PowerPoint 6 Flashcards
Privity of Contract
Relationship between contractual parties.
Parties
People who created the contract.
Only ___ can sue under contract.
Parties.
What are exceptions to the general rules of privity?
- Assignment.
- Trusts.
- Statute.
- Employment.
Assignment
Process of transferring contractual rights.
What are forms of assignment?
- Equitable assignment.
- Statutory assignment.
- Assignment by operation of law.
Equitable Assignment
You can sign away the benefits of the contract, but not the liabilities.
Can you assign away a mortgage?
Yes, but it is ill advised. You can still be on the hook for liability. Equitable assignment says that only benefits, not liability can be transferred.
Statutory Assignment
Means there is a statute (like a copyright act) that allows you to assign away the benefits and liability, as long as you follow a process.
Best example of statutory assignment is…
Copyright law.
Assignment by Operation of Law
Examples include contracts surviving through death (with estate), going bankrupt (contracts are dealt with by trustee).
Contract survives death through ___.
Estate.
Does an offer survive death through estate?
No.
Trust
Property held for benefit of another.
What are the parties to trust?
Settlor, trustee, and beneficiary.
Settlor
Party placing property into trust.
Trustee
Party holding property.
Beneficiary
Party entitled to benefit of property.
Who can enforce contracts made by the trustee?
Beneficiary of trusts.
Who is the legal owner during the time of the trust?
The trustee.
Who is the beneficial owner during the time of the trust?
The beneficiary.
Can the beneficiary sue the trustee if the trustee makes a bad decision investing for the trust?
Yes. Beneficiary of trusts can enforce contracts made by the trustee.
Blind Trust
You are kept in the dark where your money is being invested (lose legal rights). You are both the settlor and the beneficiary. You get the money when the conflict of interest ends.
Can the beneficiary force a blind trust?
Yes.
Statute
May allow enforcement of contracts by stranger.
When are statutes most often used?
Life insurance.
Life insurance is purchased by the insured, and is intended for the beneficiary. However, the beneficiary is usually a stranger to the contract. Is this the case?
No, in this case, privity is not an issue for the beneficiary. Beneficiaries can enforce the contracts.
In what cases does the general privity rule unfairly denies enforcement?
Statute (such as life insurance).
What allows enforcement in cases where general privity rules are deemed unfair?
Legislation.
If a contract is created with an employer, are the employees covered under the contract as well?
Yes.
The exclusion clause is enforceable by employee if…
Employee acted in scope of employment.
A contract created between a business and customer contains an “exclusion clause.” Who is this clause enforceable by?
The business (party). It is not enforceable by employee (stranger).
What are statements made during negotiations?
- Representations.
- Terms.
Representations
Statements that try to induce the person to buy. Made around the contract. Cannot usually hold someone liable.
Terms
Statements that lay out the conditions of the contract. Can usually hold someone liable.
Misrepresentation
A statement of an existing fact that is false when made. It may be actionable if it induced a contract.
Misrepresentation must be…
Statement of fact.
Misrepresentation cannot be…
- Personal opinion.
- Prediction of future.
- Statement of law.
Example of personal opinion:
I think this car is the best car ever.
Example of prediction of future:
I think gold is going to shoot up in value.
Example of statement of law:
This area is zoned commercially.
Why does statement of law not count as misrepresentation?
Because you can check yourself. You need to check for legal things However, if it was your lawyer that told you, you can sue for professional negligence.
Can silence be misrepresentation?
Usually not.
If silence distorts a previous statement, are you obligated to tell the truth to avoid misrepresentation?
Yes, even if your statement was true at the time, if something occurs after that and something changes, you are obligated to tell the truth (cannot be silent).
In a situation of utmost good faith, are you obligated to tell the truth to avoid misrepresentation?
Creates obligations in the contract that you must disclose things.
In situations of special relationships of trust and confidence, you are obligated to tell the truth to avoid misrepresentation. What kind of relationship would be considered here?
Doctor-patient relationship.
What kinds of contracts have a statutory requirement of disclosure?
- Insurance contracts.
- Prenup agreement (domestic contract).
Why do insurance contracts have a statutory requirement of disclosure?
Because different factors affect how much you pay for insurance. If you lie, you may not get coverage.
Why do prenups have a statutory requirement of disclosure?
If you do not list things in the schedule properly, then the prenup can get thrown out.
What are the potential remedies for misrepresentation?
- Rescission.
- Restitution.
- Damages.
Rescission
Discretionary equitable remedy. Terminates contra ab inito (contract treated as if it never existed).
Rescission is often accompanied by order for ___.
Restitution.
For what types of misrepresentation is rescission available for?
All types.
Restitution
Restoration of money, land, or goods available for all types of misrepresentation.
Damages
Monetary award to repair wrongful loss claim lies for fraud or negligence only (innocent = damages not available).
Damages in misrepresentation is the same as…
Tort of deceit.
What are the three types of misrepresentation?
- Innocent misrepresentation.
- Negligent misrepresentation.
- Fraudulent misrepresentation.
Innocent Misrepresentation
Defendant innocent of wrongdoing. No knowledge of falsity of statement, no carelessness in making statement.
What remedies can you get in innocent misrepresentation?
Rescission, but not restitution or damages.
Negligent Misrepresentation
Defendant guilty of negligence. Statement made in careless disregard of facts.
What remedies can you get in negligent misrepresentation?
Rescission, restitution, and possibly damages.
Fraudulent Misrepresentation
A statement or misleading silence known to be false, or made with no honest belief in its truth, or made recklessly.
What remedies can you get in fraudulent misrepresentation?
Rescission, restitution, and damages.
What are limitations to fraudulent misrepresentation?
It may lead to costs against party who cannot prove allegation. Sometimes it may be better to just sue for negligent misrepresentation.
Why might costs be awarded against you in trying to prove fraudulent misrepresentation?
You are essentially calling the other person a liar in court. If you cannot prove it on a balance of probabilities, judge may punish you.
Contractual Terms
Enforceable obligation within contract.
Types of contractural terms:
- Express terms.
- Implied terms.
Express Terms
Terms expressly included by parties. Oral agreement, primarily a question of evidence. Must prove what words were spoken.
___ agreements are easier to prove as far as express terms go.
Written.
Written terms are subject to parol evidence rule. What does this mean?
You do not get to inject subjectivism. You do not say anything, and the judge reads it. No extrinsic evidence allowed, stuck with just written document.
Extrinsic Document
A document outside of the contract.
Contractual Interpretation
Rules of interpreting written documents.
What is the golden rule of contractual interpretation?
Preferable way is to read the contact in plain meaning. To the average person, what does it mean?
Contra Proferentem
Construe against the drafter. You give the party who didn’t draft the agreement the benefit of the doubt.
Do judges have discretion in contractual interpretation?
Yes.
Implied Term
Express terms may not fully reflect intention. Parties’ remaining intentions may be implied.
What are implied terms used for/not used for?
Not used to improve contract quality, but used only when necessary to parties’ intentions.
Can usage and custom be an implied term in a contract?
Yes.
Can the business efficacy test be an implied term in a contract?
Yes.
Can previous dealings between the parties be an implied term in a contract?
Yes.
Standard Form Agreements
Mass-produced documents. Valid means of reducing transaction costs, but potential for abuse.
Standard form agreements often take the form of ___ contracts.
Ticket.
How can the standard form agreement be abused?
The terms may only benefit one party.
Exclusion Clause
Often in standard form contracts.
What are requirements for the enforceability of exclusion clauses?
- Term must be clear and unambiguous.
- Reasonable notice to affected party.
- Assent by affected party.
- Signature is best evidence of acceptance of clause.
___ is usually proof of assent to terms.
Signature.
Is the signer bound if document was not read?
Yes.
Is the signer bound even if terms not understood?
Yes.
If the signer had no chance to read, are they bound?
Possibly not.
If there was unexpected terms, is the signer bound?
Possibly not (Tilden case).
