CONTRACTS I OUTLINE
Spring 2021
Professor M. Crockett
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INTRODUCTION
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Contract = “a promise or set of promises for the breach of which the law gives remedy, or the
performance of which the law in some way recognizes as a duty.” (Restatement 2nd of Contracts §1).
Requires mutual assent/meeting of the minds wherein both parties express commitment to enter contract;
parties must exchange value. A great many contracts are made when neither party has done anything yet.
A. Promises
B. Breach
C. Remedies
D. Performance
E. Duty
Elements of a Contract:
A. Offer
B. Acceptance
C. Consideration
Agreement = (1) a mutual understanding between two or more persons about their relative rights and
duties regarding past or future performances; a manifestation of mutual assent by two or more persons (2)
the parties’ actual bargain as found in their language or by implication from other circumstances,
including course of dealing, usage of trade, and course of performance.
Bargain = an agreement between parties for the exchange of promises or performances; not necessarily a
contract because the consideration may be insufficient or the transaction may be illegal
Assent = agreement, approval, or permission; especially verbal or nonverbal conduct reasonably
interpreted as willingness; can be actual, apparent, constructive, express, implied, mutual.
Certainty of Terms = clarity of terms. NOT GOING TO BE THE ANSWER AS TO WHY
SOMETHING IS NOT A CONTRACT RIGHT NOW
Specific Performance = asking court to force sale of whatever was agreed to be sold; usually only real
estate or unique good; The rendering, as nearly as practicable, of a promised performance through a
judgement or decree; Specifically a court-ordered equitable remedy that requires precise fulfillment of a
legal or contractual obligation when monetary damages are inappropriate or inadequate, as when the sale
of real estate or rare article involved.
* Restatement of contracts = set of statements of professors, judges, and practitioners that purports to
state the common law of contracts; not binding
*Contracts for sale of goods governed by own statutory law (Article 2 of UCC)
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FORMATION OF CONTRACTS
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I.
THE OFFER
A. Offer Defined = “An offer is the manifestation of willingness to enter into a bargain, so
made as to justify another person in understanding that his assent to that bargain is invited
and will conclude it.” (Restatement 2nd of Contracts §24). Generally, the offeror's
expression of commitment. May arise following a series of negotiations or single
communication of the offeror.
a. Preliminary Negotiations = NOT AN OFFER - “A manifestation of willingness
to enter into a bargain is not an offer if the person to who it is addressed knows or
has reason to know that the person making it does not intend to conclude a
bargain until he has made a further manifestation of assent.” (Restatement 2nd of
Contracts §26)
b. Damages = Damages may be due to a willing buyer if the owner refuses to
tender a deed of real estate, after the latter has made an offer in writing to sell to
the former, and such an offer has been so accepted. Owen v. Tunison, 131 Me.
42, 158 A. 926 (1932)
B. Present Commitment = If a party’s words and acts, judged by a reasonable standard,
manifest and intention to agree, it is immaterial what may be real but unexpressed state of
his mind.” (Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954))
C. Special Offer Rules: Advertisements, Rewards, and Price Quotations=
a. Advertisements = NOT OFFERS; Invitations to recipient to make an offer to the
person posting the advertisement; NOT a manifestation of the advertiser’s intent
to be bound
i.
“Advertisements of goods by display, sign, handbill, newspaper, radio or
television are not ordinarily intended or understood as offers to sell. The
same is true of catalogues, price lists, and circulars even though the terms
of suggested bargains may be stated in some detail. It is of course
possible to make an offer by an advertisement directed to the general
public, but there must ordinarily be some language of commitment or
some invitation to take action without further communication.
(Restatement 2nd of Contracts §26). Leonard v. Pepsico, Inc., 88 F. Supp.
2d 116 (S.D.N.Y. 1999)
ii.
“It is quite possible to make a definite and operative offer to buy or sell
goods by advertisement, in a newspaper, by a handbill, a catalog,
circular, or on a placard in a store window. It is not customary to do this,
however; and the presumption is the other way .... Such advertisements
are understood to be mere requests to consider and examine and
negotiate; and no one can reasonably regard them as otherwise unless the
circumstances are an exception and the words used are very plain and
clear.”(Restatement 2nd of Contracts §26)
iii.
“Advertisement is nothing but an invitation to enter into negotiations,
and is not an offer which may be turned into a contract by a person who
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signifies his intention to purchase some of the articles mentioned in the
advertisement.” (Lovett v. Frederick Loeser & Co., 124 Misc. 81, 207
N.Y.S. 753, 1924 N.Y. Misc. LEXIS 1096,)
1. An advertisement is not transformed into an enforceable offer
merely by a potential offeree’s expression of willingness to
accept the offer through, among other means, the completion of
an order form. Ads become offers unless they are specific,
definite, specify a quantity, and have language as to who may
accept.
a. “First-come-first-served” language AND limited
quantity = manifests store’s intent to sell
2. No contract formed until the advertiser has accepted an offer
from they buyer (in whatever form that takes)
3. “If a person chooses to make extravagant promises .... he
probably does so because it pays him to make them and if he has
made them, the extravagance of the promises is no reason why
he should be bound by them.” Quackery and Contract Law:
Carlill v. Carbolic Smoke Ball Company (1893), in Leading
Cases in the Common Law 259, 281 (1995).
b. Rewards = EXCEPTION TO ADVERTISEMENTS; something of value, usually
money, given in return or some service or achievement, such as recovering
property or hitting sales goals. Offeree must prove that they performed.
Reasonableness standard.
c. Price Quotations = GENERALLY NOT OFFERS
i.
EXCEPTION: becomes an offer where they quote the price for a specific
quantity with a time limit of prompt or immediate acceptance Fairmount
Glass Works v. Crunden-Martin Wooden Ware Co., 106 Ky. 659, 51 S.W.
196 (1899)
II. ACCEPTANCE
A. Generally = offeree’s expression of commitment; how acceptance must be made differentiates
the type of offers; cannot have acceptance without an offer; even angry acceptance still counts
B. Bilateral and Unilateral Contracts
a. Bilateral Contract = offeror is making a promise in exchange for a return promise by
offeree (future); Can be accepted by beginning performance. Performance operates as
acceptance somewhere near the start of performance
i.
ex.) Heather makes a promise to sell Raul her car in exchange for Raul’s promise
to pay Heather $1,000
b. Unilateral Contract = offeror is making a promise in exchange for a return performance
(immediate)
i.
ex.) Heather promises to pay Raul $1,000 once Raul paints her house
C. Manner of Acceptance
a. An offer may invite or require acceptance made by an affirmative answer in words, or by
performing or refraining from performing a specified act, or may empower the offeree to
make a selection of terms in his acceptance
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i.
Master of the Offer = offeror may require a specific form of acceptance; offer
must be absolutely clear such that the 'specified manner constitutes the sole
method of acceptance. If the terms of the offer are not so clear and the offer only
suggests a preferred method of acceptance, the offeree may accept in any manner
and by any medium reasonable in the circumstances.
1. Allied Steel & Conveyors, Inc. v. Ford Motor Co., 277 F.2d 907 (6th Cir.
1960) = acceptance by beginning performance of performance asked for
in contract
b. Unless otherwise indicated by the language or the circumstances, an offer invites
acceptance in any manner and by any medium reasonable in the circumstances
D. Timing of Acceptance and Mailbox Rule
a. Typically, acceptance is valid when it is communicated to the offeror
b. Mailbox Rule = Acceptance that is mailed is effective when mailed, even though it will
take several days to reach the offeror.
i.
HOWEVER, if an offer specifies that acceptance must be received by a certain
date, the mailbox rule does not apply
E. Knowledge of an Offer = Offeree must have knowledge of an offer in order to accept the offer.
a. HOWEVER, in unilateral contracts, “unless the offeror manifests a contrary intention, an
offeree who learns of an offer after he has rendered part of the performance requested by
the offer may accept by completing the requested performance.”
i.
HOWEVER, when an offeree learns of a unilateral contract offer after full
performance, the offeree's power to accept the offer has terminated.
F. Silence as Acceptance = Ordinarily, silence does not constitute acceptance.
a. HOWEVER, if an offeree manifests her intent to accept by taking action, although doing
so in silence, manifestation may constitute an acceptance
i.
ex.) Tennis coach offers lessons for $50. Mary takes a lesson and pays $50. She
keeps doing so every time she shows up for a lesson.
G. Simultaneous Acceptance and Breach (Improper Performance) = say yes to the unilateral
contract, but then perform incorrectly
a. ex.) “I’ll give you $5 if you get me a soda.” Taylor gets up to get the soda, get distracted,
grabs a water bottle, and goes to bed.
III. TERMINATION OF THE OFFER
A. Revocation = offeror may revoke his offer at any time before acceptance by making
manifestation to offeree, even if the offeror provides a time period for acceptance. Once
acceptance happens the offeror cannot revoke.
a. Express Manifestation = “An offeree’s power of acceptance is terminated when the
offeree receives from the offeror a manifestation of an intention not to enter into the
proposed contract.” An offeror may revoke offer at any time before acceptance by
making a manifestation to the offeree indicating he no longer intends to enter into a
contract (i.e. saying or writing “I revoke.”)
b. Indirect/Implied Revocation = “An offeree’s power of acceptance is terminated when
the offeror takes definite action inconsistent with an intention to enter into the proposed
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contract and the offeree acquires reliable information to that effect.” (Restatement 2nd of
Contracts §43) https://www.quimbee.com/cases/dickinson-v-dodds
i.
Essential Component 1 = offeror takes definite action that goes against contract
or indicates that he no longer wishes to enter into contract
1. ex.) selling to someone else; contracting to sell
2. NOT offering to sell to someone else
ii.
Essential Component 2 = offeree gets information about said action from a
reliable source. If the offeree doesn't know about the definite action, the offer is
not revoked.
1. ex.) the buyer, tenant, agent
2. NOT rumour, stranger
B. Timing of Revocation = revocation is effective when received by the offeree.
a. Mailbox Rule: revocation effective when received by the offeree; exception for option
contracts
C. Option Contracts
a. Bilateral Option Contracts = offeror and offeree agree that the offer will remain
irrevocable for a certain period of time. MUST be supported by consideration, typically
the offeree’s agreement to pay the offeror to keep the offer open. Doesn’t have to actually
be exchanged, just the promise of consideration made.
b. Unilateral Option Contracts = “Where an offer invites an offeree to accept by rendering
a performance .... an option contract is created when the offeree tenders or begins the
invited performance or tenders the beginning of it.” (Restatement 2nd of Contracts §45).
Preparations to begin to tender/perform do NOT count.
D. Lapse = to become void; “An offer lapses at the time specified in the offer, or, if no time is
specified, at the end of a reasonable time.” (Restatement 2nd of Contracts §41). Circumstances
strongly influence outcomes. Offer has terminating language.
a. Conversation Rule = “While A and B are engaged in conversation, A makes B an offer
to which B then makes no reply, but a few hours later meeting A again, B states that he
accepts the offer. There is no contract unless the offer or the surrounding circumstances
indicate that the offer is intended to continue beyond the immediate conversation...”
(Restatement of Contracts §40). “When two negotiating parties are in each other’s
presence, and one makes an offer to the other without indicating any time for acceptance,
the inference that will ordinarily be drawn by the other party is that an answer is expected
at once .... If, when the first reply is not an acceptance, the offeror turns away in silence,
the proper inference is that the offer is no longer open to acceptance.” (1 Corbin on
Contracts (1950), §36, p. 111). Akers v. J. B. Sedberry, Inc., 39 Tenn. App. 633, 286
S.W.2d 617 (1955)
E. Rejection: Counter Offers
a. Rejection, generally = “An offer is rejected when the offeror is justified in inferring
from the words or conduct of the offeree that the offeree intends not to accept the offer or
to take it under further advisement.” (Restatement of Contracts §36). (1 Williston on
Contracts §51). Once an offeree rejects an offer, the offer is terminated and the offeree
may no longer accept the offer.
i.
Mailbox Rule = Rejection or counter-offer effective when received by the
offeror
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b. Mirror-image Rule = an offeree must accept an offer according to the terms of the offer
c. Counter-offer = “A counter-offer is an offer made by the offeree to his offeror relating to
the same matter as the original offer and proposing a substituted bargain differing from
that proposed by the original offer.” (Restatement 2nd of Contracts §39(1))
i.
Counter-offer Constitutes a Rejection = “An offeree’s power of acceptance is
terminated by his making of a counter-offer” (Restatement 2nd of Contracts §39
(2)). Makes sense because even if you are accepting part of the offer but then
changing some of the terms, you are rejecting the original offer as stated.
https://www.quimbee.com/cases/livingstone-v-evans--2
F. Odds and Ends
a. Death of Offeree = The death of the offeree terminates the offer. It is not necessary that
the information about the death of the offeree be conveyed to the offeror.
b. Destruction of Subject Matter = The destruction of the subject matter of the contract
terminates the offer.
c. Mailbox Rule, Summarized = “Acceptance on answer; revocation or rejection upon
receipt’
i.
Acceptance is effective when sent unless:
1. offer provides otherwise;
2. if acceptance is not made in a manner and a medium required by the
offer; or
3. acceptance under an option contract which is effective upon receipt
ii.
Revocation when received by the offeree, exception for option contracts
iii.
Rejection or counter-offer is effective when received by the offeror
1. Acceptance sent after an otherwise effective rejection or counter-offer
a. Operates only as a counter-offer if the offeror receives it after the
earlier-sent rejection or counter-offer; and
b. Operates as an acceptance if the offeror receives it before the
earlier-sent rejection or counter-offer
IV. INTRODUCTION TO THE UCC.
A. Background
a. Purpose = (1) to simplify, clarify, and modernize the law governing commercial
transactions; (2) to permit the continued expansion of commercial practices through
custom, usage, and agreement of the parties; and (3) to make uniform the law among the
various jurisdictions.
b. UCC and Common Law = “Unless displaced by the particular provisions of the
Uniform Commercial Code, the principles of law and equity ..... supplement its
provisions.” (UCC §1-103(b)). Essentially, the common law continues to apply unless the
UCC provides rules that displace common law.
B. Goods, Defined = “‘Goods’ means all things .... which are movable at the time of identification
to the contract for sale other than money or investment securities.” “‘Goods’ also includes the
unborn young of animals and growing crops.” Also include natural resources, farm products, and
software.
a. NOT GOODS =
i.
Real property (land and improvements- always assume land underneath a
structure is included in a contract)
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ii.
Intangible assets (intellectual property, licenses, accounts receivable)
C. Mixed Contracts = cover both the sale of goods and the provisions of services. The predominant
purpose of the contract detects whether the common law or UCC Article 2 governs.
a. ex.) Allied Steel & Conveyors, Inc. v. Ford Motor Co., 277 F.2d 907 (6th Cir. 1960) sale
of machine vs. installation of machine as primary purpose
D. Contract Formation under Article 2
a. Formation in General- (1) “A contract for sale of goods may be made in any manner
sufficient to show agreement, including conduct by both parties which recognizes the
existence of such a contract (2) An Agreement sufficient to constitute a contract for sale
may be found even though the moment of its making is undetermined.” UCC §2-204.
b. What Constitutes Acceptance of Goods - when the buyer:
i.
After a reasonable opportunity to inspect the goods signifies to the seller that the
foods are conforming or that he will take them [even though they don’t conform]
ii.
Fails to [reject the goods], but such acceptance does not occur until the buyer has
had a reasonable opportunity to inspect them; or
iii.
Does any act inconsistent with the seller’s ownership UCC §2-606.
c. Firm Offers - An offer BY A MERCHANT to buy or sell goods in a signed writing
which by its terms give assurance that it will be held open is not revocable, for lack of
consideration, during the time stated, or if no time is stated for a reasonable time, but in
no event may such period of irrevocability exceed three months UCC §2-205.
i.
Merchant - person who holds himself out as having knowledge or skill peculiar
to the practices or goods involved in the transaction.
d. Offer and Acceptance in Formation of Contract - Unless otherwise unambiguously
indicated by the language or circumstances:
i.
An offer to make a contract shall be construed as inviting acceptance in any
manner any by any medium reasonable in the circumstances
ii.
An order or other offer to buy goods for prompt or current shipment shall be
construed as inviting acceptance either by a prompt promise to ship or by the
prompt or current shipment of conforming or non-comforming goods, but such a
shipment of non-conforming goods does not constitute an acceptance if the seller
seasonably notifies the buyer that the shipment os offered only as an
accommodation to the buyer UCC §2-206.
V. CONSIDERATION
A. Basic idea = a bargained for exchange; you give me something, I give you something; typically
not an issues
a. Promises
i.
Promises as part of a bargain = ENFORCEABLE
ii.
Promises to make gifts = NOT ENFORCEABLE
iii.
“To constitute consideration, a performance or a return promise must be
bargained for. A performance or return promise is bargained for if it is sought by
the promisor in exchange for his promise and is given by the promisee in
exchange for that promise.” Restatement (2nd) of Contracts §71
B. Forbearance as Consideration = may exist as a forbearance of a right by the promisee. Whether
that forbearance must benefit the promisor has long been pondered (textbook)
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a. Forbearance = refraining from enforcing a right, obligation, or a debt (Black’s)
C. Adequacy of Consideration = ‘If the requirement of consideration is met, there is no additional
requirement of.... Equivalence in the values exchanged...” Restatement (2nd) of Contracts §79
a. Courts may refuse to enforce a purported contract, other than an option contract, with
nominal consideration;
b. Recitals in an agreement referencing consideration that is never paid (sham
consideration) do not constitute consideration
i.
Recitals = Introductory statements at the beginning of a contract; background
about parties and the reason for contract; often reference what consideration is
D. Past and Moral Consideration = misnomer; extension of idea that gift is not a consideration; if
something was already given or performed before a promise was made, that promise is not
supported by consideration
a. EXCEPTION 1 = (previously received benefit) “A promise made in recognition of a
benefit previously received by the promisor from the promisee is bing in the extent
necessary to prevent injustice” Restatement (2nd) of Contracts 86
b. EXCEPTION 2 = (debt barred by statute of limitations) A promise to pay a debt
barred by the statute of limitations is enforceable even if no new consideration is given
c. EXCEPTION 3 = (debt discharged in bankruptcy) A promise to pay a debt discharged
in bankruptcy court is enforceable even if no new consideration given
E. Contract Modification: The Pre-Existing Duty Rule
a. Preexisting Duty Rule= a promise to pay a man for doing that which he is already under
contract to do is without consideration
i.
Alaska Packers’ Association v. Domenico= fishermen extorted company to pay
them more for tasks they already were under contract to perform
ii.
Lingenfelder v. Brewing Co.= architect refused to finish designing/overseeing
build out of building until company paid him more
b. Contract Modification= consideration not required to modify contract for sale of goods
(UCC Article 2) if parties act in good faith
i.
ex.) Offer to sell truck for 5k. For whatever reason parties AGREE price is now
6k. No new consideration needed.
F. Illusory Promises
a. Illusory Promises= cannot be breached because one party has discretion over whether to
perform or not perform; no consideration therefore NOT enforceable
i.
Ex.) employee has right to work 0-40 hours per week. No penalty for choosing to
work 0 hours
b. Mutuality of Obligation= essential to an enforceable contract. Mutuality exists when
each party obligated to do or permit something to be done. Mutuality absent when only
one party bound to perform and rights exist at the option of only one
i.
When one party purchases services on a per unit basis with no specified quantity
and the parties did not intend the purchaser to get all services from one providerNOT enforceable. No obligation to purchase services. Purchasing in the past does
not create obligation. Specifying period of time does not create obligation
ii.
Agreement based on wish, will, or pleasure of one party unenforceable
c. Output Contracts= agreement by one party to purchase all of the party’s output (e.g.
crops/manufactured items) for a given period.
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d. Requirements Contract= buyer agrees to purchase all that the buyer requires during a
given period
i.
ex.) I promise to buy all the yarn I need, from you, for 6 months
e. Right to Cancel or Withdraw= written contracts often have termination /cancellation
provision that give one or both parties the right to cancel/withdraw. If this right is
restricted in any way (arises only out of passage of time or occurrence of specified event)
the contract is not illusory
i.
Ex.) can cancel with 30 days’ notice to other; can cancel if trucking company
uses a truck older than 2013 model
VI. PROMISSORY ESTOPPEL
- Elemental rule
A. Background
a. Four Elements
i.
Promise (clear and definite)
ii.
Which promisor should reasonably expect to induce action or forbearance;
iii.
Promise does induce action or forbearance; AND
iv.
Injustice can be avoided only be enforcing the promise
1. Reasonableness of promise
2. Public policy
b. Substitute for consideration, rendering a gratuitous promise as a contract
c. Conrad v. Fields- D offered to pay for law school. P did not think she could pay for it, but
D reassured her. P quit her job and started school. D made two payments and stopped.
Emails between the parties about D’s debts. D stated “when you pass the bar I will pay.”
D’s status made it reasonable to believe that he could/would pay. Promise induce action
and caused P to be in debt. It would be unjust for P to be in debt she incurred based on
reliance on D’s promise.
d. Norton v. McOsker- D led P to believe when they met that he was divorced. He’s married.
D steed that he moved out to get divorced. Never divorced for 23 years. P quit job on
promise that D would marry her and provide for her. D gave P an extravagant lifestyle.
Spontaneous miscarriage. D ends relationship and P is distraught. P not able to resume
work or have another relationship. D promised to support her for the rest of P’s life but
only did so for two years. Fails as a matter of alw because P failed to satisfy at least 2 of
3 conditions. 1. Alleged promise to divorce/marry/provide for life is too vague. 2.
Reliance on promise is unreasonable.
e. In the construction context= well understood in construction that sub bids are firm
offers. GCs rely on these bids to create single-priced package of work. Sub’s refusal to
honor sub bid breaks GC’s prime bide and creates financial “black hole”
i.
Drennan v.
Star
Paving Co. - P prepared prime
bid for school.D’s bid lowest. P
submitted bid with D as paving
subcontractor. Next morning, P
stops by D’s office and engineer
states they made a typo on the
bid. P says tough shit I won the
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job and you have to follow
through since I relied on that
bid. D refused. P sought out
other people and found another
paving co. to do the job. D’s
offer is a promise on conditions
stated
expressly
or
by
implication. D had a reason to
expect that if his bid was the
lowest his would be chosen. D
had reason to believe that not
only would P rely, but wanted P
to rely.
CHAPTER 2. DEFENSES
I.
BACKGROUND
a. Even if contract appears to be validly formed, a party may still have a defense to avoid
some or all of the obligations of said contract
II. FRAUD AND MISREPRESENTATION
A. Elements:
i.
False statement of fact
ii.
Reliance by recipient on statement
iii.
Misrepresentation was material or fraudulent
1. Material- a reasonable person would attach importance to it (induce them
to decide to enter into the contract or not)
2. 3 states of mind:
a. Intentional (fraud)
b. Innocent
c. Negligent
iv.
Reliance was justified
b. Hoping something is one way is not a mistake. Believing something is one way is. Not
knowing is not a mistake.
i.
Ex.) buying random locked safe, hope there’s something cool in it. Has bearer
bonds in it. Can’t say mutual mistake because buyer hoping.
c. Cousineau v. Walker - P purchased land that was supposed to have a certain amount of
gravel and highway frontage, and it didn’t have anywhere close to that. Innocent
misrepresentation may be the basis for rescinding a contract. A buyer of land relying on
an innocent misrepresentation, is barred from recovery only if the buyer’s acts in failing
to discover defects were wholly irrational, preposterous, or in bad faith. P exhibited poor
judgement but not unrecoverable.
d. Vokes v. Arthur Murray, Inc. - A statement of a party having superior knowledge may be
regarded as a statement of fact although it would be considered as opinion if the parties
were dealing on equal terms. What is plainly injurious o good faith ought to be
considered as a fraud sufficient to impeach a contract andan imprudent agreement may be
avoided because of surprise or mistake, want of freedom, undue influence, the suggestion
of falsehood, or the suppression of truth.
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III. NON-DISCLOSURE.
a. One contracting party has no duty to disclose facts to the other contracting party
b. General rule of caveat emptor (let the buyer beware) remains, there are 4 types of situations
where there is a duty to disclose:
i.
Material fact is basic= goes to “root” or “essence”
ii.
Non-disclosing party learns one or more facts were untrue
iii.
Non-disclosing party makes a partial disclosure
iv.
Parties are in a confidential or fiduciary relationship
IV. MISTAKE
A. The basics of Mutual Mistake
a. When both parties are mistaken about one or more facts existing at the time of entering
into a contract, one party may try to avoid its obligations under the contract
b. Elements of Mutual Mistake
i.
Mistake shared by both parties at the time of contract
ii.
Concerning a basic assumption on which the contract was made
iii.
Mistake has a material effect on the parties’ exchange
c. Sherwood v. Walker- (DON'T HAVE A COW). Construction of contract for the sale of a
cow. Seller and buyer thought the car was barren. Turns out she wasn’t. Consent may be
refused execution or avoided if contract based on mutual mistake on something material
about the sale. Mistake was not as to the cow itself, but what she was capable of/value.
Mistake affected the substance of the whole consideration. “The thing sold and bought
had no existence.”
d. Contract still binding if the difference is in quality or by accident
e. Party seeking to rescind contract on basis of mutual mistake must show by clear and
convincing evidence agreement should be set aside
***EASTER EGG: FIRST PROF TO TEACH CASE AT UNTDCOL FAMOUS FOR SAYING
IT’S A DAMN COW
B. Assumption of Risk in Mutual Mistake
a. Sometimes party seeking to rescind will assert mutual mistake but will be barred on the
grounds it assumed risk of the mistake
b. 4 Scenarios of Assumed Risk
i.
Contract allocates risk to one party
1. Ex. Lenawa County Board of Health v. Messerly - mutual mistake about
sanitation prevented use of property (septic tank burst). Court still
allocated risk to purchaser
ii.
One party is in a better position to bear the risk
1. Ex. contractor quotes $500. Work ends up being way more complex and
costs $1,000. Contractor presumably has experience and could have
known, so assumes risk.
iii.
One party knows she has limited knowledge, but treated it as sufficient
1. Ex. Estate of Martha Nelson v. Rule- sold paintings but did not get them
appraised. Ended up being worth million.
2. Conscious ignorance= aware at time of contract that his knowledge with
respect to the facts to which mistake was made was limited
iv.
Court considers it just to allocate risk to one party
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1. Ex. Estate of Martha Nelson v. Rule- court considers the purposes of the
parties and general knowledge of humans in bargaining
C. Unilateral Mistake
a. Mistake by only one party is not a defense (normally)
b. EXCEPTION: non-mistaken party knew/had reason to know that the other party was
mistaken
V. DURESS
A. Types of Duress (holding over a barrel)
a. Traditional Duress= violence, threat of violence, loss of freedom
b. Economic Duress= actions or threats by one party that give other no real economic choice
i.
Austin Instrument, Inc v. Loval Corp. - D awarded contract to make radar sets for
Navy. Had a tight schedule. D solicited subcontracts for parts and P won. P
withheld parts until D agreed to increased prices. No other manufacturer
available to provide parts by deadline
B. Contract voidable on the grounds of duress when it is established that claimant was forced to
agree to it by means of wrongful threat precluding an exercise of free will
VI. UNDUE INFLUENCE
A. Innocent party is susceptible
B. Dominant party has more power (place/time, persuaders, time pressure)
VII. PUBLIC POLICY
A. Illegal Contracts
a. Ex.) Gambling, Loan with interest rate greater than permitted by law, agreement requires
tort/crime to be committed, Illegal consideration, Contract in restraint of trade
https://1.next.westlaw.com/Document/I526af515f58f11d983e7e9deff98dc6f/Vie
w/FullText.html?originationContext=typeAhead&transitionType=Default&conte
xtData=(sc.Default) Illegal contracts or against public policy will not be enforced
by courts. EXCEPTION: Courts may choose to enforce a contract even though it
is illegal/vs. Public policy if the parties are not equally culpable. (Reasoning =
by applying general rule, public can’t be protected because transaction already
complete and no serious moral turpitude involved, where defendant is guilty of
greater moral fault and where to apply the rule would allow the defendant to be
enriched at expense of plaintiff. Rule shouldn’t be applied.) [In this case a lawyer
illegally hired a non-lawyer to feed him cases and bullshitted legal fees to pay
him 30%]
- Ignorance more likely to be excusable where leg. is local, specialized, or
technical in nature and where other party assured to have knowledge
- If promise is excusable because ignorant of facts or leg. of minor character, of
which promisor not excused and absence of which promise is enforceable,
promisee can recover for breach but not for anything done after promisee learned
of law/.contract illegal
B. Covenants not to Compete
a. Non-competes are challenged by many courts. Not illegal, but may be void on public
policy grounds on theory the courts will not permit restraints of trade
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i.
b. TEST:
i.
ii.
iii.
Wood v. May- horseshoeing case. 5 year and 100 mile non-compete absurd.
Restraint necessary for protection of business/good will employer
Imposes on employee greater restraint than necessary
If it is clear that the nature of the work will bring employee in contact with
employer’s clients, or enable him to steal secrets, then equity supports restraint
VIII. UNCONSCIONABILITY
a. TEST:
i.
Absence of meaningful choice
ii.
Terms unreasonably favourable to one party
1. oppression= lack of negotiation
2. surprise= provision hidden within a prolix printed form
iii.
*** sliding scale applied: more substantive, less procedural necessary to prove
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