Blaw Exam 3

Contracts in restraint of trade-covenants not to compete in the sale of a business and in employment contracts

Restrain trade "limit competition:" Exceptions: 1. Covenant not to compete in sale of a business 2. Covenant not to compete in an employment contract IF: *limited to a reasonable geographic area AND a reasonable time after sale or termination* Unconscionable: 1. One-sided, unscrupulous, or grossly unfair 2. Exculpatory clauses attempting to contract out of liability for damages regardless of fault

Parameters: put in contract how you must accept the offer, is the acceptance sufficiently valid

Scenario: 1. *Specified Mode:* Offer includes method of acceptable acceptance "what mode" Ex: must be written document sent by FedEx, if you send before revocation then accepted, if you do a faster method not stated, then it still has to beat revocation 2. *Implied Mode:* however I send it to you, you have to send it that way or faster. Ex: send by mail - as long as you send by mail it's valid when you put it in the mail so go in person and get green card for verification 3. Not effective until delivered if no mode or implication of acceptance

Third party beneficiaries - intended and incidental

Someone outside the contract has the benefits "life insurance policy - if someone dies - whoever is named the beneficiary gets the money" they paid nothing for it Not a party to the contract, but benefits from the contract

Consideration elements - legally sufficient value and bargained-for exchange

Something of value given in return to do or not do something Value: money, property, action, etc. Bargain: what are you giving for that

What constitutes a valid offer & what doesn't - opinion, future intent, preliminary negotiations & advertisements

Statements that DO NOT constitute an offer: · *Expressions of opinion* "this ought to get 50 miles to the gallon" · *Statements of future intent* "I may next week offer to sell my watch for $5 to you" · *Invitations to negotiate* · *Invitations to bid* · *General ads*

Privity of contract:

The principal the only parties to a contract have rights under that contract "if there's a problem those two are the only ones to receive recourse" Third parties have no rights under that contract Exception: parties may convey rights under the contract to third parties "called an assignment" sell watch for $5, before completion, she conveys to sell to someone else

Valid Contract / Issues of Capacity

Valid Contract: Must have agreement, consideration, capacity, legality Issues of Capacity: minors can enter into a contract, but we don't deal w minors bc they can disaffirm the contract anytime they want ex: you sign a lease and you owe by signing, but a minor can disaffirm and owe nothing

Mistake

a. Fact- not value or quality ex: not just based on color b. Unilateral- one party mistaken as to a material fact c. Bilateral- both parties mistaken about same material fact

Fradulent misrepresentation

a. Misrepresentation of a material fact i. Active concealment of material fact ii. Opinions or predictions - not misrepresentation "in my opinion" 1. EXPERT opinion may be misrepresentation "lawyer/doctor/jeweler" 2. Misrepresentation by silence "passive"

Discharge by operation of law - Bankruptcy

debtor discharged in bankruptcy court proceeding

Discharge by operation of law - statute of limitations:

depends on subject matter normally 2 years for torts 4 years for those involving real estate

Value

do what you have no duty to do (pay for merchandise) OR perform an act not obligated to do (mow my yard) OR refrain from an action you have a right to do (forbearance)

Discharge by operation of law - material alteration:

if one alters the price/quantity without telling other party they can discharge from contract

Voluntary consent

lacking if there is mistake, fraud, undue influence or duress Statements of opinion do not constitute fraud - expert exception

Incidental beneficiary:

no rights under the contract ex: 2 land lots, one vacant and one messy, they make the messy one nice so it in turn makes your property next to it more valuable

Integrated contracts:

represent the entire and final agreement between the parties

Frustration of purpose

subject matter subsequently becomes illegal ex: you sell exotic birds, law now prohibits sale of those birds, lease is discharged from your building bc of the new law

A written contract must include:

the names of the parties subject matter reasonably certain terms signature of the party or parties charged with performance

4 exceptions to requirements of statute to frauds that agreements must be in writing:

1. *Partial performance*- Parties can't be reformed partially put back 2. *Admissions under oath*- If agreed under oath, can't be undone 3. *Promissory estoppel*- detrimental stop going to enforce agreement 4. *Special exceptions under UCC* - customized goods and contracts btwn merchants- confirmed by written memorandum "establishes details"

Intended beneficiary- enforceable rights under the contract

1. Creditor beneficiary: sale of a business 2. Done beneficiary: life insurance policy

Duties that cannot be delegated:

1. Performance depends on personal skill or talents of obligor "personal skill" 2. Special trust has been placed in the obligor "special relationship btwn parties" 3. Performance by third party will vary materially from obligee's expectations (3) 4. Contract expressly prohibits delegation (4) ex: oil company lease of employee specific name of guy who will not ever contact him again

Contract prohibits assignment:

1. Statutory- government contracts 2. Personal services- doctor, lawyers, artist "particular expertise" 3. Assignment would significantly change risk or duty of obligor - my auto insurance policy to 20 year-old "more likely to have an accident - texting and driving" 4. Contractual prohibition - your residential lease a. Exceptions: a. right to receive funds "accident-and you give piece to other party" b. real estate c. negotiable instruments "checks/stock certificates" d. receipt of damages - UCC If assignment not followed: 1. First one in time 2. Without notice from assignor - it terminates the contract if obligor doesn't get noticed

Liquidated damages - enforceability:

1. When the contract was formed, it is apparent that damages would be difficult to estimate in the event of a breach ex: tomato selling somewhere else 2. The amount set as damages is reasonable and not excessive "enforceable damages clause" if it gets too big then its looked at a penalty Ex: lose job worth $5000

Assignments & exceptions to right to assign (prohibited by statute, personal services, cause significant change in risk or duties & contract prohibits assignment). LOOK at slide 102!!

Assignment of rights: assign rights, to receive performance Delegation of duties: to do/perform something "do duties" Assignor: assigning rights/delegator Assignee: receiving rights Obligor: other original party to contract Extinguishes the rights of the assignor: even though assignor eliminated, assignment doesn't eliminate Assignee takes rights subject to defenses of obligor (fraud/mistake/duress,etc.)

Bilateral and Unilateral Contracts:

Bilateral: *promise for a promise* ex: I give you my watch for $5 Unilateral: *promise for an action* ex: I'll pay you $25 for you to mow my lawn Right to revoke anytime up to the acceptance

Discharge by mutual rescission

Both agree, you leave lease, you find someone to take over your lease and they'll pay more, your landlord is willing to let you out bc of the benefits

Four types of damages - compensatory, consequential, punitive & nominal

Breaches: money damages or equitable relief Compensatory- "actual losses" Hoffman case money they lost that was proved Consequential- "lost profits" loss of benefit of bargain ex: tomato grower, wholesaler buys for .10 cents/pound, then breach contract bc someone pays more, so best now is .12/pound, since overhead gone up, profit diminishes, so profits lost is sued for Punitive- "punishment" punish wrongdoer and message to society ex: fraud, duress Nominal- "make an example" slap on the wrist if you can't prove other 3^

Termination of offers - revocation, counteroffers, lapse of time, death of a party, destruction of the subject matter or illegality

Can be expressed in words or actions: like walking away Action of the parties: · *Revocation by the offeror* (prior to acceptance) · *Rejection by the offeree* "don't want it at all" · *Counteroffer by the offeree* (creating new offer by the original offeree) "didn't except or reject" Operation of law: · *Lapse of specified or reasonable time* "time frame you not answering or by selling perishables w due date" · *Destruction of the subject matter of the offer* "tornado at house" · *Death or incompetence of either party* · *Supervening illegality* "passes law between offer and acceptance to become illegal so offer now illegal" In event of mental incapacity to accept - operation of law "incompetence" termination of offer

Discharge by operation of law - superventing event (death of a party or destruction of subject matter)

Can't be done if someone dies, becomes incompetent, hurricane comes and terminates contract w realtor, or change in the law

Discharge by operation of law - commercial impracticability

Circumstances when it now becomes more expensive than anticipated ex: grocer of citrus fruit in Florida, if early freeze hits citrus crops, not forceable at the time, so you can't sue for damages bc they can't deliver fruit from the event

Legality-commit a crime, usury, gambling & licensing statutes

Commit a crime: law against them, violate Usury: illegal rate of interest. interest rate of loans w max interest rate by law ex: drug dealers charging higher rates Gambling: only certain forms of gambling allowable Licensing statutes: entered in to contract to perform service someone who doesn't have the direct license needed ex: electrician, accounting, lawyer, doctor

Equitable remedies - specific performance

Court requires breaching party to perform as agreed "rare objects or unique" · Party's legal remedy "monetary $$ damages" is inadequate "can't calculate" o Sale of land "don't know it's worth later on so must do what you say about it", collectibles o Exceptions- Contracts for personal services "specially skilled" ex: making chef work would be like making them a slave at that point

Equitable remedies - reformation

Court rewrites the contract so as to be fair · Fraud or mutual mistake "capacity, undue influence" ex: extrinsic evidence of prior negotiation, expert, to determine Covenants not to compete: geographic location, duration "length of time" "I won't compete with you due to these 2 reasons"

Disaffirmance / Ratification

Disaffirmance: legal avoidance 1. Minor can avoid a contract 2. Any time during minority OR w/n a reasonable time after emancipation 3. Exception for necessaries "can't disaffirm"- food/water/shelter/lodging/medical care Ratification: confirming the contract, eliminating the right to disaffirm 1. CANNOT occur during the minority, only after emancipation 2. Express "written/oral" or implied by conduct of the minor

Condition subsequent

EX.- after beginning work (the contract) failure to pass a drug test Subject to termination based on later condition ex: employment drug testing fail

Condition precedent

EX.-life insurance physical exam Pre-req. to formation must have condition met before forming contract ex: life insurance policy medical exam didn't qualify for the forms you fill out

Contractual - minors (necessaries, disaffirmance and ratification), intoxicated persons and mentally incompetent persons

Emancipation: process of making one under 18 an adult, thus eliminating rights of a minor Mental incompetence: 1. don't have the mental capacity to understand 2. court declared incompetent and guardian appointed so anything they sign is void Intoxicated person: normal capacity is induced by influence of alcohol

Delegation of duties & exceptions to general right to delegated [personal services, special trust (guardian), performance would vary considerably from that expected by obligor &contract prohibition]

Ex: subleasing and you're still liable, novation gets you off the hook w the landlord Delegation of duties: delegator still has duty to perform unless obligor agrees to a novation

Express / Implied / Mixed / Breach / Executory

Express: "written or oral" Implied: conduct of parties Mixed: combination of express & implied terms due to conduct of parties Breach: based on reasonable persons contract and agreement Executory: ex: mow yard and still mowing where you haven't received the money, so it's what's left to pay ($25)

Formal and Informal Contracts:

Formal: specific form ex: check book Informal: no specific form required ex: everything else

Parol evidence:

If court finds written contract represents complete and final agreement of parties, will not allow either party to present evidence, oral, or written that contradicts terms of contract Can be allowed if double meaning of terms

E-contract:

Include terms favorable to offeror "I agree" check box Uniform Electronic Transactions Act (UETA) · Removes barriers to e-commerce by giving the same legal effect to electronic records and signatures as is given to paper versions · The parties must specifically state that it is their intent to conduct a transaction or series of transactions by digital means

Agreements that lack consideration-preexisting duty, past consideration or illusory promises

Preexisting duty- already have legal duty to do Past consideration- something already served for prior agreement Illusory promises- appears to be a promise but isn't

Steps in a promise:

Promise from a promisor(offeror) to promise(offeree) Binds promisor to do or not to do something Promise then acquires the right to require promisor to perform as agreed OR Promise is compensated with damages or equitable remedies is promisor fails to perform as agreed "of specific performance as agreed so you have it"

What constitutes a valid offer & what doesn't - reasonable terms

Reasonable Terms: identity of parties and subject matter, sufficient consideration / time of pmt/delivery/performance set out when to occur

Requirement for mitigation of damages

Requires the non-breaching party to minimize damages caused by the breach ex: Employment contracts - look for a new job Rental agreements - seek a new tenant ex: Reasonable effort- doing what they normally do to tell about open leases $1000 per month you leave last 3 months If only lease $800 leased she can find, you still owe $1000 first month and $200 other 2 months

Equitable remedies - rescission and restitution

Rescission: nullification of the contract · The party seeking rescission must show that the contracting parties can be restored to the status quo · Ex: watch "I'll give you the watch $5, you say "okay" - bilateral contract

Exceptions to the Parol Evidence Rule

· *Contracts subsequently modified* · *Voidable or void contracts*= void-judged mentally incompetent w guardian appointed/illegal, voidable- minor, incompetent, influence alcohol/drugs capacity or voluntary agreement · *Contracts containing ambiguous terms*- double meaning words 'one year academic/school" · *Incomplete contracts* · *Prior dealing, course of performance or usage of trade*- show how parties normally dealt w each other · *Contracts subject to an orally agreed*-on condition precedent- if we set condition precedable, it's not in affect until condition occurs "buy your car when I win the lottery" · *Contracts with an obvious or gross clerical error*- miscalculated amount to offer donate

4 Requirements for forming a valid contract (agreement, consideration, capacity & legality):

*Agreement:* offer and acceptance basis, parties arrive at agreement "meeting of minds" (verbal/written/oral) *Consideration:* something exchanged or consisting of a promise (money) *Capacity:* someone's mental capacity to understand the results of what they're doing *Legality:* whether the subject of the agreement is legal or illegal

Void, voidable and unenforceable contracts

*Void:* no legal or binding effect. can't be sued bc if it's illegal then it's voided or "deemed incompetent by a court" where guardian is the only one to sign things for them *Voidable:* may be legally avoidable. one parties choice whether to ratify or get out of the contract (minors or undue/coerced ratify if still a good deal) *Unenforceable:* unenforceable by law. those which prevent courts from enforcing it ex: statute to frauds

Acceptance of offers:

Acceptance: only offeree can accept from the offeror Must be unequivocal If offeree is silent but takes advantage then action or word can determine acceptance Bilateral- acceptance is communicated to promise Unilateral- acceptance not communicated but is by beginning of performance

Release of liability vs. covenant not to sue

Accord and satisfaction: settlement where debtor "ower" offers to pay and accepter accepts lesser amount, has to be less than originally agreed and cancelled w no damages *Release:* broad general release from legal claim *Covenant not to sue:* directed to specific injury "substitute a contractual obligation for another legal action based on a valid claim" ex: car wreck physical injury and not suing over damage to car Promisor reliance: injury caused by your reliance on something by other party ex: tell you I'll buy your car for 25,000 if you get a paint job, you do, then I don't buy it. Court will require to pay your part

Contract interpretation - ambiguity & extrinsic evidence "Plain Meaning Rule"

Ambiguity: word/phrase not susceptible to more than one meaning ex: Teach for 'one year' at TTU - does this mean academic year? summers included/ no summers? Extrinsic "parole" evidence: prohibits intro of evidence that contradicts terms of written agreement unless the term is ambiguous Courts do consider outside evidence to resolve contract uncertainty

Chronology of communication Methods

Method of response: If you don't do it their method, they can terminate If you do use it, when you send it terminates right to revoke If no method of acceptance, then determines by: 1. Valid when sent OR sent by faster method 2. They communicate faster than your acceptance if snail mail

When is the acceptance valid?

Mode of acceptance: either expressly stated specified in term of offer or implied in which offeror to offeree Timeliness is important on whether available to revoke before acceptance is taken

Substantial performance, but not for personal subject matter - art, custom made article

Must meet conditions of performance on both sides: · *Complete performance* · *Substantial performance* ex: automobile bringing red vs maroon car that's okay, or promise v8 engine only get v4 so not good o Good faith o Must not vary greatly from promise (omission, variance, defect is minor) create substantially same benefits as originally promised ex: sell car for 41,000 miles they drive 200 more before giving it to you, so they must take off that added amount in the sale to you · *Performance to the satisfaction of another* o Personal contract - no substitutions allowed · *Material breach of contract*

Novation

New tenant is solely liable for all breaches, assignment/sublease you are still liable if tenant doesn't pay, unless landlord agrees to novation where only new tenant liable Discharge by accord and satisfaction: new agreement that we are now satisfied w what we have then what we first agreed on

Requirements of an offer (intent, reasonably certain terms & communication)

Offer - to do or not do something Intent: serious intention Reasonably certain: definite terms that are clear and enforceable Communication: communicated to the offeree Offers made in anger, jest or undue excitement do not qualify as an offer

Fraudulent: Can show mistake may occur, by silence- latent defect

b. Intent to deceive i. Statement known to be untrue (voidable/damage) ii. Innocent misrepresentation (voidable, NO damages) c. *Justifiable* reliance on the misrepresentation 3. Undue influence: such influence so as to overcome that party's free will "up to the innocent party" ex: minors to parents, or adult children w elderly parents, attorney-client, doctor-patient, presumption w burden of proof "on beneficiary" 4. Duress- one is forced into an agreement ex: different methods of a contract a. Includes illegal threats, blackmail or extortion to induce consent ex: physical violence-you or relative 5. Requires proof of threat to do something threatening party has no right to do - physical violence/kidnap a relative

Anticipatory repudiation:

through acts/deeds They say they aren't going to perform at required time There is a significant performance now as a bad deal to do, losing them money, so the other party can sue for damages he or she will not perform an obligation that the party is contractually obligated to perform at a future time

Main purpose rule exception:

to guarantee must be in writing- the main purpose of the guarantor is to obtain a personal benefit, so that a writing is not required to enforce the guarantee

Statute of Frauds affects agreements involving real estate, performable in more than a year, involving a collateral promise (guarantor), involving transfer of money or property in contemplation of marriage & sale of goods for more than $500

· Contracts involving real estate · Performance requiring more than a year · Collateral or secondary contracts *"Main Purpose Rule" exception : reason guarantor gives it* - is for himself benefit not party to contract ex: I rent you my house for you to remodel for reduced rent, I guarantee your loan from the bank. Normally something that has to be in writing- in this rule verbal can be enforceable · Promises made in consideration of marriage ex: prenuptial agreement · UCC - Sale of goods $500 or more ex: must be in writing if less than verbal