Vacca Contracts II Spring 2013 Outline
Policies of Contract Law-People more likely to enter into contracts
I. Predictability- allowing people to predict with some level of certainty what to expect from a contract
II. Freedom of Contract- ability of the parties to be free to establish their corresponding rights and duties. Individualism and free will. Serve larger goal of contract making in a market economy
III. Fairness- societies expectations and what seems right under the circumstances. Some situations where it is best: it was just fair
IV. Efficiency- concerned with trying to minimize waste. Waste of time. Waste of money, etc. Trying to allocate resources to those that will use them the best
I. Unconscionability
a. Unconscionability (question of law)
i. dragnet clause/cross collateralization clause: nothing is paid off until everything is paid off
ii. UCC 2-302: Unconscionability recognized
iii. R.2d § 208: Unconscionability
1. remedies available by court that finds a contract unconscionalbe
a. refuse to enforce
b. sever offending clause
c. alter term so unconsionability is avoided
iv. general test
1. absence of meaningful choice (procedural)
a. gross inequality of bargaining power/little choice
b. manner k was entered into
c. reasonable opportunity to understand the terms
d. hidden terms/deceptive sales practices
2. terms unreasonably favorable (substantive)
a. in light of circumstances existing when k was made
b. in light of general needs to the particular trade/case (mores and business practices of the time and place)
II. Mistake
a. R.d § 151: a mistake is belief that is not in accord with facts
b. defense: a mutual mistake as to a material fact
c. material fact: something that goes to the substance of the thing bargained for
d. modern mistake rule
i. R.2d §152 (Mutual Mistake)
1. mistake on a basic assumption upon which the contract was made (motivation of parties)
2. material effect on the agreed exchange (impact on the balance of the exchange)
3. risk of mistake not allocated to the party that is trying to get the relief
e. Unilateral mistake (Donovan v. RRL Corp.)
i. R.2d § 153
1. basic assumption
2. material effect
3. party does not bear the risk
4. would be unconscionable
5. other party had reason to know of the mistake or other party’s fault caused the mistake
ii. R.2d § 154: When a party bears the risk of a mistake
1. by agreement
2. awareness of limited knowledge
3. judicial allocation (most common)
a. court considers what’s reasonable considering the circumstances
III. Parol Evidence Rule
a. keep in mind the two following questions(anticipation of these types of issues is the role of the lawyer)
i. what’s the relationship between the written word and the extrinsic evidence?
1. everything that has been said, done, thought, but not in the written contract
2. what do we follow
ii. how could the problem have been avoided?
b. need to be able to distinguish between intentional omissions vs. sloppiness–this is where the parol evidence rule comes into play
c. R.2d § 213 (1) & (2)
i. (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them
ii. (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope
iii. what’s the integrated agreement?
iv. what’s the parol evidence at issue?
v. R.2d § 210 (1) & (2)
1. (1) a completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement
a. evidence related to a prior agreement is excluded
b. if the prior agreement exists, it is totally extinguished
2. (2) a partially integrated agreement is an integrated agreement other than a completely integrated agreement
d. majority approach: all circumstances surrounding interaction of the parties is relevant
i. R.2d § 209 (majority approach)
1. contextual evidence to the intent of the parties should be considered
e. minority approach: four corners rule (what’s in the agreement)
f. merger clause: all information contained in the contract completely integrates the contract
i. evidence of complete integration, but not dispositive
g. integration of the agreement
i. R.2d § 215: contradiction of integrated terms
ii. R.2d § 216(1): consistent additional terms
1. (1) evidence of a consistent additional term is admissible to supplement an integrat
. Implied term of good faith and fair dealings
1. In a situation where an obligor has discretion in performance, they cannot injure the rights of the other party
ii. R.2d § 205
iii. UCC § 1.304: every contract or duty within (the UCC) imposes an obligation of good faith in its performance and enforcement
iv. Expressed terms beat implied terms
1. Contracting out of duty of good faith
a. If good faith is necessary to prevent the contract from failing from lack of consideration?
i. If yes, then can’t contract out.
ii. If no, than can contract out.
c. Language indicates a contract, but gaps exist
i. Law will imply terms that effectuate the transaction
VI. Conditions
o Performance
§ Performance = the act of doing that which is required by a contract and actually completing the deal according to the terms given in the K
o 4 Questions to Ask:
§ (1) Have the parties created a contract?
§ (2) If so, what are the terms of the contract?
§ (3) Have the parties carried out their obligations under the terms?
§ (4) If not, what, if anything, should the law do about it?
o Restatement (Second) §224 à Definition
§ A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.
· May refer either to the SUBJECTIVE satisfaction of the obligor or to an objective standard (reasonable person)
o (1)
§ When doubt as to which standard the clause implies, court will usually presume an objective one of “reasonable satisfaction”
o (2)
§ Used whenever the object of the K is to please the tastes of convenience of a person (still must be dissatisfied in good faith)
o (3)
§ Usually an architect or other professional
§ Subjective judgment usually controls (good faith requirement)
