BLAW 341 Exam 2

Classification of Contracts: Formation

*The offeror is the party making the offer (promising to do or not to do something). The offeree is the party to whom the offer is made* Bilateral v. Unilateral Contracts: 1. Bilateral: To accept the offer, the offeree must only promise to perform ("promise for a promise"). -No performance, such as the payment of funds or delivery of goods, need take place for a bilateral contract to be formed. The contract comes into existence at the moment the promises are exchanged. Ex: A contract in which one person agrees to buy another person's automobile for a specified price. 2. Unilateral: Offeree can accept the offer only by completing the contract performance ("promise for an act"). -The contract is formed not at the moment when promises are exchanged but rather when the contract is performed. Ex: Contests, lotteries, and other competitions offering prizes •Irrevocable: Offer cannot be revoked once performance has begun. Case Ex Boswell v. Panera Bread Co. (2018): To recruit and retain managers for its restaurants, Panera Bread created a program under which managers were eligible to receive a one-time bonus. A manager who signed an agreement to participate in the program would be paid the bonus five years later, provided the manager was still working for Panera at that time. The amount of the bonus depended on the profitability of the manager's restaurant. Later, a change in general business conditions led Panera to conclude that the bonuses would be too costly. The employer set a $100,000 cap on the amount. Mark Boswell and sixty-six other managers filed a suit in a federal district court, maintaining that by imposing the cap, Panera committed breach of contract. The court issued a summary judgment in favor of the managers. Panera appealed to the U.S. Court of Appeals for the Eighth Circuit. -The managers were entitled to bonuses based on the offer's original terms (unilateral contract) Express v. Implied-In-Fact Contracts: 1. Express: An agreement that is stated in words (oral or written). Ex: A signed lease for an apartment or a house, a classmate accepts your offer to sell your textbooks 2. Implied-In-Fact: A contract formed by the parties' conduct. -Plaintiff is usually the merchant (seller) and defendant is person using the goods/services (customer). Customer consents through conduct by consuming the goods/services -Terms of the agreement discerned (understood or figured out) by the conduct of parties. -Requirements: a. Plaintiff furnished goods or services. b. Plaintiff expected to be paid. c. Defendant had chance to reject and did not. Formal v. Informal: 1. Formal: An agreement that by law requires a specific form for its validity. Ex: Negotiable instruments, which include checks, drafts, promissory notes, and certificates of deposit, filed under seal is an official document 2. Informal: A contract that does not require a specific form or method of creation to be valid. -Most agreements today are informal Ex: Employment contracts, purchase agreements, and ordering dinner over the phone. Quasi Contracts (Implied in law): -Fictional contracts created by courts. -Imposed on parties for the interest of fairness and justice to prevent unjust enrichment. -A fictional contract that courts can impose on the parties "as if" the parties had entered into an actual contract. -They are imposed to avoid the unjust enrichment of one party at the expense of another. The doctrine of unjust enrichment is based on the theory that individuals should not be allowed to profit or enrich themselves inequitably at the expense of others. •No quasi-contract where one receives benefit because of another's misconduct or negligence. Case Ex. 10.9 State Farm v. Newburg Chiropractic (2013) •Plaintiff recovers in quantum meruit (as much as he or she deserves). -Use quasi as a remedy when there is a problem with contract formation (help the contract move forward) Ex: Asking if there is a doctor on an airplane and the flight can continue if there is one, if there is not one, they must land and lose money. The person receiving aid got it for free and there is no good contract formation (offer + acceptance). Quantum meruit is the compensation the doctor can get if they ask for it

Legality

-To have an enforceable contract, the object of the agreement must be lawful (formed for a legal purpose) -A contract to do something against the law is illegal and void from the outset. -A contract to commit a tortious act (such as engage in fraudulent misrepresentation) or to commit an action that is contrary to public policy is illegal and unenforceable.

Elements of a Contract

-Offeree has the power to accept the offer and create a contract. -Offeror makes an offer to the offeree -An agreement to form a contract can modify the terms of a previous contract. -The parties' subjective beliefs with respect to the terms are irrelevant, particularly in the absence of any evidence to support those beliefs. If any of these elements is lacking, no contract will have been formed.... 1.) Agreement: An agreement to form a contract includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer. 2.) Consideration: Any promises made by the parties must be supported by legally sufficient and bargained-for consideration (something of value received or promised to convince a person to make a deal). 3.) Contractual Capacity: Both parties entering into the contract must have the contractual capacity to do so. The law must recognize them as possessing characteristics that qualify them as competent parties. 4.) Legality: The contract's purpose must be to accomplish some goal that is legal and not against public policy. Case Ex (Credible Behavioral Health, Inc. v. Johnson): Credible offers a tuition loan program to its employees who wish to pursue undergraduate, graduate, or postgraduate education. Emmanuel Johnson, a Credible employee, accepted the offer, and the parties memorialized their agreement in a promissory note. The terms provided that Johnson would repay the loan after completing his studies, with the percentage to be repaid depending on how long he remained with the company. Before Johnson obtained a degree, however, Credible fired him. When he did not repay the loan, Credible filed a suit in a Maryland state court against him, seeking repayment. Johnson argued that the terms of the note required repayment only if he quit his employment, not if he was fired. The trial court ruled in his favor. Credible appealed. A state intermediate appellate court affirmed the ruling. Credible appealed to the state's highest court, the Maryland Court of Appeals. -The parties intended the note to be repaid regardless of whether an employee quit or was fired

Agreements that Lack Consideration

1. Preexisting Duty Rule: A promise lacks consideration if a person promises to perform an act or do something s/he is already under an obligation to do. -A promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. -If a party is already bound by contract to perform a certain duty, that duty cannot serve as consideration •Exception: Unforeseen difficulties. Ex: $1 million reward posted for capture of rogue cop. Police officer captures him. Can s/he collect reward -> No (officer has preexisting duty to work in law enforcement, so citizens are more likely to get rewards (have no duty to capture criminals)) Citizen wo/man provides tip for capture. Can s/he collect reward? -> Yes Ex 2: Bauman-Bache, Inc., begins construction on a seven-story office building and after three months demands an extra $75,000 on its contract. If the extra $75,000 is not paid, the firm will stop working. The owner of the land, finding no one else to complete construction, agrees to pay the extra $75,000. The agreement is not enforceable because it is not supported by legally sufficient consideration—Bauman-Bache had a preexisting contractual duty to complete the building. Is A Pre-Existing Duty Present? ABC Construction company is doing excavation for a new Penn State dormitory. While digging, they encounter Native American antiquities. Law says that these must be removed carefully and preserved. May ABC Construction pass this cost on to Penn State? -> Yes, if it is unforeseen *Must be unforeseen (not predictable)* -> Is it foreseeable that you encounter them? Create a condition for performance clause (if we encounter y, the prize is z) 2. Past Consideration: Promises made in return for actions or events that have already taken place. -You can bargain for something to take place now or in the future but not for something that has already taken place. Therefore, past consideration is no consideration. -Past consideration is no consideration (sometimes) Case Ex (Blackmon v. Iverson): Blackmon became friends with Iverson when Iverson was a high school student who showed tremendous promise as an athlete. Blackmon suggested that Iverson use "The Answer" as a nickname in the league tournaments, and said that Iverson would be "The Answer" to the National Basketball Association's declining attendance. Later, Iverson said that he would give Blackmon 25 percent of any proceeds from the merchandising of products that used "The Answer" as a logo or a slogan. Because Iverson's promise was made in return for past consideration (Blackmon's earlier suggestion), it was unenforceable. In effect, Iverson stated his intention to give Blackmon a gift Ex 2: Jack and Peter are friends. Over course of the last 4 years, Peter helped with personal errands. On 1/1/21, Jack gave Peter a note saying that he owed him $50,000 for his help. Jack died soon after. May Peter obtain the money from Jack's estate? -> No because when he gave the promise, he was not getting anything in return (past consideration cannot support the promise to pay) 3. Illusory Promises: Promise in which one or both parties can choose whether or not to perform the promised obligation. -If the terms of the contract express such uncertainty of performance that the promisor has not definitely promised to do anything, the promise is said to be illusory -Lacks bargained-for exchange -Must perform (def of contract). If you have to decided whether or not do it/bargain for exchange, it is not a contract. -Saying "I will think about it" is illusory Ex: The president of Tuscan Corporation says to his employees, "All of you have worked hard, and if profits remain high, a 10 percent bonus at the end of the year will be given—if management thinks it is warranted." This is an illusory promise, or no promise at all, because performance depends solely on the discretion of the president (the management). There is no bargained-for consideration. The statement declares merely that management may or may not do something in the future. Ex 2 (not illusory): Abe reserves the right to cancel the contract at any time after Chris has begun performance by giving Chris thirty days' notice, the promise is not illusory. Abe, by saying that he will give Chris thirty days' notice, is relinquishing the opportunity (legal right) to hire someone else instead of Chris for a thirty-day period. If Chris works for one month and Abe then gives him thirty days' notice, Chris has an enforceable claim for two months' salary ($10,000).

Promissory Estoppel

A doctrine that allows enforcement of a "contract" that lacks consideration. -A person who has reasonably and substantially relied on the promise of another can obtain some measure of recovery. Promissory estoppel allows a party to recover on a promise even though it was made without consideration. •Utilized to avoid an injustice where one party justifiably relied to his or her detriment (loss) upon the other party's promise. Case Ex (BH 329 NB, LLC v. CBRE): CBRE was selling commercial real estate owned by API Foils BH 329 NB offered to buy the property for $7.5 million, which CBRE accepted. BH 329 NB signed a letter of intent setting forth the sale's terms, including the purchase price and an agreement to lease back the property to API for one year. API signed the letter of intent, showing its agreement in principle to the deal. The letter specified that it was not a sales contract. CBRE promised it would not market or accept other purchase offers while the parties were closing the deal. Despite its promise, CBRE continued to market the property and eventually received a higher offer from a different buyer. CBRE then notified BH 329 NB that it no longer had a deal with API. BH 329 NB sued CBRE for breach of contract and promissory estoppel. A federal district court dismissed the contract claim but allowed the promissory estoppel claim to go forward. CBRE clearly had promised not to market the property in exchange for the plaintiff's agreement not to lower its offer price. BH 329 NB reasonably relied on CBRE's promise by continuing to negotiate the deal with API, and by doing so, incurred costs and lost other business opportunities as a result. For the doctrine of promissory estoppel to be applied, the following elements are required: 1. Promisor (person trying to avoid the contract) make a clear and definite promise; 2. Promisor expected to induce the promisee (person trying to enforce the agreement) to rely on promise; 3. Promisee reasonably relied through an action or forbearance; 4. Promisee's reliance resulted in substantial detriment; and 5. Enforcement of promise is necessary to avoid injustice. -Need a legally enforceable set of promises -To make it fair, must follow the 5 steps -For farm girl case: 1. Parents 3. Farm girl 4. Had no money or occupation 5. Injustice is 30 years of free labor and gets nothing for it

Doctrine of Strict Liability/Liability without fault

A legal doctrine that imposes liability upon a wrongdoer for reasons other than fault. •Although there is no fault, the wrongdoer bears responsibility because of the dangerous nature of his or her acts. •This doctrine is applied because the wrongdoer's activity - that proximately caused the victim's losses - is exceedingly dangerous. -Will not impose liability for reasons other than fault Imposed on those engaged in: 1. Abnormally dangerous activities; 2. Keeping dangerous animals; 3. Manufacturing or selling defective and unreasonably dangerous goods.

Contributory Negligence (3)

A plaintiff or injured party who is partially at fault for his or her own injuries is not entitled to damages from a negligent defendant. -May not recover any money from defendant if some harm was caused by yourself -Differs among states (some are more strict than other) -A plaintiff who was also negligent (who failed to exercise a reasonable degree of care) could not recover anything from the defendant. No matter how insignificant the plaintiff's negligence was relative to the defendant's negligence, the plaintiff was precluded from recovering any damages.

Causation (Proof of Negligence)

A person who commits a negligent act is not liable unless the act was a cause of the plaintiff's injuries. -Links wrongdoing/harm with the activity Two types of causation must both be proven: 1. Causation in fact (actual cause) 2. Proximate cause (legal cause) Causation in Fact: The actual cause of negligence. It is an act or omission without which an event would not have occurred. -Need some conduct! (you should not have done this activity, or you did it but did not exercise enough care) -Did the injury occur because of the defendant's act, or would it have occurred anyway? If an injury would not have occurred without the defendant's act, then there is causation in fact. -> Ask the following questions: 1. Did the injury occur because of the tortfeasor's act? OR 2. Would the injury have occurred anyway? What is the "but for" test (for causation in fact)? -> The harm would not have resulted but for/because of this activity -"but for" the wrongful act, the injury would not have occurred. *Acts should not cause reasonable harm to people! Proximate Cause: -Occurs when the connection between the act or wrongdoing and the injury is strong enough to justify imposing liability. -Exists when the connection between an act and an injury is strong enough to justify imposing liability. -Can be thought of as an unbroken chain of events. -Test for proximate cause is foreseeability of injury (Foreseeability says if the person's action is likely to happen/predictable, you should try to stop it) Ex: Cars on the highway and a deer pops out and the first car stops and the ones behind it all hit each other. The middle car is smashed in the front and back but for the first car, only the back is smashed (but for number one stopping suddenly, the front of number 2 would not have been damaged). But for number 2 stopping suddenly, number 3 would not have been injured). But for number 3 tailgating, number 2 now suffers property loss. Ex 2: Ackerman carelessly leaves a campfire burning. The fire not only burns down the forest but also sets off an explosion in a nearby chemical plant that spills chemicals into a river, killing all the fish for a hundred miles downstream and ruining the economy of a tourist resort.

Reasons for Unenforceable Contracts

A valid contract may be unenforceable if the parties have not genuinely assented to its terms (no agreement) because of: 1. Mistakes of Fact (but not value) 2. Misrepresentation 3. Undue Influence 4. Duress

Slander of Quality or Trade Libel

Arises when a wrongdoer spreads false information about a seller's product to third parties 1. Alleging that it is not what its seller claims, 2. Which causes economic loss to the seller -The publication of false information about another's product, alleging that it is not what its seller claims. -Plaintiff must prove that the improper publication caused a third party to refrain from dealing with the plaintiff and that the plaintiff sustained economic damages (such as lost profits) as a result. When does defamation and trade libel both occur? -> When the reputation of the person is ruined (celebrity) What is a defense to trade libel? 1. Truth (quality is impaired) Ex: Ammonia gas in school lunch and food supply, pink slime in chicken nuggets

When are the Terms of a Contract Considered Reasonably Certain or Definite?

An offer must include the following terms, either expressed (oral/written) or implied (actions/conduct).... 1. Identification of the parties. 2. Object or subject matter of the contract. 3. Consideration to be paid. 4. Time of payment, Delivery, or Performance. -When you transfer money, have transfer of the parties (know where it goes and identity matters!) -Object matters (be specific) -Supply missing terms if party intended that, but it cannot be a huge detail that is needed (time for a flight) Ex: Nintendo of America, Inc., contacts your Play 2 Win Games store and offers to sell "from one to twenty-five Nintendo gaming systems for $75 each. State number desired in acceptance." You agree to buy twenty systems. Because the quantity is specified in the acceptance, the terms are definite, and the contract is enforceable.

Assumption of Risk (1)

Assumption of Risk: -A plaintiff who voluntarily enters into a risky situation, knowing the risk involved, will not be allowed to recover. 1.) Injured party knew of the risks associated with an activity; and 2.) Injured party knowingly and willingly engaged in the activity. -Voluntary assumption of risk Ex: Nascar drivers assume cars could crash into you, cars could crash into the wall, fast driving is dangerous. Could have nothing happen up to death (assume the risk of loss), Skiers, Skydivers Case Ex (Taylor v. Baseball Club of Seattle, L.P.): Lady went to a Mariners baseball game with seats four rows up from the field along the right field foul line. She saw that Mariners pitcher was throwing a ball back and forth with another player right in front of their seats. As Taylor stood in front of her seat, she looked away from the field, and a ball struck her in the face, causing serious injuries. She sued the Mariners for the allegedly negligent warm-up throw. The Mariners filed a motion for a summary judgment in which they argued that Taylor, a Mariners fan, was familiar with baseball and the inherent risk of balls entering the stands, and had therefore assumed the risk of her injury. The trial court granted the motion and dismissed Taylor's case. Taylor appealed. -The risk of injury from an errant baseball thrown during pregame warm-up was foreseeable to a reasonable person with Taylor's familiarity with baseball (a spectator in an unprotected area of seats, voluntarily undertook the risk associated with being hit by an errant baseball thrown during warm-ups before the start of the game) -Must prove she is familiar with the game and understands her risks

Effectiveness of Acceptance

Communication by Offeree: (1) Authorized acceptance of offer, (2) Unauthorized acceptance of offer, (3) Rejection of offer then acceptance of offer Effective When: (1) Sent by offeree, (2) Received by offeror, (3) First communication received by offeror is given effect (1) is the mailbox rule Example: Amy offers to sell iPad to Bart for $125; asks him to accept by certified mail post-dated no later than April 1st. 1. Bart mails acceptance letter by regular mail that is post-dated March 15th. It is lost in the mail. -> Risk of loss on Bart (did not follow offeror rules). No deal/contract 2. Bart mails certified acceptance letter post-dated April 1st that is improperly addressed. -> Loss on Bart and no contract (same as number 1) 3. Bart e-mails rejection on March 15th; then mails acceptance letter by Fed-Ex post-dated March 15th. -> Whichever one is there first is given effect (risk of loss on offeree and burden of proof)

Case Example for Duty of Care (Bogenberger v. Pi Kappa Alpha)

David Bogenberger attended a pledge event at the Pi Kappa Alpha frat house at Northern Illinois University. The NIU Chapter officers planned an evening of hazing, during which the pledges were required to consume vodka provided by the members. By the end of the night, David's blood alcohol level was more than five times the legal limit and he lost consciousness. The NIU Chapter officers failed to seek medical attention and David died. His father filed a complaint in an Illinois state court against the NIU Chapter and its officers, on a theory of negligence. The plaintiff alleged that the defendants required the pledges, including David, to participate in the pledge event and to consume excessive and dangerous amounts of alcohol in violation of the state's hazing statute. The court dismissed the complaint. A state intermediate appellate court reversed the dismissal. The defendants appealed to the Illinois Supreme Court. -The NIU Chapter and its officers owed a duty of care to the pledges -The court reasoned that an injury due to hazing is reasonably foreseeable and the frat was negligent

Duty of Care (Negligence Element)

Duty of Care is defined as: The obligation we all owe each other not to cause any unreasonable harm or risk of harm. -People are free to act as they please so long as their actions do not infringe on the interests of others (if they fail, they are negligent) Duty is measured by a standard of reasonableness. -What is the reasonable person standard? -> The standard of behavior expected of a hypothetical "reasonable person." Standard against which negligence is measured and that must be observed to avoid liability for negligence (how a reasonable person would have acted in the same circumstances) -What duties do businesses owe? -> Have a duty to exercise reasonable care to protect customers. The duty normally requires storeowners to warn business invitees of foreseeable risks, such as construction zones and wet floors, about which the owners knew or should have known. Ex: Wet floor sign, construction, Dominos pizza Factors for determining duty of care: 1. The nature of the act (is it outrageous or commonplace?) 2. The manner in which the act was performed (was the actor cautious or acted heedlessly?) 3. The nature of the injury (is the loss serious or slight?) *Creating even a very slight risk of a dangerous explosion might be unreasonable, whereas creating a distinct possibility of someone getting burnt fingers on a stove might be reasonable.

Interpretation of Contract Terms

Factors used to determine the parties' intent as expressed in their contracts: 1. Reasonable, lawful, effective meaning given to contract. 2. Contracts are interpreted as a whole. 3. Terms negotiated separately given greater weight. 4. Ordinary, common meaning of words given. 5. Specific wording given greater weight than general language. 6. Written or typewritten terms given greater weight than preprinted terms. 7. Ambiguous terms interpreted against the drafter. 8. Trade usage, prior dealing, course of performance allowed to clarify meaning. <- Usually merchants

Defenses to Negligence (Shift the blame to different people)

Four defenses to Negligence: 1.) Assumption of Risk. Ex: Taylor v. Baseball Club of Seattle (2006) 2.) Superseding Intervening Cause. 3.) Contributory Negligence. 4.) Comparative Negligence.

Negligence

Negligence is defined as: 1. The failure to do something that a reasonable person would do; OR 2. Doing something that a prudent and reasonable person would not do -When someone suffers injury because of another's failure to fulfill a required duty of care. -Need risk that is foreseeable *A person is liable for the harm that is the foreseeable consequence of his or her actions Ex: Juan carelessly bumps into Maya and she falls and breaks an arm as a result, Juan's action will constitute negligence. Elements of Negligence: A successful plaintiff must prove that: 1. The defendant (wrongdoer) owe a duty of care to the plaintiff (injured party); 2. The defendant breached this duty of care; 3. The plaintiff suffered injury; 4. The defendant's negligent act caused the plaintiff's injury

Contractual Capacity

It is the legal ability to enter into a contractual relationship. -The capacity required by law to enforce the promises contained in a contract. -If contract is formed properly, you must comply to it -Person must understand they can be compelled to perform promises What effect is given to a contract when the one or both parties: 1. is a minor? 2. is intoxicated? 3. is mentally incompetent?

When Does the Innocent Party have to Prove Injury?

No proof of injury is required when the action is to: 1. rescind contract; and 2. obtain restitution from wrongdoer. Proof of injury is required to: 1. recover damages caused by fraud. -Compensatory Damages: The difference between the value of the property as represented and the actual value of the property. -Punitive Damages: An award above compensation for losses.

Examples of Statements that Are Not Considered Offers

No valid contracts result from: 1. Expressions of Opinion. 2. Statements of Future Intent (plan to do ___ on this day) 3. Preliminary Negotiations 4. Invitations to Bid. 5. Advertisements and Price Lists (invitation but don't have an absolute right. Teaser to get you in, look at fine print) 6. Auctions (willingness to sell goods) -Look like an offer, but they aren't -If you are a learning professional (have a degree) and develop an opinion based on what you learn, it is okay. If they do not use their knowledge, it is a breach of contract (making stuff up)

Bargained-for Exchange

It is the basis for the bargain between the parties. -Typically some value given by the offeror to obtain good or services, or forbearance from the offeree. •Bargained-for-exchange is what separates valid, enforceable contracts from gifts. -Show negotiations and that both parties are interested -Persuade someone to give me their stuff Gift Promises 1. Parents promise freshman new car for college. Is this promise enforceable? -> No 2. Parents promise freshman new car for straight A's. S/he makes all A's. Is this promise enforceable? -> Yes (exchange) Case Ex. 12.2 (Thomas v. Archer): Thomas was admitted the emergency room with pregnancy-related complications. The attending physician, Dr. Archer, recommended that she be transported by medevac (helicopter) to a different facility. The woman and her husband informed the physician that they needed their insurer's preauthorization for that course of action or they could be personally liable for the costs. Dr. Archer allegedly promised to call the insurer and, if it would not approve the medevac, have the hospital bear the costs itself. But the physician failed to contact the insurer until much later, and the insurer declined coverage. The couple sued the hospital, claiming breach of contract by Dr. Archer. The court ruled in favor of the hospital, and the case was appealed to the Alaska Supreme Court. The court held that the physician's alleged promise about insurance and payment did not give rise to an enforceable contract. There was no evidence that the hospital sought any consideration from the Thomases for the physician's alleged promise. Thus, there was no "bargained-for" consideration. The court affirmed the dismissal of the Thomases' contract claim (but remanded the case on the issue of promissory estoppel, a concept that will be discussed shortly). Case Ex (Cincinnati Reds v. Testa): Faced with rising ticket prices and increasing entertainment options, Major League Baseball organizations have experienced challenges in getting fans to attend games. One way to attract fans is to offer them unique merchandise—such as bobbleheads, shirts, caps, bats—that they can obtain only by attending a game. The Cincinnati Reds often engage in these types of promotions. The Reds' home state, Ohio, imposes a sales tax on certain goods but exempts goods intended for resale. Concluding that the Reds' promotional items were purchased to give away, not to resell, the state board of tax appeals (BTA) denied the team's request for an exemption. On appeal to the Ohio Supreme Court, the Reds argued that they resold the promotional items by promising to distribute them—that this promise creates a contractual expectation on the part of the fans, who buy tickets and attend games as consideration for receiving the items. -Ticket purchases and game attendance by Reds fans constitute consideration for receiving promotional items distributed by the Reds at the games -The Ohio Supreme Court reversed the decision of the BTA. "Consideration is given in exchange for the Reds' agreement to supply fans with . . . promotional items. The transfer of promotional items to fans thus constitutes a sale . . . and the promotional items are subject to the sale-for-resale exemption."

Duress

Occurs where one party threatens to do a wrongful act, unless the other party enters into a contract. -Persistent persuasion -Duress is both a defense to the enforcement of a contract and a ground for rescission of a contract. •A contract is voidable if a party is forced to enter into a contract through fear created by threats. -Threatened act must be wrongful or illegal. •Some threats are not duress. -Threat to exercise legal rights (criminal or civil suit). -There must be proof of a threat to do something that the threatening party has no right to do. Generally, for duress to occur, the threatened act must be wrongful or illegal, and it must render the person who receives the threat incapable of exercising free will. Ex: Extortion (if you don't burn down the place, I will pay you $20 per week)

Online Acceptances

Offeree's assent governed by two principles: 1. Common Law: Parties may agree to a contract by written or spoken words or by other action, or by failure to act (limited). -Failure to act = Blue Apron example (keep paying until you cancel) 2. Uniform Commercial Code: For sale of goods contracts, assent may be made in any manner sufficient to show agreement, including conduct by the parties that recognizes the existence of a contract. Types: 1. Click-On Agreements. -The act of clicking the "I accept" or "I agree" box indicates acceptance of an online offer. •Is this principle true even if the offeree has not read the entire contract? -> The law does not require that the parties have read all of the terms in a contract for it to be effective. Therefore, clicking on a box that states "I agree" to certain terms can be enough to bind a party to these terms. Case Ex (Bailey v. Kentucky Lottery Corp): Kentucky Lottery Corporation operates the Kentucky state lotteries. In a "second-chance" promotion, a scratch-off ticket that revealed an "FTP" ("Final Top Prize") symbol could be entered to win $175,000 in a drawing. The lottery operates a website at which individuals can register for an online account and enter the contest. The contest rules required an entrant to provide a valid phone number and mailing address, and keep them current. If the winner could not be reached within seven days after the drawing, disqualification would result. Brett Bailey established an online account and entered several scratch-off tickets in the promotion. He provided a mailing address, but it was not correct, and before the drawing, he changed his phone number without notifying the lottery. Bailey's ticket won, but the lottery was unable to reach him—it could not contact him by phone, and a certified letter sent to the incorrect address was undeliverable. After expiration of the seven-day period, the prize was awarded to an eligible alternate. Later, Bailey filed a suit in a Kentucky state court against Kentucky Lottery Corporation, claiming breach of contract. The court granted a summary judgment to the defendant. Bailey appealed. -Bailey accepted the lottery's online contract terms and was bound by those terms. He failed to comply with the requirements of the lottery's promotion, and the lottery had a contractual right to disqualify his entry from the drawing." 2. Shrink-Wrap Agreements. -An agreement whose terms are expressed in a document located inside a box in which goods (usually software) are packaged. -The party who opens the box automatically accepts the terms by keeping the goods. -A buyer's failure to object to terms contained within a shrink-wrapped software package may constitute an acceptance of the terms by conduct. Example: Opening a DVD box and the agreement/licensing of software being inside of it Case Example (Noble v. Samsung): David Noble purchased a Samsung Smartwatch from an AT&T store after seeing ads saying that its battery life was twenty-four to forty-eight hours with typical use. But Noble's Smartwatch battery lasted only about four hours, so he returned the Smartwatch and received a new one. The second Smartwatch suffered from the same battery problem. Noble again went back to the AT&T store and, this time, was directed to ship the Smartwatch to Samsung. Samsung then sent Noble a third Smartwatch with equally poor battery life. Noble then filed a suit against Samsung in a federal district court. Samsung filed a motion to compel arbitration, which the district court denied. Samsung appealed. Inside each of the Smartwatch boxes that Noble received was a tiny booklet titled "Health and Safety and Warranty Guide" that included a standard Limited Warranty. On page ninety-seven of the guide, a boldface question read "What is the procedure for resolving disputes?" Under that was a statement saying that any disputes would be resolved exclusively through binding arbitration, and not by a court or jury. The federal appellate court held that this language "tucked away in a brochure" was not sufficient to show that Noble had agreed to arbitration. Because consumers were not given reasonable notice of the arbitration clause (on the outside of the guide or somewhere obvious in the packaging), it was unenforceable. 3. Browse-Wrap Terms. -Term or condition of use that is presented when the licensee downloads a product. The licensee does not have to agree before installing or using the product. Example: Agreeing to terms when downloading things on a public computer Case Example (Vitacost.com Inc. v. McCants): James McCants bought dietary supplements over the Internet that allegedly seriously damaged his liver. When he sued the seller, Vitacost.com, Inc., the company moved for arbitration based on a clause in the browse-wrap terms. To see the arbitration clause, a purchaser would have had to scroll to the bottom of the seller's Web page and click on a hyperlink labeled "Terms and Conditions." The court held that these browse-wrap terms were not part of the sales agreement and were thus unenforceable

Silence as Acceptance

Offeror says, "by your silence and inaction you will be deemed to have accepted this offer." Is the offeree's silence considered acceptance? -> No, but voluntarily consent to the offer -Silence cannot constitute acceptance -Cannot force an offeree to accept an offer -If offeree has duty to speak, silence or inaction on the offeree's part will operate as an acceptance. Silence may be an acceptance when an offeree takes the benefit of offered services having had an opportunity to reject them and knowing that they were offered with the expectation of compensation. -Silence can also operate as an acceptance when the offeree has had prior dealings with the offeror. Ex: Marabel's restaurant routinely receives shipments of produce from a certain supplier. That supplier notifies Marabel's that it is raising its prices because its crops were damaged by a late freeze. If the restaurant does not respond in any way, the silence may operate as an acceptance, and the supplier will be justified in continuing regular shipments. When is Silence Deemed Acceptance? 1. The offeree takes benefit of goods or services even though s/he (a) has the opportunity to reject the goods or services, but does not do so; and (b) knows that the offeror expects to be compensated. -Person who takes benefit of goods/services must pay for them even if they did not order it 2. Prior dealings between the parties indicate that silence means acceptance. Ex: Lawn care service that regularly shows up and must contact them to stop the service, subscription services like blue apron -Silence = Acceptance if you already started the service

"But for" Test Example

Sam is driving and texting at the same time. He runs into Alex, whose car then hits a pedestrian and injures him. Pedestrian sues Sam and Alex. Is there causation in fact? -But for Sam texting and driving, I would not have been injured. -But for Alex hitting me, I would not have been injured. -Sam is more at fault (texting and driving) and fair to pull him in -Alex was not doing anything wrong, but he hit a pedestrian due to Sam (no likeliness of harm) What is the proximate cause of the pedestrian's injury? -Sam who hit Alex

Rejection and Counteroffer

Rejection: Offeree informs offeror that s/he will not accept the offer. •Rejection is effective when offeror receives it. -Rejection kills the offer/contract (communicate from one party to another and negotiation fails) -Acceptance needs an unequivocal statement to the terms of the offer -Merely inquiring about an offer does not constitute rejection. Ex: Goldfinch Farms offers to sell specialty Maitake mushrooms to a Japanese buyer, Kinoko Foods. If Kinoko rejects the offer by sending a letter via U.S. mail, the rejection will not be effective (and the offer will not be terminated) until Goldfinch receives the letter. Ex 2: Ray offers to buy Fran's digital pen for $100. Fran responds, "Is that your best offer?" A reasonable person would conclude that Fran has not rejected the offer but has merely made an inquiry. She could still accept and bind Ray to the $100 price. Counteroffer: Offeree responds to offer by simultaneously rejecting the original offer and at the same time making a new offer. -Offeree becomes offeror in a counteroffer Ex: Burke, a beet farmer, offers to sell her product to Lang, the owner of the Lang's Roadside Veggie Stand, for $1.70 a pound. Lang responds, "Your price is too high. I'll offer to pay $1.30 a pound for your beets." Lang's response is a counteroffer because it rejects Burke's offer to sell her beets at $1.70 a pound and creates a new offer by Lang to purchase the beets at $1.30 a pound.

Contracts Contrary to Statute

Some statutes set forth rules specifying which terms and clauses may be included in certain contracts and which are prohibited. Others prohibit certain contracts on the basis of their subject matter, the status of the contracting parties, or other factors. Ways Contracts Violate Statutes: 1. Contracts to Commit a Crime: Agreements to engage in conduct which violates criminal statutes. Ex: A contract to sell illegal drugs in violation of criminal laws is unenforceable, as is a contract to hide a corporation's violation of securities laws or environmental regulations. -Sometimes, the object or performance of a contract is rendered illegal by statute after the contract has been formed. In that situation, the contract is considered discharged (terminated) by law. 2. Usury Laws: Charging an interest rate on loans that are higher than state limit. -Usurious contracts are illegal, most states simply limit the interest that the lender may collect on the contract to the lawful maximum interest rate in that state. -Business exceptions, many states exempt corporate loans from the usury laws, and nearly all states allow higher interest rate loans for borrowers who could not otherwise obtain loans. 3. Gambling Laws: Wagering is either prohibited or regulated. -Today, many states allow (and regulate) certain forms of gambling, such as horse racing, video poker machines, and charity-sponsored bingo. In addition, nearly all states allow state-operated lotteries and gambling on Native American reservations (were illegal in the past) 4. Sabbath Laws: Limits on secular activities on Sundays. 5. Licensing Laws: Certain professionals must be licensed to do business. -Physicians, lawyers, real estate brokers, accountants, architects, electricians, and stockbrokers -Some licenses are obtained only after extensive schooling and examinations, which indicate to the public that a special skill has been acquired. Others require only that the person obtaining the license be of good moral character and pay a fee.

Intentional Torts Against Property

Wrongful actions that interfere with an individual's legally recognized rights to his or her land or personal property. What is Real Property? -> Realty/real estate or land (land and everything permanently attached to it) Ex: House and lot What is Personal Property? -> Everything else (movable objects) Ex: Furniture, cash, stocks/bonds •Intangible property is: Non-physical ownership interest in something else (patents, copyright, stock) •Tangible property is: Physical objects you can sense (hair tie, car, house) Intentional Tort Against Real Property: 1. Trespass to Land. Intentional Torts Against Personal Property: 1. Trespass to Personal Property. 2. Conversion 3. Disparagement of Property. -Slander of Quality (Trade Libel) -Slander of Title *All have legally protected interest!

Case Ex: Palsgraf v. Long Island Railroad Company (Foreseeability)

The plaintiff, Palsgraf, was waiting for a train on a station platform. A man carrying a small package wrapped in newspaper was rushing to catch a train that had begun to move away from the platform. As the man attempted to jump aboard the moving train, he seemed unsteady and about to fall. A railroad guard on the train car reached forward to grab him, and another guard on the platform pushed him from behind to help him board the train. In the process, the man's package fell on the railroad tracks and exploded, because it contained fireworks. The repercussions of the explosion caused scales at the other end of the train platform to fall on Palsgraf, who was injured as a result. She sued the railroad company for damages in a New York state court. -At the trial, the jury found that the railroad guards were negligent in their conduct. The court stated that the question of whether the guards were negligent with respect to Palsgraf depended on whether her injury was reasonably foreseeable by the railroad guards. Although the guards may have acted negligently with respect to the man boarding the train, this had no bearing on the question of their negligence with respect to Palsgraf. This was not a situation in which a person committed an act so potentially harmful -The court stated that here "there was nothing in the situation to suggest to the most cautious mind that the parcel wrapped in newspaper would spread wreckage through the station." The court thus concluded that the railroad guards were not negligent with respect to Palsgraf, because her injury was not reasonably foreseeable.

Unconscionable Contracts or Clauses

The terms of the bargain are so oppressive that a court may relieve innocent parties of part of all of their duties to perform. •The "agreement" is deeded unconscionable because the terms are so unscrupulous or grossly unfair as to be void of conscience. -Be aware that persons are presumed to be reasonable intelligent, and courts will not set aside unwise or foolish bargains. -Normally, a court does not look at the fairness or equity of a contract. Persons are assumed to be reasonably intelligent, and the courts will not come to their aid just because they have made unwise or foolish bargains) Procedural = Terms become part of the contract, but parties do not know meaning of the terms (too tiny to read, unintelligible language/jargon, disparity of bargaining power "take it or leave it") Substantive = When contracts, or portions of contracts, are oppressive or overly harsh (a contract clause that gives a business entity unrestricted access to the courts but requires the other party to arbitrate any dispute with the firm may be unconscionable)

***Requirements for an Offer***

Three elements are necessary for an offer to be effective: 1.) Offeror must objectively intend to be bound by the offer (serious intentions). 2.) The terms of the offer must be definite or reasonably certain. 3.) The offer must be communicated to the offeree. Offer: A promise or commitment to perform or refrain from performing some specified act in the future. -The party making an offer is called the offeror, and the party to whom the offer is made is called the offeree.

Damages (Negligence Element)

Two categories of damages... 1. Compensatory Damages: Intended to compensate or reimburse a plaintiff for actual losses. -These damages compensate the injured party only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract. They simply replace what was lost because of the wrong or damage 2. Punitive Damages: Intended to punish the defendant and deter others from similar wrongdoing. -Designed to punish the wrongdoer and set an example to deter similar conduct in the future and they have no legitimate place in contract law. Have you heard about the McDonald's Hot Coffee Case? -> Stella Liebeck bought a cup of takeout coffee at a McDonald's drive-thru in Albuquerque and spilled it on her lap. She sued McDonald's and a jury awarded her nearly $3 million in punitive damages for the burns she suffered. Coffee was dangerously hot and she got third degree burns and McDonald's lost the case to prevent further damages

Classification of Contracts: Enforceability

VALID CONTRACT: -All contractual elements are present: (Agreement, Consideration, Contractual Capacity, and Legality). 1. Enforceable: A valid contract is enforced because there are no defenses against it. 2. Unenforceable: A contract exists, is not enforced because of a legal defense. 3. Voidable: A party may avoid enforcement of the contractual promises that were made. VOID "CONTRACT": -A valid contract but one that can be avoided at the option of one or both of the parties. The party having the option can elect either to avoid any duty to perform or to ratify (make valid) the contract. -A writing that has no legal effect; a nullity (cannot be enforced) -No contract exists, or it is a contract without legal obligations. -Object of contract is illegal -Voidable contracts are when people did not understand what was to be done (intoxication, mental disability, minors, fraud)

Mistakes of Value

•Contracts that contain a mistake regarding the future market value or quality of the object is one of value. •Mistakes of value are normally enforceable; the contract is given effect. Ex: Expensive egg being worth more due to who made it and when Ex 2: Pablo buys a violin from Bev for $250. Although the violin is very old, neither party believes that it is valuable. Later, however, an antiques dealer informs the parties that the violin is rare and worth thousands of dollars. Here, both parties were mistaken, but the mistake is a mistake of value rather than a mistake of fact. Because mistakes of value do not warrant contract rescission, Bev cannot rescind the contract.

Adequacy of Consideration

•Courts rarely question the adequacy of consideration based solely upon the comparative value of the things exchanged. •Parties are free to decide what something is worth, and are free to bargain as they wish (but, no illegality or violation of public policy of the jurisdiction). -The determination of whether consideration exists does not depend on the values of the things exchanged. Something need not be of direct economic or financial value to be considered legally sufficient consideration. -A consumer's signature on a contract does not always guarantee that the contract will be enforced. The contract must also comply with state and federal consumer protection laws. Ex: Paying a child to stay off Facebook-> What is the point since you can just tell them, others argue it is a bargain to give them $200; Spencer pays $500 for an iPhone that he later discovers is a fake (counterfeit). Because the device is not authentic, he could claim that there was no valid contract because of inadequate consideration and fraud.

Minors

•In most states, a person is no longer a minor for contractual purposes at the age of 18 (17 and under is a minor and have the right to disagree/void). -In some states, minor status may be terminated upon marriage, or through emancipation (the act of being freed from parental control). •A minor can enter into any contract that an adult can, as long as it is one not prohibited by law. -Ex: Alcohol, tobacco, lottery/gambling are prohibited •A contract entered into by a minor is voidable at the option of that minor, subject to certain exceptions to prevent unjust enrichment by the minor against the adult The Infancy Doctrine (A Minor's Right to Disaffirm): •A minor may disaffirm or cancel a contract: 1. at any time during minority; or 2. for a reasonable period after the minor reaches the age of 18 (If an individual fails to disaffirm an executed contract within a reasonable time after reaching the age of majority, a court will likely hold that the contract has been ratified) -Must the minor disaffirm the entire contract? -> Yes (must also do through words or conduct) -May an adult contracting with the minor disaffirm the contract? -> No (Adults do not have the right to disaffirm, breach of contract if they do, but minors do) -What benefit does the minor get upon disaffirmance? -> Do not have to agree to contract, promisor role is excused/done, and cannot be sued for breach of contract •What type of contracts may not be disaffirmed? -> Medical services, health/life insurance, education loans, military, entertainment Case Ex (PAK Foods Houston, LLC. v. Garcia): Norred was a 17 year-old minor when he started working as a server at a Cotton Patch Café in Texas. Norred electronically signed a document titled "Notice to Employees" that contained a mutual arbitration agreement for all disputes arising out of his employment. Seven months later, Norred turned eighteen. Ten months after that, Norred left his job and filed a compensation lawsuit against Cotton Patch alleging violations of federal labor law. At the same time, Norred attempted to disaffirm the terms of his original employment contract. Citing Texas case law from 1889, the federal court ruled that, by waiting nearly a year after his eighteenth birthday, Norred had taken too long to disaffirm and was therefore bound by the arbitration agreement. What are the Minor's Obligations to Adult upon Disaffirmance? •Minor's must return the goods, property, or consideration only if in his/her possession or control. -May goods or property be returned in any condition? -> Yes (Even if the minor returns damaged goods, the minor often is entitled to disaffirm the contract and obtain a refund of the purchase price). •Majority rule = Damaged goods/full purchase price on return (get all consideration back) •Minority rule = Minor responsible for wear, tear and depreciation of goods/depreciated value on return. (get value - cost of depr.) Example: A Minor's Right to Disaffirm A Contract Amy is 17 years old. She signs an installment contract for a computer, and must pay $100 per month for 12 months. Amy is in possession of the computer, pays for 6 months, and now wants to disaffirm the contract. The computer is now worth $200. May she disaffirm the contract? -> yes. In states that hold minors responsible for damage, she can still disaffirm the contract, but she may only recover the depreciated value—not the purchase price. Exceptions to Minor's Disaffirmance of A Contract: 1. Marriage Contracts, Contracts to Enter into the Armed Services. 2. Misrepresentation of Age. 3. Contracts for Necessaries (food, water), Insurance and Loans. 4. Ratification of Contracts (accepting and giving legal force to an obligation that previously was not enforceable) Exception (Contracts for Necessaries of Life): •Minor who disaffirm are obligated to pay reasonable value of necessaries. -What are necessaries? -> Whatever is reasonably needed to maintain the minor's standard of living (food, clothing, shelter, and medical services) •The minor pays contracting adult party if: 1. Contract item is necessary for the minor's existence; 2. Item's value commensurate with minor's social standing and lifestyle; and 3. Minor is not under care of parent or guardian who should provide the necessaries of life. Exception (Minor's Ratification of Contract): •The act of a minor after reaching the age of 18, whereby s/he accepts a contract entered into when s/he was a minor. -What type of acts indicate that a minor has accepted the contract? -> Express Conduct: Occurs when the individual, on reaching the age of majority, states orally or in writing an intention to be bound by the contract. -> Implied Conduct: When the minor, on reaching the age of majority, behaves in a manner inconsistent with disaffirmance. •Is the minor's right to disaffirm lost upon ratification? -> If a minor fails to disaffirm a contract within a reasonable time after reaching the age of majority, then a court must determine whether the conduct constitutes implied ratification or disaffirmance. Generally, courts presume that executed contracts are ratified and that executory contracts are disaffirmed. Ex: Lindsay posts an ad on Craigslist offering to sell her grandmother's Yamaha grand piano for $6,000. Axel, who is seventeen years old, agrees to purchase the piano by making monthly payments of $200 over the next two and a half years. Axel does not disaffirm the contract, and six months into the agreement, he turns eighteen (the age of majority in his state). When Axel stops by Lindsay's house to make his seventh payment, he states, "I love the piano and will continue making payments." Axel's oral statement to Lindsay is an express ratification of their contract. He can no longer disaffirm it. Even if Axel never expressly tells Lindsay he will continue making payments but continues to do so well after reaching the age of majority, he has impliedly ratified the contract. Parental Liability for Minor Children's Contracts: •Parents are not liable for contracts made by minor children acting on his/her own. -Businesses ordinarily require parents to cosign any contract made with a minor. The parents then become personally obligated to perform the conditions of the contract, even if their child avoids liability. •What is emancipation? -> The act of being freed from parental control. -Parents of non-emancipated minors are liable for contracts for necessaries.

Intent to Deceive (2nd element)

Wrongdoer must make false statement with the intent to deceive innocent party. •Scienter/guilty knowledge is inferred from the wrongdoer's conduct (acted with malice): 1. Wrongdoer's knowledge that fact is not as stated. 2. Wrongdoer makes a reckless statement with disregard of the truth. 3. Wrongdoer implies that statement is based on personal knowledge or investigation when it is not. Ex: The price of something (pawn shop) must be accurate Innocent Misrepresentation: Occurs when the actor makes a false statement of material fact that s/he believes to be true. •In actuality, the representation is false. •Remedy rescission (cancellation) of contract. -Innocent party is not entitled to contract damages (non-contract and there is no agreement) -Innocent misrepresentation is unaware they are not telling the truth (deprives offeree information of the bargain) Negligent Misrepresentation: Occurs when the act makes a false statement of fact because s/he failed to exercise reasonable care, or use the skill and competence required by her or his profession or business. -It is a careless statement that breaches a duty of care owed to the innocent party. •Aggrieved party is entitled to contract damages. -Negligence knows they are lying, but did not try to tell the truth (could have checked the true story, but decided not to) Ex: Richard applies for a position as a business law professor two weeks after his release from prison. On his résumé, he lies and says that he was a corporate president for fourteen years and taught business law at another college. After he is hired, his probation officer alerts the school to Richard's criminal history. The school immediately fires him. If Richard sues the school for breach of his employment contract, he is unlikely to succeed. Because Richard clearly exhibited an intent to deceive the college by not disclosing his personal history, the school can rescind his employment contract without incurring liability. Ex 2: Bryant submits an application for no-fault automobile insurance with State Farm in which he states that he has not received any traffic citations for three years. State Farm accepts the application, and Bryant pays the premium. Soon thereafter, State Farm discovers that, one year and eight months earlier, Bryant had been cited for operating a motor vehicle while impaired. Even if Bryant's misrepresentation on the application is an innocent mistake, State Farm can void the insurance contract and return the premium because the misrepresentation is material. Ex 3: Dirk, an operator of a weight scale, certifies the weight of Sneed's commodity. If Dirk knows that the scale's accuracy has not been checked for more than three years, his action may constitute negligent misrepresentation. Ex 4: Sally is selling a used car that she bought from a Katrina victim. When Bill sees the car's Louisiana plates, he says "I hope this car was not flooded in the hurricane." Sally says that it was not, even though she knows that the former owner was a New Orleans resident. Bill later finds out the car was underwater. May this contract be cancelled? -> Yes (#2)

Justifiable Reliance on Misrepresentation (3rd element)

1. Innocent party must have justifiable reason for relying on misrepresentation of fact. -What are justifiable reasons? -> Hard to figure out the truthfulness of a statement (water leak that was unknown and may have been there, but you're not sure) 2. Misrepresentation must be an important factor in causing innocent party to enter contract. -A check to prevent people taking advantage of merchants -Use common sense on both sides Example: Selling a fake leather purse, but saying it is -If the defects would be obvious on inspection, the buyer cannot justifiably rely on the seller's representations. If the defects are hidden or latent, however, the buyer is justified in relying on the seller's statements. *A statement of opinion is neither a contract offer, nor a contract term, nor fraud. Case Ex: Clifford Cronkelton negotiated with Patrick Shivley to buy a car wash in Ohio that had closed down due to bankruptcy. Cronkelton inspected the property and knew that he would have to replace some of the equipment, but he was concerned that the property needed to be winterized to protect it from damage. Shivley assured Cronkelton that the winterizing would be done. Shivley contacted Guaranteed Construction Services, LLC, which hired Strayer Company to winterize the property. Strayer told Shivley that the only way to avoid problems was to leave the heat on at the car wash, but Shivley knew that the bank had shut off the heat. Later, the car wash was damaged by freezing. Although Shivley informed the bank about the damage, he did not tell Cronkelton, who did not become aware of the damages until after he had he bought the car wash. Cronkelton sued Guaranteed and Shivley for fraud and won. He was awarded more than $140,000 in damages. The defendants appealed. The reviewing court affirmed, holding that Cronkelton had justifiably relied on Shivley's representations that the car wash had been winterized Ex: Simon offers his Vermont dairy farm and cows for sale to Ben. Ben intends to continue working the dairy farm. Simon says that the autumn foliage is spectacular. Later that year, Ben is disappointed to see very ordinary fall colors. May this contract be rescinded? -> No (opinion rather than fact and not material to transaction) Ex 2: Simon offers his Vermont bed and breakfast inn for sale to Ben. Simon says that the autumn foliage on the landscaped grounds are spectacular, and perfect for picturesque guest events. Later that year, Ben is disappointed to see very ordinary fall colors. His guests depart early. May this contract be rescinded? -> Yes (does not have ambiance)

Termination by Operation of Law

1. Lapse of Time: Automatic termination when date or time period mentioned in offer has lapsed. -Reasonable time period if no date/time period stated in offer. -If the offer states that it will be left open until a particular date, then the offer will terminate at midnight on that day. If the offer states that it will be left open for a number of days, this time period normally begins to run when the offer is actually received by the offeree, not when it is formed or sent. 2. Destruction of the Subject Matter of the Offer: Automatic termination when the object of the contract is destroyed before the offer has been accepted. 3. Death or Incompetence of Offeror or Offeree: Offeree's power of acceptance terminates when the offeror or offeree dies or becomes legally incapacitated, unless the offer is irrevocable. Ex: Sybil offers to sell commercial property to Westside Investments for $2 million. In June, Westside pays Sybil $5,000 in exchange for her agreement to hold the offer open for ten months (forming an option contract). If Sybil dies in July, her offer is not terminated, because it is irrevocable. Westside can purchase the property from Sybil's estate at any time within the ten-month period. 4. Supervening Illegality of the Proposed Contract: A statute or court decision that makes the offer illegal results in termination of the offer. Ex: Lee offers to lend Kim $10,000 at an annual interest rate of 15 percent. Before Kim can accept the offer, a law is enacted that prohibits interest rates higher than 8 percent. Lee's offer is automatically terminated. (If the statute is enacted after Kim accepts the offer, a valid contract is formed, but the contract may still be unenforceable.) -Person with money has a burden and a benefit when owning goods/services. -Person with goods/services has a benefit with money and the goods/service is a burden

What is the Process of Reaching an Agreement?

1. Parties engage in preliminary negotiations about price, time of performance, etc. 2. Someone makes an offer during negotiations (Offeror). 3. Offer sets forth the terms under which the offeror is willing to enter into the contract. 4. Offeree has power to create an agreement by accepting the offer. *Don't know who the parties are until the offer is created!

Defenses to Trespass

1. Warranted Intrusion: Person who enters has a justification for entering land without permission. -To assist another person in danger. -To retrieve one's property (not absolute) 2. License to Enter Land: A licensee has permission to enter the land for a certain purpose. -Licenses are revocable by the property owner. *Licensor is the person who owns the land. Licensee is if you have a ticket to go somewhere and it can expire or be taken away if you act poorly (one who is invited/allowed to enter onto the property of another for the licensee's benefit)

How are Contracts Interpreted?

1.) Plain Meaning Rule: Courts give contractual terms their obvious meaning. -Clear and unequivocal that can easily be understood -No extrinsic evidence (anything outside of creation of contract) is considered. 2.) Ambiguous Terms: If terms are ambiguous, court will attempt to interpret ambiguous contract terms in a reasonable, lawful, effective manner. -I thought this word meant ______ is a losing argument -A court will consider a contract to be unclear, or ambiguous, in the following situations: 1. When the intent of the parties cannot be determined from its language. 2. When it lacks a provision on a disputed issue. 3. When a term is susceptible to more than one interpretation. 4. When there is uncertainty about a provision. Case Example (Wagner v. Columbia Pictures Industries, Inc.): Actor Robert Wagner entered into an agreement with Spelling-Goldberg Productions (SGP) "relating to Charlie's Angels (herein called the 'series')." The contract entitled Wagner to 50 percent of the net profits that SGP received from broadcasting the series and from all ancillary, music, and subsidiary rights in connection with the series. SGP hired Ivan Goff and Ben Roberts to write the series, under a contract subject to the Writers Guild of America Minimum Basic Agreement (MBA). The MBA stipulated that the writer of a television show retains the right to make and market films based on the material, subject to the producer's right to buy this right if the writer decides to sell it within five years. The first Charlie's Angels episode aired in 1976. In 1982, SGP sold its rights to the series to Columbia Pictures Industries, Inc. Thirteen years later, Columbia bought the movie rights to the material from Goff's and Roberts's heirs. In 2000 and 2003, Columbia produced and distributed two Charlie's Angels movies. Wagner filed a suit in a California state court against Columbia, claiming a share of the profits from the films. The court granted Columbia's motion for summary judgment. Wagner appealed to a state intermediate appellate court. -The language of Wagner's contract with SGP entitled Columbia to all of the profits from the two Charlie's Angels movies -Intrinsic evidence is not able to show intention on an ambiguous written statement. There was poor contract formation and he was unable to get his profits since it was not the same company

Mentally Incompetent Persons

1.) Void Contract: -The person has been found mentally incompetent by a court of law and a guardian has been appointed. -If a court has previously determined that a person is mentally incompetent and has appointed a guardian to represent the person, any contract made by that person is void—no contract exists (only guardian can enter on their behalf) 2.) Voidable Contract: -The person is mentally incompetent and does not know s/he is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences. Voidable by incompetent. •Case Ex: Duffie was mildly mentally retarded and at age 70, had the beginning of dementia. For her entire life, she lived with her brother, Jerome. When Jerome died, he left Duffie his property, including 180 acres of timberland valued at $400,000. Less than three months later, Duffie signed a deed granting her interest in the tract to Charles and Joanne Black. The Blacks agreed to pay Annabelle $150,000 in monthly payments of $1,000. Later, Annabelle's nephew, Jack, was appointed to be her legal guardian. On her behalf, Jack filed a lawsuit in an Arkansas state court against the Blacks, seeking to void the land deal because of Annabelle's lack of mental competence. The court ordered the Blacks to return the property to Annabelle. They appealed. A state intermediate appellate court affirmed. The evidence showed that Annabelle had been incompetent her entire life. She lacked the cognitive ability to make the complex financial decisions involved in selling property. Therefore, the contract was voidable. 3.) Valid Contract: -Mentally incompetent person is able to understand the nature and effect of entering into a contract at the time the contract was made, yet lack capacity to engage in other activities. -Some people who are incompetent due to age or illness have lucid intervals—temporary periods of sufficient intelligence, judgment, and will. •Contract enforceable if entered into during lucid period. Ex: Sam suffered head trauma in a car accident. Mailman says, "let me have your car for $1.00." Sam says, "okay." Sam drafts contract; discloses defects in car; arranges for delivery of car; signs over title to car to mailman. The next day, tow truck operators show up for the car. Sam calls the police, and says that the CIA is stealing his car. When the police arrive, Sam is in his pajamas, cooking eggs on his driveway, and babbling incoherently. May this contract be enforced? -> Yes, he knew in the ludic period what he was doing

Breach of the Duty of Care (Negligence Element)

A breach of a duty of care is defined as: -A failure to exercise care or act as a reasonable person would act. A breach of duty consists of either: -An action or -A failure to act when there is a duty to act.

Exculpatory Clauses

A clause that releases a contractual party from liability in the event of monetary or physical injury, no matter who is at fault. -May be enforced if they are reasonable, do not violate public policy and do not protect parties from liability from intentional misconduct. -Most courts view exculpatory clauses with disfavor. Exculpatory clauses found in rental agreements for commercial property are frequently held to be contrary to public policy, and are almost always unenforceable in residential property leases. -Courts usually hold that exculpatory clauses are against public policy in the employment context. Thus, employers frequently cannot enforce exculpatory clauses in contracts with employees or independent contractors to avoid liability for work-related injuries. -One person is at fault (know the law, but negotiate to not be responsible for their wrongdoing) and shifts their wrong acts to others Ex: Ski resort waiver was upheld when skier was injured because he knew the risks -Courts do enforce exculpatory clauses if they are reasonable, do not violate public policy, and do not protect parties from liability for intentional misconduct.

What is a contract?

A contract is: -A legally binding agreement between two or more competent parties, -For valuable consideration, -To perform or refrain from performing some act now or in the future. •An agreement (based on a promise) that is enforceable by a court. -Contract disputes arise when there is a promise of future performance. If the contractual promise is not fulfilled, the party who made it is subject to the sanctions of a court.

Agreement

A mutual understanding or meeting of the minds between two or more individuals regarding the terms of a contract. •Parties must agree on the terms of the contract. -Meeting of the minds (mutual assent) -Offeror controls the offer, Offeree controls acceptance •The offeror offers a certain bargain to the offeree, who then accepts the bargain. -Bargain is interpreted under the objective theory of contract. •The parties' words and conduct are whatever a reasonable person in the other party's position would think such words/conduct meant. *Required to form a contract

Contract Acceptance

Acceptance is the... 1. Voluntary act (words or conduct), 2. by the Offeree that, 3. shows assent (agreement) to offeror, 4. to the terms of an offer. *Need all 4 for an acceptance! -Acceptance must be unequivocal and must be communicated to the offeror. Generally, only the person to whom the offer is made or that person's agent can accept the offer and create a binding contract. Who may accept the offer? -> Offeror or their agent "Mirror Image" Rule: A common law rule that requires that the terms of the offeree's acceptance adhere exactly to the terms of the offeror's offer for a valid contract to be formed. -The terms of the acceptance must "mirror" those of the offer. If the acceptance materially changes or adds to the terms of the original offer, it will be considered not an acceptance but a counteroffer •For an acceptance to exist, the offeree's acceptance must be unequivocal. -Offeree's acceptance must match the offeror's offer exactly. •Any material changes or additions to the offer is not considered a legal acceptance. (counteroffer) -What happens if there are material changes? •A "grumbling acceptance" is a legal acceptance. -Ex: "okay, I accept, but I wish I could have gotten a better price." -Bargain has essential terms and everyone must be on the same page with those terms -Say yes to everything important to the offeror (if you say no, renegotiate or do counteroffer) -Counteroffer is the opposite of mirror image rule Case Ex (Brown v. Lagrange): Sonja Brown made a written offer to Lagrange Development to buy a particular house for $79,900. Lagrange's executive director, Terry Glazer, penciled in modifications to the offer—an increased purchase price of $84,200 and a later date for acceptance. Glazer initialed the changes and signed the document. Brown initialed the date change but not the price increase, and did not sign the revised contract. Nevertheless, Brown went through with the sale and received ownership of the property. When a dispute later arose as to the purchase price, a court found that Glazer's modification of the terms had constituted a counteroffer, which Brown had accepted by performance. Therefore, the contract was enforceable for the modified price of $84,200.

Termination of Offer

Acts of the Parties: 1. Revocation, 2. Rejection, or 3. Counter-offer Operation of Law: 1. Lapse of time; 2. Destruction of the subject matter of the offer; 3. Death or Incompetence of Offeror or Offeree; and 4. Supervening Illegality of the Proposed Contract. *Offeree makes contract to accept the facts of the bargain (incentive to make an agreement) *The way in which a response to an offer is phrased can determine whether the offer is accepted or rejected*

Agreements to Agree

An agreement where the parties agree to the material terms of a contract at some future date. Modern View: These are enforceable if it is clear that the parties intended to be bound to the agreement. -Focus is on the parties' intent, rather than on the form or designation. Ex: Spouses split holidays and try to find an equal way to do it Example 2: After a person was injured on a water ride at Six Flags, SF filed a lawsuit against the manufacturer that had designed the ride. The manufacturer claimed that the parties did not have a binding contract but had only engaged in preliminary negotiations that were never formalized in a construction contract. The court held that the evidence was sufficient to show an intent to be bound. The evidence included a faxed document specifying the details of the water ride, along with the parties' subsequent actions (having begun construction and written notes on the faxed document). The manufacturer was required to provide insurance for the water ride at Six Flags. In addition, its insurer was required to defend Six Flags in the personal-injury lawsuit that arose from the incident.

Communication of Offer to Offeree

An effective offer: 1. Must be communicated to the offeree 2. By the offeror or an agent or representative of the offeror. Case Ex. 11.4: (Gyabaah v. Rivlab Transp. Co.): Adwoa Gyabaah was hit by a bus. She sued and the bus company offered $1M in full settlement of claims. Adwoa signed a release to obtain the settlement per advice by counsel. Her attorney never sent it to the bus company or its insurance company underwriting the settlement. Adwoa then changed her mind about settling. Her former attorney filed a motion to enforce the settlement so that he could receive payment for legal services. Will the "settlement" be enforced? -> The reviewing court held that there was no binding settlement agreement. The release was never delivered to Rivlab or its insurer, nor was acceptance of the settlement offer otherwise communicated to them.

Trespass to Land

Arises when a person without permission interferes with an owner's right to exclusive possession of land by: 1. Physically entering onto, above or below the land; or 2. Causes anything to enter onto the land; or 3. Remains on the land; or 4. Permits anything to remain on the land. Is actual harm to the property required? -> No, since the tort is designed to protect the right of an owner to exclusive possession. Examples: Walking or driving on another's land, shooting a gun over the land, and throwing rocks at a building that belongs to someone else, constructing a building so that part of it is on an adjoining landowner's property, refusing to leave someone's house -Before a person can be a trespasser, the real property owner (or other person in actual and exclusive possession of the property) must establish that person as a trespasser ("posted" trespass signs establish a trespasser a person who ignores these signs and enters onto the property) -If you have property, you have a right to it (have exclusive possession/authority) -Measurement of damages can determine how much money is involved in the payment/lawsuit (more damages = more payment) Ex: Neighbors suing other neighbor for second-hand smoke that gets into their apartment and child has asthma - A landowner has a duty to post a notice that guard dogs patrol the property. Also, if young children are likely to be attracted to the property by some object, such as a swimming pool and are injured, the landowner may be held liable under the attractive nuisance doctrine. An owner can normally use reasonable force to remove a trespasser from the premises—or detain the trespasser for a reasonable time—without liability for damages.

Conversion

Arises when a person without permission: 1. Deprives a true owner of the use and enjoyment of his or her personal property by 2. Taking and exercising ownership rights over the property. What is the difference between trespass to personal property and conversion? -> Conversion exercises ownership rights over the property -Trespass is interfering with property owner's rights. Conversion is when you take it and convert it to your own use (The original taking of the personal property from the owner was a trespass, and wrongfully retaining the property is conversion) -Often, when conversion occurs, a trespass to personal property also occurs What is a defense to conversion? 1. Legal Defense (export ban) Ex: Historical treasures being taken away and need an export license to take it to different countries. -Ownership rights gives you the ability to do what you want with the property (sell, lease, destroy, use, waste it), but you need justification or else it's trespassing Case Example (Welco Electronics vs. Mora): Nicholas Mora worked for Welco Electronics, Inc., but had also established his own company, AQM Supplies. Mora used Welco's credit card without permission and deposited more than $375,000 into AQM's account, which he then transferred to his personal account. Welco sued. A California court held that Mora was liable for conversion. The court reasoned that when Mora misappropriated Welco's credit card and used it, he took part of Welco's credit balance with the credit-card company. -Tort of conversion applies to intangible property!

Trespass to Personal Property

Arises when a person without permission: 1. Intentionally interferes with a property owner's right 2. To exclusive possession and enjoyment of that property. -Harm means not only destruction of the property, but also anything that diminishes its value, condition, or quality. -Involves intentional meddling with a possessory interest to take away the owner's access to property What is a defense to trespass to personal property? 1. Mechanic/Artesian Lien (fixing a car without payment allows them to take your car) Ex: Kelly takes Ryan's business law book as a practical joke and hides it so that Ryan is unable to find it for several days before the final examination. Here, Kelly has engaged in a trespass to personal property. (Kelly has also committed the tort of conversion

Disparagement of Property

Arises when a wrongdoer 1. Makes false statements about a person's product or property 2. That cause economic damages. Disparagement of Property is a general term for torts referred to as: -Slander of Quality or Trade Libel; and -Slander of Title -Cause economic damages on your ability to sell goods (boycott). Similar to defamation and hurts the company -Must show you suffered economic losses (money) Ex: Boycott for Coke where the workers protested unfair working conditions

Slander of Title

Arises when a wrongdoer makes statement to third parties that 1. Falsely deny or cast doubt upon a person's legal ownership of property, 2. Which cause economic loss to the owner -The publication of a statement that denies or casts doubt on another's legal ownership of property, causing financial loss to that property's owner. -Occurs when someone knowingly publishes an untrue statement about property with the intent of discouraging a third party from dealing with the property's owner. What is a defense to slander of title? 1. Truth Ex: Actual legal ownership to property (competitor saying not to buy cars from another dealership because they are stolen)

Comparative Negligence (4)

Both the plaintiff's and the defendant's negligence are computed, and the liability for damages is distributed accordingly. 1. Partial Comparative Negligence: -Plaintiff gets no damages if s/he is more than 50 percent liable. -A plaintiff who is 35 percent at fault could recover 65 percent of the actual damages, but a plaintiff who is 65 percent at fault could recover nothing. Ex: Tracy Morgan v. Walmart 2. Pure Comparative Negligence: -Damages for injuries are divided between plaintiff and defendant according to fault. -If a plaintiff was 80 percent at fault and the defendant 20 percent at fault, the plaintiff may recover 20 percent of the actual damages.

Forseeability

Consequences of an act (harm) are foreseeable if they are consequences that typically occur in the course of the event. -Whether an act is foreseeable is generally considered a matter of fact to be determined by the reasonable person standard. -It would be unfair to impose liability on a defendant unless the defendant's actions created a foreseeable risk of injury. Ex: Lobbed Bread Roll Lawsuit

Consideration

Consideration is some value given in exchange for a promise or performance. -Another way to check if the parties were serious about creating the contract (put money where your mouth is) -The simple fact that a party has made a promise does not necessarily mean that the promise is enforceable. •Consideration has two required elements: 1. Must have something of legal value or sufficiency; and 2. Must be a bargained-for exchange (both parties agree/offeror and offeree have mutual assent)

Function of Contract Law

Contract law is designed to provide: 1. Stability 2. Predictability 3. Certainty Why is contract law is necessary? 1. Ensure compliance with a promise 2. Entitle the innocent party to some form of relief

Contracts Contrary to Public Policy

Contracts that have a negative impact on society or interferes with the public's safety and welfare. -Business contracts that may be contrary to public policy include contracts in restraint of trade and unconscionable contracts or clauses. 1. Immoral Contracts (Mug shot being online and need to pay someone to take it down, selling a kid, prohibiting gay marriage/paying someone not to marry their daughter) 2. Restraint of Trade (contracts to set prices) 3. Unconscionable Contracts or Clauses 4. Exculpatory Clauses

Federal Law on E-Signatures and E-Documents

E-Signature: -An electronic sound, symbol or process attached to or logically associated with a record and adopted by a person with the intent to sign the record. -Include encrypted digital signatures, names (intended as signatures) at the ends of e-mail messages, and "clicks" on a Web page if the clicks include some means of identification. -Must be signed by the party which whom enforcement is for The E-Sign Act (Statute of Frauds): -No contract, record, or signature may be denied legal effect solely because it is in an electronic form. -For an e-signature to be enforceable, the contracting parties must have agreed to use electronic signatures. For an electronic document to be valid, it must be in a form that can be retained and accurately reproduced. -Contracts and documents that are exempt include court papers, divorce decrees, evictions, foreclosures, health-insurance terminations, prenuptial agreements, and wills. The Fair and Accurate Credit Transactions Act: -Protocols to prevent identity theft and protect customers' personal information. The Uniform Electronic Transactions Act: UETA removes barriers to e-commerce by giving the same legal effect to electronic records and signatures as given to paper documentation. -Covers only electronic records and electronic signatures relating to a business, commercial or governmental transaction. -Not applicable to a transaction unless both parties have agreed to conduct the transaction by electronic means. -Copies of the original document are given the same effect (old common law doctrine)

Contributory and Comparative Negligence Defenses Example

Elderly man drives 10 mph in fast lane. Minimum speed on highway is 40 mph. Sleepy driver rear-ends elderly man. -Elderly driver: 55% liable; Sleepy driver: 45% liable. Both have $100 in damages. Elderly driver sues sleepy driver and sleepy driver countersues. •Who receives the damage award under each defense? Fault ($100 each in losses): Elderly driver is 55% and Sleepy driver is 45% Contributory Negligence: No money for either PARTIAL Comparative Negligence: No money for elderly driver, but $55 from elderly driver given to sleepy driver PURE Comparative Negligence: $45 from sleepy driver given to elderly one and $55 from elderly driver given to sleepy one *Never get any money from your own harm! *Outcomes depend on what state you are in

Electronic Contract

Electronic Contracts (e-contracts) require the same four elements *(A, C, CC, L) to be enforceable. •Subject matter of e-contracts involve the sale of goods or services, and licensing arrangements. -For licensing arrangements, the offeror and offeree are known as the licensor and licensee (renter and have no ownership rights) -Use same methods as asking for contract formation and consent *Agreement, Consideration, Legality, and Contractual Capacity -Online contracts may be formed not only for the sale of goods and services, but also for licensing. The "sale" of software generally involves a license, or a right to use the software, rather than the passage of title (ownership rights) from the seller to the buyer. -Offeror and the offeree are the seller and a buyer, in many online transactions these parties would be more accurately described as a licensor and a licensee.

Online Offers

Entire contract must be available online in a readable format. -Parties reached a mutual agreement -Website should include a hypertext link to a page containing the full contract so that potential buyers are made aware of the terms to which they are assenting. At minimum, online offers must contain the following 7 provisions: 1. Acceptance of terms. "I accept" click-on button. 2. Payment provisions. 3. Return policy. 4. Disclaimers of liability for certain uses of good. 5. Limitation on remedies for defective goods or breach of contract. 6. Privacy policy regarding seller's use of information gathered from the buyer. Alternate dispute resolution policy.

Landowner's Duty of Care

Landowners are required to: 1. Exercise reasonable care 2. To protect persons coming onto their property from harm Business Owner's Duty to Warn Business Invitees (clients or customers): 1. Protect customers against foreseeable risks about which the owner knew or should have know. 2. Discover and remove any hidden dangers that might injure a customer. -Obvious risks are an exception. Case Ex. 5.23: Foster v. Costco (2012): At Costco in Nevada, Stephen Foster tripped and fell over a wooden pallet and sustained injuries. A Costco employee who was restocking the shelves had placed the pallet in the aisle without any barricades. When Foster sued Costco for negligence, Costco argued that it had not breached its duty by failing to warn customers because the pallet was open and obvious. A lower court agreed and granted a summary judgment in Costco's favor, but the Supreme Court of Nevada reversed. The court held that the open and obvious nature of a dangerous condition does not automatically relieve a business owner from the general duty of reasonable care. Every situation is different. Therefore, Foster was entitled to proceed to trial and argue that Costco should have used barricades or warnings to protect customers.

Mode and Timeliness: When Is Acceptance Effective?

Mailbox Rule: Acceptance of bilateral contract occurs when the offeree dispatches the acceptance by an authorized means of communication. -If the authorized mode of communication is the mail, then an acceptance becomes valid when it is dispatched (placed in the control of the U.S. Postal Service)—not when it is received by the offeror. -Mailbox Rule is inapplicable to instantaneous forms of communication (email, phone, face to face) 1. Is the acceptance effective, even if it is lost in the mail? -> Yes 2. How can businesses protect themselves from the risk of lost acceptances? -> Change what it means to dispatch (claim it once received by office) 3. When is acceptance effective if an unauthorized means of communication is used? -> When offeror receives it -Acceptance by a substitute method is not effective on dispatch, though. No contract will be formed until the acceptance is received by the offeror. -Duties/burdens are effective when contract is effective (timing/date is important) -Dispatched does not mean received Ex: Motorola Mobility, Inc., offers to sell 144 Moto G8 Power smartphones to Call Me Plus phone stores. The offer states that Call Me Plus must accept the offer via FedEx overnight delivery. The acceptance is effective (and a binding contract is formed) the moment that Call Me Plus gives the overnight envelope containing the acceptance to the FedEx driver.

Injury to the Plaintiff (Negligence Element)

May the plaintiff recover money damages if the plaintiff did not suffer any loss, harm, wrong or invasion of a protected interest? -> No, because tort law does not exist if there is no loss/harm (must prove it) Suppose 2 women injure their hands when a train door malfunctions. First woman is a surgeon. Second woman is a teacher. Do they each receive the same amount of damages? -> They won't because their economic losses are different (they aren't working for certain period of time, economic opportunity may be loss)

Fraudulent Misrepresentation

Misrepresentation has occurred when: 1. Wrongdoer made false statement of material fact. 2. Wrongdoer intended to deceive innocent party. 3. Innocent party justifiably relied on misrepresentation in making the contract. 4. For damages, innocent party must show some injury -Not getting what you bargained for -When an innocent party is fraudulently induced to enter into a contract, the contract usually can be avoided because that party has not voluntarily consented to the terms. -The person making a fraudulent misrepresentation knows or believes that the assertion is false or knows that there is no basis (stated or implied) for the assertion. Ex: Making a weasel look like a dog to sell Case Ex: Allstate Insurance issued a policy to McCullough insuring his truck. McCullough loaned the truck to an acquaintance, who returned it damaged. McCullough filed a claim on the policy. Allstate treated the claim as involving multiple different claims (each with a $250 deductible). Allstate also reported these claims to an insurance exchange, Verisk Analytics Automobile Property Loss Underwriting Service (A-PLUS). Contending that the damage had resulted from only one claim, McCullough filed a suit in a federal district court against Allstate. The insurer agreed to settle the suit for $8,000. McCullough agreed to this amount, but only if Allstate corrected the report to reflect that he was making only one insurance claim and that Allstate paid nothing on that claim. (McCullough did not feel that the $8,000 was a payment for the damage to his truck.) Allstate's lawyer sent McCullough an e-mail agreeing to these terms, but the promise was not included in the release and settlement agreement that the parties signed. The release had a merger clause saying that there were no other agreements, verbal or otherwise, between the parties except as set forth in the contract. Later, McCullough learned that Allstate had reported to A-PLUS that it had paid $8,000 to him on his claim. He filed a suit in an Alabama state court against Allstate, seeking damages for fraud. Both parties filed motions for summary judgment. The court granted Allstate's motion and denied McCullough's. McCullough appealed. -McCullough should be allowed to present evidence that the release was procured by fraud -A state intermediate appellate court reversed the lower court's summary judgment in favor of Allstate, affirmed the court's denial of McCullough's motion for summary judgment, and remanded the case. Genuine issues of material fact precluded summary judgment on McCullough's claim for fraud. -Allstate argued that McCullough's claim was barred by a merger clause in the release. The appellate court pointed out that under Alabama state law, a merger clause does not bar evidence of fraud in the inducement of a contract. "To hold otherwise is to encourage deliberate fraud." Thus, Allstate's motion for summary judgment should not have been granted.

Material Fact Misrepresentation (1st Element)

Misrepresentation of material fact may occur by words or action. 1. Where a party takes specific action to conceal a fact that is material to the contract. (Making a rodent look like a dog) 2. Where a naïve party relies upon the opinion of learned party (expert). -Expert gives opinion and if they are wrong, it is material misrepresentation -Sellers are allowed to use puffery to sell their goods without being liable for fraud. Nevertheless, in certain situations, such as when a naïve purchaser relies on an opinion from an expert, the innocent party may be entitled to rescission or reformation. Ex: "This land will be worth twice as much next year" and "This car will last for years and years" 3. Where the misrepresenting party is a professional required to have greater knowledge of the law. -Professional must be careful and tell them if they cannot give an accurate answer (if they lie, it is negligence) -Exceptions to this rule occur when the misrepresenting party is in a profession known to require greater knowledge of the law than the average citizen possesses. For instance, if Cameron, in Example 13.6, had been a lawyer or a real estate broker, her willful misrepresentation of the area's zoning laws probably would have constituted fraud. Ex: Cameron has a parcel of property that she is trying to sell to Levi. Cameron knows that a local ordinance prohibits building anything higher than three stories on the property. Nonetheless, she tells Levi, "You can build a condominium one hundred stories high if you want to." Levi buys the land and later discovers that Cameron's statement is false. Levi generally cannot avoid the contract, because under the common law, people are assumed to know state and local laws. 4. Where the misrepresenting party is silent and the defect is latent (hidden), or the silent party owes a fiduciary duty to disclose material facts. -if the seller knows of a serious potential problem that the buyer cannot reasonably be expected to discover, the seller may have a duty to speak. -Having lead paint in a house and not telling buyer (must disclose if there is lead paint or other dangers) Ex: Jude is selling a car that has been in an accident and has been repaired. He does not need to volunteer this information to a potential buyer. If, however, the buyer asks him if the car has had extensive bodywork and he lies, Jude has committed fraudulent misrepresentation. Ex: Actor Tom Selleck contracted to purchase a horse named Zorro for his daughter from Dolores Cuenca. Cuenca acted as though Zorro were fit to ride in competitions, when in reality the horse was unfit for this use because of a medical condition. Selleck filed a lawsuit against Cuenca for wrongfully concealing the horse's condition, and a jury awarded Selleck more than $187,000 for Cuenca's misrepresentation by conduct

Bilateral (Mutual) Mistakes of Fact

Mutual (Bilateral) Mistake of Fact: A mistake made by both parties concerning a material fact that is important to the subject matter of the contract. -Either party may cancel or rescind a contract due to mutual mistakes of material fact. -When both parties are mistaken about the same material fact, the contract can be rescinded, or canceled, by either party, although it is usually the adversely affected party that takes that step. -Courts prefer to reform the contract, to restore the original goals of the parties. -Fact must be integral to the bargain and be about a material fact -If the parties to the contract attach materially different meanings to the term, their mutual misunderstanding may allow the contract to be rescinded or reformed. Ex: Sold fake whiskey and had to give man money back Ex: Jason Allen was injured in a work-related automobile accident. Allen's employer had workers' compensation insurance with Accident Fund Insurance Company of America. After a series of disputes and negotiations, Allen and Accident Fund entered into a voluntary payment agreement (VPA) under which the insurance company consented to pay Allen $264.53 per week for 54.2 weeks. Neither side noticed, however, that the arithmetic of the VPA was wrong. Accident Fund should have been paying Allen $264.53 per week for 131.7 weeks, not 54.2 weeks. A Michigan appellate court found that the faulty calculations had escaped the notice of both parties. To correct this bilateral mistake, the court ordered that the VPA be reformed with the correct figures, reflecting the intentions of Allen and Accident Fund at the time of their agreement. Ex 2: Beth cleans out grandma's attic and finds this silkscreen print. Susie has an ad seeking a Marilyn Warhol print. Beth believes that it is a Warhol print and sells it to Susie for $200,000, which is the value of a genuine Warhol print. Susie has print appraised for insurance and finds out that it is a clever fake. May Susie cancel the sale and recover the contract price? -> Yes

Determining Intent: What is the Objective Theory of Contracts?

Objective Theory of Contracts: -Intent to contract (offeror's serious intentions) is judged by the reasonable person standard. -Fails with it being a valid offer and object of the contract would not be legal. Ex: Buy Pepsi, get stuff (Pepsi is not actually offering a jet and normal person understands that, but if taken literally, you won't get the jet) What is the reasonable person standard? -> If a stranger to the contract hears the offeror and offeree intentions/eavesdropped, the contract will seem legit (what a reasonable person in the offeree's position would conclude that the offeror's words and actions meant) -Intent to be bound by a contract is NOT judged by the subjective intent of the parties. Example (Case 11.1 Lucy v. Zehmer): Lucy and Zehmer had known each other for fifteen years. For some time, Lucy had wanted to buy Zehmer's farm, but Zehmer had always said that he was not interested in selling. One night, Lucy stopped in to visit with the Zehmers at a restaurant they operated. Lucy said to Zehmer, "I bet you wouldn't take $50,000 for that place." Zehmer replied, "Yes, I would, too; you wouldn't give fifty." Throughout the evening, the conversation returned to the sale of the farm. All the while, the parties were drinking whiskey. Eventually, Zehmer wrote up an agreement on the back of a restaurant check for the sale of the farm, and he asked his wife, Ida, to sign it—which she did. When Lucy brought an action in a Virginia state court to enforce the agreement, Zehmer argued that he had been "high as a Georgia pine" at the time and that the offer had been made in jest: "two doggoned drunks bluffing to see who could talk the biggest and say the most." Lucy claimed that he had not been intoxicated and did not think Zehmer had been, either, given the way Zehmer handled the transaction. The trial court ruled in favor of the Zehmers, and Lucy appealed. -The agreement met the serious-intent requirement despite the claim of intoxication and the agreement to sell the farm was binding -The appearance and completeness of the agreement, and the signing all tended to show that a serious business transaction, not a casual jest -Remedy of specific performance = Do what you promised to do -Can only enforce a contract that involves land if it is in writing

Mistakes

Occurs when one or both parties have an erroneous belief about: 1. the subject matter; 2. value; or 3. some other aspect of the contract. •Mistakes may be either unilateral (One party makes mistake) or bilateral (Multiple parties make mistake) •Mistakes are categorized as either mistakes of fact, or mistakes of value. -Value does not give relief, but fact does -Mistakes must be material (important) to contract matter *Only a mistake of fact makes a contract voidable. Also, the mistake must involve some material fact—a fact that a reasonable person would consider important when determining a course of action.

Undue Influence

Occurs when one person (dominant) takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person (servient) to enter into a contract. -One party can greatly influence another party, thus overcoming that party's free will. •Contract is voidable by innocent party. Elements: 1. Confidential or fiduciary relationship between parties. -The party being taken advantage of does not exercise free will in entering into a contract. It is not enough that a person is elderly or suffers from some mental or physical impairment. There must be clear and convincing evidence that the person did not act with free will. Ex: Attorney-client, physician-patient, guardian-ward, parent-child, husband-wife, and trustee-beneficiary. 2. The dominant party must have unduly used her/his influence to persuade the servient party to enter into a contract. What is the Presumption of Undue Influence? -> -The dominant party in a fiduciary relationship must exercise the utmost good faith in dealing with the other party. When the dominant party benefits from the relationship, a presumption of undue influence may arise. Thus, when a contract enriches the dominant party in a fiduciary relationship, the court will often presume that the contract was made under undue influence. Ex: Attorney representing someone in a conservatorship cannot tell them/conservatee to sell you stuff, client wanting to give you lawyer money in their will is not allowed (find another lawyer) Ex 2: Erik is the guardian for Kinsley, his ward. On her behalf, he enters into a contract from which he benefits financially. If Kinsley challenges the contract, the court will likely presume that the guardian has taken advantage of his ward. To rebut (refute) this presumption, Erik has to show that he made full disclosure to Kinsley and that consideration was present. He must also show that Kinsley received, if available, independent and competent advice before completing the transaction. Unless the presumption can be rebutted, the contract will be rescinded.

Unilateral Mistakes

Occurs when only one party is mistaken about a material fact regarding the subject matter of the contract. -A unilateral mistake does not give the mistaken party any right to relief from the contract. In other words, the contract normally is enforceable against the mistaken party. •What are material facts? -> A fact that a reasonable person would consider important when determining a course of action. -May the mistaken party cancel a contract due to unilateral mistakes of material fact? -> NO unless you meet exceptions Ex: Elena intends to sell her jet ski for $2,500. When she learns that Chin is interested in buying a used jet ski, she sends him an e-mail offering to sell the jet ski to him. When typing the e-mail, however, she mistakenly keys in the price of $1,500. Chin immediately sends Elena an e-mail reply accepting her offer. Even though Elena intended to sell her jet ski for $2,500, she has made a unilateral mistake and is bound by the contract to sell it to Chin for $1,500. When May Contracts be Rescinded? -General Rule: Unilateral mistakes are not grounds to cancel contract. -Two Exceptions to Rule: 1. Non-mistaken party to the contract knows or should have known that a mistake of fact was made OR 2. If mistake was due to a substantial mathematical mistake and was made inadvertently and without gross negligence (computational error) Ex: Man buying 1,000 chickens on accident since ad was unclear; a contractor's bid was significantly low because of a mistake in totaling the estimated costs, any contract resulting from the bid normally may be rescinded. Ex 2: Bart wants to buy a car with automatic transmission. He looks at several models but does not tell salesperson of his preference of an automatic rather than a manual transmission. Bart buys a model that he believes has his preference, but it does not. May Bart cancel the contract? -> No (never told salesperson) Ex 3: Honda salesman advertises car for $19,000. Sends Bart an e-mail offering to sell the car for $17,000. Bart agrees to price via e-mail. Next day, Bart signs a contract with a sales price of $17,000. Is the contract for $17,000 enforceable? -> Yes (negotiated) Ex 4: Honda salesman offers to sell Bart a car for $19,000. Bart agrees to buy car for $19,000 via e-mail. Next day, Bart signs a sales agreement with a price of $18,000. Is the contract for $18,000 enforceable? -> No (computational error and writing must match agreement). Not even a contract

Preliminary Agreements

Preliminary agreement is a binding contract if the parties have agreed on all essential terms and no disputed issues remain to be resolved. •No binding contract where the parties agree on certain major terms, but leave other terms open for future negotiations. •The parties have only committed themselves to negotiate the remaining terms in good faith towards reaching a binding contract. -If the parties agree on certain major terms but leave other terms open for further negotiation, a preliminary agreement is binding only in the sense that the parties have committed themselves to negotiate the undecided terms in good faith in an effort to reach a final agreement. Ex: Strikes and getting people back to work -Collected party agreement is when management signs it Case Ex (Basis Technology Corp. v. Amazon.com Inc.): Basis Technology Corporation created software and provided technical services for a Japanese-language website operated by Amazon. The agreement between the two companies allowed for separately negotiated contracts for additional services that Basis might provide to Amazon. Later, Basis sued Amazon for various claims, including failure to pay for services not included in the original agreement. During the trial, the two parties appeared to reach an agreement to settle out of court via a series of e-mail exchanges outlining the settlement. When Amazon reneged, Basis served a motion to enforce the proposed settlement. The trial judge entered a judgment against Amazon, which appealed. -The agreement that Amazon entered into with Basis via e-mail did constitute a binding settlement contract. Amazon intended to be bound by the terms of the e-mail exchanges.

Superseding Intervening Cause (2)

Superseding Cause: 1.) An unforeseeable, intervening event that occurs after the defendant's or wrongdoer's act that 2.) Breaks the causal connection between the defendant's act and the plaintiff's injury. -Relieves a defendant of liability for injuries caused by the intervening event. •Defendant not liable for injuries caused by a superseding, intervening event for which s/he is not responsible. •Is the defendant liable to plaintiff if an intervening act was foreseeable? -> Yes (reasonable people diminish risk of harm) Ex: Derrick rides bike on sidewalk and hits Julie. Julie breaks ankle. While waiting for ambulance, an airplane crashes nearby. Julie is also burnt. •Is Derrick liable for ankle? -Yes (against the rules) •Is Derrick liable for burns? -No (not foreseeable) Now, Derrick rides bike on sidewalk and hits Julie. Julie breaks ankle. While waiting for ambulance, car splashes her with water. Julie suffers frostbite and loses a toe. •Is Derrick liable for ankle? -Yes •Is Derrick liable for toe? -Maybe

Objective Theory of Contracts

The view that contracting parties shall be bound only by terms that can be objectively inferred from promises made. •Courts focus on the intent of the parties in determining whether a contract has been formed. •A party's intent is judged by outward (not hidden), objective facts as interpreted by a reasonable person. -The party's secret and subjective intentions are not important. •What are objective facts? 1. What the party said when entering into the contract. 2. How the party acted or appeared. 3. The circumstances surrounding the transaction. Case Ex. 10.1 Leaf Invenergy Co. v. Invenergy Renewables LLC (2019): The Leaf Clean Energy Company invested $30 million with Invenergy Wind, a wind energy developer. The investment contract prohibited Invenergy from conducting a "Material Partial Sale" without Leaf's consent. If such a sale occurred, Invenergy was required to pay Leaf a penalty. After Invenergy concluded a $1.8 billion "Material Partial Sale" without Leaf's consent, the investment company sued to obtain its penalty under the contract, which was about $126 million. A lower court agreed that Invenergy had breached the contract but awarded Leaf only one dollar in damages. The court reasoned that, under the terms of the agreement, if Leaf had been notified and agreed to the sale, Leaf would not have received any payment. (That is, Leaf was entitled to a penalty only if Invenergy breached the contract.) It would have been unfair for Leaf to gain such a large amount when it had not suffered any actual harm. Applying the objective theory of contracts, the Delaware Supreme Court reversed and ordered Invenergy to pay Leaf the $126 million. The appellate court scolded the lower court for ignoring the "clear and unambiguous" terms of the contract, which were designed to prevent Invenergy from making any major financial decisions without Leaf's consent.

Contracts in Restraint of Trade

These contracts (anticompetitive agreements) are generally unenforceable because they are contrary to public policy. -Violate one or more federal or state antitrust laws -Cannot be permanent, subject to specific geographic area -Look for time and geographic location •Exceptions: 1. Covenants not to Compete and the Sale of an Ongoing Business (make sure it is not overly broad) -A covenant not to compete may be created when a merchant who sells a store agrees not to open a new store in a certain geographic area surrounding the old store. Such an agreement enables the seller to sell, and the purchaser to buy, the goodwill and reputation of an ongoing business without having to worry that the seller will open a competing business a block away. 2. Covenants not to Compete in Employment Contracts -People in middle-level and upper-level management positions commonly agree not to work for competitors and not to start a competing business for a specified period of time after terminating employment. Case Ex: Patricia Kennedy worked as a master barber for The Shave, a barbershop in the Virginia-Highland neighborhood of Atlanta, Georgia. Under the terms of her employment contract, Kennedy agreed that, after leaving her employment, she would not work in the men's grooming industry "within a three (3) mile radius of any SHAVE location" for two years and would not solicit customers of The Shave for one year. Less than a month after quitting her position, Kennedy opened a new salon, "PK Does Hair," two miles from The Shave. She solicited customers through social media accounts on which she posted photos originally posted on social media by The Shave. The Shave filed a suit in a Georgia state court against Kennedy, alleging a breach of the noncompete provision of her employment contract. Kennedy argued that the geographic restriction in the noncompete provision was "unreasonable and uncertain." The court limited the geographic scope of the provision to a three-mile radius of The Shave's current location and issued an injunction in The Shave's favor. Kennedy appealed. -The court's reformation of the geographic scope of the noncompete provision was reasonable -Kennedy is in violation of . . . the restrictive covenants which where specifically designed to protect The Shave from competition from its former employees and loss of its client base. Therefore, the trial court did not err in finding the non-compete enforceable against Kennedy and in granting [an injunction] on this ground. -The Shave had a legitimate business interest in protecting itself from the risk that Kennedy might appropriate customers by taking advantage of the contacts developed while she worked at The Shave.

Legally Sufficient Value

To matter, the consideration at issue must be something of legal value given in return for: 1. A promise to do something that one has no prior legal duty to perform; Example: Selling a car 2. The performance of an action (service) one is not otherwise obligated to undertake; or Example: Providing accounting services 3. The refraining from an action one has a legal right in which to engage (forbearance). Example: Girl deletes Facebook to get $50 from her dad -Bargain for exchange can be unique and geared towards interested parties Case Ex: Hamer (assignee) v. Sidway (assignor): The issue arose from a contract created between William Story and his nephew, William Story II. The uncle promised his nephew that if the nephew refrained from drinking alcohol, using tobacco, and playing billiards and cards for money until he reached the age of twenty-one, the uncle would pay him $5,000. The nephew, who indulged occasionally in all of these "vices," agreed to refrain from them and did so for the next six years. Following his twenty-first birthday in 1875, the nephew wrote to his uncle that he had performed his part of the bargain and was thus entitled to the promised $5,000 (plus interest). A few days later, the uncle wrote the nephew a letter stating, "[Y]ou shall have the five thousand dollars, as I promised you." The uncle said that the money was in the bank and that the nephew could "consider this money on interest." The nephew left the money in the care of his uncle, who held it for the next twelve years. When the uncle died, the executor of the uncle's estate refused to pay the $5,000 (plus interest) claim brought by Hamer, a third party to whom the promise had been assigned. (The law allows parties to assign, or transfer, rights in contracts to third parties.) The executor, Sidway, contended that the contract was invalid because there was insufficient consideration to support it. The uncle had received nothing, and the nephew had actually benefited by fulfilling the uncle's wishes. Therefore, no contract existed. Although a lower court upheld Sidway's position, the New York Court of Appeals reversed and ruled in favor of the plaintiff, Hamer. "The promisee used tobacco, occasionally drank liquor, and he had a legal right to do so," the court stated. "That right he abandoned for a period of years upon the strength of the promise of the testator [one who makes a will] that for such forbearance he would give him $5,000. We need not speculate on the effort which may have been required to give up the use of those stimulants. It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle's agreement."

Elements of an Agreement

•Agreement requires both offer and acceptance! -Parties must show mutual assent to terms of contract. •Once an agreement is reached, a valid contract is formed, IF the other elements of a contract are present. -Other elements are (Consideration; Contractual Capacity; and Lawful Objective).

Intoxication

•Contract can be either voidable or valid (enforceable). -Voidable only if person was so intoxicated when the contract was entered into that s/he was incapable of understanding the nature of the transaction. -The intoxicated person has the option of disaffirming the contract while intoxicated or for a reasonable time after becoming sober. If, despite intoxication, the person understood the legal consequences of the agreement, the contract is enforceable. -Courts look at objective indications to determine if contract is voidable. -What are they? -> Negotiating the terms of the contract, committing it to writing -It is difficult to prove that a person's judgment was so severely impaired that the person could not comprehend the legal consequences of entering into a contract. Therefore, courts rarely permit contracts to be avoided due to intoxication. •If voidable: 1. Person has the option to disaffirm, or 2. Person may ratify the contract expressly or impliedly, after becoming sober.

Communication of Acceptance

•For which type of contract must the offeror be notified of the offeree's acceptance? 1. Bilateral contract? -> Notify by 2 promises -Communication of acceptance is necessary, because acceptance is in the form of a promise. -Formed when the promise is made rather than when the act is performed. -"Promise for a promise" 2. Unilateral contract? -> Only accept by performing (lotteries and rewards) -The full performance of some act is called for. Acceptance is usually evident, and notification is therefore unnecessary -Performance for a promise •When is communication not necessary? -> If unilateral or because the offer dispenses without requirement

Revocation

•The offeror's withdrawal of a contract offer, which can be revoked at any time before acceptance without liability. -Must be communicated to the offeree before the offeree accepts. -Only can be done by the offeror -Can engage in it expressively (clear communication/words) or impliedly (actions/conduct) -Do this before offeree accepts contract! *Exception: Irrevocable Offers -When the offeree has changed position because of justifiable reliance on the offer (promissory estoppel) -> A remedy in equity to prevent unjust enrichment -Opinion Contract is made when an offeror promises to hold an offer open for a specified period of time in return for a payment (consideration) given by the offeree. An option contract takes away the offeror's power to revoke an offer for the period of time specified in the option (used in real estate). Revocation may be accomplished by either of the following: 1. Express repudiation of the offer (such as "I withdraw my previous offer of October 17"). 2. Performance of acts that are inconsistent with the existence of the offer and are made known to the offeree (for instance, selling the offered property to another person in the offeree's presence). Ex: A revocation becomes effective when the offeree or the offeree's agent (a person acting on behalf of the offeree) actually receives it. Therefore, a statement of revocation sent via FedEx on April 1 and delivered at the offeree's residence or place of business on April 2 becomes effective on April 2. Ex 2: Tyler agrees to lease a house from Jackson, the property owner. The lease contract includes a clause stating that Tyler is paying an additional $15,000 for an option to purchase the property within a specified period of time at a specified price. If Tyler decides not to purchase the house after the specified period has lapsed, he loses the $15,000, and Jackson is free to sell the property to another buyer.