COMMON LAW CONTRACTS FOR CIVIL LAWYERS
OUTLINE FOR MARVIN’S CLASS – FALL 2016
Class 1 – September 6
From Bulk Pack 1 – Mente v. GMAC case
Contract Interpretation:
For a decision on the interpretation of a contract, you need:
A contract (or a claim on whether there is a contract)
A contract consists of: Offer, Acceptance, and Consideration.
A breach of that contract (// what the contract means =
In some jurisdictions, you need a claim for damages; But if not needed, judges may award “nominal damages” (e.g.: $1);
Are there any exculpatory circumstances?
Mente Chevrolet v. GMAC
US District Court for the Eastern District of Pennsylvania (July 23, 2010) (kind of wrong, but fair).
Facts:
Contract = WSA or a wholesale security agreement, whereby P were required to repay D “faithfully and promptly” for all cars sold to customers.
While P was on vacation, D demanded immediate payment for missing cars, but the owner couldn’t issue checks in P’s absence. D immediately declared the dealerships ‘out of trust’.
After D seized the dealerships, P and D entered into a forbearance agreement (stop acts, refrain from…), whereby P waived their right to sue D.
First instance:
Jury determined, based on sufficient evidence, that D breached the WSA by improperly declaring the dealerships out of trust and seizing all of the dealerships’ property.
Jury determined that “faithfully and promptly” was ambiguous and did not require payment on the date of purchase. Moreover, D had never before demanded same-day payment (in 25 years of business together).
Jury awarded $4m to Plaintiffs (P – two car dealerships and their owner), against Defendant (D – creditor), for breach of contract (WSA) signed by the parties.
Ruling:
The doctrine of “unclean hands” bars defendant from enforcing the forbearance agreement when D’s improper actions induce P to sign the agreement.
D’s motion for a new trial is denied.
D’s renewed motion for judgement is denied.
– 2 contracts at stake:
Wholesale security agreement (WSA) – breached.
» Was it a valid contract? Holding: Yes, the contract is valid, but ambiguous.
Forbearance (right to sue waived).
» The forbearance agreement, in itself, was valid;
» Holding: Because of exculpatory circumstances, it couldn’t be binding:
Waiver of right to sue = only valid if made knowingly and voluntarily, and without fraud or undue influence, so long as enforcement of the agreement would not be against the public interest.
This test includes consideration of 7 non-exclusive factors:
Clarity and specificity of the release language;
P’s education and business experience;
Amount of time P had for deliberation about the release before singing it;
Whether P knew or should have known his rights upon execution of the release;
Whether P was encouraged to seek, or in fact received benefit of counsel;
Whether there was an opportunity for negotiation of the terms of the agreement; and
Whether the consideration given in exchange for the waiver and accepted by the employee exceeded the benefits to which the employee was already entitled by contract or law.
Under the doctrine of unclean hands, which is an equitable doctrine that applies when a party seeking relief has committed an unconscionable act immediately related to the equity the party seeks in respect to the litigation.
The claim is barred when:
A party seeking affirmative relief,
Is guilty of conduct involving fraud, deceit, unconscionability, or bad faith;
Directly related to the matter in issue;
That injures the other party; and
Affects the balance of equities between the litigants.
How to determine whether Mente breached the contract?
» Interpretation of “paying faithfully and promptly”? => D: “this day”.
» Holding: Appeal denied and trial court ruling affirmed: Mente breached the contract, it’s ambiguous. A contract is ambiguous if it is reasonably susceptible to different constructions and capable of being understood in more than one sense. Once a court determines a contract is ambiguous, its meaning may be decided by the jury, which, when deciding the parties’ intent must construe the ambiguity against the drafter.
Damages? Must be related to the breach (different than torts!), e.g.: established by an expert.
Summary of Holding: P granted consequential damages, because the loss was a reasonably foreseeable consequence of, and caused by, D’s contractual breach (demanding payment on the same day and considering the P out of trust).
Charging the jury on damages:
Your job is to fix the amount of damages:
Find an amount that will fairly and adequately compensate the injury;
An amount that will completely compensate the damage; or = sum that will compensate Mente for the loss sustained;
An amount that will compensate the direct and foreseeable result of the breach; or = amount that the parties reasonably could have foreseen with certainty;
An amount that will put Mente as nearly as possible in the same position they would have been in had the contract been performed as expected; = reliance damages
If you find the conduct of GMAC outrageous, you may award punitive
of contracts:
Express
Parties have expressly manifested their agreement (orally or in writing).
Implied
A contract can be inferred from the parties’ conducts; not from spoken or written words, i.e. when you go to a restaurant and order food -> this can be inferred that you’re going to pay the meal you ordered.
Bilateral
Parties have mutual promises, i.e. A promises to pay $10 to B and B promises to mow the lawn for A.
Only one party is obligated to do something, i.e. A promises to pay $10 to B if B mows the lawn for A but B hasn’t promised anything back to A. In this case, if B doesn’t mow the lawn for A, A cannot sue B for not performing his duty. However, if B mows the law for A, A has to pay B for doing so. If A doesn’t pay, B can sue.
NOTE: if a contract isn’t clear whether it’s bilateral or unilateral, the courts presume that it is a bilateral contract.
When a contract doesn’t meet all the requirements of a binding contract, then -> the contract does not legally exist, there is no contract at all -> no legal effect.
Wikipedia: Clean hands doctrine or the dirty hands doctrine, is an equitable defense in which the defendant argues that the plaintiff is not entitled to obtain an equitable remedy because the plaintiff is acting unethically or has acted in bad faith with respect to the subject of the complaint. The defendant has the burden of proof to show the plaintiff is not acting in good faith. The doctrine is often stated as “those seeking equity must do equity” or “equity must come with clean hands”.
Wikipedia: The doctrine of privity in the common law of contract provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such. However, the doctrine has proven problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties.
