#8753 - Contracts Spring - Contract Law

CONTRACTS SPRING 2010 OUTLINE

1. Defenses

1. Types of Defenses

1. Duress

2. The Statute of Frauds

3. Unconscionability

4. Illusory Promises, and

5. The existence of a preexisting contractual duty

1. Duress

Traditional Duress (void)

Duress used where other side threatened to kill, severely injure, or imprison the Δ so they entered into the contract. (U.S. for the Use of Trane Co. Bond, Bond physically abused wife to induce her to sign so trad. duress & contract voidable but yes contract)(Rest. §174)

Economic Duress (voidable)

Agreement made only because one party was under extreme pressure economically. (majority of cases)

Restatement §175. When Duress by Threat Makes a Contract Voidable

1. If a parties manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

2. If a parties manifestation of assent is induced by a 3rd party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith & w/o reason to know of the duress either gives value or relies materially on the transaction.

Restatement §176. When a Threat is Improper

1. A Threat is Improper if

1. what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,

2. what is threatened is criminal prosecution (a, b & c traditional duress)

3. threat is the use of civil process and the threat is made in bad faith

4. what is threatened is a breach of the duty of good faith & fair dealing under a contract w/the recipient

2. A threat is improper if the resulting exchange is not on fair terms, and

1. the threatened act would harm the recipient but would not significantly benefit the party making the threat,

2. the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or

3. what is threatened is otherwise a use of power for illegitimate ends.

Elements of Economic Duress:

1. Party’s

2. Manifestation

   1. Outward expression (signing document, saying yes)

3. of assent

   1. agreement

4. is induced by

   1. brought on by (threat must happen before agree to deal)

5. an improper threat that is

   1. not on fair terms

(charging more than you charge others, fair if price is fair market value or significantly below the original price, price increase for already delivered items unfair )

2. AND either

(1) is a use of power for illegitimate ends

(exercising monopoly power, use of higher bargaining power, economic duress, withholding much needed goods)

OR

(2) threatened act would harm the victim AND not significantly benefit the aggressor

6. by the other party

7. that leaves the victim no reasonable alternative

( if you cannot obtain the goods elsewhere within a reasonable amount of time (Austin), just because there is legal relief (calling the cops) available, doesn’t mean that there are reasonable alternatives if that legal relief won’t afford effective relief in the victim’s circumstances)

Threats that are okay:

Chouinard - Hard bargaining is okay

§176 Illust. 16 – if using market price it is fair term,

Machinery – a threat to stop doing business is not improper threat if it involves contracts that haven’t been made yet cause have legal right not to do business.

Example Cases-

Austin Instrument, Inc. v Loral Corp (DURESS)

Loral was awarded a $6 million contract by the Navy and Loral hired Austin as the subcontractor to supply parts. Loral was hired a second time to supply the Navy; Austin bid on all 40 gear parts and refused to accept anything but all 40 parts – and would not deliver parts unless Loral paid an increased price both retroactively and prospectively for all parts. Austin actually stopped all delivery; Loral could not find any other company able to provide the parts timely and acceded to Austin’s demands. Letter stated: “we are left with no choice or alternative but to meet your conditions.” Loral sued on economic duress and won.

Chouinard v. Chouinard (NO DURESS)

Declaratory judgment sought by Fred against his brother and father. Family business, brother and father stockholders and plaintiff Fred runs the business. Fred needed a loan to help the business stay afloat, and signed two promissory notes to his father and brother. Fred claimed economic duress but bro and dad just exercising right to legal claims and also Fred brought the economic hardship upon self so can’t say induced or was improper threat.

Machinery Hauling v. Steel of West Virginia (NO DURESS)

1. Plaintiff contracted to transport 17 loads of steel. When delivery near completion, def informed plaintiff that the product was not of merchantable quality and the delivery site rejected it. The site orally directed the plaintiff to return the last three loads and an employee instructed the plaintiff to pay them $31,000, the price of the undelivered loads, “or else [Steel] would cease to do business with the plaintiff.” Loss of business would have been over $1 million per year.

2. Plaintiff filed suit for “extortionate demands.”

3. Threats against business interests may in some circumstances be actionable, but the treats by the defendants were not cause had legal right not to continued business cause no future contractual agreement, and also π didn’t accept demand and pay the money so didn’t induce anything.

UCC 1-103(b)

If the U.C.C. doesn’t explicitly give a rule then the Common Law Rule applies (ex. duress)

Price Gouging Statutes-

Price Gouging: where retailers take advantage of a natural disaster or other emergency to increase their prices for greatly needed items, from electrical generators to gas to plywood.

2. The Statute of Frauds

1. Introduction

The purpose of the SOF is to protect the Δ from fraudulent allegations by plaintiff that a contract existed.

It makes a written document required for some contracts.

3 Questions to Ask:

1. Is the contract type within the scope of the SOF?

2. Is there a writing and does it satisfy the statutes writing & signature requirement?

3. If it doesn’t satisfy, does the transaction fall w/in an exception to the SOF?

2. Statutory Interpretation

3. Statute for Land and Services (Also Rest. 178 and 207)

OKLA. STAT. ANN., tit. 15, §136

1. The following contracts are invalid, unless the same, or some note or memorandum thereof, be in writing and subscribed by the party to be charged, or by his agent:

   1. An agreement for services that, by its terms, is not to be performed within a year from its making thereof.

   2. A special promise to answer for the debt [or] default or miscarriage of another …

   3. An agreement made upon consideration of marriage, other than a mutual promise to marry.

   4. [repealed]

   5. An agreement for the leasing for a long period than one year, or for the same of real property, or of an interest therein.

1. Scope

All contracts for the sale of real estate/land or leases that are for longer than a year must be in writing & signed by party to be charged.

For service contracts:

Klewin v. Flagship (Not within Scope)

Construction project done in phases by Klewin and after done w/in one year the first phase, Flagship hired new contracter, Klewin sue, Flagship claim SOF but lose cause not need be in writing since no express duration terms and could possibly be completed in a year.

1. when a contract (even oral) could possibly be performed in less than a year AND the contract doesn’t expressly state, in its terms, that performance will take longer than one year, it is a “contract of indefinite duration” and therefore, it is enforceable because it is not within the scope of the SOF’s (just cause not plausible, it is possible to be completed in a year).

   1. Class - This means that K won’t be in scope if K would PROBABLY take over a year to perform

2. Court interprets “agreement for services, that by its terms” as: cannot possibly be performed in less than a year; because this will cover as few contracts as possible

3. An oral contract that does not say in express terms that performance is to have a specific duration beyond one year is, as a matter of law, the functional equivalent of a contract of indefinite duration for the purposes of the SOF’s and is enforceable because it is outside the scope of the SOF’s

4. An oral contract for services that cannot be performed within a year must be in writing UNLESS the π can present “clear and convincing” evidence of the contracts existence

5. But if have a specified duration of more than a year for services, then it is within the scope and needs to satisfy the writing requirements.

For lifetime contracts (i.e., lifetime contract to coach football team is not within the scope because could have died within a year and still fully performed so not more than a year expressly, so don’t have to have in writing.)

(But even if the contract said for 2 years which would be in the scope, the American courts will let that person’s estate off the hook cause of impossible to perform. )

2. Writing Requirement

For Land Sale/Leases (Clark v. Larkin)

Notes of Memorandum (can be a check)

-Sufficient if have Signature of party to be charged

-Identification of Purchaser & Seller (name, or description that will identify him, name of or agent representing him)

-Purchase Price & Interest

-Street Address or identifying land description (or subject matter)

-Possible have actually visited the property

-Terms & Conditions of (all or essential) the contract (promises)

For Service Contracts (Eliz Arden)

-Signature of party to be charged on at least one doc

-Transaction or subject...