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Terms in this set (97)
legally enforceable promise or set of promises. They facilitate the planning that is necessary in a modern, industrialized society.
created by contracts, the terms of the agreements we make in the contract
Freedom of contract
The idea established in 15th century that contracts should be enforced because they are the products of the free wills of their creators, who should, within broad limits, be free to determine the extent of their obligations
Steps to a contract
2. Agreement (offer and acceptance)
8. Writing Required?
made up of an offer and an acceptance of that offer
The contract must be between parties who have capacity to contract, and the objective and performance of the contract must be legal
only one party makes a promise
both parties exchange promises and the contract is formed as soon as the promises are exchanged
one that meets all of the legal requirements for a binding contract, they are therefore enforceable in court
one that meets the basic legal requirements for a contract but may not be enforceable because of some other legal rule
those in which harmed parties have the legal right to cancel their obligations under the contract. Ex.) Contract that is induced by fraud or duress is voidable. Main point is the injured party has the right to cancel the contract if he chooses
the parties have directly stated the terms of their contract orally or in writing at the time the contract was formed
Implied Contract (Contract implied in fact)
The mutual agreement necessary to create a contract may also be demonstrated by the conduct of the parties. When the surrounding facts and circumstances indicate that an agreement has in fact been reached, an implied contract is created (Terms aren't express but are implied by the circumstances)
when all of the parties have fully performed their contractual duties
Contract is executory until such duties have been fully performed so that the contract is executed
The Uniform Commercial Code (UCC)
statutory law governing contracts in every state (If it concerns GOODS)
Common Law of Contracts
Court made law governing contracts (covers everything else)
The law enforces an obligation to pay for certain losses or benefits even in the absence of mutual agreement and exchange of value.
Quasi-contract (unjust enrichment/contract implied in law)
It is a promise by the benefited party to pay the reasonable value of the benefits he received. It represents an obligation imposed by law to avoid injustice, not a contractual obligation created by voluntary consent. In general, however, quasi-contract liability is imposed when one part confers a benefit on another who knowingly accepts it and retains it under circumstances that make it unjust to do so without paying for it.
Symons V. Heaton
Symons claimed the money to Plachek's estate, but claim was denied. Since Symons took care of Plachek and did not pay rent and there was no statement or anything suggesting that Plachek told Symon he was entitled to the estate, summary judgment was granted in favor of Plachek's estate.
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. In certain situations, one person might rely on a promise made by another even though the promise and the relevant circumstances are not sufficient to justify the conclusion that a contract exists. To allow the person who made such a promise (the promisor) to argue that no contract was created could sometimes work an injustice on the person who relied on the promise (the promisee). In other words, the elements of a promissory estoppel are a promise that the promisor should forsee is likely to induce reliance, reliance on the promise by the promisee, and injustice as a result of that reliance.
Elements of an offer
1. Intent- Not joking or just inquiring, this is objective standard, would reasonable person think the acts, words & circumstances showed an intent to be bound?
2. Definite Terms- Covered by the UCC: can leave out some terms because UCC fills in the gaps, otherwise must state all essential terms
3. Communicated to the offeree
Generally are NOT offers, concerned with over-acceptance. Couldn't hold a shopkeeper to have an infinite amount of product for demand
Ads that are "offers"
Contains very specific & definite terms
- While supplies last
- First 20 people
- Classified ad
- Treated as offers for unilateral contracts (in other words all the other party must do is perform)
- some states require that people know about the reward before beginning to perform, in other states the people must know about it before completing performance
Seller who places an item for auction is inviting a bid (offer)
- Bids are offers
- Auctioneer accepts the offer - but may withdraw the item without accepting a bid
- bidders may withdraw a bid up until acceptance
When does offer end
By terms of the offer
- Lapse of "reasonable" time if non specified time
- Revocation: offer can be revoked at any time prior to acceptance, even if they have promised to hold the offer open for a stated period of time
- Rejection: other side rejects offer
- Death or incapacity of a party
- Destruction of subject of the offer
- Intervening illegality
Meram V. MacDonald
MacDonald hosts presentation and says at the end he will give $1 million to whoever's business card he pulls out. He pulls out Meram's business card, and says he will give him 1$/year over 1 million years. Meram sues for breach of contract to which MacDonald attempts to dismiss. The case is concerned with what constitutes a legitimate offer. Because MacDonald's offer appeared to be genuine, the terms appeared to be specified, and the offer itself was not vague (MacDonald stated, "the winner would walk out of here with a million dollars today.") MacDonald lost and was held to pay the $1 million
Kolodziej v. Mason
Mason was an attorney for a murder case who jokingly offered an interviewer $1 million if anyone could travel in a specified route in under a said amount of time. Kolodziej did the route and demanded the money and sued. Mason won as the court found that no reasonable person could conclude that the substance of Mason's challenge in the edited and unedited versions of his NBC interview is the same
Hines V. Overstock.com
Hines bought a vacuum cleaner from Overstock and returned it as it was refurbished, and upon being charged a $30 restocking fee Hines sued. Overstock said they could take it to arbitration because their terms and conditions on their website had an arbitration clause. According to Overstock just by using their website you are accepting their terms and conditions which is not the case. Since Hines could not be reasonably expected to have consented to the terms and conditions, no agreement was made and the court decided in favor of Hines.
separate contract in which an offeror agrees not to revoke her offer for a stated time in exchange for some valuable consideration
Trademark Properties v. A & E Television Networks
Davis creates television show with A & E and isn't compensated. Davis sues for breach in contract, A & E claims there was no contract. Verbal contract confirmed, Davis won
Mirror Image rule
Acceptance must be mirror image of the offer
Properly addressed and dispatched acceptances can become effective when they are dispatched, even if they are lost and never received by the offeror. This protects the offeree's reasonable belief that a binding contract was created when the acceptance was dispatched. The offeror however has the ability to stipulate in her offer that she must actually receive the acceptance for it to be effective.
US Life Insurance Co. in NY vs. Wilson
Dr. Griffith had life insurance policy and sent checks that were not received. Life Insurance co. ended his membership, Dr. Griffith died, and his wife wanted his Life insurance money.Dr. Griffith's wife, Wilson, won the case because of mailbox rule, and Dr. Griffith sending the check to his insurance agency prior to the agency dropping Griffith. This sending of the check bound Dr. Griffith and the agency.
Acceptance in Unilateral Contracts
Involves the exchange of a promise for an act. To accept an offer to enter such a contract, the offeree must perform the requested act.
Acceptance in Bilateral Contracts
Involves the exchange of a promise for a promise. To accept an offer to enter such a contract, an offeree must make the promise requested by the offer.
Silence as acceptance
General rule is that an offeree's silence is not acceptance, and an offeror cannot make an offeree's silence constitute as acceptance
Who can accept an offer
Only the offeree, anyone else who attempts to accept the offer will be considered an offeror
legal value, bargained for and given in exchange for an act or a promise. If promisor does not make a request of legal value to the promisee that the promisee must pay for or if the promisee does not pay for in some way the promise from the promisor, then it is not enforceable against the promisor
Franchise Holding Case
Prosecution made a promise with defendant that if they paid in timely manner and allowed prosecution certain liberties, then defendant didn't have to pay full sum. Decided that payment schedule does not constitute as consideration but the other liberties did, therefore the defendants motion to dismiss was denied and the prosecution was allowed to file a claim for breach of contract
Wife spins wheel for chance to win $1 million, sues when casino claims she didn't land on jackpot. Court decides that she had adequate consideration and denies the motion for summary judgment in favor of Ms. Gottlieb, lets trial decide the facts of the case.
For a promise to serve as consideration in a bilateral contract, the promisee must have promised to do, or to refrain from doing, something at the promisor's request. If the promisee's promise is illusory because it really does not bind the promisee to do or refrain from doing anything, such a promise could not serve as consideration
Day v. Fortune Hi-Tech
third party marketing firm selling services from companies to consumers sued. Contract not supported by adequate consideration. Defendant retained ability to modify any term of the contract, at any time, its promises were illusory.This made defendant not bound by contract because it could always change rules, district court is affirmed, against Fortune Hi-Tech
The legal value component of our consideration definition requires that promisees do, or promise to do, something in exchange for a promisor's promise that they had no prior legal duty to do. As a general rule, performing or agreeing to perform a preexisting duty is not consideration.
These generally occur when the parties to an existing contract agree to modify that contract. The general common law rule on contract modifications holds that an agreement to modify an existing contract requires some new (independent) consideration to be binding
Not consideration, it is an act or other benefit given in the past that was not given in exchange for the promise in question
General rule, promises made to satisfy a preexisting moral obligation are unenforceable for lack of consideration
Doe V. Roman Catholic
Doe sexually abused, wants church to pay for therapy, church cuts back on payment and Doe sues. Summary judgment granted to church but Doe appeals. Moral obligation to perform an agreement does not provide sufficient consideration to support the enforcement of an agreement nor does it create an enforceable contract. Judgment of trial court affirmed, Doe loses because moral obligation isn't legal contract.
Contracts induced by misrepresentation, fraud, mistake, duress, or undue influence are generally considered to be voidable, which means that the person whose consent was not real has the power to cancel the contract
a person who had the right to rescind has elected not to do so. Ratification ends the rights to rescind. Unreasonable delay communicates that she has ratified the contract.
Misrepresentation and Fraud
Misrepresentation is an assertion that is not in accord with the truth, when a person enters a contract based on this, it is voidable. Does not need to be intentionally deceptive. Misrepresentations can be innocent or fraudlent
The legal term for knowledge of falsity, which distinguishes fraud from innocent misrepresentation
Requirements for Rescission
1. An untrue assertion of fact was made
2. The fact asserted was material or the assertion was fraudulent
3. The complaining party entered the contract because of his reliance on the assertion
4. The reliance of the complaining party was reasonable
Untrue Assertion of Fact
to have misrepresentation or fraud, one of the parties must have made an untrue assertion of fact or engaged in some conduct that is the equivalent of an untrue assertion of fact. The fact asserted must be a past or existing fact, as distinguished from an opinion or a promise or prediction about some future happening
Stephen Wheat Trust v. Sparks
Wheat's had sewer problem claimed that past owners of the house deceived them about. Plaintiffs asserted a fraud claim. Court granted summary judgment to Sparkses, Wheat's appealed, court reversed summary judgment in favor of Wheats because fraud was deemed and is an intentional tort for which punitive damages may be awarded
Timothy v. Keetch
Keetch's had horse that they had loan on, used horse as security deposit for different loan company and claimed to have no fees or securitys on hoarse. Defaulted payment for first company and lost hoarse, defaulted payment for second company, they came for hoarse but was already taken. Second company sued Keetch's for breech of contract and fraud. Affirmed in favor of the Timothys
a belief about a fact that is not in accord with the truth. Mistakes often will not justify rescission
mistake made by one party
mistake made by both parties
elements of mutual mistake
1. The mistake relates to a basic assumption on which the contract was made
2. The mistake has a material effect on the agreed-upon exchange
3. The party adversely affected by the mistake does not bear the risk of the mistake
Hicks v. Sparks
Hicks rear ended by Sparks, Hicks settled and Sparks insurance paid final release. Year later Hicks had other problems wanted more money sued Sparks for negligence. Dismissed for summary judgment, Hicks appealed, Grant of summary judgment to Sparks affirmed because mistake was only found on Hicks behalf for not having more thorough medical exam before final release
Requirements of Unilateral Mistake
1. The non-mistaken party caused or has reason to know of the mistake
2. It would be unconscionable to enforce the contract
Sumerel V. Goodyear
Goodyear miscalculated an owed payment and was about to overpay, drew contract and caught mistake. Sumerel insisted Goodyear pay higher amount and sued, motion granted, but Goodyear appealed. Reversed in favor of goodyear (focus on unilateral mistake)
Two Elements of Duress
1. The contract was induced by an improper threat
2. The victim had no reasonable alternative but to enter into the contract
- Undue Influence
The ability to incur legal obligations and acquire legal rights
Those who lack capacity
- Minors (in legal terms seen as infants)
- Persons suffering from mental illnesses or defects
- intoxicated persons
Have right to avoid (escape legal consequences of) contracts they enter during incapacity
Minors Right to Disaffirm
Minors have the right to avoid contracts as a means of protecting against their own improvidence and against overreaching by adults. This is right is personal to the minor, that is only the minor or a legal representative such as a guardian may disaffirm the contract. No formal act or written statement is required to make a valid disaffirmance. If on the other hand, the minor wishes to enforce the contract instead of disaffirming it, the adult party must perform. This puts any adult contracting with a minor in an undesirable position. He is bound on the contract unless it is to the minor's advantage to disaffirm it.
Galloway vs. Iowa
A 14 year old is hit by a bus on a state field trip. Parent sues state. State says parent signed waiver, motions for summary judgment. Parent appeals, court decides in favor of Parent because a Parent cannot waive legal liability on behalf of a child, as a condition for the child's participation in an educational field trip.
Exceptions to Minor's Right to Disaffirm
Statutes prevent minors from disaffirming such transactions as:
- agreements to support their children
- educational loans
- life and medical insurance contracts
- contracts for transportation by common carriers
- certain types of contracts approved by a court (child actor)
Age of majority
18 in 49 states
the termination of a parent's right to control a child and receive services and wages from him. No formal requirements for emancipation. In most states the mere fact that a minor is emancipated does not give him capacity to contract
When a person who has reached majority indicates that he intends to be bound by a contract that he made while still a minor, he surrenders his right to disaffirm. This act of affirming the contract and surrendering the right to avoid the contract is "ratification" (no formal requirements)
Duties Upon Disaffirmance
If disaffirmance, both parties expected to give up their consideration, however if minor is unable to return the consideration, most states will still permit him to disaffirm the contract
Obligation to pay for necessities
Disaffirming minors are required to pay the reasonable value of items that have been furnished to them that are classified as necessaries (something that is essential for the minor's continued existence and general welfare that has not been provided by the minor's parents or guardian. I.E. food, clothing, shelter
A minor's liability for necessaries supplied to him is this, the minor is liable for the reasonable value of the necessaries that she actually receives. She is not liable for the entire price agreed on if that price exceeds the actual value of the necessaries, and she is not liable for necessaries that she contracted for but did not receive.
Zelnick v. Adams
Zelnick claimed that his legal services were a necessity to Adams and Adams therefore needed to fairly compensate for the necessity. The courts decided that Zelnick's legal services were not a necessity and that Jonathan was able to disaffirm without any fees.
Effect of Misrepresenting Age
Traditional law: A minor's misrepresentation of his age did not affect his right to disaffirm and did not create any obligation to reimburse the adult
State law today: Fairly evenly divided among those states that take the position that the minor who misrepresents his age will be prevented from asserting his infancy as a defense. Most states still hold the minor responsible for the losses suffered by the adult, either by allowing the adult to counterclaim against the minor for the tort of deceit or by requiring the minor to reimburse the adult for use of depreciation of his property
Cognitive test to determine mental incapacity:
- courts ask whether the person had sufficient mental capacity to understand the nature and effect of the contract.
- Restatement Standard: would provide protection to people who understood transaction but, because of mental defect or illness were unable to exercise appropriate judgment or control their conduct effectively
- If proper mental impairment, contract considered void
Rogers V. Household Life
Rogers diagnosed with Alzheimer's, registers for life insurance with son after having adjudication by courts for mental illness. Rogers died, and when son claimed life insurance money, insurance said contract void because Rogers was mentally impaired when contract was made. Insurance motioned for summary judgement, granted, Roger's son appealed. Affirmed in favor of Insurance, cannot contract if mentally incapacitated.
Right to disaffirm if mental impairment
A person formerly incapacitated by mental impairment can ratify a contract if he regains his capacity. Same rules as disaffirment for minor, only exception is that if non necessaries, then it is looked at whether contract was fair if mentally impaired person owes compensation. Often if someone did not know other person was mentally impaired, it is considered fair.
Contracts of Intoxicated Persons
Intoxication from alcohol or drugs can deprive a person of capacity to contract. Intoxication is a ground for lack of capacity only when it is so extreme that the person is unable to understand the nature of the business at hand.
Restatement (Second) Contracts: Provides that intoxication is a ground for lack of capacity only if the other party has reason to know that the affected person is so intoxicated that he/she cannot understand or act reasonably in relation to the transaction. Has same disaffirment rights as person with mental impairment, but courts are much more strict about intoxication
Public Policy as it relates to whether a contract is illegal
If the enforcement of an agreement would create a threat to a public policy, a court may determine that it is illegal. If action that goes against minor rule is not injurious to public welfare, contract can still be enforced despite a technical violation of the law.
Illegal Agreement Categories
1. Agreements that violate statutes: Legislatures occasionally create statutes that declare certain types of agreements unenforceable
2. Agreements that violate public policy developed by courts: If agreement is not in best interest of public, judge can declare it unenforceable/illegal
3. Unconscionable agreements and contracts of adhesion: If agreement advocates or facilitates bad/illegal behavior can be declared unenforceable/illegal
Coma Corp V. Kansas
Coma hired Employee who was illegal immigrant. Employee fired and wanted to be compensated properly sued Coma Corp. Coma Corp appealed for judicial review, won because contract deemed invalid since employee was illegal. Kansas Labor department appealed, and verdict reversed in favor of Kansas because it is more important to decide in favor of public interest that wages are fairly compensated, then to focus on the fact that the employee was illegal
Ancillary Covenant not to compete (noncompete clause)
The buyer or the employer might bargain for a contractual clause that would provide that the seller or employee agrees not to engage in a particular competing activity in a specified geographic area for a specified time after the sale of the business or the termination of employment.
Three criteria for enforceability:
1. Clause must serve a legitimate business purpose
2. The restriction on competition must be reasonable in time, geographic area, and scope
3. The non-competition clause should not impose an undue hardship
Clark's Sales and Service, Inc. V. Smith
Clark filed suit because it felt one of its employees violated the noncompete clause. It was deemed that Clark had too broad of a noncompete clause and therefore it was unenforceable so Clark's motion was denied
Courts would refuse to grant the equitable remedy of specific performance for breach of a contract if they found the contract to be oppressively unfair. Courts have power to manipulate unconscionable part of a contract for a just result. Courts can refuse to enforce the entire agreement, refuse to enforce a single part of the contract, or it can limit the application of the unconscionable clause so as to avoid any unconscionable result. (Adjustments can be made in the contract)
Contract of adhesion
Contracts in which a stronger party is able to determine the terms of a contract, leaving the weaker party no practical choice but to "adhere" to the terms)
Unfairness in the bargaining process
In addition to looking at facts that might indicate procedural unconscionability, courts will scrutinize the contract terms themselves to determine whether they are oppressive, unreasonably one-sided, or unjustifiably harsh
Does not exist in common law, UCC however imposes higher standards on the parties. For merchants, implied warranty and higher standard of good faith.
Output & Needs or Requirements Contract
Output Contract: Madison Square Garden agrees to buy all of ice that manhattan ice company produces
Needs or Requirements Contract: Madison Square Garden agrees to buy all of the ice that it needs from Manhattan Ice Company.
Both are enforceable even though the quantity is uncertain. Would be unenforceable under common law.
Both sides must act in good faith.
Parties Obligation after the sale
Buyer has a right to inspect the goods before paying, but if parties have agreed COD (cash is due on delivery) then the buyer must pay right away. If buyer later inspects & sees a problem, the buyer may recover against the seller.
Buyer has a reasonable period of time to reject otherwise, it's too late
Buyer may pay in any manner that's common in the industry
Accepting or Rejecting Goods
Acceptance: buyer has had a reasonable opportunity to inspect goods, either explicitly accepts or does nothing to indicate rejection. If buyer treats them as her own, she has accepted
Rejection: buyer must notify seller and specify the defect
Duty to mitigate
- Party suing for breach must take steps to minimize the damage
- Fired employees must look for new employment, even if they were wrongfully terminated
- Landlords must try to rent the space to someone else if a tenant breaches the lease
In assessing whether a party bears the risk of the mistake, courts may determine a party should bear the risk because
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