Contract Law

Misrepresentation elements

(1) False statement of fact OR an intention OR an opinion, (2) statement is material to the contract (a reasonable person would regard it as important in making the contract, could deprive party of their ability to enjoy the contract) OR (3) statement made with requisite state of mind (met by either fraud or material statement), (4) justifiable AND actual reliance, and actual damages.

Material statement definition

Likely to induce a reasonable person's assent or known to induce assent. also

1. Objective: a reasonable person would be influenced by the promise

2. Subjective: THIS person would be influence by the promise

Default rule for duty to disclose + exceptions

There is no general duty to disclose material facts to another party. exceptions: (1) fact is basic to transaction, goes to the very core of what is being negotiated and not disclosing it would render deal unfair to buyer, (2) party made a prior representation that is no longer true (duty to reveal the change), (3) party made a partial disclosure, (4) party has confidential or fiduciary relationship with other party (e.g., lawyer has duty of candor)

non disclosure definition

failure to disclose (staying quiet) a fact that is arguably something other party should know

Concealment definition

one party actively engages in efforts to prevent other party from learning a fact (rather than lying about the fact, in which case it would be misrepresentation)

Mutual mistake definition

applies to situations where parties make contracts in light of certain crucial assumptions about particular qualities of what they are contracting over and those assumptions prove untrue.

unilateral mistake elements

1. A mistake by one party about the FACTS surrounding a transaction at the time a contract is made

2. Concerning a BASIC ASSUMPTION on which the contract was made

3. Which has a material effect on the parties' contractual exchange.

4. Either (a) the non-mistaken party knew of, should have known of , or caused the mistake OR (b) the mistake makes the contract a grossly unfair (unconscionable bargain)

Physical duress effect

Renders the contract completely void due to lack of assent.

Economic duress definition

Forcing another into an economically vulnerable position to take unfair advantage.

Hallmark of undue influence

A special relationship or domination between the parties involved.

Licensing statutes distinction

Revenue licenses are enforceable; public-protection licensing violations render contracts unenforceable.

Covenants not to compete time scope

Restrictions lasting two years or less are more likely to be enforced.

contracts formed by individuals with minority incapacity are void or voidable?

Contractual obligations incurred under age 18 are generally voidable.

Incapacity necessity exception

Incapacitated parties remain obligated to pay for life-preserving necessities like hotel rooms (market price value)

Unconscionability requirements

procedural (unfairness, party does not have power to negotiate or modify terms or contains buried terms) AND substantive (terms are dramatically unfair) unconscionability. sliding scale test applies. both elements must be present, but same degree not required. more of one = less of other.

Statute of Frauds signature requirement

Must be signed only by the party against whom enforcement is sought.

Statute of Frauds applicable to what transactions

i. Executors-administrator / contract made by executors to answer for a duty owed by their decedents

ii. Suretyship (guaranty)

iii. Contract made in consideration of marriage (e.g., prenups)

iv. Land sale or conveyance of legal right in land

v. one year contracts (not to / can plausibly be done within a year)

vi. any sale of goods worth more than $500

What are the contract defenses?

unilateral mistake, mutual mistake, misrepresentation, concealment, non disclosure, incapacity, duress, statute of frauds, undue influence, illegality, and unconscionability

what does it mean for reliance to be NOT be justified?

not justified if party knew that promise was unreliable

what frees party of duty to disclose?

as is clauses

concealment elements

1. active efforts to prevent another party from learning the fact, 2. fact was material, 3. other party actually and justifiably relied on the facts as they appeared without the concealed facts, AND 4. damages resulting from concealment

Mutual mistake elements

1. mistake by both parties about the facts surrounding a transaction at the time a contract is made, 2. mistake concerns a basic assumption that goes to the very core of contract that was made, 3. mistake has a material effect on the parties' contractual exchange. Contract becomes voidable by party who is adversely affected as a consequence UNLESS he bears the risk of the mistake

when does party bear the risk of mistake?

§ 154. 1. contract allocated the risk to that party (perhaps through an as is clause), 2. party knows she has limited knowledge, but nonetheless treats that limited knowledge as sufficient, AND/OR 3. court believes it is just to allocate the risk to one party

duress

may be asserted by a party whose assent was induced by IMPROPER THREAT, such as a serious crime or tort, that left no reasonable alternative. threat may be expressed or implied through words or conduct. physical duress is void, economic duress is voidable by victim.

elements of duress

1. improper threat and 2. leaves threatened party no reasonable alternative

physical duress

one party uses violence or a threat of violence to preclude the other from exercising free will

economic duress makes contract void or voidable and by who

voidable by party suffering damage

misrepresentation makes contract void or voidable

voidable

higher level of threats under duress

results in voidable contract.

1. a crime or tort OR threat WOULD be a crime or a tort, 2. a criminal prosecution when you do not have the right to do so (prosecutor can threaten to press charges if you do not agree to plea bargain, but they cannot threaten you with criminal prosecution if you do not sell them your house), 3. bad faith use of civil litigation (i.e., threatening to sue you when you know you do not have a valid claim), 4. breach of duty of good faith and fair dealing under a contract with recipient (i.e., threaten to perform your duty so badly as to harm the other party/destroy their end of the bargain)

lower level of threats under duress

results in voidable contract only if resulting contract is unfair

1. threatened act would harm the recipient and would significantly benefit the party making the threat

2. effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing of party making the threat (i.e., listen to me because i did bad things in the past under other contracts)

3. what is threatened is otherwise a use of power for illegitimate ends / using your power to do something improper (e.g., i won't teach your kid unless you do what i say. government official demands money or won't give you permit you have a legal right to)

common mistake for wrongful threat under economic duress

exploiting desperation does NOT result in duress. merely exploiting another party's desperation is "hard bargaining," not economic duress.

economic duress makes contract void or voidable

economic threats or bad faith coercion induces assent through coercive pressure without reasonable alternative, rendering the contract VOIDABLE at the victim's option.

what to look for under economic duress

market disadvantages, completely unjustified threat & a party who cannot afford to wait to let legal system address harm caused by threatened breach

exceptions to statute of frauds contract for any sale of goods rule

1. merchants' confirmatory memo

2. specially manufactured goods/customized and cannot be sold to anyone else

-- before receiving notice of repudiation, the seller has either a. made a substantial beginning of manufacture; or b. made commitment for procurement of the goods

3. admission in court pleadings

4. payment or delivery of goods

statute of frauds writing requirement

does not have to be a formal written contract, only needs to be a writing sufficient to show an agreement had been made, needs to be signed by the party against whom enforcement is sought -- signature does NOT need to be physical. it can be any authenticating mark that shows who entered agreement

undue influence definition

party pressures other party in a position of subordination to agree to something & vulnerable party feels they must comply because of the nature of their relationship. nature of relationship makes pressured party justified in believing that pressuring party will not act in a manner inconsistent with their welfare

undue influence elements

1. Undue influence (overcomes victim's free will) and 2. special relationship. if there is no special relationship, do not consider this defense.

undue influence makes contract void or voidable?

voidable

if a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is ... unless ...? (fill in blanks)

contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either 1. gives value or 2. relies materially on the transaction.

illegality definition

a contract term in unenforceable on grounds of public policy. sliding scale test applied to determine whether contract should be voided or not.

illegality makes contract void or voidable?

void UNLESS court finds it is not in the interest of public policy to void contract

non compete convenants

ask: 1. was there consideration (forbearance could be deemed enough by courts), 2. is there a legitimate business reason, 3. is the scope of restriction (time AND space) broader than necessary, 4. is public harmed?

tangential illegality

contract itself is legal, but something illegal led to formation of contract

areas where illegality defense is most often employed

1. contracts prohibited by law or statute

2. covenants to not compete

3. contracts violating licensing statutes

4. tangential illegality

illegality sliding scale test

1. how important is the policy against issue? 2. what are the justifications for enforceability vs. non enforceability

incapacity

may be asserted by a party who lacks capacity at the time contract is formed

incapacity

guardianship, minority, mental illness/defect, intoxication

what must you do when incapacity goes away?

YOU MUST DISAVOW CONTRACT WITHIN A REASONABLE TIME OF INCAPACITY ENDING. if you fail to do this, you are deemed to have fully ratified the contract and it is no longer voidable.

restoration of consideration

if consideration is voided on basis of any incapacity, parties must return consideration to each other. incapacitated party only needs to return portion of consideration that is still in their possession and they get entire amount of consideration back.

minority incapacity

a. unless a statute provides or otherwise, contractual obligations are voidable if incurred prior to day before 18th birthday. only able to incur VOIDABLE contractual duties until 18th birthday

ALWAYS PRECEDES INTOXICATION. MINORITY MATTERS MORE.

i. Requirement: party is under the age of 18

ii. Restoration of consideration — you are not liable as a minor

1. E.g., if a 17-year-old buys a car, totals it just after entering contract with car dealership, you can return car to dealer in totaled condition + get your money back

mental illness or defect incapacity

the hardest incapacity defense because does not meet the eye.

EXCEPTION for people who enter into contracts with people who suffer from mental illness but seem fine

if the contract was made on fair terms, even though they meet the definition of mental illness, the other party cannot void the contract/return consideration to extent that contract has been performed in whole or performed in part OR the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires. E.g., they cannot return the consideration to you, cannot return car to you once they total it.

mental incapacity defense elements

1. Party is unable to reasonably understand the nature and consequences of the transaction (higher standard); OR

2. Party is unable to reasonably act in relation to the transaction (lower standard) AND the other party has reason to know of the party's condition

intoxication incapacity

contract is voidable if other party knows he is unable to understand or act in a reasonable manner in respect to the transaction by reason of intoxication. can apply if under influence of other drugs or medications

intoxication incapacity elements

other party has reason to know that, by reason of intoxication, (1) party is unable to reasonably understand the nature and consequences of transaction or (2) party is unable to reasonably act in relation to contract formation transaction

when party was drunk, but not that drunk, they must show that

1. you induced them into drinking; OR 2. consideration was inadequate; OR 3. transaction has departed from natural pattern of similar transactions

does contract have to be entirely unconscionable to invoke this defense?

no, it can be wholly unconscionable or just in part

if court determines contractual term is so unfair under circumstances as to be outrageous --> unconscionable, the court may:

1. refuse to enforce the entire contract, 2. enforce the contract without the unconscionable clause, OR 3. limit the application of the unconscionable clause in a way that avoids an unconscionable result

procedural unconsionability

requires one party lacks bargaining power AND contract's terms are unreasonably favorable to other party

substantive unconscionability

satisfied if allocation of risks is objectively unreasonable OR unexpectedly one-sided or harsh against one of the parties (i.e., unreasonably favors other party)

are contracts of adhesion unconsionable?

usually enter them with corporations and consumer has to accept terms proposed by corporation + not have any (or have very limited) negotiating power --> sign of procedural unconsionability. These contracts are nevertheless ENFORCEABLE as long as the court rules them to be commercially reasonable because you need OVERALL imbalance and commercial reasonableness means not substantively unconscionable.

statute of frauds

forbids enforcement of certain contracts UNLESS there is a written document (does not need to be a formal contract, just written instrument of sorts) signed by party against whom enforcement is sought. do not need both parties's signatures.

way to get around statute of frauds

if, for some reason, there is no written contract, promissory estoppel might be a viable defense (if injustice can be avoided only by enforcement)

four circumstances under which a party is entitled to restitution

(1) as alternative to damages for breach

(2) as alternative to damages for some torts

(3) for mistaken performance of K or failed K

(4) to a party in breach

definition of restitution to a non-breaching party as an alternative to contract damages

a party has party has performed a contractual obligation, but normal damages for breach of contract would not be an efficacious remedy

definition/elements of alternative to damages for some torts

a party is a victim of a tort that not only (1) harmed the victim but also (2) benefited the tortfeasor

definition/elements of mistaken performance of K or failed K

a party mistakenly over-performed a contract OR mistakenly performed under an alleged contract a court has deemed unforeseeable or nonexistent

Definition of a party in breach (for purposes of restitution)

benefit to non breaching party from breaching party's partial performance > harm breaching party caused

elements of unjust enrichment/restitution claim

(1) a ∆'s obtained a benefit at a ∏'s expense (an enrichment); AND

(2) a ∆'s retention of that benefit without compensating the ∏ would be unfair (unjust)