April 8th Notes

Business Law
April 8, 2010

Contract Law
Formation and Legality
Class 2

Projects:
-Write the best non-compete clause for your point of view
-Liquidated damages clause, restitution damages
(concern with the terms)

Contracts
-balances risk assessment
-preventative type of law
-needs to be clear and terms agreed upon
-damages are different under contracts rather than tort

-the duty of government is to prevent crime and preserve contracts
    -plea bargain
    -pre-nups, parenting plan, settlement agreements, consumer transactions (anything you buy)

What is a contract?
    -promise that the law will enforce
    -is there an agreement?
    -is it legal?
    -did the parties have the capacities to contract?

-is the contract ambiguous?  if it is, they will try to interpret the intent of the parties

context rules
    -looking outside of the contract to see how ambiguous it is

Restatement of Contracts: clarifies the law

What does a contract do?
-establish the terms of the parties relationship
-goal is to accurately memorialize the business deal
-reflects the parties agreement as the rules that will govern the transaction

What are the usual rules?
-statement of material facts
-promise to future performance
-each party's rights
-conditions
-discretionary authority
-how the contract will end
-general policies that govern the relationship

Sources of Contract Law
-Common Law
    -Importance of the Restatement (good book for guidance)
    -can use Westlaw, digest or encyclopedias to get contract interpretation
-Constitution
    article 1 section 10
    -no state should pass a law to impair contracts 
    -fundamental rights recognized in both state and federal constitution
-Uniform Commercial Code
    -article 2 (RCW 62A.2-)

Types of Contracts
-bilateral or unilateral
-express or implied
-executory or executed
    -document has been executed by signing
    -once the obligations are concluded

Making a Contract
1. an agreements
    - offer and acceptance of the offer, meeting of the minds
2. consideration
3. contractual capacity
4. legality
   
The Offer
-promise to do (or not do) something in the future
-requirements
    -offeror's serious intention
    -definiteness of terms
    -communication

Definite Terms
-terms (expressed or implied) that must be included in the offer
-parties
-subject matter
-considerations (usually price)
time for performance

Equitable Contracts
1. Promissory Estoppel
    -defendant made a statement knowing that the plaintiff would likely rely on it
    -plaintiff did rely on it
    -to his detriment
    -justice requires the statement to be enforced

2. Quasi Contracts
    1. plaintiff gave some benefit to the defendant
    2. Reasonably expected to be paid
    3. defendant would be unjustly enriched in plaintiff is not paid

Communication of Offer
-must be communicated in some way
-once communicated it is a contract

Termination of Offer
-before it is accepted
    -action of either party
    -or operation of law

Acceptance
-accept
-reject
-counteroffer
-silence is not acceptance

Mirror Image Rule
-offeree acceptance match the offeror's exactly or it is rejected or a counteroffer
UCC 2-207

Timelines
-Mailbox rule
    -acceptance is effective on dispatch, provided an authorization method of communication is properly used
-However the offeror may specify how and when acceptance should be made

Consideration
-a bargained for exchange wach side is inducing the other to agree
-the thing bargained for can be a promise or action
-The thing bargained for can be a benefit to the promisor or a detriment to the promisee.

Hamer v. Sidway

Adequacy of Consideration
-court will generally not weigh the value of the promise
-if the parties with the bargain initially then the value of the bargain will not be considered by a court

-must be aware of preexisting duty

Gifts
-not supported by consideration
-can be revoked at any time before the gift is given

Legality of the Contract
-illegal contract is void
-contract is illegal is:
    violates a federal/state statute
    violates public policy

Applicable Statutes
-many statutes expressly prohibit certain contracts or contract terms
-some of these are
    -gambling statutes
    -insurance statutes
    -usury statutes
    -consumer protection statutes
    -statutes protecting vulnerable individuals

Gambling in WA
-authorized or criminalized in RCW 9.46
    -some are authorized
    -some bingo, fishing derby, state lottery
-Tribal Gaming
    -29 federally recognized tribes with own system

Insurance
-life insurance
    -requires insured to have an insurable interest in the subject of the policy
    -need some kind of interest in the life of the other person

Usurious Contracts
    -usury laws prohibit charging excess interest on loans
    -excess interest is generally defined in the statute
    -statute is RCW 19.52
    RCW 19.52.030 permits enforcement of usury contracts

Licensing statutes
    -statues to protect the public
        -only for practitioners/providers for licensed, can enforce a contractual
    -regulatory or revenue statutes
        -contract with an unlicensed individual is generally enforceable

Public Policy Violations
    -a court may refuse to enforce a contract if, based on common law, principles it violates

Restraint of Trade
-restraint of trade are usually unenforceable
Free trade is the basis of the American economy and any bargain not to compete is suspect and, generally, unenforceable. There are two common exceptions:
Sale of a business
Employment

Sale of  Business
-the buyer may as the seller to agree not to compete with the business if it is reasonable 
The buyer of an existing business may ask the seller to agree not to compete with the business. This agreement is enforceable if it is reasonable:
In Time
Geographic Area
Scope of Activity

Employment Clauses
A noncompetition clause in a contract for employment is generally enforceable if it is essential to the employer, fair to the employee, and harmless to the general public. 

Washington Law
Washington courts will enforce noncompete clauses if they are validly formed (i.e., supported by consideration), are of legitimate concern to employer’s business, and are reasonable as to
Time
Geographic limits
Scope of Activity
Labriola v. Pollard Group, Inc., 152 Wn.2d 828 (2004)

Exculpatory Clauses
Basically a contract that releases one of the parties from liability if the other party is injured.
Generally unenforceable only if:
Attempts to avoid liability for intentional torts or gross negligence
Parties have greatly disparate bargaining power
Clause is not clearly written or visible

Exculpatory Clauses
Exculpatory clauses in contracts for bailments are generally enforceable - if they are reasonable, clear and obvious

Unconscionable Contract
 An unconscionable contract is one that the court refuses to enforce because of fundamental unfairness.
A contract is unconscionable if it one that “no man in his senses and not under delusion would make . . . and no honest and fair man would accept.”

Contract Drafting
Goals:
Accurately state the business deal
Be clear and unambiguous
Resolve problems in a practical way
Be sufficiently specific
Include the client’s goals and reduce its risks
Prevent litigation

-Assignment
--best non-compete clause you could get

Buyers or Sellers