Ch1. Legal Foundations — Contracts, Legal Acts, and Agency Law

The Structure of Private Law

Private law (civil law) governs legal relationships between private parties — individuals and entities acting in their personal or commercial capacity, as opposed to relationships involving the government acting in a sovereign role.

Private Law Framework:
General Part     (legal capacity, legal acts, agency, statutes of limitations)
Property Law     (ownership, easements, security interests)
Contract Law     (formation, performance, breach, remedies)
Family Law       (marriage, divorce, domestic relations)
Inheritance Law  (succession, wills, trusts)

Three foundational principles of private law:

Freedom of contract (private autonomy — parties determine their own obligations)
Absolute right to property (within legal limits, owners may use, enjoy, and dispose of property)
Fault-based liability (wrongdoers are responsible only for harms caused by their own acts or omissions)

Legal Requirements and Legal Effects

Legal requirements (legal facts): A set of facts that, when present, cause legal consequences to occur. Legal effects: The changes in rights and obligations that result from legal requirements being satisfied.

Example:
Legal requirement: formation of a valid sales contract
Legal effect: seller's duty to transfer title + buyer's duty to pay the price

Categories of legal facts:

Legal acts: intentional acts performed with the purpose of creating legal consequences (contracts, wills)
Non-act legal facts: facts that cause legal consequences regardless of intent (tortious conduct, unjust enrichment)

Legal Acts

Elements of a Legal Act

Legal Act = Expression of Intent + (sometimes) Performance

Unilateral act: one expression of intent (rescission, revocation of an offer, a will)
Contract: offer + acceptance (meeting of the minds)
Multilateral act: multiple parties expressing intent to the same end (forming an entity)

Validity Requirements for Legal Acts

Requirements for a valid legal act:
① Definiteness: subject matter must be determinate or determinable
② Possibility: initial impossibility voids the act; subsequent impossibility = breach
③ Legality: acts violating mandatory rules of law are void
④ Conformity with public policy: acts contrary to public policy are void
   (Restatement (Second) of Contracts § 178)

Expression of intent: an outward act communicating a willingness to be bound to a legal consequence.

Defect Type	Description	Legal Effect
Sham transaction	Parties agree to an apparent contract they do not intend to be bound by	Void between parties; third-party rights protected
Mistake	Mistaken assumption about a material fact	Voidable (if material and not due to gross negligence)
Fraudulent misrepresentation	False statement of fact inducing consent	Voidable at the deceived party’s election
Duress / Undue influence	Consent obtained through improper pressure	Voidable at the coerced party’s election

Void vs. Voidable (Restatement (Second) of Contracts):

	Void	Voidable
Effect	No legal effect from the outset	Effective until avoided
Who may assert	Anyone	Only the protected party
Time limit	No limitation	Reasonable time; varies by state

Agency Law

Agency: a legal relationship in which one person (the agent) is authorized to act on behalf of another (the principal), and the legal consequences of the agent’s acts are attributed to the principal.

Agency Structure:
Principal ─── authorizes ───→ Agent
                               ↓ acts for principal
                            Third Party
Principal ←── legal effect attributed ──────────

Types of Agency

Type	How Created
Actual (Express or Implied) Agency	Created by the principal’s manifestation of consent — express words or conduct reasonably implying authority
Statutory (Legal) Agency	Created by operation of law (e.g., guardian as legal agent for a minor)

Actual Authority vs. Apparent Authority

Actual authority: agent has real authorization from the principal
   → Binds the principal to the third party

Apparent authority: principal's conduct creates a reasonable belief
   that the agent is authorized, even if actual authority is absent
   → Principal is bound to protect the third party who reasonably relied
   (Restatement (Third) of Agency § 2.03)

Unauthorized agent:
   → Generally does not bind the principal
   → Principal may ratify (retroactive adoption makes it binding)
   → Third party may hold the agent personally liable if ratification is refused

Key Statutes of Limitation

Contract claims:
- Written contracts: varies by state, typically 4–6 years
- Oral contracts: typically 2–4 years
- UCC goods contracts: 4 years (UCC § 2-725)

Tort claims (general):
- Personal injury: 2–3 years (most states)
- Property damage: 3–5 years
- Fraud: 3–6 years from discovery (many states)

Rescission:
- Must be exercised within a reasonable time after the grounds are discovered

Key Concept Cards

Acts Contrary to Public Policy ★★★★★ : Under the Restatement (Second) of Contracts § 178, a contract or term that is contrary to public policy is unenforceable. Examples: contracts to commit crimes, unreasonable restraints of trade, agreements to defraud creditors. Cannot be ratified or cured. Memory hook: against public policy = unenforceable

Sham Transaction and Third-Party Rights ★★★★★ : An agreement that both parties know to be a pretense is void between them. However, a good-faith third party who relies on the apparent validity of the transaction without notice of the sham is protected. Memory hook: sham = void between parties, third party in good faith protected

Apparent Authority ★★★★☆ : Where a principal’s conduct causes a third party to reasonably believe an agent is authorized, the principal is bound even if actual authority was absent. Protects reasonable third-party reliance. Memory hook: apparent authority = principal bound by the appearance they created

Practice Quiz

Q. Alice and Bob agree to execute a deed transferring Blackacre to Bob, but their true intent is only to grant Bob a security interest. What is the legal effect of this transaction?

This is a sham (simulated) transaction. The parties do not intend a true transfer of ownership; the real arrangement is a security interest. Under contract law, such a transaction is void between the parties because there is no genuine meeting of the minds on a sale. A court would look through the form to the substance.

Q. Carol, acting without any authority from her principal David, enters into a contract with Eve. What are Eve’s options?

① Eve may demand that David ratify the contract within a reasonable time. ② If David refuses to ratify, Eve may hold Carol personally liable for breach of the implied warranty of authority — either for performance of the contract or for damages.

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