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Contracts II
Faulkner Law - Thomas Goode Jones School of Law
See, Brenda

Prof. Brenda See
Spring 2009
(1) Misrepresentation/Fraud
(1) intentional, negligent, or innocent (2) misrepresentation of a (3) material (4) fact upon an (5) innocent party (6) justifiably or reasonable relies (7) to their detriment
o   material fact – induces the bases on why a person would get into a K
o   intentional – knows that it is false
o   misrepresentation – an assertion that is not true
o   fact – real occurrence
an intentional misrepresentation doesn’t have to be a material fact
negligent or innocent misrepresentation needs to be of a material fact
o   material – if, under the circumstances, a reasonable person would regard the fact as important in making the K
o   intentional – knew the representation was untrue (fraud)
o   negligent – unreasonably believed the representation to be true
o   innocent – believed the representation to be true but it was false
a prediction or opinion  is not a misrepresentation – it must be fact
o   can the stmt be reasonably understood by the reader as implying the existence of facts that justify the statement – if so, it may be fact
Ways of Misrepresentation
o   affirmative lies – facts not in accord with the truth
o   silence – concealment
o   non-disclosure where there is a duty to disclose
Doctrine of Hindrance – if you hinder the other person from doing something then you cannot sue them for it
General Rule – there is no duty to disclose in an arm’s length transaction
o   Exceptions when there is a duty to disclose a fact
§ latent defects that cannot be discovered by ordinary inspection
§ if you have said anything, you must tell all you know
w no half-truths that would be misleading
§ fiduciary relationship
§ expert – someone in a superior position to know
w the facts are exclusively within the knowledge of one party to the transaction and the other party is not in a position to discover the facts
§ where the seller actively conceals a defect or prevents investigation
Fraud in the Inducement – “Voidable”
o   Ex: A entices me to buy the plastic bottle, telling me that Elvis touched it
Fraud in the Factum – “Void”
o   Ex: A gets B to sign her name to a K agreeing to sell B A’s P, but A thinks she is signing a POA
a merger clause or “as is” clause doesn’t work where there is fraud
a party may not K out of fraud
misrepresentation of fraud – everyone is presumed to know the law
misrepresentation of intent
o   promissory fraud – where a party never intended from the beginning to perform
§ must prove (1) at the time of the representation the Δ had the intention not to perform (2) proof that the Δ had the intent to deceive
(2) Duress
Elements – (1) wrongful or improper threat and (2) no reasonable alternative and sometimes (3) bad faith
o   improper threat – Restmt § 176 what is threaten is a crime or tort, threat of criminal prosecution, threat to use civil process in bad faith, threat is breach of duty of good faith and fair dealing
involves “fear” of some kind that takes away the genuine assent
must be some resistance by the victim
threat must have substance
threat of the lawful action cannot be wrongful
Economic Duress – mere inequality of bargaining power is not enough
o   a wrongful threat
o   deprives the other party of his unfettered will
o   threat is oppressive and wrong in a moral or equitable sense
o   pre-existing legal duty – Restmt § 73 – performance of a legal duty owned to a promisor which is neither doubtful nor the subject of honest dispute is not consideration
§ Exceptions to pre-existing duties
w a new or different consideration promised
w modification – if parties agree to modify their K – consideration is found where the obligations of both parties are varied by the modification
w voidable obligation – infant’s ratification of a K upon reaching majority is enforceable without new consideration
o   Unforeseen Circumstances – Restmt § 89 – a promise modifying a duty under a K not fully performed on with side is binding if:
§ (1) the modification is fair and equitable in view of circumstances not anticipated by the parties when the K was made
§ (2) to the extent provided by statute
§ (3) to the extent that justice requires in view of the material change of position in reliance on that promise
§ is not a substitute for consideration unless it rises to a level of impracticability
§ UCC 2-209 – an agreement modifying a K subject to the UCC needs no consideration to be binding where both parties are acting in good faith
 (3) Undue Influence
Elements – (1) unfair persuasion (2) dominated by relationship (3) overcomes their will
o   must show that
§ the person who executed the challenged instrument was subject to undue influence
§ that there was an opportunity to exercise undue influence
§ that there was an intent to exercise undue influence for an improper purpose AND
§ the result was clearly a product of the undue influence
what is the evidence for and against undue influence
o   courts look at confidential or fiduciary relationship, improper dealing, inequality, detriment to subservient party
involves persuasion that is so powerful it overcomes the will of the subservient party (fear is usually not a part of the scenario)
 (4) Unconscionablility
“shocks the conscience”
generally recognized to include absence of meaningful choice on the part of one of the parties together with K terms which are unreasonably favorable to the other party
o   unfair surprise
o   oppression
UCC § 2-302 and Restmt § 208 – Remedies
o   court may find a K or a clause in a K was unconscionable and
§ may refuse to enforce the K
§ cut out the objectionable clause
w severability – if one part of a K is found to be unconstitutional, it can be severed from the rest and the rest will still be valid
§ limit the application of the clause to avoid an unconscionable result
differences in unconscionability and the other defenses
o   most defenses focus on the flaw in formati

e to act in a reasonable manner in relation to the transaction
o   most K will not be avoided b/c of intoxication
o   if intoxicated person is allowed to disaffirm, that person must make full restitution to the other party to the K
General Rules of Contract Interpretation
Restmt § 201, 202, 203, 204
o   Ascertained from the Four Corners of the Document – where the language is clear and explicit and does not lead to an absurd result
o   construed most strictly against the drafter
o   words used are given their ordinary meaning unless the parties use them in a technical sense or special meaning derived from trade usage
o   trade usage – language must be interpreted as what it may fairly be expected to mean to parties involved in the particular commercial transaction in a given locality or in a given vocation or trade
UCC 1-303 – Totem Pole
o   express terms outweigh
o   course of performance which outweighs
o   course of dealing which outweighs
o   trade usage
Plain Meaning Rule – if a writing, or the term in question, appears to be plain and unambiguous on its face, its meaning must be interpreted from the four corners of the document without resort to extrinsic evidence
o   vague – when a word’s applicability in marginal situations in uncertain
o   ambiguous – when the word it capable of more than one connotation
o   words used are given their ordinary meaning unless the parties use them in a technical sense or special meaning derived from trade usage
o   if the lang. is unambiguous, the court interprets it
o   if the lang. is ambiguous, it is for the fact finder to decide and extrinsic evidence can be admitted to show the intent of the parties
o   what if each party says it is unambiguous
1.      look at the language
2.      look at the entirety of the document – is the ambiguity resolved somewhere else in the document
o   Indemnity Agreement – (also called a hold harmless agreement) is a written K b/n 2 or more individuals for the purpose of one party agreeing to defend the other party against future lawsuits or claims . . . usually against 3rd parties
o   Judge Traynor rejects the plain meaning rule
§ the meaning of the writing can only be found by interpretation in the light of all the circumstances that reveal the sense in which the writer used the words
§ looks at the “true” meaning – what was intended
Interpretive Aids