Chapter 12 Contract Defenses, Discharge and Remedies

Genuineness of Assent Contract may be unenforceable if the parties have not genuinely assented to its terms by: Mistake. Misrepresentation. Undue Influence. Duress.

Unilateral Mistakes One party mistaken as to some material fact. Does not afford the mistaken party any right to relief from the contract unless: If other party to the contract knew or should have known that a mistake of fact was made, or If there was a gross clerical error.

Mutual Mistakes If both parties have made a mistake about a material fact, the contract can be rescinded by either party.

Mistakes of Value Contract enforceable by either party. Unilateral or Bilateral mistake are not basis for avoiding a contract. Exception: Mistake of value because of a mistake of material fact.

Fraudulent Misrepresentation Contract is Voidable by Innocent Party. Elements: Misrepresentation of Material Fact. Intent to Deceive. Reliance on Misrepresentation. Injury to the Innocent Party.

Fraudulent Misrepresentation Concealment. Misrepresentation of future facts and statements of opinion are not fraud, unless person professes to be an expert. Misrepresentation of Law is not fraud, unless person has greater knowledge of the law. Silence is not fraud, unless serious problem or defect known or asked and person lied.

Undue Influence Contract is Voidable. Confidential or Fiduciary Relationship. Relationship of dependence. Influence or Persuasion. Weak party talked into doing something not beneficial to him or herself.

Duress Forcing a party to enter into a contract under fear or threat (voidable contract) Threatened act must be wrongful or illegal. Improper Threat. Threat to exercise legal rights (criminal or civil suit). Economic or physical.

The Statute of Frauds To be enforceable, the following types of contracts must be in writing and signed: Contracts involving interest in land. Contracts involving “One year rule.” Collateral or Secondary Contracts. Promise made in consideration of marriage. Contracts for the sale of goods priced at $500 or more.

Contracts Involving Interest in Land Land includes all physical objects that are permanently attached to the soil: buildings, fences, trees, and the soil itself. All contracts for the transfer of other interest in land: mortgages and leases. Must be in writing signed by party against whom enforcement is sought.

The One-Year Rule A contract that cannot, by its own terms, be performed within one year from formation must be in writing to be enforceable. One-year period begins to run the day after the contract is made. Test:Is performance possible (although unlikely) within one year.

Collateral Promises Secondary promise to a transaction. Primary vs. Secondary obligations. Secondary obligation must be in writing. Exception: “Main Purpose” Rule.

Promises Made in Consideration of Marriage Unilateral promise for money or property must be in writing. Pre-nuptials must be in writing. Courts give more weight to pre-nups based on consideration.

Contracts for the Sale of Goods UCC requires a writing or memorandum for the sale of goods priced at $500 or more. Exceptions to the Statute of Frauds: Partial Performance. Case 12.1 Spears v. Warr (2002). Admissions. Promissory Estoppel. Special Exceptions under the UCC.

Statute of Frauds- Sufficiency of the Writing Written Memorandum. Signed by the Party against whom enforcement is sought. Writing can be email, fax.

Parol Evidence Rule Court Rule: Prohibits introduction of communications that contradict the written agreement. If the court finds that the parties intended their written contract to be a complete and final embodiment of their agreement, a party cannot introduce evidence of any oral agreement or promise made prior to the contract’s formation or at the time the contract was created. Case 12.2 APJ Associates, Inc. v. North American Philips Co. (2003).

Exceptions to the Parol Evidence Rule Contracts subsequently modified. Voidable or Void contracts. Contracts containing ambiguous terms. Prior dealing, course of performance, or usage of trade. Contracts subject to orally agreed-on conditions. Contracts with an obvious or gross clerical error that clearly would not represent the agreement of the parties.

Contract Discharge A party may be discharged from a valid contract by: A condition occurring or not occurring. Full performance or material breach by the other party. Agreement of the parties. Operation of law.

Conditions Possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract. Types of Conditions: Conditions Precedent. Conditions Subsequent. Conditions Concurrent.

Discharge by Performance The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. Complete vs. Substantial Performance: Complete: strict performance. Substantial: performance does not vary greatly and create substantial benefit. Other party must pay. Performance to the Satisfaction of One of the Parties or a Third Party.

Material Breach of Contract The nonperformance of a contractual duty. Material breach occurs when there has been a failure of consideration. Discharges the non breaching party from the contract.

Anticipatory Repudiation If before performance is due, one party refuses to perform his or her contractual obligation. Results in material breach. The nonbreaching party should not be required to remain ready and willing to perform.The nonbreaching party should have the opportunity to seek a similar contract elsewhere.

Discharge by Agreement Rescission. Novation. Substituted Agreement. Accord and Satisfaction.

Discharge by Operation of Law Alteration of a contract. Statutes of Limitations. Bankruptcy. Impossibility. Commercial Impracticability. Case 12.3 Cape-France Enterprises v. Estate of Peed (2001).

Types of Damages Compensatory Damages. Compensate injured party for damages actually sustained. Sale of Goods: difference between the contract and market price. Sale of Land: same as sale of goods. Construction Contracts: depends on when and who breaches.

Types of Damages Consequential Damages. Punitive Damages. Foreseeable damages the breaching party is aware--or should be aware—of that cause damage as a consequence of the original injury. cause the injury party additional loss. Punitive Damages. Designed to punish the wrongdoer and deter similar activity in the future. Nominal Damages. No financial loss.

Mitigation of Damages When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered. Duty owed depends on the nature of the contract.

Liquidated Damages vs. Penalties Amount of damages determined by agreement or court order. Enforceable. Penalty: Designed to punish the breaching party. Generally not enforceable. Case 12.4 Green Park Inn, Inc. v. Moore (2002).

Equitable Remedies Rescission. Restitution. A remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions. Restitution. Both parties must return goods, property, or money previously conveyed.

Specific Performance Equitable remedy calling for the performance of the act promised in the contract. Remedy in cases where the consideration is: Unique; Scarce; or Not available remedy in contracts for personal services.

Reformation Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. Available when an agreement is imperfectly expressed in writing.

Recovery Based on Quasi Contract Equitable remedy imposed by courts to obtain justice and prevent unjust enrichment. Requires: A benefit was conferred to the other party. Party conferring did so with the reasonable expectation of being paid. The benefit was not volunteered. Retaining benefit without paying for it would result in unjust enrichment of the party receiving the benefit.

Election of Remedies Doctrine created to prevent double recovery. Nonbreaching party must choose which remedy to pursue. UCC rejects election of remedies. Cumulative in nature and include all the available remedies for breach of contract.

Remedies for Breach of Sales Contracts When the buyer breaches a contract for the sale of goods, the seller may stop or withhold delivery of the goods, or recover damages or the purchase price of the goods. When the seller breaches a sales contract, the buyer may reject the goods, recover damages, obtain specific performance, or cover and obtain from the seller the extra cost of the cover.

Contract Provisions Limiting Remedies Exculpatory clauses. Provisions stating that no damages can be recovered. Limitation of liability clauses. Provisions that affect the availability of certain remedies.

Contracts for the International Sale of Goods International sales contracts are governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG). If the countries of the parties to the contract have ratified the CISG (and if the parties have not agreed that some other law will govern their contract), the CISG covers the transaction. Essentially, the CISG is to international sales contracts what Article 2 of the UCC is to domestic sales contracts.