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Chapter 10
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
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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

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
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
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
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
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
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
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
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
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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
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
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
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
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
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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
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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
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
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
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
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
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
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

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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
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
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
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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
 Condition subsequent: A condition whose
occurrence or nonoccurrence of a specific event
automatically excuses the performance of an existing
contractual duty to perform

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Discharge by agreement
Mutual
rescission
• Both parties enter into a second contract that expressly terminates the first one
Novation
• Substitutes a third party for one of the original contracting parties
Accord and
satisfaction
• 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
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
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
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
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
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
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
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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
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
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
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

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”
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
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
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
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
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Type of Equitable Remedy
Description
Specific performance
A court orders the breaching party to perform the
acts promised in the contract. The subject matter of
the contract must be unique.
Reformation
A court rewrites a contract to express the parties’
true intentions. This remedy is usually used to
correct clerical errors.
Injunction
A court prohibits a party from doing a certain act.
Injunctions are available in contract actions only in
limited circumstances.
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