Select Page

Contracts II
Faulkner Law - Thomas Goode Jones School of Law
Hammond, Jeffrey B.

Contracts II Outline
 
POLICING THE BARGAIN
Duress
·         Modification = consideration issue
·         § 175 Duress makes a contract voidable
o   If the assent is induced by an improper threat that leaves victim no reasonable alternative
·         § 176 What’s Improper
o   Improper if
§ Crime or tort threatened
§ Threatened criminal prosecution
§ Use of the civil process and made in bad faith or
§ Breach of duty for good faith or fair dealing
o   Resulting exchange not on fair terms
§ Harm recipient
§ Increase due to prior dealing
§ Use of power for illegitimate ends
Defined and Elements
o    The compulsion of a manifestation of assent by force or threat
o    Has long been recognized as a basis for avoiding a contract
o    Older common law favored a rigorous objective test in which the harm threatened could not simply be economic, not even a mere beating, but death or maiming
o    Now, duress may consist also of economic harm or loss – sometimes called “economic duress” (could even consist of a threat of harm to a significant interest that cannot be measured in economic terms
o    “paradigm case” (Hammond) is holding a gun to someone’s head
§ Germantown Manufacturing co. v. Rawlison
·         Wife signed a judgment note, thought she was keeping her husband out of jail, but did not know the actual amount, was in a depressed state crying during the meeting, there was no reasonable alternative sign and couldn’t go to court, the court says the is the “epitome” of duress
§ Ordorizzi v. Bloomfield School District
·         Homosexual teacher forced to resign
·         For a defense of duress is it not enough that one of the parties made the agreement under pressure, whether the pressing need to make the K came from the party’s desire for the exhange, from market forces, or under other circumstances
§ Quigley v. KPMG Pear Marwick LLP
·         P fired after 18 years of employment
·         Economic Duress occurs when one of the parties commits a wrongful or unlawful act or threat that deprives the other of his unfettered will. The wrongfulness of the pressure is decisive. To be wrongful, the threat need not be criminal or tortious, it could be legal but still oppressive and wrongful in a moreal or equitable sense
§ US ex. Rel. Trane Co. v. Bond
·         The primary significance of finding a K void rather than voidable is its impact on the rights of one who was not a participant in the wrongful conduct – §174 treats the K as void only where the victim’s manifestation of assent is “physically compelled”
·         Bad Faith in relation to contract modification
o    The first is the principle that a contract, whether it is the initial agreement between the parties or a later agreement to amend the initial agreement, needs consideration to be valid
o    The second is that an agreement, including one to amend an existing contract, can be avoided if it is induced by duress.
o    If the new promise contains any elements that go beyond the preexisting duty, consideration is present
o    Where the parties agree to modify the terms of an existing contract in a way that affects the obligations of only one of them, a consideration problem may arise
o    Parties who seek to modify a contract should ensure that the performance obligations of each party are changed sufficiently to establish a bargained-for exchange at the time of modification
o    In Alaska Packers’ Asso v. Domenico, although the court relied on the preexisting duty rule to deny effect to the modification, the opinion made it clear that the court’s real concern was that the fishermen coerced the modification from the cannery, which had no realistic choice but to accept their terms
§ Austin Instrument, Inc v. Loral Corp
·         Loral got a gov’t K, contracted with Austin for some goods it needed for the gov’t K. Austin threatened to breach unless Loral agreed to some new Ks and a raise in the price of the existing K. To find ECONOMIC DURESS in a business K:
o    There is a wrongful threat to breach
o    It overcomes free will
o    There are no alternative sources of goods
o    Ordinary remedies doesn’t cover the loss
·         Supervening Difficulties
o    New England Rock Service v. Empire Paving, Inc.
§ Sewer project – court found it was industry custom for the GC to control the water on the site
§ Under the PREEXISTING DUTY RULE a party’s promise to do what it is already bound to do under the existing K is not sufficient consideration to support modification to the K under which the other party promises additional payment or performance
§ Exceptions: After the K is made, it must become apparent that the performance of the K is subject to substantial and burdensome difficulties not anticipated, and not within the contemplation of the parties at the time when the K was made. The difficulties need not be so severe that they would give the party benefitting from the modification grounds to be excused entirely from performance, but they must not simply be attributable to his error and judgment in setting the price for the performance
o    The line between economic duress and supervening difficulties is very thin!
o    UCC 2-209 Modification; rescission and wavier
§ An agreement modifying Ks within this article needs no consideration to be binding
§ An agreement in a signed record which excludes modification or recission except by a signed record may not otherwise be 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
 
Undue Influence
·        The doctrines of undue influence or unconscionability may be available to a party who cannot pinpoint a false representation or an improper threat as the inducing cause of the contract but who can show that the contract was nevertheless executed under circumstances that would make its enforcement unjust
·        Undue influence is the narrower of the two
·        TWO ELEMENTS OF UNDUE INFLUENCE:
o    Has a relationship of trust with other that gave the party dominance or justified his belief in the other
o    Dominant party improperly abused his position of trust
·        Typically only applicable when the victim is particularly vulnerable to the persuasion of the other party because of some kind of relationship of submissiveness, dependence, or trust
·        The wrong that the doctrine seeks to redress is essentially the abuse of power
·        Unconscionability is a more general doctrine aimed at giving the court the power to provide a remedy in a variety of situations involving unfair bargaining that leads to unfair terms
o    Rudolf Nureyev Dance Foundation v. Noureeva Francois
§ The confidential relationship is just a factor to be taken into account
§ There must also be substantial additional evidence showing improper dealing, inequality, and detriment to the dependant party
o    Tinney v. Tinney
§ Adopted man made moves on widow who adopted him and she gave him a part in their large estate
§ Under influence was found given the surrounding circumstance of the man and the age of the older woman
 
 
Unconscionability
·         Determined by the court – who is careful in using this doctrine (at least for goods Ks)
o   The word suggests that the transaction is SO unfair that it would offend the conscience of the court to enforce it
o   Remedies:
§ Court may refuse to enforce the K (avoidance)
§ Or may enforce the remainder of the contract
§ Or it may rewrite the K
o   UCC 2-302
§ Court may refuse to enforce the K or enforce without the unconscionable term, or may limit the term to avoid unconscionable results
§ Parties will be afforded a reasonable opportunity to present evidence as to the terms commercial setting purpose and effect to aid the court in making the determination
o   §208 Unconscionable K or term
§ Court may refuse to enforce K, take out term or limit the application of the term
·         Must exhibit both kinds of unconscionability
o   Procedural – looks to the behavior of the bargain, or bargaining unfairness
o   Substantive – looks at the terms of the K whether they are harsh, unfair, or unduly favorable to one of the parties
o   Germantown MFG Co v. Rawlinson
·         Procedural and Substantive unsconscionability
o   Procedural – “bargaining naughtiness” – relates to the way in which the K was formed
§ is the lack of meaningful choice, considering all the circumstances surrounding the transaction, including the manner in which the K was entered, whether a party had a reasonable opportunity to understand the terms of the K, and whether the important terms were hidden in a maze of fine print
o   Substantive – relates to the terms of the resulting K
§ Involves those cases where cases where a clause or term in the K is alleged to be one-sided or overly harsh
§ For substantive unconscionability to exist, the term at issue must be overly one-sided and harsh, not merely one-sided
o   Many courts require that both the procedural and substantive elements are satisfied to at least some degree
§ NEC Technologies Inc. v. Nelson
·         Involved the sale of a t.v. that caught fire after installed and caused property damage
·         There was not procedural uncon. because the exclusionary language was clear and conspicuous
·         There was no substantive uncon. because it was not against public policy, unduly harsh, unexpected, or unreasonable

not necessarily void
o    The K must be disaffirmed by the minor either before or in reasonable time after attaining majority or its automatically affirmed (§ 14)
§ Exception: the minor is liable for the reasonable value of necessities (whatever good or services are needed for his livelihood) (§ 12)
o    Minor ability to escape liability is weakened if they misrepresented their age during the formation
o    Douglass v. Pflueger Hawaii, Inc
§ Minor was hired at 17 and was injured on the job – signed an arbitration agreement upon being hired. Court held it was proper to no allow disaffirmance of the K, he was almost 18, he can’t use the K on one end and not use it in another; however, because the K could be changed at the will of the company it provided an illusory promise so the court did not compel arbitration
o    Zivich v. Mentor Soccer Club, Inc.
§ Parents have the authority to bind their minor children to exculpatory agreements in favor of volunteers and sponsors of nonprofit sport activities where the cause of action sounds in negligence
·         Necessaries
o    Goods or services essential for the minor’s health and sustenance of reasonably necessary for the preservation or enjoyment of life, such as good, medical needs, clothes or shelter
o    A minor becomes emancipated when his parents duty of support is terminated
 
 
 
 
Contract Interpretation & Construction (“Hardest”.. probably on final 1/11)
§ 202 – Rules in Aid of Interpretation
            Rules in aid of interpretation
                                a) Interpreted in light of all circumstances
                                b) Interpreted as a whole
                                c) Unless a different interpretation is manifested
                                                i) Language has a prevailing meaning
                                                ii) Technical terms and words of art are given their technical meaning
                                d) Course of performance
                                e) Manifestations of intention is consistent with one another
 
§ 203 – Standards of Preference in Interpretation
            Express terms then usage of trade, course of dealing
                Specific terms more weight then general language
 
UCC 1-303 Course of Performance, Course of Dealing, and Usage of Trade
            Performance is how the parties have conducted themselves in the current agreement
                Dealing looks to their performance in previous dealings
                Trade look to the regular things done in the trade at hand
 
UCC 2-202(2)
                Terms in a record may be explained by evidence of course of performance, course of dealing, or usage of trade without a preliminary determination by the court that the language used is ambigous
 
Ø Contracts constued as a whole. Plain-meaning Rule
o    If it is plain on its face the writing meaning is determined by the four corners of the instrument without resorting to extrinsic evidence – UCC rejects the plain-meaning approach
Ø If the terms are ambiguous
o    Extrinsic evidence is allowed to determine the meaning
·         Frigailment Importing Co v. BNS International Sales Corp
·         Plain Meaning
o    First determine whether the language of the written agreement is on its face ambiguous
o    The second stage is to interpret the written language
o    Attempts to discern the usual sense of the words used in the writing, as understood by the reasonable person
·         Parol Evidence
o    Might consist of oral or written communications before the written agreement in question, or discussions surrounding the execution of the written agreement itself
·         Guilford Transportation Industries v. Public Utilities Commission