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.

What is the Uniform Commercial Code (UCC)?

It 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 the following;

contracts for services, real estate, employment, insurance,

UCC covers:

The sale of tangible and moveable goods.

What are the Four Requirements for a Valid Contract?

1. Agreement

2. Consideration

3. Contractual Capacity

4. Legality

What is the Mirror Image Rule?

To have a contract, the offer and the acceptance must be same

When an offer is made, what are the three options that the offeree has?

•1) Accept

•2) Reject offer

•3) Provide a counteroffer

What is a revocation?

The offeror’s (person who made offer) right to withdraw the offer (can only happen before the offer is accepted)

What is a rejection in contractual terms?

When the offeree (the person who the offer was made to) rejects the offer.

Terminate agency by principal

Revocation

This is when the boss/client fires the agent/employee

Terminate agency by agent

Renunciation

This is when the employee quits or refuses to continue working

Offeror

person who made offer

Consideration

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

What qualifies as Legal Sufficient Value?

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.

3) 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.

Can also apply to mentally incompetent or intoxicated people

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.

When someone is deemed to have Contractual Capacity, they are:

Legally able to enter into a contract

Legality

Contract must be formed for a legal purpose.

If a contract is not made for a legal purpose (like hiring a hitman), the contract is

illegal and unenforceable

Contracts against state and federal statutes are:

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 are:

Contracts that have a 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". Related to legality

Procedural

lack of opportunity to read contract, or unintelligible language. Related to legality

Substantive

contract is oppressive or overly harsh. Related to legality.

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

A contract is made but actions still need to be completed before the contract is completed

Executed

The contract has been completed. All executions have been done

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

When a mistake is made (mistake of material fact, or a fact that a reasonable person would consider important), the contract is:

voidable

When a mistake of value is made on a contract, the contract is:

Not voidable

When there is a Unilateral Mistake of Fact, the contract is:

Enforceable

Exception to unilateral mistake of fact:

The other party knows that a mistake of fact was made

Exception to unilateral mistake of fact:

There is a substantial mathematical mistake

Bilateral Mistake of Fact

- mutual mistakes 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

Reasons that you could argue that there was no voluntary consent:

Fraudulent Misrepresentation

A misrepresentation of a material fact

Intent to deceive

Innocent party justifiably relied on misrepresentation

To get damages - must show that you (the defendant) were 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, the non-breaching party is excused from completing 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

accepting something different from that of the original contract

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

What kinds of contracts are 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

What is a Merchant!

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

The buyer agrees to purchase all of the goods that the buyer requires from this supplier.

Output Contract

The seller agrees to sell all of what seller produces to the buyer.

Merchant's Firm Offer

A merchant’s offer to the buyer, must be written and signed by offeror (the merchant). 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 between merchants:

When business is conducted between merchants, if a party adds additional terms, it becomes part of contract unless the offeror explicitly objects. This needs to be in writing somewhere

Unconscionable Contract

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

UCC allows courts to

evaluate contract to determine unconscionability

If a contract is deemed unconscionable by a court, the court can:

1. 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. What are the requirements for this written statement?

Even an E-mail is sufficient for writing.

The written statement 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. This can only be applied to existing goods.

Identification of goods:

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

Crops are considered existing goods when:

They begin to exist when they are planted

Goods part of larger mass

separated from mass and designated for seller

Which party in a contract can have insurable interest?

Both the buyer and the seller can have insurable interest.

When a title transfer has security interest, the person holding the security interest has:

The right to get paid. This means when collateral is sold, the person holding the security interest gets a portion of payment before the seller gets any.

Insurable interest gives one the right to recover from:

third parties who damage the goods.

Title passes to the buyer when

It is given to the buyer at the seller's location.

Under a Shipment Contract:

The title transfers to the buyer when the goods are given to a carrier (unless otherwise agreed, this is the default rule)

Under this type of contract, damage to goods during shipment results in a loss for the buyer