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Flashcards in Chapter 11 Deck (72):
1

Genuine assent

The requirement that a party's assent to a contract be genuine. Genuineness of assent is an issue in the areas of mistake, misrepresentation, duress, and undue influence

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Unilateral mistakes

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

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Three types of situations in which the contract may not be enforced due to unilateral mistakes:

1. One party makes a unilateral mistake of fact, and the other party knows that a mistake has been made.
2. A unilateral mistake occurs because of a clerical or mathematical error that is not the result of gross negligence.
3. The mistake is so serious that enforcing the contract would be unconscionable

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Mutual mistake of fact

A mistake made by both parties concerning a material fact that is important to the subject matter of the contract

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Mutual mistake of value

A mistake that occurs if both parties know the object of the contract but are mistaken as to its value

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Misrepresentation

An assertion is made that is not in accord with the facts

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Intentional misrepresentation

A misrepresentation that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation. Also called a fraud

8

3 types of frauds:

1. Fraud in the Inception
2. Fraud in the Inducement
3. Fraud by Concealment

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Fraud in the Inception

Fraud that occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing

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Fraud in the Inducement

Fraud that occurs when the party knows what he or she is signing but has been fraudulently induced to enter into the contract

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Fraud by Concealment

Fraud that occurs when one party takes specific action to conceal a material fact from another party

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Duress

Situation occurs when one party threatens to do a wrongful act unless the other party enters into a contract

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Undue influence

One person's taking advantage of another person's mental, emotional, or physical weakness and unduly persuading that person to enter into a contract; the persuasion by the wrongdoer must overcome the free will of the innocent party

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Required elements to prove undue influence:

1. A fiduciary or confidential relationship must have existed between the parties
2. The dominant party must have unduly used his or her influence to persuade the servient party to enter into a contract

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Statute of frauds

A state statute that requires certain types of contracts to be in writing

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Contracts that transfer an ownership interest in land must be in writing under the statute of frauds, which include:

1. Mortgages
2. Leases
3. Life Estates
4. Easements

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Mortgages

Also, called deed of trust. This is required for borrowers to give a lender an interest in real property as security for the repayment of a loan

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Lease

The transfer of the rights to use real property for a specified period of time

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Life estate

The person has an interest in the land for the person's lifetime, and the interest will be transferred to another party on that person's death

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Easement

A given or required right to use another person's land without owning or leasing it

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One-year rule

A rule that states that an executory contract that cannot be performed by its own terms within one year of its formation must be in writing

22

Collateral contract

A promise in which one person agrees to answer for the debts for duties of another person. Also called guaranty contract

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Original or primary contract

Known as the first contract. It is between the debtor and the creditor

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Guarantor

The person who agrees to pay the debt if the primary debtor does not

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Guaranty contract

The second contract that is between the person who agrees to pay the debt if the primary debtor does not

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(UCC) Uniform Commercial Code Statue of Frauds

A provision for contracts that says that the sale of goods costing $500 or more must be in writing

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Equal dignity rule

A rule that says that agents' contracts to sell property covered by the statue of frauds must be in writing to be enforceable

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Promissory estoppel, or equitable estoppel

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

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The oral promise is enforceable against the promisor if these three conditions are met:

1. The promise induces action or forbearance of action by another
2. The reliance on the oral promise was foreseeable
3. Injustice can be avoided only by enforcing the oral promise

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Covenant

An unconditional promise to perform

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Condition

A qualification of a promise that becomes a covenant if it is met

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Condition precedent

A condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract

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Condition subsequent

A condition, if it occurs, that automatically excuses the performance of an existing contractual duty to perform

34

Different types of mutual agreements:

1. Mutual rescission
2. Novation
3. Accord and Satisfaction

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Mutual rescission

Requires the parties to enter into a second agreement that expressly terminates the first one

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Novation

An agreement that substitutes a new party for one of the original contracting parties and relieves the exiting party of liability on the contract

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Accord and satisfaction

The settlement of a contract dispute

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Accord

The agreement whereby the parties agree to accept something different in satisfaction of the original contract

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Satisaction

The performance of an accord

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If an accord is not satisfied when it is due, the aggrieved party may enforce either:

(1) The accord or (2) the original contract

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Impossibility of performance or objective impossibility

Nonperformance that is excused if the contract becomes impossible to perform; it must be objective impossibility, not subjective

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Types of objective impossibility excuse nonperformance:

1. The death or incapacity of the promisor prior the performance of a personal service contract.
2. The destruction of the subject matter of a contract prior to performance.
3. A supervening illegality makes performance of the contract illegal

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Commercial impracticability

Nonperformance that is excused if an extreme or unexpected development or expense makes it impractical for the promisor to perform

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3 types of performance of a contract:

1. Complete performance
2. Substantial performance
3. Inferior performance (or material breach)

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Complete performance

A type of performance that occurs when a party to a contract renders performance exactly as required by the contract; it discharges that party's obligations under the contract

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Executed contract

A fully performed contract

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Tender of performance

Discharges a party's contractual obligation

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Substantial performance

Performance by a contracting party that deviates only slightly complete performance. Occurs when there has been a minor breach of contract

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The nonbreaching party of a substantial performance may either:

(1) Convince the breaching party to elevate his or her performance to complete performance, (2) deduct the cost to repair the defect from the contract price and remit the balance to the breaching party, or (3) sue the breaching party to recover the cost to repair the defect if the breaching party has already been paid

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Material breach

A breach that occurs when a party renders inferior performance of his or her contractual duties

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Inferior performance

Performance that occurs when a party fails to perform express or implied contractual obligations that impair or destroy the essence of the contract

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Where there has been a material breach of a contract, the nonbreaching party has two choices:

1. The nonbreaching party may rescind the contract, seek restitution of any compensation paid under the contract to the breaching party, and be discharged from any further performance under the contract
2. The nonbreaching party may treat the contract as being in effect and sue the breaching party to recover damages

53

Anticipatory breach or 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

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Monetary damages

Financial damages that a nonbreaching party may recover from a breaching party whether the breach was minor or material

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Types of monetary damages may be award, which are:

1. Compensatory
2. Consequential
3. Nominal
4. Liquidated damages

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Compensatory damages

A remedy intended to compensate a nonbreaching party for the loss of a bargain; they place the nonbreaching party in the same position as if the contract had been fully performed by restoring the "benefits of the bargain"

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Consequential damages

Foreseeable damages that arise form circumstances outside the contract. In order 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

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Liquidated damages

An agreement by the parties in advance that sets the amount of damages recoverable in case of breach. These damages are lawful if they do not cause a penalty

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Punitive damages

Damages that are awarded to punish the defendant, to deter the defendant from similar conduct in the future, and to set an example for others

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Mitigation

A situation in which a nonbreaching party is under a legal duty to avoid or reduce damages caused by a breach of contract

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Rescission

An action to rescind (undo) a contract. Rescission is available if there has been material breach of contract, fraud, duress, undue influence, or mistake

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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 cash equivalent must be made

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The general rule of freedom holds that if:

1. The object of a contract is lawful
2. The other elements for the formation of a contract are met, the courts will enforce a contract according to its term

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Unconscionability

A doctrine under which courts may deny enforcement of unfair or oppressive contracts

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The following elements must be shown to prove that a contract or clause in a contract is unconscionable:

1. The parties possessed severely unequal bargaining power
2. The dominant party unreasonably used its unequal bargaining power to obtain oppressive or manifestly unfair contract terms
3. The adhering party had no reasonable alternative

66

If the court finds that a contract or contract clause is unconscionable, it may:

1. Refuse to enforce the contract
2. Refuse to enforce the unconscionable clause but enforce the remainder of the contract
3. Limit the applicability of any unconscionable clause so as to avoid any unconscionable result

67

Equitable remedies

Remedies that may be awarded by a judge where there has been a breach of contract and either (1) the legal remedy is not adequate or (2) the judge wants to prevent unjust enrichment

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Most common equitable remedies:

1. Specific performance
2. Reformation
3. Quasi-contract
4. Injunction

69

Specific performance

A remedy that orders the breaching party to perform the acts promised in the contract. Specific performance is usually awarded in cases in which the subject matter is unique, such as in contracts involving land, heirlooms, paintings, and the like

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Reformation

An equitable doctrines that permits the court to rewrite a contract to express the parties' true intentions

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Quasi-contract

An equitable doctrine that permits the recovery of compensation even though no enforceable contract exists between the parties

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Injunction

A court order that prohibits a person from doing a certain act