Contract Law and Employment Relations: Key Concepts

Posted on Dec 7, 2024 in Law & Jurisprudence

Chapter 10: Contract Formation and Types

Bilateral Contracts: Both parties make an agreement, forming a mutual obligation. Unilateral Contracts: Only one party makes a promise, and the other accepts by performing; for example, offering a reward for a lost dog, paid only upon its return. Executory Contracts: Obligations need to be fulfilled. Executed Contracts: Both parties have completed their obligations. Valid Contracts: Meet all legal requirements and are enforceable in court. Unenforceable Contracts: Appear valid but have legal issues, such as an oral contract that should be in writing. Voidable Contracts: Can be canceled due to issues like fraud or coercion (being under threat). Void Agreements: No one can enforce them because they are illegal. Express Contracts: Both parties clearly state the terms, either orally or in writing. Implied Contracts: Formed by actions; for instance, mowing a lawn every day without explicit terms implies a contract.

Sources of Contract Law

  • Common Law: Applies to most contracts, especially those not involving goods, such as real estate and services.
  • Uniform Commercial Code (UCC): Specific to the sale of goods, which are movable items.

Promissory Estoppel: A court may enforce a promise even without a contract if:

  • A promise was made expecting reliance.
  • The other party reasonably relied on it.
  • Not enforcing it would be unfair.

Quasi-Contract: Prevents one party from benefiting at another’s expense unjustly. For example, if a doctor saves someone’s life in an emergency, it’s unfair for the patient to receive free medical care, even if they didn’t request it.

Elements of a Contract

  • Offer: A proposal is made.
  • Acceptance: Agreement to the offer.
  • Consideration: Each party offers something of value.
  • Legality: The contract’s purpose must be legal.
  • Capacity: Parties must be adults and mentally sound.
  • Consent: Both parties agree without force or deception.

Terminating Offers

  • Revocation: The offer is withdrawn before acceptance.
  • Rejection: The offeree declines or makes a counteroffer, ending the original offer.
  • Expiration: The time to accept ends.
  • Operation of Law: Death of a party or destruction of the subject matter.

Mirror Image Rule: Under common law, acceptance must match the offer exactly.

UCC Exception: For the sale of goods, minor differences in acceptance can be valid as long as both parties agree.

Consideration: The exchange of something of value.

Types of Consideration

  • Act: Doing something you are not legally required to do.
  • Forbearance: Refraining from something you have the right to do.
  • Promise: A promise to act or refrain from acting in the future.

Chapter 11: Contract Legality and Enforceability

Contracts must be legal to be enforceable.

Gambling: Illegal gambling contracts are unenforceable, but state-legalized forms are permissible.

Non-Compete Agreements: These restrict one party from competing with another for a specific time, area, or industry. They are valid only if reasonable and not overly restrictive, typically in business sales and employment agreements. For example, when a buyer purchases a business, a non-compete clause prevents the seller from doing business nearby.

Exculpatory Clauses: These aim to free one party from liability for injuries caused to another. They are enforceable only when there is no negligence or intentional harm and do not affect the public interest.

Unconscionable Contracts: Extremely unfair contracts may be deemed unenforceable. Factors include:

  • Oppression: Unequal power between the parties.
  • Surprise: Hidden terms that a party cannot easily see or understand.

Voidable Contracts: Contracts involving minors, mentally unstable individuals, or those made without proper consent (e.g., due to fraud) are voidable.

Fraud: A false statement of fact that is material (important enough to influence a decision) and reasonably relied upon (used to make the decision) can make a contract unenforceable. Sometimes, economic duress, such as severe economic pressure and lack of reasonable alternatives, can also render a contract unenforceable (e.g., Messina v. Integra Optics).

Statute of Frauds: Certain contracts must be in writing, including those involving:

  • Interests in land.
  • Debts of another.
  • Agreements that cannot be performed within one year.
  • Sale of goods worth more than $500.

Parol Evidence Rule: If there is a final written contract, oral statements made before or during the signing cannot be used to contradict the written terms.

Chapter 14: UCC Articles and International Sales

UCC Article 2: Governs the sale of goods, which are tangible, movable items. If services are involved, the predominant purpose of the contract determines whether Article 2 applies.

UCC Article 2A: Governs leases of goods.

UCC Article 9: Governs secured transactions, where personal property is used as collateral.

Benefits of the UCC

  • Uniformity in interstate commerce.
  • Flexibility in contract formation, similar to common law.
  • Statute of Frauds provisions.
  • Warranties, which are promises about the quality and performance of goods sold.

Flexible Formation Under the UCC

  • A contract can be formed in any way that shows agreement between the parties.
  • Some terms, like delivery time or payment details, can be left open.
  • The exact moment of agreement does not need to be specified.

Exceptions to the Statute of Frauds

  • Merchant’s Exception: If one merchant sends written confirmation of an oral agreement to another, the agreement is binding unless there are objections within 10 days.
  • Custom-made goods for a buyer are valid even if the agreement is only verbal.
  • If a party admits in court that they had a contract, it is valid.

Warranties

  • Express Warranties: Statements about the quality or performance of goods, whether verbal or written, including descriptions or samples.
  • Implied Warranty of Merchantability: The product should be of average acceptable quality and fit for its typical use.
  • Implied Warranty of Fitness for a Particular Purpose: If a buyer is purchasing a product for a specific purpose and relying on the seller’s expertise, the product must be suitable for that purpose.

International Contracts: The CISG

The Convention on Contracts for the International Sale of Goods (CISG) governs international sales of commercial products. It applies automatically unless the parties specify otherwise in their contract.

CISG Requirements:

  • Does not require written contracts.
  • Acceptance is effective upon receipt by the offeror.
  • Offers cannot be withdrawn during the time allowed for acceptance.
  • Requires parties to act in good faith and adjust to unforeseen events.

Battle of Forms

Under the CISG, a contract is still valid even if the acceptance contains different or additional terms. If both parties are merchants, new terms in the acceptance automatically become part of the contract unless:

  • The original offer specified its own terms.
  • The additional terms significantly change the offer.
  • The offeror rejects the added terms quickly.

If terms in the acceptance directly conflict with the offer, the UCC typically cancels out both sets of terms and uses a gap-filler provision.

Buyer’s and Seller’s Remedies

  • Buyer’s Remedy: The right to inspect and reject non-conforming goods. If the seller fails to deliver, the buyer can “cover” by purchasing from another source and requesting the price difference.
  • Seller’s Remedy: The right to withhold goods if the buyer breaches the contract. The seller can resell the goods and recover any losses.

Article 9: Secured Transactions

  • Security Interest: A creditor’s legal claim to the debtor’s collateral.
  • Collateral: The property that secures a loan.
  • Attachment: The debtor’s rights in the collateral, plus the creditor lending something of value, plus an agreement, creates an enforceable security interest.
  • Perfection: Informing the public that the property is already taken by the creditor.

Bona Fide Purchaser (BFP): If you buy something in good faith, even if it was previously used as collateral, the item is protected. A legally secured interest has a claim over an unperfected one, and the first to file a claim has priority.

Chapter 17: Agency Relationships

An agency relationship involves one person (the agent) acting on behalf of another (the principal) and subject to the principal’s control.

Requirements for Creating an Agency Relationship

  • Consent: Both parties must agree on the relationship.
  • Control: The principal needs some level of control over the agent, directing what the agent does.
  • Fiduciary Duty: The agent must act in the best interest of the principal, not making a personal profit at the principal’s expense.

Elements Not Needed for an Agency Relationship

  • Written Agreement: Generally, no written agreement is needed unless the agent is entering into a contract that must be in writing (like selling land).
  • Formal Agreement: The terms “agent” or “principal” do not need to be explicitly used.
  • Compensation: The agent does not need to be paid to be in an agency relationship.

Duties in an Agency Relationship

  • Duty of Loyalty: The agent must act in the principal’s best interest.
  • Duty to Obey Instructions: The agent must follow lawful instructions from the principal.
  • Duty of Care: The agent must act with reasonable care and skill.
  • Duty to Provide Information: The agent must inform the principal of all relevant information affecting the agency.

Chapter 18: Employment Law

Employment at Will: Either the employee or employer can terminate the employment relationship at any time for any reason unless a contract specifies otherwise.

Wrongful Discharge: An employee cannot be fired for a reason that violates public policy, such as refusing to break the law, exercising a legal right, or supporting societal values.

Contract Law in Employment

  • Promises made during hiring.
  • Employee handbooks.
  • Covenant of good faith and fair dealing.

Tort Law: Allows employees to sue employers for actions like defamation or intentional infliction of emotional distress.

Family and Medical Leave Act (FMLA): Provides up to 12 weeks of unpaid leave each year for family or medical reasons, with a guarantee of returning to the same job with the same pay and benefits.

Whistleblowing: Employees who report illegal practices within their organization are protected in certain circumstances.

Employer Control: Employers may regulate off-duty conduct (like smoking) and conduct alcohol and drug testing, subject to state and federal laws.

National Labor Relations Act (NLRA): Protects employees’ rights to discuss working conditions without fear of retaliation.

Occupational Safety and Health Administration (OSHA): Sets safety and health standards for employers to follow.

Financial Protection Laws

  • Fair Labor Standards Act (FLSA): Establishes minimum wage and overtime pay rules.
  • Workers’ Compensation: Provides financial compensation to employees injured on the job.
  • Social Security and Unemployment: Supports retired and disabled workers, as well as those who have lost their jobs.

Labor Unions

The NLRA grants employees the right to form unions and take collective action. A union can be formed if more than 50% of employees vote in favor, granting the union the right to represent employees. Unions can strike, and while employers cannot fire striking workers, they can hire replacement workers.

Case Studies

Chapter 10: Carlill v. Carbolic Smoke Ball

Carlill sued Carbolic Smoke Ball for failing to pay a reward promised in an advertisement to anyone who contracted the flu after using their product. The court found that a public advertisement could form a binding unilateral contract. The offer to the public was accepted when Carlill used the product as instructed.

Chapter 11: Prudential Insurance Co. of America Sales Practice Litigation

This case involved enforced arbitration clauses preventing employees from taking collective legal action. The issue was whether this practice limited employee rights to labor protection. The court upheld the validity of the arbitration agreement, ruling it enforceable under the Federal Arbitration Act (FAA), balancing employee rights against arbitration clauses.

Chapter 14: Goodman v. Wenco Foods, Inc.

Goodman was injured after eating a hamburger with a bone in it, raising claims of product liability and breach of warranty. The court addressed whether Wenco breached the implied warranty of merchantability by selling an unsafe product. The case highlighted product liability and the implied warranty of merchantability, with the finding that Wenco failed to ensure product safety.

Chapter 17: Lancaster Symphony Orchestra v. NLRB

Musicians sought classification as employees to gain union rights. The court examined the degree of control the orchestra had over the musicians’ work and their economic dependence under the NLRA. Factors like dress codes, posture requirements, rehearsal conduct, and the orchestra supplying necessary tools implied an employee-employer relationship.

Zankel v. United States

A U.S. Marine officer, driving a government vehicle without official permission, killed a boy. Although the officer had occasional permission to use the vehicle, he did not have it that morning. The court ruled he was within the scope of employment because he was commuting to required work and likely would have been granted permission if he had asked.

O’Connor v. McDonald’s Restaurants of California, Inc.

Employees claimed they were misclassified as independent contractors, being denied overtime pay, breaks, and reimbursement for uniforms. The court found that McDonald’s could not be considered a joint employer since they had limited control over employment at franchise locations and were thus not responsible for these issues.

Chapter 18: Peterson v. Exide Technologies

Peterson received several warnings for driving a forklift too fast and was later injured, requiring FMLA leave. During his leave, Exide terminated him, citing repeated safety violations. Peterson claimed he was fired in retaliation for taking FMLA leave. The court ruled that Exide had a valid reason for the termination due to his history of safety violations.

In re: The Dalton School, Inc.

David Brune expressed discontent over a school administration’s handling of a school play, alleging racial stereotypes. He wrote emails using strong language and calling for an apology. After initially denying, he admitted to writing the emails and was fired. Brune claimed the firing violated the NLRA, which protects employees’ right to engage in concerted activities related to work conditions. The NLRB found Brune’s emails to be valid and part of a concerted activity, as they addressed working conditions and sought to unite colleagues. Despite Brune’s dishonesty, the school’s reasoning for firing him seemed to be due to the protected activity rather than his dishonesty. The NLRB ordered Brune’s reinstatement and compensation.