The law of contracts: consideration, formation, and mutual assent

Gilbert's Summaries

Contracts

The law of contracts represents society's attempt to formalize promises between parties. Promises are agreements between parties that are supported by consideration. Historically, consideration was described as a benefit received by one promisor or as detriment incurred by the opposing promisor. Modern legal theorists, however, describe consideration as being equivalent to a bargain, that is, an exchange of promises where each party views what he is giving as the price for what he gets. There are some limitations on this approach so other legal experts view consideration as anything that makes a promise or contract enforceable.

Promises or consideration take on various forms. There are promises that are mutual, promises that are unilateral, and promises that are subject to further conditions. Regardless of their type all must be free of evidence that they are unconsciousnable, or that the parties to the promise, that is, the contract lacked the capacity to contract. Additionally, there must not have been any indication of fraud or duress in the inducement to contract. The presence of any of these conditions will serve to render the promise/contract unenforceable.

All contracts are subject to the concepts such as accord and satisfaction, waiver and mutuality that change the obligation of the parties to the contract. Their specific application depends on the circumstances surrounding the promises and the formation of the contract.

The formation of a contract depends upon a determination of the mutual assent of the parties. Mutual assent is generally measured by the objective standard of determining what a reasonable person to whom a statement or offer is made would understand such statement to mean. This same level of objectivity is extended to the terms of the promise so that each party's reasonable expectations of what the terms are intended to mean is apparent.

In order for a contract to be formed there must exist mutual assent between the parties. Mutual assent is determined through the process of offer and acceptance. An offer is any statement or action that indicates the intent to be bound in an enforceable agreement that is tendered to another party. An offer remains open to acceptance until such time it is either accepted, formally withdrawn in an obvious manner similar to the way that it was offered, or expired due to a stated term. Correspondingly, an acceptance must be demonstrated and must be done so in a method that is clear and conspicuous. In making any determination as to whether a proper acceptance has been made the same objectivity that is used in accessing the existence of a valid offer is used. In demonstrating an acceptance, the accepting party must not change any term of the offer. If he does so, the attempted acceptance automatically becomes a counter-offer and the burden falls upon the party making the original offer to either accept or reject the counter-offer.

Litigation regarding the formation and interpretation of contract terms and application is extensive. Despite efforts to minimize such litigation through strict application of contract construction disputes still arise. The source of these disputes arise over indefiniteness of terms, mistake relative to the understanding of the parties, misrepresentation, nondisclosure, duress, or undue influence, or, simply, unconscionability. In any contractual situation the effect of these sources is considerable and must be afforded consideration. The presence of one or more of these conditions can serve to invalidate either the existence of or the application of a contract.

Problems can occur not only in the formation of a contract but also in its performance. This recognition has resulted in the development of a number of concepts governing the aspects of contracts as well. The law of contracts demands that the parties act in good faith not only in the formation of contracts but also in their performance. This requirement of good faith extends to the both the express and implied terms of all contracts. A failure by either party to act in good faith can result in a breach occurring which might invalidate the entire contract. If the contract is not totally considered breach, a partial breach might still occur that would alter each parties performance obligations under the contract. Not all breaches are deemed to be material to the degree that a contract would necessarily be invalidated. Each breach or potential breach must be examined on its facts with said examination again taking place from the viewpoint of an objective, reasonable person.

Remedies and damages in contract actions can be quite complicated depending on the nature of the contract and the expectations of the parties. Often, parties to a contract include damage calculations in the text of their contract. This inclusion can serve to clarify matters but, like at contract terms, can also be the subject of controversy as well. The basic measure of damages in all contract actions is determined by the expectations of the parties. In the case of a complete breach this would be the value of the contract while in a partial breach it would be a difference between what has already be received and the total value of the contract. Needless to say, both determinations are easier discussed in theory than in actual operation. In addition to this basic measure of damages there are other remedies available such as specific performance, liquidated damages and punitive damages. These additional remedies are available depending on the fact surrounding the performance of the contract and the relationship between the parties.

The law of contracts remains complicated. Attempts have been made to simply the law in this areas such as the publication of the Restatements by the American Law Institute and the adoption of the Uniform Commercial Code but the common law remains the controlling authority. As a result, it is necessary that the basic elements of contract law be understood and applied in any contractual situation.

Criminal Procedure

The laws and procedures involved in the area of criminal law have undergone a major transition in the last fifty years. Prior to the 1960s and the influence of the Warren Court, criminal procedure law was largely based on the common law that had developed under the English system of justice but beginning in the mid 1960s criminal procedure began to receive increased attention by the United States Supreme Court and, consequentially, the individual states as well.

The movement toward greater protection for alleged criminal offenders began with the increased application of the Fourth and Fifth Amendments to the U.S. Constitution. These two amendments address the issues of arrest and detention and the corresponding privilege against self-incrimination. In examining these two Amendments and applying their standards to the states through the Fourteenth Amendments Due Process Clause, the Supreme Court redefined the procedures to be used in the process of arresting offenders and their ultimate detention. In the process of this examination the U.S. Supreme Court defined the concepts of probable cause, the proper use of search and arrest warrants, set forth the proper procedure in seeking both type warrants, defined the use of information derived pursuant to an arrest, outlined what an offender may or may not do at the time of an arrest, and afforded all offenders facing possible incarceration the right to counsel. Each of these issues was largely left unstated prior to the Warren Court's activism. Since that time there have been some clarifications on each of the issues but the basic legal standards have been altered very little. Against the background of these legal standards the law of Criminal Procedure has developed.

Each stage of the criminal process is governed by the Rules of Criminal Procedure. Every jurisdiction in the United States has its own set of rules governing its criminal procedures but most are based, in some form, on the Federal Rules of Criminal Procedure. The Warren Court's use of the Fourteenth Amendment to apply its decisions to the states has resulted in most states modeling their rules in accordance with the federal rules.

At the pretrial stage, the rules of criminal procedure require that certain procedures be utilized in the identification process, that arrestees be afforded access to a preliminary hearing, the setting of reasonable bail, a listing of the charges being brought and proper reference to the applicable statutes, the right to a speedy trial, and the full disclosure of all evidence, both favorable and unfavorable. All of these rights were recognized in some form by the common law but through developing case law and codification these rights are now universally available and applied throughout all fifty states.

At the trial level the procedures in application have remained relatively unchanged through the years but each jurisdiction has codified the procedures by incorporating them into their respective rules of criminal procedure. Trial procedure, under the rules and common law, require that all defendants be provided with a fair and impartial jury. To ensure this the rules set forth the process for voir dire and seating of the jury. The rules also establish how and when defendants may be entitled to separate trials from co-defendants and how and when a defendant is entitled to a jury trial. Not all offense levels are entitled to a jury trial and each jurisdiction has its own standard in this regard. As a general rule, however, any offense involving the possibility of incarceration as a sanction is entitled to the benefit of a jury trial. This same standard is applicable, as well, to the right of every defendant to be represented by counsel. In all cases, regardless of the seriousness of the offense, the rules of criminal procedure grant the defendant the right to confront any and all witnesses involved in the formation of the charges against him. This right includes the right to cross-examine all such witnesses and to require their attendance at trial through the use of a subpoena.

The distinguishing factor that separates criminal trials from civil ones is the burden of proof. Criminal Procedure in all U.S. jurisdictions requires that guilt in the criminal court is based on a finding that is beyond a reasonable doubt. This means that all jury verdicts must be unanimous.

Criminal Procedure also sets forth the requirements of punishment in the American legal system. This area is governed by the dictates of the Eight Amendment's ban against the use of cruel and unusual punishment and most of the case law in this area has centered over the use and application of capital punishment. This remains an acrimonious issue in the American courts and is ever changing area. Criminal Procedure also addresses the issue of pleas and their effects. In general form, there are three basic forms of pleas: not guilty, guilty, and no contest. In some jurisdictions, and in the federal system, there is fourth hybrid plea known as a Alford plea that, stated simplistically, combines elements of a no contest plea with that of a guilty plea. Once a pleas is entered or rendered in a criminal case there remain procedures set forth relative to sentencing and post-conviction relief that are governed by the rules of criminal procedure and the corresponding common law. These provisions govern sentencing requirements, appeals, and post-conviction relief such as habeas corpus requests. These provisions tend to be specific to each particular jurisdiction but are still governed by the dictates of the Fourteenth Amendment and its Due Process requirements.

Property

Perhaps no area of the common law is more developed than that surrounding the ownership, sale, and use of property, both personal and public. The law of property has developed over time to reflect society's attitudes toward ownership of property and has adapted in accordance with those changes in attitude. From a time when private ownership was virtually unknown to the present where private ownership is widespread, property law has evolved to protect the relative interests of all concerned.

When considering property law most think of real property but the law addresses other types of property as well. These other types of property are classified as either tangible or intangible property. Tangible personal property includes any piece of property that can be moved, touched, or felt and that is not attached to land or real estate. Items such as furniture, jewelry, or household goods would represent tangible property. Intangible property is items that cannot be touched, felt or moved. Examples of such items would include negotiable instruments or securities.

The law of property has become diverse as the nature of property has changed. At one time, real property, which is the land and physical improvements to such land, was the primary concern of most property laws and procedures. As society as become more complicated and diverse and more individuals have become involved in the ownership of property, the laws surrounding property have become more complex as well.

Historically, interests in real estate have been identified through a system of verifiable legal property descriptions. These interests have been classified as fee simple, fee tail, life estate, and leasehold. The significance of these classifications has been lost over the years but the distinctions remain.

Real estate and personal property law have many aspects that overlap with contract law and include rights and interests in real estate; the sale, purchase and transfers of real estate; the legal aspects of rental property and landlord-tenant issues; tenants', renters', and homeowners' rights; title to real property; settlement of property claims; property development; zoning and land use; home loans, mortgages, and foreclosures; and agricultural issues. The local jurisdictional differences are prevalent in the area of property law and strict attention to these differences must be respected.

How real estate is transferred is dependent on how the property is titled. There is no universally recognized system of titling throughout the country but there is a reoccurring similarity. Interests in real estate are divided into possessory interests and future interests with each type of interest determining the rights of the owner of such interest to transfer and use the real estate.

Property law also addresses legal concerns in the area of landlord-tenant relationships. Although there is a long line of cases that determined the nature of these relationships, the area of landlord-tenant has become largely codified with virtually all the rights and obligations of both landlords and tenants being determined by statute. Abuses on both sides demanded that legislatures step in and determine the issues that occur in such relationships and the common law, which tended to tip the balance in favor of landlord, has been supplanted by statutes.

The advances of modern society have caused the law surrounding easements and covenants to be more important. Easements by utilities and governmental agencies have increased as technological and communication advances have become more prevalent. Similarly, as communities have become more interested in zoning and land uses, the prevalence of covenants have also increased. These laws and their effects are often overlooked relative to the real estate that they involve but real estate professionals, including lawyers, understand their importance and how they affect one's title to property.

Zoning and land use is a relatively new concept in the area of property law but have become increasingly more important as society has developed. Zoning and land use laws regulate the way that land can be utilized by regulating such things as the size of lots and buildings; the minimum front, back and side yard requirements; or the minimum number of parking spaces required for certain types of buildings. Such laws also determine where certain businesses may be located or how certain buildings may be utilized. When property availability seemed to be endless the need for such laws was minimal but as urban sprawl progressed the need for such legal restrictions became more important. Today, zoning and land use laws have become the source of considerable debate between conflicting interests.

Property law has changed considerably over the past several decades as private ownership has increased and conflicts between property interests have also increased. When life was simple so were the laws governing the ownership of property. Today's society is characterized by widespread ownership of property, both real and private, and a corresponding increase in the complexity of the laws governing such ownership is to be expected. Real property laws remain largely based in the common law while private property laws are increasingly more regulated by statute. As time develops, this increase can be expected to continue as legislative involvement in property law issues becomes more necessary.

Evidence

The law of evidence governs the information gathering and presentation process and how such process applies in the courtroom. How evidence is presented at trial is determined traditionally by the common law but, in recent years, it is becoming more heavily dependent on the application of the Rules of Evidence. In both the federal and state judicial systems, Rules of Evidence have been adopted that set forth the specific way that evidence may be presented at trial and most modern day cases rely exclusively on these rules. Most of the jurisdictions that have adopted evidence rules have fashioned their rules on the Federal Rules and there is little variance between jurisdictions as to how these rules are applied.

The evidence rules are broad in scope and cover what evidence is admissible; how evidence must be presented; what evidence is relevant, unreliable, confusing, or prejudicial. The evidence rules have also codified long recognized privileged communications such as husband-wife and attorney-client. These codified privileges have impacted on how evidence can be presented at trial.

An effective presentation of evidence at trial requires a strong understanding of what the laws of evidence and the more recent Evidence Rules state. As any trial lawyer will attest, the presentation of evidence is vital to success at trial. Organization of this evidence is dependent entirely upon what is allowable and what is allowable is determined by the common law and the Rules of Evidence. The evidence that is presented at trial is classified by type and form. There are essentially two types of evidence: direct and circumstantial, and there are three basic forms of evidence: real, demonstrative, and scientific.

Admissible evidence is that which existence or characteristics are both relevant and material. In most cases, such evidence was directly involved in the events surrounding the case at hand. For instance, the admission of the written contract upon which a case is based would be relevant to prove both the existence of a contract between the parties and proof as to the terms of the agreement between the parties. A verification of the signature of either or both parties would also serve to prove that the contract was properly executed. In the alternative, the absence of such document could serve to disprove the contractual agreement. Evidence such as a bloody glove, a fingerprinted gun, a damaged motor vehicle, or pictures of a crime scene can all be considered relevant and material evidence.

The admissibility of evidence is determined by its relevance, materiality, and competence. Under evidence laws, these elements must be established before the evidence can be properly admitted. The process of establishing these elements is described as laying a foundation and it is an essential responsibility of any trial lawyer. It is the role of the trial judge to make a determination as to the relevance, materiality, and competence of evidence and unless opposing counsel properly objects to the evidences' admissibility it is admitted. Once objection is made, however, the trial judge's decision is holding.

The process of laying a foundation is called authentication. Authentication is done by either identifying a unique object, by identifying an object that is unique, establishing a chain of custody. It is only necessary to authenticate through the use of one method but it must be done. The easiest method of authentication is through the testimony of a witness familiar with the evidentiary item. As an example, a party to a contract can authenticate a contract, the owner of a damaged automobile can authenticate photos that he takes of the vehicle subsequent to an accident, or the owner of a gun can testify as to its authenticity.

Authentication can also be established through a witness capable of identifying an item of evidence through the use of some unique marking or through the use of proving an unbroken chain of custody. Establishing a chain of custody is often difficult and the least desirable authentication method.

Evidence law also governs how demonstrative and expert witness testimony evidence will be admitted. Demonstrative evidence is used to support the testimony of witnesses and is admissible as long as it fairly and accurately reflects or supports the witness' testimony. Typical examples of demonstrative evidence are maps, charts, and diagrams. Authenticating such evidence is generally done through the witness whose testimony the evidence is intended to support.

One of the more difficult areas of evidence law is in the use of expert witnesses. The use of expert witnesses can be a useful tool in the prosecution of a case but the evidence laws and rules are quite restrictive as to how such experts are qualified and how the information provided the expert is to be considered by the triar of fact. Improper qualifying can result in the expert's testimony be considered inadmissible and can prove disastrous for an advocate's case.

A substantial portion of the law of evidence is dedicated to the treatment of hearsay. A substantial portion of the Rules of Evidence and the common law cases covering the law of Evidence relate to hearsay and its exceptions. Generally, hearsay is inadmissible but there are many exceptions, all of which are set forth the Rules of Evidence, which allow hearsay to be admitted under specified circumstances and conditions.

The Law of Evidence is important to the successful prosecution of any case and a thorough understanding of its provisions is essential.

Agency, Partnership and Limited Corporations

The laws of agency, partnership, and limited corporations are highly related. In today's world of corporations, the laws governing these type of legal entities is often ignored but they remain important business form options and there are overriding elements of how these entities operate that remain important.

The law of agency governs the relationship between a principal and an individual entrusted with the authority to act for another. This authority can arise either through specific appointment or through implication. Examples of this type of relationship include guardian-ward, executor and administrator, and employer-employee. Such relationships remain common place in today's legal environment.

The person acting on behalf of someone else is designated in legal parlance as the agent while the person for whom the acting is being done is deemed the principal. The principal is the person or entity responsible for the acts of the agent and the agent has authority to bind the principal. The extent of that authority, however, is subject to the circumstances under which the authority was created.

Partnerships are one of the oldest forms of doing business and consist of an association between two or more persons. The specific laws governing partnership formation and operation differ from jurisdiction to jurisdiction but all jurisdictions allow persons to include individuals, groups of individuals, companies, or corporations. The only limit to the possible forms that a partnership might take is the imagination of the individuals forming partnerships. A general partnership, however, must allow all partners to share equally in the operation of the business and to share equally in the profit and losses of such organization. Equal sharing is a basic tenet of partnership law.

Partnership formation, operation, and dissolution have been governed by state laws since the inception of the country. In recent years, many states have adopted the language of the Uniform Partnership Act and, as a result, the laws governing partnerships have become nearly universal but there remain jurisdictions that still apply common law principles or their individual state statutes in regard to partnerships. As a general rule, courts consider the following factors when determining whether a partnership exists: 1) the intent of the parties; 2) whether the parties have shared profits and losses equally; 3) have the parties shared equally in the management of the business; 4) the relative share of the participating individual's investment; and 5) how the business property is owned.

Determining whether or not a partnership relationship exists is important for a variety of reasons. Such a determination can impact on how such individuals are held liable for any torts committed by the alleged partnership or one of its agents. There is a business entity available, known as a limited liability partnership, that allows persons to limit their liability but such limitations must be clearly set forth and understood by all interested parties. Limited partnerships, like general partnerships are governed by state laws and most states have adopted the provisions of the Limited Liability Partnership Act which mandates the requirements of establishing such a business form.

Partnership organization, operation, and dissolution are governed almost exclusively by state laws. Federal law has limited application to partnerships and is largely limited to some tax treatments. Under both state and federal tax laws, partnerships are not considered a taxable entity as the partners are taxed in direct proportion to their individual share of the partnership.

Limited liability corporations are a hybrid form of business entity recognized in most states and by the federal government. Such form of business has enjoyed increasing popularity due to its ease of formation, its treatment of shareholders as partners for tax purposes, and its capacity for limiting the personal liability of the shareholders similar to how a general corporation does. There are certain types of businesses such as banks and insurance companies that are prohibited by statute from forming limited liability corporations but for most business types the form works well.

The laws relative to partnerships have been well established for some time but the laws relative to limited liability corporations are still evolving. Because of the relative newness of this form of business, the laws and regulations are ever changing and the case law is not well established. In today's ever changing business climate, entrepreneurs are attracted to this business form and it can be expected that more and more new businesses will be opting to organize under the provisions of the state laws authorizing such business structure. Presently, the federal government does not recognize limited liability corporations as such but they do allow such corporate shareholders to be taxed as partners. Under federal law, limited liability corporations must still file a tax return as a corporation.

Gilbert law summaries