Mizzou B-Law 3540 George Brand Exam 2

What are the elements of contract?

-Agreement

*offer

*acceptance

-Consideration

-Contractual Capacity

-Legal Object

Agreement (offer/acceptance)

Agreement- all parties to a contract must agree ti be bound to the same terms

*Offer- one party extends a contractual offer to another party

*Acceptance- the receiving party accepts the contractual offer extended to them

Consideration

"bargaining for exchange;" all parties must give/receive something of value

Contractual Capacity

all parties to the contract have the legal ability to enter into the contract

*A minor is not considered to have contractual capacity

Ex. Kobe sells me the White House for $1,000,000. I pay Kobe and he does not give me the White House (because he does not own it). I try to sue Kobe but I can not because the deal was never set

Legal Object

the contract itself is in furtherance of something that is legal

Defenses to Contract Formation / Enforcement

1. lack of genuine assent

2. lack of proper form

Lack of genuine assent

contract was never formed because parties did not enter into it freely and on their own accord

Lack of proper form

SOMETIMES contracts must be in writing in order to be enforceable

*In some certain circumstances, an oral contract is not good enough

Sources of Contract Law

1) Common Law

2) Uniform Commercial Code (UCC)

Common law

varies by jurisdiction, but generally similar principles

Uniform Commercial Code (UCC) Definition:

statutory source of US contract law involving sale of goods

*applies only to contracts for the sale of goods

*does not require as definite of terms included in offer as common law; UCC only requires quantity of goods sold and can use "gap fillers" to make for unspecified terms in contracts

Express Contract

terms are clearly defined and established either orally or in writing

Ex. Cason tells me he will mow my lawn, then comes and mows my lawn 17 years later. Contract does not say a specific date. You can not sue Cason

Ex. Cason tells me he will mow my lawn by 2/19/24. He comes to my house and my lawn mower is red but Cason hates the color red. It does not matter

Implied Contract

parties conduct indicates contract has been created

1) Benefit conferred on defendant

2) Plaintiff reasonably expected to be paid for their benefit conferred

3) Defendant had an opportunity to reject

Ex. I go get my hair done. I call Bespoke and they say to come in on Wednesday. I show up to Bespoke on time and my hairstylist is here. I walk out right after my hair is done without paying. There was never a contract in place for me to pay them.

1) Benefit- received a haircut

2)

3) It is my fault since I do not ask how much haircut is

Legally enforceable value!

Quasi-Contract

parties conduct indicates it would be unfair not to impose contractual obligation to prevent unjust enrichment

1) Benefit is conferred on defendant

2) Defendant has full knowledge of benefit he is receiving

3) Defendant retains benefit and would be unjustly enriched without binding other party

Ex. I am chilling at home. i know I have a broken window. I also know that. my neighbor has a broken window. I know they my neighbor has called a company to fix their window. I see truck pull into my driveway and see someone get out of the truck with a big new window. If they tell me they are there to fix my window, I should tell them they are at the wrong house and they are supposed to go next door. Instead, I say nothing and he fixes my window for free. The person who fixed my window pulled out the bill and I say no I am not paying for this.

HOWEVER, I had full knowledge on situation.

Law- unjustly enriched

Never had contract in place, HOWEVER, it is unfair that I did not pay for the new window since he fixed my window

If I am on vacay, options 2 and 3 did not occur. I can argue to not pay for it since I was not there to say no and I did not reject it.

Statute of Frauds (S/F)

-rooted in 1677 English "Act for Prevention of Frauds and Perjuries" requiring specific types of contracts be in writing and signed by both parties

-modern common law and many state laws require certain types of contracts to be in writing in order to be enforceable

-written contracts have more clarity and finality of terms and are less subject to disputes or challenges

-"within" vs. "outside" s/f

M.Y. L.E.G.S.

M- marriage

Y- year

L- land

E- executor

G- goods > $500

S- suretyship / secondary obligor

M.Y. L.E.G.S.

-Marriage

-contracts made in consideration of marriage

-mutual promise to marry does not count (no consideration)

-prenuptial agreements

*prenuptial agreement- agreement that you enter into before you get married specifying the division or marital assets if a separation occurs

(if agreement does not happen, assets are split among husband and wife if a divorce occurs)

M.Y. L.E.G.S.

-Year

-contract terms prevent possible performance in less than one year

-impossibility (not unlikeliness) is required

-life term is outside s/f because YOLO

*if we have a contract and terms of contract make it impossible to fully perform contract in less than one year, then contract must be enforceable

M.Y. L.E.G.S.

-Land

-contracts related to an interest in land (and fixtures)

-fixtures include anything attached to the land (trees, buildings, in-ground pools, etc.)

-within: real property conveyances, leases, mortgages

-outside: crop harvests, profit sharing on real property, boundary disputes

M.Y. L.E.G.S.

-Executor

-executor of an estate promises to personally pay debt belonging to the estate

-regular estate debts paid or promised by the estate are outside s/f

-narrow provision and not commonly used

M.Y. L.E.G.S.

-Goods > $500

-goods worth over $500

-value set by contract terms; not intrinsic value of the goods

-key word is GOODS (not services or intangibles)

M.Y. L.E.G.S.

-Suretyship / Secondary Obligor

-party outside an agreement promises to fulfill the obligations of an original party to an agreement

-"answer for the debt of another"

Ex. co-sign on a lease

~Mom signs my UCentre lease and becomes the guarantor

*Suretyship- one person agrees to answer to the debt of another

Written Requirements

1) Identification of parties

2) Subject matter of the agreement

3) Consideration exchanged

4) All relevant contractual terms

*quantity of goods sold is required; buyer/seller, price, method of payment not necessary

5) Signature(s)

*at least of party against whom action is sought

*can be enforceable against one side but not the other

*"signature" given considerable leeway

Required elements of an offer:

1) Manifestation of offeror's intent to be bound

2) Reasonably definite contractual terms

3) Communication of the offer to the offeree or an authorized agent

Lucy v. Zehmer

a court case in the Supreme Court of Virginia about the enforceability of a contract based on outward appearance of the agreement

intent determined by objective, reasonable person standard.

-Zehmer owned a piece of property that Lucy wanted to buy. One night at Zehmer's bar, Lucy made an offer which Zehmer allegedly accepted. He and Lucy both signed a napkin which had specific details concerning the price and title of the land. Zehmer also had his wife sign it. Zehmer later contended that he was joking and that he didn't really want to sell. Doesn't matter. Mental reservations that aren't manifested don't impair obligations he purports to take.

Preliminary negotiation:

"would you consider"

Advertisements:

(unless they are "clear, definite, and explicit" see Lefkowitz v. Great Minneapolis Surplus Store)

Lefkowitz v. Great Minneapolis Surplus Store

-an American contract law case. It concerns the distinction between an offer and an invitation to offer. The case held that a clear, definite, explicit and non-negotiable advertisement constitutes an offer, acceptance of which creates a binding contract.

-Defendant advertised the sale of three fur coats and three fur stoles for $1.00 a piece. The advertisement said "first come, first serve". Plaintiff arrived at Defendant's store wishing to buy the garments. Defendant refused, saying the sale was only for women.

Auctions:

default is "with reserve" means purpose is to solicit offers; if "without reserve" then offer is already extended and purpose is to solicit acceptances

Valid offers can be terminated before acceptance in the following circumstances:

-revocation by the offeror (unless option contract exists to set deadline for offers expiration - note, option contract requires all contractual elements including consideration)

-rejection by the offeree

-counteroffer - note, this operates as both a rejection of offer AND an extension of a new offer

-death/incapacity of the offeror before the acceptance

-illegality/destruction of material occurring before the acceptance

-lapse of time - either specified in the offer or assumed lapses after "reasonable" amount of time

consideration:

"bargained for exchange" and means anything of value

mutual exchange of consideration is required in every contract. Give an example:

-money in exchange for property / service / promise to do or not do something (see Hammer v. Sidway)

-promise in exchange for a promise

Courts rarely weight the adequacy of consideration - even a mere peppercorn will suffice! Gross imbalance of consideration may be a sign of....

fraud / undue influence that could invalidate the contract

Illusory promise:

a promise to do something else without accepting the offer

Past consideration:

if consideration has already been exchanged, it can not be the basis for a contract; past consideration can be modified to extend a valid contract

Pre-existing duty:

cannot use consideration that is something a party is already obligated to do or has already been contracted to perform

Liquidated debt:

no dispute as to amount of money owed

*if debt is liquidated, partial payment of debt does not affect remaining debt balance

Unliquidated debt:

good faith dispute as to whether money is owed or amount of money owed

*if debt is unliquidated, parties can enter into an accord and satisfaction

~means parties can agree to have a set payment amount satisfy the entire debt

Mental ability to understand rights and obligations established by contract with presumptive ability to....

understand how to comply with terms of the agreement

General rule of law:

natural persons over age of majority (18 in most states) are presumed to have full legal capacity to enter into binding legal contracts

Individuals who have limited capacity to contract:

-minors

-those suffering from mental deficiency rendering them incapable of understanding the nature or obligations of contracts

-those who are intoxicated / drug impaired

Disaffirmance:

minors right, until reasonable time after reaching age of majority, to disaffirm / void their contracts

To exercise their right, minors need only demonstrate, through words or actions....

an intent to rescind contract

Minor must return any consideration received....

if still in minors possession / control, regardless of its condition

Even if consideration is damaged / destroyed, other party has....

no recourse against minor!

Rules designed to discourage competent parties from....

entering into contracts with minors

Contract for necessaries:

contracts that supply minor with basic necessities of life (i.e. food, clothing, shelter, and basic medical services)

Ratification:

acceptance of terms of contract (entered into as a minor) after reaching age of majority

Express ratification:

when, after reaching age of majority, an individual states (either orally or in writing) their intent to be bound by contract they entered into while they were a minor

Implied ratification:

when former minor takes action after reaching age of majority consistent with intent to ratify contract

Parental liability for minors contracts, necessaries, and torts...

General rule:

-parents not liable for CONTRACTS entered into by their minor children, except contracts for necessaries

-parents not liable for TORTS committed by their minor children, except failure to properly supervise child, causing others unreasonable risk of harm

Individuals having no capacity to contract:

-those adjudicated insane (mentally incapacitated, e.g. dementia)

-those adjudicated habitually intoxicated (or drug addicted in cases)

-those with appointed legal guardians

Rules regarding intoxication....

General rule:

contracts made by intoxicated persons are VOIDABLE by the intoxicated party when the other party knew / should have known they were contracting with an intoxicated person.

If intoxication merely causes person to exercise poor judgement, the contract is....

not voidable unless other party unfairly capitalized on the impaired judgement

When intoxicated person becomes sober, contract can be....

ratified or disaffirmed (voided)

*HOWEVER, courts will liberally interpret behavior that appears as ratification once intoxicated person becomes sober

Illegal contracts:

-contract is void if illegal subject matter or for being illegal to perform

-a contract need not be in violation of a statute to be illegal

-agreements against generally accepted public policy also illegal and unenforceable

Contracts violating state or federal statutes:

-agreements to commit a crime or tort

-licensing statutes

-usury: loan offered at an interest rate exceeding the legal maximum

-gambling

-sabbath laws

Contracts in contradiction to public policy:

-Price fixing: contracts in restraint of trade

-Covenants not to compete ("restrictive covenants")

*generally limits the right to compete with a business for a certain amount of time and within a specified geographical area

*sometimes disallowed by state law

~discussion of ban at the federal level ongoing right now

*can be struck or modified if overly restrictive or made without mutual exchange of consideration

Legal assent:

-promise to buy or sell that courts will require parties to obey

-without assent, the contract may be voidable by any non-assenting party

-voidable contract may be rescinded (canceled) by any non-assenting party

-major obstacles to legal assent: mistake, misrepresentation, undue influence, duress, and unconscionability

Undue influence:

-persuasive efforts of dominant party, who uses special relationship to interfere with others free choice of terms

any relationship involving one partys unusual degree of trust in another may...

give rise to undue influence

Ex. Boss is contracting with employee on an issue completely unrelated to work, and employee is afraid to say no or negotiate because of fear of making boss mad

Questions affecting undue influence:

-Did dominant party rush other party to consent?

-Did dominant party gain undue enrichment from the contract?

-Was non-dominant party isolated from other advisers at time of contract?

-Is the contract unreasonable, in that it overwhelming benefits dominant party?

Duress:

-occurs when one party is forced into an agreement by a wrongful act of another

*not a legal assent, as coercion interferes with contracting partys free will

For courts to rescind agreement, injured party must....

prove duress left no reasonable alternatives to contractual agreement

Ex. Lifeguard at public pool tells parent they must pay $5,000 for the lifeguard to dive in and save their drowning child

Situations Involving Duress:

-one party threatens physical harm or extortion to gain consent to contract

-one party threatens to file criminal lawsuit unless consent given to terms of contract

-one party threatens to file frivolous civil lawsuit unless consent given to terms of contract

-one party threatens the others economic interests

Circumstances resulting in discharge of contract:

-occurrence or nonoccurence of a condition

-complete or substantial performance

-material breach

-mutual agreement

-operation of law

Material Breach:

when party unjustifiably fails to substantially perform his or her obligations under contract

*discharges the non-breaching party's right to perform under the contract

~however, sometimes a party does not have to wait until the counter party materially breaches in order to stop performing their side of the contract...

Types of conditions:

-Condition precedent: particular event that must occur for a party's duty to arise

-Condition subsequent: future event that terminates obligations of parties when it occurs

-Concurrent conditions: each party's performance conditioned on simultaneous performance of the other

-Express conditions: condition explicitly stated in contract (usually preceded by words such as, "if," "provided that," or "when")

-Implied condition: condition not explicitly stated but is inferred from nature and language of contract

Types of performance:

-Complete performance: when all aspects of parties' duties under contract are carried out perfectly

-Substantial performance: occurs when the following conditions have been met

~completion of nearly all terms of agreement

~honest effort to complete all terms

~no willful departure from terms of agreement

*discharges a party's responsibilities under the contract, BUT a court may require compensation for anu less in value by failure to completely performs the contract

Anticipatory Repudiation:

Party decides, before the actual time of performance, not to complete contract obligations

~may occur if market conditions change and one party realizes it will be unprofitable to fulfill contract

~can occur either through express indication of intent or action inconsistent with intent to fulfill contract when performance due

~once contract anticipatorily repudiated, the nonbreaching party is discharged from obligations under contract and can sue immediately for breach of contract

Mutual recission:

both parties agree to discharge each other from their contract

Substituted contract:

parties agree to substitute new contract in place of original contract

Accord and satisfaction:

parties agree one party will perform duty differently from performance specified in original agreement and after new duty is performed, party's duty under original contract is discharged

Novation:

original parties and a third party agree that the third party will replace an original oarty and the original party will be discharged

Discharge by operation of law:

-Alteration of Contract

-Bankruptcy

-Tolling of Statute of Limitations

-Impossibility of Performance

-Objective Impossibility

*destruction of subject matter

*death/incapacity of party in services contract

*subsequent illegality

-Subjective impossibility (rarely successful in discharging contractual requirements)

Things to consider before filing a suit:

-Likelihood of success

-Desire/need to maintain ongoing relationship with potential defendant

-Privacy concerns of dispute is brought to public light

-Possibility of getting better / faster resolution through alternative dispute resolution (ADR)

-Cost of litigation/ADR compared to value of likely remedy

Obligation on nonbreaching party (plaintiff) to use reasonable efforts to....

minimize damage resulting from defendant's breach of contract

Failure to mitigate may result in....

loss of damages awarded or substantial reduction of award by a court

*consider whether in the earlier painting example if Sullenerger had chosen to hire a new painter and pay them $50,000 rather than pay Jake Yeager $23,000 to perform the job that The Right Brothers had contractually agreed upon to perform for $15,000.

Legal Remedies for Breach of Contract:

-Monetary damages

-Compensatory damages

-Consequential (special) damages

-Punitive damages

-Nominal damages

-Liquidated damages

Monetary damages:

include compensatory, punitive, nominal, and liquidated damages

Compensatory damages:

damages designed to put plaintiff in position he or she would have been in had contract been fully performed

Consequential (special) damages:

foreseeable damages that result from special facts and circumstances arising outside contract itself

*damages must be within contemplation of parties at time breach occurs

Punitive damages:

damages designed to punish defendant and deter people from engaging in similar behavior in the future

Nominal damages:

small award (typically only $1 or $5) intended to signify that although no actual damages resulted from defendant's breach of contract, plaintiff was still wronged by defendant

Liquidated damages:

Damages for breach of contract specified in the contract itself (either as fixed amount, or as formula for determining money due)

Equitable remedies (court-ordered action) for breach of contract:

-Rescission

-Restitution

-Specific Performance

-Injunction

-Reformation

-Quasi-contract

Rescission:

termination of contract

Restitution:

return of any property transferred under contract

Specific performance (specific enforcement):

court order requiring breaching party to fulfill contract obligations; usually awarded only when monetary damages inadequate and subject matter of contract is unique; generally not awarded in a contract for services

*example~ contract for sale of real estate when seller is in breach

Injunction:

order forcing person to do something or prohibiting from doing something (usually a prohibition against certain actions)

Reformation:

contract gets rewritten to reflect parties' actual agreement

Quasi-contract:

contract-like obligation imposed on party to prevent unjust enrichment

Uniform Commercial Code (UCC) Articles:

1. general provisions

2. sales

2(a). leases

3. negotiable instruments

4. bank deposits and collections

4(a). wire transfers

5. letters of credit

6. bulk transfers

7. documents of title

8. investment securities

9. second transactions

UCC Article 2 definitions:

applies to contracts for the sale of (movable, tangible) goods

Sale- passing of title from seller to buyer for a price

Goods- tangible things that can be moved (for example: automobiles, furniture, electronics)

Mixed goods and services contracts- contracts that include both goods and services

*UCC Article 2 applies if the sale of goods is the predominant purpose of the contract

Merchants- buyers or sellers who...

*deal in goods of the kind involved in contract

OR

*by occupation, represent themselves as having knowledge and skill unique to goods involved in transaction

OR

*employ a merchant as a broker, agent, or other intermediary

~merchants are held to a higher standard of performance than nonmerchants under the UCC

Kristopher Krangle operates a Christmas Lights business. He sells lights of various colors/lengths to customers in his city. For an added fee, he will also come to a customers house and set up the lights and take them down in January and store them for customer until next season. Holly contracts with Krangle to buy $250 of Christmas lights plus additional $50 to set up/take down lights at end of Christmas season. Is this contract governed by the UCC or common law?

A) Common law because includes a service provided

B) Common law because its value is less than $500

C) UCC because includes sale of a movable, tangible good

D) UCC because predominant purpose is for the sale of goods

D) UCC because predominant purpose is for the sale of goods

UCC Article 2(a) definitions:

applies to contracts for the lease of goods

Lease- transfer of right to possession and use of goods for a specified term, in return for consideration

Lessor- person who transfers right to possession and use of goods under lease

Lessee- person who acquires right to possession and use of goods under lease

How sales and lease contracts are formed under UCC:

Formation in general- contracts for sale or lease of goods may be made in any matter sufficient to show agreement

Offer and acceptance-

*offers valid even if terms left open

*mirror-image rule does not apply (this is a common law principle)

Consideration- mutual consideration required upon forming agreement

UCC and open terms

Interpretation under UCC of terms left open ("gap fillers"):

price- reasonable price supplied at time of delivery

payment- due when buyer receives goods

delivery- seller's place of business

time for performance- must be performed within reasonable time

duration of contract- termination allowed in good faith upon reasonable notification

quantity- courts generally have no basis for determining a remedy. This term generally MUST be specified in the contract!

Battle of the Forms:

Recognized by UCC when parties are negotiating and....

offers and counteroffers are being exchanged

If the last set of negotiations is not specifically rejected, then....

the last terms standing are the ones applicable to the final transaction