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A contract is a legally enforceable agreement. The modern contract action can be traced back to the dawn of British common law. The law acknowledged that remedy was due for injuries resulting from the defendant’s failure to perform a professional duty. Early actions were taken in “assumpsit” for nonfeasance (failure to perform a promise). In assumpsit actions, however, judges refused to order specific performance (doing what was promised) if they thought that consideration was inadequate. (Consideration is what is given up in exchange for the other party’s promise.) The standard was “equivalent value.” This made the enforceability of contracts uncertain because judges could invalidate agreements that had been voluntarily created by the parties simply because those bargains seemed unfair to them.
By 1850, American courts accepted the notion that contracts should be based exclusively on the reciprocal promises of the parties rather than on a subjective notion of fairness. A promise, in turn, is simply a statement of intent to be bound. Therefore, intent became the underlying principle of contracts. Intent is the conscious desire to produce a consequence. The state of mind of the contracting parties, therefore, became the deciding factor in determining whether or not a contract existed.
In order to establish an enforceable contract, the following elements must be present:
1.There must be an agreement, which usually consists of matching promises (offer and acceptance).
2.The parties must be competent; i.e., capable of formulating intent.
3.There must be genuine assent; i.e., voluntary compliance.
4.There must be consideration although the specific magnitude is left to the parties.
5.The promises must be lawful in their performance; i.e., can’t be crimes or torts.
6.The contract must be in writing in certain limited circumstances. (Needless to say, many oral and even implied contracts are enforceable. The promises constitute the contract, not the document.)
Typical contracts include insurance policies, mortgages and purchases via credit cards.
Most principles of contract law exist in court decisions (common law) although states have passed statutes affecting certain types of contracts, notably those involving employment and insurance.
CASE QUIZ:
A, Mr. Lacy and Mr. Zimmerman were talking in a restaurant. After a couple of drinks, Lacy asked Zimmerman if he had sold the Ferguson farm. Zimmerman replied that he hadn’t and didn’t want to. Lacy offered to buy the farm for $50,000. After some bantering back and forth, Zimmerman wrote on the back of a pad, “I agree to sell the Ferguson place to W.O. Lacy for $50,000 cash.” Lacy said, “All right, get your wife to sign it.” Zimmerman subsequently went to his wife who was sitting in the restaurant and said, “Do you want to put your name on this?” She said, “No.” But then Zimmerman said, in an undertone, “It is nothing but a joke.” She signed it. At that time, Zimmerman wasn’t too drunk to make a valid contract. The Zimmerman’s refused to convey title and Lacy sued for specific performance.
1.What is meant by the term “specific performance”?
2.What defense would the Zimmermans use?
3.What legal reasoning would be followed in determining whether or not a contract actually existed (whether there had been an offer and an acceptance)?
4.Who should win?
B, Grayson singed a roofing contract with Clay Tile, as agent for Sure-Seal Roofing Company, to have a new roof put on his house. The agreement stated that the contract was subject to Sure-Seal’s approval and that the agreement would become binding upon written notice of acceptance or commencement of work. Nine days later, Clay Tile loaded up his truck and drove to Grayson’s house only to find someone else was already doing the job. Sure-Seal wishes to sue for damages.
1.In the context of this case, what is meant by the term “damages”?
2.What is meant by the term “revoke an offer”?
3.Was Grayson’s offer to Sure-Seal revoked before it was accepted?
4.Specifically, what is the evidence showing that acceptance did or did not occur?
5.Who should win?
C,Please read Carter v. Matthews (find the case online..)
1. Fraud is an intentional act of deception. There is no evidence, however, that Matthews said anything at all about the propensity of the land to flood or not to flood nor is there any evidence that he knew it might be prone to frequent flooding. Upon what legal logic could Carter have based her allegation (charge) of fraud? (That is, what could have been the legal basis for her argument?)
2. Matthews cross-appealed arguing that restitution and rescission were improper remedies for “mutual mistake.” Our text, however, confirms that they are proper remedies. Upon what legal logic could he have based his claim?
CONSIDERATION:
Consideration is that which is bargained for and given in exchange for another’s promise. It must be “legally sufficient,” meaning that it must be either a detriment to the promisee or a benefit to the promisor. Benefit in the legal sense means the receipt by the promisor of some legal right that the person had not previously been entitled to. Legal detriment is the taking on of a legal obligation or the doing of something or giving up of a legal right by the promisee.
A court will not concern itself with the terms of a contract as long as the parties have capacity and there has been genuine assent to the terms. Whether there has been a fair exchange, is for the parties to decide.
D,Workers agreed to work aboard a canning ship during the salmon canning season. The contract, signed by each worker, was to last for the length of time it took to sail from San Francisco, California, to Pyramid Harbor, Alaska, and back. Each worker was to receive a stated compensation. They arrived in Alaska at the height of the fishing and canning season. Knowing that every day’s delay would be financially disastrous and that it would be impossible to find workers to replace them, the workers refused to work unless they were given substantial wage increases. The owner of the canning ship acceded to their demand (i.e., he accepted their offer and agreed to pay the higher wage). When the ship returned to San Francisco, the owner paid them in accordance with the original agreement. The workers now bring suit to recover the additional amounts due under the second agreement.
1. Please cite two defenses that the ship’s owner could adopt.
2. Would the court enforce the second agreement? Why or why not?
CAPACITY:
Capacity refers to each party’s ability to make promises. It hinges specifically on the ability to formulate intent (conscious desire to bring about consequences). Needless to say, people who are unable to appraise the consequences of a decision aren’t legally able to formulate intent. Their contracts are voidable; i.e., not automatically void but avoidable by the impaired party at his/her election.
Those under 18 years of age are defined as lacking capacity based on their presumed immaturity and lack of experience. However, minors can be held for the fair value of necessities such as food, lodging, education or medical services. As a general rule, minors must return whatever consideration was given to them but, even if it has been destroyed, may nevertheless disaffirm and recover the consideration they gave. This effectively discourages adults from marketing aggressively to minors.
Generally, minors who lie about their age in order to secure a contract can, nevertheless, disaffirm. However, minors are liable for their torts and can be sued for fraud in such situations.
Contracts made by those who are intoxicated or temporarily insane are also voidable. The standard employed by the courts is whether a reasonable person would have known that the plaintiff was impaired.
ILLEGALITY and PUBLIC POLICY:
The courts will generally not permit a person to sue for performance of an illegal contract; i.e., one in which the performance itself is criminal, tortious or a violation of public policy. The court will simply “leave the parties where it finds them.” Generally, if one party has performed, that party cannot recover property transferred to the other. There are certain limited exceptions to that rule, however.
E, R.D. Simpson owned Bavarian Motors, an automobile dealership in Ft. Worth, Texas. One day Lee Lewis discussed purchasing a BMW M-1 from Simpson for $125,000. Simpson suggested a double-or-nothing coin flip. If Simpson won the coin-flip, Lewis would have to pay him $250,000 for the car; if Lewis won the flip, he would get the car for free! The coin was flipped and Lewis won. Simpson said, “It’s yours.” He handed Lewis the keys and title. Lewis drove away in the BMW. Simpson subsequently sued to recover the car.
1. Who should win and why?
2. How would the case have turned out if Simpson had refused to turn over the keys and title after Lewis had won the coin-flip? Who would get the car?
F, 1. Tim Kendrick signed a contract promising that he would not compete with Carolina Pride for a specific time and in a specific geographic area. That is, he promised not to take a job with one of Carolina Pride’s competitors. However, contracts to suppress competition or not to compete in business are generally illegal and render the parties subject to indictment for the commission of a crime (p.370). Why are employment contracts often considered to be exceptions? That is, what markes them “legal?”
2. To be enforceable, a convenant (promise) not to compete must be “sufficiently limited in time and territory.” Why should there be any limitations on time or territory at all?
3. The trial court decided in favor of Carolina Pride. Why did the appellate court reverse that decision?