Contracts Pt. 2

Question 1

A contracting party can establish the defense of fraud if they can prove what?

Answer 1

misrepresentation of material fact by defrauding party, scienter (intent to deceive), intent to induce reliance, reasonable reliance, damages

Question 2

What is difference between fraud in the execution and fraud in the inducement?

Answer 2

execution - when a party is deceived into signing something that does not look like a contract; this makes a contract void

inducement - the defrauded party is aware they are making a contract, but terms are materially misrepresented; this covers most fraud and it makes a contract voidable

Question 3

What is innocent misrepresentation?

Answer 3

all of the elements of fraud except for scienter; innocent mistake that makes the contract voidable by the party who relied on the misrepresentation

Question 4

What is duress?

Answer 4

it arises when a party’s free will to contract is overcome by an unlawful use of a threat of harm

physical force = the contract is void

economic or social force = the contract is voidable

taking advantage of the other party’s economic condition to negotiate a favorable contract does not constitute duress

Question 5

What is undue influence?

Answer 5

a party’s free will to contract is overcome by the defendant’s abuse of a position of trust or confidence; they are taking advantage and the contract becomes voidable

Question 6

What is a mutual mistake?

Answer 6

both parties are mistaken as to a material fact regarding the contract (this does not apply to mistakes as to value since this is generally considered an opinion)

Question 7

What is a unilateral mistake?

Answer 7

a mistake by one party and it is not a defense to a contract; however, a unilateral mistake as to a material fact is a defense if the other party knew or should have known of the mistake

Question 8

T/F: if the consideration or the subject matter of a contract is illegal, the contract is void

Answer 8

True; if the illegality is due to a party not having a required license, it depends on the reason for the license

to protect the public (attorney, doctor, CPA, etc.) = contract is void even if the unlicensed party performs the contract

to raise revenue (vendor not paying small license fee) = contract is enforceable

Question 9

T/F: a person may disaffirm a contract anytime while they are a minor or even within a reasonable time after becoming an adult

Answer 9

True; they must return whatever they possess when they disaffirm

they can become bound to the contract upon reaching age of majority by ratifying the contract which can be done by:

failing to disaffirm within a reasonable time after reaching majority

expressly ratifying the entire contract orally or in writing

retaining or accepting the benefits

ratification is all or nothing; it can’t be done in part or rejected in part

Question 10

T/F: intoxication is always a defense to a contract

Answer 10

False; only if the intoxication prevents the promisor from knowing the nature and significance of their promise and the other party knew of the impairment

Question 11

T/F: a contract made by a party after they are adjudicated mentally incompetent is void

Answer 11

True

Question 12

Statute of Limitations facts

Answer 12

it provides that a legal action must be commenced within a certain period of time; 4-6 years is typical; actions for breach are usually measured from the date of the breach

Question 13

Although the general rule is that contracts don’t have to be in writing, what 6 contract types require some type of writing to be enforceable?

Answer 13

both parties don’t have to sign, only the party trying to avoid the contract must have signed

marriage (ex. I’ll buy you a house if you get married)

year (contracts that can’t be be performed within a year like coaching a football team for the next 5yrs)

land (sale of an interest in real property like a house or warehouse and leases of real property of more than a year)

executors (to pay estate debts out of personal funds)

goods (sale of goods for $500 or more; does not apply to land or services)

surety (to pay the debt of another)

Question 14

What is impossibility?

Answer 14

when an event occurs where the performance of the contract is not possible (increase in cost of performance does not make performance impossible)

if something has been destroyed, the contract may be avoided due to impossibility

if death or incapacity has occurred for a personal service contract, the contract may be avoided due to objective impossibility

Question 15

What is accord and satisfaction?

Answer 15

an accord is an agreement to substitute one contract for another and satisfaction is the execution of the accord

a substituted contract is very similar to an accord and satisfaction case, but the duties of the original contract are discharged immediately

Question 16

What is novation?

Answer 16

a party who has been released from a contract and a new contract substitutes a new party for the old one; all parties must agree to the release

Question 17

How can conditions affect a party’s duty to perform?

Answer 17

it is an event where the occurrence or nonoccurrence will end a party’s duty to perform; conditions are often preceded by “if,” “subject to,” or similar language

condition precedent - must occur before

condition concurrent - must occur simultaneously

condition subsequent - must occur after

Question 18

T/F: if one party prevents the other from performing contract duties, a material breach has occurred

Answer 18

True; the non-breaching party is excused from performance

Question 19

What is the Parol Evidence Rule?

Answer 19

it prohibits a party in a lawsuit involving a fully integrated written contract from introducing evidence at trial of:

oral or written statements made prior to the written or oral statements made contemporaneously with the written contract and that seek to vary the terms of the written contract

oral or written modifications made after the contract has been entered into (subsequent modifications) are admissible

Question 20

What is the point of damages?

Answer 20

to put the non-breaching party in as good a position as he would have been had there been no breach

Question 21

What are compensatory damages?

Answer 21

it is used for personal service contracts to award the non-breaching party enough money to obtain substitute performance

Question 22

What are consequential damages?

Answer 22

this is for damages that are reasonably foreseeable as a result of the breach

Question 23

What is specific performance?

Answer 23

it is used for land and unique items; it is a court order that the breaching party perform or face contempt charges; money would be an inadequate remedy in these cases

it can’t be use to force a party to perform personal service contracts because it would count as involuntary servitude; if specific performance is available, a party can receive either specific performance or compensatory damages but not both

Question 24

What are liquidated damages?

Answer 24

these are agreed to in the contract; it specifies what damages will be if there is a breach; it is enforceable if the amount is reasonable in relation to the actual harm done and is not a penalty

Question 25

What are punitive damages?

Answer 25

these are not available for breach of contact; they are available for fraud which is a tort cause of action

Question 26

What is recission?

Answer 26

it is the cancellation of a contract and it restores the parties to their former position; a party cannot rescind if a contract has been substantially performed (at that point, the non-breaching party’s only remedy is monetary damages for the minor breach)