Contracts Outline

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ContentsSECTION 1: THE EFFECTS OF ADOPTING A WRITING ....................................................... 2 SECTION 2: INTERPRETING THE PROMISE ....................................................................... 8 SECTION 3: CONTRACTS WITHOUT BARGAINING ....................................................... 10 SECTION 4: MISTAKE, MISREPRESENTATION, WARRANTY, AND NONDISCLOSURE ................................................................................................................. 15 SECTION 5: CHANGED CIRCUMSTANCES JUSTIFYING NONPERFORMANCE ....... 20 CHAPTER 5: POLICING THE BARGAIN................................................................................. 26 SECTION 1: COMPETENCY AND OTHER LIMITS ........................................................... 26 SECTION 2: DURESS AND COERCIVE RENEGOTIATION ............................................. 28 SECTION 3: SCRUTINY OF LIMITED COMMITMENT .................................................... 31 SECTION 4: STANDARDIZED TERMS, UNCONSCIONABLE INEQUALITY, AND GOOD FAITH .......................................................................................................................... 33 CHAPTER 6: THE MATURING AND BREACH OF CONTRACT DUTIES .......................... 38 SECTION 1: THE INTERDEPENDENCE OF PROMISES ................................................... 38 SECTION 2: INTERPRETING CONDITIONS ...................................................................... 44 SECTION 3: CONDITIONS OF SATISFACTION ............................................................. 48 SECTION 4: PROTECTING THE EXCHANGE ON BREACH ............................................ 49 CHAPTER 7: THE RIGHTS AND DUTIES OF NONPARTIES ............................................... 52 SECTION 1: THIRD PARTY BENEFICIARIES .................................................................... 52 SECTION 2: ASSIGNMENT AND DELEGATION............................................................... 55

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CHAPTER 4: IDENTIFYING THE BARGAINSECTION 1: THE EFFECTS OF ADOPTING A WRITINGParol Evidence Rule Parol Evidence Rule = Limits the use of prior agreements to vary a written contract (Restatement 213) 1. Must first determine there is a written K. 2. Next, is it "final"? a. Does it express the final intention(s) of the parties? 3. Is this the entire deal? a. Complete expression of all the terms? i. Yes => Evidence excluded ii. No => Continue analysis 4. Does proposed evidence contradict the terms of the agreement? a. No => Evidence admitted b. Yes => Evidence excluded Oral Evidence must not be so clearly connected with the principal transaction as to be part of it Restatement 214 = Exceptions to PRE, allowing prior agreements for certain purposes 214(d) => invalidating causes 214(e) => grounds for allowing/denying remedies Restatement (First) 240(1)(b) => An oral agreement is not superseded by a later writing if it is not inconsistent with the writing and is such an agreement as might naturally be made as a separate agreement by parties situated as were the parties to the written agreement. Requires courts to determine to determine what would be "natural" and what would not Limitations on the admissibility of evidence in cases involving the partial integration doctrine If the parties in fact have assented to the writing as the embodiment of their entire agreement, each should be able to rely on the terms of the writing as conclusive evidence of what they have agreed to RESTATEMENT 209: INTEGRATED AGREEMENTS 1. An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement 2. Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule 3. Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression (Written Agreement = Integrated agreement if viewed as final)

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RESTATEMENT, 213: EFFECT OF INTEGRATED AGREEMENT ON PRIOR AGREEMENTS (PAROLE EVIDENCE RULE) 1. A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them 2. A binding completely integrated disagreement discharges prior agreements to the extent that they are within its scope 3. An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated. Comment: b. Inconsistent Terms. Whether a binding agreement is completely or partially integrated, it supersedes inconsistent terms of prior agreements. The court must make preliminary determinations that there is an integrated agreement and that it is inconsistent with the terms in question. Illustrations: 2. A orally agrees to sell a city lot to B. The city is installing a sidewalk in front of the lot, and A orally agrees to pay the cost be assessed by the city in an amount not exceeding $45. B then retains a lawyer to draw up a written agreement, and A and B execute it, A without reading it. The agreement provides that A will pay all costs of the installation of the sidewalk, but does not mention any dollar limit. If the written agreement is a binding integrated agreement, any agreement for a $45 limit is discharged RESTATEMENT, 214: EVIDENCE OF PRIOR OR CONTEMPORANEOUS AGREEMENTS AND NEGOTIATIONS Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish a) That the writing is or is not an integrated agreement; b) That the integrated agreement, if any, is completely or partially integrated; c) The meaning of the writing, whether or not integrated; d) Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; e) Ground for granting or denying rescission, reformation, specific performance, or other remedy RESTATEMENT, 216: CONSISTENT ADDITIONAL TERMS 1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated 2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is a. Agreed to for separate consideration, or b. Such a term as int eh circumstances might naturally be omitted from the writing

Page 4 of 57 Comment b. Consistency: The determination whether an alleged additional term is consistent requires interpretation of the writing in the light of all the circumstances, including the term e. Written term excluding oral terms (merger clause): clauses stating that there are no representations, promises, or agreements between the parties except those found in the writing. Such a clause is likely to conclude the issue whether the agreement is completely integrated. Consistent additional terms may then be excluded event though their omission would have been natural in the absence of such a clause. But such a clause does not control the question whether the writing was assented to as an integrated agreement. UCC 2-202: FINAL WRITTEN EXPRESSION: PAROL EVIDENCE Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented a) By course of dealing or trade usage (1-205) or by course of performance (2-208) b) By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement A writing is integrated when the parties intend it to be and it means what they intended it to mean. Therefore, integration may be lacking even if the additional terms ordinarily and naturally would have been included in the writing and an integrated writing can have a meaning to which a reasonable person could not subscribe. Conditional Delivery LONG ISLAND TRUST CO. v INTERNATIONAL INST. FOR PACKAGING EDUC., LTD. UCC 3-305, 3-306 carried defense of conditional delivery Where the terms of the conditional delivery have not been complied with, the instrument is unenforceable and parol evidence is admissible to show that the delivery of the instrument to the payee was a conditional delivery Among the conditions precedent that may be proved by parol evidence is that the instrument was not to take effect until the payee had procured other signatures An alleged condition precedent that contradicted the express terms of the written agreement could not be proved by parol evidence If the CP in no way contradicts the express terms, it may be proved by parol evidence An integrated written obligation may not be avoided by the tender of parol evidence which contradicts or varies the written obligation. Exception: a party is free to establish by PE that the written undertaking by which he is bound never came into existence because of a precondition that it not take effect unless and until the precondition has come to pass Exception: it is inapplicable if the PE itself contradicts or varies the terms General Principle: The precondition must be consistent with the written undertaking

Page 5 of 57 THE FRAUD EXCEPTION TORT AND CONTRACT The law of fraud seeks to protect against injury those who rely to their detriment on the deliberately dishonest statements of another. Where conduct alleged beaches a legal duty which exists independent of contractual relations a plaintiff may sue in tort If the only interest is that of holding D to a promise, the plaintiff may only have a K claim If in addition there is an interest in protecting the plaintiff from other kinds of harm, the plaintiff may recover in tort whether or not he has valid breach of K claim LIPSIT v LEONARD A promise, which carries an implied representation that there is a present intention to carry it out, is recognized everywhere as a proper basis for reliance. A misstatement of a present intention is regarded as a misrepresentation of material fact A promise without the intent to perform is held to be a sufficient basis for an action of deceit or for restitution or other equitable relief An action may be maintained when the promise itself cannot be enforced as where it is: without consideration, is illegal, is barred by the SoF, or the SoL, or falls with the PRE, or a disclaimer of representations PE may be introduced where the relief sough is rescission or restitution Ex: repudiation or avoidance fo the K as distinct from affirmation and enforcement of it Action is allowed in tort for money damages, as distinct from one in breach of contract, based upon oral fraudulent promises and misrepresentations which induced the written agreement PE is permitted to establish the same The PRE is no bar Out of Pocket Rule - In actions for money damages for fraud in the inducement, the measure of damages is indemnity for the actual pecuniary loss sustained as a direct result of the wrong The contract, with the addition of the oral promises or representations, cannot be enforced in a tort action in fraud for money damages Distinct from the loss or benefit of the bargain rule BANK OF AMERICA NAT. TRUST v PENDERGRASS Parol evidence of fraud to establish the invalidity of the instrument is admissible where it relates to some independent fact, some fraud in the procurement of the instrument or some breach of confidence concerning its use. Parol evidence is NOT admissible where it would prove a promise directly at variance with the promise of the writing. CONFINING PROMISSORY FRAUD

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Claims of fraud in the inducement are not barred by the PRE Writings in general supersede oral statements PREs principal purpose is to block attempts to vary the terms of a written K

SABO v DELMAN An action in contract to enforce an oral representation or promise relation to the subject matter of the contract must fail If a promise is made with a preconceived and undisclosed intention not to perform it, there is a misrepresentation of a material existing fact which justifies rescission PRE does not block proof of fraud, neither does a merger clause LaFAZIA v HOWE A person who has been induced by fraud to enter into a contract may pursue either one of two remedies. That person may: Rescind the contract Affirm the contract and sue for damages in an action for deceit If one is granted, the other is withheld The right to rescind a contract must be exercised with reasonable promptness after the discovery of the facts that give rise to the right General Rule: the party claiming deceit must present evidence that shows that he was induced to act because of his reliance upon the alleged false representations. Where the merger/disclaimer clause is a specific disclaimer, not of a general nonspecific nature, the provision shall not destroy the contract if it was read and understood by the party now claiming fraud and the provision itself was not procured by fraud Such a specific disclaimer destroys the allegations that the agreement was executed in reliance upon these contrary oral representations Advice: Include a specific merger/disclaimer clause in a contract UCC 2-316: EXCLUSION OR MODIFICATION OF WARRANTIES 1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol evidence (2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. 2) Subject to subsection (3), to exclude or modifty the implied warranty of merchantability o rany part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modifty any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that There are no warranties which extend beyond the description on the face hereof. 3) Notwithstanding subsection (2) a. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like as is, with all faults or other language which in common understanding calls the buyers attention to the exclusion of warranties and makes plain that there is no implied warranty; and

Page 7 of 57 b. When the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defends which an examination ought in the circumstances to have revealed to him; and c. An implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. 4) Remedies for breach of warranty can be limited in accordance with this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719). HOFFMAN v CHAPMAN A court of equity will reform a written instrument to make it conform to the real intention of the parties, when the evidence is so clear, strong, and convincing as to leave no reasonable doubt that a mutual mistake was made contrary to their agreement. PE is inadmissible to vary or contradict the terms of a written agreement But equity refuses to enforce this rule whenever it is alleged that fraud, accident, or mistake occurred in the making of the instrument Will admit PE to reform the instrument, even though within the SoF If an agreement is so vague and indefinite that the court finds it impossible to gather from it the full intention of the parties, it must be held void, for the court cannot make an agreement for the parties If the intent of the parties can be determined from the express terms or by fair implication, the contract should be sustained If the parties to a contract did not understand each other as to the identity of the property, they cannot invoke the aid of equity Equity reforms a contract simply to enforce the actual agreement to prevent injustice The court will never add a term or provision which had not been agreed upon General Rule: people cannot sign papers carelessly wand then expect a court to excuse them from their negligence But, mere inadvertence, or negligence not a mounting to a violation of legal duty, does not bar relief, especially if the defendant has not been prejudiced It is not necessary for the Plaintiff in a suit for a reformation to prove that he exercised diligence to ascertain what the instrument contained at the time he signed it A mistake of law in the making of an agreement is not a ground for reformation Where a mistake is unilateral, equity will not afford relief except by rescission on ground of fraud, duress, or other inequitable conduct THE PAROL EVIDENCE RULE AND THE STATUTE OF FRAUDS The SoF makes certain contracts unenforceable unless evidenced by a signed memorandum Thus, a writing is required only in the sense that the lack of a writing is a defense to enforcement of a contract SoF is not a basis for challenging the existence of a contract Establishes no requirements for the making of a contract

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The PRE does not require a writing at all, except that it can apply only where there is a written document adopted by the parties as an integration of their agreement The SoF can be satisfied by writings that were never effect, or intended to be, as an integration of the agreement The memorandum need only be signed by the party to be charged, and can be supplied at any time prior to the action brought upon the contract This can be done without the knowledge or consent of the other party The SoF requires that a memorandum be signed by the party to be charged The PRE can operate on a document signed by either party The SoF is based on a distruct of oral evidence and thus requires written evidence The PRE excludes both written and oral evidence from extraneous sources The PRE does not prevent a subsequent modification or adjustment by oral agreement However, a later oral agreement may itself fall under one of the clauses of the SoF

SECTION 2: INTERPRETING THE PROMISEWWW ASSOCIATES, INC. v GIANCONTIERI Clear, complete writings should generally be enforced according to their terms A part for whose sole benefit a condition is included in a contract may waive the condition prior to expiration of the time period set forth and accept the subject property as is First Step in analysis: Before looking to evidence of what was in the parties minds, a court must give due weight to what was in the contract. When parties set down their agreement in a clear, complete document, their writing should, as a rule, be enforced according to its terms. Evidence outside the four corners as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing This rule safeguards against fraudulent claims, perjury, and improper evaluation of extrinsic evidence Whether or not a writing is ambiguous is a question of law to be resolved by the courts. Extrinsic evidence should not be considered in order to create an ambiguity in the K. PACIFIC GAS & ELEC. CO. v. G.W. THOMAS DRAYAGE & RIGGING CO. When a court interprets a contract, it determines the meaning of the instrument in accordance with the extrinsic evidence of the judges own linguistic education The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible To limit the determination of the meaning of a written agreement to its four corners would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision our language has not attained. The meaning of words or groups of words varies with context and surrounding circumstances Accordingly, the meaning of a writing can only be found by interpretation in the light of all the surrounding circumstances

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Although PE is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not PE is being offered for a prohibited purpose

COLUMBIA NITROGEN CORP. v ROYSTER CO. UCC 2-202 allows evidence of course of dealing or usage of trade to explain or supplement terms intended by the parties as a final expression of their agreement The test of admissibility is whether the evidence reasonably can be construed as consistent with the express terms of the agreement FDIC v W.R. GRACE & CO. Language in a K is not rendered ambiguous simply because the parties do not agree upon its meaning The fact that parties disagree about a Ks meaning does not show that it is ambiguous, for if it did, then putting contracts into writing would provide parties with little or no protection An offer to show that anyone who understood the context of the contract would realize it couldnt mean what an untutored reader would suppose it meant will suffice UCC 202-2 NOTE Written agreements are to be read on the assumption that the course of prior dealings between the parties and the usages of trade, unless carefully negated, were taken for granted when the document was phrased SPAULDING v MORSE Every instrument in writing is to be interpreted with a view to the material circumstances of the parties at the time of the execution, in the light of known pertinent facts, and in such manner as to give effect to the desired goal RESTATEMENT, SECOND 212: INTERPRETATION OF INTEGRATED AGREEMENT 2) A question of interpretation is to be determined by the trier of fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from PE. Otherwise a question of interp. of an integrated agreement is to be determined as a question of law. Comment: d) Question of Law: What meaning is attached to a word by one or more people is a question of fact. But general usage as to the meaning of words is commonly a proper subject for judicial notice without the aid of PE. Moreover, questions of interp. of written documents have been treated as questions of law in that they are decided by the judge rather than by a jury. FRIGALIMENT IMPORTING CO. v V.N.S. INTERNATIONAL SALES CORP. What is a chicken? The making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs

Page 10 of 57 Not on the parties having meant the same thing but on their having said the same thing Plaintiff has burden of persuasion When one of the parties is not a member of the trade, his acceptance of the standard must be made to appear by proving either that he had actual knowledge of the usage or that the usage is so generally known in the community that his actual individual knowledge of it may be inferred Requires a showing that the usage is of so long continuance, so well established, so notorious, so universal, as that the presumption is violent that the parties contracted with reference to it, and made it a part of their agreement

SECTION 3: CONTRACTS WITHOUT BARGAININGLIVINGSTONE v EVANS When an offer has been rejected it is thereby ended and it cannot be afterwards accepted without the consent of him who made it The making of a counter-offer is a rejection of the original offer A mere inquiry does not constitute a counter-offer/rejection If message by Defendant was simply a rejection of the Plaintiffs counter-offer, it amounts to nothing. If, however, it was a renewal of the original offer it gave the plaintiff the right to bind Defendant to it by his subsequent acceptance of it THE DEVIANT ACCEPTANCE RULE DAR: The introduction of new or variant terms means that the offer is dead and the process of contract formation must start over again The rule contains a number of qualifying doctrines: Immaterial variances between offer and acceptance are usually disregarded If the offerees acceptance attempts only to make explicit terms which were already implicit in the offer If the offeree merely suggests a new term without insisting on its inclusion An expression of lack of enthusiasm, perhaps even outright dissatisfaction, is appended (the grumbling acceptance) It may make a difference whether a party invokes the DAR defensively or offensively Defensively: original offeror seeks to avoid offerees more onerous demand Offensively: offeree seeks to escape contract formation on basis of its own additional demand The fighting issue in DAR cases is whether the offerees purported acceptance is absolute or conditional An acceptance may be valid despite conditional language if the acceptance is clearly independent of the condition When the answering communication is held to be qualified, and thus deviant, the analysis resumes with an inquiry as to whether the response found to operate as a rejection can also serve as a counteroffer which the original offeror can in turn accept If it can, there must be conformity between the acceptance and the counter-offer

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UCC 2-204 Authorizes formation of a contract for the sale of goods in any manner sufficient to show agreement and declares unnecessary an actual identification of the offeror, the offeree, and the moment of making the contract Tolerates even contradiction in offer and acceptance, thereby restricting greatly the DAR of the common law Events that ordinarily terminate a power of acceptance, including a deviant acceptance, do not have that effect when the offer that created the power is a binding option

Contract Formation Through Exchange of Printed Forms

Merchants do not negotiate the details of every transaction. They prefer instead to exchange forms containing the standard terms on which they conduct business At the formation of stage, the battle of the forms, instead of discussion and settlement of important details by negotiation, attention is fixed on only a few key elements. The rest is left to standardized language At a later time, attorneys will be interested in whether a party to contract uses its bargaining position to take advantage of some else UCC 2-204, 2-206 The latter gives effect to any to any reasonable manner of acceptance unless the offeror has made quite clear that it will not be acceptable Also makes either shipment or a promise to ship a proper means of acceptance of an order looking to buy goods for current delivery UCC 2-207 Substitutes for a formal rule of offer and acceptance a general standard under which the court is to look to the gist of the parties communications to determine if they have formed a contract In so doing, the court is to overlook any express terms in those communications that do not fairly reflect the parties agreement

RICHARDSON v UNION CARBIDE INDUS. GASES, INC. Comment three of 2-207 suggests that both additional and different terms are governed by 2-207(2) Comment six of 2-207 suggests that conflicting terms in exchanged writing must be assumed to be mutually objected to by each party with the result of a mutual knock-out of the conflicting terms Knock-Out Rule Three recognized approaches by the courts to the issue of conflicting terms in contracts: Majority view: The conflicting terms fall out and, if necessary, are replaced by suitable UCC gap-filler provisions AKA, the Knock-Out Rule Minority view: The offerors terms control because the offerees different terms cannot be saved by 2-207(2), because that section only applies to additional terms Third view: The terms of the offer prevail over the different terms in the acceptance only if the latter are materially different.

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Mirror Image Rule: At common law, there could be no meeting of the minds and thus no contract, unless there was agreement on all the terms of the contract. UCC does away with this by recognizing the existence of a K even though certain terms remain in conflict or are unresolved

UCC 2-207: TERMS OF CONTRACT; EFFECT OF CONFIRMATION Subject to Section 2-202, if (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner is confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract, are: (a) Terms that appear in the records of both parties; (b) Terms, whether in a record or not, to which both parties agree; and (c) Terms supplied or incorporated under any provision of this Act. NOTE: THE QUALIFIED OR CONDITIONAL ACCEPTANCE TODAY Restatement 59: A reply to an offer which purports to accept it but is conditional on the offerors assent to terms additional to or different from those offered is not an acceptance but is a counter offer. Comment: A qualified or conditional acceptance proposes an exchange different from that proposed by the original offeror. It is a counter-offer and ordinarily terminates the power of acceptance of the original offeree A definite and seasonable expression of acceptance is operative despite the statement of additional or different terms if the acceptance is not made to depend on assent to the additional or different terms ProCD, INC. v ZEIDENBERG Transactions in which the exchange of money precedes the communication of detailed terms are common o Examples given: Insurance; Airline tickets; Concert tickets; Prescription drugs; Radio Much software is ordered over the internet now and never include a box The UCC does not object to the sequence of money now, terms later UCC 2-204(1) o A vendor, as a master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance o A buyer may accept by performing the acts the vendors treats as acceptance Any buyer finding an unreasonable demand can prevent formation of the K by returning the package UCC 2-206 o A buyer accepts goods when, after an opportunity to inspect, fails to make an effective rejection o ProCD extended the opportunity to reject; Zeidenberg inspected, used the software, learned of the license, and did not reject the goods

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Terms of use are no less a part of "the product" than are the size of the database and the speed with which the software compiles listings

HILL v GATEWAY 2000, INC. An agreement to arbitrate must be enforced save upon such grounds to exist at law or in equity for the revocation of any contract A contract need not be read to be effective If they constitute the parties contract because the Plaintiff had an opportunity to return the product after reading them, then all must be enforced Payment preceding the revelation of full terms is common for many endeavors Practical considerations support allowing vendors to enclose the full legal terms with their products Cant expect cashiers or phone-salespersons to read legal documents to customers before ringing up sales Customers are better off when vendors skip costly and ineffectual steps and use instead a simple approve-or-return device Competent adults are bound by such documents, read or unread Shoppers have three principal ways to discover information regarding warranties: They can ask the vendor to send a copy before deciding whether to buy Firms are required to distribute their warranty terms upon request They can consult public sources that may contain this information They may inspect the documents after the products delivery Will be subject to any timeliness requirements KLOCEK v GATEWAY, INC Under UCC 2-207, the Standard Terms constitute either an expression of acceptance or written confirmation As an expression of acceptance, the Standard Terms would constitute a counteroffer only if the vendor expressly made its acceptance conditional on plaintiffs assent to the additional or different terms If plaintiff is not a merchant, additional or different terms contained in the Standard Terms do not become part of the parties agreement unless plaintiff expressly agreed to them CONDUCT AS ASSENT: THE IMPLIED CONTRACT The assent required for the formation of a contract can be inferred from many things However, it is necessary to recall The offeror is master of the offer. The power to specify an acceptable exchange surely includes the power to designate the response that will constitute a valid acceptance If an express contract is established, it will of course bar claims of implied undertakings on matters within its scope, unless the express K has itself been modified by conduct Two problems in the implied-contract cases: The effect of failing to reply to an offer. (silence as acceptance) The limits, if any, on an offerors power to bring about a contract by declaring that anothers failure to reply or act constitutes acceptance

Page 14 of 57 RESTATEMENT 69: ACCEPTANCE BY SILENCE or EXERCISE OF DOMINION (1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: a. Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know they were offered with the expectation of compensation b. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer c. Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept (2) An offeree who does any act inconsistent with the offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him COMMENT: THE PRIVELEGE OF SILENCE Courts typically say that silence will not constitute acceptance of an offer in the absence of a duty to speak Duty to Speak has been replaced by a standard of reasonable understanding. It is not enough that the actor expected to be paid It must be shown that the party to be charged in some manner assented. Under 69(1)(a), the fighting issue often will be whether the offeree had the requisite reason to know. AUSTIN v BURGE One may not have ordered supplies, yet if he continues to receive and use them, under circumstances where he had no right to suppose they were a gratuity, he will be held to have agreed by implication, to pay their value. NOTE: UNSOLICITED MERCHANDISE Unsolicited goods statutes authorize the recipient to treat unordered merchandise as a gift The receipt of any such unsolicited goods shall be deemed an unconditional gift to the recipient, who may refuse to accept delivery of the goods, is not bound to return them, and may use or dispose of them in any manner he sees fit without any obligation to the sender MARTIN v LITTLE, BROWN & CO. An implied contract is an agreement which legitimately can be inferred from the intention of the parties as evidenced by the circumstances and the ordinary course of dealing and the common understanding of men A promise to pay the reasonable value of the service is implied where one performs for another with the others knowledge, a useful service of a character that is usually charged for, and the latter expresses no dissent or avails himself of the service

Page 15 of 57 A promise to pay can, however, only be implied when they are rendered in such circumstances as authorized the party performing to entertain a reasonable expectation of their payment by the party benefited The benefit must not be given as a gratuity or without expectation of payment, and the person benefited must do something from which his promise to pay may be fairly inferred When a person requests another to perform services, it is ordinarily inferred that he intends to pay for them, unless the circumstances indicate otherwise However, where the circumstances evidence that ones work effort has been voluntarily gen to another, an intention to pay therefor cannot be inferred Where one person has been unjustly enriched at the expense of another he or she must make restitution to the other However, unjust enrichment is the key to an action for restitution The vehicle for achieving restitution is a quasi-contract, or contract implied in law To sustain a claim of unjust enrichment, it must be shown by the facts pleaded that a person wrongly secured or passively received a benefit that it would be unconscionable to retain General Rule: volunteers have no right to restitution Restatement 46: One who by extreme and outrageous conduct intentionally or recklessly causes severe emotional distress to another is subject to liability for such emotional distress. Liability has been found only where the conduct has been so outrageous and so extreme as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community The mere threat of a legal counterclaim, even if entirely lacking in merit, will not generally satisfy the strict standard required to make out a case of outrageous conduct The adversary nature of litigation invariably involves a turbulent contest of wills

COLLINS v LEWIS A true implied contract arises where a plaintiff, without being requested to do so, renders services under circumstnaces indicating that he expects to be paid, and the defendant, knowing such, avails himself o the benefit of those services. The law implies from the circumstances a promise by the defendant to pay the plaintiff what those services are reasonably worth

SECTION 4: MISTAKE, MISREPRESENTATION, WARRANTY, AND NONDISCLOSUREJACKSON v SEYMOUR Controlling principle: o Mere failure of consideration or want of consideration will not ordinarily invalidate an executed contract o Courts cannot relieve one of the consequences of a contract merely because it was unwise

Page 16 of 57 o But, where inadequacy of price is such as to shock their conscience equity is alert to seize upon the slightest circumstance indicative of fraud, either actual or constructive Here, the inadequacy of consideration meets that definition Permitting the transaction would result in constructive fraud; thus, she is entitled to relief in equity Constructive fraud: o Is a breach of legal or equitable duty which the law declares fraudulent because of its tendency to deceive others, violate public or private confidence, or injury public interests Regardless of the moral guilt of the fraud feasor o Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud o May be inferred from the intrinsic nature and subject of the bargain itself

COMMENT: FIDUCIARY DUTIES Mere inadequacy of price, or any other inequality in the bargain, is not to be understood as constituting, per se, a ground to avoid a bargain in Equity. Every person who is not under disability is entitled to dispose of his property in such manner as he chooses o However, there may be such an unconscionableness or inadequacy in a bargain as to demonstrate some gross imposition or undue influence Where there are other ingredients in the case of a suspicious nature, or peculiar relations between the parties, gross inadequacy of price must necessarily furnish the most vehement presumption of fraud One important area of application of these ideas, namely constructive fraud, is with "confidential" and "fiduciary" relationships Fiduciary Relationships o One whose successful functioning requires a high degree of candor and reliability between the participants o A fiduciary, unlike an ordinary contract promisor, undertakes to treat the affairs of the promisee as if they were the promisor's own affairs o Examples: trustee/beneficiary, principal/agent, attorney/client, business partners o Key is one person's ascendancy over another o Often, higher standards are imposed on one party than on the other Confidential Relationships o Not so much the product of a legal status as it is the result of unusual trust or confidence reposed in fact One party exercising extraordinary influence over the other o Examples: Blood relationships, marriage, intimate personal friendship, physician/patient, minister/parishioner, next-door neighbors o Requires proof that in fact the parties did not deal on equal terms, that there was a high degree of confidence reposed in the honesty and good faith of the other party The two relationships are not mutually exclusive o The mere willingness to enter into a "fiduciary" relationship often will be a mark of confidence sufficient enough for the relationship to be "confidential" as well

Page 17 of 57 In neither type is bargaining wholly excluded o The principal requirement is one of full disclosure of all the material elements or terms of the bargain made Any transfer or exchange between the parties, either by gift or bargain, will be examined closely to be sure that there was full disclosure and no unfair advantage taken o The party in whom trust or confidence is reposed, and who seems to have profited, is forced to assume the burden of showing that the transaction was in every way fair and beyond suspicion

NOTE: NONDISCLOSURE AND CONCEALMENT A duty to disclose arises in situations involving facts that are concealed or unlikely to be discovered because of their dealings, or the nature of the fact itself A duty to disclose is rarely imposed where the parties deal at arms length and where the information is the type which the buyer would be expected to discovery by ordinary inspection and inquiry Not every failure to disclose information that would cause the plaintiff to reassess the deal is actionable Restatement 161 a vendor has an affirmative duty to disclose material facts where: o Disclosure is necessary to prevent a previous assertion from being a misrepresentation or from being fraudulent or material o Disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing o Disclosure would correct a mistake of the other party as to the contents or effect of a writing o The other person is entitled to know the fact because of a relationship of trust and confidence between them SHERWOOD v WALKER If there is a difference or mistake as to the substance of the thing bargained for, if the thing actually delivered or received is different in substance from what was bargained for, then there is no contract If it is only a difference in quality of accident, then the contract remains binding NOTE: The Replevin Remedy o UCC 2-716(3) provides: The buyer has a right of replevin for good sidentified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing. ELSINORE UNION ELEMENTARY SCHOOL DIST v KASTROFF - "honest error" may be excusable Defendant contractor refused to execute a building contract pursuant to submitted bit Timeline:

Page 18 of 57 o Prepares bid => Submits bid => Checks bid => It's good => Acceptance => Next day realized did not include plumbing figure, w/ architect => Letter to plaintiff => Refusal to release from bid Court ruled in favor of defendant o Carelessness of the bidder did not rise to the level of "neglect of legal duty" o School board would lose nothing except the benefit of an inequitable bargain o Defendant had notified the board of the error prior to receiving their acceptance A "minimal" loss is excusable, getting what the injured was expecting initially Cannot be a type of active fraud or manipulation

COMMENT: UNILATERAL MISTAKE The Grounds for Rescission Unilateral mistake is generally not a ground for rescinding a contract, or reforming one But exceptions have appeared o Usually involves a party who knew of and, saying nothing, claimed the benefit of, anothers mistake Relief for mistake is authorized where enforcement of the contract would be unconscionable o Recognized in Restatement 153 Information and Mistake Relief is routinely given in the mistaken-bid cases if the bidder-offerors error reasonably should have been known by the offeree before acceptance o Comparable to situations where parties deal at arms-length THE WARRANTY ALTERNATIVE The mistake cases commonly involve affirmative statements by the seller of the thing o Such statements may be challenged as deliberate or careless misrepresentations amounting to fraud or some similar tort o Or a sellers representation may be interpreted as a warranty of performance UCC 2-213 (express warranties), 2-314 and 2-315 (implied warranties); 2-316 (attempts to disclaim warranty liability) 2-714 (deals with relief for breach of warranty) TRIBE v PETERSON - A representation by the seller which expresses his opinion is not a warranty Plaintiff sued after a horse they purchased from defendant bucked Defendant allegedly had expressly guaranteed that the horse would never buck UCC 2-213: Express Warranties by Seller o Created as follows: Any affirmation of fact or promise made by the seller which relates to the goods and becomes part of the basis of the bargain Any description of the goods which is made part of the basis of the bargain Any sample or model which is made part of the basis of the bargain

Page 19 of 57 o Not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" o An affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion does not create a warranty Defendant only gave his opinion that the horse was gentle and kind, which expressed the seller's personal opinion of the horse Court ruled in favor of seller defendant

JOHNSON v HEALEY - Innocent, negligent misrepresentations that induce reliance = warranty of habitability Johnson, buyer, purchased house from Healey, builder, which had improperly been built on improper fill During negotiations, Healey had stated that the house was built of the best materials Even though he did nothing wrong, and did not know there was a problem, builder was liable o Did not disclose to buyer until after sale was concluded that this was the only house he had built o His statement that there was "nothing wrong" with the house could reasonably have been heard as an assertion that builder had sufficient information to justify his opinion about the quality of the house o This statement of opinion could reasonably have induced reliance by the buyer If a man makes a statement in regard to a matter upon which the other may reasonably suppose he has the means of information, and the statement is made as part of a business transaction, or to induce action from which the speaker expects to gain an advantage, he should be held liable for the consequences of reliance upon his misstatement Damages: General rule for measurement upon breach of warranty is to award the prevailing party such compensation as will place him in the same position as he would have enjoyed had the property been as warranted Length of the implied warranty is dependent upon the Statute of Limitations Suggested solutions: o Sell "As-Is"; or o Include an express "limited warranty" CUSHMAN v KIRBY - If seller makes partial disclosure, but buyer believes it a full disclosure, seller is liable if buyer acts in reliance to the disclosure Defendants, sellers, had during negotiations represented that there was good quality well water available on the land, when in fact the available water was not of good quality o Defendants told buyers that the water treatment system needed Clorox to treat hard water o Water turned out to be sulfur water o Defendant was aware the water contained sulfur to an extent requiring treatment Regardless, represented to buyers that the water was "a little hard," but that the treatment equipment would fix it Defendant never disclosed the presence of sulfur "Where one has full information and represents that he has, if he discloses a part of his information only, and leads another to believe that he has made a full disclosure and does

Page 20 of 57 this with intent to deceive, he is guilty of fraud against which equity will relieve, if his words and conduct in consequence of reliance upon them bring about the result which he desires" Silence alone is insufficient to constitute fraud unless there is a duty to speak o Duty to speak based on "superior knowledge and means of knowledge" o Where material facts are accessible to the vendor only, and he knows them not to be within the reach of the diligent attention, observation and judgment of the purchaser, the vendor is bound to disclose such facts and make them known to the purchaser Does not matter if party knew they were misrepresenting the matter

SECTION 5: CHANGED CIRCUMSTANCES JUSTIFYING NONPERFORMANCEWhere performance depends on the existence of a given thing it is excused if the thing ceases to exist or turns out to be nonexistent. A thing is "impossible" when it is not practicable and it is impracticable when it can be done only "at an excessive and unreasonable cost." TAYLOR v CALDWELL Contract for the use of gardens and music hall for four days o Plaintiffs: have use of the sites for the purpose of giving a series of four grand concerts, and day and night parties; pay $100 for each day o Defendants were to retain possession of the Hall and Gardens o Contract: Was merely to give the plaintiffs the use of them on those days Set out various stipulations between the parties Overall effect was to show that the Music Hall and Gardens being in a condition fit for concerts was essential to fulfillment of the contract o After making the agreement, but before the first day, the Hall was destroyed by fire Question at issue: o Whether the loss which the plaintiffs have sustained is to fall upon the defendants Parties made no express stipulation with reference to it Where there is a positive, absolute K: o Contractor must perform or pay damages o Contract cannot be subject to conditions Where, from beginning, parties must have known K could only be fulfilled by continued existence of some particular thing: o K is not to be viewed as a positive contract o K is to be subject to an implied condition that the parties be excused if performance becomes impossible If an author undertakes to compose a work, and dies before completing it, his executors are discharged from this contract o Where a contract depends upon personal skill, and the act of God renders it impossible it may be that the performance might be excused

Page 21 of 57 English law: o In all contracts of loan of chattels or bailments if the performance of the promise of the borrower or bailee to return the things lent or bailed becomes impossible because it has perished, this impossibility excuses the borrower or bailee from the performance of his promise to redeliver the chattel. HOLDING: Performance excused due to impossibility; Contract dissolved o Let the damages fall where they may If you want to allocate the risk, PUT IT IN THE CONTRACT

TOMPKINS v DUDLEY School burned down prior to completion TC: the contract was substantially performed, but the school was not formally accepted o Builder was still in possession o He was to deliver it over to the plaintiffs thus finished, or offer to deliver it, before his whole duty was performed to completion When a party is prevented by the act of God from discharging a duty created by law, he is excused o But when he engages unconditionally, by express contract, to do an act, performance is not excused by inevitable accident or other unforeseen contingency not within his control The party that agrees to do an act should do it, unless absolutely impossible CARROLL v BOWERSOCK Concrete floor in defendant's warehouse Partial recovery granted: o Work done in cutting the old floor away from the wall; Removing that part of the old floor as was necessary The warehouse was improved to that extent, the benefit having been inured by the owner when fire occurred o Recover for the completed concrete footings Not recovered: o Material furnished or labor performed in construction of either column or floor forms They were temporary devices Inured to nobody's benefit; not wrought into the structure o Either upright or floor rods, or for the labor of putting them into place They were not attached to the building and would not have been until the concrete was poured o Superintendence and use of tools; except for in regards to work done which has become identified with the building Benefit accrues whenever the contractor's material and labor, furnished and performed according to the contract, have become attached to the owner's realty Liability of the owner should be measured by the amount of the contract work done which, at the time of the destruction of the structure, had become so far identified with it as that but for the destruction it would have inured to him as contemplated by the contract

Page 22 of 57 If a contractor should engage to furnish all labor and material and build a house, and the house should burn before completion, the loss falls on him If contractor engages to refloor two rooms of an existing house, and should complete one room before the house burned, he ought to be paid something o Performance was prevented without fault of either party, and the true rule is that neither party can be charged with delinquency because the contract cannot be fulfilled The only basis on which the law can raise an obligation on the owner is the consideration he has received by way of benefit, advantage, or value to him o Benefit accrues whenever the contractor's material and labor have become attached to the owner's realty

ACT OF GOD DEFENSE PERMITTED ONLY WHEN SUBJECT MATTER OF K IS DEFINED, EXPRESSLY OR IMPLIEDLY (MUSIC HALL, OWNER'S WAREHOUSE), BUT NOT IF SUBJECT IS UNDEFINED (SCHOOL HOUSE, BEANS) COMMENT: RISK AND INSURANCE IN LAND PURCHASES Doctrine of Equitable Conversion o Operates to place on the vendee the risk o floss from fortuitous casualties occurring after entry into the contract of sale and prior to its closing o The contract itself, from its first moment, creates equitable ownership in the vendee The contract gives to the purchaser the substantial control of the premises and the principal value elements of property therein o With insurance, the vendee may have specific performance with a price abatement Uniform Risk Act o Absent contrary agreement agreement the risk of intervening casualty is determined by transfer of either legal title or possession o If neither is transferred, the risk of loss is on the vendor The vendor cannot enforce the contract, and the purchaser is entitled to recover any portion of the price paid o But if either legal title or possession has been transferred, the purchaser is not relieved from a duty to pay nor entitled to restitution of any portion of the price paid o UCC 2-509 and 2-510 put the risk of loss on the party that controls the goods o Summation: absent a change in title or possession, a loss is to remain where it falls, not to be shifted to another person o When the risk of loss remains with the vendor at the time of the intervening casualty, the purchaser is entitled to recover any portion of the price paid RESTATEMENT 264: PREVENTION BY GOVT REGULATION or ORDER If the performance of a duty is made impracticable by having to comply with govt regulation or order, that order is an event the non-occurrence of which was a basic assumption on which the contract was made.

Page 23 of 57 Rationale: It is a basic assumption that the law will not directly intervene to make performance impracticable when it is due LOUSIVILLE & NASHVILLE R.R. CO. v CROWE A contract which is lawful when made is terminated by a later govt regulation which renders its performance unlawful But a party who has received a performance under such an agreement should not be permitted to retain it THE ISLE OF MULL Compensation paid exceeding the contract rate is the owners gain Inadequate compensation paid would be the owners loss KEL KIM CORP. v CENTRAL MARKETS Skating Rink insurance case Generally, once a party to a K has made a promise, that party must perform or respond in damages for its failure, even when unforeseen circumstances make performance burdensome Impossibility of performance defense has been applied narrowly o Purpose of K law is to allocate the risks that might affect performance and that performance should be excused only in extreme circumstances o Impossibility excuses a party's performance only when the destruction of the subject matter of the K or the means of performance makes performance impossible o Impossibility must be produced by an unanticipated event Force Majeure Clauses - clauses excusing nonperformance due to circumstances beyond the control of the parties o Only if the clause specifically includes the event that actually prevents a party's performance will that party be excused o Principle of Interpretation: the general words are confined to things of the same kind or nature as the particular matters mentioned SNIPES MOUNTAIN CO. v BENZ BROS. & CO. If the parties contemplate a sale of the crop of a particular tract of land, and by reason of a drought or other fortuitous event, without the fault of the promisor, the crop of that land fails or is destroyed, nonperformance is to that extent excused; The contract, in the absence of an express provision controlling the matter, is considered as subject to an implied condition in this regard NOTE: ALLOCATING RISK BY CIRCUMSTANCES If the contract explicitly assigns a particular risk, there is no occasion to apply the general body of excuse doctrine The fighting issue is likely to be whether the contract, read in context, reveals an implicit allocation o Ex: whether a promise unconditional on its face was in fact conditioned on some person or thing

Page 24 of 57 Where resort to surrounding circumstances includes evidence of negotiating history, the PRE is an obstacle for the party seeking to qualify an undertaking

AMERICAN TRADING & PROD. CORP. v SHELL INTL MARINE LTD. Theory of Commercial Impracticability (Restatement 454) o Even though the owner is not excused because of strict impossibility, performance is rendered impossible if it can only be accomplished with extreme and unreasonable difficulty, expense, injury, or loss o Mere increase in cost alone is not a sufficient excuse for non-performance Must be an extreme and unreasonable expense UCC 2-615, comment 4: o The rise in cost must alter the essential nature of the performance. MAPLE FARMS, INC. v CITY SCHOOL DIST. Save for the most exceptional circumstances, a party claiming discharge from obligation because of unexpected financial burdens caused by a shift in market conditions is unlikely to get far o Foreseeable for market to shift MISHARA CONSTR. CO. v TRANSIT-MIXED CONCRETE CORP. UCC 2-615 provides as a test commercial impracticability as opposed to strict impossibility o Circumstances drastically increasing the difficulty and expense of the contemplated performance may be within the compass of impossibility o The intervening circumstance must be one that the parties assumed would not occur In industries with a long record of labor difficulties, the nonoccurrence of strikes would not be a basic assumption o Much must depend on the facts known to the parties at the time of the contract, as to the prospects for labor difficulties and the severity of their probable effects KRELL v HENRY Taylor Rule: o Where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless some particular specified thing continued to exist So that when entering into the contract they must have contemplated such continued existence as the foundation of what was to be done There, absent any express or implied warranty that the thing shall exist, the contract is not to be considered a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor Must first ascertain what is the substance of the contract Then ask whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things

Page 25 of 57 o If it doesnt, this will limit the operation of the general words o If the contract becomes impossible of performance by reason of the nonexistence of the state of things assumed as the foundation, there will be no breach of the K Test of Impossibility: o Each case must be judged by its own circumstances, and ask three questions: What, having regard to all circumstances, was the foundation of the contract? Was the performance of the contract prevented? Was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract? o If all questions are answered in the affirmative, both parties are discharged from further performance The test is whether the event which causes the impossibility was or might have been anticipated and guarded against.

RESTATEMENT 272, comment b: Recovery in impossibility and frustration cases may go beyond mere restitution and include elements of reliance by the claimant even though they have not benefitted the other party

CHASE PRECAST v JOHN J. PAONESSA CO. Restatement 265, UCC 2-615: Doctrine of Frustration of Purpose (DFP) o Where, after a K is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the K was made, his remaining duties to render performance are discharged, unless the language of the circumstances indicate the contrary DFP Test; Given the commercial circumstances in which the parties dealt: o Was the contingency which developed one which the parties could reasonably be thought to have foreseen as a real possibility which could affect performance? o Was it one of that variety of risks which the parties were tacitly assigning to the promisor by their failure to provide for it explicitly? o If it was, performance will be required o If it could not be so considered, performance will be excused

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CHAPTER 5: POLICING THE BARGAINSECTION 1: COMPETENCY AND OTHER LIMITSInfancy HALBMAN v LEMKE Right of a minor to disaffirm a contract for the purchase of an item Doctrine of Incapacity - "infancy doctrine" o Absolute right of a minor to disaffirm a contract for the purchase of items where are not necessities o A minor who disaffirms a contract is entitled to recover all consideration he has conferred incident to the transaction. In return the minor is expected to restore as much of the consideration as, at the time of disaffirmance, remains in the minor's possession Restatement Section 14 o The minor's right to disaffirm is not contingent upon the return of the property, as disaffirmance is permitted even where such return cannot be made The contract of a minor for the purchase of items which are not necessities may be disaffirmed even when the minor cannot make restitution Where there is misrepresentation by a minor or willful destruction of the property, the vendor may be able to recover damages in tort o However, absent these factors, to require a disaffirming minor to make restitution for diminished value is, in effect, to bind the minor to a part of the obligation which by law he is privileged to avoid Vendor should require minor have adult co-sign the contract WEBSTER STREET PARTNERSHIP v SHERIDAN A disaffirming infant is liable only for the value of "necessaries" supplied under the contract o Term is flexible and varies with the facts of each case o Depends on the social position and situation in life of the infant, as well as upon his own fortune and that of his parents Goods or other items of property are not necessaries if the infant has a parent or guardian who is willing and able to supply them Mental Competence ORTELERE v TEACHERS' RETIREMENT BD. Teacher was mentally incompetent to alter her retirement benefits Simply having unimpaired cognitive ability is insufficient when unable to control one's conduct due to mental illness General Test: Capacity to understand the nature and consequences of the transaction RESTATEMENT 15: MENTAL ILLNESS OR DEFECT

Page 27 of 57 (1) A person incurs only voidable contractual duties by enterint into a transaction if by reason of mental illness or defect 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 and the other party has reason to know of his condition (2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires Comment: Operative effect of incompetency: o The effect on executor contracts of incompetency is very much like that of infancy o Incompetent person may affirm or disaffirm the contract upon regaining full capacity or power to affirm/disaffirm may be exercised by guardian Effect of performance: o Where the contract has been performed in whole or in part, avoidance is permitted only on equitable terms o Any benefits still retained by the incompetent must be restored or paid for, and restitution must be made for any necessaries furnished under the contract o If the other party knew of incompetency, or if he took unfair advantage of incompetency, consideration not received by the incompetent or dissipated without benefit to him need not be restored ODORIZZI v BLOOMFIELD SCHOOL DIST. Undue influence is used to describe persuasion which tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment o Includes taking an unfair advantage of anothers weakness of mind; or taking a grossly oppressive and unfair advantage of anothers necessities or distress o Involves the use of excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a servient object Over-persuasion is generally accompanied by certain characteristics: o Discussion of the transaction at an unusual or inappropriate time o Consummation of the transaction in an unusual place o Insistent demand that the business be finished at once o Extreme emphasis on untoward consequences of dealy o The use of multiple persuaders by the dominant side against a single servient party o Absence of third-party advisers to the servient party o Statements that there is no time to consult financial advisers or attorneys If a number of the above elements are simultaneously present, the persuasion may be excessive

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SECTION 2: DURESS AND COERCIVE RENEGOTIATIONBATSAKIS v DEMOTSIS A plea of want of consideration amounts to a contention that the instrument never became a valid obligation in the first place Mere inadequacy of consideration will not void a contract COMMENT: ADEQUACY OF CONSIDERATION Mere inadequacy of consideration will not void a contract Ordinarily the courts will not inquire into the adequacy of consideration It is necessary that the consideration be of some value, but it is sufficient if it be of slight value only However, one should not conclude that the broad prohibition against review of adequacy has meant that the fairness of exchange is not a legal concern Legal Duty Rule Consideration is required to form a contract and to escape from, or alter in midcourse, an unperformed contract o A contract may not be modified without consideration A contractual duty already owed does not equal consideration Extra benefit to promisor must be combined with extra detriment to promisee LEVINE v BLUMENTHAL A subsequent oral agreement was made to change and alter the terms of the written lease, with respect to the rent paid o TC: this was not supported by lawful consideration, and ineffective General Rule: a promise to do what the promisor is already legally bound to do is an unreal consideration Consideration = NEW (additional) benefit and detriment Test: o Is the consideration adequate to support an ordinary K; and o Does not consist of a duty the debtor is legally bound to do? General economic adversity is never a warrant for judicial abrogation of this primary principle of the law of contracts ALASKA PACKERS v DOMENICO The party who refuses to perform, and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party o Where the promise is simply a repetition of an existing legal promise, a party cannot lay the foundation of an estoppel by his own wrong Cannot demand extra $ for same work already obligated to do SCHWARTZREICH v BAUMAN-BASCH, INC Parties to a contract can rescind it by mutual consent

Page 29 of 57 o Can then proceed to make a new contract in which their mutual promises are consideration for each other. The time of rescission in relation to making of new contract is irrelevant

AUSTIN INSTRUMENT, INC v LORAL CORP Economic Duress Rules: o Voidable if party was forced to agree by means of a wrongful threat precluding his free will o Existence of economic duress or business compulsion demonstrated by proof of: Immediate possession of needful goods is threated; or One part to a K has threatened to breach by withholding goods unless the other party agrees to further demands o However, a mere threat to breach by not delivering the required items does not constitute economic duress Must also appear the threatened could not obtain the goods from other source and that the ordinary remedy of action for Breach of Contract would be inadequate Nonperformance by a subcontractor is not an excuse for default in the main contract One who would recover moneys allegedly paid under duress must act promptly to make his claim known o However, exception to this may be where past conduct gives threatened party reason to delay NOTE: AN IMPROPER THREAT Duress of goods is well established as a ground for rescission and restitution The refusal of a service by public utilities unless paid a sum exceeding the authorized rate is another type of relievable duress BRIAN CONSTR & DEV. CO. v BRIGHENTI When a party agrees to perform an obligation for another to whom that obligation is already owed, although for lesser remuneration, the second agreement does not constitute a valid, binding contract o Where, however, the subsequent agreement imposes upon the one seeking greater compensation an additional obligation or burden not previously assumed, the agreement, supported by consideration, is valid and binding o (More Work + More $ = Valid K) An unforeseen, burdensome condition = new detriment RESTATEMENT 89: BINDING MODIFICATION 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 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.

Page 30 of 57 UCC 2-209(1) Obligation of good faith requires inquiries into: o The parties subjective honesty, and o The justification for the decision to seek a modification. Contractual Duty Owed to a Third Person UNIVERSAL BUILDERS, INC v MOON MOTOR LODGE, INC Unless contract is for sale of goods, it may be modified orally even if contract requires it to be written Owners must pay for extra work requested at oral discretion A provision in a contract for goods that the contract can be modified only in writing is waived under the circumstnaces described by Restatement 224: o By an oral agreement or permission of the promisor tha the condition need not be performed o If the agreement or permission is given while the performance of the condition is possible, and o In reliance on the agreement, while it is unrevoked, the promisee materially changes his position Condition is waived if results in fraud Non-written modifications effectiveness depends upon whether enforcement is barred by equitable considerations o When an owner requests extra work, promises to pay for it, and watches it performed knowing it is not authorized in writing, he cannot refuse to pay on the ground that there was no written change order Liquidated Damages Clause is enforceable unless not reasonable estimate of actual or anticipated losses Finalizing Contract Disputes HACKLEY v HEADLEY Duress exists when one by the unlawful act of another is induced to make a contract or perform some act under circumstances which deprive him of the exercise of free will o Commonly either of the person or the goods of the party Duress of goods may exist when one is compelled to submit to an illegal exaction in order to obtain them from one who has them in possession but refuses to surrender them unless the exaction is submitted to o Payment by Compulsion But where the party threatens nothing which he has not a legal right to perform, there is no duress NOTE Duress should be tried on the facts Financial difficulty by itself will not justify setting aside a settlement MARTON REMODELING v JENSEN

Page 31 of 57 A single claim, including both its disputed and undisputed elements, is unitary and not subject to division so long as the whole claim is unliquidated General Rule: an accord and satisfaction of a single claim is not avoided merely because the amount paid and accepted is only that which the debtor concedes to be due or that his view of the controversy is adopted in making the settlement An accord and satisfaction requires that there be an unliquidated claim or a bona fide dispute over the amount due o Cant cancel out a condition on full payment by crossing out or writing over it

LEGAL DUTY APART FROM ACCORD A bargain by a public official to obtain additional benefits for performing regular duties is unenforceable as against public policy. DENNEY v REPPERT General Rule: Reward may not be given to employees or public officials acting w/in the scope of their employment or official duties A claimant of a reward must comply with the terms and conditions of the offer of reward A public officer within the authority of the law to make an arrest may accept an offer of reward for acts or services performed outside of his jurisdiction or not within the scope of his official duties IN re ESTATE OF LORD v LORD Contracts between spouses for money to care for the spouse is void; spouses have a legal duty to care for one another Public policy to protect the marriage institution A promise to do what a party is already obligated by contract or law to do is not consideration for a promise made in return o Ex: husband promised to be faithful in return for wife promising to stop divorce Nuptial contracts which attempt to alter the legal relations of the parties are void for want of consideration, or against public policy

SECTION 3: SCRUTINY OF LIMITED COMMITMENTThe general employment type in America is employment at-will In the absence of agreement to the contrary, the employer or the worker can end the relationship unilaterally for any reason or no reason at all However, typically Good Faith is still required SHEETS v TEDDYS FROSTED FOODS, INC Right to terminate at will is not absolute Just Cause substantially limits employer discretion to terminate, by requiring the employer, in all instances, to proffer a proper reason for dismissal, by forbidding the employer to act arbitrarily or capriciously

Page 32 of 57 Public policy imposes limits on termination of at-will employee No case has supported employer to override public policy despite outrageous circumstances Employees without bargaining power are entitled to judicial protection When there is a relevant state statute we should not ignore the statement of public policy that it represents o An employee should not have to decide between risking criminal sanctions or losing his job

PRICE v CARMACK DATSUN, INC An exception to the at-will doctrine is made only when the discharge violates a clearly mandated public policy o A matter must strike at the heart of a citizens social rights, duties, and responsibilities before the tort will be allowed o If the matter is one of private and individual grievances rather than one affecting society, the action will not be allowed McDONALD v MOBIL COAL PRODUCING, INC For a disclaimer to be effective against employees it must be conspicuous; whether it was conspicuous is a matter of law o Set off in any way o Not placed under general subheading o Capitalized o Different font size o Clear as to its effect on the employment relationship Objective Theory of contract formation o Contractual obligation is imposed not on the basis of the subjective intent of the parties, but rather upon the outward manifestations of a partys assent sufficient to create reasonable reliance by the other party KARI v GENERAL MOTORS CORP An employers communications to employees may constitute an offer to contract o But the offer must contain a promise communicated in such manner that the promisee may justly expect performance and may reasonably rely thereon DORE v ARNOLD WORLDWIDE, INC A clear and unambiguous at-will provision in a written employment contract, signed by the employee, cannot be overcome by evidence of a prior contemporaneous implied-infact contract requiring good cause for termination A verbal formulation at any time in the termination clause of an employment contract ordinarily entails the notion of with or without cause The presumption of at-will employment can be overcome by an express or implied agreement to the contrary The term at will when used in an employment contract normally conveys an intent employment may be ended by either party at any time without cause.

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SECTION 4: STANDARDIZED TERMS, UNCONSCIONABLE INEQUALITY, AND GOOD FAITHCommon law duty to read. Unless one can show facts and circumstances to demonstrate that he was prevented from reading the contract, or that he was induced by statements of the other party to refrain from reading the contract, it is binding o No party to a written contract can defend against its enforcement on the sole ground that he signed it without reading it Yet, the duty to read depends ultimately on circumstances o The duty may be raised or lowered, or even extinguished Form Contracts HENNINGSEN v BLOOMFIELD MOTORS, INC General Rule: In the absence of fraud one who does not choose to read a contract before signing it cannot later relieve himself of its burden The conflicting interests of the buyer and seller must be evaluated realistically and justly giving due weight to the: o Social policy of the Uniform Sales Act o Progressive decisions of the courts o Bargaining position occupied by the ordinary consumer in such an economy Disclaimers and the consequent limitation of liability will not be given effect if: o Unfairly procured; or o Not brought to the buyers attention and he was not made understandingly aware of it; or o Not clear and explicit In the sale of goods, the legislative will has imposed an implied warranty of merchantability as a general incident of sale of an automobile by description o Right to recover damages for personal injuries arising from a breach of warranty The disclaimer of an implied warranty of merchantability is violative of public policy SUPERWOOD CORP. v SIEMPELKAMP CORP. UCC clarifies the rights and remedies of parties to commercial transactions: o 2-314: covering warranties o 2-316: warranty disclaimers o 2-719: liability limitations o 2-607: notice provisions Economic losses that arise out of commercial transactions are not recoverable under the tort theories of negligence or strict liability RICHARDS v RICHARDS Exculpatory contracts are not favored by the law o However, not automatically void and unenforceable as contrary to public policy o Court examines whether such agreements violate PP and construes them strictly against the party seeking to rely on them

Page 34 of 57 The court will not favor an exculpatory contract that is broad and general in its terms In this case, the contract serves two purpose o Dual function was not made clear in the title o A release should be clearly labeled o To prevent confusion and provide protection, need to identify AND distinguish Standardized release, alone, is not enough to invalidate Had plaintiff been allowed to negotiate a release, she may have declined to release the company from liability or reckless actions

BROEMMER v ABORTION SERVICES OF PHOENIX Adhesion Contract = enforceable unless: o Unconscionable; or o Beyond reasonable expectations Adhesion Contract: o Standardized form o Offered to consumers o Take it or leave it o Under conditions where the consumer can only receive goods/services by agreement o One party has all bargaining power Adhesion is unenforceable if two factors: o Reasonable expectations of the signing party; o Unconscionability A court will find less reason to regard the bargaining process as suspect if there are no terms unreasonably favorable to the stronger party RESTATEMENT, 211: STANDARDIZED AGREEMENTS (1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing (2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement. Assent to unknown terms: A party who makes regular use of a standardized form does not ordinarily expect his customers to understand or even to read the standard terms. Equality of treatment: One who assents to standard contract terms normally assumes the others are doing likewise and that all who do so are on an equal footing. COMMENT: SECTION 211 AND REASONABLE EXPECTATIONS A party who adheres to the other partys standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term.

Page 35 of 57 o Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances Reason to believe may be inferred from: o The fact that the term is bizarre or oppressive o The fact that it eviscerates the non-standard terms explicitly agreed to o The fact that it eliminates the dominant purpose of this transaction In a contract of adhesion form must not be exalted over substance, and that the reasonable expectations may not be frustrated Reasonable expectations may be established by proof of the underlying negotiations or inferred from the circumstances

WOOLLUMS v HORSLEY Unclean Hands Doctrine => Equitable relief may be barred for legal contract if plaintiff came in with unethical, immoral conduct Unconscionability WATERS v MIN LTD. Courts may refuse enforcement of a bargain shown to be unconscionable by reason of gross inadequacy Unconscionability must be determined on a case-by-case basis Unconscionability must be determined at the time the contract was made High pressure sales tactics and misrepresentation have been recognized as factors rendering a contract unconscionable Gross disparity in the values exchanged is an important factor to be considered in determining whether a contract is unconscionable UCC 2-302: UNCONSCIONABLE CONTRACT or CLAUSE (1) If the contract or clause is found to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result (2) When it is claimed or appears to the court that the contract or clause may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination. WILLIAMS v WALKER-THOMAS FURNITURE CO. If a contract be unreasonable and unconscionable, but not void for fraud, a court will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to Where the element of unconscionability is present at the time a contract is made, the contract should not be enforced Unconscionability: o Absence of meaningful choice meaningful choice determined by circumstances

Page 36 of 57 o Terms unreasonably favorable Ordinarily, one who signs an agreement without full knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain o But, when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms In determining reasonableness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made

BROWER v GATEWAY 2000, INC. General Rule: unconscionability requires a showing that a contract is both procedurally and substantively unconscionable when made Procedural Element: o A court will look to the contract formation process to determine if in fact one party lacked any meaningful choice. Take into consideration such factors as: The setting of the transaction, The experience and education of the party claiming unconscionability, Whether the contract contained fine print, whether the seller used highpressured tactics, Any disparity in the parties bargaining power Substantive Element: o Look at possible inconveniences o Also consider excessive cost factor Federal Arbitration Act: o Provides for such court designation of an arbitrator upon application of either party, where, for whatever reason, one is not otherwise designated o Cite this when representing Defendant if arbitration clause exists o Plaintiff should reply with unconscionability MARTIN v JOSEPH HARRIS CO. A legally sophisticated seller may not take advantage of a buyers lack of legal expertise about warranties to shift, by cryptic language, the risk of loss due to latent, undiscoverable defects in the product sold NOTE: CONTEMPORARY UNCONSCIONABILITY Doctrine of unconscionability divided into two aspects: o One intended to prevent unfair surprise o One intended to prevent oppression Where only procedural irregularities are involved, the judicial doctrines of fraud, misrepresentation, duress, and mistake may provide superior tools for analyzing the validity of contracts. RESTATEMENT 205: DUTY OF GOOD FAITH AND FAIR DEALING Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement

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MARKET STREET ASSOCIATES v FREY The lessor who fails to give reasonable consideration and thereby prevents the negotiations from taking place is breaking the contract A contracting party cannot be allowed to use his own breach to gain an advantage by impairing the rights that the contract confers on the other party A fiduciary is required to treat hi