Contract Law

1. Contract Law Jody Blanke Professor of Computer Information Systems and Law

2. Contract Law As Private Law • Willing parties can agree to do most anything • Freedom of contract • “Meeting of the minds”

3. Private Law • Contract between Major League Baseball and the Players Association - Collective Bargaining Agreement (241 page PDF file) • “free agent” • “salary cap” • “luxury tax” • NHL (a league that used to play ice hockey in Canada and the U.S.)

4. Uniform Commercial Code • Poster child of uniform laws • Adopted in 49½ states • Very successful • Facilitates the ease of doing business • First place to look for “the law” • then, other state statutes • then, state case (common) law – safety net

5. Basic Requirements • An agreement between the parties • Consideration • Capacity • Legality

6. Agreement – The Offer • Offeror must have intention to be bound by offer • e.g., kick the tire • Terms must be reasonably definite and certain • can be written, oral or implied • can come from prior dealings or usage of trade • Offer must be communicated to offeree • e.g., reward for lost dog

7. Figurative “Death” of an Offer • “Natural causes” – lapse of time • “Suicide” – revocation • “Murder” – rejection • Counteroffer = rejection + offer • “Execution” – by operation of law • change in law terminates offer

8. Literal Death of An Offer • The offeror dies • The offeree dies • Destruction of subject matter

9. Acceptance • At common law – “mirror image rule” • UCC – more relaxed (and reasonable) • “battle of the forms” • Generally effective upon receipt • exception – “mailbox rule”

10. Bilateral and Unilateral Contracts • Bilateral – a promise for a promise • e.g., Joe promises to paint Bill’s house and Bill promises to pay Joe $1000 • Unilateral – a promise for an act • e.g., Susan promises to pay $500 to the first person who scales the outside of the Business and Education Building • performance of the act is acceptance

11. Consideration • Each party must provide something of value • Money, property, services, forebearance • e.g., Hamer v. Sidway – the “rich uncle” case • e.g., Jennings v. KSCS • Courts will not examine the adequacy of the consideration

12. Capacity • Age – law protects minors • Voidable contract • Exception for necessaries • Mental competency • Void contract • Voidable contract • Intoxication

13. Legality • Contracts must have a legal purpose • cannot take out a “contract” for that noisy neighbor • cannot purchase a gram of cocaine • gambling? • e.g., Durado Beach Hotel v. Jernigan

14. Genuiness of Assent • Duress – “gun to the head” • Undue Influence • Fraud • Mistake • Unilateral – generally does not excuse performance • exception – if nonmistaken party knew of the mistake • Mutual – generally does excuse performance • no meeting of the minds

15. Third-Party Rights • Each party receives certain rights or benefits in a contract • Each party undertakes certain duties or obligations • Generally, rights can be assigned to third parties • Generally, duties can be delegated to third parties • exception – when performance depends upon personal skills

16. Statute of Frauds • “An oral contract is as legally valid as a written contract unless the law requires it to be in writing” • “…as good as…” • if executed before 100 clergy people of all faiths willing to come to court and testify

17. Must Be In Writing • Contract to transfer an interest in real property • Contract that cannot be performed within 1 year • Contract to pay the debts of another • Contract made in contemplation of marriage • dowry agreement • prenuptial agreement • Contract for the sale of goods greater than $500 • UCC drafters recommend increase to $5,000

18. Parol Evidence Rule • Court will not permit evidence of prior or contemporaneous oral statements if there is a complete written agreement • exception – ambiguities • Morals of the story • read the contract – get it in writing

19. Integration Clause • “I have read the above agreement and understand that it represents the entire agreement between the parties.” • Morals of the story • read the contract – get it in writing

20. Standard Form Contracts • Read them • Modify them • and get written approval from authorized representative • Use attachments if necessary • e.g., letters, memos, specifications • Ambiguities interpreted against the drafter

21. Discharge of Contract • Discharge by performance • Discharge by agreement • Discharge by impossibility

22. Discharge by Agreement • Mutual rescission • key word – “mutual” • Novation • new contract • Accord and satisfaction

23. Discharge by Impossibility • Objective impossibility • e.g., the car got hit by a meteorite • Subjective impossibility • “It’s impossible for me to go through with that contract” • Performance may be discharged by commercial impracticability • e.g., school district milk case • key – was event “reasonably foreseeable?”

24. Remedies – Money Damages • Compensatory damages • makes one “whole” under the contract • provides the “benefit of the bargain” • measure of damages is usually the difference between the value of the contract and the market value of what was actually received

25. Remedies – Money Damages • Consequential damages • must be reasonably foreseeable • e.g., Hadley v. Baxendale • often disclaimed by contract • Punitive damages • rarely awarded for breach of contract • Nominal damages • e.g. Carol Burnett v. The Enquirer

26. Mitigation of Damages • Nonbreaching party has duty to lessen the amount of damages • e.g., wrongful discharge • Anticipatory repudiation • Duty to “cover”

27. Liquidated Damages • Actual amount of damages must be difficult to estimate • Amount specified must be a reasonable estimate of those damages • Must not be a penalty

28. Equitable Remedies • Injunction • Quasi-Contract (Quantum Meruit) • Specific Performance • generally available for unique goods or property • not appropriate for personal services

29. Choice of Law/Forum • Written contracts often contain choice of law and choice of forum clauses • These will generally be enforced as long as there is a connection to the state • Some states may also require that the choices be fair

30. Promissory Estoppel • “Last ditch” remedy • Four requirements (Restatement of Contracts § 90) • A promise • Justifiable reliance • Foreseeability • Injustice • e.g., Hoffman v. Red Owl Stores

31. Unconscionability • UCC remedy • The court “would not be able to sleep at night” • The court can ignore or fix an unconscionable contract • Consumer remedy • e.g., Frostifresh v. Reynoso • e.g., PEPCO v. Westinghouse

32. Covenants Not to Compete • May be related to sale of business • e.g., Joe the Baker • May be related to employment contract • California will not enforce such an agreement as an illegal restraint of trade • Georgia will not “blue pencil” an agreement • Brenda Woods agrees not to work as an on-air news anchor in the Atlanta/Athens television market for 6 months

33. Covenants Not to Compete • Scope • agreement must specify what activity is to be limited • Geography • be careful of terms like Atlanta • Duration • e.g., 6 months, 1 year, 2 years

34. U.C.C. Article 2 • Applies to “sales” of “goods” • “Goods” as opposed to “services” • “Predominant factors” test • E.g., Sears washing machine • “Sales” as opposed to “leases” • “Economic reality” test • Judicial extension of Article 2

35. U.C.C. Articles 2A and “2B” • Article 2A • Applies to “leases” of “goods” • Article “2B” • Was to have applied to “licenses” • Became UCITA (Uniform Computer Information Transactions Act • Adopted in only two states (Va. And Md.)