Friday, January 24, 2014



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Contracts are discussed in part in the Handouts.  There is also a required-reading case on contracts, Olson v. Molzen which can be found in the post below.

            A contract is an agreement that is legally enforceable. 

            Contracts are a part of civil law rather than criminal law, and if a disagreement arises about the terms or enforcement of a contract the dispute can be settled in a civil trial.

One of the defining characteristics of a contract is consent.  That is, the parties understand the terms of their agreement and consent to be legally bound by them.  One sometimes sees the expression 'Offer and Acceptance' or 'meeting of the minds' in discussions about contracts, both of which indicate that all parties knowingly enter into an enforceable agreement and consent to its terms.  If there is a 'breach of contract' by one of the parties--that is if one of the parties refuses to follow through on his contractual obligation--a court may enforce the contract with various remedies.

By contrast, tort (such as medical malpractice) often, involves negligence or accident.   A person may contract (consent) to have a physician remove a withered leg for an agreed fee, but he does not consent to have the physician accidentally remove the wrong leg.
Mutual consent is made plainly visible in contracts by the terms often associated with them.  A contract will often be called an Agreement.  A contract is sometimes described as an Offer and Acceptance.

A common error of non-lawyers is the belief that a valid contract must be in writing.  A written contract certainly helps to pin down the actual terms of an agreement, but it is not always necessary.  A parol or verbal contract is often valid and enforceable, and when there is a valid Offer (as for a reward) the Offer need not be made to any specific person.  However, if someone Accepts the Offer and performs on it the contract is valid and enforceable.

A recent case amusingly illustrates the validity of an Offer and Acceptance parol (verbal) contract.  Rapper Ryan Leslie offered a $1 million reward for the return of his Mac Book Pro that he had lost in Cologne, Germany.  It was found and returned and the reward was demanded.  Mr. Leslie decided he would not pay.  The finder decided he would and he sued Mr. Leslie.  The court determined that Leslie's Offer was valid and the Acceptance by the return of the laptop was sufficient to complete the contract.  Leslie lost and a judgment for $1 million was awarded against him.  He was not happy as can be seen here.

Recently, a lawyer was sued after he appeared on Dateline NBC and offered to pay $1 million to anyone who could prove that a person convicted of murder could have had enough time to commit the murders and then show up on a security video some distance away.  It was proven and a demand was made for the $1 mil.  "Mason made an offer of a unilateral contract when he issued the challenge," Kolodziej alleges in the complaint. He further alleges that he accepted the contract when he performed the challenge and that Mason has breached the contract by refusing to pay him." (emphasis added).

It is not very smart to make these kinds of public reward offers.  You may be joking, but the law may decide it is a valid offer and, when performed, a valid and enforceable contract.

Some contracts may not be enforceable unless there is a written memorandum signed by the person against whom it is to be enforced.  These are contracts that fall under the Statute of Frauds, a law passed in England during the reign of Charles II to prevent frauds.  It has been adopted in various forms throughout the United States, and usually comes into play when there is a contract for the sale of land or of goods exceeding a certain value.

The written memorandum does not have to be a full contract to satisfy the statute of frauds.  It is sufficient if it proves the existence of the agreement and is signed by the party against whom the contract is to be enforced.

We have personal knowledge of a case in which a person at a public auction bid $20,000 for printing equipment being sold at a shop going out of business.  The bidder subsequently tried to back out and one of his arguments was that $20,000 brought the agreement into the scope of the Statute of Frauds and was not valid because he had not signed anything.  He was correct in claiming that the Statute of Frauds applied, but case law held that the auctioneer's clerk was acting as the bidder's agent when she made a written note of the amount of his bid.  The court ruled the Statute of Frauds was satisfied, the bid (contract offer) was valid the moment the auctioneer accepted the offer by bring his hammer down and declaring 'Sold'. Judgment was entered against the bidder for the full amount of his bid.

Enforceability Of Contracts

To be enforceable a contract:

a.  Must be for a lawful purpose.
b.  Must not violate public policy.
c.  Must have competent parties.
d.  Must be for consideration.

The requirement that a contract be for a lawful purpose speaks for itself.  No court is going to enforce a contract that violates the law.

The public policy issue is more complex.  A contract that is enforceable in some contexts may violate public policy in other situations and thus not be enforceable  In medical practice a good example of a contract that physicians usually will not work for physicians can be seen in Olsen v. Molzen, one of the required readings here.  The case opinion is presented in the next post.

Basically, the physician in Olsen asked each of his patients to sign an exculpatory agreement waiving any right to sue him if something went wrong with his treatment of him.  Sometimes exculpatory agreements may also appear as assumption of risk or hold harmless agreements as well.

If you are running a ski lift or renting a skittish horse an exculpatory agreement should be enforceable and protect you if you are sued.  However, public policy prevents exculpatory agreements from being enforceable in a physician/patient relationship.  The issue is discussed by the court in full in Olsen.

The parties to a contract must be competent.  Save for special exceptions created by law a party to a contract cannot be a minor because minors are legally incompetent--that is unable to manage their own legal and business affairs.  An adult who is incompetent, particularly one who has an appointed guardian, cannot be a party to a contract.  One should see by this point that these are essentially the same limitations placed on who may give informed consent to a medical procedure.  Consent to a medical procedure is essentially a contract and cannot be valid if the patient is legally incompetent.

Consideration is 'value'.  Contract law has evolved so that a valid contract must have an exchange of value.  If you promise to me that you will paint my garage and you fail to do so, I cannot sue you for breach of contract.  You have only given me a bare promise and there is no consideration or exchange of value to create a valid contract.  If, on the other hand, you promise or offer to paint my garage for $1,000 and I accept, then we do have consideration and we have a valid and enforceable contract.  The requirement for consideration is one reason we sometimes see agreements that begin with:  "For One Dollar ($1.00) and other good and valuable consideration . . . ."  One dollar is sufficient consideration to turn a promise into a contract.

Physicians can find themselves involved in contracts in multiple situations, and we can by no means cover all of them here.

However, typically a physician freshly arrived from residency may find he is looking at an employment contract, or a managed care agreement, or a lease, or purchase of equipment.

One thing to watch for in an employment agreement is a non-competition clause.  Typically this clause will require you to agree after leaving employment not to compete with your employer within a given radius (usually given in miles) for a specific period of time (often given in years).  Some states will not enforce non-competition clauses at all, but many others will enforce them if the terms are reasonable [for example: 100 miles and/or 10 years would probably not be reasonable and not enforceable even in states that allow non-competition agreements].

If your contract includes a non-competition clause and you violate its terms your former employer can go to court and obtain a court order compelling you to remove to the required distance.  In addition, your former employer may request damages (a money judgment) against you for your breach of contract.  The damages may include liquidated damages.  Liquidated damages are an amount you agreed to in advance in your original contract and they are enforceable if reasonable.  For example, your contract may have a clause that reads:  "Physician agrees that upon completion of this agreement he will not compete within two miles of Employer's clinic for a period of one year, and that in default thereof Physician agrees to pay $500/day in liquidated damages for each day he is in violation of this agreement, in addition to other remedies available to Employer." 

In any contract watch out for terms like 'liquidated damages', 'assumption of risk', 'hold harmless' or 'fiduciary' and consult with an attorney before tangling yourself in obligations you do not understand.

           Doctor/Patient Contracts.  The physician patient relationship is contractual.  Both knowingly consent to treatment of the patient by the physician.  Often the consent is relatively informal and the existence of a contract can be inferred from the nature of the arrangement for care.  The absence of a formal written contract does not negate the fact that a contract exists between a treating physician and his patient.

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