Understanding Contracts: Formation, Capacity, Rights, and Discharge, Slides of Contract Law

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The Wonderful and Exciting World of Contracts a/k/a • Power • Power •Power Docsity.com Introductory Problems • Is there a problem with: – Formation – Enforcement – Quasi-Contracts – Rights – Duties – Remedies Docsity.com Four Elements to a Contract (p.s.it‟s on the midterm!) • Mutual Agreement • Consideration • Capacity and Reality of Consent • Legality of the Object Docsity.com Mutual Agreement • Offer • Acceptance Docsity.com Mutual Agreement • Offer: 3 Elements Necessary to be Valid – Contractual Intent • Social Invitations • Offers Made in Jest • Invitations to Negotiate – Definite and Certain – Communicated to Offeree Docsity.com Mutual Agreement • Acceptance: 2 elements – Absolute and Unconditional • “No ifs, ands, or buts…… – Communicated to the Offeree • “Tell Laura, „I love her……‟” Docsity.com Four Elements to a Contract • Mutual Agreement • Consideration • Capacity and Reality of Consent • Legality of Object Docsity.com Consideration • Legal Sufficiency – Legal Benefit or – Legal Detriment • Exists when one party does or promises to do something that one had no prior right to do Docsity.com Four Elements to a Contract • Mutual Agreement • Consideration • Capacity and Reality of Consent • Legality of Object Docsity.com Capacity and Reality of Consent • Minors • Mental Capacity • Intoxication • Mistakes • Frauds • Duress, Undue Influence, etc. Docsity.com Capacity and Reality of Consent • Minors (And not the West Virginia coal guys) – The general rule is that a contract with a minor is voidable at the option of the minor, before or within a reasonable time after the minor reaches the age of majority – Exception of necessities Docsity.com Capacity and Reality of Consent • Aliens – Generally, legal aliens have the same contractual rights as U.S. citizens. – To use this as a defense they must prove that they lacked the capacity to understand the contract Docsity.com Capacity and Reality of Consent • M _____________ W______________ Docsity.com Capacity and Reality of Consent • Mistakes – The general rule is that a unilateral mistake is not grounds for recission – The only grounds for recission are: • Bilateral • Material • Fact – Raffles v. Wichelhaus • Two different ships names “Peerless” Docsity.com Capacity and Reality of Consent • Economic Duress – Duress will usually not be found where one party takes economic advantage of the other‟s need to enter the contract Docsity.com Capacity and Reality of Consent • Undue Influence – Use of excessive pressure by a dominant to persuade one who is vulnerable to such pressure, resulting in the apparent will of the servient being in fact the will of the dominant Docsity.com Four Elements to a Contract • Mutual Agreement • Consideration • Capacity and Reality of Consent • Legality of Object Docsity.com Legality of the Contract • Sunday “Blue” laws • Violation of a Blue Law Statute makes the contract illegal and the court will leave the parties where it finds them. Docsity.com Legality of the Contract • License Requirements • License to protect the public: – recovery by the unlicensed person is not permitted • License to raise revenue – recovery by the unlicensed person is permitted Docsity.com Legality of the Contract • Usury • Charging greater interest than is permitted by law is not permitted Docsity.com Contracts in Writing • Contracts which must be in writing to be enforceable Statute of Frauds – Land Contracts – Contracts which can‟t possibly be performed within one year – Goods greater than $500 under the UCC – Surety Contracts – Other Exceptions Docsity.com Contracts in Writing • Statute of Frauds – Land Contracts • History of Land Transactions • Seisin • Recording Docsity.com Contracts in Writing Statute of Frauds Contracts which can‟t possibly be performed within one year Date of Contract Formation One Year If the contract can possibly be performed w/i a year, it does not have to be in writing to be enforceable If the contract cannot possibly be performed within a year, the contract must be in writing to be enforceable Docsity.com Contracts in Writing • Statute of Frauds Exceptions – Partial Performance – Partial Payment – Special or Unique Goods – Merchant‟s Confirmation – Admissions Docsity.com Contracts in Writing • Parol Evidence Rule (Four Corners Rule) – If a writing that is determined to constitute a contract includes everything that the parties intended, no evidence of prior oral or written agreements or contemporaneous negotiations may be used to change the terms. You are bound by the writing within the four corners of the written document Docsity.com Contracts in Writing • Parol Evidence Rule – Parol Evidence is admissible to show: • Subsequent modification of the contract • Mistake, fraud or misrepresentation • Ambiguity • Fill in the gap terms • Corrections of an obvious typographical or clerical error Docsity.com Rights of Third Parties • Third Party Beneficiary Contracts – Terminology • Creditor - Donee Beneficiaries • Intended - Incidental Benficiaries – Vesting • Occurs when the original parties can‟t rescind of change the K w/o other parties consent Docsity.com Rights of Third Parties Assignment of Rights Example of A/R Mortgage Obligor - You Obligee/Assignor First Bank Obligee- BankAmerica Docsity.com Rights of Third Parties Delegation of Duties Obligor - You Obligee - BankAmerica New Home Buyer You‟re still liable! Docsity.com Discharge of Contracts • Discharge by Performance – Most contracts are discharged in the manner, i.e by doing what was promised Docsity.com Discharge of Contracts • Breach and Anticipatory Repudiation – Non-performance of the contract or before the time of performance Docsity.com Discharge of Contracts • Discharge by Agreement – Recission • “Let‟s call the whole the thing off” – Novation • “New party” – Substitution • “New consideration” – Accord and Satisfaction • “Payment in Full” Docsity.com Discharge of Contracts • Impossibility of Performance – Subjective Impossibility - The Contract is not discharged • The obligation cannot be performed by the promisor, but can be performed by someone else Docsity.com Discharge of Contracts Discharge by Operation of Law Bankruptcy Chapter 7 Liquidation “I give up!” Chapter 11 Reorganization “We‟ve got Bad Management” Chapter 13 Wage Earner Plan “I can work it out!” Docsity.com Discharge of Contracts • Discharge by Statutes of Limitation – Limits on the period during which a party can sue on a cause of action Docsity.com Remedies • Courts – Courts of Law give “Damages” • Money – Courts of Equity give “Other Relief” • What is just and equitable Docsity.com Remedies • Damages – Compensatory - To make you whole – Consequential - Lost profits • Hadley v. Baxendale – Liquidated - Certain amount to be paid in the case of breach – Punitive - Designed to punish someone – Mitigation - To soften the blow • Parker v. 20th Century Fox Docsity.com Remedies • Equitable Remedies – Recission - Undo the deal and go back to square one – Specific Performance - You have to go through with the deal – Restitution - Make me whole – Injunction - Stop! – Reformation - Change the contract – Quasi-Contract - Looks like a contract to me! Docsity.com Uniform Commercial Code • Article 5 - Letters of Credit • Article 6 - Bulk Transfers • Article 7 - Warehouse Receipts, Bills of Lading • Article 8 - Investment Securities • Article 9 - Secured Transactions Docsity.com Uniform Commercial Code • Article 2 - Sales – Part 1 - Definitions and General Terms – Part 2 - Form and Formation of Contracts – Part 3 - General Obligations and Construction of Contracts Docsity.com Uniform Commercial Code • Themes • Good Faith 1-203, 1-201 (19) • Merchant 2-10 • “a person who deals in goods of the kind … or holds himself out as having knowledge or skill peculiar to the practices or goods involved.” Docsity.com UCC Differences • Acceptance (2-206) • An acceptance may be made in any manner reasonable under the circumstances (unless a specific manner is clearly indicated by the offeror) • Different from “The Mirror Image Rule” Docsity.com UCC Differences • Performance and Obligations • Under Common Law, each party is bound to perform the contract according to its terms • Under the UCC, each party is under the duty to exercise “good faith” in performance Docsity.com UCC Differences • Additional Terms (2-207(1)) • Under Common Law, a counter offer is just that…it terminates the original offer and if the counter offer is accepted by the original offeror, the contract is made on the terms of the counter offer • UCC “Battle of the Forms” Docsity.com UCC Differences • Price (2-305) • Under Common Law you had to have it • Under the UCC, you can conclude that there is a contract even though the price is not settled Docsity.com UCC Differences • Course of Dealing (1-205(1)) • The sequence of previous conduct between the parties which becomes regarded as establishing a common basis of understanding for interpreting their expressions of conduct Docsity.com UCC Differences • Usage of Trade (1-205(2)) • Any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that will be observed with respect to the transaction in question Docsity.com