MASSACHUSETTS CONTRACTS DISTINCTIONS PROFESSOR MICHAEL MCCANN UNIVERSITY OF NEW HAMPSHIRE SCHOOL OF LAW FORMATION OF CONTRACTS The basic cmmn law rule fr frming a cntract is that a binding cntract is created thrugh. Mutual assent requires an, acceptance, and. A cntract cannt exist if there are valid defenses t its existence, such as mutual mistake,, r. Thse are the rules in play fr the MBE and they are als true in Massachusetts. Hwever, Massachusetts ges a step further. In Massachusetts, every cntract has what is called an cvenant f. It means that all the parties are bligated t be hnest in all stages f the cntract. It is imprtant mainly because it can be used t help reslve disputes after a cntract has been frmed. It is helpful when the cntract des nt address hw t reslve a particular dispute. Example 1: A prfessinal sprts league cntracts with a cmpany t bradcast games ver iphnes, Blackberries, smart phnes, and related handheld devices. That 2009 cntract was agreed t befre the inventin f mre updated technlgies, the ipad, in 2010. Des the language f the 2009 cntract include bradcasting ver the ipad? Answer: If Massachusetts cntract law applied, the implied cvenant f gd faith culd play an imprtant rle ver whether r nt the ipad cunts within the definitin f the cntract. The cvenant requires hnest dealing in all stages f the cntract. If ne f the cntracting parties knew f the ipad befrehand, that wuld g t the cvenant. Because f that, parties are discuraged during the cntract frmatin stage frm wrngly taking advantage f the ther party. A. Timing f Cntracts The general rule fr the MBE is that if the cntract des nt express hw lng the cntract will last, curts will imply that the cntract will last fr a f time.
Massachusetts law is cmpletely cnsistent with that. In Massachusetts, reasnableness is als assciated with a t exercising ne s rights under the cntract. If there is a time limit in place, it t must be reasnable if there is n specificatin as t hw lng it lasts. B. Breach by Emplyees f Their Emplyment Cntracts Generally, if an emplyment cntract des nt state the f emplyment, there is a that the emplyment is at will. At will emplyment means that can terminate the agreement at any time and fr any reasn, ther than a reasn that wuld be against. At will emplyment can even be used t characterize cntracts that wuld seem t have sme duratin. Example 2: Emplyment cntracts that prvide fr permanent emplyment are usually deemed at will because the duratin term, permanent, is deemed imprecise and illgical. The same is true as t lifetime emplyment cntracts. These cntracts will likely be deemed at will as well. At will emplyment is distinguishable frm cntract emplyment where there are the emplyee must abide by and that als ensure what the emplyee will get. In Massachusetts, if an emplyee wh is cnsidered t have an emplyment cntract (and thus is nt at will ) breaches his r her emplyment cntract, that emplyee is still entitled t fr time. Hwever, if that same emplyee with that emplyment cntract breaches, she is t wages. C. Cnsideratin Fr the MBE sectin, cnsideratin is a cre element f cntract frmatin. The idea is that in additin t ffer and acceptance, a cntract can nly be frmed if there is cnsideratin. Cnsideratin is the principle that there is sme bargained fr in rder fr a cntract t be recgnized as valid. Legal detriment means that the, the persn receiving the prmise frm the prmisr, des smething r agrees t d smething r refrains frm ding smething r refrains frm agreeing t d smething, nne f which is cmpelled. T put it mre bluntly, the prmisee acts withut being t d r t nt d smething and thus suffers legal detriment. 2 2016 Themis Bar Review, LLC MA Cntracts Distinctins
The lgic f cnsideratin is that the prmisee incurs this legal detriment in rder t induce the prmisr t make the prmise. The cnverse is als true. In a bilateral cntract, a cntract where bth parties exchange t d smething in the future, curts will regard each prmise as fr the ther. Example 3: I agree t mw my neighbr s lawn in exchange fr my neighbr s agreement t clean ut the pl in my backyard. In a unilateral cntract, in cntrast, ne party makes a prmise in exchange fr sme ther party a prmise. Example 4: I agree t mw my neighbr s lawn in exchange fr $50. I get paid. The perfrmance and prmise are cnsideratin fr the ther Cnsideratin has t be f and value that can be. Massachusetts law is a little different. Massachusetts, like a minrity f ther states and like the First Restatement f Cntracts, require cnsideratin n f the bargain. Instead, either a legal detriment r benefit received by is enugh t warrant a finding f cnsideratin, and thus a finding f a valid cntract. The prmisee prviding the benefit t the prmisr, withut suffering any legal detriment, cunts as cnsideratin. S the prmisee des nt have t make a prmise t d smething which is nt cmpelled by law. D. Pre-existing Duty Rule The cmmn law rule fr pre-existing duty is that a prmise t perfrm a pre-existing legal duty as cnsideratin. That is because the prmisee, wh has suffered sme legal detriment in exchange fr a prmise, is t perfrm sme actin; there is n legal detriment. Example 5: If a landlrd was already bligated under a lease t fix a brken sink and the landlrd is agreeing t nw fix it nly if yu pay $100, that wuld nt qualify as cnsideratin. The landlrd already has an existing duty t fix the sink. Nte 1: If the prmisee gives smething in additin t what is already wed r varies the pre-existing duty in sme way, there can be because the situatin has changed. MA Cntracts Distinctins 2016 Themis Bar Review, LLC 3
Massachusetts fllws these rules as well, and adds that if a party making an ffer prmises additinal cnsideratin in rder t accmplish what is already a pre-existing legal duty, the party receiving that ffer can enfrce that prmise even additinal cnsideratin in return. Massachusetts als adds that if a prir cntract has been and a new cntract has been made, even if that new cntract creates a greater bligatin fr that ne party t pay, the ther party greater cnsideratin. E. Cntract Mdificatin Fr purpses f the MBE, mdificatin f a cntract has t shw. Nte 2: Under Article 2 f the UCC, cnsideratin is fr cntract mdificatin, thugh is. An agreement t mdify a cntract will be enfrced if, fr instance, the cntract was trn up and then the parties entered int a new cntract where ne f the parties has t perfrm mre than he r she was bligated t perfrm under the riginal cntract. In Massachusetts, a buyer unilaterally retract a cntract mdificatin. F. Settlement f a Legal Claim The cmmn law rule, which is als true in Massachusetts, is that the prmise nt t bring a, r the prmise t nt assert a r defense in an actin, generally can serve as cnsideratin fr a settlement agreement. That is because the party making the prmise is freging a legal right. This type f scenari is fund when there is a negtiated settlement f r litigatin. Massachusetts agrees with all f this. It adds that there is a that cntracts are supprted by adequate cnsideratin. FORMATION OF CONTRACTS (CONT D) A. Prmises Binding Withut Cnsideratin Fr purpses f the MBE, there are a number f circumstances in which a prmise will be despite the fact that it is nt supprted by cnsideratin. One such circumstance is the prmise t pay a debt that has been because the statute f limitatins n it has run ut. There is n cnsideratin in that circumstance because there is n legal detriment. Nnetheless, if yu prmise t pay such a debt, yu are because cnsideratin will nt be required t make such a prmise binding. 4 2016 Themis Bar Review, LLC MA Cntracts Distinctins
Massachusetts law is a little bit different here. Specifically, a debtr s prmise t pay a debt barred by the statute f limitatins r a debt is enfrceable nly if evidenced by a. Fr a statute f limitatins, a writing. B. Prmissry Estppel Exceptin t the Reliance Requirement fr Charitable Subscriptins Prmissry estppel is a dctrine that can be used under certain circumstances t enfrce a prmise that is nt supprted by. There are three cre elements required: 1) The prmisr shuld reasnably expect it t induce actin r frbearance n the part f the prmisee r a third persn 2) The prmise des induce such actin r frbearance Editr's Nte 1: Prfessr McCann misspke here in stating the prmise des nt induce such actin r frbearance. The prmise must induce such actin r frbearance fr prmissry estppel t apply. 3) can be avided nly by enfrcement f the prmise In general, the prmisee must n the prmise. Such reliance must have been t the prmisr. There is an exceptin t the reliance requirement. The exceptin is fr prmises made t. Charities can turn t the dctrine f estppel t enfrce charitable prmises it received. They nrmally d nt have t shw. In Massachusetts, the charity reliance. C. Defenses t Frmatin T enter int a cntract a party has t have the t d s. Generally, a party will lack the requisite capacity because f such reasns as, mental illness, r. In regards t infancy, in mst states yu are cnsidered an infant fr purpses f cntract law if yu are under. If yu are under 18 and yu enter int a cntract, yu can the cntract. The ther party, hwever, vid the cntract. Massachusetts fllws this general rule, thugh with a twist. Children under 18 are generally cnsidered infants fr purpses f cntract law. Hwever, with cntracts fr and thse fr, the rules are different in Massachusetts. MA Cntracts Distinctins 2016 Themis Bar Review, LLC 5
Specifically, children r lder may validly cntract fr life insurance. Thse and lder can validly cntract fr car insurance. Als, in Massachusetts, an infant can avid a cntract even if he his age t the ther party. Under Massachusetts cntracts law, in all instances a minr will be held respnsible fr the f any cntract fr what are knwn as. Necessities nrmally include,, and. Fair value may be than the agreed-upn cntract price. Anther defense t cntract frmatin is thrugh. The UCC prvides that a curt may r refuse t enfrce a cntract r part f a cntract n grunds that it is uncnscinable. That refers t a cntract t ne party that n reasnable persn in the psitin f the parties wuld have agreed t it. Such a cntract must have been at the time it was made. It ften invlves prvisins that were incnspicuus,, r difficult t understand. Unequal bargaining pwer is als recgnized as a reasn fr a cntract t be deemed uncnscinable. Whether a cntract deserves that label is a questin f fr the t decide. In Massachusetts, all f thse pints are true as well. But in Massachusetts, there is an additin. The additin is that a cntract requiring a party t give up the right t a r therwise cmmitting the parties t arbitratin is generally. In additin, in Massachusetts, a cntract may be fund uncnscinable when there is f cnsideratin accmpanied by ther factrs. In such situatins, uncnscinability must be fund at the time the cntract is made. Still anther defense t cntract frmatin is if the cntract vilates a significant. That is als true in Massachusetts, thugh it adds that a cntract fr that wuld cause smene else t breach her t a crpratin is generally as against public plicy. 6 2016 Themis Bar Review, LLC MA Cntracts Distinctins
D. Warranties in Sale f Gds Cntracts There are three key warranties under Article 2 f the UCC: 1) The warranty Cncerns a seller s statements r ther affirmatins relating t the f the gd being sld. Thse affirmatins becme part f the basis f the bargain between the buyer and the seller. Nt every representatin expressly made by a seller cnstitutes an express warranty. Sme statements are cnsidered s subjective that they are cnsidered mere and are nn-actinable. Nte 3: Massachusetts law is the same as the MBE here. But with the ther tw warranties, Massachusetts law is a little different. 2) The implied warranty f This warranty dictates that the gds being sld are fit fr their. The implied warranty f merchantability usually cncerns prtecting cnsumers frm in gds. The implied warranty f merchantability is limited in tw imprtant ways: i) In rder fr it t apply, the seller f the gds must be a f thse gds; and ii) The buyer must use the gds fr the fr which such gds are sld. - Generally, the implied warranty f merchantability can be by the seller saying that the gd being sld is as is r with all faults. - The disclaimer must use the term merchantability. If it is in writing, it must be. If the buyer, befre entering int the cntract, examined the gds as fully as the buyer desired, that can cunt as a disclaimer. 3) The implied warranty f Cncerns prtectins fr a buyer wh seeks t use a gd fr a particular purpse that is nt rdinary. The buyer that particular purpse t a seller and then the buyer n the seller s expertise in making a purchase. MA Cntracts Distinctins 2016 Themis Bar Review, LLC 7
The implied warranty f fitness can be by using terms like as is and with all faults. In Massachusetts, there are fur distinctins that impact the applicatin f the tw implied warranties the implied warranty f merchantability and the implied warranty f fitness fr a particular purpse: 1) All warranties in Massachusetts are extended t any freseeable r anyne the seller r manufacturer can t be affected by the gds. 2) All disclaimers by a cnsumer gds seller r a manufacturer are. 3) The remedy fr breach f warranty cannt be limited t nly, unless the retailer r the manufacturer has a repair facility within Massachusetts. 4) Vendrs are presumed t be fully infrmed at the time f the sale f all f the prduct s. When curts determine whether there is adequate warning given, they will measure the warning against what a fully infrmed vendr actually knew r shuld have knwn. If the warning is fund t be inadequate, based n that standard, resulting in that prduct being unusually dangerus frm the cnsumer s perspective, then the prduct will be deemed fr its rdinary purpse. That is true regardless f any fault f the vender. DISCHARGE, STATUTE OF FRAUDS, CONDITIONS A. DISCHARGE In sme instances, the prmisr may nt be liable fr nnperfrmance if sme supervening event r change in circumstances arises the frmatin f the cntract. This event r change is cnsidered s substantial, s mnumental, that it actually the prmisr s duty t perfrm. 1. Impracticability Impracticability is where an event ccurs, and yu relieve the party f respnsibility because the party can n lnger perfrm the duties. In additin, unfreseen, wars, trade and military embargs, strikes, and lcal crp failures have all been fund t be sufficient t excuse perfrmance. 8 2016 Themis Bar Review, LLC MA Cntracts Distinctins
2. Impssibility In Massachusetts, a cntract can be discharged due t its impssibility if, due t an unfreseen circumstance that neither party assumed the risk f, it is fr any party t perfrm. Example 6: A cntractr agrees t renvate a mvie theater. If that mvie theater burns dwn, then it wuld render the cntractr s perfrmance impssible. Why? Because yu cannt renvate a theater that has burned dwn. If the wrk has already begun, the cntractr is entitled t recver in fr the f the wrk perfrmed. An bligatin fr additinal perfrmance wuld have been discharged. 3. Rescissin Generally speaking, the t a cntract can cancel r rescind the cntract which requires a return f r ther benefit cnferred t the ther party. Rescissin, as yu knw, can als ccur by f the parties. In Massachusetts, ne added feature is that parties t an executry bilateral cntract are able t withut exchanging any further cnsideratin. B. Statute f Frauds The basic rule f the Statute f Frauds is that the cntract must be in rder t be enfrceable. That includes cntracts in, cntracts fr, r in the case f a sales cntract subject t the UCC when that csts at least. In Massachusetts, the Statute f Frauds is different in sme regards. A prmise t make r revke a must be evidenced in writing. A prmise t pay a r a finder fr assistance with getting a lan must als be evidenced in writing. Such a rule des nt apply t services rendered by lawyers r real estate agents r brkers. Real estate need nt be in writing. Wage assignments fr lans under must be in writing, as well as apprved in writing by the and the f the emplyee. Real prperty cntracts generally fall within the Statute f Frauds. Indeed, a prmise t transfer r buy in real prperty is the Statute f Frauds. MA Cntracts Distinctins 2016 Themis Bar Review, LLC 9
Nte 4: A lease fr r less des nt fall within the Statute f Frauds. What abut part perfrmance? Even if there is an ral cntract fr the transfer f real estate that was at the time it was made because it did nt satisfy the Statute f Frauds, can actually make it enfrceable. If the seller f real prperty t the purchaser, the seller will be able t enfrce the purchaser s t pay. Full r partial payment alne wuld sufficient t take the transactin ut f the Statute f Frauds. Payment has t be accmpanied by smething mre, such as f the prperty r in rder fr the part perfrmance dctrine t apply. That is true in Massachusetts but there is a slight twist. In Massachusetts, there is a requirement fr payment in whle r in part, pssessin, and valuable imprvements t be made befre the cntract is taken ut f the Statute f Frauds and an ral cntract fr the sale f land t be enfrceable. A writing is nt always required. That is true f. If a defendant admits in pleadings, testimny, r therwise in curt that a cntract was made, that cntract is. C. Disputes abut Perfrmance A party t a bilateral cntract cannt recver until perfrmance is tendered t the ther party. But smetimes, with r cnstructive cnditins f exchange, curts permit less than. This refers t the dctrine f. The dctrine f substantial perfrmance dictates that a party wh substantially perfrms can n the cntract, even thugh full perfrmance has nt been tendered. Indeed, if the failure f a cnstructive cnditin f exchange is, it will nt negate substantial perfrmance. Things are different in Massachusetts when it cmes t the dctrine f substantial perfrmance. In Massachusetts, substantial perfrmance is generally. In Massachusetts, recvery in (a cntract created by a curt) is allwed. A cntract measure f damages rather than is applied when there has been substantial perfrmance. 10 2016 Themis Bar Review, LLC MA Cntracts Distinctins
In additin in Massachusetts, a f the cntract rdinarily precludes quasi- cntractual recvery. But nte, frm the cntract will nt prevent recvery when thse deviatins are immaterial. D. Buyer s Obligatins When a cnfrming tender is made, the buyer is bligated t and the price under the cntract. amunts t breach f cntract. The UCC cntains a number f gap-fillers t fill-in what are extremely imprtant terms, such as price r place f delivery. Editr's Nte 2: Prfessr McCann misspke here with regard t quantity. The UCC fills the gap fr missing terms ther than subject matter r quantity, as quantity is an essential term. Hwever, requirements and utput cntracts satisfy UCC cntract frmatin requirements even withut naming specific quantities because the UCC implies gd faith as a cntract term. Nrmally, unless therwise agreed t by the buyer and seller, a buyer is required t pay in rder t trigger an bligatin n the part f the seller t. Tender f payment is cnsidered sufficient when made by r in cnsistent with the rdinary curse f business, unless the seller demands payment in legal tender and gives any extensin f time reasnably necessary t prcure such legal tender. Als, under the UCC, if payment is made by check, payment is until the check is paid r dishnred. Massachusetts, very similarly, embraces thse rules in its adptin f the UCC. In Massachusetts, a buyer s payment will be cnsidered sufficient when made by any means r manner in the rdinary curse f business unless the seller specifically requires payment in legal tender and gives any necessary extensin f time t allw fr it. Payment by check in Massachusetts is cnditined n the check being n due presentment. ANTICIPATORY REPUDIATION; REMEDIES A. Anticipatry Repudiatin Under cmmn law, anticipatry repudiatin refers t when a prmisr a prmise befre the time fr perfrmance arises r elapses. Under the dctrine, the repudiatin must be and, and may be made by r by. MA Cntracts Distinctins 2016 Themis Bar Review, LLC 11
There is a big distinctin here in Massachusetts when it cmes t anticipatry repudiatin. Massachusetts anticipatry repudiatin fr cmmn law cntracts. Massachusetts des allw the nn-breaching party t treat the repudiatin as an. Because f that, the nn-breaching party may cancel the cntract r withhld any perfrmance until the time fr the repudiating party s perfrmance ccurs. B. Remedies Remedies are designed t the nn-breaching party fr ecnmic lsses. Generally speaking, actual ecnmic lsses are calculated depending n hw the cntract was frmed and what type f cntract it was. In Massachusetts, thse pints are als true but interest added plays a rle, as it can be used t the amunt f actual ecnmic lsses. Specifically, in any breach f cntract actin in Massachusetts, interest will be added t the damages award at the rate set frth in the cntract. (If nne is set frth, use a % rate). C. Liquidated Damages and Penalties Liquidated damages represent agreed upn damages. Liquidated damages stipulate a reasnable estimatin f actual damages t be recvered by ne party if the ther party. Liquidated damages, althugh they are in the cntract, are nt always enfrceable. Fr instance, they can vilate public plicy if they are unreasnably large. They will, hwever, be enfrceable when they are reasnable and ratinally related t either the actual suffered r the damages that might have been anticipated at the time the cntract was made. The cre questin centers n whether the liquidated damages seem. In Massachusetts, the same basic methdlgy applies fr liquidated damages with tw slight twists. 1) Liquidated damages clauses that are fund in cntracts are enfrceable, as lng as the amunt agreed upn represents a reasnable estimate f actual damages at the time the. 2) If the liquidated damages clause is valid, there is n duty t liquidated damages in Massachusetts. 12 2016 Themis Bar Review, LLC MA Cntracts Distinctins
D. Restitutinary Damages Refer t gains made by a breaching party, rather than t the ther party s lss. Designed t prvide the plaintiff whatever was cnferred upn the defendant prir t. In sme circumstances, restitutinary damages may be recvered even thugh the plaintiff wuld have suffered a lss had the defendant nt breached. Massachusetts restitutinary damages but with tw majr limitatins: 1) The breach must be s and as t amunt t an abrgatin f the entire cntract; and 2) At the time f the breach, the nn-breaching party must elect t either r cntinue under the cntract. E. Remedies under the UCC, Nncnfrming Tender Under the UCC, if either the tender r the gds are nncnfrming, the buyer has the right t r all r part f the gds. Als, under the UCC, the buyer has the right t the gds befre deciding whether t accept r reject. des nt cnstitute acceptance if there is n right f inspectin befre payment. In Massachusetts, in terms f inspectin, if the cntract requires payment befre inspectin, the buyer payment. This is true even if the gds are later determined t be, unless such nncnfrmity is apparent withut inspectin. F. BACK TO THE UCC A buyer can, f curse, the gds. A valid rejectin requires that the buyer: Give t the seller Within a acceptance After rejecting the gds, the buyer can als f rejected gds fr a reasnable time t allw fr the seller t. Nte 5: In Massachusetts, if a buyer rejects the gds and then cntinually uses them, this generally the revcatin. MA Cntracts Distinctins 2016 Themis Bar Review, LLC 13
Once the buyer rejects the gds, she must treat them as belnging nt t her, but t the seller. Hwever, if cntinued use is acceptable under the circumstances, then the buyer is nt precluded frm rejecting them. Under the UCC, the same remedies are available t the buyer rejectin, as if n tender was made by the seller. (i.e., incidental and cnsequential damages, cver, specific perfrmance, r replevin) That is als true in Massachusetts but with a slight twist. The buyer in Massachusetts may deduct any part r all f the damages resulting frm any breach frm any part f the price still due under the same cntract after the seller f his intentin t d s. [END OF HANDOUT] 14 2016 Themis Bar Review, LLC MA Cntracts Distinctins