2 Historical Reasons for Freedom of Contract

1) Contracts clause of the U.S. Constitution: "States shall pass no laws imparing the legal obligation of contracts"

2) Declaration of Independence 1st Draft: "life, liberty and property" are inaliable rights.

1) Mutual Manifestation of Assent

2) Consideration

3) Capacity

4) Legality

1) Consists of the offer and acceptance

2) viewed objectively not subjectively (what they said and did, not meant)

Definition: Value given or detriment suffered in exhange for a promise allowing the promise to be enforceable

A bargain for exchange "quid pro quo"

a promise to make a gift is not enforceable

Capacity

aka who doesn't have capacity

A contract invovling a illegality void.

Lack of Reality of Consent (assent)

[Defense to a Contract]

Where assent to a contract is not real or voluntary, the contract is voidable.

examples: Fraud and Duress

Some contracts must be formalized by a writing or a witnessed writing to be enforceable

examples: contract for the sale of land must be in writing

a promise in exchange for a promise

a) offer contemplates a promise as acceptance

b) duties of offeror and offeree arise on verbal acceptance

Offer: I will give you $500 for the bike.  Offeree: I accept.  --> This is a valid contract.

a promise in exchange for a completed act

a) Offeree contemlates acceptance by performance

b) Duty of offeror arises upon complete performance

c)offeree has no duty

example: $100 reward if you find my dog

          (in fact)--> created by the conduct of parties

example: sitting in the hairstylist chair is a sufficient for a contract to pay for a haircut

go to an accountant--> it is implied he will bill you

emergency patient---> even if you are unconscious, they send you a bill you have to pay

Created by a court when one party unjustly enriches another party.

Contractor coming into your apartment (when it's supposed to be for your neighbors) and putting up new cabinets.  You knew about it, so you were unjustly enriched.

enforceable by none of the parties

eg: illegal contracts (arms dealing etc)

may be avoided by one or more parties

eg: contracts procured through fraud... the one who lied cannot void the contract however

the four requirements for a valid contract are met, but the contract is not binding because of a statute

eg: employement contract for a black jack dealer is unenforceable if gambling becomes illegal in MO by a law being passed

a judge looks at the words and actions of the parties rather than what they were thinking.

eg: Lucy v. Zehmer

Rules of Construction (Interpretation)

Plain Meaning Rule

if the words of the contract are clear in their meaning, the courts will enforce the contract as written--> generally no extrinsic evidence is allowed (that which is not on the written contract)

eg: covenant not to compete signed unknowingly.  "I didn't read it"

Rules of Construction (Interpretation)

Entire Writing Rule

The court will do its best to enforce the entire contract when there is a potential conflict of terms.

Often times one of the terms is rendered meaningless so the whole contract is not lost due to contradiction

Rules of Construction (Interpretation)

Meaning of Words

Ordinary Words: dictionary definition (is a dog kennel a "structure"?)

Legal Terms: legal definition ("tort is grounds for dismissal")

Technical Terms: technical meaning in the relevant trade or profession ("1 inch fill; a construction term")

Rules of Construction (Interpretation)

Conflict of Terms

Rules of Construction (Interpretation)

Ambiguous Terms

a) interpret against the drafting party

b) Priorities of Terms when resolving conflict or ambiguity:
1)Hand Written (1st priority)

2)Type-Written

3) Pre-Written (3rd priority)

c) ambiguity makes extrinsic evidence admissable

Rules of Construction (Interpretation)

Surrounding Circumstances

a) course of performance: the way the parties performed the contract being interpreted

b) course of dealing: the way the parteis performed previous, similar contracts

c) usage of trade: the way the issue in question is customarily dealt with in the type of business involved.

1) Expression of opinion

2)Statements of Intention

3)Preliminary Negotiations

4)Certain Advertisemetns and Auctions

a statement that has a general quality or a prediciton

"my car is worth $10,000"

not an offer

a statement of what one may do in the future

I plan on selling my son's Grand Am for $1,000

not an offer

inquiries or general discussions of general contract terms

"would you consider $750 for the car?"

with ads the danger is multiple acceptances

ads are not offers unless they are very specific eliminating the odds of multiple acceptances

"first come, first serve, only 3 left!"

Auctions are not offers unless they are: advertised w/out reserve  (basically you are entertaining offers if you don't have "w/out reserve"

1)Intention (must be a serious and objective intention by the offeror to be bound)  not in jest/anger/excitement

2)Definiteness:  terms definite enough to: ascertain the terms of the contract
including: names, description of goods or services, quanity, price, important delivery terms

*sales of land, insurance or services must include price

3) Communication: offer must be communicated to the offeree

a)communication by the offeror and b)receipt by the offeree

1) revocation of offeror ("deal's off!")

2) lapse of time (oranges go bad)

3) Rejection or counteroffer ("no, but how about...")

4) Operation of Law ("contract is no longer legal")

5) By terms of the offer ("if interest rate rise 1%)

typically possible any time up to acceptance, even if the offer said he would keep it open for a certain period of time (which would be a gift)

Only if there is an option contract--> you pay money to make offeror keep offer on the table until you decide if you want to take it

mirror image rule: an acceptance which contains new or varying terms is considered a rejection and counteroffer (acceptance must be a mirror image of offer to be valid)

no longer obligated to offer if one of the parties dies or becomes incompetent

there is some intervening illegality (such as a change in the local zoning that makes the contract illegal now)

1) Acceptance by whom--must be made by the offeree

2) Terms acceptance--> Three Requirements

a) unconditional: no if's, or buts

b)unequivocal: not a definite statement = equivocal

c) same terms:  mirror image rule (any variance in terms is a rejection)

3)Must be Communicated

-silence is not acceptance absent prior agreement

-timely acceptance (basically the offer must be accepted before it is terminated by any of the means)

acceptance is effective when correctly mailed---even if never received, according to the mailbox rule. 

Offers and revocations must be received to be valid. 

Revocation--> it has to be delivered

acceptance is not verbal

acceptance is by performance only

partial performance: typically makes the offer irrevocable for a reasonable time to complete performance 

Awareness: offeree must know of offer before acceptance by performance--> offer must be "received"

UCC

Sale

Passage of titile from seller to buyer for a price (consideration)

not a lease--there is not passage of title

Things tangible and moveable.

good or service?  --look at the primary purpose of the contract

moveable--it needs to be able to be carried from place to place, not attached to real estate

1)A dealer in goods of the type contracted for

2) a person who holds himself out as having special knowledge as to goods of the type contracted for

3)a person who employs a merchant as an agent

1) Good Faith implied in every contract ("play nice")

2) higher standards for merchants

Offer may have open terms including price; UCC fills in the blanks

1) Price: reasonable at time and place of delivery ("fair market value")

2) Payment Terms: on delivery

3) Delivery: at seller's place of business

4) shipment time: reasonable (a box of raspberries is fresh much shorter than a bag of potatoes)

UCC Basics:

1) What's being contracted for?

2)Who is doing the contracting?

In order to be UCC

1) must be a good that's being contracted for

2) and it must be for sale by a merchant

in UCC

If a merchant in a signed writing promises an offer will be kept open, the merchant is bound to hold the offer open for the stated time or reasonable time, not greater than 3 months

similar to an option contract in common law, but no consideration is made by merchant

UCC Acceptance-Sale of Goods

Does the mirror image rule apply?

an acceptance is valid despite new terms

additional terms considered proposals for new addition to contract

exception: acceptance made conditional on new terms is a rejection and counter offer

example:  I accept and I would like a 90 day warranty if seller says nothing you still buy.

not: I accept to buy washer/dryer if you give a 90 day warranty

new terms in an acceptance sometimes become part of contract if:

1) the change is not material (important)

2) no objection to the change is made by the offeror within 10 days

1) an act (paying money)

2)giving up a legal right ("right to sue")

3) a change in legal status (divorce)

4) a promise to do any of the first three

enough consideration to make the contract enforceable

this is required

anything greater than simply nominal consideration

$500 for a $2500 car is enough to enforce a contract

Fairness of a contract

not required

1) Illusory Promise

2) Gratuitous Promise

3)Past Consideration

4) Promise to Perform a Pre-existing Duty

a promise with no substance behind it-->subject to whim of promisor

examples: I promise to pay you $500 for the bike, if I feel like it

1) Requirement Contracts-- promises to buy all goods you need for a certain period of time (not how many you "want" how many you "need")

2)Output contracts-- promises to sell all the goods you can produce for a certain period of time (manufacturing up to capacity

A good faith duty is applied to these two under the UCC

a promise to make a gift or moral obligation

Swenson promising to give us $500

promised consideration has already been performed prior to the promise to do it

there's no bargaining because its already been done

Promise to Perform a Pre-Existing Duty (Insufficient Consideration)

if a duty existed prior to the promise to do it, then the promise to fulfill that duty is not valid consideration

"we promise not to rob your store if you pay us $200/month"

Contract Modifications:  new promises on both sides often needed

-if you already promised to work for $90,000, you have to do something extra if you want your employer to pay you an extra $30,000

1) Recission and new contract-->out with the old; in with new- gets around modification problem (cancelling a lease)

2) Promise to pay unliquidated debts  (when both parties are at fault)

-Owe $9,000 in past payments but you findout that the dealer rolled back the odeometer, so you make a settlement agreement to pay $1,000

1) Promises to pay debts barred by statute of limiations

-a repromise means that you have to repay it now

2)Reaffirmation agreement in bankrupcy

-promise to make gift, even when legally you don't have to pay your father in-law back, you do anyways

3) Charitable Subscriptions: pledges made to a charity are often enforceable

4) Promissory Estoppel

-a promise made by the defendent, gives the plaintiff reasonable reliance and they do something (buy a car) but they can't pay it off after the defendant tells them he cannot make the gift

Contract Modifications--> modifications need no new consideration to be binding no need for recission

Firm Offers are binding although they are not option contracts (no real consideration, but they are binding)

All parties have full legal capacity

Contract is valid

One or more parties have been adjudicated mentally incompetent

Result: contract is void-->not enforceable by either party

*disaffirmance is not necessary

One or both are minors, highly intoxicated, or mentally incompetent (w/out adjudication)

-alzheimer's "good days and bad days"

-contract is voidable by the person with the disability

-they have a reasonable time to disaffirm the contract (get out)

1) Expressing the intent, by words or content, not to be bound to the contract-->while under a disability or within a reasonable time thereafter

2)Restoration: requires the return of property purchased before disaffirmance  (return the car)

3)Restitution: requires payment for any damage to property prior to its return (more burdensome, not always required)

failure to disaffirm witin a reasonable time after the removal of a disability is an example of this

eg: you buy a car when you are under 17, you keep it for 6 months-- so it is implied that you want to keep it thereafter

Incompetent persons are often partially liable for necessaries so that they have more chance of receiving what they need to live

Flexible--- in that if you need a car to go to work, then the car would be a necessary

May disaffirm actual contract, but the person with limited competence is still liable for reasonable value of goods or services (as to avoid unjust enrichment) --quasi contract

1) Express Intent not to be bound w/in the required time period

2) fulfill the only duty of restoration under majority rule (most states), additionally in some states you must fulfill the duty of restitution

3)Must be a type of contract for which disaffirmance is allowed

1) marriage

2) joining military

3) student loans

1) Nature: doesn't know it's a contract

2) Substance: doesn't know the subject matter or consequences

1) Express an intent not to be bound while intoxicated or within reasonable time after becoming sober

2) Duty of Restoration

3) Duty of Restitution

1) Express--specific language that says they want to keep the contract

2) Implied: failure to disaffirm within a reasonable time after becoming sober

drunk person is liable for the reasonable value of goods or services even if the contract is disaffirmed

guy walks into walmart naked and buys clothes when he is drunk

Incompetent Persons

Adjudicated vs. Non-adjudicated

adjudicated: contract is void

non-adjudicated: contract is voidable and may be disaffirmed by the incompetent party

Lucid Intervals

define

result when no adjudication of incompetence?

periods when the person with the incapacity is clear-minded

result where there has been no adjudication of incompetence: the contract is valid

3 Requirements for Disaffirmance by Incompetent Persons

Also, express or implied ratification

Also, what about Necessaries?

1) Manifestation of Intent

-while incompetent or within a reasonable time after becoming competent

2) Duty of Restoration (bring Napolean's boat back)

3) Duty of Restitution (repair any damage)

Express: verbal statement showing intent to go along with contract

Implied: failure to disaffirm within reasonable time after mental capacity is restored

Necessaries:  the incompetent person is liable for the reasonable value of necessities even if the contract is disaffirmed

1) violation of usary laws (contract that charges interest above the legal limit)

result=cannot collect interest, or cannot collect on any of the contract

2)Gambling laws (gambling contract is void, but the loser may sue to recover losses

3) Blue Laws certain contracts prohibited on Sundays

-historically all stores were closed on sundays

-now very few contracts are illegal on sundays

-contracts for food and medicine are exceptions

4)Contracts by unlicensed professionals: you don't have to pay someone who cut your hair if they don't have a license, (it's not a valid contract)

5)Contracts to perform illegal acts: contracts to sell or transport contraband, not enforceable

Exculpatory Contracts

Define

Who generally cannot make these?

Def: attempt to escape liability (culpability) of the party at fault (before any negligience or torts occur)

1) employers generally may not exempt themselves from liability to employees (aka getting out of paying worker's comp)

2) professionals generally may not exepmpt themselves from liability to clients or patients

3) More likely to be against public policy if the exculpatory clause is placed in the contract by person with much greater bargaining power (employer)

These are Contracts Against Public Policy

1) Price Fixing: 2 dealers cannot agree the lowest price the sell a car at is $1000 above invoice

*all these limit competeition

2) Market Divisions: restricting trade by geographic areas such as you stay east of Warrenton and I'll stay west

3) Covenants Not to Compete: are enforceable only if--

a) if in connection with sale of a business or an employment contract and not too broad in terms of time and territory covered

legitimate example: Chiropractor who sells his business signs an enforceable contract that has a clause that states he may not practice for 2 years or within 30 mile radius of Jeff City

a) racial, religious or sexual discrinimation in contracts: unconstitutional violation by courts of equal protection under the law

b) race-related restrictive covenants (such as you cannot sell your house to a black person)

are against public policy

eg: hiring someone to defame a candidate (not illegal, but a tort and not an enforceable contract

Results of Illegality or Violations of Public Policy

General Rule

Exception

General Rule: the contract is void

-none of the parties can enforce it, even the injured party

Theory is: In Pari Delicto "in equal fault" or "served you right"

Exception: Protected classes, such as minors or employees.

eg: no one under 18 can work in hazardous employment, if someone is hired under 18, they can still collect their check

a defense to enforceability of an otherwise valid contract

an oral agreement which should be in writing is classified as unenforceable

Defintion of Statue of Frauds

History, why was it started?

a statute which requires certain types of contracts to be in writing to be enforceable

the fraud of perjury was the big problem which caused this statute to become common law

-basically people would hire false witnesses to tell their side of the story

What does inside or within the statues mean?

What about outside the statute?

Inside the Statute of Frauds:  if a contract must be in writing to be enforceable

Outside the Statute:  if an oral contract is enforceable

Sale of Interest In Land: 6 Types

Within the Statute

1) Entire Interest: if ownership of land may be divided into various parts, the entire interest is all the parts possible

2) Easements: the permanent right to use a portion of land w/out owning it

eg: roadway and utility easements

-passed on to all future owners as well

3) Profits: the right to come onto a land and remove something from it

eg: mineral rights and timber rights

4) Mortgages: a lien on land--> a lien is an interest which allows a sale of property to collect a debt

5) Life Estate: the right to exclusive posession of land for a term based upon someones life

-parents giving a life estate to their paraplegic son, for as long as he lives, afterwards it goes to their heirs

6) Leases: some leases must also be in writing to be enforced as agreed

Performance Beyond One Year

Within the Statute

Define

if performance of contract must take more than one year from the date it is made, the contract must be in writing to be enforceable

*the mere possibility of performance within one year, however takes the contract outside the statute so an oral agreement is enforceable

- generally construction contracts are presumed to be possible to be performed within one year even though this would be highly unlikely

*one year is calculated from the making of the contract not when the performance begins

Collateral Promises

Within the Statute

Definition: a promise of guarantee made o the creditior to pay another's debt

*there must be at least three parties involved at least two promises (one from debtor to creditor and one from guarantor to creditor)

3 Situations where the Statute of Frauds does not apply

for Collateral Promises

1) Promise to be jointly liable-- one the same basis as the debtor (co-debtor)

2) a promise to be primarily liable: parent will cover a child's debts because they have no money

3) primary purpose rule: if the primary purpose of the guarantee is for personal benefit, an oral contract is enforceable

bank saying it would give money to the subcontractor example

Promises Made in Cosideration of Marriage

Within the Statute

a) Promise of Dowry: a promise to a prospective husband to pay money or property upon hte marriage of a daughter

b) Prenuptial Agreement: promises made prior to marriage as to how property will be divided in the event of divorce

Review: article 2 of the UCC

-Goods: things tangible and moveable

*applies to everone, but has special rules for merchants

Writing is required when goods are priced at $500 or more, not necessarily when valued at that much!

1) at common law (contracts for land, insurance, or services) the writing must be sufficient to show the essential terms of the contract

2) the contract must be signed by the party being sued (initials are enough)

If there is no writing than the contract is unenforceable.

2 Exceptions to the Statute of Frauds

Performance

Admission of Terms

1) Performance: complete performance by one party removes the contract from the statute of frauds

2) Admission of Terms: when the defendant admits there is a contract, the contract is enforceable to the extent of the admission (this can happen during discovery)

Parol Evidence Rule

Define

Prior Written Agreements

evidence of prior or contemporaneous oral statements or agreements is inadmissible as evidence to alter the terms of a written statement

eg: when reading the gateway lease, what matters is what is written not what I say

Prior Written Agreements: prior written agreements are also inadmissible to alter the contract (the new contract voids the old one in a sense)

1) Extrinsic evidence is admissible to prove lack of reality of consent (such as birth certificate)

2) Extrinsic evidence is admissible to clear up an ambiguity in the written contract

3) Extrinsic Evidence is admissible to clarify incomplete contracts ("course of dealing or course of trade" p 30)

*the parol evidence rule does not apply to modifications because they come after the contract is made

UCC Variations--Sales of Goods

Statute of Frauds

1) Need only sufficient writing to show a contract, because other terms are filled in.

a) quantity and description are often enough as to terms

b) signiture or other authentication of writing suffices

2) Between merchants--> one signiture is enough if no objection by the other merchant withing 10 days after receipt (same as p. 36)

UCC Parol Evidence Rule: applies only if parties intended document to be all inclusive (then can there be no extrinsic evidence)