Chapter 14 Contracts and Sales: Performance and Remedies

1. MARIANNE M. JENNINGS Its Legal, Ethical, and Global Environment 7th Ed. Chapter 14Contracts and Sales:Performance and Remedies

2. Defenses

3. Defenses: Capacity • Both parties to a valid contract must have capacity, which includes age (18) and mental capacity. • Age Capacity. • In most states age is 18. • Before that, the party is an infant or minor.

4. Defenses: Capacity • Capacity – Age. • Contracts are voidable—minor can get out at his/her option. • Liable in quasi-contract for necessaries. • Some exceptions—student loans; military service. • Case 14.1Schmidt v. Prince George’s Hospital (2001). • Did the minor consent?

5. Defenses: Mental Capacity • Person understands contracts are enforceable and significance of legal documents. • Understands contracts involve costs and litigation. • If declared legally incompetent-contracts are void! • Otherwise, if no legal capacity, contracts are voidable.

6. Misrepresentation • Elements: • Misstatement of a material fact. • Reliance. • Damages. • Remedy can be rescission-contract is set aside. • Must have been material. • Cannot be sales puffing (opinion).

7. Fraud • Elements: • Knowing and intentional use of false information. • Knowing and intentional failure to disclose. • Many states have statutes exempting the disclosure of a murder or AIDS victims as previous owners or residents. • However, if there is an inquiry by the potential buyer, the information cannot be withheld.

8. Fraud • Fraud: The failure to disclose material information can be fraud or misrepresentation • Case 14.2Reed v. King(1983). • What does Mrs. Reed need to establish to be entitled to recession and damages? • Would the information about the house make a difference to you in making a buying decision?

9. Duress – Undue Influence • Duress – Contract Voidable. • Physical force or threats. • Party is deprived of a meaningful choice. • Has right of rescission. • Voidable. • Undue Influence –Contract Voidable. • Must have confidential relationship. • Attorneys/clients. • Elderly parents.

10. Illegality – Public Policy • Illegal subject matter. • Contract is void. • Contracts in violation of criminal statutes. • Examples: Contract to have someone killed; contract to pay for a vote.

11. Illegality – Public Policy • Contracts in violation of licensing statutes must be competency-based as opposed to revenue-raising for contracts to be void. • Contracts in violation of usury laws charging interest in excess of statutory maximum.

12. Illegality – Public Policy • Contracts in violation of public policy. • Exculpatory clauses—full liability elimination is generally invalid. • Covenants not to compete must be reasonable in time and geographic scope. • Unconscionable contracts.

13. Defenses • Case 14.3Water v. Min Ltd.(1992). • What are the possible defenses to this contract? • What made the contract unconscionable? • Is there any criminal conduct here?

14. Contract Performance • When is Performance Due. • Conditions precedent. • Conditions concurrent. • Conditions subsequent.

15. Contract Performance • Standards for Performance. • Complete performance is required. • Substantial performance allowed in contract cases. • Substantial Performance = Nonmaterial Breach.

16. Contract Performance • E-Commerce: Payments. • Digital Cash. • Digital Wallets. • Virtual Points. • Person-to-Person Payment. • Virtual Escrow. • Virtual Credit Card.

17. Performance: Excuse • When Performance is Excused. • Impossibility—contract cannot be performed • Example: Cannot build house if the land is washed away. • Commercial impracticability—UCC-2-615. • Basic assumptions parties made are no longer true. • Can protect themselves by putting in force majeure clause—covers problems such as wars, embargoes, depressions.

18. Performance: Good Faith • Case 14.4Sons of Thunder, Inc. v. Borden, Inc.(1997). • What impact does “good faith” have on termination of a contract? • What are the damages when there is a lack of good faith in the termination of a conduct?

19. Substitute Performance • Novation. • Two original parties agree, along with third party, to substitute one party for another. • Accord and Satisfaction • Agreement reached to discharge a disputed obligation.

20. Contract Remedies • Types of Damages: • Compensatory—put party in same position they would have been in without the breach. • Example: Sales—buyer has to buy car for $7,000 as opposed to original $6,000—gets $1,000 in damages. • Incidental damages, e.g., cost of finding the other car; attorney’s fees.

21. Contract Remedies • Types of Damages: • Consequential damages. • Damages experienced in relation to third parties. • Late fees or loss of income for delays. • Liquidated damages. • Parties agree on damage amount in advance.

22. Third Party Rights • Assignments. • Original party to contract assigns his/her benefits under the contract to another. • Example: Credit company sells credit contract for present value to another who undertakes its collection. • Assignee has same rights as original party. • Delegation. • Transfer of obligations under contract.

23. Third Party Rights • Third Party Beneficiary. • Originally named in the contract to benefit from the contract. • Insurance beneficiaries are third party beneficiaries.

24. International Issues • Assuring Payment: • Use a bill of lading. • Title to goods controlled. • Used in connection with letter of credit or draft. • Letter of Credit issued by buyers bank to seller. • Seller may draw on L/C to receive payment.

25. International Issues • Assuring Performance: • Need force majeure clause. • Stability of currencies. • Case 14.5 Lakeway Co. v. Bravos(1979). • How much did Lakeway lose once there was devaluation. • How did the contract address the issue of devaluation.