COLLINS: CONTRACTS II
I. COMPETENCY TO CONTRACT
A. People who are incompetent have the option to void a contract where the other pty
does not
B. Minors
1. Until psn reaches majority, any K she enters is voidable at her option
2. Must disaffirm promptly after reaching majority
3. Can always disaffirm executory K the other pty is trying to enforce (i.e., K not
performed yet, minor is D)
4. Economic Adjustment (Damages) After Disaffirmance
a. If minor is plaintiff
1) Minor must return to other pty only what he still has now from the
contract bargain, incl any proceeds from the K, if they exist, and gets
back reimbursement for performance to date
Halbman: P minor bought used car from D, then wanted out after car
broke, before all purchase $ was paid --> P gets rescission and full
reimbursement of what he's paid, and must return the car as is, even
tho' it has lower value than car as he received it: P must give back
only what remains of his benefit
2) Most Cts: P minor must return any remaining consideration he
received, + any value he received and dissipated --> no unjust
enrichment
b. If minor is defendant
1) P may sue minor bcse he does not go through w/contract:
2) Non-minor P won't recover expectation dgs (profits she w/h/made),
or any other contract dgs.
3) P gets limited right of restitution: rt to require D minor to return
goods or other value (eg. if D exchanged goods for other stuff) if D
still has them.
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i. If goods since disposed/destroyed, D has no obligation to pay
reasonable value
5. If Minor Falsely Represents Her Age
a. Most cts won't make a distinction, & P will be allowed to avoid the K
Premise behind allowing disaffirmance is that minors are "incompetent" -misrepresentation is a manifestation of such incompetence, and minor still
makes a bad K
b. Some cts say minor waived specific rights
1) Minor c/be req'd to pay reas value of goods, even if they're gone
2) P may be allowed to sue in tort for misrep, although minor still gets to
disaffirm
6. Necessities
a. If psn supplies "necessaries" to a minor, she may recover in quasi-contract
for the reasonable value of goods -- eg. food, clothing, shelter -- minor not
liable for necessities bought on another's credit
b. Webster Street Partnership: minors disaffirmed lease --> not liable for
accrued rent/expenses bcse apt was not a "necessity": minors had homes,
& c/h/b living w/parents --> minors got resitution of rent paid
C. Mental Incompetents
1. Includes: insane, mentally ill, senile, retarded, drunk
2. Standard: psn lacks capacity to contract if
a. He is unable to understand in a reasonable manner the nature and
consequences of the transaction
1) Modern Take: any disorder but-for which K w/n/h/b made
b. He is unable to act in a reasonable manner in relation to the transaction
and the other pty has reason to know of the condition
1) Faber: P made K w/D to buy land to build houses, rescinded after
taking many steps toward development --> even tho' P understood,
acted under compulsion --> rescission allowed even tho' D didn't know
of condition
2) Ortelere: P's husband gets to reverse P's former decision to get lower
monthly retirement benefits if he can show that P was "psychotic" @
time of election -- D knew of P's mental illness
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Dissent: was P's decision really irrational?
3) Green (p. 562): s/look at deal to see if it's irrational -- can't just
consider pty's state, but also relation btwn mental state & K
c. Rest §15
1) If failure of cognitive understanding, K can be avoided in any case
2) If compulsion to act, other pty must know of the compulsion for
compulsive pty to avoid the K
D. Undue Influence: may apply where duress does not -- Odorizzi: P forced to resign
from teaching job under threat of exposure (homosexuality) by superintendant -->
threat not illegal, but:
weaker pty overcome by dominant pty
1. Problem: society values persuasion in sales, pushing goods
II. REVISIONS OF DUTY (Discharge of Duty/Cancelling the K)
A. Duress
1. Unlawful action must constitute the duress: pty must do something she
doesn't have contractual rt to do, overcoming free will of other pty -- pty under
duress gets restitution
a.
Wh will was overcome is judged by subjective standard -- wh psn of
"ordinary firmness" w/h/succumbed has evidentiary value only
b. Psn claiming duress must show she was unfairly coerced into entering the
K or modifying it -- incl. showing that there was no other alternative (legal
remedy not adequate)
c. Taking advantage of another's bad financial situation by witholding perf ≠
duress, where psn taking advantage did not create the bad situation
Hackley v. Headley
3. Economic Duress: if pty threatens to withold needed goods or svcs and victim
can't find another source & no adequate legal remedy (threatened pty must
have no alternative)
a. Duress of goods: if pty has your goods & refuses to return them w/o add'l
benefit -- won't comply w/agreed upon standards
Austin Instrument Co
4. Minority: allows duress w/o unlawful threat: even if psn has legal/K right -if unfairness results (forcing to lower price, sell stock in co.)
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5. Test of unlawful force: majority -- threat to breach K if it's not modified
Duress found if threatened breach wld result in irreparable injury
unavoidable by lawsuit or other means, and threat = breach of good faith and
fair dealing.
6. Preexisting Duty Rule/Consideration -- intertwined w/duress
a. Pty can't enforce K modification if she gave no consideration other than
preexisting duty to perform (got modification by threatening to withold
svcs/goods if demand not granted)
Alaska Packers'
b. Opp View: consideration = giving up right to threaten breach
(Primary duty: perform K; secondary duty: pay dgs if breach)
1) Trad: if some colorable basis for claim --> consideration
2) Modern: if P believes she has a claim --> consideration
c. Destroy 1st K and make new K: violation of preex duty rule? NO:
consideration for rescission = giving up right to sue to enforce the K
POLICY: freedom of K
New K requires intervening moment of time when pties intend to be free
of any obligation-- can't go directly from one to another w/o it
(Schwartzreich says you can -- one-sided modification will be enforced)
d. UCC §2-209(1): abandons preex duty rule -- modifications enforced w/o
consideration, but requires good faith
e. N/A to 3rd pties: performance of duty already owed to 3rd psn =
consideration for another's promise to pay for that perf
eg. P subcontractor agreed to finish job even tho' gen contractor had
walked, in reliance on owner's promise to pay --> owner's promise
enforced bcse P under no obligation to owner to do work (only to general)
see p. 590
f. OUT OF ORDER: if have pre-existing duty to do something, can't collect
reward for perf of that duty Denney
B. Unforeseen Circumstances
1. Modification will be enforced w/o consideration if unexpected burden + good
faith effort to deal w/the circumstances
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a. JUSTIFICATION: psn didn't originally contract for add'l bdn -- want to
uphold unobjectionable mods of executory Ks
b. Brian Constr & Dev Co "Extra Rubble"
2. R2d §89: modification of K not fully perf'd by either pty binding if:
a. modification fair considering circs not orig anticipated
b. to extent provided by statute
c. to extent nec in view of material change in position in reliance on the
modification
3. Similar Doctrine: R2d §266: pty can walk from K if impracticable to perform
and pty didn't know/had no reason to know
4. Drop in real estate mkt -- not ordinary unforeseen circs -- "out there"
C. Waiver and Estoppel: Differences
1. Common Law: pties may always orally modify a K, even if K explicity
provides that modifications must be written -- such clause not effective -- can't
restrict ability to make new bargain
-- based on separate agmt, implied waiver
2. UCC §2-209: no oral mod clause is enforceable, and a subsequent oral
modification is not binding valid despite what pties do later
a. Exception: attempt at oral modification may be a waiver -i.e. if one pty voluntarily gives up rt to insist on written modif.
Eg. if buyer tells seller goods c/arrive later.
b. Such right can be reinstated unless other pty has relied. Once she
detrimentally relies on other's promise to discharge part of performance
owed/debt --> estoppel
3. Once estopped from asserting something, always estopped Moon Motor
Lodge: D owner promised to pay P contractor to fix sub-contractor's work, K
contained no oral mod clause --> D must pay, bcse P did work (and D knew it
was being done)
5. Can't waive material part of contract, otherwise no consideration
6. Modification is diff -- neither waiver nor estoppel relies upon consid for
changing no oral modification clause ?
7. A pty can invalidate a "compromise" adjusting the K by showing that other pty
acted unfairly, asserted claims to which he knew he had no right, to get the
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adjustment. Eg., D agreed to pay a sum less than what he knew he owed -->
no compromise. Headley
D. ACCORD AND SATISFACTION
1. Arises in context of valid dispute -- eg. if dispute over price, paying middle
price = A&S
2. Executory Accord: agmt by pties that one pty (debtor) will give substitute
performance, and other pty (creditor) will accept it instead of existing, owing
duty
a. Always enforceable, but previous contractual duty is not discharged upon
making of executory accord -- discharge occurs when the new terms are
performed
b. Satisfaction: when (debtor) pty renders substitute perf
1) Discharges (debtor) pty's original obligation
2) (Creditor) pty may not sue for dgs he may have incurred by accepting
the substitute performance
c. Executory Accord ≠ Substitute Contract (novation): executory accord is a
suspension of a cause of action
1) If pties substitute a diff kind of perf --> viewed as substitute K
If lesser amt of $ is substituted --> exec accord
3. If debtor fails to perform accord agmt, creditor has two options
a. Sue for breach of original contract
b. Sue for breach of accord agmt
4. If Creditor breaches accord agmt, by suing for original K perf before accord
perf is rendered, debtor has two options
a. Sue for spec perf of accord agmt -- i.e. get order preventing Creditor from
suing for orig perf until accord perf is due
b. Render original K perf and sue for dgs for Creditor's breach
5. Cashing a Check as Accord & Satisfaction
a. Situation: if valid dispute btwn pties over amt due by one to the other, and
Debtor gives check for less than Creditor believes due, w/wds written on
it: "payment in full"
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If Creditor cashes the check, is there an implied A&S (thus discharging
Debtor from add'l obligation)?
b. Common Law: once valid accord is tendered & check is cashed --> checkcasher has discharged the Debtor -- can't claim any add'l perf is due
1) Applies even if Creditor indicates rights reserved on the check, by
writing "under protest" or "not full payment"
Marton Remodeling
c. Some Cts & UCC §1-207: Creditor can cash check, w/rights reserved
explicitly, and then sue for remaining amt disputed
1) Many cts say §1-207 n/a to check-cashing situation: Creditor
discharges Debtor & accepts A&S as w/com law
d. Some cts: for valid accord, must tender more than amt admitted to be due
If Debtor's check is for an amt she has admitted to be due, even if it says
"full payment," Creditor may cash it and then sue for the balance
Whitaker
e. Other: as long as give what one admits is due = valid accord
f. Remember: must have bona fide dispute over amt owed: if not, acceptance
of less $ than is due ≠ A&S --> Creditor may sue for difference
E. MISTAKE
1. Constructive Fraud: fiduciary pties, don't need intent to deceive -- if deal is
inequitable, psn w/bad end can avoid the K -- not imptt
a. Jackson: brother bought land from sister at low price, telling her it was
worthless, then discovered valuable timber and sold it --> constructive fraud
even tho' brother didn't know @ K time, bcse gross inadequacy of
consideration & close relationship of pties
2. Definition: mistake about circumstances as they exist @ time of contracting, not
about what will happen in future
Substance vs. Value debate: can ignore it, instead -->
3. MUTUAL MISTAKE: Requirements for Pty to Avoid the K: R2d §152
a. If pties are mistaken about basic assumption
b. material to deal on which K is made
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c. and risk of mistake not allocated to pty seeking avoidance
--> then can get rescission (only remedy under mistake)
4. Basic Assumption
a. If mistake leads to unexpected, unbargained-for gain for one pty and
unexpected, unbargained-for loss to other pty
b. Eg. P collector sells violins to D violinist, both thinking they're Stradivarius -K price = $8,000. Discovered that violins are imitations --> D rescinds,
excused from paying balance on K price.
c. Not Basic Assumptions
1) Regarding mkt conditions: eg. wrong about future land value
2) Regarding fin ability: eg. mistake about buyer's ability to pay
d. Quality of Contract Subject Matter = basic assumption
1) Sherwood v. Walker: "Fertile Cow" Seller gets rescission of K to sell
Buyer a cow when they discover that cow is fertile, rather than barren, and
very low K price was for non-breeding cow: "thing actually delivered is
diff in substance from thing bargained for"
5. Material Effect on the Deal
a. Occurs when resulting imbalance in the deal is so severe that it would be
unfair to require performance (i.e., harder to show than that pty w/n/h made
the K had she not been mistaken)
b. More likely if mistake advantages one pty while disadvantaging other pty
(the one seeking avoidance)
c. Less likely if other relief besides rescission is available, eg. reforming the K,
or ordering restitutionary payment, pro rata adjustment
6. Allocation of Risk to a Pty
a. If basic assumption is unknowable to either pty, then pties are assuming the
risk -- eg. pty knows @ time of contracting that she has only ltd knowledge
w/r/t facts which relate to the mistake
1) Sherwood: buyer bears the risk, knowing cow c/be either way
2) Risk may also be expressly allocated in the K
b. If pty has assumed the risk, she cannot avoid the K
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7. Unilateral Mistake
Often said both pties must be mistaken, but others say not nec to have mutual
mistake
a. Edwards "Impossible Gravel": ct views D's mistake as to accessibility of
gravel on P's land as unilateral, even tho' P was mistaken too (only diff: P is
indifferent) -- ct grants rescission anyway, bcse D c/n perform except at
"ruinous expense" -- almost frustration of purpose
b. R2d §153: adds one more req to first three: Either:
1) Mistake is such that enforcement of the K --> unconscionable
2) Non-mistaken pty had reason to know of the mistake, or caused the
mistake (diff from general rule on nondisclosure: here, knowing pty can't
take advantage)
c. Most Common w/ Mistaken Construction Bids
1) Summary: will grant rescission to mistaken bidder if no negligence on
bidder's part and if other pty doesn't rely to her detriment: also need
material diff btwn mistaken & actual bids
2) Contractor/Subcontractor makes error in bid for job
3) Rescission if: contractor c/show that he will be severely harmed by
performing & that other pty has not relied on bid (assuming other pty
didn't have reason to know)
4) Elsinore: D contractor erred in bid to P school district, by forgetting to add
in one sub-c's bid; P awards D the job; next day D discovers error & calls
P; P uncooperative, then hires someone else & sues D for diff in price -->
D gets rescission bcse mistake was honest clerical error, not so grossly
negligent as to bar relief, D notified P ASAP, result wld be inequitable, &
sum omitted was material, 10% of total
5) Rescission more likely if error is clerical (mistaken calculation), and not a
mistake as to judgment
6) If other pty knows bidder has made an error, this pty can't take advantage
(reason to know --> rescission)
8. Duty to Investigate: if mistake is so bad that psn be really injured if not allowed to
rescind, then cts won't impose duty to investigate, even if it w/h/b easy
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Eg. Gartner (zoning law): duty to investigate elements of the K based on
reasonableness: mutual mistake --> property not develop-able --> rescission
9. Relation to Warranties
a. Where pty can't recover by mutual mistake, may get rescission by breach of
wty, if mutual mistake as to nature & value of goods
b. Hinson: land P bought from D c/n/support septic system, so P c/n/build on it -> ct won't decide on mistake basis, bcse it's an uncertain doctrine (P got
essentially the land he contracted for -- what is value?)
P gets rescission under breach of implied wty of workmanlike quality (bgng
of iwh) --> land sold for a specific purpose (& restricted by K to that purpose),
& then discovered it c/n/be used for that purpose
F. MISREPRESENTATION AND NONDISCLOSURE: Real Estate Cases
1. Two Main Scenarios
a. neither seller nor buyer knows of defect (unintentional misrepresentation)
b. seller knows, & buyer doesn't (intentional misrepresentation)
2. Neither Knows: 3 Approaches
a. Common Law: caveat emptor: no relief for purchaser (not majority)
b. Mutual Mistake: may afford relief depending on how material mistake is to
the contract (basic assumption material to deal on which K is made): look at
effect on buyer's purposes, on value of land
Remedy: rescission
c. Warranty Theory: commercial builder vendor gives implied wty of
workmanlike quality to first buyer -- n/a to patent defects -- no implied wty
for such defect
Remedy: P can choose rescission or dgs to place her in position she w/h/b in
had house been as warranted (subject to dim in value, economic waste, cost of
completion inquiries) -- so this way can get dgs and keep house
Johnson: P got dim in val dgs bcse builder/vendor D told P "nothing wrong"
w/house, not knowing foundation was faulty
1) Not every ct has adopted wty theory
3. Seller Knows, Buyer Doesn't (no wties apply, two non-comm(?) pties):
Three Approaches
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a. Caveat Emptor: no relief (not gen rule today)
b. Two Duties on Seller's Part:
1) Not to mislead: can't represent that you have full info and then disclose
only part of it w/intent to deceive (duty arises once you open your mouth)
Cushman "Sulfur Water": Seller Ds knew water was bad, H/D said it was
fine, while W/D remained silent -- Buyer Ps relied --> dgs = dim in val if
defect is permanent, = repair cost if curable
2) Duty to speak: arises if there are material facts w/in seller's knowledge
& not w/in diligent buyer's (c/n readily discover this defect w/ordinary
investigation) --> seller has duty of disclosure: silence = misrepresentation
Q: but same does not apply to knowledge buyer has but which seller c/n
get, as when buyer knows the value of seller's property is about to go up
for whatever inside information reason?
c. R2d §161 on this issue: nondisclosure = misrepresentation if:
1) Failure to correct past statement: disclosure nec to prevent previous
assertion from being fraudulent, misrep, or material
2) Failure to correct other pty's mistake: disclosure nec to correct a mistake
on a basic assumption of the K of the other pty when failure to do so
violates good faith or fair dealing -- if mistake is unreasonable, no duty -->
(means if someone is buying your land bcse she has crazy idea it has gold,
then you have no duty to say there's no gold in the land -- psn can have
surveyor come in -- but if you're selling a house infested w/termites,
nondisclosure would violate good faith/fair dealing -- it will be obvious
like that)
G. JUSTIFICATION FOR NONPERFORMANCE
Impossibility, Impracticability, Frustration
Frustration & Impract: virtually the same: perf is possible, but ec value of deal (to one
or both pties) is so seriously diminished that pties are discharged
1. Impossibility
a. Performance must be absolutely impossible: usually involves destruction of
subject matter of contract (bldg burns down, painting is destroyed), or K
becomes illegal by act of Congress
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1) Destruction/unavailability of subject matter: impossibility Dce set out in
Taylor: contract for P to rent D's concert hall for series of concerts -- K
depended on cont'd existence of hall, so when dest by fire, D discharged
(hall was particular to perf)
b. General Rule: if property which performing pty was expected to use is
destroyed, the pty is discharged only if destroyed property was specfically
referred to in the K, or understood by both pties to be the property that
would be used
Eg. Crop Failures: 2 views:
1) Unless specifically say, this is land crops are to be grown on, then no
impossibility of performance, supplier must come through w/product
(Bunge)
2) If both pties understand crops are coming from specific field, & it's
destroyed --> impossibility (Snipes Mtn Co)
see UCC 2 - 615 comment 4: can be read either way on this point
c. Personal Services: if K specifically provides perf by particular psn, or if circs
show that psnal relationship was intended, death of one pty will discharge
other pty
Eg. if hired to be someone's valet & psn dies, can't recover from estate or get
your job back, bcse K was personal
d. Exception to destruction of subject matter: contractor undertakes to build a
house: contractor has absolute duty to provide for contingencies that may
happen to prevent completion
1) Eg. if fire destroys bldg before finished --> no impossibility Dce
i. Justification OLD: Tompkins: builder can always build another
schoolhouse -- don't need this structure, just some structure
NEW: had pties considered the risk @ time of contracting, they
w/h/allocated it to contractor)
e. Contractor's absolute duty N/A if repairing existing bldg: contractor c/get
restitution for work done before destruction
1) American Repair Doctrine: if someone, i.e. a sub, is only promising to add
to or repair existing structure, then sub can get restitution for work done if
main structure is destroyed if sub's work is permanently incorporated into
the structure
Carroll: if contractor's work w/h/inured to owner's benefit had fire not
occurred --> contractor recovers
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2) Same applies if pty to do improvement work is buyer who did it before
contract of sale was done -- if seller is eq owner @ fire time --> must pay
for work done Olsson
f. Vendor Has Insurance: if K done, vendee is eq owner --> if prop dged &
vendor gets ins --> most jds allow vendee specific performance
w/abatement in price in amt of insurance $
1) Uniform Vendor & Purchaser Risk Act (real estate Ks): minority of states
use it
Shifts risk of loss allocation to psn in possession (if title hasn't passed yet).
Usually, then, risk will be on seller, not eq owner, bcse most won't take
possession till title has passed -- if dge, buyer excused, or may take
property w/abatement for loss of value
g. Sale of Goods: UCC
1) Risk of loss follows possession -- if goods destroyed while in seller's
hands, he has obligation to perform, if when in buyer's hands, he must still
pay for them
2) But §2-613: if K provides for specifically identified goods (customized,
eg. painting, particular machine) & they're destroyed before the risk
passes, then rescission can be granted to non-performer (don't worry too
much about UCC provisions)
h. Illegality: K becomes illegal after it's made (Motley, Civ Pro): if injury claim
worth $20,000 when P gave it up, P gets $20,000 - benefits already received
on pass (if used $10,000 worth, P gets $10,000); Louisville & Nashville RR
Co, Isle of Mull
i. Once K is discharged for Imposs, no remedy
j. To use impossibility Dce, perf must be objectively impossible, and
impossibility must be caused by event which was unforeseeable or c/n/be
guarded agnst in K -- Kel Kim: P renting D's property for skating rink;
inability to get insurance (as req'd in K) ≠ impossibility
1) Force Majeure Clause: excuses non-erformance due to circs beyond pties'
control: expressio unus est exclusio alterius
H. Impracticability
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1. A Modern Development: close analytically to mistake about basic assumption -performance is possible still, but extremely impracticable, & not feasible from
commercial standpoint, usually bcse costly or time-consuming
2. Mere increase in cost not enough for excuse under impracticability -a. Need (UCC)
1) change in fundamental assumption of K or
2) essential nature of perf has been altered or
3) increase in cost is extreme (easy to litigate on severity -- cts will differ on
this point: where's the line?)
i. American Trading & Prod Corp: P shipping co incurs add'l expense
bcse Suez Canal closed & P had to take longer route to India --> D
doesn't have to pay extra 1/3 increase in expense bcse Suez not
exclusive mode of perf indicated in the K; 1/3 increase not so great;
risk of closing was known early, P c/h/mitigated by changing routes
sooner
b. Generally cts read test strictly -- hard to get impracticability -- some cts say
even if really extreme change in mkt price, it will be denied bcse people
should contemplate mkt fluctuations -- (strike may be "foreseeable" too -c/bar the Dce -- Mishara) other cts will do it case by case
c. Not a Dce if K explicitly/implicitly allocates risk of impracticability on pty
using it as a Dce
I. Frustration of Purpose (very similar)
Restatement §265: when a pty's principal purpose for entering into a K is frustrated by
the occurrence of an event, the nonoccurence of which was a basic assumption on
which the K was made -- in that case, his remaining duties on the K will be
discharged unless circs indicate that the contingency was contemplated and the risk
was allocated to one party
1. Krell: P rents apt to D to view Coronation; Coronation cancelled bcse King got
sick --> D excused bcse wld get no benefit from the K
Coronation's taking place was foundation of the K
2. Weyerhaeuser, Lloyd: for frustration of purpose, value of perf must be totally
destroyed (entering into K which becomes unprofitable ≠ basis for excuse) &
supervening event was not foreseeable
a. WWII, gov reg prohibited mfr of new cars = foreseeable; public outcry over
environmental impact of mining project, preventing gov approval =
unforeseeable
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3. Change must be pretty severe for ct to grant rescission
J. Unconscionability
1. your guess is as good as mine
2. UCC §2-302, classic description: not actually illuminating, all it says is, look at
whether it's unconscionable, if yes, ct may refuse to enforce
Also: it's Q of law for jdg; & to remedy the sit, ct may reshape or partially enforce
the K; both pties get to give ev as to commercial realities (State v. Avco), & ct
will allow ev hng for Qs of fact (purpose & effect of K)
3. Two Basic Inquiries
a. Procedural Unconscionability: what methods did pty use to gain consent from
other pty? (how was deal obtained?)
Eg. high pressure sales tactics, discussing in inappropriate place, ganging up,
taking adv of someone in lousy position
b. Substantive Unconscionability: are terms unfair/unreasonable?
c. See Williams: considerations
1)
2)
3)
4)
Relative bargaining power
Sophistication of pties
Conspicuousness of the terms
Sales practices -- were they deceptive?
d. Cts split as to whether both parts are nec to find unconscionability
4. Inquiry Is Factual -- common law says that if deal is so shocking that it's a "punch
in the stomach" --> unconscionability
a. Woollums: savvy businessman P bought mining rts to innocent naive old man
D's land at very low price --> unconscionable --> no specific performance
b. Modern: Williams
5. Usually Invoked in Consumer Sales of Goods cases
a. Outside consumer area, very little ev that unconsc is successful -- i.e. very rare
that unconsc will be successful Dce btwn two commercial pties
1) Smith: terminable-at-will clause in K btwn P distributor and D dairy
producer not unconscionable bcse both pties understood the K & had
ample time to review it
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2) Editors say unconscionability isn't imptt in commercial sphere -- rather, in
consumer sphere: much of unconscionability litigation has been
supplanted by specific statutory consumer protection laws --> unconsc,
except as applied w/UCC, is on decline -- easier to deal w/statutory
remedies, than deal w/nebulous concept of unconscionability
b. Commercial Pties: unless fraud, illegality, or mistake, pties can allocate risk
however they want, pties have duty to read the K & know terms & risks
c. Exception: Gianni says if clause is unreas & pties have diff bargaining
strength --> unconsc -- unusual test
Here, unconsc bcse Big Co D had unfair power over small mfr P, and bcse
goods made esp for D, c/n/be sold to anyone else @ reasonable price
6. ASK Four Questions to determine unconscionability:
1) Did weak pty have ample oppty to learn all terms of the deal? (look at relative
education/sophistication of pties, was there fine print issue -- would reas psn
have been able to understand terms?)
2) Was there a gross disparity in bargaining power?
3) Were terms grossly unreasonable? (no ct of conscience would enforce)
4) How did one pty get agmt from other? what kind of tactics were used?
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