Unformatted text preview: Kulper - Econ 189 Kulper 1 Legality
• A contract that is illegal is void and unenforceable. For example…
– A gambling contract is illegal unless it is specifically authorized by state statute. • A court will not assist either party in an illegal agreement, even if its refusal leaves one party clearly shortchanged.
Kulper - Econ 189 Kulper 2 Restraint of Trade
• To be valid, an agreement not to compete must •
be ancillary to a legitimate bargain. Sale of a Business
– When a noncompete agreement is ancillary to the sale of a business, it is enforceable if reasonable in time, geographic area, and scope of activity. – A noncompete clause in an employment contract is generally enforceable only to the extent necessary to protect trade secrets, confidential information and customer lists developed over an extended period. (King v. Head Start Family Hair Salons – noncompetition agreement) Kulper - Econ 189 3 Kulper • Employment Exculpatory Clauses
Part of a contract that attempts to release you from liability for injury to another party. • Generally unenforceable when – it attempts to exclude an intentional tort or gross negligence. – the affected activity is in the public interest, such as medical care, public transportation, or some essential service. – the parties have greatly unequal bargaining power. – it is not clearly written and readily visible. Kulper - Econ 189 Kulper 4 • An unconscionable contract is one that a court refuses to enforce because of fundamental unfairness. • The two factors that most often led a court to find unconscionability were: Unconscionable Contracts – oppression meaning that one party used its superior power to force a contract on the weaker party; and – surprise meaning that the weaker party did not fully understand the consequences of its agreement. Kulper - Econ 189 Kulper 5 Capacity
• Capacity is the legal ability to enter into a contract.
– Minors (under age 18) and those with mental impairment usually lack capacity. • A voidable contract may be canceled by the party to the contract who lacks capacity. • In some cases, lack of capacity creates a void contract.
Kulper - Econ 189 Kulper 6 • Disaffirmance Minors • – A minor generally may disaffirm a contract; that is, he may notify the other party he refuses to be bound by the agreement. – The minor also has the option of filing a suit to rescind the contract, that is, to have a court formally cancel it. Restitution – A minor who disaffirms a contract must return the consideration he has received, to the extent he is able.
Kulper - Econ 189 Kulper 7 Mentally Impaired Persons
– A person with mental illness or defect, who is unable to understand the nature and consequences of a transaction. – Generally creates only a voidable contract. – When an intoxicated person makes a contract, it is voidable.
Kulper - Econ 189 Kulper 8 • Intoxication Misrepresentation and Fraud
• Innocent misrepresentation – means the owner believes the statement to be true and has a good reason for that belief. – means the owner knows that the statement is false. • Fraudulent misrepresentation Kulper - Econ 189 Kulper 9 • To rescind a contract based on Misrepresentation and Fraud misrepresentation or fraud, a party must show three things: – (1) there was a false statement of fact; • Puffery (exaggerated “sales talk”) is not a statement of fact. – (2) the statement was fraudulent or material; and – (3) the injured person justifiably relied on the statement.
Kulper - Econ 189 Kulper 10 Plaintiff’s Remedy for Misrepresentation or Fraud
• If the maker’s statement is fraudulent, the injured party generally has a choice of rescinding the contract or suing for damages. Kulper - Econ 189 Kulper 11 Special Problem: Silence
• Nondisclosure of a fact is misrepresentation only when disclosure is necessary:
– – – To Correct a Previous Assertion To Correct a Basic Mistaken Assumption To Correct a Mistaken Understanding about a Writing – In A Relationship of Trust • When one party naturally expects openness and honesty, based on a close relationship, the other party must act accordingly. (Fimbel v. DeClark – Duty to disclose septic tank problems) Kulper - Econ 189 Kulper 12 Mistake Bilateral
• A bilateral mistake occurs when both parties negotiate based on the same factual error.
– If the parties contract based on an important factual error, the contract is voidable by the injured party. – No rescission is allowed where one of the parties knows she is taking a risk.
Kulper - Econ 189 Kulper 13 • Conscious Uncertainty Mistake Unilateral
• Sometimes only one party enters a contract under a mistaken assumption, a situation called unilateral mistake. – to rescind for unilateral mistake, a party must demonstrate that she entered the contract of a basic factual error and that either: • (1) enforcing the contract would be unconscionable • or (2) the nonmistaken party knew of the error. Kulper - Econ 189 Kulper 14 The Statute of Frauds
• Many agreements are unenforceable, unless it, •
or some memorandum of it, is in writing and signed. Agreements that must be in writing are those:
– – – – – – For any interest in land That cannot be performed within one year To pay the debt of another Made by an executor of an estate Made in consideration of marriage; and For the sale of goods over $500 Kulper - Econ 189 Kulper 15 Agreement for Interest in Land
• A contract for interest in land must be in writing to be enforceable.
– Exception: Full Performance by the Seller – Exception: Part Performance by the Buyer • the buyer of land may be able to enforce an oral (Baker v. Daves – Life interest in home with remainder to daughter; divorce settlement to sell house without daughter’s permission) contract if she paid part of the price and either entered the land or made improvements to it. Kulper - Econ 189 Kulper 16 Agreements That Cannot Be Performed Within One Year
• Unenforceable unless in writing. Promise to Pay Debt of Another
When one person agrees to pay the debt of another as a favor to that debtor, it is called a collateral promise and must be in writing.
(You Be the Judge: Sawyer v. Mills – Oral promise to pay large bonus to paralegal on class action case; Statute of Frauds) Kulper - Econ 189 Kulper 17 Promise Made by an Executor of an Estate
h An executor’s promise to use her own funds to pay a debt of the deceased must be in writing to be enforceable. Promise Made in Consideration of Marriage
h Unenforceable unless in writing. Kulper - Econ 189 Kulper 18 What the Writing Must Contain
• The contract or memorandum must be signed by the defendant, and • It must state with reasonable certainty:
– the name of each party – the subject matter of the agreement, and – all of the essential terms and promises. Kulper - Econ 189 Kulper 19 UCC §2201(1) The Basic Rule Sale of Goods • A contract for sale of goods worth $500 or more is not enforceable unless there is some writing, signed by the defendant, indicating that the parties reached an agreement. Kulper - Econ 189 Kulper 20 Electronic Contracts
• In this age of Internet commerce, the rules of contracting have to be interpreted in light of the technology. – Is an email sufficient to be a writing? – Is an electronic signature sufficient? • However, the essential questions are still the same:
– Did the parties intend to make a deal? – What were the terms? – Is there evidence that they both agreed?
Kulper - Econ 189 Kulper 21 “The parties to disputes very often could have avoided litigation with a few carefully crafted sentences. It is worth the time and effort to write them.” Kulper - Econ 189 Kulper 22 ...
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- Spring '08