D216 Unit 4 Contracts

What is a contract?

An agreement between private parties creating mutual obligations enforceable by law.

"a promise or a set of promises for the breach of which the law gives a remedy"

Common Law

governs all contracts except when replaced by statutory law.

Uniform Commercial Code (UCC)

is statutory law that deals with the sale of tangible and moveable goods - (changes some of the common law rules)

Every state has adopted the

UCC

Common Law covers

contracts for services, real estate, employment, insurance,.

UCC covers

sale of tangible and moveable goods.

Four Requirements for a Valid Contract

1. Agreement

2. Consideration

3. Contractual Capacity

4. Legality

Mirror Image Rule

to have a contract offer and acceptance must be same

When offered made the offeree has three options

•1)accept

•2)reject offer

•3) can counteroffer

Revocation

Offeror (person who made offer) right to withdraw the offer (can happen up to point offer accepted)

Rejection

Offeree (person who offer was made to) rejects the offer.

Terminate agency by principal

revocation

Terminate agency by agent

renunciation

Offeror

person who made offer

Consideration

Both parties must give something of value to have a contract.

Legal Sufficient Value (what is given doesn't have to be cash)

1) A promise to do something that one has no prior legal duty to do.

2) The performance of an action that one is otherwise not obligated to undertake.

2) Refrain from an action that one has a legal right to undertake.

Bargain-for exchange

Both parties are giving up something (why a gift is not a contract)

Minors

can enter into a contract but they are voidable at option of minor.

Disaffirmance minor expresses his intent to not be bound by the contract.

Intoxication

sufficiently intoxicated to lack mental capacity, agreement is voidable.

Mental Incompetence

void if previously judged incompetent, voidable if found to be incompetent at time of contract.

3) Contractual Capacity

Legally able to enter into a contract

Legality

Contract must be formed for a legal purpose.

Not a legal purpose contract is

illegal and unenforceable

Contracts against state and federal statutes

VOID Ex. Contract to commit crime/Murder spouse

Usury

Lending money at an unreasonably high rate of interest. Most states set a maximum rate of interest that can be charged (rates vary on type of loan).

Usurious contracts are

illegal, most states deal with it by limiting the interest that a lender may collect to the lawful MAXIMUM INTEREST RATE in that State.

Contracts against public policy

(negative impact on society) Ex. Selling children

Restraint of trade contracts -

(anticompetitive agreements)

Unconscionable contracts or clauses

so unscrupulous or grossly unfair as to be "void of conscience"

Procedural

lack of opportunity to read contract, or unintelligible language

Substantive

contract is oppressive or overly harsh.

Bilateral Contract

promise for a promise (contract forms at promise)

Unilateral Contract

can only accept by completing the contract performance - a promise for an act (contract forms when act is performed)

Formal -

contracts that require special form (ex. Negotiable instruments, checks, drafts or Letters of Credit)

Informal

a.k.a. simple contracts, looking at substance (can be oral or written) (most contracts are informal)

Executory

still need to do actions

Executed

completed

Statute of Frauds

When a contract must be in writing to be enforceable

•Contracts for Sale of Real Estate

•Contracts for sales of good (UCC) $500 or more

•Contract that take more than a year to complete.

•Promised made in consideration of marriage.

For a contract to be enforceable the writing doesn't have to be formal

e-mail will do, just has to be signed by the parties. (Signed by the party against whom enforcement is sought)

voluntary Consent

Parties must genuinely agree to terms of contract - must have a meeting of the minds

Mistake (mistake of material fact (a fact a reasonable person would consider important)

voidable

mistake of value

- not void

Unilateral Mistake of Fact (made by one person)

- contract enforceable

Exception

- other party knows that a mistake of fact was made

Exception

- substantial mathematical mistake

Bilateral (mutual) Mistake of Fact

- mutual mistake can be rescinded by either party

Mistake of Value

- mistake on the future market value or the quality of the object - enforceable

Undue Influence

unfairly influence another, party being taken advantage of does not exercise free will. Ex. Fiduciary Relationships - Physician-patient, parent-child, husband-wife, guardian-ward

Duress

forced into agreement Ex. Use of threats, blackmail, extortion

Reason you can argue no voluntary consent

Fraudulent Misrepresentation

A misrepresentation of a material fact

Intent to deceive

Innocent part justifiably rely on misrepresentation

To get damages - must show harmed

Discharge by Performance

both parties fulfill the respective duties of the contract.

Substantial Performance

good faith completed substantially all of the terms (Court will determine case-by-case basis reduction of the cost)

Material Breach

nonperformance of a contractual duty. If it happens nonbreaching party is excused from the performance of the contract.

Anticipatory Repudiation

notice that one party will not complete the contract.

Mutual Recission

both parties agree to cancel or terminate contract

Novation

both parties agree to substitute a third party for one of the original parties

Settlement Agreement

will replace old contract with new contract between same parties

Accord and Satisfaction

accept something different that original contact

Accord

a contract to perform some act to satisfy an existing contractual duty

Satisfaction

performance of the accord agreement

Operation of Law

beyond the control of the parties

Beyond the control of the parties:

1. Materially alter a written contract without consent of the other party.

2. Statute of Limitation time you have to sue if there is a breach

3. Bankruptcy

4. Impossibility of Performance

Compensatory

put in same position would have been if breach did not occur. Cover direct losses and costs Ex. Typically,

Specific Performance

(- goods must be unique - ex. real estate, paintings, rare books and coins)

Consequential (Special)

cover indirect and foreseeable losses

Punitive

punishment

Nominal

recognize wrongdoing when no monetary loss shown

Liquidated Damages

provision in contract detailing dollars amount to be paid in event of breach of contract.

Penalty

designed to punish/penalize the breaching party

UCC Sales & Leases

Goal = facilitated commercial transactions

Supersedes the common law

UCC Sales

Deals with the sale of tangible and moveable goods

Tangible -

physical existence

Moveable

carried from place to place

Not covered by UCC

1. Real Estate

2. Service Contracts

3. Intangible Property (stocks and bonds)

UCC defines sale as

passing of title from seller to the buyer for a price.

UCC covers all sales of goods but has special rules for

merchants

Merchant

means a person who deals in goods of the kind or otherwise by their occupation holds themself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by their employment of an agent or broker or other intermediary who by their occupation holds themselves out as having such knowledge or skill.

Offer Open Terms

1. The parties intended to make a contract 2. There is a reasonably certain basis for the court to grant appropriate remedy

Open terms can be used to

fill the gaps in contracts.

Open terms can include

price, delivery (differs from common law concept that everything needs to be in the contract)

Requirement Contract

buyer agrees to purchase all the buyer requires.

Output Contract

Seller agrees to sell all of what seller produces.

Merchant's Firm Offer

offer to buyer, must be written and signed by offeror. Consideration not required

Acceptance

Either by a prompt promise or shipping goods.

If you ship and the good don't conform,

you have acceptance and breach in same action.

Additional Terms

if both parties Merchants - if party adds additional terms becomes part of contract unless offeror objects

Unconscionable Contract

So unfair and one-sided that it would be unreasonable to enforce the contract

UCC allows court to

evaluate contract to determine unconscionability

If unconscionable

1. Can refuse to enforce contract

2. Allow contract without the unconscionable term

3. Limit the application of the clause

UCC requires sales contracts for goods priced at $500 or more to be in writing to be enforced

E-mail sufficient for writing and must be signed by party against whom enforcement is sought

Insurable Interest

parties obtain insurance coverage to protect against damage, loss, or destruction of goods

Identification

goods must be identified as the product of the contract. Must be existing goods (no future goods)

Crops

existing when planted

Goods part of larger mass

separated from mass and designated for seller

Both buyer and seller

can have insurable interest at the same time.

When title transfer have security interest

right to get paid

Insurable interest give right to recover from

third parties who damage the goods.

Title passes to buyer when

given to buyer at seller's location.