Acct 2150 Exam 3

Statute of Frauds - 3 ideas

Certain contracts must be proven by a writing before the contract will be enforceable in court

Must be signed by opposing party against whom the contract is being enforced

UCC 2-201(2) doesn’t require any signatures if both parties are merchants and a written confirmation was sent + no objection made within 10 days

Contracts Subject to the Statute of Frauds

(MYLEGG)

·       Marriage

·       Year- contracts that cant be performed within a year of contract formation

·       Land – contracts involving transfer of an interest in land

·       Executor Promises – promises made by executor of an estate to pay for liabilities of estate

·       Guarantees - promises made to pay for debt of another when no economic is derived

o   if there is an economic benefit (to company to pay off CEO) then it may not have to be in writing

·       Goods – under UCC the sale of goods prices $500+

Exceptions to Statute of Frauds - Common Law

o   Partial performance

o   Promissory estoppel – one party makes a promise and other party relied on it

Exceptions to Statute of Frauds - UCC

o   Admission in court

o   Acceptance (or partial acceptance) of goods costing $500 or more

o   Specially manufactured goods

DewBerry v George

·       Mr. George married Ms. DewBerry- G was concerned about divorce, so required: and she agreed

o   1) Ms.DB would always be fully employed

o   2) each party’s income and property would be treated as separate

o   3) each party would own a home to return to if the marriage failed

o   4) Ms.DB would not get fat

o   Got divorced- G wants half of their combined assets, Ms.DB did very well as a lawyer, Mr. G not so well

o   Court recognized Statute of Frauds not met but allows partial performance as an exception

Parole Evidence Rule

if parties intended a writing to contain their final, fully integrated agreement, then the court will exclude all other evidence if that evidence is offered to contradict the terms of contracts

Parole Evidence Rule - Exceptions

o   Subsequent modification

o   Ambiguous terms – court may look at course of dealings, course of performance, and usage of trade

Parole Evidence Rule - UCC

·       UCC 2-202 prohibits evidence of oral contemporaneous agreements if the agreements are being entered as evidence to contradict the terms of signed agreement

o   Contemporaneous agreements are agreements which occur at the same time

o   Subsequent agreements are allowed

Ambiguous Terms

Course of Performance

Course of Dealings

Usage of Trade

Ambiguous Terms - Course of Performance

court looks how the parties have been interpreting the contract terms to date as they have performed under the contract (this contract)

Ambiguous Terms - Course of Dealings

court looks at how parties in question have transacted in the past and interpreted similar terms (past contracts)

Ambiguous Terms - Usage of Trade

how do others involved in the trade (other businesses) in question interpret terms such as those in dispute – baker’s dozen, standard size

Mistakes - 4

Mistake of Law

Mistake of Value

Mistake of Fact; bilateral and unilateral

Mistake of Law

not an excuse

Mistake of Value

courts generally do not care

Mistake of Fact - Bilateral

both parties mistaken

cannot have a meeting of the minds - thought buying 2 coin collections, but seller thought only selling one

Mistake of Fact - Unilateral

·       only one party makes a mistake

o   Courts not interested

Unilateral Mistake Exceptions

§  One party knows or should’ve known the other party is mistaken

§  Mathematical or bookkeeping errors

Aydin Corp v US

o   Navalex solicited orders for radio sets, Aydin submits bid $158,800 per radio, plaintiff learns of a competitor’s higher bid, plaintiff claims unilateral mistake in calculating bid

§  Court states plaintiff appears to have made an error in judgement not calculation per se – no relief for errors in judgement

Fraudulent Misrepresentation

no mutual assent when fraudulent misrepresentation has occurred – puffing up a service or product is not fraud

Test for intention misrepresentation

o   Misrepresentation occurred

o   Must be intent to deceive

Scienter – intent by defendant to tell deceiving lie

o   Innocent party must justifiably rely on misrepresentation

Innocent Misrepresentation

party did not intentionally lie but misstated material fact on which other party justifiably relied on

Negligent Misrepresentation

·       same test as innocent, but need a breach of care

Misrepresentation by silence

·       Just as good a defense as verbal misrepresentation in some situations

Misrepresentation by conduct

·       similar to misrepresentation by silence

Misrepresentation of Law

generally, not a defense as parties should be informed of the law

o   Exception when one party is considered an expert in that area of law

Undue Influence

one party has an undue amount of influence on another- may work asa defense against contract enforcement

·       Need: close relationship + relationship caused undue influence on formation of contract

o   Ex) attorney, doctor, psychotherapist

·       Adequate disclosure and consent may be enough to enforce the contract even if a close relationship had existed

Kase v French and French

·       McWilliams becomes friends with Mr and Mrs French

o   The French’s buy her house from her and give her an apt within the house (interest rate of the seller financed loan is 1%)

o   Court found a close confidential relationship existed and the French’s owed a duty of good faith

o   Court could not find they violated that duty by engaging in undue influence

Duress

: in the past, courts only cared about physical duress (threat of violence, false imprisonment, or threat to property) – more courts are allowing claims based upon economic duress

Tests for physical duress

·       one party entered into the contract under the threat of immediate harm from the other party --- subjective standard used

Economic Duress

·       1-wrongful behavior, 2-that caused financial hardship, and 3-the damaged party had no other alternatives

Caveat emptor

"buyer beware"

4 requirements of a contract

1) Agreement

2) Consideration

3) Contractual Capacity

4) Legality

Agreement Requirement

generally includes an offer and an acceptance

Consideration Requirement

legal value given in a bargain for a promise (can be a return promise)

Contractual Capacity Requirement

all parties must have (generally assumed to be present)

Legality Requirement

contract must not accomplish illegal activity or purpose

must have legal subject matter

Mailbox Rule

under common law

acceptance is as good as soon as it is dropped in the mail

default rule and can be contracted around

Terms Missing?

under common law:

all material terms had to be present for mutual assent (agreement) to occur

Outputs contract

states buyer will buy all of output from seller

Requirements Contracts (inverse of outputs)

states the seller will sell the buyer all required goods the buyer needs

Duty to Act in Good Faith

UCC 1-203

requires parties to a contract to act in good faith

“honesty in fact and the observance of reasonable commercial standards of fair dealing”

Shelton v Oscar Meyer Food Corps.

plaintiff accused of weed on job at O.M.

plaintiff had received handbooks - plead firing was not in accordance

courts said there is a duty of good faith and fair dealing required in this situation even though it was an employment contract

Noncomforming Acceptances

UCC 2-206 : acceptance can be made by any means reasonable

acceptance of an offer for purchase of goods may be prompt shipment of goods or a promise to promptly ship the goods

a shipment of non conforming goods is deemed to be an acceptance and immediate breach of contract by seller unless seller states the goods are an accomodation

Acceptance v Revocation

Acceptance: good as soon as it is in mail

Revocation: good when received

Freedom of Contract

freedom to contract is Article 1 Sec 10 of US Constitution

freedom of contracts that are contrary to the public good:

contracts that are inequitable

contracts that have an illegal purpose

Contract Law

common law is basis for our chapters

State Statutory Law

UCC - Uniform Commercial Code is model set of contract statutes (for products NOT services)

Contracts

legally enforceable promise (NOT a conditional promise, NOT a promise to give a gift)

Promissory Estoppel

another doctrine allowing recipient of a promise to enforce a contract in court

promisor/offeror

makes promise/offer

promisee/offeree: receives offer

UCC

applies to sale of goods, not services

applies to merchants and nonmerchants

UCC and merchants

defines a merchat as someone who deals in the goods contracted for or holds themselfout as having special knowledge or skill regarding contracted goods

Express Contracts

written or stated in words

Implied Contracts

usually referred to as implied in fact contracts

3 requirements:

plaintiff furnished a good or service

defendant shouldve known or knew that plaintiff wanted to contract

defendant had a chance to say no to services

Bilateral Contract

a promise given in return for another promise as part of contract

offeror makes promise and offeree accepts by making a return promise

i promise to sell u my house May 1, and u promise to pay me May 1

Unilateral Contract

offer can be accepted by acting without the need for a return promise

ex) I will give you $100 to clean my house Sunday

Quasi Contract

a legal fiction imposed by courts to prevent unjust enrichment

Executed Contract

one that has been fully performed by both parties

Executory Contract

not been fully performed by one side

Formal Contract

must correspond with requirements of law

ex) sale if land is required to be in writing

Informal Contract

doesnt have to meet special requirements of law

Voidable contract

may be voidable at the option of 1 of the parties

Void Contract

is Not valid and there is no contract at all - is missing as element

Unenforceable Contract

can’t be enforced

ex) verbal sale of lands

Carill v Carbolic Smoke Ball Co

CSB offers an award of 100pounds to anyone who used their product 3 times a week and still obtained influenza

plaintiff used 3x a week, still obtained influenza, company claims it was an advertisement not an offer

court disagrees and states it was an offer for a unilateral contract and plaintiff accepted by using

Legally Binding Offer

an agreement is generally evinced by an offer and an acceptance

a valid offer must:

be made with serious objective intent

be communicated to offeree

be made with enough specific terms to hold the offeror liable

The Effective Order

Objective (not subjective) standard used to determine intent (not Sam yells “$5 for my boat” and Jam yells “I accept” with $5)

terms must be reasonably definitive (Not “someday I will sell you my car for a fair price”)

Offer must be communicated to offeree (Not amy finding a lost dog, brings it to address, after returning dog notices sign offering a reward)

Lucy v Zehmer

they were drinking and L wants to buy land from Z, Z agrees to sell and writes contract on napkin

Z then claims it was a joke, court says Z and L formed legally enforceable contract

Z was not sufficiently drunk and husband signed it

reasonable person would not know it was a joke

Common Non Offers

Solicitation of Bids “how much would you charge”

Expression of Opinion “I would like to”

Statement of Intention “I plan”

Auctions

generally not an offer to sell but an invitation to bid

“with reserve” means auctioneer can rescind the item from the auction before gavel bangs

“without reserve” cannot rescind once auction has begun

Advertisements

generally not offers unless they limit the number of people or quantity that can be accepted

Leftowitz v Great Minneapolis Supply Store

L saw ad for deeply discounted coats, was 1st in line but was refused service

Sees ad by same store for discounted scarves, 1st in line but refused

court says this ad was an offer and L accepted by being 1st in line

Termination of an offer - Revocation

offeror withdraws the offer

can be express

allowed unless offer is irrevocable

or can be by actual notice - offeree sees car is sold

if offeror makes an offer available to the public, better make revocation public by same means

Irrevocable Offers

cannot be withdrawn by offeror (generally only revocable for small period of time)

Options Contract

Requirements

offer is made with promise to remain open for period of time

and

offeree pays consideration to keep offer open

Firm Offer

UCC 2-205

need a merchant, need a writing signed by the merchant, writing must state that the offer is to remain open

Mirror Image Rule

acceptance must be the mirror image of the offer

ex) I offer to sell you my car for $2000, you cant say “I accept but you have to fill gas before drop off” = added term

Mirror Image Rule - UCC

UCC abolished the MIR

additional terms may be added by offeree

How may additional terms be added

offeree can make their acceptance conditional on approval of addtl terms

if a party incorporates additional terms in acceptance and 1 of 2 parties is not a merchant then the addtl terms are just proposals

if both parties are merchants, then addtl terms become part of contract unless an exception applies

Roto Lith Case

Plaintiff mails an order form to defendant (offer)

Defendant prepares and mails both an acknowledgement and invoice

Documents disclaimed warranties related to goods

plaintiff accepts goods but states disclaimer of warranty not valid

court says plaintiff became bound when accepted goods

Termination of Offers - Lapse of Time

usually stated by offeror

if not stated, offer lapses after a reasonable amount of time

Other Terminations of Offers

subject matter becomes illegal

death or incapacity of offeror

Destruction of Subject Matter

Revocation of Offer - offeror rescinds offer

common law - offer is revoked once notice is received by offeree

UCC 1-102 : notice of revocation may be given to offeree, agent of offeree, or indirectly to offeree (sold sign)

Acceptance

creates an agreement

aka mutual assent - contractually binding agreement

offeror or their agent may accept

cannot accept and then add terms in acceptance

Click on Agreement

offer accepted by clicking a box that certifies person has accepted terms of offer

Shrink Wrap Agreement

user must agree to terms in shrink wrapped box before opening package

once opened, no returns

Silence in acceptance

not usually acceptance

exceptions:

prior dealings, implied in fact

Consideration

legal value given in return for a promise

Legal Value for Consideration

promise to do something

performance of an action

refraining from an action (must not be prior duty to refrain)

Hamer v Sidway

uncle indebted to nephew bc uncle promised nephew $5000 to refrain from drinking, tobacco, swearing, and gambling until 21

nephew fulfills promise but uncle dies

Sidway (executor of estate) refuses to pay Hamer - argues no consideration given in return for promise to pay $5000

court disagrees and says action of refraining from a legal right is consideration

Value of Consideration

courts not interested in consideration unless it is a peppercorn (ex. Rita contracts to sell home for $150 - worth $150,000 - to brother which might be evidence of fraud if Rita is contemplating bankruptcy)

if peppercorn, might be evidence of fraud or duress

Contracts that lack consideration

Pre existing duty

Past consideration

Illusory Promises

Pre Existing Duty

a duty already required to perform

exception is unforseen circumstances

Past Consideration

consideration provided before an agreement was reached

Illusory Promises

do not obligate the person making the promise to suffer a detriment

Creating Liability without Consideration

The Doctrine of Unforeseen Circumstances

UCC 2-209

Promissory Estoppel

Creating Liability without Consideration - The Doctrine of Unforeseen Circumstances

allows parties to agree to an increase in consideration if an unforeseen circumstance arises

Creating Liability without Consideration - UCC 2-209

allows parties to a contract governed by the UCC to change the duties required by a contract without the need to provide addtl consideration

Creating Liability without Consideration - Promissory Estoppel

detrimental reliance

must:

a party makes a promise (promisor)

person receiving promise (promisee) must justifiably rely on promise

a detriment (harm) must be suffered by promise

justice must be served by enforcement of the promise

Addtl Consideration Provided for by Agreement - Mutual Rescission

both parties have not yet performed contracted duties (executory) and agree to return to pre-contracting positions

consideration provided by each party bc they release the other party from having to perform

Settlement of Claims

Accord and Satisfaction

Release