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89 Cards in this Set

  • Front
  • Back
Reality of Consent
A. Moving away from Caveat Emptor
1. Old Rule: "Buyer Beware;" a contract is a contract
B. Contracts voidable in equity because of inequity of enforcing contract
C. Major Categories
Reality of Consent
Major Categories
1. Material mistake of fact
2. Misrepresentation
3. Duress
4. Undue influence
5. Unconscionability
Reality of Consent
Usually must choose between dollar damages and equitable remedy
A. Rescission
B. Reformation
Reality of Consent
Equity Court
Court cancels the contract and each party must restore the status quo (e.g., return $ or property)
Reality of Consent
If there is an oral agreement of the parties and a mistake in writing it up (scrivener's error), court revises the contract to conform to the actual agreement (problem is proof)
Reality of Consent
Mutual Mistake of Fact (Bilateral)
A. Mistake of both parties to the transaction
uncertainity usually not enough
B. As to material fact
1. Material - fact important to subject matter
2. Fact - not as to law, opinion, prediction, or value
3. Usually goes to: existence, identity, or character of subject matter
a. Example: Negotiating on purchase of car then it is stolen, thought talking about other car, OR both thought cubic zirconian
b. Example: Junk dealer cleaning out basement found precious art, estate entitled to recission
Reality of Consent
Unilateral Mistake of Fact
A. Generally Rule
Unilateral mistake is generally not grounds for recission
B. Elements of valid defense:
1. Material mistake of fact by one party
2. Other party has reason to know of the mistake
C. Rescisiion Remedy
1. Can't take knowing advantage of another's mistake
2. Example: Significantly underbid on building something, baseball card that kid signed for when mis-quoted
Reality of Consent
Misrepresentation - Types and Remedies
A. Innocent
Mistake without fault - Rescission only
B. Negligent
Rescission OR money damages
C. Fraudulent
Actual and punitive damages on one hand OR rescission on the other
Reality of Consent
A. Fruad in the execution (signing)
1. Victim is told he's signing something else
2. Example: Told a promissory note is a loan application
3. Contract is void
B. Fraud in inducement
1. Deception as to the understood subject matter of contract, not as to document itself
2. Contract is voidable
3. Example: GET FROM TARA
Reality of Consent
Elements of Fraud in the Inducement
A. Misrepresentation of a material fact
B. Intent to deceive by the defendant
C. Reliance
D. Injury to Plaintiff
Reality of Consent
Elements of Fraud in the Inducement
Misrepresentation of a material fact
1. Material - important to deal
2. Must be misrepresentation of past or present material fact; not expression of opinion, future event, value, general quality, legal opinion
3. Exceptions - a false opinion or concealment without a misrepresentation of fact is fraud if there is:
a. A confidential relationship between seller and buyer
1. Example: Lying to care so you can get a better deal on car that you have access
b. Seller has superior knowledge upon which seller expects reliance
1. Example: Seller sells something "that will work" and it doesn't, then no return policy
c. Concealment of serious defect of which seller knows but buyer has no reasonable way of finding out
1. Example: cracks in foundation covered up
d. Partial disclosure
1. Example: GET FROM TARA
Reality of Consent
Elements of Fraud in the Inducement
Intent to deceive by the defendant
1. Defendant has knowledge of falsity OR
2. Defendant has reckless disregard for the truth: making a statement at a time when the speaker has serious doubts about the truth of it
Reality of Consent
Elements of Fraud in the Inducement
There must be justifiable (reasonable) reliance by the plaintiff
Reality of Consent
Elements of Fraud in the Inducement
Injury to Plaintiff
If seeking monetary damages, must prove monetary loss
Reality of Consent
A. Definition
1. Forcing a party into a contract under fear of wrongful threats
2. Threatening what you have a legal right to do not enough
3. Examples: "If you don't sign promisory note, I'm going to sue you." - Not Duress
B. Elements
1. Threat
2. Unlawfully or wrongfully made
3. Causing involuntary acceptance
4. Because circumstances permit no alternative
5. E.g., Thompson(client) v. Egman(lawyer) - Egman change fee structure day before tax appeal due to get % so more money
6. E.g., Source Code Case: couldn't record sales because register broke and couldn't enter sales
Reality of Consent
Undue Influence
A. Compared to Duress
Duress involves coercion undue influence, persuasion
B. Elements:
1. Confidential, family, or trust relationship
a. e.g., attorney-client; guardian-ward
2. Weaker party lacked free will because of influence
3. A contract results between the parties
Reality of Consent
Unconscionability - Contracts which are grossly unfair
A. Elements necessary to prove a case:
1. Unequal bargaining power (usually consumer, not commercial)
2. Dictation of terms of contract by stronger party - Adhesion Contracts
3. Terms manifestly unfair or oppressive
B. Examples:
1. William vs. Walker Thomas: Store could repossess everything every purchased when only default one payment
2. Campbell's Soup Case: contract unjustly unfair over various choices
Performance and Discharge
Completed Performance
A. Reasonable Expectations Test
B. Substantial Performance
Performance and Discharge
Completed Performance
Reasonable Expectations Test
1. The performing party is released due to complete performance when he meets the reasonable expectations of the other party in light of the entire contract
2. Example: Building a home, owner wants builder to fix little things but builder refuses (Reasonable Expectation Test)
Performance and Discharge
Completed Performance
Substantial Performance
1. A partial discharge of the performing party - the performing party may still collect on the contract, but the other party is entitled to a reduction of payment because of the immaterial breech
2. Example: Install Kholer fixtures instead of Crane (probably immaterial breech), entitled to difference in value because fixtures were cheaper
Performance and Discharge
Material Breach
A. Material vs. Immaterial
1. A material breach is one which is important in light of the entire contract
2. Immaterial breach: unimportant in light of the entire contract - still have substantially performed and may sue on the contract
B. Consequences of Material Breach
The non-breaching party's duty of performance is discharged
C. Three things affecting materiality of breach:
1. Satisfaction Clause
2. "Time is of the essence" clause
3. Anticipatory Repudiation
Performance and Discharge
Material Breach
Three things affecting materiality of breach:
1. Satisfaction Clause
No Breech --> Breech
a. If the contract is a matter of taste, then complete personal satisfaction is required
b. If the contract is a matter of function, then reasonable satisfaction is required
c. Example:
A-Painting portrait, could be perfect but I want to be prettier, not OK
B-Fix car but not noise you didn't disclose, OK
Performance and Discharge
Material Breach
Three things affecting materiality of breach:
2. "Time is of the essence" clause
Immaterial --> Material
a. Generally a reasonable time delay is an immaterial breach or not a breach at all
b. A "time is of the essence clause" converts an immaterial time delay into a material breach
c. Example: fix lakes at resort by start of season
Performance and Discharge
Material Breach
Three things affecting materiality of breach:
3. Anticipatory Repudiation
No breech --> Breech
Cancelling before contract
a. One party informs the other that he will not perform the contract, prior to the time performance is due
b. Considered a material breach, although there is time remaining for performance
Main point: When cancelled must be clear that you are not returning (hopefully in writing)
Performance and Discharge
Occurrence of Failure of Condition
A. Condition Precedent
B. Condition Subsequent
C. Concurrent Condition
Performance and Discharge
Occurrence of Failure of Condition
Condition Precedent
1. Event must happen before a contractual duty arises
2. Examples: Collision claim (must produce car with damage to make claim), bonus incentive
Performance and Discharge
Occurrence of Failure of Condition
Condition Subsequent
1. Contractual duty is relieved after an event
2. Example: Notification of drought
Performance and Discharge
Occurrence of Failure of Condition
Concurrent Condition
1. Each party's duty conditioned on teh other's simultaneous performance
2. Example: Cash on Delivery (COD)
Performance and Discharge
Agreement of Parties
A. Voluntary Rescission
B. Novation
C. Accord & Satisfaction
D. Waiver
Performance and Discharge
Agreement of Parties
Voluntary Rescission
Voluntary Cancellation
An agreement by the parties to cancel the contract
Performance and Discharge
Agreement of Parties
An agreement by the parties to cancel the old contract and enter a new contract
Performance and Discharge
Agreement of Parties
Accord & Satisfaction
1. An agreement (accord) by one party to accept a performance which is different from that required by the contract, followed by the completion (satisfaction) of that performance by the other party
2. Example: Stove was on back order. They offered more expensive and you accept. They receive.
Performance and Discharge
Agreement of Parties
1. A voluntary acceptance of inadequate performance, or a pattern of conduct which implies a waiver of breach of contract.
2. Example: Paying on the 10th every month when due on 1st
Performance and Discharge
Discharge by Operation of Law
A. Bankruptcy
B. Statute of Limitations
C. Alteration
D. Impossibility or Impracticability
Performance and Discharge
Discharge by Operation of Law
1. Bankruptcy cancels (discharges) most debts of the bankruptcy debtor
2. Exceptions: student loans, child support, taxes
Performance and Discharge
Discharge by Operation of Law
Statute of Limitations
1. When the time period set by a statute for filling a type of lawsuit expires, the breaching party's obligation is cancelled (discharged)
2. Contract becomes unenforceable
Performance and Discharge
Discharge by Operation of Law
1. Intentional, material alteration by one party discharges the other
2. Example: Change of contract, can get out
Performance and Discharge
Discharge by Operation of Law
Impossibility or Impracticability
1. Impossibility
a. Death or Incapacity of an essential party (performance occurred, payment must be made)
b. Destruction of Subject Matter or Contract - for example by fire
c. Intervening Illegality - the agreement becomes illegal between the time it is entered and the time performance is complete
d. Commercial Frustration (Common Law) - a drastic unforeseeable change in circumstances makes performance impossible
2. Commercial Impracticability (UCC Sales) - 10X more price = Extreme
a. An event occurred which parties assume would not occur as basic part of contract
b. The event has an extreme effect on performance (or cost)
Performance and Discharge
Compliance with Court Ordered Remedy
Breach of contract suit followed by judgement and payment of judgement
Types of interests of non-breaching parties
A. Expectation Interest
B. Reliance Interest
C. Restitution Interest
Types of interests of non-breaching parties
Expectation Interest
1. The non-breaching party gets the benefit of the bargain
2. Example: Seller of car want $10,000 and no car, buyer breaches and I find another for $8,000, you should pay $2,000
Types of interests of non-breaching parties
Reliance Interest
1. The non-breaching party receives the cost of partial performance or preparation to perform
2. Example: DON'T HAVE
Types of interests of non-breaching parties
Restitution Interest
1. One party receives the value of the benefit converred on the other party
2. Example: Quasi contract (Implied in law)
Six categories of Money Damages
Legal, Common Law Remedies
A. Compensatory (Direct) Damages
B. Consequential Damages
C. Incidental Damages
D. Punitive (Exemplary) Damages
E. Nominal Damages
F. Liquidated Damages
Six categories of Money Damages
Compensatory (Direct) Damages
1. Buyer of goods recovers: cover price (cost of substitute good/service) minus contract price for seller's breach
2. Seller of goods recovers: contract price minus fair market value for buyer's breach
3. Buyer of services recovers: cover price minus contract price for provider's breach
4. Provider of services recovers: lost profit plus cost of partial performance (or contract price if complete performance)
Six categories of Money Damages
Consequential Damages
1. Indirect, foreseeable damages
2. Lost profits are consequential damages
3. Hadley vs. Braxendale - Guy hired to transport millstone for repaires, transporter delayed on delivery after repairs, not foreseeable because most mills had multiple millstones. Must state profits will be lost in contract.
Six categories of Money Damages
Incidental Damages
1. Cost of finding substitute performance (Cost of Mitigation - lessening the effects)
2. Mitigation of damages - Non-breaching party is usually required to make reasonable attempts (efforts) to lessen damages from breach
3. Examples - Walk out of lease, landlord must try to fill lease, cannont just sue of entire amount.
a. Mitigation in lease situation
b. What is reasonable? Try to lease to another tenant
Shirley McClain (actress) starred in musical comedy for $800,000 then got rid of it, offerred another position for same money court decided she did not have to take the job because it was not "singing and dancing"
Six categories of Money Damages
Punitive (Exemplary) Damages
1. Damages awarded to punish the defendant and to deter others from similiar conduct
2. Typically available only for intentional torts, not just breach of contract
Not only is company that committed fraud but also the company which put them in that position
Six categories of Money Damages
Nominal Damages
1. A small amount of damages given to a party who wins but can show no monetary injury
2. Examples - giving a dollar
a. Auto accident where no injury - car already fixed and no one is hurt
b. Trespass action - boundary dispute ($1 proves you won) then file an injuction case
c. Employment discrimination - opens other doors
You lost but can help in future
Six categories of Money Damages
Liquidated Damages
1. Defined: damages in a fixed amount agreed on by the parties prior to any breach
2. Requirements: to prevent an absurd amount
a. Damages difficult to estimate
b. Reasonable amount
3. Penalties unenforceable
4. Example: $1,000 per day or $300,000 for a default on $10,000 loan
Equitable vs. Legal Remedies
A. Equitable Remedies
Other than money
1. When allowed
a. Monetary damages (common law or "legal" remedy) alone must be inadequate
b. Person seeking equitable remedy must be acting fairly
2. Types of remedies: orders to do or refrain from an act; orders to change a status. Example: Divorce, or dissolve agreement
3. Judge decides facts
Equitable vs. Legal Remedies
B. Legal Remedies
1. Required avenue where monetary compensation is sufficient
2. Right to have a jury decide facts
Types of Equitable Remedies
A. Rescission and Restitution
B. Specific Performance
C. Quasi Contract
D. Injunction
E. Reformation
Types of Equitable Remedies
A. Rescission and Restitution
1. Cancellation of the contract and restoration of the Status Quo (pre-contract situation)
2. Available where there is a lack of reality of consent (fraud, durress, etc.)
Types of Equitable Remedies
B. Specific Performance
1. A court order requiring a party to perform the terms of the contract
2. Only available for unique items
3. Land is always unique
4. Examples: art, family heirlooms, antiques
Types of Equitable Remedies
C. Quasi Contract
1. Elements
a. One party provided a service or benefit to the other party
b. The other party is unjustly enriched if there is no payment for the benefit
2. Application
a. Material breach -
- non-breaching can sue to recover more than the contract price
- breaching party can sue to get some payment when the other party is released
b. Work done by mistake - someone did work on your property
c. Unconscious patient
Types of Equitable Remedies
D. Injunction
1. A court order that something be done or stopped
2. Elements of proof:
a. Money damages must be inadequate
b. Irrepreable injury must result if there is no injuction
3. Example: Take over dental practice and old dentist tries to continue
Types of Equitable Remedies
E. Reformation
An oral agreement is imperfectly reduced to writing (scrivener's error), so the agreement is revised to conform to the parties' intent
Election of Remedies
A. Problem of Double Recovery
Allowing both equitable and legal remedy can lead to double recovery - must choose
B. Example
Both recission and money damages for negligent misrepresentation - get damages for a bad car you no longer have because you got your money back and returned it
C. Choice Required:
Typically, the plaintiff must choose between inconsistent (contradictory) remedies prior to submission of case to judge or jury for decision
Commercial Paper
Most Typical: Checks

I can negotiate (transfer) them, usually by indorsement and delivery to another person.
Order Paper
1. Contains an order by one person for another to pay.
2. Ordinarlily 3 parties involved.
3. Draft - order issued by drawer for a drawee to pay - generic order paper (all our drafts)
4. Check-draft payable on demand in which bank is drawee

Post-dating does not affect bank.
Order Paper
Person signing order paper (making order) - Me
Order Paper
Person or entity ordered to pay - Bank
Order Paper
(optional) - named person who is originally - gets money
Promise Paper
1. Contains a promise by one party to pay another
2. Ordinarly 2 parties involved
3. Promissory Note - promise by maker to pay a sum of money to payee at a future time - a generic promise paper. Ex. For value received, maker promises to pay Gwen Johnson the sum of five million dollars payable one year from date with 9% interest (non-negotiable)
4. Certificate of Deposit - note of bank acknowledging deposit and promising to pay at future time with interest
Promise Paper
Person who promises to repay
Promise Paper
Person to whom promise is made
Person in possession of property negotiated negotiable instrument - properly transferred from one owner to another
Six Requirements for Negotiability
1. An instrument in writing
2. Signed by maker or drawer
3. Containing unconditional, un-equivocal promise or order to pay
4. A sum certain in money
5. Payment due on demand or at definite time
6. Payable to order or bearer
Six Requirements for Negotiability
3. Containing unconditional, un-equivocal promise or order to pay
1. Acknowledgement of debt not enought
2. "IOU" Not OK - need a promise or order
3. If conditional on any performance, non-negotiable
a. Example: I promise to pay X if X delivers goods - Conditional
4. I may or may not pay - equivocal.
Six Requirements for Negotiability
4. A sum certain in money
1. Must be able to ascertain(tell) from the face of the instrument the minimum amound due
2. Okay to state interest variable with a public interest rate like the prime rate
3. Penalties or attorney fees in the event of default are OK
4. Money only, not commodities such as gold, silver, grain, cattle (can be binding but not negotiable)
Six Requirements for Negotiability
5. Payment due on demand or at definite time
1. On demand: Whenever the holder demands payment (checks)
2. Definite time:
a. Stated time or date when due
b. Stated period after stated date OK
c. Subject to acceleration OK
3. An acceleration clause does not destory negotiability (allows the holder to collect full payment on default)
4. Postdating does not affect negotiability
Six Requirements for Negotiability
6. Payable to order or bearer
1. Words of negotiabiility
2. Order Instruments - payable to order of name payee
3. Bearer instrument - paper is payable to "bearer" or to cash
a. Pay to order of bearer
b. Pay to order of cash
c. Pay to order of named person or bearer
Negotiation - Legal Transfer
A. First Delivery
Delivery from original maker or drawer to payee or intended recipient is sufficient to negotiate the instrument and transfer legal title. The transferee becomes the holder.
Negotiation - Legal Transfer
1. Could be payee
2. Could be indorsee-person to whom previously indorsed
Signature of a transferor, usually on back of an instrument
1. Transferor-Indorser
2. Transferee (recipient)-Indorsee
Rules on Indorsements
A. Indorsement Required
Indorsement is required to transfer if instrument payable to a named payee or indorsee
Rules on Indorsements
B. Indorsement not required
If payable to a bearer or indorsed in BLANK (someone not named), indorsement not required, but transferee may request that transferor sign it. Physical delivery negotiate a bearer instrument.
Rules on Indorsements
C. Multiple Payees
Alternative Payees
1. Pay A or B
2. Either may indorse to negotiate
Rules on Indorsements
D. Multiple Payees
Joint Payees
1. Pay A and B
2. Both must indorse to negotiate
Rules on Indorsements
E. Indorser Liability
1. Indorsers are typically secondarily liable on the instrument
a. That is, liable if drawer or maker doesn't pay
2. If you simply indorse, you're liable.

Promise of guarante-deamnd from them first
Types of Indorsements
A. Blank v. Special Instruments
1. Blank: Holder signs name only-paper becomes bearer instrument: delivery alone enough to negotiate
2. Special Indorsement: Payable to specific (named) person (indorsee)(Pay Bart Simpson s/John Swenson)
3. Can convert bearer instrument to order instrument by special indorsement
Types of Indorsements
B. Qualified Indorsements
1. Indorser signs words "without recourse"
3. Indorser now generally not liable as indorser if instrument is not paid
Types of Indorsements
C. Restrictive Indorsements
Do not affect negotiability
1. Restricts rights of indorsee (new holder)
2. Ex. COnditional indorsement (pay X if X delivers goods)
3. "For deposit only" - restricts bank to acting as collection agent
4. Trust Indorsement: To John IN TRUST for Phillip
Types of Indorsements
D. Forged Indorsements
Person who received the instrument form the forger bears the loss if the forger does not pay
(Same with forged indorsement)
Holderin Due Course
A. Definition: A holder who takes:
1. For value
a. Ex. pay $ or provide services (not by gift)
3. In good faith
a. Honestly believes instrument regular or ordinary
b. Inadequate consideration destroys good faith
3. Without Notice of defenses
a. Ex. that instrument overdue, illegal, altered, time past or demand already made
Types of Indorsements
B. Common Law Transferee (or Ordinary Holder)
1. A common law transferee-everyone except holder in due course(of a contract) took no right or defense greater than the transferor had
2. Ex. Sale of office equipment by Seller: Buyer signs installment contract; Seller assigns contract to a Thrid pary (T); warranty on furniture is breached - Buyer can assert breach of warranty defense against T.
Defenses against a holder in due course
1. Defenses are limited
2. An H.D.C. takes free of Personal Defenses
a. Breach of contract or warranty, Fraud in the inducement, failure of consideration
An H.D.C. is subject to real defenses
1. Fraud in the execution, Duress
2. Incapacity, illegality
3. Forgery or alteration
4. Discharge in Bankruptcy

HDC get payment no matter subject matter condition.