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Contracts
Wayne State University Law School
Findlater, Janet

CONTRACTS B Prof. Findlater

CHAP 4: Policing the Bargain

Overreaching: Conventional Controls

Pressure in Bargaining

CL Rule: Narrow Doctrine w/ Duress only if there’s bodily harm or imprisonment.

PXD:
Do we have 2 sided modification?
Do we have consideration?
Was it bargained for?

Avoiding The Pre-Existing Duty Rule: A two-sided modification gets around the PXD Rule.

Any consideration for the new undertaking, however insignificant, satisfies this rule. Adequacy of consideration is not an issue – the gift of a “horse, hawk or robe” will do.

Find rescission: express or IMPLIED. Any rescission mutually agreed upon is in itself a K. Lack of protest signals consent & lack of duress. Lack of duress signals implied rescission.
Some states have abolished PXD. NY Statute: 1-sided modification is enforceable even if there isn’t consideration, if there’s a signed writing. Gets around problem of PXD but not coercion.

§73: Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.

§89: A promise modifying a duty under a K not fully performed on either side is binding
a) if the modification is fair & equitable in view of circumstances not anticipated by the parties when the K was made; or
b) to the extent provided by statute; or
c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.
(§89 does not abolish PXD, still default rule, it doesn’t say consideration not needed, it merely provides 3 exceptions).

CODE

No PXD Rule: An agreement modifying a K w/in this Article needs no consideration to be binding 2-209(1).

There is a duty to negotiate modifications in good faith.

There’s no general duty to negotiate in gf in CODE but there’s a duty to perform in gf.
Parties can agree to negotiate in gf (CHC) but if they don’t agree, the law does not require it.

“Modifications made must meet the test of good faith imposed by this Act & the extortion of a ‘modification’ w/out legitimate commercial reason is ineffective as a violation of the duty of good faith” Comment (2) in 2-209.
Alaska Packers: Workers in Alaska & refused to continue services they were under K to perform, unless employer consented to pay them more money. No other workers were available, co had a lot of money invested, time constraint b/c of season & no other valid cause e.g. job unusually harder.

Consent to such a demand, under such circumstances is not consideration.
No voluntary waiver on part of owner of breach of original K.

Borelli: B/c of pre-existing statutory duty to “support” a spouse in CA, court rules that agreement to take care of ailing spouse in return for real property is w/out consideration.

Schwartzreich:
Step 1: P signed K w/ D to work for $90/wk (P then rec’d another offer of $115/wk).
Step 2: D promised to pay P $100/wk if he wd reject the other offer.
Parties tore their signatures off the old K (Rescission of old K).
Step 3: Parties signed a new K.
Held: A rescission followed shortly afterwards by a new agreement in regard to the same SMJ wd create the legal obligations provided in the subsequent agreement. Williston.
§89(a) may be applicable “circumstances not anticipated when the K was made.”

Watkins & Sons: By written K, P agreed to excavate a cellar for D for a stated price. Solid rock is unexpectedly encountered & P so notifies D. Parties orally agree that P will remove rock at a unit price that’s reasonable but 9X that used in computing original price & P completes job.
Held: D is bound to pay increased amount.

· No express rescission here but Ct found “implied rescission” – Lack of protest suggests lack of COERCION suggests implied rescission.
· Ct says “merger of rescission & promise into one transaction does not destroy them as elements composing the transaction.”
· D relinquished/waived his rts by voluntarily & intentionally consenting to the demand.
· SUBSTANCE of deal: special price was fair

SCOPE OF PRE-EXISTING DUTY RULE:

Foakes v Beers: Creditor obtains jgt against debtor. Cr agrees to forgo interest on her jgt if Dr pays up. Ct holds Cr can go after interest later (no consideration). Criticized Rule.

Checks marked “Payment in Full” that are short of debt amount are OK only when offered in good faith as settlement of a legitimate dispute, w/ consideration.

Dr must manifest his intention to the Cr (no fine print).
Cr cannot unilaterally change offer by crossing out “payment in full” & cashing it, he must send it back.
Cr says $100, you say $50: Some cts say sending what you claim you owe is acting in gf b/c you’re doing what you’re not legally obligated to do (you have the rt to go to ct), other cts say just $50 is not gf settlement.

De Cicco v Schweizer: Four days before wedding, father (D) promises annual payments to daughter & fiancé. D claims the couple were already engaged & the marriage was fulfillment of existing legal duty. Ct finds consideration & holds that promise by D was to induce the couple not to voluntarily rescind their engagement.
· O

ade one vulnerable to such pressure.
A confidential relationship b/w the parties need not be present when the undue inf involves unfair advantage taken of another’s weakness or distress.

If a number of the following elements are present there is undue influence:

Unusual or inappropriate time of discussion, unusual place of transaction,
insistent demand on urgency & emphasis on consequences of delay,
use of multiple persuaders against a single party, stmts that no time to consult attys/advisers.

Concealment & Misrepresentation

§159: A misrepresentation is an assertion that is not in accord w/ the facts.

§160: An action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.

§161(b) A person’s nondisclosure of fact known to him is equivalent to an assertion that fact doesn’t exist if: he knows that disclosure of the fact wd correct a mistake of the other party as to a basic assumption on which that party is making the K & if non-dis amounts to failure to act in gf & in accordance w/ reasonable standards of fair dealing.

See §161, 162, 163, 164, 168, 169.

Concealment is taking action to hinder another party from learning the truth, always a misrep.

One cannot make false statements of fact.

A half truth is a misrepresentation, if telling part of truth, tell whole truth.
Silence can be misrepresentation if there’s a duty to disclose.

Misrep is grounds for action in Tort & rescission of K.

Tort of Deceit requires knowledge (scienter) that misrep was false.
Innocent misrep is still actionable in K.
There must be material misrepresentation of fact (not opinion) w/ actual & justifiable reliance & some due diligence.

Swinton: There is no liability for bare nondisclosure that house was infested w/ termites b/c

No allegation of false stmt or half-truth
D did not prevent P from acquiring info on condition of house.
No showing of fiduciary rel’ship b/w parties or that P stood in position of confidence toward or dependence upon D.
Business deal was made at arms length.