The Purpose and Elements of Contracts: Judicial Activism and Restraint - Prof. Victor Bong, Study notes of Business and Labour Law

Download The Purpose and Elements of Contracts: Judicial Activism and Restraint - Prof. Victor Bong and more Study notes Business and Labour Law in PDF only on Docsity! Chapter 10 – Introduction to Contracts - Text Outline I. Contracts A. The Purpose of a Contract 1. Parties enter into contracts hoping to control their futures. 2. Contracts exist to make business matters more predictable. B. Judicial Activism v. Judicial Restraint 1. Judicial restraint – A court’s reluctance to interfere with the terms of a contract. a. An act of enforcing whatever terms the parties have agreed to even if harmful to one of the parties. b. Makes the law less flexible but more predictable. 2. Judicial activism (“doing justice”) – A court’s willingness to change or ignore a contract that it perceives as unjust. a. Means a court will ignore certain provisions of a contract or an entire agreement, if the judge believes that enforcing the deal would be unjust. b. Makes the law more flexible but less predictable. C. Issues and Answers 1. Four Elements of a Contract a. Agreement – One party must make a valid offer, and the other party must accept it. b. Consideration – There has to be a bargaining that leads to an exchange between the parties. c. Legality – The contract must be for a lawful purpose. d. Capacity – The parties must be adults of sound mind. 2. Other important issues a. Consent – Neither party may trick or force the other into the agreement. b. Written Contracts – Some contracts must be in writing to be enforceable. c. Third Party Interests – Some contracts affect people other than parties themselves. d. Remedies – A court will award money or other relief to a party injured by breach of contract. D. All Shapes and Sizes 1. Some contracts are small but others are large like the 20 billion dollar defense contract competed for between Lockheed Martin and Boeing. 2. Some contracts are public while others are private. a. Lockheed Martin Defense Contract (Public) b. Stern and Whitehead Contract (Private) – The Sterns contracted with Whitehead for her to be a surrogate mother of the Stern’s baby. i. Whitehead changed her mind and decided to keep the baby. In a lawsuit, the contract was judged to be illegal even though the baby was awarded to the Stern’s because it was in the baby’s best interest. ii. A few states now consider surrogacy a crime. 3. Some contracts are entered into without knowing while others will be surprised that no contract exists. a. Airline frequent flyer miles – is a contract based on the terms and conditions of the frequent flyer miles. b. Jerome Howard – was surprised that he did not have a contract with rap star Domino due to the fact that Howard was not a licensed agent. 4. Some contracts are shaped by social interest. a. Toxic waste cleanup of a property you contracted to sell (society mandated). b. Interest rate caps on mortgages (contract law). 1 II. Development of Contract Law A. 12th Century England – Oral promises were not enforceable. The only thing that was a written contract with an affixed seal. B. 15th Century England – Promises where something was exchanged became enforceable. A promise to do something, but where no money or other commodity was exchanged was not. (i.e. A promise to build a house is not enforceable if not exchange had taken place, but that promise that was backed up with a 10% down payment is.) C. 1602 England – Concept of mutual promises accepted where if both parties agreed to do something it is now enforceable. (i.e. Party A agrees to deliver eggs and party B agreed on the price it is a mutual promise.) 1. Davis v. Madison (1792) – Davis apprentices himself to Madison by agreeing not to setup shop within 10 miles of Madison after his leaving. Davis breached the agreement leading to a suit by Madison. Davis claimed the consideration was too great and would cause public harm by limiting access to a doctor. Judgment was given in Madison’s favor by enforcing the non-compete contract. 2. Noncompetition agreement – A contract in which one party agrees not to compete with another. a. Enforceable in 1792 regardless of any unfair burden placed. b. Courts had gone from ignoring most promises to enforcing nearly all. D. 20th Century America 1. Bigger global corporations started having an unfair advantage over the common man. Courts began taking more of an activist role due to this unfair advantage. a. Davis’s argument that the public had a right to as many doctors as needed would have been more likely to have been successful in this age. 2. Social sensibility takes a role where a court can ignore part of a contract if it is in the public’s best interest. a. Toxic waste must be cleaned up on a property by the originating owner even if you sale it with a contract that agrees that the new owner will clean it up. b. Agreement signed that you will not sue a manufacturer of a product will be ignored if that product harms a child due to a malfunction. III. Types of Contracts A. Bilateral and Unilateral Contracts 1. Bilateral contract (most common) – A promise made in exchange for a promise. 2. Unilateral contract (least common) – One party makes a promise that the other party can accept only by doing something. (i.e. Leo is offered $100 to mow someone’s lawn, but Leo never says he will do it. Instead he just mows the lawn thus accepting the contract and is now entitled to the $100.) B. Express and Implied Contracts 1. Express Contract – An agreement with all important terms explicitly stated. 2. Implied Contract – Where the words and conduct of the parties indicate that they intended an agreement. (i.e. Low has mowed someone’s lawn and has been paid for 11 weeks. If on the 12 th week that someone refuses to pay Leo saying he never asked him to do it. Leo still has a right to be paid because he was paid for mowing the lawn without being asked on previous weeks which implies an agreement.) a. Demasse v. ITT Corp. – ITT’s handbook states that any layoffs will be done based on seniority. ITT then changes the handbook and promptly many senior employees. Judge ruled that employers may 2