1

CONTRACTS OUTLINE
I. ANSWERING AN EXAM QUESTION
(1) Identify the issue (2) Explain the roles of the parties (3) The rule a. Transform rule from paragraph into a list if necessary b. Reconfigure list if necessary (4) Discuss each element of the rule systematically a. Begin with the most important b. Discuss them all (5) Begin each paragraph with a topic sentenceyour conclusion or an introduction to the issue (6) Think hypothetically (7) Use counterarguments and rebut them

II. CONTRACTS, GENERALLY

1. Contract Defined A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. 2. Promise; Promisor; Promisee; Beneficiary (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. (2) The person manifesting the intention is the promisor (3) The person to whom the manifestation is addressed is the promisee. (4) Where performance will benefit a person other than the promisee, that person is a beneficiary. 3. Agreement Defined; Bargain Defined An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. 4. How a promise may be made A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct. Express contract: promise that the law will enforce Implied (in fact) contract: conduct that implies a promise Enforceable Promise Mutual Assent (Offer and Acceptance) Definiteness (Certainty) Consideration (Bargain)

III. BREACH OF CONTRACT

(1) An Enforceable Promise Existed a. Assent, Definiteness, Consideration (2) Performance Was Due a. All conditions upon performance were satisfied (3) Nonperformance (4) The Nonperformance was unexcused a. Defendant must raise the excuses (5) Damages a. If no actual damage, nominal damages. SHAHEEN v. KNIGHT Agreement: Dr. Knight agreed (1) to sterilize Shaheen, or (2) perform vasectomy? o In return for payment from Shaheen Plaintiff says promise was to succeed Defendants six responses o Sterilization Contracts contravene public policy. o No implied warranty of cure exists o Defendant was not negligent. o Defendant did not commit fraud. o Defendants duties are not contractual. o Plaintiff suffered no damages. Society requires default terms o Perform services o Promise to use skill and care in that performance o No promise of success Doctors argument: default terms overrides any modified terms o The problem: the doctor could promise anything and not have to abide by it Contracting for better care vs. worsethere must be a floorour default terms o Court says they should be allowed to promise more Contracts are democratic o Mutual assent o Mutually beneficial Often makes little sense to preclude these exchanges When shouldnt they be enforced? o When the contract hurts others o Virtual unanimous opinion that it shouldnt be allowed even with no statute (we havent thought of everything) If only one choice is acceptable, make law for all Court says plaintiff suffered no damage o Plaintiff could have avoided loss by giving child up for adoption Chose not to, to bear burden Benefit/joy of child outweighs costs

4 Is there a difference between never having a child and putting one up for adoption? o Yesemotional costs Decision to have vasectomy o Benefit of child < care costs o Benefit care cost < price of surgery But emotional costs must be considered Decision to keep child o Benefit care cost > cost to abandon o this cant be a decision based on damages o No effort to evaluate damages How did the court justify dismissal? o To allow damages would be against public policynormal birth of a normal child o Against public policy to hold it is a loss. How did it support the public policy? o To protect public health, safety, morals, or welfare . . . o so obviously . . . that there is virtual unanimity of opinion in regard to it. Is it truly a public issue? Mostly affects individuals involved o Argument could be made about morals Court did not support reasoning wellfound near universal public opinion o 1847 judicial opinion on marriage courts shouldnt evaluate public policyjudge reached outside the rules to get the decision he wantedfound a reason Judge wasnt willing to rule benefits will ever be less than cost o Judge doesnt think these cases should go to trial ever Easy to evaluate cost of child, difficult to evaluate benefit of child, but courts always take children as a benefit

IV. REMEDIES
1. Expectation Interest: the court attempts to put the promisee in the position in which he would have been had the promise been performed (had the promisor not breached) Plaintiffs position if promise performed 2. Reliance Interest: an attempt to put the promisee back in the position in which he would have been had the promise not been made Plaintiffs position if promise not made When the promisee changed its position to its detriment in reliance on the promise Damaged intended to compensate for the reliance, but does not take into account lost profit HAWKINS v. MCGEE Facts Plaintiff underwent surgery, performed by defendant, grafting skin from his chest to his palm, where existed a scar from an earlier electrical accident. The surgery crippled plaintiffs hand and rendered it unsightly. Attorney erred in what he asked for o Plaintiff made decision based on defendants promise that he had the skill to operate o Asked for reliance interest Assumpsit or deceit? o Deceit false statement on which plaintiff relied to his detriment Statements, falsehood, reliance, injury Lacked skill, scar unsightly, hand useless o Assumpsit: label, promises, breach of promise Trial court measured reliance interest o Harm to the person almost always tort. o Tort usually involves restoring prior position. Appellate court interpreted the issue as a contract claimmeasured expectation interest o Attorney wasnt thinking about expectation, but about recission Where he is now compared to where he should have been after performanceExpectation interest o Expectation wrong: failure to perform Difference before surgery and after surgeryreliance (promise not made) o Reliance wrong: making of promise Contract law: measuring pecuniary interest o nonpecuniary interest (emotional distress) can be included if physical injury or if emotional distress particularly likely to occur after that kind of breach 3. Restitution Interest: an attempt to put the promisor back in the position which he would have

6 been had the promise not been made Defendants position if promise not made When a promisee conferred a benefit to the promisor in the course of the transaction Intended to deprive promisor of benefit Does not take into account lost profit or reliance by the promisor that produces no benefit to the promisee We award reliance if we dont know what expectation is, therefore the reliance is limited to the amount of the expectation How much better off was the defendant as a result of the service? Two measures: o How much it would cost to get someone else to do it Fair market value Objective o Increase in recipients wealth Subjective: what the person actually received When apply increased wealth? o Breaching Party seeking restitution o Fair Market Value might exceed K Price o Even that might exceed value to owner E.g., home improvements increase value by less than cost Other settings, Value less clear o Benefit, but not necessarily worth the price o Didnt bargain for services o Might not be the next expenditure she would choose BUSH v. CANFIELD Facts Parties agreed to a contract in which the defendant would deliver 2000 barrels of wheat flour to the plaintiff for $7 per barrel, $5000 to be paid in advance, the rest at a later date. Plaintiff paid the $5000, and defendant failed to deliver the goods. The price of flour was assessed at $5.50 on the date of delivery. The trial court awarded damages to the plaintiff in the amount of plaintiffs advance plus interest on that amount. Holding Affirmed. The jury was correctly charged and awarded the plaintiff the appropriate amount of damages. It would be unjust for the defendant to keep the $5000 paid by the plaintiff after failing to deliver the goods. The defendant argued that had he fulfilled the contract, the plaintiff would have suffered loss, thus that loss should be deducted from the damages awarded. His breach of contract cannot be used as a defense. The actual damages suffered by each party after a breach cannot always determine the damages that should be paid. Restitution damages are the most appropriate and just in this matter. BRITTON v. TURNER

7 Facts Parties agreed to a contract in which plaintiff would work for defendant for one year for a sum of $120. The contract stated that the value of the labor was $100. The plaintiff ceased work after nine and a half months without consent of defendant, but without damage to the defendant. Trial court jury, as instructed, awarded plaintiff $95 under the quantum meruit, for the labor he performed. Defendant appealed. Holding Affirmed. Plaintiff is entitled to recover for the value of his labor. The party who only partially performs is subjected to a loss and is worse off than had he not performed at all. In a contract for work rather than labor, the party receiving the work can refuse to accept it if it is not performed as required by contract, or else is liable for the value of what he receives. A contract for labor should be not different, even though the party receiving the work does not have the option of refusing the work once completed. In such a contract, the receiving party automatically accepts partial performance because of the possibility that the other party will cease work before completing the term. He is thus liable to pay the laborer, the breaching party, for any benefit he has received, less any damage from the breach. 4. Defendants position if promise performed

V. QUASI-CONTRACT
Contract implied in law, quantum meriuit, unjust enrichment For the value of services rendered (restitution) Contract Implied in Law o No contract at all; no promise. o Court, in effect, concludes that you should have made a promise. o Law makes the promise, regardless of facts Elements: o Benefit to defendant o Unjust to allow defendant to retain benefit without compensation to the plaintiff No contract but the law decides there should have been When is enrichment unjust? o When the benefit is delivered without donative intent A volunteer bypasses negotiation o Treated like donor if fail to bargain o Not unjust for defendant to retain benefit without compensating plaintiff Understandable lack of negotiation o Impossible o Emergency o Thought she had negotiated o Mistake precluded negotiation

COTNAM v. WISDOM Facts Harrison suffered serious injuries and became unconscious after being thrown from a streetcar. Appellee was summoned to perform emergency surgery on Harrison but was unable to save his life. Successful recovery of restitution interest based on quasi-contract The doctor was not a volunteer o Did it with intention to get pecuniary gainhis profession Critical that he was doctorhe was in the habit for charging for the service o Had a fee scheduleable to assess fair market value o We can measure restitutiondoctor saved him from having to pay someone else The doctor says he should be paid based on patients wealth o The court says nomarket value Are we looking at the benefit or what the parties would have done? o The former is the better choice o The latter: we risk screwing it upthe court cant figure out what the bargain would have beenwe shouldnt assume

9 Wrongful rescue What is the justification for making a bargain for someone who didnt agree to the bargain? Why are we asking what contract there would have been? o Unjust enrichment: no contract at alljustifies hypothetical bargain o What about a hypothetical bargain without enrichment? Was there a benefit? Was there any enrichment? Harrison died o Without services he would have died, with services he died o Chance of life, but under what conditionsprice of procedure, how long life extended, how life would becant be assumed Success is a benefit, but chance isnt automatically a benefit Court held that unsuccessful services were a benefit o Kelly doesnt agree Who should pay? o The person who diedhes paying for a benefit he didnt get and that he didnt agree to pay for o The publicthe people who live and could in the future face such a benefit

MARTIN v. LITTLE BROWN Facts Martin (Plaintiff-Appellant) informed publishing company Little Brown (DefendantAppellee) that one of their books had been plagiarized. Plaintiff offered to provide proof, and defendant invited plaintiff to do so. Once defendant won copyright infringement suit, plaintiff demanded compensation for his services. Unsuccessful attempt to recover based on quasi-contract No express contract No implied contractseeking service did not imply promise to pay Was LB benefited? Yes Was keeping it unjust? No The significant difference between Cotnam and Martin: unconscious vs. conscious o Martin could have negotiated a contract with Little Brown but chose not to o Cotnam: negotiation was impossible Britton and Wisdom didnt do anything wrong

Key: Did you bypass an opportunity to negotiate? If yesvolunteer (failure to bargain)just for defendant to keep benefit without compensating the other party

10

VI. ENFORCEABILITY
A. Why we enforce contracts Systemic Reasons: how else would we decide who gets what? The law enforces promises when it has some confidence the contract will benefit society o To some extent benefits to society reflect that of individuals o Ex/reallocating goods to someone who values them less to someone who values them moresociety benefits o Society doesnt care who gets the better dealbetter off if the exchange occurs Market approach/Efficiency principle: contracts produce efficient exchangesboth parties are better off o Economy motivates contract law o Individuals know their needs better than planners o Needs of individuals expressed in contracts o Not perfectpeople dont always know/express desires correctly Law matches reasons o Consideration: exchanges increase societal wealthconsideration limits enforcement to exchanges o Assent: both parties must agreeshows that theyre better off Making the contract is about allocating the riskyou cant change your mind after you know the result Contract is the way people make their lives better o Exchange something they have for something they want more Some deals are so bad that they should not be enforced, or they demonstrate that there was in fact no agreementdefenses B. Requirements for an enforceable contract Assent: Why do we require assent? Mutual assent gives us confidence that both parties feel the exchange is beneficial Consideration: The exchange demonstrates that the parties value what they are getting more than what they are giving up Exchanges increase societal wealthconsideration limits enforcement to exchanges Certainty:

11 Necessary for the court to determine if there has been a breach, what that breach was, and how to remedy the breach

VII. CONSIDERATION
17. Requirements of a Bargain A contract requires a bargain in which there is a manifestation to the exchange of mutual assent to the exchange and a consideration. Elements (1) Consideration: exchanges increase societal wealthconsideration limits enforcement to exchanges (2) Mutual assent: both parties must agree o Exceptions: some deals are so bad that they should not be enforced, or they demonstrate that there was in fact no agreement MARVIN v. MARVIN Successful case for palimonyunmarried cohabitants Love at its root is really a decision based on whether youll be better off or not in the relationship 71. Requirement of Exchange; Types of Exchange (1) To constitute consideration, a performance or a return promise must be bargained for. (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of a. An act other than a promise, or b. A forbearance, or c. The creation, modification, or destruction of a legal relation (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person. Two Options: Consideration can be o a promise OR o a performance The promise or performance must be bargained for Four requirements to a bargain o The promisee has to give something o The promisee must have given that something in exchange for the promise

12 o The promisor had to seek that something o The promisor must have sought that something in exchange for his promise The promisor in this section is the party resisting enforcement Promising not to do something you dont have a right to do or that you have to do anyway is not consideration

79. Adequacy of Consideration; Mutuality of Obligation If the requirement of consideration is met, there is no additional requirement of (a) A gain, advantage, or benefit to the promisor, or a loss, disadvantage, or detriment to the promisee; or (b) Equivalence in the values exchanges; or (c) mutuality of obligation 81. Consideration as Motive or Inducing Cause (1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise. Conditional Gift JOHNSON v. OTTERBEIN UNIVERSITY A gift with a condition Johnson was the promisorthe question is did Otterbein give consideration o Otterbein agreed to use the money in particular way when it was given o Did Johnson seek that in exchange for the promise? Can you give a gift with a condition attached? o Yesits still a gift Can be made to be consideration with addition details The thing given must be sought in exchange for something else o The way an item must be used is not same as how an item must be earned The former=gift The latter=consideration The university is not earning the money by spending it in a particular wayacceptance of the condition was not consideration A promise to make a payment as a gift may be revoked at any time before payment Key: Conditional gifts do not automatically create enforceable agreements. To constitute consideration, the thing given must be sought in exchange for something else. HAMER v. SIDWAY Facts William Story Sr. promised his nephew $5000 if he refrained from drinking, using tobacco, swearing, and playing cards or billiards until he turned 21. After that birthday, Uncle again promised nephew the money, but would wait until Jr. was responsible enough to handle it. Uncle died before paying. Plaintiff received nephews claim on assignment. Executor of estate failed to pay; Plaintiff sued.

13

Holding Nephews restriction of actions he was free to take constituted sufficient consideration for an enforceable contract. It does not matter whether the promisor benefited. The contract in question, both oral and to be performed in greater than one year, would ordinarily be unenforceable due to the Statute of Frauds, but the promisor waived this protection with his continued promise in his letters and statements after the promisees date of final performance. Past Consideration 86. Promise for a benefit received (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 benefit was a gift or the promisor had not been unjustly enriched b. If the value is disproportionate to the benefitwont enforce all of the promise What you need: o A promise o A benefit (previously received) given by promisor received by promisee o Injustice if not enforced Exceptions o Gift o No unjust enrichmentvolunteer o Disproportionate compensation

MOORE v. ELMER Facts Elmer agreed to give Moore (fortune teller) or her heirs money to pay off her mortgage her prediction that his death would occur before 1900 proved true. In exchange for that promise, Moore provided her services. Holding No consideration existed. The plaintiff agreed to give her services at defendants request, without any understanding that he would pay for them. The alleged consideration does not support a promise made at a later time. A favor cannot be later turned into consideration later. Elmer promised to pay off a mortgage in exchange for the reading (information) Questions o What did the promisee (Moore) give the promisor (Elmer)? o Did the promisee give it in exchange for the promise? No she gave it before she received the promise o Did the promisor seek the information in exchange for the promise?

14 Nohe made the promise after he had received the returnyou cant seek something you already have Past consideration is not really consideration o There are exceptions to the requirements of considerationgives rise to accepted past consideration Statute of limitations Discharge in bankruptcy Nonoccurrence of a condition Voidable promises o Valid considerationpromise becomes unenforceablenew promise is made No consideration for new promise Court can decide to enforce the promise if party waives the right to the above exceptions Past consideration is being recognized

Key: Services rendered upon request support a later promise to pay for such services only in cases where the original request implies an agreement to make payment for such services. Past Consideration and Moral Consideration MILLS v. WYMAN Facts Mills (plaintiff) cared for defendants ill son, Levi Wyman, who was unable to pay, and 25 years old and independent of his father. Upon hearing his son was ill, defendant promised to pay Levis expenses. Levi subsequently died. Holding Affirmed. Nonsuit granted. Plaintiff voluntarily bestowed services on Levi. Defendants promise to pay based on gratitude, not legal obligation because Levi was emancipated. Defendants promise to pay was thus made without consideration, and is thus unenforceable. The promisee gave the promisor: Care for son o Was not given in exchange for promisecare preceded promise Did Wyman make a promise to pay for the care preceding the promise? o Promise was to pay for the careall of it If promise was made in considerationthe promise is enforceable Consideration doesnt have to be fairparties pick the price

WEBB v. McGOWIN Facts Webb (plaintiff-appellant), in the course of work for a lumber company, was to drop a pine block from the upper floor of the mill to the ground below. McGowin (defendant-appellee) stood directly below the block as Webb began dropping it. Seeing that, plaintiff went down with the block to divert it, in the process saving McGowin great harm and suffering severe injuries himself. McGowin agree to pay Webb $15 every two weeks for the remainder of Webbs life. The payments continued for a period after McGowins death, but then stopped.

15 Holding Reversed and remanded. Writ denied. McGowin received material benefit from Webbs action and was morally bound to compensate him for it. Once he agreed to do so, his promise became enforceable, with the benefit to him in life and preservation of the body serving as consideration. Promisee gave: rescue The service preceded the promise (like Moore and Mills)

Key: A promise in return for a past event is enforceable if the promisor received material benefit from the promisees action. Mills vs. Webb Differences o Mills: No performance o Mills: indirect benefit (to son) o Mills: significant benefit o Mills: plaintiff lost money o Mills: hasty promise

Webb: Partial performance Webb: direct benefit Webb: insignificant benefit Webb: plaintiff physically injured Webb: considered promise (according to court) o Mills: promise unclear Webb: promise clear th o Mills: 19 C Mass. Webb: 20th C Alabama o Mills: promisor (Wyman) breached Webb: estate breached o Mills: promise written Webb: promise oral o Mills: altruism Webb: heroism Insignificant issues: o Time/location o Written promise ought to be more enforceable than oral Mills should have been in a better position o Performance: whether he performs a little or not at all doesnt matterpromise becomes enforceable the minute the offer is acceptedeither enforceable immediately or not at all If no performance in Webb, it still would have been wrong McGowin had intention to payintention to pay doesnt determine whether he meant it to be gratuitous or contracted A contract becomes enforceable at formation Formation occurs when there is an offer and it has been accepted (meeting of the words) o Promisor versus estate: the estate is really an agent of McGowin If the promise is enforceable its enforceable against McGowin and estate The estate is legally McGowin The estate must try to preserve money o Altruism vs. Heroism o Type/degree of loss suffered Worse in Webb

16 How much harm would be enforeceable? Benefit to the promisor and detriment to promisee doesnt matter What matters is the bargain Potentially significant issues: Constructive bargainMIGHT matter o Webb v. McGowin Constructive bargaindidnt bypass negotiation If bargaining had occurred, it would have produced the same bargain (at the minimum) o Mills v. Wyman: Negotiation might have been possible Mills delayed in sending letter Benefit to promisorDOES matterwhy? o The parties would have bargained for it o Is it an unjust enrichment case? Could be Can apply unjust enrichment without a promise also o Intention to get compensation? Cotnam v. Wisdommedical professionals o Or Donor? Mills and Webb could both be Further Mills could be a volunteer What is it about the benefit that makes a difference? o With unjust enrichment there is an obligation to pay o Social/moral obligation to repay a giftdoes not in itself make repayment enforceable

17

VIII. CONTRACT MODIFICATION AND PREEXISTING DUTY

Preexisting Duty 73. Performance of a Legal Duty Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs form what was required by the duty in a way which reflects more than a pretense of bargain. Legal duty o Not moral duty Not doubtful o If duty uncertain, then making it certain is consideration Not the subject of honest disputegives wiggle room o If you have a right to resist in court, relinquishing that right is consideration o Other party can buy your right to contest the claim (see section 74) Have the right to litigate any claim you honestly think can succeed o If the duty is doubtful or under dispute it is not included in the preexisting duty rule In the Uniform Commercial Code 2-209 an agreement modifying a contract under Article 2 requires no consideration to be binding o Applies only to sales of goods o UCC also includes a requirement of good faith and fair dealing o Modification must be made in good faith 74. Settlement of Claims Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless (a) The claim or defense is doubtful because of uncertainty of the facts, or (b) The forbearing or surrendering party believes the claim or defense may be fairly determined valid

18

Evasions of Preexisting Duty Add something to the duty o Promisor must seek the additional something Cancel the original deal and make a new one Waive the original obligation without cancellation of contract Modification 89. Modification of Executory Contract 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. Promise: Assent to the modification. Neither side has fully performed. (a) Fair and equitable Circumstance not anticipated at the time the contract was made. (b)UCC 2-209 (c) Reliance STILK v. MYRICK The original contract: o Owners promised sailors 5lbs./per month o Sailors promised to work as required by the Captain until the ship returned to London Contract as allegedly modified: o Captain promises additional pay (share of deserters pay in addition) o Sailors promised to do the work as required by the captain until the ship returned to Londonthe same Court says that sailors must take emergencies into account when making bargain The sailors promised THE SAME services in the second agreement Did the captain seek something more than the sailors original promise? o No he sought what he should have expected them to do anyway Why did the captain make the new promise? o Fairness/honor: some amount of work, fewer peoplewouldnt cost more o Fear of breach by remaining sailors Sailors did not have right to desertion/mutinitythe captains payment for them not to do that is not in exchange for consideration They did more than they might have otherwise but not more than they promised The new promise would mean that the sailors breached the first The motive doesnt matter: you can seek something even if its not your motive

19 If you could bargain for more money in exchange for work already owed o Frequent demands for more moneythreats to breach unless paid more o Employer could seek more work for same pay o **Undermines bargaining o Undermines reliabilityyou will never be sure that the bargain you accept will be the bargain you receive 89 and Stilk o Both parties have continuing duties o If the modification is fair and equitable in view of the circumstances not anticipated by the parties when the contract was made o The change: two people desertedwas it anticipated?

ALASKA PACKER ASSN. v. DOMENICO How would the preexisting duty rule apply in Alaska Packers? Was the preexisting duty either doubtful or the subject of honest dispute? o Plaintiffs claimed yes because of defective nets o The court said this argument failed because the defendant had an interest in providing the best equipment possible The court did not determine the case under the honestly believed standard, but by whether there was a good argument How would section 74 apply? o (b) The forbearing or surrendering party (the fisherman) believed that the claim or defense may be fairly determined to be valid How would this argument be defeated? Repeat playerscould work both directions Maybe they should know how the industry works The only way you can find out what someone believed was by asking them The jury has to decide if theyre lying **tough defense to attack o The fishermen could have given up right to plead bad nets as defense in return for higher compensation o If today Alaska Packers might have come out the other waylike Brian BRIAN CONSTRUCTION AND DEVELOPMENT CO. v. BRIGHENTI Contractor promised to pay the higher price, the price is fair, adjusting the bargain seems legitimate BUT the contract said the subcontractor had to do everything necessary to finish the entire work properly o Who should bear the cost? Contractor Sought Excavation o Can Subcontractor give excavation in exchange? If duty is doubtful. If Subcontractor honestly believes duty is doubtful.

20 The argument: does the subcontractor have a defense? o He did promise to perform o Both parties were mistaken as to the work that needed to be doneplausible claim of mutual mistake o He can give up his right to present the mutual mistake defense in consideration for more compensation for the same work Applied Section 89 o Contractor had agreed to the modification o Neither party had fully performed o Subsurface obstructions were not anticipated by the parties o New price fair and equitable, given the additional cost of dealing with obstruction Requirements when consideration turns on whether the duty is really owed o The defense must be validwhen there is no legal duty o Can only answer that defense after the defense is litigated o Up front, the defense must be honest to waive it in exchange for a promise o If consideration turns on whether the duty really is owed: Need to know if the defense is valid. If valid, no legal duty; if invalid, legal duty. Can only answer that after defense litigated. The plaintiff can sue after settlement and argue the defense was invalid ** must allow these settlements o If consideration turns on whether the duty is might be invalid: Need to know if defense honest. If honest, can waive it in exchange for a promise. Can answer that without litigating the defense.

Key: Does the modified contract require obligations that the first did not?

21

IX. PROMISSORY ESTOPPEL

Elements 1. Promise 2. Foreseeable Reliance: action or forbearance in the way the promisor reasonably should have expected the promise to rely on the promise. 3. Actual reliance (in a way the promisor reasonably should have expected) 4. Detrimental reliance: gives rise to the injustice injustice can be avoided only be enforcing the promise. Equitable estoppel: misrepresentation of facts known by the party estopped with the expectation that it would cause reliance by the other party Promissory Estoppel: Where induced reliance upon the promise results in detriment to the promisee, the promisor must be held to his promise even where there is no consideration o No misrepresentation of facts o Gratuitous promise that is known by both parties to be gratuitous Estoppel because the defendant cannot plead lack of consideration Estoppel generally: You cant say that! You told me something different earlier and I relied. Other types of estoppel o Judicial Estoppel: you won a motion asserting the law said X; you cant now assert an inconsistent interpretation of the law. o File-wrapper Estoppel: you got a patent asserting your claims did not cover X; you now sue claiming X infringes your patent. o Equitable Estoppel: you told me the facts were this and I relied; you cant now claim the opposite. o Waivers becoming Estoppels: you told me you would not require timely

22 submissions; you cant demand timeliness now. Equitable Estoppel/ Family Setting RICKETTS v. SCOTHORN Did the grandfather seek something? o Yeshe suggested he didnt want his granddaughter not to work Did she give that something? o Yesshe stopped working (though temporarily) Did she give it in exchange? o Grandfathers request was part of the reason Did he seek it in exchange? o Nohe never made the promise conditional on her quittingno consideration The plaintiff alleged there was consideration o The defendant did not deny consideration o He tried but was not allowed to deny considerationhe was estopped from doing so If he doesnt deny it (even if its because he cant) consideration did exist Remedy: Expectation interest o $2000 plus interestenforced the award How much did the granddaughter lose in reliance on the contract? o $10/week for a year$520 o Received interest for a year120 o Net loss: $400 Why did the court choose expectation over reliance? o The remedy granted for breach may be limited as justice requiresyou are allowed but dont have to justice requires=reliance o If we are avoiding injustice a promise had never been made o The court enforces the promise as though there was consideration Expectation is the common remedymost courts do not accept the invitation for reliance o Choose to enforce the promise o Even for equitable estoppel Border dispute: A built here because B said it was her propertyB later found out it was her property and sued o No reliefestoppel Equitable estoppel is a statement of fact, promissory estoppel is a promise o If you make a promise, its implied that you intend to keep it prediction/commitment Promissory Estoppel/ Business Setting FEINBERG v. PFEIFFER There wasnt consideration They made a promise She reliedshe left earlier than she might have

23 Foreseeable that she would rely Avoid injustice by enforcing promise because she lost those years and could not work when they stopped paying full amount [Doesnt come up as often anymore]

X. DEFENSES
Additional facts and circumstances that rebut or avoid the normal significance of the prima facie case of contractual obligation, breach, and damages. Summary: Duress: easy case Incapacity: easy in theory, hard in fact Undue influence: approaching the borderline Misrepresentation: easier againcaused by the other person Mistake: value what you thought you were getting more than what you thought you were giving upmistake is yours A. Incapacity Four types: Guardianship: court has appointed someone else to manage persons affairs o Represents the incapacitated person o The persons contracts are void Infancy o Technically you gain capacity the day before 18th bday o Voidable contracts Mental Illness or defect Intoxication o Not just alcohol

24 15. Mental Illness or Defect (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect a. He is unable to understand in a reasonable manner the nature of consequences of the transaction, OR b. He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. (2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances may have changed that avoidance would be unjust. In such a case, a court may grant relief as justice requires. Elements of Part (1) Inability to deal Caused by Mental illness or defect o Mental illness or defect is limited to diagnosable medical conditions o If you know you have a condition and you can counteract it, it doesnt count Inability to deal may be EITHER o (a) Cognitive: inability to understand nature or consequences of transaction, OR o (b) Volitional: inability to act in a reasonable manner to this transaction AND the other party has reason to know Understood the transaction but couldnt control their behavior Must have been unable to act reasonably due to a severe medical condition Defense relates to formation, not performance o Was assent affected by illness o If assent OK, expect performance Understood Transaction o Illness not pervasive; some contracts enforceable o Unlike Guardianship & Infancy; no contracts allowed

Elements of Part (2) Applies only if the contract is on fair terms No knowledge of mental illness (actual knowledge) Avoidance would be unjust o Partial performance: House already painted, cant be unpainted. o Changed Circumstances o May refer to other kinds of reliance notes already photocopied o May refer to new information change in market undercuts new transaction. o [Suggests partial avoidance allowed. Avoid re unperformed portion, but enforce re performed portion]

25 Reason to know: Policy arguments o How broadly do we want the text to apply? o The broader the application, the more cautious people will be in entering these contracts Looser standard: easier to raise a defense, more difficult to contract Stricter standard: more difficult to raise a defense, ability to contract more readily available Grammatical Argument o Pronouns tend to refer to most recent antecedentthe condition Why they used the condition: Maybe they meant his inability to act in a reasonable manner in relation to transactionmore reason to substitute condition for that Comparison to use in part (2): Reason to know referred to parties without knowledge of mental illness or defect ORTELERE v. TEACHERS RETIREMENT BOARD OF NEW YORK Court interpreted reason to know as reason to know of mental illness not that the mental illness caused an inability to act in a reasonable manner o The Board did have reason to know o BUT the court did not consider the alternatives to meaning of reason to know or explain why they chose the one they did o Courts decision not dispositive in interpreting reason to know o Case not that persuasive 14. Infants Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the persons eighteenth birthday. A minor cannot disaffirm a purchase for necessities (including legal services) 16. Intoxicated Persons A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication (a) He is unable to understand in a reasonable manner the nature and consequences of the transaction, OR (b) He is unable to act in a reasonable manner in relation to the transaction. Must know the person is intoxicated AND that causes inability to understand/act in a reasonable manner More difficult test than mental illnessintoxication is typically voluntary B. Duress

26 174. When Duress by Physical Compulsion Prevents Formation of a Contract If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent. 175. When Duress by Threat Makes a Contract Voidable (1) If a partys manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. (2) If a partys manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction. Elements (1): Improper threat Inducement (of assent) o Substantially contributes to manifestation of assent o Dont have to prove but for this factor you would have made a different choice No reasonable alternative (but to assent) 176. When a Threat is Improper (1) A threat is improper if a. What is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property, OR b. What is threatened is criminal prosecution, OR c. What is threatened is the use of civil process and the threat is made in bad faith, OR d. The threat is a breach of the duty of good faith and fair dealing under a contract with the recipient (2) A threat is improper if the resulting exchange is not on fair terms, AND a. The threatened act would harm the recipient and would not significantly benefit the party making the threat, OR b. The effectiveness of the threat inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, OR c. What is threatened is otherwise a use of power for illegitimate ends. Good Faith Which obligations under a contract are obligations of good faith and fair dealing? Good faith is used to fill gaps in a contract infer terms the parties must have intended, but did not specify. HACKEY v. HEADLEY Facts: In dispute over how much owed , admitted at least $4,260. To settle dispute, offered $4,000. After protest, accepted $4,000. Held: not duress. Vyne v. Glenn: persuasion of other debtors not to pay made threat more powerful

27 example of 176.2.b AUSTIN INSTRUMENT v. LORAL CORP. Facts: Subcontractor on one government contract threatened to breach that contract unless contractor awarded it the subcontract on a second government contract. Subcontractor protested and sought substitute supplier, unsuccessfully, then succumbed to threat. Held: Duress. UNITED STATES v. PROGRESSIVE ENTERPRISES Facts: bid $5,217 on a contract. When materials costs rose, said it would only fill the order at the price current at the time of shipment (then, $7,350). agreed without protest, but after delivery paid only $5,551. The threat is clear: agree to a price increase or I will not perform Inducement is not the issue o Modifications in the face of unanticipated circumstances is allowed UCC: good faith request Must be acceptable to ask for a modification Must be acceptable to state that modification is important o If you have a good faith reason for seeking change in terms, its okay to threaten to breach in order to obtain modification Issue: When is a threat improper? o Depends on power of threat and reasonableness of alternative o Is threatener threatening something he has a right to sell? C. Undue Influnce 177. When Undue Influence Makes a Contract Voidable (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare. (2) If a partys manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim. (3) If a partys manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction. Elements of Undue Influence: Undue Influence o Unfair persuasion AND o Either Domination OR Relation of trust Induces assent

28

Domination: dependency (when one party depends so heavily on another that she feels she cannot refuse the others offer ex: nurses of elderly), overbearing presence (physical size), relationship authority (employee) OR Special relationship: You believe that the other person is looking out for your best interest. Trustees to fiduciary beneficiaries, clergy, close friendship, family members, lawyers to their clients, arguable husband and wife. California Civil Code 1575 Undue influence consists: 1. In the use, by one in whom a confidence is reposed by another, or who holds a real or apparent authority over him, of such confidence or authority for the purpose of obtaining an unfair advantage over him; 2. In taking an unfair advantage of another's weakness of mind; or, 3. In taking a grossly oppressive and unfair advantage of another's necessities or distress. 1: Two prongs: (1) Confidence o Persuaded person reposes confidence in the persuader o Persuader uses confidence to obtain o Unfair advantage (2) Authority o Persuader holds real or apparent authority over persuaded o Persuader uses authority to obtain o Unfair Advantage 2: Weakness of Mind, Takes Unfair Advantage 3: Necessities or Distress, Takes Unfair Advantage, Grossly Oppressive Advantage ODORIZZI v. BLOOMFIELD SCHOOL DISTRICT Facts: After being arrested for homosexual activity, a schoolteacher was visited at home by the principal and superintendent, who persuaded him to resign rather than face discharge proceedings (which the law obligated them to pursue). The teacher sought to rescind the resignation. Restatement version o Relation of trust? Do employer and employees automatically have a relationship of trust? Principal, teacher, superintendent Not necessarily When discussing employees resignation? Can make it worse o Domination Two against onephysically intimidated? High ranking officialsawed by their authority?

29

Were bargaining tactics unfair?

o o o o o o o

Unusual or inappropriate time Unusual place Immediate assent demanded Extreme emphasis on harm of delay Outnumbering Lack of advisers Starting time precludes obtaining advice Any one taken alone could be appropriate But they can add up to a wrong

D. Misrepresentation 159. Misrepresentation Defined A misrepresentation is an assertion that is not in accord with the facts. Silence can be an assertion Not in accord doesnt mean false 164. When a Misrepresentation Makes a Contract Voidable (1) If a partys 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. (2) If a partys manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidabe by the recipient unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction. Elements of Part (1): Misrepresentation Fraudulent OR material misrepresentation Inducement: misrepresentation induced the defense Justifiable reliance Part (2): when the misrepresentation is made by a third party The seller might be able to enforce the transaction despite the false transaction If he acted in good faith and without reason to know of the misrepresentation And gave value OR relied materially on the transaction Policy Implication Misrepresentation is about assent, not misconduct If you are misled, we have no confidence that assent denoted mutually beneficial exchange Assent = valued what you thought you were getting more than what you thought you

30 were giving up 162. When a Misrepresentation is Fraudulent or Material (1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker a. Knows or believes that the assertion is not in accord with the facts, or b. Does not have the confidence that he states or implies the truth of the assertion c. Knows that he does not have the basis that he states or implies for the assertion (2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, OR if the maker knows that it would be likely to induce the recipient to do so. Elements (1) Fraudulent if: Maker intends the assertion to induce a manifestation of assent AND Assertion lack honesty in one of three ways: a. Knows or believes that the assertion is not in accord with the facts, or b. Does not have the confidence that he states or implies the truth of the assertion c. Knows that he does not have the basis that he states or implies for the assertion Must state or act in a way that implies you have a basis for your statementthen the statement becomes a lie Part (2) Material Option 1: Likely to induce a reasonable person (objective) o Reasonable for that person to be induced to manifest assent under the circumstances o What a reasonable person would be likely to do, not what he would actually do Option 2: Maker knows it is likely to induce this person (subjective) o Covers unreasonable people o The maker knows its likely to matter to this person o The fact that it would matter to reasonable people becomes irrelevant 167. When a Misrepresentation is an Inducing Cause A misrepresentation induces a partys manifestation of assent if it substantially contributes to his decision to manifest assent. Has only to be substantial factor, not the primary factor of the decision You dont have to show that the person would have made a different decision HALPERT v. ROSENTHAL Facts Defendant agreed to buy house from plaintiff for $54,000, but refused once he found out about the houses termite infestation. The house sold for $35,000, and plaintiff sought difference. The defendant counterclaimed, seeking the return of his deposit. Holding Affirmed. Innocent misrepresentation is grounds for recission of a contract if the other party relies on that information as a statement of fact in his decision to make the contract because it would be unjust for the party who made the misrepresentation to retain the benefit of the contract induced by

31 misrepresentations. Material misrepresentation case Was their ignorance culpable? o Negligence possible o Not mentioned: no facts that allow us to conclude negligence The court doesnt care if there was a lie or negligencethe outcome does not depend on the existence of fraud Justifiable Reliance Questions of justifiable reliance usually revolve around statements of opinion Reliance on factual statements is justifiable unless: o The recipient know the truth (at the time the contract is formed) OR o The truth is so easily ascertainable that the recipients ignorance amounts to a failure to act in good faith 168. Reliance on Assertions of Opinion (1) An assertion is one of opinion if it expressed only a belief, without certainty, as to the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters. (2) If it is reasonable to do so, the recipient of an assertion of a persons opinion as to facts not disclosed and not otherwise known to the recipient may properly interpret it as an assertion a. that the facts known to that person are not incompatible with his opinion, OR b. that he knows facts sufficient to justify him in forming it. 169. When Reliance on an Assertion of Opinion is Not Justified (1) To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it UNLESS the recipient a. Stands in such a relation of trust and confidence to the person whose opinion is asserted that the recipient is reasonable in relying on it, OR b. Reasonably believes that, as compared with himself, the person whose opinion is asserted has a special skill, judgment or objectivity with respect to the subject matter, OR c. Is for some other special reason particularly susceptible to a misrepresentation of the type involved BUYERS v. FEDERAL LAND CO. Facts Plaintiff Byers contracted with defendant to purchase 320 acres of land. Plaintiff paid down payment and some installments before seeking the contracts cancellation and recovery of what he had paid on the grounds that defendant had fraudulently induced him to sign the contract in claiming to be the actual owner of the land, claiming to have actual possession of the land, and claiming the land was worth $35/acre when it was actually worth $15. Holding Plaintiff demonstrated grounds of misrepresentation regarding the claim of actual possession of land. Misrepresenation undisputed Defendants ownership: immaterial

32 Contract right to buy the land Statement of value: was reliance justifiable? o Value is subjectiveto a specific person, for a specific purpose o Must be considered an opinion (unless its market price based on comparables) Its worth 35 vs. its selling for 35 Right to possession was determined material o Right to occupyimportant to reasonable buyers o The lease agreement was the way to conceal the failure to transfer possession

VOKES v. ARTHUR MURRAY INC. Facts Defendant induced plaintiff Vokes to purchase 2300 hours of dance lessons for over $31,000 through an excessive amount of false praise and flattery. Plaintiff sought to void contract on the grounds of misrepresentation. Holding Plaintiff did state a cause of action for recission of her agreement to pay due to misrepresentation. The statements of alleged misrepresentation qualified as opinion Material and fraudulent Issue: Was it justifiable to rely on the opinion? 172. When fault makes reliance unjustified A recipients fault in not knowing or discovering the facts before making the K does not make his reliance unjustified unless it amounts to a failure to act in good faith and in accordance w/ reasonable standards of fair dealing. 163. When a Misrepresentation Prevents Formation of a Contract (Void) A misrepresentation as to the character or essential terms of a proposed contract induces conduct that appears to be a manifestation of assent by one who either knows or has reasonable opportunity to know of the character or essential terms of the proposed contract, his conduct is not effective as a manifestation of assent. Elements o Misrepresentation as to the character or essential terms of a proposed contract o Inducement o Recipient did not know the truth o Recipient had no reasonable opportunity to know the truth (justifiable reliance) Doesnt matter who misrepresents Doesnt matter what maker knew Net effect: no assent at allvoid, not voidable Void vs. Voidable Void: no contract at all o It may not be ratified Voidable: no contract at option of the person who can raise the defense recipient/listener/person who was deceived o Can waive defense o Aggrieved party can elect to rescind the contract

33

E. Mistake 151. Mistake Defined A mistake is a belief that is not in accord with the facts. 152. When a Mistake of Both Parties Makes a Contract Voidable (1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154. (2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise. Elements Mistake Shared mistakethe same mistake Existing circumstances o Mistake about facts that exist at the time a contract was made o Not about mistaken predictions Basic assumption Material effect on the exchange Risk not born by the asserting party SHERWOOD v. WALKER Facts Plaintiff contracted with defendant Walker to purchase cow that was probably barren for $80. Defendant refused to deliver cow when he discovered the cow was pregnant. Trial court gave judgment to plaintiff; circuit court of appeals affirmed. Holding Reversed and remanded. The assent was founded on a mistake of material fact as to the whole substance of the agreement so that the item bargained for/intended to be sold was different from the item actually delivered. The cow with the ability to produce calves was not the cow that defendant intended to sell or plaintiff intended to buy. The cow bargained for did not exist, thus no contract for the cow capable of breeding existed. NESTER v. MICHIGAN LAND & IRON CO. Facts Plaintiff purchased all logs on land owned by defendant from defendant for $27,000. The plaintiff alleges the quality of the wood was substantially less than defendants agents described, and plaintiff seeks decreased purchase price to reflect lower yield. Verdict for plaintiff. Holding Reversed. Defendant is entitled to entire purchase price. Defendants believe their estimate was a fair one. Plaintiff had available the same means of determining the quality of the lumber as defendant, and used his own agents estimates in deciding to contract. Plaintiff had

34 much experience in the industry and was not unfamiliar with the region. The contract includes no warranty as to the quality of the wood, and the defendant made no representation to the plaintiff of the actual yield of the lumber. The company refused to sell with such a promise, and required plaintiff to rely upon his own estimate. WOOD v. BOYNTON Facts Plaintiff Wood sold stone to defendant Boynton for $1 thinking it was a topaz, when it was actually a diamond worth $700. Plaintiff appeals verdict to defendant for stone. Issue Whether fraud in procuring the sale or mistake as to the identity of the object sold existed that rendered the deal unenforceable. Holding Affirmed. Defendant keeps stone. Both parties were ignorant as to the character and value of the stone. Because defendant did not know of the value of the stone, he did not fraudulently obtain the stone. Without fraud, a difference between the value of the property sold and the price paid is no grounds for recission. Plaintiff chose to sell the stone without investigating its true value, and cannot nullify the sale just because she later realized she made a bad bargain. LENAWEE COUNTY BOARD OF HEALTH v. MESSERLY Facts Pickles purchased apartment buildings from Messerlys, and shortly thereafter the property was condemned due to a faulty and illegal septic system installed by the previous owner, Bloom. Trial court ruled plaintiff had no cause of action; court of appeals reversed finding of no cause of action against defendant Messerly. Holding Reversed. Pickles are not entitled to recission of the contract. The parties entered into a contract with the mistaken assumption that the property would produce income. That mistake was to the basic assumption of the contract, not a collateral one. Nothing but recission could remedy the mistake. However, if the contract allocated the risk to the parties seeking recission, that party assumes the loss, and recission is not available. The as is clause in the contract allocated the risk to the purchasers, they bear the loss. 153. When Mistake of One Party Makes a Contract Voidable Where a mistake of one party at the time a contact was made as to the basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in 154, AND (a) the effect of the mistake is such that enforcement of the contract would be unconscionable, OR (b) the other party had reason to know of the mistake or his fault caused the mistake Elements: Mistake Existing circumstances Basic assumption

35

Material effect on the exchange Risk not born by the asserting party And one of these:

o Enforcement would be unconscionable OR o Other party had reason to know of mistake OR o Other partys fault caused the mistake

TYRA v. CHENEY Facts Plaintiff mistakenly left $963 out of his bid for defendants subcontract. The court charged the jury that the plaintiff had to demonstrate a preponderance of evidence that the defendant knew of the mistake in order for the plaintiff to recover. Holding Affirmed. The court correctly applied the law. This court did not weigh evidence. Rule Where one party to a contract in bad faith takes advantage of the mistake of the other party, the mistaken party can rescind the contract and recover. **Mistake is primarily about things you dont think about No requirement of inducement o The thing you didnt think about cant have contributed to the decision to enter the contract 154. A Party Bears the Risk of Mistake When (a) The risk is allocated to him by agreement of the parties, OR (b) He is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, OR (c) The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. B: Conscious ignorancethe person is aware they might be wrong Wood v. Boynton: she knew she didnt know but she decided to accept the riskfinding out for sure wasnt worth it Sherwood v. Walker: sellers ignorance wasnt consciouswas sure the cow was barren C: Catch allOne party is in a better position to bear/insure against the loss, Hierarchical: start by trying to apply the first, then the second 157. Effect of fault of party seeking relief A mistaken partys fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation under the rules states in this chapter, unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing. Tells us that negligence is not the issue in 154(b)

36 158. Relief including restitution (1) In any case governed by the rules stated in this chapter, either party may have a claim for relief including restitution under the rules states in 240 and 376. (2) In any case governed by the rules states in this chapter, if those rules together with the rules stated in chapter 16 will not avoid injustice, the court may grant relief on such terms as justice requires including protection of the parties reliance interests.] F. Non-Disclosure 160. When Action is Equivalent to an Assertion (Concealment) Action intended or known to be likely to prevent another form learning a fact is equivalent to an assertion that the fact does not exist. 161. When Non-disclosure is Equivalent to an Assertion A persons non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only (a) When a person knows that a disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material. (b) Where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract AND if nondisclosure of the fact amounts to a failure to act in good faith an in accord with reasonable standard of good faith and fair dealing. (c) Where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part. (d) Where the other person is entitled to know the fact because of a relation of trust and confidence between them. Relation of trust and confidence exists between parties Relationship entitles other party to disclosure A: Previous Assertion Will be either: Misrepresentation Material Fraudulent Person knows this Disclosure is necessary to prevent it. B: Other party mistaken as to a basic assumption Party knows this Nondisclosure would be inconsistent with good faith and fair dealing [Deals with health rather than moneyits usually fair to profit from special skills/expertise] C: Other party mistaken as to the contents or effect of a contract writing. Party knows this.

37

D: Relation of trust and confidence exists between parties Relationship entitles other party to disclosure. LAIDLAW v. ORGAN Facts Plaintiff Organ sued defendant Laidlaw for the latters seizure of tobacco sold to the plaintiff. Plaintiff knew the War of 1812 was over which would increase the value of tobacco, and they failed to communicate that information to Laidlaw. Plaintiff sued for return of possessions. Judge instructed that omission was not fraudulent and jury held in favor of plaintiff. Holding Reversed and remanded. Defendant was not required to communicate circumstances that might influence the value of the commodity if the knowledge was equally available to both parties and the silent party did not prevent the other from learning the information. Jury absolute instructions that plaintiffs omission was not fraudulent was erroneousjury must decide if Organ prevented Laidlaw from learning the information. He did not have an obligation to tell them the information he knew o Did have an obligation not to impose on othersthere might be some other aspect of the contract that made the contract unenforceable G. Unconscionability Procedural Unconscionability: occurs during bargaining Substantive Unconscionability: occurs as the result of a contract Historical definition: a contract such as no man in his senses and not under delusion would make on the one hand, and as no honest man and fair man would accept on the other Focus is on the substance of the deal, not the procedure Created to collect damages for breach, not to allow an injunction/specific performance Elements of Unconscionability Absence of meaningful choice o Unfair surprise o Unequal bargaining power Unreasonably favorable terms o Oppression Test: Unfair surprise + Unreasonably unfavorable terms 208. Unconscionable K or Term If a K or term thereof is unconscionable at the time the K is made a court may refuse to enforce the K, or may enforce the K, or may enforce the remainder of the K w/out the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result. UCC 2-302. Unconscionable Contract or Clause Definition of unconscionability is found in the comments

38 o Oppression and unfair surprise o NOT unequal bargaining power WILLIAMS v. WALKER-THOMAS FURNITURE CO. Cross collateral clausecomes into play after the second purchase Pro-rata distribution of payoff called for in the language of the clause o Distributed proportionally to the amount owed What should the court determine on remand? Meaningful Choice What choices did Mrs. Williams have when entering the last contract? o Borrow money elsewhere o Buy from a store with better terms o Bargain to strike cross-collateral o Save money and pay cash o Not buy a stereo Which are meaningless? o Borrow money elsewhere o Probably other stores o Bargaining for different terms She didnt know the terms The store would probably just say no to any bargainingdont want sales clerks to alter standard form Companies keep control of their contracts by their terms or no terms Efficiency for the company o Save money and pay cash Not buy the stereo o Plausible optiontechnically o In order for it to be meaningful she has to understand the terms She doesnt realize the need to make it Two potential decisions o Price + interest + risk > value of stereo o Price + interest + risk < value of stereo Her assent isnt evidence that the second is the case because she didnt know the risk term was there Is her surprise unfair? o Very easy to read the contract and miss the import of the language o They structured the contract so hide the meaning of the clausedeprived her of notice **Unfair surprise: couldnt have understood even if you read the term Fine print doesnt make something unfair surprise If there is effective disclosure you have to respect Mrs. Williams choice No unfair surprise, no defense of unconscionabilitynecessary element Reject unfair terms, dont agree then object to court later Unreasonably Favorable Terms

39 The terms are favorable to the store o Foreclosure sale will generate enough revenue to cover the debt Is it unreasonably favorable? UCC 2-302: When it is claimed or appears to the court that the contract or any clause thereof maybe unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. o Are the reasons for having the clause good enough to negate unfair term o Harshness not the only thing to consider o Is it too good to the other? What makes a contract term unreasonably favorable? o UCC 2-303: Unconscionable at the time it was madenever fair, always unreasonable o Commercial setting, purpose, and effect: do the terms serve a legitimate purpose in the commercial setting? Unconscionability defense operates on a case by case basis If a clause is so bad we should never accept it, it is a public policy, not an unconscionability issue

WILLE v. SOUTHWESTERN BELL TELEPHONE CO. Facts Appellee omitted certain of appellants requested telephone listings. Appellant was not billed. The contract included a clause that the company would not be liable for omissions beyond the amount paid. Appellant sought recovery for lost profits and alternative advertising expense. Trial court awarded summary judgment for Bell. Holding Affirmed. The contract was not unconscionable. Though there was some inequality in bargaining power, there must be additional factors such as deceptive bargaining conduct for the contract to be determined one sided, oppressive, and unfairly surprising, and thus unconscionable. The Test: Excessive Priceunreasonably favorable terms Denying basic rights or remedies unreasonably favorable terms Penalty clauses unreasonably favorable terms Unbalanced rights and duties unreasonably favorable terms Commercial setting, purpose, and effect unreasonably favorable terms Concealed clauses unfair surprise Obscure clauses unfair surprise Boilerplate termsunfair surprise Exploitation of the weakcould be either Unequal bargaining powerdoesnt fit GATTON v. T-MOBILE USA Lack of meaningful choice o Unfair surprise OR

40 o Oppression Unequal bargaining power Court found no surprise, but unequal bargaining powerlack of meaningful choice Terms were unreasonably favorable o Now looks at the harsh results of the contract o Not was it unfair at the time the contract was made Doesnt fit with the UCC o Not about bargaining power Problematic approach Is oppression part of lack of meaningful choice? o Gatton treats it that way o The court doesnt consider whether there is a meaningful choice Going without a cell phone? Why isnt a different cell phone carrier a meaningful choice? o Oppressed is too strong a word o The court misses where oppression mattersunreasonable terms not meaningful choice Once its mutually beneficial is it fair? o Is it really fair if there is a tiny benefit for one party and a large benefit for the other? o Its impossible to get to an ideal equality o Value depends on how important the item is to the particular contracting party Contracts is about freedompeople have bargaining power o Mrs. Williams has the power to walk out of the store o The store can then change the terms if its worth it to them

H. PUBLIC POLICY Where terms are really bad, ban themuniversal 178. When a Term Is Unenforceable on Grounds of Public Policy (1) A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms. (2) In weighing the interest in the enforcement of a term, account is taken of a. The parties justified expectations b. Any forfeiture that would result if enforcement were denied, and c. Any special public interest in the enforcement of the particular term. (3) In weighing a public policy against enforcement of a term, account is taken of a. The strength of that policy as manifested by legislation or judicial decisions b. The likelihood that a refusal to enforce the term will further that policy c. The seriousness of any misconduct involved and the extent to which it was deliberate, AND d. The directness of the connection between that misconduct and the term

41

Part (1): Two Circumstances of Unenforceability Legislation provides term is unenforceable OR Public policy clearly outweighs benefits of enforcement o Example: murder for hirelegislation does not make the contract unenforceable Balancing Test Identify interest in enforcing the contract (benefits) Public policy interest against enforcing contract Public policy must clearly outweigh the interest in enforcing o Margin so great the winner is unmistakable OR o Margin, no matter how small, is unmistakably present Part (2): Every contract creates expectations o The word justified is added o Makes provision circular o Justified okay benefits to a contract that are obviously illegitimate Forfeiture: will lose expectation and also some of your reliance o Unable to recover what youve already invested o Example: expenses Sterns agreed to bearunrecoverable Forfeiture unless the contract is enforced Special public interest o Special: an interest other than that of enforcing contracts o Special public interest in seeing this particular contract enforceable o Sterns: making it possible for loving parents to have children when they cant by ordinary ways Part (3) In weighing a public policy against enforcement of a term, account is taken of Strength of public policy as manifested by legislation or judicial decisions o How important legislatures and judges have considered it Likelihood that a refusal to enforce the term will further that policy Seriousness of any misconduct involved and the extent to which it was deliberate o Seriousness: how bad the misconduct is o Deliberate: intent to commit misconduct The directness of the connection between that misconduct and the term o Connection does not justify refusal BABY M Statute forbids any consideration in connection with an adoption o Criminal Statute, not exactly aimed at enforceability of a contract o Still might demonstrate strength of public policy Court addresses relative weight of statute o Strength of policy: High misdemeanor

42 o Seriousness of conduct: evils of baby selling o Intent: Mr. Stern knew he was paying for adoption o Terms connection to misconduct: court pierces pretense Stern was paying for services fairly strong legislative policy interest in refusing to enforce the contract Discussion of the policies arguably isnt necessary o If the statute is enough to refuse to enforcedont need public policy considerations also o Dicta? Court does not need to say in order to resolve matterno legal effect o Alternative holding? Either ground is sufficient Even if the statute is changed the holding will stay the same Saves need to send case back if first argument proves unsuccessful o Which ones dicta and which ones holding? Policy concerns: o Child is unprotected by negotiations o Potential exploitation of surrogate mother o Exploitation based on class This is better than their other opportunitiescant make the same amount of money elsewhere o Degrading to some women Or empowering to women? Take a resource they have and use it to their advantage o Reduce human dignity when money involved in producing life Would we then have to outlaw prenatal medical care? Human dignity doesnt change with money changing hands over the course of creating human lifeapplies to lack of connection between terms and misconduct Honest attempt to become loving parents o Who do we expect to protect children in negotiations between the mother and the father? Normal rule: the mother and the father Expect parents to have childs best interests at heart This case doesnt seem much different Mrs. Whitehead has one more choice than adoptive mothernot to become pregnant Mrs. Whitehead has children o Precludes mistake argumentmisperception of giving birth o Shes done it beforecan calculate better whether benefit of compensation is greater than cost of giving up child

JOHNSON v. CALVERT Decided based on standing Who are the parents? o Father: Mark Calvert

43 o Two people claim to be mother Biological mother is Crispina Calvert Gestational mother is Anna Johnson No adoption heremust be a natural parent o The court concludes either the egg or the womb is enough to qualify o But a child can only have one natural mothernot what the legislature meant o The court has to pick one The court chooses the one who intended to raise the child is the natural parent o Cites three law review articles Courts sometimes look to scholarly literatureespecially with novel issues