Contract Law Factors Affecting Contracts Ending a Contract.

Contract LawContract Law

Factors Affecting ContractsFactors Affecting Contracts

Ending a ContractEnding a Contract

Mistake Mistake

Error that destroys consensusError that destroys consensus

- fundamental mistake about subject - fundamental mistake about subject matter of contractmatter of contract

Shared - common to both partiesShared - common to both parties

- contract void- contract void

- court may correct written error that - court may correct written error that does not reflect understanding of parties – does not reflect understanding of parties – rectificationrectification

Mistake/2Mistake/2

Misunderstanding Misunderstanding - differing interpretationsdiffering interpretations- Both interpretations reasonable – voidBoth interpretations reasonable – void- Both interpretations unreasonable – voidBoth interpretations unreasonable – void- One interpretation reasonable, one notOne interpretation reasonable, one not

- Court will enforce the reasonable Court will enforce the reasonable interpration of the contractinterpration of the contract

Mistake/3 Mistake/3

One-sided MistakeOne-sided Mistake- when one party misleads themselves- when one party misleads themselves– Caveat emptorCaveat emptor

Non Est FactumNon Est Factum (It is not my act) (It is not my act)– mistake goes to the nature of the documentmistake goes to the nature of the document– usually involves misrepresentationusually involves misrepresentation

Rules of Interpretation Rules of Interpretation

Reasonable person testReasonable person test Literal or liberal meanings imposed on Literal or liberal meanings imposed on

written termswritten terms Courts or statutes may imply termsCourts or statutes may imply terms Parol Evidence RuleParol Evidence Rule

– Outside evidence will not change clear Outside evidence will not change clear wordingwording

Misrepresentation Misrepresentation

False False Statement of fact Statement of fact

– Statement of opinion of professional Statement of opinion of professional

That persuades someone to enter into a That persuades someone to enter into a contract.contract.

Silence is not misrepresentation when Silence is not misrepresentation when there is no duty to disclosethere is no duty to disclose

Innocent Misrepresentation Innocent Misrepresentation

The person making it honestly believes it The person making it honestly believes it to be true.to be true.

Remedies are limited to rescissionRemedies are limited to rescission Rescission puts both parties back into Rescission puts both parties back into

original positionsoriginal positions– Not available if impossible to restoreNot available if impossible to restore– Not where a third party is involvedNot where a third party is involved

Fraudulent Misrepresentation Fraudulent Misrepresentation

Intentionally or recklessly Intentionally or recklessly misrepresentingmisrepresenting

Can sue for damages in addition to Can sue for damages in addition to rescissionrescission

An innocent misrepresentation becomes An innocent misrepresentation becomes fraudulent if not corrected when fraudulent if not corrected when discovereddiscovered

\\

Negligent MisrepresentationNegligent Misrepresentation

Carelessly misrepresentingCarelessly misrepresenting Should have known what they were saying Should have known what they were saying

was falsewas false Rescission and damages availabeRescission and damages availabe

Duress and Undue Influence Duress and Undue Influence

DuressDuress– threat makes contract voidablethreat makes contract voidable– Monetary, physical, embarrassmentMonetary, physical, embarrassment

Undue InfluenceUndue Influence– If person in position of trust abuses that If person in position of trust abuses that

relationship to induce a contractrelationship to induce a contract– presumed in certain relationshipspresumed in certain relationships– VoidableVoidable

Duress and Undue Influence/2 Duress and Undue Influence/2

Unconscionable Transactions Unconscionable Transactions – Where a person takes advantage of Where a person takes advantage of

another’s vulnerability another’s vulnerability

– Naivety, age, financial situation, stressNaivety, age, financial situation, stress

– voidablevoidable

Privity of Contract Privity of Contract

Contract can only affect parties to itContract can only affect parties to it Exceptions:Exceptions:

– Original party can enforce contract when Original party can enforce contract when benefits bestowed on outsiderbenefits bestowed on outsider

– Novation - a new party is substituted for an Novation - a new party is substituted for an original party to the contractoriginal party to the contract

– Contractual Rights run with landContractual Rights run with land– Contracts created through agentsContracts created through agents

Assignment Assignment

The benefits (chose in action) received The benefits (chose in action) received under a contract can be assigned or under a contract can be assigned or transferred to anothertransferred to another

Qualifications for statutory assignmentQualifications for statutory assignment– absolute and unconditionalabsolute and unconditional– must be in writing and completemust be in writing and complete– must give proper noticemust give proper notice

Assignment/2 Assignment/2

Some things cannot be assigned:Some things cannot be assigned:– the right to sue (champerty)the right to sue (champerty)

– when contract involves the personal when contract involves the personal performance of a particular skillperformance of a particular skill

Assignment/3 Assignment/3

Assignee is in the same position as Assignee is in the same position as original contractororiginal contractor

Subsequent claims do not affect assigneeSubsequent claims do not affect assignee Contractual rights assigned automatically Contractual rights assigned automatically

in case of death or bankruptcyin case of death or bankruptcy

The End of the Contractual The End of the Contractual Relationship Relationship

Principal methods of discharging a Principal methods of discharging a contractcontract

– PerformancePerformance– AgreementAgreement– BreachBreach– FrustrationFrustration

Performance Performance

Contractual obligations are discharged Contractual obligations are discharged when each party satisfactorily performs its when each party satisfactorily performs its part of the bargain.part of the bargain.

Performance/2 Performance/2

Substantial performanceSubstantial performance– all or most of contractual obligations are all or most of contractual obligations are

fulfilledfulfilled– contract dischargedcontract discharged– some contracts must be performed exactlysome contracts must be performed exactly

Tender of Performance Tender of Performance

When one party is ready, willing, and able When one party is ready, willing, and able and attempts to perform but performance and attempts to perform but performance is refused by other party.is refused by other party.

– may be vicariousmay be vicarious– person who attempted performance may sue person who attempted performance may sue

other for damagesother for damages

Payment must be in legal tenderPayment must be in legal tender Delivery at reasonable time and placeDelivery at reasonable time and place

Breach Breach

A contract is breached when there is:A contract is breached when there is:– improper or incomplete performance orimproper or incomplete performance or– refusal to performrefusal to perform

Conditions - terms essential to substantial Conditions - terms essential to substantial performanceperformance

– where breached, victim relieved of obligationswhere breached, victim relieved of obligations Warranties - minor terms of contractWarranties - minor terms of contract

– where breached, performance still requiredwhere breached, performance still required

Fundamental Breach Fundamental Breach

The failures to perform are so basic they leave The failures to perform are so basic they leave one party without any benefit in the contract.one party without any benefit in the contract.

– Courts will not give effect to some exemption clauses Courts will not give effect to some exemption clauses unless specificunless specific

Repudiation (anticipatory breach) Repudiation (anticipatory breach) – One party indicates that they do not intend to follow One party indicates that they do not intend to follow

through with their end of the dealthrough with their end of the deal– Can be expressed or implied from conductCan be expressed or implied from conduct– Victim may choose to end or insist on performance - Victim may choose to end or insist on performance -

bound by choicebound by choice

Discharge by AgreementDischarge by Agreement

Contracts can be modified or ended by Contracts can be modified or ended by agreementagreement

Bilateral or unilateral dischargeBilateral or unilateral discharge– all rules of contract formation applyall rules of contract formation apply

Accord and satisfaction - parties agree to Accord and satisfaction - parties agree to end contract based on some other end contract based on some other consideration consideration

Contractual Terms Contractual Terms

Contract can specify conditions under Contract can specify conditions under which obligations begin or endwhich obligations begin or end

Conditions precedent—contract is binding Conditions precedent—contract is binding only if some pre-existing condition is metonly if some pre-existing condition is met

Conditions subsequent—the contract ends Conditions subsequent—the contract ends when some event or condition takes placewhen some event or condition takes place

Frustration Frustration

Outside, unforeseen event whichOutside, unforeseen event which– Makes performance impossibleMakes performance impossible– Changes the nature of the contractChanges the nature of the contract

Statutory modificationsStatutory modifications– ““Let the loss fall where it lies.”Let the loss fall where it lies.”– Allows courts to split deposit to pay costs Allows courts to split deposit to pay costs

incurred incurred

Self-Induced Frustration Self-Induced Frustration

When one party is responsible for an act When one party is responsible for an act that frustrates a contract, it is treated as a that frustrates a contract, it is treated as a breach.breach.

If the obligations of the contract can be If the obligations of the contract can be fulfilled in some other way, performance is fulfilled in some other way, performance is required.required.

Remedies for Breach of Contract Remedies for Breach of Contract

Rescission - returning parties to original Rescission - returning parties to original positionposition

Rectification - court corrects wording of a Rectification - court corrects wording of a documentdocument

Provided in ContractProvided in Contract– liquidated damages, deposits, down paymentsliquidated damages, deposits, down payments– victim must mitigate lossesvictim must mitigate losses

Damages Damages

Court tries to put victim of breach in the Court tries to put victim of breach in the position they would have been in if the position they would have been in if the contract had been properly performedcontract had been properly performed

LimitationsLimitations– Remoteness - breaching party must Remoteness - breaching party must

compensate for damages likely to be the result compensate for damages likely to be the result of the breachof the breach

– Mitigation - victims must make an effort to Mitigation - victims must make an effort to keep their losses as low as possiblekeep their losses as low as possible

Equitable Remedies Equitable Remedies

Specific performanceSpecific performance– An order to go through with the dealAn order to go through with the deal

InjunctionInjunction– An order to stop breaching the agreementAn order to stop breaching the agreement

AccountingAccounting– Court may order breaching party to disclose Court may order breaching party to disclose

and pay profitsand pay profits Quantum meruitQuantum meruit

– court orders payment for part performancecourt orders payment for part performance