Contract Law WHAT IS A CONTRACT

Transcription

1 Contract Law Lawrence Siry Overview What is a Contract? (1) Contract Forma8on Offer Acceptance Enforcing a Contract (2) Considera8on Statue of Frauds Terms of Contract (3) Interpreta8on of Contracts Modifica<on and Avoidance of Contracts (4) Promissory Estoppel Voiding Contracts Performance Problems Performance and Breach (5) Execu8on of Contractual Du8es Warran8es Non- Performance Remedies Discharge Other Par<es (6) Assignment and Delega8on Third Party Contracts WHAT IS A CONTRACT An Agreement between two or more par8es which creates rights and obliga8ons between the par8es, with the inten8on of the par8es to create legally binding responsibili8es. 3 1

2 WHAT IS A CONTRACT Interpreta8on of Contracts 4 Central Ques8ons: How determine whether there is a mee8ng of the minds? A: Would you sell me Siry s Irish Pub for Euros? B: I ll buy it for No Contract- no mee8ng of the minds. Mee8ng of the Minds Subjec8ve Inten8on Objec8ve Inten8on 2

3 Mee8ng of the Minds Subjec8ve Inten8on - what the party really meant- the state of mind. Objec8ve Inten8on - what the party seemed to mean. What are the advantages and disadvantages of each? Restatement [First] 227 A standard of interpreta8on is the test applied by the law to words and to other manifesta8ons of inten8on in order to determine the meaning to be given to them. Standard usage Locally standard usage Mutual standard Individual standard Reasonable expecta8on Reasonable understanding Lucy v. Zehmer (1954) Lucy owned a farm called Ferguson Acres. Lucy walks into a bar, bogle in hand and offers to sell Zehmer the farm for $50,000- aier much drinking they reduce the deal to a napkin. When Zehmer tried to enforce, Lucy reneged: It was only in jest- I was drunk. 3

4 Lucy v. Zehmer (1954) The mental assent of the par8es is not requisite for the forma8on of a contract. If the words or other acts of one of the par8es have but one reasonable meaning, his undisclosed inten8on is immaterial except when an unreasonable meaning which he agaches to his manifesta8ons is known to the other party. Specific Performance was ordered. Raffles v. Wichelaus (UK 1864) Case of the Peerless. D agrees to buy co:on from P shipped from Bombay to Liverpool on the Peerless. Two ships named peerless one arriving in October and one in December. When P shows up in December with the co:on, D says sorry too late! Court: No consensus ad idem- no contract. Oswald v Allen (US 1969) Swiss Coins The par8es agreed on a sale, but not the sale. Falck v. Williams (1900) Telegraph message Colfax Envelope v Local 458-3M Prin8ng press and collec8ve 4

5 Embry v Hargadine (1907- MO) P worked for D on a yearly contract. P: Renew or I walk D: All is cool, get back to work 2 months later You, sir are fired Defendant conducted himself such that a reasonable person would believe that he was assen8ng to the terms proposed by the Plain8ff, and Plain8ff upon that belief enters into the contract, Defendant would be equally bound whether or not he had actual subjec8ve intent. Restatement 2 nd Contracts 20. EFFECT OF MISUNDERSTANDING (1) There is no manifesta<on of mutual assent to an exchange if the par<es atach materially different meanings to their manifesta<ons and (a) neither party knows or has reason to know the meaning atached by the other; or (b) each party knows or each party has reason to know the meaning atached by the other. (2) The manifesta<ons of the par<es are opera<ve in accordance with the meaning atached to them by one of the par<es if (a) that party does not know of any different meaning atached by the other, and the other knows the meaning atached by the first party; or (b) that party has no reason to know of any different meaning atached by the other, and the other has reason to know the meaning atached by the first party. Restatement 2 nd Contracts 201. WHOSE MEANING PREVAILS (1) Where the par<es have atached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (2) Where the par<es have atached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning atached by one of them if at the <me the agreement was made (a) that party did not know of any different meaning atached by the other, and the other knew the meaning atached by the first party; or (b) that party had no reason to know of any different meaning atached by the other, and the other had reason to know the meaning atached by the first party. (3) Except as stated in this Sec<on, neither party is bound by the meaning atached by the other, even though the result may be a failure of mutual assent SUPPLYING AN OMITTED ESSENTIAL TERM When the par<es to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essen<al to a determina<on of their rights and du<es, a term which is reasonable in the circumstances is supplied by the court. 5

6 Kabil Developments v. Mignot (OR, 1977) P allowed to tes8fy as to subjec8ve intent of contract Appeals Court- only the objec8ve intent- what a reasonable person would find is appropriate. Subjec8ve intent is relevant but not disposi8ve. Haines v. NY (1977 NY) NYC and Hunter entered into a sewer agreement. In the absence of an express term fixing the dura8on of a contract, the courts may inquire into the intent of the par8es and supply the missing term if a dura8on may be fairly and reasonably fixed by the surrounding circumstances. NYC was not required to expand forever- but maintain while it needed the H20. 6

7 Spaulding v. Morse (MA 1947) The Morses divorce Trust Agreement provided that the Husband would pay for the children through their college educa8on. Instead of going directly to college, Son goes into the military. The trust administrator sues to secure support for son un8l he goes to college. Court, the instrument (or contract) ought to be interpreted with a view to the material circumstances of the par8es at the 8me of execu8on in light of the facts at that moment and to give effect to the main goal to be accomplished. An instrument must be construed so as to give effect to the intent of the par8es. Lawson v. Mar8n (LA 1959) Agreement allowed lumber company to cut trees on Lawson s property for two years- in the event of high water, the 8me was extended for another year. Most of the cupng occurred aier the 2 years had expired. Lawson sued for the value of the wood removed aier the two year period. Half the 8me, there was high water, but the other half was dry and the wood could have been removed. Did the year extension apply? The judge said that the clause had to be taken in context- if the wood could not be removed in the 8me provided, then the year would have applied. - Central Ques8on: when can a party use evidence of outside or extrinsic evidence to prove a modifica8on of a contract. 7

8 The allows for such evidence to: Aid the court in interpreta8on of exis8ng terms. Show that a wri8ng was an integralon into the contract. Show that a term or provision is complete or par8al. Establish hat the par8es had subsequent agreements. Show that a term(s) was a product of fraud, illegality, mistake, duress or lack of considera8on. Mitchell v Lath (NY 1928) Mitchells bought a house from the Laths, pursuant to a contract of sale. Ice House Could the Plain8ffs use of the Parole Evidence Rule to show the existence of a side deal to remove the ice house. Mitchell v Lath (NY 1928) For an oral agreement to vary the wrigen contract at least three condi8ons must be met, the agreement must in form be a collateral one, it must not contradict express or implied provisions of the wrigen contract, and it must be one that par8es would not ordinarily be expected to embody in the wri8ng. 8

9 Mitchell v Lath (NY 1928) An oral agreement is not collateral to the wrigen agreement if its subject is closely related to the subject of the wrigen agreement. The agreement to remove the icehouse was such that it would have naturally been included in the wrigen contract for the sale of the farm. The oral agreement contradicts the wrigen agreement. Therefore, the wri8ng was concluded as being a complete integra8on and cannot be modified. Thinks about the Siry Contract. Restatements Second 213. EFFECT OF INTEGRATED AGREEMENT ON PRIOR AGREEMENTS (PAROL EVIDENCE RULE) (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. Comments: a. Parol evidence rule. This Sec8on states what is commonly known as the parol evidence rule... It renders inopera8ve prior wrigen agreements as well as prior oral agreements. Where wri8ngs rela8ng to the same subject mager are assented to as parts of one transac8on, both form part of the integrated agreement. Where an agreement is partly oral and partly wrigen, the wri8ng is at most a par8ally integrated agreement. See

10 Comments: b. Inconsistent terms. Whether a binding agreement is completely integrated or par8ally integrated, it supersedes inconsistent terms of prior agreements. To apply this rule, the court must make preliminary determina8ons that there is an integrated agreement and that it is inconsistent with the term in ques8on. See 209. Those determina8ons are made in accordance with all relevant evidence, and require interpreta8on both of the integrated agreement and of the prior agreement. The existence of the prior agreement may be a circumstance which sheds light on the meaning of the integrated agreement, but the integrated agreement must be given a meaning to which its language is reasonably suscep8ble when read in the light of all the circumstances. See 212, 214. Comments: c. Scope of a completely integrated agreement. Where the par8es have adopted a wri8ng as a complete and exclusive statement of the terms of the agreement, even consistent addi8onal terms are superseded. But there may s8ll be a separate agreement between the same par8es which is not affected. To apply the rule of Subsec8on (2) the court in addi8on to determining that there is an integrated agreement and that it is completely integrated, must determine that the asserted prior agreement is within the scope of the integrated agreement. Those determina8ons are made in accordance with all relevant evidence... Masterson v. Sine (CA 1968) - Ranch in the Family Under what circumstances should evidence of oral collateral agreements be excluded? How must the court determine whether a collateral agreement is such that it might naturally have been made as a separate agreement? 10

11 Masterson v. Sine (CA 1968) Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. When determining that a collateral agreement is such that it might naturally be made as a separate agreement, the court must look to the actual experience and dealings between the par8es as they view the status of such a collateral agreement. If an agreement is complete, parol evidence cannot be used to vary, contradict, or add to the terms of the contract. If an agreement is par8al, parol evidence can be shown to prove the elements of the contract not reduced to wri8ng. Masterson v. Sine (CA 1968) Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. When determining that a collateral agreement is such that it might naturally be made as a separate agreement, the court must look to the actual experience and dealings between the par8es as they view the status of such a collateral agreement. If an agreement is complete, parol evidence cannot be used to vary, contradict, or add to the terms of the contract. If an agreement is par8al, parol evidence can be shown to prove the elements of the contract not reduced to wri8ng. PAROL EVIDENCE RULE UCC 2-202: Terms in a wri<ng intended by the par<es as final expression of their agreement may not be contradicted by extrinsic evidence, but may be supplemented by course of dealing or usage of trade (1-205) or by course of performance (2-208); and by evidence of consistent addi8onal terms unless the court finds completely integrated agreement. 11

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