Understanding Contracts: Types, Consideration, Performance, and Remedies - Prof. Jason Mal, Exams of Business and Labour Law

Download Understanding Contracts: Types, Consideration, Performance, and Remedies - Prof. Jason Mal and more Exams Business and Labour Law in PDF only on Docsity! BUSINESS LAW EXAM 2 REVIEW CHAPTER 10: CONTRACTS Contract: a promise that the law will enforce (not all promises are enforceable) Purpose: makes business predictable (but makes the law less flexible) Judicial Activism: sometimes a court will ignore certain provisions of a contract, or an entire agreement, if the judge believes that enforcing the deal would be unjust (makes law more flexible, but less predictable) Judicial Restraint: a court taking a passive role and requiring the parties to fulfill whatever obligations they agreed to, whether the deal was wise or foolish 4 ELEMENTS 1. Agreement a. Offer (Offeror): “I’ll pay you ____ for ___” b. Acceptance (Offeree): “Okay. I’ll give it to you.” 2. Consideration : There has to be bargaining that leads to an exchange between parties 3. Legality : K must be made for a lawful purpose (no drugs, whores, etc) 4. Capacity : the parties must be adults and of sound mind 3 Things to Remember: 1. Is it certain that defendant promised to do something? 2. If so, is it fair to make them honor their word? 3. If they did not promise, any unusual reasons to hold them liable anyway? Consent: neither party may trick or force the other into the agreement Written Contracts: some contracts must be in writing to be enforceable Third Party Interests: some contracts affect people other than the parties involved Performance and Discharge: if a party fully accomplishes what the contract requires, his duties are discharged Remedies: a court will award money or other relief to a party injured by a breach of contract Parties: a. Offeror  Offeree b. Promisor  Promisee TYPES: Bilateral v Unilateral: - Bilateral: a promise in exchange for another promise (two parties) Ex: loans, pay someone to mow your lawn - Unilateral: a promise that is accepted through performance- either doing/not doing something Ex: mow the lawn for money, offer accepted when you actually mow Expressed v Implied: - Expressed: where 2 parties explicitly state all of the important terms of their agreement orally or in writing - Implied: where the words or conduct of the parties indicate that they intended an agreement Ex: making a motion during an auction Executory v Executed - Executory: an agreement where 1 or more of the parties HAVE NOT performed/fulfilled its obligations - Executed: an agreement where all parties HAVE performed obligations Enforceable v Unenforceable Agreements - Valid Contract: satisfies all of the law’s requirements; contract is binding and enforceable - Unenforceable Agreement: occurs when parties intend to form a valid bargain, but the court declares that some rule of law prevents it (MUST abide by the Statute of Frauds or it is Unenforceable) - Voidable Contract: when the law permits one party to terminate the agreement Ex: K is not written but should be, Fraud, minors - Void: a legally unenforceable agreement by either party Ex: drug deal, illegal items, whores Remedies Created by Judicial Activism Promissory Estoppel: the defendant made a promise the plaintiff relied on Must Prove: 1. Defendant made a promise knowing the plaintiff would rely on it 2. Plaintiff DID rely on that promise 3. The only way to avoid injustice is to enforce the promise Quasi-Contract: defendant made NO promise, but DID receive benefit from plaintiff Must Prove: 1. Plaintiff gave some benefit to the defendant 2. Plaintiff reasonably expected to be paid for the benefit and defendant knew this 3. Defendant would be unjustly enriched if he did not pay 4. Theory Promise? Contract? Description Express Contract Yes Yes Parties intend to contract and agree on explicit terms Implied Contract Not explicitly Yes Parties do not formally agree, but words and conduct = intention of contract Promissory Estoppel Yes NO No contract, but defendant makes promise that they can foresee will induce reliance; plaintiff relies on it; it would be unjust NOT to enforce the promise Quasi-Contract NO NO NO intention to contract, but plaintiff gives some benefit to defendant who knows that plaintiff expects compensation; unjust NOT to award plaintiff damages (Quantum Meruit) - Quantum Meruit: awarded damages, “as much as he deserves” SOURCES OF CONTRACT LAW Common Law: - Basis of all contract law - State-specific case laws concerning contracts - Pertains to: EVERYTHING (except sale of goods) o Ex: services, employment, real estate - Primary source of law that has binding precedent CHAPTER 11: AGREEMENT Meeting of the Minds: an oral contract formed only if: (1) they understood each other, and (2) they intended to reach an agreement Offer: an act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms -If the terms are vague, court doesn’t have enough info and cannot enforce it 2 Questions: 1. Did the Offeror intend to make a bargain? 2. Are the terms of the offer definite? Invitations to Bargain: NOT an offer Ex: “Can I buy your bike?” “Not for less than $150.” “**Then here is $150!” **This is the invitation, but he is only indicating he would like that sum Price Quote: generally, NOT an offer Letter of Intent: often written to protect own company when bargaining, ensuring the other side is serious without binding itself to premature commitments Advertisements: generally, NOT an offer, but merely a request for offers Consumer Protection Statute: statements that outlaw false advertising Auctions: placing an item for auction is NOT an offer, but a request for offers Open Terms under the UCC: Open Price: parties do not settle on a price, UCC establishes a reasonable price Output Contract: obligate the seller to sell all of his output to the buyer, who agrees to accept it Requirements Contract: obligates the buyer to obtain all of his needed goods from the seller Delivery: generally, the seller’s place of business Time: a reasonable time, based on normal trade practice Payment: normally due when and where the buyer receives the goods Warranties: Implied Warranty of Merchantability and Implied Warranty of Fitness for a Particular Purpose Quantity: must be done in Good Faith and not disproportionate to prior dealings Termination: 1. By Revocation: offeror may revoke the offer anytime before it has been accepted. Effective when offeree receives it Firm Offer: offer that, by its own terms, is held open for a period of time Common Law Rule: revocation of a Firm Offer is effective if the offeree receives it before he accepts Option Contract: Offeror may not revoke an offer during the option period Sale of Goods: A writing, signed by a merchant, offering to hold open an offer for a stated period may not be revoked 2. By Rejection: if an offeree rejects an offer, the rejection immediately terminates the offer Counteroffer: rejection 3. By Expiration: when an offer specifies a time limit for acceptance, that period is binding. If the offeror specifies NO time limit, the offeree has a reasonable period in which to accept 4. By Operation of Law: death or mental incapacity of the offeror and destruction of the subject matter terminates an offer, whether offeree knows of the change or not Communication of Acceptance: Acceptance: offeree must say or do something to accept (silence  acceptance) Medium/Manner of Acceptance: if an offer demands acceptance in a particular medium or manner, the offeree must follow those requirements Time of Acceptance: acceptance is effective on dispatch Mailbox Rule: obvious Mirror Image Rule: requires that acceptance be on precisely the same terms as the offer Battle of Forms: *An offeree who accepts may include in the acceptance add additional/different terms than what were originally in the offer Additional Terms: terms that bring up new issues, generally become part of the K Different Terms: terms that contradict terms in the offer; contradictory terms often cancel each other out in some states CHAPTER 12: CONSIDERATION Consideration: there must be bargaining that leads to exchange between parties; can be anything someone might want to bargain for (promise or action; benefit to promisor or detriment to promisee; promise to do or promise NOT to do something) Illusory Promise: NOT a consideration; i.e. “I’ll buy it if I like it.” NO contract Requirements Contract: buyer agrees to purchase 100% of goods from seller Output Contract: seller agrees to sell 100% of output to one buyer, if buyer accepts Past Consideration: is NO consideration; past events do not apply to currents Ks Preexisting Duty: a promise to do something the promisor is already obligated to do is NOT consideration Ex: If I am required to provide a service, I cannot try to make you pay me to do it, since I am already obligated to you Exceptions:  Additional Work: when promisor agrees to go above & beyond obligation  Modification: when changes need to occur, both parties should agree to rescind to original contract and draft a new one  Unforeseen Circumstances: when unforeseen circumstances cause a party to make a promise regarding an unfinished project, the promise = valid consideration Settlement of Debts: Liquidated Debt: debt in which there is no dispute about amount owed  If creditor agrees to take less than full amount as full payment, agreement is NOT binding Unliquidated Debt: (1) parties dispute if any $ is owed OR (2) amount is in dispute Accord and Satisfaction: accord=agreement to settle for less than creditor claims, satisfaction=actual payment of the compromised sum CHAPTER 18: REMEDIES Breaching the Contract *A breach occurs when: a party fails to perform duty without a valid excuse Remedy: method a court uses to compensate an injured party Expectation Damages: money required to put one party in position they would be in if second party had not breached the contract Specific Performance: courts force both parties to complete the deal (rare items) Liquidated Damages Clause: a provision in a contract that declares in advance what one party will receive if the other party breaches the contract Protecting “Interest” Interest: legal right in something (property, contract- if agreement gives benefit) - Expectation Interest : what the injured party reasonably thought they would get from the contract - Reliance Interest : because of the K, expended money was spent - Restitution Interest : a benefit was conferred on the other party - Equitable Interest : when money damages will not suffice, a court may order a transfer of property, an injunction, etc Expectation Interest *Designed to give injured party in the position if both sides performed their duty Compensatory Damages: damages that flow directly from the breach of contract  Injured party must prove with reasonable certainty that the breach specifically caused damages they want compensation for Consequential Damages: damages resulting from unique circumstances  The injured party may recover consequential damages ONLY IF the breaching party should have foreseen them when K was formed Incidental Damages: relatively minor costs injured party suffered (small sums of $) Sale of Goods Seller’s Remedies: the difference between original contract price and price able to be obtained from the open market when buyer breaches contract  Seller of Goods is NOT entitled to consequential damages Buyer’s Remedies: difference between original contract and cover price  Cover: make a Good Faith purchase of goods similar to those in contract  Buyer IS entitled to consequential damages, provided the seller could have reasonably foreseen them Reliance Interest *Designed to put injured party in position if they never entered into the contract  Focuses on time and energy injured party spent performing their duty Promissory Estoppel Reliance Damages: only reward given to injured party in Prom. Est. case Restitution Interest *Designed to return to the injured party a benefit that was conferred on the other party and would be unjust to leave on the injured party  Common remedy for fraud, misrepresentation, mistake, and duress  Rescission: “undo” a K and return parties to previous state before K was made Other Equitable Interests Specific Performance: court orders parties to perform the contract, only in cases involving the sale of land or some other unique asset (don’t want money) Injunction: court order requiring someone TO DO/NOT TO DO something (Cease and Desist) Preliminary Injunction: order issued early in the lawsuit prohibiting party from doing something during the course of the lawsuit (protects interests of plaintiff) Permanent Injunction: PreliminaryPermanent after trial if plaintiff was injured and entitled to an injunction Reformation: process in which a court will “rewrite” the contract (very seldom)  Usually reformed in case of a mistake in contract or unfair terms Special Issue of Damages Mitigation: injured party is responsible to keep damages as low as is reasonable Nominal Damages: a token sum given to plaintiff who demonstrates defendant breached contract but cannot prove serious injury Liquidated Damages Clause: advance statement of payment if one party breaches Enforced If: 1. At time of creation, was difficult to estimate actual damages 2. Liquidated amount is reasonable *In any other case, damage is considered a penalty and is unenforceable Punitive Damages: designed to punish breaching party rather than compensate injured party 3 Guideposts: 1. Reprehensibility of defendant’s conduct 2. Ratio b/w harm suffered and the award 3. Difference b/w punitive award and any civil penalties from similar cases CHAPTER 19: SALES Development of Commercial Law Law Merchant (Lex Mercatoria): body of rules developed and relied on by traders throughout Europe from the 15th-18th century UCC Article 2- deals with:  (Sale of) Goods: things that are moveable (clothes, objects; NOT land or property)  (Regulates) Sales: one party transfers title to another in exchange for $  Leasing Goods (Sect. 2A): temporary exchange of goods for $ Mixed Contracts: involves both SALES and SERVICES  Predominant purpose = UCC (sales) or Common Law (services) applies Merchants: someone who (1) Regularly deals in the particular goods involved OR (2) Appears to have special knowledge/skill with those goods OR (3) Uses agents with special knowledge/ skill in those goods *UCC holds Merchants to higher standard of conduct than a non-Merchant Good Faith Under UCC: imposes duty of Good Faith in performance of all contracts  Merchant: honesty AND exercise of reasonable commercial standards of fair dealing  Non-Merchant: honesty in fact Unconscionable Contract: a K that is shockingly one-sided and unfair Good Faith v. Unconscionability: - Good Faith = looks at party’s behavior while carrying out agreement; was party attempting to carry out obligations in reasonable and fair manner? - Unconscionability = looks at K itself; should grossly unfair terms be reformed or ignored? Formation of a Contract: 3 Important Rules: 1. Must be made in a matter that shows Agreement (meeting of the minds) 2. Moment of creation is not critical (was K formed on oral agreement or on delivery or on acceptance, etc? DOES NOT MATTER- still enforceable) 3. 1+ terms may be Left Open (court may enforce bargain even though certain things were not specified, i.e. delivery date, time payment is due) Statute of Frauds: requires writing for any sale of goods worth $500+  Not required to completely summarize agreement or even to entirely accurate  Writing must be sufficient to indicate parties made the contract  Must be signed by defendant  Incorrect/omitted terms = OK  Enforceable only to the quantity of goods stated in writing  Merchant Exception: when 2 Merchants enter an oral contract, one sends a confirming memo to the other within a reasonable time and memo is