Contracts and Property Law

Contracts and Property Law

Introduction

Formation of contracts is an activity that drives our daily lives, but something that we

frequently ignore. Whether buying a basket of groceries at the local grocery store or

signing a 5-year employment contract, we are forming legally binding and enforceable

contracts. If the product at the grocery store is incorrectly packaged and labeled, you

can return it for a refund. If your boss tells you that you are fired, you obviously need a

lawyer.

The basic principle of contract law is that it derives from two sources: (1) common law,

which is a body of law created by centuries of judicial decisions, and (2) the Uniform

Commercial Code, created in the 1940s. Typically, transactions involving real estate

and services are governed by common law, and contracts for the sale of goods by

merchants are governed by the Uniform Commercial Code. We also look at property in

this lesson—real property involving land; tangible property, such as your watch; and

intellectual property, such as a patent you develop and procure.

ElementsofaContract:Offer,Acceptance,and

Consideration

There are three basic elements of contract formation.

 Offer: Must be conveyed directly from the offeror to the offeree, with sufficient

details to enable and enforce an agreement.

 Acceptance: Offeree must accept the exact terms offered (in mirror image), and

the acceptance must be conveyed back to the offeror. Note that a counteroffer by the

offeree terminates the original offer and it is no longer available for acceptance by the

original offeree.

 Consideration: Must include an exchange of something of value to each party;

court will generally not rule on what is fair value, only that the parties agreed to the

exchange.

In addition to contracts requiring the three elements noted above, the courts recognize

certain defenses that serve to invalidate a contract.

Typical defenses to contracts are
1. lack of capacity;

2. duress;

3. unconscionability;

4. mistakes;

5. illegality; and

6. fraud.

The list of six defenses above introduces a breed of contracts so unfair or unethical that

the law simply will not enforce the agreement due to duress, fraud, and

unconscionably.

Contracts That Must Be in Writing

Certain kinds of contracts must be in writing under the statute of frauds. The most

common example is that real estate contracts must be in writing to be valid. State laws

tend to vary on the exact details of what is required in a contract for the sale of land.

Other contracts that must be in writing include

 contracts to pay the debts of another person or organization;

 contracts that cannot be completed within 1 year;

 contracts involving the sale of goods for $500 or more;

 contracts in consideration of marriage (prenuptial agreements); and

 contracts to answer for the debts of another person.

The exact requirement of the form of the writing of a contract is not specified. In the

Basquiat case, the court found that a crayon writing on a napkin was enough to fulfill the

writing requirement of a contract for acquiring artwork for $3,000. In court, evidence to

counter the writing of a contract is not allowed under the parol (oral) evidence rule.

Methods of Discharging a Contract

When a contract is terminated, it is said to be discharged. The discharge of a contract

can occur by a number of different methods, including the following.

 Discharge by complete or substantial performance

 Discharge by mutual agreement of the parties to the contract

 Discharge by “conditions precedent and/or conditions subsequent”

 Discharge by impossibility of performance or commercial impracticability

 Discharge of contracts with various branches of the government under the

sovereign acts doctrine

Early unwarranted discharge of a contract is referred to as a breach, and can be

compensated by monetary damages or compensatory damages, nominal or liquidated

damages, or punitive damages if there is some degree of a tortuous interference.

Global Dimensions of Contract Law
The rapid expansion of the global commercial world has led to a demand for contractual

agreements to adapt to the needs of the international environment. The Uniform

Computer Information Transaction Act (UCITA) was instituted when it became apparent

that common law and the UCC could not monitor contracts on the international-Internet

basis. This led to e-contracts and e-signatures, and eventually the United Nations

adopted the UCITA noted above.

DefinitionofLandandTypesofInterestor

Ownership and Use

Real property is defined as land and anything

connected to it: fixtures, such as buildings, homes, and to a lesser extent, even things

like ceiling cranes in a manufacturing building. The extent of ownership of real property

also extends to items like mineral rights. The various types of ownership interest include

the following.

 Fee simple: Complete and ultimate ownership through a deed.

 Conditional estate: Complete ownership, but subject to some type of condition for

the land’s use.

 Life estate: Complete ownership, but one that terminates upon the death of the

owner.

 Future interest: The right to complete ownership based on some future event.

 Easement: The right to enter and utilize the land for some specific purpose (e.g.,

install electric power lines across the back of your yard).

Other issues that control property use and transfer of ownership include

 general warranty deeds;

 quitclaim deeds;

 adverse positions;

 condemnation; and

 zoning and other types of restrictive covenants.

Global Dimensions of Property Law

There are major risks involved with an American citizen buying land in a foreign country.

The laws concerning ownership of land vary greatly from one country to another.

Further, a number of countries, including those of the European Union and Mexico,
have adverse restrictions on ownership of land by a person who or an organization that

is not a citizen of the country where the land is located. Further, American banks and

mortgage companies generally will not fund the purchase of land in foreign countries.

GovernmentClassificationandRegistrationof

Types of Intellectual Property

Intellectual property is a dominant factor in today’s high-tech industrial world. In many

cases, it is the difference between profitable operations and just churning out products

with little or no profit margin. The U.S. government formally recognizes protection of

intellectual property in the Constitution (Article 1, Section 8, Clause 8) and identifies four

types of intellectual property.

 Trademark: A distinctive mark, word, picture, and so on that represents an

organization or product and has been registered in every country where it is to be

protected. A trademark must be used, or the right for it to be protected will be lost.

 Patent: An exclusive right issued by the U.S. Patent Office to use a newly

developed product, process, invention, machine, and so on. The right to exclusive use

is normally for a period of 20 years, and the originator can bring legal action to prevent

illegal use by another party.

 Copyright: The right to exclusive ownership of writing or artistry, which is valid for

the life of the author plus 70 years. The copyright is generated automatically upon

production of the item, but in order to bring legal action to protect one’s copyright, it

must be registered at the U.S. Patent and Copyright Office.

 Trade secret: A process, method of operation, or compilation of information that

is not known to the public. It must bestow a competitive advantage to its owner or

originator. A trade secret does not require registration with the government.

GlobalDimensionsofIntellectualPropertyLaw:

PatentsandCopyrightProtection,Plagiarism,and

More

The major treaty protecting intellectual property through the international arena is the

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), as

negotiated in the Uruguay round of negotiation (1986–1994) and administered by the

World Trade Organization (WTO).

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