Business Law I PDF

BUSINESS LAW I 8/26 Chapter 1 Introduction - What are the basic functions of law? - What role does law play in business society and in individual lives? - What are the sources of law? - How does law change and evolve over time? - What is law? The Nature of Law - The Functions...

BUSINESS LAW I 8/26 Chapter 1 Introduction - What are the basic functions of law? - What role does law play in business society and in individual lives? - What are the sources of law? - How does law change and evolve over time? - What is law? The Nature of Law - The Functions of the Law: - Keep the peace - Enforcing rules that maintain order and status quo - Facilitate planning and orderly change - Promote justice; shape moral standards - Provide basis for compromise – maximizing individual freedom - Legal Rules: - Have a general and consistent application within society - Were developed by legitimate authority - Threaten sanctions for non-compliance Classifications of Law - Criminal vs Civil Law - Criminal law defines breaches of duty of obligation to society - People are punished only if found to have violated the terms of written law - Explanation: Actions illegal in society - Civil law establishes private duties people or corporations owe to each other - Tort laws create many duties including obligation to exercise reasonable care. - Examples: Car Accident - Explanation: actions against one another - Substantive Law vs Procedural Law - Substantive law sets out rights and duties governing people (and property) as the act in society - Duties are a command to do or not to do something - Rights and privileges include fundamental rights such as free speech or the legal entitlement to receive government benefits - Procedural law establishes the rules and processes to be followed in enforcing substantive law - Example: Miranda rights  - The rights themselves are Substantive and the READING of them is the Procedural - For multiple cases there are trials in both Criminal and Civil Court so people get compensation - Why it works - For Criminal: the burden of proof is beyond reasonable doubt - For Civil: Preponderance of the evidence (more likely than not) The O.J. Simpson Case - Found not guilty in criminal court - Goldmans sued in civil court and won because they could prove preponderance of the evidence - He was found liable to pay damages awarded Checks and Balances - The Constitution, the supreme law of the land, provides for Checks and Balances: - Divided power between federal and state governments - Divided power among 3 branches of the federal government - Federalism: shared power between the central government and 50 states (and DC) The Constitution: Powers - Constitutional Powers - The constitution gives Congress the power to pass specific categories of laws - The Commerce Clause: Regulates Interstate and Foreign Commerce - Taxing Power: used to regulate business activities; allowed revenue and business regulations - Monetary Power: To coin and to establish value of money 8/28 The Constitution: Limitations - Constitutional Limitations - The Constitution gives Congress the power to pass specific categories of laws - Bill of Rights - The Due Process Clause - Enumerated Powers: Those delegated to the federal govt - Judicial Review Sources of Law (I) - Constitution - The highest law of the land, granted by “the people” - Treaties (International) - Supreme law of the land - Made by the President with advice/consent of ⅔ of Senate - Statutes (and ordinances)  - Laws passed by federal and state legislatures, approved by the executive - Our written law and the law making done by our legislature - We have both federal and state statutes - Administrative Rules and Decisions - Independent agencies established by Congress - Created by legislative branch committees and they oversee these laws and rules regarding certain things - May have quasi-judicial functions - APA (Administrative Procedure Act), created to oversee procedural issues Sources of Law (II) - Executive Orders - Issued by the President or Governor; derived from express delegation from leg. Branch - Mandates, they should be used sparingly - Way to mandate certain action in a short timeframe - Common Law: Judicial Decisions - Court decisions create a body of “common law” when no statute or other source of law - Becomes the law of the United States, all the written decisions court come up with, most commonly in civil cases - This happens in a few circumstances - Statutes - COMMON LAW ARISES WHEN THERE ISN’T A STATUTE - Judicial review of other sources of law - Private Law - Contracts created by private persons - Ordinances; local govt - Subordinate to all other law Legal Reasoning (Tool for Understanding and Interpreting Law) - Legal Interpretation: - Look to plain meaning of language - Strict interpretation - Refer to Legislative and Related History of the rule - Public purpose (intent) to be achieved - Public Policy objectives (general concepts) - Loose interpretation, searching for public benefit - Orderly Change - Procedural Safeguards - Constitution prohibits Ex Post Facto Laws (applies only after effective date) - Wasn’t a crime then, can’t be charged now  - Stare Decisis (“stand by decision”) (Precedent) - 1. Similar facts, - 2. Derive Rule of Law, - 3. Apply to Case, - 4. Binding within Jurisdiction - Distinguished vs. Overruled - Relying on prior decisions allows for consistency and predictability - Adaptability through overruling laws or choosing precedent to apply The Legal Profession - The Adversary System - Each party has legal counsel - Professional Responsibilities - Confidentiality: Attorney-Client Privilege - So if a client decides to talk about this, they can - Work Product Privilege - The attorney has a ton of documents that cannot be shared with a third party - Competence, Ethics and Care - Preventative Law - Lawyers involved in business planning help avoid legal problems; managers/ employees must develop knowledge of both law and business Chapter 1 Review Question - True or False: Substantive law comprises rules as to what cases a court can decide, how a trial is conducted, and how a judgment by court to be enforced - False its procedural “IT DEPENDS” Chapter 2 Dispute Settlement Means of Dispute Settlement (Settlement Through Negotiation and Alternative Dispute Resolution (ADR)) - Meditation - Voluntary Process - Mediator helps parties achieve settlement - Disputants make decisions - Arbitrations - Binding (or non-binding) outcomes - Arbitrator makes decisions - International Arbitration - Minitrial - Reforceses dispute as business problem - Company executives make decisions  - Summary Jury Trial - Similar to a minitrial - Conducted under court guidance - Mock jury renders a verdict to help parties settle - Private Judge - Hired judge renders an opinion - Other Dispute Resolution Methods - Ombudsman - Negotiation; simplest form to settle dispute The Courts - The courts are a dispute resolution mechanism of last resort. - Either party may bring a Complaint to the courts - Courts can only decide cases with actual controversies - “Moot” if not - Jurisdiction - Personal Jurisdiction: courts have jurisdiction over the parties - Subject Matter (In Rem) Jurisdiction: Courts have jurisdiction over the subject matter or item - Venue: Location in jurisdiction where the case must be brought State Courts (Structures of state courts varies by state) - 1. Trial Courts - Find facts and apply rule of law to reach conclusions - Courts of general jurisdiction - 2. Appeals Court - Hear cases already decided by trial courts or administrative agencies - Correct for legal errors; usually limited to record - 3. Inferior Courts - Not courts record - No appeals, dissatisfied parties have new trials (trial de novo) - Examples of inferior courts - Municipal courts or justice of the peace courts - Small claims courts - Some inferior courts have record (usually tape recording) California State Court 9/4 Federal Courts - 1. Federal Question - Diversity Justification The Federal Court System - District Court: - Federal trial court where cases are heard - Special Courts - Bankruptcy court, tax court, etc. - Court of Appeals: - Review district court decisions - US Supreme Court: - Writ of certiorari required - Justices may produce concurring and dissenting (minority) opinions Federal Court Federal Judicial Circuits The Adversary System - Trial through a battle of words - Judges act as “referees” Advantages: - Truth may be revealed through attorneys presenting cases and cross-examining witnesses Disadvantages: - Hostile questions may confuse witnesses - Opposing lawyers may have unequal skills - Competition may encourage dishonest behavior Procedure Procedural laws govern the conduct of a case - Object is fairness - Rules differ in criminal and civil cases Pleadings are the first step in a civil lawsuit - Form the basis of a trial - Filed by plaintiffs (complaint) and defendants (answer) - A group of plaintiffs may file a class action Civil Procedure (I) - Complaint: filed with court state facts and claim - Includes material facts - Shows plaintiff entitled to relief - Provides defendant information - Requests remedy - Summons: Defendant Given Notice - Defendant served with notice  - States time when defendant must appear to avoid default judgment - Answer: Responds to Complaint - May state affirmative defense(s) - Counterclaims/cross-claims may be made - Defendant may move to dismiss (and other remedies) Civil Procedure (II) - Discovery: Gather evidence to use at trial - Rules of discovery ensure access to information by all parties - Parties may undergo exams (depositions under oath) - Serve Interrogatories (written questions) - Motion Practice: - Narrowing facts of the case - Gather evidence and the other side isn’t cooperating (Motions to compel) - Pretrial Conference: Narrow Issues - Held in judges’ chambers - May help facilitate settlement - Parties may stipulate to truth of facts - Establishes limits of evidence and scope of trial - Trial: Case presented in court - Opening that case - Testimony (direct and cross examinations, and redirects - Closing statements of the case - Plaintiff has burden of proof Burdens of Proof - Beyond a reasonable doubt (criminal) - Manifest weight of the evidence (civil) - Preponderance of the evidence (civil) - Adversary System: - Role of Judge: unbiased - Role of counsel: act in best interest of client (fiduciary) - Attorney Client privilege-material gathered in rep. of client Post-Trial Motions - 1. Motion for New Trial - 2. Motion for Mistrial - 3. Motion for Judgment notwithstanding verdict (JNOV) Appeals - Must be filed with appellate court - Include transcript of trial proceedings - Submit a brief explaining basis(es) for appeal - Basis for Appeal  - Error of law or procedure - Verdict not supported by facts - Results - Must show material error for successful appeal - Court Could affirm, reverse or remand Problems and Solutions Criticisms of the Legal System - Delay and high costs - Unequal access to justice (protecting the powerless) - Courts not equipped to handle all cases Proposed Solutions - Remove certain types of cases from courts - Increase efficiency - Loser Pay Rules and Attorney Fee Changes Chapter 2 Sample Exam Questions - True or False: under the notion of federalism, the US has a uniform centralized legal system - Jurisdiction is defined as: - A. the authority of a court to hear and determine disputes - B. the unlimited authority of the court - C. the process by which legal cases are decided Chapter 3: Business Ethics and Corporate Responsibility Who do we care about as Businesses? - Community - Employees - Customers - Owners - Society at large The Law as a Corporate Control Device - Legal system must prohibit undesirable corporate conduct that could create significant public dissatisfaction Limits on the Law’s Ability to Control Corporations - Corporate Influence - Business helps determine rules by initiating legislation - Constrain competitors; reduce lawsuit risks; minimize regulations - Unknown Harms - Unexpected side effects or dangers could arise - After the fact lawsuits may seek compensation for harm; may be incapable of compensating for harm that already occurred - Conscious Lawbreaking  - Rational actors, to maximize profits, may decide breaking the law is worth risk if penalties are light or chances of being caught low - Disregard unpopular laws - Irrational Corporate Behavior - Risky shift - groups take more risks than individuals - Groupthink - internalized group values - Bad news not told to higher ups The Ford Pinto Case - They accelerated the production and possibly didn't complete all safety tests “Conscious capitalism” 9/9 Chapter 4: Business and the Constitution Government Regulations State Power - States have power to: - Tax - Regulate intrastate business - Take private property for public use (eminent domain) - Promote the health, safety, and general welfare of their citizens Federal Govt - The federal government has an exclusive right to regulate foreign and interstate commerce - Federal preemption (supremacy clause) - States and federal govt may have concurrent power - Federal law preempts state law when there is a conflict of laws - Preemption may be express or implied Dormant Commerce Clause - The Commerce Clause grants express power to federal govt: - May limit federal regulation of businesses (in vs. affect interstate commerce) - Has been interpreted broadly to allow regulation of activities with a “substantial relationship” to interstate commerce - Limits the authority of the state by: - Prohibiting discrimination in favor of local business against interstate commerce - Prohibits state legislation imposing undue burden on interstate commerce - The limits on state power are described as “negative” or “dormant” aspects of Commerce Clause State Statutes - To be constitutional, a State Statute Must: - Further a legitimate state interest  - Allow only incidental, not direct, regulation of interstate commerce - Not discriminate in favor of local interests against out-of-state interests - Not impose costs on interstate commerce that are more than necessary to achieve legitimate state interests Constitutional Checks on Govt Power - The Constitution Protects only against state or federal action - Private deprivation of individual fundamental rights is allowed - Courts determine how involved the govt may act within constitutional checks - The First Amendment - Government cannot abridge freedoms of speech, religion, assembly, petition - Commercial and non-commercial speech are treated differently - Reasonable time, place and manner restrictions are permitted - The Takings Clause - Fifth and Fourteenth Amendments prevent govt from taking property without just compensation - Eminent domain allows takings for public use with proper compensation - Equal Protection - States and federal govt cannot discriminate arbitrarily - All cases must be treated alike - If regulatory programs discriminate, they trigger equal protection analysis Due Process - The 5th and 14th Amendments - The Due Process Clause is the most important restraint on govt power - Procedural Due Process: requires govt to follow procedures including providing reasonable notice and a hearing - Substantive Due Process: Protects people from arbitrary or unreasonable govt interference with life, liberty, or property rights; law clear on its face and not overly broad in scope - The government has limited discretion to restrict economic rights 9/11 Scrutiny: Court Due Process Tests Standards of Review: 1. Rational Basis Test i. Legitimate govt interest ii. Reasonable Relationship 1. *Economic 2. *Non-protected class 2. Intermediate Scrutiny Test a. Balancing of government and private interests i. Important Govt Interest  ii. Substantially Related 1. *Gender 2. *Commercial Speech 3. *Time, Place and manner restrictions a. Content Neutral b. Narrowly Tailored c. Ample alternative channels 3. Strict Scrutiny Test a. Applied when government infringes on fundamental rights i. Compelling Govt INTEREST ii. Narrowly tailored iii. Least Intrusive MANNER 1. Bill of Rights 2. Fundamental Freedoms First 10 Amendments-Fundamental Rights 1. Freedom of Speech, Religion, Assembly, Petition a. Establishment clause: Govt won’t sponsor or establish any religion b. Free exercise clause: govt won’t interfere with the right to practice any religion 2. Right to Bear Arms 3. Prohibition of quartering troops 4. Privacy Rights 5. Due Process, Takings, Double Jeopardy 6. Trial By Jury-Speedy Trial-Criminal 7. Trial by Jury-Speedy Trial-Civil 8. Reasonable Bail-No Cruel and Unusual Punishment 9. Rights to people 10. Powers not delegated to federal or state below to The People The Importance of the Supreme Court - Our fundamental rights and the right of the govt to infringe upon those rights rests on 9 individuals Procedural Due Process Substantive Due Process Administrative Agencies - Agencies have the ability to develop expertise on administering regulations - They regulate, for example: interest rates, advertising, public transportation, and working conditions - Agencies may be independent or operate within the executive branch - Agencies are part of the executive branch but may have legislative and judicial functions - Agencies may: - Investigate violations of statutes and regulation - Adjudicate disputes on alleged violations - Legislate: issue regulations and rules that have the force of law 9/18 Chapter 5: Crimes Nature of Crimes - Crimes are Public Wrongs: acts prohibited by the state or federal govt - Felonies - Serious offenses such as murder, rape, and arson - Punishable by a lengthy prison sentence - May result in disenfranchisement and limit work opportunities - Misdemeanors - Lesser offenses such as: traffic crimes - Punishable by fines or limited confinement in local jail Essentials of a Crime - To convict someone of a crime, the state must show: - Prior statutory prohibition - The act must have been criminalized before it was committed - Ex post facto laws are prohibited - The law must be constitutional and understandable - Proof of the Criminal Acts - Guilt must be proven beyond a reasonable doubt for every element of the crime - The capacity to form Intent - Mens rea, or criminal intent, is an element of most crimes - Actus reus, or criminal act - Voluntary intoxication is not usually a defense - Infacu (youth) and insanity may make it impossible to prove intent (capacity) Elements of Burglary - Breaking - Entering - Dwelling of another - With intent to commit a felony Intent Defenses - Intoxication - Infancy - Insanity - Irresistible Impulse* Criminal Procedure - Procedural safeguards protect the rights of the accused - Safeguards are based on Constitutional rights - Fourth amendment: Protects against unlawful search and seizure - Fifth Amendment: protects against self-incrimination - Sixth Amendment: trial by jury The Patriot Act - In response to 9/11 White-Collar Crime  - Non-violent - Business or People - Responsible Corporate Officer Doctrine - “Strict Liability” for Corps RICO - Racketeering - Any of 30 crimes - Pattern - 2 or more offenses within 10 years - Treble (3x) Damages in Civil Action Tough-on-Crime - Sentencing Guidelines (Federal courts) - Advisory guidelines establish consistent sentences for federal crimes - Mandate stiffer penalties for white collar crimes - Sarbanes Oxley (2002), and Dodd-Frank (2010), Acts - Tougher laws on improper accounting practices - Executives may be held criminally - Executive may be held criminally liable for financial reporting problems - Racketeer Influenced and Corrupt Organizations Act (RICO) - 1970 law prohibits using income derived form a pattern of racketeering activity to acquire or maintain an interest in a criminal enterprise - Originally used for organized crime; increasingly used for business RICO - Racketeering - Any of 30 crimes - Pattern - 2 or more offenses within 10 years - Treble (3x) Damages in Civil Action - Foreign Corrupt Practices Act (1977) - Prohibits bribery - Global Anti Corruption Initiatives 9/25 Chapter 6: International Torts What is an International Tort? - Torts are private (civil) wrongs against persons or property - A person who is injured may file a lawsuit to obtain actual (compensatory) damages and sometimes punitive damages - Punitive damages are: - In excess of the plaintiff’s actual losses  - Designed to punish the defendant and deter repeated behavior offensive to the public (societal concept) - Subject to due process limitations - Compensatory damages cover: - Actual financial loss like medical treatment costs and loss of pay - Intangible harms like emotional distress and injury to reputation Crimes vs. Torts - Crimes - Natural Elements - Criminal - (1) violation of statute - (2) Intent - Actors - Government prosecutor v. defendant - Burden of Proof - Prosecutor must establish defendant’s guilt beyond a reasonable doubt - Punishment - Fines, imprisonment, execution - Intentional Torts - Natural Elements - Civil - (1) Harm to another person or property - (2) Intent - Actors - Plaintiff v. defendant (victim) (tortfeasor) - Burden of Proof - Plaintiff must establish defendant’s liability by a preponderance of the evidence - Punishment - Defendant may have to pay the plaintiff compensatory and punitive damages Interference with Personal Rights - Intentional Infliction of Emotional Distress - Courts are reluctant to grant recovery for pure mental injuries but modern medicine makes this more provable and easier to gain - Defendants conduct must have been outrageous and substantially certain to produce emotional distress in a person of ordinary sensibilities - Defamation - Libel (written defamation) and Slander (Oral Defamation) protect against harm to reputation  - Publication of an untrue statement that injures a person’s reputation or character - Damages presumed in libel cases but must be proved in slander cases - Truth is a defense to defamation - Actual malice standard for public officials suing media - False Imprisonment - Intentional confinement of a person for a period of time - Substantial restriction on a person’s movement - Escape must create an unreasonable risk of harm - Store owners may temporarily detain shoplifters - Battery - Unconsented touching that is harmful or offensive to a person of ordinary sensibilities - Cannot touch anything connected to a plaintiff's body - Consent of plaintiff is a defense - Assault - Putting plaintiff into apprehension of immediate threat of harm to physical safety - No contact is necessary - An ordinary person must believe threat is imminent - Invasion of Privacy - A “right of Privacy” is a new development - Publicizing private material - Using someone’s name or likeness without consent - Misuse of Legal Proceedings - Malicious prosecution for financial, emotional and reputational harm for criminal proceedings falsely brought - Wrongful use of civil proceedings from illegal lawsuits - Abuse of process [Frivolous and Vexatious] Interference with Property Rights - Trespass to Land - Entry to land without permission or privilege - No actual harm to the property is needed; only nominal damages received without proof of actual loss - Trespass to personal property - Must harm the property or deprive the possessor of its use - Consent and privilege are defenses  - Conversion - Unlawfully taking or exercising control over personal property of another person Interference With Economic Relations - Disparagement - False statements about the quality of a seller’s products or services, or about the seller’s ownership of goods for sale - Proof of actual damages is required - Tortious Interference with contract - Intentionally causing a breach of contract - Interfering with discharge of a lawful contract - Protects the sanctity of private contractual-business relationships - Interference with Economic Expectations - Using force to try to drive way customers or employees from a business 9/25 Chapter 7: Negligence and Strict Liability Negligence (unintentional breach of duty by the defendant that results in harm to another) - Must prove: - The defendant had a duty of care not to injure the plaintiff - The defendant breached that duty of care - Injury Resulted - The defendant’s breach was the actual and legal, or proximate cause of the plaintiff’s injuries - Must overcome defenses to liability Duty - Everyone has a duty to avoid injuring others - Exposing another to harm is a breach of duty - An objective standard of conduct is used to judge behavior - The standard is flexible - Consider the relationship between the parties - Negligence per se: Violating a statute is negligent - Res ipsa loquitor: the act itself proves negligence (“the thing speaks for itself”) Causation - The breach of duty must be direct cause (cause in fact) of the plaintiff’s injuries - Proximate Cause: Legal limit on the extent of negligence liability - Foreseeability: injury must have been predictable or within scope of the foreseeable risk - Defendants take plaintiffs as they find them - A defendant is liable for injuries to plaintiffs with an “egg-shell skull”, which means plaintiffs more susceptible to injury Negligent Infliction of Emotional Distress - Courts are reluctant to allow for purely mental injuries resulting from negligence - Courts traditionally require impact before a plaintiff could recover but are now allowing claims in some cases of severe distress - Third parties may recover for emotional distress if they witness harm to loved one Defenses to Negligence - Contributory negligence: (only in 4 states and DC) - People who fail to exercise reasonable care should not recover compensation since their behavior helped cause the injuries - Last clear chance: plaintiffs can recover if the defendant had the last chance to avoid harm - Comparative Negligence - Allows partial recovery even if plaintiffs are negligent - Has replaced contributory negligence in most states - Modified or pure comparative fault systems - A fairer system because it distributes liability based on percent of fault - Assumption of the Risk: plaintiffs who voluntarily expose themselves to danger cannot recover Recklessness - Recklessness: A conscious disregard for a known high degree of risk of harm - The risk must be significantly greater than a simple negligent act Strict Liability - Participating in certain types of activities makes one automatically liable for harm to others, no matter how careful one acts - Liability without fault: - Imposed for: - Ultra-hazardous activities, even if reasonable care taken - Manufacturers of dangerous and defective products placed in marketplace Negligence 10/2 Chapter 20: Warranties and Product Liability Warranties - Warranty: Contractual promise by a seller regarding the quality, character or suitability of goods sold - Express Warranty: - A seller makes promises through words or behavior - The seller does not have to use the words guarantee or warranty or intend to create a warranty - Key question: Does the seller make a promise or statement of fact that becomes part of the bargain? - Implied Warranty: - The law imposes a warranty regardless of the seller’s actions - Implied warranties are not absolute and a seller can usually include a clause excluding implied warranties Implied Warranties - Implied Warranty of Merchantability: - If the seller-merchant deals in the kind of goods sold, there is an implied warranty that the goods are fit for the ordinary purpose for which they are used - Implied Warranty of Fitness for a Particular Purpose: - A seller knows the particular reason the buyer needs the goods and knows the buyer is relying on the seller to select suitable goods; purpose implied from circumstances - The good must be suitable for the buyer’s purpose Warranty of Title - Protects the buyer in ownership of the goods bought (as opposed to quality of goods by other warranties) - The seller warrants to the buyer: - He has the right to sell them - The goods are free of any liens or claims of other third parties unless the buyer has notice Exclusions and Modifications of Warranties - Parties can agree within limits to relieve the seller from liability for express or implied warranties - Limitations of express warranties: Sellers must avoid making statements/promises about the goods - Exclusion of implied warranties: a broad or specific disclaimer can be used. Goods can also be sold “as is” - → - Courts can refuse to enforce unconscionable disclaimers.  - Federal rules control “express warranties” - Sellers can limit liability for breach of warranty Who Benefits from a Warranty? - Privity of Contract traditionally required - Only parties to the original contract can/could enforce the contract or make warranty claims - Courts have extended some warranty benefits to nonpurchasers - Natural persons or guests in a buyer’s household can be protected by warranty - Bystanders could recover for breach of warranty if it was reasonable to expect they would be affected (NOT TESTED ON) Federal Trade Commission Warranty Rules - Magnuson-Moss Warranty Act: - Passed in 1975 (to address confusion, misleading, frustrating warranties) - Provides warranty protection to consumers - Increases consumer understanding of warranties - Provide useful remedies for enforcement - Improves the reliability of products - Act applies to all sellers of a consumer product that costs more that $15 if the sellers provide a written warranty Full Versus Limited Warranties - A Full Warranty means: - Defective products will be fixed or replaced free of charge - The warranty isn’t limited in time - The warranty does not exclude/limit payment for consequential damages unless specified - The consumer can choose between refund and replacement if the product cannot be repaired/has not been fixed in a reasonable time - The warrantor can’t require anything special from the consumer to use warranty services - The warranty covers only reasonable use - Limited warranties do not meet these requirements Negligence - Sellers can be liable for negligence in addition to breach of warranty - Sellers can be liable for negligence for: - Failing to inspect goods - Improper manufacturing - Misrepresenting the character of the goods or fitness for a particular purpose - Failing to disclose/to warn about defects, dangers or reasonably instruct on proper use - Failure to use due care in design  - Privity and disclaimers do not apply Duties - Middlemen have no duty to inspect new prepackaged goods unless they know of a defect or are required by specific law - The obvious danger law is no longer complete defense - Rule usually did not require warnings of obvious risks like a knife company warning the knife is sharp - Now, obvious danger is just one factor considered Strict Liability - Strict liability is commonly claimed against businesses - The plaintiff may hold a manufacturer responsible if plaintiff can show - The product was sold in a defective condition that created an unreasonable risk of danger to users - The seller is in the business of selling such a product - The product was not substantially changed before reaching consumer - The consumer was harmed because of the defect - Misuse: a plaintiff who is hurt from product misuse cannot recover 10/14 CHAPTER 9 - Contracts What is a Contract? - A contract is a legally enforceable promise - For a contract to exist there must be: - Offer - Acceptance - Consideration - Other requirements - Capacity - Voluntary - Legal - Statutory Requirements Why Have Contracts (I) - Contracts are necessary in a market economy where goods and services are exchanges - Businesses and individuals agree to provide goods and services today for payment tomorrow - Common laws of contracts have existed since 1603 - Contracts are the foundation of business; provide certainty and predictability of transactions Why Have Contracts (II)  - Social conditions in the 18th and 19th century played a big role in developing contract law - Laissez-Faire (Free Market) theories were of great importance - Freedom of contract was rule of the day - Industrial Revolution modernized contract law - More form contracts - More uninformed buyers-victims of unfair practices - Legal system and lawmakers provided more consumer protections Uniform Commercial Code - UCC (1946) changed contract law: - Adopted by all states in full except Louisiana (adopted in part) - Drafted by American Law Institute and National Conference of Commissioners on Uniform State Laws - Aims to promote fair standing and higher standards in marketplace behavior - Falls short in achieving complete uniformity - UCC is divided into 9 articles: - Article 2 applies to all contracts for the sale of goods - Many states use UCC principles as basis of common law for other contracts Does Article 2 Govern the Contract? Provisions of UCC - Article 2 focused on the creation of reasonably practical rules based upon people’s legitimate expectations - UCC does not govern cyber contracts - UCC Imposes a Duty of Good Faith and Fair Dealings Contracts for International Sale of Goods - The United Nations Convention on Contracts (CISG) for the International Sale of Goods was created to provide standard rules. The goal is to unify and codify international law. - CISG: - Provides rules governing international agreements and transfer of goods based on contracts - Applies only to commercial sales  - No special rules for merchants CISG vs UCC Types of Contracts - Valid - Meets all legal rules for a contract - Enforceable in court - Unenforceable - Meets basic elements of a contract - Will not be enforced because of another legal rule or condition - Contract is illegal - Voidable - One/Both parties may cancel - Enforceable unless canceled - Void: not valid - Unilateral - One party makes a promise - The other party acts - Bilateral - Both parties make a promise and act - Express - Parties directly state their intentions - Implied - Parties indirectly state their intentions - Executed - All parties have performed their duties - Executory - Contract has not been performed in full Quasi Contract and Promissory Estoppel - Quasi Contact: a legal fiction created by the court to avoid injustice - Requires a defendant to act as if they promised to pay for a benefit voluntarily taken - Promissory Estoppel  - Enforce good faith promises to prevent injustice even if there is not contract that meets legal rules; reliance to detriment 10/16 Chapter 10: Creating a Contract: Offers The Essentials of a Contract - Offer + Acceptance = Agreement - Courts use Plain meaning definition of terms - Courts look to objective intent of the parties - Subjective intent not material, not determinative What is an Offer? - Offer shows genuine willingness to enter into a contract if other party agrees - The offeror makes the offer - The offeree has the power to accept - Definitiveness: offer must specifically exist to be accepted and legally recognized - For creation of a valid offer, courts require: - Present Intent to Contract - How definite is the offer? - Does the offer explain what the offeror will do? - Does the offer explain what the offeree must do in exchange? - Is the offer communicated to an offeree? - The act of communicating an offer indicates intent to be bound by an agreement Special Problems with Offers - Advertisements - Ads for sale of good at a specific price are an invitation to negotiate; not an offer - Ads may sometimes be offers if highly specific and individualized - Ads for rewards (such as sale of lost property) are an offer - Auctions - Sellers at auctions are making invitation to offer - People who submit bids are treated as offerors Terms Included in Offers - What specific terms did the offeree agree? - Offerees are bound by terms if: - Offerees read and understood the terms - A reasonable person would have been aware of the terms and conditions - Offer is for a legal purpose How long do offers last? - The terms of the offer may limit its life: - Ex. “offer is good for 10 days” - Lapse of Time - If an offer does not state a time limit, it is valid for a “reasonable period” - “Reasonable period” depends upon the circumstances surrounding the offer Revocation of an Offer - Offerors may revoke the offer any time prior to receiving acceptance Exceptions to Revocation - Firm offers are an exception: - Firm Offer: when an offeror promises to hold offer open for a period of time - Irrevocable Offer: if it was made by a merchant; signed in writing; and contains assurances it will be held open - Options: - A contract is created because of an offeree give something in exchange for an offer - Option contracts only purpose is to keep the offer open - Estoppel may prevent revocation of an offer: - This often occurs in unilateral contracts - Attempting to complete the action means offer may not be revoked Rejection of an Offer - An offer is terminated when the offeree rejects it - A counteroffer is an implied rejection - An attempt to change the material terms is an implied rejection (and counteroffer) An Offer is Terminated When: - Death or Insanity of Parties: Either party dies or becomes insane - Destruction of the Subject Matter: the subject of the contract is destroyed without the knowledge or fault of either party after an offer is made but before it is accepted - Intervening Illegality: the performance of a proposed contract becomes illegal after the offer is made but before it is accepted - Lapse of time: expiration of stated time in offer 1.IT DEPENDS 2. GET IT IN WRITING 10/21 Chapter 11: Creating a Contract: Acceptances What is an Acceptance? - Comes after an offer is made - Is required to create a contract - Reflects a genuine willingness of parties to enter into an agreement Mirror Image Rule  - Attempts to modify an offer are considered a counter-offer - The offeree must accept the offer made The Battle of the Forms - UCC Exception to “Form” - Parties are both merchants - New terms not materially alter offer - Offeror gave notice of objections - Non-merchants treated as “proposals for addition to contract” Battle of the Forms-UCC (Board) - Timely “expression of acceptance” - K formed even if terms are different or in addition to OFFER Accepting an Offer - Accepting an offer for a Unilateral Contract - The offeree must perform the requested act or make a requested promise - Accepting an Offer for a Bilateral Contract - An offeree may expressly accept or accept by doing something that implies agreement - Silence as Acceptance - The law usually requires affirmative indication of assent - An objective assessment of intent matters - Who May Accept? - The original offeree or his agent is the only one with legal power to accept an offer and create a contract - When writing is anticipated but not complete, the court looks at the parties objective intent to determine if an agreement exists Communicating Acceptance - An offer may specify a manner of communicating acceptance: - May stipulate time, place or method of acceptance - When is Acceptance Communicated? - Critical question because an offer can be revoked before it is accepted - An offer can specify acceptance must be received before an agreement is reached Authorized Means of Communication - An acceptance is usually considered effective when dispatched - An acceptance is usually considered effective when delivered/dispatched to a communicating agency as long as an authorized means of communication is used: Mailbox Rule - An offer is sent by a stipulated means is effective when dispatched - Acceptance by shipment: - A seller may accept a buyer’s offer by shipping the goods or promising to ship them  - Sellers who accept by performance must notify the buyer within a reasonable period of time Non-Authorized Means of Communication - If authorized means of communication exists but an unauthorized means is used, the acceptance is not effective until received 10/22 Chapter 12: Consideration The Idea of Consideration - “Free” (gratuitous) promises are not enforced - A promisor will not be required to honor their promise unless the promisee gives up something of legal value in bargained-for exchange - Consideration requires a promise to pay the price for the right to have the promise enforced Consideration is… - Legal Value - May include valuable acts to do something or agree not to do something. - Monetary value is not required for legal value - Bargained for - Consideration given by the promise must have been requested by the promisor (bargained for) - Given in Exchange for an Act or promise - Consideration must have been offered in exchange for making the promise Adequacy of Consideration - Legal value has nothing to do with adequacy of consideration - Gifts may not be distinguished to look like contracts - An agreement to pay $100 in exchange for $500 is not consideration - Nominal consideration is not recognized by courts unless it is bargained for - Courts may refuse to grant equitable remedies to those seeking to enforce grossly inadequate bargains (not entitled to special treatment) Agreement to Perform Pre-Existing Duty - Agreeing to perform a pre-existing duty is not consideration - Promisor already has a duty so is not giving up anything of legal value - Giving up something of legally recognized value is required Pre-Existing Duties Past Consideration - Past consideration is no consideration - Promises given before a promise is made are not bargained for consideration - Some courts make exceptions for moral obligations; promissory estoppel - Example: Promise to provide housing to a needy relative Forbearance to Sue - Forbearance: A promise not to file a lawsuit in exchange for a promise to pay money or some other consideration - Promise not to sue is giving up a legal right - Promise usually must believe, in good faith, they are giving up valid legal right to sue Mutuality of Obligation - A bilateral contract is not enforceable without mutuality - What appears as a binding promise may sometimes be illusory - Illusory Promises are worded to allow the promisor to decide if he wants to perform, and are not legally enforceable Exceptions to the Consideration Requirement - Promissory Estoppel - Increasingly used to enforce promises not supported by consideration - Three elements required: - A promise - Likely to induce justifiable reliance - That results in injustice - Debts barred by bankruptcy discharge or statute of limitations - States enforce new promises to pay even if not supported by consideration, since creditors had no rights to give up the debt  - Charitable Contributions - A promise to make a gift to charity is not enforceable unless the institution relies on the promise - Firm Offer - An offer made by a merchant in writing to keep an offer open is good without additional consideration 10/28 Chapter 13: Capacity to Contract Capacity - Capacity: The ability of a person to do a legally valid act - The law treats certain classes of people as having limited capacity to contract (infancy, intoxication, mental competency) - If either party lacks capacity to contract, the contract may be void or voidable Minors’ Contracts - Minors under the age of 18 are not adults and may not contact - A minor may not effectively bargain with older and more mature adults - Minors’ contracts are voidable, but not necessarily void A Minor May… - Disaffirm - A minor may disaffirm/cancel the entire contract - Only the minor may disaffirm, not adults who are contracted - A minor may disaffirm until 18 and for a reasonable time after - Minors may have consideration returned and must return goods - may be hard if they don’t have them - Ratify - A minor who does not disaffirm/cancel after a reasonable time “ratifies the contract” - Ratification means there is no more right to disaffirm - Words or actions by the minor signifying intent to follow through with the contract upon reaching age 18+ may be enough to ratify the contract Emancipation - Emancipation: Termination of a parent’s right to receive services and wages from a child and to control the child - Emancipation does not give a minor the capacity to contract Misrepresentation of Age - A minor’s right to disaffirm a contract may be affected if the adult proves the minor lied about his/her age - Courts may require the minor to disaffirm only if he restores the status quo - Minors may be estopped from disaffirming if they lied about their age  - Minors may be liable for deceit in tort Necessaries - Minors are held liable on a quasi-contract basis for the reasonable value of necessaries furnished or consumed - Necessaries: Necessaries are things such as food, shelter, medical care, “life” depending upon societal status) essential to the minor’s continued existence - Items are not “necessaries” if minor’s parent is willing/able to supply similar items Incapacity - People who are mentally impaired lack capacity to contract; need ct. Determination - Test of Incapacity: Did the party have sufficient mental capacity to enter the contract when he/she entered into it? - Contract is voidable if the party to contract lacked mental capacity at the time and void if the party was declared insane by a court prior to contracting Mental Capacity and Contracts - People lacking mental capacity are liable for the reasonable value of necessaries - People lacking mental capacity may disaffirm their contracts but must return consideration - People lacking mental capacity may ratify contracts (as may the personal representative of someone adjudicated insane) 10/30 Chapter 14: Voluntary Consent The Need for Real Consent - All agreements must be voluntary to be enforceable - Parties who enter into a contract must exercise reasonable caution and judgment - Courts don’t allow parties to avoid responsibility for carelessly made promises Behaviors That Take Away Real Consent - Misrepresentation of: - A material fact - Justifiably relied on - To the detriment of the person relying on it - Fraud: - Intentional misrepresentation - The misrepresentation was knowingly made - With intent to deceive (scienter) - Silence can be fraud - Duress: - One party, by making a (wrongful) threat of har - Forced the other party to enter into a contact - Undue Influence:  - Parties have a relationship - One party uses his influence to coerce the other to enter into a contract Misrepresentation - Misrepresentation does not require knowledge of falsity - Misrepresentation must relate to a material fact - Material fact=one which would contribute to a reasonable person’s decision to contract - Misrepresentation must concern a present fact (not opinion) - Reliance on the fact must be justified - Must show detriment to cancel contract on the basis of misrepresentation Fraud - A known misstatement (fraud) occurs when a defendant knew he was saying something untrue - Fraud can occur if the defendant reasonably should have known the truth - Intent to deceive/scienter is usually inferred from the defendant’s actions - Courts have imposed a duty to disclose to replace caveat emptor (let the buyer beware) - Fraud in the execution: misstatement about the content or legal effect of a contract’s terms - Remedy for fraud may include rescinding the contract or a tort action for deceit Duress and Undue Influence - Duress and undue influence are similar but undue influence requires a relationship between parties - The courts originally required threat of a physical injury for duress but now require only a wrongful threat; duress dependent upon facts of case - Contracts are voidable The Remedy - Contracts entered into without voluntary consent are voidable - The injured party may rescind or cancel the contract - The injured party may disaffirm (deny the validity) of the contract if no performance has been rendered - Lack of voluntary consent can be used as a defense to breach of contract cases Ratification - If you entered into a contract without voluntary consent, you must act promptly to rescind or disaffirm a contract - If you wait too long, you ratify the contract and lose power to rescind Mistakes - One or both parties act under an untrue belief about a material fact - The mistaken belief is not the product of a misstatement by either party - Mistake may prevent a “meeting of the minds” that is necessary to contract Mutual vs Unilateral Mistakes  - Mutual Mistake - Always a basis for granting recession of the contract at either party’s request - Mistakes may arise from an ambiguous term - The test for determining if a mistake was made is an objective test - Unilateral Mistake - Only one party to the agreement is acting under a mistaken belief - Not always grounds for rescission - Was the mistake a real mistake? Would enforcement be unfair? Did the non-mistaken party know? Unilateral Mistakes 11/4 Chapter 15: Illegality Illegality - An otherwise valid contract is unenforceable if its performance is illegal or contrary to the public interest [violates a statute] - The public welfare is more important than the right to bargain freely - Courts presume parties wanted a legal result and all doubts are resolved in favor of legality when interpreting agreements Types of Illegality - An agreement is illegal if: - It call for behavior that violates a statute regulation, or common law rule - It is contrary to a general rule of public policy The Effect of Illegality - Courts take a hands off position to illegal contracts and won’t enforce contracts - Parties are left as the court finds them - A party to an illegal agreement cannot sue for breach of contract, recover consideration given to the other party, or recover in quasi contract for benefits conferred - Courts don’t get involved in order to protect the public (not because they want to punish parties to an illegal contract) Special Situations with Illegal Contracts - Ignorance of Fact  - Courts sometimes allow recovery if parties to an illegal contract were ignorant to facts making the contract illegal - Recovery allowed if contract performed before parties knew it was illegal - Rescission Before Illegal Act is Performed - Courts allow someone who rescinds a contract before illegal acts are taken to recover consideration - Goal is discourage illegal acts - Rights of Protected Parties - Statutes protect certain classes of public - A statutorily protected person who enters into an agreement that violates the statute can enforce the agreement or recover consideration - Illegality and Divisible Contracts - Contracts may call for several promises to be performed - If contract can be divided into legal and illegal parts, courts will enforce the legal parts of the contract [severability clauses] Contracts to Commit Illegal Acts - Agreements to Commit Crimes - A contract that requires committing a crime is illegal - An agreement can be illegal if its net effect is criminal - Agreements to Commit Torts - A contract that requires committing a tort is illegal Contracts Made Illegal by Statute - Wagering Statutes: - States prohibit or regulate gambling - Agreements in violation of anti-gambling laws are illegal - Wagering contracts must be distinguished from risk-shifting and speculative bargaining agreements - Statutes Declaring Bargains void or voidable: - Usury Laws: Laws prohibit charging more than a set amount of interests - Sunday “Blue” Laws: Prohibit certain work and business transactions from being performed on Sundays Regulatory Statutes - Congress and the states pass laws regulating activity [License Requirements] - Goal is to protect the public from dishonest/unskilled persons - Agreements by unlicensed persons to perform regulated service/business are illegal and unenforceable - Exception for revenue raising statutes Contracts Contrary to Public Policy - Injurious to Public Service - Contracts including public servants to deviate from their duties are illegal  - Contracts to Influence Fiduciaries - Contracts are illegal if they encourage a fiduciary (person in position of trust) to breach his fiduciary duties - Exculpatory Clauses - Clauses that relieve a party of liability for the consequences of his negligence may be unenforceable if they seek to avoid liability for fraud or misconduct - Restraint of Trade - Public best served by free competition - Contracts solely intended for the restraint of trade are illegal - Restraints may be legal if ancillary and no broader than necessary Unequal Bargains - Courts respond to the problem of unequal bargaining by recognizing unconscionable contracts and contracts of adhesion - Adhesions Contacts: Where the only choice for one party is to walk away or adhere to the other person’s terms - Won’t be enforced if the party with more bargaining power took unfair advantage of the other party - UCC Section 2-302 recognizes “unconscionable contracts” and gives courts the freedom to remedy unconscionable terms 11/13 Chapter 16: The Form and Meaning of Contracts The Statute of Frauds - Statute of Frauds: In some cases, the law requires contracts to be written - Oral contracts can sometimes be enforced, but not if the statute of frauds applies and requires a written contract to prove there is an agreement Contracts That Must Be In Writing - Contracts for the transfer of an interest in land - Contracts by the executor or administrator of a deceased person’s estate to be personally liable for a debt of the deceased person - Contracts by one person to answer for the debt or default of another person - Bilateral contracts that have not been fully performed by either party and that are not capable of being performed within a year of their formation - Guarantor vs Surety - Surety is a secondary person who agrees to pay debt by original person, more like a co-signer - Guarantor is someone who is secondarily viable - But today people look more for sureties rather that guarantors Additional Contracts That Must Be In Writing - The UCC requires contracts for the sale of goods totaled at $500 or more to be in writing  - Most states require contracts reaffirming debts barred by bankruptcy discharge or statute of limitations to be in writing - Contracts for real estate commission must be in writing - Contracts in contemplation of marriage Failure to Comply - Oral contracts that come within the provisions of the statute of frauds are enforceable - not void or voidable - If the parties have both performed their obligations, neither can rescind the oral contract - A person who partially performed under an oral contract can recover the reasonable value of performance in quasi contract - Promissory estoppel has been used to allow parties to recover under oral contracts the statute of frauds would ordinarily render unenforceable - Did the plaintiff materially rely on the oral contract? - Will the plaintiff suffer serious losses? What Kind of Writing is Required? - Different states have different statutes of frauds - Only a memorandum is usually required - The entire contract doesn’t have to be in writing - The writing doesn’t have to be in a single complete document Cyber Contracts and E-Signatures - The Electronic Signatures in Global and National Commerce Act (E-Sign) enacted in 2000 - A contract/signature cannot be denied legal effect just because it is electronic (online signature is = to ink signature) - Works on conjunction with the Uniform Electronic Transactions Act (UETA) enacted in 1999 The Statute of Frauds in the UCC - Section 2-201 (Statute of Frauds) applies to contracts for the sale of goods for $500 or more - The purpose of the Statute of Frauds can be satisfied by things other than writing - Exceptions to the writing requirement when there is other reliable proof of the existence of a contract - Partial performance creates an exception to the statute of frauds Interpreting Contracts - Parties may disagree about terms in a contract - Interpreting uncertain/ambiguous terms is a question for the jury - An objective “Plain Reading” standard is used to interpret contracts: What would a reasonable person believe of the terms of the contract in context? Rules of Construction - Rules designed to provide guidance in contract interpretation  - Ordinary words given their usual and customary meaning - Technical words given their technical meaning unless a different meaning clearly intended - When all parties are members of a trade or community, common usage within that community determines meaning of a word - Written terms control printed terms if the two conflict - Ambiguities are resolved against the contract drafter Parol Evidence Rule - A complete, unambiguous written terms are the best evidence of the intent of contracting parties - Parol evidence rule says a party cannot vary the plain terms of a written contract by introducing evidence of terms allegedly agreed prior to (but not included) or at the same time as the written contract - Can sometimes prevent proof of terms the parties actually agreed to - Individual states may each have their own exceptions Exceptions to the Parol Evidence Rule - Exceptions include: - Lack of voluntary consent; show contract void or voidable - Explains an ambiguity - Fills in a writing that is incomplete; gaps correct obvious mathematical/clerical errors - Proves a subsequent oral contract - Proves a condition precedent - Prior course of dealing; prior performance 11/18 Chapter 17: Third Parties' Contract Rights Assignments of Contracts - A contract consists of rights and duties - When rights are transferred, this is an assignment. - A person who makes the assignment is the assignor - When duties are transferred, this is called a delegation - The person who accepts the delegation is the delegatee - The assignee is entitled to the same protections the assigner had under law. No particular formalities are required to create an assignment What Contracts are Assignable? - Not all contracts are assignable if the promisor objects: - An assignment that would materially alter a promisor’s duties is not enforceable - Contracts involving personal rights are generally non-assignable  - Contracts that expressly forbid assignment are also generally not assignable (although some states refuse to enforce non-assignment clauses) - Assignments contrary to public policy are prohibited The Rights and Duties of Assignees Rights - An assignee is entitled to all rights the assignor had under the assigned contract including the right to the promisor’s performance - If the promisor doesn’t perform, the assignee can sue - First assignees have priority if assignors wrongfully assign contracts multiple times - Assigners who are paid are liable to assignees for implied guarantees If consideration is given for an assignment 1. Valid claim 2. Good title 3. No impairment 4. Writings Genuine - Assignor Warranties Duties - An assignee cannot acquire a greater interest than an assignor has - Assignees should promptly notify the promisor of the assignment - If a promisor performs without knowledge of the assignment, he faces no further liability under the contract (even if he performed the duty but the assignee did not benefit). Delegation of Duties - When a promisor appoints another to perform his duties, this is called a delegation; person delegating=delegator; person receiving delegation=delagatee - Not all duties are delegable - Delegation is possible when the duty can be performed by anyone, not when performance depends on personal skill, character or judgment - Public policy can prevent delegation of duties - Courts usually hold that assignment of rights carries an implied delegation of duties​ Third Party Beneficiaries - Those who are not party to a contract generally have no rights in the contract even if they benefit from performance - If the contract was intended to benefit a third party, the third party may legally enforce the contract Three Classes of Third-Party Beneficiaries 1) Donee Beneficiaries - Have enforcement rights - The promisee’s primary purpose in contracting was to make a gift of contract performance to the donee beneficiary  - Either the promisee or donee can sue for nonperformance to recover the value of the promise or damages 2) Creditor Beneficiaries - A promisor’s performance will satisfy a legal duty the promisee owes a third-party - The third party must be the creditor beneficiary - The duty owed an be any legal duty not necessarily related to money - Creditor beneficiary has rights against promisor and promisee 3) Incidental Beneficiaries - (those who benefit incidentally not intentionally) cannot enforce contracts as a third party 10/20 Chapter 18: Performance and Remedies When a Dispute Arises - When a dispute arises over a contract: - Is the contract enforceable? - Are there any conditions that affect the parties duties? - Have the conditions been met? - Has a material breach occurred? - Are there legally recognizable damages from the breach? - Is there a legal excuse for not performing? - Has the duty to perform been discharged? - The answer to these questions determine the rights of the parties and remedies available Conditions - A party’s duty to perform a contract may depend upon some condition - Conditions can be expressly stated or implied - Condition Precedent - The event must occur before a party’s duty to perform arises - Condition Subsequent - The happening of a condition discharges an existing duty to perform - Concurrent condition - Each party must perform at the same time and performance is conditioned on other party’s performance Standards of Performance - Did each party fulfill his contractual duties in the manner promised? - Complete/Satisfactory Performance - The duty is completely and perfectly performed - Ex: delivery of money or goods - The party who performed completely is entitled to full performance in return - Substantial Performance: - Performance that falls short in minor respects but doesn’t deprive promisee of material bargained-for consideration  - Ex: a building that deviates slightly from specifications - Material Breach of Contract/Inferior Performance - Performance fails to reach a reasonable degree of perfection - Anticipatory breach can also occur if the promisor indicates an intent not to perform contractual duties Failure to Perform on Time - A failure to perform on time can be a breach of contract but isn;t always a material breach - Failure to perform on time can be a material breach if time is of the essence - The contract may specify that time is of the essence - The court may imply time is of the essence - If time is not of the essence, a promisee must accept late performance within a reasonable time Excuses for Nonperformance - Prevention: A promisee who causes the promisor to fail to perform ncannot complain about the failure - Impossibility: It becomes impossible for the promisor to perform his contractual duties (courts recognize 4 types) - Intervening Illegality - A law enacted after contract formation makes performance of contract duties illegal - Destruction of Subject Matter - Something essential to perform is destroyed through no fault of promisor - Incapacitation Illness/Death - The contract is a personal service contract - The person to perform dies or is seriously ill - Commercial impracticability - Unforeseeable developments make performance unreasonably expensive Discharge - Parties who are released from their contractual obligations are discharged - Discharge by Agreement - Parties to a contract mutually agree to discharge it - Agreement must be supported by consideration - Discharge by waiver - Intentional alteration of the written instrument by one party discharges the other’s duty - Discharged by statute of limitations - A party who fails to perform a duty is discharged if the other party doesn’t sue in a reasonable time (in the statute of limitations) Contractual Discharge  - Completed Performance - Occurrence of Condition Subsequent - Non-Occurrence of Condition Precedent - BREACH - Excused Non-performance Remedies - If a party doesn’t perform and performance isn’t excused or discharged, the other party is owed a remedy for non performance - The injured party is put back in the same position as if the contract was performed - Different kinds of damages can be recovered for non performance - Plaintiffs injured by a breach of contract have a duty to mitigate (try to avoid) damages Damages in Contract Cases - Compensatory Damages: A party to a contract sues for actual losses - Compensatory damages = the loss in value of the promised performance - Consequential Damages: Special circumstances caused the plaintiff to suffer losses not ordinarily foreseeable as a result of a breach - Can be recovered only of the defendant had a reason to foresee them when the contact was created - Nominal Damages: Very small damages that can be awarded when a technical breach occurs but causes no actual loss - Nominal damages are normally equal to $1 or less - Liquidated Damages: Parties to a contract specify in advance that a specific sum of money is recovered if the contract is breached - The amount of damages agreed on is the exclusive remedy. The amount must be reasonable or will be considered an unenforceable penalty. - Punitive damages: Ordinarily not recoverable in a breach of contract, unless extreme circumstances justify punishing the defendant Equitable Remedies - Equitable remedies can be granted when money damages aren’t adequate to remedy injuries - Specific Performance: An equitable remedy when the contract’s subject matter is unique - The court may order a seller to follow through on the contract - Real estate is unique and often the subject of specific performance order - Personal property isn’t usually unique except for antiques, works of art, heirlooms and similar products - Injunction: - A court can order certain acts (mandatory injunction) or order someone to refrain from acts (prohibitory injunction) - Appropriate when a breach could produce irreparable injury 12/2 FINALS REVIEW DAY 1 Final Make Up 25-28 T/F 35-40 Multiple Choice