Mistake in Fact, Duress, and Undue Influence. Minors, Intoxicated Persons, and Insane Persons

Transcription

1 Topic 7 CONTRACTS Offers and Acceptances Consideration Fraud Mistake in Fact, Duress, and Undue Influence Minors, Intoxicated Persons, and Insane Persons The Statute of Frauds The Parol Evidence Rule Discharge of Contracts Third-Party Beneficiary Contracts Assignments and Delegations Contract Remedies 7-1

2 SUMMARY NOTES Memorize Elements of a contract Agreement (offer acceptance) Exchange of consideration Contractual capacity Legality of the subject matter 1. Offers and Acceptances A contract requires an agreement, a meeting of the minds. A contract may be express (made by words, oral or written) or a contract may be implied (implied by conduct). (express contract) (implied contract) a. Offers An offer must be seriously intended, communicated and definite in its terms. Advertisements in general and price quotes are not offers, but rather are invitations to negotiate or offer. b. Termination of Offers An offer terminated by revocation is effective when received. Most offers can be revoked anytime prior to acceptance. Options and firm offers in UCC Sales cannot be revoked prior to acceptance. An offer terminated by rejection is effective when received. Effects of a counteroffer = Rejection of the original offer + New offer An offer can be terminated by operation of law. For example, destruction of the subject matter, death or insanity of either party or illegality of the subject matter would end an offer immediately. An offer ends by lapse of time and if no time is stated it ends after a reasonable time. c. Acceptances An acceptance must be unconditional or a counteroffer results. An acceptance must be communicated, but it need not be in writing. An acceptance may only be accepted by the party to whom it was made. 7-3

3 d. Mailbox Rule An acceptance is generally valid when sent if properly addressed and stamped and the offeree uses either the express means of communication or any reasonable means of communication if none was expressed. e. Exceptions to the Mailbox Rule If an offer states the acceptance must be received to be effective, then it must be received. If an offer stipulates a certain means of acceptance, the offeree must use the means or else there is no acceptance. Point! (mailbox rule) 2. Consideration Consideration is something of legal value provided by the parties in a bargained-for exchange. 7-4

4 a. Legally Sufficient Value Legally sufficient value is defined as a legal detriment which means giving up a legal right or taking on a new legal duty. It need not have monetary value or be of equal value. b. Bargained-for Exchange The promisee s return promise or performance must be bargained-for and given in exchange for the promisor s promise. Thus, past consideration is no good. c. Examples of Things That Are Not Consideration Past consideration Preexisting legal duty d. Under common law, modification of an existing contract needs new consideration by both parties to be legally binding (at least on the CPA exam). e. When Consideration is Not Required No consideration is needed to modify a sales contract, to support a promise to which the promissory estoppel applies, to support a promise to donate to charity or to pay a debt barred by the statue of limitations. 3. Fraud a. Actual Fraud Has 4 Elements (MS JD). M = Misrepresentation of a material fact (including false representation, concealment and nondisclosure) S = Scienter: an intent to mislead with knowledge of falsity J = Justifiable reliance by the plaintiff on the misrepresentation D = Damage resulted from the representation b. Constructive Fraud or Gross Negligence Has the Same 4 Elements (MS JD) except for the "S". The difference is that scienter is met by a Reckless disregard for the truth (R) (MR JD). (scienter) 7-5

5 c. Fraud in the Execution and Fraud in the Inducement Fraud in the execution occurs when the victim never knew a contract was being made. It makes a contract void. Fraud in the inducement occurs when the victim knows a contract is being made, but terms are misrepresented. This makes a contract voidable (defrauded party can rescind). 4. Mistake in Fact, Duress, and Undue Influence a. Mistake in fact Mutual mistakes of material facts are voidable by the adversely affected parties. Unilateral mistakes of material facts are generally not voidable. Exception: If one party makes a mistake as to a material fact, the contract is not voidable. However, the contract is voidable by the mistaken party if: (a) The other party knew or should have known of the mistake, (b) The other party did not make any attempt to correct the mistaken party, (c) The mistake was made without gross negligence. (a)(b) (c) b. Duress Duress is forcing someone into a contract against his/her will by improper threat made toward a party (or his/her family or property). c. Undue Influence Undue influence is the unfair persuasion of a party over the other party who is under the domination of the party exercising the persuasion. It makes a contract voidable. Point! Reality of consent Summary Fraud in the inducement Fraud in the execution Innocent misrepresentation Negligent misrepresentation Mutual mistake Unilateral mistake Ordinary duress Extreme duress Undue influence voidable by the defrauded party void voidable by the adversely affected party if immaterial, not voidable (valid) not voidable (valid) if known by the other party, voidable void 7-6

6 Contracts MULTIPLE-CHOICE QUESTIONS (1-9) 1. The president of Deal Corporation wrote to Boyd, offering to sell the Deal factory for $300,000. The offer was sent by Deal on June 5 and was received by Boyd on June 9. The offer stated it would remain open until December 20. The offer: 1. Constitutes an enforceable option. 2. May be revoked by Deal any time prior to Boyd s acceptance. 3. Is a firm offer under the UCC but will be irrevocable for only three months. 4. Is a firm offer under the UCC because it is in writing. 2. The mailbox rule generally makes acceptance of an offer effective at the time the acceptance is dispatched. The mailbox rule does not apply if: 1. Both the offeror and offeree are merchants. 2. The offer proposes a sale of real estate. 3. The offer provides that an acceptance should not be effective until actually received. 4. The duration of the offer is not in excess of three months. 3. In deciding whether consideration necessary to form a contract exists, a court must determine whether: 1. The consideration given by each party is of roughly equal value. 2. There is mutuality of consideration. 3. The consideration has sufficient monetary value. 4. The consideration conforms to the subjective intent of the parties. 4. To establish a cause of action based on fraud in the inducement, one of the elements the plaintiff must generally prove is that: 1. It is impossible for the plaintiff to perform the terms of the contract. 2. The contract is unconscionable. 3. The defendant made a false representation of a material fact. 4. There has been a mutual mistake of a material fact by the plaintiff and defendant. 7-13