Contracts Complete Outline

Chapter 3: LIABILITY IN THE ABSENCE OF BARGAINED-

FOR-EXCHANGE
A. Protection of Promise Reliance: Doctrine of Promissory Estoppel
1. Promises within the family
a. Kirksey v. Kirksey
b. Greiner v. Greiner
c. Wright v. Newman
2. Charitable Subscriptions
a. King v. Trustees of Boston University
3. Promises in a Commercial Context
a. Katz v. Danny Dare, Inc.
Katz v. Danny Dare, Inc.
Court left out the expectation of reliance from the elements
 Katz may/would have been fired if he did not retire

b. Shoemaker v. Commonwealth Bank

Shoemaker v. Commonwealth Bank
No agreement or Modification clause
Stops he/she said disputes, over the phone promises
Not effective

Status and Future of PE

PE is a harm claim to win
You cant reasonably rely unless you have a contract?

B. Liability for Benefits Received: The Principle of Restitution

 
Restitution/Quasi Contract Theory - unjust enrichment - an implied in law contract
 Many different names for the same thing
 Idea is that it is a compensation for unjust enrichment
. Is the party enriched?
. Is it a situation where it would be unjust without restitution?

1. Restitution in the Absence of a Promise

a. Credit bureau Enterprises, Inc. v. Pelo
Credit Bureau Enterprises, Inc. v. Pelo
Pelo ordered to go to Hospital and refused to sign form.
Pelo signed form after property was threatened.
 
Pelo received the benefit of the hospitalization, thus he was enriched.
  
Restitution is subject to restrictions
Officiousness - interference in the affairs of others not justified by the circumstances
Volunteerism - services without entitlement to compensation
Restitution
Justification for doctrine, 265, note 5 Posner
 Allocation of costs to beneficiaries

b. Commerce Partnership 8098 Limited Partnership v. Equity

Contracting Co.
Commerce Partnership 8098 Limited Partnership v. Equity Contracting
Commerce has a building that needs work. Contracts to GC, Equity is a sub.
Commerce has a punch list (more work needed). Commerce alleged payment to GC.
Equity did not get payment from GC (filed bankruptcy). Equity did not expect original
payment form Commerce. Equity filed suit for partial payment because Commerce
benefitted.
 
Equity filed under contract in fact; court said recovery should be based on Quasi-Contract.
Elements of Quasi
1. P conferred benefit to the D
2. D has knowledge of the benefit
3. D accepted or kept benefit conferred
4. Under circumstances it would be inequitable for D to retain benefit without paying P fair
value
 
There was an initial problem with what theory to use, implied in-fact or in-law.
Trial found for Equity.
On appeal, burden shifts to Equity to prove no payment had been made (by Commerce) for
benefit conferred.
There cannot be unjust enrichment "where payment has been made for the benefit
conferred."
 
Statutory Recovery: Mechanics lien - to ensure you get paid cost of materials for a project.
(some courts hold that only recovery is through statutory)
 
 
Plaintiff must question, what is the value of the benefit conferred, did the D pay?
 
Lease Improvements
Lessee has renovations done on a property, and does not pay. Worker sues owner to
recover, should he be allowed to recover?
1. Was there a benefit?
2. Should you impose a cost on a party who did not necessarily want/able to receive it?
3. Should a contractor take steps to assure payment, protections against lessee?
 
Courts have had conflicting results, owner's wants or needs may be important factors.
 c. Watts v. Watts
Watts v. Watts
P and D lived together for 12 years, had two children and held themselves out to be a
married couple (joint bank accounts, tax forms, etc.) P and D split but D would not give
anything.
 
P claims:
D was unjustly enriched by their relationship. (Net worth increased by 1 mil +)
D knew of benefit
 
Implied in-fact contract - given the nature that a person had been given a benefit with the
expectation of payment, you should reasonably be expected to pay for the benefits received
 If they were married it would be against family to break the relationship under
contract law.
Implied in-law contract:
Elements
1. Benefit conferred on D by P
2. Appreciation and knowledge of D of benefit
3. Acceptance/retention by D under circumstances making it inequitable for D to retain it
 
Use of theory may lead to application problems
How do you measure unjust enrichment in this case?
 Lost opportunity
 Taking care of kids
2. Promissory Restitution
a. Mills v. Wyman
Mills v. Wyman
Levi Wyman while returning home from abroad fell ill in Hartford, CT. Mills took care of
him until his death. Wyman (Father) agreed to pay for expenses.
 
Can enforce a promise when there is some preexisting obligation.
 Debts barred by statute of limitations
 Debts incurred by infants
 Debts discharged in bankruptcy (must be expressed in writing)
A moral obligation to pay is not enforceable.
Mills v. Wyman
Can enforce a promise when there is some preexisting obligation.
 Debts barred by statute of limitations
 Debts incurred by infants
 Debts discharged in bankruptcy (must be expressed in writing)
A promise to pay will create an obligation based on the preexisting obligation
A moral obligation to pay is not enforceable.
 
A confirmation (say you want agreement) of an unenforceable agreement creates an
enforceable agreement
  
Where do we find a promise/did you make a promise?
 Affirmative representation (I will pay you)
 Implied promise (I owe you money/acknowledgement of the debt)
 Acknowledgment of an obligation (an unqualified payment)
 
Making the revival of debts (bankruptcy) in writing serves as a warning and as evidence
Warning - do you really want to do this?
Evidence - what did you actually promise?
~ a partial payment may be viewed as a written agreement to pay
 
Minors
Failure to disaffirm/disavow once the age of majority is reached is an implied
affirmation/ratification of the promise
 
b. Webb v. McGowin
Webb v. McGowin
Demur sustained by trial court
Was a challenge to the adequacy of the allegations
Is there an adequate claim?
Problem is there was a promise for services already rendered; no consideration.
One foot in Contracts and one in Restitutiond
There is not a good restitution claim. (benefit but a lack of expectation of payment)
No contract claim (promise, but no consideration)
 
Restatement Sec. 86: Promise for Benefit Received (pg 187)
1. A promise made in recognition of a benefit previously received by the promisor from
the promisee is binding to the extent necessary to prevent injustice
 An enforceable promise for a benefit received
Sec 86.2(a) A gift is not a material benefit to support a promise
No third party beneficiary, benefit must go to the promisor

Chapter 4: THE STATUTE OF FRAUDS

A. General Principles: Scope and Application
Statue of Frauds (R. CH5 pg 188)
a. Executor-administrator provision
b. Suretyship provision
c. Marriage provision
d. Land contract provision
e. One year provision
 
1. Is the alleged contract within the S.F. (Restatement Sec. 110 pg 188)?
Yes
2. Does the writing satisfy the statue (Pg 189)?
Yes
 No
3. Is it enforceable under some exception?
a. Crabtree v. Elizabeth Arden Sales Corp.
Crabtree v. Elizabeth Arden Sales Co.
Fell under the 1 yr provision
 Was not performable within a year
 Death discharges duty, not within the statute
Did it satisfy the statute
a. Sec. 131 - An assigned writing state the essential terms
Was there a signed memorandum?
Yes, the memorandum may be pieced together by both signed and unsigned writings.
The memorandum evidences the contractual relationship.
There must be a reference to the unsigned writing in the signed writing.
They must refer to the same subject matter or transaction.
May supplement with parole evidence.
b. Winternitz v. Summit Hills Joint Venture

Winternitz v. Summit Hills Joint Venture

1. Is it within the statute, yes.
2. Does it satisfy by writing, no.
3. Is it otherwise enforceable, no.
Sec. 129 Like promissory estoppel - only in for specific enforcement
a. Is there a part performance?
b. Not applicable
 
The court enforced under Tort Section 767
Business Tort - intentional interference in an economic relationship
c. Alaska Democratic Party v. Rice
Alaska Democratic Party v. Rice
1. Within the statute, yes.
2. Does it satisfy by writing, no.
3. Is it otherwise enforceable, yes.
Sec. 139 Enforcement by virtue of action in reliance
Limitations: (employment)
Clear and convincing evidence
Definite
129 reliance is in regards to a transfer in interest of land.
 
B. The Sale of Goods Statute of Frauds: UCC § 2-201
2-201
1. $5,000+, must be a record, may incorrectly or omit a term agreed upon
2. Merchant's confirmation exception - 10 days to object to a confirmation in writing
3. Exceptions: enforceable if
a.Specially manufactured goods (specialty items)
b. Admission of a contract (get passed SF)
 c.Goods payment have been paid and accepted, received and accepted
a. Buffaloe v. Hart
Buffaloe v. Hart
Tobacco barns
Moveable barns = goods
P: Handshake deal, insurance paid, attempt to settle up, D received and tore check
 
Handshake deal is unenforceable under Statute of Frauds
 
Under UCC if you admit the facts and the facts lead to the conclusion there was a contract then
there was and SF is satisfied.

Chapter 5: MEANING OF THE AGREEMENT

A. Principles of Interpretation
Raffles v. Wichelhaus - Peerless Case
Two ships named Peerless which left at different times.
Cotton prices dropped, the buyers wanted to back out.
Claimed that the shipment was not on time.
Court held that if they attached 2 equally reasonable meanings to a term then no contract
existed.
 There was no meeting of the minds
 Subjective theory of contracts
 
Objective Theory of contracts
 The words show the intention
 Use a reasonable person standard, what would they think
 If there are 2 reasonable meanings
 If a party knew or had reason to know the other's meaning, the others
meaning applies
 Knowledge loses to reason to know

a. Joyner v. Adams
Joyner v. Adams
Contract for real property
Adams was substituted for original party.
Original Amendment: Suspend lease increases for the new party. If the land wasn’t
developed then the increases would be paid retroactively.
P Claim: D did not developed as defined in the terms of the lease.
The term was "ambiguous" so there is a question of fact.
Ambiguity must be construed against the drafter of the contract.
 Only with adhesion contracts or unequal bargaining power or other situations
Here both parties were sophisticated business entities engaged in arms length discussions.
b. Frigaliment Imporeting Co. v. B.N.S. International Sales
Corp.
 Frigliment Importing Co. v. B.N.S. International Sales Corp.
Is there an ambiguity?
 Trade language
 Four corners of the document
If there is an ambiguity how do we resolve it?
 Look to outside information
 What was said between parties
 Parole Evidence - preliminary negotiations
Plaintiff has the burden to show that the meaning of the term is construed narrowly.
c. C & J Fertilizer, Inc. v. Allied Mutual Insurance Co.
C & J Fertilizer, Inc. v. Allied Mutual
How to determine what language means
 
C & J Fertilizer, Inc. v. Allied Mutual
Plaintiff was burglarized.
The insurance company said they would not pay
Trial court found the language was unambiguous and found for the Defendant.
 
Court invoked the Reasonable Expectations Doctrine
 Was an adhesion contract
 Terms that are unambiguous if they are beyond a reasonable expectation
B. The Parole Evidence Rule
Parol Evidence Rule
- informal evidence (usually oral)
Writing may not be what the parties were really communicating about.
 Should we listen to what the parties allegedly said
 
If the writing is intended to be the complete contract it is referred to as fully integrated.
 
When the writing was executed, by intending it to be the contract, you intend it to be fully
integrated and exclude the informal (outside the contract) communications.
 
a. Thompson v. Liby
Thompson v. Libby
Claim of warranty, the logs did not meet the specifications.
Court held they could not prove warranty because it was not contained in the written
contract, it's in the writing or it's not.
The writing was a complete agreement, cannot supplement (no direct contrary language).
How do we decide if the agreement is complete:
 Look within the four corners of the document
 
 
Collateral- the contract is not fully integrated
 
Exceptions to Parol Evidence Rule: can present evidence
 1. The document is not fully integrated
2. Offered to explain the meaning of the agreement
3. Does not exclude subsequent agreements (only exclude prior agreements)
4. Oral condition precedent to the agreement
5. Any factor that would make the contract invalid (fraud, duress, incapacity, etc.)
 
b. Taylor v. State Farms Mutual Automobile Insurance Co.

Taylor v. State Farm Mutual Automobile

Taylor signed a release relating to his own insurance company in order to be paid for
personal property loss as the result of an accident.
  
(Wiliston)Restrictive View v. Corbin View
 
Parol Evidence creates instability.
Arguments can be made that oral agreements were made, undercutting the written
document
c. Sherrod, Inc. v. Morrison-Knudsen Co.
Sherrodd, Inc. v. Morrison-Knudsen Co.
Merger Clause - states this is the entire agreement; merges all previous discussions
The goal is commercial stability
Does the parol evidence rule apply?
Is the contract integrated?
d. Nanakuli Paving & Rock Co. v. Shell Oil Co.
Nanakuli Paving & Rock Co. v. Shell Oil Co.
Question is the meaning of the contract;
Nanakuli sued for lack of price protection, not included in the contract.
There was more than just the writing, price protection was an expectation.
There is more to the contract than just the writing.
 
UCC 2-208
1. Expressed words/discussions
2. Course of performance
Action of the parties carrying out the contract at issue
P: Price protection in the past
D: Waiver of terms
Court: let the jury decide
3. Course of dealing
4. Trade usage
Typically what is done.

Chapter 6: SUPPLEMENTING THE AGREEMENT

A. The Rationale for Implied Terms
a. Wood v. Lucy, Lady Duff-Gordon
 Wood
Implication of terms and the possibility a court will do it to save the agreement.
b. Leibel v. Raynor Manufacturing
Leibel
It was desirable to bring more, not less agreements under the UCC
Requriment of reasonable notice

Imply a term for fairness

To protect reliance interests
 
Franchisees, the quality of reliance is much higher
  
Reasonable notice - required for fairness
 
Implied obligation of good faith
B. The Implied Obligation of Good Faith
a. Eidenberg v. Summit Bank
Seidenberg
1. Honesty in fact
2. Observance of reasonable commercial standards
Defined by it's opposite, bad faith
 Parties had sold their interests in business and gotten bankcorp shares; at least for a time
they would be retained as managers
Seidenberg v. Summit Bank
An integrated agreement
There is an ambiguous clause
 Exception to Parol Evidence, give content to the good faith clause that is there
What is bad faith?
 Lack of honesty in fact
 You cant mislead the other party
Act in a way which is commercially reasonable?
Problems/threats:
 potentially opens up the written contract
 Jury's will second guess a party's business judgment
 
Implied term of Good Faith:
Some say enforce the contract as written
Some say they must comply with good faith
Requirements and Output Contracts
Does having such agreements as contracts facilitate commerce (public interest)
Yes - people get into these agreements
N o - these are illusory contracts
Without exclusivity there is no consideration.
 
 Is there a limitation on what a party can order?
Good faith comes into play;
b. Morin Bldg. Prods. Co. v. Baystone Const. Inc.
Morin Building Products Co. v. Baystone Construction Inc.
Baystone is the GC
Morin is the Sub
GM hired Baystone to give aluminum siding on the factory.
Morin put up walls, which were rejected, another party put up new walls.
Morin did not get paid and sued.
 
Morin claims it fulfilled it's duties under the contract, did not breach, and is entitled to
payment.
D claims it did not meet the "aesthetic" specification.
There is a commercial definition of Mill Finish.
 
The contract: all work subject to approval of the agent.
A satisfaction clause, the owner is satisfied with the work, subject to approval
 
P argues they performed reasonably within the requirements of the contract.
D argues they contracted for a satisfaction clause.
 
1. Term "aesthetic effect" is ambiguous
2. Was a form contract
 
Satisfaction Clause:
Satisfaction is objective; would a reasonable person, in this setting, be satisfied?
Satisfaction is subjective, when the contract is about personal taste or judgment
 
Objective/Subjective is a matter of intent, what did the parties objectively intend?
What is the language of the contract?
Chose a material that did not have a uniform finish.
P conformed with the language of the writing.
What is the purpose of the contract?
A commercial building, it has a utilitarian purpose.
c. Locke v. Warner Bros., Inc.
Locke v. Warner Bros., Inc.
Option terms in a contract, does this create an option without reviewable discretion
 
Option v. Subjective
d. Donahue v. Federal Express Corp.
Donahue v. Fedex
What is the employment relationship here?
A long term contractual relationship (20 yrs.)
What obligations does the employer have?
At Will - termination for cause
  Implicit duties
 Express
 Additional consideration
 
Donahue v. Fedex
What is the employment relationship here?
A long term contractual relationship (20 yrs.)
What obligations does the employer have?
At Will - termination for cause
1. Implicit duties
2. Express
3. Additional consideration
 
How do we treat employment contracts?
Courts have rejected any broad requirement of good faith; employment at will.
 
For express term (of years) employment, then there is termination only for cause.
 
At will restrictions:
1. Earned Benefit
1. Discharged to avoid paying benefit
2. contractual commissions, firing to preclude commission
2. Express Grant
2. Uphold rights expressly given
3. Can be Substantive or Procedural
3. Reliance Based
3. Substantial reliance on employment
4. Hardship - moved to get job, etc.
3. Substantial consideration (not doing a good job) - bargained for something more
i. Loss of investments
ii. Bringing more to the table
4. Public Policy
1. Under public policy it is improper to terminate a person for that reason
2. Whistle blowing
3. Cannot require them to commit a crime
4. Statutory requirements
C. Warranties 
Waranties
1. Express Warranty (UCC 2-313)
 A description of goods that forms a basis of bargain
 Statements that are merely the sellers opions or commendations of the
goods are not warranties
2. Implied Warranty of Merchantability (UCC 2-314)
 A merchant who sells these goods
 Goods must pass without objection in the trade and are fit for the ordinary
purposes for which the goods are used
  Would a significant portion of the population object to buying the goods?
And
 Are the goods capable of performing their ordinary function?
 Complaining party must establish the standard of merchantability of the
trade
. Implied Warranty of Fitness for Purpose (UCC 2-315)
 The seller has reason to know any particular purpose for which the goods are
required and
 The buyer is relying on the seller's skill or judgment to select or furnish suitable
goods
a. Bayliner Marine Corp. v. Crow
Bayliner Marine Corp v. Crow
. Express Warranty: There was a representation about the speed, but it was not in regards
to the boat that crow purchased.
. Merchantability:
. Fitness for Purpose:

Chapter 10: CONSEQUENCES OF NONPERFORMANCE

A. Express Conditions
Constructive conditions relate the actions of the two parties together. How are they
connected.
Express Conditions
Obligor is the person is from whom performance is sought
Obligee is person who receives the performance

A term in a contract may not be an expressed condition

GC says I will pay when paid
If the GC is not paid, does he still owe?
Yes, it is a timing of payment clause
You owe the Sub within a reasonable time
 
Must look to the context of the term; if it is intended to protect a party, that party may
waive that condition

a. Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co.

Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co.
Language used has that effect; must be performed without deviation
Literal performance
Limitations?
Waiver
Estoppel
b.  J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.
J.N.A Realty Corp v. Cross Bay Chelsea Inc.
Problem of a Condition: On an Option is the timing an express condition?
 Party did not exercise a renewal lease on time.

B. Material Breach
a. Jacob & Youngs, Inc. v. Kent
b. Sackett v. Spindler
Sackett v. Spindler
Each would be right if the other breached
First party to totally breach must pay
Total breach or partial breach or material breach?
 
If a party significantly breaches:
The other party may:
Suspend performance
Communicate problems
Give opportunity to correct
If no response, then contract may repudiate and recover damages
 
If total breach repudiation is justified, if partial, you may not break transaction
 
Sackett was in total breach
Spindler was justified in selling business to another
You may terminate the relationship only if the other party is in total breach.
To act too precipitously may lead to being found in breach.
C. Anticipatory Repudiation
What is the significance of an anticipatory repudiation?
It places a party in breach.
 
Why allow anticipatory repudiation?
Unfair to wait for a breach that will occur in the future
To mitigate damages/limit the amount of harm
If you avoid losses you don’t have to make the other party pay
a. Truman L. Flatt & Sons Co. v. Schupf
Truman L. Flatts & Sons Co. v. Schupf
Action for specific performance.
Buyer wanted to buy land and rezone.
Couldn’t get rezoning
Asked for price reduction
Seller said no price reduction
Buyer wanted original terms
Seller said no
 
Buyer filed suit.
Seller said Buyer repudiated.
 Buyer retracted before Seller acted or manifested acceptance of repudiation.
Court held the Plaintiff could sue and win.
Normally there is a repudiation of a duty, in this case there is a failure of a condition.
There was no reasonable reliance on the alleged repudiation.
 
In order to be a repudiation it must be clear and unequivocal.
 
Repudiation can be read out of conduct (unambiguous)
What if there is a great risk of breach?
If there is not a repudiation there is still a contract
b. Hornell Brewing Co. v. Spry
Hornell Brewing Co. v. Spry
 
Factor bought Buyer's debt
Once debt paid, buyer placed new order
Seller would not deliver
Buyer seemed to be a sham operation
 
Seller/Plaintiff: tried to get the buyer to sign a document stating there is no contract.
There was no response.
Spry/Defendant never indicated nonperformance.
 
Court held the contract was repudiated by Spry, no contract, no duty to deliver goods
ordered.

UCC 2-609
When reasonable grounds for insecurity arises (after contract), may demand adequate
assurances, if the other party does not deliver/respond within 30 days it can be treated as
repudiation.
 
Seller wanted proof of a line of credit, no response.
If there were reasonable grounds for demands and there were no assurances, then
repudiation
 
Once assurances are asked for and met, others cant be requested.
Unless additional reasonable grounds for insecurity arise.

Chapter 11: EXPECTATION DAMAGES

A. Computing the Value of Plaintiff’s Expectation
a. Roesch v. Bray
b. Handicapped Children’s Education Board v. Lukaszewski
c. American Standard, Inc. V. Schectman
 B. Restrictions on the Recovery of Expectation Damages:
Foreseeability, Certainty, and Causation
a. Hadley v. Baxendale
C. Restrictions on the Recovery of Damages: Mitigation of of
Damages
a. Rockingham County v. Luten Bridge Co.
b. Havill v. Woodstock Soapstone
c. Jetz Service Co. v. Salina Properties

Chapter 12: ALTERNATIVES TO EXPECTATION DAMAGES

A. Reliance Damages
a. Wartzman v. Hightower Productions, Ltd.
b. Walser v. Toyota Motor Sales, U.S.A., Inc.
B. Restitutionary Damages
a. United States ex rel. Coastal Steel Erectors, Inc. v. Algernon
Blair, Inc.
b. Lancellotti v. Thomas
c. Ventura v. Titan Sports, Inc.
C. Specific Performance
a. City Stores Co. v. Ammerman
b. Reier Broadcasting Company, Inc. v. Kramer
D. Agreed Remedies
a. Westhaven Associates, Ltd. v. C.C. of Madison, Inc.

Chapter 7: Avoiding Enforcement

A. Minority and Mental Capacity
In the cases of minors/infants the capacity is restricted on the ground they did not have the
judgment to protect themselves in the marketplace
Limits on contractual capacity.
a. Dodson v. Shrader
Dodson (16) purchased a truck from Shrader
Shrader assumed Dodson was in the age of majority
Nine months after purchase the truck developed problems
Dodson did not attempt to rectify problem; leading to the engine blowing up.
Dodson tried to rescind contractual obligation and recover purchase price.
Shrader refused tender of vehicle without compensation for depreciation.
Shrader was order to, upon tender of truck, reimburse 4,900 purchase price
Shrader appealed
  
Problem of balancing the rights of minors against those of innocent merchants.
Result is Two minority rules:
1. Benefit rule: upon rescission, recover of the full purchase price is subject to a
deduction for the minor's use of the merchandise.
2. The minor's recovery of the full purchase price is subject to a deduction for the
minor's use of the consideration he/she received under the contract, or for the
"depreciation" or "deterioration" of the consideration in his/her possession.
 
Where the minor has not been overreached in any way, an there has been no undue
influence, and the contract is a fair and reasonable one, and the minor has actually paid
money on the purchase price, and taken and used the article purchased ,that he ought not to
be permitted to recover the amount actually paid, without allowing the vendor of the goods
reasonable compensation for the use of, deprecation, and willful or negligent damage to the
article purchased while in his hands.
If there has been any fraud or imposition on the part of the seller or if the contract is unfair,
or any unfair advantage had been taken of the minor inducing him to make the purchase,
then the rule does not apply.
 
The amount of the damage and the liability for the amount between the purchaser and the
vendor, as well as the fair market value of the vehicle at the time of tender, is an issue for
the trier of fact.
b. Hauer v. Union State Bank of Wautoma
Hauer suffered brain injuries after a motorcycle accident
She was adjudicated to be incompetend and a guardian was appointed by the court.
Eilbes (third party) told Hauer if she lent him money he would giver her a job, pay her
interest and pay the loan when it came due; she agreed.
Eilbes met up with Schroeder (bank) and discussed the potential loan to Hauer.
The date the loan matured, Hauer filed suit.
Allege
1. Bank knew or should have known that she lacked the mental capacity to understand the
loan
2. The bank intentionally misrepresented, negligently misrepresented, or misrepresented the
circumstances surrounding the loan on which she relied
3. Bank breached a fiduciary duty owed to her.
 
12 person jury found Hauer lacked the mental capacity to enter the loan and the Bank acted
in bad faith.
 
The incompetent has the power to void the contract entirely; a cause of action to rescind a
contract or conveyance based on lack of mental capacity at the time of the transaction.
 
The law presumes every adult is fully competent until satisfactory proof to the contrary is
presented; the burden lies on the one seeking to void the act.
Test is whether the person involved had sufficient mental ability to know what he/she was
doing and the nature and consequences of the transaction.
Competency must be determined on the date the instrument was executed.
 
There was credible evidence that Hauer was incompetent.
The court must accept the inference that favors the jury's verdict when the evidence permits
more than one inference.
 
Infancy doctrine does not apply in cases of mental incompetence.
The jury's finding that the Bank failed to act in good faith in the loan transaction
distinguished this case form the "general rule" which provides that the person seeking relief
from a contract must return the consideration paid.
 
If the other party knew of the incompetency or took unfair advantage of the incompetent,
consideration dissipated without benefit to the incompetent need not be restored.
Inherent in the finding the bank acted in bad faith is inseparable from the fact they knew or
should have known that Hauer was incompetent at the time the loan was entered.
On the record: there were flags that would prompt a reasonable banker to move more
slowly.
Bank testified that the Hauer's stockbroker told him not to use Hauer fund as collateral
because she needed the fund to live on and could not afford to lose it.
The evidence and reasonable inferences can be drawn from the evidence to support the
jury's conclusion that the Bank had failed to act in good faith.
 
B. Duress and Undue Influence
Threat of improiosnment or physical harm = duress
Threat to property = duress of goods
Economic duress
a. Totem Marine Tug & Barge v. Alyeska Pipeline Service Co
Totem entered contract with Alyeska to transport construction materials from Texas to
Alaska with 1 or 2 cargo stops.
Terms stated Totem would complete by 8/15/75; problems at the start.
Totem was supposed to pick up 6,000-7,000 tons of pipe.
It found however, 6,700 - 7,200 tons of pipe were improperly piled in the loading yard.
This extra weight and sloppy stacking led to delays and hiring of another tug.
Following the termination of the K, Totem submitted termination invoices, 260,000-
300,000
Totem was in need of urgent cash and the invoices represented the debts the company had
incurred.
Without immediate cash, Totem would go bankrupt.
Totem settled for 97,500 and signed a release after Alyeska said it would take some time to
get the money.
Totem sought to rescind the settlement and release on the ground of economic duress and
to recover the balance allegedly due on the original contract.
Superior court granted Alyeska's motion for summary judgment; Totem appealed
 
The test of undue influence: whether the will of the person induced by the threat was
overcome rather than that of a reasonably firm person.
 Duress exists when:
1. One party involuntarily accepted the terms of another
2. Circumstances permitted no other alternative
3. Such circumstances were the result of coercive acts of the other party.
a.The assertion of duress must be proven by evidence that the duress resulted from
defendant's wrongful and oppressive conduct and not by the plaintiff's
necessities.
 
Economic duress does not exist merely because a person has been the victim of a wrongful
act; in addition the victim must have no choice but to agree to the other party's terms or
face serious financial hardship.
A party must also show that he had no reasonable alternative to agreeing to the other party's
terms; that he had no adequate remedy if the threat were to be carried out.
The availability on the market of similar goods and services or of another source of funds
may provide and alternative to succumbing to the other party's demands.
 
At trial it is necessary for Totem to produce this evidence if it is to prevail on a claim of
duress; to support a claim, Totem need not prove it's allegations
Trial court erred in granting summary judgment
 
b. Odorizzi v. Bloomfield School District
Odorizzi contract with the District to teach for the following 10 years as a permanent
employee.
Odorizzi was arrested and the next day signed and delivered a resignation to his
supervisors.
The criminal charges were dismissed and he sought reinstatement.
District refused and Odorizzi filed suit.
A demur was sustained; Appeal
 
Superintendent and Principle came to his apartment after release and stated that if he did
not resign, the District would suspend and dismiss him from his position and publicize the
proceedings; causing him to suffer embarrassment and humiliation.
 
1. No Duress or Menace: there was no unlawful confinement of another's person, or
relatives, or property, which caused him to consent to a transaction through fear.
2. No Fraud, actual or constructive:
Actual Fraud involves conscious misrepresentation, or concealment, or non-disclosure of
a material fact which induces the innocent party to enter the contract.
Constructive Fraud arises on a breach of duty by one in a confidential or fiduciary
relationship or another which induces justifiable reliance by the latter to his prejudice.
Confidential relationship may exist whenever a person with justification paces trust and
confidence in the integrity and fidelity of another.
3. No Mistake: the complaint failed to disclose any facts which would suggest that the
consent had been obtained through a mistake of fact or of law. Both parties knew the
material facts of the transaction.
4. Undue Influence:
 Undue influence is persuasion which tends to be coercive in nature, persuasion which
overcomes the will without convincing the judgment.
The hallmark is high pressure, a pressure which works on mental, moral, or emotional
weakness to such an extent that it approaches the boundaries or coercion; in a word
overpersuasion.
Undue influence involves unfair advantage take of another's weakness or distress.
Undue influence involves the use of excessive pressure to persuade one vulnerable to such
pressure, pressure applied by a dominant subject to a servient object.
Undue susceptibility may consist of total weakness of mind which leaves a person entirely
without understanding; or a lesser weakness which destroys the capacity of a person to
make a contract even though he is not totally incapacitated
Involves a second aspect of excessive strength used by a dominant subject against a
servient object.
Undue influence occurs whenever there results "that kind of influence or supremacy of one
mind over another by which that other is prevented from acting according to his own which
or judgment, and whereby the will of the person is overborne and he is induced to do or
forbear to do an act which he would not do, or would do, if left to act freely.
 
Overpersuasion is generally accompanied by certain characteristics which tend to create a
pattern.
1. Discussion of the transaction at an unusual or inappropriate time
2. Consummation of the transaction in an unusual place
3. Insistent demand that the business be finished at once
4. Extreme emphasis on untoward consequences of delay
5. Use of multiple persuades by the dominant side against a single servient party
6. Absence of third-party advisors to the servient party
7. Statemnts that there is not time to consult financial advisors or an attorney
If a number of these elements are simultaneously present, the persuasion may be
characterized as excessive.
Cause of action was properly stated; reversed and remanded.
A. Misrepresentation and Non-Disclosure
a. Syester v. Banta
b. Hill v. Jones
c. Lawyer’s Professional Ethics
 
B. Unconscionability
A grossly unfair bargain should be unenforceable.
Standard form contract contains numerous "boilerplate" provisions that are extremely favorable
to the drafting party and are often offered on a "take-it-or-leave-it" basis.
Unconscionablilty is codified in UCC 2-302
Designed to let the courts examine contracts for bargaining unfairness.
Provides fro avoidence or reformation if, at the time of making, the contract or a term
unjustifiably gave an excessive advantage to one party.
The courts should have regard for "the fact that the other party has taken advantage of the first
party's dependence, economic distress or urgent needs, or of its improvidence, ignorance,
inexperience or lack of bargaining skills."
a. Williams v. Walker-Thomas Furniture Co.
Each appellant purchased a number of household items from Walker.
The terms of each purchase were contained in a printed form contract which set forth the value
and purported to leave the item to the appellant for a stipulated monthly payment.
In the event of a default of a monthly payment, Walker could reposses the item.
Record was insufficient to determine fairness, remanded.
 
Unconscionability has generally been recognized to include an absence of meaningful choice on
the part of one of the parties together with contract terms which are unreasonably favorable to
the other party.
The meaningfulness of the choice is negated by a gross inequality of bargaining power.
In determining reasonableness or fairness, the primary concern must be with the terms of the
contract considered in light of the circumstances existing when the contract was made.
b. Consumer Protection Legislation
Consumer protection legislation has aimed at accomplishing three goals:
1. Disclosure legislation is based on the theory that increased information gives
consumers an opportunity to avoid entering into an unfair contract
a.To require commercial parties to disclose information to consumers s in a
meaningful fashion
2. Substantive regulation
a.Particular contractual provisions thought to be unfair are declared unlawful
3. Improve enforcement
A. Public Policy
Although a contract may have been formed correctly it may still be unenforceable because the
contract itself violates or runs directly contrary to some public policy.
a. Valley Medical Specialists v. Farber
Whether a restrictive covenant between Dr. Farber and Valley is enforceable. IT IS NOT
Public policy outweighs Valley's protectable interest in enforcing the agreement.
 
Given public interest in doctor-patient relationships it has been analyzed for some time.
Whether the restraint is such only as to afford a fair protection to the interest of the party in favor
of whom it is given, and not so large as to interfere with the interest of the public.
A covenant not to compete is invalid unless it protects some legitimate interest beyond the
employer's desire to protect itself from competition.
Public policy concerns outweigh any protectable interest the remaining firm members may have
had.
AMA recognizes that free choice of doctors is the right of every patient, and free competition
among physicians and is a prerequisite of optimal care and ethical practice.
 
Reasonableness is a fact-intensive inquiry that depends on the totality of the circumstances.
Unreasonable if:
 1. The restraint is greater than necessary to protect the employer's legitimate
interest, or
2. If that interest is outweighed by the hardship to the employee and the likely
injury to the public.
Must balance the competing interests.
 
Here, the public policy implications are enough to invalidate the particular agreement.
The burden is on the party wishing to enforce the covenant to demonstrate that the restraint is no
greater than necessary to protect the employer's legitimate interest, and that such interest is not
outweighed by the hardship to the employee and the likely injury to the public.
b. R.R. v. M.H. & another
Enforceability of a surrogacy agreement.
Compensated surrogacy arrangements raise the concern that, under financial pressure, a woman
will permit her body to be used and her child to be given away.
There is nothing inherently unlawful in a surrogacy arrangement.
Any custody agreement is subject to a judicial determination of custody based on the best
interest of the child.
This surrogacy agreement is not enforceable.
 
Chapter 8: Justification for Nonperformance
Excuses from performance here are those arising from the changes in circumstance that either
occurred or come to light since the original agreement was made.
Contract law is generally resistant to the suggestion that a contractual obligation might be
avoided just because of unforeseen or un-provided for circumstance.
There are a variety of established legal categories that hold out the possibility of such and excuse
from performance, in appropriate cases.
a. Mistake
b. Impossibility
c. Impracticability
d. frustration
A. Mistake
Parties make contracts with the aim of binding each other despite the myriad changes of
circumstance that may occur before the time for performance arrives. Sometimes the court finds
that a more particular type of mistake has been made, beyond the ordinary run.
a. Lenawee Country Board of Health v. Messerly
Purchaser bought property with a three unit apartment building
After purchase County Board condemned the property and obtained a permanent injunction
preventing human habitation
After inspecting the property, purchasers executed a new land contract.
Clause added: agreed to accept in current condition
A contractual mistake "is a belief that is not in accord with the facts."
Must relate to a fact in existence at the time the contract is executed.
 
The septic system was defective prior to execution of the contract.
Division of a parcel of land made it impossible to remedy the septic problem
 
A contract may be rescinded because of a mutual misapprehension of the parties, but this remedy
is granted only in the sound discretion of the court.
 
Both parties mistakenly believed that the property would generate renal income.
"the thing sold and bought [income generating rental property] had in fact no existence."
Rescission is not available to relieve a party who has assumed the risk of loss in connection with
the mistake.
The "as is" clause assigned the risk to the purchaser.
 
b. Wil-Fred’s, Inc. v. Metropolitan Sanitary District
Wil-Fred's made a bid and submitted a security deposit.
Bid was made in error and Wil-Fred attempted to retract and get return on bid deposit
A subcontractor made an error
Can Wil-Fred obtain rescission because of a unilateral mistake?
A. Impossibility, Impracticability, and Frustration
Changes in circumstance that occur between making the K and the time set for
performance
 
 
a. Karl Wendt Farm Equipment Co. v. International Harvester Co.
b. Mel Frank Tool & Supply, Inc. v. Di-Chem Co.
 
B. Modification
 
a. Alaska Packer’s Association v. Domenico
Libelants entered into a written K with appellant to work during the fishing season of 1900.
Agreed to do "regular ship's duty, both up and own, discharging and loading; and to do any
other work whatsoever when requested to do so by the captain or agent of Alaska Packers
Assoc."
Liblants began to unload the vessel, a few days after, they stopped work as a body and
demanded pay different from that stipulated in the K.
It was impossible for the appellant to get other men to take the places of the libelants.
The superintendent told the libelants that he was without authority to enter into any such
contract, or in any way alter the K made between them and the company in San Francisco.
The company denied its validity and refused to pay other than as provided for by the K
The libelants willfully and arbitrarily broke their obligations.
There is no record that there was any voluntary on the part of the appellant of the breach of
the original K.
 
A party cannot lay the foundation of an estoppel by his own wrong, where the promise is
simply a repetition of a subsisting legal promise.
 
 Under the new promise, he was not to do anything more or different. He was to receive the
same served under the new, the party was bound to tender under the original K.
A promise to pay a man for doing what he is already under contract to do is without
consideration.
When a party merely does what he has already obligated himself to do, he cannot demand
an additional compensation therefor; and although, by taking advantage of the necessities
of his adversary, he obtains a promise for more, the law will regard it as nudum pactum,
and will not lend its process to aid in the wrong.
 
Judgment must be reversed, and the case remanded, with directions to the court below to
enter judgment for the respondent, with costs.
 
a. Kelsey-Hayes Co. v. Galtaco Redlaw Casting Corp.
Kelsey-Hayes alleges Galtaco breached a 3 year agreement for the purchase of castings.
Kelsey-Hayes asserts the 1989 K modifications containing price increases were:
1. Agreed by Kelsey-Hayes under duress
2. Were unconscionable
3. Demanded by Galtaco in bad faith
4. Constitute unjust enrichment of Galtaco
 Galtaco says Kelsey-Hayes waived its breach of K claims
 
Kelsey-Hayes makes brake assemblies that it sells to auto manufactures (Chrysler and
Ford)
Galtaco supplied castings to Kelsey-Hayes
Galtaco and Kelsey-Hayes signed a 3 year requirements K (1987)
 Galtaco was to be the sole source of certain types of castings, through 1990
 Galtaco was to charge fixed prices for 1987, and scheduled price reductions for 1988 and
1989
Galtaco had been experiencing monetary loss for several years
 Board of directors decided to discontinue its foundry operation and cease production of
castings
 Offered an agreement to its foundries operating for several months in exchange for a
price increase of 30 percent effective shipments of May 1989
Kelsey-Hayes concluded it would not be able to obtain a sufficient supply of castings from
other sources for 18-24 weeks
 Declining Galtaco's offer would have meant shutting down assembly plants for its major
clients
 Any interruption of supply of brake assemblies longer than 5-10 days would halt Ford's
production of a vehicle line
Before entering the 1989 agreement, Kelsey-Hayes did not reserve any rights under the 87
contract when it accepted the offer.
 
Subsequent contract or modification is invalid and therefore does not supersede an earlier
contract within the subsequent contract was entered into under duress
 Sufficient evidence for a fact finder to find duress
 Economic duress can exist in the absence of an illegal threat; the threat must merely be
wrongful. Even acts lawful may be wrongful depending on the circumstances.
A company in this position was deprived of free will and had no alternative other than
acquiescing to the demands of the party threatening to breach the contract.
 
In order to state a claim of economic duress a buyer coerced into executing a modification
to an existing agreement must "at least display some protest against the higher price in
order to put the seller on notice that the modification is not freely entered into."
 Kelsey-Hayes did not expressly reserve the right to sue, but a reasonable trier of facts
could determine its protests effectively put Galtaco on notice the 89 agreements were
agreed to under duress.
 
a. Brookside Farms v. Mama Rizzo’s, Inc.
K where MRI would purchase 91,000 lbs of Basil Leaves
V.P. of MRI