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Contract
A promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes the duty.
Is an agreement that can be enforced in court and it is formed by two or more parties who agree to perform or to refrain from performing some act now or in the future.
When is a contract formed?
When an offer is made and an acceptance is given
Offer
Demonstrate your present intent to enter into a contract. Can be demonstrated by a written agreement, verbal agreement, or conduct. Is a promise or commitment to do or refrain from doing some specified action in the future.
Express Contracts
Terms of the agreement are fully and explicitly stated in words, oral or written.
The parties have:
Expressed their intentions themselves in writing or verbally.
An offer and acceptance was made explicitly
Implied Contracts
Contract that is implied from the conduct of the parties. Conduct rather than words, creates and defines contract terms.
What is an example for implied conduct?
You go to the dentist. The dentist performs his services. No one said anything, but each party acted as if they had a deal, the deal being that you get dental services and he gets money.
It is implied by conduct that he will pay for services without signing or saying anything.
Valid Contract
One that is completely enforceable and binding, with nothing wrong with it. Has the necessary elements to entitle at least one of the parties to enforce it in court.
Void Contract
No contract at all. None of the parties have any legal obligations if something is wrong with the contract and is illegal.
Voidable Contract
Is a valid contract but one that can be avoided at the option of one or both of the parties. Either party can get out of the contract.
The party having the option can elect either to avoid any duty to perform or to ratify (make valid) the contract.
What happens if a contract is avoided or ratified?
If contract is avoided → both parties are released from it.
If contract is ratified → both parties must fully perform their respective legal obligations.
Contracts made by what groups are generally voidable?
Minors, mentally incompetent, and intoxicated people
Executed Contracts
A contract that has been fully performed on both sides. Parties have completed the obligation.
Executory Contracts
A contract that has NOT yet been fully performed on both sides. Parties have something left to be done
Even if one party has fully performed but the other has not, the contract is said to be executed on the one side and _________ on the other. Overall, contract is still classified as _______.
Executory
Quasi contracts
Implied by Law - Contract that the judge creates, when none exists
Quasi Ex: You come home one day and realize that a contractor built a swimming pool in your backyard. You DID NOT order a swimming pool. There was no contract at all. BUT, you decide that since the pool is there, you go swimming in it. The contractor says that you need to pay him, but you say you never ordered the pool. You go to the judge, who says you do, INDEED, have to pay. Why? What did the judge do for this?
You had to pay him because you got a benefit without paying. The judge created a contract where you have to pay the contractor when there initially was no contract.
Offeror/Promisor vs. Offeree/Promisee
Person making the offer or promise vs. The person to whom the offer or promise is being made.
When 4 or 5 parties involved, there is negotiation
Privity of Contract
Legal relationship that exists between the parties to a contract. It is the obligations or rights to one another, AKA duty
Privity is the reason that normally only the parties to a contract can enforce that contract.
Agreement. What is made up of by?
Parties must agree on the terms of the contract and manifest to each other their mutual assent (agreement) to the same bargain. Agreement is evidenced by Offer and Acceptance
One party offers a certain bargain to another, who then accepts that bargain. Once an agreement is reached, if the other elements of a contract ____________ are present, a valid contract is formed.
Consideration, capacity, and legality
Once an effective offer has been made, the offeree’s acceptance of that offer creates a ___________ (provided that other elements are present)
legally binding contract
What concepts do not count as an offer?
Opinion, Negotiation, Advertisements and Price Lists, Intoxication, Insanity, and Infancy, Expiration of Offer
Opinion
An expression of opinion is not an offer. It does not indicate an intention to enter into a binding agreement.
Negotiation
A request or invitation to negotiate is not an offer. It only expresses a willingness to discuss the possibility of entering into a contract.
Advertisements and Price Lists
Representations made in advertisements and price lists are treated not as offers to contract but as invitations to negotiate.
Intoxication
If at the time the contract was entered into and you were intoxicated, then you can get out of it. If you affirm or ratify or agree to a contract after, then it is binding
What are the two things for there to be a binding contract?
One should know it’s a contract
One should know what it's about
If a contract is ________ because one party was intoxicated, that person has the option of disaffirming it while intoxicated and for a reasonable time after becoming sober.
If, despite intoxication, the person understood the legal consequences of the agreement, the contract will be __________.
voidable, enforceable
Insanity
A contract made by a mentally incompetent person is void/voidable. If the person was not judged mentally incompetent before but was at the time the contract was made, the contract is voidable. Also voidable if person did not know they were entering contract or lacked the mental capacity.
What is the gold ball concussion example for insanity?
Hit with a gold ball, you sign a deal with the guy that hit you, and if you don’t like the deal whe you get out of the concussion, you can get out of it.
Infancy
If you are under the age of majority (18 Years), and the adult enters a contract with the minor, the minor can leave the contract before reaching age of majority.
What is the $20 Paying Bob example for infancy?
Bob made a 17-year-old pay $20 a month every month until he turns 18, he can get out of it before he does or if he keeps paying the contract will be valid.
Expiration of Offer
Can come to an end when one person dies before the agreement, before someone agrees, or is damaged/does not exist.
Paid for option and example
You buy time to decide or the option go forward or not .
Ex.I give a seller $500 so they are obligated to leave the car open for me.
Is a separate contract in itself, buying time. If you end up not buying the car, it is not a breach of contract.
Termination by Action
When the offeror says it is terminated before the offeree accepts
When the offeror dies (offeror's estate may have to act on their behalf)
When the stuff gets destroyed
Acceptance
A voluntary act by the offeree that shows assent (agreement) to the terms of an offer, consist of words or conduct. Must be unequivocal, unconditional “yes”. Can only be accepted by only to whom the offer is made, not by any other bystanders.
Yes and No
Unconditional, unqualified “yes” ← acceptance
No, Maybe, Silence ← There is no deal
Counteroffer
A rejection of the original offer and the simultaneous making of a new offer.
The initial offeree and offeror trades place and the old offeror is now the offeree.
Difference between counteroffer and negotiation
there is no offer or intent to make a contract/offer on the table, but counter offer there is an intent to form a contract
Click on Agreement
The agreement resulting from the act of clicking on a box labeled “I accept” or “I agree” can indicate acceptance of an online offer.
Shrink-Wrap Agreement
Terms inside box are binding upon opening.
Ex. A purchaser opening a software package abides by the terms of limited license agreement
Consideration
Purpose for the contract. Must have something exchanged between the parties, like money, goods, and/or services (like an employment contract).
All contracts must have a consideration to be valid
Illegal Consideration
If the purpose of the contract is illegal, then the consideration does not exist
Pre-Existing Duty
Promise made for act already obligated to perform is not legally enforceable. May be imposed by law or may arise out of a previous contract.
Explain Lily’s Car example for pre-existing duty
Dad tells Lily that he’ll get her a car if she doesn’t get a parking ticket for the next 2 years (in writing). Lily doesn’t get a ticket, but Dad doesn’t buy her car and Lily sues Dad. Dad WINS because Lily already had an obligation not to get traffic tickets by law so in exchange for a car is redundant.
Explain the necklace and police officer example for pre-existing duty
You lose your necklace and put an ad out that you’ll pay $200 if someone returns it. A police officer finds it, gives it to you, and asks for the reward. He is not eligible for the reward because he already has an obligation to help people, so he cannot receive the reward. The consideration of the contract is not valid because even though the officer returned the necklace, the officer had already promised to do so as his job.
Past consideration
Promise for past act cannot be enforced. If someone promises to pay you for something you did in the past, it is not enforceable.
Past consideration = No consideration
Past consideration Bob and Ranch Manager example
A ranch manager says he’s going to give Bob a 2K bonus for all the great work he’s done in the past. Bob goes to the manager to collect the bonus, but the manager says he changed his mind. Bob sues the manager. Who wins? The manager. Why? Because even though he said he’d give him a bonus, he’d be giving a bonus based on work that Bob did before the “contract” existed.
Exception for Considerations - Charities
Charitable pledges are binding even if the charity gives the donor nothing in return. This is because courts have recognized that charities do good work and need to be protected. Donors are therefore obligated to fulfill their pledges.
Promissory Estoppel
A person who has reasonably and substantially relied on the promise of another may be able to recover some. Only applies to charities
Usury
A lender who makes a loan at an interest rate above the lawful maximum
Ex. Loan-sharks
Gambling
The act of creating a risky situation with the intention of experiencing the thrill of the risk. An activity where people pay money for the chance to win something else of value. If there is an illegal purpose, there is no contract.
Contractual capacity
to form a contract, the party must have contractual capacity, which is ability to form proper intent to enter into a contract. They must understand that a contract is being made and what its about.
General rule of contract law
All contracts are equally binding whether they are durable or in writing (dentist example). Oral and written contracts are equally “legal”
A contract that is otherwise valid may still be __________ if it is not in the proper form.
unenforceable
Statute of Frauds and what contract must be in writing?
Every state has a statute that stipulates what types of contracts must be in writing:
Contracts involving interests in land - real estate
Contracts with terms longer than 1 year
Example of the contract being longer than 1 term
Employment contracts - you work for someone and do an oral contract and work for them 2 years. But the employer fires you before 2 years is up, can you fight him in court? No because it was more than 1 year, and it wasn’t written so you can’t go to court.
Issues pertaining to the parties of a contract
Mistake, Fraud, Undue Influence, Duress
Unilateral mistake
Is made by only one of the parties. Is still usually enforceable.
Contracts from unilateral mistakes may NOT be enforceable if?
1. The other party to the contract knows the mistake
2. Other party caused the mistake
3. The error was due to a mathematical mistake
For example, let’s say one party is mistaken and the other party did not cause or know about the mistake, the contract is _________ against the mistaken party.
Let’s say the unmistaken party says you still have to do it. If the other party did KNOW about it or did cause it, it _______ binding.
binding; IS binding
Newport Beach Example for mistake:
A homeowner owns some land/a lot in Newport Beach and must build a house in Newport Beach. He hires a construction company to build the house for him. Homeowner receives 4 bids from different construction companies from 500K, 475K, 525K, and 75K. The 75K construction company made a mistake, the homeowner knew the mistake but didn’t cause it so the contract is not binding for the homeowner (contractor is mistaken party, and the homeowner is not mistaken, and I knew it, so it would be binding)
The contractor would be the mistaken party. If it was 450K instead, it IS binding because there is no mistake
Fraud
Refers to what is consciously false and is intended to mislead another. The person doing so knows or believes that the assertion is false with no basis for the assertion.
The contract can usually be avoided, as the party has not voluntarily consented to its terms. Is either verbal or an act of concealment.
Undue Influence
Arises from relationships in which one party can greatly influence another party, thus overcoming that party’s free will. It is fraud, but it has an element of trust/fiduciary relationship.
What is an example of undue influence?
Minors and elderly people, are often under the influence of guardians. If a guardian induces a young or elderly to enter into a contract that benefits the guardian, he guardian may have exerted undue influence.
Duress
The use of threats or imminent physical force/violence to force a party to enter into a contract.
Third Party Rights
Existing contract and for whatever reasons (business or personal) the original parties of the contract (one or both) want to transfer it to a new person
Third party beneficiary
When the original parties to the contract agree that the contract performance should be rendered to or directly benefit a third person, the third person becomes an the intended beneficiary.
Privity example (Bob home builder)
H ←500,000→B, [S1, S2, S3] H cannot sue S1, S2, S3
When Bob (H) makes a contract with a home builder, builder goes with subcontractors, but Bob has no privity of contract with the subcontractors.
privity - third party
A contract is a private agreement between the parties who have entered into it, and only those parties alone have rights and liabilities under the contract, not third parties.
Assignment vs. Assignor
Transfer of a contract vs. Party assigning the rights to a third party.
Interest rate example for assignment
I am a homeowner. My interest rate is 3% because I bought it in the 1960s. I sell the house to Sam. But now, Sam will have to pay 7% because that is the interest rate now. Obviously, Sam doesn’t want to do that. I’m transferring my contract to Sam so he can pay the same mortgage.
Toyota Dealership Example - Assignment
Mr. Toyota car dealership has one car on the lot. You buy a prius and sign a loan document. The dealership has 5000 and a contract that says you promise to pay. Now toyota has no more cars in the lot. They take the $5000 and they sell the loan to bank of America or wells fargo, and the dealer has a preexisting relationship with the variety of banks. Wells fargo pays the dealership 17,000 for the 5000 note as the dealership did the work to sell the car, and do the loan. Wells fargo is going to make more than that. So now dealership has 22,000. Dealership is basically transferring the loan to wells fargo.
Discharge from a contract
To terminate contractual duties. The most common way to terminate duties is by the performance of those duties.
Condition
A qualification in a contract based on a possible future event. Is something that must occur before your obligation becomes final.
Dealer seling a car for 10K and loan example for condition.
Ex. A dealer agrees to sell you a car for $10,000, but on the condition that you can get approved for a loan. You go to the bank and apply for a loan, but you are not approved. As a result, the condition in the contract is not satisfied and neither party has to do anything. You do not have to buy the car and the dealer does not have to sell it to you.
Failure of a condition is __________. The condition simply did not occur so I am ________.
NOT a breach. Discharged
Performance to Satisfaction of Another
Contracts often state that completed work must satisfy one of the parties or a third person.
The other party must be happy with the work before they have to pay for it.
Once the third party approves, that triggers the contract
Ex. You hire a contractor to build a house, but you are not obligated to pay until the architect is satisfied with the house. This is also a _______, because?
This is also a condition, because something has to happen before your obligation is final.
What exception is there for satisfaction?
If a party is expressing dissatisfaction simply to avoid payment or is not acting in good faith, then the court may excuse the condition of satisfaction.
Statute of limitations in law and Rob 60 day example.
The period in which the contract is enforceable
Ex. you have a contract with Rob. On day 60 of the contract, Rob breaches it. You don’t do anything - you can’t enforce the contract if the time runs out.
Cannot force it any longer or sue for damages once the statute has run out.
Perform Contract Terms
Everything has been done, and they did the stuff they agreed to do.
The contract is now discharged.
Bankruptcy
A proceeding in bankruptcy attempts to allocate the debtor’s assets to the creditors in a fair and equitable fashion. Once the assets have been allocated, the debtor receives a discharge in bankruptcy. Ordinarily prevents the creditors from enforcing most of the debtor’s contracts.
Chapter 7 bankruptcy
Used to go when you go broke, your debts are liquidated. contracts are discharged wholly. Any debts incurred within the 90 days filed for bankruptcy isn't applicable. debt and contract is GONE
Chapter 11 - Bankruptcy
Business organizations - judge changes your balance sheet / reorganize your debt or structure of debt loan so the company can stay alive
Contracts are discharged partly, debt is modified
Chapter 13 Bankruptcy
debt restructuring but for individuals - a reorganization form of bankruptcy for individuals that allows the debtors to keep their property and use their income to pay a portion of their debts. debt is modified
Material Breach of contract
Breach of contract → One party in a contract does not fulfill their obligations under the contract
Material breach → A breach of contract that is so serious that the other party is no longer obligated to fulfill their obligations under the contract.
Singer example or contract building example for material breach
Ex. You sign a contract with a builder to build a house for you. The contract specifies that the house will be completed within six months. However, the builder does not complete the house within six months, and they do not give you a good reason for the delay.
Material Breach → You would be excused from your obligation to pay the builder for the house, and you could sue the builder for damages, such as the cost of finding another builder to complete the house.
Ex. You sign a contract with a singer to perform at your wedding. The contract specifies that the singer will arrive at the wedding at least one hour early to rehearse. However, the singer arrives late to the wedding and misses the rehearsal.
Material breach of contract → You would be excused from your obligation to pay the singer for the performance, and you could sue the singer for damages, such as the cost of hiring another singer to perform at your wedding.
Anticipatory Repudiation
Before either party to a contract has a duty to perform, one of the parties may refuse to carry out his or her contractual repudiation.
The non-breaching party can sue for damages immediately, even if the scheduled time for performance under the contract is still in the future.
Does the repudiating party have a chance to take back their repudiation? What happens if the non breaching party has already acted on it?
The repudiating party has a chance to "take back" their repudiation before the non-breaching party has acted on it. To do this, the repudiating party must properly and clearly notify the non-breaching party that they are retracting their repudiation.
If the non-breaching party has already acted on the repudiation, (like suing the repudiating party or finding another party to fulfill the contract) then the repudiating party's retraction will not be effective
Alice and Bob selling a car example for anticipatory repudiation
Alice and Bob sign a contract for Alice to sell Bob her car for $10,000. Before the time for performance, Alice tells Bob that she won't sell him the car. Bob sues Alice for damages. After Bob sues Alice, Alice changes her mind and decides to sell him the car. Alice's retraction will not be effective because Bob has already acted on her repudiation by suing her.
Jill and Widgets example for Anticipatory repudiation
I have a contract with Jill. Jill is going to deliver 100 widgets to me on December 1st. Jill calls me on October 1st and says she is not going to give me the widgets. I don’t have to wait till January 1st to get discharged. I am discharged from the contract immediately when she tells me she wouldn’t deliver them. I get to go buy the widgets from someone else and then MITIGATE my damages by suing Jill for the difference between how much I was going to buy them from her and how much I actually bought them for.
Impossibility, when does it happen?
After a contract has been made, supervening events (such as a fire) may make performance impossible in an objective sense.
Happens when:
When one of the parties to a personal contract dies or becomes incapacitated prior to performance.
When the specific subject matter of the contract is destroyed.
When a change in law renders performance illegal.
Contract remedies for breach of contract
Damages → money
Specific Performance
Injunction
Recession
No punitive damages
Compensatory Damages
Damages or money that compensate the non-breaching party for the loss of the bargain. Is ALL you get in contract law
Liquidated Damages
Simple clause in a contract where the parties agree not to sue each other for more than X. Is a cap or ceiling for business purposes, like if it was a risky business.
Punitive damages
Designed to punish a wrongdoer and set an example to deter the conduct in the future, they have no legit place in contract law.
Non-monetary damages; Specific performance
Requires someone to do the performance of the act promised in the contract
Is attractive to a non-breaching party because it provides the exact bargain promised in the contract
Avoids some of the problems that can come with suing for damages, such as collecting the money or finding a new deal.
What is an example of specific performance?
A court might order specific performance for a contract to sell a piece of real estate, because each piece of real estate is unique. But not for a car, because a car may be easier to find a replacement for.
What is an exception to specific performance? What type of contract and why?
Employment Contracts → Cannot force someone to go to work
If someone breaches the contract, you can’t get a court order forcing them to go to work
Breaches the 13th Amendment: prevents involuntary servitude or slavery
Note
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