Business Law: Contract Law

Performance

Contracts are entered into to induce parties to perform

Reliance

protects people who rely on the other people's promises i. Promise causes people to do something that they would not have done, but for the promise ii. Protects people when promise is made and people do something that they would not be obligated to do

Compensatory damages

seeks to make the wronged party whole 1. Make the innocent party whole (ie hurt in car accident and must fix car- puts you in position you would be in if nothing had happened) 2. Focuses on the innocent party

Force Majeure Clause

Act of God, unforseen

Elements of a valid and enforceable contracts are met but... "minds don't really meet" due to

Mistakes of fact Mistakes of value Fraudulent Misrepresentation Undue Influence Duress Arbitration clause

Third party rights

The rule of privity: The doctrine of privity in the common law of contract provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such. However, the doctrine has proven problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties. If a third party gets a benefit under a contract, it does not have the right to go against the parties to the contract beyond its entitlement to a benefit. An example of this occurs when a manufacturer sells a product to a distributor and the distributor sells the product to a retailer. The retailer then sells the product to a consumer. There is no privity of contract between the manufacturer and the consumer.

Offer and Acceptance

a contract arises from offer and acceptance, and must be sufficiently definite so that the performance to be rendered by each party can be ascertained with reasonable certainty. Therefore parties create and enforceable contract when they agree on its essential terms and manifest an intent that the terms bind them. If parties to an agreement do not agree on one or more essential terms of the purported agreement, courts generally hold it to be unenforceable.

Bilateral contract

a promise for a promise 1. not legally obligated to provide promise, but someone seeks to do

Contracts of Adhesion

valid and enforceable 1. Enterprise-rent-a car- very time efficient instead of sitting down with each other to go over 2. However factually dependent 3. Procedural- written in 4pt font 4. Substantive- if dent then must pay 1 mil b. substantive- what does it say-is it grossly unequal i. levels of contract is tilted heavily and very unfair it is considerate substantively unconscionable c. contracts that are so one sided = very unfair

Contract Requirements

(can be oral or written) i. Offer ii. Consideration iii. Legality iv. Acceptance v. Capacity

E-Contracts

1. "A contract is no less a contract simply because it is entered into via computer" a. All general contract rules apply to e-contracts

Unconscionable contracts

1. "shock the conscience" a. procedural- how did this agreement come to be entered into i. contains lots of legal terms and buzz words that the average person wouldn't know

Mistakes of fact

1. Bilateral= both make mistake a. Courts are sympathetic too b. Can be rescinded/revoke contract 2. Unilateral= enforceable unless a. Knew or shave have known- other contracting party new the other was mistaken b. Obvious, ascertainable error

Mistakes of value

1. Enforceable a. Courts not sympathetic at all that the item being sold turns out to be more valuable years later and wants more money for it b. Opinion based mistake

Implied in-fact contract

3 Elements: plaintiff furnished some service or property, plaintiff expected to be paid and defendant knew/should of known it was expected, defendant had a chance to reject and did not

Agreements that lack consideration (none are legally sufficient)

1. Pre-existing duty- may be imposed bt law or may arise out of a previous contract a. Additional request cannot be supported by consideration 2. Past consideration- you can bargain for something to take place now or in the future, but not for something that has already taken place (Blackmen v Iverson pg 255) 3. Illusory promises- qualified promise= not an absolute a. Not definitely promised to do anything b. Contingent upon a discretionary act

Undue influence

1. Special relationships- ordinarily in elderly will situations a. Minors b. Vulnerable people (elderly, challenged) 2. Presumptions- person of superior authority must convince there was not undue influence

Duress

1. Threat must be wrongful or illegal- coarse a. Contracting party makes an extortionist demand b. Making a threat of a lawsuit is NOT duress

Covenants not to compete

1. sale of business a. Sellers covenant not to compete. Seller agrees that for a period of (number) years from the data of this instrument, seller will not directly or indirectly, either as principal, partner, agent, manager, employee, stockholder, director, officer, or in any other capacity, engage or be interested in the conduct of the business of (nature of business) within a radius of (number) miles from (city) 2. Employment context a. Why- employers have confidential info, client lists, and customer lists i. Employers/companies legitimate expectation that confidential info is actually and will remain confidential ii. Don't want employers investment in employees to just walk out the door iii. Employees have interests in themselves b. Find balance- courts try to balance employers and employees interests 3. Factors- are very factually dependent a. Necessary for employer's protection (does employee have access to confidential info- the higher ranking the employee the more access to confidential info and also has lots more customer contact) b. Reasonable time period- to protect employer and also allow employee to make a living so usually 1-3 years is upheld c. Unreasonable to the employee- depends on skills, abilities, experience d. Unreasonable to the general public i. Does not apply to lawyers and physicians ii. Everyone has a legal right to these services

Exculpatory Clause

Provision in a contract under which (1) one party is relieved of any blame or liability arising from the other party's wrongdoing, or (2) one party (usually the one which drafted the agreement) is freed of all liability arising out of performance of that contract. For example, a dry cleaner's receipt that includes a disclaimer freeing him or her from any liability for damage to the item to be cleaned during the dry cleaning process. An exculpatory clause may be overruled by courts if found to be unreasonable in the circumstances. Factors i. Clear, conspicuous language makes them enforceable ii. Negligence- protected from if did everything they could do for precautionary measures iii. Reckless and intentional- not protected against these iv. Usually voluntary pursuits ( going bungee jumping, checking coats) i. Checking coat and they loose it ii. Dry cleaners ruin clothing iii. Both are not held liable

Acceptance

a. "mirror image" rule- acceptance must be mirror image of the offer- can't inject something new without adjusting offer (counter offer) b. silence- can't impose acceptance if offeree remain silent- unless know something is wrong and you just stand and watch It happen (ie installing sprinkler system in wrong lawn and you watch them put it in your lawn instead and don't say anything) c. communication-must be communicated by offeror to offeree d. timeliness and mode (when not dealing with face to face) i. mailbox rule- offeree will be deemed to accept the offer once the document is put in the mailbox, not when received by offeror a few days later

Effect of legality

a. "to bad, so sad"/hands off b. a court will leave two parties that enter into an illegal contract to themselves- the hands off approach c. Blue pencil rule: if a contract is void for a public policy reason for one clause it can be crossed out and modified to be made legal (ie. Duration clause of covenant not to compete is unreasonable so a court can strike it out and modify to make it legal) d. Severable/divisible i. A court can sever the bad clause and still keep the underlying agreement valid and enforceable

Third Party Beneficiaries

a. A party may directly enforce that contract as a third party beneficiary if (1) the parties inted to benefit the 3rd party (2) the contract imposes a duty on one of the parties in favor of the 3rd party (3) the performance of the terms of the contract lenders a direct benefit to the 3rd party b. Intended beneficiary i. Legal right to enforce the contract, at least when right vest c. Incidental beneficiary- just because you are affected doesn't mean that you are an intended beneficiary i. No legal right to enforce the contract

Third Party Rights

a. A party who did not actually sign the contract has responsibilities that they can be sued over the contract

Certain and Definite terms

a. Need these so a court can interpret a contract i. Who ii. What- subject matter iii. How much iv. When

Agreement

a. Not necessarily needed to be in writing b. Offer + acceptance = agreement c. Offer elements: i. Intention: need objective evidence that the offer was made under serious intention ii. Certain or definite terms iii. Communication iv. Things said in jest, joke, frustrated comments don't usually legally make an offer v. " reasonable person" would view as not a serious intention to make an offer- then it isn't an offer

Contract interpretations

a. Objective theory of contracts i. A judge cannot get inside mind of parties so court analyzes under what a reasonable person would do b. Plain meaning rule- "four corners" i. If a contract is clear and has all required issues, and all express- court will only look in document to make decision c. Extrinsic evidence i. If contract is unclean/ ambiguous then must look at outside evidence d. Others- Contracts of Adhesion( no bargaining- take it or leave it) i. Ambiguities construed against drafter= ambiguous in key pt is the drafters fault ii. Trade usage - must be in common terms ( plain language unless work in specific trade) iii. Course of dealing - what had been ongoing- 2 parties doing something on a regular basis and not a problem until...

Forum Selection Clause

a. more efficient way for a business to handle legal disputes- often inserted into contract b. if ever a dispute regarding agreement, you will only bring suit in a specific state

Express contract

all items are clearly stated with nothing left to the imagination

Capacity (essential element)

assumed to exist in all cases except... a. Minors (under 18) b. Intoxication c. Mental incompetence

Legality

cannot be against the law or against public policy a. Contrary to statue b. Contrary to public policy i. Covenants not to compete ii. Unconscionable contracts c. Effect of legality d. Contrary to statue i. Cant enter into a contract that is for an illegal purpose (ie insider trading, gambling in most states, extremely high interest rates) e. Contrary to public policy- 3 situations in which a contract my be void due to conflicting with public policy

Capacity

doesn't often apply in business world i. Intoxication ii. Minors

Class actions

i. A group of people come together to sue, usually a company. The class members need to be "similarly situated" suing a company for harm 1. Happens a lot in pharmaceutical companies- instead of 1000 lawsuits over the same thing these plaintiffs become a part of a single group -class action 2. usually a lone individual wont take legal action, but if thousands of people were taken advantage of the law provides a mechanism for "similarly situated" clients harmed, usually harmed in a small way to take action against a company.

"Perhaps" an offer

i. Agreements to agree- if written might be held as valid offer ii. Advertisements- (ie reward for lost dog) g. Advertisments are usually not considered offers they invite offers i. Responses to advertisements are not acceptances- they are offers

Forum Selection Clause

i. Contract drafter is just saying you agree to sue in a specific location (ie San Francisco)

Oral v. Written

i. Contracts don't have to be in writing ( there are exceptions) 1. Bilateral and unilateral contracts do not have to be in writing ii. However in risk management in business written contracts can help validate claims and outsiders know meaning of contract

Assignment

i. Effect of assignment ii. Form iii. Prohibitions against assignment 1. Anti- assignment clause or statutes against assignments 2. Neither party may assign, directly or indirectly, all or part of its rights or obligations under this agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. iv. Notice v. In case of buying a car- may assign an outside lending firm in charge or payment plan. If buyer fails to pay the third party lender has rights to sue

Delegation

i. Effect of delegation ii. A delegator is still on the hook even if responsibility has been given to a delegatee. iii. Assignments= talks about RIGHTS and the assignor is out of the picture iv. Delegation= talks about DUTIES which doesn't relieve delegator of legal exposure

Fraudulent Misrepresentation

i. Elements 1. Misrepresentation of material fact a. Words, conduct, concealment (law and science) i. Concealing a material fact, important info b. Must be fact, not an opinion or prediction c. Puffer-"world's best hamburger"- statement of opinion 2. Intent to deceive- party making misrepresentation intends you to rely 3. Reliance on misrepresentation by other innocent party

Executed v Executor

i. Executed= contract was 100% performed and nothing else needs to be done ii. Executor= still have time for performance-ongoing-not completed yet

Consent

i. Freely and voluntarily entered into contract 1. Cannot be forced- taken advantage of (is elderly and their wills)

Browse- wrap agreements

i. Holds browser of the internet site to terms and conditions at the bottom of the page ii. Don't rely on browse wrap agreement as click wrap 1. With click wrap users must take affirmative steps to accept agreement= click wrap agreements are more easily enforceable than browse wrap- you can claim that you didn't see the browse wrap one and that makes them more difficult to enforce.

Legality

i. Illegal contracts are not valid or enforceable

Breach

i. Issues, damages, limits on non breaching parties contractual damages ii. Contracts are all about promises- don't make a promise you can't keep is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance. If the party does not fulfill hju is contractual promise, or has given information to the other party that he will not perform his duty as mentioned in the contract or if by his action and conduct he seems to be unable to perform the contract, he is said to breach the contract.

Common law

i. Judge made law that has withstood the test of time that now stands as precedent (English Contract Law)

Capacity

i. Mentally capable ii. Legally capable (ie minors cannot enter into contracts) iii. Not under influence (drugs, alcohol)

Quasi Contracts

i. Not an actual contract ii. Court pretend there is one iii. To provide: 1. Fairness 2. Prevent unjust enrichment ( you knew and didn't say anything- but is you had no way to stop enrichment then the party cannot be bound) 3. Quantum Meruit- " as much as he or she deserve" a. Essentially describes the extent of compensation owed under a contract implied in law 4. Limits a. The person that was enriched...what was their knowledge- were they the intended beneficiary

Offers are not...

i. Opinions/puffery- especially in the sales and marketing world ii. Statements of future intentions ( may be interested in but they are not binding) iii. Preliminary negotiations

Arbitration Clause

i. Requires a person to forgo some legal rights a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process. Although such a clause may or may not specify that arbitration occur within a specific jurisdiction, it always binds the parties to a type of resolution outside of the courts, and is therefore considered a kind of forum selection clause.

Termination of the offer (by action of parties)

i. Revocation- take back before accepted/ performed 1. Detrimental reliance- someone is relying on it to his or her detriment: Induces you to do something and you rely on it 2. Partial performance- can't revoke offer if in performance ii. Rejection- offeree doesn't want it therefore terminated iii. Counter offer 1. The offeror and offeree switch positions 2. Happens often in real estate a. (ie list price- offer lower by offeree and so becomes offeror to the original home owner- the goes back and forth between who is making the offer and who is rejecting or accepting it)

Rule of privity

ordinarily it is only the contracting parties that have rights and liabilities under the contract- the exception is third party rights-the doctrine of privity in the common law of contract provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such. However, the doctrine has proven problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties.

Consideration

i. Seeking to induce via a promise to someone to do something they would not be legally obligated to do ii. Elements- 1. Something of legally sufficient value must be given in exchange for the promise 2. Usually, there must be a bargained for exchange 3. **** gifts are not contracts 4. Forbearance: a. The refraining from an action that one has a legal right to undertake b. Also considerations- sufficient consideration 5. Bargained for exchange (Barfield v Commerce Bank) a. The second element of consideration is that is must provide the basis for the bargain struck between the contracting parties 6. Consideration a. Adequacy of consideration i. In general courts will not question the adequacy of consideration (ie whether the agreement was fair) ii. Except in the case of ... fraud, duress, undue influence, and unconscionability

Termination of the offer (by operation of law)

i. Time period passes- then offer is evaporated/terminated ii. Subject matter of the offer is destroyed 1. Offer to buy corn crop- crop is destroyed in a storm- farmer cannot enforce contract because the corn has been destroyed and therefore no longer valid iii. Incapacitation- if offeror or offeree dies, becomes mentally ill, or no longer capable to make decision on own then not valid iv. Illegality- must be contract for a legal action- cannot be for an illegal purpose

Assignment and delegation

i. Transfer of rights = assignment- is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party—the assignor—to another party—the assignee.[1] The legal nature of the assignment determines some additional rights and liabilities that accompany the act. ii. Transfer of duties = delegation-is a term used in the law of contracts to describe the act of giving another person the responsibility of carrying out the performance agreed to in a contract. Three parties are concerned with this act - the party who had incurred the obligation to perform under the contract is called the delegator; the party who assumes the responsibility of performing this duty is called the delegatee; and the party to whom this performance is owed is called the obligee.

Mistake/Fraud

i. Unintentional mistakes- mutual vs unilateral 1. Fraud= making representations/ promises that a party knows can't and will not be fulfilled

Objective theory of contracts

impossible for courts to get in head of contract parties- so they will not try to interpret a contract legal concept that a binding agreement exists between two (or more) parties if a reasonable person would judge (from the outward and objective acts of the parties and the associated circumstances) that an offer has been made and accepted. It dispenses with the subjective notion of intention ('meeting of minds')

How intention works

in the field of contracts, as generally elsewhere, we must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts

Arbitration clause

in very small print = unconscionable therefore not enforceable 1. Requires a person to forgo some legal rights

Shrink- wrap agreements

is an agreement whose terms are expressed inside a box in which the goods are packaged- usually the party who opens the box is told that he or she agrees to the terms by keeping whatever is in the box i. Offer and acceptance are met by using the product 1. (ie software package- abide by the terms of limited license agreement) 2. in 99.99% of cases the retailer has no connection with buyer and product contract

Contingent fee basis

lawyer agrees to work for free unless plaintiff recovers money then lawyer usually gets a 3rd of the money rewarded to the plaintiff

Punitive damages

meant to punish the wrong doer 1. Encourages that incident doesn't happen again and warns others of what will happen if they do 2. Focuses on the wrong doer

unilateral contract

offer made to someone( this person isn't obligated) ie: if...I will give you or if I do ... will you give me... 1. obligated only when accepted 2. only one promise being made that otherwise would not have been done