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Ahh...So this is Contracts!

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Detria Moore

on 16 October 2017

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Transcript of Ahh...So this is Contracts!

Ahhh...So this is Contracts!
What is a contract?
Ways to classify contracts
Bilateral vs unilateral
bilateral- a promise in exchange for another promise (typical)
unilateral- a promise in exchange for action (rare)

Executory vs executed
executory- valid K, but not all obligations have been fulfilled (still time to complete)
executed- when both parties have fulfilled their obligations

Valid vs uneforceable
valid- all 7 requirements are met
uenforceable- One of the 7 is amiss

Void vs voidable
voidable- when the law allows one party to terminate the K; valid until someone terminates (minors (only the minor), duress, trickery, mentally ill (not adjudicated)
void- unenforceable from the beginning; no one can enforce the K, it's like it was never formed and no one can perform (illegal K's, mentally ill (adjudicated), K's that are too restrictive)

Express v. Implied
express- both parties agree to all the important terms (majority)
implied- the parties actions indicate they wanted a K (rare)
Special Circumstances
Sometimes, even when there isn't a valid K, courts will still act like there is:
promissory estoppel- there's no valid K, but it would be unfair not to enforce the promise made because I relied on it and the defendant knew I would rely on it
Quasi- contract- a remedy due an injured party when there's no K, but a benefit has been given by the plaintiff and they reasonably expect to be paid and it wouldn't be fair for the defendant to keep the benefit
Performance, breach, and discharge
- fulfilling your obligations under the K; doing what you agreed to do
- failing to fulfilling your obligations under the K, not doing what you agreed to do
- when a party has no more obligations to fulfill (either because of performance or law)
- terminating a K by mutual agreement; unwinding of a K
- an event that must take place before a party is obligated under the K
condition precedent
- the condition must occur BEFORE the duty arises (condition--> then duty). Ex. If your marketing company can increase my sales by 40%, I'll pay you $1,000. When does the duty arise? What is
the condition? What happens if sales aren't increased by 40%?
condition subsequent
- the condition comes AFTER the duty has arisen (duty-->condition) Ex. We'll enter into a K with you now for fire
insurance. But if/when a fire does occur, you have 60 days to
provide us documentation. If you don't, our duties are
discharged. When does the duty arise? What is the
condition? What happens if the documents aren't
timely submitted?
**PSA** If I have to type the word 'contract' every time it's needed I may loose a finger. So please oblige me be by allowing me to write the legal shorthand for the word contract throughout this presentation... which is "K."
What are the requirements for a valid contract?

agreement; more than a promise; an agreement that the law will enforce
1. Offer 5. Capacity
2. Acceptance 6. Consent
3. Consideration 7. Writing
4. Legality

Where a K begins. Someone has to make a promise to do something contingent on another promise or action; a willingness to enter into a bargain.
Agreement to the offer. When an offer is made, the offeree (person receiving the offer) can chose to accept. If they are agree to the terms as listed in the offer, they have a deal and we have a K!
There has to be a bargain, something in exchange for something else; has to be something of benefit for both parties. There has to be mutual bargain, otherwise it's just a gift.
"I'd love to buy the house on 123 Sycamore Lane."
"I will buy the house on 123 Sycamore Lane for $200,000..."
"Not for $200,000, but I'll sell it for $250,000..."
"Okay, I'll sell it for $200,000 but only if its..."
"I will see you the house at 123 Sycamore for $200,000..."
"I'll give you $500 to finish school."
"I'll give you $500 not to neglect your children."
"I'll give you $500 if you agree to paint my house."
Must be for a lawful purpose or its not enforceable and hence is not a K.
The legal ability to enter into a K. The parties entering into the K have to be of sound mind, fully competent and have an awareness of their actions in entering the K. Those lacking capacity typically include:
minors (under 18):
minor can
(get out of the K); or
but must return consideration
if not done timely, minor could have
exception is necessaries (food, clothing, shelter medical care); minor is responsible for necessaries
mentally ill or incompetent
person can't understand the nature and consequence of the transaction due to thir mental illness
people who were VERY intoxicated at the time of K signing
A person has to have full and complete knowledge in order to truly consent. It's not consent if the following is involved:
fraud- an INTENTIONAL misrepresentaion that's material to the K and the injured party relies on the false statement; Silence can sometimes equal fraud (see chapter 15)
Mistake- do one (unilateral) or both (mutual) believe the mistake?
Duress- threatening or forcing someone to enter into the K; how far is too far (physical force? economic? reputation?)
Undue Influence- improper persuasion by a dominant person whose in a relationship or position of trust with another.
Not all K's need to be in writing. Oral K's are enforceable. However, there are certain K's that MUST be in writing (Statute of fraud):
K's involving the sale or transfer of real estate
agreeing to pay someone else's debt
leases for more than 1 year
Misc. K Things to Know
K law is governed both by common law and the UCC
UCC governs K's for the sale of goods (anything tangible, except for $; not services); everything else is common law
Performance, Breach, and Discharge (con't)
substantial performance = full K price minus the defect
no substantial performance = value of work done only
Strict Performance
- when K obligations have to be performed precisely with no deviations (not typical)
substantial performance
- when one party has done enough of the K obligations to warrant payment (but K not completely fulfilled); how much is enough?
The problem with
personal satisfaction clauses
; does it involve
the promisees personal judgment or view? If yes, purely
subjective view; if no, courts will use an objective standard.
Breach and Remedies for
a Breach
Parties to a k must act in
good faith.
Time is of the essence clauses
- deadlines
will be strictly enforced
occurs when one party does not perform a duty under the terms of the K without a valid excuse

If one party breaches, the other party is discharged (no longer bound by the terms of the K

General rule- courts will discharge a K ONLY if there's a

, not a minor one (remember substantial performance). What's a material breach? Delivery location? Price? Quantity? Color?


- when one party warns ahead of time (either by word or action) that they will not be able to perform the terms of the contract; the non-breaching party is discharged and may sue the offending party

Statute of Limitations
- time limit within which a suit must be bought; time starts ticking from the time of injury or breach (determined by each state, 3-10 years); What is the SOL under the UCC?
- when someone breaches a K, the court awards them compensation for their injuries (harm)

When you enter into a valid K, you have an interest that should be protected. The four (4) types of interest protected (serves as the basis for figuring out how much an injured party should be awarded under a breach of K case/theories to recovery):

Expectation Interests
Reliance Interests
Restitution Interests
Equitable Interest
Expectation Interest
Puts the injured in the position they would have been in had both parties fulfilled their obligations under the K

typically the $ you would have made from the K

the most common remedy; the easiest to determine; breach of K directly caused this harm

takes into account all the gains and losses that would have occurred

plaintiff shouldn't end up better off nor worse

Expectation interests can be:
direct- directly flows from contracts breach
consequential- special damages unique to the situation (but still must be forseeable)
incidental - minor (indirect) costs associated with the breach
Reliance Interest
If you can't find expectation, you can be awarded reliance interest. This is the $ spent because you relied on the K

this restores the injured party to where they were BEFORE they entered the K; how much did you spend performing part of your duties?

often awarded in promissory estoppel cases
Restitution Interest
If expectation and reliance are unavailable, then see if restitution would work; this happens when a benefit has been conferred on the other party

the award is typically the amount of the benefit conferred

Often awarded in the following cases:
Breach of K or K discharge
As a remedy for voidable K's
As a remedy for cases of quasi-K
Equitable Interest and Remedies
When you just can't put a price on the damage amount

typical equitable awards are
specific performance
- forces both parties to perform as they said they would perform under the terms of the K (not often)
cases involving very unique things

- a court order requiring someone to do something specific OR refraining them from doing it

- when the court rewrites part of the K (rare)
The UCC and Damages
Part of the UCC is just codified common law, but certain UCC sections give specific remedies to buyers and sellers.
Buyer Breached
If a buyer of goods has breached a K, the seller has two remedies

1. Resell the goods to someone else and receive the difference between the original K price and the price she receives for them on the open market

2. Don't resell the goods, keep them and just get the difference between the original K price and their fair market value

When the buyer breaches, the seller is entitled to direct and incidental damages, but typically NOT consequential damages
To understand better, take a look at who breached.
Seller breached
If the seller of has breached a K, the buyer has 2 options:

1. To cover- to mitigate or purchase substitute goods in good faith then get the difference between the original K price and the cover price

2. Not cover and prove the the fair market value of the trees and receive the difference

If the seller breaches, the buyer is entitled to consequential damages (so long as they are forseeable) and incidental damages
Special K Issues to Consider
A party generally will not be able to recover damages if they could have mitigated (lessened the damages), but did not

nominal damages- token damage amount given on principal when no real or serious loss has occurred

Liquidated damages- proactively specify in a K how much a party must pay if a breach occurs
only enforced if it was difficult to tell at the time of signing the K what the damages will be; AND
if the amount is reasonable
- a contractual assurance that goods will meet certain standards; governed by the UCC

- one created by seller with words or actions (not necessarily written); must be part of the bargain
expressly writing it or saying it (specific)
describing the goods
sample or model

- created by the UCC and not from the seller
Implied warranty of merchantability
Implied warranty of fitness for a particular purpose
if you don't have good title to begin with, the law imposes that you do, but then that you breached it, so that the other party can recover damages
infringement- whan a merchant sells goods, they are creating a warranty that it is free from copyright, patent, trademark, etc.
- a statement that particular warranty doesn't apply

oral express warranties can be disclaimed
written express warranties CAN NOT be disclaimed
implied warranties can be disclaimed if seller actually uses the word merchantability, and makes the disclaimer conspicuous
selling something with words, "SOLD AS IS" disclaims a warranty
Special Circumstances
limitation of remedy clause
a K term that limits consequential damages will be considered void if it's unconscionable
if a consumer suffers personal injury, the court will also likely reject an a limit on consequential damages
if the buyer misuses the product, it will also bar a warranty claim
Under the UCC, the statute of limitations is 4 years
buyer must notify the seller of defects within a reasonable time.
Full transcript