Exam 3

creates both an assignment of rights and a delegation of duties.- THUS the assignor remains liable if the assignee fails to perform the contractual obligations.

"Assignment of ALL rights"

Example: In 1864, Wichelhaus agreed to buy a shipment of Surat cotton from Raffles, "to arrive 'Peerless' from Bombay." There were two ships named Peerless sailing from Bombay, India, however. Wichelhaus was referring to the Peerless that sailed in October, Raffles meant a different Peerless that sailed in December. When Raffles tried to deliver the goods in December, Wichelhaus refused to accept them, and a lawsuit followed. The court held in favor of Wichelhaus, concluding that a mutual mistake had been made because the parties had attached materially different meanings to an essential term of the contract. What is this an example of?

"meeting of the minds"

Contract Discharge can occur by: (5 options)

-Agreement -Failure of a condition -Performance -Breach -Operation of Law

Types of Intended Beneficiaries:

-Creditor Beneficiary: A creditor beneficiary benefits from a contract in which one party (the promisor) promises another party (the promisee) to pay a debt that the promisee owes to a third party (the creditor beneficiary). Can sue the promisor directly. -Donee Beneficiary: When a contract is made for the express purpose of giving a gift to a third party, the third party (the donee beneficiary) can sue the promisor directly to enforce the promise. The most common donee beneficiary contract is a life insurance contract. Donee can sue the promisor directly to enforce the promise only when the rights of that third party have vested. Unless these rights have vested the original parties to the contract can modify or rescind the contract without consent of the third party.

Courts will look at Parol Evidence for the following exceptions:

-K's subsequently modified (must not violate SOF) -Voidable or Void K's -K's containing ambiguous terms -Incomplete K's -Prior dealings -K's subject to an orally agreed on condition precedent. -K's with an obviously gross clerical error.

Three elements are necessary to establish Fraudulent Misrepresentation:

1. A misrepresentation of a material fact has occurred. 2. There has been an intent to deceive. 3. The innocent party has justifiably relied on the misrepresentation.

Exceptions To Unilateral Mistakes:

1. If the other party to the contract knows or should have known that a mistake of fact was made, the contract may not be enforceable. Example: If the buyer knew the seller intended to sell the item for a certain amount, but made a mistake on the amount on the contract, contract could be unenforceable. 2. A unilateral mistake of fact was due to a mathematical mistake in addition, subtraction, division, or multiplication and was made inadvertently and without gross (extreme) negligence. The clerical error must be readily provable.

Bilateral (Mutual) Mistakes of Fact

A bilateral mistake of fact is a "mutual misunderstanding concerning a basic assumption on which the contract was made." When both parties are mistaken about the same material fact, the contract can be rescinded by either party. Normally, the contract is voidable by the adversely affected party.

Condition:

A possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract.

Unilateral Mistakes of Fact

A unilateral mistake occurs when only one of the contracting parties is mistaken about a material fact. Generally, a unilateral mistake does not afford the mistaken party any right to relief from the contract.

"meeting of the minds"

A word or term in a contract may be subject to more than one reasonable interpretation. If the parties to the contract attach materially different meanings to the term, a court may allow the contract to be rescinded because there has been no true "meeting of the minds."

Incidental Beneficiary:

An incidental beneficiary is a third party: Who benefits from a contract but whose benefit was not the reason for the contract and/or Who has no rights in the contract Cannot sue to enforce the contract The benefit that an incidental beneficiary receives from a contract between two parties is unintentional. Because the benefit is unintentional, an incidental beneficiary cannot sue to enforce the contract.

Intended Beneficiary:

An intended beneficiary is a third party: To whom performance is rendered directly and/or Who has the right to control the details of performance or Who is designated a beneficiary in the contract Can sue to enforce the contract

Main Purpose Rule:

An oral promise to answer for the debt of another (surety) is covered by the SOF unless the guarantor's main purpose in incurring secondary obligation is to secure a personal benefit. Then this does not need to be in writing.

Undue Influence Def:

Arises from special relationships, such as fiduciary relationships, in which one party's free will has been overcome by the undue influence of another. Usually, the contract is voidable.

The transfer of a contractual right to a third party is known as an:

Assignments

Gilbert contracts to sell Magellan three tracts of undeveloped land for $6 million on the basis of a surveyor's report showing the layout and acreage. After agreeing to the price, the parties discover that the surveyor made an error and that the tracts actually contain 10 percent more acreage than reported. In this situation, Gilbert can seek rescission (cancellation) of the contract based on mutual mistake. The same result--rescission--would occur if both parties had mistakenly believed that the tracts of land were adjoining but they were not. Which "Mistakes Of Fact" is this; Bilateral or Unilateral Mistakes of Fact?

Bilateral (Mutual) Mistakes of Fact

Statute of Frauds:

Certain agreements are required by law to be in writing or evidenced by a record. If there is no written evidence of the contract, it may not be enforceable.

Jay Carrera owns a business firm that is making monthly payments on equipment bought from Speedwell. Carerra sells the firm to Miller, who agrees in their contract to take over the payments to Speedwell for the equipment. Speedwell is a creditor beneficiary and can sue Miller directly to enforce the contract and obtain payment on the debt. Which type of Intended Beneficiary is this an example of?

Creditor Beneficiary

Compensatory Damages:

Damages that compensate the non-breaching party for the sale and loss of the bargain. These damages compensate the injured party ONLY for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by breach of contract. MAKE THE PERSON WHOLE!

Duress:

Defined as the use of threats to force a party to enter into a contract out of fear; for example, the threat of violence or economic pressure. The party forced to enter into the contract can rescind the contract.

the transfer of contractual duties to a third party is known as a?

Delegation

Suppose that Akins (the promisee) pays premium to Standard Life, a life insurance company, and Standard Life (the promisor) promises to pay a certain amount on Akins's death to anyone Akins designates as a beneficiary. The designated beneficiary is a donee beneficiary under the life insurance policy and can enforce the promise made by the insurance company to pay her or him on Akins's death. Which Intended Beneficiary is this an example of?

Donee Beneficiary

Exculpatory Clause(Against Public Policy):

Exculpatory clauses found in rental agreements for commercial property are frequently held to be contrary to public policy, and such clauses are almost always unenforceable in residential property leases. Courts also usually hold that exculpatory clauses are against public policy in the employment context.

Incidental Damages:

Expenses that are caused directly by a breach of contract such as those incurred to obtain performance from another source (the cost to find another job, etc.).

T of F: A contract involving a sale is the only contract relating to an interest in land that must be in writing to be enforceable.

False

T of F: A contract involving property of any kind must be in writing to be enforceable.

False

T or F: A contract must be in writing to be enforceable unless its performance is impossible within one year.

False

T or F: A party's oral agreement to pay another's debt is never enforceable.

False

T or F: All collateral promises must be in writing to be enforceable.

False

T or F: Forcing someone to enter into a contract through fear created by threats is undue influence.

False

T or F: Liquidated damages are damages that are certain in amount.

False

T or F: Misrepresentation of a material face cannot occur through conduct alone

False

T or F: Misrepresentation of an opinion is an element of fraud.

False

T or F: Overestimating the value of an object is a mistake for which a court will normally provide relief:

False

T or F: Reliance on a misrepresentation is justified if the misrepresentation is an obviously extravagant statement.

False

T or F: The person to whom rights in a contract are assigned is the assignor.

False

T or F: To be enforceable, a contract for a sale of goods priced at $50 or more must be in writing.

False

T or F: To rescind a contract for fraud, a plaintiff must prove an injury.

False

T or F: Under the Statute of Frauds, all contracts induced by fraud must be in writing to be enforceable.

False

T or F: Under the Statute of Frauds, all written contracts are enforceable.

False

T or F: On the breach of a contract involving the sale of land, money damages is always the most appropriate remedy.

False.

Consequential Damages or special damages

Foreseeable damages that result from a party's breach of contract. They differ from compensatory in that they are caused by special circumstances beyond the contract itself. To recover for this the breaching party MUST know or have reason to know that special circumstances will cause the non-breaching party to suffer and additional loss. Returns funds for loss of bargain.

Mistakes Of Value:

If a mistake concerns the future market value or quality of the object of the contract, the mistake is one of value, and the contract normally is enforceable. Mistakes of value can be bilateral or unilateral, but either way, they do not serve as a basis for avoiding a contract.

Breaches:

Is the nonperformance of a contractual duty.

Renee buys a violin from Ian for $250. Although the violin is very old, neither party believes that it is particularly valuable. Later, however, an antiques dealer informs the parties that the violin is rare and worth thousands of dollars. Here, both parties were mistaken, but the mistake is a mistake of value rather than a mistake of fact that would justify contract rescission. This would be true even if, at the time of contracting, only Ian believed that the violin was not particularly valuable (a unilateral mistake) and Renee thought it was rare and worth more than $250. What is this an example of?

Mistakes Of Value

Mistakes Of Fact

Mistakes of fact occur in two forms--bilateral and unilateral. A bilateral, or mutual, mistake is made by both of the contracting parties. A unilateral mistake is made by only one of the parties.

Undue Influence:

Often, one party to an illegal contract is more at fault than the other. When a party has been induced to enter into an illegal bargain by fraud, duress, or undue influence on the part of the other party to the agreement, that party will be allowed to recover for the performance or its value. Undue Influence arises from special kinds of relationships in which one party can greatly influence another party, thus overcoming that party's free will. A contract entered into under excessive or undue influence lacks voluntary consent and is therefore voidable.

Conditions of Performance:

Performance is contingent on the occurrence or nonoccurrence of a certain event.

Limitation Of Liability:

Provisions that affect the availability of certain remedies are called limitation-of-liability clauses.

Exculpatory Clauses

Release a party from liability in the event of monetary or physical injury no matter who is at fault.

Material:

The breach is material when performance is not at least substantial. If there is a material breach, then the nonbreaching party is excused from the performance of contractual duties and can sue for damages resulting from the breach. Any breach entitles the nonbreaching party to sue for damages, but only a material breach discharges the nonbreaching party from the contract.

Assignments:

The transfer of a contractual right to a third party is known as an assignment. The rights of the assignor are extinguished. Privity of Contract is terminated by assignor. "Assignee stands in the shoes of assignor". Meaning that the no-one can sue the original assignor.

T of F: A contract may have to be in writing to be enforceable even if its performance is possible within a year.

True

T or F: A contract entered into under duress is voidable

True

T or F: A transfer of contract to a third party is an assignment

True

T or F: An innocent party can enforce a fraudulent contract.

True

T or F: An innocent party may seek damages for a fraudulent contract

True

T or F: An obligor is a person to whom a duty is owed:

True

T or F: An oral contract for a sale of land may be enforceable if the contract has been partially performed.

True

T or F: Consequential damages are foreseeable damages that arise from a party's breach of a contract

True

T or F: Expenses that are caused directly by a breach of contract--such as those incurred to obtain performance from another source--are incidental damages.

True

T or F: If a price quotation contains a mistake in the adding of a number of figures, the contract may not be enforceable

True

T or F: Intent to deceive is an element of fraud.

True

T or F: Punitive damages are almost never available in contract disputes.

True

T or F: Scienter exists if a party makes a statement that he or she does not believe is true.

True

T or F: A breach of a contract may entitle the innocent party to rescind the contract.

True.

T or F: Nominal damages normally establish that the defendant acted wrongly.

True.

T or F: Reformation allows a court to rewrite a contract to reflect the parties true intentions.

True.

T or F: Specific performance is the remedy customarily used when one party has breached a contract for a sale of land.

True.

True or False: Restitution involves one party's recapture of a benefit through which another party has been unjustly enriched.

True.

DeVinck intends to sell his motor home for $32,500. When he learns that Benson is interested in buying a used motor home, DeVinck faxes Benson an offer to sell the vehicle to him. When typing the fax, however, DeVinck mistakenly keys in the price of $23,500. Benson immediatly sends DeVinck a fax accepting DeVinck's offer. Even though DeVinck intended to sell his motor home for $32,500, his unilateral mistake falls on him. He is bound in contract to sell the motor home to Benson for $23,500. Is this an example of Bilateral or Unilateral Mistakes of Fact?

Unilateral Mistakes of Fact

Mitigation of Damages:

When a breach of K occurs, the innocent injured party is held to a duty to mitigate, or reduce, the damages that he or she suffers.

Novation:

When both parties to a K agree to substitute a third party for one of the original parties.

Nominal Damages:

When no actual damage or financial loss results from a breach of contract and only a technical injury is involved, the court may award nominal damages to the innocent party. Can be a dollar.

Parol Evidence or Oral Evidence:

Where you are orally told one thing but the contract states something contradictory and becomes an issue in dispute.

Do intended beneficiaries acquire legal rights?

Yes. Only Intended Beneficiaries acquire legal rights.

Grover contracts to sell two tracts of land to Hank. Both parties believe that the two tracts are adjacent, but in fact they are not. Grover is still willing to sell the land, but under these circumstances the deal would adversely affect Hank. Refer to Fact Pattern #1. The parties' belief about the adjacency of the property is: a. a bilateral/mutual mistake. b. a fraudulent misrepresentation. c. a unilateral mistake. d. unconscionable.

a. a bilateral/mutual mistake.

Kelly and Lucas sign a written contract for the sale of Kelly's Koffee Kiosk to Lucas. The parties intend their written contract to be a final statement of the terms of their agreement. The writing that Kelly and Lucas signed is: a. a completely integrated contract. b. a conditionally integrated contract. c. an agreeably integrated contract. d. an obviously integrated contract.

a. a completely integrated contract.

Commercial Shipping, Inc., and Dock Services Corporation enter into a contract for Dock to load Commercial's trucks for which Commercial agrees to pay Dock. Dock transfers its duty to load the trucks to East Harbor Transport Company. Dock is: a. a delegator. b. an assignor. c. a payor. d. an assignee.

a. a delegator.

Home Delivery Corporation and Interstate Transport, Inc., sign an agree-ment that provides for the payment of "$1,000 by whichever party commits a material breach of the contract that creates damages difficult to esti¬mate but approximately $1,000." This is a. a liquidated damages clause. b. a mitigation of damages clause. c. a nominal damages clause. d. a penalty clause.

a. a liquidated damages clause.

Roy and Sheila are parties to a contract. They subse¬quently agree that Tony should take Roy's place and assume all of his rights and duties under the contract. This is: a. a novation. b. an accord and satisfaction. c. an assignment. d. a modification.

a. a novation

Ben and Ivy enter into a contract under which Ben agrees to cater Ivy's wedding in exchange for a cash down payment. The contract expressly prohibits any transfer of rights. A contract right may be transferred, however, if the transfer involves: a. a right to receive payment. b. a right to Ben's services. c. rights under Ivy's insurance policy against Ben's failing to perform. d. a right whose transfer is otherwise expressly prohibited by statute.

a. a right to receive payment

Mona and Nero want to discharge their contract by executing and per-forming a new agreement. They can best accomplish this by a. accord and satisfaction. b. novation. c. reinvention. d. specific performance.

a. accord and satisfaction

Frank and AgriShip, Inc., enter into a contract for AgriShip to transport a silo of soybeans for which Frank agrees to pay. When AgriShip's schedule conflicts, the firm contacts Hybrid Transport Company, to which AgriShip "assigns all rights under the contract." This transfer is: a. an assignment and a delegation. b. an assignment only. c. a delegation only. d. neither an assignment nor a delegation.

a. an assignment and a delegation

Medical Centre enters into a contract with Local Motion Fitness Club for discounted memberships for the Centre's employees. If the Club breaches the contract and the Centre enters into a contract with KO Sports for the same service at a lower price, the Centre might be awarded nominal dam¬ages to a. establish, as a matter of principle, that the Club acted wrongfully. b. provide the Centre with funds for a foreseeable loss beyond the contract. c. provide the Centre with funds for its loss of the bargain. d. punish the Club and set an example to deter others from similar acts.

a. establish, as a matter of principle, that the Club acted wrongfully.

Olin convinces Pia, who has no artistic ability, that Pia has considerable talent and induces Pia to pay Olin $10,000 for art lessons. When Pia realizes the truth, she files a suit against Olin. Pia is most likely to recover on the basis of: a. fraud. b. mistake. c. undue influence. d. none of the choices.

a. fraud.

May is a stockbroker. Due to May's statements, Nora believes that the price of OK Goods, Inc. (OKGI), a widely traded stock, is going to in¬crease sub-stantially. Nora buys 500 shares of OKGI at $10 per share, but the price soon drops to $2. Nora can successfully recover: a. nothing. b. the amount of the purchase price. c. the amount of the purchase price plus the expected increase. d. the amount of the purchase price plus the unexpected decrease.

a. nothing

Fashion Retail Center enters into a contract with Great Promotions, Inc., to provide Fashion with a plan to retool its merchandising strategy. If Great Promotions breaches the contract, Fashion has a duty to a. reduce the damages that Fashion might otherwise suffer. b. reduce the loss that Great Promotions might otherwise suffer. c. punish Great Promotions and deter others from similar acts. d. take no action.

a. reduce the damages that Fashion might otherwise suffer.

Reformation:

allows the court to rewrite the contract to reflect the parties' true intentions.

Precision Auto Parts contracts to buy a Quotient-brand computer network set-up from Regal Systems for $5,000, but Regal fails to deliver. Precision buys the network else¬where for $6,500. Precision's measure of damages is a. $1,500 only. b. $1,500 plus incidental damages. c. incidental damages only. d. $0.

b. $1,500 plus incidental damages.

Lava Excavators, Inc., needs a drill to continue its operations and orders one for $3,000 from Mining Supplies Company. Lava tells Mining that it must receive the drill by Tuesday or it will lose $10,000. Mining ships the drill late. Lava can recover a. $13,000. b. $10,000. c. $3,000. d. $0.

b. $10,000

Delta, Inc., agrees to assume a debt of Excel Company to First State Bank. The agreement is not in writing. To be enforceable, the promise must be for the benefit of: a. any party. b. Delta. c. Excel. d. First State.

b. Delta.

Earl holds 1,000 pounds of perishable fruit in storage for Fresh Food Corpo-ration. Fresh Food does not pay for the storage. Earl sells the fruit to Green Grocers, Inc. This sale represents a. a breach of contract. b. a mitigation of damages. c. rescission and restitution. d. specific performance.

b. a mitigation of damages.

Musica Production Company and Nora enter into a contract for Nora to write six songs for which Musica agrees to pay her. Nora transfers her right to payment under the contract to Omni Entertainment Agency. Nora is: a. a delegator. b. an assignor. c. a payor. d. an assignee.

b. an assignor.

Lem buys a used MP3 player for $50 and a new laptop for $1,500, and signs a one-year employment contract for a $4,000 monthly salary to start at the beginning of the next month. The Statute of Frauds covers: a. the employment contract, and the laptop and MP3 purchases. b. the employment contract and the laptop purchase only. c. the employment contract only. d. the laptop and MP3 purchases only.

b. the employment contract and the laptop purchase only.

Ron makes a contract with Stu that indirectly benefits Tim, although nei¬ther Ron nor Stu intended that result. Tim is: a. a delegatee. b. an assignee. c. an incidental beneficiary. d. an intended beneficiary.

c. an incidental beneficiary.

Joy and Kris enter into a contract for Kris to lay sod in Joy's yard for which she agrees to pay Kris. When Kris's schedule conflicts, she contacts Leza, to whom Kris "assigns all rights under the contract." Kris is: a. absolved of any liability under the contract. b. in breach of the contract with Joy. c. liable to Joy if Leza does not perform. d. liable to Leza for inducing a prohibited contract.

c. liable to Joy if Leza does not perform.

Beachside Pools, Inc., agrees to build a swimming pool for Candy, but fails to build it according to the contract specifications. Candy hires Do-We Fix-It Company to finish the project. Candy may recover from Beachside a. the contract price less costs of materials and labor. b. the contract price. c. the costs needed to complete construction. d. profits plus the costs incurred up to the time of the breach.

c. the costs needed to complete construction

Mona contracts to repair a computer for NuData, Inc. (NDI). Mona knows that without the computer, NDI will lose a sale. Mona does not perform as promised. NDI files a suit against Mona. As consequential damages, NDI can recover a. the cost of a new computer. b. the difference between Mona's price and the actual cost of repair. c. the loss of profit from the lost sale. d. nothing.

c. the loss of profit from the lost sale.

What constitutes a writing?

can consist of an order confirmation, invoice, sales slip, check, fax or email or such items in combination. The writing MUST contain the essential terms of the contract and be signed by the party to be charged.

"Assignment of ALL rights"

creates both an assignment of rights and a delegation of duties.- THUS the assignor remains liable if the assignee fails to perform the contractual obligations.

Drew contracts to sell a residential duplex to Evan. The contract pro¬vides that if Drew does not close the deal by September 15, he must pay Evan one-half of the contract price. This provision is not enforceable be¬cause it is a. a liquidated damages clause. b. a mitigation clause. c. a nominal damages clause. d. a penalty clause.

d. a penalty clause.

Century Properties. Inc., and Broadview Capital Corporation enter into a con¬tract for a sale of land. To be enforceable, the contract must be in writing if the land is valued at: a. $50. b. $500. c. $5,000. d. any price.

d. any price

Jen is a third party beneficiary under a contract between Kyla and Leo. Kyla and Leo can modify or rescind their contract without Jen's consent: a. at any time. b. at no time. c. only after Jen's rights have vested. d. only before Jen's rights have vested.

d. only before Jen's rights have vested.

Grady enters into a contract to buy 440 acres from Hollis to expand Grady's ranch. If Hollis breaches the contract, Grady's normal remedy would be a. damages. b. quasi contract. c. reformation. d. specific performance.

d. specific performance.

Building Restoration, Inc. (BRI), enters into a contract to refurbish an old train depot for Casual Dining, Inc., to open as Eat Up Restaurant. If BRI completes most of the work promised in the contract, its performance will be: a. absolute. b. complete. c. material. d. substantial.

d. substantial.

Steven, who is Bertha's guardian, convinces her to buy a certain parcel of land from Christy at a greatly inflated price. Steven may be liable for: a. duress. b. fraud. c. puffery. d. undue influence.

d. undue influence

Grover contracts to sell two tracts of land to Hank. Both parties believe that the two tracts are adjacent, but in fact they are not. Grover is still willing to sell the land, but under these circumstances the deal would adversely affect Hank. Because of the parties' belief about the adjacency of the property, their contract is: a. unavoidable. b. unconscionable. c. unenforceable. d. voidable.

d. voidable.

Don, a salesperson for Excel Autos, promises Fern that a certain car will give her a "smooth ride." Don offers a test drive, which Fern de¬clines. She buys the car but soon realizes that its suspension is in poor condi¬tion. Fern: a. can rescind the contract on the ground of fraud. b. can rescind the contract on the ground of misrepresentation. c. can rescind the contract on the ground of mistake. d. was not defrauded.

d. was not defrauded.

Liquidated damages provision:

in a contract specifies that certain dollar amount is to be paid in the event of a future default or breach of contract (liquidated means determined settled or fixed.

Incidental Beneficiaries

is a benefit that is received from a contract between two parties unintentionally.

Restitution:

is the P's recapture of benefits.

Punitive Damages:

not recoverable in contract law. Because they are designed to punish and set an example to deter similar conduct in the future.

Penalties:

specifies a certain amount to be paid in the event of a default or breach of contract and is designed to penalize the breaching party. NOT UPHELD BY THE COURT.

Delegation:

the transfer of contractual duties to a third party is known as a delegation. Normally does not relieve the party making the delegation of the obligation to perform in the event the party to whom the party has been delegated fails to perform.

Recession:

to undo or terminate a contract.