#12257 - Enforceability - Contracts

Part Three: Enforceability

Even if a contract has all the necessary elements, should it be enforced?

Writing Requirement | Freedom of Contract | Mistakes | Unconscionability | Duress | Form Contracts

1. The Requirement of a Writing

   1. Rule

      1. A @statute of frauds

         1. requires the following type of contracts to be written in order to be enforceable (MYLEGS):

            1. in consideration of marriage,

            2. which cannot be performed within one year,

            3. for the transfer of an interest in land,

            4. by the executor of a will to pay a debt of the estate out of his own money

            5. for the sale of goods involving a purchase price of more than $500.

            6. OR in which one party becomes a surety for another’s debt.

      2. A @written receipt

         1. must

            1. identify the purchaser,

            2. indicate the contract made or offered by the signer,

            3. AND state with certainty any unperformed promises.

         2. unless (Mass. Gen. L. 259 § 1, regarding $500 provision)

            1. a party writes objection to its contents within 10 days of receipt,

            2. OR if in pleading party admits to specific goods having been sold.

      3. Under the UCC

         1. contracts for sale of goods over $500 fall under statute of frauds (UCC § 2-201),

            1. unless the parties are professional merchants performing normal business transactions

            2. OR the items are custom-made for a specific buyer.

      4. The Uniform Electronic Transactions Act (@UETA)

         1. modifies SOFs to include email, electronic attachments, etc.

            1. E-signatures are allowed but not required when parties agree to transact via the Internet, determined by context.

               1. An e-signature is an electronic symbol or process, including voicemail, logically associated with a signature and adopted with an intent to sign.

      5. Judicial (promissory) estoppel

         1. may override a statement of frauds when:

            1. Π so substantially and irretrievably relied on an oral or unsatisfactory K for land and injustice would result from a breach (RSC §129).

            2. OR Δ is silent regarding the contract and

               1. Δ’s new position is clearly inconsistent with Δ’s old one,

               2. acceptance of Δ’s new position might threaten judicial integrity,

               3. AND party would derive an unfair advantage with an inconsistent position (Powell).

   2. Analysis

      1. Is the statute of frauds a defense?

         1. Three questions:

            1. Does the contract fall within the statute?

            2. Does the contract’s form match the conditions specified?

            3. What are the legal consequences of a failure to fit?

         2. Also, statute of frauds may be overruled by judicial estoppel.

   3. Cases

      1. @Chomicky v. Buttolph (Vt. 1986, 112):

         1. Π/Δ agreed and signed a K to sell Δ’s property conditioned on Δ receiving permit. Made oral K that if Δ did not receive permit, would agree to easement. Δ did not receive permit. Since point of SOF is to ensure that contracts are not improvident, not enforceable.

      2. @Powell v. City of Newton v. Shaver & Dickson (N.C. 2010, handout):

         1. Δ got in lawsuit with Π, who settled in front of judge. Lawyers emailed documents regarding the settlement but Π indicated he wanted to sign with pen. Π later revoked settlement. The documents were never signed, so not a contract. But judicial estoppel can override the SOF, so settlement is valid.

1. Freedom of Contract

   1. Rule

      1. All people born in the United States are citizens of the United States and can make and enforce contracts like white people (Civ. R. Act of 1866) (Runyon).

      2. Employers may not contract with non-professionals or management for (Fair. Lab. Stand. Act of 1938):

         1. less than minimum wage (29 U.S.C. § 206(a));

         2. more than 40 hours/week without time and a half (29 U.S.C. § 207(a));

         3. OR child labor (29 U.S.C. § 212(a).

            1. Violators must pay compensatory damages, attorney’s fees, and double compensation as liquidated damages (29 U.S.C. § 216(b)).

   2. Analysis

      1. The Civil Rights Act shows that the first civil right is the right to make and enforce contracts on equal terms, but the Fair Labor Standards Act shows that too much freedom in contracting can be socially coercive.

   3. Cases

      1. @Batten v. Faulk (N.C. 1856, handout #7):

         1. Δ was surety for contract in which slave was principal. Since slaves have no legal status and also cannot sue or be sued, enforcing the contract would be against public policy.

      2. @Runyon v. McCrary (U.S. 1976, handout #7):

         1. Δ sent Π brochure about school. Π submitted application, but was told school could not accommodate child because school wasn’t integrated. This violates Civil Rights Act of 1866.

2. Mistakes

   1. Rule

      1. A @mistake

         1. is a belief not in accord with the facts (RSC § 151).

      2. A @misrepresentation

         1. is an assertion not in accord with the facts (RSC § 159).

      3. @Non-disclosure

         1. is misrepresentation when a party does not act in good faith / in accord with fair dealing, as she knows,

            1. disclosure would be not misrepresentation,

            2. it could correct the mistake of the other party

            3. there is a relation of trust or confidence (RSC § 161).

         2. is not ground for rescission in real estate (caveat emptor);

            1. but nondisclosure is misrepresentation as a matter of equity if:

               1. seller knowingly created a condition,

               2. that materially impaired value of K,

               3. AND was unlikely to be discovered by buyer exercising due care (Stambovsky).

            2. but if seller partially discloses material info, seller should disclose all info (Stambovsky).

      4. A @unilateral mistake

         1. is generally not ground for rescission (Wood).

         2. is voidable when

            1. it is “material” (Elsinore).

            2. party does not bear risk and enforcement would be unconscionable (RSC § 153).

               1. party bears risk when:

                  1. parties agree,

                  2. party treats limited knowledge as sufficient,

                  3. OR the court allocates risk to him (RSC § 154).

            3. the “mistake” is the delivery of the wrong item (Wood).

            4. OR there is misrepresentation: one party knows of mistake / caused the mistake (RSC § 153).

      5. A @mutual mistake

         1. is voidable when

            1. there was a mutual mistake of fact,

            2. the mistaken belief relates to a basic assumption by both parties that materially affects agreed performances,

            3. and one party has not agreed to bear the risk of mistake (Lenawee)(Elsinore).

         2. for a written K may be amended by the court (RSC § 155).

   2. Analysis

      1. Was it a unilateral mistake or misrepresentation?

         1. Unilateral mistakes are not voidable, unless one party knows of the mistake or his fault caused the mistake, in which case there possible fraud or material misrepresentation. This was at issue in Wood.

         2. The general rule is if Δ was the cause of Π’s mistake, that is misrepresentation and the K may be voided.

   3. Cases

      1. @Stambovsky v. Ackley (N.Y. Supreme Ct. App. Div. 1991, 220):

         1. Δ sold house to Π while telling others that house was haunted. Π sued for rescission. Since Δ created the condition that materially impaired value of the K, had duty to disclose.

      2. @Wood v. Boynton (Wis. 1885, 226):

         1. Π sold stone to Δ for $1. Turned out to be diamond worth $700. Since there was no fraud or a mistake, defined as delivering the wrong article, there is no ground for rescission.

      3. @Lenawee Cnty. Bd. of Health v. Messerly (Mich. 1982, 229):

         1. Π bought land with apartment and agreed to purchase “as is.” Both Δ and Π made mistake as to the value of the land (became worthless). Since Π allocated self risk with “as is,” bears risk of mistake.

      4. @Elsinore Union Elementary Sch. Dist. v. Kastorff (Cal. 1960, 236):

         1. Δ bid on contracting job but included clerical error that would have made bid higher. Δ tried to rescind K once he learned of error. Since Π knew of mistake before accepting, it was a mutual mistake, and thus voidable.

3. Unconscionability & Duress

   1. Rule

      1. @Unconscionability

         1. under common law

            1. voids a contract when

               1. a there is a gross inequality of bargaining power, including a reasonable opportunity for both parties to understand the contract;

                  1. e.g. a party did not understand because she did not speak the language or was illiterate, and the contract was translated/read incorrectly (Thoroughgood’s Case),

                     1. unless the party chose the translator/reader (Teran).

               2. there was an absence of meaningful choice, or consent was unlikely;

               3. AND the contract unreasonably favors one of the parties and is unfair in light of the circumstances (Williams)(Brooklyn Union Gas).

         2. under the UCC

            1. is determined as a matter of law and may be rejected in whole or in part (UCC § 2-302).

      2. @Duress

         1. gives the victim the right to cancel the contract, unless the offeror did not know of duress and detrimentally relied on the contract (RSC § 175).

         2. exists when

            1. someone deprives offeree of free will wrongfully,

            2. OR offeror’s actions are tainted with fraud or wrongdoing,

            3. AND the legal redress for a breach of the original K would be inadequate (Gross Valentino)(RSC § 175).

   2. Analysis

      1. Unconscionable or Duress?

         1. Both of these things are enforced at the discretion of the judge, and are heavily dependent on context. The court in Batsakis might have labeled that contract unconscionable, for example, but it did not.

         2. The UCC makes unconscionability an implicit means of voiding all contracts.

      2. Duress in modification?

         1. The old “preexisting duty rule” was intended to defend against duress in modifying contracts without consideration. Now, if modification is made in good faith, this is OK.

   3. Cases

      1. @Thoroughgood’s Case (Eng. 1582, handout):

         1. Π, illiterate, was read contract that was phrased differently than words used on paper. Signature is not binding because the drafter explained the words differently than was written.

      2. @Williams v. Walker-Thomas Furniture Co. (D.C. Cir. 1965, 244):

         1. Δ sold items to Π on installment payments, but fine print allowed Δ to repossess all items ever purchased from company. This contract was unconscionable under the UCC.

      3. @Brooklyn...