Contracts II

a legally enforceable agreement

Offer
Acceptance
Mutual Assent
Consideration

Caveat Emptor

"let the buyer beware"

Freedom of Contract: you have the choice to make or not make the deal
The Buyer should be doing their own due diligence
Contracts should be taken seriously and by creating accountability it allows people to deeply investigate the contract

a promise that something will be a certain way

We want to avoid opportunistic behavior

those that are explicitly promised

promises that are implied

Goal is to protect consumers; from being taken advantage of/sold bad products

requires that goods must be sold as would pass w/o objection within the trade and as would fit for the ordinary purpose for which the goods would be used

buying a boat to use on the water and the boat doesn't float THEN violates IWM

ONLY to merchants who regularly sell the good

when a seller has reasons to know the purpose of which the buyer will be using the product, and there is an expectation that it fits for that purpose

Seller must be AWARE of the desired purpose
Buyer must RELY on the seller's expertise to decide to buy this product for his purpose

Notion that the house is going to be delivered in a state that the average/ reasonable workman would deliver a house in

Buyer must prove
1. house was constructed to be occupied by the buyer as a home
2. house was purchased from a builder-vendor, who had constructed it for the purpose of a sale
3. when sold, the house was not reasonably fit for its intended purpose or had not been constructed in a good or workmanlike manner
4. at the time of purchase, the buyer was unaware of the defect and had no reasonable means of discovering it, and;
5. that by reason of defective condition the buyer suffered damages

IWH is just the ability to reside in the home

They have better knowledge, better position to know if something is wrong
Homes are important "American Dream"
Huge Investment

If we subject builders to too much liability, we won't get the kind/number of homes built that we want

Split authority
Some jurisdiction: ONLY initial buyer can take advantage of IWWC
Others: ANY subsequent buyer

Statute of limitations limit the amount of time suits can be brought within

bright-line rule minors CANNOT enter into a contract

We want two healthy adult minds
We want to make sure there is a legit meeting of the minds

Necessity
if whatever is being contracted for happens to be a necessity or there are no other options for the minor then allow

1. Simply end the contract (adult gets back minor's consideration and the minor gives back whatever they got from the adult
2. Some jurisdictions will reduce the amount by the benefit of the bargain received (whatever enjoyment the minor got, reduced the price by the enjoyment received)
3. Some jurisdictions will look at depreciation of the item (minor will only get back what their consideration was minus the amount the item has depreciated in value)

We want the mutual assent of two HEALTHY minds in order to enter into a valid contract

Traditional/ Cognitive & Modern/ Volitional

A person lacks mental capacity if they are incapable of understanding its consequences
They didn't understand what was going on

Looks at whether the person is unable to act reasonably in the transaction and the other party has reason to know of that condition

Spilt Authority
Some Jurisdictions require it to prove mental incapacity & some don't

Pro- prevents fraud
Cons- expensive, want people to have resources to enter/ enforce/ void contracts

Void- the contract was never made
Voidable- the contract can be bacically voided at the will of the party whom it is meant to protect

Being forced into a contract

Threatens mutual assent: we want contracts to be entered into freeely

Narrow: people enter into contracts b/c they want things
If it was broader it would erode contract law

threats of violence/ imprisonment

ANY threat that is wrong or seems wrong
(Case by Case; Look at facts)

1. One party involuntarily accepted the terms of another
2. Circumstances permitted no alternative
3. Such circumstances were the result of coercive acts of the other party

Taking an unfair advantage of anothers weakness of mind, or;
taking a grossly oppressive and unfair advantage of anothers necessities or distress

Over persuasion & Susceptibility

Matter of Degree
Ends up being a factually sensitive inquiry

1. Discussion of the transaction at an unusual or inappropriate time
2. Consummation of the transaction in an unusual place
3. Insistent demand that the deal be finished at once
4. Extreme emphasis on untoward consequences of delay
5. Use of multiple persuaders by the dominant side against a single servient party
6. Absence of 3rd party advisers to the servient party
7. Statements that there is no time to consult financial advisers or attorneys

Party somehow needs to be imparied
Anything that doesn't allow them to function normally and thus makes them susceptible
(ex: illness, dementia, lack of sleep)

is founded upon some sort of misrepresentation, some sort of failure to disclose something one is required to disclose

material misrepresentation made with scienter (evil intent) that is something one is required to disclose

breach of duty by one in a confidential or fiduciary relationship

whether or not there was a misrepresentation
whether or not it was reasonably relied upon

there is no general disclosure rule/ duty

1. necessary to prevent a previous assertion from being a misrepresentation or from being fraudulent or material
2. disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standard of fair dealing
3. would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part
4. the other person is entitled to know the fact b/c of a relationship of trust and confidence between them

Contect of selling a house
-houses are really important, huge purchase
-seller had access to house for a longer time so will know about the problems
-buyers don't always have the expertise to evaluate a house

material detail

designed to do away w/ reliance on any sort of type of statement made besides what is in the contract

integration clause is invalid

an absence of a meaningful choice on the part of one of the parties together with contract terms which are unreasonably unfair to the other party

negated by a gross inequality of bargaining power

BOTH the process of entering into the transaction and then the substance of the agreement itself

transactions so outrageous that court won't enfore them
(used when other defenses don't apply)

Mutual Assent: we want the parties coming to the contract to be healthy, adult minds who are freely entering
Consideration: Courts don't like to get into the bargained for exchange of value and only WILL in extraordinary cases

agreements so outrageous no one in their right mind would ever enter into them

alternative dispute resolution that sends a matter to arbitration rather than through the court system

Quicker
Cheaper

venue selection clauses
bias arbitrators
protections of civil procedure, evidence, case law

unfairness in how an agreement was entered into

goes to the substance of the agreement

Split
Some say you need BOTH procedural and substantive (view as elements)
Some say just one or the other (view as factors)

Looks alot like fraud
A way of letting someone out of contract when fraud elements aren't met
(when in doubt argue this)

anything illegal
other things that might concern the public
(ex: non-compete agreements)

Unreasonable if
1. greater than necessary to protect employer's interest
2. interest is outweighed by hardship to employee and
3. likley injury to the public

duration, geographic scope, and activity

split
some will strike contract completely
some will re-write the clause in a way that is enforceable (reformation)
some will use the blue pencil approach and strike some things out

an individual carrying a child to term that will be given to another person

surrogate is impregnated through IVF by (usually the intended father sperm)

implanting an embryo, no genetic relationship to surrogate

involves a sale of a child
sale of intimacy
exploitive attributes to it
too much of an emtional experince to really allow contract to form

freedom of contract
need/ desire to have children

1. prohibited outright
2. some allow it usually for gestational rather than traditional
3. some permit all

belief that is not in accord with the facts

contract is voidable by adversely affected party where:
mistake of both parties was made as to the basic assumption of the contract
that had a material effect on the agreed exchange
so long as the adverse party does not bear the risk of mistake

where only one party to the contract is under a mistaken belief/ understanding
usually not a defense

party made mistake regarding basic assumption upon which the party made the contract
material effect on agreed exchange
party didn't bear the risk
effect of the mistake is such that enforcement of the contract would be unconscionable

interferes with mutual assent

up until the point the contract is entered into

historically, these justifications for nonperformance didn’t exist because historically, if you gave your word, you kept your word
Even if things went wrong, you were bound by what you agreed to do

-Extreme change in the nature of performance (impracticable) or an extreme reduction in the value of the other party’s performance so as to render it nearly worthless (frustration)
-The occurrence of an event, the nonoccurrence of which was a basic assumption of the contract (This event has to be unanticipated)
-Without the party's fault
-The party seeking relief does not bear the risk of that event’s occurrence either under the language of the contract or the surrounding circumstances

it is literally impossible to fulfill the contract

contract becomes really diffult to perform

party’s purpose for entering a contract is frustrated because the event makes it (the purpose) no longer present

There’s MA concerns; you can’t say they meaningfully agreed to that unanticipated thing

after the contract has been entered into
Applicable from time of contract to completion of performance

circumstances change
we want parties to be able to work things out amongst themselves

legally enforceable modification to the contract
requires new consideration

a new value/exchange from BOTH parties
you HAVE to change the consideration to have a modification

Easier to modify a contract under the UCC
Do NOT have to change consideration to have a legally enforceable modification under UCC

Evidentiary function
Protective function
Cautionary function
Channeling function
We want people to be serious about some contracts they enter into

so does the modification

Whether the particular function was material
If the modification is immaterial to the contract, it does NOT need to be in writing
Promissory estoppel
Actual payment for/ receipt of the goods
(When there has been some type of performance such as this)

contracts will include provisions that if a certain event does NOT happen, performance is NOT due
condition can either be dependent on one of the parties or on some outside event

explicitly stated in the contract
(usually an "if then" type of statment
however you don't HAVE to say that something is an express condition/condition precedent to create one BUT best way to ensure is to state it

might cause issues with considerations

applies even if condition precedents are dependent on something happening/parties doing something
requires honesty and as a result of that, both parties end up being bound

strict performance
whether the condition is reasonable or unreasonable
if you enter into an agreement, you are bound by those terms
you have to strictly comply

when in doubt courts will interpret terms as promises and not conditions precedents
no strict compliance for promises
if EC don't happen then contract is over
if promises don't happen court will still go on

temporary impracticability
disproportionate forfeiture

can NOT be the fault of the party who is claiming the benefit of the doctrine

the concept that an express condition doesn't have to be/shouldn't be enforce because it would impair the party; performance would result in a major loss

must weight the extent of forfeiture of obligee against the importance to the obligor of the risk from which he sough to be protected and the degree to which that protection will be lost if the non-occurrence of the condition

someone is losing the value of their performance or suffering
looking for some sort of unfairness b/c of the forfeiture

failure to adhere to the terms of the contract
deviation from the terms of the contract
will occur at time of performance

look at performance/ non-performance

equitable doctrine
contract still moves foward despite the breach
breacher doesn't just "get away with it"- cannot be a willful or intentional error

specificity= make very clear what you want
make sure you have trusted relationship with the party you are contracting with

material breach
so significant it will end the contract

immaterial breach
contract will still go on
victim can still sue for damages

factually sensitive inquiry
the court will have to determine which type of breach it is

advise them to continue with their end of the contract until things work themselves out

-The extent to which the injured party will obtain the substantial benefit which he could have reasonably anticipated
-The extent to which the injured party may be adequately compensated in damages for lack of complete performance
-The extent to which the party failing to perform has already partly performed or made preparations for performance
-The greater or less hardship on the party failing to perform in terminating the contract
-The willful, negligent, or innocent behavior of the party failing to perform
-The greater or less uncertainty that the party failing to perform will perform the remainder of the contract

clear (or definite) and unequivocal manifestation that the individual won’t render the promise of performance when the fixed time in the contract for performance arises

Promote efficiency/productivity
Allowing the suit allows the victim of the breach to move on with their lives rather than having to wait around for the breach to occur

Justification for such a high standard
•Want people to stay in and complete contracts
•Contracts are a GOOD thing
•Many contracts, especially long-term ones, will have some bumps in the road--shouldn’t immediately end the contractual relationship

•written/oral manifestation
•actions indicating that the party has no intention to perform on the contract

•It’s accepted by the victim OR
•The victim changes their position based on reliance upon the AR

One of the dangers when you end up having problems with another party in regard to performance of the contract is whether or not you will be held liable for breach
In AR, if you stop your performance and you’re wrong about the AR--you can be liable for breach

compensatory damages

compensate

punitive (designed to punish)

give what is necessary to compensate the party for the breach

General measure= loss in value + other loss - cost avoided - loss avoided

where they would have been financially if the contract had been performed/ completely

•Gives the party the benefit of the bargain
•Damages to complete the performance of the contract

•Damages based on the difference between the value of the property as constructed and the value if performance had been properly completed
•Awarded when there is substantial performance in good faith with defects

3 way split in authority
Ethical approach
Economic approach
Look at whether the victim will use the money for the intended purposes

cost of completion
(if you give your word, you should keep it)

give just enough money to make up for the diminished value
(we don't like to waste money)

If the money will actually be used for cost of completion= award cost of completion and give the victim what they bargained for
If the money will be pocketed and there will be a windfall from overcompensation= use diminished value

Contracts are a GOOD thing--help us rely on each other, help society accomplish things
If we try to punish, there will be less contracts entered into/less will get done in society

Foreseeability
Have to prove your damages
Duty to mitigate
Must be caused by the breach
No attorney's fees
No Emtionall Distress damages

whatever damages that would be claimed have to be foreseeable at the time of contract
(foreseeable at time of contract)

parties must prove (even foreseeable) damages by a preponderance of the evidence

Split in authority
-No lost profits recoverable at all for new business
- More modern rule is that some jurisdictions will entertain the idea of a new business recovering lost profits

requires a victim of a breach to try to limit their damages as much as possible

don't want people heaping extra dmaages on others
avoids waste

The victim has a duty to make reasonable efforts to find comparable employment
If you find a job with the same compensation/find a job that’s comparable, YOU MUST TAKE IT
Factually-sensitive inquiry
Can still recover the cost it took to find a new job

attorneys' fees
emotional distress damages

both parties pay their own litigation expenses

loser pays both parties' litigation fees

default law for international transactions/ contracts

create common grounds between parties

no recovery for EDD

can recover if
-breach also caused bodily harm; or
-breach is of such a kind that serious emtional distrubance was a particularly likely result

small awards that show one party won
makes victim seem validated
affects the breaching parties reputation

backup damages when expectation dmaages are not available
puts victim back to where they were before the contract happened

No attorneys’ fees
No ED damages
Foreseeability
Have to prove your damages
Duty to mitigate
Must be caused by breach

reliance-based theory
different from breach
vauge doctrine

Split authority
1. allow full range of damages (some jurisdictions)
2. limit to strictly reliance damages

do NOT fall on the contract timeline

enrichment that would be unjust if not compensated for
no time attached to timeline just based when benefit was conferred

measured based on the value of the benefit conferred

often won't know until the opinion is delivered or
even when the opinion finally gets finality through the appellate process

3 approaches
1. Traditional
2.Compensatory
3. Middle ground

when you have an individual who has breached an agreement, if they want their deposit back, they get NOTHING

if you don't give that money back, there will ultimately be a windfall
(this will cause damages to start to be punitive, which we don't want)

if somebody willfully/ knowingly breaches, they are not allowed to recover
people who innocently breach are allowed recovery

if something is addressed specifically in the contract, you cannot get RD for it

if there is some sort of fraud or misrepresentation, then RD are available

available in situations when there is an inadequacy of money damages
not automatic/ immediately given courts discretion

concern about the personal relaionship-- likley won't be the same after litigation
ordering SP on PS looks dangerously close to indenture servitude/ slavery

Split
-some say breather CANNOT work at somewhere else
-some refuse to enforce clause and let them "move on" with life

provisions that say (in the contract) what the damages will be in case of a breach

uncertain in amount or difficult to prove
parties must have intended the clause to liquidate damages rather than operate as a penalty
amount set in agreement MUST be reasonable forecast of just compensation for the harm flowing from the breach

Switch burden (P no longer has to prove damages, D actually have to disporve them)
if there is uncertainty in regards to damages, these can help the court

1. One-look/ traditional
2. Two-look/ modern

were the agreed-upon damages reasonable at the time the contract was made?

look at the time of contract and at the time of performance

will depend on what approach is used
One-look/ tradtional : mitigation does NOT matter b/c looking at time after damages were determined
Two-look/ modern : mitigation DOES matter b/c looking at damages at both points

general rule; 3rd parties CANNOT enforce contract
b/c
contracts are private orders
performance can already be complicated

if you are intended beneficiary, you DO have standing to sue based upon contract

parties invited into contract as being beneficiaries
have to mention as an intended beneficiary of the contract in the actual terms of the contract itself

not explicitly contemplated in contract

fuzzy doctrine
cases are very close calls
start on the presumption that 3rd parties do NOT have standing

are contracts

Split authority
some WILL allow children to enforce child support agreements
many will NOT allow children to enforce them

the relinquishment of a known right to a 3rd party
-giving up benefit to someone else
-have to intentionally be assigning the rights to someone else

if you materially increase the burden on the other party to the contract, then the assignment will NOT be viewed as valid
material burden will be a factually sensitive inquiry

knowlingly delegating the duty of the contract to another person
-have to have the intent to pass the burden
-the party doing the delegation DOES remain liable on the contract

you can contract around allowing for delegation
if you have a special interest in having the original party to perform, delegation is not possible
if you hire someone that is relatively personal/ specific, having someone subbed in can be a problem