Contract – A promise or set of promises that the law will enforce.
- An enforceable promise.
- Offer, acceptance, consideration, and no valid defenses.
- Types classified by manner of formation include:
- Express – Contract formed by the parties’ words (written or oral);
- Implied – Looks to the parties conduct to see if contract formed;
- Constructive (fictional or quasi) – restitution remedy to prevent unjust enrichment. Judged by the reasonable fair market value of the benefit conferred.
- Types classified by their manner of acceptance include:
- Bilateral – promise(s) in exchange for promise(s);
- Unilateral – Offer expressly requires performance as the ONLY manner of acceptance. An act being the only manner of acceptance, the act must be performed for acceptance.
- Types classified by their voidability:
- Void – One that is a nullity from its inception. Never existed in the eyes of a law.
- Voidable – aggrieved party has the option to render the contract unenforceable.
Elements of a valid offer:
- Manifestation of present, contractual intent;
- Communicated to the offeree;
- Clear and certain terms (QTIPS);
- Inviting acceptance by the Offeree.
Elements of a valid acceptance:
UCC – Any reasonable means for UCC.
CL – Mirror-image for CL.
Generally, acceptance is the offerees manifestation of agreement in the manner invited and the time required. Acceptance must mirror the terms of the offer exactly.
- Requires the offerees manifestation of agreement in the manner invited and in the time required.
- Mirror-image rule: Acceptance of a valid offer has to exactly mirror the terms of the offer exactly.
- This is very different from the UCC Article 2 treatment. Seasonable expression of acceptance. Battle of the forms…. addition of terms does not defeat a valid acceptance or contract formation.
- Additional terms between merchants are automatically part of the deal unless they materially change the offer.
- In the case that one party is a merchant and the other is a non-merchant, term changes are construed as proposals to be separately accepted or rejected.
- Under UCC, directly conflicting terms subject to the knockout rule.
- Acceptance must be communicated. (Remember the objective theory.) Silence is NOT an effective acceptance, unless:
- Benefit retained by the offeree;
- Custom – Customary behavior between the parties establishes implied acceptance.
- Mailbox rule – The moment of acceptance is upon dispatch, not upon receipt.
- Exceptions include:
- Schizophrenic acceptance – formation upon receipt or rejection upon receipt. Mailbox rule no longer applies;
- Option contract – acceptance must be received within the option time. Mailbox rule does not apply.
- Unauthorized means – using UPS when FED Ex was a requirement of the offer.
- Proper dispatch – addressed correctly.
- Exceptions include:
- Generally, performance equals acceptance. The question is whether or not offeree needs to give notice of the acceptance. E.g., offeror may not be likely to find out if and when performance has occurred.
Remember – Offeror revokes and Offeree rejects.
Battle of the Forms
Additional or different terms become a part of the contract if both parties are merchants, the offer does not limit itself to its terms, the terms do not materially alter the contract, and the offeror does not object to the terms reasonable amount of time (generally 10 days).
The elements are:
- Both parties’ merchants.
- Offer that limits acceptance to the original terms is just that…. acceptance is basically mirror image only.
- Material is anything that changes the benefit of the bargain or risk to the offeror.
- Offeror does not object within a reasonable period.
UCC Gap Fillers
When both parties’ merchants:
- Course of Performance – how have the parties
performed under the current contract.
- Course of dealing – how have the parties performed under other contracts amongst themselves.
- Custom of the Industry
- Trade Usage
If one or both parties not merchants:
An acceptance with conditional or conflicting terms is an acceptance of the original offer with new or conflicting terms as mere proposals for modifications.
Consideration is a bargained for exchange of legal value that confers a legal benefit on the promisor and a legal detriment to the promisee.
A legal detriment incurred by both parties because of the current bargain. A legal detriment is the giving up of any legal right.
P promises to paint D’s house for $20. P’s legal benefit is the receipt of $20 and the detriment is the effort related to painting the house. D’s legal benefit is receiving the house painting, and the legal detriment is giving away the money.
This is the basis for legal enforcement of a contract.
Bargain – an exchange. Typically:
- A promise in exchange for promise (bilateral contract);
- A promise in exchange for an act (reward offers, offers to refrain from drinking
- A promise in exchange for forbearance, i.e., not doing something, e.g., refrain from drinking until your 35)
What DOES NOT qualify:
- A gift promise – I will sell you my house for $1. Gift promises are not enforceable;
- Conditional gifts – If you come over and pick up my TV, it’s yours.
- Past consideration – In recognition of your past 30 years of service, you have a $1,000 pension. This sort of promise is not enforceable. Must have a current consideration component to be enforceable (past 30 years plus your agreement to retire now….)
- Illusory promise – I promise to buy your house
if I feel like it. Consideration requires that both parties be bound.
- I will buy all of the output of your factory – this is UCC enforceable and not illusory even though exact quantity not specified. These sorts of contracts do include consideration. Law implies the promise of good faith.
- Exclusive agency contract- Exclusive agency contracts under UCC is “best efforts”. In CL (band representation for example) is not illusory.
- Debt barred by a technical defense
- Sham consideration – Where the payment is not exchanged ($1 and other valuable consideration…..)
- Under CL, modifications must have new consideration to be enforceable
- Under UCC Article 2 – good faith is the only requirement.
Pre-existing legal duty rule in CL states that:
Doing something that you are already legally obligated to do is not new consideration for a promise to pay you more money to do exactly that. (see Alaska Packers case.)
Where a party already has an existing duty to perform, that performance will not serve as consideration.
- Unforeseen circumstances – issues that neither party could reasonably foresee;
- Modifications that require changes in the actual performance obligation.
- Honest dispute over what the duty was.
Legal value: How much consideration?
Courts do not inquire into the adequacy of the consideration. Mere peppercorns will suffice to constitute consideration.
Nominal consideration will not suffice – a house in exchange for $1 is not sufficient consideration. Not a serious exchange of legal value.
That said – if you buy a patent that turns out to be worthless, the possibility of value is consideration.
If your lonely and really want company, then maybe you do have a true bargain for exchange.
Promise condition on satisfaction – Satisfaction clause -is useable, but not simply as a pretext to get out of a promise. Law implies the promise of good faith. Promisor has to look at the end product….can’t just look away and refuse to evaluate.
Substitutes for consideration:
- Promissory Estoppel (consists of 4
- Promise made;
- Promisor should reasonably expect her promise to produce action or forbearance;
- Action or forbearance induced in fact; (this is the actual detrimental reliance)
- Therefore, justice requires enforcement.
Alternatively, was a promise made, was there reason to rely, actual reliance, and a change of position for which justice would require enforcement.
RULE: A party makes representations to induce reliance and does induce actual reliance on that representation and injustice would result.
Change of position induced.
Rickets v. Skildorn is the seminal case.
- Modifications made under the UCC – only good faith is required.
- Promise to pay legal obligations already barred by law – if someone files bankruptcy but makes a new promise or partially performs on repayment, a new promise to pay does not require consideration.
- Material benefit conferred plus subsequent promise to pay. A subsequent promise made in recognition of a benefit previously conferred will be enforceable to the extent that justice requires. (Webb v. MacGowen)
- Restitution – Material benefit conferred without a formal contract or promise.
7 basic questions:
Love For Dogs, Treat Every Rover Terrifically
L- Governing law
- Common Law – A set of judicial decisions that covers contracts for services, intangibles, real property, and employment
- UCC – Covers all contracts and transactions for goods.
Test fo governing law determined using
- Predominant Factor test
- Contract language (reference to sale of good, purchase order, buyer/seller)
- Ratio of $$$$ for goods vs. services; or
- Time spent on services verus goods;
- How sophisticated is the service? (Water heater versus pacemaker installation.)
- Warranties referenced in the contract.
- Gravamen (less often) – What was the essence of the contract.
F – Formation
Is agreement validly formed?
Objective theory of contract formation –
- Reasonable person standard used to judge
whether or not a contract was actually formed.
- What would the reasonable person think looking at the objective manifestations, words used + context that an offer was made, agreed to, and contract was formed.
- Lucy v. Zehmer – Zehmer says, “I was joking….I did not have real intent to contract.”
Generally, a contract consists of an offer, acceptance, consideration (or ground for enforceability), and no valid defenses.
- Offer – A manifestation of present contractual
intent, communicated to the offeree, in certain and definite terms, inviting
- Alternatively phrased – A manifested commitment which justifies the offerees belief that his assent is invited and would be conclusive, the terms of which are reasonably certain.
- An offer is a communicated willingness to bargain seeking another’s mere assent.
- QTIPS –
- Quantity cannot be completely omitted.
NOTE: Differs from UCC – Under UCC Article 2, you can have a contract where quantity is not specifically stated, e.g., “I will but all your widgets” or “you will be my sole supplier for my needed widgets”….this is acceptable under UCC but not CL. Key words “All, solely, etc.”
- Price must be specified. (Not necessary for UCC
– Article 2 allows for offers to omit price.)
- Vague or ambiguous terms e.g., “reasonable price” or “fair price”, are not allowable under either UCC or CL.
Generally, advertisements are not legally binding offers…. they are invitations to negotiate. Exceptions: Reward posters…. ads in the nature of rewards are valid offers. “First come first serve” as well. If ad is specific as to quantity and method of acceptance, then can be considered a valid offer.
Termination of offers prior to acceptance
- Death of either party;
- Death may not terminate an already formed contract (offer + acceptance)
- Lapse of time – Time stated, or a reasonable
time has passed, offer subject to termination.
- Context important – bananas may be 3 days; real estate may be 30 days.
– Unambiguous language or conduct that
is clearly inconsistent with offeror’s intent to contract with the offeree. Only
an offeror can revoke, but offeree must be aware of the attempted revocation.
- Direct – Offeror says to offeree “I revoke”.
- Indirect – A reliable 3rd-party indicates that offeror is no longer willing or able to contract with the offeree.
Offeror generally has the power to revoke any time prior to acceptance, unless:
- Option contract – An offer + separate consideration paid to hold that offer open for a certain amount of time.
- Merchant firm offer rule – UCC Article 2-205
- Offer to buy or sell goods
- Signed written promise to hold offer open
- Party making promise to hold offer open is a merchant.
Note: 3-month time limit on MFOR
- Detrimental reliance- Makes offer irrevocable
- Counter offers – a simultaneous rejection + a new offer. Terminates original offer. Counter offers kill.
- Conditional acceptance – “I accept, but…..” In essence, this is an indirect rejection. Terminates original, or preceding, offers.
- Additional terms – CL considers this a new offer
being made. This is a violation of the “mirror-image” rule. Additional terms
are equivalent to counter-offers.
- Under UCC, Article 2-207 allows formation of a contract with additional terms with seasonable acceptance.
Unilateral contract offers cannot be revoked after beginning of performance. Offeror must give offeree a reasonable time to complete performance.
Revocations and rejections must be successfully communicated to the offeree.
- Termination of offers due to operation of law:
- Destruction of the subject matter – If you have offered to supply something and it has been destroyed, offer terminated.
- Supervening illegality (Intervening Illegality) – No need to perform on illegal acts.
D – Defenses
- Statute of Frauds (covers certain specific
agreement types) – certain contracts MUST be in writing to be enforceable.
- Rule – Contracts whose subject matter falls
within the scope of the statute of frauds are NOT enforceable unless they are
- Scope of statue of frauds – MYLEGS
(Marriage, Year, Land, Executor, Goods, Surety)
- Marriage –
think prenuptial agreements;
- must be a contract for the consideration of marriage. Promises to simply marry are outside the scope.
- Year – scope covers contracts that cannot
possibly performed within 1 year. Greater than 1 year.
- Employment contracts (although not lifetime employment contracts, but an oral arrangement to work for 3 years would be covered.)
- Short term performances – think a concert that will take place 2 years from the date.
- Tasks are never statute of frauds problems.
- Contracts that call for performance more than one year.
- Sell of real estate – transfer of interests, rights, easements.
- Not cover tasks like the construction of a house unless the performance of the task is scheduled to take more than 1 year.
– administrator of an estate
- Executor promises must be in writing.
- Goods – Sales greater than $500 UCC
- Quantity must appear in UCC contracts.
- Surety – A guarantor of the debt of another person.
- Marriage – think prenuptial agreements;
- Scope of statue of frauds – MYLEGS (Marriage, Year, Land, Executor, Goods, Surety)
- Rule – Contracts whose subject matter falls within the scope of the statute of frauds are NOT enforceable unless they are in writing.
The writing requirement – need a signed writing containing all the material terms signed by the defendant.
- Custom-made goods prior to a substantial
beginning of the making.
- Substantial beginning means enough has been done to establish the goods are custom made
- Written merchant confirmatory letter/fax/memorandum
- Need not be acknowledged by seller/buyer, if not disputed within 10 days it satisfies statute of frauds
- Both parties need to be merchants, receiver has to have reason to know letter’s contents, and receiver fails dispute within 10 days.
- Admission – Admit to having a contract.
- Performance – Full performance substitutes for an existence of a written deal.
- Promissory Estoppel due to detrimental reliance. (Not all States allow this….) “I relied on the fact that Δ said they would make a written contract.
In essence, these defenses are used to indicate lack of mutual assent. Remedy is generally recission.
- A mistake is a factual error regarding
fundamental matter that has a material effect on the agreed exchange. He
adversely affected party may then avoid the contract provided he did not bear
the risk of the mistake.
- Sherwood v. Walker
- Mutual – both parties make the same error
- Unilateral – Only one party suffers. Tougher to
make the case.
- Palpable (obvious) to any reasonable person that the mistake was obvious.
- A mistake is a factual error regarding fundamental matter that has a material effect on the agreed exchange. He adversely affected party may then avoid the contract provided he did not bear the risk of the mistake.
- An innocent or negligent untrue assertion of
fact or omission.
- Need not be an intentional
- An innocent or negligent untrue assertion of fact or omission.
- Deliberate or intentional lie or omission.
- Renders contract voidable if the innocent party is deceived to her detriment.
- Deliberate or intentional lie or omission.
- Physical – A gun to your head. Contract is void.
- Economic – more common
improper or wrongful threat, which leaves no reasonable alternative but to
- Leaves contract voidable by the adversely affected and aggrieved party.
- An improper or wrongful threat, which leaves no reasonable alternative but to agree.
- Unconscionability – shocks the conscious of the
- Procedural – Absence of meaningful choice in the
- Unfair surprise. Think of team of attorneys versus an illiterate high school dropout.
- Substantive – Unreasonable or duly harsh terms.
- Unreasonably harsh or oppressive contract terms.
- Procedural – Absence of meaningful choice in the bargaining process.
- Ambiguity – Not obvious on the face of the
contract but appears as the context unfolds.
- Parties use a term that has at least two different meanings;
- Each party will attach a different meaning to the term.
- Neither person knows or has reason to know (should have known) that the term is open to at least two different meanings.
- Exception – If one party knew, the innocent party can ask for relief.
- Lack of Capacity
- Infancy – under age 18 is voidable by the minor
- unless the contract is for necessities, or
- if it was ratified by the minor at the age of majority.
- Many jurisdictions treat minors married to an adult will be treated as an adult
- Age of majority for educational loans consider 16 in many states.
- Insanity – contract is voidable by one who is unable to understand the nature and consequences of the transaction.
- Intoxication –
- Voluntary – not a defense, unless the other party knew and took gross advantage.
- Involuntary – treated just like the insanity defense.
- Infancy – under age 18 is voidable by the minor
- Contrary to public policy
- Exculpatory contracts – someone trying to contract away liability for torts. Maybe for ordinary negligence, but not for intentional torts, gross negligence, or strict liability.
- Parking garages
- Non-compete agreements – must be a reasonable business need, and the agreement must be reasonable for length of time and geographic scope. 1 year max, 10 mile diameter…does depend on the terms.
- Lapse of time – if time stated in the offer exceeded, or a reasonable time passes if time not stated in the offer.
- Revocation – Clear and unambiguous act(s) by the offeror to revoke the offer.
- Rejection -Clear act(s) by the offeree to
terminate an offer.
- A counteroffer terminates the original offer.
- Conditional acceptances
- Addition of terms
- Intervening Illegality
Promissory Estopel – Detrimental Reliance.
T – Terms
- Trade custom
- UCC – Article 2 terms that are directly implied
and inserted into the contract under UCC
- Perfect Tender Rule
- Delivery Obligations
- Risk of Loss
- Implied warranties
- Merchantability -goods are fit for the ordinary purpose
- Fitness for a particular purpose
- Disclaimers using “AS-IS” clause
- Material breach – A breach that undermines the substantial benefit of the bargain. You have the right to suspend your performance obligations
- Minor breach does not excuse performance
- Estoppel or Waiver
- Other Events
- Impracticability – Extremely and unduly burdensome
- Frustration of purpose
R – Remedies (Non-monetary and monetary)
- Specific Performance – Available only if the legal remedy (money) is not adequate. This is the dominant non
- Reclamation – right for unpaid seller of goods to get those oods back
- Expectation Interest –
- Reliance Interest Damages
- Liquidated damage clauses
- Restitutionary damages – counters unjust enrichment of Δ
T – Third-party Rights and Obligations
- Third-party Beneficiary
- Assignment – transfer of contract rights in two
- One party transfers (assigns) rights to a third-party.
- Delegations (this is a transfer of duties/performance)
The ‘T or ‘Treat’’ in “Love For Dogs, Treat Every Rover Terrifically.”
How does the court determine the terms of a contract in dispute?
Various doctrines of law that help the court ascertains what were the terms of the subject contract.
- Parol Evidence Rule
A final integration (writing) cannot be contradicted by evidence of prior written agreements or by contemporaneous oral agreements.
Mitchell v. Lath is the seminal case. Case of sale of real property with purported
- Collateral agreements – Two separate and distinct contracts between the parties not considered to affect each other;
- Evidence that explains ambiguity; (Stew chickens versus fry-chickens).
- Consistent additional terms are allowed if the
integration was only a partial integration.
- How were chickens to be packaged and wrapped;
- Conditions precedent;
- Not barred from trying to prove a condition precedent that has not yet been satisfied; no contract is assumed to exist until the condition has been satisfied, so inappropriate to bar evidence using this rule that is presented for the purpose of demonstrating a condition precedent to formation.
- Consideration – Does not bar evidence used to show lack of consideration.
- Defenses – Evidence supporting defenses not covered/banned by this rule.
If there is a merger/integration clause that indicates parties intent to have the contract be the final writing, then 4 corners of the contract will generally be held.
Mistake is strictly construed against the drafting party.
- The Context Rule
Extrinsic evidence is admissible to determine the intent and context surrounding formation of the contract.
- Extrinsic evidence is evidence outside the “4-corners” of the written contract. Williston view – If no ambiguity then Parol blocks. More modern view, the court does want to here more to make a determination.
- Used to determine if we have a full integration or partial of the contract. Is the written agreement complete?
- Doctrine of contract law, not evidence law, whether or not the final writing can be contradicted by alleged oral or contemporaneous agreements made up until the final signing can be used.
- Conduct of the Parties
Ambiguous words are construed against the drafting party in construing the meaning of those words.
- Course of Performance
- The same two contracting parties in previous installments of the current contract. Example: Installment sales contract. 19 months prior seller delivers 5 days late, not likely that action against seller for being 5 days late (time is of the essence) in month 20 would apply before what seems to be the normal course of performance.
- Course of Dealing
- Same two parties conduct in prior contracts.
- Trade Custom
- Community norms of which the parties are, or should be, aware.
- Trade Usage
UCC GAP FILLERS
Sale of Goods contracts use UCC Gap Fillers (UCC 2-207)
Perfect Tender Rule
Generally, the standard of performance for UCC Contracts is 100% perfect performance.
Buyer has the right to reject all goods for imperfect tender.
A seller in limited circumstances will have the opportunity to cure an imperfect tender.
- Where seller has reasonable grounds to believe
improper delivery would be allowable;
- Buyer must give reasonable time to seller to cure.
- Time remains for delivery (e.g., delivery is a month early).
Delivery Obligations of a Seller of Goods
No place of delivery specified – Sellers place of business
Place of delivery by Common Carrier Agreed Upon
- If a Shipment Contract:
- Seller completes delivery obligations when seller delivers goods to common carrier;Make reasonable arrangements for delivery;Notify buyerObligations cease even if shipment has not yet begun as long the above 3
- If a Destination Contract:
- Seller must get goods to Buyer’s destination.
Most contracts are shipment contracts. FOB followed by a City name. FOB followed by Sellers City is a shipment contract. FOB followed by any other city is a destination contract.
Risk of Loss
Four rules govern this under the UCC:
- Contract – If terms covered in the contract between buyer and seller, identified party to bear the risk;
- Breaching party – If the contract does not indicate who bears the ROL, but a party is in breach, breaching party is liable even if the cause of breach is unrelated to the loss.
- Delivery by Common Carrier Other Than Seller – ROL shifts from Seller to Buyer at the time Seller completes delivery obligations (This is why the Shipping vs. Destination contract can be an issue.)
- Merchant Seller – Risk of loss shifts from
Merchant Seller to Buyer upon buyers receipt and Risk of Loss shifts from a
non-merchant seller upon the tender of goods.
- Merchant sellers should take on more burden is the principal.
- Implied warranty of merchantability – Goods are fit for the ordinary purpose for which they are to be used. Applies if:
- Merchant seller
- Implied warranty of Fitness for particular purpose.
must be aware of buyer’s particular, special, purpose;
- Buyer relies on Seller selecting suitable goods.
- Disclaimers of the implied warranties.
- Sold “As-is” or “With all faults.” Conspicuous placement of disclaimers will allow Seller to “void” these implied warranties.
- Output contract – An output contract is an agreement where a buyer agrees to purchase all of the production of a factory for a specified period of time.
Output contracts differ from requirements contracts in that a requirements contract tends to be driven by a bounded number of items, based on reasonable changes in the amounts ordered, where non-fulfilment of unreasonable quantities is not considered grounds for breach.
- Statute of Frauds – Certain contracts are
required to be evidenced by a writing signed by the one to be charged. These
contract subject matters include:
- Marriage – Pre and post-nuptial contracts in consideration of marriage;
- Year – Contracts the performance of which is in
excess of 1-year. Generally tasks are excluded from this category.
out of SOF by:
- Taken out of SOF by:
- Land – contracts for real estate, leases, and
easement, mortgages, liens, fixtures.
out of SOF by:
- Any two of the following will take it out of SOF – possession, payment (full or partial), and/or valuable improvements.
- Taken out of SOF by:
- Executor – Debts of an estate directly paid by the executor.
- Goods contracts in excess of $500
out of SOF by:
- Merchants confirmatory memo
- Both parties are merchants
- Must include identifying info for the parties
- Must include some kind of quantity
- Merchants confirmatory memo
- Specialty manufacturing
- Taken out of SOF by:
- Surety – Third-party guarantors of debts, must
be signed by the guarantor.
out of SOF by:
- Main purpose doctrine – Main purpose of the payment must not be in the pecuniary interest of the payor, i.e., Evidence that guarantor was benefiting directly from making payment. The party makes the promise because of a financial/pecuniary interest of their own.
- Taken out of SOF by:
- Merchants Firm Offer – An offer is a merchants
firm offer and irrevocable for the period specified if:
- The offer is made by a merchant;
- The offer is a signed writing (on the Merchant’s letterhead signed with an ‘X’ would be sufficient) ;
- Offer specifies it will remain open. If no time specified, then offer open for a maximum of 90 days.
- Illusory Consideration – “If I can I will”; Where the party has not actually given any commitment. An illusory promise.
- Battle of the Forms – Acceptance and modification of contract under the common law follows the mirror image rule.
Under the UCC, varying terms offered in an acceptance are not an automatic rejection. If the parties are both merchants, the varying terms are automatically accepted unless the terms materially alter the contract or the other party objects to the terms in a reasonable period (generally 10 days.)
In the case that the parties are not bot merchants, the terms are not automatically accepted but are considered mere proposals for inclusion.
Material alteration – Look for either of the following:
- Changes the benefit of the bargain for an offeror;
- shifts the risk
New and differing terms not incorporated
DEFENSES TO FORMATION
STATUTE OF FRAUDS
Here the facts state that there is a “valid written contract”, therefore the statute is satisfied.
Here, none of the issues for statute of frauds are indicated, therefore the statute of frauds is not applicable.
Rule: Contracts induced by duress (physical or undue influence) are voidable and may be rescinded as long as not affirmed, unless:
- Economic duress is generally not a defense;
- Withholding something needed will constitute duress if the other party threatens a wrongful act and the act would seriously threaten the contracting party’s property or finances.
Undue influence is defined as undue susceptibility to pressure by one party and excessive pressure by the other. Other factors considered are the unfairness of the resulting bargain and the availability of independent advice.
SOF – evidence by a writing signed by the party to be charged.
SOF – Partial performance remedy is a quasi-contract or quantum meruit. Full performace is full remedy.
Most tested – SOF, UCC, LAND, and SURETY
EFFECTS OF ILLEGALITY
Question before the court was whether a knowing participant in an illegal scheme whose interest was her own enrichment able to could recover?
Generally, no; But there is an exception: where (1) the plaintiff’s conduct was malum prohibitum rather than malum in se and (2) the plaintiff performed the illegal activity as a result of duress, undue influence, or out of good will, thereby rendering the plaintiff’s conduct less culpable than the defendant’s.
Mutual Mistake applies when:
- At the tie of contracting, the parties must have shared an error of fact;
- The erroneous fact was a basic assumption on which the contract was made;
- The mistake must have a material effect on the exchange of performance;
- The adversely affected party must not have borne the risk of the mistake.
Unilateral mistake applies when:
- The error concerns a fact;
- The fact is a basic assumption on which the mistaken party made the contract;
- The mistake has a material effect on the exchange, adverse to the mistaken party;
Large disparity in bargaining power or sophistication of the parties.
- substantive unconscionability (i.e.,
unconscionability based on price alone); and
- procedural unconscionability (i.e., unconscionability based on unfair surprise or unequal bargaining power)