114/4221 MCQ FORMATION OF CONTRACTS Flashcards
A building subcontractor submitted a bid for construction of a portion of a high-rise office building. The bid contained material computational errors. The general contractor accepted the bid with knowledge of the errors. Which of the following statements best represents the subcontractor’s liability?
Not liable because the contractor knew of the errors
Not liable because the errors were a result of gross negligence
Liable because the errors were unilateral
Liable because the errors were material
Not liable because the contractor knew of the errors
A bid is an offer. The person submitting the bid is the offeror. The offeree (the person receiving the bids) may or may not choose to accept one of the bids. If the offeror commits an error in submitting the bid, this error might not constitute a legal defense to performance, since in most cases unilateral (one-sided) error is no defense. If, however, the other party knows or should reasonably know of the existence of the error, no acceptance is permitted. In this case, the subcontractor made a unilateral error, which was known by the offeree (the general contractor). Hence, there is no enforceable contract.
Reference: 4221.62
Unilateral mistake. One party is mistaken. There is a good contract so long as the other party is not aware of the mistake and has not entered the contract to take advantage of the mistaken party.
A CPA sued a former client for nonpayment of the final bill. Although happy with the CPA’s performance of services, the client claimed that CPA is not entitled to the final bill payment because the contract between the client and the CPA failed to meet the statute of frauds. The client argues that the contract allowed up to 15 months for the CPA to complete the work, the contract price was well over $5,000, and though the client sent signed checks to the CPA, the client did not sign the contract. Which of the following statements about this situation is correct?
The statute of frauds does not apply, preventing enforcement of the contract terms.
The statute of frauds does not apply, allowing enforcement of the contract terms.
The statute of frauds does apply, and the requirements are not satisfied, thereby preventing enforcement of the contract terms.
The statute of frauds does apply, but the requirements are satisfied by the client’s signing of the checks, allowing enforcement of the contract terms.
The statute of frauds does not apply, allowing enforcement of the contract terms.
The statute of frauds does not apply because the signed checks for services satisfies the written requirement necessary to enforce the contract. This is a written enforceable contract not subject to provisions within the statute of frauds. The CPA can enforce the contract and demand payment.
Reference: 4222.25
Certain contracts must be in writing and signed by the party to be charged or the contract is unenforceable if the statute of frauds is raised as a defense.
Reference: 4222.26
The party to be charged is the party that is being sued to be held liable on the contract.
Reference: 4222.27
The writing may be a note, a memorandum, an informal notification, or more than one writing. The writing must meet the test of reasonable certainty and should contain the name of the parties, subject matter, and material terms and conditions.
tatute of Frauds
The statute of frauds is found in Article 2 of the Uniform Commercial Code (UCC). It specifies that certain contracts must be in writing and signed by the party to be charged in order to be enforceable. The writing need not be formal; a signed memo or several writings (e.g., letters) may be sufficient.
The writing must contain the subject matter, the names of the parties, the consideration, the terms of the contract (must state at the very least the quantity of goods sold), and the signature of the party to be charged.
The statute applies only to the following:
The sale of goods having a value in excess of $500
A contract that will not be performed within one year of the signing
The sale of real property or of securities
The promise to answer for the debt of another
Relevant Terms
Statute of Frauds
Reference
4222.25
4222.26
4222.27
All of the following are effective methods of ratifying a contract entered into by a minor, except:
expressly ratifying the contract after reaching the age of majority.
failing to disaffirm the contract within a reasonable time after reaching the age of majority.
ratifying the contract before reaching the age of majority.
impliedly ratifying the contract after reaching the age of majority.
ratifying the contract before reaching the age of majority.
All of the answer choices listed are effective methods of ratifying a contract entered into by a minor except ratifying the contract before reaching the age of majority. Minors cannot ratify contracts until they reach a majority age, which is usually 18.
Baker fraudulently induced Able to sell Baker a painting for $200. Subsequently, Baker sold the painting for $10,000 to Gold, a good-faith purchaser. Able is entitled to:
rescind the contract with Baker.
recover the painting from Gold.
recover damages from Baker.
rescind Baker’s contract with Gold.
recover damages from Baker.
The subsequent sale is evidence of fraud in the inducement. Baker falsely represented the value of the painting.
Term: Fraud in the Inducement
Fraud in the inducement is false representation or failure to disclose of a material fact knowingly made or omitted, justifiably relied upon in the making of the contract, and resulting in injury. It is antecedent fraud that occurs during the negotiation, precedes the making of the contract, and induced the other party to enter into the contract, and may be in the form of an act, an omission, a concealment, or a nondisclosure. A contract signed under fraud in the inducement is voidable at the option of the defrauded party. It is less serious than fraud in the execution and applies to common law and commercial paper only. (It does not apply to securities fraud.)
CHATGPT4:
When analyzing situations involving fraudulent inducement and the subsequent sale of goods to good-faith purchasers, it’s important to understand the principles of contract law and property law, particularly those related to fraud, rescission, and the rights of bona fide purchasers. The specifics can vary depending on jurisdiction, but general principles can be applied to your scenario:
Recover damages from Baker: Able may be entitled to recover damages from Baker due to Baker’s fraudulent inducement. Fraudulent inducement is a valid ground for seeking compensatory damages, which would aim to put Able in the position they would have been in had the fraud not occurred. This might include the difference between the sale price and the actual value of the painting, plus any additional damages specified by law.
Rescind the contract with Baker: Able may seek to rescind the contract with Baker on the grounds of fraud. Rescission would nullify the contract, as if it had never occurred. However, since the painting has already been sold to a third party (Gold), rescission’s practical effects might be complicated by the rights of that third party.
Rescind Baker’s contract with Gold: It is generally not possible for Able to directly rescind the contract between Baker and Gold, as Able is not a party to that contract. The ability to rescind a contract typically rests between the parties involved in the contract itself unless there’s a legal provision that allows an outside party to intervene, which is rare and usually not applicable in cases of good faith purchases.
Recover the painting from Gold: The ability for Able to recover the painting from Gold depends on the concept of a bona fide purchaser for value without notice. If Gold purchased the painting without knowledge of the fraud and for fair value, Gold is typically considered a bona fide purchaser. Most legal systems protect bona fide purchasers to keep the market for goods reliable and to ensure that titles to property can be confidently traded. Therefore, if Gold qualifies as a bona fide purchaser, Able may not be able to recover the painting from Gold.
Given these considerations, the most likely and straightforward remedies for Able would be to recover damages from Baker and possibly rescind the contract with Baker. However, rescinding Baker’s contract with Gold and recovering the painting from Gold would be unlikely if Gold is considered a bona fide purchaser for value without notice.
Bradford sold a parcel of land to Jones, who promptly recorded the deed. Bradford then resold the land to Wallace. In a suit against Bradford by Wallace, recovery will be based on the theory of:
ignorance of the facts.
unilateral mistake.
bilateral mistake.
fraud.
fraud
It is unlikely that a resale would be due to mistake or ignorance. Fraud would be the only possible offense.
Carson Corp., a retail chain, asked Alto Construction to fix a broken window at one of Carson’s stores. Alto offered to make the repairs within three days at a price to be agreed on after the work was completed. A contract based on Alto’s offer would fail because of indefiniteness as to the:
nature of the subject matter.
parties to the contract.
time for performance.
price involved.
price involved.
A valid offer must include agreement (offer and acceptance), consideration, contractual capacity, and legal object. The terms of a valid offer must be definite and certain. The subject matter, parties to the contract, and time for performance are obvious. However, the price in this problem is indefinite.
Castle borrowed $5,000 from Nelson and executed and delivered to Nelson a promissory note for $5,000 due on April 30. On April 1, Castle offered, and Nelson accepted, $4,000 in full satisfaction of the note. On May 15, Nelson demanded that Castle pay the $1,000 balance on the note. Castle refused. If Nelson sued for the $1,000 balance, Castle would:
lose, because the amount of the note was not in dispute.
win, because the acceptance by Nelson of the $4,000 constituted an accord and satisfaction.
lose, because no consideration was given to Nelson in exchange for accepting only $4,000.
win, because the debt was unliquidated.
win, because the acceptance by Nelson of the $4,000 constituted an accord and satisfaction.
Castle would not be required to put up the additional $1,000. The parties reached an accord and satisfaction. Castle offered to pay the note before it was due. Nelson could not win a suit based on preexisting obligation because Castle actually paid the note off before it was due. Nelson accepted the earlier payment of $4,000 even though the note was for $5,000. Nelson’s consideration for accepting less than face value of the note is that he received payment before the note was due.
Term: Accord
An accord is an agreement between the parties to a contract to permit some different performance to replace the original promised performance. Accord alone does not discharge (end) the contractual obligation; accord and satisfaction (carrying out the accord) discharges the obligation. An accord usually refers to the settlement of a disputed contract.
Reference: 4223.14
Accord and satisfaction
Accord: Agreement between the two contracting parties where some different performance will replace the original performance. An accord by itself does not discharge the contractual obligation.
Satisfaction: Carrying out the accord
An accord and satisfaction discharges the contractual obligation.
Dye sent Hill a written offer to sell a tract of land located in Newtown for $60,000. The parties were engaged in a separate dispute. The offer stated that it would be irrevocable for 60 days if Hill would refrain from suing Dye during this time. Hill promptly delivered a promise not to sue during the term of the offer and to forego suit if Hill accepted the offer. Dye subsequently decided that the possible suit by Hill was groundless and therefore phoned Hill and revoked the offer 15 days after making it. Hill mailed an acceptance on the 20th day. Dye did not reply. Under the circumstances:
Dye’s silence was an acceptance of Hill’s promise.
Dye’s written offer would be irrevocable even without consideration.
Dye’s offer was supported by consideration and was not revocable when accepted.
Dye’s revocation, not being in writing, was invalid.
Dye’s offer was supported by consideration and was not revocable when accepted.
One of the elements of a contract is consideration. Hill’s promise not to sue was consideration. An irrevocable offer is considered accepted when consideration is received.
Reference: 4221.40
Irrevocable offers are exceptions to the general rule that offers are revocable. These are some examples of irrevocable offers:
- Option contract—made irrevocable by a contract between the parties in which the offeror agrees to keep the offer open in return for some consideration from the offeree.
- Unilateral contract when the offeree has begun substantially to perform the contract. Revocation would be unfair to the party who has begun performance.
- Stated time of a written offer signed by a merchant even though there is no return consideration received in exchange for the promise. (UCC 2-205)
Egan, a minor, contracted with Baker to purchase Baker’s used computer for $400. The computer was purchased for Egan’s personal use. The agreement provided that Egan would pay $200 down on delivery and $200 thirty days later. Egan took delivery and paid the $200 down payment. Twenty days later, the computer was damaged seriously as a result of Egan’s negligence. Five days after the damage occurred and one day after Egan reached the age of majority, Egan attempted to disaffirm the contract with Baker. Egan will:
be able to disaffirm despite the fact that Egan was not a minor at the time of disaffirmance.
not be able to disaffirm because Egan had failed to pay the balance of the purchase price.
be able to disaffirm only if Egan does so in writing.
not be able to disaffirm because the computer was damaged as a result of Egan’s negligence.
be able to disaffirm despite the fact that Egan was not a minor at the time of disaffirmance.
One of the essential elements of a contract is legal capacity. Minors are considered to have compromised contractual capacity. As a result, the general treatment of minors by the law is favorable—the contract is voidable at the option of the minor; the other party may not void the contract. A minor may disaffirm (get out of) a contract for nonnecessities, whether executed or partly executed, if the minor chooses and even if disaffirmance occurs shortly (a reasonable time under the circumstances) after reaching the age of majority.
The minor is to return the goods, if able, after disaffirmance; if a minor is unable, or if the goods are damaged, the adult party generally bears the loss.
For a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller’s improper threats:
constituted a crime or tort.
actually induced the purchaser to assent to the contract.
were made with the intent to influence the purchaser.
would have induced a reasonably prudent person to assent to the contract.
actually induced the purchaser to assent to the contract.
For a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller’s improper threats actually induced the purchaser to assent to the contract. The key concept is the term “duress.” To get a court to rescind a contract on the basis of duress, it is necessary to prove that the threats actually caused the party to sign a contract, as opposed to proving that the threats would have induced a reasonably prudent person to sign a contract.
If a buyer accepts an offer containing an immaterial unilateral mistake, the resulting contract will be:
void as a matter of law.
valid as to both parties.
void at the election of the buyer.
voidable at the election of the seller.
valid as to both parties.
A material mistake would make the contract invalid. Unless the other party was aware of the mistake or was trying to take advantage of the buyer, a unilateral mistake will not prevent the making of the contract.
Unilateral mistake. One party is mistaken. There is a good contract so long as the other party is not aware of the mistake and has not entered the contract to take advantage of the mistaken party.
A mistake as to value is an ordinary risk in the normal business transaction. A contract cannot generally be avoided for a mistake in value.
A mistake of law as to the parties’ legal rights under the contract is not grounds for rescission.
If a person knowingly and voluntarily signs a document, the person is conclusively presumed to know its contents and assent to them. The person cannot avoid the contract for a mistake.
If a person is induced to enter into a contract by another person because of the close relationship between the parties, the contract may be voidable under which of the following defenses?
Fraud in the inducement
Unconscionability
Undue influence
Duress
Undue influence
This question requires one to know the underlying definitions of the answer choices.
Fraud in the inducement occurs when a contract is formed based upon the false or misleading statements or actions of another party. While possibly related to a close relationship of the parties, a better answer exists. Note: Be sure to read all of the answers before you answer a question.
Unconscionability means a contract is so one-sided and unfair to the disadvantaged side that it is against public policy. This type of condition usually implies that there is not a close relationship between the parties.
Undue influence is the preferred answer, as this “assent” or inducement to contract arises from special or close relationships between the parties, which is exactly the point of the question. One party’s views are usually overcome by the other because of this close relationship.
Duress generally implies a “forced” type of transaction, which arguably could result from a close relationship but generally results from an involuntary result being “forced” upon the otherwise nonconsenting party. An example of duress is coercion to sign a contract at gunpoint.
Reference
4221.49
4221.50
4221.51
4221.52
4221.53
4221.54
4221.55
4221.56
4221.57
4221.58
4221.59
4221.60
4221.66
4221.67
4221.68
Johns leased an apartment from Olsen. Shortly before the lease expired, Olsen threatened Johns with eviction and physical harm if Johns did not sign a new lease for twice the old rent. Johns, unable to afford the expense to fight eviction, and in fear of physical harm, signed the new lease. Three months later, Johns moved and sued to void the lease claiming duress. The lease will be held:
voidable because of Olsen’s threat to bring eviction proceedings.
void because of Johns’ financial condition.
voidable because of Olsen’s threat of physical harm.
void because of the unreasonable increase in rent.
voidable because of Olsen’s threat of physical harm.
The lease will be held voidable because of Olsen’s threat of physical harm. Duress is a defense to a contract that may be held voidable.
Courts do not attempt to measure the value of consideration and will not hold the lease void because of the “unreasonable increase in rent.” Olsen’s threat to evict the tenants if they do not sign a new lease is perfectly legal, since Olsen has the right to determine what rent and under what kind of conditions he will rent the apartment. Nor will a court declare a contract void just because one of the parties is in poor financial condition.
Reference: 4221.55
Duress is a wrongful act that compels contractual agreement through fear. Duress is subjective (what a person thinks), not objective (what a person shows). Age, sex, experience, intelligence, and relation of the parties must be considered.
Reference: 4221.56
The acts leading to duress need not be illegal, although they often are. The threats can be against the individual, someone closely related to the individual, or their property.
Threat of a civil suit is not duress. A person has the right to file a civil suit.
Threat of criminal suit may be duress.
Mere argument, advice, persuasion, or annoyance is not duress.
Duress makes the contract voidable.
Kay, an art collector, promised Hammer, an art student, that if Hammer could obtain certain rare artifacts within two weeks, Kay would pay for Hammer’s post-graduate education. At considerable effort and expense, Hammer obtained the specified artifacts within the 2-week period. When Hammer requested payment, Kay refused. Kay claimed that there was no consideration for the promise. Hammer would prevail against Kay based on:
unilateral contract.
public policy.
quasi contract.
unjust enrichment.
unilateral contract.
Hammer would prevail against Kay based on the theory of a unilateral contract. This question tests your knowledge of four contract terms:
- Unilateral Contract: A contract that is formed when, by the terms of the offer, acceptance is given by performance. That is exactly what happened in this problem. An offer was made to pay for post-graduate education if the prospective student did an act (obtained artifacts within two weeks). When performance was rendered, the contract was accepted, and therefore, is enforceable.
- Unjust Enrichment: Refers to a theory that permits a court to redress a situation where one party has performed some act for the benefit of another and should receive compensation in the name of justice.
- Public Policy: Refers to a justification that courts will sometimes use when there is no specific law or prior case dealing with the same set of facts, but when court action can be justified on the basis of common sense interpretation of what the general consensus might be over what a court should do.
- Quasi Contract: A theory under which courts will apply a contractual remedy when there was actually no formal offer or acceptance (and, therefore, no legal contract).
Kram sent Fargo, a real estate broker, a signed offer to sell a specified parcel of land to Fargo for $250,000. Kram, an engineer, had inherited the land. On the same day that Kram’s letter was received, Fargo telephoned Kram and accepted the offer. Which of the following statements is correct under the common law statute of frauds?
No contract could be formed because Fargo’s acceptance was oral.
A contract was formed but would be enforceable only against Kram.
A contract was formed and would be enforceable against both Kram and Fargo.
No contract could be formed because Kram’s letter was signed only by Kram.
A contract was formed but would be enforceable only against Kram.
In order to have a contract, four elements must be present:
- Agreement
- Consideration
- Legal purpose
- Competent parties
The example shows agreement, or a mutual understanding between the two parties. An offer was made and the offer was accepted. The example has consideration ($250,000) and the purpose of the contract is not illegal (it has legal purpose). Nothing in the example shows that either of the parties is incompetent or unable to form a contract (neither is stated as being a minor, insane, or intoxicated). A contract was formed between Kram and Fargo.
However, according to the statute of frauds, a transfer of an interest in land must generally be in writing. Kram is the only party who has put his intentions in writing. Oral acceptance by the buyer is only enforceable if the buyer takes possession and/or makes valuable improvements on the land. Therefore, the contract would be enforceable only against Kram.
Relevant Terms
Common Law
Contract
Reference
4222.25
4222.31
Long purchased a life insurance policy with Tempo Life Insurance Co. The policy named Long’s daughter as beneficiary. Six months after the policy was issued, Long died of a heart attack. Long had failed to disclose on the insurance application a known preexisting heart condition that caused the heart attack. Tempo refused to pay the death benefit to Long’s daughter. If Long’s daughter sues, Tempo will:
win, because Long’s daughter is an incidental beneficiary.
win, because of Long’s failure to disclose the preexisting heart condition.
lose, because Long’s death was from natural causes.
lose, because Long’s daughter is a third-party donee beneficiary.
win, because of Long’s failure to disclose the preexisting heart condition.
Failing to disclose the preexisting condition would be considered fraud in the execution of the life insurance contract. Even if the misrepresentation is innocent, the life insurance may rescind the contract.
Maco, Inc., and Kent contract for Kent to provide Maco certain consulting services at an hourly rate of $20. Kent’s normal hourly rate was $90 per hour, the fair market value of the services. Kent agreed to the $20 rate because Kent was having serious financial problems. At the time the agreement was negotiated, Maco was aware of Kent’s financial condition and refused to pay more than $20 per hour for Kent’s services. Kent has now sued to rescind the contract with Maco, claiming duress by Maco during the negotiations. Under the circumstances, Kent will:
win, because Maco refused to pay the fair market value of Kent’s services.
win, because Maco was aware of Kent’s serious financial problems.
lose, because Maco cannot prove that Kent, at the time, had no other offers to provide consulting services.
lose, because Maco’s actions did not constitute duress.
lose, because Maco’s actions did not constitute duress.
Contracts can be voided due to invalid consent if there was duress. Duress must be compelled by fear. There is no evidence of fear, only of financial difficulties.
Relevant Terms
Contract
Duress
Void
Reference
4221.48
4221.49
4221.50
4221.51
4221.52
4221.53
4221.54
4221.55
Martin wrote Dall and offered to sell Dall a building for $200,000. The offer stated it would expire 30 days from April 1. Martin changed his mind and does not wish to be bound by his offer. If a legal dispute arises between the parties regarding whether there has been a valid acceptance of the offer, which one of the following is correct?
The offer will not expire before the 30 days even if Martin sells the property to a third person and notifies Dall.
If Dall categorically rejects the offer on April 10, Dall cannot validly accept within the remaining stated period of time.
If Dall phoned Martin on May 3, and unequivocally accepted the offer, a contract would be created, provided that Dall had no notice of withdrawal of the offer
The offer cannot be legally withdrawn for the stated period of time.
If Dall categorically rejects the offer on April 10, Dall cannot validly accept within the remaining stated period of time
To create a contract, the offer must be accepted before a termination of the contract. The lapse of the time stated in the offer would be a termination, so an acceptance on May 3 is not valid because it is after the time lapsed. A sale of the property to another entity would be a termination. Once an offer is rejected by the offeree, acceptance is no longer possible.
Reference 4221.39
An offer may be terminated by the following:
- Expiration of the time specified in the offer or a reasonable time if no time is mentioned
* Revocation received by the offeree before acceptance - Rejection by the offeree (a counteroffer is a rejection combined with a new offer to the original offeror)
- Death of the offeror or offeree
- Insanity of the offeror or offeree
- Destruction of the subject matter relating to the offer without the fault of either party
- Intervening illegality—subsequent legislation making the offer or the resulting contract illegal (e.g., an offer to sell bourbon just before prohibition became effective)
On September 10, Harris, Inc., a new car dealer, placed a newspaper advertisement stating that Harris would sell 10 cars at its showroom for a special discount only on September 12, 13, and 14. On September 12, King called Harris and expressed an interest in buying one of the advertised cars. King was told that five of the cars had been sold and to come to the showroom as soon as possible. On September 13, Harris made a televised announcement that the sale would end at 10:00 p.m. that night. King went to Harris’ showroom on September 14 and demanded the right to buy a car at the special discount. Harris had sold the 10 cars and refused King’s demand. King sued Harris for breach of contract. Harris’s best defense to King’s suit would be that Harris’s:
offer had not been accepted.
advertisement was not an offer.
offer was unenforceable.
television announcement revoked the offer.
advertisement was not an offer.
Advertisements generally distributed to the public are not offers because they are not made to a particular entity. Only an advertisement made to a specific offeree (the first 10 individuals to buy a car on a specific date) are valid offers. Since King was not one of the first five buyers, the advertisement was not an offer to King.
Reference: 4221.30
Advertisements: Attempts to solicit an offer from the reader. Advertisements are not definite enough to be an offer, even if it contains a stated price.
On September 27, Summers sent Fox a letter offering to sell Fox a vacation home for $150,000. On October 2, Fox replied by mail agreeing to buy the home for $145,000. Summers did not reply to Fox. Do Fox and Summers have a binding contract?
No, because Fox failed to sign and return Summers’s letter.
No, because Fox’s letter was a counteroffer.
Yes, because Summers’s offer was validly accepted.
Yes, because Summers’s silence is an implied acceptance of Fox’s letter.
No, because Fox’s letter was a counteroffer.
To create a contract, the offer must be accepted before a termination of the contract. A counteroffer is a rejection of the original offer followed by a new offer. Since Summers never accepted the new offer, there is no contract.
Reference: 4221.39
An offer may be terminated by the following:
- Expiration of the time specified in the offer or a reasonable time if no time is mentioned
- Revocation received by the offeree before acceptance
* Rejection by the offeree (a counteroffer is a rejection combined with a new offer to the original offeror) - Death of the offeror or offeree
- Insanity of the offeror or offeree
- Destruction of the subject matter relating to the offer without the fault of either party
- Intervening illegality—subsequent legislation making the offer or the resulting contract illegal (e.g., an offer to sell bourbon just before prohibition became effective)
To prevail in a common-law action for innocent misrepresentation, the plaintiff must prove:
- the misrepresentations were in writing.
- the misrepresentations concerned material facts.
- reliance on the misrepresentations was the only factor inducing the plaintiff to enter into the contract.
- the defendant made the false statements with a reckless disregard for the truth.
the misrepresentations concerned material facts.
A misrepresentation would involve fraud. Fraud in the inducement is a false representation of a material fact intentionally made, justifiably relied upon, and resulting in injury. If the misrepresentation is innocent and not made with the intent to deceive, the injured party may rescind the contract but cannot obtain damages for the tort of deceit. Deceit is the tort equivalent to fraud in the inducement for contracts.
Reference: 4221.49
Fraud in the inducement is a false representation of a material fact intentionally made, justifiably relied upon, and resulting in injury.
Reference: 4221.53
If the misrepresentation is innocent and not made with the intent to deceive, the injured party may rescind the contract, but cannot obtain damages for the tort of deceit. Deceit is the tort equivalent to fraud in the inducement for contracts.
TEXTBOOK: Even though the misrepresentation is innocent, one can avoid the contract if the misrepresentation is material.
What is a divisible contract?
Common law does not have the concept of a divisible contract.
A bilateral contract
An unenforceable contract
Promises that are not dependent on each other; partial performance is allowed.
A divisible contract is one in which promises are made that are not dependent on each other; thus, partial performance of the contract is allowed.
A bilateral contract is one in which a promise is made in exchange for a promise. An unenforceable contract is one that will not be enforced by the court; it was valid when made but made unenforceable by some later event, such as the running of the statute of limitations or discharge of the contract in bankruptcy.
Reference
4221.07
4221.10
4221.13
Authorities
Restatement (2nd) of Law of Contracts
What is a divisible contract?
Promises that are not dependent on each other; partial performance is allowed.
An unenforceable contract
A bilateral contract
Common law does not have the concept of a divisible contract.
What is a quasi-contract?
A contract implied in law
Common law does not have the concept of the quasi-contract.
A divisible contract
A unilateral contract
A contract implied in law
A quasi-contract is one that is implied in law. Another name is “unjust enrichment.” If one party is unjustly enriched at the expense of another party, the courts will impose an obligation on the enriched party to pay the other party.
A divisible contract is one in which promises are made that are not dependent on each other; thus, partial performance of the contract is allowed. A unilateral contract is one in which a promise is made in exchange for an act.
What is an implied contract?
A contract that is implied in law
A contract that is implied in fact
Common law does not have the concept of the implied contract.
A written document that does not contain, anywhere, the word “agreement”
A contract that is implied in fact
An implied contract is a contract implied in fact. The agreement is manifest, not by direct words, but from the conduct of the parties.
Reference: Implied contract
Implied in fact. The agreement is manifest, not by direct words, but from the conduct of the parties.
TEXTBOOK DEFINITION OF IMPLIED CONTRACT: A contract formed in whole or in part from the conduct of the parties (as opposed to an express contract). The conduct of the parties, rather than their words, creates and defines the terms of the contract.
It is sometimes called an implied-in-fact contract.
Authorities
Restatement (2nd) of Law of Contracts
Which of the following is not an element of a contract?
Consideration which is fair
Legal purpose
Agreement
Competent parties
Consideration which is fair
There are four elements necessary to have a valid contract: (1) agreement (or manifestation of mutual assent), (2) consideration (usually money), (3) legal purpose, and (4) competent parties.
Consideration does not need to be “fair” as that is a highly subjective term.
Reference: 4221.21
There are four elements necessary to have a valid contract:
Agreement: Manifestation of mutual assent
Consideration
Legal purpose
Competent parties
Which of the following statements is correct regarding the formation of a unilateral contract?
Only one party to a unilateral contract makes a promise.
A unilateral contract may be formed without consideration.
A unilateral contract does not require performance.
Only one party to a unilateral contract receives a benefit or suffers a detriment.
Only one party to a unilateral contract makes a promise.
A unilateral contract is a promise in exchange for an act. A unilateral contract is formed when, by the terms of the offer, acceptance is given by performance. In other words, a unilateral contract is a one-sided agreement as consideration for the promise; one party makes a promise to do or not do something in return for a performance from the other party. There must be consideration and performance, and more than one party may receive a benefit or suffer a detriment.
Reference: 4221.09
Unilateral contract: A promise in exchange for an act.
TEXTBOOK:
Unilateral Contracts. If the offer is phrased so that the
offeree can accept the offer only by completing the contract
performance, the contract is a unilateral contract.
Hence, a unilateral contract is a “promise for an act.” In
other words, a unilateral contract is formed not at the
moment when promises are exchanged but at the moment
when the contract is performed. Today, once performance has been substantially undertaken, the offeror cannot revoke the
offer.
■ Example 11.3 Reese says to Celia, “If you drive my
car from New York to Los Angeles, I’ll give you $1,000.”
Only on Celia’s completion of the act—bringing the car
to Los Angeles—does she fully accept Reese’s offer to pay
$1,000. If she chooses not to accept the offer to drive the
car to Los Angeles, there are no legal consequences. ■
Which of the following statements is correct regarding the parol evidence rule?
It applies only in cases involving an oral contract.
It applies to subsequent oral agreements that contradict the terms of a final written agreement.
It applies to prior or contemporaneous oral agreements that contradict the terms of final written agreements.
It applies only to subsequent written modifications to a written contract.
It applies to prior or contemporaneous oral agreements that contradict the terms of final written agreements.
Parol evidence is extrinsic (oral or written) evidence about the agreement that is not included in the final written agreement (i.e., it is outside the agreement and usually oral). The parol evidence rule excludes the admission of such evidence in a court of law; in other words, once the parties have a written and signed contract, evidence of prior or contemporaneous oral agreements that contradict the terms of the final written agreement (i.e., parol evidence) are not admissible for the purpose of varying or contradicting what is written into the contract.
Which of the following will be legally binding despite lack of consideration?
An employer’s promise to make a cash payment to a deceased employee’s family in recognition of the employee’s many years of service
A modification of a signed contract to purchase a parcel of land
A promise to donate money to a charity on which the charity relied in incurring large expenditures
A merchant’s oral promise to keep an offer open for 60 days
A promise to donate money to a charity on which the charity relied in incurring large expenditures
Despite a lack of consideration, a promise to donate money to a charity on which the charity relied in incurring large expenditures is a legally binding contract. This is particularly true where there are a number of people promising to subscribe.
An employer’s promise to make a cash payment to a deceased employee’s family in recognition of the employee’s many years of service is a gratuitous gift. While this would not constitute a legally binding contract under common law rules, be advised that it is unwise to make such offers with no intent of carrying them out. Some courts may allow a jury to hear such a case, and the results generally do not favor business.
To modify a “common law” contract (like a contract to purchase a parcel of land), additional consideration is required to make the modification legally enforceable.
A merchant’s oral promise to keep an offer open for 60 days requires consideration to make it legally enforceable. The “firm offer rule” of the Uniform Commercial Code (UCC) is not applicable here, since the merchant’s offer is oral and not in writing.
Reference
4222.11
Authorities
UCC 2-205
