L201 Nov. 7 Reading (Contracts Exam)

What types of contracts must be in writing to be enforceable?

(1) Collateral contracts in which a person promises to perform the obligation of another person (2) contracts for the sale of an interest in real estate (3) bilateral contracts that cannot be performed within a year from the date of their formation (4) contracts for the sale of goods for a price of $500 or more (5) contracts in which an executor or administrator promises to be personally liable for the debt of an estate (6) contracts in which marriage is the consideration

Contracts for an interest in real estate must generally be in writing - what are the exceptions to this requirement?

(1) Full performance by the Vendor (2) Part performance by the Vendee

When do contracts for certain periods of time NOT have to be in writing?

-Most states hold that a contract that has been fully performed by one of the parties is "taken out of the statute of frauds" and is enforceable without a writing -Applies only when the terms of the contract make it impossible for the contract to be completed within one year -If the contract is for an indefinite period of time, it is not within the statute of frauds -In most states, a contract "for life" is not within the statute of frauds because it is possible, since death is an uncertain event, for the contract to be performed within a year

How can someone ratify a contract?

-Unreasonable delay in rescinding communicates that someone has ratified the contract -Conduct that would send a "mixed message," such as continuing to accept benefits from the other party or behaving in any other way that is inconsistent with expressed intent to rescind can ratify a contract

When do contracts for certain periods of time have to be in writing?

A bilateral, executory contract that cannot be performed within one year from the day on which it comes into existence is within the statute of frauds and must be evidenced by a writing

What are collateral contracts?

A collateral contract is one in which one person (the guarantor) agrees to pay the debt or obligation that a second person (the principal debtor) owes to a third person (the obligee) if the principal debtor fails to perform --In a collateral contract, the guarantor promises to pay only if the principal debtor fails to do so

Under the UCC, what are the alternative means satisfying the statute of frauds in sales of goods contracts?

A contract for the sale of goods for a purchase price of $500 or more is enforceable even in the absence of a suitable written memorandum, if evidence makes applicable any of the following alternative ways of satisfying the statute of frauds: (1) confirmatory memorandum between merchants (2) part payment or part delivery (3) admission in pleadings or courts (4) specifically manufactured goods

A party seeking to rescind a contract based on an innocent misrepresentation must show that the misrepresentation was about a material fact - when is a fact considered material?

A fact will be considered material if it is likely to play a significant role in inducing a reasonable person to enter the contract or if the person asserting the fact knows that the other person is likely to rely on the fact

Relationship between Misrepresentation and Fraud

A misrepresentation is an assertion that is not in accord with the truth ... When a person enters a contract because of his justifiable reliance on a misrepresentation about some important fact, the contract is voidable -Either innocent misrepresentation or fraud gives the complaining party the right to rescind a contract

What are the requirements for rescinding a contract based on mutual mistake?

A mutual mistake exists when both parties to the contract have erroneous assumptions about the same fact - When both parties are mistaken, the resulting contract can be avoided if the three following elements are present: (1) the mistake relates to a basic assumption on which the contract was made (2) the mistake has a material effect on the agreed-upon exchange (3) the party adversely affected by the mistake does not bear the risk of the mistake

Mistakes of Law

A number of older mistake cases state that mistake about a principle of law will not justify rescission - More modern cases, however, have granted relief even when the mistake is an erroneous belief about some aspect of law

What two types of reliance must a party seeking to rescind a contract based on misrepresentation prove?

Actual Reliance and Justifiable Reliance

Full Performance by the Vendor

An oral contract for the sale of land that has been completely performed by the vendor (seller) is "taken out of the statute of frauds" - that is, is enforceable without writing

When must a contract for the sale of goods be in writing to be enforceable?

Contracts for the sale of goods for the price of $500 or more are not enforceable without a writing or other specified evidence that a contract was made - Agreements to modify existing sales contracts can fall within the statute of frauds if the contract as modified is a price of $500 or more

Voidable / Rescind

Contracts induced by misrepresentation, fraud, mistake, duress, or undue influence are generally considered to be voidable ... This means that the person whose consent was not real has the power to rescind (cancel) the contract -A person who rescinds a contract is entitled to the return of anything he gave the other party and by the same token, he must offer to return anything he has received from the other party

Justifiable Reliance

Courts also scrutinize the reasonableness of the behavior of the complaining party by requiring that his reliance be justifiable - A person does not act justifiably if he relies on an assertion that is obviously false or not to be taken seriously

How are these requirements different from rescinding a contract based on a mutual mistake?

Courts are more likely to allow avoidance of a contract when both parties are mistaken than when only one is mistaken - So, it is possible to avoid contracts for unilateral mistake, but to do so, proving the elements necessary for mutual mistake is just the starting point

Negligence and the Right to Avoid for Mistake

Courts now have often granted rescission even when the mistaken party was somewhat negligent - It states that a person's fault in failing to know or discover facts before entering the contract will not bar relief unless his fault amounted to a failure to act in good faith

Party Harmed by Mistake Did Not Bear the Risk of Mistake

Even if the first 2 elements are present, the person who is harmed by the mistake cannot avoid the contract if he is considered to bear the risk of mistake -One situation in which an adversely affected person would bear the risk of mistake is when he has expressly contracted to do so -The adversely affected party also bears the risk of mistake when he contracts with conscious awareness that he is ignorant or has limited information about a fact, in other words, he knows that he does not know the true state of affairs about a particular fact but he binds himself to perform anyway

Mistake about a Basic Assumption

Even if the mistake is mutual, the adversely affected party will not have the right to avoid the contract unless the mistake concerns a basic assumption on which the contract was based - Assumptions about the identity, existence, quality, or quantity of the subject matter of the contract are among the basic assumptions on which contracts are typically founded

Hicks v. Sparks: The plaintiff in this case was not allowed to rescind her contract based on mistake - why not?

Hicks (the plaintiff) assumed the risk of mistake when she executed a clear and unambiguous Release in exchange for a settlement payment - This release specifically provided that Hicks "declares and represents that the injuries are or may be permanent and that recovery therefrom is uncertain and indefinite" - Hicks assumed the risk of mistake when she signed the Release without obtaining a more thorough medical examination to fully discover the extent of her injuries related to her neck pain - She assumed the risk that her injuries were more serious than she believed and that her symptoms could worsen and require further treatment ... Because Hicks assumed this risk, she cannot rescind her contract based on mutual mistake

What are the requirements for rescinding a contract based on a unilateral mistake?

In addition to proving the elements of mistake, a person trying to avoid on the ground of unilateral mistake must show either one of the following: (1) the nonmistaken party caused or had reason to know of the mistake OR (2) it would be unconscionable to enforce the contract -To show unconscionability in this context, the mistaken party would have to convince the court that the consequences of the mistake would be severe enough to make the contract unreasonably harsh or oppressibe if it were enforced

How does the requirement change if the misrepresentation was based on fraud versus an innocent misrepresentation?

In addition, establishing fraud necessitates proof that the untrue assertion was made with scienter (In tort actions in which the plaintiff is seeking to recover damages for deceit (punitive), another element is needed: injury)

Computing Time

In determining whether a contract is within the one-year provision, courts begin counting time on the day when the contract comes into existence

Memorandom Consisting of Several Writings

In many situations, the elements required for a memorandum are divided among several documents - This can be shown by physically attachment, as where the documents are stapled or bound together, or by references in the documents indicating that they all apply to the same transaction

What happens if the parties make a mutual mistake in drafting the contract - meaning that they accidently drafted the contract in a way that was not as they intended?

In such cases, the remedy is reformation of the writing rather than avoidance of the contract - Reformation means modification of the written instrument to express the agreement that the parties made but failed to express correctly

Material Effect on Agreed-Upon Exchange

It is not enough for a person claiming mistake to show that the exchange is something different from what he expected - He must show that the imbalance caused by the mistake is so severe that it would be unfair for the law to require him to perform the contract

What must a party that wants to rescind a contract based on misrepresentation show in order to be able to rescind the contract?

Must be able to establish each of the following elements: (1) an untrue assertion of fact was made (2) the fact asserted was material or the assertion was fraudulent (3) the complaining party entered the contract because of his reliance on the assertion (4) the reliance of the complaining party was reasonable

When can parol evidence be admitted into evidence?

Parol evidence is permitted in these 5 situations either because the writing is not the best evidence of the contract or because the evidence is offered, not to contradict the terms of the writing, but to explain the writing or to challenged the underlying contractual obligation that the writing represents ... (1) additional terms in partially integrated contracts (2) explaining ambiguities (3) circumstances invalidating contract (4) existence of condition (5) subsequent agreements

Ratification

Ratification of a voidable contract means that a person who had the right to rescind has elected not to do so - Ratification ends the right to rescind

Actual Reliance

Reliance means that a person pursues some course of action because of his faith in an assertion made to him - For misrepresentation for fraud to exist, there must have been a causal connection between the assertion and the complaining party's decision to enter the contract

Can a party rescind a contract because the other party concealed a fact?

The concealment of a fact through some active conduct intended to prevent the other party from discovering the fact is considered to be the equivalent of an assertion - Like a false statement of fact, concealment can be the basis for a claim of misrepresentation or fraud

Jacco & Associates Inc. v. HVAC, Inc.: Why didn't the court allow evidence that the equipment had to be delivered by the end of June?

The court found that the contract entered into by the parties was a complete agreement, so the evidence that the equipment had to be delivered by the end of June was parol evidence and therefore could not alter the terms of such agreement

Contents of the Memorandum

The essential terms of the contract generally must be indicated in the memorandum - The identity of the parties must be indicated in some way, and the subject matter of the contract must be identified with reasonable certainty

Scienter

The legal term for knowledge of falsity

Signature Requirement

The memorandum must be signed by the party to be charged or his authorized agent - Any writing, mark, initials, stamp, engraving, or other symbol placed or printed on a memorandum will suffice as a signature, as long as the party to be charged intended it to authenticate (indicate the genuineness of) the writing

Effect of Mistake

The mere fact that the contracting parties have made a mistake is not, standing alone, a sufficient ground for avoidance of the contract ... The right to avoid a contract because of mistake depends on several important factors - One important one that affects the right to avoid is whether the mistake was made by just one of the parties (unilateral mistake) or by both parties (mutual mistake)

Nature of Mistake

The mistake must relate to facts as they exist at the time the contract is created - As in misrepresentation cases, the complaining party in a mistake case enters into a contract because of a belief that is at variance with the actual facts - Mistake is unlike misrepresentation, however, in that the erroneous belief is not the result of the other party's untrue statements

When is parol evidence not admissible - and what does this mean?

The parol evidence rule is relevant only in cases in which the parties have expressed their agreement in a written contract - The parol evidence rule has been made a part of the law of sales in the UCC, so it is applicable to contracts for the sale of goods as well as contracts governed by the common law of contracts - Furthermore, the rule excludes only evidence of statements made prior to or during the signing of written contract - It does not apply to statements made after the signing of the contract - Thus, evidence of subsequent statements is freely admissable

What is the parol evidence rule?

The parol evidence rule provides that, when parties enter into a written contract that they intend as a complete integration (a complete and final statement of their agreement), a court will not permit the use of evidence of prior or contemporaneous statements to add to, alter, or contradict the terms of the written contract - Refects the idea that later expressions of intent are presumed to prevail over earlier expressions of intent

Contents of the memorandum under the UCC

The standard for determining the sufficiency of the contents of a memorandum is more flexible in cases concerning contracts for the sale of goods - UCC states that the writing must be sufficient to indicate that a contract for sale has been made between the parties, but that a writing can be sufficient even if it omits or incorrectly states a term agreed on

Meeting the Requirements of the Statute of Frauds

The statute of frauds of the various states are not uniform in their formal requirements ... However, most states require only a memorandum of the parties' agreement; they do not require that the entire contract be in writing - Essential terms of the contract must be stated in the writing - The memorandum must provide written evidence that a contract was made, but it need not have been created with the intent that the memorandum itself would be binding

What is the statute of frauds?

The statute of frauds requires certain kinds of contracts to be evidenced by writing - an exception to the general rule that oral contracts are enforceable

What is parol evidence?

The term parol evidence means written or spoken statements that are not contained in the written contract

Untrue Assertion of Fact

To have misrepresentation or fraud, one of the parties must have made an untrue assertion of fact or engaged in some conduct that is the equivalent of an untrue assertion of fact - The fact asserted must be past or existing fact, as distingushed from an opinion or a promise or prediction about some future happening

What is the exception to the general rule that a collateral contract must be in writing in order to be enforceable?

Under the main purpose or leading object rule, no writing is required where the guarantor makes a collateral promise for the main purpose of obtaining some personal economic advantage - When the consideration given in exchange for the collateral promise is something the guarantor seeks primarily for his own benefit rather than for the benefit of the primary debtor, the contract is outside the statute of frauds

Part Performance (Action in Reliance) by the Vendee

When the vendee( purchaser of land) acts in clear reliance on an oral contract for the sale of land, an equitable doctrine called the "part performance doctrine" permits the vendee to enforce the contract notwithstanding the fact that it was oral - A contract can be enforced even without writing if the person seeking enforcement: (1) has reasonably relied on the contract and on the other party's assent (2) has changed his position to such an extent that enforcement of the contract is the only way to prevent injustice --In other words, the vendee must have acted in reliance on the contract and the nature of the action must be such that restitution (returning his money) would not be an adequate remedy

In contract law, a mistake is

a belief about a fact that is not in accord with the truth

Even if the fact asserted was not material,

the contract may be rescinded if the misrepresentation was fraudulent

The purpose of the doctrine of mistake is

to prevent unexpected and unbar-gained for losses that result when the parties are mistaken about a fact central to their contract