CHAPTER 1 - INTRODUCTION

Legal Definition of a Contract - A promise or a set of promises, for the breach of which the law provides a remedy, or the performance

of which the law in some way recognizes as a duty.o Exchange relationship,o Between 2 or more parties,o Containing at least 1 promise,o Some contracts must be in writing (Statute of Frauds), but not all.

Contract – A contract consists of an offer, acceptance and consideration . - The law does not create a contract where the parties did not intend it- A moral obligation or duty alone will not support a contract- In Cohen v. Cowles, the court says that a promise of confidentiality is a moral obligation, not a legal

one, and not an obligation the parties intended to operate as a contract.In Pierce v. Clarion Ledger, the law does not consider every exchange of promises to be legally binding, a promise made out of an moral obligation is not legally binding and a mere moral obligation is not sufficient for an implied contract.

Remedies 1. Specific Performance (SP) – An order of a court to order the defendant to perform what he or she

promised. a. In Kilarjian, v. Vastola, SP is not appropriate remedy where undue hardship and manifest

injustice results.b. SP requires certainty of contract terms c. SP is presumed to be the appropriate remedy for breach of Real Estate contract because land

is uniqued. SP requires that a party seeking SP must stand beyond reproach, or acted with honor and in

good faith.e. SP must operate without injustice or oppression.

2. Expectation Damages – Intended to recompense the injured claimant for losses due to the breach of contract and to give the victim of the breach the “benefit of the bargain.”

a. It is the difference between substitute transaction and contract price and any out of pocket costs,

b. They focus on awarding the plaintiff a sum of money that will compensate him for the loss of the economic benefit that he was have reasonably expected from the transaction.

c. Designed to give the victim of the breach the benefit of his bargain by awarding a sum of money to him that seeks to place him in the financial position that he would have been in had the contract not been breached.

d. Damages are available to compensate plaintiffs for attorneys fees and out of pocket expensese. In Kilarjian, the innocent party should receive the benefit of the bargain, including differences

in interest rates, put of pocket expenses, and attorney’s fees incurred.

3. Other Remediesa. Declaratory judgment b. Injunction (mandatory or prohibitory)c. Punitive damages

CHAPTER 2 – SALE OF GOODS

Uniform Commercial Code (UCC) - A model statute enacted in 49 states- Governs commercial transaction, including the sale of movable goods- The goal is uniformity- Revised in 2003, but has not been adopted by any of the states- Focus on Article 1 and 2 for contracts class- Common law supplements the USS, and applies to transactions in goods where the UCC is silent

UCC – Article 2- Applies to transactions in goods- Transactions are sales that involve the transfer of title at the time of identification to the contract

- Goods are defined as tangible things that are moveable at the time of identification to the contract. o Goods include, manufactured goods, unborn young animals, growing cropso Goods exclude information, such as electronic transfers of information not incorporated into a

tangible product.o Intangible rights are generally not regarded as “goods”

- Pass v. Shelby case discussed hybrid transactions.o Hybrid transactions involve the same of goods and services, and can be decided by one of two

tests: Predominant Purpose Test and the Gravaman Test. Predominant Purpose Test – Where a hybrid transaction involved predominantly

the provision of services, the UCC does not apply. Where a hybrid transaction involved predominantly the provision of goods, the UCC does apply.

Factors can include:o Language of the contracto Nature of the business of the suppliero Reasons the parties entered into the contract – what is the final

product?o Amounts charged for goods vs. services. – Was purchaser charged

for both? What percent of contract price? Gravamen Test – This is the minority view, and looks to the portion of the contract

on which the complaint is based, to determine if it involves goods or services.

The contract is severed into several parts, with the UCC applying to the goods involved in the contract, but not to the non-goods parts of the contract.

UCC applies to contract for installation of pool and sale of diving board under Gravamen Test (Anthony Pools v. Sheehan)

Who is a Merchant?- A merchant is one who:

o Deals in goods of the kind,o Has knowledge or skill related to the goods involved in the transaction,o Has expertise in the business practices involved in the transaction,o Has agent or broker who so holds himself out

- Duty of Good Faith o Pre-revision UCC

Merchants’ Duty of Good Faith Honesty in Fact Observe reasonable commercial standards of fair dealing in the trade =

objective test Non-Merchants’ Duty of Good Faith

Honesty in Facto Post-Revision UCC

No analysis of whether good faith in a merchant is needed

CHAPTER 3 – CONTRACTUAL ASSENT AND THE OBJECTIVE TEST

The Objective Standard for Determining Mutual Assent- Contracts are formed by mutual assent- Legal assent is determined by objective manifestations of mutual assent

o Communications and actions – Not unexpressed intent- Focus is on the Reasonable Perception of intent by a person in the position of the party to whom

manifestation was made.- However, evidence of subjective intent may be admissible if probative (of having the effect of proof,

tending to prove, or actually proving).

Objective Test of Manifested Assent- A contract is an obligation attached by the force of law to certain acts of the parties, usually words,

which normally represent a known intent. - The law is NOT concerned with the undisclosed intent, but with the parties’ COMMUNICATIONS

and OVERT ACTS.- In Kabil v. Mignot, the objective test of manifested assent is:

o Where the dispute concerns an unwritten agreement, the parties’ manifested mutual assent must be constructed from evidence of the negotiations or other past conduct, and from the evidence of communications and overt acts.

o The parties’ manifestations are judged by the standard of the reasonable man Objective manifestations of intent must be interpreted reasonably from the

perspective of a party in the position of the observer The law protects the reasonable expectations of the party to the transaction

o Evidence of subjective intent may be admissible if probative (of having the effect of proof, tending to prove, or actually proving).

Duty to Read- In James v. McDonalds, a party who has an opportunity to read the contract, but does not, is bound by

the contract terms under the objective test.- A contract does not need to be read to be effective.

Defenses and Limits on the Objective Test- Incapacity- Fraud- Duress- Unfair Bargaining

CHAPTER 4 – THE OFFER

Contract Formation – The Offer and Acceptance Model- Offer – Proposal made by the offeror to the offeree

o Offeror may revoke………- Possible responses by the offeree:

o Acceptance Substantive – Assent to the terms Procedural – proper time and manner as specified in the offer

o Counter-Offero Rejection

Nature of an Offer- At common law

o Manifestation of willingness to enter a bargain, made so as to justify another person in understanding that asset is invited and will conclude a bargain

- Under the UCCo The UCC is silent, so common law is used to determine the offer

UCC on Formation - Contract for the sale of goods may be made in any manner sufficient to show agreement including –

o Offer and acceptanceo Conduct by the partieso Electronic interaction

UCC – Definiteness Issues- There may be an agreement even though the moment of making is not yet determined- An agreement does not fail for indefiniteness if there is a reasonably certain basis for giving an

appropriate remedy

Offer vs. Invitation- Where the offeror retains the right to make the final decision, the proposal is merely an invitation to

negotiate or to make an offer.- The proposal is not an offer, it is a solicitation or invitation to make an offer

It is an Offer? - Interpreting Intent of a Communication- Look at the plain meaning of the words- Look at the circumstances in which the communication was made- Determine the weight to be given to the circumstances

Key Rules - Fletcher v. Pote (Subcontractor Case – Concrete)- Customary commercial practices are relevant in interpreting contracts- Plan language of the contract is given greater weight than commercial practice- An offer and acceptance are required to form a contract- An offer is a manifestation of willingness to enter into a bargain, justifying another in understanding

that his assent is invited and will conclude a bargain- A reply to an offer purporting to accept but conditional on the offeror’s assent to different terms is a

counteroffer.

Key Rules – People v. Braithwaite (Street Narcotics Sales)- The offer must be sufficiently definite in its terms to lead an offeree to understand that a bargain is

proposed and how an offeree can conclude the bargain- The evidence must also show intent and ability to deliver

Is an Advertisement an Offer?- Generally, an advertisement is presumed to NOT be an offer, and is treated as an invitation to bargain- However, an advertisement can be an offer if it is sufficiently definite and certain

CHAPTER 5- THE ACCEPTANCE

Acceptance - A manifestation of assent to the terms of the offer- Made by the offeree- Made in the manner invited or required in the offer

Acceptance – Generally- Only intended offerees may accept- Offeree generally must know of the offer to accept it- An offer gives an offeree a continuing power of acceptance by manifestation of mutual assent- An acceptance of an offer after it has terminated is not effective

Acceptance Under the UCC- Unless otherwise indicated, an offer is construed to invite acceptance in any manner reasonable under

the circumstances.

Key Rules – Keller v. Bones- The offeree must communicate the acceptance to the offeror- The offer controls what is required as far as time and mode of acceptance- An offeree has a reasonable time to communicate acceptance

Acceptance – Generally – Part II- An acceptance must generally match both the substantive and procedural terms of the offer- If the offeror does not provide instructions on acceptance, a reasonable time and manner may be used- If the offeror sets forth the procedure, time and manner, the offeree must follow the procedure

Key Rules – Roth v. Mason- An acceptance must be absolute and unqualified, or it is a new offer- Objective test applies for court to determine the reasonable meaning of an offer and an acceptance- Variance of terms is not required for a counteroffer- A term of a contract must be interpreted in light of the contract as a whole

Effective Date of Acceptance- Acceptance takes effect when it is communicated to the offeror- MAILBOX Rule – Where mail is expressly or impliedly authorized as a method of acceptance,

acceptance occurs when a properly addressed acceptance is deposited in the mail- Offeror can specify a different manner of acceptance or require receipt for effective acceptance- Where the offeror does not specify an acceptance method, acceptance takes effect upon proper mailing,

if mail is a reasonable means of responding.

Inadvertent Manifestation of Acceptance – Glover v. Jewish War Veterans

- Majority Rule – A private reward offer cannot be accepted by one who does not know of the offero An offeree cannot assent to an offer unless he knows of it.

- Minority Rule – Would find a contract, especially if the reward were from a government body

Silence of Acceptance- General Rule

o Offeror ordinarily does not have the power to cause the silence of the offeree to operate as acceptance, UNLESS:

Offeree takes the benefit of services knowing expectation of compensation Offeror says silence is an acceptance and offeree intends to accept Where previous dealings make it reasonable to notify offeror if there is no intent to

accept Offeree takes possession of the goods Conduct of the offeree creates an implied-in-fact contract

Termination of the Power of Acceptance- An offeree’s power of acceptance may terminate by:

o Lapse of the offero Rejection of the offero Counteroffero Revocationo Death of mental disability

When Does an Offer Lapse – Rules and Holding- The offeror is the MASTER OF THE OFFER- Where an offer does not state an expiration date for acceptance, it is open for a reasonable period of

time, in the perspective of the offeree, and may be based upon:o Nature of the contracto Nature of the relationshipo Situation of the partieso Usages in particular business

- Holding: What is reasonable must be decided by the jury, not the court

Revocation of an Offer- General Rules

o Unless an offer is an option (supported by consideration), the offeror is free to REVOKE it at any time before it is effectively accepted

o To be effective, a revocation must be communicated to the offeree before he has acceptedo Offeror has the power to revoke even if the offer states it will be kept openo The MAILBOX Rule does not apply to revocation of an offer, only to the acceptanceo Indirect Revocation – offer will terminate if the offeree hears of withdrawal from another

reliable source- Consideration required for an option Means that the offeror receives something to keep the offer open.

Key Rule and Holding – Hendricks v. Behee- Unless the offer is supported by consideration, the offeror may withdraw his offer at any time before

acceptance and communication of that fact to him- Holding: No contract here because Behee withdrew his offer before he learned of Smith’s acceptance

Key Rule and Holding – Dickenson v. Dodds- Where there is no consideration for the promise to keep the offer open, it is a Nudum pactum and not

binding and can be revoked any time before complete acceptance is offered- Holding: Dickenson was aware Dodds had changed his mind and agreed to sell to Allen, so the offer

was indirectly revoked before acceptance and there is no binding contract.

Acceptance by Performance – Unilateral and Bilateral Contracts- Unilateral Contract – Acceptance is completed by performance- Bilateral Contract – Both parties make promises to be performed

Acceptance by Performance – Shipment as Acceptance- UCC – unless otherwise stated or indicated by circumstances,

o An offer invites acceptance by any means reasonableo Offers to buy goods invite acceptance by either promise or shipment of conforming or

nonconforming goodso BUT shipment of nonconforming goods is an acceptance if the seller notifies the buyer that

the shipment is an accommodation to the buyero If beginning performance is a reasonable mode of acceptance, offeror who is not notified of

acceptance may treat offer as having lapsed before acceptance.

Option Contract Created by Part Performance or Tender- Where an offer invites an offeree to accept by rendering performance and does not invite a promissory

acceptance, an option contract is created when the offeree tenders or begins the invited performance- The offerer’s duty of performance under an option contract is conditioned upon completion or tender

of the invited performance in accord with the terms of the offer.

Effect of Performance When Offer Invites Either Performance or Promise- Where offer invites offeree to choose acceptance by promise or performance, tender of beginning of

invited performance is an acceptance by performance, and - Operates as a promise to render complete performance.

Communication of Acceptance by Performance- Where an offer invites an offeree to accept by performance, not notice is necessary to make acceptance

effective UNLESS offer requests notification.- Where offeree accepts by performance and has no reason to know that offeror has no adequate means

of learning of the performance with reasonable promptness, duty of offeror is discharged unless:

o Offeree uses reasonable diligence to notify offeror of acceptanceo Offeror learns of performance in a reasonable timeo Offeror excuses notification of acceptance

Restatement 45 and Restatement 62 – Offer Invites Acceptance by Performance or Promise- Restatement 45 – Performance Only

o Part performance creates an option contracto Offeror’s duty is conditioned on completion of offeree’s performance

- Restatement 62 – Promise or Performanceo Part performance is acceptanceo Acceptance is a promise to complete performance

Option Contract Created by Part Performance or Tender- Where an offer invites an offeree to accept by rendering performance and does not invite a promissory

acceptance, an option contract is created when the offeree tenders or begins the invited performance- The offeror’s duty of performance under an option contract is conditioned upon completion or tender

of the invited performance in accord with the terms of the offer.

Effects of Performance When Offer Invites Either Performance or Promise - Where offer invites offeree to choose acceptance by promise or performance, tender or beginning of

invited performance is an acceptance by performance, and - The acceptance operates as a promise to render complete performance.

Communication of Acceptance by Performance- General Rule when offeree accepts by performance:

o Where an offer invites an offeree to accept by performance,o No notice is necessary to make acceptance effectiveo Unless offer requests notification

CHAPTER 6 – CONTRACT FORMATION – STANDARD TERMS AND ELECTRNIC MEDIA

Box Top Terms – Arizona Cartridge v. Lexmark- The standard terms create a contract because consumers had notice, opportunity to reject and

consideration and the terms were reasonable.

Offer and Acceptance Through Electronic Media and Automated Means (Electronic Agents)- Uniform Electronic Transactions Act

o Machine = electronic agento Contracts can be formed

Between electronic agents Between electronic agents and humans

o Manifestation of intent occurs when machine is programmed

Common Law Rules - Mirror Image Rule

o Acceptance must be a mirror image of the offero Seller’s response with materially different terms is a counteroffer

- Last Shot Ruleo Where performance begins, acceptance of goods is an acceptanceo Contract exists with last communication included in terms

UCC 2-207 – The Big Picture- Under the UCC, when there is an offer with acceptance with additional terms, there is GENERALLY a

contract.

UCC 2-207(1) – Does an Acceptance with Additional Terms Operate as Acceptance?- Acceptance with different or additional terms - Operates as acceptance if:

o Definite expression of acceptance o Seasonable (timely)

- UNLESS acceptance is made expressly upon assent to the additional or different terms.

UCC 2-207(2) – Are Additional Terms Part of the Contract?- Additional terms are construed as proposals for addition to a contract,

o Between MERCHANTS, such terms become part of the contract, unless Offer expressly limits acceptance to terms of the offer Additional terms “materially alter” the contract Notification of objection to the additional terms

UCC 2-207(3) – Acceptance Through Conduct and What are the Terms of the Contract?- Conduct of the parties can be establish a contract,

o Even if the writings do not show a contract- The terms consist of:

o Those on which the writings of the parties agreeo UCC gap fillers

CHAPTER 7 – PRELIMINARY, INCOMPLETE AND INDEFINITE AGREEMENTS

Indefiniteness – The Big Picture- For a contract to be formed, parties must reach mutual assent on essential terms:

o Parties to the contracto Subject mattero Time for performanceo Price

- Performance may supply any missing terms by implication- Gap fillers may supply missing terms- The duty of good faith and fair dealing may imply missing terms

UCC 2-305 – Price Terms- The parties if they so intend can conclude a contract for sale even though the price is not settled. - In such a case, the price is a reasonable price at the time for delivery, if…..

o Nothing is said as to price, oro The price to left to be agreed by the parties and they fail to agree, oro The price is to be fixed in terms of agency and it is not so set or recorded.

- the price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

CHAPTER 8 – STATUTE OF FRAUDS

Statute of Frauds (SOF) – Purpose is to show evidence of oral contract to prevent fraud- Common Law (Restatement, 2nd, Section 131) and UCC versions (UCC 2-201)- Generally, oral contracts are enforceable

Under SOF, certain contracts are required to be in writing, signed by the party to be bound:1. Sales of goods over $500, under Pre-revision UCC

a. $5000 under Post-revision UCC2. Contracts creating an interest in land

a. sale or lease, easements, minerals/structures, mortgages and security interests3. Contracts that cannot be performed within a year

a. If not time is stated and performance may be completed in a year, not within SOF4. Contracts regarding marriage

a. prenuptials5. Suretyship agreements

a. promises to pay debts of another6. Conservatorship agreements

a. assumption of liability for decedent’s debt by executor or administrator of estateb.

Requirements:1. Writing - can be any written record and can be several writings

a. A writing can be an email2. Signed – must be signed by the party sought to be bound

a. It can be signed electronically, initialed, stamped, or printed as a “signature” is used to authenticate the document or writing

3. Content – identifies the subject matter, sufficient to reflect contract was made, states terms with reasonable certainty

Exception to SOF- Part performance indicates that the parties have entered into a contract is an exemption to the SOF,

because the part performance itself is evidence of the contract- Part performance for the sale of land may include partial payment, improvement, or possession

SOF and the Sale of Goods (UCC 2-201)- The SOF applies to the sale of goods over $500 ($5000 for Post-revision UCC) - UCC 2-201(1)

o Requires contract with essential terms o Signed by the party to be bound

- Confirmatory memo rule for merchants - UCC 2-201(2)o Bazak v Tarrant case

Both parties must be merchants One party must send a record confirming the contract to another within a reasonable

time Confirmation must be sufficient against sender showing parties made a contract Recipient must have received and have reason to know its contents Recipient is bound if not objection is received within ten (10) days of receipt

- Exceptions – UCC 20201(3)o Specially manufactured goods and substantial beginning of manufacture/procuremento Contract admitted by pleadings, testimony or in courto Payment for or delivery/acceptance of goods

CHAPTER 9 – CONSIDERATION

A contract is not enforceable unless it is supported by consideration, with few exception

- Consideration requires a bargained for exchange o Bargain – for performance or promiseo Exchange – return performance or promise

o Detriment to the promisee or benefit for the promisor

- Consideration must be “bargained for” o Bargained for – sought by the promisor in exchange for his promise, ando Given by the promise in exchange for that promiseo May be given to the promisor or promise or to some other party

- Detriment o Performance may consist of:

An act other than a promise (doing something), or A forbearance (not doing something that you are legally entitled to do), or Creation, modification or destruction of a legal relation.

- Exchange o Promise to make a gift lacks the bargain element of considerationo Consideration may be a benefit or detriment

Something promised, done, forborne as consideration for the promise made Waiver of a legal right at the request of another in exchange for a promise Abandonment of a legal right or freedom in the present as an inducement for the

promise

- Gift or Consideration o Gratuitous promises are not enforceable due to lack of consideration

Written and conditional gratuitous promises are not enforceableo What is a Gift?

Promisor does not benefit from the condition Reasonable understanding of promisor and promise is that promise is requested as a

condition Condition does not induce the promise Condition is not bargained for Condition not understood as consideration

o What is consideration? Promise is bargained for Promise results in benefit to promisor or detriment to promise Promise is reasonably understood as consideration Consideration induces the promise of the promisor

- Adequacy of Consideration o Generally, a court will not inquire as to the adequacy of the consideration once it is found to

exist.o It is not the duty of the court to review the adequacy of considerationo Even a peppercorn can constitute considerationo Exception would be that the consideration is so grossly inadequate that it shocks the

conscience of the court

- Pre-existing Duties o A pre-existing duty owed to the promisor cannot serve as consideration for a contract where

the pre-existing duty is neither doubtful nor in disputeo A similar performance is consideration if it differs from what was requiredo Alaska Packers v Domenico – An agreement to increase wage is invalid for lack of

consideration, because Packers already had a pre-existing duty to the employer to perform the contract

- A settlement of a bonafide dispute involves consideration Surrender of a valid claim = detriment to plaintiff = consideration for D’s promise to pay

- Agreements to Settle Disputed Claims or Defenses Surrender of invalid claim – courts are split

Majority view – settlement of invalid claim = consideration IF (1) plaintiff has bonafide subjective belief that claim was valid AND (2) plaintiff’s belief was reasonable.

Minority view – Restatement view – settlement of invalid claim = consideration IF (1) Plaintiff has subjective belief that claim is valid OR (2) plaintiff’s belief about validity not unreasonable

- Mutuality of Consideration o Each party must furnish consideration to each other for an agreement to be enforceable

“Because you never bound yourself to do anything, I should not be bound either.”o This arises in bilateral contractso Need not be equal or comparable

- Illusory Promises o Appears to promise and provide consideration, but does not in fact obligate

Examples would be: Reservation of the right to change one’s mind, unfettered right to terminate

o But consider possible implied terms, such as implied promise to act reasonably Examples of illusory promise is C and H News Holding, wherein Plaintiff’s promise

to arbitrate was unenforceable, because employer’s obligation to arbitrate was illusory, since the employee handbook said that it was not bound by the terms, where the terms could be changed anytime without notice, and handbook were just guidelines.

- Output and Requirement Contracts o Contracts are enforceable under the UCC as requirements contract obliging parties to act

reasonably and in good faith. o Requirements or outputs contracts are enforceable if:

1) Quantity = output of seller or requirements of buyer, OR 2) Contract for exclusive dealing

CHAPTER 10 – PROMISSORY ESTOPPEL

Promissory Estoppel- Promissory estoppel is a promise which promisor reasonably expects to induce reliance by promise.- Promisee actually induced to rely- Is enforceable if injustice can be avoided only by enforcement

Non-Commercial Promises - Rule- Clear and unambiguous promise- Reasonable/justifiable reliance- Detriment to the promise

Promissory Estoppel and Charitable Subscriptions- A written promise to make a charitable contribution will generally be binding based on promissory

estoppelso Charity need not show reliance (Restatement)o Oral promises are generally not enforceable

- Case Review – Morton Shoe Company – Morton pledged $10K per year to philanthropy and then breached, is the pledge enforceable?

o Pledge is enforceable because the philanthropy gave consideration for the pledge and the philanthropy relied on the promise.

Promissory Estoppel – Commercial Context- Case Review – Bank promises to pay insurance cost if insured does not, and then fails to pay it.

Accident leaves car totaled and uninsured.o Is the promise enforceable? Yes, promise is enforceable because:

1) Promise was supported by consideration (interest), 2) Promise was relied upon by plaintiffs and injustice would result

- Case Review – Garwood v. Allen – Allen has $2 million to help Garwood, a failing company, and says that “we will do this deal come hell or high water.” Second investor, Hobart, also has many conditions.

o Is this promise enforceable? No, promise too vague and reliance not reasonable given the many contingencies that could kill the deal.

Promissory Estoppel and the Statute of Frauds- A promise which the promisor should reasonably expect to induce reliance,- And which does induce reliance,- Is enforceable notwithstanding the SOF,- If justice so requires.

CHAPTER 11 – OPTIONS AND FIRM OFFERS

Option Contract - offeror, in exchange for consideration, promises to limit power to revoke the offer.- Consideration = payment, performance, or promise to pay or perform- Consideration can be nominal or a recital (Restatement, 2nd, Section 87)- Option contract makes the offer “FIRM”- Offeror cannot terminate the power of acceptance

Restatement, 2nd, Section 87 – Option Contracts- An offer is binding if:

o It is in writing and signed,o Recites a purported consideration, and o Proposes an exchange on fair terms in a reasonable time.

- An offer is a binding option if:o It reasonably expected to induce reliance,o It does induce reliance,o As necessary to avoid injustice.

Firm Offers Under the UCC- Offer, by a merchant to buy or sell goods,

o In a signed record,o That gives assurance that it will be held open,o Is not revocable for a lack of consideration,o During the time stated or a reasonable time, but no more than 3 months.

CHAPTER 12 – UNJUST ENRICHMENT

Unjust Enrichment – is an alternative basis for obligation. - Two elements:

o One party enriched by property, services, or other benefit from anothero It would be UNJUST under the circumstances for the party to retain the property or benefit

without payment- The remedy for unjust enrichment is Restitution.- Case review example: Feingold and Pucello

o P is an attorney who begins work for a client involved in an accident without a contract and gets a settlement offer.

o D is the client who rejects the settlement agreement, refuses to pay and gets another attorney. o Can the P recover quantum meruit (what one has earned)?o No recovery here, because there was no tangible benefit to P, and P should have put the

contract in writing.

Volunteers - Volunteers act without intent to be compensated- Volunteers bestow benefits with “gratuitous intent or without expectation of payment- Case review example: Martin v. Little Brown

o P sends a copy of book with plagiarized parts highlighted, and later seeks money from publisher on a claim for unjust enrichment.

o Is there a contract? Can P show unjust enrichment? No contract is implied because P voluntarily gave his work to D No contract is implied in law because P is a volunteer and is not entitled to

compensation

Officious Intermeddlers- Officious intermeddlers provide benefits that cannot be returned- Recipients should not be forced to pay for benefits that they did not ask for.- Case review example: Estate of Cleveland v. Gordon

o Gordon, the niece of Cleveland, pays $100K for care of her aunt, expecting repayment, without express promise from aunt that she would be repaid.

o Is Gordon an officious intermeddler? o The court held that no, she was not an officious intermeddler because she made the payments

with the expectation of repayment, not with the intent to make a gift, and the aunt intended to compensate her, so she should be repaid.

Restitution- Restitution is the remedy for Unjust Enrichment- Restitution can be specific (return of property, or substitutionary (payment of money)

Unjust Enrichment and Past Benefits – The Moral Obligation Doctrine- Moral Obligation Doctrine

o Unjust enrichment can serve as an exception to the past consideration rule.o Example: A promises to pay B on an obligation that is unenforceable due to statute of

limitations There is a moral obligation but not legal obligation because there is only past

consideration which is not adequate.- The Moral Obligation Doctrine creates an exception to the past consideration rule and makes the

obligation enforceable.

Unjust Enrichment and Past Benefits – The Material Benefit Rule- Material Benefit Rule

o Promise made in recognition of a benefit previously received is binding as needed to prevent injustice.

o Such a promise is NOT binding if: Promisee is not unjustly enriched, or Value is disproportionate to other.

- Case Review Example: Webb v. McGowano Webb saves McGowin from death, and McGowin promises to pay $15 a week for life.

McGowin dies, and his estate breaches promise to pay. Is this an enforceable promise?o Yes, Webb conferred a benefit that bound McGowin to compensate him.

CHAPTER 13 – POLICING CONTRACTS: FRAUD AND MISREPRESENTATION

- The Big Pictureo Fraud and misrepresentation can be an affirmative claim OR a defense against enforcement of

a contract.o Fraud can support rescission and restitution or recovery of compensatory damages, and

punitive damages. o Fraud can render a contract voidable.

- Elements of Fraudo Intentional (knowing) or negligent (reckless ) misrepresentation of material fact, oro Concealment in some cases

Fiduciary relationship Failure to correct mistake

o Justifiable reliance on the misrepresentation to his/her detriment

- Affirmative Fraud – Sarvis v. Vermont State Collegeso Resume fraud by Sarvis stating that he was working while actually in jail. D terminates him

and he sues for wrongful termination. o Is Sarvis’ fraud a defense to his claim of wrongful termination?o Yes, because his statement on his resume was false, as he materially misrepresented the facts

regarding his candidacy.

- Fraudulent Non-Disclosure – Kaloti v. Kelloggo Kellogg did not disclose plan for direct sales as wholesaler Kaloti purchases $124K order.o Did Kellogg have a duty to disclose?o Yes, because the plan for direct sales was material to the transaction and kaloti had no

knowledge of it, and entered into the transaction based on a mistake, and would have expected disclosure of the fact, which was not made public.

Comparison Case – House of Drugso Lessor failed to disclose to lessee upon entering lease that two of the largest tenants in mall

were going to close their stores. o Did lessor commit fraud?o No, lessee did not reasonably rely on the non-disclosure because there was information

available and independent investigation regarding the financial situation that should have lead to a further inquiry.

- Non-Disclosure – Stambovsky v. Ackleyo P agrees to purchase a house not knowing that it was haunted, and then sues seeking

rescission when he finds out.o Does seller have a duty to disclose?o Yes, while there is no remedy for silence, where it is unlikely that the buyer would discover

this, equity requires that it be disclosed. Dissent Opinion – Mere silence is not enough, no confidential or fiduciary

relationship, so disclosure is not required (caveat emptor)

- Misrepresentation of fact, Opinion, or Prediction? - Rodi v. Southern NE School of Lawo Law school expressed high confidence in accreditation and says “no cause for pessimism” to

Rodi, who enrolls and hopes that accreditation will allow him to sit for the NJ bar. Eventually, the school is not accredited.

o Did Rodi allege facts sufficient to state a claim for fraud?o Were the statements actionable statements of fact or non-actionable statements of opinion?o Holding: Statements couched as opinions, but which imply facts are misrepresentations.

A “great success” is actionable A “belief” the car is in good condition is actionable

o The disclaimer in school catalog does not preclude reasonable reliance as a matter of law – let the jury decide.

- Misrepresentation of Intento If a party can show that the other party entered into a contract without intent to perform, i.e.,

promise made without intent, then a claim for misrepresentation is available.

- Remedies for Fraud = Victim’s Choiceo Rescission = undoing the contracto Restitution based on unjust enrichment = restoring any benefits for partial performanceo Damages

CHAPTER 13 – POLICING CONTRACTS FOR UNFAIR BARGAINING - DURESS

- The Big Picture – Duresso Contracts induced (modified) by an improper threat that leaves the victim no reasonable

alternative are voidableo Improper threats =

Threat of future crime or tort Threat of criminal prosecution Bad faith use of civil process Threat of wrongful breach of existing contract (breach of duty of good faith)

- Case review example – Germantown v. Rawlinsono Insurance agents get Wife to sign by implicit threat that Husband will go to jail, and by

misrepresenting amount of liability in contract.

o Was the contract induced by fraud?

o By fraud in the factum (Fraud in factum is a type of fraud that occurs when misrepresentation causes one to enter into a transaction without accurately realizing the risks, duties, or obligations incurred)? Also known as fraud in the making.

o Is the contract voidable due to duress?o Possible Resolutions:

Possible affirmative misrepresentation that liability would not exceed $160K Fraud in the factum – misrepresentation regarding the nature of document signed Threat of prosecution = duress = no other reasonable alternative but to sign

- Modification, Consideration Duress and Bad Faitho Contract modification generally requires consideration under common law (unless

modification addresses supervening difficulty) Consideration = elements beyond pre-existing duty New detriments or changes in performance

o Modification voidable if induced by duresso UCC contracts require no consideration for modification (but duty of good faith applies)

- Case review example – Austin Instruments v. Loral – Economic Duresso Loral claims Austin forced it to agree to a price increase under economic duress, after it could

not find any other supplierso Can Loral establish economic duress?o Yes, threat of default on government contract, with inability to find replacements shows

economic duress because Loral has “no choice.”o Dissent: factual disputes show no duress.

- Case review example – New England Rock v. Empire - Modificationo Parties modify price during performance due to supervening difficulties (exception to pre-

existing duty rule) Supervening difficulties is where events following the formation of a contract create

difficulty not anticipated by the parties at the of contracting, a fairly bargained modification of the contract to take account of that unforeseen difficulty is valid.

o Is the modification enforceable? o Yes, the modification lacks consideration, but falls within the exception to the pre-existing

duty rule for supervening difficulties

- Contract Modification Under the UCC – UCC 2-209 – Modification; Rescission and Waivero Consideration not required for modificationo Generally, no oral modification if precluded in a signed record

Except as between merchants, requirements must be signed by the other partyo Duty of good faith applies to modificationo Statute of Frauds may apply.

CHAPTER 13 – POLICING CONTRACTS FOR UNFAIR BARGAINING - UNDUE INFLUENCE

- The Big Picture – Undue Influence o Unfair persuasion of a partyo Under domination of a more powerful partyo Resulting in improper detriment to dependent party or improper dealingo Contract is voidable

- Case Review Example - Nureyev Dance Foundationo Dancer is ill, and leaves property to foundation to be run by his attorney and runs it after his

death.o Is the trust void due to undue influence?o No, because the dancer was strong willed and not duly influenced, and the foundation was

properly run.

- Case Review Example – Tinney v. Tinney

o Plumber moves into mansion and develops relationship with elderly widow, whom he convinces to adopt him, then deed him ¼ interest in the mansion.

o Is the transaction voidable due to undue influence?o Yes, the plumber preyed on the vulnerable widow and her ill son for financial gain.

CHAPTER 13 – POLICING CONTRACTS FOR UNFAIR BARGAINING - UNCONSCIONABILITY

- The Big Picture – Unconscionabilityo Shocks the conscience of the courto Procedural Unconscionability

Unfair bargaining tactics Disparity of power

o Substantive unconscionability Resulting terms unfair, one sided, and unfair

o Courts split on whether both are requiredo Remedies = void contract, or sever or reform unconscionable term

- The Big Picture – Adhesion Contractso Contracts in which party with superior bargaining power can dictate terms on a take it or

leave it basis, violating reasonable expectationso Adhesion contracts may supply procedural element of unconscionability, if complicated,

unclear, hiddeno Adhesion contract may be oppressive and involve substantive unconscionability if one-sided

and favorable to one party

- Case review example – NEC v. Nelsono Nelson’s contract to purchase TV has a damages limitation.o Is damages limitation term unconscionable?

Not procedural unconscionable, because it was clear and conspicuous, and purchaser has business experience

Not substantively unconscionable because not unduly harsh or unreasonable and not against public policy.

- Case review example – Zuver v. Airtoucho Zuver signs employment agreement and arbitration agreement, later files disability claim, and

employer seeks arbitration.o Is the arbitration agreement unconscionable?o Can any unconscionable terms in the arbitration agreement be severed and the rest enforced?o Arbitration agreement is adhesive, but NOT procedurally unconscionableo Provision regarding attorney fees not substantively unconscionable o Provisions regarding confidentiality and limitation of remedies are one-sided and

substantively unconscionable, but can be severed

- Case review example – Southwest v. Koch – Unconscionability in Sophisticated Business Transactions

o SW buys wheat from Koch for dog food. Contract limits remedy and excludes warrant.o Is the contract unconscionable?o Not procedurally because SW is sophisticated and can later termso Not substantively because terms are standard and SW has a duty to read.

CHAPTER 14 – POLICING CONTRACTS ON GROUNDS OTHER THAN UNFAIR BARGAINING - ILLEGALITY

- The Big Picture – Illegalityo A contract s illegal if the subject matter is unlawful

Can be barred by statute or violate public policyo Result: Neither party may enforce such an agreement

- Case review example – Diversified Group v. Sahn – Illegalityo Contract to sell basketball tickets for $140K above face valueo Can P recover the $140K?o Result, contract is illegal as this is ticket scalping so Sahn must return the funds to P.

- Case review example – Danzig v. Danzig – Illegalityo Attorney Steven Danzig hires his non-attorney brother, Jeffrey, to obtain clients, then fails to

pay him. Jeffrey sues.o Can Steven enforce the contract against Jeffrey?o The contract is ILLEGAL as to attorney Steven, but not as to Jeffrey, who may proceed with

his case.

- Contracts in Violation of Public Policy – Stevens v. Rooks, Pitts, and Posto Legal partnership agreement contains financial penalty for attorneys leaving the firmo Is the penalty enforceable?o No, the penalty violates public policy (of not allowing the public to select the attorney of their

choice and the attorney’s ability to earn a living) and is not enforceable, so the firm must pay Stevens the compensation that was withheld. The clause is severed from the agreement.

- Non-Competition Clauses o Rule of Reason – Non-competition clause is upheld to extent reasonable as to duration,

geographic area, and scope and extent of activity.

CHAPTER 14 – POLICING CONTRACTS ON GROUNDS OTHER THAN UNFAIR BARGAINING - INCAPACITY

- The Big Picture – Incapacity – Contracts with Minorso To protect minors, contracts entered with minors are VOIDABLE at the minor’s optiono The law presumes that minors lack the capacityo Minors may disaffirm such contracts before the age of majority, and for a reasonable time

after the age of majorityo Minors may ratify contracts upon reaching the age of majority, either expressly or impliedly

- Incapacity – Douglas v. Pflueger Hawaiio Injured minor employed by D pursuant to employee handbook with arbitration clauseo Does the arbitration clause bind the minor, or can the minor sue for negligence?o Held, arbitration clause is not invalid due to his minority, but fails for other reasons, including

unconsionability and lack of consideration and illusory contract.

- Necessaries – Webster v. Sheridano Court held that minors entering into apartment lease did not contract for necessaries, so

contract is voidableo Courts are split and may allow majors to recovery from minors in a quasi contract/unjust

enrichment for reasonable value of services.

- Remedies Following Disaffirmanceo Restitution based on unjust enrichment and rescission generally availableo Minors must restore whatever contractual benefits retained o Some courts hold minor need not pay for services following disaffirmance

- Parental Approval of Contract – Zivich v. Mentor Soccer Clubo Minor’s parent signs a release form for soccer clubo Is the release voidable due to the incapacity of minor?o NO, the release is enforceable based on public policy, as the parent has authority to make a

decision binding the child to the release.

- The Big Picture - Mental Incapacityo A person lacks mental capacity if he/she is….

Unable to understand nature and consequences of the transaction, OR

Unable to act rationally in regards to the transaction AND Other party has reason to know of his condition

- Case review example – Mental Incapacity – Farnum v. Silvanoo D enters into a contract to purchase real estate at ½ price from the P, an elderly woman with

dementia and brain disease who has exhibited forgetfulness and misunderstanding of the transaction.

o Is the contract enforceable given moments of lucidity and presence of a lawyer?o NO, the lawyer was hired by D and did not represent her interests, and though P was aware of

the transaction, she did not act rationally and D knew of her condition.