ITMM 4405 Legal Implications of ECommerce

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ITMM 4405 -- Legal Implications of E-Commerce

• Contract Basics, Part II

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Requirements for a valid contract

• An agreement that normally includes an OFFER and
  an ACCEPTANCE of that offer
• Consideration
• Capacity of both parties to the contract and
• Legality (i.e. performance under the contract is
  legal)

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Consideration

• Def the agreed upon exchange in a contract.
• In order to be enforceable, a promise must be
  supported by consideration.
• Typically
• A promise to pay money
• A promise to do something or
• A promise not to do something.
• Courts typically will not examine the sufficiency
  of the consideration.
• Past acts cannot constitute consideration for a
  present contract.

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Consideration II

• A pre-existing duty is not valid consideration
  under a contract (i.e. you are already obligated
  to to do the thing).
• Illusory promises are promises that appear to
  have consideration but really do not.
• Illusory promises are not consideration (I
  promise to give you my dog if I feel like it).
• A promise coupled with the right to cancel at
  any time w/o notice is an illusory promise. Not
  really binding to anything.
• But, a promise coupled with the right to cancel
  with notice is sufficient consideration.

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Capacity

• Both parties to a contract must have legal
  capacity to contract.
• If not, the contract may be voidable based on
  lack of capacity by the incapacitated party.
• Examples
• Minors (must be 18 to contract in most states)
• Intoxicated Adults
• Mentally Ill persons

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Legality

• Contracts must be legal to be valid.
• Contracts may be considered void as against
  public policy or void as illegal under statute
• Usury contracts
• Licensing Requirements (contracts with unlicensed
  professionals)
• Sales of Illegal Products
• Contracts that waive intentional torts rather
  than just negligence (bungee jumping, etc.)
• Contracts in Restraint of Trade (Covenants not to
  compete)

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Alternative Theory of Recovery Quasi Contract
(Unjust Enrichment)

• Requires
• 1) the Plaintiff to have conveyed a benefit on
  the Defendant
• 2) in the expectation of receiving compensation
• 3) the Defendant knowingly receives the
  benefits and
• 4) the transfer results in unjust enrichment for
  the Defendant

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Genuineness of Assent

• Mistake, Fraud, Misrepresentation, undue
  influence, or duress may be used to invalidate a
  contract.
• The contract becomes voidable at the option of
  the injured party (i.e. may be used as a defense
  in a breach of contract suit).

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Mistake

• If both parties to a contract are mistaken as to
  a material fact, either party can void the
  contract.
• The mistake must be mutual, or must be an error
  about which one party knows or should have known
  that the the other party is mistaken.

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Fraud and Misrepresentation

• Fraud takes place when one party to a contract
  knowingly lies about an important fact to the
  other party who reasonably relies on those lies
  and suffers damages as a result.
• Elements
• Misrepresentation of an important fact
• Knowledge that the statements are false
• Intent to defraud
• Reasonable reliance by the plaintiff and
• The fraud is the proximate cause of the victims
  damages.

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Duress

• A contract that is the result of force, threat of
  force, threat of criminal prosecution, or
  blackmail is voidable at the option of the
  victim.
• But, a contract that is entered into as a result
  of the threat of civil litigation is a valid
  settlement.

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Statute of Frauds

• Most contracts are enforceable if made orally.
• But, certain types of contracts MUST be in
  writing in order to be valid.
• These contracts are
• Surety contracts -- a promise to pay a debt on
  behalf of another
• Contracts in which the executor of a will
  promises to be liable for the debts of the
  deceased
• Contracts that cannot be performed within one
  year
• Marriage contracts (e.g. prenuptial agreements)
• Contracts for sale of real estate
• Contracts involving the sale of goods for more
  than 500

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Sufficiency of the Writing(s)

• If a writing is required, it does not need to be
  one piece of paper. Can be many.
• But, the papers must identify
• The parties to the contract
• The subject matter
• The price
• The quantity and
• And other material terms.

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Parol Evidence Rule

• A rule of evidence that operates to keep out of
  court extrinsic evidence that conflicts with the
  written contract.
• Can exclude oral statements regarding the written
  contract or other writings in conflict with the
  written contract.
• But, extrinsic evidence may be introduced to
  clear up incomplete or ambiguous agreements or to
  prove fraud.
• Contracts may include an integration clause that
  excludes all external writings.

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Discharge of Contractual Obligations

• Contractual obligations are discharged by the
  performance by both parties of the consideration
  set forth in the contract.
• A less than perfect performance can entitle the
  promisor to the consideration minus the cost of
  repair.
• Material breach by one party discharges the
  obligations of the other party.
• Both parties can agree to end a contract. But,
  if one party still has promises to fulfill, there
  must be additional consideration for the
  agreement to cancel the performance.

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Discharge of Contractual Obligations II

• Contractual obligations may be discharged due to
  impossibility.
• Distinguish It cannot be accomplished from I
  cannot perform.
• Conditions precedent or conditions subsequent may
  excuse contractual obligations.

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Remedies

• Compensatory Damages
• Reliance Damages
• Consequential Damages
• Liquidated Damages
• Punitive Damages -- typically not available in
  contract cases
• Injunctions
• Likelihood of success on the merits and
• Irreparable harm if continued breaches are
  permitted
• Specific Performance -- for unique items
• Mitigation of damages required

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Delegation of Duties

• In general, contractual duties can be delegated.
• If the promisor has special skills, though, the
  duties may not be delegated (e.g. featured
  entertainers, star athletes).

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Assignment of the Benefits of a Contract

• In general, the benefits of a contract may be
  assigned, as long as the obligations of the
  promisor are not increased by the assignment.

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Third-Party Beneficiaries

• If the purpose of a contract is to benefit a
  third party, the promisor who fails to perform
  can be sued by either the promisee or the
  intended third party beneficiary.
• But, incidental third party beneficiaries have no
  right to sue.

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Fraud and Misrepresentation

• If fraud is shown, the contract is voidable and
  the victim can sue for damages.
• If misrepresentation is shown (fraud minus intent
  to defraud), the contract is voidable, but no
  suit for damages is allowed.