1. Unfair persuasion
1. Of a party under the domination of the other party OR
2. Relationship justifies believing that other part wouldn’t screw him
2. Assent induced by the undue influence is voidable.
3. If assent is induced by undue influence of 3^rd party, it is voidable, unless the other party in the transaction acted in good faith and had no reason to know of the undue influence, OR materially relied on the transaction

ODORIZZI V. BLOOMFIELD SCHOOL DISTRICT (P. 535) Teacher arrested for homosexual activity. Co-workers go to his house and ges him to resign saying there will be bad press if he doesn’t. P sues for duress, fraud, mistake and undue influence. Remands on undue influence.

• Undue Influence (Restatement § 177)
• Undue susceptibility to pressure – he was in jail all night
• Excessive pressure / Over persuasion: no requirement of bad faith
• Generally accompanied by (p. 539)
• Unusual time
• Unusual place
• Insistence that business be finished at once
• Untoward consequences of delay
• Multiple persuaders
• Absence of third party advisors
• Statement that no time to consult anyone
• Almost all present here.
• Fraud Claim:
• Misrepresentation
• Knowledge of Falsity
• Inducement (objective standard)
• Reliance
• Damage

MISREPRESENTATION

To Prove Misrepresentation:

1. Factual statements: (164)
1. P was induced by fraudulent or material misrepresentation (see 162 for definitions)
2. P justifiably relied on assertions
2. Opinions: (169)
1. Relation of trust and confidence
2. Recipient believes the maker has special skill, judgment or objectivity OR
3. Recipient is particularly susceptible

Restatement § 164, When a Misrepresentation Makes a Contract Voidable (Rules, p. 190)

1. When assent is induced by a fraudulent or material misrepresentation upon which recipient is justified in relying, the K is voidable.
2. Unless the other party to transaction in good faith and w/o reason to know of misrep either give s value or relies materially on transaction.

Restatement §162, When a Misrepresentation is Fraudulent or Material (Rules, p. 190)

1. A misrepresentation is fraudulent if the maker intends his assertion to induce assent and
1. Knows the assertion is not factual,
2. Doesn’t have the confidence he implies OR
3. Knows he has no basis for his assertion.
2. The misrepresentation is material if
1. It would induce a reasonable person to assent OR
2. The maker knows it will induce the recipient.

Restatement § 168, Definition of Opinion (Rules, p. 191)

1. An assertion is an opinion if it expresses belief, without certainty.
2. If reasonable, the recipient may interpret the opinion as an assertion that
1. That the maker doesn’t know of any facts to the contrary OR
2. That the maker knows of facts to justify his opinion.

Can apply to anyone giving an opinion. Is not limited to the circumstances of §169.

Restatement §169, When Reliance on an Assertion of Opinion Is Not Justified (Rules, p. 191)

If assertion is one of opinion only, the recipient is not justified in relying unless

1. Relation of trust and confidence makes reliance reasonable,
2. Recipient believes the maker has special skill, judgment or objectivity OR
3. Recipient is particularly susceptible to this type of misrepresentation.

SYESTER V. BANTA (P. 544) P paid a lot for dance lessons. She sued but was persuaded to sign the release. She wants to sue on tort so first sues to rescind the release, claiming misrepresentation. For P.

• Carey’s statement could be fraudulent and material (Restatement §162), but
• Was her assent induced by it?
• Did she sign b/c of the misrepresentation (she was a good dancer) or b/c she wanted his friendship back?
• Was she justified in relying on it? (Restatement §169)
• No relationship of trust and confidence
• Perhaps believed him to have special skill, judgment
• She was particular susceptible to the misrepresentations.
• P would have done better by claiming undue influence, but she is too vain to do that.

NON-DISCLOSURE

No general duty to dislose.

Restatement §161, When Non-Disclosure is Equivalent to an Assertion (Rules, p. 189)

Non-disclosure of a fact is equivalent to an assertion that the fact doesn’t exist if:

1. Disclosure is necessary to prevent a previous assertion from becoming a misrepresentation, fraudulent or material,
2. Disclosure would correct a mistake as to
1. A basic assumption of the K and
1. Non-disclosure amounts to failure to act in good faith and in accordance with standards of fair dealing
2. The contents of a writing, OR
3. There is a relation of trust and confidence.

 

Once you have a non-disclosure that can be treated as an assertion (§161), you must find it:

1. Fraudulent and material (§162)
2. Induced reliance (§164)
1. OR relationship of trust and confidence, etc. (§169) – but this may already be proven under §161(d))

HILL V. JONES (P. 553) P buys home from D later found to have termite damage. Duty to disclose.

• Ps need to prove:
• Sellers have a duty to disclose material information
• Information about termites is material
• Court says information material to the value of the property must be disclosed.
• Buyers relied b/c it was a basic assumption
• Fairness requires disclosure depending on whether:
• Degree of intelligence of parties differs
• Relationship between the parties
• Manner in which information is acquired
• If serendipitously, greater duty to disclose
• Nature of the fact.
• If easily discoverable, less of a duty to disclose.
• Class of person with information.
• Sellers have greater duty b/c more information.
• Nature of the contract.
• Importance of the fact.
• Materiality
• Active concealment of any material fact

UNCONSCiONABILITY

The absence of meaningful choice on the part of one party, and terms unusually beneficial to the other party. Unconscionability tries to fill in gape, where something egregious has happened, but there isn’t any other recourse for this abuse. 

Purpose: to avoid oppression and unfair surprise 

Must have:

1. Procedural Unconscionability: Abuse of the bargaining model.
1. The absence of meaningful choice on the part of one party or some defect in the bargaining process
2. Requirements
1. Show an adhesion K
2. High-pressure sales tactics
3. Confusing or incomprehensible terms
4. Absence of competing sellers
2. Substantive Unconscionability: Terms of the K.
1. Terms of K unusually beneficial to the other party
2. Requirements
1. Comparative claims: how much greater the harm v. how marginal the benefit
2. Look for elements of duress, undue influence, bad faith, etc.

UCC §2-302, Unconscionable Contract or Clause (Rules, p. 34)Very rarely enforced.

1. If K is unconscionable, court may enforce remainder of K or it can throw the unconscionable term out, or it may limit clause as necessary
2. Parties allowed to present evidence on the setting, purpose, and effect of a K, if it appears that it may be unconscionable

WILLIAMS V. WALKER-THOMAS FURNITURE CO. (P. 567) Installment agreement contained provision that applied payments pro rata to all outstanding leases. Ps defaulted and D sought to replevy all items they had purchased. P isn’t barred from pleading unconscionability.

• Absence of meaningful choice coupled with unreasonable terms.
• Terms of the K (Substantive)
• Inconsistent with trade practice
• Not necessary to achieve stated purpose (collateral)
• In light of circumstances (Procedural)
• K signed at her house
• Clause buried in fine print
• She did not receive copy
• Absence of competing sellers

 

• Alternatives to the Procedural/Substantive Analysis:
• Uniform Consumer Credit Code
• Whether seller believes buyer likely to default
• Whether buyer benefits from transaction
• Gross disparity with market price
• Whether seller has taken advantage of buyer’s bargaining impairment due to
• Mental impairment
• Lack of Education
• Similar Factors

VOID AS AGAINST PUBLIC POLICY

Judicial refusal to enforce K b/c it is contrary to public policy. 

R2 § 178—When a Term is Unenforceable on Grounds of Public Policy

1. Term is unenforceable if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed by public policy
2. Factors to be weighed for enforcement
1. Justified expectations of parties
2. Forefeiture that would result in no enforcement
3. Special public interest in enforcement
3. Factors to be weighed for non-enforcement
1. Strength of policy as manifested by legislation
2. Likelihood that refusal to enforce the term will further policy
3. Seriousness of misconduct involved
4. Directness b/w misconduct and term

Covenants Not to Compete

 

Pros:

• Company won’t want to train an employee if he can take that training and immediately turn it against employer

Cons:

• Limits individual autonomy
• Restrains trade, esp. if it was on its own with no other terms.

Restatement §187, Non-Ancillary Restraints on Competition (Rules, p. 193)

Promise not to compete, if not ancillary to another agreement, is an unreasonable restraint of trade.

Restatement §188, Ancillary Restraints on Competition (Rules, p. 193)

Promise not to compete, ancillary to another agreement, is an unreasonable restraint of trade if:

1. Restraint is greater than needed to protect employer’s legitimate interest
2. That interest is outweighed by
1. Hardship to the promisor
2. Likely injury to the public
1. (In cases involving the professions, public policy concerns may outweigh any protectable interest the remaining firm members may have)

 

Analyzing Covenants Not to Compete

1. Is in Ancillary?
2. If so, what are employer’s legitimate interests? Look at
1. Time: how long to find replacement, how long before employee’s knowledge becomes stale
2. Geography: how far does it extend if at all?
3. Scope: Substantive coverage
3. Then look at hardships to employee/public

VALLEY MEDICAL SPECIALISTS V. FARBER (P. 599) Covenant not to compete part of physician’s contract. Covenant not enforceable.

• Must be ancillary to another agreement: Yes. Employment agreement.
• Must be reasonable in light of public policy
• No more restraint than necessary to protect employer’s interest (Restatement §188)
• Duration of covenant: 3 yrs too long b/c he was treating people with chronic conditions
• Scope of activity prohibited
• Geographic area
• Dr. didn’t learn his skills from VMS
• Must not outweigh interest of the employee and the public: public interest so high here you need not consider Dr’s interests
• Patients have to travel too far to see doctor
• Medical service is public good
• Blue-pencil: AZ courts “blue-pencil” restrictive covenants, eliminating unreasonable provisions. This goes too far b/c the covenant have an in terrorem effect on departing employees. Employers may therefore create ominous covenants, knowing that if the words are challenged, courts will modify the agreement to make it enforceable. Crossing out items okay, adding and rewriting is not.

Dangers of Public Policy Justifications

Marriage. BORRELLI V. BRUSSEAU (P. 611) Husband promises to transfer certain property to wife if she cares for him after stroke. She did, but estate refuses to transfer property. Promise not enforceable.

• No valid consideration.
• Wife is already obligated by statutory duty to care for husband.
• Public policy interest in marriage.

 

(Not in case.) If K violates a statute, court can:

1. Declare it void
1. Furthers public policy
2. Easy to administer
3. But may be unjust
2. Refuse to do so absent statutory requirement
1. Troubling relationship with statute – you violated, but it’s OK
3. Take the middle path – Case-by-case balancing test – FAVORED APPROACH
1. Restatement §178 (Rules, p. 193) – If interests are outweighed by public policy. (Lists factors to consider.)

MUTUAL MISTAKE

When some fact has been unearthed or occurred that does violence to substance of K, courts will use these doctrines to avoid injustice.