Principles of Contract Law

Transcription

1 Contracts - Legally enforceable promises. Contracts establish the legal relationship between two or more parties. I. Contract Basics A. Written vs. Verbal B. Sources of Contract Law Common Law - formation, performance, breach & remedies Legislation - Statues (UCC - sale of goods) C. Classifications 1. Bilateral vs. Unilateral contracts Bilateral - an exchange of promises by two or more parties Unilateral - a promise conditioned on the performance of an act

2 C. Classifications (con t) 2. Express vs. Implied contracts Express - Actual discussion of promised terms takes place Implied - terms arise from conduct rather than words 3. Quasi-contracts - a judicial remedy to prevent one party from receiving unjust enrichment. D. Contract Terminology 1. Enforcement terminology Valid- All essential requirements are present ( Enforceable ) Void - Lacks an essential requirement ( Unenforceable ) Voidable - one party has the right to withdraw

3 D. Contract Terminology (con t) 2. Performance terminology Executed - all parties have performed their promises Executory - when promises have yet to be performed E. Breach of Contract (Figure pg. 196) 1. Remedies Negotiated Settlement Arbitration Compensatory Damages Consequential Damages Liquidated Damages Nominal Damages Rescission Specific Performance

4 E. Breach of Contract (con t) 2. Mitigation - the requirement of a victim to take reasonable steps to purposefully reduce the damages II. Essential Requirements of a Contract Offer Acceptance Consideration Capacity Lawful Purpose

5 A. Offer - A statement made by one person (Offeror) of what that person will give in return for some act or promise of a second person (Offeree). The offer must contain a specific promise and specific demand. 1. Two Parts: The Promise & Communication Promise - the promise must be sufficiently clear and definite in its terms to satisfy the standards of contract law. Communication - the promise must be communicated to the offeree 2. Counteroffer - an offer made in response to another offer. A counteroffer results in a rejection of the original offer.

6 B. Acceptance - A meeting of the minds. A simple assent to he terms of the offer with no changes or additions. An acceptance is necessary to create a valid contract. 1. Two Parts: Unequivocal acceptance & Communication Unequivocal acceptance - no changes or additions Communication - the acceptance must be communicated to the offeror 2. Mirror Image Rule - the acceptance must mirror the offer 3. Acceptance & Silence - generally**, an offeree s failure to reject an offer does not imply acceptance. ** Exception: Future shipment agreements 4. Mailbox Rule - offer is bound when deposited in mailbox

7 C. Consideration - The thing of value which is committed by each party on their side of the agreement without which they cannot hold the other side to their promise. D. Legal Capacity - Each party to a contract must have the legal capacity or power to enter into it and to commit himself or herself to the performance of its terms. 1. Potentially Voidable Minors Intoxicated persons Mental incapacity Duress - force or threat of personal injury Undue Influence - unfair advantage Fraud - intentional mis-statement of material fact Misrepresentation - unintentional mis-statement Mutual or Unilateral mistake

8 D. Lawful Purpose - A valid contract must have legality of purpose 1. Potentially Voidable (Sidebar 7.10 pg. 205) Criminal act Violation of public policy Restraint of trade Injurous to third parties

9 III. Contract issues A. Written vs. Verbal - Statute of Frauds Contracts involving an interest in real property Collateral contracts to pay the debt of another person Contracts that cannot be performed within one year Sale of goods contracts for $500 or more Written by statute Exceptions: Sidebar 7.11 (pg. 208) B. Parole Evidence Rule - Prohibits testimony about the oral negotiation that results in a written contract

10 C. Contract Interpretation Common words Trade terminology Handwritten/ typed amendments Source of contract D. Assignment of Contracts - transfer of rights Assignor vs. Asignee Notice - the assignee should immediately notify obligor Contracts that cannot be assigned 1. No increase in burden 2. Wages 3. Performance of duty

11 E. Performance of Contracts - a valid contract requires the duty to perform. The order of performance - Which promise comes first? Degree of performance - Partially completed contracts F. Discharge of Contracts - a party is discharged when the party is released from all further obligation of performance. Completion of all promises Breach by a party Waiver Mutual agreement to rescind Expiration of statute of limitations Impossibility of performance Commercial Impracticability

12 G. Termination of Offers Anytime prior to an acceptance End of specified or reasonable time period Rejection of the offer or counteroffer Destruction of promised subject Operation of Law - Death, bankruptcy, loss of license, mental incompetence, illegality