Business Law Unit 4

Contract may be unenforceable if it is not voluntarily assented because of

mistake, fraudulent misrepresentation, undue influence, or duress

A mistake of material fact could allow

a contract to be cancelled

Unilateral Mistake

a mistake made by one party which generally is still enforceable

Unilateral mistake may not be enforceable if

the other party should have known a mistake was made or mistake was made by an inadvertent math error

Bilateral Mistake

mistake if the same fact made by both parties; this contract can be rescinded by either party

Mistake of Value

a mistake about the future value or quality of the object in the contract generally still enforceable

Fraudulent Misrepresentation

innocent party may rescind (unwind) the contract

Fraudulent Misrepresentation has four requirements

misrepresentation of material fact, intent to decieve, justifiable reliance on misrepresentation, injury to the innocent party

Innocent misrepresentation

gives information believed to be true, the innocent party can rescind contract but generally not seek damages

Negligent misrepresentation

fails to use reasonable care in disclosing facts

Undue Influence

arises from relationships in which a third party can greatly influence one of the contracting parties (normally found in trusting relationships like doctor-patient)

Duress

entering into a contract because of fear or threat

Statute of Frauds

has origins in England; purpose to prevent harm to innocent parties by requiring written evidence of certain contracts

Contracts that must be written acronym

MY LEGS

Marriage

largely today applies to prenuptial agreements

Year

contracts that cannot be feasibly performed in a year

Land

contracts for the sale of land must be written and have a description of the land

Executor

must be written in words that the executor of the state wishes to pay the debts of the estate out of pocket

Goods

contracts involving goods that cost 500 dollars or more must be in writing (exception for custom goods) must have a quantity term and must be signed by the party whom enforcement is sought

Surety

a promise to pay another person’s debt only if that party fails to pay must be in writing

Exception to Surety

if the guarantor’s main goal is for personal benefit the promise does not need to be in writing

Exceptions to the Writing Requirement: Partial Performance

may grant specific performance as an equitable remedy

Exceptions to the Writing Requirement: Promissory Estoppel

court may stop a person from denying a contract exists

Exceptions to the Writing Requirement: Admission

party admits the contract exists

Exceptions to the Writing Requirement: Custom Goods

oral contracts are enforceable for custom goods regardless of price of good

The contract can be

in writing or typed, longer than one page, needs signature of party of which enforcement is sought

Parol Evidence Rule

if the contract is complete (has full terms, signatures etc.) no outside evidence will be allowed

Exceptions to Parol Evidence Rule

Void/Voidable contracts, contracts with ambiguous terms, incomplete contracts, prior dealings, contracts with obvious error

Privity of Contracts

only the original parties to a contract have rights and liabilities to the contract

Exceptions to Privity

assignment, delegation, and third party beneficiary contract

Assignment is the

transfer of contractual rights

Delegation is the

transfer of contractual duties

Example of Assignment

after you start a line of mortgage at a bank the bank will assign that right to receive payments to another bank

Effect of an Assignment

the person who assign’s the rights (assignor) no longer has any, assignee has the right to demand performance from the obligor, assignee gains the assignor’s rights

All Rights can be assigned except

statute prohibits assignment, contract is personal, contract prohibits assignment, assignment changes the risks or duties of the obligor

It is ___ legally necessary to notify

not

US Rule for Assignment

first assignment in time wins

English Rule for Assignment

first to notify wins

Delegation

the transfer of contractual duties to a third party

General Rule on Delegations

any duty can be delegated

Exceptions to Delegation

if duties are personal like skill or talent, performance will vary materially from that expected, or contract prohibits delagation

Obligee can sue

both the person who had duties delegated to them and the person who delegated the duties for nonperformance

All Rights

meaning both an assignment and delegation is made

3rd Party Beneficiaries are

an exception to privity of contract

Intended 3rd party beneficiary

has legal rights and can sue to enforce the contract made for their benefit

Incidental 3rd party beneficiary

no legals rights and cannot sue (because benefit is unintentional)

Rights Vesting

rights vest for an intended third party beneficiary when the third party becomes aware and consents to the agreement

A party can be discharged by

a condition occurring, full performance, material breach, agreement of the parties, operation of law

Condition (defintion)

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

Discharge by performance

released from contract because it was fully performed

Tender

one party makes an unconditional offer to fully perform; the party tendering has the right to demand performance from the other party

Complete Performance

a party performs exactly as agreed

Substantial Performance

a party in good faith substantially performs all of their contractual duties; case-by-case basis

Material Breach of Contract

occurs when performance is below substantial; nonbreaching party is excused from performance and entitled to damages

Non-material breach of contract

duty to perform is not excused and nonbreaching party must resume performance of the contractual obligations undertaken

Anticipatory Repudiation

one of the parties backs out early from the contract; it is treated as a material breech

Discharge by Mutual rescission

parties make another agreement with the purpose of cancelling the original agreement

Discharge by Novation

both parties agree to substitute a new third party for one of the original parties

Requirements for Discharge by Novation

previous valid obligation, agreement by all parties, extinguishment of all old obligations, and a new valid contract

Discharge by Operation of Law: Material Alteration

innocent party is discharged after the contract is changed

Discharge by Operation of Law: Statute of Limitations

must file suit within time permitted by applicable law

Discharge by Operation of Law: Bankruptcy

generally bars enforcement of non-exempt transactions

Impossibility of Performance

objectively impossible; death or incapacitation, destruction of subject matter, change in law makes contract illegal

Commercial Impracticability

performance becomes extremely difficult or costly; which was not known when contract was made

Frustration of Purpose

supervening event makes it impossible to attain purpose both parties had in mind; must not have been a forseeable event

Common Remedies

damages, rescission, restitution, specific performance, reformation

Equitable remedies

rescission, restitution, specific performance, reformation

Damages are a

remedy at law

Damages

meant to make a party whole or give benefit of their bargain

Compensatory Damages

cover direct losses and costs

Consequential Damages

to cover indirect but foreseeable losses

Nominal Damages

to recognize wrongdoing when no monetary loss is shown

Punitive Damages

to punish and deter wrongdoing

Example of Consequential Damages

like lost profits on sale of goods intended for resale

Mitigation of Damages

whena breach of contract occurs, the innocent injured party is held to a duty to reduce damages they suffered

Example of a situation that might need mitigation of damages

breaking a rental agreement landlord must use reasonable means to find a new tenant

Rescission

terminates the contract and returns parties to their position prior to the transaction

Restitution

when a contract is rescinded both parties must return good, property, or money perviously conveyed