chapter 10. the requirement that a party’s assent to a contract be genuine genuineness assent...

Chapter 10

The requirement that a party’s assent to a contract be genuine

Genuineness assent may be missing because a party entered into a contract based on Mistake Fraudulent misrepresentation Duress Undue influence

10-2Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

A mistake in which only one party is mistaken about a material fact regarding the subject matter of a contract

Mutual mistake of a material fact: A mistake made by both parties concerning a material fact that is important to the subject matter of a contract


A mistake that occurs if: both parties know the object of the contract but are

mistaken as to its value Fraud: An event that occurs when one person

consciously decides to induce another person to rely and act on a misrepresentation Also called intentional misrepresentation or fraudulent

misrepresentation


The following elements constitute fraud Misrepresentation of a material fact Intent to deceive▪ Scienter (“guilty mind”): Knowledge that a representation is false

or that it was made without sufficient knowledge of the truth

Reliance on the misrepresentation Injury to the innocent party▪ To recover damages, the innocent party must prove that the fraud

caused him or her economic injury


A situation in which a party threatens to do a wrongful act unless another party enters into a contract Such a contract is not enforceable against the innocent party


A situation in which one person: Takes advantage of another person’s mental, emotional, or

physical weakness Unduly persuades that person to enter into a contract▪ The persuasion by the wrongdoer must overcome the free will of the

innocent party A contract that is entered into because of undue

influence is voidable by the innocent party


A state statute that requires certain types of contracts to be in writing

The following contracts must be in writing Contracts involving interests in real property Agents’ contracts Guaranty contract UCC contract for the sale or lease of goods


Any contract that transfers an ownership interest in real property must be in writing to be enforceable Real property: Land itself, as well as other things

permanently affixed to the land or buildings Part performance: An equitable doctrine that:

Allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if it has been partially performed▪ Performance is necessary to avoid injustice


Equal dignity rule: A rule which says: Agents’ contracts to sell property covered by the Statute of

Frauds must be in writing to be enforceable One-year rule

Rule which states that executory contract that cannot be performed by its own terms within one year of its formation must be in writing


A promise in which one person agrees to answer for the debts or duties of another person

It is a contract between the guarantor and the original creditor Guarantor: A person who agrees to pay a debt if the

primary debtor does not


A written contract does not have to be either drafted by a lawyer or formally typed to be legally binding The law only requires a writing containing the essential

terms of the parties’ agreement Required signature

The Statute of Frauds and the UCC require a written contract to be signed by the party against whom enforcement is sought▪ The signature of the person who is enforcing the contract is not

necessary


If a written contract is a complete and final statement of the parties’ agreement: Any prior or contemporaneous oral or written statements

that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract▪ There are several exceptions to this rule

Merger clause: A clause in a contract which stipulates that it is a complete integration and the exclusive expression of the parties’ agreement


Acquired in the following situations As assignees As intended third-party beneficiaries

Assignment: The transfer of contractual rights by an obligee to another party

Assignor: An obligee who transfers a right Assignee: A party to whom a right has been

transferred


A third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor

Incidental beneficiary: A party who is unintentionally benefited by other people’s contracts An incidental beneficiary has no rights to enforce or sue

under other people’s contracts


Covenant An unconditional promise to perform

Condition: A qualification of a promise that becomes a covenant if it is met There are three types of conditions▪ Conditions precedent

▪ Conditions subsequent

▪ Concurrent conditions


Condition precedent: A condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract

Condition subsequent: A condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform


Discharge by impossibility of performance Nonperformance that is excused if a contract becomes

impossible to perform It must be objective impossibility, not subjective

Force majeure clause: A clause in a contract in which the parties specify certain events that will excuse nonperformance


There are three types of performance of a contract Complete performance Substantial performance (or minor breach) Inferior performance (or material breach)

A breach of contract occurs if one or both of the parties do not perform their duties as specified in the contract


A situation in which a party to acontract renders performance exactly as required by the contract Complete performance discharges that party’s obligations

under the contract Tender of performance: An unconditional and

absolute offer by a contracting party to perform his or her obligations under a contract Also discharges a party’s contractual obligations


Performance by a contracting party that deviates only slightly from complete performance

Minor breach: A breach that occurs when a party renders substantial performance of his or her contractual duties

Damages can be recovered by Deducting the cost to repair the defect from the contract

price and remitting the balance to the breaching party Suing the breaching party to recover the cost to repair the

defect if the breaching party has already been paid


A breach that occurs when a party renders inferior performance of his or her contractual duties Inferior performance: A situation in which a party fails to

perform express or implied contractual obligations and impairs or destroys the essence of a contract

Rescission: An action to rescind (undo) a contract


An award of money Compensatory damages: An award of money

intended to compensate a nonbreaching party for the loss of the bargain Compensatory damages place the nonbreaching party in the

same position as if the contract had been fully performed by restoring the “benefit of the bargain”


Foreseeable damages that arise from circumstances outside a contract To be liable for these damages, the breaching party must

know or have reason to know that the breach will cause special damages to the other party


Damages that parties to a contract agree in advance should be paid if the contract is breached An enforceable liquidated damages clause is an exclusive

remedy A liquidated damages clause is considered a penalty if▪ Actual damages can be clearly determined in advance

▪ Liquidated damages are excessive or unconscionable Mitigation of damages

A nonbreaching party’s legal duty to avoid or reduce damages caused by a breach of contract


Type of Equitable Remedy

Description

Specific performance A court orders the breaching party to perform the acts promised in the contract. The subject matter of the contract must be unique.

Reformation A court rewrites a contract to express the parties’ true intentions. This remedy is usually used to correct clerical errors.

Injunction A court prohibits a party from doing a certain act. Injunctions are available in contract actions only in limited circumstances.


chapter 10. the requirement that a party’s assent to a contract be genuine genuineness assent...

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