CHAPTER 2: THE BASES OF K LIABILITY

Section 4:Formal requirements: the Statute of Frauds

  1. General Scope and Effect
  2. Within the Statute
  3. the 1 year clause

North Shore Bottling v. Schmidt

p. 169

Issue:Is an oral agreement which entitled D to terminate its K arrangement with P within one year of its making valid under the 1-year provision of the SOF?

Rule:if the agreement is CAPABLE of performance w/in 1 year it doesn’t have to be in writing. The court looks to the terms upon formation.

  1. K for the sale of goods
  2. Interests in Realty

SOF covers any oral agreements to convey an interest in land

  1. Compliance with the Statute

Crabtree v Elizabeth Arden

p.177

Issue:May the length of the K be supplied by reference to the earlier unsigned office memo, and if so, is the notation “2 years to make good” a sufficient designation of a period of employment?

Rule:The court pemits the signed and unsigned writing to be read together, provided they clearly refer to the same SM or transaction.

  1. Effect of Non-Compliance

An oral K which is within and doesn’t satisfy the SOF is “nto boid in the strict sense that no K has come into being at all, but is merely unenforceable at the option of the party against whom enforcement is sought”.

Sale of Goods- UCC 2-201(3)(b):a K not satisfying the SOF but valid in other respects is enforceable “if the party against whom enfvorcement is sought admits in his pleading, testimony, or otherwise in courtr that a K for sale was made, but the K is not enforceable under this provision beyond the quantity of goods admitted.”

DF Activities v Brown

p. 184

No additional discovery when D raises a SOF defense and denies an oral K

Chapter 5:Avoidance of Contracts

Ways parties can avoid legal obligations for promises that seem to satisfy the requirements for contract (bargained for consideration).

Courts may refuse to enforce a K due to:

1)Impermissible parties

2)Impermissible defects in bargaining process

3)Impermissible terms in the agreement

These Rules are Mandatory or Immutable: contracting parties do not have the freedom to waive these defenses

Section 1:Capacity to Contract:Infancy, Mental Incompetence

A.InfancyStatus protection:in general, minor’s Ks are VOIDABLE

R2 §14“Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person’s 18th birthday”

Regarding Ks made during minority, a minor has the right to affirm or disaffirm his K other than those for “necessaries”. The other party, if an adult, is bound to the K with the minor reflecting the risk of contracting with one underage.

Infants can sue to enforce, adults cannot sue to enforce.

Policy: discourages adults from entering K with minors

Damages:Restitution: party gets the unjust value the minor received (RA value)

Restoration: party gets back what is left

In general, the minor, after disaffirming the K must return the value of the item that is then in their hands.

When a minor make a K, then becomes an adult they have a “RA time to dissafirm the K after they are 18, otherwise it is valid.

CA laws regarding minors

1. Emancipation of Minor’s Act” Minors who are:

1)Married

2)In Active military duty

3)File for living independentlyCan make a valid K

2. Minor makes a K for real property:VOIDneither party can enforce

3. “Minor’s entertainment K statute”

Superior court must approve the K, then the minor can be sued for breach.

Bowling v Sperry

p. 451

B.Mental Incompetence

To prove incapacity, you must show:(proven by she who is claiming the defense)

Standard:Clear and Convincing Evidence

1)“Cognitive Incompetence” Incapable of Understanding the Nature and Consequence of the transaction

OR

2)“Compulsion”/“Uncontrollable Impulse” Understood the Nature and consequences of the transaction but couldn’t help yourself

K’s Partially/Fully Performed:

If the person, proven by Clear and Convincing Evidence is Incompetent, it still matters if the other party has performed, partially performed.

1)It must be shown that the other contracting party knew or should have known of the Incompetence.

2)Was the price of the K fair? If not, it may show they knew of the incompetence and were taking advantage by charging too high a price.

If other party acted in:

1)“Good Faith” andIncompetents can generally avoid the K

2)Was Unaware of the Incapacityproviding he can restore the other to pre-k position

If it is shown that the party didn’t know/had reason to know of the incompetence, and the price was fair, the Incompetent can get out of the rest of the K(if only partially performed), but must pay the other party the price for what they have completed. If the whole K is finished, the Incompetent must pay the full K price.

If a Guardian has been appointed for the Incompetent, any K she makes is VOID.

If No Guardian appointed, the person wanting to claim Incompetence must prove by “clear and convincing evidence” that she is Incompetent, to make the K VOIDABLE.

Heights Realty v Phillips

p.459 Broker had fully performed. With performance, whether or not the basis of incompetency is Cognitive or Irresistable Impulse.

1)No real showing here that the price was unfair.

2)Broker testified that seller seemed perfectly normal, had no reason to know she was incompetent. The court does not believe the broker.

CitiFinancial v Brown

p.464Brown, incompetent who can’t read/write, goes to Citi with his Mom. Loan agreement contained an arbitration clause. Brown files coa in state court claiming fraud and breach of K. Citi tries to enforce arbitration clause.

K was fully performed by the bank:

1)No evidence it was unfair

2)Bank knew Brown was cognitively disabled

District C:denies Citi’s petition

“the Ks of person non compos mentis are absolutely void, whether executed or executory- mere nullities”

No clear guardian is shown, but Citi cannot enforce the arbitration clause.

Appeals:should go to arbitration, where arbitrators should evaluate Brown’s competency.

Ervin v Hosanna Ministries

p.467P went to rehab, suing D for negligently not keeping a safe premesis. P signed a General Release, says she does not remember signing it, and was incompetent at the time she signed. In any drug rehab situation, there will always be a Q of the validity of the release.

Courts, in general, do not favor releases.

D had reason to know, P may not understand what they are signing.

TEST:of mental capacity to make a K

Whether at the time of execution of the instrument the maker possessed understanding sufficient to comprehend the nature, extent and consequences of the transaction.

Evidence to Consider:

The mind of the alleged incompetent before, at, and after his K to ascertain her real condition at the moment of entering into the agreement.

Section 2:Defects in Bargaining Process

A. Unilateral and Mutual Mistake

R2d §152Mutual Mistake makes a K Voidable when:

1)where a mistake of both parties at the time a K was made as to a basic assumption on which the K was made has a material effect on the agreed exchange of performances, the K is voidable by the adversely affected party unless he bears the risk of the mistake.

R2d §153Unlitateral Mistake Makes a K Voidable when:

Where a mistake of 1 partty at the time a K was made as to a basic assumption on which he made the K has a material effect on the agreed exchange of performances that is adverse to him, the K is voidable by him if he does notbear the risk of the mistake and

a)the effect of the mistake is such that enforcement of the K would be unconscionable, or

b)the other party had RA to know of the mistake or his fault caused the mistake.

Boise J.C. District v Mattefs ConstructionUnilateral Mistake

p.472

Beachcomber Coins v Boskett

p.479Mutual Mistake. Appellate allows Recission b/c both parties acted under the mistake of fact and it had a material affect. Both bore the risk.

Negligence by one party does not preclude Recission. Both parties here were absolutely convinced it was a real coin.

If both parties had been uncertain about the item, things would have been different and recission would not have been available.

Sherwood v Walker

p.482K for sale of a cow both thought was barren, to sell for $80. Before delivery, seller realizes she is with calf and refuses to sell to Buyer. A breading cow is worth $750.

Buyer sues to recover the cow.

Hold:Mutual mistake, both believed cow was barren and worth $80. No meeting of the minds. Seller does not have to sell.

Appellate Court focus: Difference in Value v Difference in Substance

No RecissionRecission is Possible

A mistake in the value is not the same as a mistake of the substance of an item, difference in value does not allow Recission. A mistake must be one where both parties are certain of material facts of substance (a type of cow: barren) before Recission of the K is possible.

Lenawee County Board of Health v Messerly

p.484

Ayer v Western Union Telegraph

p.495Telegraph message omitted “ten” in the statement of price of the laths. The Offeree had power to accept the offer set forth in the telegram (“objective theory” if know/RA should have known, couldn’t accept. Not the case here, would have felt empowered to accept). Offeror chose the method of transmission, so should bear the risk for the method of transmission.

1)As between buyer and seller, seller bears the risk of the mistake.

2)Seller was entitled to damages of the difference in market value.

Rule:Offeror can recover from Western Union the difference between the stated price and the market price. The court ignores the disclaimer clause (may not have been clear to consumer) and imposes strict liability on the merchant.

B. Fraud and the Duty to Disclose

Laidlaw v Organ

p.498

Vokes v Arthur Murray, Inc

p.500

Hill v Jones

p.507

C.Duress and Undue Influence

Rubenstein v Rubenstein

p.523

Austin Instrument v Loral

p.527

Machinery hauling v Steel of W. Virginia

p.530

D.Unconscionability

1.Consumer Transactions

Williams v Walker-Thomas

p.536

Fleet v United States Consumer Council

p.549

Ferguson v Countrywide Credit Industries

p.553

  1. Unconscionability in Commercial Transactions

Weaver v American Oil

p.561

Zapatha v Dairy Mart

p.565

Coursey v Caterpillar

p.569

Section 3:Illegality- Agreement Unenforceable on Grounds of Public Policy

Sinnar v LeRoy

p.575

“Illegality of a serious nature need not be pleaded”, the D doesn’t have to raise it, a judge can raise it.

Rule:If the parties, as here, are in pari delicto (all knew what they were doing) the court should leave the parties where it found them.

Homami v Iranzadi

p. 581

Rule:Because his agreement violated the law, and was made intending to hide income from the IRS, P is not entitled to collect the money that was an unreported interest.

Data Management v Greene

p. 592

Approaches to covenants not to compete:

1)if they are overbroad they will not be enforceable

2)Blue Pencil Rule:if words in an overbroad covenant can be deleted in such a way to render it enforceable the court may do so.

3)Rule of Reasonableness:if an overbroad covenant can be RA altered to make it enforceable, then the court shall do so unless it determines the convenant was not drafted in good faith. COURT ADOPTS

Watts v Watts

p.597

Wallis v Smith

p.608

CHAPTER 6:PERFORMANCE

Section 1:Determining Scope and Content of Obligation

  1. Integrated Writings and the Parol Evidence Rule

The PER depends upon the INTENTION of the parties.

Did they intend the writing to be “INTEGRATED”(Final) as to:

1. some of the terms “PARTIAL INTEGRATION” or

2. all terms of the agreement “TOTAL INTEGRATION”

Mitchell v Lath

p. 615

Issue: is the oral promise to remove an ice house from a separate property enforceable when P relied and made a a written K to purchase based on the promise?

3 Conditions for an oral agreement to vary the written K:

  1. Collateral Agreement
  2. Must not contradict the written K’s express/implied provisions
  3. Must be a provision not expected to be in writing.

Rule:The fixed form of the deed makes it inappropriate to assert collateral agreements, even if closely connected with the sale. Complaint dismissed.

Masterson v Sineused HUNT TEST for InconsistencyCORBIN era

p. 619

Alaska northern v Alyeska Pipelineused SNYDER TEST

p. 624

SNYDER TEST for Inconsistency:Can’t limit prior agreements giving unlimited discression.

  1. What does the term mean literally express/implied?
  2. What range of meanings can it have?
  3. Is it consistent with prior agreements?

HUNT FOOD TEST for Inconsistency:more narrow than Snyder

  1. Look at the express terms only in the written K.
  2. Is the prior agreement consistent? Easier to find consistency.

Luther Williams v Johnson

p.631

  1. Interpretation

PG&E v Thomas Drayage

p.638

Kemp Fisheries v. Castle & Cooke

p.640

Hierarchy of Interpretation:

Less General

(Parties individual will)

  1. Look to the Language of the KSpecific transaction involved.

Should 1 party known/should have known what the other party meant?

Was there agreement of the term in the K?

  1. Extrinisic Evidence:Totality of transactions between the parties

Course of Performance

Course of Dealings

Usage of Trade

  1. “Implied Terms”General Rules of K law

the surrounding circumstances.

  1. Good faith, RA:General Standards of RA

as to price (by extrinsic evidence), etc

  1. Rules of Construction:

Corbin- they are guidelines R2d 202, 203, 206(when in doubt interpret the language against the drafter of the K) 202(3) words are used in their ordinary meaning if no technical meaning

Most General

(Social Values)

Plain meaning rule:(Rejected by the UCC) unless a word is ambiguous or vague was the trier of fact allowed to have evidence as to the meaning of the word.

UCC directs the court attention to 3 sources for determining the meaning of language in a K for sale of goods: (to explain language)

  1. custom
  2. trade usage
  3. course of dealing

Comment 1:rejects the plain meaning rule. Language is to be taken from commercial context rather than plain or legal meaning. ( c)rejects the idea that the court must first find that the language is ambiguous b/f taking evidence of what the language means.

Comment 2:the evidence is to be taken in to determine the true meaning of the parties, but the parties true meaning is to be presumed to be what you would get by looking at prior performance, trade usage, custom unless the parties carefully negate that meaning.

Frigaliment v BNS International

p.6491. Does the K offer interpretation of the meaning of the word “chicken”?

Section 3:Allocation of Risk:Warranties and Conditions

A.Representation and Warranties of Quality

Ks contain language of promise and/or language of express condition. Warranties are language of promise, as opposed to language of express condition. Breach of a warranty may lead to damages, an may excuse the party not in breach to have to perform.

Warranties may result from what seems to be representations of fact.

“This car does not burn a drop of oil” is a promise, and may also be a warranty.

  1. Express Warranties

Representations are not promises, they are representations of existing fact.

2-313

An affirmation simply of value of the goods or a statement purporting merely the seller’s opinion or commendation of the goods does not create a warranty.

Revision

Remedial promises have been added. After formation of K, “promise by the seller to repair or replace the goods or to refund all or part of the price upon the happenidng of a specified event”.

Two new sections: if an express warranty is made to the public, they may be liable in damages to the remote buyer of goods if they do not conform to the express warranty.

  1. Implied WarrantiesCL and UCC continued them.
  2. Quality
  1. Merchantability
  1. Fit for ordinary purposes for such goods.

6 part test in 2(c)

  1. Fitness for a Particular Purpose

2-315the seller knew the buyer wants to use the goods for a particular purpose

  1. Limitations of Warranties and Remedies

Warranties can be waived/disclaimed. The consumer/other party must know what they’re getting into. The seller can’t be taking advantage of the buyer or not giving the buyer any choice but to accept the disclaimer of warranties.

To Disclaim a warranty of Merchantability:

  1. must state Conspicuously in the writing, if there is a writing.

To Disclaim a warranty of Fitness:

  1. must be Conspicuous
  2. the language must clearly disclaim the warranty in question.

2-316:“as is”can be enough to disclaim the warranty.

Revised 2-316(2) regarding IWM must have specific language.

Henningsen v Bloomfield Motors

p. 728Wife of purchaser was entitled to recover for personal injury against both the dealer and manufacturer. Chrysler’s attempted disclaimer of an implied warranty of merchantability is so against the public good that it is considered invalid.

Issue:Was the manufacturer’s disclaimer of the Warranty, limited to replacement of parts, unconscionable?

Trial:Found D liable for breach of Implied Warranty of Merchantability and Dismissed the Negligence Claim.

Appeal: Affirmed Trial court. Found the Express warranty (limited to replacement of parts sent to the factory)did not negate the Implied warranty of fitness given the inequality of bargaining power between consumer and manufacturer. As all car manufacturers use the same form contracts. If they imposed a duty to read, it might not lead to justice. The spirit of freedom on K is that consumers who have no choice should not be stuck with limited warranties.

2-719Disclaimer for personal injuries is prima facie unconscionable

Murray v. Holiday Rambler

p. 733Sales agreement gave no express or implied warranties.

PROCEDURAL POSTURE: Appellant recreational vehicle manufacturer (RV manufacturer) sought review of a judgment from the Circuit Court for Dunn County (Wisconsin), which entered judgment for respondent RV purchasers (purchasers) in their action to recover the purchase price of the RV and damages.
OVERVIEW: Purchasers bought a RV that required substantial repairs within the first few months of the purchase. The purchasers later revoked the acceptance of the RV and filed suit for damages. The manufacturer argued that the limited express warranty prevented the purchasers from revoking acceptance of the RV. The court noted that the predelivery agreement signed by the purchasers contained a warranty that the RV was free of defects at the time of delivery and that it limited the purchasers' remedies to repair or replacement of defective parts. The court found that under Wis. Stat. § 402.608, the purchasers could have revoked acceptance of the RV after they allowed the manufacturer a reasonable time to repair the defects. The court found that the jury determined that the purchasers had cause to revoke acceptance of the RV, and that special verdict questions revealed that the RV was delivered defective, that the defects impaired the value of the RV, and that the repairs were not made as required by the limited warranty. The court found that the purchasers were not entitled to loss of use damages because they failed to show how much use would have been made of the RV if not for the defects.
OUTCOME: The court affirmed that part of the trial court's judgment that found that the purchasers could revoke acceptance of the RV and disallowed attorney's fees to the purchasers. The court modified that part of the judgment that awarded loss of use damages to the purchasers. The court instructed the purchasers that they could appeal the change in the loss of use award by filing for a new trial on that issue only.

Effect of Breach of Promise: (Constructive condition not having been met)