MSA 5206 Contracts Short 2016 PDF

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James M. Lammendola, JD Temple University LAW 1101

CONTRACT LAW

I. NATURE AND TERMINOLOGY:

A. CONTRACT: a legally binding agreement between parties who agree to perform a promise or refrain from performing an act; a breach of the agreement can result in legal proceedings against the breaching party for money damages or equitable relief.

B. There is a constitutional right to contract

C. OBJECTIVE THEORY OF CONTRACT (reasonable person standard) is applied. The subjective intentions of the actors are not determinative as to whether there was an intent to contract.

D. Contract Formation: The requirements of a contract are: 1. Mutual Agreement a. offer b. acceptance 2. Consideration (legally sufficient, bargained for value) 3. Capacity a. minority b. extreme intoxication c. incapacity (incompetency) 4. Legality of subject matter

E. TYPES OF CONTRACTS: 1. Express (verbal or written) 2. Implied in Fact (by conduct) Example: Sitting in a barbershop chair to get a haircut 3. Implied in Law/Quantum Meruit (to prevent unjust enrichment) **** Example: an unconscious person receives emergency medical care 4. Bilateral: promise for a promise (promise to pay a legitimate loss in exchange for premium payments; an agreement to purchase a home) 5. Unilateral: promise for a performance (real estate listing agreement) 6. Executed: Completely performed by both parties (the house is sold) 7. Executory: something yet to be done by either or both parties (the real estate sales contract has not been closed; repayment of a loan in installments) ****Technically, not a contract but it is treated as one F. A CONTRACT MAY BE: 1. Valid (all elements are present) 2. Void (missing elements 1-2, 4) 3. Voidable (fraud, misrepresentation, undue influence, duress, minority or capacity issues; only one party has the option to disaffirm) 4. Unenforceable (e.g. a contract required to be in writing is not, statute of limitations, release) NOTE: Some contracts must be in writing to be enforceable. This will be covered later in this outline.

F.

An analytical framework: 1. Formation 2. Performance or Breach? 3. If complete or substantial performance, end of analysis 4. If breach, ask ---5. Is the contract enforceable? (If no, end of analysis)

6. If yes, seek a legal remedy (money damages or equitable relief) 7. II. ELEMENT #1: AGREEMENT (Offer & Acceptance)

A. The three elements of an offer are: 1. Intent to contract (objective standard) 2. Reasonably definite terms as to price, payment, type and quantity of goods and delivery terms. (note; this is modified by the Uniform Commercial Code {UCC} for sales contracts only) 3. Communication

B. The two elements of an acceptance for non-UCC contracts are unequivocal and (usually) communication. Silence generally does not constitute acceptance. The exceptions are, prior dealings among merchants, acceptance of solicited offers (when you are a member of a book or CD club) and the failure to reject goods or services in personal dealings

C. Termination of Offers 1. Revocation. The person making an offer may withdraw the offer anytime before acceptance. A major exception o this rule is the “option contract” where an offeree pays money to someone to keep an offer open (example: a lease with an option to purchase) 2. Rejection: once an offer is rejected by the person to whom it is directed. 3. Counteroffer: Essentially the bargaining process. This is both a rejection and new offer 4. By Operation of Law: Destruction of the subject matter, death or incapacity of a party in a personal service contract, supervening illegality or a lapse of time.

III.

Element #2: CONSIDERATION

1. The Key: Bargained-for Exchange of Value (SUFFICIENCY) a. Consideration includes a promise, an act, the destruction or modification of a legal right and forbearance. There must be either a benefit to the person making the promise (promisor) or detriment to the recipient of the promise (promise) b. Typical promises relate to the sale of real and personal property, loans, insurance, services and employment ….(and More!) c. As a general rule, courts not examine the adequacy of consideration. Adequacy refers to the apparent fairness of the transaction (did the parties receive roughly equal value?). The adequacy of consideration will be examined only when there is a showing of mutual mistake of fact, fraud, misrepresentation, or issues impacting on an individual’s mental state such as undue influence, duress, or incapacity (not knowing the nature and effects of one’s actions). 2. A pre-existing duty in contract, tort or criminal law cannot constitute consideration (examples: paying extra money under a contract without receiving anything in return, promise not to commit an illegal act). Exception is unforeseen difficulties which must be extraordinary; i.e. not in contemplated by the parties in the ordinary course of business) 3. Events that occurred the past cannot constitute consideration. (Thanks for finding my dog yesterday. I’ll give you $50.00 tomorrow to show my appreciation).

IV. Element #3: CAPACITY

A. Capacity in general (minority and impaired mental states) 1. General Rule: Capacity is presumed; voidable at the option of the person claiming the absence of capacity 2. Public policy: to protect those in need of protection

B. Minors 1. Minors (under 18 and unemancipated): Rules vary among the states as to disaffirmance. Disaffirmance is the right to avoid contract performance. a. Majority Rule 1. return goods (or other consideration) with right of refund 2. and/or be relieved of any further obligations b. NECESSARIES: Minors are liable for reasonable value of goods under theory of quasi contract. Loans are rarely viewed as necessary; student loans and insurance are exceptions c. Must disaffirm entire contract during minority or a reasonable time thereafter. d. Disaffirmance must occur before or very soon after reaching the age of majority or else the contract is ratified. C. INTOXICATION (relief is rare in self-intoxication cases) 1. Standard: Ability or inability to understand nature and consequences of actions by objective standard 2. The fact that a contract may favor the non-intoxicated party does not automatically make the contract voidable. 3. Liability for necessaries in quasi contract D. MENTAL INCAPACITY

1. May be valid, voidable or void. Same standard as intoxication(except when void) 2. Contracts are void when an agreement is made directly with an incapacitated person and a court appointed guardian, or the agent under a power of attorney, is bypassed 3. When an alleged incompetent does not have a guardian the contract is voidable (may or may not succeed in disaffirmance) 4. Liability for necessaries in quasi contract V. ELEMENT #4: LEGALITY A. “Contracts” that violate licensing statutes or common law principles A professional (doctor lawyer, real estate agent, architect MUST have a valid license in order for them to enter into a contract for payment of services.

Special mention: Covenants not to Compete a. void when standing alone b. EXCEPTION: legal when found in employment contracts and sale of an ongoing business AND the restriction is reasonable as to duration, area and subject matter ********Detrimental reliance NOT outlined*********...