Business Law Test 3 Review

Genuine Asset
o
Mutual mistake of fact
! When both parties are mistaken about the same material fact. Contract
can be rescinded by either party.
o
Unilateral mistake of fact
! Only one party is mistaken as to a material fact. The contract is normally
enforceable against the mistaken party. Mistake between $32,500 and
$23,500. The mistake of $23,500 is enforceable.
o
Opinion and sales puffing
! Puffery sales talk. Fraud only occurs when a person represents as a fact
something she or he knows is untrue.
o
Mistake of Law
! Guy wants to buy land to build a 7 eleven and the seller knows that the
land is zoned residential not commercial. Guy buys the land but cannot
avoid the contract because state and local laws are common knowledge.
o
Duress
! Forcing a party to enter into a contract because of the fear created by
threats.
! Threats of criminal and civil litigation

According to my notes, threats of criminal litigation count as

duress-inducing, but most threats of civil litigation do not
o
Undue Influence
! Special relationships in which one party can greatly influence another
party, thus overcoming that partys free will. Grandmother who dotes on
her grandson. These contracts are voidable if entered into under excessive
or undue influence and lacks voluntary assent.
o
If genuine assent is lacking, innocent victim can get rescission.

Statute of Frauds - requires a writing

o
Interests in land includes long-term leases
! Includes transfer of land by sale, leases, mortgages, building a building etc
! Does not include leases under one year
! Does not include things like landscaping contracts
o
Goods
! Price of $500 or more (the last modified amount)
! Not enforceable for a quantity greater than specified.
! Writing requires signature of the person against whom enforcement is
sought and quantity.
! Specially manufactured goods are an exception where oral is ok.
Customized plates.
! Partial performance if buyer accepts goods, then oral contract enforced
for amount of goods accepted.
o
Guaranty I will pay if other person does not pay
! Collateral promise

One that is ancillary to a principal transaction or primary

contractual relationship. A collateral promise is one made by a
third party to assume the debts or obligations of a primary party to
a contract if that party does not perform.

Guarantor on the loan. Must be in writing. Primary doesnt.

Main Purpose exception

Assignment and Delegation

o
Assignor
! The party assigning the rights to a third party
o
Assignee
! The party receiving the rights
o
Obligor
! The person who is obligated to perform the duty
o
Assume contract rights can be assigned and duties to perform can be delegated
! NOT if statute prohibits assignment, personal contract, or significant
change in risk.
o
Assignment and delegation do NOT require consent of other party to contract
o
I assign all rights under this contract is usually also a delegation of duties
o
Assignment or delegation not allowed if that will materially change expectation of
other party to original contract (special trust and confidence)
o
What happens if A/R is assigned but no one notifies the obligor?
o
Assignor assigns same A/R twice to different assignees (this is fraud). Usually
first assignee gets the money. Second assignee is out.
o
Assignee takes subject to all defenses obligor had against the original assignor.

Third party beneficiary contracts

o
Incidental beneficiary
! Receives an unintentional benefit. Cannot enforce a contract to which he
or she is not a party.
o
Intended beneficiary
! Donee beneficiary

When a contract is made for the express purpose of giving a gift to

a third party, the third party can sue the promisor directly to
enforce the promise.

Life insurance contract

Can sue one party

! Creditor beneficiary

Benefits from a contract in which one party promises another party

to pay a debt that the promise owes to a third party.

Can sue both parties

Discharge of Contracts
o
Condition precedent
! A condition that must be fulfilled before a partys promise becomes
absolute
o
Subsequent
! When a condition operates to terminate a partys absolute promise to
perform.
o
Concurrent condition
! When each partys absolute duty to perform is conditioned on the other
partys absolute duty to perform. Silent contract = concurrent.
o
Substantial performance
! You cannot walk away from contract and you must pay less damage.
! The performance must not vary greatly from the performance promised in
the contract, and it must create substantially the same benefits as those
promised in the contract.
! The substantial performer can enforce the contract against the other party
o
Material breach
! When performance is not at least substantial. Discharged and owed
nothing.
o
Anticipatory repudiation
! Before either party to a contract has a duty to perform, one of the parties
may refuse to perform his or her contractual obligations.
o
Novation
! Substitute new person for old person on contract; old person is discharged.
o
Delegation
! Substitute new person for old person and old person isnt discharged
o
Tender of Performance vs Actual Performance
! When a party tenders performance they do everything in their power to
perform their duties under the contract. If the other party refuses to accept,
then the tenderer is discharged from duty and can sue the other party for
breach of contract

Example: A buyer who offers to pay for goods has tendered

payment, and can demand delivery of the goods (page 232)

Remedies
o
Consequential Damages
! Foreseeable damages that result from a partys breach of contract.
! Loss of profits
o
Mitigation
! The required action depends on the nature of the situation
o
Compensatory Damages
! Damages compensating the non-breaching party for the loss of the
bargain. Second contract price can set the amount of these damages
o
Incidental Damages - directly incurred due to breach of contract
! Example: the cost of negotiating a new contract to replace the breached
contract
o
No specific performance for service contracts, but court might enjoin breaching
party from working elsewhere during time of original contract.