full outline midterm

8/3/2019 Full Outline Midterm

1/43

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 necessaryb. Reconfigure list if necessary

(4) Discuss each element of the rule systematicallya. Begin with the most importantb. Discuss them all

(5) Begin each paragraph with a topic sentenceyour conclusion or an introduction to theissue

(6) Think hypothetically(7) Use counterarguments and rebut them


2/43

2

II. CONTRACTS, GENERALLY

1. Contract DefinedA 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 DefinedAn 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 toexchange performances.

4. How a promise may be madeA 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)


3/43

3

III. BREACH OF CONTRACT

(1) An Enforceable Promise Existeda. 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 responseso 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 termso 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 termso Court says they should be allowed to promise more

Contracts are democratico Mutual assent

o Mutually beneficial

Often makes little sense to preclude these exchanges

When shouldnt they be enforced?o

When the contract hurts otherso 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 damageo Plaintiff could have avoided loss by giving child up for adoption

Chose not to, to bear burden

Benefit/joy of child outweighs costs


4/43

4

Is there a difference between never having a child and putting one up for adoption?o Yesemotional costs

Decision to have vasectomyo 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 opiniono 1847 judicial opinion on marriage

courts shouldnt evaluate public policyjudge reached outside the rules to get thedecision he wantedfound a reason

Judge wasnt willing to rule benefits will ever be less than costo 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 takechildren as a benefit


5/43

5

IV. REMEDIES

1. Expectation Interest:the court attempts to put the promisee in the position in which he wouldhave 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 havebeen 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 lostprofit

HAWKINS v. MCGEEFacts Plaintiff underwent surgery, performed by defendant, grafting skin from his chest to hispalm, where existed a scar from an earlier electrical accident. The surgery crippled plaintiffshand and rendered it unsightly.

Attorney erred in what he asked foro Plaintiff made decision based on defendants promise that he had the skill to

operateo 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 interesto Harm to the person almost always tort.

o Tort usually involves restoring prior position.

Appellate court interpreted the issue as a contract claimmeasured expectation interesto Attorney wasnt thinking about expectation, but about recission

Where he is now compared to where he should have been after

performanceExpectation interesto

Expectation wrong: failure to perform Difference before surgery and after surgeryreliance (promise not made)

o Reliance wrong: making of promise

Contract law: measuring pecuniary interesto 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


6/43

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

Objectiveo 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 clearo 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 wheatflour 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 wasassessed at $5.50 on the date of delivery. The trial court awarded damages to the plaintiff in theamount of plaintiffs advance plus interest on that amount.

HoldingAffirmed. The jury was correctly charged and awarded the plaintiff the appropriateamount of damages. It would be unjust for the defendant to keep the $5000 paid by the plaintiffafter 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 partyafter a breach cannot always determine the damages that should be paid. Restitution damages arethe most appropriate and just in this matter.

BRITTON v. TURNER


7/43

7

Facts Parties agreed to a contract in which plaintiff would work for defendant for one year for asum of $120. The contract stated that the value of the labor was $100. The plaintiff ceased workafter 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 heperformed. Defendant appealed.

HoldingAffirmed. Plaintiff is entitled to recover for the value of his labor. The party who onlypartially performs is subjected to a loss and is worse off than had he not performed at all. In acontract for work rather than labor, the party receiving the work can refuse to accept it if it is notperformed as required by contract, or else is liable for the value of what he receives. A contractfor labor should be not different, even though the party receiving the work does not have theoption of refusing the work once completed. In such a contract, the receiving party automaticallyaccepts partial performance because of the possibility that the other party will cease work beforecompleting the term. He is thus liable to pay the laborer, the breaching party, for any benefit hehas received, less any damage from the breach.

4. Defendants position if promise performed


8/43

8

V. QUASI-CONTRACT Contract implied in law, quantum meriuit, unjust enrichment

For the value of services rendered (restitution)

Contract Implied in Lawo 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 negotiationo Treated like donor if fail to bargain

o Not unjust for defendant to retain benefit without compensating plaintiff

Understandable lack of negotiationo Impossible

o Emergency

o Thought she had negotiated

o Mistake precluded negotiation

COTNAM v. WISDOMFacts Harrison suffered serious injuries and became unconscious after being thrown from astreetcar. Appellee was summoned to perform emergency surgery on Harrison but was unable tosave his life.

Successful recovery of restitution interest based on quasi-contract

The doctor was not a volunteero Did it with intention to get pecuniary gainhis profession

Critical that he was doctorhe was in the habit for charging for the serviceo 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 wealtho 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


9/43

9

Wrongful rescue

What is the justification for making a bargain for someone who didnt agree to thebargain? 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 diedo 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 benefito 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 foro

The publicthe people who live and could in the future face such a benefit

MARTIN v. LITTLE BROWNFacts Martin (Plaintiff-Appellant) informed publishing company Little Brown (Defendant-Appellee) that one of their books had been plagiarized. Plaintiff offered to provide proof, anddefendant invited plaintiff to do so. Once defendant won copyright infringement suit, plaintiffdemanded 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. consciouso 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 withoutcompensating the other party


10/43

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 societyo 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 benefitso Society doesnt care who gets the better dealbetter off if the exchange occurs

Market approach/Efficiency principle: contracts produce efficient exchangesbothparties 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 reasonso 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 bettero 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 whatthey are giving upExchanges increase societal wealthconsideration limits enforcement to exchanges

Certainty:


11/43

11

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

VII. CONSIDERATION

17. Requirements of a BargainA 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 toexchanges

(2) Mutual assent: both parties must agreeo 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 therelationship

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, orb. A forbearance, orc. 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 beo a promise OR

o a performance

The promise or performance must be bargained for

Four requirements to a bargaino The promisee has to give something

o The promisee must have given that something in exchange for the promise


12/43

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 doanyway is not consideration

79. Adequacy of Consideration; Mutuality of ObligationIf 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 thepromisee; 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 considerationo 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 elseo 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 wayacceptanceof 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 constituteconsideration, 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, usingtobacco, swearing, and playing cards or billiards until he turned 21. After that birthday, Uncleagain 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 estatefailed to pay; Plaintiff sued.


13/43

13

HoldingNephews restriction of actions he was free to take constituted sufficient considerationfor an enforceable contract. It does not matter whether the promisor benefited. The contract inquestion, both oral and to be performed in greater than one year, would ordinarily beunenforceable 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 Consideration86. Promise for a benefit received

(1) A promise made in recognition of a benefit previously received by the promisor from thepromisee 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 enrichedb. 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 promiseeo Injustice if not enforced

Exceptionso 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 herprediction that his death would occur before 1900 proved true. In exchange for that promise,Moore provided her services.

HoldingNo consideration existed. The plaintiff agreed to give her services at defendantsrequest, without any understanding that he would pay for them. The alleged consideration doesnot support a promise made at a later time. A favor cannot be later turned into considerationlater.

Elmer promised to pay off a mortgage in exchange for the reading (information)

Questionso 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 promiseo Did the promisor seek the information in exchange for the promise?


14/43

14

Nohe made the promise after he had received the returnyou cantseek something you already have

Past consideration is not really considerationo 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 theabove exceptions

Past consideration is being recognized

Key: Services rendered upon request support a later promise to pay for such services only incases where the original request implies an agreement to make payment for such services.

Past Consideration and Moral ConsiderationMILLS v. WYMAN

FactsMills (plaintiff) cared for defendants ill son, Levi Wyman, who was unable to pay, and 25years old and independent of his father. Upon hearing his son was ill, defendant promised to payLevis expenses. Levi subsequently died.

HoldingAffirmed. Nonsuit granted. Plaintiff voluntarily bestowed services on Levi. Defendantspromise 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 sono 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 pineblock from the upper floor of the mill to the ground below. McGowin (defendant-appellee) stooddirectly below the block as Webb began dropping it. Seeing that, plaintiff went down with theblock to divert it, in the process saving McGowin great harm and suffering severe injurieshimself. 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.


15/43

15

HoldingReversed and remanded. Writ denied. McGowin received material benefit from Webbsaction and was morally bound to compensate him for it. Once he agreed to do so, his promisebecame enforceable, with the benefit to him in life and preservation of the body serving asconsideration.

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 benefitfrom the promisees action.

Mills vs. Webb

Differenceso Mills: No performance Webb: Partial performance

o Mills: indirect benefit (to son) Webb: direct benefit

o Mills: significant benefit Webb: insignificant benefit

o Mills: plaintiff lost money Webb: plaintiff physically injuredo Mills: hasty promise Webb: considered promise (according to

court)o Mills: promise unclear Webb: promise clear

o Mills: 19th 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 enforceableimmediately or not at all

If no performance in Webb, it still would have been wrong

McGowin had intention to payintention to pay doesnt determinewhether 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 moneyo Altruism vs. Heroism

o Type/degree of loss suffered

Worse in Webb


16/43

16

How much harm would be enforeceable?

Benefit to the promisor and detriment to promisee doesnt matter

What matters is the bargainPotentially significant issues:

Constructive bargainMIGHT matter

o Webb v. McGowin Constructive bargaindidnt bypass negotiation

If bargaining had occurred, it would have produced the same bargain (atthe 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 alsoo Intention to get compensation?

Cotnam v. Wisdommedical professionalso 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


17/43

17

VIII. CONTRACT MODIFICATION AND PREEXISTING DUTY

Preexisting Duty73. Performance of a Legal Duty

Performance of a legal duty owed to a promisor which is neither doubtful nor the subjectof honest dispute is not consideration; but a similar performance is consideration if it differsform what was required by the duty in a way which reflects more than a pretense of bargain.

Legal dutyo Not moral duty

Not doubtfulo If duty uncertain, then making it certain is consideration

Not the subject of honest disputegives wiggle roomo If you have a right to resist in court, relinquishing that right is considerationo Other party can buy your right to contest the claim (see section 74)

Have the right to litigate any claim you honestly think can succeedo 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 2requires 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 ClaimsForbearance 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


18/43

18

Evasions of Preexisting Duty

Add something to the dutyo Promisor must seek the additional something

Cancel the original deal and make a new one

Waive the original obligation without cancellation of contract

Modification89. 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 equitableCircumstance 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 toLondon

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 forthem 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


19/43

19

If you could bargain for more money in exchange for work already owedo 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 madeo 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 dutyeither 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 believedstandard, 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 askingthem

The jury has to decide if theyre lying

**tough defense to attacko The fishermen could have given up right to plead bad nets as defense in return for

higher compensationo 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 seemslegitimate

BUT the contract said the subcontractor had to do everything necessary to finish theentire work properly

o Who should bear the cost?

Contractor Sought Excavationo Can Subcontractor give excavation in exchange?

If duty is doubtful.

If Subcontractor honestly believes duty is doubtful.


20/43

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 mistakeo 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 owedo 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 aftersettlement and argue the defense was invalid

** must allow these settlementso 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 apromise.

Can answer that without litigating the defense.

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


21/43

21

IX. PROMISSORY ESTOPPEL

Elements1. Promise2. 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 theexpectation that it would cause reliance by the other party

Promissory Estoppel: Where induced reliance upon the promise results in detriment to thepromisee, 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 Irelied.

Other types of estoppelo 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


22/43

22

submissions; you cant demand timeliness now.

Equitable Estoppel/ Family SettingRICKETTS 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 considerationo 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 interesto $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=relianceo 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 relianceo 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 washer 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 itprediction/commitment

Promissory Estoppel/ Business SettingFEINBERG v. PFEIFFER

There wasnt consideration

They made a promise

She reliedshe left earlier than she might have


23/43

23

Foreseeable that she would rely

Avoid injustice by enforcing promise because she lost those years and could not workwhen they stopped paying full amount

[Doesnt come up as often anymore]

X. DEFENSESAdditional 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 weregiving upmistake is yours

A. IncapacityFour types:

Guardianship: court has appointed someone else to manage persons affairso 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

Intoxicationo Not just alcohol


24/43

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 defecta. 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 theother 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 theextent that the contract has been so performed in whole or in part or the circumstancesmay have changed that avoidance would be unjust. In such a case, a court may grantrelief as justice requires.

Elements of Part (1)

Inability to deal

Caused by

Mental illness or defecto 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 EITHERo (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 performanceo Was assent affected by illness

o If assent OK, expect performance

Understood Transactiono 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]


25/43

25

Reason to know:

Policy argumentso 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 Argumento Pronouns tend to refer to most recent antecedentthe condition

Why they used the condition: Maybe they meant his inability to act in areasonable manner in relation to transactionmore reason to substitutecondition for that

Comparison to use in part (2): Reason to know referred to parties without knowledge ofmental 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 themental 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 dido Courts decision not dispositive in interpreting reason to know

o Case not that persuasive

14. InfantsUnless a statute provides otherwise, a natural person has the capacity to incur onlyvoidable 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 PersonsA 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 reasonablemanner

More difficult test than mental illnessintoxication is typically voluntary

B. Duress


26/43

26

174. When Duress by Physical Compulsion Prevents Formation of a ContractIf 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 amanifestation 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 partythat 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 goodfaith and without reason to know of the duress either gives value or relies materially onthe transaction.

Elements (1):

Improper threat

Inducement (of assent)

o Substantially contributes to manifestation of assento 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 atort if it resulted in obtaining property, OR

b. What is threatened is criminal prosecution, ORc. What is threatened is the use of civil process and the threat is made in bad faith,

ORd. 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 benefitthe party making the threat, OR

b. The effectiveness of the threat inducing the manifestation of assent is significantlyincreased 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


27/43

27

example of 176.2.b

AUSTIN INSTRUMENT v. LORAL CORP.

Facts: Subcontractor on one government contract threatened to breach that contractunless contractor awarded it the subcontract on a second government contract.

Subcontractor protested and sought substitute supplier, unsuccessfully, then succumbedto threat. Held: Duress.

UNITED STATES v. PROGRESSIVE ENTERPRISES

Facts: bid $5,217 on a contract. When materials costs rose, said it would only fill theorder at the price current at the time of shipment (then, $7,350). agreed withoutprotest, 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 issueo 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 inassuming 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, thecontract 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 goodfaith and without reason to know of the undue influence either gives value or reliesmaterially on the transaction.

Elements of Undue Influence:

Undue Influence

o Unfair persuasion AND

o Either

Domination OR

Relation of trust

Induces assent


28/43

28

Domination: dependency (when one party depends so heavily on another that she feels shecannot 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 theirclients, arguable husband and wife.

California Civil Code 1575Undue influence consists:

1. In the use, by one in whom a confidence is reposed by another, or who holds a real orapparent authority over him, of such confidence or authority for the purpose of obtainingan 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) Authorityo 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 homeby the principal and superintendent, who persuaded him to resign rather than facedischarge proceedings (which the law obligated them to pursue). The teacher sought torescind 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 worseo Domination

Two against onephysically intimidated?

High ranking officialsawed by their authority?


29/43

29

Were bargaining tactics unfair?

o Unusual or inappropriate time

o Unusual place

o Immediate assent demanded

o Extreme emphasis on harm of delay

o Outnumberingo Lack of advisers

o Starting time precludes obtaining advice

Any one taken alone could be appropriate

But they can add up to a wrong

D. Misrepresentation

159. Misrepresentation DefinedA 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, thecontract is voidable by the recipient.

(2) If a partys manifestation of assent is induced by either a fraudulent or a materialmisrepresentation by one who is not a party to the transaction upon which the recipient isjustified 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 givesvalue 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 beneficialexchange

Assent = valued what you thought you were getting more than what you thought you


30/43

30

were giving up

162. When a Misrepresentation is Fraudulent orMaterial(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, orb. Does not have the confidence that he states or implies the truth of the assertionc. 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 tomanifest his assent, OR if the maker knows that it would be likely to induce the recipientto 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 theassertionc. Knows that he does not have the basis that he states or implies for theassertion

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 CauseA 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. ROSENTHALFacts Defendant agreed to buy house from plaintiff for $54,000, but refused once he found outabout the houses termite infestation. The house sold for $35,000, and plaintiff sought difference.The defendant counterclaimed, seeking the return of his deposit. HoldingAffirmed. Innocentmisrepresentation is grounds for recission of a contract if the other party relies on thatinformation as a statement of fact in his decision to make the contract because it would be unjustfor the party who made the misrepresentation to retain the benefit of the contract induced by


31/43

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 onthe 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, orsimilar matters.

(2) If it is reasonable to do so, the recipient of an assertion of a persons opinion as to factsnot disclosed and not otherwise known to the recipient may properly interpret it as anassertion

a. that the facts known to that person are not incompatible with his opinion, ORb. 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 inrelying on it UNLESS the recipient

a. Stands in such a relation of trust and confidence to the person whose opinion isasserted that the recipient is reasonable in relying on it, OR

b. Reasonably believes that, as compared with himself, the person whose opinion isasserted has a special skill, judgment or objectivity with respect to the subjectmatter, OR

c. Is for some other special reason particularly susceptible to a misrepresentation ofthe type involved

BUYERS v. FEDERAL LAND CO.

Facts Plaintiff Byers contracted with defendant to purchase 320 acres of land. Plaintiff paiddown payment and some installments before seeking the contracts cancellation and recovery ofwhat he had paid on the grounds that defendant had fraudulently induced him to sign the contractin claiming to be the actual owner of the land, claiming to have actual possession of the land, andclaiming the land was worth $35/acre when it was actually worth $15. HoldingPlaintiffdemonstrated grounds of misrepresentation regarding the claim of actual possession of land.

Misrepresenation undisputed

Defendants ownership: immaterial


32/43

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 materialo 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 voidcontract on the grounds of misrepresentation.HoldingPlaintiff did state a cause of action forrecission 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 unjustifiedA 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 accordancew/ 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 reasonableopportunity to know of the character or essential terms of the proposed contract, his conduct isnot effective as a manifestation of assent.

Elementso 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 allo It may not be ratified

Voidable: no contract at option of the person who can raise the defenserecipient/listener/person who was deceived

o Can waive defense

o Aggrieved party can elect to rescind the contract


33/43

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 ofperformances, the contract is voidable by the adversely affected party unless he bears therisk of the mistake under the rule stated in 154.

(2) In determining whether the mistake has a material effect on the agreed exchange ofperformances, account is taken of any relief by way of reformation, restitution, orotherwise.

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. WALKERFacts 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 courtgave judgment to plaintiff; circuit court of appeals affirmed.

HoldingReversed and remanded. The assent was founded on a mistake of material fact as to thewhole substance of the agreement so that the item bargained for/intended to be sold was differentfrom the item actually delivered. The cow with the ability to produce calves was not the cow thatdefendant intended to sell or plaintiff intended to buy. The cow bargained for did not exist, thusno 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. Theplaintiff 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.

HoldingReversed. Defendant is entitled to entire purchase price. Defendants believe theirestimate was a fair one. Plaintiff had available the same means of determining the quality of thelumber as defendant, and used his own agents estimates in deciding to contract. Plaintiff had


34/43

34

much experience in the industry and was not unfamiliar with the region. The contract includes nowarranty as to the quality of the wood, and the defendant made no representation to the plaintiffof the actual yield of the lumber. The company refused to sell with such a promise, and requiredplaintiff to rely upon his own estimate.

WOOD v. BOYNTONFacts Plaintiff Wood sold stone to defendant Boynton for $1 thinking it was a topaz, when it wasactually 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 existedthat rendered the deal unenforceable.

HoldingAffirmed. Defendant keeps stone. Both parties were ignorant as to the character andvalue of the stone. Because defendant did not know of the value of the stone, he did notfraudulently obtain the stone. Without fraud, a difference between the value of the property soldand 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 abad bargain.

LENAWEE COUNTY BOARD OF HEALTH v. MESSERLYFacts Pickles purchased apartment buildings from Messerlys, and shortly thereafter the propertywas 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 ofaction against defendant Messerly.

HoldingReversed. Pickles are not entitled to recission of the contract. The parties entered into acontract with the mistaken assumption that the property would produce income. That mistakewas to the basic assumption of the contract, not a collateral one. Nothing but recission couldremedy 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 contractallocated the risk to the purchasers, they bear the loss.

153. When Mistake of One Party Makes a Contract VoidableWhere 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 isadverse to him, the contract is voidable by him if he does not bear the risk of the mistake underthe rule stated in 154, AND

(a) the effect of the mistake is such that enforcement of the contract would beunconscionable, OR

(b) the other party had reason to know of the mistake or his fault caused the mistake

Elements:

Mistake

Existing circumstances

Basic assumption


35/43

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. CHENEYFacts Plaintiff mistakenly left $963 out of his bid for defendants subcontract. The court chargedthe jury that the plaintiff had to demonstrate a preponderance of evidence that the defendantknew of the mistake in order for the plaintiff to recover. HoldingAffirmed. The court correctlyapplied 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 riskfindingout for sure wasnt worth it

Sherwood v. Walker: sellers ignorance wasnt consciouswas sure the cow was barrenC: 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 reliefA 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 reasonablestandards of fair dealing.

Tells us that negligence is not the issue in 154(b)


36/43

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 AssertionA 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 previousassertion 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 asto a basic assumption on which that party is making the contract AND if nondisclosure ofthe fact amounts to a failure to act in good faith an in accord with reasonable standard ofgood faith and fair dealing.

(c) Where he knows that disclosure of the fact would correct a mistake of the other party asto the contents or effect of a writing, evidencing or embodying an agreement in whole orin part.

(d) Where the other person is entitled to know the fact because of a relation of trust andconfidence between them.

Relation of trust and confidence exists between parties

Relationship entitles other party to disclosure

A: Previous AssertionWill be either:

MisrepresentationMaterialFraudulent

Person knows thisDisclosure is necessary to prevent it.

B: Other party mistaken as to a basic assumptionParty knows thisNondisclosure 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.


37/43

37

D: Relation of trust and confidence exists between partiesRelationship entitles other party to disclosure.

LAIDLAW v. ORGAN

Facts Plaintiff Organ sued defendant Laidlaw for the latters seizure of tobacco sold to theplaintiff. 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 ofpossessions. Judge instructed that omission was not fraudulent and jury held in favor of plaintiff.HoldingReversed and remanded. Defendant was not required to communicate circumstancesthat might influence the value of the commodity if the knowledge was equally available to bothparties and the silent party did not prevent the other from learning the information. Jury absoluteinstructions that plaintiffs omission was not fraudulent was erroneousjury must decide ifOrgan prevented Laidlaw from learning the information.

He did not have an obligation to tell them the information he knewo 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 bargainingSubstantive Unconscionability: occurs as the result of a contract

Historical definition: a contract such as no man in his senses and not under delusion wouldmake 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 choiceo Unfair surprise

o Unequal bargaining power

Unreasonably favorable termso Oppression

Test: Unfair surprise + Unreasonably unfavorable terms

208. Unconscionable K or TermIf 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 theunconscionable term, or may so limit the application of any unconscionable term as to avoid anyunconscionable result.

UCC 2-302. Unconscionable Contract or Clause

Definition of unconscionability is found in the comments


38/43

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 clauseo 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 salesclerks to alter standard form

Companies keep control of their contracts by their terms or no terms

Efficiency for the companyo Save money and pay cash

Not buy the stereoo Plausible optiontechnicallyo In order for it to be meaningful she has to understand the terms

She doesnt realize the need to make it

Two potential decisionso 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 didntknow 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 ofnotice

**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 laterUnreasonably Favorable Terms


39/43

39

The terms are favorable to the storeo 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 clausethereof 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 inmaking 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

unreasonableo 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 anunconscionability issue

WILLE v. SOUTHWESTERN BELL TELEPHONE CO.Facts Appellee omitted certain of appellants requested telephone listings. Appellant was notbilled. The contract included a clause that the company would not be liable for omissions beyondthe amount paid. Appellant sought recovery for lost profits and alternative advertising expense.Trial court awarded summary judgment for Bell. HoldingAffirmed. The contract was notunconscionable. Though there was some inequality in bargaining power, there must be additionalfactors 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 choiceo Unfair surprise OR


40/43

40

o Oppression

Unequal bargaining power

Court found no surprise, but unequal bargaining powerlack of meaningful choice

Terms were unreasonably favorableo 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 meaningfulchoice

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 powero 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 clearlyoutweighed in the circumstances by a public policy against the enforcement of suchterms.

(2) In weighing the interest in the enforcement of a term, account is taken ofa. The parties justified expectations

b. Any forfeiture that would result if enforcement were denied, andc. 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 ofa. The strength of that policy as manifested by legislation or judicial decisionsb. The likelihood that a refusal to enforce the term will further that policyc. The seriousness of any misconduct involved and the extent to which it was

deliberate, ANDd. The directness of the connection between that misconduct and the term


41/43

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 unenforceableBalancing Test

Identify interest in enforcing the contract (benefits)

Public policy interest against enforcing contract

Public policy must clearly outweigh the interest in enforcingo Margin so great the winner is unmistakable OR

o Margin, no matter how small, is unmistakably present

Part (2):

Every contract creates expectationso 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 relianceo Unable to recover what youve already invested

o Example: expenses Sterns agreed to bearunrecoverable

Forfeiture unless the contract is enforced

Special public interesto 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 decisionso 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 deliberateo Seriousness: how bad the misconduct is

o Deliberate: intent to commit misconduct

The directness of the connection between that misconduct and the termo

Connection does not justify refusal

BABY M

Statute forbids any consideration in connection with an adoptiono Criminal Statute, not exactly aimed at enforceability of a contract

o Still might demonstrate strength of public policy

Court addresses relative weight of statuteo Strength of policy: High misdemeanor


42/43

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 necessaryo If the statute is enough to refuse to enforcedont need public policy

considerations alsoo 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 unsuccessfulo Which ones dicta and which ones holding?

Policy concerns:o Child is unprotected by negotiations

o

Potential exploitation of surrogate mothero Exploitation based on class

This is better than their other opportunitiescant make the same amountof money elsewhere

o Degrading to some women

Or empowering to women? Take a resource they have and use it to theiradvantage

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 thecourse 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 childreno Precludes mistake argumentmisperception of giving birth

o Shes done it beforecan calculate better whether benefit of compensation isgreater than cost of giving up child

JOHNSON v. CALVERT

Decided based on standing

Who are the parents?

o Father: Mark Calvert


43/43

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 meanto 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

full outline midterm

Documents