Brief History
English contract law can be traced back to Ancient times. Greek law identified what a contract was, and created rules for cancelling a contract; most of which are still relevant today. The Romans went further by identifying the different categories of the contract, and what was required to fulfill each aspect of the contract. Fast forward 1000 years into the future, to England in the Middle ages, and we see starting in the 1300s, the King’s Court accepting cases of breach of covenant where there was a legitimate contract ‘under seal’. By the 1800s, legal constructs, such as good faith, fair dealing, and enforceability were incorporated into English common law.Starting in the 20th century, in the US, we begin to see legislation that creates concepts such as ‘adhesion contracts’ to address the unfair bargaining power an individual may have against a business entity, or an employer/employee contract.
Objectives of Contract Law:
The main purpose of contract law is to provide the basic framework which allows individuals and organizations to freely and reliably contract. All contracts contain the following 4 elements, 1. Offer, 2. Acceptance, 3. Consideration, and 4, an intention to create a legally binding agreement.
A contract is an oral or written agreement between 2 or more persons, to describe something that is to be done by one or more parties in the future, and what will be given in return as consideration. When 2 or more parties decide to enter into an agreement, the person making the offer (ordinarily referred to as the offeror), offers something of value in exchange for a promise. The person receiving the offer, (offeree) can either accept or decline the offer. If the offeree attempts to counter-offer at this time, then he/she becomes the offeror, and the offeror becomes the offeree. Once both parties are OK with the terms of an offer, they are said to accept the terms of the contract. At that point, the parties are in what is called ‘mutual assent’, which simply means that that both parties agree to an offer. Mutual assent is required to form a contract, as both parties must agree to the same terms of an offer.
Types of Contracts:
The 3 main types of contracts are express, implied in law, and implied in fact. An express contract is an exchange of promises by which the terms the parties agree to be bound by are either in writing or oral, at the time the agreement is made. Both written and oral contracts must have a mutual intent to be bound, understood by both parties, and must have an offer, acceptance, and consideration. An implied in fact contract is an obligation that is created by 2 or more parties based on the circumstances of a situation. The most obvious example is ordering off the menu in a restaurant. The waitress hands a customer a menu, the customer selects food off the menu, and food is delivered to the customer. The customer then pays the price displayed in the menu to the restaurant. Even though no written or oral contract has been created, this scenario is still considered a contract in fact, because of the actions of both parties. By reviewing the menu and ordering food, it is implied that the customer intends to both consume the food, and pay the price listed in the menu. Thirdly, an obligation created by law for the purpose of avoiding unjust enrichment is called an ‘implied-in-fact’ contract or quasi-contract. A common example of such a contract is where a person has a heart attack in a public place, and a doctor runs over and rushes to his/her aid. Weeks later, a bill for services rendered is sent to the heart attack victim. Even though no contract was made, and no fees/services were agreed upon, the law may find the existence of a quasi or implied-in-law contract, and order the victim to pay the doctor’s bill.
Statute of Frauds:
One of the first, and most important constructs discussed in this course is the ‘statute of frauds’. As discussed in our textbook, many, but not all contracts are required to be written. It is usually preferable for a contract to be written down, even if it is not required, for increased clarity, and verification purposes. In the instances listed below, however, under the a contract may not be oral, and must be on paper:
* Contracts concerning marriage, such as prenuptial agreements.
* Any contract that cannot be completed in 1 year.
* Contracts concerning the sale or lease of real estate.
* Contracts of goods with a value over $500.00
* Contracts that guarantee the debt of another party.
* Modifications to an existing oral contract.
Promissory Estoppel:
On the other side of the statute of frauds, we have promissory estoppel The legal principle of promissory estoppel is that a promise may be enforceable by the law, even if made without formal consideration, if one party relies on the oral agreement to his/her serious detriment. In other words, if an agreement is made between 2 parties to purchase an item or perform a service, and ordinarily this agreement would need to be written to be enforceable, it still may be enforceable if one party can demonstrate that they have reasonably relied on the promise. The easiest way to show that a person has relied on a promise would be for them to have suffered some economic loss as a result of relying on the promise. An example would be, if an employer extends a verbal offer to hire a potential employee, and asks the employee to move to a different state and report for work, if that potential employee quit his job, rented a moving truck, and moved across the country to accept the job, it may be possible to prove that this potential employee relied on this oral promise to his detriment. Detrimental reliance is the concept that a person may use to force another to deliver on his/her end of an oral promise.
Non-Performance / Breach of Contract
When one or more parties of a valid contract fail to perform a promise in a contract, it is called non-performance. This non-performance may be a breach of contract, if the non performance occurs without a legal excuse, or if the non-performance is an issue of quality or non-conformance with industry standards. For example, if a plumber is hired to install pipes for a bathroom, and the work is not in compliance with the local building codes, the plumber may be in breach of contract, even though he did, in fact, install pipes as agreed in the contract.
Breaches are separated into 2 types, minor, and material. A breach is material if the breaching party has failed to deliver on an aspect of the contract, that causes the other party to receive something very different then what was contracted for. An example of that would be, if a person contracts with a painter to paint their house white, and the painter paints the entire house red, a material breach has occurred. A minor breach has occurred when even though part of the contract has not been completed, the other party still gets the benefit specified in the contract. Some examples of minor breaches would be slight delays in completion of contract, substitution of materials, or slight deviations from the contract. In these instances, the rest of the contract is still valid, but the buyer may receive damages caused by the minor breach. In the original example, we talk about a house that was painted the wrong color as a major breach. Imagine, for example, a house that was supposed to be painted white with blue shutters, and the house is actually painted white with white shutters. In this instance, most of the work was done correctly, and the shutters can be painted by another company, with the added cost of the shutters being repainted, deducted from the original contract, instead of the entire contract being breached.
Expectation Damages:
In the event of a breach of contract, expectation damages that are recoverable by the non-breaching party. In simple terms, expectation damages are the value that would have been bestowed upon the non-breaching party if the contract had been completed, or the difference between what was given and what was promised. In this example of expectation damages, Contractor A is hired to build an addition on B’s house. The contract states the cost will be $10,000, $5000 in labor costs and $5,000 in materials cost. If B pays A the full $10,000 up front, and A provides all the materials, but walks off the job after a few weeks, B would have to hire another contractor to complete the job. B hires contractor C to complete the job for $2,000. B’s expectation damages would be $2,000, as it took B an additional $2,000 to complete the job. The reverse scenario is possible as well. Assume Contractor A is replaced by Contractor C before the job even starts. Contractor A would have expectation damages of $10,000 – $5,000 = $5,000, as he lost an opportunity to earn $10,000, but his expenses for the materials would have cost him $5,000.
Third Party Beneficiaries
Gift or Contract?
How Contract Law Impacts My Everyday Life:
Contract law is one subject that is actually part of my everyday life, as I work in a law firm that handles vehicular lemon law and auto fraud. Both the auto fraud work that we do, and the the lemon law violations are definitely contract law. The law that makes most of our Lemon Law work successful, is called the Song-Beverly Consumer Warranty Act. Song-Beverly can be referenced in the California Civil Code, Sections 1790-1795.8. While the law is applicable to all consumer goods sold in California, my employer mainly focuses on cars, trucks, motorcycles, and R.V.s, as they are usually an expensive purchase, and consumers are likely to seek out legal representation when their car breaks down repeatedly. The law is only applicable to a retail (private party) buyer who buys consumer goods from an organization engaged in the business of manufacturing, distributing, or selling consumer goods at retail.
Unfortunately, both private party sales, and business to business sales are not covered. A commercial entity cannot have more than 4 vehicles registered to the entity for this ‘consumer friendly’ law to be applicable. Some other requirements for a vehicle to be covered under Song-Beverly, are as follows: The vehicle must be primarily for family or household purposes, the vehicle must have a gross vehicle weight of less than 10,000 pounds, and the vehicle must have been purchased or leased in the State of California. The defects must be both covered under the new vehicle warranty, and substantially impair the use, safety, or value of the car. Finally, the vehicle must have been to the dealership for repairs, four or more times for the same issue, or 30 days in the dealership for the same issue.
Essentially, under Song-Beverly, we are looking for situations where a person has purchased a vehicle, either new or used from an authorized car dealership, and the vehicle is still covered under the original (express) manufacturer’s warranty. If the vehicle has had repeated warranty repair attempts for the same issue, and the dealership has still not managed to fix the issue within a reasonable number of attempts, then we may be able to help. At this point, we need to review the potential client’s purchase contract, owner’s manual, and repair history. Once we establish that both the owner of the vehicle has honored their responsibilities spelled out in the express warranty provided by the manufacturer, i.e. regular oil changes, maintenance, and proper care of the vehicle, we then examine the vehicle’s warranty repair history.
Assuming that the frequency and severity of repairs under the warranty, are enough to make a case, we then craft a retainer agreement (another contract) that spells out what we expect from the client, what we are willing to do, and not do for the client, our fee structure, how civil penalties are handled, etc. Assuming the potential client is still interested after reading our retainer agreement, we would begin negotiating with the manufacturer’s legal department. If necessary, these disputes may be brought to California or Federal court. The most likely positive outcomes are a vehicle repurchase or cash settlement.
Auto Fraud:
Another example of contract law that my employer practices, is auto fraud. We represent the consumer in many auto fraud cases a year. Auto fraud is usually the act of deceptive or unlawful tactics used by automobile dealerships throughout the vehicle purchasing process. When purchasing a car, truck, or motorcycle, the consumer is essentially negotiating with the dealer to purchase a car of a specific type, at an agreed upon price. A written contract called a Retail Installment Sales Contract is usually created to establish the price, specific vehicle and its condition, and any additional services included, such as warranties, service plans, rustproofing, etc. While most car dealerships attempt to be transparent in the sales process, there are quite a few here in California who are committing fraud by misrepresenting the mileage, condition, and value of a vehicle to potential buyers.
There are several areas where an auto dealer can misrepresent their vehicle, and potential fraud may be committed. First is at the advertising phase. California Vehicle code Section 11713.1(e) states that when dealerships post advertisements for cars and trucks at a specific price, that they may not sell the vehicle for higher than the advertised price, even if the customer was not aware of the advertisement. Additionally, the California Code of Regulations 260.04 – Vehicle Availability states that no California Dealer can advertise the sale of a particular vehicle unless that vehicle is in the dealer’s possession, and that all advertised vehicles must be sold at or below the posted price.
The damages in a case like this would usually be rescission.
In an odometer rollback case, we would be looking for verification that the auto dealer illegally rolled the odometer back, in order to make the car appear less used than it was, and to possibly able to sell the car for more than it is worth. Usually a car history reporting service such as Carfax, or DMV records would bring such discrepancies to light. Since the mileage is stated in the purchase contract, this is another way to bring an auto fraud (breach of contract) lawsuit against the dealer.
Another way to bring an auto fraud lawsuit agaisnt the dealership is by finding a Truth in Lending Act (TILA) violation. The Truth in Lending Act of 1968 is a federal law initially created to help consumers determine what their true APR interest rate of their mortgage was, and it requires that all costs associated with borrowing are calculated and added to the actual interest rate.
vehicle history disclosure.