Lecture 9: Ny & Multistate Contracts Part Iii

Front 1

Lecture 9: NY & Multistate Contracts Part III
T OR F: In a majority of states, if there has not been substantial performance, then the breaching party who has only partially performed is still entitled to compensation? FALSE.

Back 1

The breaching party who has only partially performed is not entitled to any compensation for that partial performance and is denied a quasi contract recovery.

Front 2

There is no single factor that determines whether a breach is material or immaterial, but Restatement (and NY) looks at the following HAIL elements. Define HAIL.

Back 2

H - the hardship on the breaching party if a total material breach is declared
A - the amount of the benefit bestowed on the non-breaching party. The greater the benefit, the less likely the court is to find a material breach.
I - whether it was an innocent, inadvertent, and unintentional breach
L - the likelihood (the ease) of full performance being achieved

Front 3

The breaching party has the burden of proving substantial performance and the cost of completing the contract. Is it possible for the breaching party to receive any recovery on monetary expenses?

Back 3

Yes, a party who has substantially performed can recover the contract price less the cost to fully complete the contract.

Front 4

Where there has been substantial performance, but where the cost to complete the contract according to the contract terms is grossly and unfairly out of proportion to the benefit to be achieved and it would constitute "economic waste", then the measure of damages is what?

Back 4

The difference between the value of the substantial performance and the value of what should have been tendered if there had been full performance under the contract terms.

Front 5

Is a failure to timely perform by the date stated in the contract a material breach?

Back 5

No, because generally a party has a reasonable time to perform, and need not perform on the precise date stated in the contract unless the contract expressly states "TIME IS OF THE ESSENCE". However, time may be of the essence in a contract even though not stated and it depends on the party's intent and the circumstances of the contract.

Front 6

What may constitute a material breach?

Back 6

An unreasonable delay in performing the contract may constitute a material breach.

Front 7

What is a reasonable time depends on the circumstances. The court will consider what 3 things?

Back 7

1. the hardship to a party if the contract is not performed by the stated date
2. the party's intent and
3. the presence or absence of good faith.

Front 8

What is divisible contract referred to under UCC Article 2?

Back 8

Divisible contract which UCC Article 2 calls installment contracts.

Front 9

Explain what a divisible contract is.

Back 9

A divisible contract is one contract with separate units to be delivered, accepted, and paid for separately. Each installment is deemed a separate contract independent from the other installments and is separately enforceable regardless of a party's breach of one installment. Even a willfully defaulting party is permitted a partial recovery for a previously performed installment because the performing party does not have to prove substantial performance of the entire contract to recover for one installment that was performed. A breach of one installment does not affect the other installments.

Front 10

Under divisible contract each installment is breached one at a time unless what two things occur?

Back 10

1. a breach of one installment is evidence of an intent to repudiate the entire contract or
2. where a breached installment substantially impairs the value of the whole contract. For example, a buyer repeatedly fails to pay for shipments or pays for them with checks that bounce or a seller who repeatedly ships non-conforming goods and takes no steps to cure those shipments.

Front 11

When does an AB or an anticipatory repudiation of a contract occur?

Back 11

An AB (anticipatory breach) arises before the date for full performance in the contract when one party to a bilateral contract categorically and unequivocally announces an unwillingness or inability to perform the contract. "I will not perform" or "I cannot perform".

Front 12

What are 3 prime examples of an anticipatory breach?

Back 12

For example,
1. A buyer's statement that the goods or services are no longer needed
2. A seller's statement that the goods or services will not be timely delivered or
3. A seller's statement that the delivery will not occur unless the buyer pays a higher price.

Front 13

Is renegotiation, statements of doubts, or requests for more time an AB?

Back 13

A party's request to renegotiate the contract (the price) is not and AB nor is a party statement that he "might not be able" or "doubts he will be able" to perform the contract, or where party requests more time to perform. However, such statements will give the other contracting party reasonable grounds to demand assurances of performance. And if the other party did not provide adequate assurances of performance within a reasonable time (UCC Article 2 says not more than 30 days), then it would constitute a breach of contract.

Front 14

Is an AB remedy available to a non-breaching party that has fully performed?

Back 14

No, the AB remedy is not available to a non-breaching party who has fully performed and where the breaching party's only obligation is to pay money in future installments.

Front 15

When can the non-breaching party who has fully performed sue?

Back 15

The non-breaching party who has fully performed must wait each future installment payment date fixed in the contract before suing for the breached installment.

Front 16

Why should an acceleration clause be inserted into a note or in the contract?

Back 16

To avoid this problem, an acceleration clause should be inserted in the note or contract allowing an acceleration of all future installment payments in the event one installment is breached. Banks always insert acceleration clauses whenever a mortgage is given.

Front 17

When an AB occurs, the non-breaching party can do what 2 things?

Back 17

1. immediately sue for breach of contract or
2. wait and urge the breaching party to reconsider, but damages and the s/l are fixed on the date the plaintiff first learned of the AB and could have sued the defendant.

Front 18

If the non-breaching part notifies the repudiating party that it will await performance, is this considered an election of remedies?

Back 18

Even if the non-breaching party notifies the repudiating party that it will await performance, this is not considered an election of remedies and the non-breaching party may thereafter sue for breach of contract, which will terminate the breaching party's power to retract the AB.

Front 19

What if the breaching party consults her attorney and then changes her mind and decides to perform the contract? 3 exceptions.

Back 19

She is free to retract the repudiation except where the non-breaching party has
1. started a lawsuit
2. relied on the repudiating and materially changed her position by entering a new contract for similar goods, similar realty, or a similar performance
3. effectively communicated to the breaching party an intent to treat that repudiation as final and that the contract is terminated

Front 20

When would the anticipatory breaching party be excused from liability?

Back 20

The anticipatory breaching party is excused from liability if before the contract date for performance, there arises a superseding impossibility of performance or a failure by the non-breaching party to be able to tender the return promise or performance required in the contract because the non-breaching party will not be able to prove that she could have tendered performance on the contract date but for the defendant's breach.

Front 21

What 2 things should the defendant consider if being sued for a breach of contract?

Back 21

When sued for breach of contract, a defendant should not only consider SPARE RIBS CPLR 3211(a)(5) motion to dismiss, but should then consider raising 1 or more of the following 14 contract defenses. III FUUMED & I SSIP.

Front 22

A lack of contractual mental capacity arises from III. What is III?

Back 22

I - Infancy
I - mental infirmity
I – intoxication

Front 23

What about if one of those minds is incompetent?

Back 23

There can be no meeting of the minds if one of those minds is incompetent. Contracts involving incompetence are voidable at the option of the incompetent.

Front 24

When can III be used defensively? What about affirmatively?

Back 24

III may be used defensively when an incompetent is sued (CPLR 3211(a)(5) SPARE RIBS), but they can also be used affirmatively by the incompetent commencing an equitable action to rescind the contract and to seek restitution.

Front 25

Can the surety be raised if an adult signs for an infant’s contract?

Back 25

If an adult signs as a surety for an infant's contract, then the surety cannot raise the infancy defense because it can only be raised by the infant.

Front 26

When can the infant make ratifications?

Back 26

After reaching majority, an infant may ratify the voidable contract by manifesting an intent (by words, acts, or inactivity), which a reasonable person would objectively construe as an assent by the former infant to now be bound by that contract. For example, making payments on the contract or accepting benefits from the contract after reaching majority (18th birthday). This ratification does not have to be supported by any new consideration.

Front 27

Does contract law treat defendants differently based on whether they are they plaintiff or defendant?

Back 27

Yes, contract law treats infants differently depending on whether the infant is a defendant or a plaintiff in the lawsuit.

Front 28

Where goods are sold to an infant ON CREDIT and the infant then disaffirms that contract, then when the creditor sues the infant as a DEFENDANT, the creditor has what?

Back 28

Only a limited right of restitution to the extent the infant still possesses the fruits from that contract.

Front 29

If the infant paid cash and received the goods, but then commenced an action to rescind the fully performed contract, then as a plaintiff the infant must do what?

Back 29

Then the infant must make full restitution to the extent of any benefit received from the voidable contract.

Front 30

Who is responsible for “necessaries” furnished on a quasi contract basis?

Back 30

Infants and their parents are liable for "necessaries" furnished to the infant on a quasi contract basis and not for the agreed contract price between the parties. An infant can always disaffirm a contract for necessaries.

Front 31

In NY, are a married infant’s contracts involving the infant’s principal abode subject to the defense of the infancy?

Back 31

A married infant's contracts that involved the infant's principal abode (not investment real property) are not subject to the defense of infancy. For example, leases, deeds, mortgages, or real property contracts.

Front 32

What must the mental incompetent do when rescinding a contract?

Back 32

When rescinding a contract, the mental incompetent must make full restitution to the extent of any benefit received from the voidable contract. Some courts (minority view – not NY) do not require the incompetent to restore the status quo if the other contracting party acted unfairly with knowledge of the existing incompetency.

Front 33

To successfully assert a mental infirmity requires proof of what? Either or, 2 things.

Back 33

Either 1. the incompetent did not understand the nature and consequences of entering the contract or 2. executing the contract was an uncontrolled reaction to a mental illness and the other party had reason to know of this condition.

Front 34

T OR F: A contract by an incompetent for whom a guardian has been appointed is void and not just voidable.

Back 34

True.

Front 35

When can a contract be voided due to intoxication?

Back 35

To void a contract because of a party's intoxication (drugs or alcohol), the contracting party must have been so intoxicated that she did not understand the nature and consequences of her act in entering the contract and the other contracting party had reason to know of this condition.

Front 36

The F from FUUMED stands for what?

Back 36

F - fraud, deceit, or negligent misrepresentation

Front 37

A contracting party can sue for a misrepresentation (a lie) that was made based on what 3 things?

Back 37

(a) fraudulently where the defendant knew it was false and can sue in contract (fraud) or can assert a tort claim (the tort of deceit)
(b) negligently (contract or tort claim) or
(c) innocently, which allows only rescission of the contract and restitution.

Front 38

The plaintiff's fraud, deceit, or negligent misrepresentation claim must be alleged in detail under what?

Back 38

The CPLR 3016.

Front 39

These claims arise when?

Back 39

Where one party gains an advantage by lying about a material fact in the contract and the other contracting party justifiably relied upon that statement.

Front 40

The elements for fraud or deceit are SIIR M, which must be pleaded and proven by clear and convincing evidence. What does SIIR M stand for?

Back 40

S - scienter which requires proof that the defendant knew that the material factual statement was false. That is, the plaintiff must prove the defendant knew he was lying.
I - The lie was made with the intent to induce the plaintiff to act.
I - A financial injury was suffered by the plaintiff in order to assert a claim for the tort of deceit, the plaintiff must prove she suffered money damages, but proof of a financial injury is not required in a claim to rescind the fraudulent contract.
R - The plaintiff justifiably relied on the misstatement or the omission. An MBE plaintiff only has to show the misrepresentation was "justifiably relied upon". Thus, in MBE, a negligent or careless defrauded party will not have the claim defeated because of that carelessness. However, NY requires a "REASONABLE RELIANCE" (the minority view) by imposing a duty of due diligence on the plaintiff to reasonably investigate the misrepresentation if the means to do so were available. If the NY fraudulent statement could have been easily verified and discovered, but was not (negligence), then the NY fraud and deceit claim will fail because the plaintiff's reliance on the defendant's statements was not "reasonable". That is, where the plaintiff had a reasonable opportunity to discover the real facts, but neglected to do so.
M - The fraud or deceit involved a misrepresentation or omission of an existing material fact, which induced the plaintiff to enter the contract.
Although mere silence generally does not constitute fraud, if a direct question of a material fact is asked, contract law imposes a duty for an honest response. Thus, when a party ignores the question and evades answering it knowing that a true answer probably would imperil a contract, then the evasive answer may constitute a material misrepresentation.

Front 41

A plaintiff may assert fraud to rescind a contract or may sue for the tort of deceit to recover damages. From what acronym do these 2 claims have the same elements?

Back 41

These 2 claims have the exact same SIR M elements.

Front 42

A merger clause in a contract states what?

Back 42

That the agreement represents the parties' entire understanding and that no other representations have been made or are being relied upon other than those representations contained in the contract. Such a clause calls for the full application of the parol evidence rule and it establishes the parties' intent that the agreement is considered a "completely integrated" writing. Thus precluding extrinsic proof to alter the contract terms.

Front 43

While a general merger clause is ineffective to exclude parol evidence of a fraudulent misrepresentation (OF MICE), what is the however in this case?

Back 43

However, a narrow and specific disclaimer clause defeats the reliance element of an oral misrepresentation unless the facts were exclusively within the knowledge of the defendant. For example, concealed facts that could not have been discovered through a reasonable inspection.

Front 44

The MBE measure of damages for the tort of deceit is expectation damages (loss of bargain damages), which is the difference between the value of what 2 things?

Back 44

1. the value of what the plaintiff was fraudulently promised and
2. the value of what the plaintiff actually received

Front 45

However, in NY (minority view) except in a contract for the sale of goods, the NY measure of damages is only the defrauded party's actual out of pocket loss, which is the difference between what 2 things?

Back 45

1. the value of what she received (what it was actually worth) and
2. the amount she paid to the defrauding party.

Front 46

NY deceit damages are calculated to compensate a plaintiff for what she lost because of the fraud, but not for what other additional form of compensation?

Back 46

But not to compensate her for the profit she might have gained had the misrepresentation been true.

Front 47

For fraud and deceit in the sale of goods contracts the underlying principal of the UCC is what?

Back 47

The underlying principal of the UCC is to put the non-breaching party in as good a position as if the contract had been performed under the contract terms. Thus, a defrauded buyer of goods gets the benefit of the bargain (expectation damages), and in both NY and MBE, the buyer is not limited to merely recovering out of pocket losses from a fraudulent seller of goods.

Front 48

F stands for what?

Back 48

F - Fraud, deceit, or negligent misrepresentation including contracts for the sale of goods.

Front 49

What is the statute of limitations for fraud, deceit, or negligent misrepresentation including contracts for the sale of goods?

Back 49

The statute of limitations is 6 years from the fraud or 2 years from when it was discovered or with reasonable diligence could have been discovered, whichever period is longer.

Front 50

The extra 2 years from discovering the fraud does not apply to what 2 things?

Back 50

(a) contracts for the sale of goods or
(b) constructive fraud (aka fraudulent conveyances). A claim for constructive fraud arises when a debtor transfers assets for less than full and fair consideration and 1. is rendered insolvent to existence creditors or 2. where he knows that he faces debts in the near future and because of the gratuitous transfer, he will not be able to pay these future debts.

Front 51

Is it considered fraudulent if the defendant has been named in a lawsuit or a judgment has been obtained against him?

Back 51

Then any such transfers are deemed fraudulent without regard to intent.

Front 52

What can be recovered if the creditor is able to prove there was an actual intent to defraud by the transfers?

Back 52

Then attorney's fees can be recovered by the creditor in commencing the constructive fraud claim.

Front 53

There are certain badges of fraud that are so commonly associated with a fraudulent transfer that their presence will give rise of an intent to defraud. Define SHIFTS.

Back 53

S - secretly done
H - hastily done
I - inadequate consideration
F - transferee is a family member or friend
T - the transferor continues to control the property
S - scienter (knowledge) of the creditor's claim and an inability to pay it after the transfer.
An attorney who knowingly participates or facilitates a client in fraud becomes liable to the fraud victim.

Front 54

What is the major difference between the tort of deceit and the tort of negligent misrepresentation?

Back 54

It’s scienter in both NY and MBE. The plaintiff's recovery is limited to only out of pocket losses.

Front 55

What must exist in order to assert the claim of negligent misrepresentation?

Back 55

To assert this claim, there must exist some special relationship between the parties (e.g. a surveyor, a lawyer, a financial planner, or an accountant) creating a duty for the defendant to impart correct information to the plaintiff. It arises when a business person breaches a duty owed to the plaintiff to give accurate information relied upon by the plaintiff. That is, the business person failed to
(a) exercise reasonable care to ascertain the true facts or
(b) possess or apply the skill and confidence of a reasonable person in the defendant's business or profession.

Front 56

What happens when a business person or a professional negligently makes a false statement honestly believing it is true, but was spoken without reasonable grounds for such belief?

Back 56

Then liability arises for a negligent misrepresentation. Liability is imposed for the economic loss suffered because the plaintiff justifiably (NY reasonably) relied on that information.

Front 57

In NY and MBE, only a limited class of persons can sue for this tort. Why is this the case?

Back 57

There must exist either privity of contract between the plaintiff and defendant (an attorney and client) or their relationship must come close to privity. That is, the plaintiff must have been actually known to the defendant (they communicated) and the plaintiff was the "end and the aim" of the defendant's negligent misrepresentation.

Front 58

Problem: B hired A, an art expert who negligently appraised a painting as an original, but it was an excellent forgery. B purchased it for $225,000 and had a contract to resell it to X for $300,000. When the forgery was discovered, the painting was worth only $100,000. How much can B recover from A for A's negligent misrepresentation?

Back 58

$125,000 because since the misrepresentation was negligently made and B and A were in privity of contract, B can recover only for out of pocket losses, which is the difference between the value of what B received ($100,000 painting) and what B paid ($225,000). B could not recover the additional lost profit of $75,000 because A's misrepresentation was negligent and not fraudulently made.

Front 59

Why is it is easier to prove an innocent misrepresentation?

Back 59

Because the plaintiff does not have to prove the defendant's fraud or even negligence in making the false statement. However, the exclusive remedy for an innocent misrepresentation is rescission of the contract and restitution.

Front 60

What does U from FUUMED stand for?

Back 60

U - Unconscionability. An unconscionable contract requires both unconscionable terms and tactics.

Front 61

What are pre-contract procedural unconscionability?

Back 61

1. Pre-contract procedural unconscionability such as high pressure sales tactics, the absence of any meaningful choice by one party (that is, the contract is tendered on a "take it or leave it" basis), or not allowing the other party to consult with an attorney or another person, or not allowing the prty to make any changes on the contract. Procedural unconscionability also includes unequal bargaining positions of the parties. That is, one party lacks sophisticated business experience or lacks an education

Front 62

What is substantive unconscionability?

Back 62

2. Substantive Unconscionability which involves harsh one-sided and unfair terms in the contract. An unconscionable contract is such a bad bargain that no reasonable person would agree to it and no fair person would offer such terms. The unconscionability doctrine allows equity to intervene to prevent an injustice.
A presumption against unconscionability arises where sophisticated business people are the contracting parties in a commercial setting and especially if they’re represented by an attorney.
Unconscionability is determined on the date of the contract and whether it was unconscionable at that time.
Unconscionability applies to both UCC and non-UCC contracts and it allows the court broad discretion to void the entire unconscionable contract or to just "blue pencil" a particular unconscionable provision.

Front 63

Define the 2nd U in FUUMED.

Back 63

U - undue influence seeks to excuse a party from a contract because it was not entered into voluntarily, but was the product of undue influence by the other party. Unlike duress, which speaks of coercion (threats), undue influence speaks of unfair persuasion by the misuse by the other party of her position of trust and confidence and by misusing a dominant psychological advantage to obtain an unjust enrichment at the expense of a susceptible weaker contracting party. It requires 2 elements.

Front 64

What are the 2 elements that it requires?

Back 64

1. A special relationship between the contracting parties. For example, a relationship involving a clergy person or an attorney and a client, a physician and her patient, or even a family relationship. and
2. Unfair persuasion of the weaker by the stronger by manipulating the weaker party into signing a contract, which if left alone, she would not have signed

Front 65

What does the M from FUUMED stand for?

Back 65

M - Mistake is simply one party's belief that is not in accord with the facts. It is an incorrect assumption by one party (unilateral mistake) or by both parties (mutual mistake).

Front 66

Equity will rescind a contract and grant a plaintiff restitution for what 2 things?

Back 66

1. a mutual mistake or
2. A unilateral mistake by one party if that mistake was known to the other party because an offeree cannot accept an offer if he knew or reasonably should have known the offeror was laboring under a unilateral mistake of a material fact. It is a mistake that only one party is aware of and under the circumstances it amounts to fraud for not disclosing the error to the other party.

Front 67

What is considered an error in business judgment and is not a basis to rescind a contract?

Back 67

A unilateral mistake as to value (price to be paid) or a party's mistake as to the amount of materials or labor needed to perform an executory contract.

Front 68

A unilateral mistake in calculating figures (e.g. a mathematical computer error) may give he mistaken party the remedy of equity of rescission. COPS (conjunctive) stands for what?

Back 68

C - the mistake was communicated to the other party before the other party changed her position based on reliance of mistaken figures.
O - the mistake involved ordinary negligence
P - prompt notice of the mistake was given
S - the mistake would impose a substantial hardship on the mistaken party if the court did not correct it

Front 69

What is equity of rescission used?

Back 69

Equity of rescission is frequently used in sale of goods contracts and construction bids to prevent an unjust enrichment by the other party.

Front 70

What is a mutual mistake?

Back 70

A mutual mistake is a substantial mistake existing at the time the contract was entered shared by both parties on a material part of the contract caused by a latent ambiguity. The law will not enforce such a contract because there was never a meeting of the minds and neither party should profit from a mistake jointly perceived and acted upon.

Front 71

T OR F: When both parties assume certain facts to exist and they enter a contract based on that assumption, then if it is erroneous, the contract can be rescinded.

Back 71

True.

Front 72

Problem: F found a small beautiful stone and sold it to B for $100 thinking the stone might be topaz. Both F and B expressed ignorance as to the stone's quality or value. When the stone was taken to a jeweler for cutting and cleaning, he advised B that it was a $10,000 yellow diamond. Is this mistake a basis to rescind the contract?

Back 72

No because there was no mutual mistake as to which stone was sold and there was no mistake as to its uncertain value. Risks as to current or future value are assumed by both contracting parties. F's mistake was simply a mistake as to value and there existed a conscious uncertainty as to its value and both parties took a risk that it might be worth more or less than the contract price.

Front 73

Could F, the diamond finder, seek to rescind the contract on the basis of unconscionability ($100 for a $10,000 diamond)?

Back 73

No because at the time the contract was made, its substantive and procedural elements were not unconscionable (terms and tactics).

Front 74

When are risks as to present or future value or of future events assumed?

Back 74

They are usually are assumed by the contracting parties when there is no mistake as to what the parties intended, but the mistake concerned the quality or value of the items sold, then this type of mistake is not a basis to set the contract aside.

Front 75

What occurs in the absence of fraud or unconscionability?

Back 75

A party who signs a contract is conclusively presumed to know its content and to have agreed to its terms. If she could read, then not reading it is inexcusable. If she could not read, then failure to have it read is equally inexcusable.

Front 76

Where there is no mistake as to what the parties intended and agreed upon, but rather a mistake was made in reducing that agreement to writing by omitting an agreed term or inserting an incorrect term, then the remedy is what?

Back 76

Reformation to conform the writing to the parties' agreement.

Front 77

What does reformation seek to do?

Back 77

Reformation does not seek to terminate the contract, but to continue it in a modified and correct form. Parol evidence (OF MICE) is admissible to show the mistake. The s/l for reformation is 6 years from the date the contract was executed.

Front 78

What does the E from FUUMED stand for?

Back 78

E - Equitable Defenses

Front 79

The defense of laches to a plaintiff’s equitable claim is available when?

Back 79

The laches defense is available in actions when a plaintiff has unreasonably and inexcusably delayed in seeking equitable relief, but has nevertheless timely commenced the claim. But, it would be unfair for a court to grant equitable relief. Most equitable claims are governed by a 6 year s/l.

Front 80

The defendant must show what 2 things under the defense of laches?

Back 80

1. an unreasonable delay by the plaintiff in seeking the equitable relief and
2. a substantial change in circumstances that would result in substantial prejudice/hardship to the defendant if the court grants the plaintiff equitable relief.

Front 81

T OR F: Laches IS an available defense to a money action at law.

Back 81

False. Laches is NOT an available defense to a money action at law.

Front 82

Under laches, what is the relative hardship theory?

Back 82

Relative hardship theory (see LIE injunction lecture of provisional remedies), which is used for both injunctions and specific performances.

Front 83

Under laches what is the unclean hands of the plaintiff defense?

Back 83

The unclean hands of the plaintiff
The unclean hands defense (Essay 1, Feb. 2009 and Essay 5, February 2012) is simply based on the premise that he who seeks equity must enter the court with clean hands. This doctrine seeks to prohibit equitable relief to a party who is guilty of immoral or unconscionable conduct. Courts do not use it to benefit a defendant who has asserted it, but to protect the integrity of the court. Equity will not assist a party who has engaged in unlawful, unconscionable, or inequitable conduct. It is discretionary with the court and the court may decline to assert it against a party who although at fault is less culpable then the other party asserting that defense.

Front 84

What does the D in FUUMED stand for?

Back 84

D – Duress

Front 85

When does the duress defense arise?

Back 85

When a party signs a contract out of fear induced by a wrongful threat that overcame that party's free will, then the duress defense arises. Duress (blackmail) is a wrongful threat of physical violence, a threat of false arrest or false imprisonment or a threat to destroy property unless a document is signed.

Front 86

What is considered duress?

Back 86

Duress is a threat to act or refrain from acting to force another party to sign a contract. It leaves the victim no reasonable alternative, but to agree to the contract or its modification. The threat can be directed at a friend or relative of the contracting party. That party’s assent to the contract is not voluntary, but is unfairly coerced. (e.g. a surgeon refusing to assist a bleeding patient unless the patient signed a release releasing the doctor from any malpractice).

Front 87

Duress requires 2 elements, what are they?

Back 87

1. coercion and
2. no reasonable alternative, but to agree to the contract or its modification.

Front 88

How may the coerced contract be ratified?

Back 88

The coerced contract may be subsequently ratified by accepting the contract's benefits and by not promptly moving to have the court rescind the contract.

Front 89

What is considered a legitimate form of coercion?

Back 89

A threat to start a lawsuit unless a party signs as a guarantor of the debt or to modify an existing breach contract is a legitimate form of coercion because it is a threat to do that, which that party has a legal right to do and it does not constitute duress.

Front 90

What does the I from I SSIP stand for?

Back 90

I - Impossibility of performance (aka the defense of excuse)

Front 91

If it becomes objectively impossible to perform the contract because of changed circumstances, then what occurs in reference to the party’s non-performance?

Back 91

Then a party's non-performance does not constitute a breach of contract because performance was excused by impossibility allowing either party to terminate the contract without liability. The impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract. This defense is narrowly applied by US courts because the very purpose of a contract is to allocate the risks that might affect performance. Thus, performance should be excused only in limited circumstances.

Front 92

To establish the "excuse" defense should show what 4 things?

Back 92

1. something unexpected and unforeseen occurred AFTER executing the contract. If it unknowingly occurred prior to entering the contract, then the defense would be mutual mistake. (if the parties were unaware of it)
2. Risk of that event was not covered by the contract or by custom in the trade (ROL rules).
3. Its nonoccurrence was a basic assumption on which the contract was made.
4. Performance was made "impossible" by the intervening event or under UCC Article 2 and Restatement of Contract it become "economically impractical" to perform the contract.

Front 93

The defense of "excuse" is divided into 3 categories, what are these 3 categories?

Back 93

1. "Impossibility" where the destruction of the subject matter or the means of performance make performance objectively impossible.
2. Frustration of purpose where performance is still possible, but the purpose for the contract has evaporated and performance would be meaningless. This doctrine is not frequently followed in the US. It arises when there has been a change in circumstances making one party's performance virtually worthless to the other party. However, if the intervening event was FORESEEABLE and a provision could have been inserted in the contract for its occurrence, then frustration of purpose cannot be successfully asserted.
3. Commercial impracticability (increase costs), which arises when performance is possible, but because of an unforeseen change in circumstances, the seller's cost of performance has become economically unrealistic. For example, a price increase of more than double or triple the original contract price.

Front 94

Under the commentary of UCC 2-615, unforeseen severe shortages of supplies caused by war, crop failure, embargoes, government restrictions, or a shutdown of a major source of supply resulting in sever cost increases fall within the realm of commercial impracticability. Will courts find this type of commentary to be deemed foreseeable?

Back 94

However, most courts do not follow this commentary because they find such events foreseeable. A radical increase or decrease in price is the very thing that a fixed price contract is designed to protect against. The more reliable remedy is for the parties to execute a detailed contract to protect against such radical price changes.

Front 95

In personal service contracts, one party’s serious illness will excuse what?

Back 95

Will excuse either party from that contract.

Front 96

Rule: The theory of impossibility frequently involves 4 Ds, what are these 4 Ds?

Back 96

D - death of a performing party
D - danger to life or health
D - destruction of the subject matter
D - delays causing performance to become impossible or commercially impractical (e.g. a contract party called up to active duty for 6 months or a mudslide closing the only road to a construction site for two months).

Front 97

Can civil riots, major snowstorms, and floods excuse a seller’s late delivery?

Back 97

UCC Article 2 states that floods, major snowstorms, and civil riots can excuse a seller's late delivery of goods preventing a buyer from asserting the perfect tender rule, which would allow the buyer to get out of the contract.

Front 98

In a contract for the construction of a new structure, risk of loss is on the builder if the structure is destroyed before title is turned over to the owner. However, in a contract to alter or repair an existing structure, its destruction will "excuse" performance (impossibility of performance), but risk of that loss is on whom?

Back 98

The building owner. If the contractor had partially performed prior to destruction, the contractor has a quasi contract claim for restitution, but only to the extent her services enhance the value of the structure prior to its destruction.

Front 99

The 1st S from I SSIP stands for what?

Back 99

S - The requirement of a signed writing (statute of frauds).

Front 100

Under the S/F, in order to enforce certain contracts, they have to be in writing and signed by the "party to be charged" with its breach (the defendant). The signed writing does not have to take any particular form. It can even be in what 5 forms?

Back 100

1. on a check
2. a placemat or a napkin
3. signed minutes of a corporations board of directors meeting
4. several related documents when pieced together can produce a signed enforceable contract and
5. an email contract containing an electric signature, which under NY and federal law has the same effect as a signature affixed by hand.

Front 101

What does a letter do in the case of a signed contract?

Back 101

A letter which simultaneously acknowledges and also repudiates a prior oral contract satisfies the S/F.

Front 102

Problem: S mailed a signed offer to sell Blackacre to B for $200,000. B telephoned S and said, "I accept your offer." 2 weeks later B changed her mind. Can S successfully sue B for either money damages or specific performance?

Back 102

No because the contract involves the transfer of an interest in realty and there exists no writing signed by the party (B) to be charged with breach of that contract.

Front 103

Assume it was S who changed his mind. Can B successfully sue S?

Back 103

Yes because the written offer was "signed by the party (S) to be charged" with a breach of that contract.