1. Chapter 10

2.  The requirement that a party’s assent to a contract be genuine  Genuineness assent may be missing because a party entered into a contract based on  Mistake  Fraudulent misrepresentation  Duress  Undue influence 10-2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

3.  A mistake in which 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 material fact that is important to the subject matter of a contract 10-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

4.  A mistake that occurs if:  both parties know the object of the contract but are mistaken as to its value  Fraud: An event that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation  Also called intentional misrepresentation or fraudulent misrepresentation 10-4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

5.  The following elements constitute fraud  Misrepresentation of a material fact  Intent to deceive ▪ Scienter (“guilty mind”): Knowledge that a representation is false or that it was made without sufficient knowledge of the truth  Reliance on the misrepresentation  Injury to the innocent party ▪ To recover damages, the innocent party must prove that the fraud caused him or her economic injury 10-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

6.  A situation in which a party threatens to do a wrongful act unless another party enters into a contract  Such a contract is not enforceable against the innocent party 10-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

7.  A situation in which one person:  Takes advantage of another person’s mental, emotional, or physical weakness  Unduly persuades that person to enter into a contract ▪ The persuasion by the wrongdoer must overcome the free will of the innocent party  A contract that is entered into because of undue influence is voidable by the innocent party 10-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

8.  A state statute that requires certain types of contracts to be in writing  The following contracts must be in writing  Contracts involving interests in real property  Agents’ contracts  Guaranty contract  UCC contract for the sale or lease of goods 10-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

9.  Any contract that transfers an ownership interest in real property must be in writing to be enforceable  Real property: Land itself, as well as other things permanently affixed to the land or buildings  Part performance: An equitable doctrine that:  Allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if it has been partially performed ▪ Performance is necessary to avoid injustice 10-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

10.  Equal dignity rule: A rule which says:  Agents’ contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable  One-year rule  Rule which states that executory contract that cannot be performed by its own terms within one year of its formation must be in writing 10-10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

11.  A promise in which one person agrees to answer for the debts or duties of another person  It is a contract between the guarantor and the original creditor  Guarantor: A person who agrees to pay a debt if the primary debtor does not 10-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

12. Section 2-201(1) of the Uniform Commercial Code (UCC) A section of the Uniform Commercial Code (UCC) which states that sales contracts for the sale of goods costing $500 or more must be in writing Section 2A-201(1) of the UCC A section of the Uniform Commercial Code (UCC), which states that lease contracts involving payments of $1,000 or more must be in writing 10-12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

13.  A written contract does not have to be either drafted by a lawyer or formally typed to be legally binding  The law only requires a writing containing the essential terms of the parties’ agreement  Required signature  The Statute of Frauds and the UCC require a written contract to be signed by the party against whom enforcement is sought ▪ The signature of the person who is enforcing the contract is not necessary 10-13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

14.  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 ▪ There are several exceptions to this rule  Merger clause: A clause in a contract which stipulates that it is a complete integration and the exclusive expression of the parties’ agreement 10-14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

15.  Acquired in the following situations  As assignees  As intended third-party beneficiaries  Assignment: The transfer of contractual rights by an obligee to another party  Assignor: An obligee who transfers a right  Assignee: A party to whom a right has been transferred 10-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

16.  A third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor  Incidental beneficiary: A party who is unintentionally benefited by other people’s contracts  An incidental beneficiary has no rights to enforce or sue under other people’s contracts 10-16 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

17.  Covenant  An unconditional promise to perform  Condition: A qualification of a promise that becomes a covenant if it is met  There are three types of conditions ▪ Conditions precedent ▪ Conditions subsequent ▪ Concurrent conditions 10-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

18.  Condition precedent: A condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract  Condition subsequent: A condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform 10-18 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

19. Discharge by agreement Both parties enter into a second contract that expressly terminat es the first one Mutual rescission Substitutes a third party for one of the original contracting parties Novation Accord - Parties agree to accept something different in satisfaction of the original contract Satisfaction of the accord discharges both the original contract and the accord Accord and satisfaction 10-19 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

20.  Discharge by impossibility of performance  Nonperformance that is excused if a contract becomes impossible to perform  It must be objective impossibility, not subjective  Force majeure clause: A clause in a contract in which the parties specify certain events that will excuse nonperformance 10-20 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

21.  There are three types of performance of a contract  Complete performance  Substantial performance (or minor breach)  Inferior performance (or material breach)  A breach of contract occurs if one or both of the parties do not perform their duties as specified in the contract 10-21 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

22.  A situation in which a party to acontract renders performance exactly as required by the contract  Complete performance discharges that party’s obligations under the contract  Tender of performance: An unconditional and absolute offer by a contracting party to perform his or her obligations under a contract  Also discharges a party’s contractual obligations 10-22 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

23.  Performance by a contracting party that deviates only slightly from complete performance  Minor breach: A breach that occurs when a party renders substantial performance of his or her contractual duties  Damages can be recovered by  Deducting the cost to repair the defect from the contract price and remitting the balance to the breaching party  Suing the breaching party to recover the cost to repair the defect if the breaching party has already been paid 10-23 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

24.  A breach that occurs when a party renders inferior performance of his or her contractual duties  Inferior performance: A situation in which a party fails to perform express or implied contractual obligations and impairs or destroys the essence of a contract  Rescission: An action to rescind (undo) a contract 10-24 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

25.  An award of money  Compensatory damages: An award of money intended to compensate a nonbreaching party for the loss of the bargain  Compensatory damages place the nonbreaching party in the same position as if the contract had been fully performed by restoring the “benefit of the bargain” 10-25 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

26.  Foreseeable damages that arise from circumstances outside a contract  To be liable for these damages, the breaching party must know or have reason to know that the breach will cause special damages to the other party 10-26 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

27.  Damages that parties to a contract agree in advance should be paid if the contract is breached  An enforceable liquidated damages clause is an exclusive remedy  A liquidated damages clause is considered a penalty if ▪ Actual damages can be clearly determined in advance ▪ Liquidated damages are excessive or unconscionable  Mitigation of damages  A nonbreaching party’s legal duty to avoid or reduce damages caused by a breach of contract 10-27 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

28. Type of Equitable RemedyDescription Specific performanceA court orders the breaching party to perform the acts promised in the contract. The subject matter of the contract must be unique. ReformationA court rewrites a contract to express the parties’ true intentions. This remedy is usually used to correct clerical errors. InjunctionA court prohibits a party from doing a certain act. Injunctions are available in contract actions only in limited circumstances. 10-28 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

29. 10-29 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.