law
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Does not usually relieve people of a contract because people are assumed to know the law.
Exceptions apply when the misrepresenting party is known to require greater knowledge of the law than the average citizen possesses. |
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Misrepresentation by silence
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Usually, neither party has to come forward and volunteer to disclose potentially pertinent facts
Seller may have a duty to speak if he knows of a serious defect that the buyer cannot be reasonably expected to discover, such as latent defects latent defects are defects that cannot be readily ascertained fiduciary relationship: one of trust, such as partners, physician and client, etc. Required to disclose material facts in fiduciary relationships, which will be fraud if not done |
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Intent to deceive(Scienter;Fraud; second element)
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Knowledge that facts have been misrepresented
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Justifiable reliance on misrepresentation(fraud; third element)
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1. Justifiable reason for believing in misrepresentation
2. Misrepresentation important factor in inducing party to enter into a contract 3. Reliance not justified if innocent party knows true facts or relies on obviously extravagant statements |
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Injury to innocent party(rescission and damages)
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1. Showing of harm usually not required to rescind a contract because its unnecessary, since rescission restores parties to position they were prior to the contract
2. To recover damages, which could include punitive or exemplary damages, proof of harm is universally required. 3. punitive damage award plaintiff over and above amount of actual loss and punish the defendant thereby setting an example to deter similar wrongdoings by others. 4. Measure of damage usually equal to property value had it been delivered as represented, less the actual price paid for the property. Short ver: 1. Showing of harm unnecessary for contract recission 2. Proof of harm necessary to recover damages. |
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Contracts involving interest in land(Statute of frauds)
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Ordinarily involves the entire interest in real property, such as buildings...and anything else permanently attached to land
Fixture–– personal property so affixed or so used as to become part of the reality–– is treated as real property written contracts required for transfer of other interests in lands, such as mortgages, easements, and leases. |
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One year rule(Statute of frauds)
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contracts that cannot by their own terms be performed within one year from the day after the contract is formed must be in writing to be enforceable.
resolution of disputes in writing |
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Is performance within one year possible?
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Test for determining enforceability of contract under one year rule is whether performance is possible one year after the day of formation, not whether the agreement is likely to be performed within one year; contract is unenforceable if performance within one year is objectively impossible.
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Primary versus secondary obligation
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1. Usually a contract does not need to be writing if a party assumes a primary obligation.
2. If a party assumes secondary obligation to a contract, then the contract needs to be in writing. Short ver: 1. Primary obligation contract doesn't need to be in writing 2. Secondary obligation contract needs to be in writing. |
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An exception to secondary obligation: the main purpose rule
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Contract need not be in writing to be enforced, if guarantor's purpose in accepting a secondary liability is to secure a benefit.
Also occurs when one creditor guarantees the debt of a debtor to another creditor to forestall litigation, so the debtor can remain in business long enough to generate profits sufficient to pay both creditors. |
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Promises made in consideration of marriage(statute of frauds)
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promise to make monetary payment or to give a property in consideration marriage must be in writing.
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Contracts for the sale of goods priced at $500 or more(Statute of frauds)
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Uniform Commercial Code(UCC) Statute of fraud provision, section 2–201, requires a writing or memo for the sale of goods priced at $500 or more.
Need only state quantity term under UCC, while other terms do not have to be stated accurately, but must reflect both parties' intentions. to be enforceable, quantity terms must not be greater than that set forth in the writing. writing must have been signed by person to be charged–– person who refuses to perform or is being sued. Need not designate buyer or the seller, the terms of the payment, or the price. |
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Exceptions to statute of frauds
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1. Partial Performance
2. Admissions 3. Promissory Estoppel 4. Special exceptions under the UCC a. Customized goods b. oral contracts between merchants confirmed in writing 5. Main Purpose rule |
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Partially Performed(Exception to statute of frauds)
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When a contract has been partially performed, and the parties cannot be returned to the positions there were in before entering into the contract, a court may grant specific performance.
specific performance is an equitable remedy that requires a contract to be performed according to its precise terms. Oral contract must still be proven to exist In oral contracts for the transfer of interests in land, courts determine whether justice is better served by enforcing the contract when partial performance has taken place. Under UCC, oral contract for sale of goods of 500$ is enforceable to the extent that the seller accepts payment or buyer accepts delivery of goods. Can unmistakably indicate an understanding that a contract is in effect; performers and providers believe there is a contract. |
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Admission(Exception to statute of frauds)
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In some states, if a party against whom enforcement of an oral contract is sought admits in pleadings, testimony, or otherwise in court proceedings that a contract for sale was made, the contract will be enforceable.
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Promissory Estoppel(Exception to statute of frauds)
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Oral contracts that may otherwise be unenforceable under statute of frauds can be enforced under promissory estoppel; promisee justifiably relied on an oral promise to his or her detriment.
Reliance must have been foreseeable to the person making the promise, and enforcing the promise must be the only way to avoid injustice. |
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Special exceptions under the UCC for Sale contracts(Exception to statute of frauds)
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exceptions under UCC for sale contracts:
1. Oral contracts for customized goods 2. Oral contracts between merchants that have been confirmed in writing. 3. Partial Performance 4. Admission(quantity) |
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Sufficiency of the writing(Statute of frauds; contract)
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Written contract will satisfy the writing requirement of the statute of frauds and so will a written memorandum(written or electronic evidence of the oral contract) signed by the party against whom enforcement is sought.
Signature can be anywhere in document and can even consist of initials. |
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What constitutes a writing(Statute of frauds)
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A writing can consist of any confirmation, invoice...––or such items in combination
written contract need not consist of a single document to constitute an enforceable contract, but can incorporate other documents by expressly referring to them. Several documents may form a single contract if they are physically attached(stapled, glued). |
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What must be contained in the writing(Statute of frauds)
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A memo or note evidencing an oral contract need only contain the essential terms of the contract and demonstrate that the parties voluntarily consented to the terms.
Faxed or emailed memo can be sufficient if it demonstrates a meeting of the minds and not preliminary negotiations. UCC––sale of goods must state quantity and be signed by party against whom enforcement is sought Under Most statute of frauds provisions, must also state not only quantity, but parties, subject matter, and consideration Sale of land: essential terms, describe property with sufficient clarity to allow the terms to be determined from the memo without outside sources. |
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Exceptions to parol evidence rule
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1. Contracts subsequently modified
2. voidable or void contracts 3. contracts containing ambiguous terms 4. incomplete contracts 5. Prior dealing, course of performance, or usage of trade 6. Contracts subject to an orally agreed–on condition precedent 7. contracts with an obvious clerical error |
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Contracts subsequently modified(Parol evidence)
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Evidence of subsequent modification can be introduced into court, but may not be enforceable if they come under statute of frauds and if the original contract provides that any modifications must be in writing.
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Voidable or void contracts(Parol Evidence)
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Oral evidence can be included in all cases to show that a contract was voidable or void(such as induced by mistake or fraud).
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Contracts containing ambiguous terms(Exception to Parol Evidence)
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When terms of written contract are ambiguous, evidence is admissible to show meaning of those terms.
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Incomplete contracts(Exception to Parol Evidence)
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Evidence is admissible when contract lacks one or more essential terms, filling in the gaps in the contract.
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Prior dealing, course of performance, usage of trade(Exception to Parol Evidence)
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Under the UCC, evidence to explain or supplement a written contract by showing a prior dealing, course of performance, or usage trade.
Prior dealing; customary practices of parties with prior dealings are overlooked in the writing of the contract and evidence showing how they acted in the past is admissible. Usage of trade: practices and customs followed in an industry, which can shed light on certain contractual provisions. |
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Contracts subject to an orally agreed on condition precedent(Exception to Parol Evidence)
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Condition precedent is condition that must be met before a party is required to perform the contract.
If Agreed upon condition precedent that does not conflict with contractual terms is present, court may allow parol evidence to prove oral condition. Parol evidence rule exempt here because the existence of the entire written contract is dependent on it. |
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Contracts with obvious clerical errors(Exception to Parol Evidence)
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When an obvious or gross clerical error exists that clearly would not represent the agreement of the parties, parol evidence is admissible to correct the error.
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Discharge
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The termination of an obligation, such as occurs when the parties to a contract have fully performed their contractual obligations.
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Performance
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The fulfillment of one's duties under a contract–– the normal way of discharging one's contractual obligation .
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Condition
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A qualification, provision, or clause in a contractual agreement, the occurrence or nonoccurrence of which creates, suspends, terminates the obligations of the contracting parties.
If not satisfied, obligations of parties are discharged. |
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Condition Precedent
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A condition in a contract that must be met before a party's promise becomes absolute.
condition precedes the absolute duty to perform Generally common. |
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Condition subsequent
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A condition in a contract that, if it occurs, operates to terminate a party's absolute promise to perform.
condition that follows the absolute duty to perform. If the condition occurs, the party need not perform any further. Generally rare. |
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Concurrent conditions
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Conditions that must occur or be performed at the same time––they are mutually dependent. No obligations arise until these conditions are simultaneously performed.
Only exist when parties expressly or impliedly are to perform their respective duties simultaneously. |
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Tender
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An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so.
party that tenders does everything possible to carry out the term of the contract. accomplishes performance. |
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Breach of Contract
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The failure, without legal excuse, of the promisor to perform the obligations of a contract.
Any breach entitles the nonbreaching party to sue for damages, but only a material breach discharges the nonbreaching party from the contract. |
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Anticipatory repudiation
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An assertion or action by a party indicating that he or she will not perform a contractual obligation.
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Novation(By agreement)
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The substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated.
Requires: 1. existence of a previous, valid obligation 2. Agreement by all the parties to a new contract 3. Elimination of the old obligation(discharge of the prior party) 4. A new, valid contract. Expressly or impliedly revokes and discharges a prior contract. |
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Impossibility of performance
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A doctrine under which a party to a contract is relieved of his or her duty to perform when performance becomes objectively impossible.
Applied when parties could not have reasonably foreseen the event or events that rendered performance impossible. Performance may become so difficult or costly that courts will consider it commercially unfeasible or impracticable. Objective impossibility must be distinguished from subjective impossibility. Subjective impossibility does not discharge a contract, and nonperforming party may be held in breach of contract. |
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Commercial impracticability
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A doctrine that may excuse the duty to perform a contract when performance becomes much more difficult or costly due to forces that neither party could control or contemplate at the time the contract was formed.
anticipated performance must become extremely difficult or costly Added burden of performance must not have been known by the parties when the contract was made. |
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Frustration of purpose(By Operation of law)
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A court–created doctrine under which a party to a party will be relieved of his or her duty to perform when the objective purpose of performance no longer exists(due to reasons beyond the party's control).
Supervening event must not have been foreseeable at the time of the contracting. |
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Absolute Promises(Conditions of performance)
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In most contracts promises of performance are not based on conditions or precedents, but rather they are absolute promises in which they must be performed or the party promising performance of the act will be in breach of the contract.
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Contract Discharge(By Operation of Law)
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1. Material alteration
2. Statute of limitations 3. bankruptcy 4. impossibility or impracticability of performance 5. frustration of purpose |
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Contract Discharge(By breach)
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1. Material Breach
2. Anticipatory repudiation |
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Contract Discharge(By Performance)
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1. Complete
2. Substantial |
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Contract Discharge(By Agreement)
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1. Mutual rescission
2. Novation 3. Accord and satisfaction |
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Contract Discharge
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1. By operation of law
2. By breach 3. by performance 4. by failure of a condition 5. by agreement |
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Contract discharge(by failure of a condition)
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If performance is conditional, duty to perform does not become absolute until that condition occurs.
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Complete performance(By performance)
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Normally, conditions expressly stated in the contract must fully occur for complete performance.
Any deviation breaches the contract and discharges the other party from obligation to perform. |
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Substantial performance(By Performance)
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A party who in good faith, who performs substantially all of the terms of the contract can enforce the contract against the other party under the doctrine of substantial performance.
Must not vary greatly from the performance promised in the contract, and it must create substantially the same benefits as those promised in the contract. If variance is insignificant, such that damages can be compensated, the court will deem the contract substantially performed. Courts determine this on a case–by–case basis. If performance is substantial, the other party's duty to perform is absolute, but the party can sue for damages due to the minor deviation. |
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Performance to the Satisfaction of another
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condition precedent on personal satisfaction or satisfaction of a reasonable person.
If subject matter of contract is personal, performance to the satisfaction of one of parties is conditioned and performance must actually satisfy the party unless a court finds that a party is not acting in good faith when expressing dissatisfaction. Most other contracts need to be performed only to the satisfaction of a reasonable person, unless they expressly state otherwise. Courts are divided when contract require performance to the satisfaction of a third party. |
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Material Breach(By Breach)
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Occurs when when performance is at least not substantial.
Nonbreaching party is excused from performance of contractual duties |
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Minor Breach
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Nonbreaching party's duty to perform is suspended until the breach is remedied, but the duty is not entirely excused; nonbreaching party must resume duty of contract
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Anticipatory repudiation is a material breach(By Breach)
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Material Breach of contract for two reasons:
1. nonbreaching party should not be required to remain ready and willing to perform when the other party has already repudiated the contract 2. nonbreaching party should have the opportunity to seek a similar contract elsewhere and may have the duty to do so to minimize losses. nonbreaching party can bring action for damages, but until its treated as a breach, breaching party can retract the anticipatory repudiation by proper notice, restoring the parties to their prior positions. |
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Repudiation may occur when market prices fluctuate
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Sharp price in market prices may make performance unfavorable for one of the parties, which could lead to a anticipatory repudiation from that party.
The risk that prices will fluctuate is party of ordinary business risks, and the law does not provide relief. |
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Discharge by agreement
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Discharge agreement can be contained in the original contract, or the parties can form a new contract for the express purpose of discharging the original contract.
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Mutual Rescission(By agreement)
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parties must make another agreement that also satisfies the legal requirements for a contract: there must be an offer, an acceptance, and consideration.
Promises not to perform acts promised in original contract will be legal consideration for the second contract. Oral agreements to rescind executory contracts are enforceable even if the original contract was in writing. Under UCC, a contract rescinding a contract for a sale of goods must be in writing when the contract requires a written rescission; also contracts to rescind contracts for realty When party has fully performed, an agreement to rescind the original contract is usually not enforceable unless additional consideration or restitution is made. |
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Accord and Satisfaction(Discharge by agreement)
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Accord is a contract to perform some act to satisfy an existing contractual duty that is not yet discharged.
Satisfaction is the performance of the accord agreement. discharges original contractual obligation. Once accord is made, original obligation is merely suspended until the accord agreement is fully performed. If not , the party to whom the performance is owed can bring an action on the original obligation or for breach of the accord. |
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Material Alteration(By operation of law)
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Innocent party is discharged when one party has materially altered a written contract(such as changing price or quantity term) without the knowledge or consent of the party.
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Statutes of limitations(By Operation of law)
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Limit the period during which a party can sue on a particular cause of action.
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Bankruptcy(By Operation of law)
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Once debtors assets have been allocated to creditor, debtor receives a discharge in bankruptcy, which bars creditors from enforcing most of the debtor's contracts.
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When performance is impossible(By Operation of law)
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1. Party dies or becomes incapacitated
2. Subject matter is destroyed 3. Change in law renders performance illegal |
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Temporary Impossibility
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Temporarily suspends performance until the impossibility ceases. Afterwards, the parties usually must perform the contract as originally planned.
Contract can be discharged if lapse of time or change in circumstances surrounding the contract make it substantially more burdensome for performance. |
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Damages
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Breach of contract entitles the nonbreaching parties to sue for monetary damages.
In contract law, damages are designed to compensate the nonbreaching party for the loss of the bargain. Parties placed in positions they would have occupied had the contract been performed. |
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Types of Damages(Remedies at law)
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1. Compensatory(to cover direct losses and costs)
2. Consequential(to cover indirect and foreseeable losses) 3. Punitive( to punish and deter wrongdoing) 4. Nominal(to recognize wrongdoing when no monetary loss in shown) |
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Compensatory damages
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Compensates nonbreaching party for loss of bargain and for damages actually sustained and proved to have arisen directly from the loss of bargain caused by the breach of contract; simply replace what was lost
Standard measure is difference between value of the breaching party's promise and the value of his actual performance; amount is reduced by any loss that the injured party has avoided. Measure varies by type of contract. 1. Sale of goods 2. sale of land 3. construction contracts |
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Sale of Goods(Measure of damages; compensatory damages)
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Measure of compensatory damages is difference between the contract price and the market price.
When buyer breaches and the seller has not yet produced the goods, compensatory damages equal the seller's lost profits on the sale. |
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Sale of Land(Measure of damages if no specific performance; compensatory damages)
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Remedy is typically specific performance.
When specific performance is unavailable, the measure of damages is the difference between the contract price and the market price of the land; majority of states follow this rule |
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Construction Contracts(Measure of damages; compensatory damages)
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Measure of damages depends on which party breached and when the breach occurred.
Performance has begun(Owner): Profits(Contract price less costs) During Performance(Owner): Profits plus costs incurred so far After the construction has been completed: Entire contract price plus interest. Before Construction has begun(Contractor): Cost in excess of contract price Before construction is complete(Contractor): all costs incurred by owner to complete. If late, measure of damages is the loss of use. |
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Punitive Damages(exemplary damages)
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Generally not awarded in an action for breach of contract.
Have no place in contract law because they're penalties, which is used for crimes; breach of contracts are not unlawful in criminal sense When there's a breach of contract and a tort, they may be available. |
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Employment Contracts(Mitigation of damages)
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A person whose employment has been wrongfully terminated has a duty to mitigate the damages because of the employer's breach of contract by taking a similar job if available.
Damages received will be equivalent to the person's former salary less the income that would have been received in a similar job obtained by similar means. |
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Rental Agreements(Mitigation of damages)
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Landlord needs to find new tenant to mitigate damages(reasonable means).
Old tenant is still liable for difference between the amount of rent under the original lease and the rent received from the new tenant. Court will reduce award by amount of rent the landlord could have received had he found a new tenant. |
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Determining enforceability(liquidated damages v. penalties)
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Two questions to determine whether a particular provision is for liquidated damages or penalties:
1. Was it apparent that damages would be difficult to estimate in the event of a breach(at the time of contracting). 2. Was the amount set as as damages a reasonable estimate and not excessive. Enforced if answer to both is yes, not enforced if either answer is no. |
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Equitable Remedies(Remedies in equity)
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May be granted by courts when remedies at law(damages) are inadequate.
1. Rescission 2. Restitution 3. Specific performance a. Sale of land b. Contract for personal services 4. reformation |
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Sale of Land(Specific performance and remedies)
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Court may grant specific performance because legal remedy of monetary damages will not compensate buyer adequately, since every parcel of land is unique.
When land is sold, specific performance will become unavailable, and the nonbreaching party will be awarded damages instead. |
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Contracts for personal services
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Require one party to work personally for another party.
Courts normally refuse to grant specific performance of these contracts because ordering a party to perform personal services against his will amounts to a type of involuntary servitude, which is contrary to the public policy expressed in the 13th amendment of the U.S. constitution. Courts do not want to monitor contracts of personal services, which usually require the exercise of personal judgement or talent. If contract is not deemed personal, monetary damages may be adequate if substantially identical services are available from other persons. |
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Reformation(Equitable remedy; CHP 15)
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When court rewrites imperfect contracts to reflect the true intentions of the parties.
Used when parties have imperfectly expressed their agreement in writing. Reforms when: 1. Fraud or Mutual Mistake 2. Written contract Incorrectly state the parties' oral agreement |
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Fraud or Mutual Mistake(Reformation)
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Courts most often order reformation when fraud or mutual mistake is present
Courts could reform the contract so that the writing conforms the parties' original intention |
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Written contract incorrectly states the parties' oral agreement(Reformation)
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Contract reformed when two parties enter into a binding oral contract but later make an error when they attempt to put the terms into writing.
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Quasi Contract is used when:
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Allows courts to act as if a contract exists when there is no actual contract; thus, it is not imposed if an actual contract exists
Can be used when a contract is enforceable for some reasons Quasi–contractual recovery is granted when one party has partially performed under a contract that is unenforceable. Provide alternative to suing for damages and allow the party to recover the reasonable amount of the partial performance. |
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Requirements of Quasi Contractual recovery
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1. Party conferred a benefit on the other party with the reasonable expectation of being paid
2. Party did not act as a volunteer in conferring the benefit 3. The party receiving the benefit would be unjustly enriched if allowed to retain the benefit without paying for it. Under quantum meruit, party should be able to recover the reasonable value of the item, which is normally equal to the fair market value. |
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Contract provisions limiting remedies
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1. Sales contracts and limiting remedies; Under UCC, remedies can be limited for contracts for the sale of goods. 2. enforceability of limitation–of–liability clauses Contract may include provision stating:: 1. Only remedy for breach is replacement, repair, or refund of the purchase price 2. injunctive relief 3. No damages can be recovered(exculpatory clauses) 4.damages will be limited to maximum amount |
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enforceability of limitation–of–liability clauses
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Enforceability depends on type of breach that is excused by the provision.
Provision excluding liability for fraudulent or intentional injury, and excluding liability for illegal acts will not be enforced. Provisions excluding liability for negligence may be enforced in certain situations. Exculpatory clause for negligence between two parties of equal bargaining position usually is enforced. |
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Extinguishes the rights of the assignor
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When rights under a contract are assigned unconditionally, the rights of the assignor are extinguished; the assignee has a right to demand performance from the original party to the contract(obligor).
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Assignee takes rights subject to defenses
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Assignee only obtains rights that assignor originally had, but those rights are subject to the defenses that obligor has against the assignor.
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When rights that can't be assigned
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1. statute expressly prohibits assignment; self explanatory
2. the contract is for personal services; tutoring 3. the assignment will materially alter the obligor's risk or duties; insurance policy 4. The contract prohibits assignment; ordinarily cannot be assigned |
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Exceptions to contract prohibiting assignment
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1. Contract cannot prevent an assignment of the right to receive funds
2. Assignment of ownership rights in real estate cannot be prohibited because it is contrary to public policy in most states. 3. Assignment of negotiable instruments 4. In a contract for the sale of goods, the right to receive damages for breach of contract or for payment of an account owed |
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Alienation
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Transferring land out of one's possession.
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Notice assignment
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Given notice to obligor is not legally necessary to give validity to the assignment(effective immediately despite notice), but two major problems arise if notice isn't given:
1. priority issues 2. potential for discharge by performance to the wrong party |
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Priority issues(notice assignment)
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Assignor assigns same right to two different persons:
1. Most often, the first assignment in time is the first in right 2. Less often, priority is given to first assignee who gives notice. |
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Potential for discharge by performance to the wrong party(notice assignment)
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1. Until obligor has received notice, the obligor can discharge his obligation by performance to the assignor
2. If notice is given, obligor must discharge obligation through performance to assignee. |
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When delegation is prohibited
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1. When performance depends on the personal skill or talents of the obligor; in contrast, nonpersonal duties may be delegated
2. when special trust has been placed in the obligor. 3. When performance by a third party will vary materially from that expected by the obligee under the contract 4. When the contract expressly prohibits delegation |
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effect of a delegation
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if a delegation of duties is enforceable, the obligee must accept performance from the delegatee.
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Assignment of all rights
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Traditional view: assignee did not assume any duties; not sufficient to imply promise
Modern view: probable intent in using such general words is to create both an assignment of rights and assumption of duties. |
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Who is the promisor(third party contracts)
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1. Both parties are promisors.
2. Courts determine identity of promisor by asking which party made the promise that benefits the third party. 3. determining promisor, allows third party to sue promisor directly and not sue promisee, reducing burden on courts(because promisee would sue promisor after being sued by the third party) |
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Creditor Beneficiary
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Promisor promises promisee to pay a debt due to a third party(creditor beneficiary) to which the creditor beneficiary can sue the promisor directly to enforce the contract.
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Donee Beneficiary
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When contract is made with express purpose to give a gift to a party, the donee beneficiary can sue the promisor directly to enforce the promise.
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Third party's rights must vest
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Third party beneficiary cannot enforce a contract against the original parties until the third party's rights have vested, meaning they have taken effect and cannot be taken away.
Until then, the original parties can modify or rescind the contract without consent of the third party. |
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When the rights of an intended beneficiary vest
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1. The third party demonstrates express consent to the agreement(letter or note) and consent to, a contract formed for his benefit.
2. Third party materially alters his or her position in detrimental reliance on the contract 3. When the conditions for vesting are satisfied. |
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Intended versus incidental beneficiaries
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Courts focus on intent as expressed in contract language and implied by the surrounding circumstances.
If not intended beneficiary, then incidental beneficiary 1. Reasonable person test 2. Other factors indicating an intended beneficiary |
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Reasonable person test(Intended v. Incidental beneficiary)
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Would a reasonable person believe that the promise intended to confer on the beneficiary the right to enforce the contract.
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Other factors indicating an intended beneficiary
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1. Performance is rendered directly to the third party
2. Third party has the right to control the details of the performance. 3. Third party is expressly designated as beneficiary in the contract. |
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Exception to statute of frauds(More detailed) |
Contracts for sale of goods priced at $500 or more: 1. Customized goods 2. admissions(quantity) 3. partial performance 4. Merchants confirmed in writing Contracts involving interests in land: 1. Partial performance 2. Admissions 3. promissory estoppel Contracts that cannot be performed within a year: 1. Admissions 2. Promissory estoppel Contracts containing collateral promises 1. Main purpose rule 2. admissions 3. promissory estoppel |
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Highlights of UETA |
1. Attribution 2. Authorized signature 3. effect of errors 4. timing |
