Common Law Outline (Contract Formation  Avoidances)
Step 1:
Is it a good?
Yes

No

UCC applies
Common Law applies
Step 2: Is there a contract?
Mutual Assent R §18
 Present intent to be legally bound
 We look at mutual assent objectively Lucy v. Zehmer
One way to show mutual assent:
o Implied Contract: Stepp v. Freeman (lottery group)
 Conduct is evidence of mutual assent
Offer R § 24
o Manifestation of willingness to enter into a bargain
Preliminary Negotiations: Anticipation of receiving a benefit sought through contracting
causes some parties to presume too early that they have expressed their intent to contract
o intent to be bound in the future is not present intent to be bound PFT v. VOLVO (email)
Solicitations
o Ads are generally too ambiguous to be offers, with few exceptions (Lefkowitz)
Offer: Written Contract to Follow
o Writing is not generally required to have a K
o Most oral agreements are enforceable in out law
Question between mutual assent and writing
 When do we have mutual assent? Is it when we have the oral agreement or when
it is written?
 To determine this, one must look at and determine intent of the parties
(Continental Labs)
1. Usually found in writing
2. Needing formal writing for its full expression
3. Details—few or many
4. Amount is large or small
5. Common or unusual
6. All details have been agreed upon
7. Writing was discussed or contemplated
Acceptance
1. When does acceptance take effect? (ProCD)
i. They are no disputing if there is a contract, but fighting over when the contract came
into existence because this determines the terms
ii. The offeror makes the terms and require that the offer be accepted in a specific
time/way (Beard v. Krusa)
R. §50 How to Show Acceptance:
(1) acceptance of an offer is a manifestation of assent to the terms thereof made thereof
by the offeree in a manner required by the offeror — ProCD is a good example of this
(2) acceptance by performance require that at least one part of what the offer requests
be performance or tendered and that includes acceptance by performance which
operates a return promise
Acceptance by performance — Unilateral K
(3) Acceptance by a promise requires that the offeree complete every act essential to
the making of a promise
Acceptance by promise — Bilateral (promise for a promise)
 Either both parties are bound or neither party is bound—mutuality of
obligations (not present in unilateral due to their being only 1 promise)
**when an offer doesn’t specify a preferred method of acceptance, reasonable manner under
the circumstances is used (Fujimoto—salary+bonus for employees)
R. §69 Silence as Acceptance
(1) Silence and inaction operate as acceptance in the following cases only
(A) Offeree takes benefit of the offered services with reasonable opportunity to
reject them
(B) Offeror dictates terms of acceptance as silence
(C ) UCC 1-303
Knowledge of the Offer
o Without knowledge of an offer, you cannot accept
R §36 Termination of the Power of Acceptance
(A) rejection or counteroffer
(B) lapse of time
(C ) revocation by the offeror
Dickinson v. Dodds R. § 43
1. Definite inconsistent action
2. Offeree has knowledge
(D death or incapacity of the offeror/offeree
(2) Or by the non-occurrence of any condition of acceptance of the terms of the offer
Exception to revocation (R. §87 Option Contract)
o Option means that an offeree has given the offeror an extra payment (or some other for
of value) in return for a promise to keep the offer open and irrevocable for a period of
time
o Formed in 3 ways:
1. Consideration (bargain in exchange for a promise)
 “I’ll sell you Blackacre for $500; if you give me 10$ I will hold it open for you
for thirty days”
2. Partial performance R. §45 (Unilateral K) (Marchiondo v. Schnek)
An option contract is created when the offeree tenders or begins the invited
performance or tenders a beginning of it
 Think about the bridge hypothetical
3. Firm Offer (UCC)

When acceptance in an option contract takes place: R § 63 —> part b refers to option K’s in
that acceptance under an option K is not operative until received by the offeror
Termination by Rejection: The Mailbox Rule
o Acceptance occurs upon mailing and not recipient
o Offer/Rejection occurs upon mailing
o Rejection sent —> Acceptance Sent —> Acceptance received—> Rejection received =
CONTRACT because acceptance received beats acceptance received
o
Acceptance sent —> Rejection Sent -> Rejection Received —> Acceptance Received =
CONTRACT
o
Rejection sent —> acceptance sent —> rejection received —> acceptance received = NO
CONTRACT, mailbox rule doesn’t apply, rejection is effective upon receipt
Termination by counteroffer R. § 38
o An offeree’s power of acceptance is terminated by his rejection of the offer, unless the
offer has manifested a contrary intention
o Mirror Image Rule —> acceptance must look exactly like the offer. Any change in the
offer (adding new terms) constitutes as a counteroffer
Indefiniteness R. §33
 Must have substantial certainty to the material terms
 If an agreement is too uncertain to the material terms then there was no mutual assent
because there was no intent to form a contract
 3 categories:
1. Parties agree to agree on a term, but it appears to be indefinite
2. Parties are silent to a material term, or discuss it but never agree
3. Parties agree to agree on a material term, WHICH DOES NOT WORK FOR COMMON LAW
CONSIDERATION
Restatement §71
1. To constitute as consideration, a performance or returned promise must be bargained
for
2. 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
3. A promise may consist of
A. An act (I promise to drive you to the airport if you promise to pay for my gas)
B.A forbearance (Hamer v. Sidway)
 You cannot forbear from something that you are already legally required to
do or something you you’re not legally allowed to do
C. The creation, modification, or destruction of a legal relation (suretyship/executer)
Sufficiency means that the offered consideration has value in the eyes of the law
Adequacy of consideration refers to the actual value of he promises
o Consideration does not require that the performances or promises be of equal value, as
long as a legal detriment has been suffered in exchange for a promise
o Mere inadequacy of consideration will not void a contract (Batsakis v. Demotsis)
o Exception to adequacy is when courts are looking at fungible goods (apples to apples)
Schnell v. Nell Court talks about three possible forms of consideration, which all fail
1. Love and affection —> no value in the eyes of the law
2. 1¢ —> nominal consideration—dressing up a gift & they don’t even pay it
3. That they wont sue —> They had no legal rights under the will—they weren’t
forbearing from something legal
Option contract and consideration: $1 to leave option open (option to purchase $500
Blackacre)— yes that is adequate; its merely securing option and who are we to place value
on an option
Nominal Consideration: Courts don’t generally inquire into adequacy unless it is so
inadequate that it cannot be said to amount to any consideration at all “sham consideration”
o EX: Schnell v. Nell —> 1¢ for $600
Forbearance — forbearing or asserting a claim is consideration as long as you have a good
faith basis in law that you actually have a legal claim you are forbearing
Illusory Promise
o A promise is illusory if (1) the promisor retains unlimited discretion or whether or not
to perform; (2) or the promise is based on a condition which cannot occur
o Wood v. Lucy Lady Duff Gordon: promise does not always fail for lack of consideration
because good faith and commercial standards of fair trade in dealing are implied
promises in every contract. There was an implied promise to use reasonable best efforts
to sell products—not an illusory promise
In a bilateral K, bth parties are making promises to each other (A gets 100 dollars from B, B
gets a bicycle from A)
o Mutuality of Obligation
 Both parties have to be bounded by consideration equally
 If one consideration doesn’t exist, the whole thing falls apart
Unilateral, your acceptane is shown by action; I don’t want your promise, I want your action
o Illusory promises don’t work in unilateral K because there is no mutuality
o The action constitutes as consideration
Past Consideration
o If the promisee suffered the detriment before the promise was made, it cannot be said
that the detriment was in exchange for the promise
o Hayes v. Plantations Steel Co.
 All 3 of Hayes’s considerations attempts fail
1. Retirement —> valid consideration is bargained for
2. 25 years of service —>past Consideration
3. Week of work and then no work post retirement —> he announced his
unsolicited intent to retire
Past consideration plus Moral Obligation
o No consideration: Mills v. Wyman
Moral obligation plus material benefit
o Holds valid consideration: Webb v. McGowin
Past consideration exceptions
o Debt barred by the statute of limitations
o Debt of infant
o Bankruptcy
o Material benefit (EX: Webb v. McGowin)
Modifying a contract in Common Law
o Pre-Existing Duty Rule
 One does not suffer a detriment by doing or promising to do something that one is
already obligated to do; or by fore bearing to do something that is already
forbidden
 More consideration is needed for a modification
 R § 89 takes a more modern view; if you ask for a modification in good faith and it is
an unforeseen difficulty than you need no additional consideration
 For policy reasons, a promise to pay additional wages during times of danger does
not constitute as adequate consideration (Harris v. Watson)
 For policy reasons — would affect the navigation of the Ingram
 A contract cannot be modified without the payment of additional consideration
(Stilk v. Myrick)
 Ligenfelder v. Wainwright —> extortion to do a promise for more money is nudum
pactum
PROMISSORY ESTOPPEL R §90
 Originally created to help in class when courts wanted to rectify an injustice but couldn’t find
consideration
 Serves as a substitute for consideration when it is lacked—if the promise is not enforced their
will be injustice
Promisrroy Estoppel “and” Test
1. Promise
2. Reasonable action or forbearance
i. Actual
ii. Foreseeable
3. Injustice can only be avoided by enforcement
Allegheny v. National Chautauqua Bank: college accepts donee’s donation with request that a
bench be named after her—creates a bilateral agreement. Court holds that there was valid
consideration so promissory estoppel does not apply.
 Policy: courts are easier on charities and will try to honor people’s donations

Dissent: believed that the fact that she made the promise and repudiated shows she
didn’t actually make a K, but a gift.
Universal Computer System: Bid didn’t get there on time because employee didn’t pick it up
1. Promise --> to pick up bid
2. Foreseeable --> Universal could of reasonably believed that that Gerbert had the
authority to promise to Universal
3. There would be injustice because they completely missed the deadline and lost the
contract--they would have been the lowest bidder
James Baird v. Gimbel: Promissory Estoppel is NOT a substitute for acceptance(mutual
assent). ONLY a substitute for consideration
Branco v. Delta Roofing: If a party explicitly says they are relying on other party’s promise,
and other party fails to perform- Promissory estoppel applies
1. Promise --> to do the roofing
2. Forseeable --> Yes very clear: "We are relying on you"
Actual --> Yes, they used the price
3. Injustice --> Yes, they had to pay $18,565 more
o Most courts apply Branco because subcontractors have a reason to believe that a
general contractor will rely on their bid and they DESIRE that the contractor will do so
because they want the contract
o If general contractos knew or should have known about a mistake in a subcontractors
bid, promissory estoppel does not apply
Hoffman v. Red Owl Stores- Courts apply promissory estoppel liberally to protect defendant’s
reliance interests when they were unable to sue on the contract.
 Most courts will not allow individuals to affirmatively sue promissory estoppel as a
cause of action.
 Promissory estoppel is intended to be a narrow solution for lack of consideration
 Why does this case seem inconsistent?
 Baird and Branco used PE as a substitute for consideration
 Hoffman had no clear offer and acceptance--court stretches how promissory
estoppel is used
 Uses promissory estoppel pretty liberally as a cause of action to correct injustice in
and of itself
STATUTE OF FRAUDS R. § 90
 Requires certain types of contract to be inwriting to prevent fraud and perjury
 Always plead as affirmative defense by defendant
Question 1: Does it apply?
1. Executor/administrator--when an executor/administrator (w/o any legal obligation to
do so) assumes the debts of the decedent, payable out of their own personal assets,
must be in writing in order to be enforceable
 Policy: to protect someone w/ no legal obligation from having to do something they
don’t have to
2. Suretyship--involves (1) a creditor, who has loaned money and is owed (2) a third party,
who is given money by the creditor, and (3) a surety, who has agreed to answer for the
debts of the third party
3. Marriage
4. Land --Includes buying, selling, assumptions, extensions, modifications of mortgages,
promises to devise land, leases of long duration, agreements affecting boundary line,
promise to devise land
5. 1 year provision--If contract exceeds 1 year, it must be in writing
 Most narrowly interpreted
 If performance within 1 year is possible, then you cannot use SOF as an excuse
 Ks for uncertain duration are automatically barred from the SOF
 1-year period ends at midnight on the anniversary of the day the K was stated.
 PBR v. Autozone: Contract could have been completed in less than one year so SOF
does not apply. Since there was a 1 year option, the contract doesn’t have to be
written
Modifications and SOF
o Majority rule: If the contract as modified falls within the SOF then the modification must
be in writing
o Minority Rule: If the original contract fell within the SOF, the modification must be
written as well (writings modify writings)
Question 2: Is it satisfied? R. § 131
1. Any writing
2. Signed by the party to be charged
3. Identifies the subject matter
4. Indicates a contract has been made
5. Reasonable certainty to the essential terms
Multiple pieces of paper can be used to satisfy the SOF R. §132
o Court takes two views on piecing writings together
1. Majority "Explicit reference" unsigned writing has to reference signed writing
2. Minority: "Circumstantial" If you can establish sufficient connection then it works
(includes oral testimony--but only to establish that the writings are related, not to
add terms)
Signature R. 134 --> signature to a memorandum can be any symbol made or adopted with an
intention, actual or apparent, to authenticate the writing as that of a signer.
o Crabtree v. Elizabeth Arden—employee is alleging breach of 2 yr employment contract.
Employment K so has to be in writing, triggers 1 year rule and has to satisfy 5 things. P
says has signature on document but is missing full terms. Court allows him to use
circumstantial evidence to prove has signature.
Common Law Exceptions:
1. Restitution
 when the P conferred some value on the D and needs to receive some compensation
or else there is unjust enrichment (unfair to let one party keep the benefit)
 Possibly under quasi-contract for services already performed
2. Part performance R. §129
 3 principle elements (Wagers)
1. Delivery and exclusive possession of land
2. Payment or tender of consideration
Typically payment doesn’t constitute partial performance unless the
payment is made in full
3. The making of any permanent or substantial improvement
 All 3 present=strongest case; 2/3=majority of cases; 0 present will not get partial
performance
 Typically applies to land transactions
 Wagers case—trying to make a land transaction, so SOF applies, not sufficient
writing, so have to see if there is an exception. Court holds no exception because
no partial performance existed, arranging for financing isn’t partial performance,
and preparation for performance does not count.
3. Admission UCC §2-201(3)(B) you would have to check to see if your jurisdiction says
something, if not apply to UCC by analogy and get the court to see if it should be a
common law exception as well
4. Waiver and Estoppel
 Equitable estoppel
1. Stops them from raising the SOF defense if they lie about whether the
writing was needed or lie about needing to sin the writing
 Promissory estoppel R. §139 (different than R. § 90)
1. No misrepresentation, but they relied on a promise
 Waiver
1. Voluntarily relinquishment of a known right or privilege
2. SOF is a deformation defense so you either "use it or lose it"

Parol Evidence R. §213
 What is parol evidence?
o Oral and written agreements or negotiations that are prior to the writing and oral
agreements that are contemporaneous wit the writing
 Parol Evidence Rule
o Why do we use it? --> If an agreement is in writing, then the law presumes that the
parties have included into the writing all matter written or oral, that occurred prior to
signing the writing and will not allow in evidence to the contrary (serves as a
gatekeeper)
First Question: Is the writing fully integrated?
o To look to see if the writing is fully integrated, courts have adopted two different
approaches
1. Williston "4 corners" approach --> Look to see if it is facially complete--which it
usually is (strict)
2. Corbin "surrounding circumstances" --> This allows evidence surrounding the
contract to be admitted to clarify if the parties intended it to be final and complete
(more liberal)
"The writing is fully integrated" --> NO PAROL EVIDENCE
"The writing is not fully integrated" --> parol evidence can supplement or explain the writing
to the extent that it is not integrated--cant contradict the writing
R § 213 Effect of integrated agreement on prior agreements (parol evidence rule)
1. (partially integrated)A binding integrated agreement discharges prior agreements to
the extent that is inconsistent with them.
2. (completely integrated) A binding completely integrated agreement discharges prior
agreements to the extent that they are within its scope.
Classic Parol Evidence Rule Case: Mitchill v Lath
o Court says that the writing is completely integrated; however, three conditions must be
satisfied before an oral agreement may be admitted to very the terms of a completely
integrated agreement
Collateral Matter Exception
1. Must be collateral (Court said ice house was collateral)
2. It must not contradict express or implied terms of the writing (Ice house satisfied this),
AND
3. Must be one that the parties would not ordinarily be expected to be in the writing (Ice
house did not satisfy this--court said ice house is a term you would of expected to be in
the writing)
Lee v. Seagram and Sons
o Court gives reasons why it would not expect the oral agreement to be apart of the sales
agreement
1. These were different people with 2 separate agreements
 Father, son, nephew --> sell, written agreement
 Father, son, son --> relocate, oral
*the oral agreement was collateral and did not contradict any terms of the sales
agreement
No integration clause (final and full agreement) in written contracts: This does not mean that
collateral matter exception will be successful
Interpretation
 Determines parties contractual intentions using extrinsic evidecne
Extrinsic Evidence
o Broader than parol evidence, circumstances surrounding the parties and encompasses
statements of contracting parties
o That evidence can be before, during and after K is made
First Question: What evidence can be brought in?
Second Question? Is he writing ambiguous?
o To look to see if the writing is ambiguous, the courts have adopted two different
approaches
1. Williston "4 corners" approach: This is where you look at the document itself
2. Corbin "provisional admission" approach: This allows for any evidence to be
brought in to decide whether the term is ambiguous
"Yes, it is ambiguous" --> Anything comes in to explain the ambiguity
No, it not ambiguous" --> You can only look to the contract itself
Second Question: Whose meaning is correct?
o The burden is on the plaintiff to show that his/her interpretation is correct
When the courts are trying to determine whose meaning is correct they look at (Frigaliment-what is a chicken?)
1. The contract itself
2. The negotiation history
3. Conduct of the parties
Industry/trade usage
Dictionary
Transactional context
Government Regulations
What the court takes into consideration:
o Specifics get more weight than general terms
o Separate negotiations get more weigt than boilerplate
o Hand written and types gets priority over pre-printed
Eichengreen v. Rollins --> Adopts Willison "4 corners" to answer the question of what is
included in the premises. They look at the document itself to determine this question
Pacific Gas v. Thomas --> Parties disagree over who the indemnification clause includes. P
says it includes P and D says it is only for 3rd parties. Court adopts the Corbin approach and
evidence is allowed in to determine what the parties intended it to mean
Avoidance of the Contract
1. Look first to see if the contract itself provides any relief
2. When does the event have to occur (before, at or after formation)
3. Does it mean it is voidable or automatically void
4. At whose option is it voidable
Mistake (misunderstanding, mutual mistake, unilateral mistake, reformation)
Misunderstanding
o Has to happen prior to or during formation
o Voidable
o Voidable by both parties
Peerless
o 2 ships named "Peerless" coming from the same port
o They both only thought their was one ship "Peerless"
o Parol evidence was brought in to show their was a misunderstanding about what
"peerless" meant
o No meeting of the minds because they both thought it was a different ship named
"Peerless"
R § 20 Effect of Misunderstanding (Problem 108 for explanation)
o “There is no manifestation of mutual assent to an exchange if the parties attach
materially different to their manifestations AND
 neither party knows or has reason to know the meaning attached by the other; OR
 each party knows or each party has reason to know the meaning attached by the
other
o
The manifestations of the parties are operative in accordance with the meaning
attached to them by one of the parties if
 That party doesn’t know of any different meaning attached by the other, and the
other knows the meaning attached by the first party; OR
 That party has no reason to know of any different meaning attached by the other,
and the other has reason to know the meaning attached by the first party
Mutual Mistake
o Has to happen prior to or during formation
o Voidable
o Voidable at the option of both parties
o Must relate to a material fact--goes to the substance of the contract
o Sherwood v. Boynton: Mistaken of the fertility of the cow
 Two types of mutual mistakes
1. Quality
2. Substance (a barren cow is a substantially different creature than a breeding
one)
 The risk was not apart of the deal, in contrast with Wood v. Boynton
o Wood v. Boynton: Topaz or diamond
 They both knew they were both buying/selling a stone of unknown value
 Risk is not mutual mistake, it is part of the deal
 An error in judgment, not mutual mistake
Unilateral Mistake R. §153
o Prior to or during formation
o Voidable
o Voidable at the option of the mistaken party
o First Baptist v. Barber: Bid with a clerical error; First Baptist tried to enforce it
 Should First Baptist bear the risk ? No, enorcement would be unconscionable; it was
a clerical error; the bid bond was not intended to cover that kind of mistake
o Generally does not void K
 Exceptions:
 Enforcement of K would be unconscionable (FBC v. Barber)
 Non-mistaken party has reason to know about the mistake
 Mistake in judgment generally doesn’t excuse performance
R § 154 When a party bears the risk of mistake,
A. The risk is allocated to him by agreement of the parties
B. He is aware at the time the contract is made that he only has limited knowledge with
respect to the facts which the mistake relates but treats his limited knowledge as
sufficient
C. The risk is allocated to him by the court on the grounds that it is reasonable in the
circumstances
Reformation
o Equitable action where the court is asked to rewrite the contract so that it represents
the “true” agreement of the parties
o Lawyers call it “blue penciling”
o Only really used to if clerical errors
o EX: We said $1000 but we only write $100
o
o
Court has to have enough comfort that they are fixing the intent of the parties
Occasionally can be used with fraud, duress, undue influence and unconscionability but
most often used in mistake cases
Fraud
o Prior to or during formation
o Voidable
o Voidable by the innocent party
o R § 159 a misrepresentation is an assertion that is not in accord with the facts
Vokes v. Arthur Murray, Inc.
 Wanted to be a dancer, spent $31000+ on dance lessons because studio told her
she had real potential
 Restatement §169—a person’s opinion cannot be justifiable if they have special
skill or knowledge which would cause plaintiff to trust them i.e. doctor/lawyer
(exception to when you can rely on opinions as fact)
R § 168 reliance on assertions of opinion
o If someone give an opinion, you cant rely on that as an assertion of fact--but you can rely
on it to the extent that you know facts that support your opinion
R § 169 normally opinions aren't fraud, unless…
A. Relationship of trust and confidence
B. The person has a special skill, judgement or objectivity
C. The "catch all"
Types of Fraudulent behavior
o Affirmative False Statement
o Concealment—deliberate conduct to hide a fact
o Nondisclosure—an individual can commit fraud by keeping silent and failing to disclose
a fact.
Can’t just be verbal lies, but affirmative concealment is fraud
o Generally no duty to disclose but you cannot partially disclose
Example of no duty to disclose
o If you are selling something for $300 but are willing to sell for $100, it is not required
that you disclose your lowest willing offer, allowing you to negotiate fairly
Duty to disclose
o Generally parties are not required to disclose general matter, but if a party begins to
disclose something, they are required to tell the WHOLE TRUTH about that subject
matter
Exception to disclosure
o Relationship of trust and confidence
o If the seller KNOWS the buyer has a misconception of a K
o Say one thing at time of K which you believe to be true… and later find out that it is
different, you must go and correct your mistake immediately
Cousineau v. Walker
o Gravel (highway frontage)
o Rescission is allowed for innocent misrepresentation unless a buyers fault was SO
negligent as to amount of bad faith (if buyer should have known the land was not as
large as sated by seller)
o Addresses Innocent Misrepresentation
Innocent misrepresentation can be the basis for rescission if… (Cousineau)
Three question the court asks
1. Did Cousineau rely on the statements
2. Were the statements material to the transaction
3. Was his reliance justified
Duress
o Before or during contract formation
o Voidable
o Voidable by the innocent party
o Any wrongful action or threat that is the inducing cause of the contract
 Undermines the voluntary aspect of mutual assent
 Can be physical or economic pressure— economic has to be extreme—have to show
that their was no other option
 EX: There is only one vendor for a specific product and they decide the day
before your event to double the price. This is economic duress because they
are coercing you to agree to a higher price because you have no other option
Undue Influence
o Before or during contract formation
o Voidable
o Voidable at the innocent party
Two Types:
1. Using a position of trust and confidence to force a person into a transaction that is
not in their best interest
2. When one party is clearly dominant in relation to the other and convinces nondominant party, by using dominance to convince them to enter into a K
***establishing this, it does not mean that the contract is automatically voidable… you
have to show that the resulting contract was unfair to the other (a one sided contract)
Kase v. French
 Old lady sells house to randoms that befriend her and gain her trust
 Dissent is strong—French’s duty to show they weren’t taking advantage of her
Courts want there to be an Outside advisor
 Person does not have to follow their advice for the advisor to count
Illegality
o Before, during or after
o CONTRACTS ARE VOID
o Bennett v. Hayes
 Didn’t give written estimate to customer of cost of car repair which was illegal
o
o
under business and professions code
Innocent party in an illegal contract —> is entitled to relief under the quasi contract; can
either get relief or they can try to convince the court to seer off the illegal part of the K
and then claim recovery under the contract itself
 Quasi —> implied in law
Tries to return the innocent party to the status quo--court doesn’t care about getting the
illegal party back to the status quo--it leaves guilty parties where it finds them
Licenses (problem 123, 124, 125)
o
Problem 124: The state required all merchants who intended to extend consumer credit
to obtain a license from the State attorney General Office. The purpose of the licensing
was to finance a consumer protection agency. Garfield department store never applied
for a license never applied for a license but sold much merchandise under a credit card
plan. Must its customers pay their bills?
 Purpose of licensing —> to fund the consumer protection agency(revenue raising)
 Failure to get the license doesn’t result in a void contract
o Whether a licensing contract should be void
 Revenue raising v. Regulating conduct
 Focus on the reasoning and purpose for the licensing requirement
Failing to get a license, the promise is unenforceable when:
 The requirement is regulatory
 Interests in enforcement outweighs the interest in the promise being enforced
Contracts in restraint of trade
 Sales of businesses (I am selling my wedding cake business, “Shaner’s cakes and then
Shaner sells the business and opens Shaner’s Cakes 2 across the street)

Employment contracts/non competes
 These are illegal for public policy reasons—don’t want to prevent a person of the right
to make a living
 If the whole contract is a non-compete its illegal; if it contains other stuff, if possible, the
court will jut cut that part out
 Three Questions
1. Does the seller or employer have unique talents or abilities
2. Is the area that the restraint will cover reasonable?
3. Is the time period reasonable
o Problem 125: Employee sues for declaratory relief — to declare the provision void.
Employee sues for damages— the employer wants the employee to not compete
1. Passes the first part of the test, because he has specific trade or skill and they pay
him
2. If the hundred mile radius is for example in the anchorage Alaska, this would be
different. If it is a populous area then the hundred mile radius might be reasonable
o
o
o
Problem 123: Sam failed bar three times and wrote a will for Mary. Mary learned the
truth about him and refused to pay. Sam sued.
 Would the contract be void? Yes
 The licensing of the bar is intended to regulate the practice of law (conduct)
 The licensing of a lawyer outweighs the reasons to enforce the contract
 Sam is stripped of all legal relief; Mary can still keep the will


3. Look at the industry and the business itself to see if the area and time constraints
are reasonable
4. The bigger you got an the longer you get, the more skeptical a court it—and they
will put the burden on the creator on the contract to show it is reasonable
5. It would be unfair for the employer to train the employee and then the employee
leaves for a competing business after the training
6. Hard case for Lee to argue
Courts are hesitant to blue pencil contracts in restraint of trade—because this would
provide an incentive for employers or buyers to fix it even if the contract goes too far—
what about all the cases where the employee doesn’t know they can challenge it
This is why courts say thy are void which incentivized much more careful drafting on
these agreements
Minors
o Voidable
o Voidable by the minor
o Courts
o Minors can disaffirm, unless its for a necessity
o How to disaffirm
 Minor can simply indicate they no longer want to be bound under the contract--written,
oral, informal or formal
Valencia v. White
 Minor runs business and makes a K with a repair shop
 Not a necessity because the business wasn’t minors income (his parents paid for
food/living expenses)
 K void. BUT minor was still liable for
 Repairman had to give truck back
Court in Valencia adopts a minority view that a minor who disaffirms a K may be held liable
for benefits received even though they are not necessities and even though the benefits
cannot be returned in
If a minor ratifies a contract when he reaches the age of majority, that contract is in full force
Mental Infirmity
o Voidable or Void
 If a court has declared you mentally incompetent then everything you sign is
automatically VOID
o Voidable at
o EX: Insanity, metal retardation, medicine side effects
o Undermines the MA of contract formation
Things to ask:
 Does the individual have the ability to understand the contract
 Similar to minors, they ask how necessary the contract is (EX: medical care is usually
enforced, unless they are taking advantage of you)
 Did the other side know of the incompetency
 How great is the hardship?
*The situation would change if Rex purchased a car, used it for a few months, and then
tried to take it back to get his money back
*It al deepens on the equities (fairness) of the situation
Can intoxication be considered a mental infirmity?
 Yes, if the person is taking advantage of the really really drunk person.
 EX: I’m gonna wait for Warren Buffet to get really really drunk and then make him buy a
bunch of stuff
 How quickly?
 A reasonable amount of time.. Pretty quick (as soon as you sober up)
Unconscionability
o At or before a contract was formed
o Voidable
o Voidable at the innocent party
o Contract is too unfair to be enforced
Two Part Test
1. Procedural (More important to the courts) (factual fight)
 Means unfairness in the bargaining/formation process, sharp business
practices and unfair business dealings
2. Substantive
 Refers to the harsh terms in the resulting K
*If there is good process, the courts have confidence that each party was able to
advocate for their interests
Williams v. Walker (UCC case)
 K for furniture—kept buying and never paid it off
 Gives permission for stores to repossess
 Holding was that where the element of unconscionability is present at the time a K is
made, the K should not be enforced
 Was remanded for lower courts
Weaver v. American
 No negotiation but lots of fine print
 Contains exculpatory clause (frees American oil from any duty to Weaver; Weaver cant
sue American for injuries)
 Procedural --> already in preprinted form, to party of lessor bargaining power
 Substantive --> this particular exculpatory clause is unfair
 Dissenting makes a strong case by saying Weaver should of read the contract and
sought legal counsel (good point from a doctrinal perspective)
Exculpatory clauses: Not all are unconscionable as long as someone knows what the are
entering into and agrees to it
Impossibility
o After contract is formed
o
o
o
Voidable
Voidable by both parties
Comes up where both parties don’t foresee the incident happening
Taylor v. Caldwell (music hall burns down)
 The law assumes that had the parties considered this possibility they would of wrote
the contract to excuse performance expressly
When contracts are conditional upon the continuing existence of a thing (the music hall)
 There is an implied condition
 Burning down excuses performance
 Both parties knew the music hall was an implicit aspect of the bargain
What if the contract says the defendant will be responsibility for all acts of God (force majeure
clause)
 The defendant would not be off the hook then, because he bares the risk
 This clause allocates the risk to one party
 Plaintiff would win
The court would not of come out the same if the defendant or plaintiff burned down the music
hall purposely
 The party that burned down the hall would assume the risk
 If you bear the risk, you don’t have a valid excuse to get out of the contract—especially
in the case where you have caused the event or contributed to the event
Impracticability (Taylor v. Caldwell *tweaked)
o Impracticability means could be done, but only with superhuman efforts and not practical
o If they would of rebuilt the music hall would it turn out the same way?
 Courts looks at impracticability
 For example, if it would take super human effort and an unreasonable amount of money,
then it would be considered impractical
Nissho v. Occidental
 The force majeure clause requires us to apply a reasonable control limitation to each
specified event
 Reasonable Control contains two elements
1. The party must not affirmatively cause the event
2. The party must take reasonable steps to ensure performance
Force majeure: an impossibility due to an "act of God"
 War, strikes, riots, crime, terrorist attacks
 If this is in the contract, it allocates the risk to one party
Frustration of Purpose
o After contract formation
o Voidable
o Voidable by either party
o The physical thing or person is still in existence, in contrast with impossibility, however, the
objective/ reason/ purpose of one of the parties in constructively conditioned upon one
particular purpose upon one particular purpose

Both parties have to know of this objective/reason/purpose
Three questions courts will ask
1. What was the purpose and basis of the K?
2. Was the frustration total or nearly total?
3. Did the person who wants to use FOP play a role in the foreseen frustration? (Risk
allocation--the persons who wants to use FOP cannot of assumed the risk in any way)
Krell v. Henry (Henry bought rooms to watch the coronation)
o Both parties knew that the contract was for the procession--this is shown by the inflated
price that was to be paid.