LEGL exam 3

Contract Law: The Law of Promises

A contract is a legally enforceable agreement containing one or more promises

• A contract does NOT have to be in writing to be enforceable

• They can go to court

• Promise —> might have a moral/ethical duty but we’re not perfect and can be verbal or implied.

5 elements of a contract

1. Offer

2. Acceptance

3. Consideration

4. Capacity

5. Legality

• For a promise to be a legally enforced contract it must fulfill all five elements.

Contract Types

• Bilateral Contract

• Unilateral Contract

• Express Contract

• Implied-in-Fact Contract

• Implied-in-Law Contract

Bilateral Contract

A promise exchanged for a promise between two parties

• Both sides make a promise

• Offer to sell Riley a TV for $200, Riley gets TV, Nichols gets money

• You get $50 for all A’s you got

Unilateral Contract

A promise made by 1 party to induce an action by another party

• If action does not happen, then no contract (no acceptance) (promise never has to be fulfilled)

• A promise made to induce someone else to do something

• All REWARDS are unilateral

  • Ex: Missing dog poster $1000 reward

    • You don’t owe $1000 if the dogs are not found

Express Contract

Formed by interactions of the parties discussing/”expressing” the terms of the agreement

• It was discussed either through WRITING or ORALLY

• Ex: Offered to sell Riley Nichols’ TV for $200

Implied-in-fact Contract

Formed because the conduct of the parties indicates the intention to enter into a contract

• Based on the conduct

• Jittery Joes expected Caleb to pay money for a drink when he ordered

• It is implied

Implied-in-fact requirements

1. Offeror furnished goods or services

2. Offeror expected to be paid

3. Offeree had chance to reject and did not

An implied-in-fact contract requires a clear, shared understanding that a service is being offered and that payment will be given

• Clear understanding of Caleb and Jittery Joes, they expected him to pay for it, but he could have said, “Wait I don’t want that”

• Caleb is legally duty-bound to pay

• Ex: Full service gas stations in New Jersey - “Can you fill her up”

• You go into Chucks and sit at a table, you DO NOT NEGOTIATE A CONTRACT

Implied-in-law Contracts

Court created contract terms when a party was “unjustly enriched”

• No legally enforced agreement by parties

• The court will make the party who was “enriched” to pay for the good or service even though no contract to pay exists

  • They got a good or service that was received, but they did not pay for it

• Unjust enrichment - When one party unfairly benefits at the expense of another

  • Court created contract

Implied-in-Law Elements

1. Benefit: One party gave a valuable benefit or service to the other party (value for the receiver)

2. Appreciation: The receiving party appreciated the benefit

3. Retention: The receiving party kept the benefit under conditions that make it unfair not to pay for it

Ex: You hire a contractor to come to your house to do a new roof, and while they are there, chimney is broken & they fix it. They could sue if I refuse to pay for it because I got ADDED BENEFIT (appreciation) that the chimney did not kill me

• Whenever we received the benefit, we kept them

• Even though it was not a legally enforced agreement, you received it, you have to pay for it

• If you land in a hospital unconscious, even though you did not do an express contract, you still have to pay because it is IMPLIED IN LAW

Contract Terminology: Enforceable

The agreement will hold up in court

• The agreement has the 5 elements of an enforceable contract

Contract Terminology: Unenforceable

• One party has a justifiable (“legal”) reason not to comply with the contract terms

• Might have had 5 elements or might not have

• If they had, there’s a legal reason not to comply in court

Contract Terminology: VALID

When all the 5 essential elements are present

Contract Terminology: VOID

One of the 5 elements of an enforceable contract is lacking so the contract never formed, it is VOID

• From the very beginning there is no legal effect and courts will not enforce a void contract

Contract Terminology: VOIDABLE

Someone in the contract could make it voidable or unenforceable in the future

• The injured/affected party has the right to void the agreement

Contract Terminology: EXECUTED

Parties have performed their promises/obligations under contract

• Promises were performed

Contract Terminology: EXECUTORY

Parties have not yet performed their agreement under the the contract/agreement

• Is it necessarily a bad thing/breach?

• No, not necessarily a bad thing

  • Ex: Nichols offers to sell TV for $100

  • "Riley came by later so I can give my TV”

  • Riley paid but Nichols has not executed yet but that does not mean it is in breach

5 elements of the contract ctd

In order for a contract to be formed, there must be mutual agreement between 2 or more parties who must manifest their intent to be bound to definite terms

• If Nichols offers to sell TV to Riley for $100, they both need to have had INTENT - they cannot be joking

1. Offer

2. Acceptance

3. Consideration

4. Capacity

5. Legality

Elements of an OFFER

1. A definite proposal

   1. - Nichols makes proposal to Riley - “I’ll give you the TV

2. Made with the intent to contract, AND

3. Communicated with the Offeree

   1. Told him a few times

Offer: Definite Terms

An offer must have reasonably definite terms so that a court can determine if a breach has occurred and give an appropriate remedy

• To enforce a contract, you go to court

• Court wants to know what the contract terms were to begin with

Generally required:

1. Identity of the parties

2. Identity of the object or subject matter, and quantity

3. The consideration paid (not always)

   1. Can be money deposit (not always)

• Offer to Riley

  • Identify parties: Riley and Nichols

  • Subject of the offer: the TV

  • Consideration: Money

NOT OFFERS (examples)

1. Expressions of Opinion

2. Statements of Future Intent

   1. Offer to sell Thomas Nichols’ house next year, not definite offer

3. Preliminary Negotiations

   1. Offer to sell Ashley a car for $5k

   2. Ashley negotiates down because its too expensive

   3. These discussions are NOT VALID OFFERS

   4. Annie ask Johnny: “Would he be interested in buying this for me ..” - not valid offer

   5. Advertisements

Why do we care so much about what is a definite offer in contract law?

• It can be accepted at any time, thus creating a binding agreement enforceable in court

Leonard v PepsiCo

PepsiCo (Defendant), advertised Pepsi related paraphernalia, which one could obtain by getting “Pepsi points” by drinking Pepsi or you could buy Pepsi points for 10 cents a point. Pepsi ran a commercial which said a Harrier Jet could be purchased with 7,000,000 Pepsi points. The plane was valued at $37.4 million. - You use the bottle caps and cash it in for items on the catalogue

• Leonard sent a check for $700,008.50 to Pepsi to purchase the jet

• He said offer accepted - here’s my address, deliver it here etc

• Was there an offer?

  • Pepsico is not making a definite offer

• Rule: A reasonable person must believe an offer was serious for it to lead to a contract

• Court - “No reasonable person could have believed that the company seriously intended to convey a jet worth roughly 37 million for $700,000 ie that it was mere puffery.

• The non-serious nature of the “offer” is emphasized by the kid taking it to school.

The ad continued, but with a price of 700 million points

Offer: Termination

An offer can be terminated at any point before acceptance

• Offer can be accepted at any point unless it is terminated

Termination of Offer

1. Revocation: Offeror takes away, “revokes” the offer

   1. Any time before Riley accepts, Nichols can say nevermind

2. Rejection: The offeree refuses/suggests a new contract to the former offeror

   1. Riley can reject the offer, and it is terminated

3. Counteroffer: The offeree suggests a new contract to the former offeror

   1. Terminates the OG offer

   2. Nichols offers to sell TV for $100 - Riley says how about $75?

4. Lapse of time: The offeree declines to accept by the deadline or by a reasonable amount of time determined by law

5. Subject Matter Destruction

   1. The subject of the contract is destroyed

      1. TV falls off the counter so Nichols cannot sell to Riley

6. Offeror death or insanity

7. Subject Matter Illegality

   1. It becomes illegal to sell the TV to Riley

Offer: Termination: Option Contract

A contract whereby an offeror is bound to hold an offer open is called an option. Consideration is required

• Nichols cannot offer it to somebody else or revoke the offer

• Riley has to give Nichols something for her to keep her offer open

Acceptance

Acceptance is the voluntary agreement to the terms of an offer and agreement to be bound by it

• Offeree has to have intent to be bound by contract terms

Elements

1. An unconditional consent

   1. If Nichols offers to sell Riley the TV for $100, Riley’s has to be unconditional - NO CHANGE to the offer, has to be mirrored

2. Made to an open offer

   1. If Nichols revokes offer, Riley cannot accept

3. By the offeree only

   1. If Andrew wants it, he cannot accept it because it has not been offered to him

4. Communicated to the offeror

Acceptance cont’d

Acceptance generally must be communicated

Ex: Yes, deal

Performance of an offer is ALWAYS an acceptance (handing over $100)

• Silence is generally NOT an acceptance except for some exceptions

Mirror Image Rule and counteroffers

• The acceptance has to be the mirror image of what the offer is —→ if he makes any changes that becomes a counter-offer

Mailbox Rule: acceptance is good the moment a letter accepting a contract is physically put in the mailbox to be mailed

Acceptance: Through Silence

Generally silence does NOT imply acceptance

• Ex: Creature comforts - UGA needs to speak up and say we already have beer from last time

UNLESS:

1. Express requirement to speak up

2. Prior dealings required to speak up

“I accept, please send me a written contract”

• Contract? No because it is not a mirror image

• Counter would be changing the elements of the deal

  • “I accept if you send me a written contract”

Was there an Offer and Acceptance?

The offeror and offeree must have a serious intent to become bound by a contract for there to be a valid offer and acceptance (agreement)

Objective Test:

• Intent is determined by an objective test.

• If a 3rd party looked at the communication & conduct, would a reasonable person think that they have intent to be bound?

• “What would a reasonable person in the position of party A think was meant by the words, conduct, or both of party B?

Lucy vs Zehmer

• Mr. Lucy offered to buy Mr. Zehmer’s farm for $50k while the friends were drinking. Zehmer - thinking they were joking - wrote up a “contract” on loose paper. They signed it. Zehmer realized Lucy was serious and said he had no intention to sell. The next day, Lucy sought to enforce the contract. At the trial, Mr.Zehmer stated that he wrote and signed “the contract” because he was “bluffing” to see if Mr. Lucy had that much money. Previously Mr. Lucy offered 20k for the farm, so the 50k seemed impossible. Mr. Zehmer claimed the whole thing was a joke

• Court looks at behavior to see if there was intent

• Court sided with buyer - looks at intent

• Zehmer corrected the contract, and went all the way to get his wife to sign it

Consideration

The inducement/motive/price to each party that induces them to enter the contract/bargain

• Has to be specific

• Has to be capable for performer

• Has to be mutual - both sides have to give something of legal value

Consideration cannot be too vague or uncertain concerning time or subject matter and be a promise capable of being performed

• If only 1 side is giving up something, it becomes a gift

• Ex: “I agree not to sue you if you give me this money”

2 elements:

1. A bargained for exchange (mutual)

2. Has legal value AND it must constitute a benefit to the promisor OR a detriment to the promise

Consideration pt 2

Consideration must be bargained for at the exchange and given in exchange for the promise that is the agreement

• The consideration has to be part of the agreement - has to be negotiated at the time

• Can’t be from the past

Consideration must be mutual/something given by both parties

Not bargained for so NOT “consideration”

• Past consideration

• Preexisting duty

Promissory Estoppel: Exception to Requiring Consideration

Promissory Estoppel:

• When one relies on a promise to their detriment, and based upon their reliance, the court can create contract rights and enforce them to avoid injustice

• Legal doctrine that court might apply in a situation

• Deals in situations where a clear & definite promise is made to somebody

• Promise was to promisee’s detriment/harm

• Promisee relied on a promise made

• Seeks to prevent unjust enrichment

Betty Promissory Estoppel

Tom offers to give his girlfriend Betty $15k to buy a new car. Thrilled, Betty goes out & buys a new car. Tom decides he wants to break up with Betty & decides not to give her $15k

• She was harmed by relying on Tom’s promise. So court might say Promissory Estoppel, we’re going to act like there is mutual consideration, takes Betty’s side

Promissory Estoppel: Exception to Requiring Consideration ELEMENTS

Elements:

• There must be a clear and definite promise

• The promisor should have expected that the promisee would rely on that promise

• The promisee reasonably relied on the promise by acting or refraining from some act

• The promisee’s reliance was definite, resulting in substantial detriment

Blinn vs Beatrice

Mr. Blinn was in his late 50’s working at a Kansas hospital. He received another job offer from a rival hospital, offering him more money and more responsibility. Mr. Blinn spoke to his boss, informing him of his new job offer. The boss replied “We’ve got at least 5 more years of good work here!” Mr. Blinn declined the new job offer. Soon after Mr. Blinn was terminated.

• Mr. Blinn sued for breach of employment contract

• Sued under theory of Promissory Estoppel

• Mr. Blinn relies on boss’s “promise”, court sided with Mr. Blinn

• Mr. Blinn sued for breach of employment contract

• The court admitted that there was no consideration, but enforced the promise because promisor had misled the promisee in such a way that it would be unfair to do otherwise.

Capacity of the Parties

• Parties to an agreement must have the legal capacity to enter into a contract

• They should know that if they don’t fulfill their obligations, they could get sued

• Courts presume the existence of contractual capacity

Potential of lack of capacity

• Infants/Minors

• Intoxicated persons

• Insane or mentally incompetent persons

  • These are the areas where the court may question if there was capacity

Degrees of lack of capacity

Infants/Minors: under 18 unless married

• Cannot be legally bound to contractual promises with EXCEPTIONS for “necessaries of life”

  • food, clothing, shelter —> minors can be bound

  • Implied in fact - if boy orders everything off menu, he can still be held accountable because its for the necessities of life

  • under 18 —> called infant unless married

• You can contract child (minor) both can enter into contract, but if you enter contract with a minor, the minor at any time can void the contract up until 18 years old

• ONLY minors can void contracts

• Intoxicated or Mentally Incompetent - A person who does not understand the nature and consequences of his or her act at the time of entering the agreement (the point of being blacked out)

Capacity of the parties and voiding

VOIDABLE Contracts: the party who lacks capacity can void the contract. They must communicate to the other party that the contract is void and the party does not intend to be bound by it

ex: minor

• Only the party that lacks capacity can void a contract

Legality

The contract must be formed for a legal purpose

• Cannot contract to commit a tort or a crime

• If the contract’s subject matter becomes illegal after the contract, the contract becomes void, or discharged, by law

Illegal:

• Agreements to interfere with system of justice

• Gambling

• Loans with interest rates so high that it is against public policy

• If Cali passes a law saying Marijuana is illegal, all the contracts in play related to that would become illegal and therefore void

Defenses to Contract Enforcement

1. Lack of meeting of the minds

   1. Fraud

   2. Misrepresentation

   3. Mistake (mutual or unilateral)

   4. Duress

   5. Undue influence

2. Improper form

• Why I did not perform the obligations

• Intending to be bound by agreement by both sides

• Both sides need to be on the same page (meeting of the minds) in order to legally enter the contract

• If they are not, they might have one of these legal defenses

Defenses to Contract Enforcement: Meeting of the Minds

Mutual understanding of the essential terms of the contract and underlying facts

Lack of Meeting of the Minds due to:

1. Fraud

2. Misrepresentation

3. Mistake

4. Duress

5. Undue Influence

Fraud

The intentional misrepresentation of a material fact with the intent to deceive another to enter into the contract - induce them to enter into the agreement

Material fact: a fact without which the contract would not have been entered into

• INTENT - someone relies on the intentional misrepresentation

• Had it been different, contract would never have been entered into

Misrepresentation

Unknowing or unintentional misrepresentation of a material fact that induces the other to enter into the agreement

• Jack driving on highway, picks up cute dog, “I’m going to sell this dog” says its a lab puppy and someone agrees to buy because they want a lab. They grow old and turns out it was a golden retriever.

• Was it intentional? NO

• The buyer could void the contract

• Intentional would be knowing it is a golden and still selling - FRAUD

Mistake

When one or both of the parties to a contract unintentionally misunderstand a fact that is material to the contract

2 types of mistakes:

1. Mutual

   1. When both sides make a mistake

2. Unilateral

   1. When only 1 side makes a mistake

Mutual Mistake

Mutual Mistake elements:

1. The mistake concerns a basic assumption on which the contract is made

   1. Ex: buying a used car that turns into a lemon title

   2. Court might make them rescind the contract

   3. Court —> Did you check to see if it was legit? Did you go to the mechanic?

   4. Party did not assume the risk of the mistake

   5. Was the buyer/seller acting as a reasonable buyer/seller?

2. The mistake has a material effect on the agreed upon exchange, and

3. The party did not assume the risk of the mistake

   1. Nichols offers to sell Michael her diamond ring but after he buys it, realizes its not a diamond - both made the mutual mistake because Nichols did not know either

   2. Mutual mistakes result in a “contract” that can be rescinded/revoked/voided by either party

Unilateral Mistake

Unilateral mistakes generally do not void a contract unless the non-mistaking party knew or had reason to know of the mistake by the other party - and did not say anything

• Ex: estimate for carpet is $20/sq foot, but seller writes $2/sq foot, seller is not getting out of that, it was a unilateral mistake

• But if buyer saw advertising that said $20/sq foot and knew $2 was a mistake, but still signed it, court would not side with them

Mistake as a defense

Cannot be due to:

• Carelessness

• Poor judgement

• Lack of wisdom

• Mistake as to the true value of an item

  • Not a defense: michael buys Nichols diamond ring that he bought for 20k but it is actually 100k they cannot void that

A mistake in law is NOT voidable

• Ignorance of law is no defense

• If you enter a contract and don’t know the legal ramifications, court says that is on you

Duress

Unlawful/Wrongful pressure that causes a party to enter a contract they would not otherwise have made (forcing somebody)(involves wrongful coercion)

Elements:

1. Coercion

2. Causing a loss of free will, and

3. Resulting in a consent to be bound by a contract

NOT economic duress!

• not a defense

• When someone needs to sell because they need the money

• Duress —> holding something to their head to make them sign something

Undue Influence

Where one person uses excessive persuasion, manipulation, or authority to overcome another person’s free will, leading to an unfair or unnatural transaction or decision.

• When one of the parties has some type of confidential relationship with someone else

• Parent-child

• Husband-wife

• The substitution of will, some 3rd party has on one of the parties

• Form of duress but needs authoritative

It is usually in cases where there is:

1. A confidential relationship that is used to create

2. An unfair bargain

Ex: boss saying you have to sign this for us to hire you, Anna Nicole Smith

Statute of Frauds

Some types of contracts must be in writing to be enforceable because of the likelihood they will be disputed

• Common Law doctrine

• GA has one

• Lists out the types of agreements that courts require to be in writing to prevent fraud

Contracts Governed by the Statute of Frauds

1. Agreement by an executor or administrator to answer for the debt of a decedent

2. Agreement made in consideration of marriage (prenups have to be in writing because of divorces), originally was for dowries

3. Agreement to answer for the debt of another

4. An agreement that CANNOT be performed in one year

5. Agreement for the sale of an interest in real property (rent, any of the estates we learned about)

6. Agreement for the sale of goods (in the future) above a certain amount

   1. Services do not have to be in writing though

Jennings vs Radio Station KSCS

• Steve Jennings is a prisoner in the Texas Department of Corrections where he listens to the radio. Radio Station KSCS advertises that it plays songs “at least 3-in-a-row, or we pay you $25,000. No bull, more music on KSCS

• Jennings alleges that the radio station interrupted 3 songs with an advertisement so Jennings demanded his $25,000. Lawsuit follows.

• His listening could constitute consideration because the station benefited by gaining listeners

• Final outcome Jennings lost because he lacked sufficient evidence

Contract Performance

A person is bound to a contract when there has been an offer, acceptance, and exchange of consideration. Each party has a duty to perform - but when?

• A party is discharged from the contract when there is performance of the terms. The goal is to be discharged

2 questions:

1. When has the contracting party’s duty to perform become absolute?

2. Has the absolute duty to perform been discharged?

The contract may provide that a party who is bound does not come under a duty to perform unless or until a specified condition occurs.

Conditions on Performance

• Condition Precedent - something must take place in the future before the party has a duty to perform

  • Sounds like a contract that involves an inducement to do something - Unilateral —> like a reward to find a dog —> Obligation to perform contract becomes due

• Concurrent Condition - Both parties have a simultaneous duty to perform

• Condition Subsequent - excuses contractual performance if some future event takes place

• Express conditions - Those expressed in the contract

• Implied Conditions - not expressly listed in the contract but can be inferred based on the obligations of the parties in the contract

Conditions on Performance: Condition Precedent

Something must take place in the future before the party has a duty to perform

Conditions on Performance: Concurrent Condition

Parties have a simultaneous duty to perform, bound to perform at the same time

• Smith & Jones agree that in consideration of Jones promise to pay the sum of 15k, Smith promises to convey his 2006 land cruiser. They sign a sales agreement but

  • Neither is in breach of contract because concurrent condition has not been triggered

• They are supposed to exchange at the exact same time

• The concurrent condition has not been triggered until both are ready to perform their respective obligations

Conditions on Performance: Condition Subsequent

• Excuses contractual performance if some future event takes place. The occurrence of the future event cuts off an already existing duty of performance.

• Landlord vs you

  • If you stop paying rent, that stops the landlord’s obligations to you because you are not performing

Performance and excuse of non-performance

2 questions to determine if parties have been discharged (Did they do what they were supposed to do?)

1. When has the contracting party’s duty to perform become absolute?

2. Has the absolute duty to perform been discharged?

3 types of Performance of the Contract

1. Complete Performance(A+++) - A party performs exactly as contracted

   1. You paid your rent every month on time - did everything you were supposed to do

2. Substantial Performance (A, A-, B, B-)

   1. A party who in good faith performs substantially all terms of the contract can enforce the contract against the other party

   2. Ex: possibly being late one month but still in good faith

• Effect: The other party’s duty to perform is triggered but can sue for any damages caused by “substantial performance”

  • When there is SP, the other party can enforce the contract

If NEITHER 1 or 2, there is:

3. Breach of Contract or Non-performance

   1. Failure to perform amounts to breach of contract. Non-breaching party must show that she is WILLING and ABLE to perform her duties but for the breaching party’s failure to perform

2 types of Breach of Contract

MINOR - If non-breaching party gains substantial benefit of the bargain despite the breaching party’s defective performance. The non-breaching party is NOT relieved of her duties under the contract.

• Parties get almost everything, if Nichols hired a landscaper to mow all grass, she’s going to pay $200

• Nichols notices its not completely blown leaves, but Nichols is not relieved of paying him $200

• Ex: a min late getting TV into the car

Material - If the non-breaching party does not receive substantial benefit of the bargain as a result of the failure to perform. The non-breaching party may treat the contract as at an end with her duties having been discharged and will have the right to immediately sue

• Obligation to pay has been relieved because Nichols did NOT get the benefit she is supposed to be paying for

• If it is specifically addressed in the contract that he wants it early or at a specific time or anything like that it is different

Accord & Satisfaction

• An agreement occurring when: A debtor offers to pay, and a creditor accepts, a lesser amount than the creditor originally claimed was owed.

• The accord is the agreement, the satisfaction concerns the prior debt

For an accord and satisfaction to be effective, there must be a dispute about the original debt owed

Rules of Contract Construction

• Court determines what the terms of the contract are and if they have been discharged

• Rules:

1. Contract construed as a whole

   1. 5 page contract with clauses, court will read the entire thing & equally weigh all the clauses

2. Ordinary meaning of the words

3. Inconsistency between provisions

   1. Some of the clauses are inconsistent - written will prevail over typed, both will prevail over pre-printed

4. Custom and usage

   1. What is normal in the industry

5. Preference to construe contract as valid and enforceable

6. Ambiguities construed against (the drafter) the party preparing the contract

   1. The party that takes time to write/type, if there are ambiguities, the doubt goes to the drafter mistake

Interpretation of Contracts

Rules of Interpretation (only apply if there is an ambiguity)

• Words are given their ordinary and plain meaning

• Terms that were the subject of separate negotiations will be given greater consideration than standardized terms or terms that were not negotiated

• Specific language is given more consideration than general language

• Written or typewritten words are given more weight than pre-printed wording.

• Ambiguous language will be interpreted against the drafter of the contract

• Evidence of usage of trade, course of dealing, and course of performance can be used to clarify language

When judge still has questions

Interpreting and enforcing contracts, questions often arise as whether the written contract is the complete embodiment of the parties intentions

• If there is that clause & both parties sign, the court will apply the parole evidence role - the only thing they will consider is the contract itself, not any oral testimonies

If parties write a contract out and with the intent that it embody the full and final expression of their intent, the parole evidence rule come into play

Parole Evidence Rule

Prohibits testimony about the ORAL negotiations that result in a written contract that is described as a final and complete

• Applies only to evidence of oral agreements made at the time of or prior to the written contract

• Exception allows evidence of oral agreement that explains the meaning of written terms without changing the terms

Excuses for Material Breach

Get out of jail free card - We have a legal reason to not be held in B.O.C

• Force Majeure

• Impossibility of Performance

• Frustration of Purpose

• Commercial Impracticability

• Waiver

• Release —> when someone is in BOC, someone who is not in breach says you’re terrible to do business with, I’m done with this, leave & I don’t want to see you again

Excuses for Material Breach: Force Majeure (Superior force)

Force Majeure - A clause that excuses parties from fulfilling their contractual obligations when an extraordinary event beyond their control prevents performance, such as a natural disaster or war

• If war broke out, I would be relieved of performing my obligation in contract

• Ex, war in Iran, no way to perform obligation

• Terms negotiated in the contract for excuse to perform.

• Act of God

Excuses for Material Breach: Frustration of Purpose

• The occurrence of an unforeseen supervening act that while it technically possible to perform the result would be dramatically different than intended - makes the purpose of the contract be destroyed

The purpose of the contract has to be realized by both parties at time of making contract

• Creature comforts deliver beer

• If Covid comes back, season gets cancelled, can company make beer? yes, can they still deliver? yes, but has the purpose been destroyed? yes

Excuses for Material Breach: Commercial Impracticability

Commercial Impracticability: UCC: extreme and unusual difficulty/expense and non-occurrence was a basic assumption

• Mere increase of costs not enough unless to change the nature of the contract

• Future, unpredictable, unforeseen event that changes parties of a contract

• Ex: Wine - tariffs were going to be 150 times more? Business would not have entered if substantially changed

War breaks out

• War in Ukraine, substantially changed ability to perform

Excuses for Material Breach

Waiver - When a party intentionally relinquishes the right to enforce. When one party forgives

Release - When one party says the other party no longer has to perform. It is bargained for

2 types of damages in Breach of Contract - Legal sanctions in Breach of Contract

1. Money damages or compensatory damages

   1. Intended to make plaintiff whole

2. Non-money damages or equitable relief

Remedies for Breach of Contract: Money damages

Compensatory Damages: “Expectation Damages”

• Make the plaintiff whole as if the contract had been performed. Lost profits, cost to cover: difference in market price vs contract price (In the business to print t-shirts, if Nichols enters into a supply contract with Wade for him to supply her tshirts at $10 a t-shirt. If he fails to perform obligation and does not deliver the t-shirts, and Nichols has to go out on the market place and purchase t-shirts from amazon, likelihood is that it is going to be more expensive than the negotiated contract with wade - 10 for Wade, 12 for amazon, she can recover the DIFFERENCE between OG contract price and price she has to pay)

  • In tort cases: medical bills, lost wages etc as if the accident had not occurred

  • In BOC cases, we still want to make the plaintiff whole, but looks a little different

Consequential Damages

• Downstream foreseeable losses - how is court going to determine what is foreseeable?

  • They will look at what a reasonable person would have expected to happen because of this breach - lost profits, additional expenses incurred, loss of goodwill because you failed to perform your obligations with another contract - Nichols contract with UGA bookstore to provide shirts for them to sell - so she can recover all that with consequential damages

• Liquidated damages

  • Remedy amount agreed upon when negotiating the contract - its IN the contract

    • Usually used when it is difficult to estimate, when the contract was formed, what things were going to cost in the future, but it is when the parties agree that if Wade fails to deliver Nichols tshirts by Dec 25, he owes her liquidated damages in the amount of 5000

    • already agreed to compensation for the breach

• Punitive or Exemplary Damages: Not recoverable in breech of contract cases unless there is a tort involved

• Nominal Damages - might be provided, court might agree that there has been an actual breech of contract, but they do not agree that there is any real financial loss resulting from the breech.

  • Ex: If the court found in favor of the plaintiff, but awarded $1

  • Plaintiff gets recognition that they were wronged, gets the verdict in their favor but does not recover alot, only nominal damages very little dollar amounts

Remedies for BOC: Equitable Relief

Specific Performance: Court compels the breeching party to do what they were obligated to do under the contract - Sell the picasso painting to me, because I have a buyers contract for that

Recission: Both sides return the consideration and walk away. As if the contract was never entered into

• So neither side is in breech

Injunction: Court orders a party to stop doing something or to do something specific. Not something that is part of the original contract

• Adidas vs Sketchers

• Sketchers were selling those shoes that adidas said were infringing on their trademark, if the court went in adidas favor, they would issue a conjunction to sketchers to stop selling them

Damages DAWG tours

Consequential damages, compensatory damages

Mitigation of Damages

Mitigation is the purposeful reduction of damages

• Requires the victim to take reasonable steps to reduce the damages. The victim must refrain from piling up losses after the breach, must not incur further expenditures or costs and make effort to get a substitute at a reasonable cost

  • Nichols has duty to go to Amazon and see if she can buy the t-shirts she needs on the marketplace under the requirement of mitigation of damages

• Applies to Tort cases as well

Mitigation of Damages: Andy and Barb

If Andy agrees to sell Barb 100 apples for $5 each and later refuses to sell those apples, Barb must look for a new apple seller before she can sue Andy for damages because of Barb’s duty to mitigate

• If Barb finds someone else to sell apples for 7 dollars each and Barb sues Andy, how much can she recover in the compensatory damages?

• She can recover $2 per apple so 2 times a 100 = 200 dollars

Privity of Contract

Generally speaking, a contract binds only the two parties who bargained and entered into the agreement and NO ONE ELSE (offeror and offeree), meaning right to enforce obligations do not generally go to 3rd parties - only people who are in privity can sue (Nichols and Wade, not her mom or UGA bookstore)

2 exceptions:

1. Contractual rights of third party beneficiaries

   1. When the contract is for the intended benefit of the third party

2. Contractual rights transferred to third parties

   1. When contracts are transferred

In these cases the 3rd party can enforce the terms of the contract

Third party beneficiaries

Contracts, on their face, are made with clear understanding that they are intended to benefit a third party (not the original party to the contract) create “third party beneficiaries”

• Exception to the Rule of Privity: third party beneficiaries may directly sue

• Only intended beneficiaries can sue. Incidental beneficiaries cannot sue.

Ex: Lady in front of her elderly parents house. The old parents are no longer mowing their grass, so their daughter enters into a contract with a landscaper to mow the grass for $100 a week. The intended beneficiary who benefits from mowing the grass are the grandparents. He’s not mowing the daughter’s grass, he’s mowing the grandparents grass.

The test to determine if the beneficiary is an intended beneficiary is to pose the following: To whom is performance to be given according to the language of the contract?

• Going to look at who is the intended person to get the benefits of the contract

• So you look at what the purpose is of the promise and who is getting the benefit of the promise, and if it is for a third party, they become a 3rd party beneficiary - meaning the grandparents can sue the landscapers themselves

Transfers of Duties and Rights

Sometimes an original party to the contract decides to transfer her rights or duties to some third person who was not originally a party to the contract

Assignment - The transfer of rights

• Receiving the benefits

Delegation - The transfer of duties

• The duties are the work owed

Assignment of Rights

The transfer of contract rights (benefits) to a third party

• Assignor - The party that makes the assignment

• Assignee - the party who receives the contract rights

• Obligor - Non-assigning party to the contract (the original party of the contract that remains on the contract)

When there is an assignment of rights, the assignee (the one that receives the contract rights) steps into the shoes of the assignor, subject to all rights and defenses and may enforce her rights against the obligor directly. The assignor loses all rights when there is an assignment of rights

Ex: Joe is a great foot ball player, his biggest fan is his mom, one day he signs a contract with a professional football team, the california crushers for 1 million dollars, he assigns the payment of 1 million to his mom

• Joe is the assignor

• Mom is the assignee

• Obligor - The California crushers

General rule - no problem assigning rights under the contract, but there can be a problem if it is a personal service contract or if the other party (the obligor) will be burdened or put at risk because of the assignment.

• For ex: If Joe’s mom is a baker and she signs a contract to bake pies and signs a contract with small bakery Acme bakery and mom agrees to bake all the pies that acme needs (4-5 pies every day) but what if Acme bakery decides to assign the contract to big food incorporated?(they say they need 10,000 pies every month) which is not fair because mom as the obligor cannot be forced to bake pies for big food inc.

Prohibited from Assignment

• The assignment is prohibited by state law

• Contracts that significantly change the duties of the obligor (mom and acme bakery)

• Personal service contracts

  • A butler - Nichols cannot assign the duties of her butler to perform for Wade - that is like indentured servitude and slavery

• Assignment prohibited by the contract - the contract itself says it cannot be assigned then it cannot be.

• What types of contracts in the business world could be assigned?

  • Almost anything as long as they are not prohibited by state law and as long as the duties of the obligor are not changed

  • Ex: Insurance companies - if we have a contract to insure a house in New Orleans, that contract cannot be assigned to another homeowner maybe in nebraska because the obligation to cover the risk is significantly higher in the new orleans house than it is the nebraska house - so it would change the duties of the obligor in that situation to switch out the assignment for a person in NO vs a person in Alaska

Delegation of Duties

The transfer of duties (obligations) under a contract; not an assignment of the whole contract

• Delegator - one who transfers the duty

• Delegate - One who receives the delegation of duty

• Obligee - Non-delegating party to the contract

Obligee must accept performance from the delegate of all duties delegated

Delegator will remain liable on the contract

The obligee cannot compel the delegate to peform

Ex: If there is a delegation of duties, meaning the landscaper Nichols hired to mow mom’s house and he goes out and delegates to another landscaping company, my mom has to accept who is going to come mow her grass, but if she does not like it, then the original landscaper I contracted is liable under the contract. The obligee cannot compel the delegate to perform

Prohibited from Delegation

• Duties that involve personal judgement or skill

  • Personal skill could be talent, if CC enters contract with Taylor Swift to come sing at the classic center for a lot of money, T-swift cannot delegate her duties from her contract because her skill is unique

• Where there is a special trust in the delegator

  • Lawyer that represents you, you like him alot, the lawyer cannot delegate his obligation to someone else, you want your lawyer with your special relationship

• When performance by a third party will materially alter the contract

  • Taylor swift delegating to Nichols because the contract that is being performed by Nichols is going to be materially different than if T swift performs it

  • Hiring Picasso to paint your portrait, picasso cannot delegate that to another painter

• When the contract prohibits delegation

Transfer of duties and rights: Novation

An agreement made between 2 contracting parties to allow for substitution of a new party for an existing one. It requires the assent of all parties and completely releases the original party from their obligations under the contract

• What happens to the obligations of the original party to the contract is substituted by novation?

Ex: Subleases - If you formally sublease your apt, whoever is subleasing will go onto the lease agreement you have with the place - You are off the rent’

• If subleaser does not pay rent, landlord won’t come after you because you are no longer a party to that original rental agreement - there has been a NOVATION and the substitute party will be responsible.