Business Law: Chapter 10

Three factors important in meeting requirement of being properly communicated

1. The method of acceptance, 2: timeliness of acceptance, and 3: performance as acceptance

Void contract

A contract that does not exist at law, and so cannot be enforced

Injunction

A court order requiring a party to perform or to refrain from performing certain acts. *noncompetes

Counter-offer

A form of rejection. A proposal by oferee to change the terms of the original offer.

Why might reality of consent happen?

A mistake.

Third party beneficiary

A party who is not part of an original contract who acquires rights under the contract.

Undue influence

A person enters into a contract because they are so dominated by another person or have so much trust in that person that they are subject to improper persuasion.

Minor

A person under the legal age of majority.

Disaffirming contracts due to Fraud and misrepresentation

A person who "agrees" to a contract as a result of fraud, misrepresentation, duress, or undue influence has the right to disaffirm the contract because there was not genuine consent.

Modern definition of contract

A promise

Not all promises are enforceable contracts

A promise may be bringing (contractural) or no binding (noncontractual)

Contract according to restatement of contracts

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 as a duty.

Offer

A promise to do something or to refrain from doing some specific thing.

Promissory estoppel

A promissor is prevented from denying a promise

Counter offer during acceptance

A supposed acceptance that adds conditions to the original offer is a counter offer

Assignment

A transfer of contract rights to another party

Delegation

A transfer of contractual duties to a third party. *Many contracts are for services that cannot be assigned (Kobe can't delegate, not someone else's hair cut)

Unilateral contracts

Acceptance by performance. I will pay you $30 to mow my lawn, you say nothing in response but the next day you do it, so offer was accepted by performance.

Unequivocal

Acceptance must be unequivocal or definitely.

Compensatory damages

Actual damages, recover costs as a result of relying upon the promise of another party

Basic elements of a contract

Agreement (offer and acceptance), consideration, legal capacity to contract, lawful subject matter, and genuine consent to contract

Accord

Agreement by parties to offer and accept performance that differs from the original agreement. Satisfaction is the actual performance of the new obligation.

Novation

All parties agree to discharge one party from the contract and create a new contract with another party, who becomes responsible for the discharged party's performance.

Punitive damages

Also called exemplary damages are usually awarded when the wrongdoer's conduct has been willful or malicious and fraud was involved, bring in tort issues. These damages punish the wrongdoer by allowing the plaintiff to receive relief beyond compensatory or expectancy damages. These are rare given that a tort must be proven.

Liquidated damages

Amount specified in the contract to be paid in the event of a breach. They are not allowed if the court finds that they are so excessive that they actually impose a penalty.

Legal detriment

An act, a promise to act, or a promise to refrain from acting, such as giving up a legal right.

Contract according to Sir WIlliam Blackstone

An agreement upon sufficient consideration, to do or not to do a particular thing.

Fraud or intentional misrepresentations

An effort by a party to induce another party into contract based on false information.

Acceptance

An offeree's expression of assent or agreement to the terms of an offer.

Specific performance

An order by a court requiring a party who created a wrong to perform the obligations promised in the contract. The remedy is granted for breach of contract when the payment of money damages is inadequate. (Contracts for the sale of a particular piece of real property---land, or of a unique good.

Implied contract

Arises from actions rather than the expressions of the parties

Arthur J. Gallagher Case background

Arthur J Gallagher purchased a Louisiana broker, Babcock. As part of the deal, Babcock and his employees went to work for GBSI, subsidiary of AJG. They agreed to a restrictive covenant, that if they left GBSI, they wouldn't compete with GBSI in Louisiana for 2 years. A few years later, Babcock and other employees quit GBSI and went to work for a competitor and took 13 clients with them. Gallagher sued Babcock for violating his agreement. Trial court upheld the agreement, but limited the geographic restriction to nine counties in which he couldn't compete, rather than the whole state. Babcock appealed

Arthur J Gallagher verdict

Babcock argues that his employment agreement are not valid or enforceable because of their language and scope. Babcock agreed not to solicit certain of Gallagher's existing and prospective clients. Provisions of employment agreement are LESS restrictive than allowed under state law.AFFIRMED

Anticipatory breach

Before the performance of a contract, if one party indicates inability or lack of desire to perform the contract.

Option contract

Binding promise to keep an offer open for a specified period of time.

Contracts contrary to public policy

Can be unenforceable. Three types: exculpatory agreements, unconscionable contracts, and contracts in restraint of trade.

Termination of offer

Can occur by the action of the parties or by the operation of law.

Unenforceable contracts

Changes in law can make a contract that was once legal no longer.

Three requirements for an effective offer

Clear intent by offeror to become contractually bound, basic terms and conditions of the offer must be clear and certain, and the offer must be properly communicated

Law merchant

Commercial rules that merchants devised over centuries of doing business across national boundaries.

Monetary damages

Compensatory damages, expectancy damages, liquidated damages, nominal damages, special damages

Statue of Frauds

Contracts are subject to this statute. The purpose is to prevent parties from claiming that a contract existed when it in fact did not.

Written contracts

Contracts don't always have to be in writing but written contracts are generally a good idea, because they are difficult to deny, and courts prefer written documents over conflicting oral claims.

Contracts in the restraint of trade

Contracts that restrain trade or unreasonably restrict competition are considered contrary to public policy and are not enforced by the courts.

Involuntary servitude

Courts do not order people to perform personal service or to do some particular job and it would be hard to measure the quality of performance

Unconscionable contracts

Courts usually don't concern themselves with the fairness of a bargain struck by contracting parties. But if contract is grossly unfair to an innocent party, the courts will not enforce the contract. **def: Occur when one of the parties, being in a strong position, takes advantage of the other party.

DeRosier v. Utility Systems of America Background

DeRosier bought land. Asked USA could dump excess fill dirt on his lot. DeRosier obtained a permit from the city that would allow 1,500 cubic yards of fill to be dumped on his property, which was the amount needed for the lot to be made level. DeRosier found that USA dumped 6,500 cubic yards of ill, so 5,000 had to be removed because the amount violated the fill permit and was way too much to be useful for construction. USA denied responsibility but offered to move the excess dirt for $9,500. DeRosier sued. Trial court granted DeRosier $22,829 in general damages to have another company remove 5,000 yards of fill. It also awarded him $8,000 in consequential or delay damages for the time lost to be able to construct a new house while waiting for the dirt to be moved. USA appealed saying DeRosier failed to mitigate the damages by not having USA move the direct for only $9,500.

Substantial performance vs. material breach

Decided based off judgment call. If a party wants to make sure things are done to perfection, that fact must be made clear in the contract. Many contracts specify milestones that trigger payment

Deschamps v. Treasure state trailer court background

Deschamps bought 96 spaces for trailers for $1.5 mil. Contract explained how Deschamps would pay Rasmussen over time. Right after sale, Rasmussen died and his estate inherited his assets. Deschamps found significant problems with the trailer park water system that required $400,000 in repairs. He quit making payments to the estate, claiming that the cost of the water system repairs made payments impossible. Estate sued for payment; Deschamps sued for breach of contract and fraud. Trial court held for estate, Deschamps appealed.

Statutory exceptions

Door to door salespeople. Home solicitatation statues allow contracts to be cancelled if the buyer entered into the contract under pressure by a salesperson. (More than $25 can be voided)

What does consideration require

Either a legal detriment to the promisee or a legal benefit to the promisor, although both usually occur at the same time

What are contracts that minors can't disaffirm

Enlistment contracts and marriage

Covenant not to compete

Even if a contract does not violate a statue, it still may be an unenforceable restraint on trade. ***Def: a _______ may be unenforceable if it does not meet certain guidelines. These usually arise in contracts for the sale of a business and for employment

How can contracts be made?

Formal writing or oral discussions or contracts can be inferred by the actions of the parties

Caley vs. Gulfstream Aerospace Corp Background

Gulf Stream adopted a dispute resolution policy (DRP) and DRP would be only procedure to resolve disputes with employees. SIgning it would be a condition of continued employment. Employees sued. District court held for Gulfstream. Employees appealed

Hinson vs. N&W Construction verdict

Hinson admitted to providing verbal quote and it was an accurate quote, refused because of other jobs. AFFIRMED

Restitution

If a minor has received benefits, a payment must be paid by the minor for the value of the benefit received.

Termination by operation of law

If illegal or if subject matter is destroyed or if they mental or physical incapacity or death of offeror or offeree.

When is a contract void?

If it concerns illegal subject matter, such as a contract to sell cocaine.

Traditional rule that makes an exchange --consideration

If it creates a legal detriment to the promisee (the party to whom a promise is made) or a legal benefit to the promisor (the party making the promise)

Usuary

Interest rates on loans that are above the maximum allowed by the state limits. These are illegal.

For a contract to be valid.....

It's subject matter must be lawful

Discharge

Just as parties have the freedom to contract, they are also free to agree to modify or to terminate their obligations under the contract.

Contractural capacity

Legal ability to create a contract

Expectancy damages

Lost profits, what you would have gotten had the contract been carried out.

Impracticability or frustration

May be applied because of "extreme or unreasonable difficulty, expense, injury or loss..."

Ratification

May be expressed in words, in writing, or implied by conduct, such as continued use of a car.

Substantial performance

Means that the contract basically has been fulfilled and payments must be made. Refusing to pay when most of the contract was properly completed would not be acceptable.

General rule for minors and contracts

Minor may enter into contracts but the contracts are voidable at the option of the minor.

Who are individuals with limited capacity to contract?

Minors, intoxicated persons, and the mentally disabled

Restriction on competition by former employees.

More controversial. State law varies quite a bit. If these restrictions are legal, employees have to sign an agreement not to work for a competitor.

Performance

Most contracts come to an end by performance of the parties' obligations under the contract

Hinson vs. N&W Construction background

N&W prepared a bid for Mississippi Job Corps to build a kitchen facility. Hinson quoted $92,000, way lower than others. N&W used HInson's bid in preparing its general contract bid. Hinson refused the job. $47,000 more for the next bidder. N&W sued for promissory estoppel. Trial court granted for N&W. Hinson appealed

Does every detail of an offer have to be present to make it valid?

No

Is silence accepted as acceptance?

No because not unequivocal

Quasi contract

Not a contract. Concept is used to give relief to innocent parties or to prevent injustice even though no true contract exists.

Caley vs. Gulfstream ruling

OFFER: employees argue that DRP doesn't constitute an offer. But, DRP clearly states that it is a contract and explains the means of accepting the contract. ACCEPTANCE: employees accepted by continuing employment. They specified a manner of acceptance. Options for employees, accept and continue employment OR terminate employment. CONSIDERATION: argued that employees got nothing in return. Georgia law says mutual promises are sufficient consideration. AFFIRMED

Rescission

Occurs when both parties agree that the contract should be terminated without performance

Duress

Occurs when someone is forced to sign an contract; that is, the contract is made because of a threat that presented no sensible way out.

Who controls the terms of the offer

Offeror

Deschamps vs. treasure state trailer verdict

Parol evidence rule says written contract > oral negotiations. deschamps signed a contract prepared by his real estate agent that continued an unequivocal statement that deschamps had not relied "upon any assurances by the seller as to the condition of the property" Deschamps saying didn't in contract and now saying he did. This is a direct contraction to the express content of the contract. AFFIRMED

Offeror

Party making the offer

Offeree

Party to whom the offer is made

Certified fire protection inc vs. precision construction background

Precision construction bid on construction job and looked for subcontractors. Certified Fire submitted bid and won. Certified Fire never submitted drawings of construction plan, as required. Precision stated they were ending relationship because contract was not signed and drawings were incorrect. Certified Fire sued for breach of contract, trial court helped for precision that now contract existed. Certified appealed

Contract law

Primarily state common law

How to communicate acceptance

Problems arise when offeror and oferee use different ways of communicating acceptance. If no method is specified, use any reasonable means to communicate. Safest approach is to use method used by offer or in communicating the offer

Illegal agreements

Promises that violate the law. Courts do not recognize, regardless of the intent of the parties.

Capacity

Refers to a party's ability to perform legally valid acts, acquire legal rights, and incur legal liabilities.

Exculpatory agreement

Releases one party from the consequences brought about by wrongful acts or negligence. Employee sign clauses saying won't hold employer liable if harmed. This makes employer no longer concerned about being sued for intentional torts.

Patrol evidence rule

Restricts the use of oral (patrol) statements in a lawsuit when the evidence is contract to the terms of a written contract. Oral evidence cannot contradict, change, or add terms to a written contract. Parol evidence can be introduced when the written contract is incomplete or ambitious; when it proves fraud, mistake, or misrepresentation, or when it explains the written instruct meant through previous trade usuage or course of dealing.

DeRosier verdict

Reversed the $8,000 of consequential damages, 22,829 in general damages is RIGHT. Facts: 1. $9,500 payment was substantial. 2: DeRosier was not unreasonable in believing that acceptance could constitute an accord and satisfaction 3: other hauling services were readily available 4: DeRosier's relationship with USA was strained and USA was blaming DeRosier. AFFIRMED IN PART, REVERSED IN PART.

What kind of contracts are covered by the statue of frauds and must be in writing to be enforced by the court

Sale of real property (land), contracts that cannot be performed within one year, promises to pay the debt of another (including the debts of an estate), promises made in consideration of marriage. In order to be sufficient under statue of raids, it must give the material terms of the contract and be signed by at least the defendant. Confirmations, invoices, emails, sales orders, and even checks may satisfy written requirement.

Sheerer vs. Fisher Background

Scheerer is a real estate agent who helped arrange for Fisher to buy some commercial real estate for $20 million. Scheerer was to receive 2 percent commission. Deal fell apart. Fisher then formed a new company and had a third party buy the property and sell it to Fisher's new company. Sheerer heard about deal and sued for breach of contract or quantum meruit for reasonable compensation. Trial court held that there was no contract or basis for payment to sherrer. He appealed

Main concern of courts for consideration

See that there was a trade of mutual promises and obligations

Material breach

Significant breach of contract. If the performance provided by a party is substantially less than the requirements of the contract.

Consideration

Something of value or something bargained for in exchange for a promise. Both parties get something to give up something. What distinguishes contracts from gifts.

Equitable remedies

Specific performance, injunction, restitution,reformation

Remedies: damages

The most common remedy for breach of contract is monetary damages.

Whose responsibility is bargaining?

The parties to the contract. Courts don't interfere

Freedom of contract based on

The right of individuals to enter freely into the bargain of their choice. The parties must mutually consent to the proposed terms of a contract for it to be enforceable.

Freedom of contract

There are responsibilities imposed on parties who commit to binding relationships

Certified fire vs. precision ruling

There was no contract, express or implied, for the design work alone. Affirmed district court ruling

Mirror image

Traditionally it was said that acceptance must be the mirror image of the offer. Key parts of the offer must be in the acceptance.

Sheerer vs. Fisher Verdict

Trial court wronged in dismissing claim of quantum meruit. To recover quantum meruit: 1. Show services were rendered to defendants, 2: services were knowingly and voluntarily accepted, 3: services were not given gatuitously, REVERSED

What must an acceptance be to be effective?

Unconditional, unequivocal, and properly communicated

Promissory estoppel

Under certain circumstances, the courts do not require consideration for a promise to be enforceable. Rationale for this doctrine is that it will avoid an injustice resulting from the promisee's reasonable reliance on the promisor's promise.

Quantum merit recovery

Used by courts to avoid injustice

Impossibility of performance

Used to end the obligations to a contract when an event occurs that makes performance impossible. Impossibility occurs when a party who was to provide services dies or is incapacitated, a law is passed making performance of the contract illegal, or the subject matter of the contract is destroyed.

Remedy of Restitution

Used to prevent unjust enrichment. If one party has unjustly enriched himself-received a benefit not paid for- at the expense of another party, the court can order payment to be made or the goods involved to be returned.

Economic loss rule

When a breach of contract does not include a tort, such as injury to persons, the damages only relate to economic losses suffered from a breach.

Mitigate

When a breach of contract does occur, the injured party is required to make reasonable efforts to lessen the losses incurred.

Breach of contract

When a party to a contract does not perform as required. If one party prevents or hinders the other party to a contract from performing her duties, then a breach occurs.

Nominal damages

When a plaintiff suffers a breach of contract but does not suffer a measurable economic loss, a court may award nominal damages.

Unilateral mistake

When one party to a contract enters into it with false information or accidentally makes an error in a significant matter. In general, if the other party should have known of the error, the contract cannot be enforced to allow one party to profit from a simpler error.

Voidable contract

When one party to the contract has the right to avoid a legal obligation. This is the case when minors or persons with limited mental ability enter into contracts.

Bilateral contracts

When there is an exchange of promises. I will sell you my car for $20,000 and friend responds, fine I will pay that.

How can an offer be terminated?

Withdraw by offeror, rejected by oferee, or through lapse of time.

Revocation

Withdrawal of an offer. Must be communicated to the offeree before acceptance.

Reality of consent (genuine consent)

Without knowledge of key information about the real nature of the transaction, the contract may be void.

Express contract

Written or oral expressesion of intent by the parties to enter into a legally binding agreement.