LA 245 Week 13 Notes
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This 13 page Class Notes was uploaded by Frankie Fucci on Sunday May 1, 2016. The Class Notes belongs to LA 245 at Boston University taught by David Randall in Spring 2016. Since its upload, it has received 18 views. For similar materials see Introduction to Law in Law at Boston University.
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Date Created: 05/01/16
Legality, Consent, and Writing Gambling contract is illegal unless it is a type of wagering, specifically authorized by state statute Gambling on credit in CA and many states is illegal Legality Non-compete agreements (aka covenant not to compete): employee promises not to work fro a competitor for some time after leaving his current company o Often valid, but the common law places some restrictions on them Enforceable so long as they are reasonable in time, activity and territory o King v. Head Start Family Hair Salons, Inc. King was a stylist at Head Start but was also one of the managers of the Head Start Facilities Quit Head Start and started working as manager of Sports Clips shop, located in the same mall as Head Start Sports Clips only offered only haircuts and serves primarily boys and men Head Start filed suit claiming King was violating the noncompetition agreement she signed Agreement prohibited her from working at a competing business within a two-mile radium of any Head Start facility for 12 months after leaving the company Trial court issues an injunction enforcing the noncompete King appealed Issue: Was the noncompete agreement valid? King's strongest argument is the location restriction in the agreement imposes an undue hardship Head Start has 30 locations in the area making it virtually impossible for her to find employment in the hair- care industry at a facility that doesn’t violate that restriction Not in a position to learn a new skill/trade to make a living, especially since she's spent most of her life a hairstylist BUT Head Start has a valid concern that King could attract customers away from them To prevent undue hardship on King and to protect Head Start, trail court should enforce more reasonable geographic restriction Ex: cannot work within 2-mile radius of the Head Start facility she was previous at Decision reversed and remanded o Sale of a Business - non-compete agreements related to the sale of a business are also enforceable if reasonable in time, activity and territory Courts are usually stricter here o California Exception - in this important state, non-compete agreements are not enforceable in employment contracts, only valid if: Employee signs it at the same time she is selling her share of a company It is reasonable in time, activity and territory Exculpatory Clauses o Exculpatory clause: contract provision that attempts to release one party from liability in the event the other is injured Sometimes valid Courts frequently ignore exculpatory clauses, finding that one party was forcing the other to give up legal rights no one should be forced to release Generally unenforceable: When the affected activity is in the public interest, such as medical care, public transportation, or some essential service When the parties have greatly unequal bargaining power Unless the clause is clearly written and readily visible Ransburg v. Richards Richards leased an apt at Twin Lakes, a complex owned by Ransburg Written lease declared: Twin Lakes would "gratuitously" maintain the common areas Richards' use of the facilities would be "at her own risk" Twin Lakes was not responsible for any harm to the tenant or her guests anywhere on the property (including parking lot), even if the damage was caused by Twin Lakes' negligence It snowed, as Richards walked to her car, she slipped and fell on ice Richards sued Ransburg who moved for summary judgement Trail court denied her motion, she appealed Issue: Was the exculpatory clause valid? Argument for Tenant: Exculpatory clause in a contract for an essential service violates public policy No equality of bargaining power between them, tenants don't freely agree to the clause If landlord fails to maintain the property, anyone who comes into contact with the property is at risk This is the public's interest Argument for Landlord: Tenant chose to live on landlord's property, she could have gone somewhere else Landlord's aren't so powerful that agreements are on a "take it or leave it" basis Landlord stated the clause plainly, and tenant made it of her own free will Unconscionable Contracts: those that a court refuses to enforce because of fundamental unfairness o Contracts can still be voidable if they "shock the conscience" of the court o Unconscionable = if it was "such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other" o Two factors determine unconscionability: Oppression - one party used its superior power to force a contract on a weaker party Surprise - weaker party did not fully understand the consequences of its agreement Controversial cases Not easy to define oppression or unfair surprise When court deems a contract unconscionable it diminishes freedom of contract People lose confidence in the reliability and stability of contracts Voidable Contracts: Capacity and Consent Voidable contract: when one party has the option either to enforce or terminate the agreement Capacity: legal ability to enter a contract, two groups of people usually lack legal capacity o Minors - in contract law, minor is someone under the age of 18 Usually can only create voidable contracts - voidable contracts may be canceled by the party who lacks capacity Void contract: illegal from the beginning and may not be enforced by either party Voidable contract: legal but permits one party to escape, if she so wishes Disaffirmance: give notice of refusal to be bound by an agreement Rescind: to cancel a contract Minors can undo a contract that has already been completed by filing a suit to rescind Restitution - a minor who disaffirms a contract must return the consideration he has received, to the extent he is able Status quo rule: if a minor cannot return the consideration, the adult/store is only required to return its profit margin to the minor Consent: whether a contracting party truly understood what she was getting into and whether she made the agreement voluntarily o Fraud - injured person must show the following: Defendant knew his statement was false, or that he made the statement recklessly and without knowledge of whether it was false The false statement was material The injured party justifiably relied on the statement o Element One: Intentional or Reckless Misrepresentation of Fact Opinions and "puffery" do not amount to fraud o Element Two: Materiality Was the misstatement likely to influence the decision of the misled party significantly o Element Three: Justifiable Reliance Reliance must be justifiable - that is, reasonable o Plaintiff's Remedies for Fraud In the case of fraud, the injured party generally has a choice of rescinding the contract or suing for damages or, in some cases, doing both Mistake o 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 Conscious uncertainty - no rescission is permitted where one of the parties knows he is taking on a risk; that is, he realizes there is uncertainty about the quality of the thing being exchanged o Unilateral mistake: occurs when only one party enters a contract under a mistaken assumption More difficult for injured party to rescind Party must demonstrate that she entered the contract because of a basic factual error and that either (1) enforcing the contract would be unconscionable or (2) the nonmistaken party knew of the error Duress: improper threat made to force another party to enter into a contract o If one party makes an improper threat that causes the victim to enter into a contract, and the victim had no reasonable alternative, the contract is voidable o In analyzing a claim of economic duress, courts look at: Acts that have no legitimate business purpose Greatly unequal bargaining power An unnaturally large gain for one party Financial distress to one party Finish Chapter 9 Consideration: bargaining that leads to an exchange of something of legal value 2 components: o Bargained-for exchange: "I promise you x because I want you to promise me y in return" --> "I accept your promise of x and because you promised x I promise y in return" Promisor has to be seeking a return promise or performance from the offeree and the offeree has to be making the return promise in exchange for the offeror's promise Each has to induce the other Ex: student helps professor move into office in the beginning of the semester, professor says, today, because you helped me move into my office, I will pay you $100 Paying the money is not a contractual obligation because there is no bargained-for exchange, his promise did not induce her to help him move, and her helping him move did not induce him (directly) to pay her the money o Legal value: "I promise to do something I'm not legally required to do, or not to do something I have a right to do" --> person responds in kind NOT synonymous with monetary value Hamer v. Sidway** Consideration is measured at the moment the contract is made Ex: if this deal was made now, and decided to refrain from smoking until 21, this would not be considered legal value at 18 years old because when you made the deal (at 16) there was no legal value Consideration Issues Adequacy - o Absent other influence, adequacy by itself doesn't raise a problem of whether there is consideration o Can sometimes be relevant in deciding whether or not there was consent in entering the contract Mutuality of Obligations/Illusory Promise - each party has to be obligated in some way, and if both are not, then there is no consideration Preexisting Duty - when one is promising to do something they are already legally obligated to do by a preexisting duty, there is no consideration o *Applies only in states that still follow the common law preexisting duty rule Settlement of Debts o Two types of debt: Liquidation debt = debt where creditor and debtor agree both on the debt's existence and the amount owed "I can't pay $P, will you accept $<P as full payment?" --> "Yes, I accept that" NOT a contract, because debtor is not offering anything of legal value because he is already obligated to do more than they are now asking to do *Applies only in states that still follow the common law preexisting duty rule "I can't pay $P, will you accept title to my Porsche Cayman as full payment?" --> "Yes, I accept" A contract, because has no existing legal obligation to give title of his Porsche, which has legal value Unliquidated debt = debt where creditor and debtor disagree as either the existence of the debt, or the amount owed "I can't pay $P, will you accept $>P as full payment?" --> "Yes, I will accept $>P" ==> this is a contract (specific kind, called an accord) To create an accord and satisfaction: Creditor must agree to take $>P as full payment Debtor must actually pay $>P to creditor Start Chapter 10 Legality= to be valid a contract must be for lawful purpose Examples of illegal contracts o Contacts arising out of gambling transactions, unless specifically authorized by a state statute o Life insurance policies in which the beneficiary doesn't have a insurable interest in the person insured Insurable interest examples On one's own life, lives of close family members and the lives of others in whom one has a financial interest independent of the insurance (ex: business co-owners, officers of a corporation) Other relationships which create a financial interest in the life of another, independent of the insurance Secured creditor's interest in the life of a debtor One part to a contract in the life of the other party Unconscionable contracts - contracts or contract terms that are really, really, really unfair Taking great advantage of superior bargaining positions A really unexpected bargaining term Legality, Consent and Writing (continued) Written Contracts Purpose: to prevent lying (fraud) in civil lawsuits In several cases, a contract is enforceable only if it's in writing Purpose of parliament and state legislatures passing their respective statues of fraud: to provide a court with the best possible evidence of whether the parties intended to make a contract Statute of Frauds: a plaintiff may not enforce any of the following agreements unless the agreement, or some memorandum of it, is in writing and signed by the defendant: o For any interest in land o That cannot be performed within one year o To pay the debt of another o Made by an executer of an estate o Made in consideration of marriage; and o For the sale of goods worth $500 or more Contracts that are meant to be written but are not, are not enforceable but that doesn't mean they are void o Once a contract is fully executed, it makes no difference that it was unwritten o Statute of Frauds prevents the enforcement of an executory contrast, that is, one in which the parties have not fulfilled their obligations o But the contract is not illegal o Once both parties have fully performed their obligations, neither may demand rescission o Can only cancel future obligations, not undo past actions Common Law Statue of Frauds: Contracts that Must be in Writing o Agreements for an interest in land - contract for the sale of any interest in land must be in writing to be enforceable "interest in land" = any legal right regarding land General rule, leases must be in writing, though most states have made exceptions for short-term leases (a year or less) Exception: Full Performance by the Seller - if seller completely performs her side of the contract for an inters in land, a court is likely to enforce the agreement, even if it was oral Exception: Part Performance b the Buyer - the buyer of land may be able to enforce an oral contract if she paid part of the purchase price AND either entered upon the land OR make improvement to it o Agreements that Cannot be Performed within One Year - contracts that cannot be performed within one year are unenforceable unless they are in writing One-year period begins on the date the parties make the agreement "cannot" = if a contract could possibly be completed in one year, it need not be in writing Ex: boss tells worker he can have Fridays off as long as he works there --> that's enforceable whether he works there a week or 20 years, because "as long as he works there" could last for less than one year If an agreement will necessarily take longer than one year to finish, it must be in writing to be enforceable o Promise to Pay the Debt of Another - collateral promise: when one person agrees to pay the debt of another as a favor to the debtor Must be in writing o Promise Made by an Executor of an Estate - special application of paying the debt of another Executor: person who is in charge of an estate after someone dies Their job is to pay debts of the deceased, obtain money owed to him and disburse the assets according to the will Statute of Frauds comes into play when executor promises to pay an estate's debts with his own funds Executor's promise to use own funds must be in writing to be enforceable o Promise Made in Consideration of Marriage - promises made in consideration of marriage must be in writing to be enforceable Common Law Statute of Frauds: What the Writing Must Contain o General Requirements Signature - must be signed by the defendant Statute of Frauds requires the writing be "signed by the party to be charged therewith" => the party resisting enforcement of the contract Referred to as "defendant" - because in court, defendant disputes the existence of the contract Signature defined very broadly With rise in e-commerce, electronic signature can mean a name typed (or automatically included) at the bottom of an email message, a retinal or vocal scan or a name signed by electronic pen on a tablet, etc. E-signatures valid in every state Uniform Electronic Transactions Act (UETA): electronic contracts and signatures are as enforceable as those on paper --> normal rules of contract law apply, and neither party can avoid such a deal because it originated in cyberspace Most states have adopted this Electronic Signatures in Global and National Commerce Act (E-SIGN): federal statute declaring that contracts cannot be denied enforcement simply because they are in electronic form, or signed electronically Applies in states that haven't adopted UETA In many states, certain documents still require traditional signature (non-electronic) Wills, adoption, court orders, notice of foreclosure, etc. Reasonable Certainty - must state with reasonable certainty the name of each party, the subject matter of the agreement, and all the essential terms and promises Problems of vagueness and incompleteness often doom informal memoranda The UCC's Statute of Frauds o UCC requires writing for the same of goods worth $500 or more o UCC Section 2-201(1) - The Basic Rule: a contract for the sale of goods worth $500 or more is not enforceable unless there is some writing, signed by the defendant, indication that the parties reached an agreement Key difference between common law rule and UCC rule = Code doesn't require all terms of the agreement o be in writing Only wants an indication that the parties have reach an agreement, requires: Signature of defendant Quantity of goods being sold Parol Evidence - anything (apart from the written contact itself) that was said, done or written before the parties signed the agreement or as they signed it o Integrated contract: a writing that the parties intend as the final, complete expression of their agreement o Parol Evidence Rule: when two parties make an integrated contract, neither one may use parol evidence to contract, vary or add to its terms o When parties consider their agreement integrated, any statements they made before or while signing are irrelevant o Avoid parol evidence disputes - include an integration clause: statement clearly proclaiming that this writing is the "full and final expression" of the parties' agreement and that anything said before or while signing is irrelevant o Mayo v. North Carolina State University Dr. Mayo - tenured faculty member of engineering dept at NCSU and director of school's nuclear engineering program July: informed dept chair he was leaving, effective September 1, dept chair accepted the resignation October: school's payroll coordinator, informed him he had been overpaid He had been prepared for September that he shouldn't have gotten because he left Refused to refund the money, NCSU sought legal proceedings First was the hearing before administration agency Payroll directors explained the "prepayment" rule However, both admitted the prepayment rule was not included in any of the documents that formed Mayo's contract University officials used other evidence to establish the prepayment rule Based on the additional evidence, agency rules that NCSU was entitled to its money Mayo appealed to court, and the trail judge declared he owed nothing, since the university was not permitted to rely on parol evidence to establish its policy, NCSU appealed Issue: May NCSU rely on parol evidence to establish its prepayment rule? The terms of the contract were clear and the terms relied on by NCSU were not expressly included in the employment agreement Payroll officers admitted that the term was not written outright in the agreements and the professor claimed he did not know about it until September once he already left Parol evidence rule prohibits the admission of parol evidence to vary, add or contradict a written instrument intended to be the final integration of the transaction The rule is: where it is shown that the writing is not a full integration of the term s of the contact, or when a contact is ambiguous, parol evidence is admissible to show and make certain the intention behind the contract Decision is affirmed Contract Law (continued) Licensing: legal permission to do something Police Power/Regulatory Licenses - designed primarily to protect the public; a contract made by an unlicensed worker to provide licensed services is void o Ex: professional licenses (doctors, lawyer), building trades (plumbers, electricians) Revenue licenses - designed primarily to raise revenue; a contract made by an unlicensed person is enforceable o Ex: street vendors, flea markets, many businesses (dry cleaners, junk peddlers) What if one is in the process of getting the license or has all the paperwork but just hasn't paid for it? o Still, doesn't have a license, it is a BINARY state - you either have it or you don't AT THE TIME of the agreement Lesson: there are certain cases where contract law values form over substance Non-compete agreements In employment - a non-compete agreement ancillary to an employment contract is enforceable only if it is: o Essential to the employer o Fair to the employee, AND o Harmless to the general public - can’t unfairly restrict trade o Many states don't recognize non-competes as it pertains to employment In the sale of a business - a non-compete agreement ancillary to the sale of a business is enforceable if it is reasonable as to: o Time o Geographic area AND o Scope of non-competitive activity o Exculpatory clauses: release one party from liability in the event the other is injured Enforceable if: o It excludes liability for negligence o The activity it covers does not raise important public policy issues AND o It is not hidden in the contract Unenforceable if: o Attempts to waive harm caused by intentional tort or gross negligence o The activity it covers is in the public interest o The parties have unequal bargaining power, OR o It is not readily visible in the contract o Voidable contracts: contract in which on party has the option either to enforce or terminate the agreement Capacity = the presence of mind necessary for a meeting of the minds to occur Minor = person under 18 years old o In most states, contract entered into by a minor is voidable - by the minor and ONLY by the minor Restitution: General rule is that a minor who disaffirms a contract must restore the other party to the position he was in before contracting with the minor o Reality of Consent Fraud o Elements Intentional or reckless misrepresentation of material fact Materiality = likely to influence the injured party's decision whether to enter the contract Justifiable reliance o Remedies Rescission Treat contract as if it never existed Figuratively, rip up the contract Accept the contract and sue for damages o Mistake Bilateral mistake o When both parties are mistaken as to the same material fact o Injured party may avoid the contract Unilateral mistake o When one party is mistaken as to the material fact o Generally, the mistaken party has no right to relief o To rescind based on a unilateral mistake, the mistaken party must prove that: She entered the contract because of a basic factual error, AND Enforcing the contract would be unconscionable, OR The non-mistaken party knew of the error o Written Contracts Agreements subject to Statute of Frauds (requires a written contract): o For any interest in land o That cannot be performed within one year o Agreement to pay the debt of another Including one made by the executor of an estate to pay the decedent's death from the executor's funds o Made in consideration of marriage, OR o Under the UCC, for the sale of goods worth more than $500 Writing must include: o Signed by the party against whom enforcement is sought, AND o Stating with reasonable certainty - The names of the parties The contract's subject matter, AND All essential terms and promises
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