Check Sound

Check Mike

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Today’s Lecture:

Contracts

1. Formation, Defense & Excuse

2. Parole Evidence and Modification

Lecture Organization:

• Class Announcements

• Review

• Defenses

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• Excuses

• Contracts by Operation of Law

• The Primacy of the Writing

• Remedies

Class Announcements

1. Midterm grading

-- going well; hope to finish this weekend in New York City

2. No class on Tuesday (I’ll be in New York on my second job talk)

3. Your paper

-- find the phone number to the magistrate court here in state college and the trial court in Bellefonte.

-- watch them before Thanksgiving break; write the paper during Thanksgiving break

Questions?

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Review

1. Introduction to Contracts

-- specifically, how to form them

.. Take a look

• Prerequisites

• “Assent”

• No defense

• No excuse

Capacity

Subject Matter

Statute of Frauds

Offer

Acceptance

Consideration

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Defenses

1. Things that, if true, will negate or nullify the contractual formation

2. These things will be listed in a linear progression, so that each one gets progressively worse (one exception)

3. Let’s take a look …

Mutual Mistake

Mutual Mistake

(1) both parties are mistaken

(2) about a material assumption in the K

Example:

“Fugazi” (Louie selling “diamels”)

Mutual Mistake

Unilateral Mistake

(1) one party is mistaken about a fact in the K

(2) which the other party knows about and keeps quiet

Example:

Used car was a wrecked police car

(must be a fact not an assumption!)

Mutual Mistake

Unilateral Mistake

(1) reasonable reliance

(2) upon a material fact

(3) which has been innocently misrepresented

Example:

Same facts as before, only the secretary explicitly says it has never been wrecked

Misrepresentation

Mutual Mistake

Unilateral Mistake

(1) any reliance

(2) upon a fact

(3) that is fraudulently misrepresentedExample:

Running the odometer backward.

Misrepresentation

Fraud in the Inducement

Mutual Mistake

Unilateral Mistake

-- “switched document” fraud

Example:

Tricking someone into signing a document so they don’t realize what it really isMisrepresentatio

n

Fraud in the Inducement

Fraud in factum

Mutual Mistake

Unilateral Mistake

… e.g., gun to the head

Example:

Sign or I’ll break your knuckles

Misrepresentation

Fraud in the Inducement

Fraud in factum

Personal Duress

Note:

difference between a K defense and other causes (torts, crimes)

Note:

Each defense becomes progressively worse.

Note:

There is one defense left which does not fit into this orderly progression …

Mutual Mistake

Unilateral Mistake

Misrepresentation

Fraud in the Inducement

Fraud in factum

Personal Duress

Economic Duress

-- extremely rare

1. a party takes advantage of an economic situation

2. which he/she caused to exist!

Example:

A landlord who employs you

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Excuses

1. These are different from defenses

-- Defenses negate assent (nullify assent)

-- Excuses do not do this; they merely excuse performance even though valid assent still exists!

2. They also have an orderly structure to them

-- let’s take a look …

Modification

Modification

The parties agree to excuse the K performance

(another K takes away the previous responsibility!)

Modification

Impossibility -- performance cannot literally occur

Example:

-- prohibition

-- painting the inside walls of the twin towers on 9/12

Modification

Impossibility

(1) an event that is unassumed, severe and unforeseen

(2) makes it unreasonable for the parties to perform

Example:

-- Painting the curb yellow or installing a new traffic light at the intersection of the World Trade Centers after 9/11.

Impracticability

Modification

Impossibility

(1) an unforeseen event destroys or eliminates the purpose of the K

(2) both parties knew of the purpose at the time of K

Example:

-- Planting trees to beautify the Trade Center entrances after 9/11.

Impracticability

Frustration

• Prerequisites

• “Assent”

• No defense

• No excuse

Capacity

Subject Matter

Statute of Frauds

Offer

Acceptance

Consideration

Mutual mistake

Unilateral mistake

Misrepresentation

Fraud (I) & (II)

Duress (I) & (II)Modification

Impossibility

Impracticability

Frustration

Putting it all together

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Contracts by Operation of Law

1. These are not real Ks; they are a fictitious contractual arrangement imposed by courts to avoid unfairness

2. whenever a contract fails for some technical reason –- excuses, defenses, prerequisites, etc., -- and you are “injured” by the failure, you can ask the Court to impose a fictitious contractual relationship to repair the injury

3. generally imposed in two situations

-- Reasonably foreseeable reliance

-- upon an utterance to your detriment

Tricky Utterance

Example: a landlord’s oral promise to hold a lease for you. You terminate your other lease and put money down on your U Haul. The next day she changes her mind.

Contracts by Operation of Law

-- You lose money under the auspices of a K relationship, but find out that no enforceable K exists

-- The Court will impose a fictitious K in order to award you restitution ONLY

-- Also, there is something called “quantum meruit”

-- The reasonable value of the services rendered when a contract is cancelled

Lost Money

Example: prohibition.

Example: firing an attorney the day before settlement or trial

The Primacy of the Writing

-- Important question

-- There are two very important devices in K-law that make lawyer services quite valuable

-- These devices allow lawyers to defeat many of the contract defenses and loopholes that we’ve been looking at.

-- a clause inserted into the document

-- that makes prior/contemporaneous understandings about the K irrelevant

-- the writing controls anything that was said prior to or even DURING its signing

Question:

Why am I showing you this?

Answer:

A theoretical understanding what law does (how it is

used) and what lawyering consists of

Parole Evidence Clause “Batman”

The Primacy of the Writing

--this clause makes oral understandings SUBSEQUENT to the writing irrelevant

-- modifications are only allowed to be in writing

-- let’s take a look at how batman and robin work together in a contract

No Oral Modification Clause “Robin”

timelineT-1

Expectation

formed

• I get my security deposit back

• the walls are insulated well

• no one lives above me (cool!)

• The internet service makes the computer really fast

• They won’t raise the rent next year

timelineT-1

Expectation

formed

T-2

Expectation

formed

The date of the “execution”

(The signing of the K)

timelineT-1

Expectation

formed

T-2

Expectation

formed

Expectations formed here are irrelevant; only the writing controls the terms, not your expectations. Your understanding at T-1 and T-2 cannot vary the written terms that you affix your signature to

Note how powerful that makes lawyer draftsmanship

services!

Caveat!

Some difficult maneuvers that can be attempted:

Alleging fraud and so forth. But these are difficult.

The point is that these doctrines make writings very powerful

It takes away many of the defenses we talked about earlier

timelineT-1

Expectation

formed

T-2

Expectation

formed

“Batman”

T-3

Expectation

formed

Let’s look at “Robin” …

This expectation arises out of communications with the person AFTER the signing:

Example: Landlord and paying rent late

1. Modification?

2. Reasonable reliance?

timelineT-1

Expectation

formed

T-2

Expectation

formed

“Batman”

T-3

Expectation

formed

“Robin”

No oral modifications allowed!

Any modification must be in writing

Once again, this makes lawyer draftsmanship a valuable service

The Primacy of the Writing

-- Note: if you are caught within the terms of an aggressive or unfair writing, and there is no fraud involved, there are really only two things you can do:

-- very tough: have to be oppressive and unfair at the time of the bargain

-- But there is something else, at least for SOME kinds of contracts:

-- a contract where the idea of bargaining over terms is a fiction, even in theory

-- example: an insurance contract

Unconscionable?

Adhesion Contract?

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