Intro to Contract Law

Contracts Outline Intro to Contract Law Sources of K law:  Judiciary (cases), Legislature (Laws), or treaties  At a state or federal level  Relating to K in general  Generally K law is left to the states Mutual Assent  Theory of K law  “You agreed” o Can only enforce what has been agreed to UCC  Article 2  Goods o If it can be moved it is a good The General Framework of a K Cause of action for a breach requires: 1. An enforceable K was made (3 elements of a K must be met) 2. The defendant’s performance was due 3. The defendant failed to perform without excuse The 3 requirements of a Contract 1. Mutual assent a.B oth parties have agreed to terms b. Offer by one party & acceptance by the other 2. Consideration a. The promise is part of an exchange 3. Definiteness a.D etailed enough for a court to have the ability to identify a breach and formulate a remedy  If you have all three could still be unenforceable if: 1. Incapacity  youth/mental illness/Intoxicated 2. Misrepresentation  Mistake/misinformation 3. Duress/undue influence  Improper pressure 4. Unconsiability  Terms are outrageous 5. Against public policy  “K for murder” Elements of breach 1. Must be enforceable (3 elements of a K must be met) 2. Performance due a. “Conditions” must be met i. Conditions  Events that trigger the duty to perform ii. Performance usually due when other party provides substantial performance b. Material Breach i. Failure to perform significant part of work 3. Unexcused Performance a. Party failed to perform without an excuse b. Impracticability ?? i. Factors beyond control excuse performance c. Frustration i. Performance no longer makes sense 4. Remedy a. Prevent, Cure, or Compensate for losses caused by breach b. Expectation interest i. Party in place if breach had not happened c. Specific performance i. Perform the promise d. Damages i. $ to produce equivalent of performance e. Reliance Interest i. Promisee’s in position if promise had never been made f. Deterring promises i. Do not make remedy so extreme that people do not enter exchanges Subjective vs Objective – “Jesting”  Subjective a. The intent of the speaker b. The understanding of the listener  Objective a. What reasonable person would understand b. Relies on manifestations (words & actions)  Subjective intent will prevail over objective intent if it can be proven  Holds parties to their words, and acts, regardless of any secret intention. Offers Offer  Requires 4 parts: o 1). A manifestation of willingness, o 2). To enter a bargain, o 3). That justifiably appears to invite an offers acceptance, o 4). And that acceptance justifiably appears to conclude the transaction  Oral proposal is not an offer if the party making it may signal that its assent will not be final until the writing has been signed. Contract Formation 1. Assent a. Was there an offer? b. Was there acceptance? i. Was acceptance timely? ii. Was the offer still open? 2. Consideration 3. Definiteness Option Contract  Offer open for period of time in exchange for money o I pay $10 to keep the K open for a week Advertisement  An ad is not an offer  Usually not offers; they inform the public of opportunities and invite them to make offers, which the advertiser may accept or reject as they see fit.  Held to be an offer if it is so clear, definite, and explicit that it leaves noting open for negotiation Lucy v. Zehmer  This case has to do with objective/subjective intent  Zehmer claims he was “jesting” about the entire K o His words & actions proved otherwise  Court determined that the objective intent would show there was the actual intent to form aK  The words and actions of a person will prevail in court o Unless intent & understanding of the listener prove otherwise  Rare and hard to prove Acceptance Acceptance  Only an offeree can accept  Proposing changes may create a counteroffer  Means of acceptance o Must conform if offer limits how to accept  Deadlines o Limit power of offeree Mirror Image Rule  Acceptance must mirror the terms of the offer o Anything else is rejection/counteroffer Proposal to Modify  Acceptance with “suggested” changes  “I accept but could we also do…” Counteroffer WITHOUT rejection  Don’t reject offer but also suggest a new one  “I will consider but how about …” Offer TERMINATES when 1. Offeror revokes the offer 2. Expire due to lapse of time 3. Offeree rejects the offer/accepts 4. Offeree makes a counteroffer 5. Offeree or offeror dies (fate) 6. Condition of acceptance can no longer occur Mailbox Rule  Acceptance takes effect before receipt o The moment it is out of the offeree’s hand  If acceptance is set before revocation received o Acceptance is effective o 3 exceptions:  Improperly dispatched message  Offer that requires receipt of acceptance  Option contracts  Rejection takes place upon receipt o Rejection before acceptance  Treat as rejection and a counteroffer  The Original offeror can choose to accept  Protects the offeror from binding to a K they initially thought was rejected o May allow to rescind rejection (up to the offeror)  Death o Usually will terminate the K Conditions  Things that must happen for acceptance to arise Acceptance by performance  Offers may permit, or even require, other means of communicating assent o 1. If an offer allows acceptance by performance or promise, then beginning performance accepts the offer. Conduct serves as a promise to finish performance (Bilateral contracts) UCC o Sale of goods  Negate acceptance by promptly notifying offeror Unilateral K  One party already completed performance  Offeree duties discharged the moment K is formed  Offeror can revoke at any time o Unless offeree has started to rely on promise  Only completion will be acceptance Bilateral K  Promise for a promise  A tender  Same effect as beginning performance  “An offer to perform with the ability to do so” Effects of different responses summed up  Accept Unequivocally  K formed  Accept but suggest changes  K formed  Accept if terms change  Counteroffer  Take offer under advisement, but purpose different terms o Not acceptance or rejection o New offer with the original offer open as well o Counteroffer is reserved only for rejection  Only performance = K o Completion = acceptance o If find lost dog I will pay you $500 Acceptance by silence  3 limited situations  Restatement (2d) §69 (1)  Offeree intends its silence to signal assent   Prior dealings make silence a mean of assent Offeree accepts benefits of offeror without objection (Jewelry store case) o Nirvana International V. ADT security services  ADT offered Nirvana an alarm system, after signing pages 1-3 they asked for time to consider P.4-6. They then rejected the terms but never told ADT. ADT installed the system which Nirvana knew, and continued to pay for the services each month. Acceptance due to Nirvana accepting the benefits. UCC §2-207 (1) A definite and seasonable expression of acceptance or a written confirmation operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act Consideration Definitions of Consideration 1. A gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promise, or 2. Equivalence in the values exchanged or 3. Mutuality of obligation Contract of Adhesion  Two Components  “Shrink wrap clause” o Think of cases of jewelry store o Standard form language (Drafted by one party) o Take it or leave it basis  What court says is reasonable of terms o Notice  Knew that additional terms were coming o Opportunity to return  UCC applies just to transactions to goods o Additional rules can apply to subsections (Merchant v. Merchant) o Additional terms are part of K unless it material alters or objected to by opposing party Discussion of Consideration  Exchanges that do not establish consideration o Reward situations when no knowledge of reward  No knowledge = no consideration  The individuals performance was not given in exchange for reward o Gratuitous Promises  “Seeking nothing in exchange typifies gifts” o Gift for a gift not consideration o Gift with expectations (“get good grades and I will buy you car”)  not consideration o Executory Gifts  Gifts not delivered yet  Dougherty  Aunt promises to give nephew money upon her death “for being a good boy”  Written on promissory note  Court finds no consideration o Conditional Gifts  Specifies manner in which gift will be delivered or collected  No request for return promise or performance  Plowman  Oil refinery company  Must lay off employees  Promise to pay layoffs ½ salary for amount of time  Past consideration o Not a promise at all o No inducement o How can prior years of service induce a promise that has never been made Modern View of Consideration   Modern trend  More flexible Bargain Theory (Holmes) o Whether the promises were an inducement to the other  EX: Promise for software in promise for money     o Focus on party exchange/bargain as agreement o Actual negotiations not required The Function of Consideration o To distinguish between enforceable and unenforceable promises Basic definition of consideration “bargained for exchange” o Legal Sufficiency o Something of value given by one party o Given in exchange for promise or action of another Promise induced detriment (change behavior/action in some way) and the detriment induced the promise o This is how the theory works o Use this to determine of consideration was made o Notice how this is similar but different from the old-view (benefit/detriment) Examples of value according to the 2nd Restatement o Return of a promise o Performance of an act o Forbearance  Not performing an act o Creation, modification, destruction of legal relation or right  “Case where grandson did not gamble or smoke until 21” Exceptions to Consideration Sham Consideration  Lop sided deal may cast doubt upon exchange  Things added to the exchange that are not really sought and that are only intended to give the transaction the appearance of bargain  Usually gifts of any kind that people are trying to make look like contracts for security reasons incase the other party (giftor) changes their mind Illusory Promise  Promisor has an optional promise  “I will pay you to do clean my house if I think you did a good job” Key Concepts  Past consideration is no consideration  Moral obligation is unenforceable  Promissory restitution and the material benefit rule  The preexisting duty rule and modifications made in good faith Past Consideration  Past consideration does not equal consideration o Past consideration is not consideration  Feelings of moral duty or gratitude for another’s past performance  Mills v. Wyman o Court sees this as a moral duty not legal duty o Establishes that if minor were in similar circumstances, then Mills would be liable  Real life example: Minor runs away and a year later falls extremely ill. Hospital takes care of the minor. Father promises to pay but later rejects promise. BECAUSE it is a minor and he had an expressed (or implied) promise he would be held liable o If WAS NOT a minor then the father would not be liable Renewing past promises (pre-existing obligation) – supported by consideration 1. Statutory law (typically, statute of limitations) a. precludes enforcement of a contractual duty (Restatement (Second) of Contracts §§82, 110) b. The promise being revived must have had consideration i. Must be a proper K in the past c. (1) A promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except for the effect of a statute of limitations. (2) The following facts operate as such a promise unless other facts indicate a different intention: i. (a) A voluntary acknowledgment to the obligee, admitting the present existence of the antecedent indebtedness; or ii. (b) A voluntary transfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as interest on or part payment of or collateral security for the antecedent indebtedness; or iii. (c) A statement to the obligee that the statute of limitations will not be pleaded as a defense 2. Discharge in bankruptcy prevents collection of a debt that once was valid (Restatement (Second) of Contracts §83) a. Prevents collection of a debt that once was valid i. Can renew the debt with a promise b. “An express promise to pay all or part of an indebtedness of the promisor, discharged or dischargeable in bankruptcy proceedings begun before the promise is made, is binding”  2nd 3. The nonoccurrence of a condition (an event that must occur before performance is due) a. Would excuse performance of a contractual duty (Restatement (Second) of Contracts §84); and b. A party may dismiss performance of contractual duty if condition does not apply i. Example: I will pay you for work done to build my house once my architect signs off on the work you have done. “Even though my architect will not sign off on your work, I will still pay you.” Because I have said I will pay you I have no power to restore the requirement of the condition and must pay now ii. You are renewing the same promise you have made before even though condition not satisfied 4. The original duty was voidable a. (could be declared void by the promisor, usually based on a defense to contract formation) but not yet avoided or declared invalid by a court (Restatement (Second) of Contracts §85). b. I was tricked into buying art that was fraud. I say even though it is fraud I will still buy it. I have now renewed the promise, and it is enforceable Promissory Restitution  Courts apply promissory restitution in situations in. which a promise to pay or compensate is made after a benefit is received  Material Benefit Rule This rule examines whether or not o (1) a promisor received a benefit from the promisee o (2) the promisor made a promise to the promisee in recognition of the benefit received; and o (3) an injustice would result unless the promise is enforced  Webb v. McGowin o Moral obligation is consideration when promisor has received a material benefit Valid Contract Modifications 1. Modification altered both parties’ performance 2. The modification included the settlement of a claim or defense a. Unknown conditions arise that alter ability to perform 3. The original duty was rescinded or waived a. Mistake in K so both parties agree to rescind Modifications made in good faith    The promise modifying the K was made before the K was fully performed The underlying circumstances that prompted the modification were unanticipated by the parties The modification was fair and equitable Preexisting Duty Rule – Invalid Contract Modification    Pre-existing duty Conduct or actions that person already has obligation to do “Hold up” concept   o One party has significant leverage over another o One party trying to take advantage o Do not want party wasting resources Bottom Line o Once you have a K cannot have one sided modifications where the other party is not changing anything as well Class Example o If work does not go beyond the scope of work then there is no need for additional compensation o If work does go beyond the scope of work then there is a need for additional compensation  This would be additional “consideration” Valid Contract Modifications – Finding new consideration 1. Modification altered both parties’ performance a. Mutual changes to party performance b. Must be grounded in good faith 2. Modification included settlement of claim or defense a. Avoids costly litigation and contract delays i. Construction company becomes aware of unknown circumstances that voids contract 1. Must be honest belief a. Genuinely thought what you claimed ii. Offeror say okay I will pay you more for the work in exchange you will not sue us 1. This would be proper consideration b. Releases remote claims 3. Modification after original duty was rescinded or waived a. Original contract not modified but rescinded and new contract voluntarily created or b. Promisor waived right to receive performance 4. Modification made in good faith a. Reasonable adjustments in contract b. Due to unexpected changes in conditions c. Angel v. Murray 1. Modification made before K is fully performed 2. Fair and equitable changes 3. Based upon unanticipated circumstances b. UCC has its own rule 1. No new consideration for contract modifications required 2. Must be made in good faith Reliance – Promissory Estoppel Key Concepts  Reliance = Promissory Estoppel  Reliance not equal Reliance. Reliance as: o Behavioral fact (I.E. detriments incurred in reliance on a promise) vs o Measure of damages (i.e., reliance damages) vs o Legal basis for enforcing a promise  A promise reasonably inducing action or forbearance (Restatement 2d §90) o (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under Subsection(1) without proof that the promise induced action or forbearance.  Restitution upon disaffirmance o Party avoiding K recovers what it provided o Other party recovers what it provided to incapacitated party if it can be returned Promisor must  Reliance Test: 1. Make a promise to another party, and 2. Reasonably foresee that the other party will rely upon the promise a. Foreseeable reliance i. Would a reasonable Promisor foresee the promise would induce reliance Promisee must: 1. Actually rely on this promise (actual reliance), and 2. Suffer a substantial detriment if the promise is not enforced, resulting in injustice Reliance- Charitable situations  One rule: Donative intent plus either consideration or reliance  Another rule via restatement section 90(2)- focuses on charitable intent solely; just requires donative intent (to give the property away permanently)  King V. BU: MLK gave papers to BU and there was reliance on keeping those papers as BU hired people to take care of those papers.  CONTRACT DEFENSES BELOW Incapacity Incapacity  Guardianship — a court-appointed third party manages another person’s affairs  Mental incompetence — a person who suffers from a mental defect or illness  Intoxication — a party acting under the influence of alcohol or drugs  Infancy — people under the age of 18 Guardianship - Void  Party lacks ability to handle own affairs (age/mental)  Courts often appoint guardian (fiduciary) to manage their affairs in best interest of ward  Misconduct of guardian treated as breach of relationship of trust with ward Mental Illness - Voidable  Restatement (1) 1. Did the person raising the defense suffer from a mental illness or defect? 2. Was the person either a. unable to understand the nature or consequences of the transaction; or b. unable to act reasonably (perform) in relation to the transaction and the other party knew or had reason to know of the condition? 3. Did the mental illness or defect cause the inability to understand or to act reasonably?  Restatement (2) – Limits defense of mental illness if these are met a. Other party does not know of the mental defects, but the K is substantially performed, K terms are fair b. Court may grant relief as justice requires c. Another way to say the above a. 1. The other party is without knowledge of the mental illness or defect; b. 2.The contract terms are fair; and c. 3. The party reliance makes it unjust to allow the mentally ill person to refuse to perform Ortelere v. Teacher’s retirement board of NY  Facts: Teacher on break from school due to mental illness which they knew about switched her retirement plan to a less beneficial one where upon her death it would not pay anymore.  Rule: Court applied the volitional incapacity since the school had reason to know of the Ps condition. Infancy Doctrine  Restatement (2d) 14: a. Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person’s eighteenth birthday  Classical view a. Minors viewed as lacking capacity to contract for non-necessaries (void) b. Doctrine of necessaries i. Capacity to contract for basic essentials c. Court scrutiny for fairness of terms and fair market value       Modern view a. Minors have capacity to contract for non-necessaries b. Subject to doctrines of disaffirmance and ratifications Adult = Day before persons turns age 18, attains capacity to enter into K Adult = Formal emancipation by court order of those under age 18 Adult = Minors who have legally married as another form of formal emancipation Benefit Rule a. Absent any overreaching fraud or unfair advantage on the part of the adult seller entitled to reasonable compensation for use of depreciation or willful or negligent damage done to goods sold, while in minor’s possession b. Balances good faith of adult/merchant with independence in purchasing decisions of minors Majority view: If parties decide to enter into a contract with a minor it is at their own risk because a minor may disaffirm a contract at any time until the age of 18 or a reasonable time thereafter. a. A minor who has received nonnecessary goods or services under a contract is only mandated to return in whole or part what they still possess, such as the item or any proceeds from the contract, in return for a full refund. Intoxication Restatement 2d §16 1. A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication a. he is unable to understand in a reasonable manner the nature and consequences of the transaction, or b. he is unable to act in a reasonable manner in relation to the transaction  Did the intoxicity cause the inability to understand or act reasonably?  Defense only applies if the other party knew or had reason to know of the effects of intoxication on that person. Duress and Undue Influence Duress § 174 When Duress by Physical Compulsion Prevents Formation of a Contract  If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent. o Covers inducement based on threats to third parties, such as family members or friends, as well as to violent threats against property. o § 175 When Duress by Threat Makes a Contract Voidable – Economic Duress  (1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. (2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction. § 176 When a Threat Is Improper (1) A threat is improper if (a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property, (b) what is threatened is a criminal prosecution, (c) what is threatened is the use of civil process and the threat is made in bad faith, or (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient. (2) A threat is improper if the resulting exchange is not on fair terms, and (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat, (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or (c) what is threatened is otherwise a use of power for illegitimate ends. § 177 When Undue Influence Makes a Contract Voidable (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare. (2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim. (3) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction. (Grandma and bank example) Undue Influence The court enumerated seven types of persuasion indicative of undue pressure: 1. discussion of the transaction at an unusual or inappropriate time; 2. consummation of the transaction in an unusual place; 3. 4. 5. 6. 7. insistent demand that the business be finished at once; extreme emphasis on untoward consequences of delay; the use of multiple persuaders by the dominant side against a single servient party; absence of third-party advisers to the servient party; and, statements that there is no time to consult third party experts, such as financial advisers or attorneys.  From Odorizzi V. Bloomfield School district, the court pulled out seven types of persuasion indicative of undue pressure: Vulnerability  Involves a party in a weakened position at the time of the undue influence (physical condition, advanced age, or emotional anguish). May make them more susceptible to unfair persuasion. More specifically may feel overwhelmed under the pressure tactics and may justifiably assume that the other person wouldn’t propose a deal contrary to the party’s bets interests.  This alone does not give rise to the defense of incapacity  Requires some showing that the persuading party held some power over the persuaded party, which may arise from relationships of trust(family members, fiduciaries) or with authority figures or domineering persons(exercise physical or emotional dominance or both). Inducement  Exists when the unfair persuasion is a substantial factor in a party’s assent to the contract. Mandates the party show the over persuasion contributed in some significant way to the decision to enter the deal. o Proof that the person would have assented anyway might defeat the defense  When a relationship of trust is abused, its less likely that the decision would have been made regardless of the over persuasion o However, abuse of relationship of trust is still an option  Odorizzi v. Bloomfield school district: o Facts: Gay schoolteacher, members of the board went to his apartment and persuaded him to resign. o Rule: undue influence usually involves someone in a dominant position using over persuasion to take advantage of someone in a servient or weakened position.  P was in a weakened state due to police investigation, school board were authority figures domineering over him Third Party Undue Influence Undue influence by a nonparty will justify avoiding the contract-assuming all the elements are shown-unless:  1.The other party relies on the contract  2.Made in good faith and  3. Without reason to know of the duress made by the 3rd party. Economic Duress from book o 1. A wrongful or improper threat;  Look above at §176 o 2. Actual inducement into the contract due to the threat; and  Threats Induce party assent: Requires threat being a substantial factor in the decision.  Must be a clear causal link between the wrongful or improper threat and the party’s inducement.  Can be undermined if it can be shown the party would have agreed w/o threat. o 3. A lack of reasonable alternatives to avoid the threatened harm  Lack of reasonable alternatives: If there are other reasonable ways to avoid the threatened harm without assenting to the contract this defense will not apply.  AUSTIN INSTRUMENT V. LORAL CORP.:  Facts: Navy contract where D held out when P needed the parts so P had to give in in order to complete the contracts in time.  Rule: Says D made an improper threat that prevented P from exercising free will and there was a lack of reasonable alternatives Misrepresentation  MUST READ THE TEXTBOOK Misrepresentation  If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying the contract is voidable by the recipient 1. a misrepresentation: 2. that was either fraudulent (dishonest) or material (significant); 3. that induced the deceived party’s assent to the contract (reliance); 4. under circumstances that make the reliance justifiable (reasonable) Fraudulent or material Restat 2d of Contracts, § 162 (1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker (a) knows or believes that the assertion is not in accord with the facts, or (b) does not have the confidence that he states or implies in the truth of the assertion, or (c) knows that he does not have the basis that he states or implies for the assertion. (2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so. Inducement  A misrepresentation induces a party's manifestation of assent if it substantially contributes to his decision to manifest his assent.  Restat 2d of Contracts, § 167 Silence as an assertion A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only: Restat 2d of Contracts, § 161 (a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material. (b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing. (c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part. (d) where the other person is entitled to know the fact because of a relation of trust and confidence between them. o Targets  (a) Half truths  Where omissions makes statements misleading  (b) Lack of good faith in the face of a known error  (c) Erroneously described documents  (d) Relations of trust, where full disclosure is expected Mistake Mutual Mistake  Both parties make a K voidable Restatement 2d §152 (1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154. (2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise. Frame work: 1. A mistake by the party claiming the defense 2. That was shared by the other party 3. That concerned the situation at the time contract was made 4. That involved a basic assumption on which the contract was made 5. The mistake materially affected the agree exchange of performances and 6. The risk of the mistake did not fall on the party claiming the defense a. §154 – Allocating the risks of mistakes b. A party bears the risk of mistake when: i. (a)The risk is allocated to him by agreement of the parties or ii. (b)He is aware at the time the contract is made that he has only limited knowledge with respect to the facts to which the mistake relate but treats his limited knowledge as sufficient or iii. (c)The risk is allocated to him by the court on the ground that it is responsible in the circumstances to do One party made mistake § 153 When Mistake of One Party Makes a Contract Voidable Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and (a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or (b) the other party had reason to know of the mistake or his fault caused the mistake. Unilateral One party Unilateral mistake requires: (1) a mistake by the party claiming the defense; (2) that concerned the situation at the time the contract was made; (3) that involved a basic assumption on which the contract was made; (4) which materially affected the agreed exchange of performances; (5) the risk of the mistake did not fall on the party claiming the defense; and (6) one of the following three things applies: (a) the other party had reason to know of the mistake; or (b) the other party’s fault caused the mistake; or (c) enforcement would be unconscionable (creating an imbalance so great a judge, in good conscience, could not enforce the contract). Unconscionability – Voidable Ks  If a contract or term thereof is unconscionable at the time the contract is made a court may: o refuse to enforce the contract or o may enforce the remainder of the contract without the unconscionable term, o or may so limit the application of any unconscionable term as to avoid any unconscionable result. Procedural Unconscionability  How the K came to be (negotiations)  Contracts of adhesions usually an issue  Addresses unfair surprise and absence of meaningful choice in contract formation o Contracts of adhesion o Inequalities of bargaining power o Little or no meaningful chance to review of terms in advance of agreeing o Major provisions hidden in small print Substantive Unconscionability  Looks to fairness of terms  Evaluate to see if terms are oppressively harsh/one-sided o Must be extreme  Business reality o Justified commercial need for questioned terms o Burden of proof on drafter to show valid business reality o Show valid business reason for otherwise unconscionable terms Court Approach  Majority View o Must show both procedural and substantive unconscionability o Buren on party claiming unconscionability  Varied Approach o Sliding scale approach  More significant one aspect of unconscionability is, less significant other aspect need to be  Burden on party claiming unconscionability Public Policy – Void Restatement (2d) §178 When a Term is Unenforceable on Grounds of Public Policy (1) A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms. (2) In weighing the interest in the enforcement of a term, account is taken of (a) the parties' justified expectations, (b) any forfeiture that would result if enforcement were denied, and (c) any special public interest in the enforcement of the particular term. (3) In weighing a public policy against enforcement of a term, account is taken of (a) the strength of that policy as manifested by legislation or judicial decisions, Forfeiture:   (b) the likelihood that a refusal to enforce the term will further that policy, (c) the seriousness of any misconduct involved and the extent to which it was deliberate, and (d) the directness of the connection between that misconduct and the term. Seller was able to recover lost machinery that was lost in the contract Had he lost those assets in the sale those would have been a forfeiture Public Policy – Against restraints of Trade § 186 Promise in Restraint of Trade (1) A promise is unenforceable on grounds of public policy if it is unreasonably in restraint of trade. (2) A promise is in restraint of trade if its performance would limit competition in any business or restrict the promisor in the exercise of a gainful occupation. Restatement (2d) §187 Non-Ancillary Restraints on Competition    Has nothing to do with the main contract in which the constraint appears o I sell my house to you and you are a dentist and I say you cannot practice within 5 miles of the house I sold you  This has nothing to do with the sale of the house Interest worthy of protection Subsidiary to an otherwise valid transaction Restatement 188 states that a reasonably limited promise not to compete will not violate public policy if the agreement has legitimate purpose not just illegally stopping competition. o If the purposes are ancillary to preventing competition, the contract or relevant clause still should not impose a restraint greater than is needed to protect the promisees interests  Courts will examine the contract to make certain that the terms place reasonable time limits on the: o 1. Time period  Restraints must not last to long, Wait until promise has enough time to establish her own goodwill in the business and once she has a fair period to establish relationships with customers, showing that the business is good without the promisor. o 2.Geographical area.  Cant be to far where the location would not compete or interfere with promises business o 3. The promisors use of their skills and specialties and This would not extend to local jobs or businesses that do not compete with the former employer o 4. Whether either  The hardship on the party promising not to compete(promisor) or  Injury to the publics interests o May outweigh the promisess interests  The publics need for services may excuse the clause(such as doctors/nurses)  Is restraint greater than need to protect employers legitimate ineters? Courts will look to these factors: o 1. Nature of employers protectable interests o 2. Reasonableness in scope of clause o 3. Time, Geography, Skills/Specialty o 4. Hardship on the employee o 5. Likely injury to public interest  Valley Medical Specialists V. Farber: o Facts: Farber was a doctor practicing a special kind of medicine with D that required patients to have treatments every 6 months. Left and had a noncompete where he couldn’t practice for 3 years in the medical field, and 5 mile radius with any of VMS practices(they had numerous) o Rule: Corps. Have a protectable interest in their clients usually but in medicine it should be up to the patients to see the doctor they want as that’s who they are there to see  Ask why the time matters in this industry, why it may be to long or to short. In this case the 6 months was specific to these patients so 3 years was to long, and activity was to broad as P could not practice any type of medicine. Policies Involving family situations   When couples decide to live together instead of marrying, public policy may preclude enforcement of their agreements  On occasion, contracts between married people raise public policy arguments if the contract terms may encourage divorce(prenuptial agreements)  Surrogacy contracts also raise public policy concerns Restitution Under Public Policy  Generally unavailable when the contract is void.  A party who performs (in whole or in part) only to find the other party has been excused from doing so faces forfeiture and hardship o Restation in this setting may be in flux but the recently approved restatement3rd of restitution and unjust enrichment permits but does not require restitution when contracts violate public policy. Statute of Frauds Restatement (2d) Statutory Note preceding §110:  For these particular contracts if there is an issue must present a written form of contract  Defense against enforcement of oral contracts o Voidable by party against whom enforcement is sought  Requires evidence that a signed writing was made, not necessarily that it currently exists  Frame Work for Review:*** o 1) Does this fall within the statute of frauds? o 2) Does a sufficient writing exist?  3) Does an exception apply that allows enforcement? § 110 Classes of Contracts Covered   (1) The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception: o (a) a contract of an executor or administrator to answer for a duty of his decedent (the executoradministrator provision); o (b) a contract to answer for the duty of another (the suretyship provision); o (c) a contract made upon consideration of marriage (the marriage provision); o (d) a contract for the sale of an interest in land (the land contract provision); o (e) a contract that is not to be performed within one year from the making thereof (the one-year provision). (2) The following classes of contracts, which were traditionally subject to the Statute of Frauds, are now governed by Statute of Frauds provisions of the Uniform Commercial Code: o (a) a contract for the sale of goods for the price of $ 500 or more (Uniform Commercial Code § 2-201); Easier way to remember  MY LEGS: Restatement 110 o M: Promises in consideration of Marriage  Usually relates to wedding gifts, not the mutual promises to marry between the couple. Thus, a promise to bestow a gift if the couple weds is within the statute. o Y: Promises that cannot be performed within a year from the time it was made  The question is not whether completion within a year is likely or expected, only if it is possible  An athlete’s 5 year contract is within the statute, but an employment for life contract is not since you could die within a year o L:Sale or transfer of any interest in land Includes any transfer of an interest in land such as sales, leases, and easements. The promise to pay for land falls within the statute, not just the promise to sell the land. o E: A promise by the executor of an estate to pay the estates debts from the executor’s assets o G: A sale of Goods for 500 or more o S: A promise to pay the debt of another person (Suretyship) Sufficiency of signed writing § 131 General Requisites of a Memorandum  Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged (full signature not required), which (a) reasonably identifies the subject matter of the contract, (b) is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and (c) states with reasonable certainty the essential terms of the unperformed promises in the contract. Several Writings § 132 Several Writings  The memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction. Signature requirements § 134 Signature  The signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer. General Exceptions  Full performance(section 130): Once both parties fully perform this defense does not apply. The defense protects a party who seeks to avoid a contract before it is performed. The statute does not justify rescission of a contract that has already been fully executed o (2) When one party to a contract has completed his performance, the oneyear provision of the Statute does not prevent enforcement of the promises of other parties.  Promissory Estoppel-reliance o Reliance may justify enforcement in 2 ways: 1. Reliance may show assent, 2. Reliance may prevent a party from being left worse off than if the promise hood had never been made.  These exceptions make the agreement enforceable in part or in whole o In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:  (a) the availability and adequacy of other remedies, particularly cancellation and restitution;  (b) the definite and substantial character of the action or forbearance in relation to the remedy sought;  (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;  (d) the reasonableness of the action or forbearance;  (e) the extent to which the action or forbearance was foreseeable by the promisor. Partial performance: An exception to the requirement of a sufficient writing. o Often applied in land or goods provisions:  saying taking possession of land or making valuable improvements will show partial performance,  paying money alone is not enough. For goods it is when they have been received and accepted or payments for goods have been made and accepted. Mere reliance does not suffice.   UCC         UCC §2-201(1) Writing sufficient indication of K for sale of goods Signed/Authenticated by party to be charged Must specify quantity (except as to explicit output or requirement contracts) o Court will not enforce beyond quantity specified in K There are 3 exceptions: 1. A merchants confirmation without objection: o A writing signed by one party may be treated as if it was signed by the other party to. Between merchants, when one of them signs and sends a sufficient writing and the other does not reject within 10 days, the failure to object satisfies the statute of frauds. Some limitations:  1. Writing must be sent within a reasonable time of contract formation  2. Must satisfy all the UCC’s requirements for a signed writing (assent, quantity, signed by sender)  3. Must be received by the other party  4. Recipient must have reason to know of the contents of the writing 2. UCC: Goods specially made o Applies to custom goods that are specially made for a buyer and may not be suitable for resale to other 3rd parties o Does not apply when seller can abandon the project without much detriment. Nor if they continue making it after buyer gives notice, they aren’t buying it 3. UCC Admissions Exception o When a person raising the defense admits there was an oral contract they will not be protected o COHN V. FISHER  Facts: D buys sailboat and puts downpayment down, D cancels check payment, P sells it for less and tries to recoup lost money from D  Rule: check deposit was sufficient writing which also referenced the purchase of the boat. Additionally, under UCC the D admitted there was an oral contract and partial performance was taken.