Common Law of Contract

An Introduction toCommon Law

OfContract

Analyzing Contracts

➲ Formation● Offer, Acceptance, and Consideration

➲ Interpretation● usually done using an objective standard, several

interpretation tools and a few rules.➲ Performance

● the main focus here is whether there has been a breach.

➲ Defenses● usually dealt with as formation deficiencies.

➲ Remedies – Almost always damages.

Formation

➲ Three Requirements● Offer● Acceptance● Consideration

➲ NOTE – writing can be a formal requirement, but only if required by statute.

➲ Questions concerning whether something is an offer or acceptance are dealt with using an objective test.

What is an Offer?

Carbolic Smoke Ball CaseCarbolic Smoke Ball CaseRevisitedRevisited

The Basic Modelwithout revocation

Offer

Acceptance Rejection Counteroffer

OfferorAccepts

OfferorRejects

offerormakes c-offer

Contract formedon terms of offer

No Contract

K on terms ofcounteroffer

No Contract

and so on

= rejection+ new offer

Interpretation

➲ Formation issues – objective test➲ Meaning of terms or missing terms

● Plain Meaning Rule● Course of Dealings● Trade Practices● Trade Usage

➲ Parol Evidence Rule – when written contracts can be modified by prior or contemporaneous oral or written agreements.

Performance and Breach:Main Issues

➲ Conditions● When does a contract go into effect● Order of performance

➲ What amounts to breach● Material - failure to perform that permits the other

party to the contract to either compel performance, or collect damages because of the breach

● Total or Fundamental- permits the aggrieved party to terminate performance and sue for damages

● Substantial Performance – when breaching party has standing to sue to compel performance from non-breaching party.

Formation Defenses

➲ Operate to nullify a contractual relationship because of some defect in the contract formation process.

➲ Equitable remedy of restitution is available to place parties in position they were in prior to contract formation.

➲ Must distinguish between void and voidable contracts.

Common Defenses

➲ Illegality➲ Lack of Writing (Statute of Frauds)

● also viewed as formation formality➲ Lack of Capacity➲ Mistake➲ Fraud ➲ Duress➲ Undue Influence➲ Unconscionability

Illegality

➲ Courts' concern is protection of the public interest.

➲ Two kinds: Illegal and Contrary to Public Policy● Either the object or consideration is illegal.

vs.

Effect of Illegality

➲ General Rule – not enforceable● parties share guilt, so court will simply not

enforce.➲ Exceptions:

● Illegal portion is not “essence of bargain” = severance● If a party repents and repudiates = restitution ● Where one party is not guilty of serious moral turpitude =

restitution

Lack of Capacity

➲ Two Kinds of Capacity Issues:● Minority● Mental

➲ Court is concerned with protecting against exploitation.

➲ These contracts are generally voidable by the person lacking capacity.

➲ Restitution is available, but limited in cases dealing with minors.

Mistake Generally

➲ Erroneous belief at the time of contracting that certain facts are true or false.

➲ Defect in assent – party or parties would not have made K if mistake was known.

➲ We are dealing with misinformation, not fraud or deception.

Elements of Mutual Mistake

1.When K was made, parties shared erroneous belief concerning a fact.

2.This fact was basic assumption of the K➔ Neither party would have entered into the K had

they known the truth.3.Mistake has material effect on exchange of

performances.4.Adversely effected party did not bear the risk.

Misrepresentation

➲ Assertion not in accord with the facts.● Fraudulent – deliberate lie, made with knowledge

that fact is false.● Negligent – misinformation results from party's

failure to check facts that he had a duty to ascertain.

● Innocent – genuine, albeit erroneous, belief by party making the assertion.

➲ Consequences of misrepresentation depend on state of mind of party making assertion.

Duress

➲ Nature of Duress● Traditionally, actual force or an unlawful threat of

death or bodily harm.● Today, economic duress can also make a K

voidable.➲ Determined by usual objective standard.

Elements of Duress

➲ One of the parties must make a threat➲ The threat must be improper➲ The threat must induce the apparent assent,

in that it leaves the victim no reasonable alternative but to agree.

➲ A contract entered into under duress is voidable.

Undue Influence

➲ Elements – victim must establish:● he had a relationship of dependency and trust

with the other party, believing that other party would not act contrary to victim's interest.

● Dominant party improperly abused this position by unfairly persuading victim to enter into K adverse to his interests.

In Need of a General Doctrine

➲ Cannot claim duress without threat.● even when result of K is unfair.

➲ Cannot claim undue influence without showing of relationship of trust.

➲ Cannot claim fraud unless the misrepresentation and inducement are serious enough to satisfy elements

Unconscionability

➲ UCC & Restatement 2nd simply acknowledge court's ability to adjust

Elements:

UNFAIR BARGAINING Leading to UNFAIR K TERMS

Proceduralunconscionability

Substantiveunconscionability

Remedies

➲ Damages➲ Equitable Relief

● Injunctions, Specific Performance, Restitution, Rescission

U.S. Contract Law

An Overview of Common LawAn Overview of Common Law&&

UCC PrinciplesUCC Principles

Sources of Law

➲ Common Law● origin of contract law is judge made law.

➲ Uniform Commercial Code● every state has adopted some form of the UCC● applies to “commercial contracts” such as the sale

of goods.

➲ Consumer Protection Laws● regulates transactions with consumers and places

additional requirements on contracts

When to Use UCC?

➲ Article 2 applies to the Sale of Goods● Not services● Not real property● If mixture, Court will look to see what the

“predominate purpose” is.➲ Distinguishes between “merchants” and

“consumers”● Merchant = business professional● Consumer = casual or inexperienced seller or

buyer

What does the UCC Cover?

➲ Formation➲ Interpretation & Obligations➲ Performance➲ Breach, Repudiation and Excuses➲ Remedies