Code III - Contracts

Question 1

What is a contract?

Answer 1

A contract is an agreement between two or more parties by which obligations are created, modified, or extinguished. 1. A contract is the law between the parties and can be dissolved by mutual consent and for legal grounds. 2. Parties mostly enjoy freedom of contract. 3. Rights and obligations under contract are heritable and assignable unless precluded, and produce third-party effects only when the law so provides.

Question 2

What are the four requirements for a valid contract?

Answer 2

1. Capacity; 2. Consent; 3. Lawful cause; 4. Lawful object.

Question 3

What is the distinction between unilateral and lateral contracts?

Answer 3

1. Unilateral–only one party to the contract incurs an obligation. 2. Bilateral–if both parties to the contract bind themselves reciprocally.

Question 4

What are the requirements for bilateral contracts and their implications?

Answer 4

1. Both parties to the contract must have incurred obligations. 2. Reason why each party bound himself must have been to receive the performance promised by the other party. Implications: each party in a bilateral contract is both an obligor and an obligee. The reciprocal obliations in a bilateral contract are correlative.

Question 5

What is the dinstinction between onerous and gratutious contracts?

Answer 5

Based on th cause of the obligor’s obligation. Cause is the reason a party obligates himself. 1. Onerous–if the obligor bound himself to obtain a benefit for himself. 2. Gratuitous–if the obligor bound himself to benefit the obligee or some other person.

Question 6

What is the distinction between principal and acessory contracts?

Answer 6

Based on whether the contract was entered into to provide security for another obligation. 1. Principal contract–a contract whose obligation is secured by an accessory contract. 2. Accessory contract–if the contract was entered into to provide security for the performance of another obligation.

Question 7

What is the distinction between nominate and innominate contracts?

Answer 7

Depends on whether the contract has been given a special designation. 1. A nominate contract is given a special designation. 2. An innominate contract is given no special designation.

Question 8

Whare are commutative or aleatory contracts?

Answer 8

1. Commutative contract–contract where the performance of one party is correlative to the performance by the other party. 2. Aleatory contract–one where the performance or extent of performance of any party to the contract depends on an uncertain event.

Question 9

What are the requirements for capacity?

Answer 9

All persons have contractual capacity except: unemancipated minors; interdicts; and persons deprived of reason at the TIME of contracting.

Question 10

When do minors have contractual capacity?

Answer 10

If the other party reasonably relies on a minor’s representation of majority, the contract may not be rescinded. Contracts made for something related to the minor’s business or necessary for his support or education may not be rescinded.

Question 11

When do persons deprived of reason have contractual capacity?

Answer 11

If not interdicted, one may obtain rescission of an onerous contract only upon showing that the other party knew or should have known of the incapacity. However, a party lacking capacity may rescind a gratuitous contract WITHOUT showing the other party’s actual or constructive knowledge of the incapacity.

Question 12

When may a contract with a non-interdicted person deprvied of reason be attacked?

Answer 12

When the contract is: 1. Gratuitous; 2. Evidences lack of understanding; 3. Made within 30 days of death; 4. An application for interdiction was filed before death.

Question 13

What is the effect of rescission for lack of capacity?

Answer 13

A contract entered into by a party without contractual capacity is a relative nullity, but the contract may be rescinded only by the party lacking capacity.

Question 14

What are the requirements for offer and acceptance?

Answer 14

Offer and acceptance may be made orally, in writing, or by action or inaction manifesting consent.

Question 15

Are there any formalities required for offer and acceptance?

Answer 15

No formalities are generally required UNLESS the law so prescribes or the parties have agreed to a certain form. If a certain form is required by law for contract, the same form is required for offer and acceptance. If a certain form is mandated by the parties’ agreement, it is presumed that the parties do not intend to be bound until the contract is so executed.

Question 16

What is an offer?

Answer 16

An offer is personal to the offeree, is not assignable, and expires if either the offeror or the offeree dies or becomes incapacitated before acceptance. An offer is either revocable or irrevocable. 1. A revocable offer–may be revoked before acceptance; revocation must be received before the offer is accepted. 2. An irrevocable offer–if the offer specifies a period of time for acceptance, it is irrevocable during that time. If offeror does not specify a ttime, but intends to give the offeree a period within which to accept, the offer is irrevocable for a reasonable time.

Question 17

When does an offer expire?

Answer 17

A revocable offer expires if not accepted within a reasonable time. An irrevocable offer expires if not accepted within the period during which it is irrevocable.

Question 18

How does one accept an offer?

Answer 18

1. Revocable–acceptance is effective when the offeree transmits it, so long as made in a reasonable manner. 2. Irrevocable–acceptance is only effective when the offeror recevies it, which occurs when the acceptance comes into the offeror’s possession.

Question 19

How does one accept by performance?

Answer 19

1. Acceptance by commencment of performance–if contemplated that the performance will be completed if commenced, a contract is formed when performance begins. 2. Acceptance by completion of performance–if an offer can only be accepted by a completed performance, the offeror cannot revoked the offer once performance has commenced for a reasonable time necessary to complete the performance. If offer is made irrevocable oby or is accepted by performance, the offeree must give prompt notice unless the offeror knows or should know that the offeree has commenced performance.

Question 20

Can an offeree accept by silence?

Answer 20

When silence leads the offeror to reasonably believe that the offer has been accepted, the contract is deemed confected.

Question 21

Does the mirror image rule apply in Louisiana?

Answer 21

Yes, an acceptance that is not in accord with the terms of the offer is a counteroffer. (Exception for certain movables).

Question 22

What about offers of reward to the public?

Answer 22

1. An offere of reward made to the public is binding on the offeror REGARDLESS of whether the person who performs the requested act knows of the offer. 2. Offer of reward made to the public is revocable before completion if revoked by same or equal means. 3. If more than one person has performed the requested act, the reward goes to the person who first gave notice.

Question 23

What is the requirement of cause? **

Answer 23

For an obligation to exist, there must be either 1. Lawful cause; 2. Detrimental reliance. Cause is the REASON why a person obligates himself.

Question 24

What areas is cause most useful?

Answer 24

1. Distinguishing between onerous and gratuitous contracts; 2. Distinguishing between those errors that constitute vices of consent, and those that do not; e.g., in fraud, the induced error must concern the reason why party bound herself. 3. Identifing contracts that should not be upheld because they were entered into to achieve a result either prohibited by law or against public policy.

Question 25

Does cause need to be expressed?

Answer 25

A party need not express in his contract why he is binding himself. An obligation is valid even though its cause has not been expressed. Obligation is effective if there is any valid cause.

Question 26

What is detrimental reliance?

Answer 26

A promisor can be obligated by a promise under the doctinre of detrimental reliance if three criteria are satisfied: 1. Promisee relied on the promise to her detriment; 2. Promisor knew/should have known that the promisee would so rely; and 3. Promisee was reasonable in so relying. Reocvery under detrimental reliance is discretionary with the court. Court can limit recovery to expenses/damages suffered.

Question 27

What are the general rules for an object?

Answer 27

Parties are free to contract for any object that is lawful, possible, and determined or determinable.1. Object Is possible according to its nature and not the parties’ ability to perform; 2. Object must be determined at least to kind; but the quantity need ony be determinable. Can be determined by output/requriements.

Question 28

May future things be the object of a contract?

Answer 28

Yes, furtue things may be the object of a contract.

Question 29

What is a promesse-de Porte-Forst?

Answer 29

A contract the object of which is an act done by a third party. Original obligor is bound by the obligation until the third person binds himself; original promisor is liable to promisee if the third person does not bind himself.

Question 30

What is a situpation pour autrie?

Answer 30

1. Party stiuplates a benefit for a third person. 2. Once beneficiary manifests his intent to accept the benefit, the stipulation may not be revoked without his agreement. If promisor has interest in perfromance, the stipulation cannot be revoked without the promisr’s consent. If stipulator revokes the benefit before it is accepted, or if the beneficiary refuses it, the promisor must render performance to the stipulator.

Question 31

What is the enforcement of a stipulation pour autrie?

Answer 31

Beneficiary has a right of action against the promisor to compel performance. Stipulator may also demand performance from the promisor for the benefit of the third-party beneficiary.

Question 32

What are the vices of consent?

Answer 32

1. Error; fraud; duress.

Question 33

What are the types of error?

Answer 33

1. Bilateral error–consent is vitiated if both parties are in error. 2. Unilateral error–when only one party is in error, error will vitiate that party’s consent if: 1. It concerns a cause wihtout which the obligation would not have been incurred; 2. The cause was known/should have been known to the other party.

Question 34

What are the problems with unilateral error?

Answer 34

1. Error concerns cause when nature of contract, etc.. 2. The But-For Caus: this ensures that parties do not invoke error to get out of contracts on insignificant grounds. Party can rescind on the basis of error only if that party would not have bound himself but for the error. 3. Knowledge reguirement–knew or should have known of the cause, not the error.

Question 35

What is fraud?

Answer 35

1. Fraud is the misrepresentation or suppression of the truth made with the intent to obtain an unjust advantage or inconvenience to the other party. 2. Fraud does not vitiate consent when the other party could have ascertained the truth without difficulty/special skil unless they were in a relation of confidence.

Question 36

Does fraud need to be the principal cause?

Answer 36

No, fraud need not concern the principal cause, as long as it substantially influenced consent. Must be reliance on the staement.

Question 37

Can fraud be committed through silence or through a third party?

Answer 37

1. Silence–fraud may be the result of silence or inaction. 2. Fraud committed by a third person vitiates consent if the party not in error knew or should have known of the fraud.

Question 38

What is the fundamental difference between duress as compared to fraud and error?

Answer 38

1. Duress differs in a fundamental way–with duress, the party whose cosnent was vitiated knew the truth, but agreed to the contract because they were forced to consent.

Question 39

What are the elements of duress?

Answer 39

Conduct constituting the duress must have been of such a anture as to cause a reasonable fear of unjust and considerable injury to a party’s person, property, or reputation. So, two elements: act of duress and the victim.

Question 40

What is the act of duress?

Answer 40

Act must threaten injury of considerable magnitude and must be accompanied by the apparent ability to bring about that injury. Act must be threatening enough to casue fear in a reasonable person of an unjust and considerable injury. 1. Feared injury must be unjust; cannot be exercise of a legit. legal right. 2. Perp can be third person; no requirement that the other party to the contract knew/should have known of the duress.

Question 41

Who is victim (second element of duress)?

Answer 41

1. Act must have actually resulted in a reasonable fear of considerable injury, which prompted the party to consent to the contract. 2. Threatened party need not be party to the contract–can be spouse, etc.

Question 42

Who can recovery for duress?

Answer 42

The party whose consent was vitiated by duress can recover damages and attorneys fees. Recoverable from third person or other party, if the party exerted duress.

Question 43

What rules govern the interpretation of a contract?

Answer 43

1. Governed by the common intent of the parties. 2. When words are clear and explicit, and do not lead to absurd consequences, no further interpretation may be made in search of the parties’ intent. 2. If doubts cannot otherwise be resolved, a contract should be interpreted against the party who furnished its text. 3. If doubts cannot otherwise be resolved, a contract should be interpreted against the obligee and in favor of the obligor.

Question 44

What is a null contract?

Answer 44

A contract is null if the requirements for its formation are not met. Nullity can be either absolute or relative.

Question 45

What is an absolutely null contract?

Answer 45

1. Violates a rule of public order; 2. Cannot be confirmed. 3. Any party can invoke the nullity or the court may declare it on its own. An action to annul such a contract does not prescribe.

Question 46

What is a relatively null contract?

Answer 46

1. A contract is relatively null if it violates a rule intended for the protection of a private party. 2. A relatively null contract can be confirmed. 3. Nullity may only be invoked by the party whom the rule protects. 4. An action to rescind a relatively null contract prescribes in five years from the time the ground for nullity ceased. The nullity can be raised at any time as a defense to an action based on an absolutely/relatively null contract.

Question 47

What are the effects of nullity?

Answer 47

A null contract is deemed never to have existed.

Question 48

What effects do contracts have on the parties?

Answer 48

Contracts hae the effect of law for the parties and can be dissolved only by consent or for grounds provided by law.

Question 49

What are the good faith requirements for performing contracts?

Answer 49

1. Contracts must be performed in good faith. Failure to comply with the good faith requirement results in greater liability for damages if the contract is breached.

Question 50

Are contractual rights heritable?

Answer 50

Yes, generally heritable.

Question 51

What constitutes breach of a contract?

Answer 51

FAILURE TO PERFORM. An obligor’s failure to perform can arise in three ways: 1. Nonperformance; 2. Defective performance; 3. Delay in performance.

Question 52

What are the rights of the obligee if the obligor breaches?

Answer 52

The aggrieved oblige is entitled to damages caused by the obligor’s failure to perform. Aggrieved oblige is also entitled to pursue one of the two following mutually exclusive remedies: 1. Specific performance; 2. Dissolution.

Question 53

When may a party obtain specific performance?

Answer 53

Specific performance is available in obligations to 1. Deliver a thing; 2. Not to do an act; 3. To execute an instrument.

Question 54

When is specific performance discretionary?

Answer 54

1. If the obligation is to do something. If agreement is enforced due to detrimental reliance, the court may grant damages rather than specific performance, and recovery may be limited to the damages suffered as a result of the reliance.

Question 55

How are damages measured from breach?

Answer 55

1. Damages are measured by the loss sustained by the obligee; and the profit of which he is deprived.

Question 56

What is the effect of the party’s good or bad faith on liability for damages?

Answer 56

1. Good faith obligor–only responsible for damages that were reasonably foreseeable when the contract was made. 2. Bad faith obligor–liable for all damages that are a direct consequence of his failure to perform. Bad faith is intentional and malicious failure to perform.

Question 57

What is the effect of the obligee’s actions on damages?

Answer 57

1. Obligee misconduct–may not recover damages if: 1. His bad faith caused the obligor’s failure to perform; 2. He concelaed facts that he knew/should have known would cause a filure at time contract was formed. 2. Obligee negligence–reduces damages proportionately. 3. Duty to mitigate damages–an obligee is under a duty to make resaonable efforts to mitigation–look at whether mitigation costs are small in comparison to the possible losses, and virtually certain that the risks incurred will avoid at least part of the loss.

Question 58

When may nonpecuinary damages be recovered for breach?

Answer 58

1. Contract by its nature is intended to gratify a nonpecuniary interest; 2. Obligor knew or should have known that his failure to perform would cause this kind of loss. May also be recovered, regardles sof type, if the obligor, through his failure, intended to hurt or aggrive the obligee’s feelings.

Question 59

Can parties contractually modify their liability?

Answer 59

Parties are free to address damages and allocation responsibility as these choose; however, parties may not exclude or limit liability of a party for intentional or gross fault that causes damage to the other party.

Question 60

What are stipulated damages?

Answer 60

Parties may stipulate damages. Obligee may demand either specific performance or the stipulated damages, but not both, unless the stipulated damages are purely delay damages. Stip dam may not be modified by a court unless they are so high as to be against public policy.

Question 61

What are delay/moratory damages?

Answer 61

Delay damages are owed from the time an obligor is put in default. 1. If a term is fixed, obligor is put in default by the arrival of the term. 2. Otherwise, party put in default by: 1. Written demand; 2. Oral demand made before two witnesses; 3. Filing suit for specific performance; 4. Specific provision in the contract.

Question 62

What is dissolution?

Answer 62

When an obligor fails to perform, the obligee may request judicial dissolution or regard the contract as dissolved. (Extrajudicial dissolution)

Question 63

When may an obligee regard the contract as dissolved? (extrajudicial dissolution)

Answer 63

1. Express dissolution clause; 2. Dissolution after notice to perform (noticed time must be reasonable); 3. Without notice to perform if it bbecomes obvious that obliggor will not perform/delayed performance will be of no value.

Question 64

What are the effects of dissolution?

Answer 64

Parties are restored to the situation that existed before the contract was made. If impossible to do, the court may award damages.

Question 65

When is dissolution unavailable?

Answer 65

1. Obligor has rendered a substantial part of the performance; and 2. The unperformed part does not substantially impair the interest of the obligee.

Question 66

What is simulation?

Answer 66

A simulation occurs when the parties agree that a contract does not express their true intent. If true intent is expressed in a separate writing, it is a counterletter.

Question 67

What are the two types of simulations?

Answer 67

1. Absolute–parties intend that the contract will produce no effects–sham sale. Has no effect between the parties. 2. Relative–parties intend that the contract will produce an effect different than the one recited in the contract–donation disguised as sale. It will have the effects intended between the parties.

Question 68

What is a revocatory or oblique action?

Answer 68

1. Revacatory–obligee may annula ct that causes or increases his insolvency and occurred after the right of the obligee arose. Contract made in regular couse of business may not be annulled. 2. Oblique–if obligor causes or increases his insolvency by failing to exercise a heritable right, the obligee may exercise it unless the right is strictly personal to the obligor.

Question 69

What conflict of laws apply to contracts?

Answer 69

An issue concerning conventional obligations is governed by the law of the state whose polices would be most seriously impaired if its law were not applied. Courts should evaluate the strenth and pertinence of the relevant policies of the state.

Question 70

What conflict of laws apply to the form of contracts?

Answer 70

A contract is valid as to form if made in conformity with any one of the following: 1. Law of the state of making; 2. Law of the state of performance, but only to the extent that performance is to be rendered there; 3. Law of the state of common domicilie or place of business; 4. Laws governing the substance of the contract. Exception: if the law governing the substance requires a certan form, then the contract must comply with that form.

Question 71

What conflicts of laws apply to capacity for contracts?

Answer 71

A person is capable of contracting if he possesses that capacity under the law of either: 1. The state in which he was domiciled at the time he made the contract; or 2. The state whose law is applicable to the contract.

Question 72

What other conflicts of laws apply to contracts?

Answer 72

All other issues are governed by that law expressly chosen/clearly relied on by the parties, unless that law contravenes public policy of the state whose law would otherwise be applicable.