2007/2008
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APT - English Legal Terminology (Prof. Robert Turk)
The Law of Contracts
There are many ways to approach the subject of 'Contract Law', but perhaps one
of the most useful approaches focuses on the so-called 'essentials of a contract'.
What is the essence of a contract? What is essential to any, and every, contract?
My approach focuses on FOUR and a half 'Essentials of a Contract':
#
Contract Essential
Basic Question(s) Analyzed in each Essential
1.
'Mutual Assent'
Do both/all sides manifest (show) 'yes' ?
2.
'Consideration'
Is true 'legal value being exchanged' ?
3.
'Legality of Objective'
Is any 'law' being violated ?
4.
'Capacity of Parties'
Do any parties lack 'legal capacity ?
4 ½ 'Statute of Frauds'
Is this a kind of 'contract' that is required to
be 'evidenced' in written form to be enforcable?
Contract Essential # 1: Mutual Assent
'Mutual' is an adjective indicating actions done by each of two (or more) parties 'to' or 'with'
the other; it suggests 'both sides' in a bargaining or negotiating relationship. 'Assent' is a noun
indicating 'approval'; it suggests that a party 'consents' by word or action. So 'Mutual Assent'
is about both, or all sides, manifesting ('showing') their approval – their 'yes' – to the other(s).
We often think about such manifestation of approval in the words 'Offer' and 'Acceptance'.
What is an 'offer'? An offer is often defined as some form of 'commitment', that has in one
way or another been communicated to an identifiable 'offeree' by the 'offeror', and which
contains some definite terms (negotiating points or elements which could be the basis of a
future contract). Here we must be careful to distinguish between situations where the parties
are still in the midst of negotiations or even at the start of their bargaining process, and those
situations in which one party is already prepared to make a commitment to the other (in
response to which commitment the other may 'show assent'). The case Lefkowitz v. Great
Minneapolis Surplus Store is an interesting example discussing these different situations.
© 2002-2008 Robert Turk -- PAGE 1 of 17
Lefkowitz v. Great Minneapolis Surplus Store, Inc.
Supreme Court of Minnesota, 1957
251 Minn. 188, 86 N.W. 689.
MURPHY, J.
This is an appeal from an order of … judgment award[ing] the plaintiff the sum of $138.50 as damages
for breach of contract.
This case grows out of the alleged refusal of the defendant to sell to the plaintiff a certain fur piece which it
had offered for sale in a newspaper advertisement { 'ad'}. It appears from the record that on April 6, 1956, the
defendant published the following advertisement in a Minneapolis newspaper:
S a t u r d a y 9 A. M. S h a r p
3 Brand New Fur Coats
Worth
First Come, First Served $1 Each
to
$100
On April 13, the defendant again published an advertisement in the same newspaper as follows:
S a t u r d a y 9 A. M.
2 Brand New Pastel Mink 3-Skin Scarfs
S e l l i n g f o r $ 8 9 .5 0
Out they go S a t u r d a y.
Each … $ 1.00
1 Black Lapin Stole, Beautiful W o r t h $ 1 3 9 .50 … $ 1.00
First Come, First Served
The record supports the findings of the court that on each of the Saturdays following publication of the
above-described ads the plaintiff was the first to present himself at the appropriate counter in the defendant's
store and on each occasion demanded the coat and the stole so advertised and indicated his readiness to pay the
sale price of $1. On both occasions, the defendant refused to sell the merchandise to the plaintiff, stating on the
first occasion that by a 'house rule' the offer was intended for women only and sales would not be made to men,
and on the second visit that plaintiff knew defendant's house rules . …
The defendant contends that a newspaper advertisement offering items of merchandise for sale at a named price
is a unilateral offer' which may be withdrawn without notice. He relies upon authorities which hold that, where
an advertiser publishes in a newspaper that he has a certain quantity or quality of goods which he wants to
dispose of at certain prices and on certain terms, such advertisements are not offers which become contracts as
soon as any person to whose notice they may come signified his acceptance by notifying the other that he will
take a certain quantity of them. Such advertisements have been construed { 'interpreted' } as an invitation
for an offer of sale on the terms stated, which offer, when received, may be accepted or rejected, and which
therefore does not become a contract of sale until accepted by the seller; and until a contract has been so
made, the seller may modify or revoke such prices or terms. [Citations.] …
On the facts before us we are concerned with whether the advertisement constituted an offer, and, if so, whether
the plaintiff's conduct constituted an acceptance.
* * *
The test of whether a binding obligation may originate in advertisements addressed to the general public is
''whether … some performance was promised in positive terms in return for something requested.''
* * *
Whether in any individual instance a newspaper advertisement is an offer rather than an invitation to make an
offer depends on the legal intention of the parties and the surrounding circumstances. [Citations.] We are of
the view on the facts before us that the offer by the defendant of the sale … was clear, definite, and explicit, and
left nothing open for negotiation. The plaintiff, having successfully managed to be the first one to appear at the
seller's place of business to be served, as requested by the advertisement, and having offered the stated purchase
price of the article, was entitled to performance [by] the defendant... [T]he trial court was correct in holding that
there was in the conduct of the parties a sufficient 'mutuality of obligation' { see also 'Contract Essential
#2: Consideration' } to constitute a contract of sale.
* * *
Affirmed.
© 2002-2008 Robert Turk – PAGE 2 of 17
Consider the following situation:
Suppose that Angelina offers to sell to Brad her red Ferrari for $50,000.
After an offer is made, but before that offer has been accepted, many legally significant events
can occur. Think about the possibilies:
1.
2.
3.
4.
5.
6.
The offeror may decide to take back (or withdraw) her offer.
The offeree may decide that he does not want to accept her offer.
The offeree may decide not to accept her offer, but he decides to make a new offer to her.
The offeree may let too much time pass before he makes any decision.
The offeror or offeree may die after the offer is made, but before the offer is accepted.
The offeror or offeree may become incomptetent after the offer is made, but before the
offer is accepted
7. The subject matter of the offer may be destroyed.
8. It may become subsequently illegal to accept the original offer, due to some enactment
(statute) by the legislature (which makes it now illegal to do what was originally legal
when the offer was made).
What is the effect of each of those events on the original offer, before it has been accepted?
The offeror's original offer to the offeree is now terminated or ended before acceptance.
Termination of an offer means that it is legally 'dead', and cannot be brought back to life.
Only a new offer can now be made (although that new offer may of course be similar, or even
identical to the old offer. Below we can describe those same events listed above, using proper
legal terminology, both in verb form and noun form.
Verb in active (and passive) form as used in a sentence.
Noun form
The offeror may revoke the offer.
(The offer may be revoked by the offeror.)
revocation
The offeree may reject the offer.
(The offer may be rejected by the offeree.)
rejection
The offeree may counter-offer.
The offeree may make a counter-offer to the original offeror.
A counter-offer may be made by the offeree.
counter-offer
The offeree may let too much time elapse.
lapse of time
The offeror or offeree may die.
death of a party
The offeror or offeree may become disabled/incompetent.
incompetence
The 'subject matter' of the offer may be destroyed.
destruction
It may become subsequently illegal to accept the original offer.
subsequent illegality
© 2002-2008 Robert Turk – PAGE 3 of 17
The possibilities (listed above) of various legally significant events which may happen during
the life of the offer (the duration of the offer) may be classified into three groups.
The first group includes the event that is within the control of the offeror:
revocation;
The second group includes those events that are within the control of the offeree:
rejection,
counter-offer,
lapse of time;
The third group includes those events that are outside of the control of the offeror or offeree,
some of which are variously referred to as 'acts of God', or 'operation of law', etc.
death,
incompetence,
destruction of subject matter,
subsequent illegality.
-----------------------------------------------------------------------------------------------------------------
What is an 'acceptance'?
An acceptance requires:
definiteness by the accepting party which is positive and without doubt as to that party's
willingness to enter into a contract, based on the terms of the offer, with no additions,
subtractions, or qualifications.
(That 'definiteness' has traditionally been referred to as the 'mirror image'.)
Two other important factors are:
'the effective moment' of acceptance;
when, at what precise time?
'the mode' of acceptance
how, in what way?
© 2002-2008 Robert Turk – PAGE 4 of 17
These factors are closely related. The 'effective moment' of acceptance is important to be able
to clearly understand when, for example, a 'seller' of an item is no longer the 'owner' of that
item and the title of ownership has definitely passed from the seller to the buyer (now owner).
The 'mode' of acceptance helps in this inquiry, because the offer itself may specify precisely
how the offer must be accepted—by what 'means' (in what way). Traditionally, if the offer
did not precisely specify what were the 'authorized means' of acceptance, then the means
used by the offer were regarded as authorized means (i.e. if the offer was sent by 'normal'
post, then the acceptance was authorized by normal post also). Indeed, by the so-called
'mailbox rule', an acceptance is generally recognized as being effective upon dispatch
('when it was sent'), if properly addressed and sent with proper postage.
Most contract communications focus on when that communication was 'received', not sent.
For example, communications by the offeror such as an 'offer' or a 'revocation' are recognized
as being effective when received by the offeree. Similarly, most communications by offeree
such as a 'rejection', a 'counter-offer', or even an 'acceptance sent after prior rejection' all have
been recognized as being effective when received by the offeror. Here, 'acceptance' is
unique, because it is traditionally recognized as being effective when sent (under the 'mailbox
rule'.)
Hyde v. Wrench
Rolls Court (1840) 3 Beav. 334; 4 Jur. 1106; 49 E.R. 132
June 6.
The defendant wrote to the plaintiff offering to sell his farm for £ 1,000.
The plaintiff's agent immediately called on the defendant, and made an offer
of £ 950, which the defendant wished to have a few days to consider.
June 27. The defendant wrote to say that he could not accept this offer.
June 29. The plaintiff wrote ''accepting'' the offer of June 6.
The plaintiff later brought an action for specific performance of the alleged 'contract'.
The defendant then filed a 'general demurrer'.
{This is similar to a modern 'motion to dismiss the case'.}
The Master of the Rolls (Lord Langdale): Under the circumstances stated in this bill, I think
there exists no valid binding contact between the parties for the purchase of the property.
The defendant offered to sell it for £ 1,000 and if that had been at once unconditionally
accepted, there would undoubtedly have been a perfect binding contract; instead of that, the
plaintiff made an offer of his own, to purchase the property for £ 950, and he thereby rejected
the offer previously made by the defendant. I think that it was not afterwards competent for
him to revive the proposal of the defendant, by tendering an acceptance of it; and that,
therefore, there exists no obligation of any sort between the parties; the demurrer must be
allowed.
© 2002-2008 Robert Turk – PAGE 5 of 17
Conduct that 'denies' or 'invalidates' the 'appearance' of mutual assent.
Having reviewed and analyzed the 'offer', 'duration of the offer', and 'acceptance', we cannot
leave 'Contract Essential # 1: Mutual Assent' without one last stage of review and
analysis.
It is absolutely important to review what seems to be an 'accepted offer' to determine whether
there is, in fact, true 'mutual assent', and not just the appearance of 'mutual assent'. What may
appear to be a valid agreement between the parties at first impression, may indeed be revealed
as something less… perhaps because force, improper influence, or some 'trick' was used to
make only the appearance of mutual assent, or there was truly some misunderstanding by
both of the contracting parties. Therefore, the following factors should be examined:
1.
Duress
Was any force applied in this situation,
either physical force, or some improper economic force?
2.
Undue influence
Was any improper influence used?
A 'threshold ('first /starting') question' which must be asked
here is: Were these parties in a 'confidential relationship' ?
meaning perhaps 'doctor/patient', 'lawyer/client', priest or
minister/church member, etc. where a 'fiduciary duty' exists
to act in 'good faith', with loyalty, to benefit the other party.
If no confidential relationship, no undue influence occurred.
If yes, further review/examination of the 'contract terms' is
necessary, looking for evidence of 'undue influence'.
3.
Fraud / misrepresentation
Fraud may be of two types:
-fraud in the execution: one party did not even know she
was entering a contract, e.g. when signing a 'document'.
-fraud in the inducement: one party has intentionally made a
false statement to the other, leading him to make a contract.
4.
Mutual mistake
© 2002-2008 Robert Turk – PAGE 6 of 17
Did both parties make a 'mutual mistake' of some material
(significant) fact in the contract? Such situations are rare.
Note that a 'unilateral mistake' by one party is not enough to
lead a court to deny mutual assent, and it is certainly not an
excuse to make a mistake due to 'ignorance of the law', etc.
Contract Essential # 2: CONSIDERATION
Consideration is perhaps one of the most difficult concepts in contract law. A useful, two-part
definition of 'consideration' is:
bargained-for (or negotiated) exchange
OF
something of 'legal value'.
If it is truly a bargained-for exchange, then this part of
the definition excludes:
Our focus here is on 'legal value' which is described in
terms of 'legal sufficiency' of consideration,
-gifts
(Since gifts are not 'bargained' or 'negotiated', they are
different from contracts because gifts do not have, and
do not require, 'consideration'.)
What has legal value? One simple answer is a 'promise'.
Your promise 'to do' or 'not to do' something (when you
have a legal right to do or not do) is something of value,
specifically, 'legal value' which you can exchange with
another party to form a contract.
-'past' consideration
(Something done in the 'past' cannot be said to be
exchanged 'now' in a new bargain or negotiation).
So our focus here is not merely on 'economic value'
which might sometimes be described in terms of
'economic adequacy' of consideration.
Our focus here is also on the concept of
'mutuality of obligation'
by which we look for a duty/obligation on both sides.
Looking at various negotiating situations, we are
NOT interested in so-called 'illusory promises' from
one party saying only 'what they wish or want' to do,
yet not really making any commitment to do anything.
BUT 'output or requirements' contracts are permissable
as good consideration, because such terms can typically
be calculated by a court when deciding on damages for a
breach of contract.
Examples:
how many cars will be 'produced' by a factory ('output')
or how many wheels will be 'required' by an auto firm,
for example, in one year of car production,
can be calculated by a court.
Another issue here: pre-existing duty.
(See Denney v. Reppert, 1968)
© 2002-2008 Robert Turk – PAGE 7 of 17
Denney v. Reppert
Court of Appeals of Kentucky, 1968
432 S. W. 2d 647.
MYRE, SPECIAL COMMISSIONER.
The sole question presented in this case is which of several claimants is entitled to an award for information
leading to the apprehension {here, meaning 'arrest' } and conviction of certain bank robbers.
***
On June 12th or 13th, 1963, three armed men entered the First State Bank, Eubank, Kentucky, and with a display
of arms and threats, robbed the bank of over $ 30,000 . Later in the day they were apprehended by State
Policemen Garret Godby, Johnny Simms, and Tilford Reppert, placed under arrest, and the entire loot was
recovered. Later all of the prisoners were convicted and Garret Godby, Johnny Simms, and Tilford Reppert
appeared as witnesses at the trial.
The First State Bank of Eubank was a member of the Kentucky Bankers Association which provided and
advertised a reward of $500 for the arrest and conviction of each bank robber. Hence the outstanding reward
for the three bank robbers was $1,500. Many became claimants for the reward and the Kentucky State Bankers
Association, being unable to determine the merits of the claims for the reward, asked the circuit court to
determine the merits of the various claims, and to adjudge who was entitled to receive the reward or share
in it. All of the claimants were made defendants in the action.
At the time of the robbery the claimants Murrell Denney, Joyce Buis, Rebecca McCollum, and Jewell Snyder
were employees of the First State Bank of Eurban and came out of the grueling situaton with great credit and
glory. Each of them deserves approbation and an accolade. They were vigiliant in disclosing to the public and
peace officers the details of the crime, and in describing the culprits, and giving all the informaton that they
possessed that would be useful in capturing the robbers. Undoubtedly, they performed a great service. It is in the
evidence that the claimant Murrell Denney was conspicuous and energetic in his efforts to make known the
robbery, to acquaint the officers as to the personal appearance of the criminals, and to give other pertinent traits.
The first question for determination is whether the employees of the robbed bank are eligible to receive or share
in the reward? The great weight of authority answers in the negative. In Re Waggoner {citation} states the rule
thusly:
To the general rule that, when a reward is offered to the general public for the
performance of some specified act, such reward may be claimed by any person
who performs such act, is the exception of agents, employees, and public officials
who are acting within the scope of their employment or official duties. …
Or, as the rule was set forth in Forsythe v. Murnane et al., {citation}:
The defendant Delaney is and during all the times herein mentioned has been,
employed by defendant Great Northern Railway Company … and by virtue of
such employment it was his duty to do and perform all the things that were done
and performed by him in the matter of the arrest, identification, and prosecution.
It is clear that defendant Delaney is not, in view of … his contractual relations
and the duties in the premises … entitled to any part of the reward. …
© 2002-2008 Robert Turk – PAGE 8 of 17
In Stacy v. President, etc., of State Bank of Illinois {citation} it was held that a director of a bank was not
entitled to share in the reward offered by the bank for the arrest of a robber because it was his duty as a director
to further the best interests of the bank, and apprehending one who had robbed the bank was in the best interest
of the bank. {Citations.}
At the time of the robbery the claimants Murrell Denney, Joyce Buis, Rebecca McCollum, and Jewell Snyder
were employees of the First State Bank of Eubank. They were under duty to protect and conserve the resources
and moneys of the bank, and safeguard every interest of the institution furnishing them employment. Each of
these employees exhibited great courage and cool bravery, in a time of stess and danger. The community and the
county have recompensed them in commendation, admiration, and high praise, and the world looks on them as
heroes. But in making known the robbery and assisting in acquainting the public and the officers with details
of the crime and with identification of the robbers, they performed a duty to the bank and the public, for which
they cannot claim a reward.
The claims of Corbin Reynolds, Julia Reynolds, Alvie Reynolds, and Gene Reynolds also must fail. According
to their statements they gave valuable information to the arresting officers. However, they did not follow the procedure as set forth in the offer of reward in that they never filed a claim with the Kentucky Bankers Association.
It is well established that a claimant of a reward must comply with the terms and conditions of the offer of
reward {Citation.}
State Policemen Garret Godby, Johnny Simms, and Tilford Reppert made the arrest of the bank robbers and
captured the stolen money. All participated in the prosecution. At the time of the arrest, it was the duty of the
state policemen to apprehend the criminals. Under the law they cannot claim or share in the reward and they are
interposing no claim to it.
This leaves the defendant, Tilford Reppert the sole eligible claimant. The record shows that at the time of the
arrest he was a deputy sheriff in Rockcastle County, but the arrest and recovery of the stolen money took place in
Pulaski County. He was out of his jurisdiction, and was thus under no legal duty ot make the arrest, and is thus
eligible to claim and receive the reward. In Kentucky Bankers Association et al. v. Cassady {citation}, it was
said:
It is …well established that a public officer with the authority of the law to make
an arrest may accept an offer of reward or compensation for acts or services
performed outside of his bailiwick or not within the scope of his official duties….
The claimant Tilford Reppert was present with Garret Godby and Johnny Simms at the time of the arrest and all
cooperated in its consummation. The claimant Tilford Reppert personally recovered the stolen money. He
recovered $2,000 more than the bank records show was stolen. This record does not reveal what became of
{'what happened to'} the $2000 excess.
It is manifest from the record that Tilford Reppert is the only claimant qualified and eligible to receive the
reward. Therefore, it is the judgment of the circuit court that he is entitled to receive payment of the $1,500
reward now deposited with the clerk of this court.
The judgment is affirmed.
© 2002-2008 Robert Turk – PAGE 9 of 17
Contract Essential # 3: LEGALITY OF OBJECTIVE
Courts will not enforce 'agreements' or 'bargains' which lack a legal objective. This contract
essential focuses on two kinds of 'violations':
Violations of a statute (some 'legislative enactment' passed or adopted by, for example,
a state legislature, the U.S. Congress, Parliament in the U.K., etc.).
Violations of 'public policy' (a rather general term referring to the 'general welfare' of
the people living in some jurisdiction such as one of the 50 states (in the U.S.)).
Any agreement which violates either a statute or public policy will not be 'enforced' by the
courts, and for that reason, it is useful to label such an agreement as an 'illegal bargain' or an
'illegal agreement', rather than an 'illegal contract'. To call such a bargain an 'illegal contract'
would ignore this 'Contract Essential # 3' which reminds us that the true essence of a contract
presupposes that the parties have a 'legal objective' in forming their 'contract'.
Violations of Statutes
There are many ways in which a bargain or agreement made by the parties may violate some
enactment of a legislature. Review some examples:
Licensing Statutes
Perhaps the State of Florida has a statute regulating certain professions and
occupations. That 'act' passed by the state legislature in Florida may apply
to all lawyers, doctors, dentists, accountants, building contractors, and
plumbers in the State, requiring that each person engaged in such practice
or business must have a 'license' from the State.
Gambling Statutes
Perhaps the State of Alabama has a statute prohibiting gambling of all kinds
within the borders of the State.
Usury Statutes
Perhaps the State of California has a 'usury' law. That enactment by State
legislators establishes a maximum rate of interest on money borrowed in a
contract between a lender and a borrower of money.
© 2002-2008 Robert Turk – PAGE 10 of 17
Any bargain or agreement (between parties trying to make a contract) which violates such
statutes would likely be ruled 'unenforceable' if challenged in court: For example:
Plaintiff Jose will probably not have to pay the bill for plumbing work done
by 'Josephine the Plumber' to fix the water pipes in his Miami apartment
because Josephine did not have the proper state license to do that work.
Albert will probably not be able to collect on his $100 bet with Arnold (that
Slovenia will win the Football World Cup) because the objective of their
agreement (to award Albert or Arnold as winner of the bet) was 'illegal'.
Gloria will probably not have to pay any interest on her loan (money that
she borrowed) from 'Hollywood Bank' because their loan documents had
an interest rate that was higher than the maximum allowed by State law.
Of course, the effect of each of these violations of statutes will depend upon the language of
the statute that was violated, but these examples provide at least a general look at the types of
statutory violations which can result in an agreement being found 'unenforceable' in court.
Violations of Public Policy
There are also many ways in which a bargain or agreement made by the parties may violate
what is called 'public policy', or the 'general welfare of the people', as articulated by a court..
Review some examples:
Tortious Conduct
A promise to commit a tort…is unenforceable on grounds of public policy.
(Restatement of Contracts, Section 192.)
Unconscionability
If a contract or term thereof is unconscionable at the time the contract is
made, a court may refuse to enforce the contract, or may enforce the
remainder of the contract witout the unconscionable term, or may so limit
the application of any unconscionable term as to avoid any unconscionable
result. (Restatement of Contracts, Section 208.)
The following case is a well-known example of a court articulating 'public policy' concerns in
refusing to allow enforcement of a 'printed form contract' (a kind of 'one size contract fits all
customers' document which most of the store's customers probably did not completely read or
fully understand). 'Pubic policy' grounds may be the reason for not enforcing such a 'bargain'
because the legislature has never enacted a statute that actually covers such a situation.
© 2002-2008 Robert Turk – PAGE 11 of 17
Williams v. Walker-Thomas Furniture Co.
Court of Appeals, District of Columbia, 1965
350 F. 2d 445
WRIGHT, C. J.
Appellee, Walker-Thomas Furniture Company, operates a retail furniture store in the District of Columbia.
During the period from 1957 to 1962 each appellant in these cases purchased a number of household items from
Walker-Thomas, for which payment was to be made in installments. The terms of each purchase were contained
in a printed form contract which set forth the value of the purchased item and purported to lease the item to
appellant for a stipulated monthly rent payment. The contract then provided, in substance, that title would
remain in Walker-Thomas until the total of all the monthly payments made equaled the stated value of the item,
at which time appellants could take title. In the event of a default in the payment of any monthly installment,
Walker- Thomas could repossess the item.
The contract further provided that ''the amount of each periodical installment payment to be made by {the
purchaser} to the Company under this present lease shall be inclusive of and not in addition to the amount of
each installment payment to be made by {the purchaser} under such prior leases, bills, or accounts; and all
payments now and hererafter made by {the purchaser} shall be credited pro rata on all outstanding leases, bills,
and accounts due the Company by {the purchaser} at the time each such payment is made.'' (Emphasis added.)
The effect of this rather obscure provision was to keep a balance due on every item purchased until the balance
due on all items, whenever purchased, was liqudated. As a result, the debt incurred at the time of purchase of
each item was secured by the right to repossess all the items previously purchased by the same purchaser, and
each new item purchased automatically became subject to a security interest arising out of the previous
dealings.
On May 12, 1962, appellant Thorne purchased an item described as a Daveno, three tables, and two lamps,
having total stated value of $391.10. Shortly thereafter, he defaulted on his monthly payments and appellee
sought to replevy all the items purchased since the first transaction in 1958. Similarly, on April 7, 1962,
appellant Williams bought a stereo set of stated value of $514.95. She too defaulted shortly thereafter, and
appellee sought to replevy all the items purchased since December 1957. The Court of General Sessions granted
judgment for appellee. The District of Columbia Court of Appeals affirmed, and we granted appellants'
motion for leave to appeal to this court.
Appellants' principal contention, rejected by both the trial and the appellate courts …, is that these contracts, or
at least some of them, are unconscionable and, hence, not enforceable. …
Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one
of the parties together with contract terms which are unreasonably favorable to the other party. Whether a
meaningful choice is present in a particular case can only be determined by consideration of all circumstances
surronding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of
bargaining power. The manner in which the contract was entered is also relevant to this consideraton. Did each
party to the contract, considering his obvious education of lack of it, have a reasonable opportunity to understand
the tems of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive
sales practices? Ordinarily, one who signs an agreement without full knowledge of its terms might be held to
assume the risk that he has entered a one-sided bargain. But when a party of little bargaining power, and hence
little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly
likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms. In such
a case the usual rule that the terms of the agreement are not to be questioned should be abandoned and the court
should consider whether the terms of the contract are so unfair that enforcement should be withheld.
© 2002-2008 Robert Turk – PAGE 12 of 17
In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered
in light of the circumstances existing when the contract was made. The test is not simple, nor can it be mechanically applied. The terms are to be considered ''in the light of the general commercial background and the commercial needs of the particular trade or case.'' Corbin suggests the test as being whether the terms are ''so
extreme as to appear unconscionable according to the mores and business practices of the time and place.''
{Citation.} We think this formulation correctly states the test to be applied in those cases where no meaningful
choice was exercised upon entering the contract.
Because the trial court and the appellate court did not feel that enforcement could be refused, no findings were
made on the possible unconscionability of the contracts in these cases. Since the record is not sufficient for our
deciding the issue as a matter of law, the cases must be remanded to the trial court for further proceedings.
Reversed and remanded.
Contract Essential # 4: CAPACITY OF PARTIES
This contract essential focuses on four issues of contractual capacity:
Are one or more of the parties …
1.
2.
3.
4.
too young to form a contract?
too intoxicated to form a contract?
too mentally ill to form a contract?
under a legal guardian?
Minors
A minor is a person who has not reached the 'age of majority' as defined in some jurisdiction.
At 'common law', a minor was called an 'infant' and that term is still in use today. Although
the age of majority at common law was twenty-one year of age, statutes in most jurisdictions
have lowered the 'legal age' to eighteen years of age. Nearly every kind of contract which a
minor might form with another party is voidable at the minor's option, meaning that he has a
power of 'avoidance'. Exercising his power of avoidance, a minor may disaffirm the contract
he has formed; disaffirmance releases him from contractual liability. A minor may instead
choose to ratify the contract she has formed. Ratification is possible only after the minor has
attained the age of majority, and has the effect of binding the former minor to the contract.
Mentally Ill Persons
A contract is also voidable by a person who can prove that at the time of contract formation,
he was so mentally disabled that he could not make a valid contract. In such situations, that
person also may disaffirm or ratify the contract, as explained above.
Intoxicated Persons
If a party has reason to know that, due to intoxication, the other party is unable to understand
the nature and consequences of his actions in making a contract, that contract may be ruled as
voidable by a court. Disaffirmance / ratification will likely apply in such cases, (as above).
Persons Under Legal Guardianship
Persons who, by court order, are under 'legal guardianship' are absolutely unable to make any
contractual relations with any other person. Any 'contracts' made by such persons are actually
not contracts at all, and never were. The legal term 'void' is used to describe their agreement,
because it was void from the start, and never was, is not, and never will be a contract.
© 2002-2008 Robert Turk – PAGE 13 of 17
Gastonia Personnel Corp. v. Rogers
Supreme Court of North Carolina, 1970
276 N.C. 279, 172 S.E. 2d 19.
BOBBITT, C.J.
{Rogers (defendant) was a nineteen-year-old (the age of majority being twenty-one) high school graduate
pursuing a civil engineering degree when he learned that his wife was expecting a child. As a result, he quit
school and sought assistance from Gastonia Personnel Corporation (plaintiff) in finding a job. Rogers signed
a contract with the employment agency providing that he would pay the agency a service charge if it obtained
suitable employment for him. The employment agency found him such a job, but Rogers refused to pay the
service charge assserting that he was a minor when he signed the contract. Plaintiff sued to recover the agreed
upon service charge from Rogers.}
Under the common law, persons, whether male or female, are classified and referred to as infants until they
attain the age of twenty-one years. {Citations.}
''By the fifteenth century it seems to have been well settled that an infant's bargain was in general 'void at his
election' (that is 'voidable'), and also that he was liable for necessaries.'' {Citation.}
An early commentary on the common law, after the general statement that contracts made by persons (infants)
before attaining the age of twenty-one ''may be avoided,'' sets forth ''some exceptions out of this generality,'' to
wit: ''An infant may bind himself to pay for his necessary meat, drinke, apparell, necessary physicke, and such
other necessaries, and likewise for his good teaching or instruction, whereby he may profit himself afterwards.''
{Citations.} … If the infant married, ''necessaries'' included necessary food and clothing for his wife and child.
{Citations.}
In accordance with this ancient rule of the common law, this Court has held an infant's contract, unless for
''necessaries'' or unless authorized by statute, is voidable by the infant, at his election, and may be disaffirmed
during infancy or upon attaining the age of twenty-one. {Citations.}
***
In general, our prior decisions are to the effect that the ''necessaries'' of an infant, his wife and child, include only
such necessities of life as food, clothing, shelter, medical attention, etc. In our view, the concept of ''necessities''
should be enlarged to include such articles of property and such services as are reasonably necessary to enable
the infant to earn the money required to provide the necessities of life for himself and those who are legally
dependent upon him.
The evidence before us tends to show that defendant, when he contracted with plaintiff, was nineteen years of
age, emancipated, married, a high school graduate, within ''a quarter or 22 hours'' of obtaining his degree in
applied science, and capable of holding a job at a starting annual salary of $4, 784. To hold, as a matter of law,
that such a person cannot obligate himself to pay for services rendered him in obtaining employment suitable to
his ability, education, and specialized training, enabling him to provide the necessities of life for himself, his
wife, and his expected child, would place him and others similarly situated under a serious economic handicap.
In the effort to protect ''older minors'' from improvident or unfair contracts, the law should not deny to them
the opportunity and right to obligate themselves for articles of property or services which are reasonably
necessary to enable them to provide for the proper support of themselves and their dependents. The minor
should be held liable for the reasonable value of articles of property or services received pursuant to such
contract.
Applying the foregoing legal principles, which modify pro tanto the ancient rule of the common law, we hold
that the evidence offered by plaintiff was sufficient for submission to the jury for its determination of issues
substantially as indicated below.
© 2002-2008 Robert Turk – PAGE 14 of 17
To establish liability, plaintiff must satisfy the jury by the greater weight of the evidence that defendant's
contract with plaintiff was an appropriate and reasonable means for defendant to obtain suitable employment. If
this issue is answered in plaintiff's favor, plaintiff must then establish by the greater weight of the evidence the
reasonable value of the services received by defendant pursuant to the contract. Thus, plaintiff's recovery, if any,
cannot exceed the reasonable value of its services to defendant.
{Judgment for plaintiff awarding a new trial in accordance with legal principles stated in this opinion.}
Contract Essential # 4 ½ : STATUTE OF FRAUDS
Some contracts, but not all contracts, must be evidenced in some written form in order for
the contract to be enforced in court.
Note that this last contract essential is purposely called 'Contract Essential # 4 ½' throughout
the discussion of contracts for one simple reason: it is absolutely essential for some contracts
in order to be legally enforceable, but it is not essential for all contracts. We do not refer to
this last essential as ''# 5'' simply because it is not a requirement for all contracts. But for
those contracts where a writtten form is required, this contract essential is no less important or
significant as any of the first four essentials of contract.
The question remains: so what contracts do require some written form in order to be enforced
in court? The English Parliament answered this question over three hundred years ago, when
it enacted a statute in 1677 with this rather interesting title: 'An Act for Prevention of
Frauds and Perjuries'. This law or 'act' was a legislative answer to an obvious problem that
was plaguing the pursuit of justice in English courts at that time—English law had developed
the rule, in practice at that time, that no person could testify as a witness in a lawsuit in which
he had an interest in the outcome or result of that suit. Neither plantiff nor defendant could
testify in a contract action at court regarding the contract both had made. Yet, oral testimony
was permitted in court about the contract by persons who were thought to be not concerned or
involved in the contract action at court. As a result, plaintiffs or defendants would certainly
have every reason to 'go around the legal rules' of evidence by trying to suborn (induce) the
perjured testimony ('false statements under oath') of friends or allies who came into court as
witnesses and committed perjury. As one judge in the 20th century described the situation
that existed in England more than 300 years earlier, there was ''marked injustice to innocent
parties who were held legally obligated to promises they had never made''. Azvedo v. Minister
86 Nev. 576, 471 P.2d 661 (1970).
The English Parliament enacted its 1677 statute—commonly called the Statute of Frauds —
to remedy that situation. Today each of the fifty states in the United States has a similar
Statute of Frauds modeled on the English statute, but interestingly, in England the original
1677 Act has been repealed because it is now viewed in hindsight as a 'technical defense'
helping one party 'break' an otherwise valid contract.
© 2002-2008 Robert Turk – PAGE 15 of 17
What kinds of contracts were governed by the 1677 statute, as well as most similar Statutes
of Fraud in effect today? Another way of asking the same question: what kind of contracts
must be evidenced in some written form to be enforceable in court?
Types of contracts which are governed by most Statutes of Frauds in effect today include:
1. Surety Promises. A surety is one who promises to answer for the duty of another
of another person, (for example: I promise to pay if John does not pay this debt).
2. Executor-Administrator Promises. An 'executor' or 'administrator' is responsible
for settling the estate of a person who dies (with a will or without a will). Any
promise to pay a debt (of the person who died) must be written.
3. Agreements Based Upon Consideration of Marriage. At issue here are not simply
mutual promises to marry, but more rare situations where a promise to marry is
made in consideration for some other kind of promise.
4. Agreements for the Sale of an Interest in Real Property. Since land (and other
interests in 'real property') is unique, any agreement to sell must be in writing.
5. Agreements which Cannot Possibly Be Performed Within One Year. Since
memories can fade over time, any contract in which all duties cannot possibly be
performed within one year, must be written. (The one year is calculated not from
the day a contract is formed, but from the day when contract performance begins.)
Such contracts must be evidenced in some written form to be enforced in a court. Please note,
however, that there are various exceptions to these general rules (as simplified above), and so
one must be careful to fully research the applicable statute and caselaw in that jurisdiction.
© 2002-2008 Robert Turk – PAGE 16 of 17
Sample Exam Questions: Contract Law in the 'APT' Course (Prof. R. Turk)
Choose only one BEST answer (A, B, C, D…), and circle that letter for each question below.
1) Today Mr. Rightkowitz read a typical advertisement in the Pittsburgh newspaper
Ameriško Delo about a big discount on klobase all this week at his favorite store,
Ameriški Merkator. Under 'common law' contract principles, that ad(vertisement)…
A)
B)
C)
D)
E)
is a valid invitation seeking offers.
is a valid offer.
is a valid acceptance.
is a valid contract.
NONE of the above, 'A, B, C, D'.
2) Conduct which can deny and invalidate the appearance of mutual assent includes…
A) duress.
B) undue influence.
C) fraud.
E) NONE of the above, 'A, B, C, D'.
D) mutual mistake.
F) ALL of the above, 'A, B, C, D'.
3) 'Bargained-for or negotiated exchange' describes…
A) the 'two parts' of our definition of 'consideration'.
B) situations which the law regards as a 'gift'.
C) situations which may include 'past consideration' such as ''Since you saved my life yesterday,
I promise to pay the medical expenses that you incurred to save me ! ! !''
D) NONE of the above, 'A, B, C, D'.
E) ALL of the above, 'A, B, C, D'.
4) Examples of 'illegal bargains' lacking 'legality of objective' because they violate
some legislative act include…
A) agreements which violate licensing enactments.
B) agreements which lack 'mutuality of obligation'.
C) agreements which violate usury statutes.
D) BOTH 'A' and 'B' above.
E) BOTH 'A' and 'C' above.
F) BOTH 'B' and 'C' above.
G) NONE of the above, 'A, B, C'.
H) ALL of the above, 'A, B, C'.
5) Under 'capacity of parties', incapacity can result from …
A) guardianship.
B)
mental illness.
E) NONE of the above, 'A, B, C, D'.
© 2002-2008 Robert Turk – PAGE 17 of 17
C)
intoxication.
D)
being under legal age.
F) ALL of the above, 'A, B, C, D'.