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CHAPTER 8

CONTRACTS: ENFORCEABLE AGREEMENTS

 

I. An Overview of the Promises We Live By. Many of the promises we make are moral promises, such as "I'll take notes for you for tomorrow's class." Standing by itself, this is a moral promise, which if not done, does not give the injured party any legal recourse. A contract is a legal obligation, which may also be a moral obligation (but not necessarily), that is enforceable in a court.

A. The Ubiquitous Contract. Contracts are the legally binding links between producers and consumers, employers and employees throughout the world. Everywhere you look where you see something touched by human beings, you see something that was the result of one or more contracts.

B. The Uniform Commercial Code (UCC). Article 2 of the UCC covers the sale of goods (moveable, tangible personal property).

II. How Are Contract Classified? Two or more persons, one of whom is the offeror, who make the offer to the second person, who is called the offeree.

A. Method of Expression

1. express

2. implied-in-fact

3. formal contracts-statutes prescribe the exact terms or language.

4.. simple contracts-all contracts not formal

 

B. Parties Bound

1. bilateral

 

2. unilateral

 

C. Legal Effect

1. valid

 

2. voidable

 

3. void

 

4. unenforceable

D. Extent of Performance

1. executed

 

2. executory

 

 

III. What Are the Requisites of a Valid Contract?

Agreement

Consideration

Competent parties

Legal Purpose

 

A. Competent Parties

 

 

B. Mutual Agreement (objective theory of contracts)

Offer and Acceptance

Offers can be revoked anytime prior to acceptance.

Offers expire after a reasonable time.

 

 

C. Genuine Assent

1. duress

 

2. fraud

a. false representation

b. material fact

c. intent to deceive

d. justifiable reliance

e. damages

 

3. undue influence

 

4. mutual or bilateral mistake

 

D. Reciprocal Consideration

 

1. Each party ultimately receives some legal benefit and suffers some legal detriment.

2. Consideration forms

a. money

b. property

c. promise to do something you are not legally required to do.

d. promise not to do something that you are legally entitled to do.

E. Legality in Formation and Execution

1. Violation of Statutes

a. gambling

b. licensing

c. blue laws

d. usury

2. Violation of Public Policy

a. covenants not to compete

 

3. What is the Effect of Illegality? Generally the court will leave the parties to an illegal contract where it finds them, because the illegal contract is void.

a. when the victim to an illegal contract sues, or when one of the parties is not blameworthy, or when one of the parties backs out prior to the illegal event occurring, the court will provide a remedy for the innocent party.

 

F. Form Prescribed by Law

1. Certain regulated industries have statutory requirements for their contracts. Examples are the insurance industry and certain consumer credit contracts.

2. The English Statute of Frauds and Perjuries (most commonly known as the Statute of Frauds) requires certain contracts to be in writing and signed by the person against whom enforcement is sought.

a. sale of land

b. contracts that are impossible to perform within one year of the creation of the contract.

c. contracts to answer for the debt of another.

d. contracts for the sale of goods of $500 or more.

e. contracts made in consideration of marriage, e.g. antenuptual agreements.

 

IV. Direct Involvement of Third Parties in Contracts. The term privity of contract means that only the parties to the contract have rights in the contract, i.e. can sue or be sued to enforce the contract. Generally, third parties are not in privity of contract with the contracting parties.

A. Third-Party Donee and Creditor Beneficiaries.

1. From the inception of the agreement, one or more of the parties to a contract may provide in the agreement for a third party to benefit. An example is an insurance contract, where the insured contract to pay a beneficiary the face value to the policy on the death of the insured.

 

B. Assignment of Contract Rights and Delegation of Duties

1. After a contract has been entered into, one of the parties may wish to transfer their rights or duties under the contract to some third party. Generally, this may be done so long as

a. the contract does not prohibit it

b. the other party is not harmed by it

c. the other party's obligation is not materially increased or changed

 

V. How Are Contracts Discharged?

A. Performance

 

B. Substantial performance

 

C. Novation

 

D. Agreement

 

E. Cancellation

 

F. Material Breach by the other party

 

VI. What Remedies Are Available for Breach of Contract?

A. Legal Damages

1. compensatory damages. Puts the injured party in the same position they would have been had the contract been fully performed.

2. nominal damages Awarded if actually damages cannot be proved to show their was a breach of the contract.

3. punitive damages These damages are awarded to punish the wrongdoer. In breach of contract actions, they are almost never awarded.

B. Equitable Damages

1. Specific performance This is an order of the court requiring the breaching party to perform. It is only made when the subject matter of the contract is unique, such As an original work of art.

2. Injunction or restraining order This is an order of the court requiring a person to do something or forbidding a person from doing something. Rare remedies in a contract action.

 

VII. What Special Protection is Provided for Individual Consumer Contracts?

A. Before-Sale Laws

1. generally covers the manufacture of the product.

 

B. During-Sale Laws

1. truth in advertising

2. consumer sales laws

3. door to door sales laws and the 3 day cooling off period.

 

C. After-Sale Laws

1. Fair Debt Collection Practices Act

2. Fair Credit Billing Act.

 

VIII. What Warranty Protection Do You Have as a Consumer?

A. Warranties

1. Express

2. Implied

1. title and encumbrances

2. merchantability

3. fitness for a particular purpose

 

B. May a Seller Disclaim All Warranties that Otherwise Protect the Consumer?

 

IX. What Can You Do if You Are Overwhelmed by Debts?

 

A. Chapter 7 Proceeding

 

B. Chapter 13 Proceeding