Contracts

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CHAPTER 7 Contracts
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Basic Requirements of a Contract

• A contract is a legally enforceable promise or
  set of promises.
• Agreement. Valid contract requires and offer and
  acceptance.
• Offer has a serious intention, with definite
  terms that is communicated to the offeree.
• Termination of Offer by Operation of Law or by
  Action of the Parties.

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Basic Requirements of a Contract

• Irrevocable Offers.
• Option Contracts.
• Detrimental Reliance.
• Acceptance.
• Mirror Image Rule.
• Intent to Be Bound.
• Acceptance in a Timely Manner.

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Basic Requirements of a Contract

• Consideration each party must transfer something
  of legal value to the other.
• Adequacy of Consideration?
• Bilateral and Unilateral Contracts.
• Bilateral Promise for a Promise.
• Unilateral Promise for an Act/Performance.

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Basic Requirements of a Contract

• Mutuality of Obligation in Bilateral Contracts.
• Illusory Promises.
• Case 7.1 Dahl v. Hem Phamaceuticals Corp.
  (1993).

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Basic Requirements of a Contract

• Conditional Promises.
• Conditions Precedent - occurs prior to
  performance.
• Conditions Concurrent - simultaneous performance.
• Conditions Subsequent - terminates an existing
  duty to perform.

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Basic Requirements of a Contract

• Requirements and Output Contracts.
• Requirement contracts - buyer agrees to buy all
  its needs from the seller (exclusive contract).
• Output contracts - buyer agrees to buy all the
  seller produces (exclusive contract).

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Capacity

• A persons ability to understand the nature and
  effect of an agreement.
• Contracts with legally incompetent persons are
  void or voidable (at incompetent partys option.

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Legality

• Other Contracts Contrary to Statute
• Usury statutes.
• Illegal contracts.

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Promissory Estoppel (Ethical Safety Net)

• Promise there must be a promise.
• Justifiable Reliance the promise must cause the
  promisee to take an action that he or she would
  not otherwise have taken.
• Foreseeability the action taken in reliance on
  the promise must be reasonably foreseeable by the
  promisor.

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Promissory Estoppel

• Injustice a promise that has been reasonably
  relied on will give rise to relief only if the
  failure to do so would cause injustice.
• Case 7.2 Pops Cones, Inc. v. Resorts
  International Hotel, Inc. (1998).

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Unconscionability

• Oppressive or fundamentally unfair.
• Procedural Element.
• Substantive Element.
• Releases.
• Case 7.3 Schmidt v. U.S. (1996).

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Genuineness of Assent

• Fraud.
• Fraud in the Factum.
• Fraud in the Inducement.
•  Duress.
•  Ambiguity.

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Genuineness of Assent

• Mistakes of Fact.
• Substantiality of the Mistake.
• Allocation of the Risks.
• Timing.
•  Mistake of Judgment (or Value).
• Usually not a defense.

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Statute of Frauds

• Certain oral agreements must be in writing to be
  enforceable
• Transfer of any interest in real property.
• Promise to pay the debt of another.
• An agreement which cannot be performed within one
  year.
• Prenuptial agreements.

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The Parol Evidence Rule

• When the parties have a written agreement which
  the parties intended be the complete agreement,
  parol (oral) evidence of prior or contemporaneous
  communications will not be permitted to alter the
  terms of the contract, unless the language is
  ambiguous.

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Changed Circumstances

• Impossibility an event causes obligations to be
  discharged.
• Impracticality performance is possible but
  commercially impractical.
• Case 7.4 Norcon Power Partners, L.P. v. Niagra
  Mohawk Power Corp. (1998).

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Discharge of Contract

• Discharge when both parties have fully performed
  their obligations toward one another.
• Material Breach one party fails to perform a
  contract according to its essential terms.
• Anticipatory Repudiation one party knows before
  performance is due that the other party will
  breach the contract.

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Good Faith and Fair Dealing

• Every contract contains an implied covenant of
  good faith and fair dealing in its performance.
  This implied covenant imposes on each party a
  duty not to do anything that will deprive the
  other party of the benefits of the agreement.

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Remedies

• Types of Damages
• Expectation Damages.
• Consequential Damages.
• Restitution and Quantum Meriut.
• Case 7.5 Glendale Federal Bank FSB v. United
  States (2001).

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Remedies

• Mitigation of Damages.
• Liquidated Damages vs. Penalties.
• Specific Performance and Injunctive Relief.
• Allowed when the goods are unique, the subject
  matter is real property, or the amount of loss
  cannot be calculated fairly.

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Precontractual Liability

• Good Faith and Fair Dealing.
• Traditional U.S. Rule No liability (This is
  changing).
• European Rule Actions may lead to liability.

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Precontractual Liability

• Pre-Contractual Liability based on
• Misrepresentation.
• Promissory Estoppel
• Restitution.
• Case 7.6 Copeland v. Baskin Robbins (2002).
• See Decision Tree for Contract Analysis, p. 234.