Contracts I & II Spring 2009 CH. 3 – THE REQUIREMENT OF A RECORD FOR ENFORCEABILITY: THE STATUTE OF FRAUDS INTRODUCTION I. A Step by Step SoF Analysis: a. First, assume that the agreement does not have to be in writing to be enforceable, no matter how important the contract is b. Is it actually kind of contract within the SoF? Yes or No? i. Suretyship ii. One-Year Provision iii. Interests in Land iv. UCC Sale of Goods SoF Provision c. If yes, is there sufficient memorandum (WRITING) to comply with the statute? i. Within an exception to the statute? Yes or No? ii. Ameliorating principles? II. Restatement 2d § 131 Unless additional req’s prescribed by particular statute, K within SoF is enforceable if: a. Evidenced by any writing b. Signed on or behalf of party to be charged c. Reasonably identifies subject matter of contract d. Sufficient to indicate K has been made or offered by signer and other party e. States with reasonable certainty essential terms of unperformed promises of K III. Hostility Toward the SoF a. Sometimes the SoF makes an otherwise good agreement unenforceable. Because of this, courts have been hostile to the SoF. This is biggest with the one-year rule courts construe it narrowly. b. Even if there is a writing, the other prerequisites of making a contract must be satisfied c. Regulatory Functions Some jurisdictions rule that parties are excused from having contracts in writing because they do not have the bargaining power to insist on writings.
SURETYSHIP I. The Suretyship Clause a. Definition This clause covers agreements to ―answer for‖ another’s debt or other obligation, as surety or guarantor. The surety is directly liable while a guarantor does not become liable until the primary obligor proves insolvent. There is a gratuitous feel to surety. b. Suretyship Example – Strong v. Sheffield i. Principal Debtor (D) (Obligor) Mr. Sheffield ii. Creditor (C) (Obligee) (Promisee) Mr. Strong iii. Surety (S) (Promisor) Mrs. Sheffield
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Rules/Rationale of Surety a. Interest is most acute when primary obligor is insolvent creditor most interested in surety when obligor can’t pay b. Creditor can collect from either or the other cannot look to both at the same time. However, they should look at primary obligor first c. Novation creditor releases principle debtor and in exchange accepts the obligation of another party (does not have to be in writing; not within SoF) d. Rationale For Surety Clause (1) evidentiary: promise actually made and (2) cautionary: that surety really wants this EX/ Power Entertainment v. NFLP a. PE surety (agreed to pay $800k [PS’ debt to NFLP] if PS didn’t in exchange for license to make cards) i. PE sues NFLP. The surety is suing. This is odd because the SoF rule was to protect surety, so usually obligee sues! ii. Court PE is not becoming the surety out of gratuity, but for the material benefits of NFLP licensing, therefore the agreement did not have to be under the SoF writing requirement. Leading object = to get license [not take PS out of debt gratuitously] 1. This is not a novation because there is a slight chance that Pro Set climbs out of debt and resumes the license it otherwise gave to PE
III.
ONE-YEAR PROVISION I. The One-Year Provision a. Definition Does not apply to an agreement that is capable of performance within a year, when a longer period of performance is probable. Instead, the agreements covered are those that “really cannot” be performed within a year. i. Life-time Employment doesn’t have to be in writing (die at any time) ii. One-Year+ Employment Agreements must be in writing 1. Even though death can happen, termination in accordance to agreement is impossible, this is merely termination because of supervening events (death defeats performance here) 2. Law school problem p. 275 REQUISITES OF WRITING AND SIGNING (Restatement 131 supra) I. Signings UCC §1-201(39) ―Signed‖ any symbol executed or adopted by a party with present intention to authenticate a writing. The revised UCC takes into account electronic and other means of intent to adopt or accept writing. a. Considerable leniency is awarded to signings. A signing must consist of both the act of writing a person’s name and the intention to execute the instrument signed by doing so. UCC 2-201 suggests a symbol may qualify. i. Some courts hold that the proof that a sufficient writing could have been produced except that it has been lost, stolen or destroyed is sufficient. d. Does not need to be for the express purpose of memorializing a K
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e. Does not need to be made at a certain time f. Writing doesn’t even need to be delivered to/directed at other party g. Writing doesn’t have to be from one document, and can be pieced i. EX/ Crabtree v. Elizabeth Arden (p. 278) 1. However, there needs to be one writing where it is signed! II. Statutory Overlap in 2-201(1) infra a. When there are two different requirements for sufficient writing (one-year clause and surety, ie), courts generally rule you must satisfy the more stringent requirement; so it’s like satisfying the requirements of each UCC 2-201(1) a. All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction…the only term which must appear is the quantity term. b. A writing is not insufficient because it incorrectly states a term agreed upon. If quantity is understated, however, recovery is limited to amount stated (cmt. 1). c. Signature includes any authorization that identifies the party to be charged d. One way to discern is to say that an offer to buy, in a signed writing, satisfies the statute against the buyer and vice-versa e. Overlap*
III.
UCC 2-201(2) – Merchant’s Exception a. Between merchants b. Within a reasonable time i. [Fact specific, contextual] c. Writing in confirmation of K d. Sufficient against a sender is received e. Party receiving it has reason to know of its contents f. Satisfies the requirements of (1) against the party receiving it i. Unless they send written notice of objection to its contents ii. Within 10 days after it is received They better reply yay or nay to this bitch or else they are held to an agreement. IV.
V.
UCC 2-201(3) a. Specially Manufactured Goods under circumstances where reasonably indicate that the goods are for the buyer, SoF required b. Party Against Whom Enforcement is Sought Admits K for Sale Made but the K is not enforceable under the provision beyond the quantity of goods admitted c. Goods for Which Payment Made and Accepted or Which Have Been Received and Accepted
VI.
UCC §2-209 Modification, Rescission and Waiver [of K]
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a. ―An agreement modifying a contract within this article needs no consideration to be binding.‖ i. EX/ In re Arbitration Between Acadia Company & Irving Edlitz 1. There is a written employment agreement for one year. The term ran out and was orally extended. Issue is there still a written agreement? a. Yes, because they renewed without changing the terms, so they adopted the renewal into the old underlying agreement Notes on Merchant’s Exception - The only thing this does is ameliorates the defense of the SoF you still need to prove that there was actually a K made. o Can’t just start sending things out to folks, this just rids writing requirement - Belief Regular player in business world would not stay silent if they got a letter saying that they are held to a certain agreement. If they don’t respond to it, courts rationalize saying that they would immediately respond if there was something wrong, and that if they did enter the K, they would not respond. VII. UCC revised §2-201 a. Proposed now it is $5k instead of $500 b. Original was writing sufficient to indicate K for sale made, while revised talks of a record sufficient c. ―Record‖ Under Proposed Information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form
AMELIORATING THE OPERATION OF THE STATUTE I. Encouraging Contracting While Protecting Interests: Three Ameliorating Principles a. Introduction Some courts will permit restitution or even reliance recovery for a person who is injured by relying on a promise which turns out unenforceable under the SoF. b. Part Performance i. EX/ Johnson Farms v. McEnroe (D) P has partnership to develop farmland at issue option K made, and is not exercised at the date. 1. The option is extended orally. All indications is that the K would be completed 3rd party comes in and plats the land, the seller approves the zoning &c. Then, seller wants out and says since option wasn’t exercised, the modified agreement is not valid for lack of writing 2. Part performance found in (1) possession (2) payments (3) improvements
c. Estoppel (Reliance)
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Restatement 2d § 139 – Enforcement by Virtue of Action in Reliance **Not accepted in all jurisdictions** Promise which promisor could reasonably expect to induce action or forbearance on part of promisee or 3rd person and which does induce the action/forbearance is enforceable despite the SoF if injustice can be avoided only by enforcement of the promise Foreseeable reliance makes promise enforceable despite SoF if justice requires Factors of enforcement o Inadequacy of other remedies (i.e. restitution) o Evidentiary value of the reliance o Substantiality and Foreseeability of reliance to promisor o Extent to which action/forbearance corroborates evidence of the making & terms of the promise, or the making & terms are otherwise established by clear & convincing evidence i. EX/ Monarco (P-Appellant) v. Lo Greco Substantial reliance found for son’s 20+ years of work with expectation that the land will be left to him. Restatement 2d §139 applies when there has been seller’s fraud, like here. d. Restitution If benefit conferred upon another party that was not compensated. See infra. Restatement 2d §141 – Action for Value of Performance Under Unenforceable Contract (1) SoF does not invalidate any defense which would be available if the K were enforceable against both parties (2) When a party to a K which is unenforceable against him refuses to perform or sign sufficient memorandum, the other party is justified in suspending any performance for which he has not already received the agreed return, and such a suspension is not a defense in an action for the value of performance rendered before the suspension.
CH. 4 – POLICING THE BARGAIN
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Introduction Policing includes measuring the status of the parties, the behavior of the parties (how they bargained in fact) and the substance of the bargain (fraud). Though consideration does not void unequal bargain, courts have treated particularly lopsided bargains with disfavor. CAPACITY I. Capacity Defined a. Status of the parties Look at the characteristics of parties involved in the transaction. Some are deemed as having less than full capacity to bargain (minors, mentally defect &c.). i. Inebriated must be intoxicated at time of agreement (alcoholic can contract if not drunk), and you must be so intoxicated that it ―drowns memory, reason and judgment.‖ (EX/ Zehmer not drunk enough) ii. Minors below 18 are responsible for torts and crimes, but they can disaffirm Ks. What about minors as substantial part of consumer public? 1. BRIGHTLINE All Ks are voidable at the option of any minor; this is called disaffirmance, and all can do so within a reasonable time of reaching majority. a. The other party does not have the power to disaffirm b. Minor must restore what he received. This prevents unjust enrichment of the minor, but does not necessarily avoid the loss of the other party. Non-minor bears the risk of loss; EX/ Return a used car in bad condition. i. Restitution works in reverse, too. c. Disaffirmance of services (and other tough-to-restore things) is not clear. 2. Necessaries When goods or services that are considered ―necessaries‖ have been supplied to a minor who can otherwise disaffirm and agreement to pay for them, they must be paid for at least to the extent of their reasonable value; EX/ Not even housing = NEC. 3. Emancipation Does not destroy right of disaffirmance because it is a brightline rule. Also, it is arguable that emancipated minors are in fact not as wise as thought; EX/ Is < 18 y/o married a wise choice?! 4. Restitution Minor can get restitution for payments already made to the seller, but must return the goods to seller. The requirement of restoration serves to prevent loss to the seller, as the goods may be somewhat worse for wear. a. The minor is not entitled to be put into a position superior to such a one he would have occupied had he never entered into the voidable transaction. Infancy is a shield, not a sword. 5. Minor Who Lies About Age If seller reasonably believes him, courts are split. Some say the policy of disaffirmance is thrown out if we allow to estop infants. 6. Protecting the Elderly Some are especially susceptible to certain kinds of schemes and are even targeted for this stuff. Legislation and enhanced penalties have helped, but there is no judicial rule here.
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7. Ks That Cannot Be Disaffirmed: a. Bail bonds b. Military service c. Bank accounts d. Student loans 8. EX/ Keifer v. Fred Howe Motors a. Rule P buys car months before 21st b-day, though he signed that he was 21. After having problems (and after turning 21), he tries to return it. He sued to recover the price. The contract of a minor, other than for necessaries, is either void or voidable at his option. Emancipation does not affect this rule. --iii. Mentally Infirm 1. EX/ Ortelere v. Teachers’ Retirement Fund Court lays out two tests for mental infirmity: a. Does the party lack the capacity to understand nature and consequences of the transaction? The other party need not know of disability. This is a cognitive test. b. Unable to act in reasonable manner? This is a volitional test. When the other party has reason to know about your uncontrollable conduct, this test is sufficient. i. Proving this requires showing of impulse that cannot be controlled. ii. School had reason to know of condition because she was on medical leave! However, the pension system most likely did not know of her condition 2. EX/ Cundick v. Broadbent D almost completed the purchase, but P tries to rescind. Wife says he is mentally incompetent to contract and other guy took advantage. a. So the court orders an evaluation, and court finds he has some mental illness. Expert calls him a confused and befuddled man with very poor judgment. b. Court’s Test uses the cognitive test, and ask whether P was able to understand what he was doing. Senility matters, but there is no evidence that P was overreached. --iv. Other Incapacities 1. Some courts view other important, somewhat debilitating situations similarly, such as DNRs, adoption, coffin buying &c.
UNFAIRNESS: CONVENTIONAL CONTROLS SHARP PRACTICE? This is the inequality of exchange as manifested in the terms of the bargain. There are limiting principles to prevent routine enforcement of unequal bargains: (1)
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restatement and code inserts ―a duty of good faith and fair dealing‖ in K performance and enforcement (but not in formation) (2) equitable policing actions. Main concern: Whether or not certainty regarding the enforcement of promises in commercial affairs has been overvalued or undervalued. This is a fact specific inquiry. I. Restatement 2d §367 Specific enforcement of a K may be refused if: (a) Consideration is grossly inadequate or its terms are otherwise unfair, or (b) if enforcement would cause unreasonable or disproportionate hardship or loss to D or 3rd persons, or (c) it was induced by sharp practice, misrepresentation or mistake. a. EX/ McKinnon v. Benedict i. P sells D a home on the lake, promises to get them business for the resort there, gave them a $5k loan (plus a mortgage on their cottage) and had them sign an agreement not to cut trees down or build near his own property (for 25 years). Resort wasn’t doing well, so D decides to build trailer park and tent camp (they were doing poorly, but were able to repay loan in 7 months) 1. P looks for an injunction. Working against this injunction is P’s sharp practice against D. If D would’ve built the trailer park immediately, P would’ve had a much better chance of relief. R2d§367 for specific relief denied. 2. Sharp Practice D could not have purchased the property without P’s assistance and therefore could not deal at arm’s length with P. The law disfavors restrictions of use on land + D’s building doesn’t damage P’s property that much anyways. Therefore, D can do it. b. EX/ Tuckwiller v. Tuckwiller i. Parkinson’s case Grossly inadequate consideration? ii. The point of the K was to have constant care and onerous duties on Tuck because of the nature of Morrison’s disease. Tuck never had to go through these duties because of M’s hospitalization and death. Will never changed. 1. Then, is there overreaching in terms of the bargain made (did T overreach M) NO! M pretty much knew what she was getting into! Plus she was the one who made this proposal iii. K must be view prospectively, not retrospectively can’t look back and say, ―Wow, that’s lopsided.‖ 1. NOTE: Professional Services Contingency Ks can be reviewed retrospectively considering they are made pending on a result/performance. However, most agreements (ie: billable hours) are looked at prospectively. c. EX/ Black Industries v. Bush (gov’t middleman) i. Void K’s on Public Policy Grounds: 1. Contract by P to pay D or gov’t to act a certain way 2. Contract to do an illegal act 3. Contract contemplates collusive bidding on a public K ii. Adequacy of Consideration
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1. ***Efficient administration of law and contracts require that courts do not prescribe prices or look at consideration—doesn’t matter who gets ―best of the bargain‖ unless there is fraud, collusion or deceit*** 2. Test of enforceability should be certain and should not