Business law chapter 13-16

Introduction to genuineness of assent

• Genuineness of assent: Requirement that a party’s agreement to a contract be genuine or real

• Might be lacking due to mistake, fraudulent misrepresentation, or duress

• Court may permit the rescission (cancellation) of a contract based on the equitable doctrine of undue influence

Mistake

• A mistake occurs where one or both of the parties to a contract have an erroneous belief about the subject matter, value, or some other aspect of the contract

• Mistakes can be either unilateral or mutual

• Two primary mutual mistakes

• Mutual mistake of a material fact

• Mutual mistake of value

• The law permits rescission of some contracts made in mistake

• Rescission: An action to undo a contrac

Unilateral mistake

• Mistake in which only one party is mistaken about a material fact regarding the subject matter of a contract

• A contract may not be enforced due to a unilateral mistake

when:

• One party makes a unilateral mistake of fact, and the other party knew (or should have known) that a mistake was made

• A unilateral mistake occurs because of a clerical or mathematical error that is not the result of gross negligence

• The mistake is so serious that enforcing the contract would be unconscionable

Mutual mistake of a material fact

• Mistake made by both parties concerning a material fact that is important to the subject matter of a contract

• Ambiguity in a contract may constitute a mutual mistake of a material fact

• Ambiguity occurs when a word of the contract is susceptible to more than one logical interpretation

• Contract may be rescinded on the grounds that no contract has been formed

• No “meeting of the minds” between the parties

• Ex: the classic case of Raffles v. Wichelhaus

Mutual mistake of a value

• Occurs if both parties know the object of the contract but are mistaken as to its value

• With mutual mistakes of value, the contract remains enforceable

• Because the identity of the subject matter of the contract is not at issue

• If the rule were different, almost all contracts could later be rescinded by the party who got the “worst” of the deal

Fraud

Intentional or fraudulent misrepresentation: Occurs when one person consciously decides to induce another person to rely and act on an assertion that is not factual

Elements of fraud

• The wrongdoer made a false representation of a material fact (not an opinion or prediction)

• The wrongdoer intended to deceive the innocent party

• The innocent party justifiably relied on the misrepresentation

• The innocent party was economically injured

Fraud in the inception

Fraud that occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing

• Ex. someone is told they are signing a harmless document—such as a general petition, an autograph sheet, or a pretend student homework assignment (like a handwriting analysis exercise), when the paper is actually a hidden contract or a property deed transferring ownership to the other party

Fraud in the inducement

Fraud that occurs when the party knows what he or she is signing hut has been fraudulently induced to enter into the contract.

• A promoter tells an investor that the promoter is forming a partnership to invest in drilling for oil in an oil field and invites the investor to invest in this venture. There is no oil field, and the promoter intends to use the money to pay for personal expenses. The investor relies on the promoter’s statements and invests $100,000 with the promoter. The promoter absconds with the investor’s $100,000 investment.

Fraud by concealment

Fraud that occurs when one party takes specific action to conceal/hide a material fact from another party.

• Ex. Steel Corp. contracts to buy used manufacturing equipment from United, Inc. United, Inc. does not show the invoices for repairs to the equipment even though Steel Corp. has asked to see repair invoices for the equipment, if there are any. Steel Corp. purchases the equipment.

Silence as misrepresentation

Neither party to a contract owes a duty to disclose all the facts to the other party, unless:

• Nondisclosure would cause bodily injury or death

• There is a fiduciary relationship (based on trust) between the contracting parties

• Federal and state statutes require disclosure. For example some states require home sellers disclose material facts about their property.

Misrepresentation of law and innocent misrepresentation

Misrepresentation of law will be allowed as grounds for rescission of the contract:

• If one party to the contract is a professional who should know what the law is and intentionally misrepresents the law to a less sophisticated contracting party

Innocent Misrepresentation occurs when a person makes a statement of fact that the person honestly and reasonably believes to be true, even though it is not

• The injured party may rescind the contract but may not sue for damages

Discussion of NPR article: A shadowy industry is helping small businesses pay tariffs — at a high cost

1. Do the firm’s messages constitute fraud or are they merely promotional statements?

In this case, if lenders advertised their advances as affordable, low-cost financing while hiding the actual equivalent interest rates or repayment obligations, that could constitute fraud. Calling financing "fast and easy" would generally be puffery. Misrepresenting the actual cost or repayment terms would be much more serious.

2. Can a business owner sue to set aside the contract based on fraudulent concealment, or does caveat emptor protect the lender?

Business owners should read what they sign, but lenders cannot use buyer beware as an excuse to intentionally hide important information. If the lender concealed material terms, the business owner may have grounds to challenge the contract.

3. Was there active trickery to hide the terms, meaning there was no genuine voluntary and knowing agreement?

The repeated pressure, promises of instant funding and claims of no hidden fees raise concerns about deceptive practices. Esnard was financially vulnerable and needed money quickly. If lenders intentionally used that situation to hide the true costs, his agreement may not have been based on informed consent.

Duress

• Duress is a situation in which one party threatens to do a wrongful act unless the other party enters into a contract

• If a party to a contract has been forced into making the contract, the assent is not voluntary.

• Such contract is not enforceable

• If someone threatens to physically harm another to sign a contract, this is physical duress.

• Duress can also occur where a threat does not involve physical harm

Undue influence

Undue influence occurs when one person takes advantage of another person’s mental, emotional, or physical weakness

• Occurs when one person (the dominant party) takes advantage of another person’s mental, emotional, or physical weakness and unduly persuades that person (the servient party) to enter into a contract

• The persuasion by the wrongdoer must overcome the free will of the innocent party

• A contract entered into because of undue influence is voidable by the innocent party

Elements that must be shown to prove undue influence

• A fiduciary or confidential relationship must have existed between the parties

• The dominant party must have unduly used its influence to persuade the servient party to enter into a contract.

• If there is a confidential relationship between persons (i.e., a lawyer and a client, a doctor and a patient, a psychiatrist and a patient), any contract made by the servient party that benefits the dominant party is presumed to be entered into under undue influence

Introduction to statute of frauds and equitable exceptions

Generally, contracts do NOT have to be in writing to be enforceable but certain types of contracts must be in writing pursuant to the rule of the Statute of Frauds

• Other issues regarding the form of a contract may arise, such as:

• Form of signature or electronic signature

• Integration of several documents, emails, or texts

• Previous oral or written agreements

• How language is interpreted

Equitable exception to the Statute of Frauds

• Part performance and doctrine of promissory estoppel

Statute of frauds for common types of contracts

Common contracts required to be in writing:

M - Promises made in consideration of marriage

Y - Contracts that cannot possibly be performed within one year

L - Contracts involving interests in real property/land

E - Contracts involving agents (equal dignity rule)

G - Contracts for the sale of goods (for $500+) or lease of goods (for $1,000+)

S - Contracts in which someone promises to guarantee the debt of another (e.g., surety or guaranty contract)

Executory contract

• An incomplete contract that is not in writing, even though the Statute of Frauds requires it to be

• These contracts are unenforceable by either party

Executed contracts

• An oral contract that should have been in writing under the Statute of Frauds, that is already completed

• Both parties have fully performed

• Neither party can raise the Statute of Frauds to rescind (undo) the contract

Promises made in consideration of marriage

• Under the Statute of Frauds, a unilateral promise to pay money or property in consideration for a promise to marry must be in writing

• A prenuptial agreement (also called a premarital agreement), which is a contract entered into by parties prior to marriage that denies their ownership rights in each other’s property, must be in writing

Contracts involving the one year rule

• A rule that states that an executory contract that cannot be performed by its own terms within one year of its formation must be in writing

• Intended to prevent disputes about contract terms that may otherwise occur toward the end of a long-term contract.

• If the contract can be performed within a year, the contract may be oral

• Extension of an oral contract may violate the Statute of Frauds if the original term and the extension period exceed one year

Contracts involving interest in real estate/land

• Real property: Any contract that transfers an ownership interest in real property, including:

• The land itself, as well as buildings, trees, soil, minerals, timber, plants, crops, fixtures, and other things permanently affixed to the land or buildings

• Must be in writing to be enforceable

• Other contracts that transfer an ownership interest in land must be in writing under the Statute of Frauds:

• Mortgages or a deed of trust: An interest in real property given to a lender as security for the repayment of a loan

Agent’s contracts (equal dignity rule)

• Many states’ Statutes of Frauds require that agents’ contracts to sell real property covered by the Statute of Frauds be in writing to be enforceable

• The requirement is referred to as the

• Equal dignity rule: A rule that says that agents’ contracts covered by the Statute of Frauds must be in writing to be enforceable.

• The rule aims to prevent fraud by requiring key agreements to be memorialized in a signed writing

Sale and lease of goods

• Based on the rules of the Uniform Commercial Code (UCC), sales contracts for the sale of goods priced at $500 or more must be in writing to be enforceable

• Any modification that increases the sale price to $500 or more must be in writing to be enforceable

• Lease contracts of goods requiring payments of $1,000 or more must be in writing to be enforceable

• Any modification that increases the lease payment to $1000 or more must be in writing to be enforceable

Surety/guaranty contracts

A promise in which one person (the guarantor) agrees to answer for the debts or duties of another person.

• Required to be in writing under the Statute of Frauds

• The original contract (primary contract) is between the debtor and the creditor

• The second contract (surety/guaranty contract) is with the person who agrees to pay the debt if the primary debtor does not

Formality of the writing

• A written contract does not have to be drafted by a lawyer or formally typed to be legally binding

• The law only requires a writing containing the essential terms of the parties’ agreement.

• Any writing—including letters, invoices, sales receipts, checks, handwritten agreements written on scraps of paper, emails, and texts—can be an enforceable contract under this rule

• A contract written on the back of a napkin can be legally binding if it contains all the essential elements of a valid contrac

Equitable exception: part performance

• If an oral contract for the sale of land or transfer of other interests in real property has been partially performed, it may not be possible to return the parties to their status quo

• To solve this problem, the courts have developed the equitable doctrine of part performance

• The court can order such an oral contract to be specifically performed to avoid injustice

• For part performance to apply, most courts require that the purchaser either pay part of the purchase price and take possession of the property or make valuable improvements on the property

Required signature

Statute of Frauds require a written contract, whatever its form, to be signed by the party against whom enforcement is sought.

• Signature of the person who is enforcing the contract is not necessary

• Signature may appear anywhere on the writing or record

• Signature does not have to be person’s full legal name

• Signature may be affixed by an authorized agent

• Digital signature is enforceable

Integration of several writings

• Permissible for a combination of several writings to form a single contract

• Incorporation by reference: Integration made by express reference in one document that refers to and incorporates another document within it

• Several documents may be integrated to form a single written contract if they are somehow physically attached to each other to indicate a party’s intent to show integration.

• E.g., staple, paper, clip, may indicate integration (implied integration)

Standards of interpretation

If the parties have not defined the words and terms of a contract, the courts apply the following standards of interpretation

• Ordinary words are given their usual meaning according to the dictionary

• Technical words are given their technical meaning unless a different meaning is clearly intended

• Specific terms presumed to qualify general terms

• Trade usage incorporated in contract unless the parties state otherwise

• Where a preprinted form contract is used:

• Typed words prevail over preprinted words

• Handwritten words prevail over both preprinted and typed words

• Ambiguity resolved against the party who drafted the contract

Promissory estoppel

An equitable doctrine that permits enforcement of oral contracts that should have been in writing.

• Equitable exception to the Statute of Frauds that is applied to avoid injustice.

• The oral promise is enforceable against the promisor if three conditions are met:

• The promise induces action or forbearance of action by another

• The reliance on the oral promise was foreseeable

• Injustice can be avoided only by enforcing the oral promise

Parol evidence

Parol evidence is any oral or written words outside the four corner of a written contract.

Parol evidence rule: If a written contract is a complete and final statement of the parties’ agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract

• A completely integrated contract is viewed as the best evidence of the terms of the parties’ agreement

Integration clause (merger clause)

A clause in a contract that stipulates that it is a complete integration and the exclusive expression of the parties’ agreement

Parol evidence may not be introduced to:

• Explain

• Alter

• Contradict

• Or add to the terms of the contract

Exceptions to the parol evidence rule

Parol evidence may be admitted in court if it:

• Shows that a contract is void or voidable.

• (E.g., evidence that the contract is induced by fraud, misrepresentation, duress, undue influence, mistake)

• Explains ambiguous language

• Concerns a prior course of dealing or course of performance between the parties or a usage of trade.

• Fills in the gaps in a contract

• Corrects an obvious clerical or typographical error

Musk vs twitter (2022)

• April 14: Elon Musk offers to buy Twitter for $44 billion ($54.20 per share).

• April 25: Twitter accepts, and Musk signs a legally binding merger agreement, waiving due diligence and agreeing to an integration clause.

• May 13: Musk tries to put the deal on hold, questioning Twitter's reported number of fake/bot accounts.

• July 8: Musk attempts to terminate the agreement, claiming Twitter withheld information about bots.

• July 12: Twitter sues Musk, arguing that the signed contract is enforceable and that outside complaints cannot override its written terms.

• July 19: A Delaware judge schedules an expedited trial.

• October 4: Musk agrees to proceed with the original $44 billion deal rather than face trial.

• October 28: Musk officially purchases Twitter and fires its executive leadership

Main Takeaway: Musk could not simply escape his contractual obligations by raising concerns about Twitter's bot accounts. The case demonstrates the importance of written agreements, integration clauses, and enforcing contractual obligations.

NThe dispute settled before trial, so the court never issued a final ruling on Musk's termination argument

Introduction to third party rights

• Privity of contract: Relationship between the parties to a contract

• If one party fail to preform as promised, the other party can sue for breach of contract

• Covenants and conditions

• Third parties do not acquire any rights/duties under other people’s

contract but consider

• Assignments and delegations

• Third-party beneficiaries

• Duty of performance may be discharged by agreement of the parties, excuse of performance, or operation of law

Assignment of a right

• An assignment of contractual rights to another party

• No formalities are required for a valid assignment of rights.

• Most contract rights are assignable.

• Rights that cannot be assigned

• Personal service contract

• Assignment of a future right

• Contract where an assignment would materially alter the risk

• Assignment of a legal action

Assignment of a room (cont.)

Notice of Assignment

• Assignee is under a duty to notify the person who owes the duty of performance that

• The assignment has been made, and

• Performance must be rendered to the assignee

Anti-Assignment Clause

• Prohibits assignment of rights under the contract

• Used when an obligor doesn’t want to deal with or render performance to an unknown third party

Approval clause

• Permits the assignment of the contract only upon receipt of an obligor’s approval

• Approval cannot be unreasonably withheld

Delegation of a duty

• Delegation of duties: Transfer of contractual duties by the obligor to another party for performance

• Duties that cannot be delegated

• Personal service contracts calling for the exercise of personal skills, discretion, or expertise

• Contracts whose performance would materially vary if duties were delegated

• Companies or firms can delegate duties to be performed by qualified employees

• Effects of delegation of duties:

• The delegator remains legally liable for the performance of the

contract.

• Anti-delegation clause: A clause that prohibits the delegation of

duties under the contract

• Assignment and Delegation—Occurs when there is a transfer of both rights and duties under a contract

Third party beneficiaries

• Third parties are either intended or incidental beneficiaries

• Intended third-party beneficiary: Third party who is not a party to the contract but who has rights and can enforce the contract against the promisor

• Intended third-party beneficiaries are often classified as either done or creditor beneficiaries

Creditor beneficiary contract

• Creditor beneficiary: Original creditor who becomes a beneficiary under the debtor’s new contract with another party

• Creditor beneficiary contract: Contract that arises when:

• A debtor borrows money

• The debtor signs an agreement to pay back the money plus

interest

• The debtor sells the item to a third party before the loan is paid

off

• The third party promises the debtor that he or she will pay the

remainder of the loan to the creditor

Donee beneficiary

• Donee beneficiary contract: Intended to confer a benefit or gift on an intended third party

• Donee beneficiary: Third party on whom a benefit is to be conferred

• The three persons involved in such a contract are:

• Contracting party who directs that the benefit of the contract is to be paid

• Contracting party who agrees to pay the benefit

• Third person to whom the benefit is to be paid (the done beneficiary)

Incidental beneficiary

• Incidental beneficiary: A party who is unintentionally benefited by other people’s contracts

• No rights to enforce or sue under the contracting parties’ contract

• Taxpayers and the public are only incidental beneficiaries to contracts entered into by the government

• They acquire no right to enforce government contracts or sue for breach

Covenants and conditions

• Covenant: An unconditional promise to perform

• Nonperformance of covenant is breach of contract that gives the other party the right to sue

• Condition: A qualified or conditional promise that becomes a covenant if met

• Indicated by language such as: if, on the condition that, provided that, when, as soon as

Condition precedent

• Condition precedent: A condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract.

• The happening (or nonhappening) triggers the contract or duty to perform.

• Condition precedent based on satisfaction:

• Personal satisfaction test: Subjective test that applies to contracts involving personal taste and comfort

• Reasonable person test: Objective test that applies to commercial contracts and contracts involving mechanical fitness

• Express conditions exist if parties expressly agree to terms

• If a contract expressly states, “time is of the essence,” performance by the stated time is an express condition

Condition subsequent

Condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform.

• Failure to meet the condition subsequent relieves the other party from obligation under the contract

• Concurrent conditions: Condition that exists when the parties to a contract must render performance simultaneously

• Each party’s absolute duty to perform is conditioned on the other party’s absolute duty to perform

Discharge of performance

Discharge by agreement: The parties mutually agree to discharge or end their contractual duties through various methods

• Mutual Rescission—the parties agree to rescind

• Parties into a second agreement that expressly terminates the first one

• Substituted Contract—parties enter into a new contract and revoke or discharge the existing one

• Novation: Agreement that substitutes a new party for one of the original contracting parties and relieves the exiting party of liability on the contract

Accord and satisfaction

• Accord and satisfaction: Settlement of a contract dispute

• Parties agree to accept something different from the original contract, which is called accord

• Accord does not discharge original contract

• Accord just suspense it until the second accord is preformed

• If the second accord is not satisfied when due, the aggrieved party may enforce either accord or original contract

• The performance of an accord is called a satisfaction

Impossibility of performance (or objective impossibility)

Nonperformance that is excused if a contract becomes impossible to perform

• Death or incapacity of promisor prior to performance of personal service contract

• Destruction of subject matter of a contract prior to performance

• Supervening illegality that makes performance of the contract illegal

• Force majeure clause: A clause in a contract in which the parties specify certain events that will excuse nonperformance

Statute of limitations

A statute that establishes the period during which a lawsuit must be brought

• If the lawsuit is not brought within this period, the injured party loses the right to sue

• Time periods vary from state to state

• Many states give longer time periods for written contracts

• Average time period for written contract is 3 to 6 years, although several states provide 10-years

• Average time period for oral contract is 2 to 4 years, although several states provide 6-years

Suit limitation clause

Contracts may expressly designate a period of time in which to bring a lawsuit for breach of contract that differs from the applicable state’s statute of limitations.

• Contractual limitations period must be reasonable to be enforceable

• Included in business, construction, employment, insurance, and other contracts

Contract law analytical model

The contract law concepts can be condensed and divided into the following (10) points to use as a framework for study:

(1) if there is an offer and acceptance (i.e., agreement),

(2) supported by consideration,

(3) with contractual capacity & for legal purposes, and

(4) no defenses (mistake, fraud, duress, undue influence) to formation,

(5) ... there is an en­forceable contract.

(6) If the duties are absolute, there is an immediate duty to perform.

(7) If the promises are subject to conditions, the conditions must occur or be excused first. 

(8) If the duties have not been discharged by agreement or by operation of law, they must be performed. 

(9) If not, there has been a breach. 

(10) If so, remedies (monetary and/or equitable) may be available. 

What is an assignment of a right?

The transfer of rights owed under the contract to others.

Nonbreaching party may obtain various remedies for breach of a contract

Award of monetary damages

• Compensatory

• Consequential

• Liquidated

• Nominal

Equitable remedies

• Specific performance

• Reformation

• Injunction

Breach of a contract and performance

Breach of contract: If one or both of the parties do not perform

their duties as specified in the contract

Types of performances

• Complete performance (strict performance)

• Substantial performance (minor breach)

• Inferior performance (material breach)

Complete performance

Party to a contract renders performance exactly as required by the contract

• executed contract is a fully performed contract

Tender of performance

Unconditional and absolute offer by a contracting party to perform his or her obligations under a contract

Substantial performance

Performance by a contracting party that deviates only slightly from complete performance

• Minor breach: Occurs when a party renders substantial performance of his or her contractual duties

• If breach not corrected nonbreaching party can sue to recover damages:

• Deducing the cost to repair from unpaid contract price and remit the balance

• Sue to recover cost to repair the defect

Inferior performance

Party fails to perform express or implied contractual obligations and impairs or destroys the essence of a contract

Material breach

Occurs when a party renders inferior performance of his or her contractual duties

• Nonbreaching party is permitted to:

• Rescind contract and seek restitution, or

• Sue to enforce contract and seek damages

Anticipatory breach or repudiation

• Party indicates in advance that they will not be able to perform duties when due

• Expressly stated or implied from the conduct of the repudiator

• Nonbreaching party’s obligation is immediately discharged

• Nonbreaching party may sue when the anticipatory breach occurs; there is no need to wait until date the performance is due

Monetary damages

An award of money available to nonbreaching party upon:

• Minor breach

• Material breach

Types

• Compensatory damages

• Consequential damages

• Liquidated damages

• Nominal damages

Inferior performance and material breach

• Inferior performance: Party fails to perform express or implied contractual obligations and impairs or destroys the essence of a contract

• Material breach: Occurs when a party renders inferior performance of his or her contractual duties

• Nonbreaching party is permitted to:

• Rescind contract and seek restitution, or

• Sue to enforce contract and seek damages

Compensatory damages

Award of money intended to compensate a nonbreaching party for the loss of the bargain

Purposes

• To place the nonbreaching party in the position it would have had if contract had been fully performed

• Restore “benefit of the bargain”

Contracts where compensatory damages are applied

• Sale of goods

• Governed by the Uniform Commercial Code (U C C)

• Plaintiff may receive the difference between contract price and market price of the goods at the time and place the goods were delivered

Construction contracts

• Breach before construction:

• Contractor can recover the profits they would have made

• Owner can recover the difference between contract price and cost of work completed by another contractor

• Breach during construction

• Owner can recover the difference between contract price and cost of work completed by another contractor

Employment contract

• Employee can recover:

• Lost wages or salary

• Employer can recover:

• Cost to hire a new employee plus any reasonable increase in salary paid to the replacement

Consequential damages

Foreseeable damages that arise from circumstances outside the contract

• To be liable, breaching party must know or have reason to know that the breach will cause special damages to the other party

Disclaimer of consequential Damages:

• Often, raised in a sales or license agreement

• The breaching party is not responsible to pay disclaimed consequential damages

• Disclaimer of consequential damages is mostly lawfu

Nominal damages

• Nominal damages: Damages awarded when the non- breaching party sues the breaching party even though no financial loss has resulted from the breach

• Usually awarded in a small amount, such as one dollar

• Cases involving nominal damages are usually brought on principle

• Disfavored by most courts because they use valuable court time and resources

Mitigation of damages

• Nonbreaching party has a duty to mitigate (avoid or reduce) damages caused by a breach of contract

• Extent of mitigation depends on the type of contract

• If an employer breaches an employment contract, the employee:

• Must try to mitigate damages

• Should try to find substitute employment

• Required to accept only comparable employment

• Courts consider compensation, rank, status, job description, and location in determining compatibility

Liquidated damages

• Liquidated damages: Parties agree in advance that certain damages will be available if contract is breached

• Actual damages must be difficult or impracticable to determine

• Liquidated amount must be reasonable in the circumstances

• Liquidated damages clause: Exclusive remedy even if actual damages are later determined to be different

• Considered a penalty if actual damages can be determined in advance

• Unenforceable and nonbreaching party may recover actual damages

Equitable remedies

• An equitable remedy is available if there has been a breach of contract that cannot be adequately compensated through a monetary remedy

• Also available to prevent unjust enrichment

• Types

• Specific performance

• Reformation

• Injunction

Specific performance

Remedy that orders the breaching party to perform the acts promised in the contract

• Court have discretion to award if subject matter is unique

(e.g., land contracts, works of art, antiques, rare coins, and other items that are unique)

• Personal service contracts are not granted specific performance as it would be impracticable to supervise or monitor such a contract

Reformation and injunction

• Reformation: Equitable doctrine permitting the court to rewrite a contract to express the parties’ true intentions

• Usually available to correct clerical errors

• Injunction: A court order that prohibits a person from doing a certain act

• Requesting party must show that they will suffer irreparable injury if the injunction is not issued

Arbitration

Arbitration: A nonjudicial, private resolution of a contract dispute

• Arbitrator, who is not a judge or jury, decides the case

• Arbitration agreements often stipulate to binding arbitration

• Federal Arbitration Act: promotes the arbitration of contract disputes whether the dispute involves federal or state law

Tort associated with contracts

Intentional interference with contractual relations: Arises when a third party induces contracting party to breach the contract

• Third party does not have to have acted with malice or bad faith

Elements

• A valid, enforceable contract between the contracting parties

• The third-party’s knowledge of this contract

• The third-party’s inducement to breach the contract

American rule

The first assignment in time prevails, regardless of notice

Ex. Whitehall owes $10,000 to Vera. On April 1, Vera (assignor) sells (assigns) the right to collect the $10,000 to Jackson (first assignee) for the payment of $8,000. On April 15, Vera (assignor) sells (assigns) the same right to collect the $10,000 to Mary (second assignee) for the payment of $7,000. Vera has been paid a total of $15,000 by the successive assignees. Jackson does not notify Whitehall to make future payments to him. Mary notifies Whitehall to make future payments to her. Vera, the lender-assignor, has made successive assignments of the same right. Under the American rule, Jackson, the assignee who was first in time, can recover the money from Whitehall. Mary’s only recourse is to sue Vera to recover the $7,000 that she paid for the assignment.

English rule

The first assignee to give notice to the obligor (the person who owes the performance, money, duty, or other thing of value) prevails

Ex. Mary, who was the second assignee, was the first assignee to give notice to the borrower Whitehall of the assignment. Mary is due to be paid the $10,000 by Whitehall. Jackson, although being the first assignee, loses the right to collect the $10,000 from the Whitehall because he did not give notice of this first assignment to Whitehall.

Possession of tangible token rule

Holds that under either the American or English rule, if the assignor makes successive assignments of a contract right that is represented by a tangible token, such as a stock certificate or a savings account passbook or a tangible nonfungible token, the first assignee who receives delivery of the tangible token prevails over subsequent assignees.