Contract law terms Essay Example

Anything that takes away voluntariness is questionable, e. g. , duress, economic duress, fraud, coercion. People have right to breach. But must place other party in the same position for which they contracted, so must pay them damages. If legal remedy does not work and P is entitled to be placed into performance, then must order specific performance. Specific performance is not punishing. Contract law does not provide punitive damages Basic goal of damages – encourage contracting; don’t want unknown penalties down the road that would deter parties from contracting in future.

Do not want liquidated damages because parties are supposed to use those instead of going to court. Only problem is that we cannot have anything that looks punitive. If designed to coerce performance, it is really a penalty and do not want that in contract law. Instead, court will award damages. Criticism – parties negotiated it, and the purpose was to avoid litigation. What Governs Contract Law Generally, common law governs contracts. Restatements are used to summarize view of what law is or should be.

For sale of goods (things that are moveable, personal property), UCC Article 2 controls. UCC does not apply to contract for employment or services or real estate (only sale of goods). Mixed Contracts for Services and Goods – e. g. , contract for service provider who has to purchase supplies in order to provide those services It’s all or nothing – cannot divide application to contract between UCC and common law. If services are more important, common law governs If goods are more important, UCC governs. . Relationship Between UCC and Common Law Common law fills gaps in UCC Article 2.

Where conflicting, UCC governs sale of goods. Contracts Is a legally enforceable agreement Defines What makes exchanged promises legally enforceable What constitutes a breach of such an agreement What the consequences can be if a contract is breached It does not require most contracts to be in writing. (Actually, in this case, because it’s a contract for real estate, the common law rule DOES require a writing, as mandated by the 18th Century British Statute of Frauds. ) For most contracts, the common law does not require any particular ritual.

All it requires is what is sometimes called “a meeting of the minds. ” When people actually do agree, the common law tries to let them Plantiff in contract has to prove 3 elements That an enforceable contract was formed That the defendant breached their contract the plantiff suffered some sort of economic loss as a result of the breach Assumed common attributes for a bargain Free will – no coercion Self-knowledge – one knows their own preferences Modicum of practical information – can distinguish among alternative goods and services Breach.

Breaking one or more promises made in a contract People have right to breach. But must place other party in the same position for which they contracted, so must pay them damages. Offer elements Must be communicated to the person to whom it is addressed Must indicate a desire to enter into a contract – specifying performances to be exchanged and the terms that will govern the relationship Must be directed at some person or group Terms must be definite and certain Essential OFFER elements include Identity of offeree and the subject matter.

Price to be paid (in absence, UCC provides reasonable price) Time of payment, delivery, or performance (in absence, UCC proves that reasonable time will be implied). Quantity involved (for sale of goods – except req. contract Nature of the work to be performed a promise to do something, probably conditioned on soothing else happened Offeror The person making the offer Offoree The person receiving the offer Exchange of power An offer gives the offoree the power to bind the offeror, and thus to change the offerors property right in a thing Acceptance Saying yes in a way the offer calls for.

An acceptance, on the other hand, CAN take effect when you send it If the offer specifies what media you can use to accept, sending an acceptance via a specified medium will be effective on DISPATCH. at the point that the acceptance moves beyond your control. ” Putting your company’s acceptance in your outbox at work is not dispatch because it hasn’t left the control of the company c. Acceptances in person are always effective immediately. General rule only person to whom offer is addressed may accept. One may also have power of acceptance if she is a member of a class to which an offer has been directed.

If offer is made to general public, anyone may qualify as an offeree. If offer requests performance from an unlimited number of persons, performance by anyone knowing of the offer will cut off power of everyone else to accept, provided that offeror desires only one performance and there is no indication that he is willing to pay more than once. Offeree’s power of acceptance cannot be assigned. However, once contract is formed, contract rights can be assigned. Offerree must know of the offer at the time of acceptance Three Forms of Indirect Rejection Counteroffer (Common law, UCC) kills the offer.

Conditional Acceptance (Common law, UCC) – Kills offer because words do not connect. Changes the deal, thus no manifestation of mutual assent Ex: “I accept if…,” “I accept but…,” “I accept provided Mirror Image rule (Common Law) Acceptance cannot add anything to the offer. Acceptance must correspond with the offer, with only minor discrepancies tolerated today (response cannot make material changes in the transaction proposed in the offer). Response is not an acceptance if the offeree imposes conditions on the acceptance or seeks to change or qualify the terms of the offer.

Acceptance must express unconditional assent to all of the terms and conditions imposed by the offeror. When there is an offer and a “yes, but” reply that doesn’t match the offer perfectly, the law doesn’t call the reply an acceptance. Under the common law of contracts, an acceptance is only effective if its trerms match the offers terms perfectly Different terms, or conditional acceptance (thus not mirror image), is treated as a counteroffer, which terminates original offer. Counter offer When an offer is made, but the response is a promise which doesn’t match the terms of the offer.

Once a counteroffer has been made, the previous offer has expired For example, the law defines six ways an offer can expire: The offeree can reject the offer. The offeree can make a counteroffer. The subject matter of the offer can cease to exist – the truck can be destroyed. The offer can otherwise become impossible to fulfill , most commonly by the goods being sold to someone else. Generally does not cancel the offer unless the offeree has actual notice A reasonable time can pass.

The offeror can die. Mailbox rule offer by personal messenger, you can accept it by personal messenger – or by fax, phone, email, twitter…although you have to use a medium that you know or can reasonably assume I have access to, so maybe Twitter wouldn’t work. – When it is reasonable to respond to offer by mail or fax, that acceptance dates from the time acceptance was posted (when offeree relinquishes control of acceptance notice). Consideration “Consideration” here means “giving up a right or something else of value. ” Consideration” here means “people have to think carefully about whether to make the deal Offer and acceptance is used to determine whether or not there is a deal. Provided there was a deal, consideration is used to see if courts should enforce it ELEMENTS.

Promisee must give a return promise or perform (act, forbear Act or forbearance is to get promise (in exchange for the promise). Promise was made to get act or forbearance (mutually induce). Definition A performance and return performance must be bargained for and mutually induce each other. Performance is bargained for if it is sought by each party in exchange for the other’s promise. Bargain guides both of their actions. Insures that the promise enforced as a contract is not accidental, casual, or gratuitous, but has been uttered intentionally as the result of some deliberation, manifested by reciprocal bargaining or negotiation.

Requires contractual promise be the product of a bargain ? negotiation resulting in the voluntary assumption of an obligation by one party upon condition of an act or forbearance by the other. Everyone has a right to receive and a duty to perform under contract law. You have a right to delegate your duties but you are always still responsible for it Assignment An assignment is the transfer of a right to something from one person to another If there’s been an assignment of a right to receive money, and the payer of the money has notice of it, then the right to receive the money passes from the original payee to the assignee.

The obligor (that’s me in this scenario) now has a duty (or obligation) that runs to the assignee. , wherever there is a duty, there is a right If I have an obligation to do something, that makes me the obligor on the duty. And somebody somewhere is the obligee, to whom I owe the duty. The obligee has the right to enforce my duty, to make me carry it out. Situation in which two people make a deal, and later one of them transfers benefits of deal to someone else. Parties Involved:

Assignor – person who makes contract and later assigns rights Assignee – person who didn’t make contract but has right to sue iii. Obligor – provides benefit Effect of assignment ? assignee can enforce promise against obligor Major common law limitation – cannot make assignment that substantially changes duties of obligor. Delegations The general rule, again, is that transfers of duties are effective] executor when the promises have been exchanged but not all of them have been kept Start with just contract between two people and then one party delegates his duties to third party.

What are consequences if 3rd party does not do work? First party can still sue party with whom he contracted. General Rule – Delegations do not excuse; delegating party is still liable Limitations – While most duties are delegable, some duties are not If contract explicitly says not delegable matter of contract – if duty requires special skills. Bilateral contract is a contract where a promise is exchanged for a promise both parties are promisors and promises contract that result from an offer that is open as to how it can be accepted Primisory Exchage.

At instant of contracting, promises remain outside on both sides By implication If it is commonly understood in the market that a seller warrants the fitness of what he sells, a simple exchange without any express words relating to the condition, will give rise to an implied promise of warranty. Unilateral Contract Acceptance by performance Promise for an action or forbearance Offeror promisor promises to pay upon completion of the requested act by the promise. Once act is completetd, contract is said to be formed Distinguishing between the two.

Whether at the time the contract is formed, each party has a right and a duty (bilateral) or one party only has a right and the other party only has a duty (unilateral Third Party Beneficiaries Contract b/w two people, both of whom intent at that very time that a 3rd party will benefit from the contract. Life insurance contract Key terms 3rd Party Beneficiary – person who didn’t make contract who was intended to be benefited Promisor – party who has promised benefits to 3rd party beneficiary Promisee – other 3rd party Who can sue who?

Not all 3rd party beneficiaries can bring suit (thus recover). Intended 3rd party beneficiary can always bring suit against the promisor and/or someone who is not in contract. Otherwise, 3rd party beneficiary cannot sue. Intended beneficiaries, to incidental Surety a guarantor Breached That is, the defendant didn’t keep his side of the bargain. PLANTIFF have to prove that the defendant’s breach of the contract harmed the plaintiff( suffered an injury) Breach of contract failure to keep a contractual promise Material Breach.

Material breach as one that would impair the contract’s value in the eyes of a reasonable person The “reasonable person test” is a way of invoking an objective standard When a court is deciding whether a contract is breached, it will not automatically take a highly technical view of what constitutes a breach of the contract To be counted as a breach, a variation has to be material from an objective viewpoint. So – which of the following would you guess a generic reasonable person would see as material? best answer for all of them is “it depends”!

It depends on what a reasonable person in the parties’ position could have reasonably foreseen at the time the contract was made, or during the course of performance material breach is not applicable. Since divisible contract, one party performed X percent of the contract. Not a material breach of that portion. Requirements – must be possible to apportion the performances of the parties into corresponding pairs of part performances; must be proper to treat these pairs of part performances as “agreed equivalents. ” Remedies judges break the possible contracts remedies down into three broad options: Rescission

Involves cancelling the contract and putting the parties back to the place they were when they started, as much as possible. We’ll talk more about this option when we look at the Uniform Commercial Code Damages Involves ordering the breaching party to complete his performance of the contract The first way to measure damages is basically what we now call “compensatory damages. ” These are the damages that arise inherently from the breach The second way Lord Alderson says we can measure damages is basically what we now call “consequential damages. ” These are damages that arise because of the unique situation the plaintiff was in.

They essentially measure the entire benefit the plaintiff expected to get from the contract, the answer to the question “why There are five kinds of damages that plaintiffs might ask for in a breach of contract case: *Nominal damages (sometimes called “exemplary damages”): a small payment meant more as a symbolic gesture ordered where the non-breaching party has not suffered significant real damages. * Compensatory damages: an amount of money the breaching party must pay that matches the harm suffered by the non-breaching party as a result of the breach.

Compensatory damages are limited to the loss inherent in the breach itself, that anyone would suffer if the breach occurred. Sometimes called “the benefit of the bargain,” compensatory damages generally represent the difference between getting the promised good or service at the contract price and getting it at whatever price the plaintiff had to pay (or would have had to pay) once the defendant breached. So if I promised to sell you my truck for $5000 and then refused to sell, and it cost you $5500 to get an identical truck after I breached, then your compensatory damages would be $500.

* Incidental damages: this is a type of compensatory damages, representing the additional costs that the plaintiff has to pay to find and make a new deal after the breach, and to collect damages from the breaching party. So if you had to pay a lawyer $500 to collect the compensatory damages I owe you, and had to rent a car, take taxis, etc. while you were arranging for another truck, all those costs would be incidental damages (and counted as part of compensatory damages). * Consequential damages: Sometimes plaintiffs complain that the compensatory damages don’t really put them where they would have been had the contract been performed.

So they ask for additional damages representing the costs of this specific breach imposed on them. If I buy a top-quality tire from you and you deliver to me a cheaper tire, my compensatory damages are limited to the difference in the value of the two tires, plus any additional costs I paid to get you to resolve my complaint about the wrong tire. But if the cheaper tire blows out on the freeway and my car is wrecked, when the tire I thought I was buying wouldn’t have, then the costs of my wrecked car are directly caused by your breach of contract. Shouldn’t I get those costs back, too?

* Punitive damages: Breaching a contract is like breaking a promise. Obviously we should keep our promises, right? So breaching one is bad, and maybe ought to be punished. never comes into play in a contracts case. Specific Performance. Court orders someone to do what she agreed to do. Specific performance is an equitable remedy. On exam, must ask: Is legal remedy adequate? Here, the answer is No. Employed only where legal remedies are proven inadequate. Monetary damages are not sufficient alone when specific performance is ordered. Addresses the equity issue.

Real estate deals are best example of where monetary damage isn’t sufficient – requires specific performance Only if goods are unique will remedy be specific performance. Art Antique Custom-made Never do specific performance in employment or services contracts Exception: Negative Specific Performance – where someone has agreed to work with you and perform the contract. Can prevent her from working for one of her competitors – injunctive specific performance : The Goal of Contracts Remedies Remember: the central purpose of contract law is to make it possible for people to design their own lives.

We enforce contracts because we want to make it possible to make contracts – so we can have reasonable confidence that our deals will hold. But what if, while you are under obligation to one person, a better deal comes along the law of contracts is determined to make sure we get the monetary benefit of our bargain A contract promise is for the benefit of the bargain The holding is the only part of a case that is binding precedent on future cases dicta – that is, non-essential stuff the court throws in to help explain its decision or comment on the law Limitation on expectation damages mitigate the damages. When there is a breach of contract, the plaintiff has a duty to make reasonable efforts to limit her losses.

She can’t use the breach as a chance to just stick it to the breaching party Rule re: Avoidable Damages – avoidable damages are not recoverable. Obligation to mitigate damages, whenever possible. Can also have economic waste of resources of people – obligation to mitigate damages. Fact patterns Agreement followed by a breach, followed by continuing performance by the non-breaching party. Contract to build bridge, breach by bridge-owne r.

Contract Remedies: Specific Performance Specific performance A court order to do the promised act Equitable remedy Remedies for Quasi-Contract “quasi-contract In some cases the conditions for creating a contract are not all present – perhaps offer and acceptance didn’t match up so there was no actual agreement, or there was some failure of consideration on one side or the other – so the court will not Equitable remedy ? concerned with doing what’s fair and what’s right. Constructed by courts to avoid unjust enrichment by permitting P to bring an action in restitution to recover the amount of the benefit conferred on D. Rules of contract law have no application to quasi-contract.

Exam Strategy – if result is unfair, should include a paragraph on quasi-contract and available quasi-contract relief after applying contract law principles. Limitation of Remedies two main ways people go about limiting contractual liability One is to get the other side to agree in advance about what the damages would be if there’s a breach liquidated damages When parties agree in advance as to what the damages will be for a breach, Penalty clauses.

Attempts of make breaching the contract so painful that the other party will be forced to carry through on the contract. Restatement (Second)of Contracts Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty Exculpatory (free) clause its effect is to exculpate someone (prevent them from being held liable) for their breach.

Common in commercial transactions are written to shield one of the parties from ALL risks for their own breach Sometimes courts deal with this issue by refusing to enforce an exculpatory clause that leaves the plaintiff with no effective remedy – that is, no way to hold the other side accountable for its promise Illusory promises Where buyer has no obligation to buy from seller but could buy from some other seller if the price of widgets dropped – buyer’s promise to buy as many widgets as he chooses is not really a promise at all, and as such, unenforceable.

If, however, buyer promises to buy exclusively or a range of an amount, then having set a limitation on his future action or having obligated himself to buy some quantity from seller, buyer’s promise would constitute consideration. Treating a super-aggressive exculpatory clause as an illusory promise would require the court to conclude that there was no contract to begin with Consideration must exist on both sides of the contract – promises must be mutually obligatory. Where there is an agreement in which one party has become bound but the other has not, such agreements lack mutuality; one of those promises is illusory.

Consideration fails A defendant who denies there ever was a contract has two strategies: she can offer evidence that there was no offer, acceptance, and/or consideration and hope to convince the trier of fact that her version of events is more likely to be true; and she can bring evidence of her own that would prove that, even if there was offer, acceptance, and consideration, there still wasn’t a contract raise an affirmative defense. ” Essentially, the defendant can say “yes, but… ”: Yes there was offer/acceptance/consideration on the surface, but when you look deeper it can’t be treated as a contract.

CAPACITY Individuals in certain protected classes are legally incapable of incurring binding contractual obligations. Timely assertion of this defense by a promisor makes the contract voidable at his election Lacked the ability to understand the world accurately and make rational decisions about it FORMS OF INCAPACITY is the enforcement of willing exchange between rational human beings A contract with an Alzheimer’s patient would be void, because there is only one person capable of a willing and rational decision.

Three groups – Legal Right to Disaffirm infancy. Under the common law, an infant was someone under 21 years old. Over time the common law varied in how it treated contracts formed by infants. Eventually, by the late 19th century, most common law jurisdictions had settled that an infant’s contract should not be void from the outset Only requirement is age. Doesn’t have a right to consent Contract b/w adult and infant – binding on adult and voidable by infant.

Implied affirmation – person enters into agreement when he’s 17 (doesn’t have capacity, not enforceable), but by continuing to retain benefits of contract after gaining capacity, its like you have agreed all over again with capacity – takes effect of new deal. Allows once after you have capacity. Exceptions to where infant cannot choose to avoid the contract he entere Necessities – bound to pay the reasonable value of necessities (determining a necessity depends on infant’s station in life). Viewed as a quasi-contract obligation, consistent with quasi-contract “fair and appropriate” standard Intoxicated.

Mentally incompetent Incapable of understanding the nature and significance (or consequences) of a contract ? contract is voidable Exception Necessites Where contract is made on fair terms, and other party does not know of mental illness or defect, general power of avoidance terminates when the contract has been so performed in whole or in part, or a change in circumstances has occurred, that would make avoidance unjust. Court may grant relief as justice requires. Genuineness of Consent Duress Promises extorted by violence or threat of violence are not enforceable.

Purpose is to rescind the contract – not entered into voluntarily Elements Fear of Confinement or Bodily Injury Influence over the person to enter into contract where one or more of the parties “agrees” to something at the point of a gun or some other physical coercion These contracts are not void But they are voidable. The coerced party can cancel the deal later without penalty. The common law sees contracts as tools by which we can design our own lives and create security that where we need to be able to rely on other people’s promises we can do so Coercoin/ undue influence- Standard is Unfairness.

Arises when the victim has lost his ability to form a judgment independently from the influential person If the trusted person uses their position of influence to induce agreement to a contract, the contract will be voidable. can arise between family members – a spouse, a nurse, or an adult child caring for a frail parent, for example, or a professional (a lawyer, counselor, accountant, financial advisor, pastor, etc. ) ELEMENTS Heightened bargaining power Inappropriate bargaining power Weakened State Misrepresentation ELEMENTS.

There was a material misrepresentation (asserting of information that party knows to be untrue). That misrepresentation was relied upon by P Misrepresentation occurs in a contracts setting when one of the parties tells the other something about the subject of the contract that isn’t true can lead to a voidable contract if the other party reasonably relies on the misrepresented fact in deciding to agree to the contract fact has to be untrue, you have to believe it to be true, and you have to come to that belief by relying on my misrepresentation the fact has to be material.

Has to be significant enough that it might change a reasonable person’s mind about the value of the item more believable, and you believed it, you still would be a victim of the misrepresentation in that it would still have polluted your decision to buy the truck. Your free will would have been engaged in buying a Rigellian truck, but you’d only be getting a Ford Fraud , requires that you prove I intentionally told you an untruth to get you to buy A fraudulent misrepresentation might allow the plaintiff to claim additional damages above and beyond what they could get on strict contracts grounds.

The reasonable person knows these kinds of claims are puffery – claims that reasonable people know cannot be taken as literally true. Puffing your product will not expose you to liability for misrepresentation The key thing to remember here is we are trying to prevent people from being bound to contracts that they didn’t really enter based on a free will choice. Duress destroys free will, but so does misrepresentation or fraud, because one person is being led to think the contract is about one thing when it’s really about another. Puffery doesn’t destroy free will because, essentially, no reasonable person can be fooled by it..

demurrer, which is a motion by the defendant asking the Court to dismiss the case if you have an extreme imbalance of power AND if you have terms so unfair that they would “shock the conscience” of the reasonable person, you have an unconscionable contract. In such a case, the courts will conclude that the contract is voidable at the discretion of the weak cheated person. If we are of relatively balanced power and we agree to a conscience-shocking deal, it will still be enforceable. Or if we have extremely imbalanced power (but not coercion or duress!

), and the contract favors the strong person but doesn’t shock the conscience, it will still be enforceable. 3. Illegalities and Public Policy. Consider the following cases: An employment contract that penalizes the employee if he misses work for jury duty, reports to the police the employer’s violation of a law, or tries to get his fellow workers to form a labor union. An employment contract in which the employee agrees never to work for any of the employers’ competitors. A political candidate promising to pay $5 to anyone who votes for her. A lawyer who agrees to pay a policeman $100 for every client the policeman refers to her.

. Statute of Frauds The “Statute of Frauds” sounds like it fits right in with the “contracts against public policy” or the “unconscionable” contracts. But this is a case where the title doesn’t really fit the bill. that required contracts for the sale of real property (land, buildings, and the things attached to The writing can be minimal – enough to describe the property, state the price, and be signed by the person against whom the contract is being enforced. The Statute of Frauds has been satisfied on napkins, scrap paper, backs of envelopes and (as in Lucy v. Zehmer) the back of a restaurant bill.

them) to be in writing Resolves lack of writing (oral contracts) for certain types of contracts to avoid fraudulent claims and questionable subject matter; court wants more evidence than the oral ‘he said/she said. ’ Every jurisdiction has a different SOF. Exam Strategy: Whenever see “oral contract,” should apply SOF to see if all terms are included. Key Phrase: Within the Statute of Frauds ? means SOF applies Limited Categories where SOF applies: Sale of goods and purchase price of $500 or greater Personal services contracts that are not capable of being performed within one year.

Does not look at how long it is likely to take If not time specific, but task specific ? then not within SOF. Rationale is anything within unlimited resources is capable of being finished within one year Transfer of real estate regardless of dollar amount – must have te