Adhesion Contracts + House Rentals by oeb47489

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									NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                                             CONTRACTS
                                          Prof. Thomas Joo
                                              Fall 1999

Exam Tips (from Professor and tutor)
• Argue both sides (don‟t say it‟s clear that...)
• BUT Don‟t argue both sides when it‟s obvious (e.g., don‟t explain why paying $500 for a car is a
   benefit/detriment, it‟s obvious; don‟t argue whether a car is a good or a service)
• Do argue inconsistent theories, argue them as alternatives.
       • Example: If have a promise, argue whether is consideration or not, then argue about reliance
            (e.g., “There is consideration and promise should be enforced. However, even if don‟t find
            consideration, should still enforce b/c of reliance of“
       • Example: SOF: 1) Argue there was a sufficient writing. 2) But if think writing is insufficient,
            then it wasn‟t w/in SOF. AND 3) Even if think it was w/in SOF, should still enforce K b/c
            equity requires (Monarco case).
• When talking about mutual assent and consideration and definiteness
       • mutual assent and bargained for exchange prong of consideration overlap. Consideration
            requires both benefit/detriment and bargained for exchange. Can talk about benefit/detriment
            when talking about consideration, then talk about mutual assent and how it fits into
            consideration also as bargained for exchange (assuming K is consideration based). Then talk
            about definiteness.
• Don‟t need a conclusion
• Fact patterns are complex, BUT THE ISSUES ARE SIMPLE, KEEP IT SIMPLE!
• Usually about 2-3 issues per Q
• Everything should be in argument/counter argument style: A will argue X, B will argue Y
• 2 parties :1 wants out/ wants the term out/ wants K invalid; 1 wants it to stay/ wants term in / wants
   K valid
• Argue both
• If it‟s not about facts or law, don‟t say it
• It‟s about the BIG RULES/CONCEPTS: Offer/acceptance, SOF, Policing Issue (Big stuff)

        ACCEPTANCE
        ARGUMENT
        RECEIVE/RECEIPT
        JUDGMENT
        PROCEDURE
        RELIANCE
        OMISSION
        ENFORCEABLE
        REVOCABLE/REVOCATION
        FORESEEABLE




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NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

I. REMEDIES

      A. No punitive damages

              1. Contract law is about relief, not punishment.

                      a. Naval case

                      b. White case

              2. No moral obligation in K, except what can pay to fix harm caused.

      B. Expectation Damages: simulate performance of contract

              1. Start w/ expectation damages: it is the standard measure of damages.

              2. Puts the breached-against party in the position s/he would have been in had the
              contract been performed.

              3. Underlying idea is that it allows for “efficient” breaches of contracts.

              4. Sullivan case

              5. Cost of loss of value of other‟s performance + any other losses including incidentals
              - any costs/loss avoided by not having own performance.

      NOTE: Others might apply if other reason — unfairness, difficulty in calculating expectation
      damages.

      C. Reliance Damages

              1. Alternative form of damages; status quo ante

              2. Puts the breached-against party back to where s/he was just before the contract was
              entered into.

              3. Sullivan case.

              4. Expenses incurred/efforts expended in reasonable reliance on K

              5. Theoretically, if its a PE case, reliance should be the remedy, but courts usually give
              expectation damages.

      D. Restitution Damages

              1. Alternate form of damages

              2. Also called “unjust enrichment” damages; “quasi-contract” damages (similar to
              tort).

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             3. Breached-against party receives only what s/he paid to the party in breach (i.e., the
             out-of-pocket costs.)

             4. Sullivan case



      E. Equitable Relief

             1. Also called “specific performance;” MUST be justified by equity.

             2. Court tells the party in breach to Do something, rather than PAY money in damages.

             3. Equitable relief is relatively rare, because American courts are hesitant to force
             contracting parties to act. Courts are more comfortable forcing payment.

             4. Equitable relief may be appropriate (Laclede case and UCC 2-716)

                     a. the good or service at issue is unique (e.g., land);

                     b. the public interest in threatened (e.g., utilities may be shut down):

                     c. an injunction would be expensive/inefficient to administer;

                     d. one party has “dirty hands” — i.e., it acted in bad faith.

                     e. Almost never in Service Ks b/c difficult to enforce

                             i. Laclede case is exception b/c involved public interest in getting fuel to
                             housing development.




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II. CONSIDERATION

      RULE: A promise is binding if it is supported by consideration. Consideration must be 1) a
      benefit to the promisor or a detriment to the Promisee and 2) be a bargained-for exchange.

      A. The first basis for recognizing an enforceable obligation.

             1. What Promisee gives in return for Promisor‟s promise (can have more than one per
             K)

             2. Need consideration to create an enforceable K.

                     i. this is based on old definition of Cº; Rest. 2d calls a K any promise the law
                     will enforce.

             3. Peppercorns: under Rest.2d: Not enforceable when consideration is so small.

      B. Two requirements

             1. Bargained-for exchange: a mutual inducement reached through bargaining

                     i. this overlaps w/need for mutual assent (offer/acceptance)

                     ii. Actual bargaining as a requirement is somewhat shaky.

             2. A benefit to the promisor OR a detriment to the promisee.

                     i. Does NOT require equal benefit to both, just some benefit, not matter how
                     unequal.

      Note: must have BOTH benefit/detriment AND a bargained for exchange.

      C. Examples

             1. Promisee gives up the right to smoke (detriment) in exchange for $5000 (Hamer)

             2. Promisee gives up the right to sue a deadbeat boyfriend (detriment) in exchange for
             deadbeat‟s promise to pay child support (Fiege.)

             3. Hypo: Promisee agrees to walk across the room (detriment?) in exchange(?) for
             $5000. Probably no consideration; thus, no enforceable contract because it‟s really a
             condition to getting the money, so it‟s a gratuitous promise.

      D. “Past Consideration” & Moral Obligation

             1. Past consideration and moral obligation are generally insufficient consideration
             because the element of exchange is missing.

                     a. Look at in terms of exchange to see if there is or isn‟t an exchange.

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             2. Examples

                     a. Company promises to pay money to an employee each month in exchange
                     (?) for the employee‟s 40 years of faithful service. Although the company suffers
                     a detriment, there is no bargained-for exchange (Feinberg.)

                     b. Father promises money to sailor who cared for father‟s son (benefit to
                     father) during the time leading up to the son‟s death. Although the father
                     benefited from the sailor‟s care of the son, there was no exchange (Mills.)

             3. Some states, by statute, allow moral obligation to be consideration.

                     a. Confusing example, exception to above— Poor man jumps off ledge and is
                     injure while saving rich man‟s life. Rich man promises monthly payments to
                     poor man. Promise enforces despite seeming lack of any exchange (Webb.)

             4. Bottom line: if strong moral obligation + material benefit to promisor, mention it —
             i.e., if facts similar to Webb. Point out that one party may argue it, but it will be difficult
             to succeed.



      E. Promises as consideration

             1. Promises may be exchanged as consideration

                     a. Most contracts are exchanges of promise.

                     b. Some terminology:

                              i. Unilateral contract: one promisor, one promisee, one promise

                              ii. Bilateral contract: one promise exchanged for another (two promisors,
                              two promisees, two promises.)

                              iii. Executory contract: contract in which one party has yet to perform its
                              promise.

                              iv. Wholly executory contract: contract in which both parties have yet to
                              perform their promises.

             2. Illusory Promises: Promise that, in fact, do not give anything up.

                     a. A K is NOT illusory, A PROMISE is.

                              i. If a K involves lots of promises and only 1 is illusory the K is still
                              valid, but the promise is not. As long as there is consideration for the
                              others, the K will survive.



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                           ii. e.g., A promises to 1) copy, 2) file, 3) type, and 4) answer phones if I
                           feel like it. B promises to pay A $500/week in exchange for this promise.
                           Only #4 is illusory, so promise isn‟t consideration, but other promises
                           are real consideration and valid, and so is the K.

                   b. Promisor may appear to be promising something, but really isn‟t.

                           i. Example: “If you wash my car, I‟ll pay you $20, if I feel like it.”

                   c. Some types of promises may seem illusory, but they are not illusory, as long
                   as certain conditions are met.

                           i. Requirements Contracts: UCC 2-308 (i) one party promises to buy its
                           required supplies from another party. Requirements contracts are not
                           illusory if the buying party acts in 1)good faith and 2) demand is not
                           unreasonably disproportionate to estimate in K or past quantities
                           (when no quantity given).

                                   (a) If it‟s a service K, can argue by analogy to UCC rules.

                                   (b) Example: airline fuel case (Eastern v. Gulf)

                           ii. Contracts with Satisfaction Clauses: performance of one party not due
                           unless the party is satisfied with something. Not illusory as long as the
                           “satisfaction” or “dissatisfaction” can be subjected to a good faith
                           standard.

                                   (a) Example: shopping-center lease case (Mattei.)

                           iii. Exclusive Dealing contracts: one party agrees to work for another
                           party in exchange for exclusive right to do so. Not illusory b/c the
                           working party must use best efforts (good faith applied to conduct).

                                   (a) Example: fashion marketing case: Wood v. Lucy in which
                                   court implied consideration even though agreement contained no
                                   explicit consideration. Based on intent and inference.

                           iv. Contracts with Termination Clauses: not illusory as long as
                           termination clause is limited to some way (i.e., w/in certain time period,
                           reasonable notice for cause, set by both parties to occur at some
                           specified event). If termination is allowed for any reason w/out limit, it
                           IS illusory.

                                   (a) At-Will Employment Contracts: An employer‟s promise to
                                   employ an employee is at-will. That is, the employer can
                                   terminate the employee at any time, with proper notice. Thus, an
                                   employee‟s promise, given in exchange for continued
                                   employment, is supported by consideration. The promisor
                                   (employee) receives a benefit (continued employment) in
                                   exchange for her/his promise. C.A.B. v. Ingram Bankey. This is

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                               very close to being illusory, because could fire employee 1 hour
                               later — employer can get away with a lot.

                               PJ: in real world it‟s illusory, but technically it‟s consideration
                               b/c employer didn‟t fire at the exact second employee promised
                               (but could fire second later).




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III.   RELIANCE

        RULE: Under the doctrine of promissory estoppel, a promise may be binding even w/out
        consideration if 1) Promisee acts in reasonable detrimental reliance on it AND 2) Promisor
        should have reasonably expected the promise to induce Promisee to do so.

        A. Also called Promissory Estoppel

                1. Needed to create an enforceable obligation (PJ, it‟s not really a K)

                2. It‟s an affirmative reason to enforce a K that lacks consideration.

                3. Technically it means Promisor is estopped from raising lack of consideration as a
                defense for a breach.

        B. An alternative to consideration as a basis of enforcement

                1. PE is when a promise is enforced even though have no consideration, b/c P relied to
                detriment and equity requires enforcement. The promise may be INFERRED.

        C. Sometimes an agreement is not supported by consideration. There is no bargained-for
        exchange, or no benefit to promisor/detriment to promisee. For example:

                1. Kirksey — if you move here, you and your family can live in a house.

        D. Four elements

                1. Reasonable (where argument lies)

                        a. Was Promisee‟s reliance reasonable?

                        b. Could Promisor reasonably foreseen that reliance?

                2. Detrimental (obvious usually)

                3. Reliance (obvious usually)

                4. If justice requires (where argument lies) Standard: fairness.

                        a. That is, if one party reasonably relies on another party‟s promise or
                           assurance, and suffers a detriment as a result, then reliance damages are
                           possible, even if there is no consideration and/or exchange.

                        b. In these cases, a promise/assurance may still be enforceable under the theory
                           of reliance if these four elements met.

        E. Examples:




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            1. Rickets: grandfather promises money to granddaughter so that she won‟t have to
            work anymore. Although there may be no consideration, there is reasonable detrimental
            reliance by the granddaughter, who quits her job.

            2. Feinberg: employer promises monthly allowance to local employee. Employee quits.
            Although no consideration exists (gratuitous promise), the employee acted in reasonable
            detrimental reliance on the employer‟s promise.

            3. Bacardi: liquor distributor assured of continued supply and, as a result, decided not
            to sell out. Later, supply shut off . . . distributor‟s value plummets. The liquor distributor
            acted in reasonable detrimental reliance on supplier‟s assurance. (Problem made this a
            close case: was distributor‟s reliance reasonable? what was reasonable?.)




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IV RESTITUTION (usually a weak argument)

RULE: Applied when one party unjustly enriched by other.

       A. Also called “quasi-contract”; “unjust enrichment.”

               1. Arises when P gave services expecting remuneration, or would have asked for
               remuneration had she known all the facts. Usually involves special relationship between
               the parties (dr-patient) or a mistake by P.

               2. Needed to create an enforceable obligation (PJ, it‟s not really a K)

               3. Damages for quasi-Ks are restitution damages. Similar to tort.

               4. Quasi-K is an equitable concept based on fairness, it is results oriented.

                       a. It is not an implied K b/c it is not based on any communication between the
                       parties. There is usually no communication at all. (e.g., patient unconscious,
                       doctor rescues)

               5. Must prove NO other legal remedy is available to prevail, has to be VERY unjust.

                       a. Can‟t be someone else to sue that you haven‟t already gone after.

       B. Another alternative to consideration as a basis of enforcement.

               1. Not Cº b/c although there was a benefit, there was no bargain.

               2. Not PE, b/c no promise leading X to act in reliance (not based on party‟s
               communications)

       C. Where no promise, assurance, bargain or exchange takes place, “contractual” damages
       may be awarded to compensate a person who has caused another to be unjustly enriched.

               1. Enrichment is usually more obvious

               2. Unjust is usually arguable. Did party expect to be paid? Might it be unjust not to
               pay? Can party claiming restitution sue someone else?

       D. Examples:

               1. Cotnam: doctor operates on unconscious accident victim. No promises ever
               exchanged, no assurances ever made. The doctor receives unjust enrichment damages
               because the accident victim was enriched unjustly by the doctor‟s free services.

               2. Callano: nursery owner not entitled to shrubbery value because he never expected
               payment from the builder, and because the dead man‟s estate had not yet been sued for
               payment (i.e., the enrichment was not yet “unjust.”)



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LAW MAY HAVE CHANGED SINCE ITS CREATION.

V. THE BARGAINING PROCESS

      A. Mutual Assent (signified by valid offer/ valid acceptance)

             Determined by:

             1. Subjective intent:

                     a. What were the parties thinking?

                     b. What were the actual intentions?

             2. Objective intent:

                     a. Objective intent controls

                     b. What did the parties formally show?

                     c. What would a third person have seen/heard?

                     d. This is the prevailing approach.

             3. Context is all-important

                     a. Usually a mix or subjective/objective arguments made.

                     b. Includes the parties‟ past relationship/dealings.

             4. Joking not an excuse, depends on what reasonable person would believe: Lucy case
             — drunk man held to his agreement based on objective reading of note.

             5. Overlaps w/bargained for exchange in consideration.

      B. Offer

             RULE: A communication is an offer if it manifests the maker‟s intent to invite
             acceptance and conveys the reasonable understanding to the addressee that upon their
             acceptance, the maker expects to committed to a K.

             TEST: Objective, not offeror‟s actual intent, but what RP in offeree‟s position would
             have thought.

             1. An act that intentionally grants another the power to form a contract.

             2. Determined by context (which includes prior dealings/relationship) and

             3. Close reading of language/words.

             4. Judged from POV of pre-litigation: i.e., when offer made.

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            5. Examples:

                      a. Owen: “It would be impossible for me to sell for less than $16,000” was held
                      to be a prelude to negotiations, not an offer.

                      b. Harvey: The statement “lowest price 900 pounds” in response to “Will you
                      sell . . . what is the lowest price?” was held to NOT be an offer.

                      c. Fairmount Glass: A quotation of prices “for immediate acceptance,” in reply
                      to an inquiry as to the “lowest price you can make us on our order” was held to
                      be a binding offer.

                      d. Advertising Hypos: As advert that specifically states price, terms, time of
                      availability, and the particular good for sale could be an offer. (e.g., $1,180
                      Corolla. 1 only. Available Sunday. VIN#324876. First come, first serve.) A
                      generic advert, however, is probably too vague to grant the power to form a
                      contract (e.g., Corollas for sale, under $20,000.)



      C. Acceptance

            1. Offeree‟s intentional exercise of power granted by offeror to form a contract.

                      a. Acceptance should conform to manner specified in offer if required or by
                      what‟s reasonable (usually it‟s reasonable to respond in same manner offer
                      presented or faster method).

                      b. Judged from POV of pre-litigation: i.e., when offer made.

            2. Notice of Acceptance

                      a. Rest. 2d §56: General RULE: Necessary for Offeree to give reasonable
                      notice or for offeror to get reasonable notice except where offer manifests a
                      contrary intention.

                              i. Example: Offer may suggest that K is formed when approved, not
                              when notified (International Filter).

                      b. Offeree usually should communicate acceptance of the offer in the manner
                      that the offer requires.

                              i. However, the offer, or the context of the offer, may suggest that the
                              offeree may accept simply by performing the promise (acc by
                              performance is rare, usually want return promise)

                      c. Performance doesn‟t have to be manifest to other party, but to ordinary
                      person.



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             3. Acceptance (by performance or promise) should be definite, not generic . (White
             always buys lumber, so not specific; Ever-Tite always loads trucks, but was specific?)

                     a. Party suing for breach has burden to prove acceptance through performance.

             4. Apparent acceptance cannot be treated as acceptance unless deliberate and made
             w/knowledge of the offer.

                     a. Especially when acceptance could have been manifested by some other
                     purpose.

                             i. Example: Reward for catching crook. If don‟t know off offer and
                             respond out of public duty, not accepting the offer of the reward.

             5. Acceptance may be signified by an alternative method if there has been a “meeting
             of the minds.” That is, formal acceptance may not be required if the facts suggest that the
             offeree could accept by other means — e.g., by performance (Allied Steel.)

             6. Silence is usually not an acceptance

                     a. Cannot make silence the method of acceptance, unless based on custom.

                     b. Unless parties have had prior dealings such that silence can be depended
                     onto signal acceptance.

             7. Mailbox Rule: Acceptance by mail occurs right when you mail it. A revocation,
             however, is not effective until receipt by offeree.

                     a. Applies UNLESS offer expressly states otherwise (i.e., that acceptance is
                     determined by time of receipt), i.e., can contract around it.

                     b. Defective/deficient mailing: For acceptance, goes against the sender
                     (offeree), so if receipt is delayed b/c of sender‟s error, acceptance not effective
                     until received by offeror.

      D. Acceptance through Performance (unilateral)

      1. Acceptance by performance creates an option-K (when performance isn‟t instantaneous).

             a. Not seeking a return promise

                     i. performance includes shipping of goods, if goods not what ordered, it‟s a
                     defective acceptance, so have to fix.

             b. Acceptance not completed until performance finished.

             c. Presumption is for a bilateral K (promise for a promise): Unless offer limits to
             ONLY through performance (explicit language — you must accept by showing up at the
             bank —or strong inference depends on context)


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             d. Offeree can stop performing at any time before completed b/c no K until
             performance is completed (it‟s only an option).

             e. This could leave Offeror hanging which may be reason want bilateral promises
             instead of performance, especially if Offeror pays first. (use when arguing against acc by
             performance).

      E. Termination of the Power to Accept

             1. Offers lapse after the time specified. If no time is specified, they lapse after a
             “reasonable” time (contextual).

             2. Offers generally are revocable by the offeror at any time prior to acceptance.

                     a. Revocation between performance and reasonable notification is ineffective
                     when acceptance is through performance (the performance forms the K). If
                     performance wouldn‟t ordinarily be noticed by Offeror, Offeree must notify
                     Offeror w/in a reasonable time.

                     b. Revocation can be effectuated when the offeror takes definite action
                     inconsistent w/ an intent to enter into the proposed K and offeree gets reliable
                     information on this.

             3. Rejection of the offer by the offeree terminates the power of acceptance.

                     a. Thus, offers are “fragile.”

                     b. Two ways to protect against fragility: option-Ks and partial performance.

                     c. This does not apply to Option-Ks where the offer survives till the end of the
                     fixed period agreed to, despite rejection by offeree (in theory not a lot of cases
                     on either side).

             4. Option Contracts (protection against the “fragility of offers”)

                     a. Definition: a promise by the offeror that limits the offeror‟s power to revoke.
                     Have these b/c of fragility of offers. This allows offeree to buy time to decide,
                     makes offer less fragile.

                             i. If X pays Y to keep offer open until Saturday, Y must do so or be in
                             breach. Even if X rejects offer on Friday, Y must keep offer open till
                             Saturday, b/c that was what the K was for (C was given in exchange for
                             keeping option open, not for the actual acceptance). Unless Y buys back
                             the option.

                     b. An option must be supported by consideration from the offeree (Toys:
                     promise to pay rent for 5 years was consideration for the lease option, even
                     though rent paid by time option exercised; Dickenson & Rogosa: consideration
                     not given to hold an option open).


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                              i. EXCEPTION: Firm offers (UCC 2-205) Merchants in goods can
                              create a binding option without consideration, by means of a signed
                              writing.

                     c. Option contracts are NO different from other contracts

                              i. they require consideration (unless statute says otherwise for written
                              offers)

                              ii. mutual assent (i.e., offer & acceptance), and

                              iii. definiteness. (Toys: option contract very indefinite, unclear).

                     d. Partial performance of an acceptance to an offer creates a binding option
                     contract (Restatement § 45) (you can‟t revoke offer after offeree has begun
                     performance of their part).

                              i. Offeree MAY cease performance, terminating the acceptance and
                              stopping the formation of the K b/c didn‟t promise to finish.

                              ii. Have to argue both sides: Have to go far enough w/performance to
                              signify intent to be in a K.

                              iii. Problem: What constitutes partial performance? Obtaining financing?
                              (Ragosa: no, too prepatory) Loading a truck? (Ever-tite: yes) Walking to
                              the bridge? (PJ‟s hypo: very unclear, argue both sides.)

                     e. Holder of a binding option may reject the offer without ending option.

                     f.   Death of offeror does not end an option contract.



      F. Acceptance Varying the Offer (“Battle of the Forms”)

             1. The Problem: Standardized “boilerplate” language on offers and acceptances
             (“orders” and “acknowledgments”) does not “match.” Or, in simpler cases, the person
             accepting an offer want something new or different from what‟s in the offer. Really, the
             parties are talking past each other.

                     a. e.g., Offer goes out, acceptance comes back w/ altered or additional terms.
                     Question is then: Is it acceptance? What are the terms?

                     b. Two ways to deal w/depending on whether services or goods.

                              i. Services: Mirror image rule.

                              ii. Goods: UCC 2-207

                     c. Main Purpose Rule

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                           i. Good is defined as a moveable item.

                           ii. When K involves both a good and a service, look to see what the main
                           purpose of the K is.

                           iii. Look at the MAIN purpose of the K and that determines whether its
                           under the UCC (Goods) or common law (services). You don‟t split.

                                    — e.g., sell a photocopier w/ a service K. The main purpose is
                                    the sale of the copier, so UCC applies.

                                    — e.g., car tune-up: main purpose is to service the car, even
                                    though parts needed for this made be sold as well. So common
                                    law applies.

                                    — e.g., water delivery could argue both ways. You‟re buying
                                    water (a good) but paying more for delivery (service) b/c main
                                    cost is delivery. So which is it? Say could be either, then decide.
                                    Water from city pipes is even harder.

                           iv.      Real estate is NOT a good b/c it is not moveable.

                           v. EXAM ISSUE: “This K is about service/goods b/c the main purpose
                           of the K is to ...“ If on line, argue both say which, then move on (be
                           quick)

            2. Mirror Image rule (Corollary: Last Shot Rule)

                   a. Applies to contracts for SERVICES, SERVICES, SERVICES.

                   b. RULE: An offeree must accept on the same terms proposed by the offeror. if
                   acceptance on different terms, the acceptance is treated as a rejection and
                   counter offer. (If vary terms, haven‟t created a K) Usually, the application is not
                   as harsh.

                   c. Only tells you that a communication is or isn‟t formation of a K. If any
                   variation, no K. But if there is a K formed (i.e., by performance) it doesn‟t tell
                   you what the terms would be. For that you need the last shot rule.

                   c. Last Shot Rule

                           i. Performance can create the K by acting as offer and acceptance when
                           both parties allow performance to begin.

                           ii. The offer and acceptance do not “match,” yet a contract forms by
                           PERFORMANCE, then the final form‟s terms will prevail (i.e., the
                           terms are based on the last communication).




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                           iii. Mailbox rule does NOT apply, b/c that would be totally unfair to one
                           party; would have to have communication, either knew or should have
                           known.

            3. UCC 2-207 (Applies to contracts for GOODS, GOODS, GOODS)

                   a. EXAM ISSUE: this would be a Q involving forms.

                   b. RULE: Acceptance that varies the offer is still acceptance as long as it is 1)
                   timely, 2) a definite expression of acceptance, and 3) the terms are NOT
                   expressly conditional.

                   c. Questions: IS there an acceptance? Does is add new/additional terms? If yes,
                   go through the steps:

                   d. If an “acceptance” is made expressly conditional upon the offeror‟s
                   acceptance of the new terms, then the “acceptance” is not really an acceptance,
                   but a counter-offer (b/c not really accepting when making it expressly
                   conditional. b/c changing the nature of the agreement, so not really accepting).

                           i. Example: “I accept you offer to sell the car, but only if you agree to
                           arbitrate any disputes at the K-Mart Arbitration Center.” Not an
                           acceptance, but a counter-offer.)

                           ii. Note: If a contract forms by performance at this point (see i.e., Itoh),
                           then the new terms are not include in the contract . . . this is called the
                           “Knock-out Rule.”)

                   e. If the acceptance is NOT made expressly conditional upon the offeror‟s
                   acceptance of the new terms (e.g., “I agree to sell you the car; furthermore, K-
                   Mart Arbitration Center will arbitrate any disputes.”), then a contract is formed.

                   f. The question becomes: Are the new terms included in the contract, or are
                   they mere proposals for possible addition to the K?

                   g. This question is easy if the parties are NOT merchants: The new terms are
                   mere proposals and are not part of the contract (unless the parties agree to put
                   them in later).

                   h. If the parties ARE merchants, then the new terms are part of the contract if:

                           i. The offer didn‟t expressly limit acceptance to the exact terms of the
                           offer, AND

                           ii. the additional terms don‟t “materially” alter the contract, AND

                           iii. the offeror did not previously object to the additional terms.

                   i.   Material alterations


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                           i. In determining whether the new terms are "material alterations", there
                           seems to be some relation to trade custom. Things which follow custom
                           of a given industry, are less likely to be considered "material
                           alterations", than those which do not follow such customs.

                           ii. This DOESN'T mean that CUSTOM is the only factor consider, just
                           one of many. Custom is only an INDICATOR of what the parties might
                           reasonably expect.

                           iii. Generally, additional terms will be allowed to "drop in" IF they do
                           not result in unreasonable surprise or hardship (2-207, comment 5).

                           iv. EXAMPLE: A change in payment terms from 30 days to 35 days is
                           probably not material. But a change from 30 days to 50 days probably is,
                           unless industry custom is a 60 term. Even so, the court will have to look
                           at what the parties' reasonable expectations were.

                   j.   KNOCKOUT RULE — Applies to merchants and non-merchants.

                           i. Applies when the parties form the contract through performance when
                           the terms are still open.

                           ii. The K is formed through performance, based only on the agreed upon
                           terms.

                           iii. The terms in dispute are knocked out and are NOT part of the K.

                           iv. If a necessary term is knocked out, it is filled in by “gap fillers” from
                           the UCC.

                           v. This means that neither party is likely to get what they wanted, b/c it‟s
                           based on UCC defaults and price is usually determined by market value.

            4. UCC 2-207 STEPS

                   Issue statement: “Acceptance Varying the Offer”

                   RULE: “Acceptance that varies the offer is still acceptance as long as it is 1)
                   timely, 2) a definite expression of acceptance, and 3) the terms are NOT
                   expressly conditional.”

                   Note: Usually first 2 easy: “The communication was timely and was a definite
                   expression of acceptance. Therefore, the issue is whether the additional terms are
                   part of the final K?”

                   a. Is acceptance made expressly conditional upon the offeror‟s acceptance of
                   the new terms? FACTS to determine

                           i. YES = a counter offer that has to be accepted by the original offeror.


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                                     — Need to get acceptance or no K

                                     — UNLESS If parties ignore and perform w/out express
                                     acceptance, then K is formed by the performance (there has to
                                     be a K, b/c why would they be performing? BUT, the additional
                                     term DOES NOT apply (Knockout rule)

                             ii. NO = a K (diff from mirror image rule which would not be a K)

                     b. Are the new terms part of the K? FACTS determine

                             i. Parties NOT merchants: not part of K unless parties agree to put them
                             in.

                             ii. Parties are MERCHANTS: terms NOT part of K if:

                                     — The offer expressly limited acceptance to the exact terms of
                                     the offer, or

                                     — the additional terms “materially” alter the contract, or

                                     — the offeror previously objected to the additional terms.

                     c. If K through performance, Fill in any NECESSARY knocked-out terms
                     w/UCC default values.

      G. Pre-contractual Liability

             Issue: “Was revocation effective?”

             1. Usually in prepatory stage prior to a K.

                     a. It‟s clear the parties never got to a K.

                     b. Can still hold the liable for K damages.

                             i. PE grounds

                             ii. Consideration

                             iii. Option Ks (also based on Cº)

             2. Promissory Estoppel

             PE RULE: “An offer cannot be revoked prior to acceptance when the offeree
             reasonably relies on the Offeror keeping the offer open.” (or “when there is consideration
             in the form of an option-K”)




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             Rest. 2d: “If offeror makes offer which should reasonably expect to induce
             action/forbearance on part of offeree before acceptance and it does induce that
             action/forbearance, it is binding as an option-K to extent necessary to avoid injustice.”

                     a. The Problem: Sometimes parties will negotiate, wrangle, or prepare to enter
                     into a contract, and one party will cause the other party to REASONABLY and
                     DETRIMENTALLY RELY on an assurance or representation. In such cases,
                     promissory estoppel may be appropriate, even though a consideration-based
                     contract clearly never formed.

                     b. General contractors may sometimes win reliance damages from sub-
                     contractors because the nature of the construction bidding process causes the
                     detrimental reliance of general contractors to be REASONABLE (Drennan). Use
                     of the sub-bid in general bid is NOT acceptance (b/c then general would be
                     bound by a K doesn‟t have yet).

                             i. Reasonable b/c the contract must be able to rely on sub-bids or can‟t
                             make a proper bid.

                     c. Subcontractors, however, can‟t win reliance damages from generals. Subs
                     may rely detrimentally, but the nature of the bidding process makes such reliance
                     UNREASONABLE (Holman).

                             i. Look at other factors of why unreasonable: b/c they know contractor
                             has asked for bids from multiple subs; b/c they know contractor may not
                             get contract.

                     d. See also Ragosa (potential buyers of Fork Shop may recover loan fees on PE
                     theory if jury finds reliance reasonable, and if justice requires remedy) and
                     Hoffman (potential franchisee of Red Owl store gets reliance damages due to
                     reasonable reliance on franchiser‟s assurances).

                             i. Hard to see how reasonable when negotiations can and do fail, often.

             3. Consideration

             Cº RULE: “Test is whether 1) both parties manifested an intent to be bound by the
             agreement, 2) the terms of the agreement were sufficiently definite to be enforces, and 3)
             there was consideration.”

                     a. May find consideration in terms of pre-K negotiations.

                             i. Example is Channel v. Grossman: Use of P‟s letter of intent to arrange
                             financing by D in exchange for D‟s promise to w/draw space from
                             market and negotiate in good faith.

      H. The Requirement of Definiteness

             1. 3d of big THREE requirements for K formation. (others are some basis
             (consideration, reliance) and mutual assent).

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                    a. Have to know what was promised

                            i. to know how detrimentally relied (PE requires a promise)

                            ii. what expected

                    b. Has to be definite enough to be enforced.

                            i. Part of reasonableness: was it reasonable to rely on vague terms/a
                            vague promise? (Need enough detail so not unreasonable).

            2. A contract‟s terms must be “reasonably certain.”

            3. Indefiniteness may be “cured” by investigation of prior negotiations, trade
            usage/customs, implied terms (e.g., “best efforts”), etc.

                    a. Court may look for a formula in the K to determine vague term (i.e., posted
                    oil price at Snappy‟s)

                    b. If no formula/price included

                            i. UCC 2-305: Substitute reasonable price (FMV) This allows indefinite
                            K to survive (objective standard).

                            ii. CL would be a fatal omission and no way to determine (what parties
                            wanted)

            4. Can argue if A LOT of terms are left out, but not when it‟s only a few (b/c then court
            can cure it w/prior dealings, default values from UCC when it‟s goods).




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LAW MAY HAVE CHANGED SINCE ITS CREATION.

VI. THE STATUTE OF FRAUDS: THE REQUIREMENT OF A WRITING

      Non-RULE: Writing is required when the subject matter of the K calls for it BASED on the
      state‟s particular statute when it‟s a service and on UCC 2-201 when it‟s about goods.

      A. Background

             1. Actually many different statutes, each state has its own, relatively similar statute

             2. Developed to protect promisors (or alleged promisors) from false claims by
             promisees. A way to protect people from fraud in circumstances where chance is high --
             it‟s purpose is evidentiary.

             3. A contract is said to be within the statute if a writing is required. Someone trying to
             get out of contractual obligations may use lack of a writing to destroy the contract (uses
             SOF as a defense for a breach).

                     a. Some K‟s require a writing.

                     b. A writing does NOT make a K enforceable, must still have other stuff.

             4. The SOF has exceptions: Courts reluctant to apply SOF strictly, because it
             sometimes causes a contract to be nullified because of a “technicality,” despite the intent
             of the parties.

             5. UCC version is “looser” (only applies to goods over $500)

             6. SOF’s cover:

                     a. Surety Contracts/Suretyships.

                     b. Transactions involving land or interests in land.

                     c. Contracts that are impossible to perform completely within one year.

                             i. An employment K for life would not be w/in b/c employee could die
                             w/in one year and K would be fully performed.

                             ii. An employment K for 2 years, would be w/in b/c even if employee
                             dies w/in one year, the K has not been fully performed.

                     d. Agreements by executors of estates to answer damages out of own estate.

      B. Surety Contracts

             1. Contracts to cover another person‟s debt

             2.   Only collateral promises are within statute/are covered.



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                     a. Collateral promises are those made to the lender by the promisor on behalf
                     of the debtor. Since the benefit goes to the debtor, it is believed more necessary
                     to have a writing to protect against fraud.

                     b. Collateral promises must be put into a signed writing (or a series of
                     writings.)

                     c. The writing(s) should describe the agreement with reasonable definiteness.

             3. Original promises not covered. These are promises between the debtor and the
             promisor, in which the promisor agrees to pay the debt if the debtor cannot. However, the
             promise is not made to the creditor, but to the debtor. (Considered less likely to be
             fraudulent).

             4. Main Purpose Rule: Even if a surety contract exists, a writing is not needed (i.e., the
             contact is “outside the statute”) if the surety (the person who promises to cover the
             other‟s debt) is benefited by the arrangement (Langman).

      C. Contracts for the Sale of Real Estate

             1. Contracts for the sale of land/real property must be put into a signed writing (or
             series of writings). The writing(s) should describe the contract with reasonable
             definiteness.

             2. This includes LEASES/RENTALS of property as well.

             3. Also includes any transaction involving a property interest (like a 2d mortgage, that
             doesn‟t transfer ownership).

             4. Provides a BRIGHT LINE rule

      D. Contracts Not To Be Performed Within One Year

             1. A promise must be put into a singed writing (or series of writings) if the promise
             could not possibly be performed within one year.

             2. Examples:

                     a.      “I promise to wash you dog for as long as the dog lives.” This promise is
                     not within the statute because it could be performed within one year because the
                     dog could die within one year.

                     b.       “I promise to feed your cat for 12 years.” Needs a signed writing because
                     it would be impossible to fulfill within one year by the terms of the agreement.
                     Although the cat could die within the year, that would mean the contract was
                     partially performed within the year, but NOT fulfilled.

      E. Contracts for the Sale of Goods Worth Over $500 (UCC 2-201)

             1. Contracts for the sale of goods exceeding $500 in price must be in writing.

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                     a. EXCEPTION: specially manufactured goods that by themselves are evidence
                     of an agreement, so don‟t need evidentiary writing.

                     b. Generic goods require b/c need evidence.

             2. The UCC statute is less demanding:

                     a. The writing does not need to be definite as to terms

                             i. It need only list the quantity of goods sold.

                             ii. If the quantity varies, then only the quantity stated on the writing is
                             upheld.

                             iii. If price is not indicated, then it will be set by the court (i.e., based on
                             prior arrangements or fair market value).

                     b. Signature not required per se, can be letter head, etc.

                     c. If a merchant receives a confirmation of an oral agreement, and fails to
                     acknowledge the confirmation for ten days, then the merchant may not plead the
                     statute of frauds. (UCC 2-201 subsection 2) Only applies to a confirmation of the
                     alleged K.

                     d. UCC SOF not effective if the parties admit that an agreement existed (i.e.,
                     no technicalities allowed under UCC).

      F. Attorney–Client

             1. An attorney can sign writings for client if the attorney is representing the client‟s
             interest (in a settlement arrangement).

      G. Promissory Estoppel and Restitution

             1. These alternate basis of enforcement are NOT subject to the Statute of Frauds.

             2. If an agreement is within the SOF and no writing exists, look to see if one party
             misrepresented the need for a writing. If so, that party cannot use the lack of a writing as
             a defense, i.e., that party is estopped from using SOF as a defense.

             3. Monarco case was NOT a PE case b/c there was consideration.

                     a. Rather, court invoked theory of PE to prevent D from using SOF against P.

                             i. PE is when a promise is enforced even though have no consideration,
                             b/c P relied to detriment and equity requires enforcement.

                     b. In this case, the contract was supported by consideration, issue was that it
                     wasn‟t written as req‟d by SOF. P reasonably relied on K‟s enforceability even


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                    though not written, b/c uncle said didn‟t need writing. Therefore D couldn‟t use
                    lack of writing as a defense to being held to the terms of the agreement.

                    c. UPSHOT court used reliance as a mechanism to excuse lack of a writing that
                    was req‟d by SOF.

      H. Writing

            1. To satisfy SOF, there must be a signed writing:

                    a. reasonably identify the subject of the K

                    b. indicate that a K has been made between the parties

                    c. state w/reasonable certainty the essential terms of the K, and

                    d. be signed by or on behalf of the party to be charged.

            2   Doesn‟t have to be all one writing.

                    a. Not all have to be signed, not even the critical one that places in w/in SOF.

                    b. Not all terms have to be in one writing.

                    c. Signed writing doesn‟t have to contain all terms or even most, just has to
                    reference the agreement.

            3. Doesn‟t have to be a formal contract, can be a memorandum, letter.

            4. Terms don‟t all have to be in one writing or even in the signed writing.




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VII.      POLICING THE BARGAIN

       A. Background:

             1. In some cases, the status (age, incapacity) or behavior (fraud, duress) of the parties
             will make the parties‟ mutual assent questionable, and can sometimes make an agreement
             voidable even when all other elements for an enforceable agreement.

             2. It‟s really about make the K unenforceable for some reason

                     a. Void: K valid, but not enforceable

                     b. Voidable: The protected/privileged party make revoke K, but not other party.

                     c. Invalid

             3. EXAM ISSUE: argue the WHY. Unfair is a conclusion, say why it‟s unfair.

                     a. Status of parties (capacity), protected parties such as minors, mentally
                     disabled.

                     b. Behavior of parties (overreaching, misrepresentation, fraud, coercion)

                     c. Substance (terms of the K confusing, type too small: this may also be
                     behavioral) e.g., Illegality: gambling Ks not enforceable b/c gambling illegal,
                     public policy: can‟t sell body parts.

       B. WHY: Capacity (status)

             1. An agreement entered into by a minor is voidable BY THE MINOR (under 21).

                     a. Because Minor lacks ability to give informed consent, so it‟s really a lack of
                     mutual assent; b/c can‟t assent to something you don‟t understand. Protect
                     minors from being taken advantage of b/c of age.

                     b. EXCEPTION: A minor may not void a contract for the purchase of a
                     necessity (“Necessity” is arguable).

                             i. This is to protect minors who have a need to get these necessities, so
                             they have the ability to do so w/out merchants refusing to do business
                             w/them.

                     c. Contract is still voidable even if minor misrepresents age.

             2. A contract entered into by a mentally incompetent person is voidable if

                     a. RULE

                             i. The incompetent person could not act reasonable when the contract
                             was formed, AND
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                           ii. The other party knew so. (behavior issue)

                   b. This is about lack of assent; b/c can‟t assent to something you don‟t
                   understand b/c can‟t make an informed decision, lack free will and can‟t intent
                   anything b/c don‟t know what they are thinking. Protect mentally ill from being
                   taken advantage of b/c of incapacity.

                   c. K is voidable, not void.

                   d. Can argue more when its mental incompetence b/c person may have acted
                   reasonably when signed that K.

                   e. Don‟t know about issue of necessities

      C. WHY: Overreaching (behavior)

            1. There are two ways can say someone overreached: either they had a pre-existing
            duty that they tried to ignore, or they applied duress to the other party.

                   a. BOTH involve Situations in which a K formed and someone will get a
                   phone/fax/letter w/an attempt to modify/add the terms w/out offering anything
                   on their side. Difference is pre/post performance.

                   b. Question is then: Is the 2d agreement enforceable? Is the modification
                   enforceable?

                           i. One will argue it is enforceable, other will argue that it isn‟t.

                           ii. This NOT about invalidating the 1st K.

                   c. EXAM ISSUE: PJ could ask this even when 1st K has formation problems,
                   so have to analyze the formation problems and then deal w/modifications. Could
                   say, this isn‟t a modification it‟s really the final acceptance. Or it‟s an
                   acceptance that was creating new terms.

            2. Pre-existing Duty Rule

                   a. Applies only to executory promises — promises that have not yet been
                   performed by both. I‟m not obligated, you have a duty, so I‟m not going to pay
                   you.

                   b. The rule becomes relevant when an executory agreement already exists, yet
                   one party asks for something more from the other party.

                   c. Example: Alaska packers case was about pre-existing duty b/c P hadn‟t paid
                   yet, so K still executory (unperformed)

                   d. There are four versions, any one can apply, there is no one rule go through
                   ALL 4 in responses (briefly):


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                         i. The Arzani approach to the Pre-existing Duty Rule: If an executory
                         agreement exists, additional promises made by one party are enforceable
                         (even without new consideration by the other side) as long as the
                         original agreement is rescinded (e.g., torn up, formally rejected,
                         clearly denounced).

                                 — Prevents coercion, but also prevents enforcement w/out
                                 coercion.

                                 — PJ doesn‟t like as much, b/c denies parties‟ needs/desires.

                                 — Formalistic rule, rigid, old fashioned approach.

                                 — Case summary: contractor agreed to increase price paid to
                                 sub to compensate for increase in labor costs, then reneged on
                                 promise. Court said no recovery b/c hadn‟t rescinded old
                                 agreement. Based on earlier Schwartzreich v. Bauman-Basch
                                 decision in which court allowed modification b/c they‟d torn of
                                 sigs of old K

                         ii. The Pinnell approach to the Pre-existing Duty Rule: If an executory
                         agreement exists, additional promises are enforceable as long as they
                         are supported by new consideration from the other party that is
                         separate from the prior consideration. Allows for token consideration.

                                 — Prevents coercion, but also prevents enforcement w/out
                                 coercion.

                                 — Can view need for consideration from either side

                                 e.g., Rock issue: D could say you have to move the rock to and I
                                 won‟t pay you anymore b/c you have a pre-existing duty. P
                                 could then argue there‟s a lack of consideration b/c didn‟t
                                 include rock in K so it‟s a modification, and under Williston this
                                 needs consideration to be enforceable.

                                 e.g., Alaska Packers: a promise in exchange to perform a pre-
                                 existing duty is not enforceable w/out new consideration.

                         iii. The Williston approach to the Pre-existing Duty Rule: If an
                         executory agreement exists, additional promises are enforceable as long
                         as there is a rescission and new real consideration (not token as in
                         Pinnell). The new K must benefit both parties — if benefits only one,
                         then it violates pre-existing duty rule.

                                 — Prevents coercion, but also prevents enforcement w/out
                                 coercion.

                         iv. The Watkins approach to the Pre-existing Duty Rule: If an executory
                         agreement exists, additional promises are enforceable due to
                         (unforeseen?) change in circumstances as long as there is mutual
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                           agreement between the parties and there is no suggestion of
                           coercion. (i.e., let the parties deal, if they do so fairly).

                                   — Does NOT prevent coercion, b/c can‟t prove voluntary and
                                   mutual assent. Offers little protection from coercion, but not
                                   worried about b/c people are adults.

                                   — PJ likes this one, it‟s the modern approach, show most delight
                                   w/this one on exam.

                                   — Most liberal approach: let them contract how they want, don‟t
                                   have to rip off signatures or anything like that

                                   — Any rescission mutually agreed upon is a K. MUST object to
                                   show coercion.

                                   — Case summary: K to excavate basement found rock asked for
                                   more $. D voluntarily yielded, didn‟t object to new terms, but
                                   agreed to them. Could have gotten another contractor. Unlike
                                   Loral case in which L objected in writing to the modification
                                   expressing coercive influence on its decision.

                   e. Rest 2d §89: Modification of Executory K

                           i. codifies Watkins

                           ii. Allows modification of partially performed K

                                   — If fair and equitable and due to changed circumstances not
                                   anticipated when K formed, or

                                   — to extent provided by statute, or

                                   — to extent justice requires enforcement b/c of detrimental
                                   reliance on the promise.

                   f. EXAM ISSUE: Could say: “One party will argue for the Arzani approach
                   should apply and they will argue this b/c there was no formal rescission and so
                   the modification is void.” Other party will argue that Arzani doesn‟t apply, b/c
                   the better approach is ...”

            2. Duress

                   a. More like a morning after issue: applies to non-executory promises —
                   promises that have already been performed. I wasn‟t obligated I shouldn‟t have
                   paid you but I had no other choice, so I want my $ back.

                   b. The rule is equitable, and becomes relevant when one party performs their
                   side of the contract because, under the circumstances, they had NO choice but to
                   perform. (Want rescission of agreement on 2d agreement/modification only).

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                           i. Freely-given assent is impossible to give because party in duress has
                           NO reasonable alternative or choice (Loral/Austin: Defense contractor
                           entered into agreement because if it didn‟t its entire business (and
                           possibly the war effort) would be threatened.)

                                   — A could not have actually paid damages b/c damage very high
                                   beyond breach (destroy L‟s rep w/only buyer (U.S. gov‟t),
                                   compromise war effort.)

                                   — Military necessity had a lot to do w/this decision.

                           ii. If NO reasonable choice, then get $ back.

                           iii. Mere threat of non-performance not enough (Take „em to court!).

                   c. AFTER the 2d K performed, try to get $ back.

                   d. ARGUE both sides. D could claim wasn‟t duress b/c they gave some
                   consideration (may be token consideration). Probably a weak argument but make
                   it anyway.

                   f. Also called “self help remedy” to say we‟ll pay now and then sue you later.
                   Available when P would have been entitled to specific performance remedy, but
                   for some reason that remedy impractical. Final result is the same, though.

                           i. e.g., Loral could not have sued for specific performance b/c would
                           have taken too long and Loral would miss deadline, war effort
                           compromised, etc.

                           ii. e.g., Watkins: not justified b/c could have gotten a different
                           excavator, so no need for specific performance.

            3. Concealment and Misrepresentation

                   a. A party to a contract may be able to get out of the contract if the party gave
                   its assent because of material misrepresentation or concealment by the other
                   party. This is a very general, FACT-sensitive rule. No good rule to look at
                   argue from facts.

                           i. Hard to tell what one should have disclosed.

                           ii. Concealment is just not mentioning (not asked); a failure to disclose.

                           iii. Misrepresentation is an outright lie.

                   b. It‟s really about lack of assent, b/c agreeing to buy the good as it was
                   represented, not as you later find it to be.

                   b. Key Questions: To what extent did the “bad” party actively misrepresent the
                   truth?

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NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                            i. Swinton: Home seller never mentioned termites. Buyer never asked.
                            Home situated in cooler, relatively termite-free area. No expectation of
                            disclosure (not talking about them is normal). Court holds: no material
                            misrepresentation. Buyer has burden to discover as long as seller doesn‟t
                            actively misrepresent information. Since buyer didn‟t ask, seller under
                            no duty to provide. (other courts have held otherwise). Harder than
                            below, b/c it is conceivable that someone would buy a termite-infested
                            house b/c it can be fixed.

                            ii. Kannavos: Apartment seller repeatedly mentioned building‟s value as
                            a rental property, and buyer was very interested in that fact. Seller
                            assured buyer of rental value, despite knowledge of zoning restriction
                            prohibiting it. Court holds: material misrepresentation (allocates risk to
                            seller). In this case the issue did come up and D came close to active
                            misrepresentation. This case easier b/c it‟s inconceivable that someone
                            would by an investment property if they knew they would be prohibited
                            from the very activity bought property for.

      D. WHY: Unfairness (weak argument)

            1. Rule generally: if have consideration, no additional requirement of equivalence in
            the values exchanged.

                    a. BUT this is limited by principles to prevent routine enforcement of unequal
                    bargains.

            2. Policing usually a function of equity courts.

                    a. General equity principle: Ks that are oppressive will not be enforced.

                    b. Deny specific performance where exchange is highly disproportionate
                    (discrete method).

                            i. Courts of equity look at court of law questions (is there an enforceable
                            promise?, was it broken?) and add: What is fair?

                            ii. Courts don‟t usually grant injunctions, so have to show something
                            more, that its fair/unfair to enforce/not enforce.

                            iii. Have to show that you really have no choice (not being able to buy a
                            resort isn‟t a lack of a choice).

                            iv. Refusal to grant specific performance does NOT say promise not
                            enforceable, this is a question about the type of remedy available.

                                    — But, if seek specific performance, P has to plead that
                                    monetary damages will not provide relief. If that fails, then has
                                    to go back to court and claim monetary damages. VERY few
                                    cases in which courts refuse specific performance and then grant
                                    monetary (PJ knew of none)


                                                                                                    31
NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                            v. Courts of equity can also grant discretionary damages based on
                            fairness determination.

            3. Policing at law usually more overt or devious.

                    a. Overt: declarations about public policy by which a overbearing provision
                    may be disregarded.

                    b. Devious: manipulating consideration to serve ideal of fairness.

            4. K is voidable by victim if there is gross unfairness in bargaining process.

                    a. Includes fraud, mistake, duress

                    b. Fraud includes innocent misrepresentations as well

            5. But Courts rarely go into this, prefer to legitimize that a rule says can‟t/must enforce
            a K, that‟s why they talk about capacity as being about a lack of assent.

            6. So, these cases are about the substance of the bargain: the ADEQUACY of
            consideration.

                    a. Inadequate when benefit to X is small, but cost to Y is great.

                    b. BUT, courts aren‟t looking to determine intrinsic value. X can sell Y a car
                    for an inflated price as long as X doesn‟t lie about it‟s value.

                            i. There is no good faith required in formation of a K (But there is in
                            performance). Rule is: bargain hard looking out for own interests.

                    c. Cases:

                            i. Tuckwiller case fell into equity b/c it was about land (uniqueness of
                            land thingy).

                                     —.Court said was adequate consideration b/c at time promise
                                     made it was adequate, Didn‟t matter that lady died before P had
                                     spent much time caring for her. P gave up job to care for lady for
                                     “rest of her life.” Consideration was promise for a promise,
                                     neither knew at the time how much P was giving up.

                            ii. McKinnon v Benedict

                                     — Court doesn‟t grant injunction, b/c P had choice not to buy a
                                     resort. But judged consideration based on P having paid the loan
                                     off early, at time it was made consideration was adequate, it was
                                     later revelation that made it inadequate. Similar to Tuckwiller in
                                     this, but Contrary regarding result and about rule that it was to
                                     be judged at time of promise.


                                                                                                       32
NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                           iii. Cases point out the fragility of the argument.

             7. UPSHOT: Inadequacy of consideration is a WEAK argument.

      E. Unconscionability and Problems of Adhesion Contracts

             1. Unconscionability

                    a. Unfairness more generally.

                    b. UCC allows courts to not enforce unconscionable Ks for sale of goods, but
                    doesn‟t say why.

                    c. CL concept of unconscionability applies to services.

                    d. Unconscionability has 2 aspects

                           i. Substantive

                           ii. Procedural — more about abuse of power, taking advantage of other
                           (behavioral issues)

                           iii. Arguments (don‟t use until after all legal arguments made)

                                    — Some say should only look at procedural b/c of free market
                                    theory of free bargaining should only police procedure to
                                    disallow unfair bargaining (b/c then have lack of assent and no
                                    real K)

                                    — Libertarian (Epstein) argues can‟t declare K unconscionable
                                    on substantive grounds b/c freedom to K is end of itself so only
                                    procedure should knock it down. Messing w/freedom to K will
                                    effect economy and the willingness to enter into Ks.

                                    — Communitarian (Eisenberg) argues that freedom of K is not
                                    an end, but an instrument. Law protects it for a purpose, not b/c
                                    it‟s a political ideal, to serve fairness and efficiency and if K
                                    doesn‟t result in this, they should be struck down, b/d doesn‟t
                                    serve social purpose. B/C of inherently unequal, unfree
                                    marketplace, artificial to make distinction between substance
                                    and procedure b/c too closely related and can‟t say enforce one
                                    and not the other. Reason get unfair outcomes is b/c of unfair
                                    procedures.

                                    — B/C of inherently unequal, unfree marketplace, protecting
                                    freedom of contract becomes nothing more that a one-sided
                                    privilege held by those w/power at the expense of the powerless.
                                    By proclaiming freedom of contract, society perpetuates the
                                    status quo, proclaiming that it will not interfere with this power
                                    distribution.

                                                                                                   33
NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                   e. How to deal w/Unconscionable Ks

                           i. Refuse to enforce

                           ii. Pass statutes barring certain types of Ks

                                   — e.g., housing codes can‟t rent uninhabitable dwelling

                                   — e.g., can‟t exempt self from liability for intentional torts,
                                   criminal acts (intentional or negligent)

                                   — Cal: Exculpatory provisions may stand only if they do not
                                   involve the public interest. Hospital falls w/in public interest b/c
                                   patients are subjected to dr.‟s competence (Tunkl case about P
                                   who died while in hospital has signed a release of negligence).
                                   (Statute didn‟t require public interest, but case precedent did).

            2. Adhesion Contracts (type of unconscionability, though it‟s not that clear)

                   a. An adhesion contract is a form contract that cannot be modified by the
                   less powerful party.

                           i. A form K is a standardized K that is not customized for the situation,
                           made up of boilerplate language.

                   b. Use legal arguments to explain why fair/unfair.

                   c. Ultimately saying K is unfair for a variety of reasons.

                   d. Some (but NOT all) adhesion contracts, however, are
                   UNCONSCIONABLE. (Invalid adhesion contracts are a type of unconscionable
                   contract. Unconscionable contracts are not distinct from adhesions contracts.
                   Unconscionable contracts are a broad category of contracts. Adhesion contracts
                   are one type of Unconscionable contract.)

            3. An adhesion contract may be unconscionable, IF: (use these to argue an adhesion
            K is unfair or unconscionable).

                   a. the adhesion contract seems injurious to public interest (e.g., hospital
                   exculpation clause, see 1(e)(ii) above).

                   b. one party‟s power deprives the other party of free choice (e.g., association of
                   automakers). Assent and/or bargaining issue.

                   c. the adhesion contract “hides” the damaging items (small print, obscure
                   language). Assent issue.

                   d. one party couldn‟t have known terms when the contract was formed (e.g.,
                   software, tickets, stubs). Assent issue.


                                                                                                     34
NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                   e. Rest. 2d §211: If a provision is in a K and A knows and also knows B would
                   not agree if knew it was there, then that provision is not enforceable (Similar to
                   ticket cases).

            4. Adhesion Cases and Arguments

                   a. CASE: Hennigsen v Bloomfield Motors: Automakers all had colluded to
                   create this term that dealers were prohibited from changing (operated like a law)
                   This eliminated buyer‟s choice. Legislature had acted in passing Uniform Sales
                   Act that created implied warranty and automaker‟s terms thwarted the Act‟s
                   goals.

                   b. CASE: O‟Callaghan case, court said not public policy b/c apartment was
                   private property, P didn‟t have to sign lease, could have moved somewhere else.
                   Dissent points out this was not a luxury, but a need and there was a housing
                   shortage. P didn‟t argue that all apt. owners colluded to have this term in all
                   leases, even though it was in all leases, so diff from automakers case.

                   c. Theory/Public Policy Arguments (only after legal arguments):

                           i. Argue that free market requires people be allowed freedom to contract,
                           so there is no unfair bargaining unless force, threat, or fraud used.
                           Economic leverage is OK, b/c that‟s a free market. Isn‟t the job of courts
                           to decide public policy that‟s for the legislature and if they haven‟t acted
                           it‟s b/c they don‟t want a restriction.

                           ii. Counter argument: Housing codes are proof that we don‟t live in a
                           totally free market place b/c there is a need to protect the public. Even if
                           someone wanted to rent apt w/no running water couldn‟t b/c of housing
                           codes. Housing is a necessity, not a want. Courts have to act b/c they can
                           be responsive to pressing needs and if legislature won‟t act, courts must,
                           b/c they don‟ t have the same political pressure legislators do (at least
                           not federal.

                   d. Behavior arguments

                           i. The language vague and hard to understand (auto K could lead you to
                           believe still had right to sue if didn‟t understand limited to parts) and
                           was in 6 pt type to disguise.

                   e. Status arguments

                           i. Traditional K was between 2 people of approximate economic
                           equality.

                           ii. Now, have standardized, mass Ks that do not allow for a lot of
                           bargaining b/c one side makes the K

                           iii. In case of automakers, the Association made the K and applied it to
                           almost all cars sold, w/dealer lacking the ability to change, so the dealer
                           could not bargain over the terms: creates a take it or leave it situation.
                                                                                                    35
NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                           So, NO buyer could bargain for an implied warranty to cover anything
                           but parts.

                           iv. K is in conflict w/USAct, so just can‟t by a car in USA w/the
                           protection of the implied warranty as written by Congress. Evidence of
                           the automakers clout.

                   f.   Lack of knowledge

                           i. Ticket stubs for baggage check in

                                   — P didn‟t know a stub would affect her/his rights, so no
                                   bargain, no signing.

                                   — In fact, P paid first, then got stub, so P didn‟t know terms
                                   when paid for ticket, so could view this as an additional term
                                   after acceptance formed the K, so ineffective term.

                                   — If want this kind of provision, have to make sure other party
                                   knows (e.g., signs in parking garages protecting against loss, can
                                   decide not to park there and leave before paying).

                                   — Can agree implicitly: if sign posted in store says returned
                                   check fee is $20, if you write check you have implicitly agreed
                                   to pay the fee if your check bounces. It is assumed.

                           ii. Software: Court said customer loses (PJ says wrong decision); Now
                           put agreement on outside of box.

                           iii. Airline tickets: no other way to have transactions occur if have to
                           notify buyer of terms prior to purchase.

                           iv. QUESTION becomes: What is the reasonable expectations of the
                           parties? Not really a ROL, more fact specific.

                                   — e.g., w/ baggage claim case, what kind of protection did the
                                   person expect for 12 cents?

                                   — e.g., used to limited liability now, it‟s very common, so
                                   should expect it.

                                   — e.g., common knowledge that leases have lots of terms,
                                   airline tickets contain restrictions.

                   g. Never think a K is presumptively unenforceable b/c its a form K.

                           i. Form Ks are enforced/enforceable. Most Ks are form Ks.

                           ii. Form Ks may indicate lack of bargaining; not as much going on as
                           rules assume.

                                                                                                      36
NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                         iii. Need a lack of choice, this is even easier if you have bad behavior
                         that shows one party limited other‟s choice.

                         iv. Failure to read a K is not a defense generally

                                 — Can‟t really argue that it doesn‟t = bargained for assent, b/c
                                 usually assumed K was read (constructive assent) if signed.

                                 — Can get tricky if claim didn‟t have choice (it depends on
                                 circumstances).

                                 — Reading is assumed if you were given the opportunity to read
                                 the K and didn‟t. Outta luck.

                                 — If don‟t see terms till later, shouldn‟t sign.

                         v. If agent tells you what terms meant and you wouldn‟t have signed if
                         knew about a term not mentioned, would be problem and could then use
                         nature of form K to argue for non-enforcement. Form K might be treated
                         differently, if you custom negotiated a K court might not be willing to
                         buy this argument.




                                                                                                    37
NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                   1.    In Contracts for GOODS: UCC 2-207

                         a)    Acceptance varying offer IS acceptance. (2-207(1).)

                         b)      UNLESS acceptance is EXPRESSLY CONDITIONED on
                         additional terms. (2-207(1).)

                               (1)  In such cases, where the acceptance is EXPRESSLY
                               CONDITIONED on the additional terms, THERE IS NO
                               ACCEPTANCE. This type of situation creates a COUNTER-
                               OFFER.

                               (2)     C. Itoh v. Jordan, p. 243. (Itoh orders steel from
                               Jordan. Jordan accepts with an ACKNOWLEDGMENT
                               FORM which essentially states "seller's acceptance is
                               expressly conditioned on buyer's assent to the different and
                               additional terms on this form." One of the terms on the
                               acknowledgment states that "any disputes will be settled by
                               arbitration." Later, after accepting the shipment, Itoh is
                               dissatisfied with the steel, and tries to sue in court. HELD:
                               Itoh may proceed in court. Because Jordan made their
                               assent expressly conditional on the additional terms
                               (including arbitration) Jordan's form was not an acceptance,
                               but rather a COUNTER-OFFER (per UCC 2-207(1). When
                               Itoh accepted Jordan's steel shipment a contract was created
                               between the parties per 2-207(3). But, since the arbitration
                               clause does not appear in both parties' offers, it is thrown
                               out. And, since there is no arbitration "gap filler" in the
                               UCC, arbitration is not required.)

                         c)    NORMALLY Additional terms are proposals. (2-207(2).)

                         d)    Between MERCHANTS: Additional terms included. (2-207(2).)

                               (1)     UNLESS offer limits acceptance to its terms (2-
                               207(2)(a).), OR

                               (2)    The terms materially alter the offer (2-207(2)(b).),
                               OR

                                      (a)      In determining whether the new terms are
                                      "material alterations", there seems to be some relation to
                                      trade custom. Things which follow custom of a given
                                      industry, are less likely to be considered "material
                                      alterations", than those which do not follow such
                                      customs.

                                      (b)     This DOESN'T mean that CUSTOM is the only
                                      factor consider, just one of many. Custom is only an
                                      INDICATOR of what the parties might reasonably
                                      expect.

                                                                                             38
NOTE: USE AT OWN RISK: THERE MAY BE ERRORS OR OMISSIONS IN THIS OUTLINE AND THE
LAW MAY HAVE CHANGED SINCE ITS CREATION.

                                        (c)     Generally, additional terms will be allowed to
                                        "drop in" IF they do not result in unreasonable surprise
                                        or hardship (2-207, comment 5).

                                        (d)     EXAMPLE: A change in payment terms from
                                        30 days to 35 days is probably not material. But a
                                        change from 30 days to 50 days probably is, unless
                                        industry custom is a 60 term. Even so, the court will
                                        have to look at what the parties' reasonable expectations
                                        were.

                                (3)    Notification of objection (by offeror) to terms is
                                already given or timely made. (2-207(2)(c).)

                         e)      CONDUCT is ENOUGH to establish contract. (2-207(3))

                         f)     Terms of mutual assent are incorporated with §2-300 gap-fillers
                         where needed. (2-207(3))

                   5.    Regarding "MERCHANTS", § 2-104 and § 2-207

                                (1)    UCC §2-207's use of the term "MERCHANT" is a
                                technical definition, as described by UCC § 2-104.

                                (2)     If there are several sub-specialties in a trade, there
                                may be arguments as to what "knowledge or skills" are
                                being referred to in calling the person a "merchant."

                                (3)     At the very least you would need to prove that they
                                are merchants with regard to the SPECIFIC TYPE of
                                merchandise. (For example law books as opposed to books in
                                general) but not necessarily with regard to the SPECIFIC
                                MERCHANDISE ITSELF (Thus specific TITLES of law
                                books is probably not relevant).

                   6.    "Missing" provisions do not cause contract for sale to fail.

                                (1)     In working through UCC 2-207(3) it can happen that
                                some provisions are left open in a contract. Nevertheless,
                                UCC § 2-204(3) states that IF the parties have intended to
                                make a contract AND there is a REASONABLY CERTAIN
                                basis for giving a remedy, the contract DOES NOT fail for
                                indefiniteness. (See OFFER, Generally, supra.)




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