Contracts 2011 Spring Outline Chapter 5 I. Distinction between void and voidable contracts.

y Void contracts: cannot be enforced by either party and rights and relations will exist after a transaction, but they will not be contract rights and relations 1. Examples a. Contracts that run contrary to public policy b. Violate the statute of frauds c. Contracts where one party obtains the other s party consent through fraud in execution of the agreement y Voidable contracts: contracts that the promissee may choose to enforce or not to enforce at the promisee s election. The acts of the parties, even when they are mere words, operate to create new legal relations, and these are measure the ones contemplated by the parties. 1. Examples a. Contracts between infants b. Fraudulent representations II. All flawed agreements can be viewed as voidable agreements regardless whether they are void from their inception 2. Even if a contract is illegal or contrary to public policy, violates public policy, fraud, duress The victim must perform some legal action to avoid enforcement of the agreement RESTATEMENT 163 WHEN A MISREPRESENTATION PREVENTS THE FORMATION OF A CONTRACT y If 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 neither knows nor 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.

What does the title suggest? Interpretation: If I give u a birthday card for another, but it is a promissory note, and you where tricked. Then it is a misrepresentation. Restatement 164. When a Misrepresentation Makes a contract voidable (1) If a party s manifestation of assent is induced by either a fraudulent or a material misrepresentation by other party upon which the recipient is justified in relying, the contact is voidable by the recipient. Restatement 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. If the influence is undue, then it is voidable. Case: Anheuser-Busch Brewing Ass n v. Mason Facts: Anheuser is selling liquor to a brothel and they wanted to collect their money. When the conduct is not prohibited, the question is how closely connected? In this case, not very closely and no defense Hewitt v. Hewitt Facts: Couple lived together as man and wife for fifteen years, but never went through a formal ceremony. The husband stated that he will share his life and property with her. Marvin does not apply because of the Illinois Defense of Marriage Act which states (1) provide adequate procedures for the

solemnization and registration of marriage; (2) strengthen and preserve the integrity of marriage and safeguard family relationships. Her argument is that he made a promise and there is a theory of obligation because she relied upon him. However, the disadvantaged party does not get a result and she does not get any remedy. What happens if she sued for unjust enrichment? Then she will still not get any remedy because it is void contract for it is against public policy. There is no set of circumstances that she can collect upon even implied and expressed promises. American Broadcasting Companies, Inc v. Wolf Facts: Wolf is a sportscaster for ABC and his contract contained a renewal clause. What is the distinction between 3A and 3B in this case? There is no covenant to compete for mowing yards. There has to be something that the employer has to protect. 3A has to do with an existing contract and 3B has to do with a contract that has expired. Under 3A, you cannot provide those services for the term of the contract for a specific period of time. What happens when you get out to 1984? There is no implied covenant. Look to the period of employment unless it is signed by the employee. Even then it must be reasonable to the employee. Was Wolf prevented from working? No, there was no covenant not to compete. There was a breach before the end of the contract because they failed to give a right of first refusal. The best remedy is the following: an injunction or specific performance. If there had been a breach before May 6, 1980, then you have an implied contract. Under section 3b can you have a covenant to compete from a competitor, and then the answer is yes, as long as it is in writing. Covenants not to compete: some type of service level that is valuable to your employer and U will never get an implied covenant not compete after the contract has been completed unless it is in writing The covenant terms cannot be overly broad in their applications and covenants are mostly used in trade secrets. If the courts think the covenants are too broad, then some courts will exercise a Blue Pencil doctrine. For example, three years is too long and two years are better, or the covenant is way too broad. As an attorney, you must look at what is reasonable unless you are in California where by statute their outlaws all covenants to compete. C. Unconscionability Contracts void for unfairness y Is such as no man in his senses and not under delusion would make on the one hand, and as no honest or fair man would accept, on the other. y Fairness: Terms there must be something as obnoxious in the contract. Williams v. Walker-Thomas Furniture Co. Facts: How did this transaction have procedural and substantial unconscionability. y Procedural you look at everything. The person was not highly educated, not terribly wealthy. y The company applied each payment to all outstanding balances. If an Article 9 Security Interest, then you can higher self-help to get that item and the only way for them to get the item back.  The more sophisticated you become the less clear the contract has to be  The less sophisticated you become the more clear the contract has to be.

Classes #4 and 5 Coan v. Orsinger Facts: Appellant filed an action against appellee for breach of contract. On September 30, 1956, appellant was hired to become the residential manager of the apartment gardens owned by Tyler Gardens. For his services, the appellant was to be paid $75 per week in addition to a rent-free apartment for the duration of the contract. The proposed agreement was to remain in force until the plaintiff completed his law studies or obliged to discontinue these studies. The agreement was confirmed orally the following day in the offices of the appellee. On October 12, 1956, appellant assumed his duties as resident manager. On November 17, 1956, he received a letter terminating the contract which was confirmed by appellee in an oral conference on December 1, 1956. Appellee claims that there was an agreement that the agreement was terminable by either party as an employment of wills contract Reasoning: You have to deny there is a contract to get to the proposed agreement in order to get the affirmative defense. Law Student: Since I could discontinue my law studies and that could it occur within one year, it is possible to perform the contract within one year and therefore the contract does not have to be in writing, and the SOF s does not apply. y Argument is about performance and then it is the one year rule. This court reads it s as a way to get out of the contract without liability. The court does not see it as a way that the landlord was negotiating for that part of the contract and do not count it as part of the contract y The court distinguishes between performance and non-performance y If the agreement had just stated continue until the plaintiff completed his law studies as a student at Georgetown---if there is no or and instead a period. That clearly would have been an oral contract in excess of one year and not enforceable except in writing. y The court reads it as a termination but does not see the contract as a performance related issue to the contract y 3 years as a law student or obligated to discontinue his studies  Must be in writing this part is not negotiated part of performance y This part could be performed within a year example he decides to leave for any reason. y If this was a performance related issue then the law student would win because it would not have to be in writing and it would be out of the SOF s y If you have a contract for 11 months, no SOF y IF you have employment for life? You have to see what the party is bargaining for. If I am employed for life and I am run over a truck in 11 months, then you have been employed for life. y Did the employer negotiate the obligated to discontinue his studies? No. y Rule 110(1)(e) y Cannot be performed in one year and must be in then it must be in writing and it takes you three years to finish law school. Therefore, the law student could not proceed. Therefore, it would be an affirmative defense y Obligated to discontinue his studies: This part could be possible for the law student and performed in one year he could be hit by a car. Therefore, it takes it out of the one

year rule and takes it out of the one year rule. Therefore, does not have to be in writing. Therefore, SOF does not apply.  Is this a performance related claim? Then the law student will win. Orsinger is not negotiating for the or if someone terminates his services. y Condition Restatement 224: The power of a condition to prevent a contract form becoming due y Once performance is due and you do not perform, then you are in a breach y You are not in a breach, if performance is not due  Orsinger: Three months and decides to leave law school would he be in a breach? No, because the condition would preclude any other condition from becoming due  If a promise is subject to a condition and the condition fails, then the performance would not become due. Condition prevents a contract from becoming due and in Restatement 235(a) if you have a failure of a condition, therefore, you do not have a breach and Orsinger did not negotiate this condition. y You are not in breach if performance is not due and in Orsinger the court ruling that the second part, obligated to discontinue his studies. If after three months he is obligated to discontinue his studies for whatever reason, then would he been in breach? No, This condition discontinue his studies--would preclude the breach because it precludes any other performance for becoming due. Example: I agree to buy your home for $100,000 on or before the date unless I can get 8% financing. o Both parties have to agree to it o If I get financing and do not buy your home, then you have a breach McIntosh v. Murphy Facts: George Murphy in March of 1964 was in Southern California interviewing possible management personnel for his dealership in Hawaii. In April, 1964 the plaintiff received a call from the general manager of Murphy Motors informing him about the possibility of a job offer which McIntosh was still interested in accepting. Later in April, the plaintiff sent Murphy a telegram to the effect that he would arrive in Honolulu on Sunday, April 26, 1964. Murphy then then telephoned McIntosh on Saturday, April 25, 1964 to notify him that the job of assistant sales manager was open and would begin on the following Monday, April 27, 1964. As a consequence of his decision to work for Murphy, McIntosh moved some of his belongings from the mainland to Hawaii, sold other possession, leased an apartment, and forwent any other employment opportunities. Plaintiff did all those things which were incidental to changing one s residence permanently from LA to Honolulu. Approximately two an onehalf months later he was discharged on the grounds that he was unable to close deals with prospective customers and not train the salesmen The court ruled that there was detrimental reliance because the salesmen was already on his way and he had (1) sold his possessions (2) gave up other employment options (3) rented a place in Hawaii. You must always prove the existence of a contract. Restatement 139 Has to do with reliance it is the one exception to SOF defense Bazak Intern. Corp. v. Mast Industries, Inc Facts: On April 22, 1987, Karen Fedorko, marketing director of defendant seller (Mast Industries), met with Tuvia Feldman, the plaintiff s president, at Feldman s office. Fedorko offered to sell Feldman certain textiles that Mast was closing out, and the two negotiated all the terms of an oral agreement

except the price. At the meeting the following day, both agreed upon a price of $103,330. Fedorko had Feldman come to NYC offices of Mast s parent company, where following Fedorko s instructions, Feldman sent five purchase orders by telecopier to Mast s Mass office. That same day Feldman received written confirmation of Mast s receipt of the orders. Mast made no objection to the terms set forth in the telecopied purchase orders, but never delivered the textiles despite Bazak s demands. Mast claims that the disputed documents the purchase orders were insufficient under UCC 2-201 Ruling: the court ruled that the writings do not have be signed as long as they point to a contract. The concluded that, in determining whether writings are confirmatory documents within UCC2-201(2), neither explicit words of confirmation nor express references to the prior agreements are required, and the writings are sufficient so long as they afford a basis for believing that they reflect a real transaction between parties. Class #6 1. How does a minor avoid a contract that they have legally entered into? y The minor can refuse to perform the contract the contract and the contract, and provides restitution back the other party. It does not matter that the property has been used, depreciated, so long as the minor transmit it back the other party this is called the shield/sword doctrine. o Halberman v. Lemke  Engine broke and Halberman wanted it repaired. Lemke refused and Halberman brought the car to a third party to perform the necessary repairs, and Halberman refused to pay the other garage. The other garage then brought the car, minus the engine/transmission, to Halberman s home where it was vandalized. Halberman asserts the infancy doctrine to recovery his entire amount from Lemke.  Issue: whether the minor can get his consideration back? In Wisconsin and other states, the minor does not bear the loss. Therefore, even if you had an accident, then Lemke has to take the car back y Exceptions: o Necessicity o Dissipation o Torts where the minor misrepresents himself Restatement 1-103 y Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provision 2 MENTAL CAPACITY Restatement 15 15(a) This is the cognitive test: you have no power to know what you are doing 15(b) she technically understood what she was doing, but she was unable to act in a reasonable manner because you are unable to prevent yourself form acting in an unreasonable way Ortelere v. Teacher s Retirement Board Facts: The husband and executor of the deceased estate sued to set aside her application for retirement without option. It is alleged that Ms. Ortelere, two months before her death from natural causes, was

not mentally competent to execute a retirement application. She revoked an earlier election of benefits which her estate would have received a very large sum on her death. Issue: Did she possess the mental capacity to change her benefits? Reason: The retirement board stated that she was able to perform a very difficult questionnaire. However, the board had to have full knowledge of her condition reason to know standard. It is what a reasonable person would be able to understand. In this case, the board had knowledge because she was seeing a doctor, she was out on leave. Therefore, she technically understood what she was doing, but she was unable to act in a reasonable manner. Subsection 2 of restatement 15 o If you can show that the contract is made on fair terms, and the other party is without knowledge, then the power to terminate ends o Subsection2 is a limitation on one. It requires that it is on fair terms and the other party has no actual knowledge on the affirmative and there is no power, and the contract has been so performed that the avoidance of the contract would be unjust o Example: o I borrow $10,000 on fair terms and the bank has no knowledge of mental incapacity and I am unable to repay the loan. It would result an inequity because the lender was not fully aware of my mental incapacity and thus avoidance of the contract would be unjust.  On fair terms, the other party did not know of it; therefore, you cannot exercise reparations for the loan proceeds.