Delegation

Delegation

Contractual duties in a bilateral contract that are delegated to a 3^rd party.

Duties That Cannot be Delegated

When special trust has been placed on the obligor.

When performance requires personal skill or talents.

When performance will vary materially from obligee expectations.

When the contract expressly prohibits delegation.

Effect of a Delegation

Delegator remains liable.

Delegatee liable if delegation contract creates a third party beneficiary relationship in the obligee.

Assignment of “All Rights”

Assignment of rights and a delegation of duties.

Third Party Beneficiaries

Original parties to the contract intend at the time of contracting that the contract performance directly benefits a third person.

Types of Intended Beneficiaries

ü Creditor Beneficiaries.

ü Donee Beneficiaries.

ü Modern View:  Does not draw such clear lines and distinguishes only between intended beneficiaries and incidental beneficiaries.

The Vesting of an Intended Beneficiary’s Rights

For third party beneficiary contract to be effective, rights under the contract must vest:

§ Third party’s manifesting assent to the contract.

§ Third party’s materially altering position in detrimental reliance on the contract.

Intended v. Incidental Beneficiaries

Intended:

Promisee intended to confer on the beneficiary the right to bring suit to enforce the contract.

Factors:

•    Performance is rendered directly to 3rd party.

•    3rd party’s right to control contract details.

•    3rd party expressly designated as beneficiary.

Incidental.

§ Contract between two parties is unintentional.

§ Incidental beneficiary cannot sue to enforce the contract.

Case 15.3: Vogan v. Hayes Appraisal Associates, Inc. (1999).

Contracts: Third Party Rights

Contracts: Third Party Rights

Introduction

Only the Parties to a contract have rights and liabilities under the contract.

Exceptions:

§ Assignment or Delegation.

§ Third party beneficiary contract.

Assignments and Delegations

Transfer of contractual rights is an assignment.

Transfer of contractual duties is a delegation.

Assignments

Rights cannot be assigned:

§ If the assignment is contrary to statute.

§ When a contract is personal in nature.

§ Assignment materially changes rights or duties of obligor.

§ If the contract stipulates the right cannot be assigned.

Case 15.1: Forest Commodity v. Lone Star (2002).

Valid notice must be given to all parties.

Case 15.2: Gold v. Ziff Communications (2001).

Exceptions to the Parol Evidence Rule

Exceptions to the Parol Evidence Rule

ü   Contracts subsequently modified.

ü   Voidable or Void contracts.

ü   Contracts containing ambiguous terms.

ü   Prior dealing, course of performance, or usage of trade.

ü   Exceptions to the Parol Evidence Rule 

ü   Contracts subject to orally agreed-on conditions.

ü   Contracts with an obvious or gross clerical error that clearly would not represent the agreement of the parties. 

Case 14.4: Cousins Sub Systems v. McKinney (1999).

Parol Evidence Rule

Parol Evidence Rule

Oral representations or promises made prior to the contract’s formation or at the time the contract was created, may not be admitted in court.

Integrated Contracts.

Sufficiency of the Writing

Sufficiency of the Writing

Under the Statue of Frauds.

§ Must name, identify subject matter, consideration, other essential terms, and must be signed by the the party against whom enforcement is sought.

Under the UCC.

§ Need only name the quantity term and be signed by the party to be charged.

Case 14.3: Interstate Litho Corp. v. Brown (2001)

The Statute of Frauds

The Statute of Frauds

To be enforceable, the following types of contracts must be in writing and signed:

§ Contracts involving interest in land.

§ Contracts involving “One Year Rule.”

§ Collateral or Secondary Contracts.

§ Promise made in consideration of marriage.

§ Contracts for the sale of goods priced at $500 or more.

Contracts Involving Interests in Land

Land includes all physical objects that are permanently attached to the soil: buildings, fences, trees, and the soil itself.

All contracts for the transfer of other interest in land: mortgages and leases.

Case 14.1: Michel v. Bush (2001).

The One-Year Rule

A contract that cannot, by its own terms, be performed within one year from the date it was formed must be in writing to be enforceable.

One-year period begins to run the day after the contract is made.

§ Test:  Whether performance is possible             (although unlikely) within one year.

Collateral Promises

Primary v. Secondary Obligations.

“Main Purpose Rule” Exception .

Estate Debts.

Promises Made in Consideration of Marriage

Prenuptial agreements must be in writing and signed to be enforceable.

Contracts must be supported by some consideration to be enforceable.

Prenuptial agreements may not be enforceable if the agreement is not voluntary.

Contracts for the Sale of Goods

UCC requires a writing or memorandum for the sale of goods priced at $500 or more. Exceptions:

§ Partial Performance.

§ Admissions.

§ Promissory Estoppel.

§ Special Exceptions under the UCC.

Origins of the Statute of Frauds

Origins of the Statute of Frauds

1677 England passed the law “An Act for the Prevention of Frauds and Abuses.”

Certain types of contracts must be in writing and signed by the party against whom enforcement is sought to be enforceable.

Today, almost every state has a Statute of Frauds.

Adhesion contracts and Unconscionability

Adhesion contracts and Unconscionability

Adhesion Contracts.

Preprinted contract in which the adhering party has no opportunity to negotiate the terms of the contract.

Unconscionability.

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

•    “Standard-form.”

•    “Take-it-or-leave-it” adhesion contracts.

Duress

Duress

Forcing a party to enter into a contract under fear or threat makes the contract voidable.

Threatened act must be wrongful or illegal.

Improper Threat.

§ Threat to exercise legal rights (criminal or civil suit).

§ Economic or physical.

Undue Influence

Undue Influence

Contract is Voidable.

§ Confidential or Fiduciary Relationship.

§ Relationship of dependence.

§ Influence or Persuasion.

§ Weak party talked into doing something not beneficial to him or herself.

Presumption of Undue Influence.

Nonfraudulent Misrepresentation

Nonfraudulent Misrepresentation

Innocent Misrepresentation.

Negligent Misrepresentation.

§ Equal to Scienter.

§ Is treated as fraudulent misrepresentation, even though the misrepresentation was not purposeful.

Injury to the Innocent Party

Injury to the Innocent Party

No proof of injury is required when the action is to rescind contract.

Proof of injury is universally required to recover damages.

Reliance on Misrepresentation

Reliance on Misrepresentation

Deceived party must have Justifiable Reliance.

§ Depends on the knowledge and experience of the party relying

Case 13.3:  Folet v. Parlier (2002).

Intent to Deceive

Intent to Deceive

Scienter is an Intent to Deceive.

§ Party knowledge that fact is not as stated.

§ Party makes a reckless statement with disregard of the truth.

§ Party implies that statement is based on personal knowledge or investigation.

Gross negligence is considered intent.

Case 13.2: Sarvis v. Vermont State Colleges (2001).

Misrepresentation Has Occurred

Misrepresentation Has Occurred

Misrepresentation can be express or implied.

§ Concealment.

§ Misrepresentation of future facts and statements of opinion are not fraud, unless person professes to be an expert.

§ Misrepresentation of Law is not fraud, unless person has greater knowledge of the law.

§ Silence is not fraud, unless serious problem or defect known or asked and person lied.

Case 13.1: Vokes v. Arthur Murray Inc. (1968).

Fraudulent Misrepresentation

Fraudulent Misrepresentation

Contract Voidable by Innocent Party.

Elements:

Misrepresentation of Material Fact.

Intent to Deceive.

Reliance on Misrepresentation.

Injury to the Innocent Party.

Mistakes of Value

Mistakes of Value

Generally, contract is enforceable by either party.

Exception: Mistake of value because of a mistake of material fact.

Mistakes of Fact

Mistakes of Fact

Only a Mistake of Fact allows a contract to be canceled.

Bilateral (Mutual) Mistakes can be rescinded by either party.

Unilateral Mistakes cannot be canceled unless:

If other party to the contract knows or should have known that a mistake of fact was made.

If mistake was due to mathematical mistake in addition, summation, subtraction, division, or multiplication and was made inadvertently and without gross negligence.

Contracts: Genuineness of Assent

Contracts: Genuineness of Assent

Introduction

Contract may be unenforceable if the parties have not genuinely assented to its terms by:

§ Mistake.

§ Misrepresentation.

§ Undue Influence.

§ Duress.

Exceptions to the General Rule

Exceptions to the General Rule

1. . Justifiable Ignorance of the Facts.
2. Members of Protected Classes.
3. Withdrawal from an Illegal Agreement.
4. Contract Illegal through Fraud, Duress, or Undue Influence.
5. Sever able or Divisible Contracts.

Contracts Contrary to Public Policy

Contracts Contrary to Public Policy

Contracts contrary to public policy are void.

Unconscionable Contracts or Clauses.

Procedural or Substantive Unconscionability.

Exculpatory Clauses.

Discriminatory Contracts.

Contracts for the Commission of a Tort.

Contracts in Restraint of Trade

Anti-Competitive Agreements are void.

•    Exception: Covenant not to Compete and Sale of Business.

•    Exception: Covenant not to Compete in Employment.

Unconscionable Contracts/Clauses.

§ Exculpatory clauses.

Case 12.4:  Beaver v. Grand Prix Karting (2001).

Contracts Contrary to Statute

Contracts Contrary to Statute

1.  Usury.
2. Gambling.
3. Sabbath Laws
4. Licensing Statutes.

Case 12.2:  RCDI Construction v. Spaceplan (2001).

  5.Contracts to Commit a Crime.

Legality

Legality

A contract to do something prohibited by federal or state statutory law is illegal and therefore void (never existed).

§ Contract that calls for for a tortious act.

§ Contract that calls for an act contrary to public policy.

Mentally Incompetent Persons

Mentally Incompetent Persons

Void.

§ If a person has been adjudged mentally incompetent by a court of law and a guardian has been appointed.

Voidable.

§ If the person does not know he or she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences.

Valid.

§ If person is able to understand the nature and effect of entering into a contract yet lack capacity to engage in other activities.

§ Lucid Interval.

Intoxication

Intoxication

Lack of contractual capacity at the time the contract is being made.

Contract can be either voidable or valid.

§ Courts look at objective indications to determine if contract is voidable.

If voidable:

§ Person has the option to disaffirm, or

§ Person may ratify the contract expressly or impliedly.