Contracts Flashcards
Contracts Generally
Contract is an agreement between two or more parties that creates, modifies, or extinguishes an obligation.
i. Contract is law between parties and can be dissolved by mutual consent and for legal grounds.
ii. Parties enjoy freedom of contract. Most Title IV rules are not matters of public concern and can be derogated from by agreement.
iii. Rights and obligations of contracts are heritable and assignable, but produce third-party effects only when law permits.
Title IV of Code III covers all contracts and all obligations that aren’t contracts to the extent rules are compatible. “Nominate” contracts are governed by special rules that trump the general rules.
Requirements for a Valid Contract
(1) capacity,
(2) consent [offer and acceptance],
(3) lawful cause for each party’s obligation, and
(4) lawful object [subject matter] of the contract
Unilateral vs. Bilateral Contracts
Unilateral = only one party to a contract incurs an obligation
Bilateral = both parties to contract bind themselves reciprocally
- Both parties must incur obligations, and must bind to receive the performance promised by other party.
- Each party in bilateral contract is an obligor and obligee.
Onerous vs. Gratuitous Contracts
Onerous = reason why obligor bound himself was to obtain benefit for self
Gratuitous = reason why obligor bound himself was to benefit obligee/3rd
Principal vs. Accessory Contracts
Principal = contract whose obligation is secured by an accessory contract
Accessory = contract entered into provide security for performance of another obligation
Nominate vs. Innominate Contracts
Nominate = contract given a special designation
Innominate = contract with no given special designation
e. Commutative and Aleatory Contracts
Commutative = contract where performance by one party is correlative to the performance by the other party
Aleatory = contract where performance or extent of performance depends on an uncertain event (ex; insurance contract)
Capacity
All persons have contractual capacity except unemancipated minors, interdicts, and persons ‘deprived of reason’ at time of contracting
i. Minors – If other party reasonably relies on minor’s representation of majority, contract is not rescinded. Contracts related to a minor’s business or necessary for support/education can’t be rescinded.
ii. Deprived of Reason:
1. If not interdicted, can get recission of onerous contract only if showing other party knew or should have known of incapacity. If gratuitous, can rescind without showing of knowledge.
2. Contract by a non-interdict deprived of reason can be attacked after their death if gratuitous, contract shows lack of understanding, contract made within 30 days of death, or application for interdiction filed before death
iii. Contract entered into by party without capacity is relative nullity, but can only be rescinded by party lacking capacity
Consent
Offer and acceptance can be made in writing, orally, by action, or by inaction that manifests consent.
- No formalities required unless underlying contract requires a particular form.
Offer – personal to offeree, not assignable, and expires if either party dies or becomes incapacitated before acceptance. Revocable or irrevocable:
- Revocable – offer is generally revocable and can be invoked before acceptance. Revocation must be received before acceptance.
- Irrevocable – if offer specifies time period of acceptance, it is irrevocable during that time; if no time but intends to give acceptance period, it is irrevocable for reasonable time
Expiration of Offer – revocable offer expires if not accepted within a reasonable time; irrevocable expires if not accepted during time period
Acceptance
- Acceptance of Revocable Offer – mailbox rule, as long as acceptance made in manner and by medium suggested by offer or in customary manner to similar transactions
- Acceptance of Irrevocable Offer – effective when offeror receives it, which occurs when acceptance comes into offeror’s possession
- Acceptance by Reasonable Performance:
a. Acceptance by Commencement – if offer contemplates performance will be completed when commenced, contract is formed when performance begins
b. Acceptance by Completion – if offer can only be accepted by complete performance, offeror can’t revoke once performance commenced for reasonable time
c. Duty of Offeree to Give Prompt Notice
d. Acceptance by Silence Permitted with Reasonable Belief
e. Non-Conforming Acceptance – acceptance not in accord with offer is counteroffer
f. Offer of Reward to Public:
i. Offer of reward is binding on offeror regardless of whether person who performs knows of offer, first notice of performance gets reward
ii. Revocable before completion of performance but can only revoked only by same or equal means used to make the offer
Cause
Reason why person obligates self. For obligation to exist, there must be either lawful cause or detrimental reliance.
- Similar, but not the same as, common law consideration.
Vices of Consent vs. Simple Error – for a vice of consent, error must concern reason why party bound self; for simple error, false belief must be the principal reason why party bound self
Contract does not need to express parties’ causes, obligation created if there can be a valid cause; a contract silent on ‘true cause’ is a simulation.
Detrimental Reliance – if promisee relied on promise to their detriment, promisor knew or should have known promisee would rely, and promisee was reasonable in relying. Recovery is at court’s discretion.
Object
Parties are free to contract for any object that is lawful, possible, and determined or determinable
i. Possbile = physical and moral possibility, not parties’ ability to perform
ii. Object must be determined as to kind, but the quantity can be determinable, even at discretion of third person or court. Quantity can be determined by output or requirements of a party.
iii. Future things can be the subject of a contract.
iv. Promesse de Porte-Fort = contract which governs an act done by a third party. Original obligor is bound by obligation until 3rd person binds self, original promisor is liable for damages if 3rd person doesn’t bind self or perform the contract.
v. Stipulation Pour Autrie (Third-Party Beneficiary) – once a 3rd party beneficiary has manifested intent to accept benefit of a stipulation, stipulation can’t be revoked without his agreement. Beneficiary has right of action to compel performance.
Vices of Consent
Error
i. Bilateral Error – consent is vitiated if both parties are in error, and parties may reform instrument to reflect their true mutual intent.
ii. Unilateral Error – when only one party is in error, error vitiates that party’s consent if it concerns cause without which obligation wouldn’t have incurred (but-for) and that cause was known or should have been by other party
1. Error concerns cause when it bears on nature of contract, object of contract, qualities of other party, or if based on an erroneous conclusion of law
Fraud
– misrepresentation or suppression of truth made with intent to obtain an unjust advantage. No fraud when party could have found the truth without difficulty or special skill (unless relationship of confidence induced reliance)
Duress
– party knows truth but agreed to contract because he felt he was forced to consent to it. Duress must be ‘of such a nature as to cause a reasonable fear of unjust and considerable injury to party’s person, property, reputation’
i. Can be directed against party’s spouse, descendant/ascendant, friend.
ii. Can recover damages and attorneys fees.
Interpretation of Contracts
Interpretation of contract is the determination of the parties’ common intent. If terms are clear and explicit and don’t lead to absurd consequences, can’t search for parties’ underlying intent.
Words are given their generally prevailing meaning, and terms of art are given their technical meaning if contract concerns term’s subject matter.
i. Definitions should be chosen to make contract effective when possible.
Interpretative Rules:
i. Provisions on Same Subject Matter – interpret contract as a whole
ii. Contracts should be interpreted to cover only things parties apparently intended to include, even if worded generally.
iii. If parties intend general scope, but include provision with specific situation, interpretation shouldn’t restrict contract to specific situation.
iv. Doubtful provision – interpret in light of nature of contract, equity, conduct of parties pre-contract, and parties’ other contracts
v. If no provision for a particular situation, assumed that parties intended to bind selves to express provisions of contract and what equity and usage demands to achieve the purpose of contract.
vi. Equity = no unjust enrichment or unfair advantage
If doubt cannot be resolved, interpret against party who furnished contract’s text or in favor of obligor.
Null contract = one where requirements for formation are not met.
Absolutely Null Contract = violates rule of public order (illicit or immoral). Cannot be confirmed. Any party can invoke nullity or court can do so sua sponte. No prescription period for absolutely null contracts.
Relatively Null Contract = violates a rule intended for protection of a private party (lack of capacity or vice of consent). Can be confirmed. Nullity can only be invoked by the party the rule protects. Action to rescind prescribes in five years, but can be raised as a defense even after prescriptive period.
Principles of recordation apply for third parties, even with null contracts.
Effects of Contracts
Contracts have effect of law for parties, and produce their benefits only for parties
Contracts must be performed in good faith. Failure to perform in good faith results in greater liability for damages.
Contractual rights and obligations are heritable.
Breach (Failure to Perform) – Nonperformance, defective performance, or untimely delay in performance.
i. Aggrieved obligee can recover damages for breach, and can pursue:
1. Specific performance, or
2. Dissolution
