Legal Environment of Business Contracts

Contracts

1. A promise or set of promises.

2. For the breach of which the law gives a remedy

OR

3. The performance of which the law in some way recognizes a duty.

Contract Principles

Agreement between two or more parties to perform or refrain from performing some act now or in the future.

Common Law

That body of law deriving from judicial decisions as opposed to legislatively enacted statutes and administrative regulations.

Legislation

Laws passed by an elected body such as Congress, a state legislation, or local council/commission. Those laws enacted at the federal and state levels are called statutes. At the local level, such laws are often referred to as ordinances.

All contracts involve at least two contracts:

1. Bilateral

2. Unilateral

Bilateral Contract

An agreement that contains mutual promises, with each party being both a promisor and a promisee.

Unilateral Contract

A contract in which the promisor does not receive a promise as consideration; an agreement whereby one makes a promise to do, or refrain from doing, something in return for a performance, not a promise.

Express Contracts

Contracts which arise from interactions in which parties actually discuss the promised terms of their agreement.

Implied in Fact contracts

Arise from the conduct of the parties rather than from words.

Implied in Law, a.k.a. Quasi Contract

A judicial remedy to prevent one party from receiving unjust enrichment.

Valid Contract

When an agreement is enforceable because all the essential requirements are present.

Enforceable Contracts

When courts uphold the validity of promises in a contract.

Unenforceable Contracts

If a nonperforming party has a justifiable reason for noncompliance with a promise.

Void Contract

A contract that appears to be an agreement but lacks an essential requirement for validity and enforceability.

Voidable Contract

An agreement when at least one party has the right to withdraw from the promise made without incurring any legal liability.

Executed Contract

A contract in which the parties have performed their promises.

Executory Contract

When the parties have not yet performed their agreement.

Consideration

The receipt of a legal benefit or the suffering of a legal detriment.

Contractual Capacity

Refers to a person's ability to be bound by a contract.

Offer

Contains a specific promise and a specific demand.

Acceptance

Necessary to create a valid, enforceable contract.

Three elements of an Offer

1. Intent/Commitment

2. Definite Terms

3. Communication

Offers do not exist from:

1. Expressions of opinion

2. Preliminary negotiations

3. Invitations to bid/advertisements

Termination of offer occurs through:

1. Rejection.

2. Revocation.

3. Counteroffer.

4. Lapse of Time.

5. Destruction of Subject Matter.

6. Offeror's/Offeree's Death or Insanity.

7. Illegality of Performance.

Mirror Image Rule

For an acceptance to create a binding contract, standard contract law requires that the acceptance must "mirror" the offer, that is, must match it exactly.

True or False: Silence=Acceptance

FALSE: Silence does not = Acceptance

Consideration

-Receipt of Legal Benefit: Both parties must give and get.

-Past Consideration: Such as gifts and promises

-Preexisting Obligation

-Agreement Not To Sue

-Promissory Estoppel

Three questions to consider when dealing with Promissory Estoppel

1. Was the promise one which the promisor should reasonably expect to induce action or forbearance on the part of the promisee?

2. Did the promise induce action or forbearance by the promisee?

3. Can injustice to the promisee only be avoided by enforcement of the promise?

Capacity

Minimum Mental Capacity Required by law to stand trial.

People that cannot stand trial on contract issues:

1. Minors

2. Intoxicated Persons

3. Mentally Incompetent

Capacity: Minors

Minors are under 18, can not be bound to a contract promise unless the promise involves necessaries of life, such as food, shelter, etc...

Contracts can be voided if they involve:

1. Fraud.

2. Duress.

3. Undue Influence.

4. Misrepresentation.

5. Mistake.

6. Lack of Mutual Assent.

Fraud

Involves an intentional misstatement of a material (important) fact that induces one to rely justifiably to his or her injury.

Duress

Force or threat of force.

Undue Influence

Occurs when one is taken advantage of unfairly through a contract by a party who misuses a position of relationship or legal confidence.

Misrepresentation

Simply a misstatement without intent to mislead.

Unilateral Mistake

Arises when only one of the parties to a contract is wrong, about a material fact.

Characteristics of Written Contracts:

1. Interest in Land

2. Sale of Goods greater than $500.00

3. One year or more for performance

4. Consideration of Marriage (Pre-nups)

5. Pay debts of Another (Collateral Contracts)

Privacy of Contract

1. Assignment: Transfer of rights to contract.

2. Delegation of Duties: Another person performs the obligation.

3. Third Party Beneficiaries: Persons not part of the contract benefit.

Best way to determine Intent of the Parties

Hand written words are the best way to determine the intent

Plain Meaning Rule

A principle used by courts in interpreting contracts that provides that the objective definitions of contractual terms are controlling, irrespective of whether the language comports with the actual intention of either party.

The court will not admit evidence concerning:

1. Prior Negotiations.

2. Prior oral or written agreements.

3. Contemporaneous oral agreements

Condition Precedent

Condition met, triggers performance

Condition Subsequent

Condition occurs, terminates performance

Concurrent Conditions

Simultaneous conditions.

Performance Level: Complete

Where every part of the contract has been met.

Performance Level: Substantial

Vast majority of the contract has been met.

Discharge

A party to a contract is discharged when that party is relieved from all further responsibility of performance.

Contract obligations are terminated through:

1. Rescission: Cancelling

2. Novation: Replacement of the language

3. Accord and Satisfaction: Settlement

4. Operation of Law: Death, bankruptcy, insanity

5. Impossibility: Destruction of subject matter

6. Commercial Impracticability: Change in market conditions

Breach

Party fails to perform without legal excuse.

Material Breach

Substantial failure to perform

Mitigation of Damages

Affirmative legal duty to minimize

Money Damages include:

1. Compensatory: Out of pocket.

2. Consequential: As a result of...

3. Liquidated: Pre-Determined

4. Incidental: Costs incurred

5. Nominal: Technical victory on principle

6. Punitive: Punishment

Non-Monetary Damages include:

1. Rescission

2. Restitution

3. Reformation

4. Specific Performance

5. Negotiated Settlement