2b - Contracts
Release
A release is when a party signs an agreement or orally agrees to waive performance on the part of the other party.
There are four elements necessary to have a valid contract: (4)
1. agreement (or manifestation of mutual assent) 2. consideration (usually money) 3. legal purpose 4. competent parties
4 Elements of a Contract
1. an agreement (offer and acceptance), 2. consideration, 3. valid subject matter, and 4. legal capacity.
Under a personal services contract, which of the following circumstances will cause the discharge of a party's duties?
Illegality of the services to be performed
Which of the following circumstances generally will cause a discharge of contractual duties by operation of law?
Impossibility of performance
3 Elements of a Surety
1. A suretyship must be in writing. 2. A suretyship is a guarantee. 3. The promise is made to the creditor.
Examples of contracts that are not assignable: (3)
1. Contracts involving personal services, such as an employment contract 2. Contracts that involve the personal satisfaction of one of the parties 3. Contracts where the assignment would treat the nonassigning party unfairly
Which of the following is within the scope of liquidated damages? (3)
1. Damages agreed to in advance and included in the contract 2. Damages used when actual compensatory damages are hard to prove 3. Damages that courts will enforce only if reasonable
All of the following statements regarding compliance with the statute of frauds are correct (3)
1. any necessary writing must be signed by all parties against whom enforcement is sought. 2. contracts involving the sale of goods in an amount greater than $500 must be in writing. 3. contracts where performance cannot be completed within one year must be in writing.
An offer may be terminated by the following: (7)
1. Expiration of the time specified in the offer or a reasonable time if no time is mentioned 2. Revocation received by the offeree before acceptance 3. Rejection by the offeree (a counteroffer is a rejection combined with a new offer to the original offeror) 4. Death of the offeror or offeree 5. Insanity of the offeror or offeree 6. Destruction of the subject matter relating to the offer without the fault of either party 7. Intervening illegality—subsequent legislation making the offer or the resulting contract illegal (e.g., an offer to sell bourbon just before prohibition became effective)
True statements regarding anticipatory breach? (3)
1. One party informs the other party that there will be no performance when the time comes due. 2. The other party may wait and do nothing until the time of performance is due. 3. The other party may sue immediately.
Which of the following land transactions must to be in writing?
1. Sale of land 2. Granting of an easement 3. Giving a mortgage which will encumber the real estate
The statute applies only to the following (4)
1. The sale of goods having a value in excess of $500 2. A contract that will not be performed within one year of the signing 3. The sale of real property or of securities 4. The promise to answer for the debt of another
Which of the following statements about joint contracts are true? (3)
1. Two or more persons jointly promise to perform an obligation. 2. Suit must be brought against all joint promisors. 3. Judgment may be levied against one of the joint promisors.
Dunlap contracted to work exclusively for Foster during June for $5,000. On May 31, Foster canceled the contract. Dunlap found another job during June for $3,000. Dunlap filed suit against Foster for breach of contract. Dunlap should recover what amount of compensatory damages?
$2,000 Contract remedies are intended to put the injured party in the same position as if the contract had been performed insofar as possible.
Which of the following statements about "several" contracts are true?
1. Two or more persons who separately agree to perform the same obligation may be sued individually. 2. If one of the obligors dies, his estate is liable. 3. A release of one obligor has no effect on the release of the other.
Conditions Subsequent Contract
(the contract is valid until the condition occurs, which invalidates the agreement)
Conditions Concurrent Contract
(there are two conditions, one within the control of each party)
Rules (Principles) of Construction (3)
1. Written is better than typed, which is better than printed. 2. Specific is better than general. 3. A nondrafter is better than a drafter.
3 Elements of Fraud in the Inducement
1. A false representation of a material fact, intentionally made 2. Any false representation that was justifiably relied upon 3. Any false representation that was justifiably relied upon and resulted in injury
3 Elements of promissory estoppel
1. A promise by the promisor that is reasonably expected to be relied upon by the promisee 2. The promisee detrimentally relies on the promise. 3. Injustice can only be avoided by enforcing the promise.
A contract for the sale of goods for a price of $500 or more must be in writing to be enforceable. However, there are several exceptions which could make an oral contract enforceable: (4)
1. the goods are specially manufactured (for a unique purpose and cannot be resold as shelf items) 2. the goods have been paid for and accepted or received and accepted (if there has been only a partial acceptance of the goods or a partial payment, the contract is enforceable only to that extent) 3. the person admits in court to have contracted with the plaintiff (the contract is enforceable to the quantity admitted) 4. one of the merchants sends a written confirmation to the other and receives no objection within 10 days after sending it
Statute of Frauds applies only to contracts for: (4)
1. the sale of goods 2. a transfer of interest in land 3. promises to pay for the debts of another 4. contracts that cannot be performed within one year.
Conditions Precedent Contract
A condition may be "precedent" (there is no contract until the condition is satisfied)
Under the Sales Article of the UCC, which of the following oral contracts for the sale of goods valued at more than $500 is most likely to be unenforceable?
A contract to sell a work of art
Which of the following is not an element of fraud in the inducement?
A false representation of a material fact, unintentionally made
Which one of the following is not consideration for purposes of contract law?
A moral obligation
Novation
A novation, by definition, requires at least one party of the original contract be substituted for by a new party, and the new party assumes all of the responsibilities of the original party as if that original party was never part of the contract
Which of the following promises is supported by legally sufficient consideration and will be enforceable?
A promise to pay a minor $500 to paint a garage A contract must be supported by consideration to be valid and enforceable. The $500 is the consideration in this case
Suretyship
A promise to pay the debt of another must be in writing to be enforceable.
Which of the following is not one of the elements of promissory estoppel?
A promise with consideration Promissory estoppel is a substitute for consideration. It is a promise by the promisor that is reasonably expected to be relied upon by the promisee, and the promisee acts upon that promise.
Revocation
A revocation occurs when a party informs the other party that their offer is no longer valid.
Which of the following contracts is governed by the Sales Article of the UCC?
A sale of a used car by a nonmerchant The UCC defines "goods" as tangible and movable personal property. Stocks are intangible securities. Real property includes land and anything affixed to the land or buildings (e.g., fixtures). Sales law defines "goods" as follows:
Substituted Contract
A substituted contract involves the original parties to an agreement whereby all parties agree to substitute the terms and conditions of a new or amended contract in the place of the original contract.
A suretyship is the promise to pay the debt of another. Which of the following is not an element of suretyship?
A suretyship can be oral.
Accord and Satisfaction
Accord is the agreement by the parties that some different performance will replace the original performance. Satisfaction is performance (carrying out) of the accord. Both accord and satisfaction must occur to discharge the contractual obligation. An accord and satisfaction discharges the original contractual obligation.
Wilcox Co. contracted with Ace Painters, Inc., for Ace to paint Wilcox's warehouse. Ace, without advising Wilcox, assigned the contract to Pure Painting Corp. Pure failed to paint Wilcox's warehouse in accordance with the contract specifications. The contract between Ace and Wilcox was silent with regard to a party's right to assign it. Which of the following statements is correct?
Ace remained liable to Wilcox despite the fact that Ace assigned the contract to Pure. Since this contract involves personal services, it is not assignable and Ace remains liable.
Advertisements as Offers
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.
What is an implied contract?
An implied contract is a contract implied in fact. The agreement is manifest, not by direct words, but from the conduct of the parties.
Excusing performance of a contract due to very large unforeseen expenses not contemplated by the parties to the contract at the time of the formation of the contract is the definition of which of the following?
Commercial impracticality
Which of the following, if intentionally misstated by a seller to a buyer, would be considered a fraudulent inducement to make a contract?
Appraised value A fraudulent inducement must be factual and material. Opinions and predictions are not facts.
Which of the following concepts affects the amount of monetary damages recoverable by the nonbreaching party when a contract is breached?
Both foreseeability and mitigation of damages
Which of the following actions will result in the discharge of a party to a contract?
Both prevention of performance and accord and satisfaction "accord and satisfaction." In this context, the "accord" is the agreement of the parties to modify a contract so as to require a different kind of performance from one of the parties than was originally expected. The "satisfaction" component is the completion of the modified performance, thus discharging the new obligation.
CJN Corp. contracts with James, Inc. to sell James's 130 acres of oceanfront property and requires James to submit the entire balance upon closing. CJN refuses to close the sale. James has which of the following remedies available to it?
Compensatory damages or specific performance Failure to close when the contract terms are met represents a breach of contract on behalf of CJN. James may seek compensatory damages for the difference between the contract price upon closing and the fair market value of another suitable property. James may also seek specific performance that requires CJN to deliver the exact property to James. James can elect either remedy but not both
Which of the following types of conditions affecting performance may validly be present in contracts?
Conditions precedent, conditions subsequent, and concurrent conditions
Some contracts can be assigned, and others cannot. Which of the following is an example of a contract that can be assigned?
Contracts for rights (the legal ability to get something from the other party)
Which of the following is not within the scope of liquidated damages?
Damages that are not foreseen Damages that are not foreseen are called special damages; they are not liquidated damages.
On June 1, 20X1, Decker orally guaranteed the payment of a $5,000 note Decker's cousin owed Baker. Decker's agreement with Baker provided that Decker's guaranty would terminate in 18 months. On June 3, 20X1, Baker wrote Decker confirming Decker's guaranty. Decker did not object to the confirmation. On August 23, 20X1, Decker's cousin defaulted on the note, and Baker demanded that Decker honor the guaranty. Decker refused. Which of the following statements is correct?
Decker is not liable under the oral guaranty because Decker's promise was not in writing. Under the statute of frauds, any promise to assume the debts of another must be evidenced by a writing signed by the guarantor
Which of the following statements is incorrect pertaining to accord and satisfaction under contract law?
Either accord or satisfaction by itself will discharge the contractual obligation. Both must be completed
Essex contracted with Green, a general contractor, for Green to pave a road on Essex's property. Green informed Essex that, due to a breakdown of Green's equipment, Green had assigned the contract to Free, who is in the road-paving business. Essex consented to the assignment and Free began work. In the middle of the job, Free stopped work, leaving the road half-completed. Which of the following statements is the best description of the rights and liabilities of the parties?
Essex may sue both Green and Free for breach of contract because both of them are liable on the contract. The assignor (Green) is still liable to the nonassigning party (Essex) on the contract for the promised consideration.
What is parol evidence?
Evidence about a contract that is not in the original written agreement
On December 1, Gem orally contracted with Mason for Mason to manage Gem's restaurant for one year starting the following January 1. They agreed that Gem would pay Mason $40,000 and that Mason would be allowed to continue to work for Gem if "everything worked out." On June 1, Mason quit to take a better-paying job, alleging that the contract violated the statute of frauds. What will be the outcome of a suit by Gem for breach of contract?
Gem will lose because the contract could not be performed within one year. Employment contracts are difficult to enforce. The employee cannot be forced to continue working for the employer, as that would be involuntary servitude, prohibited by the 13th Amendment of the U.S. Constitution.
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?
If Dall categorically rejects the offer on April 10, Dall cannot validly accept within the remaining stated period of time. 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.
Which of the following statements about joint contracts is false?
If one joint promisor dies, the remaining promisors are not obligated to perform.
On June 15, 20X1, Alpha, Inc., contracted with Delta Manufacturing, Inc., to buy a vacant parcel of land Delta owned. Alpha intended to build a distribution warehouse on the land because of its location near a major highway. The contract stated that "Alpha's obligations hereunder are subject to the vacant parcel being rezoned to a commercial zoning classification by July 31, 20X2." Which of the following statements is correct?
If the parcel is not rezoned by July 31, and Alpha refuses to purchase it, Alpha would not be in breach of contract. The contract contains a contingent clause.
Which of the following statements is correct regarding the parol evidence rule?
It applies to prior or contemporaneous oral agreements that contradict the terms of final written agreements.
Which of the following land transactions does not have to be in writing?
Lending money
Which of the following transactions correctly illustrates the doctrine of substantial performance?
Leslie painted an entire room but failed to put the electrical outlet covers back on. Substantial performance occurs when a party completes slightly less than required by the contract, but the technical breach is immaterial.
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's letter was a counteroffer. A counteroffer is a rejection of the original offer followed by a new offer.
Sand orally promised Frost a $10,000 bonus, in addition to a monthly salary, if Frost would work two years for Sand. If Frost works for the two years, will the statute of frauds prevent Frost from collecting the bonus?
No, because Frost fully performed The statute of frauds applies only to contracts for the sale of goods, a transfer of interest in land, promises to pay for the debts of another, or contracts that cannot be performed within one year.
Which of the following statements is correct regarding the formation of a unilateral contract?
Only one party to a unilateral contract makes a promise.
On June 15, Peters orally offered to sell a used lawn mower to Mason for $125. Peters specified that Mason had until June 20 to accept the offer. On June 16, Peters received an offer to purchase the lawn mower for $150 from Bronson, Mason's neighbor. Peters accepted Bronson's offer. On June 17, Mason saw Bronson using the lawn mower and was told the mower had been sold to Bronson. Mason immediately wrote to Peters to accept the June 15 offer. Which of the following statements is correct?
Peters's offer had been revoked and Mason's acceptance was ineffective. To create a contract, the offer must be accepted before a termination of the contract. A sale of the property to another entity would be a termination. A valid termination
Pulse Corp. maintained a warehouse where it stored its manufactured goods. Pulse received an order from Star. Shortly after Pulse identified the goods to be shipped to Star, but before moving them to the loading dock, a fire destroyed the warehouse and its contents. With respect to the goods, which of the following statements is correct?
Pulse has title and an insurable interest. Title passes from the seller to the buyer only if the goods are identified in the sales contract. Otherwise, title passes at delivery
Which of the following will release all original parties to a contract but will maintain a contractual relationship between the original parties?
Substituted contract NOT a Novation
Which of the following is a false statement regarding anticipatory breach?
The anticipated breach can be based on an assumption that the party does not intend to meet their obligations. *The intent to break the contract must be an absolute refusal;
If a contract is unclear, courts will apply rules of construction to resolve the issue(s) in dispute. Which of the following is not a rule of construction?
The contract is construed in its parts, not the whole.
Which of the following statements is correct regarding the effect of the expiration of the period of the statute of limitations on a contract?
The running of the statute of limitations bars access to judicial remedies.
Elements of Unilateral Contract
There must be consideration and performance, and more than one party may receive a benefit or suffer a detriment. Only one party to a unilateral contract makes a promise.
A party contracts to guarantee the collection of the debts of another. As a result of the guarantee, which of the following statements is correct?
The guarantee must be in writing. A party who guarantees collection assumes a commitment to pay a debt upon the default of the principal debtor. According to the statute of frauds, almost all contracts of guarantee and suretyship must be in writing.
Which of the following circumstances best describes a landlord's constructive eviction of a tenant who has a written lease for the property?
The landlord refuses to provide utilities to the tenant. constructive eviction describes a situation in which a landlord either does something or fails to do something that the landlord has a legal duty to provide, rendering the property uninhabitable. Refusing to provide utilities to the tenant is an example of a constructive eviction.
The Parol Evidence Rule
The parol evidence rule bars the introduction of oral evidence about the terms of a contract that were conducted prior to the execution of the contract. However, the parol evidence rule does not bar the introduction of evidence concerning modification to the contract that was made after the contract was signed.
If a party to a contract engages in an anticipatory repudiation of the contract, which of the following statements is correct?
The repudiation is a material breach of the contract. The injured party may wait until the performance date to determine if performance will still occur or the injured party may sue immediately.
Which of the following statements about "several" contracts is false?
Two or more persons who separately agree to perform the same obligation must be sued together. They can be sued individually
Carson agreed orally to repair Ives's rare book for $450. Before the work was started, Ives asked Carson to perform additional repairs to the book and agreed to increase the contract price to $650. After Carson completed the work, Ives refused to pay and Carson sued. Ives's defense was based on the statute of frauds. What total amount will Carson recover?
Under common law, the original contract is enforceable. Modification of an existing contract requires consideration to be enforceable. The completed work is consideration and the whole $650 can be recovered.
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?
Undue influence
Under which of the following circumstances would a promoter be relieved of personal liability on contracts entered into while engaged in forming a corporation?
When the third party, the corporation, and the promoter enter into an agreement to substitute the corporation for the promoter all parties must enter into a new agreement.
Ames Construction Co. contracted to build a warehouse for White Corp. The construction specifications required Ames to use Ace lighting fixtures. Inadvertently, Ames installed Perfection lighting fixtures which are of slightly lesser quality than Ace fixtures, but in all other respects meet White's needs. Which of the following statements is correct?
White's recovery will be limited to monetary damages because Ames' breach of the construction contract was not material.
Under the parol evidence rule, oral evidence will be excluded if it relates to:
a contemporaneous oral agreement relating to a term in the contract. An oral agreement must be precedent to the contract to not be excluded.
Unconscionability
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.
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. 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
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:
advertisement was not an offer.
On August 1, Neptune Fisheries contracted in writing with West Markets to deliver to West 3,000 pounds of lobsters at $4.00 a pound. Delivery of the lobsters was due October 1 with payments due November 1. On August 4, Neptune entered into a contract with Deep Sea Lobster Farms that provided as follows: "Neptune Fisheries assigns all the rights under the contract with West Markets dated August 1 to Deep Sea Lobster Farms." The best interpretation of the August 4 contract would be that it was:
an assignment of rights and a delegation of duties by Neptune.
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. the contract is voidable at the option of the minor; the other party may not void the contract. 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.
Ordinarily, in an action for breach of a construction contract, the statute of limitations time period would be computed from the date the:
contract is breached. In the case of a claim for breach of contract, the time period begins to run on the date that the contract is breached.
A tenant renting an apartment under a 3-year written lease that does not contain any specific restrictions may be evicted for:
counterfeiting money in the apartment. A tenant may not use the leased property for unlawful purposes. If the tenant does so, the landlord may terminate the lease, evict the tenant, and sue for damages.
To prevail in common-law action for fraud in the inducement, a plaintiff must prove that the:
defendant made the misrepresentations with knowledge of their falsity and with an intention to deceive.
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:
fraud. It is unlikely that a resale would be due to mistake or ignorance. Fraud would be the only possible offense.
The statute of limitations for an alleged breach of contract:
generally commences on the date of the breach.
In general, a clause in a real estate contract entitling the seller to retain the purchaser's down payment as liquidated damages if the purchaser fails to close the transaction is enforceable:
if the amount of the down payment bears a reasonable relationship to the probable loss.
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:
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.
Fraud in the inducement
occurs when a contract is formed based upon the false or misleading statements or actions of another party.
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:
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.
To cancel a contract and to restore the parties to their original positions before the contract, the parties should execute a:
rescission.
To prevail in a common-law action for innocent misrepresentation, the plaintiff must prove:
the misrepresentations concerned material facts. 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.
Dunne and Cook signed a contract requiring Cook to rebind 500 of Dunne's books at 80¢ per book. Later, Dunne requested in good faith, that the price be reduced to 70¢ per book. Cook agreed orally to reduce the price to 70¢. Under the circumstances, the oral agreement is:
unenforceable, because Dunne failed to give consideration, but proof of it is otherwise admissible into evidence. Generally, the parol evidence rule will not allow oral evidence to alter the terms of a written contract.
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. 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.
If a buyer accepts an offer containing an immaterial unilateral mistake, the resulting contract will be:
valid as to both parties. "immaterial" 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.
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 of physical harm. Duress is a defense to a contract that may be held voidable. 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.
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 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.
Master Mfg., Inc., contracted with Accur Computer Repair Corp. to maintain Master's computer system. Master's manufacturing process depends on its computer system operating properly at all times. A liquidated damages clause in the contract provided that Accur pay $1,000 to Master for each day that Accur was late responding to a service request. On January 12, Accur was notified that Master's computer system failed. Accur did not respond to Master's service request until January 15. If Master sues Accur under the liquidated damage provision of the contract, Master will:
win, unless the liquidated damage provision is determined to be a penalty.