Defenses:
1. Defense of Fraud/Misrepresentation:
a. In determining whether an agreement should not be enforced or should be rescinded because of one party’s misrepresentation, courts generally look to:
i. How important the representation was (material or not)
ii. Whether the other party relied on their misrepresentations
iii. And whether reliance was reasonable.
b. You can file either a tort for deceit or a contract claim for misrepresentation.
i. Misrepresentation defined: “an assertion that is not in accord with the facts” R2K 159
1. Usually spoken or written, but a concealment or nondisclosure can have the effect of a misrepresentation under R2K 160-161
c. Restatement 2d of Contracts § 164 When a misrep is fraudulent or material
i. (1) If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.
ii. (2) If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying….
iii. cmt d: justifiable reliance requirement usually met; exceptions include: see pg. 367
1. 1) assertions of opinion;
2. 2) assertions as to matters of law;
3. 3) assertions of intent;
4. 4) fault;
5. 5) facts…of peripheral importance…or … would not be expected to be taken seriously.
d. Halpert v. Rosenthal
i. Even an innocent misrepresentation of a material fact warrants the granting of a claim for rescission. (house sold full of termites)
e. Laidlaw v. Organ
i. D bought tobacco at depressed prices before the war of 1812 ended, knowing it was ending. The court held that D had no duty to communicate info where the means of intelligence are accessible to both parties.
f. Swinton v. Whitinsville Savings Bank
i. Concealment, in the sense of a failure to reveal, with nothing to show any particular duty to speak does not warrant rescission. (termites, again).
g. Weintraub v. Krobatsch
i. The sellers were under a duty to inform the plaintiffs of the termite condition of which they were fully aware, even if the plaintiff’s didn’t ask, the defendant’s should have a duty to speak whenever justice, fair dealing and equity demand it. (roaches in the dark).
2. Defense of Duress and Undue Influence:
a. Atiyah: the distinction that the law seeks to draw is between legitimate and illegitimate pressure, or threats, and has nothing to do with ‘over-borne wills.’
b. R2K 175: When Duress by Threat Makes a Contract Voidable
i. (1) If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.
ii. (2) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.
c. Reasonable Alternative:
i. A reasonable alternative can include a legal remedy… however the pursuit of a legal remedy may not be reasonable under the circumstances. Not reasonable alternatives might include:
1. Seizure of property
2. Oppressive tactics
3. When the legal remedy will not afford effective relief under the circumstances
d. R2K 176: Improper threats
i. (1) A threat is improper if
1. (a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
2. (b) what is threatened is a criminal prosecution,
3. (c) what is threatened is the use of civil process and the threat is made in bad faith, or
4. (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.
ii. (2) A threat is improper if the resulting exchange is not on fair terms, and
1. (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat,
2. (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or
3. (c) what is threatened is otherwise a use of power for illegitimate ends.
e. Austin Instrument, Inc. v. Loral Corporation
i. Loral was a Navy contractor, and they had contracted with Austin for a first Navy contract. They were then awarded a new Navy contract, and Loral told Austin that they would only get the subcontracts for those items which it was the low bidder. Austin refused to accept an order for less than all 40 of the gear parts and then told Loral the following day that it would cease performance on the first subcontract unless they agreed to pay more—both retroactively for parts already delivered and prospectively on those not yet shipped—and placed with Austin the order for all 40 parts needed under Loral’s second Navy contract.
ii. A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will. Proof required includes showing that “immediate possession of needful goods is threatened.” The threatened party must show that they could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate.
f. R2K 177: Undue Influence
i. (1) Undue influence is unfair persuasion [OBJECTIVE] of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare [SUBJECTIVE].
ii. (2) If a party’s manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.
iii. (3) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.
g. Odorizzi v. Bloomfield School District
i. Teacher forced to resign late at night in his apt.
ii. Duress is often used interchangeably with menace, but in CA, menace is technically a threat of duress or a threat of injury to the person, property, or character of another.
iii. Undue Influence: persuasion which tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment. Undue influence includes “taking an unfair advantage of another’s weakness of mind or…taking a grossly oppressive and unfair advantage of another’s necessities or distress.”
1. In essence it is the use of excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a servient object.
2. Undue influence occurs whenever there results “that kind of influence or supremacy of one mind over another by which that other is prevented from acting according to his own wish or judgment, and whereby the will of the person 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.
iv. Considerations for deter
i. The amount of each periodical installment payment… shall be credited pro rata on all outstanding leases, bill, and accounts due the Company by (purchaser) at the time each such payment is made.
ii. The US Court of Appeals, said that when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent was ever given to all the terms. In such a case the usual rule that the terms of the agreement are not to be questioned should be abandoned and the court should consider whether the terms of the contract are so unfair that enforcement should be withheld.
iii. The test then is not simple, and not mechanically applied. It requires the terms to be considered in light of the commercial background and the commercial needs of the particular trade or case. If the terms are so extreme as to appear unconscionable according to the mores and business practices of the time and place then that could be determinative. Only applies in cases where there was no meaningful choice exercised upon entering the contract.
d. Meaningfulness of choice can be negated by gross inequality of bargaining power
i. So manner in which agreement reached is relevant
ii. “Did each party to the K, considering his obvious education or lack of it, have a reasonable opp to understand the terms of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive sales practices?”
e. Discover Bank v. Superior Court of LA
i. Concerned the validity of a provision in an arbitration agreement between Discover Bank and a cardholder forbidding class-wide arbitration.
ii. In CA, consumer class action waivers in contracts of adhesion are unenforceable.
iii. Such one-sided, exculpatory contracts in a contract of adhesion, at least to the extent they operate to insulate a party from liability that otherwise would be imposed under CA law, are generally unconscionable.
iv. Contract of adhesion: contract which is imposed and drafted by party of superior bargaining power, it relegates the subscribing party only the opportunity to adhere to K or reject it
Interpretation
5. What Did the Parties Agree To?
a. Beyond the Written Word:
i. Threadgill v. Peabody Coal Co.
1. The trial court ruled that the negligence of the driller was immaterial under trade practice, and thus, in effect, place a duty of strict liability upon Peabody.
2. To be binding upon a party, a trade usage must be “sufficiently general so that the parties could be said to have contracted with reference to it.”
3. However, parties cannot contract away their own negligence. The court held that the trade usage applied, but that the driller was still liable for his negligence.
ii. UNIDROIT Principles of International Commercial Contracts: Implied obligations stem from:
1. The nature and purpose of the contract
