Ch.10: Legal Environment of Business - Performance and Breach of Contracts

Vocabulary-style flashcards covering contract performance, breach, Statute of Frauds, third-party rights, and remedies based on Chapter 10 of the Legal Environment of Business.

Genuineness of Assent

A requirement that a party’s assent to a contract be genuine; it may be missing due to mistake, fraudulent misrepresentation, duress, or undue influence.

Unilateral Mistake

A situation where only one party is mistaken about a material fact regarding the subject matter of a contract.

Mutual Mistake of a Material Fact

A mistake made by both parties concerning a fact that is important to the subject matter of a contract, allowing for the rescission of the contract.

Mutual Mistake of Value

Exists if both parties know the object of the contract but are mistaken as to its value; the contract remains enforceable.

Fraud (Fraudulent Misrepresentation)

Occurs when one person consciously decides to induce another person to rely and act on a misrepresentation of a material fact.

Scienter

A “guilty mind”; knowledge that a representation is false or was made without sufficient knowledge of the truth.

Duress

A situation in which a party threatens to do a wrongful act unless another party enters into a contract.

Undue Influence

A situation where one person takes advantage of another's mental, emotional, or physical weakness to persuade them to enter a contract, overcoming their free will.

Statute of Frauds

A state statute requiring certain types of contracts, such as those involving real property or high-value goods, to be in writing.

Real Property

The land itself, as well as things permanently affixed to it, such as buildings, trees, soil, minerals, timber, and fixtures.

Part Performance

An equitable doctrine that allows a court to order an oral contract for the sale of land to be performed if it has been partially performed to avoid injustice.

Equal Dignity Rule

A rule stating that agents' contracts to sell real property covered by the Statute of Frauds must be in writing to be enforceable.

One-Year Rule

States that an executory contract that cannot be performed by its own terms within $1$ year of its formation must be in writing.

Guaranty Contract

A promise in which a guarantor agrees to answer for the debts or duties of a primary debtor if that debtor fails to perform.

UCC Section 2-201(1)

The rule stating that sales contracts for the sale of goods costing $500$ or more must be in writing.

UCC Section 2A-201(1)

The rule stating that lease contracts involving payments of $1,000$ or more must be in writing.

Parol Evidence Rule

States that if a written contract is a complete integration, prior or contemporaneous oral or written statements that alter or contradict it are inadmissible.

Merger Clause

A clause stipulating that the contract is a complete integration and the exclusive expression of the parties' agreement; also called an integration clause.

Assignment

The transfer of contractual rights by an obligee to another party.

Obligor

The party who owes a duty of performance under a contract.

Obligee

The party who is owed a right under a contract.

Intended Beneficiary

A third party who is not in privity of contract but has rights and can enforce the contract against the promisor.

Incidental Beneficiary

A party who is unintentionally benefited by other people’s contracts and has no right to enforce those contracts.

Covenant

An unconditional promise to perform; nonperformance constitutes a breach of contract.

Condition Precedent

Requires the occurrence or nonoccurrence of an event before a party is obligated to perform a duty under a contract.

Condition Subsequent

An event whose occurrence or nonoccurrence automatically excuses an existing contractual duty to perform.

Novation

A method of discharging a contract by substituting a third party for one of the original contracting parties.

Accord and Satisfaction

An agreement to accept something different in satisfaction of the original contract (Accord) and the subsequent performance of that agreement (Satisfaction).

Objective Impossibility

Discharges a contract when performance is rendered impossible by external events like death, destruction of subject matter, or supervening illegality.

Force Majeure Clause

A contract clause specifying certain events, such as natural disasters, that will excuse nonperformance.

Complete Performance

A situation where a party renders performance exactly as required, discharging their obligations under the contract.

Substantial Performance

Performance that deviates only slightly from complete performance; also known as a minor breach.

Material Breach (Inferior Performance)

Occurs when a party fails to perform obligations and destroys the essence of the contract, allowing the nonbreaching party to rescind and seek restitution.

Compensatory Damages

A monetary award intended to restore the “benefit of the bargain” and place the nonbreaching party in the position they would have been in if the contract were performed.

Consequential Damages

Foreseeable damages arising from circumstances outside the contract, recoverable if the breaching party knew they would occur; also called special damages.

Liquidated Damages

Damages that parties agree to in advance to be paid in the event of a breach, provided they are reasonable and actual damages are hard to determine.

Mitigation of Damages

The legal duty of a nonbreaching party to make reasonable efforts to avoid or reduce damages caused by a breach.

Specific Performance

An equitable remedy that orders a breaching party to perform the promised act, usually when the subject matter is unique, such as land or heirlooms.

Reformation

An equitable doctrine where a court rewrites a contract to express the true intentions of the parties or correct clerical errors.

Injunction

A court order that prohibits a person from performing a specific act to prevent irreparable injury.

Arbitration

A nonjudicial, private resolution of a contract dispute; it is considered “binding” if the decision cannot be appealed to the courts.