Civil Law (Theory of Contract) CILA 201

Outline
Validity (Defects in the Bond)
Vices of Assent:
• Fourth Defense: Unconscionability
• Fifth Defense: Undue Influence

Terms & Boilerplates: (What is within the bond)

• Parol Evidence Rule: (UCC §2-202)
• Exceptions of the rule
• General rule on how to define what is within the bond
 Validity – Unconscionability
• Fourth Defense: Unconscionability: ‫اﻟﻐﺒﻦ‬
• Definition:
• Unconscionability is the manifestation of exploitation of an innocent
party by the other party.
• Briefly = “Unfair Contract”
• Under common law:
• Two classical situations:
• First Situation: Procedural unconscionability: absence of meaningful
choice:
• Gross inequality of bargaining power, because there is no reasonable
opportunity to understand or negotiate the terms.
• Example: Adhesion Contracts (‫)ﻋﻘﻮد اﻻذﻋﺎن‬
 Validity – Unconscionability
• Standardized contracts that consist of large number of non-negotiated
pre-drafted terms by one party.
• Usually for buying a new car, house, landline or internet subscription.
• Example:
• A entered into a contract to buy a new car from B
• B is a sole authorized dealer, selling the car in the country
• B is using standard terms that limits its liability under the warranty, to be
limited to only certain unimportant parts of the car (motor and gear box
are not included).
• Requirements:
• 1. One party has substantially greater bargaining power over the other
party.
 Validity – Unconscionability
• Example:
• The manufacturer of the product, the developer of the project, or licensed
telecom operator
• 2. The terms violate the reasonable expectation of the affected party.
• Example:
• The buyer of a brand-new car is expecting that the warranty terms
includes all the parts of the car, more importantly the motor and the gear
box.
• Second Situation: Substantive Unconscionability: unreasonably favorable
terms:
• When terms are so extreme as to appear unconscionable according to the
known business practices of the time and the place of the contract.
 Validity – Unconscionability
• For example:
• Excessive prices; two or three times more that the average range of
market price.
• Remedies for unconscionability:
• 1. Full and partial avoidance: (UCC §2-302)
• If the court finds the contract or a clause of the contract to have been
unconscionable, the court may:
• A- refuse to enforce the contract, or
• B- may enforce the remainder of the contract without the unconscionable
clause, or
• C- may limit the application of the unconscionable clause as to avoid the
unconscionable result.
 Validity – Unconscionability
• 2. Reform:
• The court may modify the respective unfair term or terms to be fair.
• Under ECL: (Art. 129)
• Almost the court is allowed to decide by reform, but:
• Types of contracts: unconscionability is limited only to the contracts
concluded for consideration, otherwise it is not possible. Example: no
application of unconscionability principles in cases of grants.
• Forfeiture:
• Validity claims by the affected party could be raised only within one year
from the date of the contract.
• Restitution:
• The defaulting party could escape the avoidance of the contract, just by
offering to restitute the affected party.
 Validity – Undue Influence
• Fifth Defense: Undue Influence:
• Under common law:
• 1. Unfair persuasion of the affected party.
• 2. The affected party is under the domination of another person.
• 3. By virtue of the relation between the parties, the affected party is
assuming that the dominant person will not act in a manner inconsistent
with his or her welfare.
• 4. The dominate person exercise dominance to unjustly persuade the
affected party.
• Example:
• A is not into the business of real estate
• B, who is her beloved husband, tried to persuade A to buy his house.
 Validity – Undue Influence
• Despite of not having the documents that proves the ownership, he told
her the missing documents should affect her buying decision.
• By virtue of the relation between the parties, A is assuming that B will not
act in a manner inconsistent with her welfare and accepted to buy the
house.
• = Undue influence
• = Voidable contract
• Under ECL, it depends on the fact, on a case by case basis.
• It could be defensed under misrepresentation or duress.
 Terms & Boilerplates
• What is within the bond?
• What are the rights and obligations of the parties?
• The terms of the contract set out the rights and obligations of the parties.
• Contract could be in a verbal or written form, because the form of the
contract does not matter, as long as it satisfies the requirements of the
applicable law.
• But how to identify the agreed terms of the contract.
• Under common law:
• Parol Evidence Rule: (UCC §2-202)
• No one is allowed to submit prior evidence against the written terms of
the contract.
• Previous oral and written correspondences, discussions, negotiations, and
other extrinsic evidences (not part of the contract) are excluded.
 Parol Evidence Rule
• Exceptions:
• Proving voidability:
• All oral and written evidences that may prove mistake, misrepresentation,
duress, and all other voidability incidents.
• Rectification:
• The parties intended to record their verbal contract in a written
document, but failed to do this accurately, so evidence related to verbal
contract could be admitted to support the written document.
• Partially Written Agreement:
• The parties intended to record their verbal contract in a written
document, but clearly mentioned that other extrinsic evidences will be
binding.
 Parol Evidence Rule
• Existence of a condition:
• The prior evidence to prove an oral or written agreement that provides
the contract will not be effective unless the satisfaction of a condition
(condition precedent).
• Collateral Contract supported by other consideration:
• The prior agreement, whether verbal or written, that specifically indicates
certain interpretation of the terms of the contract.
• Example:
• A entered into a contract to sell her car to B
• Both entered into a collateral contract to keep using the car for two
months by A for a consideration of monthly rent.
• The prior contract could be admitted.
 Terms & Boilerplates
• In addition to the express terms mentioned in the contract, the terms of
the contract might include as well implied terms that are not expressed in
the contract.
• General rule on how to define what is within the bond:
• To outline the rights and obligations of the parties, we have to:
• 1. Interpret the express terms included in the contract, if required, and
• 2. Determine the implied terms that are not expressed in the contract, if
any.