Leb 320F (wb) Unit EIGHT

Contracts calling for sale of goods

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When is the writing sufficient--sale of goods contracts?

(UCC) Writing merely has to be "sufficient to indicate that a contract for sale has been made between the parties." The only term that must be included in the writing is the quantity. Other terms that are orally agreed upon can be proved in court by oral testimony. Terms that are not agreed upon at all can be supplied by Article 2 itself.

Wagering Agreements

(gambling contracts) -generally prohibited and unenforceable -Bets involving lotteries, unless the lotteries are state-sponsored, are also generally illegal. Courts tend to rule that a scheme that does not require a purchase of goods by the participant is not a lottery because consideration (which most courts view as an essential part of a lottery) is lacking. Reason for "no purchase necessary" "friendly bets": those defined as not producing substantial sources of income, are frequently exempted from the basic wagering statutes, as are some lotteries operated by religious or charitable orgs. Increasing laws to permit this.

Mentally impaired persons

*Persons with impaired mental capacity are, like minors, given substantial protection by the law insofar as their contractual obligations are concerned.* Adjudicated insane: formally declared to be incompetent by a court after hearings and examination by psychologists or psychiatrists. General rule: any "contract" made by the insane person rather than by the guardian is absolutely void—that is, creates no liability whatever, even if it is never disaffirmed by the incompetent person or the guardian. However, some courts have recently held that because people who have been adjudicated insane often improve, the better rule is that their contracts are voidable rather than inherently void Insane in fact: If at the time the contract was made, the person was so impaired that he or she was incapable of understanding the nature and effect of the particular agreement, then the contract is voidable.

Will the courts rewrite the contract?

*Some courts find that an unreasonably broad time, geography, or activity restriction renders a restrictive covenant completely unenforceable.* "Blue pencil" rule: courts find restrictions serve employers legitimate interests but are too broad and will simply rewrite the covenant so that the restrictions are reasonable and then will enforce them to that extent Exculpatory clauses: businesses try to get around liability for negligence by using exculpatory clauses- generally contrary to public policy and unenforceable. The public interest inquiry: exculpatory clause generally NOT enforceable to relieve liability if the contract involves a matter that "substantially affects the public interest" aka in contracts involving goods or services that are ESSENTIAL to daily life

Insurance Contracts

-Many contracts whose performance is dependent upon an element of chance are clearly not wagers. Risk-shifting contracts: contracts whose performance is dependent upon an element of chance. An insurance policy is simply a contract by which an existing risk is shifted to an insurance company for a consideration paid by the owner. -Only legal if insured person has an "insurable interest" in the home prior to taking out the policy

Unconscionable Contract

-courts typically don't care about the fairness of a contract UNLESS it is so extremely unfair as to "chock one's conscience" -> court will not enforce against abused party -can either be substantive (relating to what is in contract) or procedural (requirements to carry out a contract) -procedural unconscionability: lack of meaningful choice on part of 1 of the parties (like lack of maturity or presence of a mental disability, terms not explained, deceptive tactics used) -substantive unconscionability: terms of the contract itself, see if they are oppressive in some way -to be unconscionable has to have both procedural and substantive components

Mistake

-if both parties were mistaken, either can rescind the contract (BILATERAL mistake) -if 1 party was mistaken, recision will not be granted unless they show that other party knew or should have known of the mistake at the time the contract was made (UNILATERAL mistake) -Mutual mistake: mistake as to the existence (is the property there), identity (what piece of property it is), or character (what kind of property is it in the first place) of the subject matter of the contract -does NOT apply in situations in which both parties are "in doubt" as to a particular matter, but enter into a contract anyway

Licensing Statutes

-requires people of certain professions to be licensed (doctors, lawyers) by passing some sort of examination -Some licensing statutes expressly provide that recovery by unlicensed persons shall not be allowed (no matter how competent their work). Others, however, are silent on the matter, in which case their underlying purposes must be determined. -if the statute is regulatory (purpose is to protect the general public against unqualified persons) then contract is illegal and recovery is normally denied -if the statute is just revenue raising then recovery is allowed

Contracts calling for the sale of land

-unwritten agreements of this kind are absolutely unenforceable. - the document that actually transfers ownership—a deed—must also be in writing and signed by the seller ("grantor"). exceptions: held to be enforceable if the buyer, in reliance upon the oral contract, has: 1. paid all or part of the consideration for the land 2. taken possession of the land 3. added substantial improvements to it

Contracts that must be in writing

1. Contracts calling for the sale of land 2. Contracts not performable within one year 3. promises to pay debts of another 4. Sale of goods of $500 or more

Third-Party Beneficiaries

1. Creditor Beneficiaries: When a contract is made between two parties for the express benefit of a third person, the latter is said to be a creditor beneficiary if he or she had earlier furnished consideration to one of the contracting parties. 2. Donee Beneficiaries: Where a contract is made for the benefit of a third person who has not given consideration to either contracting party, that person is a donee beneficiary. Most common type of contract involving this is life insurance policy. 3. Incidental Beneficiaries: person whom the contracting parties did not intend to benefit by making the contract, but who nevertheless will benefit in some way if the contract is performed. They have no rights under the contract and are not entitled to enforce it.

Consent

A contract that has been entered into between two persons having full capacity to contract, and which appears to be valid in all other respects, may still be voidable if it turns out that the apparent consent of one or both of the parties was, in fact, not genuine. examples: fraude, innocent misrepresentation, mistake, duress, or undue influence

Contracts not performable within one year

Agreements for a specific length of time over one year, and agreements for transactions that must take place more than one year in the future.

Ancillary Requirement

An Ancillary covenant is one that is a subsidiary or auxiliary part of a larger agreement. ex: common in partnerships in which a partner who leaves the business cant enter into competition with the partnership in a described market for X amount of time Reasonableness in the sale of business contracts: geographic and time prohibitions must be within a legal scope after the sale of a business. ex: I won't start another grocery business in Texas for 1 year = not reasonable and not enforceable. Reasonableness in employment contracts: only reasonable if (1) restriction is reasonably necessary to protect the employer (2) restriction is not "unreasonably excessive" to the employee. an agreement not to compete in an employment contract must not extend beyond the employer's market area (not beyond area of which employee could cause competitive harm to employer) can also limit customers the employee takes with him/her after leaving.

Bailment Contracts

Bailment: occurs when the owner of an article of personal property temporarily relinquishes the possession and control of it to another (renting a car, checking a coat, storing goods) bailor: owner who has parted with possession bailee: the one receiving possession -creates duty of the bailee to use reasonable care in taking care of the property in his possession, liable for loss/damage to property resulting from bailee's negligence -Additionally, some bailees are expressly permitted by statue to limit their liability by contract.

Beachcomber Coins, INC v. Boskett

Beachcomber bought a counterfeit coin and demanded a refund. When Boskett, the seller, refused, plaintiff brought this action asking rescission of the contract The trial judge found that there was a mutual mistake of fact (a mistake as to the coin's genuineness) that would ordinarily justify rescission of the contract. However, a buyer of a coin who was permitted to examine it before purchase "assumed the risk" that it might be counterfeit. He therefore dismissed the action and plaintiff appealed. Since both parties were certain that the coin was genuine the court thus reversed the judgment, and ordered rescission of the contract.

Castillo v. Rios

Castillo asked Rios if he wanted to buy the house from him. He and Castillo reached an oral agreement by which Rios gave Castillo a Ford Taurus, $1,000 for the down payment, and an additional $500 in exchange for the house. Thereafter, Castillo closed on the house. Rios remodeled the house, moved in, and began making mortgage payments, but Castillo refused to transfer the title. Four years later, Castillo sued to evict Rios. Rios then brought this action to establish his right to title. The trial court overruled Castillo's statute of frauds defense and ordered him to convey the property to Rios by general warranty deed. Castillo appealed. Three-prong test that must be met to exempt an oral contract for the sale of real estate from the statute of frauds: if the purchaser: (1) pays the consideration, whether it be in money or services; (2) takes possession of the property; and (3) makes permanent and valuable improvements on the property with the consent of the seller or, without such improvements, other facts are shown that would make the transaction a fraud upon the purchaser if the oral contract was not enforced. Affirmed.

Illegality general rule

Contracts cannot be based on something illegal!! Whether an illegal provision (interest rate), or illegal commodity sold (like drugs) General rule: contracts are void if they are illegal in statutory or public policy grounds. 1. in cases where the contract is entirely executory, neither party is bound to the agreement 2. in cases where one of the parties has performed his/her part, such party cannot recover the consideration or value that consideration that has passed to the other party Courts typically believe if they deter recovery in illegal transactions, they will deter illegal activity.

Doughty v. Idaho Frozen Foods Corp.

Doughty was to receive a base price if the potato crop contained a certain percentage of potatoes weighing ten ounces or more. If the crop contained a higher percentage, the price would be increased; if it contained a lower percentage, the price would be decreased. Size was critical to IFF's processing needs. The contract provided that IFF could refuse any deliveries containing less than 10 percent ten-ounce or larger potatoes. Only 8 percent of Doughty's potatoes being ten-ounces or more, so he was entitled to only $2.57 per hundredweight under the IFF contract. Doughty breached the contract, delivering the remainder of his potatoes to the "fresh pack" market where he could receive $4.69 per hundredweight. Doughty then filed this declaratory judgment action, asking the court to declare the contract unconscionable and therefore not binding on him. The trial Judge ruled for IFF and Doughty appealed. Doughty contends the contract is unconscionable because the price decreases are steeper than the price increases. Doughty also contends that it was unconscionable for IFF to have the option not to accept the potatoes if they consisted of less than ten percent ten-ounce or larger size potatoes. There was no indication that Doughty was forced by "extreme need" into the contract. Doughty was not dissatisfied with the contract until his crop produced small potatoes. There is no indication that Doughty tried or wanted to negotiate different terms under the contract. Affirmed

Innocent Misrepresentation

If all the elements of fraud are present in a particular case, except that the person making the misstatement honestly (and reasonably) believed the statement to be true, that person is guilty of innocent misrepresentation rather than fraud. Under the rule of most states, the victim can rescind the contract on that ground, but is not given the alternative remedy of damages.

Contracts in Restraint of Trade

Many contracts that unreasonably restrain trade or competition in interstate commerce are in violation of one or more federal antitrust statutes, such as the Sherman and Clayton acts. covenants not to compete "noncompetes": compose one group of contracts that are in restraint of trade. However, such promises are not necessarily illegal. certain conditions must be met: 1. The agreement must be of an ancillary nature 2. the promisee must have a legitimate business interest that warrants temporary protection from competition. 3. The agreement must be reasonable in its scope so that it does not limit competition more than is reasonably necessary to protect the promisee's legitimate interest.

Schupach v. Mcdonald's system INC

McDonald's sent a letter to Copeland giving him a "Right of First Refusal"—the right to be given first chance at owning any new franchise stores that might subsequently be established in the area. Copeland exercised this right and opened five additional stores in Omaha. Copeland sold and assigned all of his franchises to Schupach, plaintiff, with McDonald's consent. McDonald's then granted a franchise in the area in to a third party without first offering it to Schupach. Schupach brought this action for damages resulting from establishment of the new franchise, claiming that the assignment of the franchises to him also included the right of first refusal. McDonald's contended that the right it gave to Copeland was personal in nature, and thus was not transferable without its consent. Trial court ruled that the right was personal in nature, but that defendant had consented to the transfer. Careful selection of franchisees was to be the key to success for McDonald's Right of First Refusal was intended to be personal in nature, and was separately a grant independent of the terms of the franchise contract itself.

Undue Influence

One party so dominates the will of the other that the latter's volition actually is destroyed (ex. one person, as the result of advanced age and physical deterioration, begins to rely more and more upon a younger acquaintance for advice until the point is reached where the older person's willpower and judgment are almost totally controlled by the dominant party) conditions of an undue influence case: 1. that he or she was induced to enter into a particular contract by virtue of the dominant party's power and influence, rather than as the result of exercising his or her own volition 2. that the dominant party used this power to take advantage of him or her

Intoxicated Persons

People occasionally seek to escape liability under a contract on the ground that they were intoxicated (or "high") when it was made. Success in doing so depends primarily on the degree of intoxication found to exist at that time. This law does not offer much coverage for those who voluntarily drink alcohol or use drugs. If you make a foolish agreement while buzzed, you are probably stuck with it. If you make an agreement while extremely drunk, as in about to pass out, you might have formed a voidable contract.

Systems and Software, INC v. Barnes

SSI hired Barnes. Barnes signed a noncompetition agreement that prohibited him—during his employment and for six months thereafter—from becoming associated with any business that competes with SSI Barnes left his position with SSI and started a partnership called Spirit Technologies Consulting Group, which, like SSI, provides customer-information-systems software and service to municipalities and utilities nationwide SSI sued Barnes and requested an injunction to enforce the parties' noncompetition agreement. The trial court held for SSI and granted an injunction that prohibited Barnes from working as a consultant or otherwise with Utility Solutions or any other direct competitor of SSI. Barnes appealed. the trial court found that SSI had a legitimate protectable interest, and the evidence supports the court's finding. Affirmed.

Stattuck v. Klotzbach

Shattuck sent an e-mail to the Klotzbach which contained an offer for a property. Klotzbach responded and noted that e-mail was the "preferred" manner of communication. The parties ultimately entered into a purchase and sale agreement, but prior to closing it was terminated because defendants could not procure a "wharf license" as the contract required. Later the plaintiff wrote to the defendant that he was increasing his offer to $1.825 million. The defendant responded the same day by e-mail stating "once we sign the P&S we'd like to close ASAP. Defendant later refused to perform and plaintiff sued for specific performance. Defendant raised a statute of frauds defense. Plaintiff admitted that a real estate contract must be in writing to be enforceable, but argued that the statute was satisfied by the e-mails. All e-mail correspondences between the parties contained a typewritten signature at the end. Multiple writings relating to the subject matter may be read together in order to satisfy the memorandum requirement so long as the writings, when considered as a single instrument, contain all the material terms of the contract and are authenticated by the signature of the party to be charged. Defendant's motion to dismiss is denied.

Legal Capacity

The term capacity means the legal ability—the ability or "competence" in the eyes of the law—to perform a particular act, in this case the making of a binding contract. A person's capacity may be limited for 3 primary reasons: 1. minors 2. mental infirmity 3. intoxication

When is the writing sufficient--common law/general contract law

Thus, even if the full contract is not in writing, a sufficient written memorandum may satisfy the statute of fraud's requirements. In such situations, the courts generally require that the writing include at least the following: (1) names of both parties, (2) the subject matter of the contract, (3) the consideration to be paid, and (4) any other terms that the court feels are material under the circumstances. Under this fairly strict approach, if any basic term is missing, the contract continues to be unenforceable.

Seigneur v. National Fitness Institute, INC

To apply for membership to NFI, Seigneur had to sign a contract containing a clause that provided in emphasized print: "Important Information: I, the undersigned applicant, agree and understand that I must report any and all injuries immediately to NFI, Inc. staff. It is further agreed that all exercises shall be undertaken by me at my sole risk and that NFI, Inc. shall not be liable to me for any claims, demands, injuries, damages, actions, or courses of action whatsoever, to my person or property arising out of or connecting with the use of the services and facilities of NFI, Inc., by me, or to the premises of NFI, Inc. Further, I do expressly hereby forever release and discharge NFI, Inc. from all claims, demands, injuries, damages, actions, or causes of action, and from all acts of active or passive negligence on the part of NFI, Inc., its servants, agents or employees." Josties, defendant's employee, performed an initial evaluation of plaintiff. She asked plaintiff to use an upper torso machine and placed a 90-pound weight on it. Plaintiff felt a tearing sensation in her right shoulder. She informed Josties, who ignored the complaint and completed the evaluation. Since the incident, plaintiff has had pain and difficulty using her shoulder. NFI moved for summary judgment on grounds of the exculpatory clause quoted above. The trial court granted the motion and plaintiff appealed. AFFIRMED.

Totem Marine Tug & Barge v. Alyeska Pipeline

Totem Marine Tug and Barge, Inc., entered into a contract with Alyeska Pipeline Services under which Totem was to transport large quantities of pipeline construction materials. After difficulties caused by Alyeska's incompetence, Alyeska terminated to contract while owing Totem $300,000. Alyeska promised to pay immediately until it learned that Totem needed the cash immediately or would go bankrupt. It then said it would pay in 6-8 months, forcing Totem to settle for a $97,000 payment. Totem brought this action to rescind the settlement agreement on the ground of economic duress, and to recover the balance allegedly due under the original contract. The trial court ruled as a matter of law that the circumstances under which the settlement occurred did not constitute duress, and dismissed the complaint. Totem appealed. this was economic duress. Reversed and remanded.

Digital signatures

Two statutes, the Electronic Signatures in Global and National Commerce Act (E-Sign) and the Uniform Commercial Transactions Act (UETA), have created rules that allow for valid digital signatures. These laws, however, do not apply to all documents. Some things, including wills, eviction notices, and some UCC documents, still must be in paper form.

The Parol Evidence Rule

When a written contract exists and shows that the parties intended the document to be the final expression of the agreement, no one can introduce evidence from outside the written contract, such as parol evidence, in court in an effort to change or add to unambiguous parts of the contract.

Promises to pay debts to another

a "guaranty contract" in which Dad promises the Vintage that he will pay Lindsey's debt to the Vintage if Lindsey does not. Because Dad received no benefit in this transaction, the law is suspicious and demands that the Vintage provide written evidence of Dad's promise. Three standard elements of a guaranty contract: 1. the guarantor promises to pay the debtor's obligation if the debtor does not. In other words, guaranty contracts occur in situations of "secondary liability." 2. a guaranty promise is made for the benefit of the debtor. If the guarantor's main purpose in making the promise is to benefit himself, it is not a guaranty contract and need not be in writing to be enforceable 3. a guaranty promise is made to the creditor, not to the debtor

Duress

can escape contract if he/she enforced into it; duress only holds up in court if the degree of compulsion is so great as to rob the person of their free will necessary element= fear

Minors

contract can be disaffirmed by the minor, but not an adult, at any time before he or she becomes an adult or within a reasonable time after reaching adulthood dissaffirmance is accomplished by clear indication of an intent to not be bound by the contract or minor simply does not follow through with obligation under contract -> if sued, minor can claim lack of legal capacity as a defense -17 years old or younger -The agreements of minors of "tender years"—children so young that their minds have not matured sufficiently to understand the meaning of contractual obligations—are void rather than voidable.

Minors' Liability on Contracts

executory contracts: disaffirmance entirely frees the minor of liability. executed contracts: disaffirmance entirely frees the minor of liability. Minors are liable for executed contracts when a contract deals with necessaries the minor is liable to the other party for the reasonable value of the goods actually used. This is to encourage adults to deal with minors who need to buy food, clothing, shelter, and other necessaries. Ratification: Once a minor reaches the age of majority, he or she has the ability to ratify any contracts made earlier. A ratification occurs when the minor indicates to the other party, expressly or impliedly, the intent to be bound by the agreement. Contracts involving misrepresentation of Age: If minors lie about their age in order to induce adults to deal with them, they are guilty of a kind of fraud, and the courts of most jurisdictions will deny the protection that otherwise would be given. The rules permitting minors to disaffirm most contracts do not apply to acts that are tortious or criminal in nature. Generally, minors are fully liable for any torts or crimes they commit

Fraud

fraud is not only an independent tort, it also provides grounds for the defrauded party to disaffirm a contract. The victimized party's apparent consent to the contract was not real if it was procured by fraud.

Home Solicitation Statutes

protects people who are subjected to high-pressure sales tactics by salespersons who come to their homes. The general rule is that a buyer has an automatic three-day period in which to cancel a contract where: 1. the contract is for land, goods or services worth over $25 2. the sale was initiated by the seller 3. the contract was completed at a place other than the seller's place of business (usually the buyer's home)

Statute of Frauds

required certain types of contracts to be in writing in order to be enforceable. a continuing rationale for the statute of frauds is the hope that written agreements will diminish the chances that a plaintiff will simply fabricate the existence of a contract and sue.

Usury

usury: charging interest in excess of the permitted rate states have laws establishing a maximum interest rate that can be charged on ordinary loans exceptions: corporate loans, credit card loans, national banks, construction loans, car loans, and small "personal loan companies"