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74 Cards in this Set

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What is the general definition for competency to contract?
Competency to contract defines the mental state of the parties of the contract. Both parties are to have a "meeting of the minds". Performance is excused if one of the parties is lacking "competency to contract".
What are the exceptions that deny performance because one of the parties' lacks competency to contract?
1. Constructive Fraud
2. Undue Influence
3. Minors
4. Mental Incomp
5. Duress
What is the general requirement to excuse a party from a contract for constructive fraud?
There must exist a confidential (familial, lawyer) or financial (banker) relationship. The breach of this relationship has caused the plf to detrimentally rely on the def' representations. This excuses the party from any contracts she may have been induced into by the def' through his misrepresentations. She can recover the benefit conferred. Jackson v. Seymour (brother, the land, and the valuable timber)
What is the requirement for undue influence to excuse a party from performance of the contract?
If def' uses coercive persuasion that overcomes the will without convincing judgment of the plf, the plf can void the contract.
What are the 7 characteristics for undue influence to excuse a party from performance of the contract?
1. Discussion of the transaction at an unusual or inappropriate time,
2. Consummation of the transaction in an unusual place
3. Insistent demand that the business be finished at once
4. Extreme emphasis on untoward consequences of delay
5. Use of multiple persuaders by dominant side against a single servient party
6. Absence of TB advisers to the servient party
7. Statements that there is not time to consult financial advisers or attys.
What are the general requirements for contracts made with minors for non-necessity goods/services?
B/c it is generally thought that parents will be able to provide for non-necessities, contracts made with minors for non-necessities are voidable. All consideration paid is to be returned to the minor, and the minor must return as much of her consideration as exists. She can disaffirm even if there is no consideration remaining. Halbman v. Lemke
What distinguishes the majority/minority rule when dealing with excuse of performance for minors?
The majority rule distinguishes btwn contracts made by the minors for non-necessities and necessities.
The minority (NH) rule does not distinguish.
What are the general requirements for contracts made with minors for necessity goods/services?
Contracts for necessities are NOT voidable at the minor's discretion.
What are the requirements for the minority (NH) rule for a minor's excuse of performance?
There is no distinction made between non-necessity and necessity. The minor should pay for all benefits rec'd.
If a minor willfully destroys property or lies about age to obtain a contract, is he liable in tort?
Yes. Should sue him in tort.
What are the general requirements to excuse performance of the contract?
A mental incompetent’s contract is voidable at HER option if:
a. the other party can be restores to the status quo
b. the other party knew of the incompetency
c. the transaction is not fair and reasonable to the mental incompetent

Therefore, if other party DID NOT KNOW of incompetence AND deal was fair, not voidable by incompetent.
What is the majority rule for determining mental incompetency?
1. A person can use the mental competency excuse if they were
a. Unable to reasonably understand the nature/consequence of the transaction
b. The person is unable to act reasonable in relation to the transaction AND the other party knows it
2. Where the party is unaware of the other’s incompetence and the contract has been made on fair terms, the power of avoidance under § 1 is terminated to the extent that the contract has been so performed in whole or in part or the circumstance have so changed that avoidance would be unjust.
What is the minority (NY) rule for determining mental incompetency?
To excuse a contract for mental incompetency, the plf must have a mental disease BUT FOR which the contract would not have been made
(Faber v. Sweet Style Mfg - person has a manic depressive and while in manic state bought a whole lot of land.)
Mental Incompetency and the "fair test".
A number of courts have applied the "fair test" and upheld a contract that was fair and the contracting party did not know of the other's illness.
What is the general rule for duress and the excuse of performance to a contract?
When there is unlawful confinement of another’s person, or relatives, or property, which causes her to consent to a transaction through fear makes the contract voidable by her and she can recover for the benefit conferred.
What is the general rule regarding modifications/ revisions of the contractual duty?
New consideration (not merely the pre-existing legal duty under the existing contract) is required to modify the existing contract. Without new consideration the modification it is not valid.
What is the pre-existing legal duty rule as applied to modifying a contractual duty?
Consideration for modifying a contract cannot be a pre-existing legal duty (ie - consideration already given). For example, a contractual duty is not discharged by part payment (Levine v. Blumenthal) Just b/c LL agrees to accept reduced rent is the K revised.
What are the exceptions to the "pre-existing" duty rule for modifying contracts?
1. Reward for Performance of Duty
2. Unforeseen Circumstances
3. Accord and Satisfaction
4. Waiver
5. Economic Duress
6. Duress
What does the "reward for performance of duty" exception mean to modifying contracts?
When someone has a previous existing duty, it is generally insufficient consideration to constitute acceptance of a reward, unless acting outside scope of official duties.
Under the previous existing duty rule, a third party promise to a first party to perform a contractual duty to a second party lacks consideration. However, when public policy demands, a contract can be created. (Denney v. Reppert)
What does the "unforeseen circumstances" exception mean to modifying contracts?
Applicable primarily to construction Ks. Circumstances that arise that were unforeseen at the time of contracting will constitute consideration to support fair and equitable modification of the contract. Additionally, if the owner makes the modification rather than the GC for a K b/t the sub and the GC, the modification is valid as the owner rec's a benefit. (Brian Constr. & Dev v. Brightenti-rubble unforeseen)
How does the "accord and satisfaction" exception apply to modifying contracts?
An offer to give a portion of a bona fide disputed amount that is called for in a K in return for a release that is accepted (accord), the performance of which is satisfaction. Accord is a pseudo K.
Offer: pay a portion of the disputed amount in return for a release of the remainder.
Acceptance: If this contract is accepted, the accord “contract” exists.
Performance: cashing and receiving the monies – “satisfaction”
How does a waiver create an exception to no consideration for "previous duty" rule?
Voluntary relinquishment of a non-material condition for the benefit of the waiveror. CANNOT WAIVE full performance, ONLY non-material conditions.
Waiving a clause is similar to deleting the clause from the contract. The waiver can be withdrawal if the withdrawal doesn’t operate unfairly. (Universal Builders v. Moon Motor Lodge - clause in K required modif. to be in writing - owner gave oral modif. and let them happen, suff. waiver)
What does economic duress due to consideration in regards to the "previous duty" rule?
A contract is voidable on the grounds of duress when one party is forced to agree to the modification by means of a wrongful threat of precluding the exercise of the party's free will. REMEMBER: PRECLUDES FREE WILL(19th Cent.) AND THE THREAT IS WRONGFUL (20th Cent.) (Austin Instrument Co. v. Loral Corp - sub jacked up price of goods on GC, he had to accept b/c he had no other choice. refused to pay later on sub sued and was denied b/c lack of consideration for economic duress)
What constitutes economic duress?
1. Wrongful withholding of goods, or
2. Threat of withholding of goods unless victim pays a sum due or acquiesces in some other way; AND
3. The victim cannot obtain the goods from another supplier
What does pure duress due to consideration in regards to the "previous duty" rule?
An unlawful confinement of another's person, or relatives, or property that causes him to consent to a trx through fear renders the modification voidable by the victim and he can recover for the benefit conferred. (Hackely v. Headley - poor economic situation does not constitute duress)
What does occurs if a there is mistake of fact or breach of warranty?
The contract is extinguished through rescission and restitution of the benefits conferred; and damages for breach of warranty.
What is a mutual mistake in fact?
A mistake of fact is available if the mistake of fact is made by BOTH parties at the time of contracting and that fact was the “essence of the agreement”. (Sherwood v. Walker - preggers cow; mistake of fact as they both thought she was barren) OR that mistake of fact would cause an undue hardship on one of the parties (Edwards v. Trinity & Brazox Valley Ry. Co - underground gravel problem)
How is the mistake in Peerless different than a mutual mistake of fact?
Distinguished from Peerless Case (boat name mistake)
In Peerless there was no meeting of the minds; the parties were mistaken in that they relied on different facts. In this situation, there is a meeting of the minds, but they meet on a mistake. For mutual mistake of fact to allow rescission, BOTH parties must make the SAME mistake of fact.
Generally, there is no duty to disclose. However, b/c the courts believe the rule promotes perjury,the require in certain situations for the seller to disclose otherwise liability will fall on the seller when a mistake occurs - what are those situations?
1. Intentional Concealment
2. Supervening events make an earlier statement false
3. Partial disclosure
4. Statutory Reqs
When will relief be allowed for a unilateral mistake of fact?
Primarily granted in bid cases when mistake is basic & unconscionable hardship would follow if contract enforced. If the mistake is clerical, the courts only require a unilateral mistake by the bidder as the grounds for rescission b/c other party knew or should have known of the mistake (bid 12% off – offeree should detect, 8% maybe not). (Elsinore Union Elementary School Dist. v. Kastorff)
Why will implied warranties be applied to mistakes (in lieu of mutual mistake doctrine)?
Where parties have mistaken assumptions about property or there are restrictive covenants limiting use of that propert to its assumed nature, an implied warranty can be used to rescind L (esp. where caveat emptor inequitable b/c defects were not reasonably discoverable. (Hinson v. Jefferson - wanted to build sewer system, but prop. located in flood plain. Plf sought rescission and restitution b/c land breach warranty of suitability – plf’ won.)
What are the UCC warranties governing mistakes?
§2-313 Express warranty created by (a)affirmation (b) descr. of the goods(c)sample or model
§2-314 Implied warrant that the goods will be merchantable (applies to consumer when there is a seller)
§2-315 Implied warranty of fitness for part. purpose - seller has to know the purpose
§2-316 Discl. of Warr. "as is"
§2-714 Damages = value of goods accpt and the value if they had been warranted
More detail for UCC § 2-313 Express Warranty?
Tribe v. Peterson - No express warranty created for a mammal where it would be impossible to predict future behavior. Brochure was a statement of past behavior and opinion of future behavior.
Can a plf' recover if they have been induced by innocent misrepresentations?
Yes - and they do not require intent to deceive. (Johnson v. Healy - Expressed warranty created when Healy made representations were constructed w/ “best materials” – regardless if it was an innocent misrep).
If def' fails to disclose when he has a duty to speak, can plf' recover?
Yes - Cushman v. Kirby: Sulfur water (not hard water) Husband heard wife give false misrep and stayed silent.
What is another excuse for non performance of K (thus excusing expectancy damages) which involves the risk of loss?
"Changed Circumstances Justifying Non-Performance" provide an additional set of excuses for non performance of a K. It is different from mutual mistake/warranties b/c there is an actual change in circumstance surrounding the contract, not a mere difference/mistake of fact between parties at the time of contracting.
Exceptions to Pacta Sund Servanda include acts of god b/c there is destruction of the subject matter w/out fault. What case established this?
Taylor v. Caldwell - this case estab. that if subject matter of K is destroyed, perf. is excused
"Thing at heart of K will exist at performance, or parties excused"
What is the common law rule for excuse of performance of a K? What are the common law exceptions?
PACTA SUND SERVANDA - one must perform's one's contractual obligations regardless of circumstances (PROMISES MUST BE KEPT). Exceptions to Common Law: (1) death, (2) sale of goods where title hasn't passed (3) bailmenter where bailed item destroyed behond bailee's control.
Exceptions to Pacta Sund Servanda include acts of god b/c there is destruction of the subject matter w/out fault. How do courts allocate risks for for PERSONAL SERVICE ks where risk of loss is silent? NOTE - force majeur clause would take care of this
Personal Service K: If duty is delegable: no excuse; can hire other - if non-delegable: excuse
Exceptions to Pacta Sund Servanda include acts of god b/c there is destruction of the subject matter w/out fault. How do courts allocate risks for for CONSTRUCTION ks where risk of loss is silent? NOTE - force majeur clause would take care of this
Construction K: GC bears teh risk of loss for unforeseen events not in the K (liable for destr. of subj. matter) (Tompkins v. Dudley - School k'd with builder, almost finished building school and it burned down - school sues for non-perf. court finds in favor of school)
EXCEPTION Repair Doctrine:
Permits the GC to recover for a benefit conferred (rest. damages) if all she is doing is altering AN EXISTING STRUCTURE. (Carroll v. Bowerstock)
What is the common law rule for real estate contracts that are silent as to the risk of loss?
Common law rule states that destruction of the subject matter by a force beyond control of either party is a valid excuse.
What is the rule for real estate contracts for LEASES/LICENSES that are silent as to the risk of loss?
If lease, lessee bears risk of loss (property interest); if licensee, licensor bears risk (title holder bears risk).
What does the Uniform Vendor and Purchaser Act effect real estate K's that is silent as to risk of loss? ** REMEMBER PROPERTY RISK OF LOSS CRAP
It placed the risk of loss on the older of legal title (usually seller), except when buyer has taken possession.

Other rules include: English Rule (equitable conversion) & MA Rule (Skelly OIl v. Ashmore)
What are the rules for allocating insurance proceeds when not provided for in the contract?
Most Common for non real estate k's:
1. Proceeds go to seller/owner
2. Proceeds go to the buyer to the extent of her damage, remainder to seller (Skelly Oil Co. v. Ashmore)
Real Estate:
1. English - ins. to seller
2. MA - ins goes to buyer (offset purchase)
3. Trust Fund - split proceeds to ensure fairness
What is the UCC Rule for Risk of Loss?
UCC § 2-613 - Casualty to Identified Goods - if at no fault of either party, the risk of loss passes to buyer and 1) if the loss is total - k is avoided or 2) if loss is partial - the buyer can look @ goods and void OR accept w/allowance for deterioration
UCC § 2-615 - Excuse by Failure of Presupposed Cond. = perf. impracticable by the occurrence of a contingency which neither party contend will excuse if seller notifies buyer. (Bunge v. Recker - destroyed soybeans - plf' on constr. of destruction)
Is there an excuse for performance when a contract has become commercially impracticable to perform? If so, what are the limitations?
THer is an excuse to performance for commercial impracticability, where the performance is not impossible, but the higher cost caused by the unforeseen event doesn't make economic sense (increase cost by 50-100%). The excuse is limited to those events that are unforeseeable. (American Trading & Prod. Co. v. Shell Int'l Marine - Court said no - should have known that war would cause them to use alt. routes)
Is there an excuse for performance when there is frustration of a venture that becomes the heart of a K by an unforeseeable act of a third person beyond the control of either party?
Yes, but the frustration excuse will not be available if the event was foreseeable - Lloyd v. Murphy. Parties can modify the excuse.
Krell v. Henry - owner k'd to to allow licensee to rent rooms to watch king's process. King got sick & licensee wants money back. Crt said yes b/c event was not w/in contemplation.
What defense is there that deals with a contract that is not fair?
Unconscionability defense. If a K is proved to be unconscionable, the injured party may be able to have the K ruled unenforceable. Rescission and restitution will then be granted. To defeat an action in damages requires more unconscionability than to defeat an action for SP.
What degree of inequality is required for an unconscionable defense to performance of a contract?
If consideration is the part of the K that is unfair, mere inadequacy does not constitute unconscionability, but gross inadequacy does. (Marks v. Gates).
What is required of an unconscionability defense to SP?
SP of a K will only be granted if the deal is fair and just, so presence of unconscionability in the deal will defeat an action for SP. (action may still lie for damages) Woolums v. Horsley - big businessman bought land from farmer but lied as to the use - court denied SP.
What is required of an unconscionability defense to damages at law?
Unconscionability defense requirements: (1) absence of meaningful choice by one party (gross inequality of bargaining power) , and (2) a K w/terms unreasonably favorable to the other (Water v. Min Ltd - scuzzy bf forced girl to give up long term settlement for upfront payment - held unconscionable b/c she was represented by attys)
What is required of a U.C.C. unconscionability defense to damages at law?
UCC § 2-302: Eliminate unfair & oppressive k's that encourage unfair surprises - judge's have wide discretion to excuse performance. Look for: (1) procedural analysis to determine if there is an absence of reasonable choice & (2)a substantive analysis to determine if the provision unreasonably favors other party
What is the best defense for a consumer against unconscionability?
UCC § 2-302 - Consumers stand a better chance of proving unconscionability due to the inequality of bargaining position, but they still must show (1) an absence of choice and (2) a violation of the business communities standards of behavior. Williams v. Walker-Thomas Furniture - not given a copy of k's and they were never explained to her
How does the unconscionability defense work in commercial cases?
Businessmen have difficulty using the unconscionability defense since it is presumed they negotiated at arm's length, so they generally must show fraud, mistake or illegality to defeat this presumption before using the defense. (Gianni Sport Ltd. v. Gantos, Inc - deal was obv. not at arm's length, use this setup between big business v. small business)
How is unconscionability found within the bargaining process/formation of a contract?
Unconscionability is found: (1)in an absence of meaningful choice by one party (gross inequality in bargaining power), (2) in a k w/terms unreasonably favorable to the other.
1. Deemed unreasonable by looking @ business practices & needs of industry.
2. Excessively high prices may constitute unconscon. under UCC§2-302, esp. if consumer is poor & w/out alternative.
What is the purpose of the UCC code to prevent unconscionability?
The purpose is to prevent UNFAIR SURPRISE or OPPRESSION, not to correct imbalance of bargaining power.
How can unconscionability be used as a defense to damages?
UCC§2-302. By stating that the k was created unconscionability, the court can (1) refuse to enforce the K, or (2) reform the k to make it fair
**Consumers have a better chance of proving unconscion. b/c of their inequality of bargaining position, but they must prove (1)an absence of choice & (2) violation of business standards of behavior Brower v. Gateway2000 Inc.
How is the unconscionability defense to damages changed for business people ?
B/c businesspeople usually deal at arm's length, their Ks are not often held uncons., but courts will allow where deal is obviously not arm's length. Must prove:
1. Fraud 2. Mistake 3. Illegality -- Usually applies to small co v. big co. (Gianni Sport Ltd. v. Gantos, Inc. - plf' manuf, def' big retail store - k clause allowed def' to refuse order)
What is the mutuality of remedy rule?
Requires that both parties have the same remedies available. Courts think it's unfair to give one party a remedy that the other can't have.
SP: both parties will be denied if one party is denied SP b/c of (1)adequate legal remedy; (2) too much crt supervision
What are the exceptions to mutuality of remedy rule for SP?
1. There is subst. perf.(Pacific Electric Ry v. Cambell-Johnston)
2. There is adequate assurance of future performance, such as by: 1)security bond, 2)concurrent performance, 3) conditional decree - (Bleecher v. Conte)
What is the mutuality of remedy rule for damages?
Damages will be denied if otherwise a DOUBLE RECOVERY would occur, such as when P doesn't perform.
What are the exceptions to mutuality of remedy rule for damages?
If title passes, such as under UCC 2-709(Action for price) - the UCC permits the seller to sue for the price and upon payment of the jdgmt of the buyer, the buyer obtains possession of the goods
What are the exceptions to mutuality of remedy rule for land sale contracts?
The rule will not be applied to a land sale installment k involving subst. forefeiture if it can be treated as foreclosure.
What is the effect of breach on promises as compared to conditions?
Failure of a promise is a breach of the contract. Failure of a condition means that the duty to perform does not arise (condition precedent) or does not cease (condition subsequent).
What are the rules to construing contracts?
1. The court, not the jury, interprets Ks.
2. Court construes Ks against the DRAFTSMAN.
3. Expression of one item in a K excludes the other.
What is the rule for ambiguous language in determining whether there is a promise or a condition?
1. If language is ambiguous, court assumes a promise. (Howard v. Fed Crop Insurance Corp)
EXCEPTION - if the language is ambiguous and the party who purported condition would benefit has assumed the risk of its satisfaction, then the clause is a CONDITION (Mascioni v. I.B. Miller Inc - transferred risk of nonpayment from GC to SC, SC won't get paid unless cond. prec. of GC getting paid by owner)
What is the general rule in determining whether there is a promise or a condition?
Language of whether a promise or condition exists is construed by the INTENT of the parties, provided it can be determined from other terms in the K.
What is the draftsman/nondraftsman rule in determining whether there is a promise or a condition?
If the DRAFTSMAN is to perform, it is a PROMISE; if the NON-DRAFTSMAN is to perform, it is a condition.
What is the rule for waivers in determining whether there is a promise or a condition?
If the clause can be WAIVED, it is a CONDITION.
How do you determine whether the condition is precedent or subsequent?
1. Look at who is protected by the condition (who benefits)
If it benefits the plf', it is generally a cond. precedent.
If it benefits the def', it is generally a cond. subsequent.
** Each respective party has the BOP that the cond. will be satisfied. Gray v. Gardiner
How does a party lose the benefit of a condition?
A party to a contract may not claim the benefit of a condition if (1) the party prevented its satisfaction, (2) the party induced the other party to believe the cond. was satisfied, or (3) the party breached an implied condition relating to the condition, such as notice (Parsons v. Briston Development Co. - cond. prec. on plf' obtaining loan, he thought he was going to get and auth. def' to keep working; it fell through but not held liable b/c good faith)
How does a supervening event affect a condition?
For supervening events beyond the control of the parties, the clause vanishes, as if it was never in the K. The clause CANNOT be revived. (Royal-Globe Ins. Co. v. Craven - ins. policy req. all claims to be made w/in 24 hrs; she was intensive care - plf' did not recover b/c she failed to report in reasonable time which was req. by another clause)
What is the effect of estoppel or waiver on a condition?
1. Estoppel is a legal bar to one who has made a misrep. upon which the other party has relied to her detriment
2. Waiver is the voluntary relinquishment of a right.

Waiver suspends (tolls) a conditions; estoppel obliterates a condition, like a supervening event.
To affect a condition, what does estoppel require?
1. a misrepresentation
2. reliance, AND
3. detriment

estoppel obliterates condition for ALL TIME, it CANNOT be revived, acts as an absolute bar