BIG PICTURE:Was a Contract Formed?

1. Consideration2. Mutual Assent3. Offer/Acceptance4. Section 90/Reliance and Restitution5. SOF6. Defenses7. Limits on the bargain and its performance8. Determining terms included in contract9. Remedies for Breach

6. DEFENSESOnce K is formed…can we get out of it?Duress: Improper Threat which leaves one with no reasonable alternative than to consent to the Contract

1. Can undue contract and return any $$ performed2. Can be used to refrain from having to perform

I. Pre-Existing Duty Rule: Performance of a legal duty already owed to the promisor which is neither doubtful nor the subject of honest dispute is not consideration.

1. Already owed to promisor2. Not consideration3. Only applies to Executory Contracts (not fully performed)

a. Defense to refrain from having to performb. Cannot be used to undo K and return $$ c. Only Duress can be used for both

Escaping the Pre-Existing Duty Rule: A. New Consideration offered (beware of shams)B. Mutual Modifications and Rescissions

1. Formalistic Rescission and Modification: (old school)a. An act of both parties destroying the old contract (ripping off the signatures)b. Enter into new contract once first is destroyed

2. Section 89 of the Restatement: (new school)a. the modification is fair and equitable in view of circumstances not anticipated by

the parties when the contract was made; or b. to the extent provided by statute orc. to the extent that justice requires enforcement of the modification in view of

material change of position in reliance on the promise.3. UCC 2-209: a contract can be modified without consideration. This would appear to

abrogate the preexisting duty rule with respect to transactions in goods. However, the requirement of good faith and fair dealing would operate as a limitation on a party’s ability to extort additional concessions in a transaction in goods.

4. Modification and Rescission can be done in the same step ORALLY (new school)

II. CONCEALMENT and MISREPRESENTATION§ 159. Misrepresentation Defined

A misrepresentation is an assertion that is not in accord with the facts.§ 160. When Action Is Equivalent to An Assertion (Concealment)

1. Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.

§ 161. When Non-Disclosure Is Equivalent To An AssertionA person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:

(a) Where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or

material. (b) Where he knows that disclosure of the fact would correct a mistake of the other

party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and

in accordance with reasonable standards of fair dealing.(c) Where he knows that disclosure of the fact would correct a mistake of the other

party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.

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

§ 162. When A Misrepresentation Is Fraudulent Or Material(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a

party to manifest his assent and the maker:(a)knows or believes that the assertion is not in accord with the facts, or(b)does not have the confidence that he states or implies in the truth of

the assertion, or (c)knows that he does not have the basis that he states or implies for the

assertion.2. (2) A misrepresentation is material if it would be:

a. likely to induce a reasonable person to manifest his assent, orb. if the maker knows that it would be likely to induce the recipient to do so.

§ 163. When A Misrepresentation Prevents Formation Of A Contract1. If a misrepresentation as to the character or essential terms of a proposed contract:

a. Induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential terms of the proposed contract, his conduct is not effective as a manifestation of assent.

§ 164. When a Misrepresentation Makes a Contract Voidable1. If a party's manifestation of assent is induced by either:

a. a fraudulent or b. a material misrepresentation

c. by the other party upon which the recipient is justified in relying

2. Unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.

§ 168. Reliance on Assertions of Opinion(1) An assertion is one of opinion if it expresses only a belief, without certainty,

as to the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters.

(2) If it is reasonable to do so, the recipient of an assertion of a person's opinion as to facts not disclosed and not otherwise known to the recipient may properly interpret it as an assertion(a) that the facts known to that person are not incompatible with his opinion,

or(b) that he knows facts sufficient to justify him in forming it.

§ 169. When Reliance on an Assertion of Opinion Is Not Justified

To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless the recipient

(a) has relation of trust and confidence to the person asserting opinion (fiduciary), or (b) reasonably believes that the person asserting opinion has special skill, judgment or objectivity with respect to the subject matter, or (c) is for some other special reason particularly susceptible to a

misrepresentation of the type involved.

Note that there is a distinction between nondisclosure (sin of omission) and an assertion (sin of commission). With certain exceptions (see 161), parties are not required to tell everything they know. In fact generally they are allowed to exploit information that they have come by through the expenditure of time and money. However, a party is not entitled make a misleading assertion. The basic rule is in section 164:

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, the contract is voidable by the recipient.

7. LIMITS ON THE BARGAIN AND ITS PERFORMANCE

I. UNFAIRNESS (ONLY USED IN EQUITY)Basic Rule: Court will not grant equitable enforcement of an unfair bargain.

a. Court may grant or refuse to grant specific performance or injunctions1. Estoppel: deny a party right to assert contractual obligations on others2. Specific Performance/injunction: enforce rights

b. SPECIFIC PERFORMANCE or INJUNCTION may be REFUSED if deemed UNFAIR BECAUSE:1. Contract induced by mistake or Unfair practices (status)2. Relief would cause unreasonable hardship or loss to party in breach or 3rd persons

(Equivalency of bargain: adequacy of consideration)

3. Exchange is grossly inadequate or the terms of contract otherwise unfair. (burden on party)

c. SPECIFIC PERFORMANCE or INJUNCTION may be GRANTED in spite of contract terms if:1. Denial of relief would be unfair because:

i. Cause unreasonable hardship or loss to party seeking relief or 3rd persons.d. How STATUS meets option 1: unfair practices (fact by fact results)

1. Old, young, ignorant, necessitous, illiterate, improvident, drunken, naïve, sick, i. All on one side of transaction

2. Sharp and Hard (the shark) on the other side of transaction.How we apply all of this?:

1. Inquiry: What relief is available?a. Monetary damages go to Lawb. Only Equitable relief go to equity, but is it unfair?

i. STATUS of partiesii. Equivelancy of Bargain (adequacy of consideration)

iii. Burden on Partyc. Fact by fact analysis (no real certainty) … “measured by length of judges nose”

i. ARGUMENT: a little injustice may be a social good1. Injustice = certainty in law = no chaos and lawlessness

II. STANDARD FORM AND ADHESION CONTRACTSRestatement § 211 Standardized Agreements

(1) Except under (3), when signing a standardized contract, if party manifests assent or signs a writing, and has reason to believe that like writings are regularly used to embody terms of the same type, he adopts the writing as an integrated agreement with respect to the terms included in writing.

a. Integration: cannot allege anything that is contrary to what is actually in writing.(2) Such writing is interpreted the same as similar standardized agreements, regardless of

knowledge or understanding of the standard terms.(3) Where the other party has reason to believe that the party manifesting consent would not

give consent if it had knowledge of certain terms inside standard agreement, THIS TERM IS NOT INCLUDED.

a. Reason to believe can be inferred if term is: i. Bizarre or Oppressive

ii. Eviscerates the non-standard terms explicitly agreed toiii. Eliminates the dominant purpose of the transaction

Adhesion Contract: A contract dictated by a dominant party on a take-it-or-leave-it basis with no opportunity for negotiation.

1. Once a contract is determined “adhesive,” it may still be enforced, but it is subject to the following analysis.

Graham v. Scissor-tail, inc.: (language is suitable for exam)1. TWO judicially imposed limitations on the enforcement of adhesion contracts.

a. Contract or provision which does not fall within the reasonable expectations of the weaker/adhering party will not be enforced against him

b. Even if within reasonable expectations of the parties, will be denied enforcement if considered in its contect, it is unduly oppressive or “unconscionable.”

III. UNCONSCIONABILITY – (UCC 2-302 and §208) Allows judges to not enforce a bargain on unfairness

Judge determines unconscionability because Juries = uncertainty, and are too easily swayed.

Unconscionability: 1. Absence of meaningful choice 2. Contract terms unreasonably favorable to 1 party.In essence: “prevention of unfair surprise”

TEST1. Lack of Meaningful Choice (wavy gravy)

a. Unequal bargaining power (status of parties)b. No notice (first time to contract? Language Noticeable?

Hidden w/in boiler plate or highlighted and bold?)c. No understanding (did contractor explain questionable

terms?)d. No choice (no alternative options) – adhesive… customer

cannot go to other source which does not impose same requirements.

e. Importance of item contracted for… (human survival: food vs. dvd player)

2. Terms Result unreasonably favorable (dragnet clause)a. Ex: repossession of all items if miss one payment

Two Views. The opposing ideas seem to be:

(1) a contract may be declared unconscionable because of the unfairness of the substance of the contract even though there is no problem with the procedures surrounding its formation (e.g., it can be unconscionable even if it resulted from bargaining between equal, informed parties versus

(2) a contract must have a procedural deficiency in order to be declared unconscionable, an unfair result in and of itself is no basis for declaring the contract unconscionable.

IV. PUBLIC POLICY (§178)(very broad/far reaching defense)(“an unruly horse”)(“ick factor”)Balancing of interests to enforce vs. public interest to not enforce a contract §178:

1. Contract is unenforceable on public policy grounds if:a. Legislation provides that it is unenforceableb. Interest in enforcement is clearly outweighed by a public policy against the enforcement

of such terms.2. In weighing the interests of enforcement:

a. Parties justified expectationsb. Any forfeiture that would result if enforcement were denied, andc. Any special public interest in enforcement of the particular term.

3. In weighing a public policy against enforcement, take account of:a. Strength of policy legislation and judicial decisions b. Likelihood that refusal to enforce will further public policyc. Seriousness of any misconduct involved and the extent to which it was deliberate, andd. Directness of the connection between that misconduct and the term

Mitigating Doctrines: (Testable: Interpreting, restitution, excusably ignorant, in pari delicto)(a) interpreting the agreement in a fashion that reconciles the agreement with the

applicable public policy rather than voiding the entire agreement (This is potentially test material);

(b) dividing the illegal aspects of the agreement from the legal aspect and enforcing the

legal aspect if the contract is capable of such division (Not tested);

(c) granting restitution, if a party can show that the failure to give restitution would result in a disproportionate forfeiture (in other words the forfeiture is out of line with the intensity of the public policy (Testable);

(d) allowing enforcement if a party can show that it was excusably ignorant of the

illegality and the other party was not or allowing restitution if a party can show that each party was excusably ignorant (Testable);

(e) allowing restitution if the party is not equally in the wrong (not in pari delicto, not

equally blameworthy). This is most often used in cases involving a professional criminals versus a amateurs) (Testable); and

(f) allowing restitution if a party has attempted to withdraw from the illegal agreement

before its improper purpose has been achieved. (Such a party is said to have acted in locus poenitentiae)(Not Tested).

§ 181. Effect Of Failure To Comply With Licensing Or Similar Requirement• If a party is prohibited from doing an act because of his failure to comply with a licensing,

registration or similar requirement, a promise in consideration of his doing that act or of his promise to do it is unenforceable on grounds of public policy if

• (a) the requirement has a regulatory purpose, and • Health and safety, good legal counsel

• (b) the interest in the enforcement of the promise is clearly outweighed by the public policy behind the requirement.

Clean Hands – Another Limitation on Equitable Remedies• People claiming an equitable remedy must have clean hands. • But the alleged misconduct must bear some relationship to the subject matter of the suit before

a court will consider it.

8. DETERMINING WHAT TERMS ARE INCLUDED IN CONTRACTa. 1) What type of evidence is being introduced?

Generally all evidence which aids to determine INTENTIONS of the parties is considered.Integrated Contract: Final embodiment of terms in writing (what is written includes everything)

I. PRE-PER: Always allowed in court, includes all evidence before actual valid contract was created(usually to invalidate): Duress, Undo influence, mental capacity, etc.

II. AMBIGUITY:a. Definition: Ambiguity: -Language is fairly susceptible to two reasonable meanings.

(infamous comma)i. Clear on its face = reasonable mind will only see 1 possible interpretation of

language-ii. If the court decides, after considering this evidence, that the language of a

contract, in the light of all the circumstances, is fairly susceptible of either one of the two interpretations contended for, extrinsic evidence relevant to prove either of such meanings is admissible.

b. PLAIN MEANING: (3 versions: 4 corners, context w/out PER, and Context w/ PER)i. (1)Written language of contract on its face ambiguous?

ii. (2) If yes, allow evidence, if NO deny evidenceiii. 4 Corners rule: (settling part 1 of plain meaning rule)

1. Court cannot consider any extrinsic evidence outside of the writing in order to determine whether the writing is ambiguous.

2. In reality, this rule is not in use, even if a court says it is using it.

iv. Context Rule: (settling part 1 of plain meaning rule)1. The language will be reviewed in the context in which the contract was

made.2. Courts consider extrinsic evidence to determine if ambiguous before

determining if it should be admitted.v. Ambiguity may also be influenced by Parol Evidince, explained BELOW with the

modern ruleIII. PAROL EVIDENCE RULE (PER):

a. In a completed written agreement, but a party is trying to insert evidence of PRIOR or CONTEMPORANEOUS negotiations. (does not include pre-per or evidence about agreements made subsequent contract formation)

b. PRE-PER Evidence is evidence offered to prove a contract not validi. Ex: duress, undue influence, mental capacity(can’t read), fraud, etc.

ii. Pre PER evidence will always be allowed in courtc. Refer to diagram:

i. K INTEGRATED? YES next step, NO allow evidenceii. COMPLETELY INTEGRATED K = NO EVIDENCE ALLOWED,

iii. PARTIALLY INTEGRATED K = YES NEXT STEP, NO = COMPLETELY INTEGRATEDiv. EVIDENCE SUPPLEMENT OR CONTRADICT K TERMS?

1. Supplement = allow evidence2. Contradict = do not allow

d. TRAYNER TEST:i. Merger Clause? Yes = typically not dispositive, but can evidence strongly for K’s

completeness) still consider totality of circumstances to determine integration.1. Look at document 2. Hear evidence and decide if evidence should be admitted.

ii. THIS IS CONSISTENT WITH RESTATEMENT APPROACHe. Restatement§ 214: Consistent Additional Terms – Effect of Collateral Agreements

i. Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated.

ii. An agreement is not completely integrated if the writing omits a consistent additional agreed term which is

1. agreed to for separate consideration, or2. such a term as in the circumstances might naturally be omitted from

the writing.\f. RESTATEMENT § 214. Evidence Of Prior Or Contemporaneous Agreements And

Negotiationsi. Agreements and negotiations prior to or contemporaneous with the adoption of

a writing are admissible in evidence to establish1. (a) that the writing is or is not an integrated agreement;2. (b) that the integrated agreement, if any, is completely or partially

integrated;3. (c) the meaning of the writing, whether or not integrated; (allows

admission of Parol evidence to show ambiguity) (modern view)

4. (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; (pre-per)

5. (e) ground for granting or denying rescission, reformation, specific performance, or other remedy.

IV. When a court is considering the extrinsic evidence, is it required or allowed to consider Parol evidence (evidence or prior or contemporaneous negotiations) to determine whether a contract is ambiguous? a. The idea that parol evidence will not be considered to determine whether contract

language has a plain meaning (ambiguous) has had widespread acceptance. i. TRADITIONAL (RESTRICTIVE) VIEW:

1. The determination of whether the language in dispute lacks the required degree of clarity is made by the trial judge on the basis of the language itself, in light of the surrounding circumstances but without regard to the prior or contemporaneous negotiations.

ii. Modern (liberal) view:1. Under the liberal view (aka the modern trend accepted by the

Restatement 2d 214 of Contracts), the trial judge may consider parol evidence in making the determination as to whether the language is ambiguous or not.

V. WHO DECIDES AMBIGUITY? Restatement 2d 212a. The question of interpretation of integrated agreements is one of law (decided by the

judge) i. unless it depends on the credibility of extrinsic evidence or on a choice among

reasonable inferences to be drawn from extrinsic evidence. (JURY)VI. EXTRINSIC EVIDENCE IN COMMERCIAL CONTEXT

a. § 201. Whose Meaning Prevailsi. Where the parties have attached the SAME MEANING to a promise or

agreement or a term thereof, it is interpreted in accordance with that meaning. (use parties meaning if same)

ii. Where the parties have attached DIFFERENT MEANINGS to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

1. (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or

2. (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

iii. Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.(DIVERGENT MEANINGS)

b. PLAINTIFF has burden of proof and persuasion on DIVERGENT MEANINGS

i. Different meanings: Plaintiff must show other party KNEW or SHOULD HAVE KNOWN of Plaintiff’s meaning and also, Plaintiff did not KNOW or should NOT have known of D’s Meaning.

c. UCC 2-202 (sale of goods): Final Written Expression: Parol Or Extrinsic Evidencei. Terms with respect to which the confirmatory memoranda of the parties agree

or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

1. (a) by course of performance, course of dealing, or usage of trade (Section 1- 303); and

2. (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

ii. Extrinsic Evidence Specific to case - broad:1. Course of performance (the way the parties performed the K)2. Course of dealing (parties performed previous Ks)3. Trade Usage (Broadest: how party treats certain clauses w/ others in

industry)4. WEIGHT OF EVIDENCE: Course of Performance > Course of dealing >

trade usage. 5. VERY BROAD EVIDENCE: good faith and fair dealing (honesty in fact and

reasonableness)

9. REMEDIES FOR BREACHI. Specific Relief: exception to just “regular damages”

a. GENERAL RULE: If there is no adequate remedy at law, then may sue in equity.i. If money damages will not make you whole, may sue for specific performance or

injunctionii. There is an uncertainty as to the calculation of damages

b. REAL ESTATE: always in equity, because no two pieces of real estate are the same. (UNIQUE)

c. PERSONAL SERVICES: usually specific performance is never ordered for personal services because most personal services can be substituted (employees and employers)

i. UNIQUE AND EXTRAORDINARY TALENTS exception (beyonce): specific performance will result in “low quality” performance, therefor injunctions can be used to prevent other opportunities

1. (enjoining beyonce from singing at other venues on the day she was contracted to sing at yours.)

d. Once granted int “ballpark of equity” battle is not over:i. EQUITABLE RELIEF IS DISCRESSIONARY

1. Unfairness. The court may deny the plaintiff specific performance or injunctive relief if the court finds that the contract that the plaintiff is seeking to enforce, while valid, is not fair.

a. § 364 restatement: (1) Specific performance or an injunction will be refused if such relief would be unfair because

i. (a) the contract was induced by mistake or by unfair practices,

ii. (b) the relief would cause unreasonable hardship or loss to the party in breach or to third persons, or

iii. (c) the exchange is grossly inadequate or the terms of the contract are otherwise unfair.

b. CLEAN HANDS DOCTRINE : “he who comes into equity must do so with “clean hands””

i. The plaintiff must have operated pursuant to the highest of standards and not have been involved in questionable conduct in relation to the contract.

2. GOODS: almost always considered FUNGIBLE, and therefore can be purchased from another source and money damages would make one whole.

a. EXCEPTION: Unique goodsi. Unique goods overcome the presumption of remedy at

law1. Exception for goods (UCC 2-716) -- goods that

are unique or goods subject to an irreplaceable source of supply or under “other proper circumstances”

2. Other proper circumstances may include (1) inability to cover (find a substitute); (2) inability to ascertain the damages with any certainty.

b. EXCEPTION: Unique sourcei. Goes along with inability to cover or ascertain damages

with certaintyii. Hugh heph’s opossum cream example

3. PRESCISION OF CONTRACT:a. Contract provision must be Sufficiently Precise. The court may

deny specific performance if the contract provision sought to be enforced is not sufficiently precise to enable the court to fashion the order of specific performance.

4. UNREASONABLE COURT INVOLVEMENTa. Relief Requires Unreasonable Court Involvement. The court may

refuse equitable relief if enforcing the court’s order will require

the court to supervise the contract for an unreasonable period of time.

b. Note that this is a discretionary matter which can be overcome by the public interest in the contract.

II. DAMAGES and CALCULATING DAMAGE EXPECTATIONSa. UCC provides calculations for loss in value for contracts for sales of goods.

i. Loss in value + incidental + consequential damagesb. EXAM: will ask to calculate damages in fact patterns, fact patterns will have limitations

that defendant can impose on plaintiff to reduce overall dmgs.i. Reasonable certainty of damages, no speculation allowed

c. UCC DAMAGES:i. BUYER: 1. Cover or 2. Market price

1. COVER: search for another source to purchase goods. Damages = cost paid to new source – contract cost.

a. 2-712 – limitations:i. Good faith

ii. w/out unreasonable delay1. burden on D to show this

iii. reasonable purchaseiv. goods are a substitution

1. Depends on what is available at time of original contract/ time of breach.

b. FAILURE TO COVER is not = bad faithi. THERE IS NO DUTY TO COVER

2. MARKET PRICE: buyer can sit back and do nothing, and sue for damages based on the market price – contracted price.

a. Always LOCK IN market price at time of breach3. Expenses incurred to find substitute are included:

a. Incidental and consequential dmgsii. SELLER: 1. Resell or 2. Recover under 2-708

1. RE-SELL: difference between sale price and original contract pricea. Limitations:

i. Good faithii. Commercially reasonable manner (industry standards)

2. MARKET: difference between market price and original contract pricea. Locks-in price at TIME AND PLACE for TENDERb. Can get incidental dmgs, but not consequential.

3. Lost Volume Seller:a. Has capacity and ability to sell to more buyers. Therefore re-sell

is not a method which would make seller whole because misses out on a customer.

b. 2-708 – resell does not make seller whole because capable of selling to others anyway.