Contracts Paper 3

(c) An immaterial unilateral mistake generally does not allow either party to void the contract

(c) Undue influence is a defense that makes a contract voidable. Classic situations of this concept involve close relationships in which a dominant person has extreme influence over a weaker person. Answer (a) is incorrect because although fraud in the inducement can make a contract voidable, it typically does not occur between parties that have a close relationship. Answer (b) is incorrect because unconscionability involves an oppressive contract in which one party has taken severe, unfair advantage of another which is often based on the latter’s absence of choice or poor education rather than the parties’ close relationship. Answer (d) is incorrect because duress involves acts or threats of violence or pressure, which need not result from close relationships.

(b) An insurance policy is voidable at the option of the insurer if the insured failed to inform the insurer at the time of application of a fact material to the insurer’s risk (e.g., failure to disclose a preexisting heart condition on a life insurance application). The insured’s concealment causes the policy to be voidable regardless of the type of beneficiary designated or the nature of the insured’s death.

(d) One of the elements needed to prove fraud is a misrepresentation of a material fact. That statement that “it is a great car” is sales talk or puffing and does not establish this element. The fact that the overhaul was done thirteen months earlier instead of the stated one year is not a misrepresentation of a material fact.

(a) A mistake is an understanding that is not in agreement with a fact. A unilateral mistake (made by one party) generally does not allow the party to void the contract. However, a mistake unknown to the party making it becomes voidable if the other party recognizes it as a mistake. Particularly, this is the case in bid contract computations. The contract is voidable by the party making the mistake if the other party knew of the mistake or if the calculation was far enough off that the other party should have known that a mistake was made.

(c) Duress is any wrongful threat or act of violence made toward a person (or his family) which forces a person to enter into a contract against his will. For duress to be present, a threat must be made and the threatened party must believe that the other party has the ability to carry out the threat. In this situation, Maco’s actions did not constitute duress. Kent’s safety and property were in no way threatened by Maco and Kent was able to validly consent to the contract. Answers (a) and (b) are incorrect because regardless of Kent’s financial problems and the FMV of Kent’s services, duress was not present in that Kent was able to enter into the contract at will. Answer (d) is incorrect because Maco does not need to prove that Kent had no other offers to provide financial services.

(b) To establish a common law action for fraud, the following elements must be present: (1) misrepresentation of a material fact, (2) either knowledge of the falsity with intent to mislead or reckless disregard for the truth (scienter), (3) reasonable reliance by third party, and (4) injury resulted from misrepresentation. If the misrepresentation occurs during contract negotiations, fraud in the inducement is present resulting in a contract voidable at the option of the injured party. Answer (a) is incorrect because the defendant need not be an expert with regard to the misrepresentation to establish fraud in the inducement. Answer (c) is incorrect because the misrepresentation may be written or oral. Answer (d) is incorrect because the presence of fraud in the inducement does not require a fiduciary relationship between the parties.

(d) The Statute of Frauds requires that a contract to answer the debt or default of another be in writing and signed by the party to be charged. The guarantee that Decker made was only oral. Answer (b) is incorrect, as the reason Decker is not liable for the oral guaranty is not because it expires more than one year after June 1, but because a contract of guaranty must be in writing. Decker is not liable regardless of Baker’s confirmation letter; thus answer (a) is incorrect. Answer (c) is incorrect because Decker’s oral guaranty is not enforceable. The time period between the date of the oral guaranty and the date payment is demanded has no bearing in this situation.

(b) Any agreement to sell land or any interest in land falls under the requirements of the Statute of Frauds. Agreements within the Statute of Frauds require contracts to be in writing and signed by the party to be charged (the party being sued). An exception to the above rule is “part performance” by the purchaser. Part performance exists when the purchaser of property takes possession of the property with the landowner’s consent. Some states also require either partial payment for the property or permanent improvement of the property by the purchaser. Answer (b) is correct because even though Nolan failed to sign a written agreement, the part performance exception has been satisfied. Answer (a) is incorrect because the fact that Nolan simply failed to object to the agreement does not make the contract valid under the Statute of Frauds. Answer (c) is incorrect because the part performance exception has been met and Train will therefore prevail. Answer (d) is incorrect because no such requirement exists to alleviate Nolan’s liability. The part performance rule allows Train to prevail. Note that all sales of land are covered under the Statute of Frauds, and not just those greater than $500.

(a) Contracts that cannot be performed within one year must be in writing. In this case Cherry agreed to purchase Picks Company if an audit after one year shows that the company has been profitable. This would take longer than a year to perform. Answer (b) is incorrect because the $500 provision is in the Uniform Commercial Code for a sale of goods. Answer (c) is incorrect because despite the actual profitability, the contract could not be completed within one year of the making of the contract. Answer (d) is incorrect because although promissory estoppel may be used in the absence of a writing, there are not the facts sufficient to show promissory estoppel.