The US Contract Law - Assignment Example

TABLE OF CONTENTS US Contract Law 2 Part One 2 Question 1 2 Question 4 4 Question 6 6 Question 8 7 Question 9 8 Part Two 11 Conclusion 19 List of References 20 US Contract Law Part One Question 1 In WWW Associates Inc v Giancontieri, the seller and buyer of a piece of land included a contractual term, whereby the contract would be rescinded if the litigation relating to that piece of land was not settled by a specific date. Subsequent to the lapse of the specified date, the plaintiff buyer sought specific performance of the contract. To this end, the buyer provided evidence of the seller’s disinterest in defending the litigation against it, as it wanted to sell the piece of land for a much higher price (Emanuel, 2006, p. 185). The Appellate Division of the Supreme Court of New York granted the seller’s motion for summary judgement, on the grounds that evidence external to the contractual document was inadmissible. Moreover, this document made it clear that the seller or buyer could cancel the contract after the stipulated date (Emanuel, 2006, p. 185). However, in Pacific Gas & Electric Co v GW Thomas Drayage & Rigging Co, what constitutes the test for determining the admissibility of extrinsic evidence to clarify the import of a written document was established. In this case, the defendant had entered into a contract with the plaintiff to replace a cover on a steam turbine belonging to the plaintiff (Patterson , 1993, p. 270). This work was to be performed at the risk of the defendant, who further agreed to indemnify the plaintiff against all loss, damage, expense and liability that was the outcome of any act by the defendant, committed during the performance of this contract. However, at the time of forming the contract the plaintiff’s agents had admitted that this indemnity clause was restricted to third parties (Patterson , 1993, p. 270). During the commission of the contract, substantial damage was caused by the defendant’s workers to one of the turbines of the plaintiff. The latter claimed damages on the basis of the indemnity clause. The trial court ruled in favour of the plaintiff. This was contested by the defendant (Patterson , 1993, p. 271). The appellate court opined that extrinsic evidence was admissible if its purpose was to clarify the meaning of a written instrument. In addition, such evidence should provide a denotation that complies with reasonable usage. At the same time, extrinsic evidence that attempts to add to, detract from or alter contractual terms is not admissible (Casenote Legal Briefs, 2007, p. 111). As such limiting interpretation to a document would assume precision in language that is clearly absent. Consequently, what a written piece connotes has to be understood from the context in which it has been written. Therefore, excluding parol evidence on the grounds that the words are not ambiguous to an outside reader can result in ascribing a meaning that was not intended in the first place. The parol evidence in this case was reasonably vulnerable to the proposed interpretation by the defendant. Moreover, the admissions of the agents of the plaintiff should have been admitted as evidence by the trial court. On the basis of these considerations, the Supreme Court of California reversed the trial court’s ruling (Casenote Legal Briefs, 2007, p. 111). As a judge, I would prefer the decision in Pacific Gas & Electric Co v GW Thomas Drayage & Rigging Co. This decision reveals the necessity of using extrinsic evidence to rule out any ambiguity, at the time of interpreting the clauses of a contract. It is not possible for a consistent judge to follow the decision in both these cases, as these decisions are markedly different. Question 4 The case Swinton v Whitinsville Savings Bank involved the sale of a house to Swinton by the defendant bank. The appellant had to undertake expensive repairs to this house, due to infestation by termites. Swinton contended that he was unaware of the termite infestation at the time of purchase of the house. He also stated that he was unable to detect this defect at the time of the purchase and that the defendant despite being aware of this infestation had failed to inform him (Lawnix, n.d.). This claim was dismissed by the court. The latter held that a cause of action for recovering damages could not emerge from the failure of the seller to disclose the presence of defects in the house sold by it. Massachusetts law does not rescind a contract on grounds of non – disclosure, and the principle of caveat emptor holds sway (Lawnix, n.d.). In the state of New Jersey, the Weintraub v Krobatsch ruling effectively rescinded the peculiar, inequitable and amazing ruling in Swinton. In this case, Krobatsch entered into a purchase contract with Weintraub. The house to be purchased was infested with roaches, which Weintraub failed to notice. Prior to closing the deal, Krobatsch visited the house in the evening and was dismayed to note that the house was overrun with roaches. As a result he refused to proceed with closing (Greenberg, 2011). Weintraub initially attempted to obtain a specific performance order, but subsequently claimed the right to retain the deposit made by Krobatsch. In addition, Weintraub sued the broker who had made a counter claim for commission. The Law Division set aside the motions of the broker and Krobatsch, but permitted that of Weintraub against Krobatsch. This was along the same faulty lines as the Swinton ruling. The Appellate Division affirmed the lower court ruling and in addition made Krobatsch also responsible for the commission claimed by the broker as Krobatsch had failed to close (Greenberg, 2011). In the Supreme Court, Weintraub contended that as per the ruling in Swinton, she was not obliged to disclose information regarding the infestation of the house. This was discounted by the Supreme Court. As per the above discussion, the judgment of the New Jersey court relates better to the argument that non-disclosure constitutes legally actionable deception. Question 6 The appellant Williams in Williams v Walker – Thomas Furniture Co. US COA DC had purchased several household items from the defendant on an instalment basis. There was a provision in their contract which retained an amount due on every item purchased, whenever a purchase was liquidated. The appellate court of DC was hard pressed to define what constituted unconscionable conduct. As a compromise, this court described it as the absence of meaningful choice with regard to one of the parties combined with contractual terms that favoured the other party in an unreasonable manner. In this case, the court held that the contractual terms were clearly inequitable (Brown, 2000, p. 294). This decision lacked clarity as it failed to describe what the court would do if the contractual terms were not grossly unfair. The precedential value of this decision was seriously compromised, because the court failed to describe what it understood by the term meaningful choice. As a consequence, the doctrine of unconscionable behaviour has been rendered susceptible to manipulation by the judiciary, and this is undesirable (Brown, 2000, p. 295). As such substantive unconscionable behaviour pertains to the fairness of the terms of a resulting bargain. It is deemed to be present whenever a contract reallocates the risks of the bargain in a discriminatory and unjustifiable manner, and in a manner that is surprising and arbitrary (Brown, 2000, p. 298). The majority of the cases involving substantive unconscionability are in the area of excessive price. However, the related case law is not consistent and fails to provide a steady standard for ascertaining whether the price charged is excessive. Thus, in Frostifresh Corporation v Reynoso the court considered the mark up to be very large and determined the price to be excessive. On the other hand, in Jones v Star Credit Corp, the price was held to be excessive, because it was higher than the price charged for similar or same goods by the other merchants (Brown, 2000, p. 300). Nevertheless, the New York Supreme Court upheld the contract in KD v Educational Testing Service, despite the presence of oppression in the adhesion contract. This judgement was due to the failure of the plaintiff to prove substantive unconscionability (Brown, 2000, p. 304). The statement that “The unconscionability doctrine is helpful to parties with inferior bargaining power.” is not agreeable; because unconscionable behaviour can be manipulated by the courts. As such this term has not been ascribed any definition. In the Williams case, the court was hard pressed to explain what constituted meaningful choice in the context of inferior bargaining power. Furthermore, in the Frostifresh case, the unconscionable conduct related to the excess price charged for the goods. Question 8 The nature of a condition, whether ordinary or promissory, is crucial; because, it determines the consequences of failure to fulfil that condition. The failure to fulfil an ordinary condition, the duty involved in such condition does not become due. However, neither of the parties obtains a legal cause of action against the other (George & Korobkin, 2012, p. 375). On the other hand, a promissory condition on being unfulfilled is deemed to be a contractual breach. The non – fulfilment of a promissory condition provides the non – breaching party with a cause of action. Interpretation of a contract constitutes the basis for determining whether an event is a condition. As a result, the contractual language or related circumstances generate a condition (George & Korobkin, 2012, p. 375). In general, an express condition is one that is created by the parties to the contract. The language of a contract is examined and interpreted by the courts in order to determine whether the events described in the text of the contract denotes a condition regarding the duty of a party. This trend was clearly visible in the cases Irving v Town of Clinton and Main Electric Ltd v Printz Services Corporation (George & Korobkin, 2012, p. 376). The significance of the difference between an ordinary condition and a promissory condition is indispensable for determining matters related to cause of action. This is due to the fact that the non – fulfilment of promissory conditions lead to the provision of a cause of action for the non – breaching party. Question 9 There are two remedies available under US contract law, with regard to a breach of promise by the promisor. First, money damages are to be paid by the breaching promisor to the promisee, so as to enable the latter to purchase a substitute performance or to replace the gains that would have ensued from performance. Second, the breaching promisor must carry out the contractual terms, and this is termed specific performance (Varadarajan, 2001, p. 737). The extant laws in the US frequently provide the damages remedy. However, with regard to specific performance, the courts tend to be circumspect in passing such orders. In general, specific performance is granted in contracts involving unique goods. In addition, it is commonplace for the courts to refuse enforcement of contracts that include remedies that are at variance with what the courts grant in the usual course, when there is no such clause in the contract (Varadarajan, 2001, p. 737). There are several reasons for eschewing a suit for specific performance, with regard to a routine contractual breach, in the context of merchandise that is readily available. It is a distinct possibility that the lawyers would benefit much more than the merchant, in a suit for specific performance. In addition, mitigation in a commercially reasonable manner, frequently involves much less expenditure than litigation. Moreover, during a specific performance claim, an aggrieved seller would have to hold the goods for an appreciable of time (Herman, 2003, p. 17).This could prove to be to his detriment, as market fluctuations and trends could render such stock obsolete. As such, specific performance provides the best and most equitable compensation, as the party suffering the detriment is compensated to the exact extent. In such cases, the party obtains precisely what it had entered into the contract to procure Part Two To: Tom, general contractor From: [Your name] Date: 31 May 2012 Subject: Advice in respect of potential law suits raised by Ophelia, Susie, Junior and Carey. Introduction: As per your request to send information about the possible legal issues to be raised by Ophelia, Susie, Junior and Carey. Summary There are many issues to be considered in respect of Tom’s assumed liability against potential legal claims, to be made by Ophelia, Susie, Junior and Carey. The principal objective of this work is to analyse these issues. In addition, many authoritative resources like statutes, case laws, academic journals and opinions of the experts will be consulted towards this end. Description Ophelia, the owner of a vacant lot approached Tom to construct commercial premises on her land. They agreed on 1 July 2005 to the following terms; first, Tom would construct the building; second, the building would be owned for 10 years by Tom, and subsequently, Ophelia would become the owner of the building; third, the maintenance of the building would have to be undertaken by Tom, till such time as he occupied it. Tom operated a coffee shop from the building constructed on Ophelia’s land. In the year 2008, he promised his son Junior to give this coffee shop to him in the year 2012, if the latter successfully completed a degree in Business Administration by that time. After that Tom offered Susie a 4 year sublease on the coffee shop, commencing from 1 July 2008. This sublease agreement failed to include any clause related to extension of the sublease, despite Susie’s intense interest to procure the premises for more than 4 years. Afterwards, Susie invested in costly immovable fixtures to the coffee shop. Junior completed his studies in January 2012 and asked Tom to hand over the coffee shop to him. At the same time Susie once again asked Tom to extend the sublease on the premises. In the meantime, Ophelia discovered that the building was infested with termites. She demanded of Tom to undertake the extermination of the termites, which would amount to $10,000. Tom stated that he was not obliged to undertake such tasks. Furthermore, one of the employees of Tom, Carey has failed to follow the rules laid down by Tom. These were aimed at promoting safety at the work place. One of these related to the wearing of a hard hat at the construction site, without fail, on every occasion. Carey was cautioned by Tom on two occasions regarding this lapse, and on the third occasion Tom mulcted him for $500, in accordance with the rules stipulated in the employment contract. Analysis In our problem Ophelia and Tom entered a contract relating to the construction and maintenance of a building. According to this contract, Tom was to construct the building on land belonging to Ophelia and the building would be owned for 10 years by Tom. Finally, Ophelia would become the owner of the building. Moreover, Tom was to maintain the building, while it was under his occupation. Ophelia noticed that the building was infested with termites. She demanded of Tom to undertake the removal of the termites, and this was expected to cost around $10,000. Tom stated that he was not obliged to undertake such tasks. As per the agreement Tom had to take care of the building for 10 years. Moreover as an administrator he was duty bound to clear the building of termites. Whenever a party to a contract fails to perform a duty that is due, then a breach of contract takes place. The occurrence of a breach of contract entitles the non – breaching party to a remedy. A promise or set of promises between competent parties to engage in a specific act, which involves legal consideration, and a remedy is provided for breach of such act, constitutes a contract (Illinois Courts, 2012). The Statute of Frauds obliges certain contracts to be in writing. Some of these are agreements to clear the debt of another person; agreements related to sale of interest in land; agreement to marry; and agreements made by an estate’s administrator. The factual issues pertaining to the satisfaction of the requirements or applicability of the Statute of Frauds has to be addressed by the court, in the normal course. On occasion, the jury may be required to address these issues (Illinois Courts, 2012). Tom’s refusal renders him liable for any claim for specific performance from Ophelia under the provisions of the Contract Law and Statute of Frauds. After that Tom offered Susie a 4 year sublease on the coffee shop, commencing from 1 July 2008. This sublease agreement failed to include any clause relating to extension of the sublease. However, Susie invested in costly immovable fixtures to the coffee shop relying on the words of Tom. The important terms and conditions of the contract have to be agreed upon by the parties involved, if a contract is to exist between them. With regard to consideration in contracts, it denotes the promise, or performance negotiated or provided in exchange for the promise (Illinois Courts, 2012). An act or promise that benefits a party or is detrimental to another party can be regarded as adequate consideration. In Kirksey v Kirksey, the defendant was the brother of the plaintiff’s deceased husband. He offered her a place to stay on his estate. The plaintiff left her comfortable quarters and shifted to her brother – in – law’s estate. Subsequently, their terms deteriorated and the defendant evicted the plaintiff (Weisbrod, 2006, p. 36). The trial court recognised the detriment suffered by the plaintiff and awarded her $200. However, the Alabama Supreme Court concluded that the brother – in – law’s offer was a gratuitous gift as there was no consideration from her. Consequently, this court reversed the trial court’s judgement (Weisbrod, 2006, p. 36). However, in our case promissory estoppel will apply against Tom, since the contract is not a gratuitous one. Relying on Tom’s words, Susie invested in costly permanent fixtures on the premises. Hence, Tom is liable for breach of contract in respect of his failure to extend the sublease as promised. Susie can approach a court of law for specific performance of the contract with Tom. On occasion a promisee’s compliance with the requirement specified by the promisor may not induce the promise of the latter. In such cases, there need not be the presence of consideration. Under certain circumstances, the manner in which a promisee may obtain the object promised could be indicated by a condition. This was depicted in Kirksey v Kirksey. At the same time, there could be some other circumstances that would limit the scope of a gift promise and this could be without inducing the promise. This limiting scope was demonstrated in Allegheny College v National Chautauqua County Bank of Jamestown. In respect of Junior there was no breach of contract, since there was no mutual assent or consideration for the agreement, which was essentially a family agreement. The greatest difficulty associated with the mutual assent requirement relates to specifying the exact stage of the negotiations, wherein progress proceeds beyond mere expressions of interest to those of commitment adequate for forming a binding contract. This difficult to determine distinction was examined in Empro Manufacturing Co v Ball – Co Manufacturing Inc and International Casings Group Inc v Premium Standard Farms Inc. A conditional promise is one that is given in exchange for consideration. The condition to be satisfied in such promises constitutes the consideration. This was clearly demonstrated in Hamer v Sidway. In this case, an uncle had promised his nephew a substantial amount if the latter would abstain from vice. Subsequent to the demise of the uncle, the nephew claim for this amount from the administrator of the uncle’s estate was upheld by the court (Hamer v Sidway, 1891). Similarly, in Langer v Superior Steel Corporation, the defendant promised to pay Langer a pension as long as the latter did not take up employment as a competitor. Although Langer complied with this condition, the defendant discontinued the pension after 4 years. The court held that the plaintiff was entitled to the pension as he had forgone a right, and that this constituted valid consideration. This ruling was upheld by the appellate court (Langer v Superior Steel Corp , 1932). In our case, Junior cannot claim any right as per the decision in Hamer v Sidway, since there was no consideration or detriment in this agreement. In Dove v Rose Acre Farms Inc, the plaintiff Dove had been employed by the defendant, whose business activity was the production of eggs. The scale of operations of this business was very large, and the defendant had implemented several bonus programmes (Dove v Rose Acre Farms Inc, 1982). Essentially, Rust the owner of the defendant firm was keen to ensure that his employees did not indulge in tardiness or absenteeism. Dover the plaintiff was cognisant of Rust’s unswerving convictions in this regard. Moreover, in his contract with Rust, he was provided with a written document incorporating these conditions (Dove v Rose Acre Farms Inc, 1982). Subsequently, Dove became ill and could not attend work for two days. As was the usual practice in the defendant’s firm, the plaintiff was informed that he had forfeited the bonus. The court upheld this decision of Rust, as the forfeiture related to the bonus and not salary or remuneration for the work completed. In addition, these parties had consented to these terms at the time of forming the contract (Blond, 2009, p. 309). During the course of its ruling the court examined the decision in Montgomery Ward & Co v Guignet. In this case, Guignet, a store manager of the plaintiff was provided with a bonus by the latter. The store manager’s employment contract was terminable at the discretion of Montgomery Ward, and this could be done with or without cause. In addition, termination of the employment prior to the end of the calendar end would ensure forfeiture of rights under the bonus (Montgomery Ward & Co v Guignet , 1942). Guignet’s services were terminated prior to the end of the calendar year and he was deprived of the bonus in its entirety. The court held that Guignet could not recover either a portion of the bonus or the entire bonus. Its decision was based on the presumption that this manager was well aware of the terms of the bonus plan, and in the absence of adherence to the conditions stipulated in that plan; he could not claim any bonus (Montgomery Ward & Co v Guignet , 1942). Similarly, in Muir v Leonard Refrigerator Co, the court upheld a bonus plan, wherein the employees had to complete the stipulated term, in order to be eligible to be paid bonus. During its ruling, the court declared that a plaintiff would be hard pressed to disassociate himself from voluntarily agreed upon employment terms (Muir v Leonard Refrigerator Co, 1934). This would apply in the absence of bad faith or fraud, and even if the forfeiture provisions appeared to be severe. Tom had deducted $500 from Carey’s salary, as the latter had failed to wear a hard hat at the construction site, even after being cautioned twice by Tom. This rule was in accordance with the state laws. Thus, Carey had violated the statutory laws, as well as the rules of the organisation for which he was working. Consequently, Carey cannot make a claim for the amount deducted by Tom as a punitive measure. Conclusion In summary, Tom has to envisage potential claims from Susie for breach of contract under promissory estoppel doctrine, as he had not extended the lease period as promised. A potential claim from Ophelia will make him liable for not complying with the conditions of their contract regarding maintenance. However he can successfully defend himself from the claims of junior and Carey since there was no breach of contract towards them. List of References Allegheny College v The National Chautauqua County Bank of Jamestown (1927) 246 NY 369 . Blond, N. C., 2009. Contracts. 7 ed. Aspen Publishers Online. Brown, E. L., 2000. The uncertainty of U.C.C. Section 2-302: Why unconscionability has become a relic. Commercial Law Journal, 105(3), p. 287 – 307. Casenote Legal Briefs, 2007. Contracts. Aspen Publishers Online. Dove v Rose Acre Farms Inc (1982) 434 NE 2d 931. Emanuel, S., 2006. Emanuel Law Outlines. 8 ed. Aspen Publishers Online. Empro Manufacturing Co v Ball – Co Manufacturing Inc (1989) 870 F 2d 423. Frostifresh Corporation v. Reynoso (1966) 274 NYS 2d 757. George, T. E. & Korobkin, R., 2012. K: A Common Law Approach to Contracts. Aspen Publishers. Greenberg, B. D., 2011. A “Creepy” Landmark Case. [Online] Available at: http://appellatelaw-nj.com/a-creepy-landmark-case/ [Accessed 29 May 2012]. Hamer v Sidway (1891) 124 NY 538. Herman, S., 2003. Specific Performance: a Comparative Analysis. Edinburgh Law Review, 7(1), p. 5 – 26. Illinois Courts, 2012. Contracts. [Online] Available at: http://www.state.il.us/court/CircuitCourt/CivilJuryInstructions/700.00.pdf [Accessed 30 May 2012]. International Casings Group Inc v Premium Standard Farms Inc (2005) 358 F Supp 2d 863. Irving v Town of Clinton (1998) 711 A 2d 141 . Jones v Star Credit Corp (1969) 298 NYS 2d 264. KD v Educational Testing Service (1976) 386 NYS 2d 747. Kirksey v Kirksey (1845) Ala Sup 8 Ala 131. Langer v Superior Steel Corp (1932) 105 Pa Super 579. Lawnix, n.d. Swinton v. Whitinsville Savings Bank – Case Brief Summary. [Online] Available at: http://www.lawnix.com/cases/swinton-whitinsville.html [Accessed 29 May 2012]. Montgomery Ward & Co v Guignet (1942) 45 NE 2d 337. Muir v Leonard Refrigerator Co (1934) 269 Mich 406. Pacific Gas & Electric Company v GW Thomas Drayage & Rigging Company (1968) 69 Cal 2d 33. Patterson , D., 1993. The Pseudo-Debate Over Default Rules in Rules in Contract Law. Southern California Interdisciplinary Law Journal, 3(1), p. 235 – 288. Printz Services Corp v Main Electric Ltd (1997) 949 P 2d 77 . Swinton v Whitinsville Savings Bank (1942) 311 Mass 677. Varadarajan, D., 2001. Tortious Interference and the Law of Contract: The Case for Specific Performance Revisited. The Yale Law Journal, 111(3), p. 735 – 760. Weintraub v Krobatsch (1974) 64 NJ 445. Weisbrod, C., 2006. Grounding Security: Family, Insurance And the State. Ashgate Publishing Ltd. Williams v Walker-Thomas Furniture Co US COA DC (1965) 350 F 2d 445. WWW Associates Inc v Giancontieri (1990) 565 NYS 2d 440. Read More