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Advanced Contracts
Rutgers University, Newark School of Law
Mazo, Eugene D.

Advanced Contracts Mazo Spring 2018

Contracts Review:

Has a deal been made?

Is there a contract?

Offer
Acceptance
Consideration

The meeting of the minds
What law applies to the contract

UCC (uniform commercial code)

Adopted by every state except Louisiana
Section 2 covers only goods (moveable personal property)

Goods are sold by merchants
Special laws govern merchants

Section 2A covers services

Common Law

Judge made law/cases
Covers all other contracts

What are the terms of the deal?
Is the deal enforceable?

Statute of Frauds

A sale of goods which is over $500 must be in writing
Anything that takes over a year to complete must be in writing

Parol Evidence Rule

When there’s a writing, the writing dictates the terms
Anything outside either written or spoken is parol evidence and doesn’t count
Merger clause specifically states only the four corners governs the terms

Are there defenses to the enforcement of the deal?
When can enforcement of the deal be excused?
How does the law enforce the deal?
Who else is affected by the deal?

I. Defenses to the Enforcement of the Contract

Fraud/Misrepresentation

Duress

Unconscionability

Who decides unconscionability? The court as a matter of law.
When is it tested? – at the time of the making of the contract.
What are the remedies for unconscionability

Avoidance – refuse to enforce the contract
Severance – strike the portion that is unconscionable and enforce the rest
Amendment – limit the application of the unconscionable term to avoid the unconscionable result (rewrite the contract to put in better terms)

What are the elements of unconscionability

Unfair surprise – the terms aren’t reasonably expected, not reasonably understood, are unusual, or are a material burden
No meaningful choice – no power for a party to resist
Procedural unconscionability – unfair bargaining tactics
Substantive unconscionability – terms themselves – because of the bad behavior, one party was able to impose overly harsh terms on another
Some courts require one, some courts require both
Adhesion contracts – forced into the terms

Form contract
Offered on a take it or leave it basis
There was no true equality in bargaining power

Statute of frauds – PRODUCTS more than $500 (under UCC) or under common law, services that take more than a year to complete

Illegality

Against Public Policy

Incapacity

Minor
Mental Incapacity

Defenses Based on Improper Bargaining

A. Misrepresentation and Fraud – Readings: BB, 421-439

If a contract is void, then it is a legal nullity. Neither party can enforce it. If a contract is voidable, then the aggrieved party has the right to determine if the contract will remain in effect. If the party chooses to avoid the contract, then the other party cannot enforce it. Both parties are entitled to any benefits conferred on the other up to that point on the basis of unjust enrichment. The aggrieved party may sue affirmatively to avoid the contract or may use it as a defense if sued.

Misrepresentation – an assertion not in accordance with the facts (as per restatement second §159).

The second restatement also says that if one party relies on a misrepresentation made by a non-party, then the court must balance the protection of the victim versus the good faith and reasonable reliance of the other party to the contract. The victim may only avoid the contract if the other party was complicit in the misrepresentation.

Misrepresentations which are made knowingly to induce the other party into a contract are also torts and tort law mixes with contract law in this regard. A misrepresentation is fraudulent if it is made knowingly and with an intent to mislead the other party. The two elements of knowledge and intent to mislead are often known as scienter. Reckless indifference to the truth can also sometimes fall within this category.

Fraudulent misrepresentations can be assertive statements, concealment of facts, or failure to disclose a fact. A fraudulent misrepresentation – deliberately and dishonestly inducing the contract by a lie (whether by words, concealment, or nondisclosure) is the most egregious form of misrepresentation and the one most likely to grant relief. Negligent or innocent misrepresentation made with lack of care can also sometimes lead to remedies, but the focus is on fraud.

Two remedies for fraudulent misrepresentation – One remedy (derived from contract law) allows the victim to rescind the contract and to obtain restitution for any performance that has been rendered. The other remedy (derived from tort law) permits the victim to keep the contract in force and to sue for any loss in value of the performance as a result of the fraud.

Legal Remedies – Money for damages.

Equitable Remedies – Rescission – cancelling contract.

Restitution – defendant paying back to plaintiff ill-gotten gains.

The four elements which must be satisfied to make a contract avoidable due to fraudulent misrepresentation are: 1.) a misrepresentation is made; 2.) the misrepresentation is fraudulent (as defined in §162); 3.) the other party is justified in relying on the misrepresentation; and 4.) the misrepresentation induces the other party to enter into the contract.

Note that the restatement does not require proof that the misrepresentation was material – only that the victim was justified in relying on it. If the misrepresentation was innocent or negligent, then materiality must be shown. Most courts didn’t adopt this, however, and require a showing of m

cking in with his former employers.

Sarvis claims that he had no duty to disclose his criminal past, but he didn’t remain silent. Instead, he partially disclosed his past and let CCV believe that he had given them the full truth so that they wouldn’t check into his past and find out the truth. The court need not determine if a prior criminal history is just cause for termination because Sarvis’ dishonesty during the hiring phase is just cause. The judgment below is affirmed.

Psenicska v. Twentieth Century Fox Film Corp. (Page 429)

Facts: The plaintiffs were all approached by a field coordinator for the movie Borat (Schulman) who gave them false reasons for why they were being filmed, arrived late, and then rushed the plaintiffs into signing a release without fully reading it. The plaintiffs were then all used in the movie Borat and they sued stating that they were fooled into signing the releases. The releases had merger clauses which stated that all the terms were in the writing and no other outside terms are included and also effectively gave up all rights and claims against the film.

Issue: Were the plaintiffs induced into signing the releases under fraudulent misrepresentations?

Holding: The plaintiffs claim that the term “documentary style film” in the waiver is inaccurate and vague and that this allows them to avoid the contract. However, although the film is not a documentary, it is a film that is documentary-style even though it’s not actually true. The plaintiffs also claim that they were victims of fraud in the inducement in that they were given false pretenses for why they were in the film. The elements of fraud in the inducement are 1.) a material representation or omission of fact made by a defendant with knowledge of its falsity and intent to defraud and 2.) damages sustained as a result of plaintiff’s reasonable reliance on that representation. However, a plaintiff cannot claim fraud in the inducement when he signs a contract which specifically gives up such a claim by signing a waiver that states that they are not being promised anything as to what the film is actually going to be used for. The waiver specifically stated that they have not relied upon “any promises or statements made by anyone about the nature of the film or the identity of any other participants or persons involved in the film.”