Contracts II

Mutual Rescission

Both agree to discharge the others duties on the K

Conditions

Condition is an event that must occur before a promise by the other party becomes due Every promise is subject to a condition Can be express (in writing) or constructive (supplied by court) Identify every promise in agreement to determine: 1) express conditions 2) constructive conditions A) simultaneous B) non-simultaneous

Contract Modification

Conditions to satisfy: One or more duty not yet fully performed on either side (executory K) -No duress or coercion -Circumstances prompting modification are unforeseen -Pre-existing legal duty rule: a party cannot get more payment or a different benefit for a pre-existing legal duty -An obligee receives absolutely no legal consideration for an obligor's promise to render exactly the same performance required by the original K -PLDR doesn't exist in the UCC- no fresh consideration is needed as long as there is a good faith negotiation

Abuse-Duress- R2K §175 Duress by Threat that Makes a K Voidable

Conduct in entering into K is not manifestation of assent if physically compelled by duress o Physical duress- gun to the head makes a K void as though it never existed o (1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim o (2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction § Requires improper threat and no reasonable alternative

Void & Voidable

Contracts that are "voidable" may later be ratified by the injured party, while a void contract may not

Unconscionable K

Courts may refuse to enforce part or all of a K that is so unfair, inequitable, one sided, or unjust that it shocks the conscience - R2K and UCC follow nearly identical versions of this rule for unconscionability -To be unconscionable there must be a presence of both procedural and substantive issues of unfairness Uses a sliding scale- more of one factor means that less of the other is necessary Procedural- unfairness of issues leading to the formation of the K Oppression Inequality of bargaining power Surprise Extent they are hidden in fine print Substantive- is the k itself fair? Would a person in their right mind, and not under delusion, make OR accept such a contract? -One-sidedness of burden or undue burden on one party Uses objective test

Truman v. Schupf

D agreed to sell P a plot of land for $160K The K was contingent on approval of zoning for an asphalt plant, and could be voided in 120 days if approval wasn't given P couldn't get the zoning approval, so they offered to buy the land for $142K because it was less valuable to them without the zoning approval D rejected this offer but made no efforts to sell the land to anyone else P replied that it would like to proceed under the original terms of the K but D declined and returned P's money No Repudiation Anticipatory repudiation requires clear and unequivocal language which was not present in this case Changing the price of a K is not enough to constitute repudiation Even if this language was deemed sufficient for a finding of repudiation, P retracted the repudiation before D took any detrimental action in reliance D had not yet begun looking for anyone else to buy the land Also did not express that they considered the statement to be a final repudiation Thus, P was free to revoke the repudiation

Mel Frank Tool & Supply v. Di-Chem

D entered into a three-year lease for a storage facility for chemicals, some of which were considered hazardous material City authorities inspected the premises a year later and found it was in violation of city codes The city gave D seven days to remove the hazardous material D vacated the premises four months later No Frustration of Purpose -If a party's purpose is substantially frustrated after the making of the K, the remaining duties are discharged -Here, D's purpose wasn't completely frustrated because the city codes still allowed for storage of other non-hazardous material -A purpose isn't frustrated simply because it becomes less valuable -What is purpose? Storing different types of chemicals -Is purpose substantially frustrated? No- other types of chemicals were still permissible

McIntosh v. Murphy

D interviewed P twice for a manager position at his HI dealership On April 25th, D offered P the job to begin on April 27th P moved almost all of his belongings to HI and gave up any other employment opportunities After two and a half months, D fired P for being unable to make sales Purpose of SOF is to avoid injustice, so court used this same reasoning to apply an exception to the SOF rule

Williams v. Walker-Thomas

D sold household items and utilized a lease payment system where, if the purchaser defaulted on a payment, D could repossess all items previously purchased P's defaulted on payments for a new purchase and had all previous purchases repossessed, even though they were fully paid off D knew that P's were not in a financially stable position Unconscionable K Where the element of unconscionability is present at the time a contract is made, the contract should not be enforced -Includes an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party -Meaningfulness of the choice is negated by a gross inequality of bargaining power -Also, manner in which the contract was entered also relevant Education or lack of it; each party to the contract had reasonable opportunity to understand the terms of the contract; were important terms hidden or minimized -Ordinarily one who signs agreement without full knowledge might be held to assume risk -But when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms - In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made Procedural unfairness: -It was an adhesion K with set terms so party accepting had no bargaining power So little meaningfulness in choice to enter K -Lay person would have no clue what terms of the K meant -Education and circumstances of each party important to consider -So, procedurally unfair leading up to the K -Substantive unfairness K terms were substantively ridiculous and capable of shocking the conscience of the court -Failure to make ONE payment on ONE item could lead to seizure of all items purchased there -Even those already paid off Court chose not to enforce this K as it was unconscionable

ABC v. Wolf

D was employed as a sportscaster by P The two parties signed an employment agreement at the start of D's position with P Before the K ended, D accepted employment with CBS P sought specific performance of the right of first refusal and an injunction against D's employment with CBS but was denied relief CNC -Where an employee refuses to render services to an employer in violation of an existing contract, and the services are unique or extraordinary, an injunction may issue to prevent the employee from furnishing those services to another person for the duration of the contract -After a personal service contract terminates, the availability of equitable relief against the former employee diminishes substantially -Only if the employee has expressly agreed not to compete with the employer following the term of the contract, or is threatening to disclose trade secrets or commit another tortious act, is injunctive relief generally available -Even if there is an express covenant not to compete, it will be rigorously examined -A court will not normally decree specific enforcement of an employee's covenant not to compete unless necessary to protect their trade secrets, customer lists, or good will of the employer's business -Generally, the judiciary disfavors CNC contained in employment agreements -Public policy favors free exchange of goods and services through established market mechanisms -CNC here was not in writing and therefore could not be enforced post-employment -Remedy for monetary damages but no injunctive relief available -Components to consider for reasonableness of post-employment CNC: 1) written 2) geographical area 3) time 4) meaning of competition

Coan v. Orsinger

D, acting on behalf of a property management company, entered into an oral service K where P would live rent-free in one of the building's apartments in exchange for working as the resident manager while in law school One month later, D terminated the agreement Court looked to time required to complete performance, not potential for release, to determine that SOF applied

Mutual Mistake

Doesn't occur frequently Mistake is an erroneous belief that is not in accord with the facts existing at the time of the making of the K -Care must be taken to distinguish mistakes and misunderstandings o Misunderstanding→ fact is true but parties attach different meanings o Mistake→ fact believed is not true o Ex. Both parties believe breeder cow is barren (mistake) v. Peerless ships (misunderstanding) -Mutual mistake must be objectively confirmed in both parties and proven by the party asserting mutual mistake o Mistake must relate to a basic assumption having a material effect on the agreed exchange of performances of the parties

Duress

Duress exists where: o 1) one party involuntarily accepted the terms of another; o 2) circumstances permitted no other alternative; and o 3) such circumstances were the result of coercive acts of the other party Economic duress (business compulsion) o The test has come to be whether the will of the person induced by the threat was overcome rather than that of a reasonably firm person o The assertion of duress must be proven by evidence that the duress resulted from defendant's wrongful and oppressive conduct and not by the plaintiff's necessities o In many cases, a threat to breach a contract or to withhold payment of an admitted debt has constituted a wrongful act - Uses reasonable person standard to determine if free will was overcome

Impracticability

Expands impossibility doctrine to embrace performance that is rendered merely impracticable -Doesn't permit a party to escape contractual obligations because performance became more subjectively difficult or expensive -Successful impracticability defense requires an extreme and unreasonable expense and difficulty that cannot be surmounted by reasonable efforts -Creates more flexibility in bringing claims Near miss impossibility claim might now qualify for an impracticability claim -Objective impracticability: performance cannot be rendered by anyone -Subjective impracticability: although performance is possible by some promisors, it is not possible by the particular promisor

Order of Performances

If performances can be exchanged simultaneously, they are due simultaneously -Ex. Convenience store owner has no contractual duty to hand over the candy bar unless the purchases simultaneously offers payment -If one performance requires a period of time, that performance is due at an earlier time -Never takes time to pay money -Preference in favor of simultaneous performances -In a simultaneous exchange, each party's duty to perform is subject to an implied condition that the other party actually performs or offers to perform If one party fails to tender performance, the other party does not breach the contract by refusing to perform its own -Ex. Parties agree to buy sailboat at 10am on Sunday, but neither party shows up -No breach if neither party shows up -Perfect breach by showing up and tendering when other party doesn't In non-simultaneous performances, party whose performance requires a period of time must make substantial performance before the other party's promise becomes due -This protects other party from having to pay for materially defective performance -Many consumer transactions in goods are simultaneous transactions because the goods are available for immediate purchase -Many service and construction contracts are non-simultaneous exchanges

Substantial Performance- Injured Party's Options

If the breach is material and the breaching party fails to cure that breach, the injured party has two options: 1) Cancel contract (uncured material breach)→ the injured party may cancel the contract and sue for total breach because substantial performance is a condition of the other party's performance obligation 2) Continue with contract (substantial performance)→ the injured party may continue with the contract and sue for partial breach -Where the breach is not material the injured party must continue the contract and may not cancel

Foreseeability

If the supervening event was reasonably foreseeable, the promisor will forfeit the excuse where the agreement itself does not allocate the risk of the foreseeable event to the other party -Additional expense, within reason, is within the normal range of risks assumed by all contracting parties Two-tier analysis effect of foreseeability: 1) The parties did not foresee the contingency -Don't need to look to parties intent because it is irrelevant if they did not foresee the event- court will imply a fair and just result 2) The parties did foresee the contingency but failed to provide for it -Determine the intentions with regard to the risk of the contingencies from their negotiations

Public Policy

In general, contracts that contravene public policy are void -A promise, or other term of an agreement, is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms -Even if not an illegal contract, it may be unenforceable as a matter of policy because enforcement would be injurious to the best interest of the public -Remember, harder burden to satisfy than illegality

Forms of Recovery for K Breach- · R2K § 344 Purposes of Remedies

Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee: a) "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed- Most money b) "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made, or c) "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party.

Trust & Confidence

K's made with trust and confidence may make parties less cautious o Room for potential unfairness o Agents enter into K's on behalf of organizations who can't represent themselves Fiduciaries have certain obligations to protect who they represent Agents have more freedom to enter into K's than fiduciaries

Abuse of Process- Misrepresentation

Misrepresentation is a statement that is not in accord with the facts o Facts are something that is capable of proof- not occurring in the future Stems from fraud in the inducement of the K o Fraud is the nature of goods and services and not nature of what is signed itself -If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

Risk Allocation

Mutual mistake requires one innocent party to bear the loss o Recission will not be available for party who has assumed risk of loss Three situations when the risk of a mistake is allocated to one party: o The agreement allocates the risk to that party; o That party is aware he has only limited knowledge of the mistaken fact and yet treats that knowledge as sufficient; or o The court allocates the risk to that party because it is reasonable to do so *Sale of goods→ UCC does not have separate mistake doctrine therefore adopts R2K common law

Impossibility

Old rule required "act of God" level event to render K impossible -Modern rule uses three categories: A) Supervening illegality B) Supervening death of a party C) -Supervening destruction of necessary property -These categories leave the K literally impossible to complete -UCC also contains a provision (UCC §2-615(a)) that excuses seller's duty to deliver goods if delivery becomes impossible

Material Breach v. Substantial Performance- Construction K's

On a construction K there are two options for damages: 1) cost to complete or fix; or 2) diminution in value (value lost because of error)

Hewitt v. Hewitt

P became pregnant with D's child Without any formal marriage ceremony, D told P that the two would live together as husband and wife and share everything P and D lived together for 15 years and had 2 more children together When they later separated, P sought equal share of the property and profits acquired during their relationship Contravening Public Policy Contract law can't be used to overcome shortcomings in other areas of the law -Family law covers division of property, child custody and spousal support -Court found it wasn't appropriate for the judiciary to grant a legal status to a private arrangement (common law marriage) when common law marriage was already expressly rejected by the legislature -Also looked to Marriage Act, the purpose of which was to protect the integrity of marriage -Court would not go against public policy so instead it left it up to the legislature to make a change if it desired

Hill v. Jones

P bought D's house but found that there was significant termite damage, after questioning D's and being told that there was no prior termite damage D's knew of the prior damage but made no mention of it prior to the close of escrow D's also did not inform the home inspector of the prior infestation and treatment Duty to Disclose Vendor has an affirmative duty to disclose material facts where: o 1. Disclosure is necessary to prevent a previous assertion from being a misrepresentation or from being fraudulent or material; o 2. Disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing; o 3. Disclosure would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part; or o 4. The other person is entitled to know the fact because of a relationship of trust and confidence between them. Non-disclosure of a known fact is equivalent to an assertion that the fact doesn't exist o D's knew that P was concerned about termites and didn't disclose any information about the prior infestation -Any provision in a K making it possible for a party to free himself from the consequences of his own fraud in procuring its execution is invalid and cannot be used as a defense

Jacob & Youngs v. Kent

P contracted to build D's house using Reading pipe After completion, D realized some of the pipe was not Reading This was the result of an oversight by P's subcontractor and it would have been very expensive to fix by demolishing parts of the house to reinstall different pipe P refused to change out the pipe so D refused to pay the remaining balance on the K Substantial Performance Applied -First, ask if there is an express condition or a constructive condition -If not clear, it will be constructive (promise subject to constructive condition) -Must see language like in Oppenheimer that says if specific failure then the other party's duty will be discharged, otherwise the court will not find an express condition -Ex. "But if not built with 100% reading pipe, then the duty to buy the house will be discharged" -Here, K mentioned Reading pipe but not consequence if it wasn't used -If not an express condition, then what? -Promise subject to constructive condition of substantial performance -In substantial performance situation, injured party must continue their performance but can sue for damages for the partial breach -Materiality of mistake is determined on case-by-case basis -Here, pipe was of same kind and quality so the mistake resulted in major injury compared to significant cost that would have been incurred to Replace it -No difference in value between pipe mentioned in K and pipe used so no damages awarded

Totem Marine Tug v. Alyeska Pipeline

P contracted to deliver construction materials to D but the ship faced several problems which severely delayed delivery D terminated the K without giving any reason as to why P sent invoices for ~$300K but D, knowing of P's dire financial situation, instead offered to settle for $97.5K, which P accepted Economic Duress Economic duress does not exist, however, merely because a person has been the victim of a wrongful act o In addition, the victim must have no choice but to agree to the other party's terms or face serious financial hardship o An available alternative or remedy may not be adequate where the delay involved in pursuing that remedy would cause immediate and irreparable loss to one's economic or business interest (bankruptcy) Totem forced to involuntarily accept inadequate sum in settlement of debt because Alyeska knew of financial trouble o Type of wrongful conduct and lack of alternatives that would render the release voidable by Totem on the ground of economic duress Policy shift towards correcting unequal exchanges with uneven bargaining power and not enforcing K's made under coercion P has burden to show they had no choice but to agree to the terms or face serious financial hardship (no reasonable alternative element) o D withheld payment knowing how severely P needed it as P was facing bankruptcy if they did not accept the settlement P wanted to rescind the settlement agreement to sue for full damages o Remember status quo? Return the $97.5K settlement, affirm original K and sue for full damages owed of ~$300K

Holiday Inns v. Knight

P made an option K with D for the option to buy a plot of land The K was a 5-year option which required yearly payments of $10K on July 1st to keep the option open In the 3rd year of the K, D received the payment on July 2nd and cancelled the K Unconscionable Forfeiture -A court may follow equity over the law to avoid forfeiture -P wished to fulfill the K and acted in good faith -Huge loss outweighed by minor deviation of payment being 1 day late -P would have lost $30K investment and option to purchase land whereas D suffered no real injury -D also benefits from waiving condition because it receives full payment -Payment date not material to K so condition could have been waived

Oppenheimer Co. v. Oppenheim

P moved into a new office building and sublet their old lease to D The K required that P provide written consent from the landlord for D's proposed changes P's attorney called D's attorney on the deadline to inform D that they had obtained the landlord's consent D voided the K Parties clearly used conditional language in agreement Written confirmation from landlord due by specific date Courts strictly follow express conditions Express conditions are essential to bargaining and contracts will not go forward without them, regardless of how minor they may be Phone call on deadline day was not enough Substantial performance not applicable to express conditions

Crabtree v. Elizabeth Arden

P negotiated an employment agreement with D which was outlined on several different documents A year later, D denied the agreement and refused to offer P a pay increase so P was forced to find employment elsewhere Multiple Documents SOF does not require the memorandum to be in one document -Court looked at first memo and subsequent pay cards together -Signed and unsigned writings can be read together if they clearly refer to the same subject and transaction -Use of parol evidence to stitch the pieces together § 131 only requires that memorandum include subject matter, terms and intent to K -No explicit requirement for inclusion in one document

Harvest Rice v. Lehman

P orally negotiated an agreement with D for a delivery of rice P faxed a buyer report to D on the same day but D didn't see the report for several days because his fax machine didn't have any paper in it D refused to complete the order Using Merchant's Exception Writing must be sufficient to show the consummation of a K, not just negotiations -Here, report faxed contained ample terms to evidence a prior oral agreement -Because merchants are well-versed in making sales agreements, they should be prepared to respond to sales documents sent to them -Failing to object to document does not mean that there is a valid K- only means that objecting party can't raise SOF as a defense

Enhance-It v. American Access Tech

P purchased lighting products from D P was told that the products had been tested with good results D knew that the product had not been properly tested and was defective P sued for fraud (tort damages) and breach of K accompanied by a fraudulent act (K damages) Fact v. Future While statements about future performance are opinions and not actionable, statements about prior testing are factual and therefore can constitute fraud Party induced to enter K by fraud has a choice among causes of action and remedies o P can plead multiple theories and decide after verdict o Affirm and sue on K or disaffirm and sue under tort

El Dorado v. Mortensen

P sold a large parcel of land to D D took out a promissory note to cover the remaining balance owed As part of the agreement between P and D, once the first payment was made, a part of the land would be released to D A new payment due date was set for 5 days later to allow for recording of the release D provided payment on the new due date, but P refused to accept the payment or release the part of the land Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary -Payment and release could have been exchanged simultaneously -If P wanted the payment to come prior, they could have included K language to this point -Payment of money never requires time so K language must have specified this desire to overrule preference in favor of simultaneous exchange

Odorizzi v. Bloomfield School District

P was employed by D as an elementary school teacher P was arrested for homosexual activity D approached P and urged him to resign immediately or else the school district would publicly dismiss and embarrass him P did resign from his position The charges against P were ultimately dropped, but D refused to rehire P -Undue influence includes taking an unfair advantage of another's weakness of mind or taking a grossly oppressive and unfair advantage of another's necessities or distress o Involves the use of excessive pressure to persuade one vulnerable to such pressure - Pressure applied by a dominant subject to a servient object o Undue susceptibility may consist of total weakness of mind which leaves a person entirely without understanding, or a lesser weakness which destroys the capacity of a person to make a K even though he is not totally incapacitated o P had full faith and confidence in his boss o Conversation took place when P was in a period of high emotion - Had been in prison for 40 hours o Took place at his home o There was an air of rush (not time to talk to lawyer) -In that state P agreed to resign as he trusted the school board to have his best interest at heart but they really just wanted him off the staff ASAP -Had this conversation occurred when P returned to school in a formal meeting and he agreed to resign, undue influence may not have been satisfied

Cummings v. Dusenbury

P's bought a house from D's but soon realized it was not suitable for year-round living P's had inquired about the livability of the house before purchase and were told it was a year-round home Unilateral Mistake -Mistake was material to K because P's intended to use the home as their year-round residence and that is not what they received -No negligence on P's part because they inquired about the nature of the home and was told that it fit their needs -Ex. "year-round house" "good house" "nice location" "you'll be happy with it" -Court found unconscionable result would come from enforcement of K so rescission was granted -P's no longer wanted the house so they had to elect to disaffirm the K and restore the parties to status quo -Not enough evidence to satisfy claim for tort of fraud -Fraud requires concealment with intent to deceive- court didn't find that here so unilateral mistake theory was used

Ortelere v. Teachers' Retirement Board

P's wife had to take a one-year leave of absence after suffering a nervous breakdown While still on leave, she irrevocably changed her retirement plan to receive maximum payouts with no benefits after death, then passed away two months later P sued to set aside her election on the grounds of mental incompetence Avoidable K -Sufficient evidence that P's wife acted out of serious mental illness when she changed her retirement plan Board was or should have been fully aware of O's condition -R2K §15(b): "he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition" -Her irrational choice shows she couldn't appreciate the gravity of the transaction and as the school board was filled in on her condition they had reason to know of her inability to understand the transactions Restitution -Mental capacity differs from infancy in that party suffering from illness may be liable for restitution if avoidance would be unjust -Here, K was avoided after P gave restitution to the school of the extra money she got out of the two checks ($100/month) -Party avoiding K as a defense must give full restitution to party that has performed in order to avoid the k If unable to fully restore the benefit gained, the K would not be voidable -The restoration was entirely possible as P's wife only got increased monthly payment of about $100 extra for two months- P could give that back easily and then get benefits he lost

UCC Exceptions to SOF

Part performance: -A contract for the sale of goods is enforceable to the extent of any goods delivered and accepted or payment received and accepted Admission to oral K: Enforceability of a contract if the party to be charged admits in a pleading, testimony, or other statement before a court that a contract exists, although such a contract will only be enforceable to the extent of the quantity of goods admitted

Doctrine of Forfeiture

R2K § 229 Excuse of a Condition to Avoid a Forfeiture -To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition, unless its occurrence was a material part of the agreed exchange -Weighed by obligee's forfeiture with importance of obligor's duty -Only conditions non-material to the bargain can be forfeited -Courts analyze if a condition needs to be excused in order to avoid an unconscionable forfeiture

Express Conditions

Requires perfect performance -If condition is not perfectly performed, duty does not become due -Non-breaching party's duty to perform is then discharged and they can sue for damages Must be made clear in the writing that party will not move forward with the contract unless express condition occurs -To make it clear that it is expressly attaching consequences Specific language of "express condition" is not required, but the language should convey to the other party that the failure of the condition to occur means that the transaction or performance will not occur -Language such as: "provided that," "contingent upon," "on condition that," "if," and "unless and until" are common but good drafting practices also specify what will happen if the condition does not occur If unclear, an express condition can be implied by a court, but courts tend to favor seeing unclear language as a promise with an implied, constructive condition (§227(3)) -Which would mean perfect performance is not required

Rescission

Rescission is possible when the mistaken belief relates to a basic assumption of the parties upon which the contract is made, and which materially affects the agreed performances of the parties Granted only in sound discretion of the court Two types of mistake: 1) A party's mistake relates only to the quality or value of the real estate transferred, and that such mistakes are collateral to the agreement and do not justify rescission -Fact that it may be of lesser value than the purchaser expected at the time of the transaction is not a sufficient basis for the granting of equitable relief -This type of mistake is not material to the bargain and thus missing one of the factors necessary for recission 2) Parties were mistaken as to the very nature of the character of the consideration and claim that the pervasive and essential quality of this mistake renders rescission

Statute of Frauds (SOF)

SOF can make certain types of K's unenforceable by law because it requires a signed writing for the subject matter of the contract that was formed -Generally in CL and UCC, oral K's are enforceable without any particular form for the K necessary -The SOF, however, is a rule in the R2K and UCC that requires certain contracts to be in writing and signed by the person against whom enforcement is sought (if not, it would be unenforceable) UCC and CL rules are slightly different Explained Further Generally, oral K's are enforceable, and neither the common law nor the UCC require any particular form to make the K enforceable o The SOF identifies specific contexts in which an otherwise valid oral K must be evidenced by a written memorial of the transaction and signed by the party against whom enforcement of the contract is sought Policy consideration was to avoid fraudulent K's or parties backing out of big oral K's

Substantial Performance

Substantial performance regulates the effect of less than perfect performance by the first party required to perform on the second party's return obligation to perform Developed to protect P's who had almost but not quite completed performance Substantial performance is not perfect performance Any failure to perform as promised, even if there was substantial performance, constitutes a breach of contract giving the injured party a right to sue for that partial breach The materiality of the first party's performance controls whether the second party's performance is: 1) discharged (if uncured material breach) or, 2) not discharged (if substantial performance) If party substantially performs, this requires the injured party to continue the K and its own performance, while retaining the right to sue for damages for the partial breach The first party materially breaches the contract if it does not substantially perform

Material Failure v. Substantial Performance

Substantial performance: in K law, fulfillment of the obligations agreed to in a contract, with only slight variances from the exact terms and/or unimportant omissions or minor defects, is considered substantial performance. A simple test is whether the omission, variance, or defect can be easily compensated for with money. a) the contract is for supplying 144 pumps for $14,400, and only 140 were delivered; b) the real property was supposed to be 80 acres and only contained 78 acres- this constitutes substantial performance unless the loss of two acres is crucial to the value of the property (e.g. reduced the number of lots able to be subdivided); c) the product was to be delivered on October 25 and did not arrive until November 5- this constitutes substantial performance unless the product was required for a Halloween sale -Cannot have substantial performance if there is a material failure -If failure remains uncured, injured party has choice to cancel or continue K -K cannot be discharged after substantial performance so party in error will have a chance to correct their performance

Retracting Repudiation- Nullification of Repudiation or Basis for Repudiation

The effect of a statement as constituting a repudiation is nullified by a retraction of the statement if notification of the retraction comes to the attention of the injured party before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final o Repudiation can be revoked unless: § 1) the damaged party has already incurred detrimental reliance; or § 2) injured party expressly states that repudiation is final

SOF- R2K § 134 Signature

The signature of a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as the signor

SOF- Common Law Categories

Types of K's subject to SOF per R2K: 1) Marriage 2) Sale of real estate 3) Not to be performed within one year of the making *Other types are included but we won't cover those

SOF- Merchant's Exception

Unique goods: -A seller who makes a substantial beginning on the manufacture of a specifically manufactured goods for the buyer that cannot be sold elsewhere in the ordinary course of business may enforce the contract against the buyer despite the absence of a signed memorandum -Merchant's Exception -An exception to the SOF's writing requirement for K's for the sale of goods valued over $500 -Provides that an oral agreement will be enforceable if a confirmatory writing sufficiently sets forth the terms of the oral agreement, and the recipient is aware of what the confirmatory writing contains, but does not object to its terms within ten days -2-201(2)→ Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection 1 (written agreement for sale over $500) against such party unless written notice of objection to its contents is given within 10 days after it is received

Satisfaction of SOF- R2K § 131 General Requisites of a Memorandum

Unless additional requirements are prescribed by the particular statute, a K within the SOF is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which: (a) Reasonably identifies the subject matter of the K; (b) is sufficient to indicate that a K with respect thereto has been made between the parties or offered by the signer to the other party, and (c) states with the reasonable certainty the essential terms of the unperformed promises in the K

Voidable

Voidable: can be ratified (enforced) or avoided by injured party Voidable Contracts C2A3M2 C- Capacity (2) Infancy Mental A- Abuse of Process (3) Duress Undue influence Misrepresentation M- Mistake (2) Mutual Unilateral A K that is voidable may later be ratified by the injured party, while a void K may not be

Doctrine of Waiver

Waiver: voluntary relinquishment of a known right Doctrine of waiver: a party who benefits from the non-occurrence of the condition may waive the requirement of the condition in most cases Common law does not require the waiving party to actually "know" their legal rights regarding waiver -A mere reason to know is adequate -Normally waiver occurs when a party makes an express or implied promise to perform without the occurrence of an express or constructive condition previously stated -If the waiver promise was given in exchange for negotiated consideration, the promise is permanently enforceable -If the other party relies on the waiver, promissory estoppel may also make the waiver promise permanently enforceable -In all other cases a waiver can be retracted with reasonable notice given before the time for the condition to occur has expired -Most often the "promise" to waive is not express, but implied from the waiving party's acceptance of performance notwithstanding the occurrence of the condition -Often procedural or technical conditions relating to timing can be waived

Resolving Misrepresentation

When dealing with fraud a party has two options: o Affirm/Ratify the K (Default method) -Use parol evidence to prove misrepresentation and add misrepresentation to K - Sue for breach (contract law damages) o Avoid K (Must elect this method) - Rescind the K, grant the other party restitution for what they have conferred to you (based on the misrepresentation regarding the K) -Sue for intentional tort of fraud (tort law damages)

Unilateral Mistake- R2K § 153 When Mistake of One Party Makes a Contract Voidable

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake and: (a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or (b) the other party had reason to know of the mistake or his fault caused the mistake Two important components- mistake must have material effect and cannot bear the risk of the mistake

When a Failure to Give Assurance May Be Treated as a Repudiation

Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance

Frustration of Purpose- R2K § 265 Discharge by Supervening Frustration

Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged -Performance of the K remains feasible but the purpose for which one or both parties entered the K has been defeated -Ex. Contracting a room to see a procession, but the procession is cancelled so purchasing party refuses to pay balance of room -It is essential that the only reason for the rental of room was to view the procession -Would get restitution for deposit made -Cannot be the fault of the party claiming frustration

Breach

failure to perform perfectly at the time that performance becomes due

Constructive Conditions- Non-Simultaneous

first, performance must be substantial -If it is not, then there is no breach for not performing duty second -If it is, then breach for not performing duty second

Misrepresentation Statements- R2K § 162 When a Misrepresentation Is Fraudulent or Material

o (1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker: - (a) knows or believes that the assertion is not in accord with the facts, or - (b) does not have the confidence that he states or implies in the truth of the assertion, or - (c) knows that he does not have the basis that he states or implies for the assertion o (2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so

Abuse- Undue Influence- R2K §177 When Undue Influence Makes a Contract Voidable

o (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare o (2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim o (3) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction No tort for undue influence: o Relief, if any, may be found only in rescission of the K o Duress: 1) improper threat and 2) no reasonable alternative o Coercing someone to sign K, not making a choice at all Undue Influence: 1) unfair persuasion and 2) relationship of trust and confidence o Interfering with their free choice, not coerced into signing Ex. Totem not undue influence because there was no relationship

Effect of a Repudiation as a Breach

o (1) Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach o (2) Where performances are to be exchanged under an exchange for promises, one party's repudiation of a duty to render performance discharges the other party's remaining duties to render performance o So anticipatory repudiation allows for total damages and discharge of duty on the part of the damaged party

Constructive Conditions- Simultaneous

parties agree to buy sailboat at 10am on Sunday, but neither party shows up No breach- must tender your full and perfect performance in order to create other party's breach

Anticapatory Repudiation

the "breach" of a duty before it becomes due o This pre-breach must be explicitly clear and unequivocal o If explicitly clear it discharges the other party's duty to perform and creates a claim for total breach and damages

Cloud Corp v. Hasbro

· D sold Wonder World Aquariums that included packets of Laponite HB which was supplied by P · D issued purchase orders but no formal K was ever signed · The product became less popular so D placed its final purchase order, but then requested a different formula · P produced excess packets which D later refused to pay for Enforceable Modification · Reliance on a waiver can turn it into a permanent modification o D did not initially respond to the order acknowledgement which included the extra packets o Evidence that P sufficiently relied on the modification because emails and conversations with other Hasbro employees involved the number of packets indicated on the order acknowledgement, leading P to believe the extra packets were wanted o Reliance supports waiver or non-enforceability of NOM clause.

Impracticability v. Frustration

· Impracticability -primary function is to excuse performance where a supervening event makes the performance of services or transfer of property either impossible or at least not practicable -determine whether the party seeing an excuse for non-performance bears the risk of the supervening event- if the party seeking excuse bears the risk, neither doctrine will provide legal excuse to discharge contractual duties -It is preferable to apply impracticability to the party whose performance involves the provisions of property or services Frustration -excuses performance requiring only the payment of money when the payment is feasible and possible but nonetheless pointless to the promisor determine whether the party seeing an excuse for non-performance bears the risk of the supervening event- if the party seeking excuse bears the risk, neither doctrine will provide legal excuse to discharge contractual duties - It is preferable to apply frustration to the party whose performance involves the payment of money

Common Law Exception to SOF- R2K § 139 Enforcement by Virtue of Action in Reliance

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires. (2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant: (a) the availability and adequacy of other remedies, particularly cancellation and restitution; (b) the definite and substantial character of the action or forbearance in relation to the remedy sought; (c) the extent to which the action of forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence; (d) the reasonableness of the action or forbearance; and (e) the extent to which the action of forbearance was foreseeable by the promisor.

UCC SOF

(1) Except as otherwise provided in this section, a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this subsection beyond the quantity of goods shown in such writing.

SOF- R2K § 130 K Not to be performed within one-year

(1) Where any promise in a contract cannot be fully performed within a year from the time the contract is made, all promises in the promises are within the SOF until one party completes his performance (2) When one party to a K has completed his performance, the one-year provision does not prevent enforcement of the promises of the parties *(2) just means that even if SOF would have invalidated K, if one party fully performs their duty, then the duty of the other party becomes due; the SOF cannot be used to release them of their obligation

UCC SOF- Exceptions

(2) Between merchants if, within a reasonable time, a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received. (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable: (a) If the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or (c) with respect to goods for which payment has been made and accepted or which have been received and accepted

repudiation

(a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach, or (b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach

Mental Capacity Tests

-Cognitive Test- traditional common law test for mental incapacity sufficient to avoid a contract Could the person understand the nature and consequences of the transaction? -Volitional Reasoning Test- test of reasoning as related to the specific K Expanded by R2K § 15 to encompass increased understanding of mental illness "Unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition"- party understands the consequences of their actions but cannot control them -Power of avoidance under either test terminates when: 1. Contract is made on fair terms; 2. Other party is without actual knowledge of the illness; and; 3. Unjust because restoration of consideration not possible

U.S. v. Algernon Blair

-D entered into a K with the U.S. to build a naval hospital -D then sub-contracted Coastal (another P) to supply equipment and perform steel erection -P supplied its own cranes for which D refused to pay -P terminated its performance after 28% completion of the project -D then hired another sub-contractor to finish the job -P sued to recover for labor and equipment furnished Quantum Meruit Recovery It is an accepted principle of K law, often applied in the case of construction contracts, that the promisee, upon breach, has the option to forego any suit on the K and claim only the reasonable value of his performance (off the K) -Here, P could not recover under the K because had it been fully performed, P actually would have lost money on the job -Use of quantum meruit allows P to recover the value of its services regardless of if they would have lost money cause it is suing off the K -Can recover reasonable value of performance without having to subtract for any future losses -While the value of the K can be used as evidence it does not limit the amount of recovery- use market value -Look to what the services would have cost from another party in the same position

Bilateral accords/satisfaction

-Does not replace obligor's duty but merely suspends duty on the original K until the future when the completed accord is satisfied -Breach of the accord agreement allows the oblige to sue on the original K or the accord K -Accord is the new agreement whereas satisfaction is performance of the accord Remedy: 1) Until performance of the accord, the original duty is suspended unless there is such a breach of the accord by the obligor. This breach discharges the new duty of the oblige to accept the performance in satisfaction. If there is such a breach, the obligee may enforce either the original duty or any duty under the accord 2) Breach of the accord by the obligee does not discharge the original duty, but the obligor can sue for specific performance of the accord, in addition to any claim for damages for partial breach

NOM/NOW Clauses

-If SOF does not require the original K to be in writing, modifications do not need to be in writing (applicable to UCC and common law) -NOM/NOW clauses, when enforceable, could negate the freedom of the parties to voluntarily mutually agree to modify the terms of their written agreement -NOM (no oral modification): prevents the parties from amending the written agreement orally -Can be waived (but party can rescind their waiver within a reasonable time to reassert no oral modification) -NOW (no oral waiver): restricts the power of the parties to relinquish the right to insist on strict compliance with a NOM -Attempts to prevent a party from temporarily waiving the writing requirement of the NOM

Amendment Rules

-If the primary contract was required to be in writing under the common law or the UCC SOF provisions, then any amendment must also be in writing (even if the original contract does not include a NOM or NOW clause) -If the SOF does not require the primary contract to be in writing but it nonetheless is in writing AND it includes a NOM or NOW clause, then any modifications must also be in writing

Substituted k

-Immediately discharges obligations of the prior contracts -If there is a breach of the substituted K, non-breaching party can only sue for damages on the substitute Remedy: -The substituted K discharges the original duty immediately and breach of the substituted K by the obligor does not give the obligee a right to enforce the original duty 1) Mutual rescission 2) Modification A) Substituted K- original duty is discharged B) Accord and satisfaction- original duty is suspended until accord is satisfied *If ambiguity as to what type is being used, courts prefer accord and satisfaction model because it gives obligee choice in what K to sue under and leaves more time for performance

Doctrine of Good Faith

-Implied in every K is covenant of good faith and fair dealing -Doctrine of prevention: parties may not prevent or hinder the occurrence of a condition -If a seller actively prevents a buyer from being able to fulfill the condition of getting financing for the purchase of the home, the buyer would be excused from the condition of obtaining financing and from the purchase of the home -Parties must also take affirmative steps to cause the occurrence of condition when the occurrence is within their control -If the buyer does not take affirmative steps to look for financing, the buyer violates the requirement of good faith -Only off the hook if the buyer did what he could to ensure that he obtained the financing and could not do so

Constructive Conditions

-Implied in every promise is the constructive condition that the person will substantially perform -If performance is not perfect, there is a breach -But, if the breaching party substantially performed, satisfying the constructive condition, then the breach is not material -So, the non-breaching party must continue to perform but can still sue for damages because of the imperfect performance

Angel v. Murray

-Maher collected trash for the city of Newport under five-year contracts -In '67 and '68, Maher requested an additional $10K to compensate for unexpected increased in residential units -D approved the increases in pay both times -City taxpayers sued to force the return of the additional payments PLDR Not Applied -Modern trend is for courts not to apply the PLDR when a party encounters unanticipated difficulties and the other party voluntarily agrees to modify the K -No evidence of duress or coercion on D to make payments and terms were fair and equitable -Court will only enforce a modification if the parties voluntarily agree and if: 1) the promise modifying the original contract was made before the contract was fully performed on either side; 2) the underlying circumstances which prompted the modification were unanticipated by the parties; and 3) the modification is fair and equitable

Difference Between Unilateral Mistake and Misrepresentation

-Misrepresentation doesn't require material effect on K -When dealing with unilateral mistake, it must have a material effect on the agreement and either: -Enforcing the K would be unconscionable ; or -The other party had reason to know of the mistake -In an exam context, misrepresentation is broader because it can apply to any element of the K -Elements for successful unilateral mistake claim: 1) Material effect on K 2) Risk is not assigned to party 3) Enforcing K would be unconscionable or other party knew of mistake

Improper Threat- R2K 176 When a Threat is Improper

-Not every threat is improper enough to make K voidable 1 ) A threat is improper if- - What is threatened is a crime or a tort, or the threat itself is a crime or a tort if it resulted in obtaining property; - What is threatened is a criminal prosecution; - Use of a civil process is threatened and the threat is made in bad faith; or - The threat is a breach of the duty of good faith and fair dealing o (2) A threat is improper if the resulting exchange is not on fair terms, and - (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat, - (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or - (c) what is threatened is otherwise a use of power for illegitimate ends

Off the K Recovery

-One party must make a material breach before other party can elect to terminate the K and sue for q.m. recovery -Material breach is failure to make substantial performance -Signing a losing K is not enough to toast the K and sue through q.m.- there must be a breach by the other party first -Court first must make determination if material breach occurred -Important because it determines whether non-breaching party needs to continue its performance and what type of damages will be awarded -If a party is dumb enough to breach an advantageous K, it may be liable to return value of performance conferred -Here, P agreed to perform $115K worth of work for $100K but because D refused to pay, P was able to terminate the K and recover the value of its work when otherwise it would have lost $15K on the K

Halbman v. Lemke

-P (a minor) purchased a car from D and promised to pay off the remaining balance in weekly installments -The car then began having problems so instead of paying for repairs, P returned the title to D and disaffirmed the K -The car was then vandalized and left unsalvageable

Lenawee Board of Health v. Messerly

-P bought a 3-unit apartment building from D but after purchase found that the septic system was faulty -The building was condemned -Both parties were mistaken as to the income-producing capacity of the property -In cases of mistake by two equally innocent parties, we are required to determine which blameless party should assume the loss resulting from the misapprehension shared -Look first to language of K for any assignment of risk to one party: - "Purchaser has examined this property and agrees to accept same in its present condition. -There are no other or additional written or oral understanding" -As-is clause assigns risk to examining party -Because P bears the risk of mistake, he cannot sue for recission

Anheuser Busch v. Mason

-P sold beer to D who ran a brothel -P knew that D used funds from her business to pay for the beer -A K is not void because there is something illegal in its surroundings -Mere knowledge of the illegal activity without active participation will not suffice to void a K -K can be void if legislation says it is or the court decides it is against public policy -Without legislation against it, hard to make the court prohibit it -Test for determination of illegal K: 1) What is the consideration? Sale of beer for dollar amount 2) Are there any other factors that make legal consideration illegal? -Only illegal if sale of beer aided vendee in illegal purpose

Clark v. Elza

-P's were injured in a car accident after being hit by D's -The parties agreed to settle for $9.5K before the case reached trial but P's later refused to accept payment because their costs had increased -D's wanted to use the oral agreement to settle as an accord to prevent P's from pursuing their original cause of action Accord Found -Presumption in favor of accord -Agreement here couldn't be a substituted K because the agreement called for a future release of performance -Substituted K calls for immediate release of original performance -Until accord is breached, original cause of action is only suspended -By adopting the accord model, D's can pay the settlement amount and then P's must accept the performance and cannot sue for additional money -P's could only enforce the underlying agreement (bringing case to trial) if D's breached by failing to perform (make payment

K's with Minors- R2K §14

-Person can only make voidable K's until their 18th birthday -Children are presumed to never have the capacity to contract -Minor can choose to ratify or avoid the K- but can only make this decision once -Can ratify the K by honoring it -Can avoid or ratify up to a reasonable time after one has reach the age of majority -Absent misrepresentation or tortious damage to the property, a minor who disaffirms a contract for the purchase of an item which is not a necessity may recover his purchase price without liability for use, depreciation, damage, or other diminution in value -Where there is misrepresentation (of age) by a minor or willful destruction of property, the vendor may be able to recover damages in tort -Absent these factors (as in present case) requiring a disaffirming minor to make restitution for diminished value is, in effect, to bind the minor to a part of the obligation which by law he is privileged to avoid -Making minors pay restitution damages eliminates the purpose of the infancy doctrine

Restitution Damages

-Restitution requires breaching party against whom restitution is sought to return the benefit of the service or product they conferred -This is sought off the K and meant to avoid unjust enrichment of the breaching party -Cannot sue for restitution interest if the non-breaching party has already fully performed -Suing off the K results in an award granted through quantum meruit ("what one has earned") because no longer using K law -Cannot recover value greater than K if suing off the K

K Made Unenforceable by Later Events- R2K § 261 Discharge by Supervening Impracticability

-Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged -Future duties can be discharged with no penalty for breach if the K is made unenforceable by a later event -Ex. unexpected catastrophe occurs after formation -Referred to as supervening event -Nothing wrong with K itself- validly formed agreement at the time - Post formation event occurred without fault of either party, making full performance by one party impossible, highly impracticable, or at the very least more expensive or drastically less beneficial than originally anticipated -Doctrine of risk allocation still applicable here -Discharging duty for supervening event won't be granted if one party bears the risk of occurrence Three contexts for discharge of future duties: 1) Impossibility 2) Impracticability 3) Frustration of purpose

Void

-cannot be enforced by either party -State will refuse to lend its enforcement powers to private agreements and contracts by operation of law -If one party over-performs, and the contract is void, contract still will not be enforced -But, MOST innocent party can collect on restitution -K is "valid" when formed and otherwise enforceable but as a matter of law the validly formed K is void and unenforceable, so it is as if it never existed -Examples: Illegal, contravene public policy, required to be in writing pursuant to the Statute of Frauds, so grossly one sided and unfair as to shock the conscience of the court, executed through fraud or executed under duress

Mental Incapacity- R2K § 15

1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect: (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition (2) Where the K is made in fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires.

SOF Test

1) Is the subject matter covered by one of the categories? o Marriage, sale of real estate, not to be performed in a year, sale over $500 2) Is the writing signed by the party to be charged? o Can be in multiple documents if they relate to each other 3) If #2 isn't met, do any exceptions apply? -Reliance, part performance, merchant's exception, special goods or admission to oral K

Types of Modification

1) Mutual Rescission 2) Bilateral accords/satisfaction 3) Substituted K

When Risk is Allocated

A party bears the risk of a mistake when: -The risk is allocated to him by agreement He is aware, at the time the K is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient; or -The risk is allocated to him by the court on the ground that it is reasonable to do so -If any of these apply against the party challenging the K, their claim will be unsuccessful -Party bringing voidable claim cannot bear risk of mistake

K Modification- R2K § 89 Modification of Executory Contract

A promise modifying a duty under a contract not fully performed on either side is binding if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made

K Modification- R2K § 73 Performance of Legal Duty

A similar performance is consideration if it differs from what was required by the duty

Doctrine of Waiver- Constructive Conditions

All constructive conditions may be waived regardless of materiality -It is easier to waive constructive conditions since waiver of material express conditions is not binding in some cases -A waiver of an express condition is not effective if the condition was a material part of the exchange

Covenants not to Compete

An agreement not to work for competitor or employer during and/or after employment -Implied covenants not to compete -Only valid during employment and if a unique position requiring special skills Implied covenants post-employment -Always invalid -Have to be express