Contracts Fairfax Outline 2009 Spring

Contents WHAT ARE THE TERMS OF THE DEAL? .................................................6 IMPLIED CONTRACT-TERMS IMPLIED BY COURTS TO EFFECTUATE ASSUMED INTENT- 542-546- ............................................................................................................................. 6 1. Is there an exclusive contract? (why would you give someone exclusive right to do something (use oyur trade name for example) unless you planned on having them do something- thus the courts read into the contract an implied term that there was an agreement). ........................................................................................................................................ 6 2.  Reasonable Efforts Doctrine: .................................................................................................... 7 Relying solely on someone elses efforts to get your expectation back from the contractCl doctrine applied in specific circumstances different from the good faith contract). ............................................................................................................................................ 7   show that you did make a good faith effort to fulfill the contract. ........................... 7 TEST: (1) did he make reasonable efforts to perform the k? (2) if he did NOT make reasonable efforts to perform the k, is the breach severe enough to be able to get damages? Must follow these two steps!!! ................................................... 7  (see Lady Duff Gordon Case) ............................................................................................... 7 Terms implied by the courts to effectuate public policy- TH IMPLIED DUTY OF GOOD FAITH AND FAIR DEALING)- ......................................................................................................... 8 WARRANTIES: ............................................................................ 10 PROVING WARRANTY: .................................................................................................................... 10 1. 2. 3. DOES A WARRANTY EXIST? ...................................................................................... 10 THE GOODS AS DELIVERED WERE NOT AS WARRANTED? .......................... 10 NO DEFENSES ARE AVAILABLE (DISCLAIMERS, ETC.)? ................................ 10 Express warranties: an express warranty requires one of the following elements be part of the basis of the bargain: ............................................................................................................. 10 Implied warranties-............................................................................................................................ 10 Implied Warranty of Merchantability ........................................................................................... 11 1. 2. Merchant? ................................................................................................................................ 11 Is it merchantable? ................................................................................................................ 11 Fiori 1 3. 2 a. 3 a. Fits for ordinary purpose (a question of what is it‘s original purpose and does it Implied Warranty of Fitness for a Particular Purpose: (not fit for a particular Fit for a purpose: ................................................................................................................. 11 Disclaimer of Warranties- ..................................................................................................... 12 Waiver ....................................................................................................................................... 12 satisfy that purpose?) ................................................................................................................... 11 purpose the buyer had in mind- must be different than the normal purpose) ............ 11 Defenses to warranties ..................................................................................................................... 12 1. a. 1. To Express warranties .............................................................................................................. 12 Parol evidence rule – If an agreement is “fully integrated” (complete) you For example, most agreements have something called a merger clause, like cannot use outside evidence to contradict the plain meaning of the agreement. ... 12 “this agreement is full agreement. Anything prior is not part of the agreement.” 12 TERMS OF THE DEAL- DISAGREEMENT ABOUT WHAT WAS AGREED TO/UPON-14 PAROL EVIDENCE RULE- ................................................................. 14 IS THE CONTRACT ENFORCEABLE? .................................................... 17 Lack of capacity- (infancy, mental incapacity, intoxication) ................................................... 18 a. 1. 2. Infancy (under age of majority) ......................................................................................... 18 Competency to enter into k‘s ............................................................................................... 18 Don‘t have enough experience.............................................................................................. 18 Rule- From jurisdiction to jurisdiction courts have a bright line rule that varies that marriage eitehr makes the contract voidability requirement afforded to minors upheld or voided (for lack of a better word). ...................................................... 19 Can disaffirm the contract before you are a minor and then within a reasonable time thereafter ........................................................................................................................................ 19 Mental incapacity- Show that you do not have the ability to know or understand a contract ................................................................................................................................................ 20 C. Intoxication- ................................................................................................................................... 20 DRUNKENESS- SOME CONSIDERATIONS: ...................................................................... 20 DURESS, UNDUE INFLUENCE ........................................................... 22 2 Fiori What constitutes a wrongful threat- have to satisfy two parts- ................................... 22 1. 2. Wrongful- ................................................................................................................................. 22 Threat- ...................................................................................................................................... 22 Economic duress- look for 2 requirements- ................................................................................. 22 iii. iv. Improper threat- obtained agreement through improper economic threat ......... 22 Improper economic threat left the defendant with no reasonable alternative. . 22 FRAUD MISREPRESENTATION AND NON-DISCLOSURE- ................................................. 24 there must be a material misrepresentation that is RELIED on (that induces assent) is misrepresentation. .......................................................................................................................... 24 If induced by fraud can pursue either of the two remedies ................................................... 24 Intentional deciet v. claim for recission ................................................................................... 24 NONDISCLOSURE- ........................................................................................................................... 26 CAVEAT EMPTOR- it is not for the seller to tell every benefit or value in the object of sale just as it is not his job to tell of any defects. Caveat emptor. ............................. 26 Weintraub v. Krobatsch- overrules swinton above, no more caveat emptorspecifically overrules swinton and says better rule is that where there are facts thtat are exclusively within the knowledge of one of the parties to the agreement, and the other does not have reasonable access to the info, there is a duty to disclose. (not necessarily majority rule depends on jurisdiction). ................ 26 MISTAKE- Mistake-(session 10) erroneous conclusions of fact that each person came to on his own. Classic example- Sherwood v. walker- ...................................................................... 27 Illegality, public policy, unconscionability. .................................................................................... 30 Illegality- if subject matter of deal is illegal it is unenforceable. ......................................... 30 Public policy- unenforceable because contrary to public policy. ............................................. 30 i. ii. iii. Exculpatory clauses- attempts to contract away liability for negligence or torts. Covenant not to compete- employee agrees for period of time not to compete. .... 30 Adoption contract, surrogate parent contracts- ........................................................ 30 (see discover case!!!) ...................................................................................................................... 30 ENFORCEABLE RESTRICTIVE COVENANTS- ....................................................................... 33 3 Fiori Ways in which a restrictive covenant will be valid (Is it a deal that the law will enforce?) .......................................................................................................................................... 33 Unconscionability (2-302 of uniform code) not limited to the sale of goods as seen in case law- balancing of freedom of k v. fundamental fairness on other hand. In doing this balance courts talk about substantive unconscionability (terms of the contractunduly harsh or oppressive) procedural unconscionability. Very fact specific. ............... 34 Statute of frauds (SOF)- was the agreement in writing?? ...................................................... 40 Promissory estoppels- .................................................................................................................... 43 Part performace- ............................................................................................................................ 43 Defenses to sof- ............................................................................................................................. 44 EXCUSE OF NON-PERFORMANCE- sometimes it is ok not to do what you agreed ot do- excuse of non-performance. In looking for excuse of non-performance- look for the fact pattern- situation where there was an agreement and then something happened- does this something excuse performance?................................... 45 MATERIAL BREACH- Only a material breach excuses a party from performing .............. 46 ANTICIPATORY REPUDIATION- someone says I am not paying you- 1. Can stop performance immediately 2. Can sue immediately for damages .............................................. 47 ADEQUATE ASSURANCES-indications that the other party is not able 0or willing to perform- ............................................................................................................................................... 47 FAILURE OF AN EXPRESS CONDITION- an event not certain to occur which must occur before performance is due. .................................................................................................. 48 UNFORSEEN CIRCUMSTANCES- IMPOSSIBILITY, IMPRACTICABILITY, FRUSTRATION OF PURPOSE- a later unforeseen occurrence that has a very signifigant impact on the performance of a contract..................................................................................... 50 FRUSTRATION OF PURPOSE- ....................................................................................................... 51 CONSTRUCTIVE CONDITIONS- ........................................................ 53 REMEDIES FOR BREACH OF CONTRACT- .............................................. 53 4 Fiori 1. Is there an agreement or a promise? a. Do you have a valid contract? 2. Is there any legal reason why this promise should not be enforced? (Reasons not to enforce)? 3. What are the terms of the contract? 4. Did the contract get performed (is there a breach?) 5. Is there an excuse for non-performance? 6. What are the consequences of not doing what you agreed to do (remedies)? Article 2 governs the sale of goods (article 2 of the UCC) has to be the sale of goods (not services) and has to do with the sale of goods (other than the sale of land). Common Law/Judge made law- use common law/judge made law- use the cases covered in class. Seven groups of phrases1. Relationship and difference between agreement and contractcannot use them interchangeably 2. Bilateral contract and unilateral contract 3. Language of condition v. language of duty 4. Delegation v. innovation 5. Money damages- expectation interests, recision interest, 6. Excuses of performance- difference btw frustration of purpose and impossibility 7. Parole evidence rules v statute of frauds 5 Fiori Contract- a k is a legally enforceable agreement. OFFER ACCEPTANCE (MIRROR IMAGE RULE- OFFER HAS TO BE THE SAME AS THE ACCEPTANCE) CONDSIDERATION (IF ALL THREE  CONTRACT) WHAT ARE THE TERMS OF THE DEAL? IMPLIED CONTRACT-TERMS IMPLIED BY COURTS TO EFFECTUATE ASSUMED INTENT- 542-546Reasonable efforts doctrine- courts read into a k that there is a Implied reasonable obligation- REASONABLE EFFORTS DOCTRINE: The court can imply terms to find a contract. Lady duff Gordon case. Do not trump express terms. 2 reasons courts imply a contract1. Is there an exclusive contract? (why would you give someone exclusive right to do something (use oyur trade name for example) unless you planned on having them do something- thus the courts read into the contract an implied term that there was an agreement). a. Did you give k rights exclusively to one person? 6 Fiori b. Is there consideration? 2. Reasonable Efforts Doctrine:  Relying solely on someone elses efforts to get your expectation back from the contractCl doctrine applied in specific circumstances different from the good faith contract).  show that you did make a good faith effort to fulfill the contract.  TEST: (1) did he make reasonable efforts to perform the k? (2) if he did NOT make reasonable efforts to perform the k, is the breach severe enough to be able to get damages? Must follow these two steps!!!  (see Lady Duff Gordon Case) 7 Fiori Terms implied by the courts to effectuate public policy- TH IMPLIED DUTY OF GOOD FAITH AND FAIR DEALING)1. Restatement §205: Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. a. Good faith intent at the time of the contract is what matters in considering good faith and fair dealing. b. The implied terms of good faith are trumped by the explicit terms of the contract. (see Hobin v. Caldwell Bankers). c. When there are 2 express terms in conflict, negotiated term will trump the other term. d. If in doubt, interpret a k to have an implied term to make the k valid (this was used in the Lucy case). 2. The implied covenant of good faith stands for the proposition that the parties to a contract will do nothing which will have the effect of destroying or injuring rights or interest of the other party to receive the agreed upon benefits. 3. Questions to ask: a. Was a reasonable effort made? b. If not was the breach severe enough to warrant damages? Notable differences and similarities between reasonable efforts doctrine and good faith doctrine. 0. Difference between the reasonable efforts doctrine in Wood v. Lucy and the good faith doctrine is that the good faith doctrine is implied in every contract, but reasonable efforts doctrine is not. 8 Fiori 1. Implied terms, including both good faith doctrine and reasonable efforts doctrine, are trumped by express terms. 2. However, you can‘t have an express statement making a blanket term about giving up obligation of good faith/reasonable effort. Though you can, like in Hobin, make specific terms or specific instances to which good faith does not have to be used. 9 Fiori WARRANTIES: PROVING WARRANTY: 1. DOES A WARRANTY EXIST? 2. THE GOODS AS DELIVERED WERE NOT AS WARRANTED? 3. NO DEFENSES ARE AVAILABLE (DISCLAIMERS, ETC.)? Express warranties: an express warranty requires one of the following elements be part of the basis of the bargain: a. Any affirmation of fact or promise that relates to the goods, b. Any description of the goods, or c. Any sample or model. d. ** NOTE*** i. you must qualify your statement as opinion if you only intend it to be such. ii. One with superior knowledge of the goods who doesn’t qualify statements as their opinion will have statements treated as fact. iii. Exception- qualify a statement as an opinion. Implied warrantieso Assurances concerning sellers title to the goods and the quality of the goods. 10 Fiori o Automatically become part of the contract unless they are excluded from the contract by an affirmative agreement of/by the parties. Implied Warranty of Merchantability Proving implied warrant of merchantability1. 2. Merchant? Is it merchantable? 1. Objective test-Pass without objection within the trade a. Show a standard and determine if it meets standard based on objective standard b. though it may be impacted by regional custom. c. It doesn‘t matter what the person expects. 3. Fits for ordinary purpose (a question of what is it‘s original purpose and does it satisfy that purpose?) 2 Implied Warranty of Fitness for a Particular Purpose: (not fit for a particular purpose the buyer had in mind- must be different than the normal purpose) a. Fit for a purpose: 1. 2. Seller must have reason to know of the buyers Seller must have reason to know that the particular purpose. buyer is relying on the sellers skill or judgment to furnish or select appropriate goods; AND 11 Fiori 3. Buyer must in fact rely upon the sellers skill or judgment. 3 Disclaimer of Warrantiesa. Waiver 1. 2. 3. In order to waive the implied warranty of Waiver of fitness must be in writing. Waiver of merchantability does nto have to be in 1. Can be waived by custom (like the fish soup in the Webster v. blue ship tea case). 4. Cannot waive an express warranty. merchantability you must mention merchantability. writing. Defenses to warranties 0. To Express warranties . Parol evidence rule – If an agreement is “fully integrated” (complete) you cannot use outside evidence to contradict the plain meaning of the agreement. 0. For example, most agreements have something called a merger clause, like “this agreement is full agreement. Anything prior is not part of the agreement.” 1. To Implied Warranties . The thing isn‘t warrantable. a. Merchantability: Out of line with its normal way its used b. Particular purpose: The seller must know of the buyer‘s particular purpose, the seller must have reason to know that the buyer is relying on the seller‘s judgment, and the buyer must in fact rely. 12 Fiori c. d. The buyer/user has knowledge of the defect (for implied warranties) 0. For example, if Webster is Webster v. Blue Tea Room, examines the chowder and sees the bone, yet she still chokes on it, then she has no claim. If you are given the option to examine, but you refuse to examine, you still have no claim. 0. Disclaimer of warranties (mostly implied) 1. Note: Generally, you can‘t waive express warranties. If someone tries, and the disclaimer cant be read in line with express warranty (they conflict directly), the express warranty trumps. 2. UCC §2-316: Procedure differ depending on which warranty is at issue and that some warranties are harder to get rid of then others 3. For implied warranty fit for particular purpose, waiver has to be in (1) Writing and (2) Conspicuous . UCC §2-316(10):―Conspicuous. A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NONNEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is ‗conspicuous‘ if it is in larger or other contrasting type or color. But in a telegram any stated term is ‗conspicuous.‘ Whether a term or clause is ‗conspicuous‘ or not is for decision by the court.‖ 4. To waive implied warranty of merchantability in particular, you have to (1) include the term ―merchantability,‖ and (2) if it‘s in writing, it has to be conspicuous (means that IWM doesn‘t have to be in writing) 13 Fiori 5. . UCC §2-316(2):―…to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantibiliy and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous.‖ Even if the disclaimer is not conspicuous in writing, if the manufacturer/seller confirms with the buyer that he acknowledges and accepts the disclaimer, it is enough to satisfy UCC 2-316. TERMS OF THE DEAL- DISAGREEMENT ABOUT WHAT WAS AGREED TO/UPONPAROL EVIDENCE RULE1. Integrated agreement/integrationa. In writing b. A written agreement that was meant to be the final agreement of the parties. 2. Complete or partial integration- this final written version of the contract could be seen as complete or partial integration. Parties meant it to be the final agreement or just partial. 3. Merger clause- contract provision that says ―this is the complete and final agreement‖ 4. Parol evidence- parol evidence are words of the people who made the agreement- words of the people wh made the agreement that came before the agreement. a. Parol evidence rule looks back- this final written version of the deal (this integration) is more reliable than something 14 Fiori that might have been said or written earlier, can be oral statements, can be written statements. Parol evidence is words or writing written or spoken before the final agreement- all about superiority of a written agreement. b. basic parol evidence rule- Court cannot even consider earlier statements of the parties even if they are in writing that contradict this written version of the deal. i. Superior reliability of a final written agreement of the deal. ii. Can be oral or written statements- words of ppl who made agreement spoken or written before the agreement. c. 4 exceptions to parol evidence rulei. Can introduce parol evidence to correct a mistake in integration1. No. 97 in price someone keyboarded it as 79mistake in integration exception can be used to show the ii. Use to explain an ambiguity in a written agreement. (term interpreted differently by two people, can consider prior oral or written statements to clarify meaning of this ambiguous term). iii. Parol evidence does not contradict the terms of the final writing it just adds to the terms of the writing, and the court has concluded that the writing is not a complete integration (situation with k to sell chickens, nothing in k about how chickens are to be packaged. One party claimsthey were to be packed 6 to a box- nothing in the writing about how they were 15 Fiori to be packed. Court must first determine the written agreement was to be the complete and final agreement (complete integration) if not intended to be the complete and final agreement, then we have the incomplete agreement exception where agreement not fully integrated. iv. Pe introduced to show there is a defense to the enforceability of the agreement (misrepresentation was made that establishes that the agreement should not be enforced).  Look for fact patterns where info is given about written terms of the deal and about earlier communications of the deal that are not the same as the deal. Cant change the deal but can look to the previous details to make above four changes.  Statute of frauds v. parol evidence- statute of fraudsORAL AGREEMENT- THINK STATUTE OF FRAUDS- 500 OR MORE? CAPABLE OF BEING COMPLETED IN A YEAR? REAL ESTATE AGREEMENT? WORD ORAL NEED TO WORRY ABOUT THE SOF.  IS THERE EVEN AN ENFORCEABLE AGREEMENT?  Critical fact triggering the pe rule- SOMETHING IN WRITING- WRITTEN AGREEMENTS TRIGGER PAROL EVIDENCE RULE.  CONCERN IS NOT WHETHER THERE IS AN AGREEMENT THAT CAN BE ENFORCED BUT RTHER WHAT ARE THE TERMS OF THE AGREEMENT THAT ARE TO BE ENFORCED? 16 Fiori  LOOK TO PAROL EVIDENCE,BUT ALSO LOOK TO HOW THE PARTIES DEALT WITH EACH OTHER IN THE PAST TO DETERMINE WHAT THE TERMS OF THE CONTRACT ARE.  Course of performance- what has occurred during the course of performance  History as to how the prior contracts were performed? IS THE CONTRACT ENFORCEABLE? 17 Fiori Lack of capacity- (infancy, mental incapacity, intoxication) a. Infancy (under age of majority) i. Age of majority depends on state you are in. ii. Why let minors get out of k1. Competency to enter into k‘s 2. Don‘t have enough experience Learn after fact you k with a minor- even if you find out right after can you void the k? NO. the k goes one way- the minor can void out of the k but the person who contracted cannot. Reliance on minor representation BOTTOM LINE: if the state requires you to ask for id you should ask for id you do so at your own perilso if they look older and you don't ask it is done at your own risk- you cannot ever reasonably rely on image alone.  person relied on the minors proclaimed age (said he was 21)  he didn‘t even ask for id  (and even if he had asked for id and you know that id's are commonly fraudulent is it reasonable to rely on them?)  May depend on the context whether it is reasonable to rely on the id (if you are standing outside of a bar may be more apt to be skeptical) one answer is that yes it is reasonable to rely on it because you are relying on state issued id- 18 Fiori  if the person looks nothing like the person standing in front of you that may be a different story but other than that what else can you rely on? Rule- From jurisdiction to jurisdiction courts have a bright line rule that varies that marriage eitehr makes the contract voidability requirement afforded to minors upheld or voided (for lack of a better word). SOME COURTS WILL NOT VOID THE VOIDABILITY RIGHT OF MINORS- even if you are married. Arguments for voidability  Clearly if you are a minor and are married obviously we really shouldn‘t trust you because you already made one bad k decision. Arguments against allowing voidability of married minors:  Once married parents cannot make k's for child anymore  If competant enough to be married, competent enough to be on your own and therefore competent enoguh to make decisions.  Necessity argument- argued because he needed to have a car (not really expanded on why it was not touched on) but for an argument of necessity you must show it is a true necessity. Also have to show you knew it was a necessity when you made the deal. Not a potential for necessity argument, but an actual necessity argument. Can disaffirm the contract before you are a minor and then within a reasonable time thereafter 19 Fiori ExceptionsMisrepresentation  A lot of courts wont allow misrepresentation to impact the right to void but when it comes to damages of the product you contracted for- when you try to void the k the payment will be offset by the amount of the damages. Fault- if you intentionally, negligently damaged the vehicle that leads to damages.   Intentionally try to destroy your car or whatever you try to k for. Offset rule- amount paid for reduced by how much you damaged it- so really you can't go in the whole. Minor won't ever come out of pocket, will only reduce how much they lose. Contracts of the minor are voidable at the minors election PERIOD…. and within a reasonable time after they are no longer a minor. Can get a court approved contract and that cannot be disaffirmed. (LIKE WHAT CHILD ACTORS DO). Mental incapacity- Show that you do not have the ability to know or understand a contract -Someone with alzheimersC. IntoxicationDRUNKENESS- SOME CONSIDERATIONS: 20 Fiori Drunkeness- under the influence- incompetant- used or tried rather in many circumstances, courts are not very open to this defense People have diff tolerances  People have diff definitions of what is drunk  So what is competant varies greatly depending on the person  On the person claiming lack of capacity to prove the lack of capacity.  If you cannot restore the person back to their original state then you cannot have a contract that is voided out. If you find lack of capacity the contract is not enforceable against the party who lacks capacity BUT the person without capacity can sue you! (16 year old can sue you for breach, but you cannot sue him for breach). 21 Fiori DURESS, UNDUE INFLUENCE What constitutes a wrongful threat- have to satisfy two parts1. Wrongful2. Threat- Economic duress- look for 2 requirementsiii. Improper threat- obtained agreement through improper economic threat iv. Improper economic threat left the defendant with no reasonable alternative. Threat to breach an existing contract unless current contract is modified: A party may rescind an agreement if they can show that they entered into such agreement under economic duress. Totem marine Tug & Barge v. Alaska Pipeline- held that economic duress exists where (1) one party involuntary accepts the conditions of the other party, (2) circumstances permitted no alternative, and (3) such circumstances were the result of coercive acts of the other party. 22 Fiori The Court held the Plaintiff had introduced sufficient evidence to withstand a motion for summary judgment. Plaintiff showed that Defendant had deliberately withheld payments of a debt, with knowledge that Plaintiff had no choice but to accept the conditions of the amendment or declare bankruptcy, and that the only way Plaintiff would be able to avoid bankruptcy would be to accept the amendment. 23 Fiori FRAUD MISREPRESENTATION AND NON-DISCLOSURE- there must be a material misrepresentation that is RELIED on (that induces assent) is misrepresentation. Common hypo- termites in the house, seller of a house who does not disclose a problem. Fraud is impt to a person when giving the person defrauded the right to sue for damages in an action of deciet or enable him to rescind the k. If induced by fraud can pursue either of the two remedies Intentional deciet v. claim for recission   Intentional deciet- tort action- degree of culpability on the misrepresenters part is required. Must prove d in making statements knew they were false and intended to decieve him. Recission of k- this is a k claim (as is the case here)rescind an agreement issue whether an innocent misrepresentation of mateerial facts warrants claim for recission.  Rstmt 476- where a party is induced to enter into a transaction with another party thatr he was under no duty to enter into by means of the loatter's fraud or material misrepresentation, the transaction is voidable agianst the latter. Fiori 24  Misrepresentation is definded as "any manifestation by words or other conduct by one person to another that under the circumstances, amounts to an assertion not in accordance with the facts." restatement 470.  Comments to rstmt470 state- doesn‘t matter if misrepresentation is made in innocent, negligent, or known to be false.  Misrep becomes material when it becomes likely to affect the conduct of a reasonable man with referendce to a transaction of another person.  Actionable if made and relied upon as a positive statement of fact.  Speaker is answerable for any damages that result. 25 Fiori NONDISCLOSURE- CAVEAT EMPTOR- it is not for the seller to tell every benefit or value in the object of sale just as it is not his job to tell of any defects. Caveat emptor. Weintraub v. Krobatsch- overrules swinton above, no more caveat emptor- specifically overrules swinton and says better rule is that where there are facts thtat are exclusively within the knowledge of one of the parties to the agreement, and the other does not have reasonable access to the info, there is a duty to disclose. (not necessarily majority rule depends on jurisdiction).  D relied on swinton above- court said this was an old case no longer fit for modern dealings- out of tune with our timesdoes not represent our sense of justice or fair dealing and has been rejected elsewhere as well.  If either party to a k of sale conceals or suppresses a material fact which he is in good faith bound to disclose then his silence is fraudulent.  26 Fiori MISTAKE- Mistake-(session 10) erroneous conclusions of fact that each person came to on his own. Classic example- Sherwood v. walkerMake sure to cover all of the elements of the claim on the exam. Mistake Mutual Basic assumption (essence of the k) Material impact exchange Risk How to use this in an answer on exam? Recognize concept that mutual mistake can be basis for not enforcing the agreement; go beyond and say not every allegation of mutual mistake renders the agreement unenforceable. a. Both parties have been mistaken AND b. Mistake of both if the parties is basic and material c. and not be a risk that was assumed by either person in the making of the agreement d. Materiality of mistake e. Explicit or implicitly involved a risk that should have been or was actually assumed by one of the parties. Elements to prove: 27 Fiori 1) need a mistake, 2) is it mutual, (If there is a disagreement, then it’s not mutual. If both are unsure, then it’s not a mistake) à two people think the same thing about a fact and turns out that they were wrong, 3) basic assumption (must go to the essence/core component of the contract), price terms are basic assumptions. 4) material impact on the exchange (re money, usually, difference in value, like between $80 and $8000), 5) who bears the risk? (often the seller as they are the ones with the ability to find out the facts (or the one with possession)…if both people were confident that the facts were as stated, then no one bears the risk and you can get out of it A mistake about a law is not the same as a mistake about a factmust be a mistake about a fact (crux of case). RULE: a contract is not legally binding if both parties have entered into it laboring under a good-faith mistake of fact; different from a mistake of law (Different than a mistake of law because parties are able to verify the law and figure out what it says, but can‘t be presumed to know everything about all factual matters) Unilateral mistake of fact- only one of the people making the agreement was mistaken as to the underlying facts of the agreement. Unilateral mistakes generally don‘t matter unless the other party had reason to know of the mistake. 28 Fiori v. Look to see if non-mistaken party had reason to know of the mistake. II. Problems with terms of the deala. Has to be a term in k that has more than one reasonable meaning. b. Each person has a different meaning in mind. c. Neither person had any reason to know about the other persons interpretation of the agreement. 29 Fiori Illegality, public policy, unconscionability. Illegality- if subject matter of deal is illegal it is unenforceable. Public policy- unenforceable because contrary to public policy. i. Exculpatory clauses- attempts to contract away liability for negligence or torts. (see discover case!!!) 1. Gross negligence ii. Covenant not to compete- employee agrees for period of time not to compete. 1. Policy battle- restraint of trade v freedom of contract 2. Geographic- maybe ok if restricted to city not to country 3. Less than one year- time limits. iii. Adoption contract, surrogate parent contracts1. How much does the court bow to the legislature? PUBLIC POLICY implications à  in what cases will a court refuse to enforce a contract  s.o.f. – falls within, if yes then comply with written and signature, if not that then fit into exception o fraud/nondisclosure (affirmative misrep; vs. nondisclosure) – pinpt statement vs. someone not saying something o nondisclosure (material , and reasonable reliance)  capacity issues à the ct won‘t enforce, AND there is a unique damage remedy (under age of majority) o duress  à improper threat, 30 Fiori Discover card case  no reasonable alternative, (physical or economical – gun or nature of threat and the choices it leaves you) o undue influence à 2 elements:  excessive pressure (7 factors from a case to determine if too much pressure) and weakened state (internal and external reasons) see discover bank case. held that such waivers are unconscionable under Cali law and therefore are unenforceable…remands to Ct of Appeal to address the choice-of-law issue One-sided, exculpatory -insulate someone from liability…meaning very unlikely that they will be sued cause a little tiny bit of money is involved- (freeing company from guilt, even though class action is often only effective way to stop exploitation against consumers who are small, therefore exculpatory contract clauses are contrary to public policy) contracts if insulate party from liability that otherwise under state law they‘d be subject to are generally unconscionable  contract of adhesion…can‘t be negotiated over, take it or leave it, procedurally unconscionable…is kinda like this…so these make this easier…now you just need to show some amt of substantive unconscionability à Isn‘t it true that you can just not have a credit card? Is a credit card a luxury item? No, today it is really necessary. AND these arbitration are in every credit card company agreement – it permeates the industry (so you have no choice) and it is not obscure…goes differently to both issues. Would it matter if only people with limited resources had credit cards? Mostly it would strengthen unconscionability argument… Vs. Walker where they try to argue that socio-economic status doesn‘t matter, but really it does… these clauses mostly     31 Fiori    impact the lower income bracket as well à it is most problematic towards a certain demographic (goes to choice, etc.) Does it matter that the clause was added after the fact?  Provision in credit card agreements say that they can change terms simply through notice – if you don‘t respond, terms will change  The court did have a problem with this (in Congress now)…even more problematic that the notice was later on top of an already contract of ahesion  Goes to Procedural unfairness Whether and to what extent do people really have a choice? (about getting a credit card)  Adhesion nature is problem Know and understand the terms…hidden…or not…here, signing onto it knowingly may go to your choice or signing onto it despite egregious terms may go to no choice   Forcing you to arbitrate is not inherently egregious…both parties have to give up their right to litigate…and a lot of companies do this à it is not substantively unfair …so here giving up the classaction arbitration is equated with an exculpatory clause (giving up ability to hold them liable) à  if it‘s that only in aggregate they can bring these particular claims? = then of course the provision re an arbitration agreement with the clause not allowing a classwide arbirtraion is unconscionable o mistakes (mutual, unilateral [ show materiality, basic assumption… + show that someone should have know about mistake, or unconscionability..]) o unconscionability (process and substanative piece) o 32 Fiori ENFORCEABLE RESTRICTIVE COVENANTSWays in which a restrictive covenant will be valid (Is it a deal that the law will enforce?) o LegitimateM interest of employer (scope, time and duration, are no greater than necessary to protect employer‘s interests) What is their interest?  Balancing Test (employer‘s interest vs. hardship to employee and any injury to the public) How strong is their interest?  Reasonable: duration and geography and coverage (types of services the covenant may be addressing) o (three years in general is way too long for professionals)  Public Policy fairly specific (surrogacy, restrictive covenants, etc.)  usually this is the way it is, court is addressing a specific subject area General Rule  unless you are aware of some public policy because it is stated somewhere clearly that you can site, then it will be hard to use this as an argument 33 Fiori Unconscionability (2-302 of uniform code) not limited to the sale of goods as seen in case law- balancing of freedom of k v. fundamental fairness on other hand. In doing this balance courts talk about substantive unconscionability (terms of the contractunduly harsh or oppressive) procedural unconscionability. Very fact specific. Equitable doctrine- no one would make this deal- shocks the conscience. This is like the last ditch effort in trying to get out of a k. p. 427 duress, undue influence, misrep, non-disclosure à go to probs in bargaining process illegality, public policy à go to probs with substance (terms) of the bargain unconscionability à goes to both, bargaining and terms of the bargain Unconscionability UCC §2-302 …when all else fails…look to this “equitable doctrine” – no man in his senses (and in his delusions) would make it (hypos on case BELOW)  undue influence?  Unilateral mistake (last element is unconscionability….) 34 Fiori Unconscionability = ―absence of meaningful choice of one party together with the contract terms which unreasonably favor the other party‖…look to the totality of circumstances to see if there was a meaningful choice (in some cases the meaningfulness of the choice is negated by gross inequality of bargaining power) & how the contract was entered into (opportunities to understand the terms, were terms hidden by deceptive sales practices)  The court says that although usually parties assume the risk when enter a one-sided bargain, when the party has little bargaining power and little real choice and they sign a commercially unreasonably contract w/ little knowledge of terms, it‘s ulikely their consent (obj. manifestation of consent) was given  Q: are the terms so unfair that enforcement should be withheld???  No real test, but consider terms relative to general commercial background and needs of the trade and the normal business practices of the time…remanded for further proceedings Unconscionability à elements… - sliding scale of procedural (person who entered into contract had no choice à problems with process, here, door to door, manner which entered into, level of education/knowledge of terms, nature of item being purchased, luxery vs. necessity, manner in terms are written, font, outrageous terms may help with going to the procedural aspect as some reasonable person wouldn‘t agree w/ those terms) and substantive (terms that are egregious) (à if terms are shocking to the conscious depends contract to contract, court suggests that looking to how common the terms are …can cut either way, if everyone in the industry uses them…terms have to be read in context of the person to whom is signing it, the financial situation of the person signing –relative outrageousness- , terms alone may  35 Fiori   seem particular outrageous, … ) more outrageous…the less procedral you have to prove Procedural unconscionability (choice) à whether and to what extent was their choice is this the only type of store….can she get credit somewhere else? Key here is that it is an installment play – if she were a law school grad, would there be a case? In other words, how much does education matter?...impact of financial situation…yes, this limits the range of your meaningful choices à ITEMS OF NECESSITY VS. ITEM OF LUXURY (if of necessity and you still buy despite terms, seems to indicate no meaningful choice), REQUIRES A JUDGMENT CALL…SO IF WE CAN PROVE THE TERMS WERE SO OUTRAGEOUS WE DON‘T HAVE TO MAKE THIS DETERMINATION à QUESTIONABLE WHETHER IT SHOULD OR SHOULDN‘T HAVE AN IMPACT Substantive: (terms) à IS IT THE ADD ONE THAT MAKES IT UNCONSCIONABLE? Ask: is it unconscionable because it is ―as applied to her‖ – can you sell someone that you know they can‘t afford? Is that in and of itself unconscionable? –like predatory lending IF EVERY STORE HAD THIS, WOULD IT BE UNCONSCIONABLE?(If it is unreasonable, then all are. And you don‘t have a choice --- here, this term was obscure) to what extent are the terms shocking, and in the context of the person‘s situation…does the person have limited resources à here, they DO know her situation so this makes it unconscionable àTHE TERM IS SHOCKING, AND WHAT ABOUT IT WAS SHOCKING -POLICY IMPLICATIONS à there are some that are so outrageous that we trump the limit of freedom of contract….this doctrine controls for that…shifted the public policy debate…some say this is wrong since some can contract around this and may create some inequality… similar to the housing market debate (more elaborate type of mortgages should or shouldn‘t be allowed, the more ones are based on a system where it is impossible for 36 Fiori people who can‘t get out whereas they enable may others to actually buy houses)…is this a type of contract that should be eradicated completely (like installment contracts)  Unconscionability looks at bargaining process and terms of the bargain]  Based in equity maxims like ":clean hands"  Modern law of unconsc has its roots in 2302 of the UCC-: U.C.C. - ARTICLE 2 - SALES ..PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT § 2-302. Unconscionable contract or Clause. (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. To find unconscionability: 37 Fiori   Absenceof meaningful choice on the part of one of the parties AND K terms that are unreasonably favorable to the other party. ________________________________________________ RSTMT- §208. UNCONSCIONABLE CONTRACT OR TERM If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result. Comment: c. Overall imbalance. Inadequacy of consideration does not of itself invalidate a bargain, but gross disparity in the values exchanged may be an important factor in a determination that a contract is unconscionable and may be sufficient ground, without more, for denying specific performance. See §§79, 364. Such a disparity may also corroborate indications of defects in the bargaining process, or may affect the remedy to be granted when there is a violation of a more specific rule. Theoretically it is possible for a contract to be oppressive taken as a whole, even though there is no weakness in the bargaining process and no single term which is in itself unconscionable. Ordinarily, however, an unconscionable contract involves other factors as well as overall imbalance. 38 Fiori 39 Fiori Statute of frauds (SOF)- was the agreement in writing?? Purpose of SOF- concern about fraud- that people will go into court and falsely claim there was an agreement when there was no agreement and courts will wind up enforcing agreements that never happened. To minimize this the SOF requires a higher standard of proof- something more than two parties swearing something occurred. 2. Within the statute of frauds- is it subject to the statute of frauds? a. More than 1 year- not capable of being performed within a year of the date of the contract (before employment deal). b. Over 500 dollars c. (Page 340 of casebook and see notes) d. K for sale of land for more than a year in duration. e. Any of these three you need more proofusually takes the form of a writing. 3. Is the sof satisfied? a. The writing must contain all of the material terms. b. Consideration- bargained for exchange. i. Consideration is all about the bargain aspect of contracts. What is someone asking for in exchange for that promise? 40 Fiori ii. Past consideration is not bargained for and does not count (savingmy lifeI saved your life so you offer to give me1000 dolalrs- past consideration, no you already saved mylife I don‘t have to give you shit). iii. Pre-existing legal duty rule- Alaska packer case- if you modify a contract you have to have new consideration cannot be for past consideration under the old agreement. Must have new consideration (I promise to clearn your apt for 10 dollars- then come back and say ill clean for 15 dollars and you say no and court will say there is no more consideration already had a prior contract). If all p is doing is something p is already obligated to do then a promise to pay her more money to do it is not sufficient to create a new k because there is no new consideration. iv. Part payment of a debt- part payment of an existing debt is not consideration for a promise to release or forget the other debt if the debt was due and undisputed. Hypo- I owe you 1000 but need money now if you pay me 800 dollars- can still sue me 41 Fiori for 200 dollars because it was a legally existing debt. c. All material terms test- to meet this requirementi. The writing gives you the information to answer1. Who is making the deal? Who are the people? 2. What? d. Who signed the writing? Must be signed bythe defendant- the person against whom you are trying to enforce the agreement. If for example you are suing me for k- I claim fraud, if you present a signature with my signature on it it establishes that there was a k. Between merchants- 2 merchants with a k and one signed and sent and there is no response and the k is specific- specifies quantity etc., failure to object provides evidence there was such a deal or there would have been an objection. a. Page 340 (restatement 110)- all constant across all states these k’s fall within the sof. b. Sof problems: is this a k that falls within the SOF? Does it comply with the requirements of the sof? 42 Fiori i. ii. In writing 1. Parties names 2. Property at issue 3. Price/consideration Signed by the person to whom you are seeking to enforce it against (often you wont be able to tell if u have a sof problem until you have a lawsuit- some k’s will only be enforceable to one party- the party that signed) Promissory estoppelsMust show Detrimental reliance  Partial or full performancePart performace1. some payment by the buyer to the seller 2. buyer has taken possession OR 3. buyer has made improvements 4. don‘t need all three, NEED AT LEAST TWO there is no part performance rule in service contracts- ex. I hire you to work for me for 13 months, all oral, haven‘t put anything in writing, you work for me 7 mo and I wrongfully terminate you. Can you sue me? No, even though we agreed, there is nothing in writing and this is a thirteen month deal. What about part performance? In services contracts part performance does not enforce the agreement- not only can you not recover damages for the remainder of the agreed upon month, yohu don‘t even have an agreed upon right for work you have done. SOF was 43 Fiori not satisfied because it was not in writing, under principles of equity you might have a right to recover under quantum meriut or quasi contract relief. Consideration v. promissory estoppel: Promissory estoppel- Mcintosh v Murphy- focus on reliancecommiunuication that is a promise and (2) reliance on that promise (3) whther that reliance was reasonable so that it was forseeable (4) enforcement are necessary to avoid injustice. Promise Reliance Forseeability Avoiding injustice If there is a fact pattern where there is no consideration or where someone did not have consideration but relied on a promise. The lease is running out next month, I promise I will renew the lease for exactly the same amount but doesn‘t have the exact same amount. Tenant so excited repaints the entire apartment. There is no consideration because nothing was bargained for BUT the agreement to release will be enforceable because of promissory estoppel- there was reliance. Defenses to soffalls w/in sof but isnt quite enforceable- here are other ways to get the k enforced1. Judicial admission 44 Fiori 2. Performance 3. estoppel EXCUSE OF NON-PERFORMANCE- sometimes it is ok not to do what you agreed ot do- excuse of non-performance. In looking for excuse of non-performance- look for the fact pattern- situation where there was an agreement and then something happened- does this something excuse performance?  Excuse of performance- under what circumstances will the nonperformance of one party excuse the non-performance of another?  Perfect tender rule- anything less than perfection voids the deal. (didn‘t cover). 45 Fiori MATERIAL BREACH- Only a material breach excuses a party from performing MATERIAL BREACH IS A QUESITON OF FACT. Ex- you hire person to paint house white, he paints it purple- don‘t have to pay, major screw up (material breach doctrine). Ex- paint house white but some minor problems- spots on floor, etc. should have some remedy (reduction in price) but only a major screw up/material breach will excuse performance. If numerical performance (10 houses painted, only paint 3) if you do less than half it is likely to be a material breach. Material breach required to excuse the other party from performing their half of the contract. 46 Fiori ANTICIPATORY REPUDIATION- someone says I am not paying you- 1. Can stop performance immediately 2. Can sue immediately for damages ADEQUATE ASSURANCES-indications that the other party is not able 0or willing to perform- 47 Fiori FAILURE OF AN EXPRESS CONDITION- an event not certain to occur which must occur before performance is due. Ex- agree to buy house from x for 100,000 is conditioned on the house being appraised at at least 100,000. Provision in the contract that creates an express condition. Language of condition limits the other obligations otherwise created by the contract. Triggered by words such as if, provided that, on condition that, only if, so long as, subject to, conditioned upon, if and only if, unless and until X. Express conditions must be strictly complied with. Ex.- seller will sell if appraised at 100,000 what if appraiser finds appraisal at 95,000- substantially 100 but not exactly 100- doesn’t have to buy the house- where there is language of express condition in a contract that language must be strictly complied with.  RULE This allows you to flag what is really impt to you in a contract and make sure it is strictly complied with. In the redding pipe case, had there been an express condition, prob wouldn‘t have had to perform. (court even said so in the dicta). THIS IS A STRICT COMPLIANCE TEST- 99/100 IS NOT STRICT COMPLIANCE, PIPE THAT IS JUST AS GOOD IS NOT STRICT COMPLIANCE. 48 Fiori Because consequences are so severe courts are very reluctant to find express conditions, and will look for those magic words to find express conditions. 49 Fiori UNFORSEEN CIRCUMSTANCES- IMPOSSIBILITY, IMPRACTICABILITY, FRUSTRATION OF PURPOSE- a later unforeseen occurrence that has a very signifigant impact on the performance of a contract. 1. CHANGED CIRCUMSTANCES- A later occurrence- did something happen after the agreement was entered into? 2. Unforeseeable? Was this occurrence forseeable by the parties? 3. Impact of the unforeseen later occurrence on the ability to perform the terms of the deal. Ex- agree to paint house, starts to paint the house, house later burns down. Performance was painting, that performance is now impossible. Ex. B the builder agrees to build addition to house, and the addition burns down- doesn‘t make it impossible to perform because you could rebuild the addition again, performance is still possible. Is performance still possible??? 50 Fiori FRUSTRATION OF PURPOSEKrell v. henry- missing caseMust have 3 facts1. Must be an agreement based on a specific mutually understood purpose. (this is the purpose- eg prupose is all about seeing the coronation parade). 2. Must be a later unforeseen occurrence (cancellation of the parade) 3. While later unforeseen occurrence does not affect ability to perform the mutually agreed upon specific purpose. 4. Excuse of FOP- making another agreement- creating a later agreement or a modification agreement can excuse frustration of purpose- modification agreement is seen as a brand new contracta. in order for a mod agreement ot be enforced there has to be new consideration (eg existing employment contract, change terms of the employment contract, this excuses old agreements and brings in new consideration and new terms; if it is the sale of goods you do not need consideration for modification agreements). b. Novation- substitution of people (who is doing the work, change in parties of the k) both parties have to agree to the change in parties (a not feeling well gets b to agree to do his part of k for c- b and c contract a can no longer be sued for nonperformance because he is excused by later agreed upon novation changing the parties). Not covered in class. 51 Fiori c. Accord and satisfaction- Change in what is being doneagree to paint the house for someone instead of being paid money (the accord)—not covered in class. 52 Fiori CONSTRUCTIVE CONDITIONSREMEDIES FOR BREACH OF CONTRACT- 53 Fiori