Obligations and Contract

Question 1

Contracts - General

Answer 1

A contract is an agreement between two or more parties by which obligations are created, modified, or extinguished.

Question 2

Unilateral v. Bilateral

Answer 2

• The distinction drawn between unilateral and bilateral contracts is based on whether one party alone assumes an obligation to another or whether parties assume reciprocal obligations.
• Unilateral: if only one party incurs an obligation (a donation)
• Bilateral: if both parties bind themselves reciprocally (a sale)
• 2 Requirements for Bilateral K:
  (i) both parties to the contract must have incurred obligations; and
  (ii) the reason why each party bound themselves must have been to receive the performance promised by the other party
• 2 important effects of a bilateral contract:
  (1) each party is both an obligor and an obligee;
  (2) the obligations are “co-relative”

Question 3

Onerous v. Gratuitous

Answer 3

• The distinction drawn between onerous and gratuitous contracts is based on the cause of the obligor’s obligation. “Cause” is defined as “the reason why a party obligates himself.”
• Onerous: if the reason why an obligor bound himself was to obtain a benefit for himself.
• Gratuitous: if the reason why the obligor bound himself was to benefit the obligee (or some other person)

Question 4

Nominate v. Innominate

Answer 4

• The distinction drawn between nominate and innominate contracts is based on whether the contract has been given a special designation.
• Nominate: one given a special designation.
• Innominate: one with no special designation.

Question 5

2 Additional Types

Answer 5

Commutative: one where the performance by one party is correlative to the performance by the other party. (Essentially a bilateral contract).

Aleatory: one where the performance or extent of performance of any party to the contract depends on an uncertain event.
- Note: this is not the same as a conditional contract. Not the entire contract is conditional, but rather, only the performance of one party is conditional.

Question 6

4 Requirements of a Valid Contract

Answer 6

(i) capacity;
(ii) consent;
(iii) cause; and
(iv) object

Question 7

Capacity

Answer 7

All persons have contractual capacity except:
(i) unemancipated minors,
(ii) interdicts, and
(iii) persons “deprived of reason” at the time of contracting (can be momentary – i.e., drunk, on meds, brain injury, etc.)

• An onerous contract is enforceable despite the fact that a party is a person deprived of reason when:
  (i) the other party neither knew nor should have known of the incapacity.
• A contract entered into by a party without contractual capacity is a relative nullity. The contract may be rescinded only by the party who “lacked capacity” or his legal representative.

Question 8

Exceptions to Lack of Capacity for Minors

Answer 8

A contract is enforceable despite the fact that a party is a minor when: (only need 1)
(1) The other party reasonably relied on the minor’s representation of majority;
(2) The contract is made for something related to the minor’s business or necessary for his support or education;
(3) The contract falls within the special rules for minors with respect to gratuitous contracts.

Question 9

Consent

Answer 9

• Offer and acceptance may be made orally, in writing, or by action or inaction manifesting consent.
• No formalities are required unless the law so prescribes or the parties have agreed to a certain form.
• If a certain form is required by law for a 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 10

Offer

Answer 10

• 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) Revocable - an offer generally is revocable and may be revoked before acceptance. The revocation must be received before the offer is accepted.
(2) Irrevocable: if the offer specifies a period of time for acceptance, it is irrevocable during that time. If the offeror does not specify a time but intends to give the offeree a period within which to accept, the offer is irrevocable for a reasonable time.

• 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 (it does NOT become revocable – it expires).

Question 11

Acceptance

Answer 11

• General rule is the mirror image rule

When Effective:
- Acceptance of a revocable offer is effective when the offeree transmits it (“mailbox” rule), so long as the acceptance is made in a manner and by a medium suggested by the offer or in a reasonable manner, which is one used customarily in similar transactions at the place/time the offer is received.
- Acceptance of an irrevocable offer is effective when the offeror receives it, which occurs when the acceptance comes into the offeror’s possession.

Question 12

Acceptance by Performance

Answer 12

• Acceptance is accomplished by commencing performance when the offer invites acceptance by performance and it is contemplated that the performance will be completed if commenced.
• When acceptance must be accomplished by completing performance, when the offeror commences performance, then the offer become irrevocable for a reasonable time for the completion of the performance.
• If the offer is made irrevocable by 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 13

Other Notes of Acceptance

Answer 13

Acceptance by Silence – Acceptance occurs through silence or inaction under what circumstances? If it has led the offeror to reasonably believe the offer was accepted (only in exceptional circumstances)

Nonconforming Acceptance - An acceptance not in agreement with the terms of the offer is considered a counter offer (default - “mirror image rule”)

Acceptance by Conduct – has been seen in hypos in the context of a lease that was never “agreed” to (the lessee made changes to the lease in her acceptance that the lessor did not mention but the lessor let the lessee move into the property anyway).

Question 14

Offers of Reward to the Public

Answer 14

• An offer 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.
• An offer of reward made to the public is revocable before completion of performance but can be revoked only by the same or equal means used for the offer
• If more than one person has performed the requested act, the reward goes to that person who first gave notice to the offeror of the completion of performance.

Question 15

Contracts of Adhesion

Answer 15

• A contract of adhesion is a standard-form contract prepared by one party (the stronger party) with terms that are non-negotiable, and the weaker party must accept the contract as is.
• If the terms are found to be excessively unfair or oppressive, a court in Louisiana may intervene to protect the weaker party.

Question 16

4 Step Analysis for Offer/Acceptance Problems

Answer 16

(1) Is the offer revocable or irrevocable?

(2) If revocable – figure out whether and when it was revoked.

(3) If not revoked or if irrevocable – figure out if it expired (whether and when).

(4) If not revoked or expired, figure out whether or when it was timely accepted.

Question 17

Cause

Answer 17

• “Cause” is the reason why a person obligates himself.
• 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.
• A contract in which the parties do not express their true cause is called a simulation.

Question 18

Detrimental Reliance

Answer 18

• A promisor can be obligated by a promise under the doctrine of detrimental reliance if three criteria are satisfied:
  (1) The promisee relied on the promise to her detriment;
  (2) The promisor knew or should have known that the promisee would so rely;
  (3) The promisee was reasonable in so relying.

Question 19

Object

Answer 19

General Rules:
- Parties can contract for any object that is lawful, possible (for anyone, not just the parties), and determined (as to kind) or determinable (as to quantity).
- Quantity can be left to the discretion of a third person. If the third person fails, the court may determine it. Quantity may also be based on output or requirements of a party, which must be set in good faith.
- Future things may be the object of a contract.

Question 20

Promesse de Porte-Fort (PDPF) and Stipulation Pour Autrui (SPA)

Answer 20

(PDPF): a contract where the object is an act to be performed by a third party. The original obligor remains bound until the third party binds themselves. The original promisor is liable for damages if the third person does not bind themselves or fails to perform.
- Jill promises Jack that Joe will paint Jack’s house. If Joe fails, Jill is liable for damages.

(SPA): a contract where one party stipulates a benefit for a third party (the third-party beneficiary).
- Revocability: Once the beneficiary manifests intent to accept, the stipulation cannot be revoked without their agreement. If the promisor has an interest in performance, the stipulation cannot be revoked without their consent. If the stipulator revokes the benefit before acceptance or if the beneficiary refuses it, the promisor must render performance to the stipulator.
- Enforceability: The beneficiary can compel performance and has a right of action against the promisor. The stipulator can also demand performance for the benefit of the third-party beneficiary.
- Jill promises Jack that Jill will paint Joe’s house. If Jill fails, Jack or Joe can collect damages.

Question 21

Vices of Consent

Answer 21

(1) Error
(2) Fraud
(3) Duress

Question 22

Error

Answer 22

Bilateral Error: Consent is vitiated if both parties are in error. Either party may obtain rescission of the contract; in the alternative, the parties may reform the instrument to reflect their true mutual intent.

Unilateral Error: where only one party is in error, it will vitiate that party’s consent if:
(i) it concerns a cause w/o which the obligation wouldn’t have been incurred (concerns the principal cause); and
(ii) this cause was known or should have been known to the other party.
- can only seek rescission if both are met.

Error concerns a cause when it bears on:
(i) The nature of the contract;
(ii) The contractual object or a substantial quality of that object;
(iii) The person or the qualities of the other party;
(iv) Anything the parties regarded or should have regarded in good faith as a cause; or
(v) The law when a party has drawn erroneous conclusions of law and entered into a binding contract based on them.

Question 23

But-for-Cause

Answer 23

A party can rescind on the basis of error only if that party would not have bound himself if he had not suffered from this error. If the party would have entered into the contract despite the error, there is no vice of consent.

Question 24

Error - Knowledge Requirement

Answer 24

• There is no vice of consent if the other party neither knew nor should have known that the party in error was binding themselves due to an erroneous belief.
• The other party must have known or should have known of the cause of the error.

Question 25

Failure to Read Contract

Answer 25

A party cannot avoid the provisions of a signed, written contract simply because they failed to read it or have it read to them, absent fraud.

Question 26

Recission and Liability for Damages

Answer 26

• When unilateral error vitiates a party’s consent, that party may generally obtain rescission of the contract.

Exceptions:
- A party cannot avail themselves of their own error if the other party is willing to perform the contract as intended by the party in error.
- A court may refuse rescission if the effective protection of the other party’s interest requires the contract to be upheld. Instead, damages may be awarded.
- Courts generally do not grant rescission if the error was “inexcusable.”

Damages: a party who obtains rescission on grounds of their own error is liable for any loss sustained by the other party unless the latter knew or should have known of the error.

Question 27

Fraud

Answer 27

• The misrepresentation or suppression of the truth made with intent to obtain an unjust advantage or cause loss or inconvenience to the other party.
• Fraud does not vitiate consent if a party could have ascertained the truth without difficulty or special skill, unless a relationship of confidence reasonably induced reliance on the other’s assertions.

Influence on Consent:
- Fraud need not be a but-for cause; it must substantially influence consent. There must be reliance on the statement.
- A party whose consent was vitiated by fraud can recover damages and attys’ fees.

Silence:
- Fraud can result from silence or inaction. Jurisprudence considers silence or inaction as fraud only when there is a duty to speak.

Third-Party Fraud:
- Fraud committed by a third person vitiates consent if the non-erring party knew or should have known of the fraud.

Recovery:
- A party whose consent is vitiated by fraud may obtain rescission of the contract.
- The party against whom rescission is granted because of fraud is liable for damages and attorneys’ fees.

Question 28

Duress

Answer 28

• Consent is vitiated when obtained by duress causing a reasonable fear of unjust and considerable injury to a party’s person, property, or reputation (or to a closely related person).

Elements of Duress:
- Objective Element: the act must be sufficiently threatening to cause fear in a reasonable person of unjust and considerable injury.
- Subjective Element: the reasonableness of the fear is determined by considering the personal attributes and circumstances of the party threatened, such as age, health, and disposition.

Fear of Unjust Injury: the feared injury must be unjust. There is no duress if the threat is to perform a lawful act or exercise a legitimate legal right.

Third-Party Involvement: the perpetrator of the duress can be a third person. The other party to the contract does not need to know about the duress.

Victim: the threatened injury can be directed at the contracting party or someone closely related (e.g., spouse, ascendant, descendant, close friend).

Recovery:
- The party whose consent was vitiated by duress can recover damages and attorneys’ fees.
- If the other party exerted the duress or knew of it, recovery is from the other party.
- If a third person exerted the duress, both the victim and any innocent parties to the contract can recover from the third person.

Question 29

Nullity

Answer 29

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

Distinctions B/T Absolute and Relative:
- Confirmation:
(i) Absolute: cannot be confirmed.
(ii) Relative: can be confirmed.
- Invocation of Nullity:
(i) Absolute Nullity: can be invoked by any person or declared by the court on its own.
(ii) Relative Nullity: can only be invoked by the person whom the rule protects.
- Prescription:
(i) Absolute: action for annulment does not prescribe.
(ii) Relative: action prescribes in five years from when the ground for nullity ceased (e.g., incapacity or duress) or was discovered (e.g., error or fraud).
- Nullity may be raised as a defense at any time, even after the time for annulment has prescribed.

Effects of Nullity:
- A null contract is deemed never to have existed.
- If restoration in kind is impossible or impracticable, the court may award damages.
- Nullity of a provision does not render the whole contract null unless it can be presumed that the contract would not have been made without the null provision.
- Nullity does not impair the rights acquired through an onerous contract by a third party in good faith.
- For contracts involving immovables, principles of recordation apply.