Contracts II Flashcards
1
Q
Duress
A
Where one person makes unlawful threats or otherwise engages in coercive behavior that causes another person to commit acts that they would otherwise not commit.
2
Q
Economic Duress Test
A
The party alleging economic duress must show
1. They were the victim of a wrongful act or threat AND
2. Such act or threat must be one which deprives the victim of his unfettered will. (Totem Marine)
*Party seeking rescission bares burden of proof
3
Q
Duress Exists When
A
- One party involuntarily accepts another’s terms AND
- Circumstances permitted no other reasonable alternative AND
- Such circumstances are the result of the other party’s coercive acts. (Totem Marine)
4
Q
Duress by physical compulsion
A
Unlawful harm to one in order to force assent to contract. Automatically void.
5
Q
Void
A
If K was not properly formed in the first place and so never was legally enforceable.
6
Q
Voidable
A
When there was a VALID legal contract but one or more parties have the power to avoid legal obligations under K.
7
Q
Duress by threat
A
- Threats of crime or tort
- Threat is a breach of the duty of good faith and fair dealing under K.
- Voidable
8
Q
Ambiguity Test:
A
Step 1: Textual or Contextual?
Step 2: What meaning or definition applies (subjective or objective?)
9
Q
Textual
A
Plain meaning of K - “4 corners”
10
Q
Patent Ambiguity
A
Ambiguous on its face (within the text itself)
11
Q
Subject Matter Latent Ambiguity
A
- Applies to real world facts (Pierless 2 boat same name)
12
Q
Contextual
A
Use of extrinsic evidence (outside K)
13
Q
Latent Ambiguity
A
when a language of the writing is clear on its fact but contains ambiguity in light of the extrinsic evidence that suggests more than one way of interpretation.
14
Q
Objective
A
What a reasonable person familiar with the circumstances would have thought.
15
Q
Subjective
A
The actual intent to the parties at the time they formed the contract.
16
Q
Levels of Knowledge
A
- Actual Knowledge
- Constructive Knowledge
- No Knowledge
17
Q
Actual Knowledge
A
What did each party actually know about what the other party thought the K meant?
18
Q
Constructive Knowledge
A
What should each party have known about the the other party thought the contract meant?
19
Q
No Knowledge
A
Party may have had no actual or constructive knowledge about what the other party thought the contract meant.
20
Q
If the ambiguous term is not material what happens?
A
Court fills the gap.
21
Q
If the ambiguous term is material, what happens?
A
Little/no performance: Contract null.
Substantial performance: gap filled by court.
22
Q
A has actual knowledge, B had constructive or no knowledge
A
B’s knowledge governs
23
Q
A should have known (constructive) what B meant, and B had no knowledge
A
B’s interpretation governs.
24
Q
When both parties have no knowledge about each other’s understanding
A
Neither party is bound. Court looks at materiality of term and how far contract was performed.
25
Bee-Three Development
H: The court found that the contract had more than one possible meaning.
F: Ambiguity when there was two reasonable readings of the termination provision in the contract.
R: If the termination provision was unrelated to the inspection, it would have made sense to have it stand alone.
26
To interpret an ambiguous term, the court considers:
1. Plain meaning of the term
2. Negotiations between the parties
3. Other contract provisions
4. Market factors
5. Course of dealing between parties.
6. Trade usage
27
§201
Whose meaning prevails? :
Same meaning = that meaning controls
Different meanings = levels of knowledge
Neither = no binding agreement
28
Frigaliment Importing
H: The court found the term “chicken” was ambiguous and held that Frigaliment’s did not have a claim for breach of warranty.
F: Both parties thought the term “chicken” meant two different types of chickens.
R: The court looked at other contract provisions (incorporation by reference of Dept of Agriculture regulations which included the type of chicken BNS sent), market factors, (BNS couldn't get the chickens Frigaliment wanted at their agreed contract price) & course of dealings (accepted first shipment, allowed 2nd) Trade usage - BNS was inexperienced and Frigaliment couldn’t show that usage was wide spread enough for BNS to know.
29
§202
Courts interpret language in light of all the surrounding circumstances, giving weight on the principal purpose of the parties. Parties course of performance, dealing and trade usage are also considered.
30
§203
If there's a conflict between provisions, courts will prioritize:
1. specific terms > general ones
2.Negotiated or added terms > boilerplate
3. Consistent interpretations with prior performance, course of dealing or trade usage.
Goal: To uphold parties' intent
31
Thompson v. Libby
H: The court held that under a textualist approach, they would not allow the verbal agreement into evidence.
F:Thompson made verbal guarantees regarding quality, parties signed a sale agreement that identified lumber and price but not quality. Quality wasn’t what Thompson said and Libby refused to pay.
R: The parties intended the written agreement to be a complete and exclusive statement of their terms.
32
Gianni v. R. Russell
H: The court held that even under a contextualist jurisdiction, preliminary negotiations that relate to the subject matter addressed in written contract are permitted from evidence.
F: Russell and Gianni’s lease restricted Gianni from selling tobacco and Gianni claimed a verbal agreement for the exclusive right to sell soft drinks in the building – Russell rented out to another store who sold soft drinks.
R:Parties could have included the exclusive right in the written contract.
33
§213
When parties have a written agreement as their final expression of their contract, prior oral or written agreements are generally inadmissible to contradict the terms of that writing.
34
Purpose of the Parol Evidence Rule
To preserve the integrity of written contracts by preventing parties from altering them through extrinsic evidence.
35
§215
Evidence of prior agreements is NOT admissible to CONTRADICT the terms of a written agreement that is intended as the final expression.
36
§216
Written agreement is
1. NOT fully integrated = consistent additional terms may be introduced.
2. Complete integration = additional terms are excluded
37
Under the UCC, when can courts imply course of perf/deal/trade usage to demonstrate implied contract terms?
1. If there is evidence that is consistent with the terms of the contract
2. The purported trade usage is so prevalent that the parties would have intended to incorporate them.
38
§2-202
-Course of performance, dealings and trade usage may be used to EXPLAIN or SUPPLEMENT but NOT contradict.
-Consistent additional terms MAY be admitted UNLESS writing is fully integrated.
39
§1-303
Express terms supersede > Course of performance > course of dealings > trade usage.
40
Course of performance
What parties actually did.
41
Under course of performance, a sequence of conduct between the parties to a particular transaction exists if:
1. The agreement of the parties involves repeated occasions for performance by a party (repetitive performance)
2. The other party, with knowledge of the nature of the performance and opportunity for objection, accepts the performance or doesn't object.
42
Course of Dealing
Sequence of conduct that parties did under past contracts
43
Trade Usage
What others in same business do and whether the parties are or should be aware (Locality)
44
Waiver
When one party accepts less than full performance from the other without deeming it a breach of the agreement.
45
Exceptions to the Parol evidence Rule
1. Collateral Agreements
2. Ambiguity
3. Consistent additional terms (if only partial)
4. Conditions Precedent
5. Consideration (if no consideration, no grounds for contract)
6. Defenses (fraud, duress, unconscionability etc)
46
Collateral Agreements
A separate contract of the first that does not effect it. (Sale of house v. sale of patio furniture)
47
§2-601
Perfect Tender Rule: general standard of performance - seller has to delivery 100% perfect goods. Victims have the right to reject.
48
§2-508
Cure: A seller will have the opportunity to cure their imperfect tender.
a. Reason to believe imperfect delivery would be allowable (past dealings) - Buyer still has right to reject but has to give seller additional reasonable time
b. Still time left for delivery.
49
When the place of delivery is not specified, where is the default place?
Seller's place of business unless both parties know goods are elsewhere.
50
Common Carrier
Third party in the transportation business.
51
Risk of loss
1. Contract says what party
2. If contract doesn't say then:
-If one party is already in breach they bare the risk of loss
-Risk of loss transfers to buyer upon seller's tender of the goods.
52
If the contract doesn't state who bares the risk of loss and no one is in breach at point of loss, who bares the risk?
Under shipping contract: If the seller completes their portion of delivery obligations, then it is the buyer's risk of loss. Ex: Seller gets goods to common carrier and notifies buyer of shipment - goods are harmed after = buyers risk)
53
Warranties Implied through the UCC
1. Implied warranty of merchantability
2. Implied warranty of fitness for a particular purpose.
54
§2-314: Implied warranty of merchantability
Merchant seller who regularly deals w goods of that kind must sell goods that are fit for the ordinary purpose for which they are to be used.
55
§2-315 Implied warranty of fitness for a particular purpose
Arises at the time of contracting - seller has reason to know that the buyer requires the goods for a particular purpose and is relying on the seller’s judgment or skill to provide suitable goods.
56
Disclaimers
The ability for sellers to not be held to the standards for merchantability or fitness.
-Selling "as is" = no implied warranties.
-Cannot be hidden in contract.
57
§1-201(b)(2)
Honesty in fact and observance of reasonable commercial standards of fair dealing.
-Uses subjective honesty and objective reasonableness to determine good faith.
58
Whether language of a contract is reasonably susceptible to more than one interpretation is to be decided by
The court
59
How the contract language is to be interpreted is a question of
Fact
60
Taylor v. State Farm
H: Extrinsic evidence is allowed for the purpose of determining whether the contract language is ambiguous.
F: Taylor filed suit against State Farm for failing to settle with the other drivers within the policy limits, and that State Farm acted in bad faith in connection with the release. (verdict against Taylor for approximately $2.5 million above his policy limits)
R: Ambiguity does not need to exist before parol or other extrinsic evidence is admissible. The release language in the contract was broad enough to suggest that both parties believed bad faith claims were covered by the release.
61
When does the Parol Evidence Rule apply to fraud?
Where the alleged fraud directly relates to the terms of an express written contract, the parole evidence rule applies. (Sherrod)
62
Good Faith §205
Every contract imposes a duty of good faith and fair dealing - honesty in fact and the observance of reasonable commercial standards of fair dealing
63
§356
Liquidated Damages: Damages for breach may be liquidated in agreement but ONLY at an amount that is reasonable in light of the anticipated/actual loss. Objective is compensatory, NOT punitive.
64
Barrie School
Maryland law - liquidated damages were proper even if the NBP did not mitigate damages and there was no harm suffered to NBP.
65
Implied terms
Any term that the court finds to be implicit in the parties' words or conduct (even though not literally expressed).
66
Implied-in-fact
Agreed to in some meaningful sense by the parties themselves
67
Implied-in-law
Imposed by the court
68
Mutuality of Obligation
Each party must owe the party a duty to perform.
69
Lucy Lady Duff-Gordon
H: The court held that a promise to use reasonable efforts can be implied from a contract even though it may not be explicitly worded in the contract.
F: Lady Duff gave exclusive rights to Wood to generate sales revenue and he only took a few steps like provide monthly accounting.
R: A promise to use reasonable efforts may be implied from the entire circumstances of a contract and once implied, that promise may constitute sufficient consideration to create a valid and enforceable contract.
70
At-will employee
No set time in employment contract - employment may be terminated either by employer or employee at any time and for almost any reason
71
Leibel v. Raynor
H: Under the UCC, when a distributorship contract is at-will, the party terminating the agreement must provide reasonable notice of termination.
F: At-will agreement between parties - Leibel had right to be exclusive dealer - 2 yrs later Raynor sent a letter notifying Leibel they were terminating their agreement effective immediately.
R: Principles of good faith and fair play require that a dealer, who may be required to maintain a large inventory, be given notice in a reasonable time to sell that inventory and avoid major losses before termination.
72
§1-304
Every “contract or duty” within its scope imposes an obligation of good faith in its performance and enforcement.
73
§228
Satisfaction of the Obligor as a Condition: Courts prefer an objective standard when a contract makes one party’s duty condition on their satisfaction of the other’s performance unless it states otherwise.
74
§2-316: Modification of Warranties
Sellers can limit or disclaim warranties, but must do so clearly and conspicuously, especially if disclaiming implied warranties like merchantability.
75
Express warranties cannot be disclaimed if
clearly created by specific affirmations or promises.
76
Satisfaction Clause
Clauses courts measure the sufficiency of one party's performance by the satisfaction of the other party. A majority of courts follow the objective reasonable-person standard.
77
Subjective Good Faith Standard
Applies if contract includes personal aesthetics- one party's performance must be to the other's satisfaction unless the other party rejected the performance in bad faith.
78
Morin Bldg v. Baystone
H: The court held a reasonable person standard applies to a party’s satisfaction of a contract’s owner satisfaction clause (aesthetics)
F: Subcontractor didn’t get paid bc Aluminum siding was rejected by owner
R: The building wasn’t specified to be aesthetically pleasing - contract could have specified a certain kind of aluminum, therefore objective standard to be applied.
79
Seidenberg v. Summit Bank
H: The court held that the PER doesn’t impart P’s ability to present evidence supporting allegations of a breach of the implied covenant of good faith and fair dealing.
F: Siedenberg sold their stock to Summit bank and with that agreement, they were to remain executives to remain employed until retirement age. After two years, Summit fired Seidenberg & Raymond.
R: Since the duty of good faith and fair dealing is implied in the contract, it is NOT an express term.
80
Circumstances where a party's breach of good faith & fair dealing are at issue:
1. When a term not expressly set forth in the contract, must be added because the facts reveal that the parties intended it.
2. When there is concern about a party's discretion in performing under the contract
3. When there is concern that a party may have used a contract term as the pretext for terminating a contract unfairly.
81
Warranty
An express or implied promise that something in furtherance of the contract is guaranteed by one of the parties.
82
§2-313: Creation of express warranties under the UCC
1. Any affirmation of fact or promise that relates to goods that becomes basis of the bargain
2. Any description of the goods which is made part of the basis of bargain
3. Any sample or model made part of basis of the bargain
--> Creates an express warranty
83
Bayliner Marine
H: Opinions about a product’s potential performance don’t create an express warranty. If buyer doesn’t tell seller required purpose - no implied warranty of fitness can be created.
F: Crow wanting to buy a boat for fishing- Bayliner showed him manual with speed and equipment weight. Brochure stated boat could perform for offshore fishing. Crow bought boat and it was not suited for offshore fishing nor went the speed he was told. Brought suit for breach of express warranty & the implied warranties of merchantability & fitness
R: Brochure was for a different boat - so no express warranty and offshore fishing remark was an opinion. Crow did not tell Mayliner a specific speed but did tell him he needed it for offshore fishing (no breach of implied fitness) – he also used the boat a lot for regular fishing (no breach of merchantability)
84
Can statement of seller's opinions create an express warranty?
No.
85
Must buyer state specific purpose for the need of a product for an implied warranty of fitness?
Yes, and buyer to rely on seller's knowledge.
86
§2-309: Absence of Specific Time / Notice of Termination
If a contract does not specify a time for performance or delivery, it must be performed within a reasonable time. If indefinite in duration but allows termination by either party, reasonable notice must be given to avoid unfair surprise.
87
Defenses for Avoiding Enforement
1. Fraud
a. Misrepresentation
b. Nondisclosure
c. Concealment
2. Unconscionability
3. Duress
4. Undue Influence
5. Public Policy
6. Incapacity
a. Minors
b. Mental Capacity
c. Drunk ppl - if nondrunk party has reason to know
88
Contract of Adhesion
Take it or leave it - generally parties have a disproportionate bargaining power.
89
Proof of fraud requires:
1. A material misrepresentation of past or existing fact by the party to be charged which
2. Was false
3. Was made with knowledge or in reckless ignorance of the falsity
4. Was relied upon
5. Proximately caused the complaining party injury.
90
Two types of unconscionability defenses:
1. Procedural
2. Substantive
Both are weighed by the court
91
Procedural Unconscionability
Present when during the contract's formation, at least one party does not have fair/meaningful choice or there is some defect in bargaining power.
92
Substantive Unconscionability
Focuses on the overly harsh or one-sided results - when contract's terms unfairly benefit/harm one side such as extremely unequal price compared to value exchanged.
93
The Benefit Rule
When a minor rescinds an agreement, the minor will receive back the full purchase price - a deduction for the minor's use of the the merchandise.
94
The Use Rule
The minor's recovery of the full purchase price is subject to deduction for depreciation or deterioration of the merchandise while in the minor's possession.
95
Dodson v. Shrader
H: A minor who rescinds a contract bc of their minority isn’t always entitled to restitution of the entire purchase price.
F: The kid who buys a truck - didn’t tell sellers his age. Truck engine blew up seeking to rescind sale.
R: If the minor hasn’t been defrauded or subject to overreaching or undue influence + contract was reasonable & fair = minor isn’t entitled to full refund.
96
Berg. v. Traylor
H: After a minor’s disaffirmance, adult cosigners are still bound to the terms of the contract.
F: Berg would be child actor’s exclusive manager and if he disaffirmed contract, the mom would be responsible for paying any commissions owed to Berg.
R: Craig was underage so he was entitled to disaffirm the contract but his mother was still bound because she cosigned.
97
Minors
- May enter into contracts just like adults but have a statutory right to disaffirm the contract before reaching adulthood or within a reasonable time after that.
Exception: Contracts for life necessities.
98
Mental Capacity
A person must reasonably understand the nature, extent and effect of the contract to have the mental capacity to enter into it.
99
Sparrow v. Demonico
H: A person cannot establish incapacity without proof of a mental illness or defect that’s permanent or set for a significant duration.
F: Susan had menty b and left settlement meeting early - told lawyer to execute agreement w/o her and her ex husband.
R: Susan did not submit medical evidence = no basis to prove she lacked ability to contract.
100
Cognitive Test:
A person who suffers from insanity or is of unsound mind lacks capacity to contract.
*Medical evidence/testimony needed
101
Volitional Test:
A person who is unable to act in a reasonable manner in relation to the transaction lacks the capacity to contract when the other party has reason to know of the condition.
*Medical evidence/testimony needed
102
§14: Infancy
Person under the age of majority lacks full legal capacity to contract and their contracts are generally voidable.
103
§15: Mental Illness or Defect
A contract made by a person with a mental illness or defect is voidable if at the time of contracting, they were unable to understand the nature and consequences of the transaction.
104
§16: Intoxicated Persons
A contract entered into by a person who is so intoxicated that they are unable to understand the nature & consequences or unable to act reasonably is voidable ONLY IF other party had reason to know of the intoxication.
105
Inadequate reasonable alternatives in economic duress situations are
When the alternative would result in immediate harm or economic loss to the party pursuing it.
106
Totem Marine
H: A settlement and release agreement signed under economic duress can be void.
F: Totem a new company - contracted w Alyeska to transport goods. Totem experienced many unanticipated problems - Alyeska refused to pay unless they signed an agreement for ⅓ of the price bc Alyeska knew Totem was a new company struggling with finances.
R: Totem did not have a reasonable alternative to pay its business expenses and Alyeska withheld full payment knowing this
107
Factors for Undue Influence
1. Time of day
2. Location of signing
3. Whether influencing party tells victimized party they have no time to consult a lawyer
4. Mental state (lack of sleep/stress?)
5. Dominant v susceptible party
6. Demanding to close deal immediately
7. Emphasis on negative consequences of delay
108
Undue Influence
Coercive persuasion by a dominant party that overcomes a susceptible party's will w/o actually convincing the judgment
109
Odorizzi v. Bloomfield School District
H: If a dominant party uses excessive pressure to persuade a vulnerable party whose weakend mental state makes them especially susceptible to persuasion, the weaker party may have cause rescind based on undue influence.
F: Odorizzi was a teacher who was arrested for engaging in homosexual activity. After release - superintendent & principal came to his house, told him to resign immediately or else they would inform public of allegations. Also no sleep from staying in jail/no time to consult w attorney.
R: Factors for undue influence match w facts of case
110
Elkhorn Packing Co ~ Undue Influence & economic Duress
H: If the party seeking rescission cannot show an unlawful act and lack of reasonable alternatives → Economic duress won’t prevent contract enforcement.
If the party seeking rescission wasn’t unduly susceptible or subject to excessive pressure → undue influence won’t prevent contract enforcement
F: Elkhord hired Gonzelez (who was an immigrant) as a seasonal worker. Had all the workers after work in a hotel parking lot sign the agreement, rushed to sign so others could, but arbitration agreement was in Spanish, Gonzalez’s native language. No copy given. Didn’t tell them about lawyer.
R: No evidence of bad faith or excessive pressure. Time/place was convenient for all parties. Gonzalez had 10 days to revoke.
111
§177
A contract is voidable if a party's assent is induced by undue influence which overcomes a person's free will through excessive pressure.
112
Elements for Fraudulent misrepresentation:
1. D made representation
2. Representation was false
3. False statements were material
4. D knew representations were false
5. Made with intent to deceive
6. P believed and relied upon representations
7. P was damaged.
113
Can statements of opinion be a misrepresentation?
Yes - when the party saying it doesn't actually believe it to be true.
114
Syester v. Banta
H: If a party is induced to enter a contract through fraud, it can be unenforceable.
F: Widow takes dancing classes and company takes advantage of her (tells her she can be a professional dancer if she keeps paying the fees for lessons.
R: Syester was overcharged, reassured she could become a professional dancer and told that they were her only friends.
115
Hill v. Jones
H: If the seller is aware of a fact that will materially affect the value of property and it is not readily observable to the buyer, the seller has a duty to disclose these facts to the buyer.
F: Sellers hid termite damage during house showing and inspector didn’t catch it.
R: If the termite infestation is determined to be a material fact, the sellers violated their duty to disclose the information to the buyers and can be held liable for misrepresentation and nondisclosure.
116
§159
A false statement of fact that can either be made intentionally, negligently or even innocently. A misrepresentation can induce a party to enter into a contract and depending on the circumstances, may make the contract voidable.
117
§162
Fraudulent when person making it intends to deceive and it’s material if it would likely induce a reasonable person to assent. If fraudulent or material = voidable
118
§164
A contract is voidable if a party’s 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.
119
§163
When party is mislead about the nature of the essential terms of a contract - agreement is Void
120
Park 100
H: The statements made by Park 100 were misrepresentations of material facts
F: Parties relied on Park 100 when they were told they were signing a lease, it was labeled a lease but it was actually a different document
R: Park 100 agents knew that the document was a personal guarantee, therefore made false misrepresentations, and the Kartes relied on Park 100s statements to their detriment.
121
§161
A party's failure to disclose a fact can be treated as misrepresentation if the party had a duty to disclose. When nondisclosure violates this duty = contract voidable.
122
Williams v. Walker-Thomas Furniture
H: A contract that contains unconscionability at the time it was formed is NOT enforceable.
F: Furniture company sells multiple items to woman who cannot afford them and was well aware of woman’s financial situation. All contracts included a provision that if a customer defaulted on one payment, the company could repossess all past items even if they were technically paid off.
R: Gross inequality of bargaining power between parties, extreme contract terms that appeared unconscionable according the business practices of the time and place.
123
Higgins
H: A party can avoid enforcement of an arbitration clause due to unequal bargaining power.
F: Extreme Makeover Home Edition - boys didn’t actually get title to home and thought they may
R: Television agents knew petitioners were young, unsophisticated and had recently lost both parents. Vulnerability made them attractive to the television show in first place. Contract lacked modicum of bilaterality.
124
Interest Rates are deemed unconscionable if they are
1. Overly harsh
2. Unduly oppressive
3. So one-sided that it shocks the conscience.
125
Cashcall
H: Interest rate on a loan is a contract term that may be deemed unconscionable, therefore unenforceable.
F: Loans had an interest rate of up to 135% and would let people who needed quick cash take these loans out
R: Lower court was to look at the bargaining process and market conditions to determine whether there was the requisite of procedural and substantive unconscionability.
126
§208
A court may refuse to enforce a contract or a specific term if it finds that the agreement is unconscionable at the time it was made. Courts can either strike the entire contract, sever the unfair term, or limit its application.
127
§ 2-302
If a court finds that a contract or a specific term is unconscionable at the time the contract was made, it can refuse to enforce the entire contract, enforce the remainder w/o unconscionable term or limit the application of the unfair term.
128
Strict Scrutiny Test in Valley Medical for Public Policy:
1. Restraint reasonably protects the employer's legitimate interest
2. Such interest isn't outweighed by the employees interest or the impact on the public.
129
Valley Medical
H: Public policy requires that restrictive covenants between physicians be strictly scrutinized for reasonableness and are not enforceable.
F: Non-compete agreement for doctor, doctor left and worked within a 5 mile radius
R: three year provision and radius were unreasonable, infringed on doctor-patient relationship
130
P.M. v. T.B.
Gestational-surrogacy agreements don’t violate public policy and therefore are enforceable.
131
§178: Public policy - grounds for unenforcment
A promise is unenforceable if enforcing it would clearly outweigh the interest in upholding freedom of contract. Stronger the public harm/violation = more likely deemed unenforceable.
132
§178: In weighing the interest in the enforcement of a term, account is taken of:
1) the parties’ justified expectations,
2) any forfeiture that would result if enforcement were denied, and
3) Any special public interest in the enforcement of the particular term
133
§153: Mistake of ONE party makes contract voidable
- A mistake
- Of one party
-At the time contract was made
-mistaken about a basic assumption that
- materially affects the contract
--> contract is voidable IF the mistake makes enforcement unconscionable OR if the other party knew or should have known of the mistake.
Exception: mistaken party bears the risk (§154)
134
Can relief be granted if the mistaken party bears the risk of the mistake when they are the only one mistaken?
NO relief.
135
A plaintiff seeking to rescind a contract based on unilateral mistake must prove
1. That mistake involved a basic assumption of the contract
2. Mistake had a materially adverse effect disadvantaging the P
3. P didn't bear the risk of the mistake (BMW could not prove)
4. The effect of the mistake makes enforcement unconscionable. (settlement amount wasn't unconscionable in BMW)
136
§154: Party bears risk of mistake when:
1. Parties agree to allocate the risk to that party OR
2. Party knows they have limited knowledge but proceeds anyway OR
3. The court assigns the risk bc it is reasonable under the circumstances.
137
Lenawee County
H:Rescission is not appropriate for mutual mistakes of a material fact when the contract allocates the risk of loss.
F: Pickles bought the sewage house “as is”, from sellers - neither party knew of the nonconforming septic tank
R: A mutual mistake of fact occurred but the contracts “as is” clause indicated that the Pickles agreed to allocate any hidden risks.
§152: When Mistake of Both Parties Makes a Contract Voidable
138
§151: Mistake
A belief that is not in accord with the facts at the time the contract is made & mistake relates to basic assumption that materially affects agreed upon performance.
139
Impracticability Requires:
Extreme & unreasonable
1. Difficulty or
2. Expense or
3. Loss or
4. Injury
140
A party claiming impracticability must prove
1. An unforeseen event occurred
-Market changes are to be expected
(Hemlock)
2. Both parties entered the contract with the assumption that such an event wouldn't occur.
141
Impracticability
Excuses performance when something major and unexpected happens after a contract is made.
--When performance itself becomes extremely difficult or impossible due to an unforeseen event. (natural disaster)
142
Frustration of Purpose
Excuses performance when something major and unexpected happens after a contract is made.
--Performance is still technically possible, but the reason the parties entered the contract has been destroyed. (Renting a room for coronation but the coronation gets moved to dif day)
143
Elements for proving Frustration (Di-Chem)
1. Principal purpose of contract was substantially destroyed
2. Frustration was not considered within the risk of contract
3. No Assumption of Risk on party claiming frustration
144
Alaska Packers' Association
H: A new contract between parties to an earlier one on the same subject is unenforceable, IF the new contract requires nothing new or different from one party.
F: Fishermen stopped work and told APA they would only continue if they got paid more. APA didn’t have any other replacements & supervisor said he didn’t have right to change - gave in and promised each fisherman the new price. After the work - APA only paid fisherman what was agreed in first contract.
R: For a new contract to be enforceable, there MUST be new consideration on BOTH sides.
145
Kelsey-Hayes Co.
H: If one party threatens the other with a wrongful act that leaves the other with no reasonable alternative but to agree to a superseding contract, that contract can be voided for duress.
F: Kelsey-Hayes manufactured car brakes - Galtaco provided them w product for them - Galtco wasn’t making enough money and told Kelsey Hayes they would keep selling them the parts if they agreed to pay more - KH said it was a breach of their contract and had no alternative source so they accepted and paid most payments w new price & accepted shipments.
R: KH had no reasonable alternative, they protested to the new contract and was reasonable for KH to fear that a halt in production would injure its business reputation
146
§89: Modification of contract
1. New consideration for existing contract
2. Modification must be made in good faith
3. Must be change in circumstances not anticipated by parties
4. Modification is fair and reasonable
147
Modification when no additional consideration is okay when:
1. Parties agree before full performance of contract
2. Circumstances the prompt modification were unanticipated
3. Modification is fair & equitable
148
Angel v. Murray
H: Old law of additional consideration for modification was thrown out as long as a voluntary agreement between the parties to modify the contract was made.
F: Garbage company asks city counsel for more money bc there was an unexpected amount of new homes to collect garbage from and some Darren sues the city bc he thinks the payments were made illegally.
R: Garbage company and city counsel agreed to the additional payments - unexpected at start of contract - equitable for garbage company to receive more money bc higher workload.
149
§2-209: Modification
Contract can be modified WITHOUT new consideration as long as modification is made in good faith. Modifications are allowed even if they differ from OG agreement, as long as not unconscionable or made under duress.
150
Condition Precedent
An act or event that must occur before a duty to perform a promise arises, unless the condition is excused.
151
Implied Conditions
Imposed by law to do justice; substantial compliance can be sufficient depending on circumstances of case.
152
Express Condition Precedent
One that parties have agreed to and must be performed literally according to its terms. If not, other party is not obligated to perform its promise.
-(If, unless or until language)
153
Basis for mitigation of express condition
1. If it works a forfeiture
2. If failure unjustly enriches defendant
154
Promise v. Condition
P: Creates a duty to perform
C: Determines WHEN & IF a party's duty to perform is due
155
Disproportionate Forfeiture §229
Applies to prevent the strict enforcement of contractual terms when doing so would cause a breaching party to give up all contractual rights that is disproportionately harsh to them but not to the other side.
156
Prevention under §225
A situation where one party's failure to perform prevents the other party from fulfilling their obligations under a contract. Treated as breach and allowed to seek remedies for nonperformance.
157
Excuses for non-occurrence of a condition
-Disproportionate Forfeiture & substantial performance
-Waiver
-Prevention
-Modification
-Impracticability
158
Consequences of Non-performance
-Material Breach
-Anticipatory Repudiation
159
Material Breach
A significant deviation yet capable of BP to cure - entitles NBP to damages and suspension of its obligations.
160
Partial Breach
Minor deviation w substantial performance - NBP remains obligated to perform and is entitled to damages for failure of performance.
161
Total Breach
Significant deviation that cannot be cured -NBP's performance obligations are discharged & NBP has right to terminate. NBP is entitled to damages AND for future losses.
162
How is materiality measured for a breach?
1. Extent of benefit denied (like loss in value)
2. Adequacy of money damages
3. Forfeiture by BP
4. Likelihood of cure (Sackett not likely)
5. Lack of good faith and fair dealing
163
Repudiation
When a party to a contract communicates that it doesn't intend to fulfill its duties under the contract.
164
Anticipatory Repudiation
A clear and unequivocal statement of intent not to perform / can also be actions
Elements:
1. The party repudiates the contract BEFORE performance is due.
2. The repudiation substantially impairs the contract's value to the nonrepudiating party.
165
Remedies for Anticipatory Repudiation
Non-repudiating part can either:
1. Await the repudiating party's performance (within reasonable time)
2. Invoke any remedy for breach (including cancelation of contract)
166
When party repudiates contract, nonrepudiating party may:
1. Suspend its own performance
2. Salvage unfinished goods
167
Retracting Repudiation Effectively
This reinstates the repudiating party's contractual rights and cuts off the non-repudiating party's remedies.
-Timely:
1. Before next performance is due
2. Before non-repudiating party cancels contract
168
Truman L. Flatt
H: A repudiating party can retract their repudiation unless other party changed its position or indicates that it intends to treat the contract as rescinded.
F: House purchase of 160k, buyer says yes but then buyer makes counter offer, sellers say no, buyer repudiates and says he will take house for 160k.
R: A request to change a term in a contract is not a repudiation and even if there was a repudiation, the sellers hasn’t indicated to buyer they were treating the contract as rescinded.
169
Hornell Brewing Co.
H: A party with grounds for insecurity may demand assurances and then suspend and terminate the agreement if assurances are not forthcoming.
F: Arizona Tea in Canada Spry was sus
R: Spy never assured Hornell of funds so gave ample grounds for Hornell to terminate
170
Creation of Express Warranties
Created by seller through: §2-313(1)
(a)Affirmation of fact or promise OR
(b) A description of the goods
(c) Providing a sample or model
171
Statements that DONT create express warranties
- Affirmation of the goods' value
- The seller's opinion or commendation of the goods
172
UCC Remedies GOAL:
Put the NBP in same position as they would've been in had the parties performed under the contract.
173
Merger Clause
Provision in contract that states that the terms of a contract are the complete and final agreement between the parties.
174
Concealment
Act of intentionally or unintentionally not revealing information that should be disclosed and would otherwise affect the terms of a contract. Information could not have been known by the other party and it is known to be material.
