Contract Law Principles and Concepts

¶ … Contract Law Principles and Concepts

The Elements of Contract:

Don and Estelle never formed a valid contract. A valid contract must satisfy all of the individual elements of a legally binding agreement: it must represent a "meeting of the minds" and it must be specific with respect to certain terms. A valid contract must specify a price and other terms of the agreement; ordinarily, it must also create a bilateral obligation on both parties (Freidman, 2005).

Therefore, gratuitous promises such as "I promise to give you my old car when I buy a new one" are not usually enforceable because the promise was not paid for with any consideration (Dershowitz, 2002). In contract law, "consideration" means that enforceable agreements cannot be completely one-sided because that violates the bilateral obligation requirement of valid contract. Sometimes a gratuitous contract becomes enforceable if the promisee relies on the promise and then suffers a loss caused by the failure of the promisor to follow through on his promise, especially where the promisor is also aware that the promisee is doing something (or choosing not to do something) specifically because of the promise (Dershowitz, 2002; Halbert & Ingulli, 2008).

In this case, Estelle and Don never specified any price for McDoodle; Estelle merely informed Don that her intention was to sell McDoodle on August 1st. Estelle was never under any obligation to contact Don in response to his letter the way she would have been had Don specified an offer of an exact dollar amount and included a deposit that she retained. Don did not rely on anything Estelle said and his travelling to Estelle's house based solely on the exchange described would not be considered reasonable either. Had they entered a valid contract, Don could probably have also filed a claim for his travel expenses in addition to any value of his bargain (Friedman, 2005).

Implied Contracts and Unilateral Mistakes:

The parties definitely entered into a contract but Ken is probably not liable for the cost of the extra work. In modern society, many ordinary transactions give rise to contractual obligations even though they are not expressly agreed to element by element (Dershowitz, 2002; Friedman, 2005). For example, when a person walks into a diner and asks, "May I please have a steak?" An implied contract is created even though the literal interpretation of the words is a request for a free steak; it is universally understood that that under the circumstances, that request amounts to an agreement to pay the price listed on the menu for the steak (Dershowitz, 2002; Friedman, 2005). Likewise, when Ken left his car at Acme, the circumstances gave rise to a contractual obligation for Ken to pay the Acme price of painting a fender and Acme agreed to perform the work.

In the case of a mistake, the law considers who caused the mistake, who benefited, and whether the beneficiary had any awareness of what was happening or could have corrected the mistake before the other party commits the mistake (Friedman, 2005). Where a mistake is mutual (or bilateral), or where the beneficiary contributed to the mistake, or knew about it, or could have acted to correct it, courts usually impose an obligation to reimburse the other party for the fair value of that work under the doctrine of quantum meruit, to avoid unjustly enriching the beneficiary at the other party's expense (Friedman, 2005). In this case, Ken did nothing to contribute to the mistake; he did not know about it; and he could not have done anything to prevent it. He may have some moral obligation but it is not likely to be imposed by a court at law.

Non-Enforceable Contracts:

Beth cannot recover against Marjorie in a court of law. In addition to satisfying the elements of a contract, there are additional factors that can determine that an agreement is not enforceable as a contract. A valid contract cannot exist that requires any illegal conduct or that relates to the exchange of illegal goods or contraband (Friedman, 2005).

Therefore, even a perfectly drafted "contract" cannot create an obligation to commit a crime or to pay for the commission of a crime irrespective of whether they promised to do so in advance. Public policy does not allow individuals to create illegal contracts (Halbert & Ingulli, 2009). The conversation between Beth and Marjorie essentially amounts to nothing more than a bet, and betting is not legal except in specific situations where legal gambling is permitted.

Breach of Contract and Failure of Consideration:

Black is only obligated to pay the original $150,000 for the equipment. As a fundamental principle, courts do not interfere with the terms or obligations of contracts merely because one of the parties regrets the deal he made. The fact that market prices or other external circumstances reduce the value of the contract to one of the parties is not a legal justification to refuse to perform under the contract (Friedman, 2005; Halbert & Ingulli, 2008).

Black agreed to pay the additional $8,000 but White will not be able to enforce that part of the agreement because there was no consideration for it; unlike the contract itself, that subsequent agreement was unilateral because it did not change what Black was already entitled to receive from White for the amount originally agreed upon (Friedman, 2005).

McMullen v. Joldersma:

McMullen v. Joldersma (174 Mich App 207) was a 1988 Appeal to the Michigan Appellate Court from a 1986 decision by a Michigan trial court (435 NW 2d 428) in which the plaintiff's case was dismissed for failure to state an actionable claim.

Nature of Case

In McMullen, the plaintiffs had purchased a store from the defendants. After the purchase was complete, the plaintiffs discovered that the municipality had been considering plans to construct a highway that would dramatically reduce the traffic flowing past the store and probably substantially reduce the commercial value of the property. The purchaser sued the seller claiming that the seller had known of the highway plans but purposely and fraudulently withheld that information from the buyer at the time of the sale.

Concise Rule of Law

A contract is not negated by fraud based on patent conditions that were not disclosed by the seller where that condition could have easily been ascertained by the buyer and where the patent condition has not yet actually occurred.

Relevant Facts, Issues, and Legal Distinctions

The law does recognize fraud as a justification for rescinding contracts or compensating the defrauded party (Friedman, 2005). Generally, the circumstances sufficient to constitute fraud must be material to the contract, the party accused of fraud must have been aware of and either misrepresented or purposely failed to disclose information to induce the contract, and the defrauded party must have relied on the fraudulent act and suffered actual harm by that reliance (Friedman, 2005).

In this case, none of the elements for establishing fraud in connection with the contract were satisfied by the plaintiff. The municipality had not yet actually decided to build the highway so the buyer was not actually harmed by the sale. For the same reason, the fact that the county was considering building a highway in the future is not material to the contract. The seller was aware of the circumstances but never did anything to hide the information and did not provide any false information, such as by answering falsely in response to a direct question or tearing down a road sign publicizing a new highway. Finally, the purchaser did rely on any misrepresentation or nondisclosure of the circumstances because the information about the proposed highway was freely available because it was a matter of public record and not information known exclusively to the seller.