CONTRACTS II
1. Applicable law
2. Mutual assent
3. Enforceability
4. Defenses
XIII. Policing Ks for Improper Bargaining
A. General Intro to Improper Bargaining Doctrines [NOTE: Void v. Voidable: Void = not a K at all; voidable – aggrieved party gets to choose whether to avoid the K or enf it]. Various Improper Bargaining Doctrines:
1.Misrepresentation & Fraud
2.Duress
3.Duress & Bad Faith in Relation to K Modification
4.Undue Influence
5.Unconsciounability
B. Misrepresentation & Fraud.
1.The General Principles & Elements of m/r:
a. Restat. (2nd) §§ 159-169; UCC does not apply at all.
b. § 159 – Definition of misrepresentation: an assertion not in accord w/the facts.
c. § 164 – M/r makes a K voidable; if a party’s manifestation of assent is induced by
either a fraudulent or a material m/r by the other party upon which the recipient is justified in relying, the K is voidable.
d. Material – effects buyer’s decision, i.e. book seller portrays book as being owned by an unknown vice being owned by buyer’s great-grandfather.
e. Fraudulent – when the maker intends his assertion to induce a party to manifest his assent.
f. Elements of m/r:
(1) m/r (stmt not in accord w/facts) §§ 159, 160, 161
(2) material OR fraudulent § 162
(3) must induce § 164 filled out § 167
(4) justifiable reliance §§ 164 and 168 – 172
2.Affirmative Fraud
a. Can be written, oral, or conduct (i.e. rolling back odometer).
b. Applies only to past events and present circumstances; NOT future predictions
(i.e. Ravens will win).
3.Silence as Fraud: Fraudulent Nondisclosure and the Duty to Speak
a. Stambosky v. Ackley, 572 N.Y.S.D.2d 672 (1991) [Duty to disclose].
(1) Seller sold a haunted house to buyer and didn’t tell them.
(2) Basic rule was “caveat emptor” – no duty to discloseunless confidential or fiduciary relationship or “active concealment”.
(3) Silence won’t be m/r unless there is a good reason to make it one.
(4) Non-disclosure = recission when:
(5) Seller creates condition (Seller advocated her house was haunted…had it listed on haunted house tour and had an article in Readers Digest on it).
(6) Known by the seller (Seller knew).
(7) Unlikely to be discovered by prudent buyer exercising due care (no way for buyer to find out since he didn’t live in area).
(8) NY law did not require disclosure. Ct found that seller should have disclosed.
4.M/r of Fact, Opinion, or Prediction – Restatement § 168
a. Not actionable except for a few circumstances where it implies facts.
b. Opinion – expresses only a belief, w/out certainty, as to the existence of a fact or
expresses only a judgment as to quality, value, authenticity, or similar matters.
c. Stmts of qty are not usually going to be stmts of opinion (i.e. 80 acres more or less
means 70-90 acres).
d. Stmts of quality are usually stmts of opinion (i.e. this is a great car).
e. Stmts of value are usually stmts of opinion (i.e. worth $5.00) but if stating what the value was (i.e. this sold for $4.50) then it is a stmt of fact.
f. See more examples on p. 427 in text.
g. Express Warranties by Affirmation, Promise, Description, Sample – UCC § 2-313
(1) Para (a) states that any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the K creates an express warranty that the goods shall conform to the affirmation or promise.
(2) Ads: objective claims in ads-you have to be able to prove; puffing or puffery however is opinion.
5.Misrepresentation of Intent
a. Cannot have m/r of future (i.e. buy tix now b/c O’s going to World Series).
b. Employee signs 1 yr emp’ment K in June when he has been accepted into grad school which starts in Aug. In July,
fend only against the second note (that had an undetermined amount). The husband admitted to embezzling money (he didn’t sign any judgment note though). Mrs. R asked if atty needed, Germantown said no. Ct is not required not to re-open even if she shows meritorious defense. If trial ct refused to grant Mrs. R’s judgment, appellate ct said she would have to show clear and manifest injustice. Appellate ct affirmed judgment of lower court.
(4) 3 defenses: fraudulently represented her liability was only $160,000; material that he induced a reasonable person. No duress by physical compulsion; duress by improper threat. Improper threat was prosecution of husband. Doesn’t matter that he is guilty, only matters that there was an improper threat. Even if justified to make that threat, shouldn’t have made it. Felt she had no reasonable alternative.
e. Problem 13.4
(1) P was former employee seeking reinstatement; complaint dismissed for failure to state positive action. Not convicted of criminal activity at time of interaction with employer. Employer told P no time to consult atty. P suing for fraud, duress and undue influence. Ct said none. No fraud because they didn’t say anything that was untrue. Complaint reinstated under undue influence. Not duress under California law because duress requires confinement in Ca. Under Rest, there may have been duress under §176 (1) (d), if there was an actual employment contract. Ct said they had a legal right to suggest his resignation and dismiss him if he didn’t resign.
