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Contracts II
Elon University School of Law
Levine, David S.

Contract Formation Issues Levine Spring 2012
Preview:  Unjust Enrichment, Moral Obligation – (2)
Unjust Enrichment [K Formation]       Definition – A cause of action (aka “quasi-K” or “K implied in law”) created for the sole purpose of providing remedies for situations where no K exists.  If a K fails, this can save you (but outcome is unpredictable).
      Unjust Enrichment Elements
o   Benefit conferred on recipient
§  Enrichment occurs when something of economic value is received, even if it does not directly enlarge the recipient’s net worth.
o   Unjust to retain benefit without compensation
§  Intent to Charge (Volunteer) – Enrichment is not unjust if the benefit was conferred with gratuitous intent (determined by manifestation/conduct of conferrer).  One factor is relationship of the benefit to the trade or profession of conferrer.  i.e. Doctor would normally charge for saving someone.  All goes to the “reasonable expectation of payment”.
§  Imposition (Officious Intermeddler) – Intends to be paid for the benefit, but cannot be paid because the benefit was conferred upon the recipient without their choosing.  Concern is whether recipient assented or not.
·         Clearest Case – Benefit not officious if requested by recipient.
·         Emergency – Good reason to confer unasked benefit.  Must satisfy: (1) Immediate action required, (2) Advance assent is impracticable, and (3) Claimant has no reason to believe the recipient would not wish for action to be taken.  Threats to life or health > property when determining emergency, but property can fit the Emergency exception.
·         Return – Restitution may still be appropriate if, being able to reject/return benefit, recipient accepts it instead.  Mowing grass is not returnable.  Yard gnome is returnable.
      UE Remedy – Restitution (focused on recipient’s gain from benefit).  Valued using two methods:
o   Market Value of Benefit – Determined by an expert or facts of the case.  Preferred method.
§  Quantum Meruit – Market value of services conferred
§  Quantum Valebant – Market value of goods conferred
o   Recipient’s Net Gain – Actual amount by which the recipient’s wealth is increased. 
§  Objective Valuation – Based on the worth of the benefit in market terms (not the same as Quantum Meruit because it is the ultimate gain that is measured by the market standard).
§  Subjective Valuation – Measured with reference to the actual recipient, taking into account the recipient’s needs, circumstances, and intentions.
      Doctrine of Unclean Hands – Parties seeking a remedy in equity should come to the courts with clean hands (i.e. no wrongdoing or unethical behavior of their own). 
      Cases for UE
o   Martin v. Little Brown – Law student sends letter to publisher alleging her found plagiarism/copyright infringement, offers to send evidence to publisher (who invites the evidence).  Martin demands part of the publisher’s recovered amount from lawsuit.  Court holds he was a volunteer and thus cannot claim UE because there were no negotiations about payment.  Martin’s actions treated as a gift.  The way to escape volunteerism is to explicitly state payment is expected.
o   Feingold v. Pucello – Upholds Unclean Hands as a limit on UE.  Unclean Hands:  1) Feingold failed to provide written disclosure of fee arrangement before services provided or at a reasonable time thereafter.  2) Contingency fee was ridiculous (50/50).  Unjust Enrichment:  Benefit not conferred upon Pucello because Pucello declined all of Feingold’s work.  Feingold argued that his work facilitated the settlement.  However, he was better off suing the other attorney because the attorney benefitted from the work he did.
o   Estates of Cleveland v. Gorden – Family matters are often viewed as gratuitous intent unless there is evidence to indicate that a party intended to be paid back.  Cleveland was an old lady who became ill.  Her niece (Gordon) took care of her and put her up in a nursing home on her own expense, with expectation of being reimbursed.  An implied contract would require that Gorden make known to Cleveland that she expected repayment.  Court held for Gorden because Cleveland had reason to know Gorden expected repayment.
Moral Obligation [K Formation]       Definition – A cause of action that allows courts to side-step past-consideration issues between two parties. 
      Usage Scenarios:
o   S/L Debt – Creditor does not sue to recover money and S/L passes, meaning Debtor is off the hook.  Debtor later writes, promising to pay the debt back after the S/L has passed.  Normally this is no good because Creditor gave no new consideration for the promise.  MO disperses this issue because a prior unenforceable obligation supports the Debtor’s promise.
o   Voidable Debt – Debt that can be avoided by the Debtor because of some defect in formation or contractual capacity such as fraud, mistake, or minority.  Under MO, if Debtor with right of avoidance ratifies the K by a second promise after becoming aware of the defect, the promise is binding.
o   Webb Case – See Below.
      Moral Obligation Elements (R. 86)
o   Promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.  
§  Promise is not binding if: 
·         a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
·         b) to the extent that its value is disproportionate to the benefit.
      Case for Moral Obligation
o   Webb v. McGowin – Moral obligation may be used to side-step consideration / UE issues.  Webb was a lumber worker, diverted a falling block of lumber to save McGowin and suffered serious injury.  Court upholds the payments after McGowin’s death based on moral obligation doctrine.  Defended Webb’s actions as not being past-consideration by stating Webb conferred a material benefit upon McGowin and the strength of McGowin’s moral obligation flat-out beat the past-consideration barrier.  Court could not reach this result under UE because of valuation.  There is no viable way to determine the fair market value of the service of falling with heavy objects.  The second problem is this would grossly over-compensate Webb and create a burden on McGowin because McGowin would give everything to keep his life.
Defenses Based on Improper Bargaining
Preview:  Misrep, Fraud, Duress, Unconscionability, Illegality, Public Policy, Incapacity – (7)
Exam Strategy

ssary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.
·         b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the K and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
·         c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
·         d) where the other person is entitled to know the fact because of a relation of trust and confidence between them.
      Cases for Misrepresentation/Fraud
o   Sarvis v. Vermont State Colleges – Sarvis omitted his time incarcerated on an employment application as a professor.  Vermont State Colleges terminates his K when they find out his felony convictions and Sarvis sues for wrongful termination.  Vermont State Colleges can seek two counter remedies:  1) Rescind the K or 2) Keep K and sue for recovery of damages relating to fraud.  Court holds for Vermont because Sarvis acted fraudulently enough on his application and Vermont owes no damages to him because of that.  Fraudulent acts by Sarvis include:  Claiming to work at a corporation when he was incarcerated, misrepresented his work for the prison, overselling his experience with ethics, not allowing Vermont to contact his previous employer (prison or corporation) which would show his prison time.  Fraudulent and material lead to a defense in K or tort cause of action.  Fraudulent but not material statement leads to defense in K only – no tort defenses.
o   Stambovsky v. Ackley – Stambovsky bought a house that was haunted, which was not disclosed by Ackley.  Court held for Stambovsky.  The core issue is who bears the cost of investigation as to the status of the house; either buyer beware or full disclosure.
o   Pizza Hut v. Papa John’s – Choice of litigating a case should be made with frames of reference such as long term business ramifications, as opposed to simply a legal frame.  Pizza Hut sued Papa John’s over their “Better Ingredients, Better Pizza”, and Papa John’s won out in court because their phrase was puffery.  Court held that the statement is opinion and epitomized the exaggerated advertising, blustering, and boasting by a manufacturer upon which no consumer would reasonably rely.  However, Papa John’s won the K issue (trademark case), but competitors used the judicial opinion and puffery holding against Papa John’s.