Prentice Hall © PowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 4E, by Henry R. Cheeseman Chapter 11 Performance of Contracts and Remedies for Breach

Prentice Hall © Genuineness of Assent The requirement that a party’s assent to a contract be genuine

Prentice Hall © Recission Recission is an action to undo the contract The law permits recission of some contracts made in mistake

Prentice Hall © Mistakes Unilateral mistakes Mutual mistakes Mutual mistakes of a past or existing material fact Mutual mistake of value

Prentice Hall © Misrepresentation An assertion that is made that is not in accord with the facts Intentional misrepresentation Innocent misrepresentation

Prentice Hall © Elements of Fraud The wrongdoer made a false representation of material fact The wrongdoer intended to deceive the innocent party The innocent party justifiably relied on the misrepresentation The innocent party was injured

Prentice Hall © Types of Fraud Fraud in the inception (or fraud in the factum) Fraud in the inducement Fraud by concealment Silence as misrepresentation Misrepresentation of law Innocent misrepresentation

Prentice Hall © Duress Occurs where one party threatens to do a wrongful act unless the other party enters into a contract Economic duress

Prentice Hall © Proving Undue Influence A fiduciary or confidential relationship must have existed between the parties The dominant party must have unduly used his or her influence to persuade the servient party to enter into a contract

Prentice Hall © Statute of Frauds State statute that requires certain types of contracts to be in writing Statute of Frauds

Prentice Hall © Contracts Generally Required to Be in Writing Contracts involving interests in land Contracts that by their own terms cannot possibly be performed within 1 year Collateral contracts where a person promises to answer for the debt or duty of another Promises made in consideration of marriage Contracts for the sale of goods for more than $500

Prentice Hall © Contracts Generally Required to Be in Writing Real estate agents’ contracts Agents’ contracts where the underlying contract must be in writing Promises to write a will Contracts to pay debts barred by the Statute of Limitations or discharged in bankruptcy Contracts to pay compensation for services rendered in negotiating the purchase of a business Finder’s fee contracts

Prentice Hall © Contracts Involving Interests in Land Real property The land itself as well as buildings, trees, soil, minerals, timber, plants, crops, and other things permanently affixed to the land Fixtures Personal property that is permanently affixed to the real property, such as built-in cabinets in a house

Prentice Hall © Transfer of Other Interests in Real Property Mortgages Leases Life estates Easements

Prentice Hall © One Year Rule An executory contract that cannot be performed by its own terms within one year of its formation must be in writing

Prentice Hall © Equal Dignity Rule The equal dignity rule states that agents’ contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable

Prentice Hall © Promissory Estoppel An equitable doctrine that permits enforcement of oral contracts that should have been in writing. It is applied to avoid injustice

Prentice Hall © Transfer of Interests in Real Property Must be in Writing under the Statute of Frauds This includes: Transfers of an ownership interest Mortgages Leases Life estates Easements

Prentice Hall © Sufficiency of the Writing Formality Required signature Fax can constitute a suitable guarantee Integration of several writings Incorporation by reference Standards of interpretation

Prentice Hall © Parol Evidence Rule Parol evidence is any oral or written words outside the four corners of the written contract If a written contract is a complete and final statement of the parties’ agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract

Prentice Hall © Exceptions to the Parol Evidence Rule Parol evidence may be admitted in court if it: Shows that a contract is void or voidable Explains ambiguous language Concerns a prior course of dealing or course of performance between the parties or usage of trade Fills in the gaps in a contract Corrects an obvious clerical or typographical error

Prentice Hall © Covenant A covenant is an unconditional promise to perform

Prentice Hall © Types of Conditions

Prentice Hall © Discharge of Contracts By agreement Mutual recission Substituted contract Novation Accord and satisfaction By excuse Impossibility of performance Commercial impracticability Frustration of purpose By operation of law Statutes of limitations Bankruptcy Alteration of the contract

Prentice Hall © Types of Performance and their Legal Consequences Complete performanceThe contract is discharged Substantial performance (minor breach) The nonbreaching party may recover damages caused by the breach Inferior performance (material breach) The nonbreaching party may either rescind the contract and recover restitution or affirm the contract and recover damages

Prentice Hall © Anticipatory Breach Also called anticipatory repudiation A breach that occurs when one contracting party informs the other that he or she will not perform his or her contractual duties when due Nonbreaching party’s obligations under the contract are discharged immediately Nonbreaching party has the right to sue

Prentice Hall © Types of Monetary Damages Compensatory—Compensates a nonbreaching party for the loss of the bargain, placing him or her in the same position as if the contract had been fully performed Consequential—Compensates a nonbreaching party for foreseeable special damages Liquidated—Agreement by the parties in advance that set the amounts of damages recoverable in case of breach Nominal—Damages awarded against the breaching party even though the nonbreaching party has suffered no actual damages because of the breach

Prentice Hall © Mitigation of Damages A nonbreaching party is under a legal duty to avoid or reduce damages caused by a breach of contract

Prentice Hall © Rescission and Restitution Rescission An act to undo a contract Available if there has been a material breach of contract, fraud, duress, undue influence, or mistake Restitution Returning of goods or property received from the other party in order to rescind a contract If the actual goods or property is not available, a case equivalent must be made

Prentice Hall © Equitable Remedies Specific performance Court orders the breaching party to perform the acts promised in the contract; subject matter of the contract must be unique Reformation Court rewrites a contract to express the parties’ true intentions; usually used to correct clerical errors Quasi contract Permits the recovery of damages for breach of an implied-in- law contract where no actual contract exists between the parties Injunction Court order that prohibits a party from doing a certain act