Allows a court to refuse to enforce a provision or an entire contract, or modify a contract, to avoid unfair terms.
unconscionability based on price alone
Standard printed form contracts
contains a material provision that seeks to shift a risk normally borne by one party to the other.
Ex. confession of judgment clauses, disclaimer of warranty provisions, add-on clauses
subject all of the property purchased from a seller to repossession if a newly purchased item is not paid for.
Clauses found in the fine print in printed form contracts. Are inconspicuous or incomprehensible to the average person even if brought to his actual attention.
Contracts of Adhesion - "Take it or Leave it"
Unconscionable and unenforceable if the signer is unable to procure necessary goods, such as an automobile, from any seller without agreeing to a similar provision. The buyer has no choice.
reasonable value of services
- (1) defendant was enriched;
- (2) the enrichment was at plaintiff's
- expense; and
- (3) the circumstances were such that equity and good
- conscience require defendants to make restitution.
Parole Evidence Rule
Under the parole evidence rule, when the parties have reduced their agreement to a fully integrated writing the court may not consider extrinsic evidence of prior to or contemporaneous oral or written agreements.
Is the Writing an integration?
1) Is the writing intended as a final expression?
2) Is the writing a complete or partial integration?
The more detailed, the more completed. Merger clause strengthens the presumption that all negotiations were merged in the written document.
Missing essential terms.
A clause that recites that the agreement is complete on its face.
Who decides whether an agreement is an integration?
Two approaches to determine if agreement is an integration.
Traditional New York approach and the Modern Traynor approach.
Traditional New York approach
Looks to the four corners and plain meaning of the contract.
Modern Traynor approach
Allows extrinsic evidence to explain, clarify or define.
Material Breach R2d 241
- Material if:
- 1) injured party deprived of benefit reasonably expected.
- 2) injured party can be adequately compensated for the part of that deprived benefit.
- 3) party failing to perform or to offer to perform will suffer forfeiture.
- 4) likelihood party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances.
- 5) the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
If there is uncertainty or ambiguity in the written agreement's terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact-finder in reaching a correct interpretation of the agreement.
Relies the on four corners and words of the document.
Naturally omitted terms doctrine
- naturally be omitted if:
- 1) does not conflict with written integration
- 2) would not ordinarily be expected to include in written instrument.
PER is admissible if collateral to the written obligation and does not conflict.
Article 2 Rule: consistent additional terms
- 1. there is a merger clause, or
- 2. the courts find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement.
Article 2 Rule: explained or supplemented
- When writing appears to be ambiguous:
- 1) course of dealing - previous transactions.
- 2) usage of trade - practice or method of dealing
- 3) course of performance - repeated occasions for performance.
Contracts between merchants - additional terms in acceptance usually included unless
- 1) they materially alter the original terms of the offer.
- 2) the offer expressly limits acceptance to the terms of the offer; or
- 3) the offeror has already objected to the particuar terms, or objects within a reasonable time after notice of them is received.
Supplemental ("Gap Filler") Terms
- 1) price - if price not mentioned price is a reasonable price at the time for delivery.
- 2) place of delivery - seller's place
- 3) time for shipment or delivery - reasonable time
- 4) time for payment - time and place at which the buyer is to receive the goods.
- 5) Assortment - Buyer's option.
Implied Warranty of Merchantability
- Goods must be:
- 1) pass w/o objection
- 2) be of fair average quality
- 3) be fit for the ordinary purposes
- 4) of even kind, quality, and quantity
- 5) be adequately contained, packaged, or labeled
- 6) conform to any promises or affirmations of fact made on the label.
**fit for the ordinary purposes for which such goods are used.
Under UCC may not be modified or rescinded except by a signed writing.
Art 2: Obligation of Good Faith
Requires all parties to act in good faith, which is defined as "honesty in fact and the observance of reasonable commercial standards of fair dealing."
One that must occur before an absolute duty of immediate performance arises in the other party.
Those that are capable of occurring together, and that the parties and bound to perform at the same time.
one the occurrence of which cuts off an already existing absolute duty of performance.
- statement that provides that
- 1) party does not have a duty to perform unless some event occurs or fails to occur, or
- 2) if some event occurs or fails to occur, the obligation of a party to perform one or more of his duties under the contract is suspended or terminated.
Excuse of condition can arise in a variety of ways
- -prevents condition from occurring.
- -material breach
- -anticipatory repudiation
- -inability or unwillingness to perform
- -substantial performance
Where one of the two contracting parties unambiguously indicates that he/she is unable/unwilling to perform.
Nonrepudiating party has 4 alternatives
- -treat as total repudiation and sue immediately
- -suspend own performance and wait to sue when time comes.
- -treat as offer to rescind and treat the contract as discharged, or
- -ignore repudiation and urge the promisor to perform
- Type of remedy
- Rarely available
- No specific performance in services K
- UCC: available where goods are unique
- Real Estate: land is unique, but if sold to bonafide purchaser - no specific performance.
Meant to punish, and never in K.
are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach.
ex: clause that says if there is a breach, damages $1K a day until specific performance complete.
In any question involving money damages, the general measure of money damages is protecting the non-breaching party's economic expectation.
- 1) what $ expecting
- 2) if no breach, result
- 3) what have 100%
- special damages; need two facts
- 1) suffers special loss
- 2) recoverable only if foreseeable
UCC: only buyer may recover
Cannot recover for damages if it could have been avoided.
Third party beneficiaries
When two people make an agreement with the mutual understanding to benefit a third person.
Intended third party beneficiary
Intended third party to benefit from transfer of rights.
Incidental third party beneficiary
Party who stands to benefit from the execution of the contract, although that was not the intent of either contracting party.
-Does not have rights.
Third party vested rights
- 1. knows and detrimentally relied on rights created.
- 2. expressly assented to K at request of one of the parties
- 3. files lawsuit to enforce the contract
Transfer of rights
Transfer of duties under K.
transfer of right by the assignor to an assignee
occurs when both of the parties to a contact agree to substitute a third party for one of the original parties.
Act of restoration. Reasonable value of the work performed or the services rendered.
- The other party's duty of counterperformance becomes absolute.
- Only applied when constructive condition is involved not express condition.
- If breach is material, not substantial
- If breach is minor, substantial
- Designed to mitigate the harsh result of a potential forfeiture.
- K can be divisible into parts. (ex. per unit)
- 3 tests:
- -performance of each party is divided into two or more parts under the K
- -number of parts due from each party is the same
- -performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party.
- When a condition or a duty of performance is broken...beneficiary must make election.
- 1. terminate her liability, or
- 2. continue under the contract
Constructive (Implied) Conditions
duty to perform is conditional upon the occurrence of some event or state of the world, even though the contract does not explicitly so state.
- party encounters
- 1. extreme and unreasonable difficulty and/or expense
- 2. its nonoccurrence was a basic assumption of the parties.
*Change in increased wages, prices of raw materials, or costs of construction is a mere change in degree and does not amount to impracticability.
Discharge by frustration
- -supervening act or event leading to frustration
- -at time of K, did not reasonably foresee act or event occurring.
- -purpose of the contract has been completely destroyed by this act or event.
- -purpose of K was realized by both parties at the time of making the K
Examples of Imppossibility/Impracticability
seller of land, goods, or services as defense that discharges performance.
Examples of frustration
party who is supposed to pay, usually the buyer, will raise frustration of purpose as a defense discharging performance.
Minor breach examples
insignificant delays in completing performance or small deficiencies in the quality or quantity of performance when precision is not critical.
Consequence of Material Breach
- nonbreaching party may:
- 1. may treat the K as at an end, and
- 2. will have an immediate right to all remedies for breach of the entire contract, including total damages.
Minor breach coupled with anticipatory repudiation
may be treated as a material breach, and sue immediately for total damages and is permanently discharged from any duty of further performance.
Material breach of divisible contract
recovery is available for substantial performance of a divisible part even though there has been a material breach of the entire contract.
Perfect tender rule
If goods or their delivery fail to conform to the contract in any way, the buyer generally may reject all, accept all, or accept any commercial units and reject the rest.
To put nonB party where she would have been had the promise been performed
Compensatory damages - certainty
P must prove that the losses suffered were certain in their nature and not speculative.
ex. breaching party prevented nonB from setting up business.
Allows court to refuse to enforce a provision or an entire contract to avoid unfair terms.
-determined by circumstances at time K was formed.
Instances of procedural unconscionability
- confession of judgment clauses, disclaimer of warranty provision
- add-on clauses (boilerplate)
- adhesion K
- exculpatory clauses
If unconscionable, court may
- -refuse to enforce
- -enforce remainder of the K w/o unconscionable clause
- -limit application of any clause so as to avoid an unconscionable result.
Who's meaning prevails
(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party;
(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.
Construed against party preparing contract