Contracts Part 2 Issues for D2L MODIFIED for PROFESSOR LUDLUM October 12, 2016 Contracts Part 2 Issues for D2L Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

Contract may be unenforceable if the parties have not genuinely assented to its terms (no meeting of the minds) by: Mistake. Misrepresentation. Undue Influence. Duress.

Mistakes Only a Mistake of _________________ allows a contract to be canceled. Mistake of ______________________ is not a valid reason to cancel a contract How would you ever sell used cars?

§2: Fraud Elements of Fraud: Misrepresentation of Material Fact. Intent to Deceive. (___________________) Reliance. Injury.

Misrepresentation Misrepresentation of future facts and statements of opinion are not fraud, unless person professes to be an expert. Puffery Silence is not fraud, unless serious problem or defect known or asked and person lied. (i.e. had a DUTY to tell you and did not!)

Undue Influence Contract is Voidable. Confidential or Fiduciary Relationship. Weak party talked into doing something not beneficial to him or herself. Example: Sell senile investor my baseball cards

Duress Forcing a party to enter into a contract under fear or threat makes the contract voidable. Improper Threat can be economic or physical.

§5: Adhesion Contracts and Unconscionability Standard-Form (Adhesion) Contracts. Preprinted contract in which the adhering party has no opportunity to negotiate the terms of the contract. “Take-it-or-Leave-it” adhesion contracts. NOT ALL ADHESION CONTRACTS ARE VOID!

Adhesion Contracts Unconscionability. One sided bargains in which one party has substantially superior bargaining power and can dictate the terms of the contract.

Third Party Rights Only Parties to a contract have rights and liabilities under the contract. Exceptions: Assignment or Delegation. Third party beneficiary contract.

§1: Assignments and Delegations Transfer of contractual rights is an assignment. Transfer of contractual duties is a delegation. AR – DD Assign Rights – Delegate Duties

Assignments Rights that cannot be assigned: If the assignment is contrary to statute. If the contract stipulates the right cannot be assigned.

Duties That Cannot be Delegated When performance requires personal skill or talents.

Duties That Cannot be Delegated When performance will vary materially from obligee expectations. When the contract expressly prohibits delegation.

Effect of a Delegation Delegator remains liable. “I told my roommate to pick you up at the airport. . .”

Modern Beneficiaries Incidental. Intended: Contract between two parties is unintentional. Incidental beneficiary cannot sue to enforce the contract. (__________________________!) Intended: Original parties to the contract intend at the time of contracting that the contract performance directly benefits a third person. Beneficiary the right to bring suit

Intended v. Incidental Beneficiaries Examples: Life Insurance – beneficiaries Health insurance – your doctor Payday – your spouse Payday – your roommate

End of Contract How does a party know when his or her obligations under the contract are at an end? A party may be discharged from a valid contract by: Full performance (most often). Material breach by the other party. Agreement of the parties. Operation of law.

Performance Types of Performance: Complete Performance. Substantial Performance (minor breach).

Performance to Satisfaction What if the contract requires you to perform and I’ll only pay you “if I’m satisfied.” Is that an illusory promise to pay? No. It is performance to satisfaction! Performance must satisfy a reasonable person Or may be tied to satisfaction of a neutral third party

Performance Types of Performance: Performance to the Satisfaction of one of the parties

Performance Types of Performance: Performance to the Satisfaction of a third party. FAA Approval Electric work up to Code Accepted by MPAA for PG, PG-13, R, etc.

Discharge by Agreement Terminate by agreement Return to original position before contract Discharge by _________________________. Previous Obligation. All parties agree to new contract with a new party. Extinguishment of old obligations (old party gone).

Discharge by Operation of Law ____________ Impossibility of Performance. Death or incapacitation prior to performance; Destruction of the Subject Matter; or Illegality in performance. Impossibility excuses performance

LAW SCHOOL QUESTION . . .

Most Common Remedies: Damages. Rescission and Restitution. Specific Performance. Reformation. Quasi Contract.

Four types of Damages _____________________ Damages—direct losses. Sale of Goods: difference between contract and market price. _________________________________ (Special) Damages—foreseeable losses.

Damages ___________________________—punish or deter future conduct. not available for mere breach of contract. tort (e.g., fraud) is also involved. ______________________—no financial loss. Defendant is liable but only a technical injury.

Mitigation of Damages When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered. Must make a good faith effort to reduce the harm being done.

Liquidated Damages Provisions A contract provides a specific amount to be paid as damages in the event of future default or breach of contract. Valid Penalties. Specify a certain amount to be paid in the event of a default or breach of contract and are designed to penalize the breaching party. NOT Valid KEY: Are the liquidated damages _____________________________?

Rescission and Restitution A contract is canceled and the parties are restored to the original positions they occupied prior to the transactions. Restitution. Both parties must return goods, property, or money previously conveyed.

Specific Performance Equitable remedy calling for the performance of the act promised in the contract. Provides remedy in cases involving: Unique goods (artwork or land) Not available for ___________________. Ex: football player who refuses to join camp.

Reformation Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. Available when an agreement is imperfectly expressed in writing. _____________________________

Recovery Based on Quasi Contract Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. Party seeking quantum meruit must show: Party had reasonable expectation of being paid. Retaining benefit without paying for it would be unjust Used for contracts with minors…

Contract Provisions Limiting Remedies ___________________________ clauses. Provisions stating that no damages can be recovered. (Likely to be unconscionable!) Limitation of liability clauses. Provisions that affect the availability of certain remedies. (might be unconscionable, depending on the circumstances)

LAW SCHOOL QUESTION