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Contracts II
University of Alabama School of Law
Geis, George S.


IV. Avoidance of Contract


A. Insufficient Agreement
●Contract: 4 requirements: agreement, consideration, capacity, legality
●8 different situations where even though it looks like you have a contract, you don’t- problems preventing contracts from being formed. [defective formulation of agreement, indefinite or incomplete contract, incapacity, mistake, fraud, duress, unconscionability, illegality] –misunderstanding regarding what the parties are agreeing about

1. Detective Formulation of Agreement
– think you have a contract, but both talking about different things (misunderstanding)

►Raffles v. Wichelhaus-
*Ambiguous wording can render a contract unenforceable for vagueness
–P contracted to buy cotton from D, from what he thought was Peerless that came in Oct, but D though peerless in Dec.—no bad faith, just misunderstanding (& prices cotton fell)
–Ct. ruled no contract bc no meeting of the minds
–did not apply the usual objective standard of parties intent- probably bc name of ship was material term to case- only proxy they had to determine when cotton was coming…
–not mistake, just contract w/ ambiguous term

►Konic International Corporation v. Spokane Computer Services, Inc.
*Where parties both hold diff. understandings as to terms, no k- if reasonable
–Young bought surge protector from Konic- thought meant $56.20, but meant $5,620-context matters in this case- different if $56.20 for car- not reasonable
–lwr court ruled no contract bc Young didn’t have authority to buy item
–Peerless rule: Restatement (second) § 20: (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a) neither knows are has reason to know the meaning attached by the other
– Doctrine applicable in 3 instances:
o Only when parties have different understandings of their agreement
o Does not apply when one party’s understanding, bc of that party’s fault, is less reasonable than the other party’s understanding
o Parol evidence is admissible to est. the facts necessary to apply rule
–“fifty six twenty” was material term to case, both party’s reasonable, so NO K.

2. Indefinite or Incomplete Agreements
– you spell out contract, but leave something fundamental out (agreement to agree)- not quite enough to know what contract is about
– How definite does it need to be?

Enforced————————————————————————————–à Not enforced
If you do a good job helping gray area: if you do a good job helping
Me build a home, then I’ll give if you do a good job me build a house, then I’ll
$10/hr plus 5% of sales price helping build house give you $10/hr plus
give $10/hr + fair share something

– Why help MGM and not Varney? – Scheider in bad faith- he had a good faith duty to follow through w/ it- just missing one term (starting date) is not that terribly important
–Scheider could possibly make claim that he will do it one of these days- but only if in good faith – if he is already booked, may be able to delay for a little while…
●SUMMARY: Modern courts are more willing to help resolve ambiguities in the contract- if seems like parties really made a deal- esp. if for sale of goods or something where it’s easy to pick out the price, or long term reliance (relationship)- but starting back other way too…

►Joseph Martin, Jr. Delicatessan, Inc. v. Schumacher-
*When making k, have to spell out key terms, or k is void
–I: is agreement to agree enforceable? – NO- esp. true of amount to be paid for sale or lease of property’
–Martin leased retail space from Schumacher for 5yr term for $500, w/ renewal clause “the tenant may renew this lease for an additional period of 5 years at annual rentals to be agreed upon”—Martin attempted to exercise this clause, S demanded $900, and M sues (since appraiser est. value of space at $545)