MGMT Ch 13 - Contract Performance, Breach, and Remedies

What are the 4 elements for Fraudulent Misrepresentation?

1. A misrepresentation of a past or present material fact occurred 2. Must be an intent to deceive 3. Innocent party must justifiably rely on the misrepresentation 4. If looking to collect damages, you have to prove that harm occurred because of the misrepresentation

What are the 3 types of situations that make performance impossible (ID^2)?

1. Illegality - change in law makes performance illegal 2. Death 3. Destruction of specific subject matter of contract (Promise to paint house, house burns down from fire. Impossible to perform)

How can a contract be discharged by Operation of Law (BIMS)?

1. Material Altercation of the Contract 2. Statue of Limitations 3. Bankruptcy 4. Impossibility of Impracticability

Define a breach of contract. Define a "material breach."

A breach of contract occurs when a party does not perform a contractual obligation. A "material breach" occurs when performance is not substantial.

Explain a condition precedent and the Lamborghini example.

A condition that must be fulfilled before a party's performance can be required.

Consider material breaches and minor breaches. Both breaches give the non-breaching party the legal right to sue. However, what does a material breach allow that a minor breach does not?

A material breach discharges/excuses the non-breaching party from performing their contractual obligations while a minor breach does not discharge the duties.

Define a "material fact" as mentioned in "Mistake of Material Fact."

A material fact is a fact that a reasonable person would consider important when deciding to make a decision; in this case, deciding to accept or decline a contract.

Explain Bilateral (mutual) Mistake of Material Fact.

A mutual mistake made by both of the parties. The general rule regarding Bilateral Mistakes states that the contract is voidable at the option of either party.

Explain Discharge based on Commercial Impracticability.

A party may be discharged from contractual duties if performance becomes extremely expensive or difficult. Similar to Impossibility, the extreme change must have been unforeseeable. For example, if you plan to perform for someone under a contract but realize that performance would cost you 10x more than what you had predicted, this can be considered commercially impracticable.

Discuss Statute of Limitations.

A person with a cause of action must bring their actions within a specified period of time. In regards to contracts, if a person does not pay their debt as promised in a contract, then the innocent party may sue. However, if too much time passes and the innocent party never sues the breaching party, then the Statute of Limitations may discharge the contractual duty to pay the debt. (For class, statue of limitations is 4 years).

What is the general rule regarding Unilateral Mistakes of Fact?

A unilateral mistake does not give the mistaken party relief from the contract, unless the mistake fits an exception.

Explain Unilateral mistake and its two exceptions.

A unilateral mistake is made by only one of the parties AND is still enforceable unless: 1. the non-mistaken party knows or should have known that a mistake of fact was made, or 2. the mistake was made because of an accidental mathematical error and the mistaken party was not extremely negligent when they made the mistake.

What are the two forms of Mistakes of Material Fact?

Bilateral mistake and unilateral mistake

Explain Complete Performance. Substantial Performance?

Complete performance is when a party performs exactly as agreed, including strict compliance with any expressly stated conditions. Substantial performance is when performance does not vary greatly from the performance that was promised but substantially creates the same benefits as those promised in the contract.

What must be stated in a contract in order for complete performance to take place?

Conditions expressly stated in a contract must fully occur in order for complete performance to take place.

When looking at performances, think about them in the scope of "How to discharge (that is, terminate contractual duties) a contract by performance. With that in mind, explain how to discharge a contract by Complete Performance, Substantial Performance, and by Material Breach.

Discharge by Complete Performance: performed completely as promised, no breach of contract. Discharge by Substantial Performance: performance is substantial, does not vary greatly from performance promised. The other party still has a duty to perform, but they can sue to recover damages. Discharge by Material Breach: contract is discharged and the non-breaching party does not have duty to perform. They can sue immediately.

Both Mistakes of Material Fact and Mistakes of Value can make a contract voidable or lead to rescission of a contract. True or False?

False. Mistakes of Value can NEVER make a contract voidable/lead to rescission of a contract.

The doctrine of impossibility of performance applies to both situations that are foreseeable and unforeseeable. True or False?

False. The doctrine applies only to situations where events COULD NOT have been reasonably foreseeable.

A party can raise a defense to breach of contract based on consent by proving what? (FMUD)

Fraudulent Misrepresentation, or Mistake, or Undue influence, or Duress

When looking at a problem regarding mistakes, what should you be thinking?

Is this a Mistake of Material Fact or a Mistake of Value?

When looking at cases involving Mistake, what must you distinguish? (Mistakes of...)

Must distinguish between Mistakes of Material Fact vs. Mistakes of Value

In cases involving Fraudulent Misrepresentation, can statements of OPINION be subject to claims of fraud?

No, only statements of FACT can be subject to fraud if those statements are proven to be a misrepresentation.

When a material breach occurs, is the non-breaching party required to perform their contractual duties?

No. In the event of a material breach, the non-breaching party is excused from performing their contractual duties.

Explain Temporary Impossibility. What effect does this have on the parties' duty to perform? What happens when the impossibility ceases?

Temporary Impossibility is an event that temporarily makes it impossible to perform what was promised in the contract. This suspends the parties' duties to perform. However, when the impossibility ceases, the parties must originally perform their promises.

If substantial performance occurs, what is the effect on the other party's duty to perform?

The other party's duty of perform remains absolute; that is, they must continue performing under the contract. For example, if a party substantially performs, the other party must pay them.

In the case of Temporary Impossibility, what happens if the lapse of time and changes in circumstance makes the contract substantially burdensome (regarding duties)?

The parties are discharged; no longer have to perform their duties.

Discuss Material Altercation of Contract.

This occurs when one party materially alters a written contract. When this occurs, the innocent party is discharged from contractual obligations unless they want to go back to the original contract or if they agree with the new terms.

Regarding performance and discharge of contracts, discharge means...

To terminate contractual duties or to no longer be required to perform.

Fraudulent Misrepresentation can occur by either words or actions. True or False?

True

Discharging based on Statute of Limitations and Bankruptcy discuss partial payment of debts. However, partially paying debts have different effects in both situations. Which one revives debt if partial payment is made?

Under Statute of Limitations, partial payment revives debt. If promise of partial payment is made after discharge, the debt IS REVIVED and the other party can sue you for another 4 years (statue of limitations) if you fail to pay once again. Under Bankruptcy, partial payment made after discharge DOES NOT revive debt.

Define Undue Influence and explain why it may make contracts voidable.

Undue Influence occurs when one dominating party can greatly influence the weaker, dominated party in a contract. Contracts made under such circumstances lack voluntary consent and are therefore voidable.

When a breach is minor (not material), is the non-breaching party required to perform their contractual duties?

Usually, a minor breach does not excuse the non-breaching party from performing their contractual duties. However, they can sue the breaching party if the breach is not cured.

Explain Duress

When a party is forced into entering a contract because another party makes a threat to commit a wrongful act. The act MUST be wrongful or illegal

Explain Frustration of Purpose.

When an unforeseen event makes it impossible for both parties to attain what they originally had in mind.

Explain the presumption of Undue Influence in fiduciary relationships. What must the dominating party have to prove in order to rebut the presumption (3 things)?

When the dominant party in a fiduciary relationship benefits from that relationship, a presumption of undue influence arises. The dominating party must show that: 1. A full disclosure was made to the dominated party 2. The consideration that was received was adequate 3. The dominated party received independent advice before completing the transaction.