MOR 215 Chapters 7, 8. 9

innocent misrepresentation

False statement made in belief it is true

When one refrains or promises to refrain from doing something, this conduct is called:

Forbearance

A minor is the sole judge as to whether a voidable contract will be binding.

True

Ratification

1. Approval of unauthorized act; 2. Indication by adult that a contract made while a minor is binding

What are 3 apparent considerations lack the full force and effect necessary to make enforceable agreements

1. Performing or promising to perform what one is already obligated to do 2. Refraining or promising to refrain from doing what one has no right to do 3. Past performance

mutual mistake will normally make a contract defective

1. Value, quality, or price 2.The terms of the contract 3.The law 4. Expectations

promissory estoppel

1.A promise is made. 2.The promisor reasonably expects the promise to induce action by the promisee. 3 .The promisee does act. 4. Justice requires enforcement of the promise.

After UNDUE INFLUENCE and you return or offer to return under a contract that was voidble

1.You may bring a suit to recover any money, goods, or other things of value given up, plus damages. 2.if the contract is executory on your part, you may refuse to perform. If the other party sues, you can plead mistake, fraud, duress, or undue influence as a complete defense. 3.You may bring a suit to have the contract judicially declared void. 4. If a written contract does not accurately express the parties' agreement, you may sue for reformation, or correction, of the contract.

Express Misrepresentation

1Misrepresentation: a false statement of a material fact. 2Must be made by one who knew it to be false or made it in reckless disregard of its truth or falsity. 3Must be made with intent to induce the innocent party to act. 4The innocent party justifiably relies on the false statement and makes a contract.

Ashley leases a house for a three-year term from Joey for $300,000. The contract clearly stipulates that the Ashley must have the house treated for pests on an annual basis. Ashley fails to read the terms of the document closely and does not have the house treated for pest control. What effect does this failure to read the terms of the document have on the contract?

A mistake as to the terms of the contract usually results from failure to understand a contract's meaning or significance or from failure to read a written contract. Such mistakes in both written and oral contracts do not affect their validity.

A subscription to a charitable association is an offer of a(n) _____ contract

A subscription to a charitable association is an offer of a unilateral contract that is accepted by the charity creating liabilities or making expenditures—by relying on the promise

Chris purchased a truck with 3700 miles on it from Arch Ford. At the time of purchase, the truck had the manufacturer's new vehicle sticker inside it, and a salesman said it was a "demonstrator." Chris also purchased an extended warranty from the dealership. The warranty contract stated that it only applied to new vehicles. Later, when Chris took the truck to Arch Ford for service, he learned that the front end was misaligned and a nonfactory weld had broken, making the truck unsafe. He discovered that the truck was not a demonstrator, but had been previously owned and involved in two wrecks. The prior owner of the truck had informed Arch Ford that it had been in a collision. If Chris sues Arch Ford, what should be the basis of his complaint?

Arch Ford committed active fraud by expressly misrepresenting the truck's condition to Chris

Tom promises to paint the fence around John's house, and John in return pays Tom $250. John's payment of money is rightly called:

Consideration

____ is whatever the promisor demands and receives as the price for a promise

Consideration

fraud in the inducement

Defrauded party intended to make a contract

The term _____ means repudiation of a contract

Disaffirmance

Stephanie, a 13-year-old, makes a contract with Rebecca agreeing to babysit Rebecca's twins everyday after she gets back from school. Stephanie subsequently realizes that she needs to stay extra hours at school for her dance practice. Realizing this, she manifests an intention not to be bound by the contract made to Rebecca. This is an example of _____ of the contract.

Dissafirmance

Abel holds Nina at gunpoint and gets her to sign a contract agreeing to sell her yacht to him for a very low price. This is an example of:

Duress

___ is a means of destroying another's free will by one party obtaining consent to a contract as a result of a wrongful threat to do the other person some harm.

Duress

ability to contract wisely is their chief protection against a bad bargain.

Expressed Warranty

Passive fraud

Failure to disclose information when there is duty to do so

Damien wants to buy a new truck, and after completing a credit application with the dealer, realizes that his credit score requires someone else to co-sign for the loan. He presents the financing agreement to his father to cosign. However, his father doesn't read well and Damien tells him the paperwork is a job application instead of a loan. His father signs. Later, Damien defaults on the loan, and the car dealership seeks to recover the loss from Damien's father. Damien's father claims the contract is void, due to:

Fraud in the execution

If a minor contracts for necessaries, the contract is voidable, and the minor is liable for

If a minor contracts for necessaries, the contract is voidable, but the minor is liable for the reasonable value of whatever has been received. Necessaries include items required for a minor to have a reasonable standard of living that are not provided by the minor's parents or guardian.

Mistakes That Do Not Invalidate Contracts

If a unilateral mistake occurs as to price or quantity. Even if the unilateral mistake as to price results from an error in keyboarding or in misunderstanding an oral quotation of the price, the contract is valid.

The minimum age for acquiring a learner driver's permit is 16 in New Jersey. Lisa, a 15-year-old who lives in New Jersey, promised her uncle that she would not drive a car until she turns 16 and gets a learner permit, in exchange for his promise to buy her a car for her 16th birthday. The consideration provided by Lisa is:

If consideration consists merely of a promise to do what one is already legally obligated to do, the consideration is invalid

Exceptions to cancel a debt

If the amount of the debt is in dispute, the debt is canceled if a lesser sum than that claimed is accepted in full settlement. If there is more than one creditor, and each one agrees, in consideration of the others' agreement, to accept in full settlement a percentage of the amount due, this agreement will cancel the unpaid balance due these creditors. This arrangement is known as a composition of creditors. If the debt is evidenced by a note or other written evidence, cancellation and return of the written evidence cancels the debt. If the payment of the lesser sum is accompanied by a receipt in full and some indication that a gift is made of the balance, the debt may be cancelled. If a secured note for a lesser amount is given and accepted in discharge of an unsecured note for a greater amount, the difference between the two notes is discharged. The security is the consideration to support the contract to settle for a lesser sum.

fraud

Inducing another to contract as a result of an intentionally or recklessly false statement of a material fact

Terry buys an antique clock from Katie for $250. The clock is actually worth $1,000. Terry is aware that Katie has a mistaken opinion as to the real value of this antique clock. In accordance with the given scenario, the contract between Katie and Terry is:

Is Valid

Joseph promises the HR manager of his company that he will not smoke in the office if the company will promise to pay him a bonus of $1000 a week. Smoking in Joseph's office is banned by company policy and by county ordinance. Which of the following is true with regard to Joseph's promise to stop smoking?

It is not valid consideration, since smoking within the office is already banned by company policy and county ordinance.

necessaries

Minor - Items required for living at a reasonable standard

Mutual Mistake

Mistake by both parties to a contract - courts do not find them enforceable

Unilateral mistake

Mistake by one party to a contract. Courts will generally allow a unilateral mistake of fact to impair the enforceability of a contract if the nonmistaken party caused the mistake or knew or should have known of the other party's mistake, and the mistaken party exercised ordinary care.

Nelson and Nikky are both minors. Nikky makes a contract with Nelson for mowing his lawn three times a week for $25. Which of the following is true with regard to this contract?

Nikky and Nelson each has the right to avoid the contract.

Mike borrowed $10,000 from his friend Johnson to purchase a motorcycle and promised to pay Johnson back the entire amount within three months. Six months later, Mike tells Johnson he is low on funds, but promises to pay Johnson $5000 if Johnson will agree to cancel the balance of the debt. Is Mike's promise to pay $5000 valid consideration to support canceling the balance of his debt?

No, because Johnson is already entitled to repayment of the $5000

Sara contracts with Grover to remove a dead stump in her yard. They settle on a flat fee of $100 for the service, because they both believe it to be a small stump. Their contract provides that if the project turns out to be more difficult than anticipated, the fee paid will still only be $100. If it ends up taking Grover 4 days to remove the stump, should the contract be void?

No, because the contract terms govern the situation

Which of the following, as a general rule, does not constitute fraud

Statement of Opinion

Boston Insurance Company issued a homeowner's policy, including a personal liability policy to Mr. and Mrs. Dufault. Although the Dufaults intended for the personal liability policy to only cover the two of them, their agent failed to communicate that to Boston Insurance Company. The insurance company issued a policy that covered relatives of the Dufaults who lived in the same household and owned a motor vehicle. Frank Smith was involved in an automobile accident with the Dufault's son, Bobby, who owned a truck and lived with his parents. After learning of the Dufaults' original desire for limited coverage, Boston Insurance Company sued, claiming that it should not be liable to pay for Bobby's accident, because the Dufaults had not intended the umbrella policy to cover him and there had been a mutual mistake about the policy. Was the insurance company correct?

No. Any mistake in understanding the terms of the contract was the Dufaults' and thus a unilateral one, so the insurance company could not avoid the contract.

George was paid $45,000 by his former employer, Midwest Coal, to settle a lung disease claim against the employer. As part of the settlement, George signed a release that forever discharged the company from any and all claims, demands, actions and suits of any kind which George had or might later have from his employment with Midwest Coal. The release specifically included damages arising from hearing loss. Nine months later, George sued Midwest Coal for hearing loss from working for the coal company. He claimed he had only intended the settlement contract to release the company from a lung disease claim and not from a hearing loss claim. Can George avoid the contract?

No. George was mistaken as to the terms of the contract and its legal effect, which will not invalidate a contract.

Duress

Obtaining consent by means of a threat

active fraud

Party engages in action that causes the fraud Express Misrepresentation Concealment of Material Facts

undue influence

Person in special relationship causes another's action contrary to free will - regarded as voidable

With regard to contracts with minors, _____ means indicating one's willingness to be bound by promises made during minority.

Ratification

forbearance

Refraining from doing something

The _____ provides that when a contract for the sale of goods is modified by agreement of the parties, no consideration is necessary to make it enforceable.

The Uniform Commercial Code

James, a building contractor, makes a contract with Sam, the CEO of Matrix Inc., to build Sam's new office within a month for $2,500,000. James and his team start working on this project. Later, Sam comes up with a new contract which requires James to work on the interiors of the office as well. According to the new contract, Sam also agrees to pay an additional $500,000 to James for this added assignment. Which of the following is true with regard to this scenario?

The new contract made between the two parties to the original contract is enforceable.

Bob's uncle promised to loan Bob $10,000 to make necessary repairs to his home prior to putting the house on the market. Relying on the promise, Bob hired contractors to repair a leak in the roof and paint the interior. When the work was almost finished, Bob's uncle changed his mind and refused to loan Bob the funds, leaving Bob unable to pay the contractors he had hired. Under what doctrine will a court enforce the uncle's promise?

Under the doctrine of Promissory estoppel, if one person makes a promise to another, and that person acts in reliance on the promise, the promisor will not be permitted to claim a lack of consideration

Jill contracts with James to sell a gemstone pendant for $100, believing the stone to be an attractive gemstone of modest value. After the sale, Jill realizes that the actual worth of the pendant is $1,000 and tries to void the contract with James. Jill's mistake as to the value of the gemstone is an example of a(n):

Unilateral Contract

In most states, if a person has been formally adjudicated mentally incompetent, contracts made by that person are _____ without regard to whether they are reasonable or for necessaries.

Void

Contracts made by people who have become so intoxicated that they cannot understand the meaning of their acts are:

Voidable

When during contract negotiations a party makes an innocent misrepresentation upon which it is reasonable for the other party to have relied, the contract is:

Voidable

Consideration

What promisor requires as the price for a promise (could be money, personal or real property, a service, a promise regarding behavior, or another item.)

composition of creditors

When all of multiple creditors settle in full for a fraction of the amount owed

The Community Art Museum, a local nonprofit entity, launched a capital drive to raise funds to build a new wing of the museum building. Ronald Jones and ten other individuals each made a voluntary subscription and promised to pay $50,000 to support the new construction. Ronald later had a falling out with the lead museum curator and refused to pay the $50,000 he had promised. Ronald claimed his promise was unenforceable. Was he correct?

When charitable enterprises are financed by voluntary subscriptions of many people, the promise of each person is generally held to be enforceable. Review the section "Exceptions to Requirement of Consideration

Which of the following is an example of valid consideration

When one refrains or promises to refrain from doing something, this conduct is called forbearance. If the promisor had a right to do the act, forbearance is a valid consideration.

Exceptions to Requirement of Consideration

a promise must be supported by consideration. Certain exceptions to the rule involve voluntary subscriptions, debts of record, promissory estoppel, and modification of sales contracts.

Consideration is not required to support an obligation of record, such as a judgment, because:

a promise must be supported by consideration. However, a debt of record is an exception to the rule. Consideration is not required to support an obligation of record, such as a judgment, because such an obligation is already enforceable as a matter of public policy.

Statements of Opinion

as contrasted with statements of fact, do not, as a rule, constitute fraud. The person hearing the statement realizes, or ought to realize, that the other party is merely stating a view and not a fact

Many states now allow convicts the capacity to legally contract, with some limitations, such as:

depriving convicts of contracting rights as needed to provide for the security of the penal institution in which they are confined and for reasonable protection of the public.

Contract Terms Govern

no matter what the law provides when a mistake occurs, the parties may specify a different outcome in their contract. And when the contract specifies what is to happen in the case of a mistake, the contract provision will apply even if the law would be otherwise.

Although there is no consideration, courts will enforce some promises on the basis of _____ when one party acts in reliance on another's promise.

promissory estoppel

If the contract is voidable, you might elect to rescind it or set it aside.

seeks to put the parties in the position they were in before the contract was made. In order to rescind, you must first return, or offer to return, what you received under the contract.

disaffirmance

the repudiation of a contract; that is, the election to avoid it or set it aside. A minor has the legal right to disaffirm a voidable contract at any time during minority or within a reasonable time after becoming of age.

Betty, an 88 year-old elderly woman, is physically and emotionally weak and very dependent on her in-home nurse, Nancy. Betty cannot walk or do other tasks well, due to her age, and Nancy cares for Betty every day. Over a series of weeks, Nancy convinces Betty to sign a contract to sell a parcel of land to Nancy for a very low price. Nancy overcomes Betty's concerns with a combination of persistence and bullying. This contract would be voidable, because of:

undue influence

Danny, a painter, voluntarily helps Ana paint her new apartment with no promise to pay from Ana. A promise to pay made by Ana after the house is painted will be considered:

unenforceable