[X] Avoiding Enforcement, Generally

Tuesday, February 09, 2010

11:34 AM

A. I ntroduction
1. Policing Doctrines
i. Allow courts to regulate bargaining behavior
ii. Allow courts to go behind manifestation of intent to decide if a party's agreement is based on an acceptable degree of
volition
iii. We're not trying to entirely level the playing field: only use when behavior crosses the line

2. Safety Valves for Objective Test

i. We don't require meeting of minds entirely, but we can't worship objectivity either
ii. EX: Signing a contract at gunpoint may result in objectively certain terms, but it can't fly

3. Focusing on formation
i. Terms might be fair, but formation of those terms might have been wrongful

B. Remedies: Avoidance and Restitution

1. Usual effect of improper bargaining is to make voidable at instance of aggrieved party ("avoidance")

2. Voidable vs. Void

i. Void:
a. EX: failure of consideration
b. Not a contract at all --> a legal nullity
c. "void contract" is anomalous
d. Neither party can sue to enforce

ii. Voidable:
a. Rule: A voidable contract is fully enforceable unless aggrieved party elects right to terminate
b. Valid contract
c. "Avoidance"
d. EX: Person at gunpoint has a right to enforce or avoid

3. Consequences of Avoidance:
i. Restitution
a. If a contract is avoided, both parties have a right to restitution
b. Any benefits received must be returned

ii. Adjustment
a. Aggrieved party may prefer to keep contract but have improperly bargained terms removed or modified

iii. Damages
a. Could leave the contract in tact and seek damages to compensate for economic loss

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 [X] Minority and Incompetency
Monday, February 22, 2010
11:32 AM

A. I ntroduction
1. The law assumes that all persons have the capacity to enter contracts
2. Two Exceptions:
i. Minors
ii. Mentally incompetent
a. Based on policy to protect the incapacitated person
b. No requirement that improper bargaining be involved
c. Creates a voidable contract
 Usually only allowed to avoid the entire thing because incapacity affects the entire contract

B. Minority
1. Generally
i. No legal capacity to contract until 18
ii. Contract is voidable at the minor's instance before 18 or within reasonable time thereafter
a. Even a fully performed contract can be disaffirmed within a reasonable time after majority
 EX: Dodson case was fully performed
b. "power of disaffirmance"
iii. If minor has not disaffirmed by reaching majority he may ratify it as a major
iv. Policy of protecting a minor from their own immaturity
v. Based solely on objective age; not subjective intelligence or maturity

2. Rigid Traditional Rule vs. Benefit Rule

3. Ratification and Disaffirmance

i. WHAT IS THE MAJORITY RULE WHEN NO ACTIONS OF RATIFICATION OR DISAFFIRMANCE HAVE
BEEN MADE?
ii. She said that courts are somewhat silent and go on a case-by-case basis
iii. It seems that if a reasonable period is allowed to lapse then it is taken as ratified

4. Situations in Which a Minor May Incur Legal Liability

i. Contract for necessaries
a. Not same as necessity (necessaries is broader)
b. Includes not only bare necessities of life, but whatever goods or services are needed for the minor's livelihood,
or appropriate to this standard of living and position
c. Does not include luxuries

ii. Deliberate misrepresentation of age or other fraud or tortious conduct

a. Weakens ability to escape liability
b. Other party, acting reasonably, was misled by the misrepresentation and gave value to the minor or otherwise
suffered a detriment in reasonable reliance on it

iii. Statutes
a. May confer contractual capacity on a minor with regard to certain types of contract
b. e.g. banking transactions or insurance

5. Remedies
i. If neither has performed, disaffirmance terminates
ii. If either has given value, then each party must restore whatever she has received

6. Case: Dodson v. Shrader (1992)

C . Mental I ncapacity
1. General Rules
i. Incapacity is determined at the time of contracting
ii. Burden of proof lies on allegedly incompetent party to prove condition
iii. The law presumes that every adult person is fully competent until contrary proof is presented
iv. Infancy doctrine is not applicable to mental incapacity
a. Infants can disaffirm regardless of whether restoration can be made
 Benefit rule says you have to if possible though
b. Incompetent only as far as equitable principles allow
 Have to make restitution and do best to get parties back to position
v. There is no affirmative duty to investigate the mental competency of other party
vi. Voidable, not void

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 vi. Voidable, not void

2. Test for Mental Incapacity

i. Traditional Cognitive Test:
a. Cognitive Test: If, at the time of contracting, the party was unable to understand the nature and consequences
of the transaction, the contract is voidable at incompetent's instance
b. Some consider this too rigid

ii. Volitional Test:

a. Volitional Test: If, at the time of contracting, the person is unable to act in a reasonable manner under the
circumstances, and the other party has reason to know of the condition, then the contract is voidable at the
incompetent's instance.

b. Restatement Second $15(1) adopts this broader test

c. Considers the reasonable expectations of the competent party too
d. There is considerable danger of frivolous claims here

3. Alcohol or Drug Abuse

i. Courts are much less sympathetic because incapacitated person is to blame
ii. Will void if party knew or had reason to know extreme intoxication of other party

4. Guardianship
i. Can petition court to declare legally incompetent
ii. General rule is that person does not have capacity to enter into contracts if person under court ordered guardianship
iii. If court has already declared incompetent then void not just voidable

5. Case: Hauer v. Union State Bank of Wautoma (1995)

Facts: P brain damaged in motorcycle accident. Appointed guardian. Then deemed guardian not needed. 3rd party
seduces Hauer into taking loan against Hauer's stocks. D gives loan. Investment fails. Hauer seeks to rescind
contract based on incapacity.
Analysis: Shit load of rules here. Shows the difference between infancy and mental incompetence. Minor generally
can disaffirm even if restoration cannot be made, but mentally incompetent person is required to make restoration to
other party unless special circumstances are present. Here the special circumstances are that the trial court found
bank guilty of bad faith.

Infancy vs. Incompetency: Infancy doctrine does not apply to cases of mental incompetence. i.e. Will only allow
disaffirmance if it accords with equitable principles, whereas minors can disaffirm even if he can't make restoration.

Equity Rule: Absent fraud or knowledge of the incapacity by the other party, the contractual act of an incompetent
is voidable by the incompetent only if avoidance accords with equitable principles.

Cognitive Test: The test for determining competency is whether the person involved had sufficient mental ability to
know what she was doing and the nature and consequences of the transaction (cognitive test).

Tort vs. Contract Rule: Where a contract is involved, in order for a claim in tort to exist, a duty must exist
independently of the duty to perform under the contract, such as a fiduciary relationship.

Good Faith in Negotiations: Because the general requirement of good faith under the UCC applies only to
performance or enforcement of a contract, it does not impose a duty of good faith in negotiation and formation of
contracts.

Equitable Remedy: If a contract is made on fair terms, and the other party has no reason to know of the
incompetency, the contract ceases to be voidable where performance makes it such that the parties cannot be
restored to their previous positions.

Investigation Rule: There is no affirmative duty to inquire into the mental capacity of a loan applicant to evaluate
his or her capacity to understand a proposed transaction.

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 [X] Duress and Undue Influence

A. Duress
1. Aggregate Duress Rule
i. Duress: I f a party's manifestation of assent is induced by the improper threats, coercion, or extreme pressure of the
other party, that so substantially overcomes the unfettered freewill of the v ictim, that he has no reasonable
alternative but to assent, the contract is voidable by the v ictim.

2. 3 E lements:
i. Improper threat (or coercion, extreme pressure, intimidation, oppressive conduct)
ii. Leaves no reasonable alternative (immediate and irreparable loss)
iii. Inducement of assent

3. C lass Notes
i. Affects the bargaining process: may be nothing wrong with the text of the contract but for the fact that someone did not
enter it freely
ii. She says there is circumstantial duress where threats are not required?
iii. We really need to set the stage (her analysis resembled reliance and piling on facts)
iv. Totem court takes pains to show how this "pressure cooker" was generated and what the defendant's did that caused
them to be "backed into a corner"

4. T hreat
i. Threat: indication of intent to do or refrain from doing something so as to inflict some harm, loss, injury, or other
undesirable consequences that would have an adverse affect on the victim's person or personal or economic interests

ii. Boltz: Have to focus on the nature of the person to whom the threat is directed. We're talking about the person who is in
the circumstance. We need to try to step into their shoes.

iii. Express or Implied

iv. Fine line between legitimate hard bargaining and improper coercion
a. Exam Tip: Counterargument for the coercion

5. I mpropriety
i. Impropriety: any threatened behavior that goes beyond the legitimate rights of a party applying the pressure
ii. Wrongfulness depends on the facts of each particular case
iii. Examples of Improper Threats:
1) threat to engage in vexatious litigation,
2) to withhold performance or property to which victim is entitled,
3) to disclose embarrassing information,
4) or do something else for sake of hurting the victim.

6. I nducement
i. Test: Did the duress substantially overcome the free will of this party, leaving him no reasonable alternative but to
acquiesce
a. Threat must "substantially contribute" to the manifestation of assent

ii. Takes subjective attributes of the victim into account (needs, personality, and circumstances)
iii. Causation:
a. Posner says that financial hardship must have been caused by opposing party. Your own dire straits that would
have existed anyway do not count.
b. Other courts say knowingly taking advantage of hardship counts
iv. Objective, but not purely

7. Reasonable Alternative
i. Rule: There is no reasonable alternative if not entering the agreement would cause "immediate or irreparable loss"

ii. Compare to the adequacies of other remedies

a. The adequacy of the remedy is to be tested by a practical standard which takes into consideration the exigencies of
the situation in which the alleged victim finds himself
b. What constitutes a reasonable alternative is question of fact depending on the circumstances

iii. Must go beyond mere embarrassment

a. EX: Any available legal remedy, such as an action for breach of contract, may provide such an alternative
b. EX: Where one party threatens to withhold goods, services or money, unless the other does something; the
availability of the goods elsewhere might give a reasonable alternative
c. EX: Delay in pursuing alternative might render alternative unreasonable

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 c. EX: Delay in pursuing alternative might render alternative unreasonable

8. Remedy
i. Treat the contract as voidable because we're protecting the victim
ii. Same as discussion under misrepresentation for the most part

9. Duress and Coerced Modifications

i. Claiming duress can also be used to avoid a contractual modification of an executory contract

10. Case: Tote m Marine v. Alyeska Pipeline (1978) aka Take the Settlement or Go Bankrupt

B. Undue I nfluence
1. Generally
i. Will is overcome despite no threats being made
ii. Special relationship is not required, but is a significant factor
a. Mere presence is not sufficient
iii. Makes contract voidable at instance of victim

2. Boltz Elements:
i. Overpersuasion that is coercive
ii. The hallmark of such persuasion is high pressure, a pressure which works on a mental, moral, or emotional weakness to
such an extent that it approaches the boundaries of coercion.
iii. Weakness need not be long lasting or wholly incapacitating, but may be merely a lack of full vigor due to age, physical
condition, emotional anguish, or a combination of such factors.

3. Odorizzi Rule Boltz Read

i. I f one party exerts such a high pressure, which works on a mental, moral, or emotional weakness, by which that
other is prevented from acting according to his own wish or judgment, and whereby the will of that other 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,
then the contract is voidable at the instance of the v ictim.

4. (7) Overpersuasion Factors (Odorizzi):

i. Discussion of the transaction at an unusual or inappropriate time
ii. Consummation of the transaction in an unusual place
iii. Insistent demand that the business be finished at once
iv. Extreme emphasis on negative consequences of delay
v. The use of multiple persuaders by the dominant side against a single servient party
vi. Absence of third-party advisers to the servient party
vii. Statements that there is no time to consult financial advisers or attorneys

5. Case: Odorizzi v. Bloomfield School District (1966) aka Undue Influence Over Homo Teacher

6. Duress and Undue Influence and Marriage

i. Talking about Tiger Woods and renegotiating marriage agreement
ii. Some people said now is a good time for her to renegotiate
iii. This is totally wrong - they will claim duress or undue influence
iv. Can't bring up prenuptual the day before the wedding because you're taking advantage

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 [X] Unconscionability
Wednesday, February 24, 2010
9:30 AM

A. E xam Answer:
1. The next issue to be decided is whether the agreement between the parties was unconscionable.
i. A contract is voidable at the instance of the victim when it is shown that the contract is (a) procedurally and (b) substanti vely
unconscionable. Most courts require that both of these elements be shown, though not in the same degree. An abundance of one
element may offset the comparatively weak presence of the other. It has indeed been held that the substantive element may alo ne be
sufficient to establish unconscionability if adequately present.
ii. The procedural element serves to determine whether behavior was proper during the formation stage of the contract. A contract may
be procedurally unconscionable when one party is not given a meaningful choice or lacks the opportunity to understand the ter ms of
the agreement -- usually because a gross inequality of bargaining power or the oppressive conduct of one of the parties -- resulting in
unfair surprise to the victim.
iii. The substantive element evaluates the fairness of the terms of the agreement. A contract may be found substantively unconscio nable
when its terms are overly harsh or unfair to one of the parties or unduly one -sided and favorable to the other.
B. Generally
1. Role of Unconscionability
i. Duress needs threat, undue influence needs trusting relationship, fraud has specific elements...
ii. Law needs more general doctrine
iii. Normally involved in, but certainly not limited to, consumer transactions and adhesion contracts

2. Nature and Origins

i. UCC §2.302 / Restatement §208
ii. Courts of equity: As such, decided by the judge and not the jury
iii. Judged at the time the contract was made. Not judged based on developments after the contract was formed.

3. What is it
i. Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties, usually
because of an oppressive and grossly unequal bargaining power or the party's lack of reasonable opportunity to understand the terms
of the agreement resulting in unfair surprise (procedural), together with harsh or unfair contract terms which are unreasonab ly
favorable to the other party (substantive).

ii. Boltz Test for Unconscionability:

Ƒ She's saying take a good hard look at the comments to UCC 2-302
Ƒ The basic test is 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

C . E lements of Unconscionability
1. Unfairness in bargaining process (procedural unconscionability), and
2. Resulting unfair or oppressive terms (substantive unconscionability)

3. Case: Williams v. Walker Thom as Furniture Co. (1965) Repossessing Furniture: Early Cocktail Party Unconscionability Case
Facts: P bought furniture at D's store on printed form contract on an installment payment plan. D would be able to repossess upon
default. Provision in the contract basically said that payments would be disbursed among all outstanding debts. Thus, nothin g was
paid off until everything was paid off. P eventually defaulted and had all of her purchases over the last 4 years repossesse d.
Analysis: Meaningfulness of the choice is often negated by a gross inequality of bargaining power. Has to be considered in context
and the manner in which the contract was entered into. Did each party to the contract, considering his obvious education or l ack of it,
have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in a maze of fine p rint and
minimized by deceptive sales practices?
Result: record was no clear enough to make a decision (trial court just straight up rejected the doctrine), so it's remanded to che ck
Rule: Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the partie s
together with contract terms which are unreasonably favorable to the other party.
Rule: Fairness of the terms must appear unconscionable according to the mores and business practices of the time and place.
Rule: A court has the inherent power to refuse to enforce unconscionable contracts.
Note 3 and RTO Situations:

4. Most require both, some require only one; some go with a sliding scale in that if one is heavily present, less may be required from the
other.

D. P rocedural unconscionability
1. Policy Problem: superior bargaining power and taking advantage of that is not always a problem and so we need to be careful that we don't
shit on people just because they are doing so. Good salesmanship involves putting on a little bit of pressure.

2. Boltz: Lack of meaningful choice and unfair surprise.

3. Surprise:
i. Maybe because there was small print or a mislabeled piece of the contract
ii. Surprise maybe because they were not understandable due to legalese
iii. Are terms buried in the middle of a 70 page contract?

4. Factors:
i. Degree of deception or compulsion,
ii. Awareness by dominant party of infirmity,

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 iii. or ignorance or lack of understanding on part of the other (Boltz: "susceptibility to the abuse")

5. Factors from Adler quoting Williams:

i. The manner in which the contract was entered
ii. Whether each party had a reasonable opportunity to understand the terms of the contract
iii. Whether the important terms were hidden in a maze of fine print
ƒ These factors should not be applied mechanically without regard to whether in truth a meaningful choice existed.

6. The fact that an agreement is an adhesion contract does not necessarily render it procedurally unconscionable. (Adler)
7. The mere existence of unequal bargaining power will not, standing alone, justify a finding of procedural unconscionability (Adler)

E . Substantive Unconscionability
1. Unfairly one-sided: Favors one party more than should be reasonably expected
2. Regards terms as unfair regardless of how the agreement was entered

3. Factors of an Adhesion Contract:

(1) whether the contract is a standard form printed contract,
(2) whether it was prepared by one party and submitted to the other on a "take it or leave it" basis; and
(3) whether there was no true equality of bargaining power between the parties.

4. Boltz: Tends to take a big picture approach and measure the degree to which the one-sidedness is unfair. How does it impact the benefits
going to each party of the contract? Winning this action will be determined by how effectively you call the court's attention to the facts that
paint this picture.

F . Remedy for Unconscionability

ż Restatement (Second) of Contracts $208:
ż If a contract or term thereof is unconscionable at the time the contract is made a court may:
i. Refuse to enforce the contract; or
ii. Enforce the remainder of the contract without the unconscionable term; or
iii. So limit the application of any unconscionable term as to avoid any unconscionable result.

G. F loating C ases
a. Case: Higgins v. Superior Court of Los Angeles County (2006) Extre me Makeover Contracts Edition
Facts: P's are 5 siblings. Oldest is 21. D is Extreme Home Makeover. P's parents died and Ps moved in with X. Extreme Makeover
contacted them to do X's home. D mailed contract. Contract was 24 page document and a 1 page document. 24 page document was
72 numbered paragraphs. Single document was release. At top of contract in bold capital letters was "DO NOT SIGN UNTIL
READ." Second to last paragraph also says duty to read and "I've read." Paragraph 69 contained an arbitration provision sayin g all
claims will be arbitrated. Producers then came to house and met with X. Ps did not take part in meeting. X then said go throu gh and
sign in boxes. No boxes by arbitration. No other indicators by arbitration provision. P had signed within 5 to 10 minutes and didn't
understand many of the terms. After home was done, X ultimately forced P's to leave.
Analysis: Analysis begins with whether adhesion contract: unequal bargaining power and agreement was take it or leave it.
Procedural analysis: arbitration provision appears in one paragraph near end of lengthy single -spaced document. D knew Ps were
young and unsophisticated. In contrast to other paragraphs, no text in arbitration provision is specially marked.
Substantive analysis: arbitration provision only required Ps to arbitrate, not D. this is harsh and one -sided.
Rule: Procedural and substantive elements must both be present in order for a court to exercise its discretion.
Rule: Procedural and substantive elements need not be present in the same degree: the more oppressive the contract term, the less
evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa .
Rule: Even if a party reads and agreement he is not barred from claiming that it is unconscionable.

H. A rbitration Agreements
a. Case: Adler v. Fred Lind Manor (2004) Just Read This God Damned Case and Rules
Facts: P worked for D. D got new management and compelled signing of arbitration agreement. P signed and was eventually injured.
Then P got fired - D claimed because he couldn't handle workload. P said discrimination and had EEOC investigate. Investigation
provided no remedy so he filed civil suit. D said barred by arbitration agreement because he waited during other investigatio n.

Arbitration agreement:
1. Arbitration in Seattle
2. Aggrieved party must deliver intent to arbitrate within 180 days of first event that gives rise to dispute or waive rights.
3. Arbitrator's fee and other expenses (attorney's fees) are to be split by the parties equally

Procedural Analysis: There are conflicting facts whether it was procedurally so it is remanded for more relevant discovery.

Substantive Analysis:
Unilateral Application: applies to both equally so not unconscionable
Attorneys Fees Provision: Unfairly denies him rights to recover attorneys fees and leaves him vulnerable to guy with more
resources.
Fee-Splitting Provision: P didn't show the prohibitive costs so it's remanded to see if they would be unreasonable
Lim itation on Actions: Screws his rights to have other investigations (like EEOC of WHRC) and to claims that might have
happened earlier. Various holdings of what is unconscionable or not. Agrees with one court saying 90 days is.
Severance : Don't have to render unconscionable everything. Only 2 things rendered as such. Primary thrust is arbitration
generally and so that will remain in tact.

Arbitration Burden Rule: There is a policy favoring arbitration agreements and so party opposing arbitration bears burden of showing
that agreement is not enforceable.
Substantive Rule: Substantive unconscionability involves cases where a clause or term in the contract is unreasonably one -sided or
overly harsh.
Procedural Rule: Procedural unconscionability is the lack of a meaningful choice considering all circumstances surrounding

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 Procedural Rule: Procedural unconscionability is the lack of a meaningful choice considering all circumstances surrounding
transaction.
Alternative Rule: Substantive unconscionability alone can support a finding of unconscionability.
Adhesion Rule: The fact that an agreement is an adhesion contract does not necessarily render it procedurally unconscionable.
Bargaining Power Rule: The mere existence of unequal bargaining power does not alone justify a finding of procedural
unconscionability.
Limitations Rule: A contract's limitations provision will prevail over general statutes of limitations unless prohibited by statute or
public policy, or unless they are unreasonable.

b. Other Notes:
i. Courts are divided whether arbitration agreements banning class actions are enforceable
ii. Confidentiality agreement in arbitration agreement was substantively unconscionable because it prevented employee's ability t o prove
pattern of discrimination

Defenses Page 8
 [X] Misrepresentation
Wednesday, February 24, 2010
9:29 AM

A. Misrepresentation Generally
1. Misrepresentation: an assertion not in accord with the facts (Restatement Second $519)
2. 3 Categories: fraudulent, negligent, and innocent
3. The terms misrepresentation and fraud are not synonymous

B. I ntentional Misrepresentation
1. Fraudulent Misrepresentation:
i. Misrepresentation of a fact;
ii. Material to the sale;
iii. With knowledge or reckless disregard of falsity (scienter);
iv. With intent to induce assent;
v. Which is reasonably relied upon; and
vi. proximately causes damage to the relying party.

2. Examples:
i. Affirmative False Statement
a. EX: Guy said he was head of CPA firm to get client list. Reality he was first week CPA employed at small firm.
b. EX: Home seller said peaceful place and said no trespass problems. Mad trespass and vandalism problems.

ii. Concealment
a. Deliberate conduct to hide
b. EX: Bat infestation of seller's attic they could not beat. Covered up signs and temporarily kept away during sale.

3. Case: Syester v. Banta (1965) aka Old Ass Lady Dancer and Fraudulent Misrepresentation

4. Case: Park 100 Investors, Inc. v. Kartes (1995)

C . Materiality
i. Materiality: A misrepresentation is material if it would be likely to induce a reasonable person to assent to a bargain.

ii. If a misrepresentation is material, it can provide grounds for avoiding a contract even if it was only a negligent or even an
innocent misrepresentation.
a. She does not agree that this is a reasonable person standard at all! She thinks it's a subjective standard.
b. She definitely thinks it's a subjective standard. "A lot of these cases boils down to whether the jury believes the witness or
not."

D. Reasonable Reliance
a. Rule: A party cannot avoid a contract on the basis of misrepresentation unless he reasonably relied upon it to the extent that it
contributed significantly to his decision to enter into the contract on the agreed terms.

b. Asking the question whether another person similarly situated would have been induced to enter the contract
c. This element must be present for all forms of misrepresentation.
d. Plaintiffs must have acted reasonably
i. EX: in nondisclosure cases plaintiffs have a duty to reasonably investigate the information that they claim was fraudulently
undisclosed

E . Justifiable I nducement
i. Must be a casual link between the fraud and entering contract

F . I nnocent Misrepresentation
1. Rule: If there has been a m isrepresentation of a m aterial fact, made with the purpose to induce another into a contract, which is
reasonably relied upon by the other party, then there is a remedy.

2. Erroneous statement, but with belief that it is correct

3. Incorrect but blameless
4. Still grounds for recission
5. Must be material

G . Negligent Misrepresentation
1. Erroneous assertion with belief that it is correct
2. Failure to act with reasonable care in ascertaining and communicating the truth
3. Honest but careless

H . Nondisclosure
1. Rule: Suppression of a m aterial fact, which the seller has a duty to disclose , and which is reasonably relied upon by the buyer in
his decision to enter a contract, is grounds for recission of a contract.

i. Exam Tip:

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 i. Exam Tip:
a. In an exam using this rule you'd need to next explain that the seller has a duty to disclose (e.g. seller knows of
something not known to buyer that couldn't be discovered upon a reasonable inspection)

2. Reasonable Reliance and Latent/Patent Defects:

i. It might not be able to be said that one reasonably relied on a failure to disclose a patent defect. A reasonable person would
give an honest inspection to discover such patent defects and thus would not be able to rely. If it was a material defect
known to the seller

3. The law requires honesty, but not necessarily candor: nondisclosure does not constitute a misrepresentation unless there is s ome
legal basis for imposing a duty to disclose

4. Problem because we're allowed to use superior information to a degree

5. Class Notes:
ƒ When is there a duty to speak?
ƒ When are there consequences for not speaking up?

6. Guidelines for Finding Duty to Disclose (Restatement Second $161):

A vendor has an affirmative duty to disclose material facts where:
1) Disclosure is necessary to prevent a previous assertion from being a m isrepresentation or from being fraudulent or
material;
2) Disclosure would correct a m istake of the other party as to a basic assumption on which that party is making the
contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of
fair dealing;
3) Disclosure would correct a m istake of the other party as to the contents or effect of a writing, evidencing or embodying
an agreement in whole or in party;
4) The other person is entitled to know the fact because of a relationship of trust and confidence between them.

7. Case: Hill v. Jones (1986) Failure to Disclose Ter m ite Infestation

8. Case: Stambovsky v. Ackley Nondisclosure and the Haunted House

ƒ Property case we read not disclosing haunting

I. Misrepresentation Based on F alse O pinion

1. Opinion: expression of a belief, without certainty, as to the existence of a fact (Restatement)
i. Typically deals with matters such as quality or value of property
ii. Rule: Statement of opinion amounts to a misrepresentation of fact if the person giving the opinion misrepresented his state of
mind (i.e. stated that he held a certain opinion when in fact he did not)
iii. Rule: A statement of opinion may also be actionable if the one giving the opinion:
(a) stands in a relationship of trust or confidence to the recipient (a "fiduciary relationship"),
(b) is an expert on matters covered by the opinion, or
(c) renders the opinion to one who, because of age or other factors, is peculiarly susceptible to misrepresentation.

J. Remedy: Contract vs. Tort

1. Choice of recission or damages
2. Recission of contract returns parties to status quo ante
3. Sometimes recission is impossible (subject has been transferred to 3rd party)

Defenses Page 10
[X] Public Policy and Illegality
Wednesday, February 24, 2010
9:30 AM

A. G enerally
1. Different from others in that not really formation process
2. Rather the contract is forbidden or does some damage to the public good
3. Goal is protection of the public interest
4. Sometimes courts don't draw a distinction
i. What is illegal always violates public policy
ii. Doesn't have to be illegal to violate public policy though

B. I llegal Contracts
1. Court will not enforce an illegal contract or term, even if it is clear that the parties entered voluntarily
i. Void, not voidable

C . Contracts Contrary to Public Policy

1. Rule: There is a strong public interest in the freedom of contract and there must be a well established basis for any
public policy that would deny enforcement of a contract.

2. Restrictive Covenants
i. Case: Valley Medical Specialists v. Farber (1999) Non-Competition Agree ment for AID S Doc
Facts: VMS hired Farber. Farber made officer and then signed new noncompetition agreement. Agreement
said for 3 years after termination, Farber could not provide any medical assistance to anyone who was a
patient in the past or in the future of VMS, and could not work for anyone that might compete with them.
These restrictions applied for all geography within a 5 mile radius of any VMS offices. Trial court found
agreement too broad and against public policy. Farber left and began practicing in an area that was restricted
by the covenant.

Analysis: Employment covenants are construed strictly against the e mployer . We also treat professional
relationships differently than non-professional relationships (relationship of trust or confidence). Business
sales covenants are more lenient to protect good will in the transfer. This is somewhere between the 2. AMA
discourages restrictive covenants because it does not give way to optimal care and a patient has a right to
choose. Courts need to strictly scrutinize here for reasonableness. Court has to determine the extent to which
the covenant violates a patient's right to choose and see his doctor: here they'd have to drive a long way and
wouldn't be able to see their personal doctor. Patients' interests win this one.

Unreasonable Because:
i) 3 year unreasonable because patients need to see doc every 6 months
ii) 5 mile radius unreasonable because it includes 235 square miles
iii) Did not provide an exception for emergency treatment
iv) Overly broad because was not limited to pulmonology
v) Violates public policy because sensitive and personal nature of doctor-patient relationship

General Reasonableness Rule: A restriction is unreasonable and thus will not be enforced: (1) if 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 likely injury to the public interest.

Reasonable Duration Rule: When the restraint is for the purpose of protecting customer relationships, its
duration is reasonable only if it is no longer than necessary for the employer to put a new man on the job and
for the new employee to have a reasonable opportunity to demonstrate his effectiveness to the customers.

Unnecessary Benefit Rule: the restraint is reasonable when it imposes no shackle upon the one party which is
not beneficial to the other.

Blue Pencil Rule: Courts can delete severable portions of an agreement to make it more reasonable, but they
cannot add terms and rewrite provisions.

ii. Reasonableness of Covenant

a. Reasonableness is a fact intensive inquiry that depends on the totality of the circumstances
b. A restriction is unreasonable and thus will not be enforced IF:
(1) Restraint is greater than necessary to protect the employer's legitimate interest; or
(2) That interest is outweighed by the hardship to the employee and likely injury to the public.

c. In assessing reasonableness the court will consider

a. Scope,
Ł Time period, geographical reach, scope of activities prevented
b. Hardship on promisor, and
Ł Weighed against employer's interest
c. Public interest

Defenses Page 11
 c. Public interest
Ł Weighed against employer's interest

¸ Reasonableness will tell us if the restraint is greater than necessary

iii. Covenants Restraining Legal Practice

a. Not allowed under the rules of professional ethics

iv. Covenant Not to Compete

a. There are some jurisdictions that have them illegal on their face

v. Covenants Restraining Medical Practice

a. Not unenforceable per se, but the public interest is assumed to be very strong in having free choice of medical
professionals

Case: R.R. v. M.H. & another (1998) Surrogacy Agree ment

Facts: One couple had infertile wife. They approached the mother and offered money to be paid along the way
and a final payment when the baby was handed over. The mother reserved the right to keep the baby at the
end but had to refund the money.
Analysis: There is a big difference between the invitro and gestational surrogacy. In gestational, neither the
egg nor the sperm belong to parents and it's just a rental of womb space. The other way, there is a much
stronger genetic link. There must be no economic pressure that might force a vulnerable woman to act as a
surrogate and eventually be forced to give up a baby she didn't want to. The money given was more than for
services, it was basically to buy parental rights of the baby. Public policy says that money can only be for the
services and can't be used to purchase parental rights and custody. The fact that money would have to be
refunded shows that it was using money to force her into giving up the baby. This surrogate needed money
and the agreement is void under public policy. Court looked to adoption laws which say that a person can't
give up a baby under 4 days after delivery to discover the bond with baby and make sure it's what she really
wants to do. The primary consideration is that the contract must be in the best interest of the child.
Rule: Surrogacy agreements are void if they require payment of money for custody.
Rule: The contracts are valid if they are voidable up to 4 days after the pregnancy and compensation is for the
services only. (taken by analogy from adoption statutes)

Defenses Page 12
 [X] Mistake
Wednesday, March 31, 2010
3:57 PM

I. M IST A K E
A. Case: Lenawee County Board of Health v. Messerly (1982)
Facts: People bought a house from people whose grantor improperly installed a septic system. Apartment building on there.
Condemned. Had intended to use as income rental property. Guys who bought it sought rescission. There was an "as is" clause
that said they took in condition they found it.
Analysis: There was mutual mistake, but "as is" clause. Cites cow case where cow was mistakenly thought to be barren and
allowed rescinding. Mistake was more than to just the value of the cow, but to the actual substance of the consideration.
Rule: The erroneous belief of one or both of the parties must relate to a fact in existence at the time the contract is made.
Rule: Rescission is not available to relieve a party who has assumed the risk of loss in connection with the mistake.

B. Restatement §152: Mutual Mistake

1. 3 Elements:
i. At the time of contracting
ii. Mistake concerned basic assumption
iii. Materially affects the agreement
iv. Adversely affected party does not bear the risk

2. Basic Assumption:
i. Rule: So fundamental to the shared intent and purpose of both parties that it is reasonable to conclude that they would not
have made the contract at all without or on the present terms had they known the truth.

ii. Must relate to a fact in existence at the time the contract was executed

iii. Boltz: Mistakes as to fact. A belief that is not in accord with the facts.
a. It has to be a fact, not mistake in judgment.
b. An incorrect prediction of future events is not a mistake (not facts yet)
c. Mistaken law could be considered a fact

iv. Pure Valuation:

a. Courts are skeptical to allow mistake as to pure evaluation issues
b. Courts definitely won't allow mistakes purely of valuation if the value could be reasonably found

3. Materiality:
i. In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any
relief by way of reformation, restitution or otherwise.
ii. Boltz: if there are components and mistake is to one of then evaluate how significant it is to overall agreement

C . Unilateral Mistakes
1. Voidable for unilateral mistake if:
a. Mistake concerned basic assumption;
b. Mistake materially affects the agreement;
c. Does not bear risk;
d. Party used reasonable care;
e. Unconscionable or other caused mistake or other knew of mistake; and
f. Other party can be returned to status quo

2. Restatement §153 Unilateral Mistake

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made, the contract has
a m aterial effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does
not bear the risk of the mistake under the rule stated in 154, and
a. the effect of the mistake is such that enforcement of the contract would be unconscionable , or
b. the other party had reason to know of the mistake or his fault caused the mistake

3. Case: Wil-Fred's, Inc. v. Metropolitan Sanitary District (1978)

Facts: Bid made $200,000 lower than it should have been. Mistake made by a single party believing that they could drive
heavy equipment over pipes. They inspected the job site, double checked the figures, carefully examined the specifications.
Analysis: Grave = bankrupt. No change in reliance = status quo. Such a sizable difference = should have known.
Rule: Conditions required for rescission:
1- Mistake relate to material feature of contract;
2- Occurred not withstanding use of reasonable care;
3- Has a grave consequence such that enforcement would be unconscionable; and
4- The other party can be returned to status quo.

Boltz: reasonable care because of the process. They went and double checked. They weren't sloppy or reckless. They acted
appropriately when they discovered the mistake. She really liked reasonable care, we probably want to include this in the
definition. Stressed the discussion in terms of equity and once again that we need to pile on the facts.

4. Unconscionable effect of mistake

i. Doesn't seem to be same as other doctrine
ii. More general in that it means substantial loss

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 ii. More general in that it means substantial loss

D. Restatement §154: W hen a Party Bears the Risk of Mistake

1. A party bears the risk of a mistake when:
i. The risk is allocated to him by agreement of the parties, or
ii. Party aware that he has limited knowledge but treats it as sufficient, or
iii. Reasonable in the circumstances to impose the risk.

2. Effect of "As is" Clause

i. Some hold these will put risk on buyer
ii. Some say that mistake normally involves things not contemplated by the "as is" clause

3. Reasonable
i. Who might have been in the best position to mitigate the losses and prevent the mistake?

E . E quitable relief:
1. The relief available for mutual mistake other than a mistake in writing is ordinarily rescission, along with any restitution that
may appear appropriate.
2. Unilateral totally equitable
3. Courts can get pretty creative here though
4. Can get injunction: have to establish irreparable harm

F . Misc. Concepts:
1. Mistake in Written Expression
i. When the mutual mistake consists of the failure of the written contract to state accurately the actual agreement of the
parties, reformation of the contract to express the parties' mutual intent is the normal remedy

2. Effect of Negligence
i. Many courts will not allow rescission if mistake is result of negligence
ii. Exercising reasonable care was considered a necessary element in the subcontractor unilateral mistake case

Defenses Page 14
 [X] Changed Circumstances
Tuesday, February 09, 2010
11:36 AM

I. C H AN G E D C I RC U MST AN C ES: I MP OSSI B I L I T Y, I MP RA C T I C AB I L I T Y, AN D F RUST RA T I O N O F P U RP OSE

A. I ntroduction
1. Mistake rests on mistake as to a fact existing at time of contract
2. These 3 doctrines usually involve changes in circumstance that occur after the making of the contract but before performance
3. Boltz:
i. Take a look at a lot of the circumstances that we see involve these issues and how they're decided.

B. I mpracticability
1. Restatement §261: Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence
of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that
performance is discharged, unless the language or the circumstances indicate to the contrary.

2. Elements:
i. Event makes performance impossible or impracticable ;
ii. Rescinding party not at fault causing frustrating event;
iii. Non-occurrence of event was a basic assumption; and
iv. Party did not assume risk of event occurring
 Not necessarily as-is clause
 "Unconditional promise to perform" will assume the risk

3. Impracticable
i. Unduly burdensome
ii. Performance cannot be rendered with loss, risk, or hardship

4. Basic Assumption
i. Doesn't mean that it was unforeseeable, but merely unforeseen
ii. "What happened was something that we assumed wasn't going to happen when we entered into the contract. If we thought that
was a real possibility, we never would have agreed."

5. Restatement §262: Death or Incapacity of Person Necessary for Performance

i. If the existence of particular person is necessary for the performance of a duty, his death or such incapacity as makes
performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

6. Case: Karl Wendt Far m Equipment Co. v. International Harvester Co. (1991) Impracticable Because Market Downturn
Facts: Wendt and IH contracted for Wendt to be a dealer. IH sold to Case because of unexpected downturn in the market. Case
didn't offer Wendt a franchise. Wendt sued IH for breach. IH claimed defense of impracticability. Trial court found for IH.
Analysis: Comment to Restatement says that continuation of existing market conditions is not normally a basic assumption.
Impracticability is not appropriate here. Primary purpose was to establish dealership, not mutual profitability. Because the
frustrating event was them selling the company, they were not without fault.
Rule: Market shifts and financial difficulties do not undermine basic assumptions of contracts for the purposes of the
impracticability and frustration of purpose doctrines.

7. Note: A severe shortage of raw materials or of supplies due to war, embargo, local crop failure, unforeseen shutdown of major
sources of supply, or the like, which either causes a marked increase in cost or prevents performance altogether may bring the case
within the rule stated in this section.

8. UCC §2-613: Casualty to Identified Goods

9. UCC §2-614: Substituted Performance
10. UCC §2-615: Excuse by Failure of Presupposed Conditions

C . F rustration of Purpose
1. Restate ment 265: Where, after a contract is made, a party's (a) principal purpose (b) is substantially frustrated, (c) without his fault,
(d) by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his
remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary (e.g. he bore
the risk).

2. Boltz: Now we have no reason for doing it

i. "makes one party's performance virtually worthless to the other"
ii. "the fact that the use is less valuable or less profitable or even unprofitable does not mean the tenant's use has been
substantially frustrated"

3. 6 Elements:
i. Frustrated purpose must have been the principal purpose
 The object must be so completely the primary basis of the contract that, as both parties understand, without it the
transaction would make little sense
ii. Both parties knew of the purpose at the time of formation
iii. Frustration be substantial
 Must be so severe that it is not fairly to be regarded as within the risks that he assumed under the contract
 Fact that performance has become economically burdensome is not sufficient
iv. Frustrating event must have been a basic assumption of the contract

Defenses Page 15
 iv. Frustrating event must have been a basic assumption of the contract
v. Party seeking relief must not have been at fault
vi. Circumstances don't indicate to the contrary (he didn't bear the risk )

4. Case: Mel Frank Tool & Supply, Inc. v. Di-Che m Co. (1998)
Facts: Chem company rented from Frank. Lease was for "storage and distribution." Chem co. used hazardous materials. City
passed ordinance banned these. Frank didn't know that it was hazardous storage. Chem Co. vacated. Frank sued. Chem
company asserted frustration of purpose and impossibility.
Analysis: Generally if a law is passed which eliminates one use but still allows other uses, it won't affect the liabilities of the
parties. Even if the lease restricts the use, as long as the lease doesn't restrict it to a single use which is subsequently outlawed.
Decision for Frank.
Rule: The tenant is not relieved from the obligation to pay rent if there is a serviceable use still available consistent with he
use provision in the lease.
Rule: The fact that the use is less valuable or less profitable or even unprofitable does not meant he tenant's use has been
substantially frustrated.

D. I mpracticability vs. F rustration of Purpose

1. Both require the disadvantaged party to show:
i. Substantial reduction of the value of the contract;
 i.e. performance is made impracticable; a party's principal purpose is substantially frustrated
ii. Because of the occurrence of an event, the nonoccurrence of which was a basic assumption of the contract;
iii. Without the party's fault; and
iv. The party seeking relief does not bear the risk of that occurrence of the event either under the language of the contract or the
surrounding circumstances

E . Bases of Relief
1. Increased Cost as a Basis for Relief
i. Most refuse this as a basis
ii. Increase in cost of performance 12x's has been held as basis for relief

2. Natural Disaster or War as a Basis for Relief

i. Courts generally unwilling to grant relief

3. Death or Incapacity of Particular Person Necessary for Performance

i. If a particular person or thing is necessary for performance, the death or incapacity of the person, or the destruction of the
thing, will excuse performance

4. Governmental Regulations
i. More willing to grant exception here than other instances
ii. UCC $2-615 makes specific mention of "compliance in good faith with any applicable foreign or domestic governmental
regulation or order" as a basis for relief
iii. Restatement also recognizes this compliance as a basis for relief
iv. Frustration still needs to be substantial
 Performance must be rendered virtually worthless

5. Nature of Relief
i. Normal remedy is avoidance
ii. Not normally basis for reformation or other remedies (such as compensation for reliance)
 Mistake allows reformation to correct error?

F . Role of F oreseeability
1. Some courts have tended to require that the event complained of was at least unforeseen - perhaps even unforeseeable - at the time
the parties made their contract
2. Most say defenses should not be denied simply because event may have been foreseeable

I I. Modification
A. Case: Alaska Packers' Assoc. v. Domenico (1902) Fisher m an strike to get more money in modification

B. Notes
1. Pre-Existing Duty Rule
i. Rule: merely promising to perform an existing obligation will not serve as valid consideration for additional return
compensation from the other party.
ii. Often serves to prevent coercive modifications
iii. There needs to be a "separate and identifiable" consideration

2. Exceptions to Pre-Existing Duty Rule

i. Unforeseen Circumstances
a. A promise of modification is binding if "fair and equitable in view of circumstances not anticipated by the parties when
the contract was made"
b. May be applicable even if the unforeseen circumstances would not fully qualify for excuse based on impracticability
c. Boltz Example:
i) Garbage collection contract. Estimated growth of 25 houses a year. Grows big time. Garbage collector says can't
collect all because expanded well beyond expectations. City agrees to modify and pay more. City gets new
administration and claims no new consideration. Court rejected city's argument, and enforced modification.

ii. Reliance

Defenses Page 16
 ii. Reliance
a. Restatement $89 recognizes reliance on a promised modification as another basis for enforcing a modifying agreement
despite the absence of fresh consideration.

iii. Mutual Release

a. Mutual recission might be justified where no coercion is present and circumstances had changed unexpectedly

C . Case: Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp. (1990)

D. U C C Article 2: Modifications
1. Modification without consideration under Article 2:
i. UCC thinks modifying contracts without additional consideration needs to happen

2. Good faith as a limitation on modification under Article 2:

i. Good faith serves as a bar to "extortion" of a modifying agreement "without legitimate commercial reason"
ii. Two part test:
a. A party may in good faith seek a modification when "unforeseen economic exigencies existed which would prompt an
ordinary merchant to seek a modification in order to avoid a loss on the contract"
b. Even where circumstances do justify asking for a modification, it is nevertheless bad faith conduct to attempt to coerce
one, by threatening a breach.

3. Economic duress as limitation on modification under Article 2

i. Common law duress applies to modifications of contracts for goods
ii. Threat doesn't have to be illegal

4. Protest of a bad faith modification

i. If ties of good faith bind each party to the other under the UCC, they bind not only the party seeking to enforce a modification
but also the one who would resist it
ii. Good faith duty to show protest so that other party won't be deceived as to its intention eventually to resist enforcement or
seek duress

§ 2-209. Modification, Rescission and Waiver.

(1) An agreement modifying a contract within this Article needs no consideration to be binding.
(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or
rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by
the other party.
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is
within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a
waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification
received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in
view of a material change of position in reliance on the waiver.

Case: Brookside Far ms v. Mam a Rizzo's Inc. (1995) Basil modifications and perfor m ance

1. Modifications and the Statute of Frauds

i. Some say that an oral modification is enforceable under statute of frauds unless the modification would either change the
quantity term or increase the price above the $500.

Defenses Page 17
 Monday, January 11, 2010
9:12 AM

1. G loria and Arnold Reed

Senior citizens & retired
Extensive housing damage due to Katrina
House remains damaged
Acquired series of contractors to do work on home
Gave them money to perform services
Have not seen contractors again
Contracts issues
Fraud
Figure out how to educate these people
Also have insurance issues

2. John and T ami I ronside

Young couple
Currently unemployed
Used to be hospital workers at charity hospital
#1 trauma center in New Orleans
Has not reopened since Katrina (stands vacant)
Problems trying to rebuild home
Seeking help from Make-it-Right foundation
Brad Pitt and Angelina Jolie's gig
Built 25 homes
Contract Issue: Mortgage reformation
Working with bank
Figure out what to do contractually
Mortgage reformation relief
Advice and consent to legislature
Figure out how to do mortgage reformation

First Exercise
Come up with list of 10 questions to ask clients first time you see them

Drafting Page 18
411
Wednesday, March 24, 2010
1:28 PM

View Assignment

Spring 2010 Writing Assignment 2 of 3 - Due Fri, 3/26/2010 5:00 PM EDT

Emergency Contracting 101
Earthquakes, Hurricanes, Tornados, Tsunamis and Floods: When disaster strikes, people are required to enter into a variety of
contracts for goods and services. Given the fact that at least one contracting party is not contracting under optimal conditions,
opportunities for abuse in contracting abound. YOUR ASSIGNMENT IS TO DRAFT A BOOKLET WHICH PROVIDES
GUIDANCE FOR CONTRACTING AFTER A DISASTER.
This booklet should not exceed 4 pages and should contain a few sample clauses for the parties to consider. Preferred font si ze
should be no less than 12.
To prepare for this assignment you are required to listen to the two part lecture on the Basics of Contract Drafting which ar e
available on the Chase ITunes U site. Also, you must download the document entitled, Basics of Contract Drafting, from the
Contracts TWEN site under Course Materials.

Pasted from <http://lawschool.westlaw.com/gradebook/Assignment.asp?

task=viewassignment&displaysubmit=Submit&assignmentID=104981&CourseID=21093>

Clauses:
Workmanlike quality

Issues:
Time for performance
Unforeseen costs
Arbitration
Vagueness
Liquidated Damages
Merger Clause
Payment schedule
Signature
Specific description
Undue influence
Verbal agreements

Format:
Things to Watch Out For
Things to Be Sure Are Included

Drafting Page 19
 Nonperformance
Saturday, April 17, 2010
6:12 PM

I. I ntroduction
A. G eneral Rules
1. Breach: any non-performance of a contractual duty at a time when performance of that duty is due
2. Performance is not due if for any reason non-performance is justified.

B. Q uestions Asked Here:

1. When is one party's performance due, so that failure to perform will be a breach?
2. When is non-performance justified?

I I. E xpress Conditions
A. I ntroduction
1. EX: Real estate buyer's performance may be conditioned on getting a variance
2. The party whose performance is so conditioned will be referred to as "obligor"

B. Conditions Generally:
1. A condition precedent is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before
performance under a contract becomes due. Restatement 224
i. Most conditions are pursuant to existing contracts and only for specific obligations
ii. Some conditions must be met for a contract to even arise
iii. Can be express or implied

2. Express vs. Constructive

i. Interpretation Preference
a. If ambiguous, conditions will be preferably construed as constructive , especially if finding of express
condition would increase risk of forfeiture
b. Preference won't be determined if not ambiguous
ii. Check out Restatement 227

iii. Factors to Find Express Condition:

a. If the obligations are linked together by reference or proximity
b. If the language of strict adherence and necessity is strong
c. If there is a time requirement, this is an express condition

iv. Constructive Conditions

a. Imposed by the court

3. Pay When Paid

i. Some contracts between sub and general contractors say that sub will be paid when general is paid
ii. These are not viewed as conditions of performance (that general pay up), but rather calling for payment within a
reasonable time, and not conditioning right to payment on general getting paid

4. Effect of Non-Occurrence
i. Until the conditioning event does occur, the duty does not arise unless condition is excused
ii. When it cannot occur (or for some reason clearly will not), the defendant is discharged from duty
iii. Non-occurrence of a condition is not a breach unless party is under a duty that the condition occur

5. Boltz on Conditions:
i. EX: A promises to shovel snow. B promises to tender $20.00.
a. Condition precedent is snow and performance
ii. EX: Promise to cut grass unless it rains
a. Condition subsequent

iii. Generally:
a. If event not certain to occur and must occur before performance becomes due, then condition precedent

iv. Two functions:

a. Order of performance
¸ i.e. does A have to shovel snow first?
b. The extent to which the performance has to be given before obligation is discharged
¸ i.e. does snow have to be completely shoveled?

v. Independent vs. Dependent

a. Dependent is the default and presupposes a set of conditions
b. In EX, B's obligation is conditional on A's performance.

Nonperformance Page 20
 vi. Exam Tips:
a. She likes identifying conditions as events not certain to occur
b. Express conditions require " full literal performance "

C . E xcusing Conditions
1. Excuse Generally:
i. Excuse is every bit as functional as literal satisfaction as a means of removing a condition precedent or
concurrent for disabling the operation of a condition subsequent.

2. Waiver:
i. What: an intentional relinquishment of a known right
ii. Conditions can be waived by word or conduct
iii. Waiver does not need new consideration or reliance if not material condition
iv. If condition is material, waiver requires obligor's intention to waive condition and obligee's reliance on it
v. Who ever has the underlying obligation on the contract can waive

3. Impracticability

4. Forfeiture:
i. What's happening? --> Asking the court to discharge the conditions
ii. To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse
the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.
iii. Boltz: forfeiture will not discharge condition if it is express and material. It may if it is express but not material.
a. Restatement 229

iv. Meaning of Forfeiture:

a. Forfeiture: denial of compensation that results when the obligee loses its right to the agreed exchange after
it has relied substantially as by preparation or performance on the expectation of that exchange.
b. Sometimes involves unjust enrichment to the obligor
c. Maybe forfeiting good will of location (in renewal)?

v. Options to Renew
a. Leases: normally have equitable relief given JNA rules
b. Purchase Real Estate: Normally no equitable relief given.

5. Prevention of Condition
i. A condition is excused if the promisor wrongfully hinders or prevents the condition from occurring.
ii. Restatement 245

D. C ases:
1. Case: Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co. (1995)

2. Case: J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc. (1977) Equitable Relief For Failing to Give Notice of Renewal

I I I. Material B reach
A. Q uestion P resented:
1. When does one party's failure to perform justify the other party in refusing to render a performance of his own?

B. Jacob & Youngs, Inc. v. Kent (1921) Partial Pipes Breach

C . Substantial Performance
1. Generally
i. Substantial performance may not serve as fulfillment of express conditions
ii. Substantial performance may serve as a fulfillment of a constructive condition

2. When is Performance Substantial?

i. If it gives someone essentially what they contracted for
ii. Factors:
a. Whether impairs building or structure as a whole
b. Whether used afterwards for intended purpose
c. Whether defects can be remedies without great cost

iii. Normally determined by magnitude of defects in performance, but time might render performance insubstantial.

3. Measure of Damages
i. Sometimes cost of repair, sometimes difference in market value caused by defect

4. Effect of Willful Breach

i. Some say that willful transgressor will not be entitled to recover under substantial performance doctrine
ii. Some say willfulness is vague and should not necessarily entitle nonbreaching party to recovery

Nonperformance Page 21
 ii. Some say willfulness is vague and should not necessarily entitle nonbreaching party to recovery
a. Motive is a factor though

D. T ime for Performance

1. Restatement 234: Order of Performances
i. Where all or part of the performances to be exchanged can be rendered simultaneously, they are to that extent
due simultaneously, unless the agreement states otherwise
ii. Where the performance of only one party requires a period of time, his performance is due at an earlier time than
that of the other party, unless the language or circumstances indicate the contrary.
2. EX:
i. Contracts for sale or land or goods can be rendered simultaneously
ii. Construction and employment contracts usually require performance before payment

E . B reach for Nonperformance

1. Case: Sackett v. Spindler (1967)

2. Total and Partial Breach

i. Total:
a. Total breach does not mean that a party has breached all of her obligations
b. A breach is total if the breach is sufficiently material to justify the nonbreaching party from her obligations
to perform.

ii. Total vs. Partial

a. Significant because (a) it determines the effect of the breach on the performance obligations of the
nonbreaching party and (b) affects the measurement of the parties damages

b. Total
¸ Total "discharges" the nonbreaching party from his duties under the contract and he is justified in
refusing to perform him obligations and may even enter into alternative contracts
¸ If total breach then nonbreaching party gets not only actual damages but also future damages that will
reasonably flow from the breach

c. Partial
¸ Partial breach does not relieve nonbreaching party from his duties
¸ Partial breach produces a right to damages only for the actual harm that has resulted to date, not for
future harm.

iii. Substantial Performance and Breach

a. If substantial performance, then only a partial breach
b. Can only pursue actual damages, nonbreaching party's duties are not discharged
c. Comment:
¸ Thus Kent had to pay up for the pipes
¸ Could have sought actual damages, but there were none because the pipes didn't affect anything

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