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Contracts II
University of Dayton School of Law
Morris, Jeffrey B.

Contracts II w/Prof. Jeffery Morris Spring ‘11
“Contracts: Cases and Controversies” 9th ed. Dawson
 
 
POLICING THE BARGAIN
I.                   Competency and Other Limits
·         Minors are held to different k standards       (Minor < 18). 1.      Disaffirmance: a minor may before majority (18) avoid the k. a.       Voidable at the minors choice. Ratified at majority. 2.      Minor who disaffirms a k that is not a necessity need not make restitution to the vendor for damage sustained before the k was disaffirmed. a.       If minor is D he cannot be recovered against, however he must return the goods if he still has them. 3.      Not a necessity if the minor has a guardian ably willing to supply them. ·         Mental Competence Actor lacks capacity if he doesn’t understand the k; or if he does, but acts irrationally, and the other party knows, or should have known, he is acting irrationally. 1.      Lacks capacity because: a.       Unable to reasonably understand the nature and consequences; or b.      Unable to act in a reasonable manner and the other party has reason to know c.       Voidable or ratified at the incompetents choice. ·         Undue Influence 1.      When obtained by undue influence it is invalid and unenforceable. a.       Stronger Party coerced weaker party by high pressure at vulnerable time. Some Factors: (1) at inappropriate time, (2) unusual place, (3) insistent demand to finish quickly, (4) emphasis on consequences of delay, (5) multiple persuaders, outnumbered, (6) absence of advisor, (7) statements that there is no time to consult advisor. II.                Duress and Coercive Renegotiation ·         Disparity or mere inadequacy in consideration does not render a k void. 1.      It is, indeed that the consideration be of some value, but it is sufficient if it be of slight value only. 2.      If there be any legal consideration the court will not inquire into inadequacy. 3.      Free exercise of judgment. 4.      e.g. $25 today worth $2000 tomorrow. ·         Modification must be supported by consideration. 1.      Subsequent agreement to modify a prior agreement must rest upon a new and independent consideration. a.       e.g. prepayment, in full, at a different place, method, or form are variations. b.      UCC 2-209(1) an agreement modifying a k within this Art. needs no consideration to be binding. 2.      Duty already owed to the other party is not consideration for a new promise. a.       A party may not demand increase in compensation for performing a preexisting duty without additional consideration. 3.      Forced economic distress. 1.      A k is voidable on the ground of duress if the party making the claim was forced to agree to the k by means of a wrongful threat that precludes the exercise of free will. For economic distress to be present: (1) one party must threaten to withhold goods unless the other party agrees to their demands, and (2) the threatened party must be unable to obtain the goods from another source. 4.      Not Anticipated; additional obligation imposed. If a party must perform under unanticipated, burdensome conditions not contemplated at the time the k was made, and if the other party agrees in light of the circumstances to provide additional compensation for the additional work, then the additional work is deemed to be an additional k supported by adequate consideration and is valid and binding. a.      If any party should have known or had the ability to discover the unforeseen circ. through reasonable effort, they should bear the related loss. b.      2nd Restatement 89 p. 615 (Not a bad deal but a different deal). 5.      Waiver and oral modification; K provisions may be waived.   a.       UCC 2-209 (see p. 618) (4) although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. i.                    Does not rest upon consideration. ii.                  Requires no more than the voluntary and intentional abandonment of a known right which but for the waiver, would have been enforceable. ·         Duress exists if one is induced to make a contract or perform under circ. that deprive him of free will as a result of another’s unlawful conduct, not as a result of his own conduct. i.                    Financial difficulty by itself will not justify setting aside a settlement. ·         An accord and satisfaction – an agreement to subs. For an existing debt some alt. form of discharging that debt, coupled with the actual dis. of the debt by the sub. performance. a.       A form of ADR once signed by both parties it creates a new k that can’t be mod. b.      If it is in the form of a check and the check is cashed, it creates a binding k. A creditor cannot ignore conditions attached to the check. If the creditor objects to the amount as full payment of the disputed amount, he need not cash the check, but can leave the matter in dispute and litigate his claim. If he accepts the payment then the parties have formed a new agreement that replaces the disputed agreement, and the payment made is the payment required under the new k. 1.      Executory Accord -  an agreement by the parties to k by which one promises to render a subs. performance in the future, and the other promises to accept that subs. performance in discharge of the existing duty. ·         Legal duty part from k.  A bargain by a pub. off. (or similarly an employee) to obtain add. benefits for performing regular duties is unenforceable as against pub. policy. III.             Scrutiny of Limited Commitment ·         (Employment) 1.      Common law rule absent any agreement a k is at will. a.       Able to be terminated by either party without cause. 2.      At-will employee who is terminated for reasons that are against pub. poli

enforcement would produce injustice or inequality.
1.      Unconscionability – exists if the circumstances shock the conscience.
a.       The sum total drives of the k provisions drive to hard a bargain for the court of conscience to assist.
i.                    Case by case basis
·         Whether result could result in oppression or unfair surprise to the disadvantage.
·         Gross disparity may be enough if it leads to the conclusion that one party took advantage of the other; gross inadequacy in consideration.
·         High pressure sales tactics
·         Misrepresentation
·         Unduly influenced by another
·         D assumed no risk and the P gained no advantage.
·         A “bargain in the dark.”
·         Demographics
·         Fine print; hidden terms
ii.                  Parties that enter k well below the fair market value should be prepared to answer questions concerning its validity.
iii.                Public policy is to place safeguards to protect against weaker parties who may otherwise be reluctant to enter into k for fear of being taken advantage; along w/deterring persons from taking advantage of others they find in a weaker position.
b.      Unconscionability requires an absence of meaningful choice coupled together w/ terms that are unreasonably favored to the other party.
i.                    Setting the bar pretty high for unconscionability.
c.       UCC specifically provides that a ct. may refuse to enforce a k it finds to be unconscionable at the time it was made.
 
·         Good Faith, works both ways.
1.      2nd Restatement 205 p. 707
2.      A party cannot use its breach to gain an advantage by impairing the rights that the k confers on the other party.
a.       There is a duty of good faith in the k setting.
i.                    Opportunistic behavior that leads to attempts of trickery to gain advantage violate the duty of good faith.
 
THE MATURING AND BREACH OF CONTRACT DUTIES
I.                   The Interdependence of Promises; or the dependency of mutual promises.
·         Who goes first? Who breached first?
1.      Must the P plead the K item was delivered before claiming breach for non-payment?
a.       No, the exchange of promises formed an enforceable agreement.
i.                    It is a promise for a promise.