Rg Contract Law

Front 1

Test for mixed goods/services

Back 1

> language of K
> nature of the business of the supplier
> intrinsic worth of the materials (value of goods compared with value of services)
elements or factors test?

Front 2

Rule(s) – Duty to Read

Back 2

“The law is clear, absent fraud, duress, or mutual mistake, that one having the capacity to understand a written document who reads and signs it, or without reading it or having it read to him, signs it, is bound by his signature in law, at least”

Front 3

Contract rules:

Back 3

Contract rules:
K formation requires mutual assent and consideration.
In deciding whether mutual assent exists, the court will apply an objective standard whereby you do not need a literal subjective meeting of the minds.
Each party is responsible for their words and conduct as understood by a reasonable person in the position of the other party.

Front 4

Offer

Back 4

Offer
An offer is language of commitment to enter into a bargain communication to an identified offeree creating the power of acceptance therein. Res. 24 - Offer is the manifestation of a willingness to enter into a bargain, so made as to justify another person in understanding that his [sic] assent to that bargain is invited and will conclude it.
1. Language of commitment
2. Relatively complete terms
3. That are communicated so that the recipient reasonably believes that their acceptance is invited and will conclude the deal

Front 5

Terms
Rest. § 33. Certainty

Back 5

Terms
Rest. § 33. Certainty
> (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

Front 6

Acceptance

Back 6

Acceptance
An acceptance, in order to be valid, must be unequivocal, unconditional, and timely

Front 7

Consideration

Back 7

Consideration –Bargain for excheange where each party incur new legal detriment.

Front 8

Equitable estoppel
> What is an estoppel, generally?
>

Back 8

E.g., We enter into K for sale of land. When you ask that we put it in writing, I tell you that the statute of frauds does not apply to transactions such as this. You rely on this statement. Because of your reliance on my statement, if I later refuse to honor the K and you sue for enforcement, I will be estopped from asserting the statute of frauds against you.

Front 9

What is an equitable estoppel, sometimes called an estoppel in pais?

Back 9

§ 90. Promise Reasonably Inducing Action Or Forbearance – Promissory Estoppel

(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.
Elements:
1. Promise
2. which induces action or forbearance on the part of the promisee
3. which was reasonably foreseeable by promisor
4. is binding if injustice can be avoided only by enforcement of the promise

Front 10

Attacking contract problem...

Back 10

First see if a breach of contract claim can be brought based on mutual assent and consideration. If that fails, see if you can bring an alternative basis for recovery such as promissory estoppel/reliance OR restitution

Front 11

Historically: 4 categories where promissory estoppel generally arose

Back 11

1. Gratuitous promise to convey land, followed by reliance by the promisee who moves onto the land and makes improvements, often in the form of an immovable structure.
> 2. Gratuitous promises made by bailees in connection with gratuitous bailments. The bailor delivers goods to the bailee. Bailee promises to get insurance but fails to do so. Bailor in reliance does not get insurance. Goods are destroyed.
> 3. Gratuitous promises to charities.
> 4. Gratuitous promises within the family.
> Another important category: gratuitous promises to pay a pension

Front 12

Restitution
Quasi contract
Implied-in-law contract (different from an implied-in-fact contract)
Quantum meruit
Quantum valebat

Back 12

Restitution
Quasi contract
Implied-in-law contract (different from an implied-in-fact contract)
Quantum meruit
Quantum valebat

Front 13

Restatement of Restitution §116

Back 13

A person who has supplied things or services to another, although acting without the other’s knowledge or consent, is entitled to restitution therefor from the other if
(a) he acted unofficiously and with intent to charge therefor, and
> the things or services were necessary to prevent the other from suffering serious bodily harm or pain, and
> the person supplying them had no reason to know that the other would consent to receiving them , if mentally competent, and
> it was impossible for the other to give consent or, because of extreme youth or mental impairment, the other’s consent would have been immaterial

Front 14

Emergency aid

Back 14

§116 covers aid to protect person; §117 covers aid to protect property (see note 4)
**very similar in approach
Starting point--presumption of gratuitousness
To prevail, must show:
> unofficiously & intent to charge
> no meaningful opportunity to communicate/negotiate K
> services were necessary to protect person/property
> benefit was conferred

Front 15

Restatement §86: Promise for Benefit Received

Back 15

(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.

(2) A promise is not binding under Subsection (1)

(a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit.

Front 16

Option K

Back 16

Option K
> Express option K
> Option K formed under §45—limited to unilateral K offer
> By statute—e.g., 2-205 and firm offers
> Reliance
* §87 (2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

Front 17

Recital of consideration
• a simple recital of consideration is not valid consideration –

Back 17

> Look under an exception in an option K.
> Reliance upon an offer rarely creates an option K – (usually in general / and sub)
> General Rule – False recital of consideration is not valid consideration.
> Res. A recital of consideration is find regardless whether has passed hands so long as in signed writing and deal is fair and equitable for reasonable period of time. - this is minority – courts usually require consideration to be given.
> Three minority apporaches finding false recital of consideration
* Restatement approach above.
* 2nd approach would create a binding option K – in making the recital a promise to pay the $10 creating a bilateral contract.
* 3rd minority approach – by signing Offeror option/offer K is estopped from later denying validity (or not given) of cited consideration. Because he signed a piece of paper stating the consideration was given.

Front 18

Nominal consideration

Back 18

Nominal consideration
> G/R – courts do not look to whether the consideration is adequate.
* Ex. Pay $1 for option K (so long $1 given is perfectly fine) even if overall deal is very large value K.
> At odds at what we discussed – looks like sham consideration is K consideration. But in option nominal consideration is fine.

Front 19

Express option

Back 19

Express option
> Recital of consideration –
* False recital of consideration
> Majority – no option contract
> Minority: option K created
> Other minority – holding signer of document implying a promise to pay the consideration (if so is the recital definite enough)…

Front 20

mailbox rule and options

Back 20

mailbox rule and options
> Option K acceptance valid upon receipt – opposite of general acceptance in contract law.

Front 21

UCC 2-205 – Merchant’s Firm Offer

Back 21

> An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

Front 22

> 2-205 Elements

Back 22

> 2-205 Elements
* an offer to buy or sell goods;
* by a merchant;
* in a signed record; AND
* which gives assurance that it will remain open
* IS IRREVOCABLE (even though no consideration)
DURATION? Time stated or if none stated, reasonable time; not to exceed 3 mo.

Front 23

Formal K contemplated--often letter of intent
Three basic possibilities:

Back 23

1. K. Written K only a formality
2. no legal obligation
3. limited K--parties are not bound to the Big K, but have bound themselves to negotiate in good faith toward the big K

Front 24

UCC 2-207. Additional Terms in Acceptance or Confirmation

Back 24

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time 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:

Hint 24

(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.

Front 25

Three approaches 2-207. First Appraoch

Back 25

Treat different terms just like additional terms. If one of the parties is not a merchant, then not part of the contract absent express assent. If both parties are merchants, then the different term in the acceptance becomes part of the contract unless (a), (b), or (c). This approach is partly supported by comment 3 to 2-207--read very closely, comment 3 is referring to confirmations.

Front 26

Three approaches 2-207. Second Appraoch

Back 26

Different terms (from acceptance) become part of the contract if the offeror expressly assents to them. Under this view, offeror is "master" of the offer and absent express assent, the offeror's terms control.

Front 27

Three approaches 2-207. Third Appraoch Knock Out Rule

Back 27

Knockout rule. The different terms in the offer and the acceptance cancel each other or knock each other out such that neither side's terms are part of contract. If this leaves a gap in the contract, UCC gap fillers step in to provide "neutral" terms that are designed in theory to give neither buyer nor seller an unfair advantage.

Front 28

2-207(2)(b) material alteration
• test: surprise OR hardship

Back 28

surprise OR hardship

Front 29

Statute of Frauds
1. Is it within S/F?
Rest. §110

Back 29

(1)(a) consideration of marriage
(1)(b) suretyship provision
(1)(d) land provision
(1)(e) one year provision
(2)(a) UCC 2-201

Front 30

If not within S/F, then defense fails; if within, go to Question 2
2. If within S/F, has it met its requirements?

Back 30

> written memorandum evidencing an agreement
> identifying the parties and subject matter
> containing material terms and conditions
> signed by the party to be charged
If all of these requirements are met, then defense fails
Does SOF Exception Apply
Clause-specific exceptions
> land--part performance (plus)
> one year—part performance
> suretyship—main purpose or leading object rule
> goods—see 2-201(3) and 2-201(2)

Front 31

UCC Exceptions:

Back 31

§ 2-201. Formal Requirements; Statute of Frauds.
> A Specially Manufactured Goods
> B Admit in court proceeding there is a K
> C Part performance exception – goods delivered and accepted OR which payment has been received and accepted

Hint 31

> Merchants confirmatory writing - Identifying subject and parties, terms & conditions and signed (broad) by party to be charged. (usually question of signing is authentication. – If not signed by party to be chargred then no objection within 10 days.

Front 32

Can be more than one writing
If writing does not satisfy then look to exceptions:
-

Back 32

> Narrow Estoppel - If a misrepresentation of fact regard statue or its requirements upon which there is reliance then party who made misrepresentation of fact is estopped for asserting SOF as defense.
> Broader Promissory Estoppel – mixed holding in jurisdiction. (I will put in writing – I won’t raise SOF against you.

Hint 32

> Res. 139 – person may infact rely on oral K itself and somehow prevent the SOF from being asserted.
> This would undermine the SOF
> Argue that basic fairness
> Always have to get into SOF – go through requirements if met then your done. If on the facts then there is no writing then go to the exceptions.
> Part performance exception

Front 33

Interpretation
Subjective v. objective (redux)

Back 33

> subjectivist approach:
> K for the sale of cotton to arrive “ex Peerless from Bombay”
* October Peerless—buyer’s understanding
* December Peerless—seller’s understanding

Front 34

Implied Term Good Faith

Back 34

> Either through interpretation or based on an implied duty of good faith, courts sometimes find “substance” to otherwise illusory promises, making them enforceable. More on this later in the semester when we deal with the implied obligation of good faith and fair dealing.

Front 35

Conditions

Back 35

Res. 224 – A Condition is an event which is not certain to occur but must occur unless nonoccurrence is excused before performance is due.

Front 36

express conditions

Back 36

express conditions
– express conditions
• preference against express conditions in cases of doubt/ambiguity
– nonoccurrence may be excused
• waiver/estoppel/election
• prevention/breach
• to prevent forfeiture

Hint 36

> that the court had no choice but to treat 1(a) and 4(c) as express conditions because of the clear language
> that the doctrine of substantial performance applies only to constructive conditions and NOT to express conditions (with possible exception if there were a disproportionate forfeiture)
> that although waiver and estoppel were argued, the court probably didn’t give it sufficient weight
> that the plaintiff might have been able to make an argument based on forfeiture—they didn’t for reasons that are not apparent
Conditions handout
> duty (and constructive condition)
> express condition only
> promissory condition (duty + express condition)

Front 37

Misunderstanding

Back 37

Restatement §20. Effect of Misunderstanding
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and
* neither party knows or has reason to know the meaning attached by the other; or
* each party knows or each party has reason to know the meaning attached by the other.

Hint 37

(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if
* that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or
* that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.

Front 38

§201. Whose Meaning Prevails

Back 38

(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.
(2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made
* that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or

Hint 38

* that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.
(3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

Front 39

Permutations—Whose meaning prevails?

Back 39

. P knew & D did not. – D prevails
2. P had reason to know and D did not have reason to know. – D prevails
3. D knew & P did not. – P prevails
4. D had reason to know and P did not know and did not have reason to know. – P prevails

Hint 39

• What if P actually knew and D did not actually know but had reason to know. – D still more innocent – P should have done something about misunderstanding and failure held against them
• Both P and D knew each others' meaning. – failure of mutual assent - no contract
7. Neither P nor D knew or had reason to know of the other's meaning. – failure of mutual assent - no contract

Front 40

Trade Usage

Back 40

> 1. establish the trade usage--through expert witnesses and other evidence;
> 2. show that both parties are sufficiently connected to the trade/market by showing either (a) both are members OR (b) one is a member and facts are such that the non-member knew or should have known.

Hint 40

• BUT trade usage must be consistent with express terms, or they are excluded

Front 41

Parole Evidence Rule
PER

Back 41

– Total Integration Partial
> When the parties have reduced their understanding to a writing, the court must decide what the parties intended by the writing.
--not integrated
--integrated

Hint 41

> If integrated, and not dealing with contradictory parol evidence, the question now turns to the degree of integration.

Front 42

> Traditional 4 corners approach

Back 42

> 4 corners approach
> Integration--turns on the intention of the parties with regard to the writing they execute.
> Modern contextual approach
* as with the 4 corners approach, integration depends on the intention of the parties
* under this rule, where do you look to determine the intention of the parties?

Hint 42

* under this approach, a writing cannot establish its own completeness
* court looks at the writing and the offered parol evidence and then makes a determination re: intention of the parties

Front 43

4 corners v. modern contextual

Back 43

> with each, court asks—when the parties have reduced their agreement to a signed writing, what inference are we to draw for two matters: (1) the finality of the terms contained therein; (2) the completeness of the writing—does it embody the complete agreement of the parties so that parol evidence is inadmissible

Front 44

Levels of integration 1

Back 44

> complete integration
> partial integration
> not integrated at all
Merger or integration clause
> e.g., Entire Agreement. This document constitutes the entire agreement of the parties and there are no representations, warranties, or agreements other than those contained in this document.

Front 45

Levels of integration 2

Back 45

(1) parties execute a writing
(2) one or both attempt to introduce extrinsic evidence
interpret/explain
• admissibility turns on ambiguity
• difference in jurisdictional approach
add to/vary
• admissibility turns on integration
• (1) is the writing integrated? [are the terms in the writing final?]
• (2) how integrated is it? [is the writing complete/exclusive?]

Front 46

Levels of integration 3

Back 46

add to/vary
• admissibility turns on integration
• (1) is the writing integrated? [are the terms in the writing final?] If no, then writing doesn’t bar extrinsic evidence; if yes, then contradictory evidence is excluded; if dealing with evidence of a consistent additional term, must ask the second integration question re: degree
• (2) how integrated is it? [is the writing complete/exclusive?]

Hint 46

add to/vary
• (2) how integrated is it? [is the writing complete/exclusive?]
4 corners—does the writing appear complete on its face; merger/integration clause nearly dispositive
modern contextual—factors—completeness of writing; merger/integration clause; transactional setting; parties

Front 47

Exceptions to Parol Evidence Rule

Back 47

> 1. Collateral agreement. Even a completely integrated writing does not exclude a collateral agreement. Key points are subject matter + consideration.
> 2. Evidence to show no valid agreement. Example--one party wants to introduce evidence that the writing was produced as a joke. Admissible because it is offered to show that there was no valid agreement. It doesn't mean that you will win.
> 3. Evidence that would allow one party to avoid the contract. Evidence to establish any of the policing doctrines from the previous chapter is admissible--fraud, misrepresentation, duress, etc.

Hint 47

> 4. Mistake, fraudulent misrepresentation. Although mistake under certain circumstances allows a party to avoid the contract, mistake here refers to where the parties, by mistake, fail to include a term in the contract. Evidence is admissible which may lead a court to reform the contract to reflect the intent of the parties.
> 5. Oral condition precedent. Written K might be subject to oral condition precedent not contained in writing.

Front 48

> Illusory Promise

Back 48

– implied good faith converting to enforceable promise (Lady) – if she claimed she knew promise was illusory then open up to fraud.
> A promise may be lacking, and yet the whole writing may be “instinct with obligation,” imperfectly expressed. . . . If that is so, there is a contract.

Front 49

§ 2-309. Absence of Specific Time Provisions;

Back 49

Notice of Termination. – implied reasonable notice for termination

Front 50

§ 2-309. Absence of Specific Time Provisions; - 2

Back 50

• (1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.
• (2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.
• (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.

Hint 50

– Factors to determine reasonable time – a) level of capital investment and your efforts – have you had opportunity to recoup your investment (through the contract); b) extent of the inventory – if willing to take it all back then not a problem – but if unwilling; c) reasonable opportunity to seek other outputs/inputs.
– And look to reasonable time to find alternative business arrangements
– Argu – notice can create a liability for your business from the “wronged party”
Discretionary rights/Conditions
> “satisfaction” clauses
> If reject project unless she has good facts against good faith –
> She had facts that they were not even willing to consider her projects.

Front 51

§ 2-306. Output, Requirements and Exclusive Dealings.

Back 51

1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

Front 52

Warranties
> 2-313—express warranties
o factual representation versus “puffery”

Back 52

o compare the boat is “best in class” with “fastest in class”
o this will come up again in the context of misrepresentations in the next chapter
o reliance?

Front 53

> 2-314—implied warranty of merchantability

Back 53

* pass without objection in the trade
o whether a significant segment of the buying public would object to buying the goods
* are fit for the ordinary purpose for which such goods are used
o whether the goods are reasonably capable of performing their ordinary functions

Front 54

> 2-315—implied warranty of fitness for a particular purpose

Back 54

> warranties associated with leaseholds and new homes (we aren’t covering this)

Front 55

§ 2-313. Express Warranties by Affirmation, Promise,

Back 55

Description, Sample
(1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

Hint 55

(2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

Front 56

§ 2-314. Implied Warranty: Merchantability; Usage of Trade.

Back 56

(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the contract description; and
(b) in the case of fungible goods, are of fair average quality within the description; and

Hint 56

(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
(e) are adequately contained, packaged, and labeled as the agreement may require; and
(f) conform to the promise or affirmations of fact made on the container or label if any.
(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade.

Front 57

§ 2-315. Implied Warranty: Fitness for Particular Purpose.

Back 57

Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.

Front 58

§ 2-316. Exclusion or Modification of Warranties.

Back 58

(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.
(2) Subject to subsection

Hint 58

(3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof."
(3) Notwithstanding subsection (2)
(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and
(b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and
(c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.

Front 59

Capacity
Minor

Back 59

> Minor not liable for anything they have used or for any depreciation in value.
> Exceptions:
* 1. Misrepresentation of age by minor. Majority approach--minor may disaffirm but is liable for anything that cannot be restored; minority approach--K can't be disaffirmed

Hint 59

* 2. Necessaries--Majority approach--minor may disaffirm K but is liable in restitution for the reasonable value of what has been "consumed" and cannot be restored. Some courts say that a contract for necessaries cannot be disaffirmed (BUT . . .)
* 3. Minor as plaintiff (cash v. credit)

Front 60

Incapacity
Restatement 15
> (1)(a) cognitive
> (1)(b) volitional
* what are the key differences between the requirements to establish mental incapacity under (1)(a) versus (1)(b)?

Back 60

> (1)(a) cognitive
> (1)(b) volitional
* what are the key differences between the requirements to establish mental incapacity under (1)(a) versus (1)(b)?

Front 61

Incapacity
Restatement 15

Back 61

> (1)(a) cognitive person doesn’t understand nature of transaction – no knowledge required of the incapacity of the other party. Therefore, illness should be so apparent on its face no requirement to show knew or should have known. (or) (More protective than volitional test)
> (1)(b) volitional – cannot control behavior to say yes or no. – B also requires knows or has reason to know.
– Cognitive does not require knowledge of the infirmity but volitional test requires that other party know or should know.
* Must know volitional defect at time of K

Hint 61

* Could have issue with reasonable dissaffirmance if when mental disease is cured then can ratify – reaffirm K. – Or can disaffirm in timely manner.
* Not all mental illness will be protected by K law – manic – established bi polar and one thought of volitional and party didn’t know (or have reason to know) so NOT able to disaffirm K based on mental illness.
> Restitution – mental illness owes full restitution unless other party acted in bad faith - unfair terms – plus any loss (interest) – way court can protect under facts – (good faith – requires – not full restitution if bad faith then they overreached/took advantage – but starting point – is full restitution.

Front 62

• Traditional is cognitive –

Back 62

Restatement uses cognitive and volitional –
– Cognitive is can’t understand nature of transaction
– Volitional cannot control his behavior in relation to the K. (other must know).

Front 63

Duress elements

Back 63

– physical threat or economic threat if created by other party.
> Threat wrongful or improper
> Created financial difficulties leading to duress – enticing other party to assent to the K.
* Employee situation – if waived rights to sue to receive compensation – combined act of company in wrongfully terminating and failing to pay obligation to 3rd parties –

Hint 63

isn’t that contributing to financial difficulties ?? Arguable…
> No reasonable alternative
> the wrongful threat induced assent?
* If you have one and two you usually have three
* Even if multiple motivation to say yes.
> Quasi element is some jurisdiction is objection by party under duress (protest.) – (could be viewed as a reasonable alternative) communicated.

Front 64

Undue influence elements
> Elements:

Back 64

> Relationship of Dominance to Subservient Party (Strong/Weaker)

• Note a court may not allow duress defense because the duress must be unlawful – earlier – element may have changed now not require unlawfulness.
• Position of power or dominance – unequal bargaining power
* Historically was limited you needed a relationship of trust or confidence. C/L – certain relationships – more formal – at C/L employer/employee was not special relationship.
* Modernly – dominant and subservient or weaker. – this can allow one party to take advantage of another by engaging in unfair bargaining.

Hint 64

> Induces assent –
> Dominant Party – discuss fact and circumstances why
> Weaker party – discuss facts and circumstances – mental state – subject characteristics/circumstances of the party.
* Not limited to formal relationship – the discuss all the facts/circumstances.

Front 65

Factors – Undue Influence
Factors of over persuasion

Back 65

> 1. discussion of the transaction at an unusual or inappropriate time;
> 2. consummation of the transaction in an unusual place;
> 3. insistent demand that business be finished at once;
> 4. extreme emphasis on untoward consequences of delay;
> 5. the use of multiple persuaders by the dominant side against a single servient party;

Hint 65

> 6. absence of third party advisers to the servient party;
> 7. statements that there is no time to consult financial advisers or attorneys

Front 66

Misrepresentation

Back 66

> Restatement 164(1)--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.
> 164(2)—deals with third party misrepresentation

Hint 66

Elements
> 1. misrepresentation
> 2. fraudulent or material
> 3. justifiable reliance
> 4. which induces assent

Front 67

(1) misrepresentation

Back 67

> an assertion of fact that is false
> opinion—see §168 & 169
> nondisclosure—see §161
(2) fraudulent or material—see §162
(3) upon which there is justifiable reliance
(4) which induces assent

Hint 67

> where the other elements are satisfied, there is often not much discussion of this; not a “but for” test (“but for the misrepresentation, I would not have said yes”); instead, it is usually enough to show that the misrepresentation contributed significantly to the decision-making process

Front 68

Unconscionability elements

Back 68

> procedural—absence of meaningful choice on the part of one of the parties
> substantive—on terms which are unreasonably favorable to the other party

Front 69

Convents Not to Compete

Back 69

> Traditional
> Blue pencil (casebook authors call this the traditional severance rule)
> Reform/rewrite (my designation; casebook authors call this the modern severance rule)

Front 70

Fraud

Back 70

> material misrepresentation of past or existing fact by the party to be charged
> was false
> Was made with knowledge or in reckless ignorance of the falsity
> Was relied upon by the complaining party
> Proximately caused the complaining party injury

Front 71

Illegality and public policy

Back 71

> covenants not to compete
> exculpatory provisions
* K to do an illegal act
* K, though legal, procured illegally
* K, though legal, performed illegally

Front 72

Licensing statutes

Back 72

> result may turn on specific language in the licensing statute—
> in absence of the above, result typically turns on distinction between purpose of the statute—regulation for public health/safety versus revenue-raising measures

Front 73

Avoiding enforcement

Back 73

> minority
> mental incapacity
> duress
> undue influence
> misrepresentation and nondisclosure
> unconscionability
> public policy

Hint 73

> Changed Circumstances
* impossibility
* impracticability
> frustration of purpose
> Mistake
* mutual
* unilateral

Front 74

Modifications – (Performance)

Back 74

> after K formation, one or the other or both parties seek a modification of their agreement
> if after the parties agree on the modification, one party doesn’t perform as required based on the modified K, the issue then is whether the modification is enforceable

Front 75

> indirect policing—pre-existing duty rule

Back 75

* problems because too easy to circumvent
• hawk, horse, robe
• rescission, express or implied
> direct—duress and other policing doctrines that look at bargaining behavior

Front 76

Restatement approach—see 73 & 89

§ 89. Modification Of Executory Contract

Back 76

A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.

Front 77

2-209(1)
Roth good faith test

Back 77

> Party may in good faith seek a modification when unforeseen economic exigencies existed which would prompt an ordinary merchant to seek a modification in order to avoid a loss on the contract
> BUT--bad faith to attempt to coerce the other party by threatening breach
> BUT--this bad faith presumption may be rebutted if the party threatening to not perform did honestly believe that it had a legal defense to the duty of performance.

Front 78

Modernly: are there other ways to resist an agreed upon modification?

Back 78

if modification not in writing,
* statute of frauds (where applicable)
* no-oral-modification clause (if Art. 2 of UCC applies)
– often in conjunction with a no waiver clause

Front 79

§ 2-209. Modification, Rescission and Waiver.

Back 79

• (1) An agreement modifying a contract within this Article needs no consideration to be binding.
• (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
• (3) The requirements of the statute of frauds section of this Article (Section 2-201)

Hint 79

must be satisfied if the contract as modified is within its provisions.
• (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
• (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

Front 80

> Accord and Satisfaction

Back 80

> “payment in full” check
* point of emphasis—amount in question must be unliquidated for a payment in full check to be effective

Front 81

> No Oral Modification clause (NOM)

Back 81

* common law approach
* UCC approach
• 2-209(2)
• 2-209(3)
• 2-209(4)
• 2-209(5)

Front 82

> Justifications include

Back 82

material breach by the other party; anticipatory repudiation by the other party; and the operation of express conditions
* “From the conclusion that promises may not be treated as dependent to the extent of their uttermost minutiae without a sacrifice of justice, the progress is a short one to the conclusion that they may not be so treated without a perversion of intention. Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probable. If something else is in view, it must not be left to implication.”

Hint 82

> Cardozo’s factors, reformulated
> 1. effect of breach on non-breaching party’s expectations given the purpose of the K
> 2. excuse for deviation/good faith on part of breaching party
> 3. forfeiture suffered by breaching party
> BUT—willful transgressor cannot utilize this doctrine
Iif there is substantial performance by one party, the result is that the other’s performance obligation is due; however, the non-breaching party is entitled to an offset for the breach

Front 83

Damages

Back 83

cost to remedy
v.
difference or diminution in value
> Which is the standard remedy in construction cases where there has not been full performance?
> Does Cardozo apply the standard remedy?

Front 84

Characterizing breach

Back 84

• total or partial
– partial and material
– partial and immaterial
– total

Hint 84

Why is it important to characterize the severity of one party’s breach of a contract?

Front 85

§ 241. Circumstances Significant In Determining

Back 85

Whether A Failure Is Material
> In determining whether a failure to render or to offer performance is material, the following circumstances are significant:

• (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;

Hint 85

(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Front 86

§ 242. Circumstances Significant In Determining When Remaining Duties Are Discharged

Back 86

In determining the time after which a party's uncured material failure to render or to offer performance discharges the other party's remaining duties to render performance under the rules stated in §§ 237 and 238, the following circumstances are significant:
(a) those stated in § 241;
(b) the extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements;
(c) the extent to which the agreement provides for performance without delay, but a material failure to perform or to offer to perform on a stated day does not of itself discharge the other party's remaining duties unless the circumstances, including the language of the agreement, indicate that performance or an offer to perform by that day is important.

Hint 86

Anticipatory Repudiation Recap
anticipatory repudiation
(2) its retraction, including what might prevent retraction; and
(3) an alternative pathway to get to anticipatory repudiation—if reasonable grounds for insecurity arise, and there is a lawful demand for assurance of performance, failure to provide reasonable assurance may be treated as an anticipatory repudiation

Front 87

Damages

Back 87

> general or direct damages
> consequential or special damages

Front 88

Limitations on damages

Back 88

> foreseeability
> certainty
> avoidability
* what degree of certainty is required to establish lost profits?
* what problem does a new business run into?
* avoidability/mitigation