Ch 6 - Limitations on the Bargain and Performance
McKinnon v Benedict?
McKinnon loaned the Benedicts (defendants) $5,000 to buy a tract
of land adjoining McKinnon's property. In exchange for the loan, the
Bendcits promised not to remove any trees or make improvements on
the land for 25 years. They breached and McKinnon sought to enjoin
further construction (specific performance).
RULE: (1) Courts will not follow the general rule that courts do not inquire into the adequacy of consideration when the agreement is so oppressive/inadequate that it is unconscionable.
(2) Public policy states that restrictions on the use of land are not favored in the law.
(3) Equitable relief is a matter of court discretion. If the action was for damages, court would have probably still upheld the contract.
Tuckwiller v Tuckwiller?
Mrs. Morrisson asked Ruby Tuckwiller (plaintiff) to take care of
her after she found out she was dying. In exchange, she promised to
give Tuckwiller her farm in her will. Agreement was to be executed
in a signed writing on May 3. On May 6, Mrs. Morrisson died and the
will did not reflect the new change.
RULE: If a contract is fair when considered from the perspective of the parties AT THE TIME OF CONTRACTING, specific performance may be granted by a court of equity without considering the adequacy of consideration.
O'Callagahan v Waller & Beckwith Realty Co?
O'Callaghan (plaintiff) was a tenant in an apartment owned by
Waller & Beckwith (defendant). She signed a standard dorm lease
that contained an exculpatory clause, relieving defendant from any
injuries sustained due to their negligent conduct. O'Callaghan got
hurt in the courtyard and sued. Waller & Beckwith sought to
enforce the exculpatory clause.
RULE: MINORITY: (1) Exculpatory clauses are generally enforced UNLESS (a) they violate settled public policy; or (b) there is something in the social relationship of the parties against upholding the agreement.
(2) The use of a standard form contract does not of itself establish disparity of bargaining power.
Graham v Scissor-Tail, Inc?
Graham, a musical concert promoter, signed an a standard form
(adhesion) contract with Scissor-Tail (defendant). The two parties
had a fallout and Graham tried to sue. Scissor-Tail enforced the
arbitration clause in the contract. Graham sued after the award was
RULE: An adhesion contract will be enforced against the adhering party if its terms (1) fall within the REASONABLE EXPECTATIONS of the adhering party, and (2) the contract overall is not unconscionable or unduly oppressive.
Doe v Great Expectations?
The Does (plaintiffs) signed up for Great Expectations
(defendant's) dating web site. They were charged $1,000 and $3,790
respectively, received no social referral, and only met one person
on the site They sued pursuant to a statute that said a dating
service that does not guarantee a minimmum number of referrals could
only charge a max fee of $25.
RULE: A court may award full restitution damages in an action based on violations of a statute designed to protect consumers.
Williams v Walker-Thomas Furniture Co?!? (IMPORTANT)
Walker-Thomas owned a furniture store. Williams would purchase
items from the store.All Walker's lease agreements contained a
DRAGNET CLAUSE that every time a customer would lease a new item, a
balance would become due on ALL other items previously leased until
the entire balance for all items was liquidated. Williams defaulted
on a lease on a stereo and Walker-Thomas sued to recover the stereo
and all previous purchases.
RULE: (1) When an element of unconscionability is present at the time of contract formation, the contract is unenforceable.
(2) Unconscionability is defined as the absence of meaningful choice on the part of one of the parties, combined with contractual terms that are unreasonably favorable to the other party.
(3) In order to find unconscionability, there needs to be both PROCEDURAL UNCONSCIONABILITY (lack of meaningful choice/unfair surprise) and SUBSTANTIVE UNCONSCIONABILITY (unreasonably harsh terms/oppression).
(4) Almost never finds a contract unconscionable without substantive unconscionability.
Jones v Star Credit Corp?
The Joneses (plaintiffs) were welfare recipients. Star Credit Corp
sold them a fridge for $1,439.69 when the retail value of the fridge
was $300 and Star Credit knew the financial position of the Joneses.
At the time of suit by the Joneses, they had paid $619.
RULE: An excessive price in a contract may be unconscionable under UCC 2-302.
There was both substantive and procedural unconscionability.
Scott v Cingular Wireless?
Cingular (defendant) contracts contained a mandatory arbitration
clause which included a waiver to class action suits. Scott sued for
RULE: Class action waivers are substantively unconscionable, and therefore, unenforceable.
AT&T Mobility, LLC v Concepcion?
The Concepcions signed up for cell phone plans with AT&T and
AT&T's contract contained a mandatory arbitration class that
prohibited class actions. The Concepcions sued, alleging that the
provision was unconscionable.
RULE: The Federal Arbitration Act makes arbitration agreements "valid, irrevocable, and enforceable," save upon grounds of duress, fraud, or unconscionability.
Dalton v Educational Testing Service?
Dalton took the SAT 2 times. The test was administered by
defendant testing center. His 2nd score was substantially higher
than his first and the testing center, pursuant to its contractual
right, refused to reveal the score and asked Dalton for evidence
that it was him that took the test. Dalton supplied much evidence
and testing center did not release the score. Dalton sued for
specific performance for defendant to release the score.
RULE: (1) Where a party to a contract has breached the IMPLIED duty of good faith and fair dealing, the court may rectify the breach by directing specific performance of the contract.
(2) Here, the testing center did not act in good faith because they did not consider the evidence as they said they would. Dalton is entitled to a good faith review of his evidence.
Hopper v All Pet Animal Clinic?!?
Hopper was employed by All Pet Animal Clinic when she signed a
covenant-not-to-compete within 5 miles of the clinic within 3 years.
Hooper was fired and started her own clinic. All Pet sought an
injuction to enjoin Hooper from creating the clinic.
Court decided that covenant was ok except for 3 year term. Changed the 3 year term to 1 year instead.
RULE: (1) THE REASONABLENESS TEST: A covenant not to compete will be enforced only to the extent necessary to protect the employer's interest (partial enforcement/modifying the agreement).
(2) 2nd Approach courts use: Either the covenant is reasonable or is flat out unenforceable.
(3) 3rd Approach: BLUE PENCIL RULE: Simply crossing out certain terms of the covenant.
Sheets v Teddy's Frosted Foods?
Sheets was an at-will employee of defendant (Teddy's Frosted
Foods). Sheets brought to his employer's attention the mislabeling
of their product which was against a statute. Shorty after, no
action was taken regarding the mislabel and Sheets was fired. Sheets
brought an action for wrongful termination.
RULE: A cause of action for wrongful termination of an at-will employee is actionable when the employee is in a position between violating the law or keeping their job. (Public policy concern).
Balla v Gambro Inc?
Balla was a lawyer (in-house counsel) for defendant company,
Gambro. After Balla told Gambro that its product was not up to FDA
standards, he was fired. Balla filed a retaliatory discharge claim
RULE: MINORITY: In-house counsel may not file an action for retaliatory discharge against a former employer.
Simeone v Simeone?
In the course of a divorce proceeding, ex-wife sought alimony, but
she signed a prenuptial agreement on the eve of their marriage
stating that, in the event of a divorce, she would only be entitled
to a max of $25,000 from her husband. She did not consult a lawyer.
RULE: A prenuptial agreement is enforceable as a contract without consideration by the court as to its reasonableness, as long as there is full and fair disclosure of assets.
In the Matter of Baby M?
Plaintiffs were husband and wife who entered into a surrogacy
contract with a Mary Whitehead to inseminate her and have her bear a
child for them. In exchange, she would be paid $10,000. Whitehead
fled with the child and plaintiffs sued for specific performance of
RULE: Surrogacy contracts involving the exchange of money for an agreement by the surrogate to surrender her child upon birth are against public policy and void.