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Contract Law


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Classic Unconscionability Test
A contract such that no man in his senses and not under delusion would make on the one hadn and as no honest or fair man would accept on the other
Restatement 2nd § 175, When Duress by Threat Makes a Contract Voidable
If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim; if a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and w/o reson to know of the duress either gives value or relies materially on the transaction
when A uses words or actions that he knows or should know would induce another, B to reasonably believe that A is committed to take a certain course of action, and A knows or should know that B will incur costs if A doesn't take action, A should take steps to ensure that if he doesn't take the action, B will not suffer a loss
Promissory Estoppel/Reliance/Detrimental Reliance
1. Requires a promise 2. the mechanics of estoppel in pais are not used in section 90 cases 3. Defendant is not estopped from denying lack of consideration 4. reliance is treated as consideration itself or a substitution for consideration 5. promisor can deny that there was reliance or that the other elements of promissory estoppel are satisfied, but a denial that there was consideration would be beside the point.
Restatement 2nd § 176, When a Threat is Improper
1. When what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property 2. What is threatened is a criminal prosecution 3. What is threatened is the use of civil process and the threat is made in bad faith or 4. the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient 5. the exhcange is not on fair terms
Hybrid Contracts
Have Goods elements and Service elements
Three Questions in Application of § 90
1. Should the promisor reasonably expect the promise he is making will induce action or forbearance on the part of the promisee? 2. Does the promise in fact induce such action or forbearance? 3. Can justice be served only by enforcement of the promise?
Improper exchange: Threat creating unfair terms
1. Threatened act would harm the recipient and would not significantly benefit the party making the threat 2. The effectiveness of the threat inducing assent is significantly increased by prior unfair dealing by the party making the threat 3. what is threatented is otherwise a use of power for illegitimate ends
FTC Regulations - Door-to-Door Sales
1. Allows individuals to cancel anytime during following 3 days 2. Must furnish buyer w/ contract and explain it (two copies of the policy - one goes to the buyer and one goes to teh company of seller. 3. Must be consumer goods
Two Kinds of Cost Incurred by Reliance
1. Out of Pocket Costs 2. Opportunity Costs
Restitution Interest
Interest that arises because of a promise the promisee has conferred a benefit of the promisor resulting in unjust enrichment to the promisor.
Narrow Conception of Consideration
Bargain only view; a. produces distortions b/c other elements also make a bargain enforceable -Restatement 2nd calls these "Contracts Enforceable w/o Consideration; also, b. tends to stifle the growth of law - suggests a closed system in which all non-bargain promises are unenforceable
Under Classical Contract Law, do economic conditions constitute duress?
No, general economic conditions do not.
Legal Detriment
giving up something which immediately prior thereto the promisee was priveleged to retain, or doing or refraining from doing soemthing which he was then priveleged not to do, or not to refreain from doing.
Nominal Consideration
when a transaction has the form of a bargain but not the substance b/c it is clear that promisor did not view what he got as the price of his promise
Estoppel in Pais/ Equitable Estoppel
If A has made a statement of fact to B and B has foreseeably relied on the statement, A is estopped from denying the truth of the statement. 1- Requires a statement of fact 2 -iΔ is prevented from denying something
Factors that invalidate a transaction although there is consideration (5)
1. Mistake 2. Misrepresentation 3. Duress 4. Undue influence 5. Public policy
Four Facets of the Legal Duty Rule
1. Promise to perform an act the promisor is already obliged to perform under general law or that is within the scope of an officials authority 2. Promise to perform an act that the promisor is already obliged to perform under a contract 3. Promisor agress to pay less than he was legally obliged to pay, in exchange for a release of his full obligation 4. Threat not to perform
Moral Obligation and Legal Obligation
The fact that some action is morally required is not, in general, a sufficient justification for legal intervention to force people to do it; and the rationale for the law of contracts does not seem to be . . . an instance of the legal enforcement of morality
RS 2 requires what of bargains
That they are in 1. Form and 2. Fact
UCC § 2-302
1) If the court as a matter of law finds the contract or any clause of the contract 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 w/o 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 any clause thereof 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
Novation Requirements
1. a previously enforceable debt 2. the agreement of all paties to a new contract 3. the extinguishment of the old debt 4. the validity of the new contract
Unilateral Contract
Promise in exchange for a performance. (one-sided promise0
Schnell v. Nell
woman's inoperative will was made in form but not in fact. The court determined there was no consideration for the promise made in the womans will
Weakness of Bargaining Process: Not Unconscionable
A bargain is not unconscionable merely because the parties to it are unequal in bargaining position, nor even because the inequality results in an allocation of risks to the weaker party
Severability Test for Hybrid Contract Cases
The second line of authority allows the contract to be severed into different parts, applying the UCC to the goods involved in the contract, but not to the non-goods involved, including . . . services as well as other non-goods assets and property. Thus, an action focusing on defects or problems with the goods themselves would be covered by the UCC, while a suit based on the service provided or some other non-goods aspect would not be covered by the UCC."
Substantive Unconscionability
Terms unreasonably favorable to the other party, unjust or one-sided contract
Broad Conception of Consideration
A collective term for all the seperate elements that can make a promise legally enforceable, including bargain and reliance
Kirksey v. Kirksey
Brother-in-law Δ promised Π a place to live after the death of her husband (Δ's brother). She abandoned her home in reliance on that promise and moved to that home. He subsequently kicked her off. Court held that the promise was a gratuity and therefore not enforceable.
Doctrine of Unconscionability: Substantive Aspect
Whether the contract terms are unreasonably favorable to one party
Unconscionability (escape valve for contracts) Defined
A contract such as no man in his right mind would make on the one hand and one that no man restrained by conscience on the other hand would make on the other hand. An inequality so strong, gross, or manifest that it would be impossible to state it to a man of common reasonableness w/o producing an exclamation at the inequality of it
UCC § 3-103(4), Definitions, Good Faith
Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing
Gross Inadquacy
"shocks the conscience and may bring in other rules. Sometimes is used as evidence to justify recission or cancellation on grounds such as: lack of capacity, mistake, misrepresentation, duress or undue influence
Reliance Interest
Puts the perosn where they would have been before the promise was made. Reimburse them for their cost otherwise they would be worse off than if the promise had not been made.
Restatement 2nd § 281, Accord and Satisfaction (3)
obligee promises to accept a stated performance in satisfaction of the obligor's existing duty... upon breach by the obligor the obligee may enforce either the original duty or any duty under the accord.....if obligee breaches, obligor may sue for specific performance of the accord
Factors which may contribute to unconscionability due to weakness in the bargaining process
1. Belief by the stronger party that there is no reasonable probability that the weaker party will fully perform the contract 2. Knowlege of the stronger party that the weaker party will be unable to recieve substantial benefits from the contract 3. Knowlege of the stronger party that the weaker party is unable to reasonably protect his interest by reaosn of physical or mental infirmitites, ignorance, illiteracy or inability to understand the language of the agreement
Predominant Factor Test for Hybrid Contract Cases
The test for inclusion or exclusion is not whether they are mixed, but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably state, is the rendition of service, with goods incidentally involved (e.g. contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g. installation of a water heater in a bathroom) . . . "This test essentially involves consideration of the contract in its entirety, applying the UCC to the entire contract or not at all."
Expectation Interest
Puts a person where they would have been had teh contract been performed
Restatement 2nd § 77 : Illusory Promises
A promise or apparent promise is not consideration if by its terms teh promisor or purported promisor reserves a choice of alternative performances unless...each of the alternative performances would have been consideration if it alone had been bargained for.
Process Unconscionability
Somthing was wrong with the process of the sale, absence of meainingful choice (not understanding the agreement and thus not really assenting to the agreement)
Promise Defined
A commitment to take some future action which limits future options. If in reality options are not limited then it is not a promise.
Does RS 2 allow Nominal Consideration
Restatement 2nd § 72
Except as stated in §§ 73 and 74, any performance which is bargained for is consideration
Restatement 2nd § 90
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires (this was the only addition to the section from the previous Restatement). A charitable subscription or a marriage settlement is binding under Subsection (1) (preceding) w/o proof that the promise induced action or forbearance
Two Prima Facie Cases of Price Gouging
1. Amount charged represents gross disparity between price normally charged and that charged immediatly after the onset of an abnormal disruption of the market 2. Amount charged grossly exceeded the price at which the same or similar goods and services were readily obtainalbe by other consumers in the trade area
Principle of Mutuality
Both parties are bound or neither is bound
If there is consideration on both sides; mutually is automatically met
Restatement 2nd § 208
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.
Illusory Promise
A promise in form but not in actuality. An illusory promise does not limit a persons future realm of choices.
Restatement 2nd §279, Substituted Contract (2)
A substituted contract is a contract that is accepted by the obligee in satisfaction of the obligor's existing duty... the substituted contract discharges the original duty and breach of th enew contract by the obligor does not give the obligee a right to enforce the original duty.
A thing of value bargained for
UCC § 2-302 Principle
prevention of oppression and unfair surprise, not of disturbance of allocation of risks b/c of superior bargaining power
Restatement 2nd § 79 - Adequacy of Consideration, Mutuality of Obligation
If the req. of consideration is met, there is no additional req. of (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or (b) equivalence in the values exchanged; or (c) "mutuality of obligation
Indicators of Substantive Unconscionability
1. contract terms are so one-sided as to oppress or unfairly surprise an innocent party 2. overall imbalance in th eobligations and rights imposed by the bargain 3. significant cost price disparity 4. actual misrepresentation 5. gross mistreatment of people who are already disadvantaged
RS 2 = Two ares where Nominal Consideration is mad enforceable
Options and Guaranties
Did RS 1 allow Nominal Consideration
RS 2nd 17
Requirement of a Bargain = The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration" except no bargain is required and a contract is formed under special rules in §§ 82-94
Restatement 2nd § 73: Performance of a Legal Duty
Performanc of a legal duty owed to a promiseo which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differes from what was required by the duty in a way which reflects more than a pretense of a bargain
Three Interests
Reliance Interest, Expecation Interest, Restitution Interest
Process/Procedural Unconscionability concerns
1. Unfair surprise 2. fine print clauses 3. mistakes 4. ignorance of important facts or other things that mean bargaining did not proceed as it should.
Relevant Factors of Unconscionability
Weakness in the contrating process, Fraud, other invalidating causes
Doughtery v. Salt
i. Boy whose aunt learned he had good grades was given a promissory note from aunt that promised money on her death and he sought to enforce it after she died; ii. Contract is unenforceable w/o consideration and none was given by the boy since his good grades were achieved prior to the contract
Gross Disparity and Unconscionability
Court does not view inbalance of consideration grounds for invalidating a bargain, however, Gross Disparity in the values exchanged may be an important factor in a determination that a contract is unconscionable and may be sufficient ground, without more, for denying specific performance
Five Functions served by Policy of Consideration
Evidenciary, Cautionary, Channeling or Earmarking, Greater Injury (Deterrent), and Increase of Wealth through Economic Exchange
Weakness of Bargaining Process: Yes, Unconscionable
gross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion
Three Factors Court must Consider when evaluating prices in Price Gouging Cases
1. Is the amount of excess in price unconsciounably extreme? 2. Was there unfair leverage or unconscionable means? 3. Combination of both factors together
UCC § 2-302 Test
whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract
Things to consider when deciding if a contract or term of a contract is or is not unconscionable
Setting, Purpose, and Effect
Does unequal value of exchange negate consideration?
No, unless it is viewed as nominal consideration
Classical School of Thought: What Constitutes Consideration
a promise or performance must be bargained for but it could be satisfied although no bargain had been made. The form of a bargain would suffice to make a promise enforceable; ii. Therefore, if the parties deliberately adopted the convention (form) of a bargain, the law would enforce their promises as though they had made an actual bargain
Two Approaches to Hybrid Contract Cases
Predominant Factor Test and Severability Test
Out of Pocket Costs
net costs incurred by a promisee in reliance on the promise prior to breach, less the value produced by those costs that can be realized after breach
defined as the substitution by mutual agreement of . . . a new debt or obligation for an existing one which is thereby extinguished
New York General Business Law § 396-r, Price Gouging
During abnormal disruptions of the market, some have charged grossly excessive prices, unconscionable excessive prices shall not be had by anyone in the chan of distribution,
True/False Bargaining for an increased chance is enforceable
Bilateral Contract
Promise for a Promise (two sided contract)
Factors relevent to a "real and voluntary meeting of the minds" between contracting parties.
1. Age 2. Education 3. Intelligence 4. Business acumen and experience 5. Relative bargaining power 6. Who drafted the contract 7. Whether the terms were explained to the weaker party 8. whether the alterations in the printed terms were possible 9. whether there were alternative sources of supply for the goods in question
Doctrine of Unconscionability: Procedural Aspect
Looks at the contract formation process using the following factors 1. inequality of bargaining power 2. use of deceptive or high pressure sales techniques 3. confusing or hidden language in the written agreement
Contractual Darwinism
if people are stupid in entering contracts, let them be stupid. Don't keep funding their stupidity by bailing them out because that will only lead to more failures and not accountability
Opporutnity Cost of Reliance
cost of the activity that was foregone by relying on the promise, surplus that promisee would have enjoyed if he had taken the opporutnity that the promise led him to forgo. (In cases where reliance damages are difficult to establish but obviously significan, the expectation measure may be used as a surrogate for reliance damges, but treatment of a promisee's benefits may also raise problems in determining reliance damages.
Consumer Goods
Goods or services purchased, leased, or rented primarily for personal, family, or household purposes, including courses of instruction or training regardless of the purpose for which they are taken
Pretended Exchange
Just another form of nominal consideration; bargain in form but not in fact; nominal consideration ø meet requirements. for consideration, disparity in value sometimes indicates that the purported consideration was not in fact bargained for but was a mere formality
Substantive Transaction
one in which each party views what he gives up as the price of what he gets

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