Chapter 12 Reality of consentReality of consent: concept that there is a defense to a contract unless the parties’ consent is real and voluntaryROC present in 5 types of situations1. Mutual mistake of material fact:mutual mistake: (3 requirements to prove) mistake by both parties, mistake is material, must be a true mistake of factremedy= rescissionUnilateral mistake: mistake by one partyIn order for rescission it must be of material fact and non-mistaken party is aware of mistakeMistaken party can avoid contract if other party had reason to be aware of the mistake2. Material misrepresentation: Innocent or NegligentInnocent: misrepresentation without faultOnly remedy is rescissionNegligent: misrepresentation due to lack of care to ensure that the statement is trueRemedies: sue for damages, or rescissionFraudulent: false statement of fact, intent to deceive, reasonably relied on and cause damagesFraud in the execution: lying about the nature of a document in order to obtain a person’s signatureFraud in the inducement: misrepresentation as to the subject matter of the contractRemedy: rescission or actual damages plus punitive damages4 elements:prove misrepresentation of material factintent to deceive by the defendantreliance on statement by plaintiffmust show that misrepresentation cause damages3. Duress: force party into contract through fear of wrongful threats4 elements required to prove lack or reality of consent1. Defendant threatened plaintiff in some way2. Threat is wrongfully or unlawfully madethreat which one has legal right to do isn’t duress3. Threat caused involuntary acceptance by plaintiff4. Acceptance b/c circumstances permit no alternative4. Undue Influence: abuse of a position of trust to take advantage of a person who lacks freedom of will b/c of a trusting relationshipduress= coercionundue influence = wrongful persuasion by a trusted partyto prove:must be a confidential, family or trust relationship between partiesweaker party must lack free will b/c of influence of other partycontract (or gift) must result between parties5. Unconscionability: defense that allows one to avoid a contract if they were pressured into acceptance and is grossly unfairto prove:must be unequal bargaining power between partiesthere must be a contract of adhesioncontract in which terms are dictated by stronger party, no real negotiation allowedterms of contract must be obviously unfairChapter 13: Contract Performance6 ways to discharge contractual duties:1. Complete performance: performance up to the reasonable expectations of the other partysubstantial performance: breach of contract by performer but is minor in the light of the entire contractallows performing party to recover the contract price minus any damages caused on the other party2. Material breach: failure to complete a contractual obligation that is important to the dealimmaterial breach: (substantial performance) unimportant in the light of the entire contractsatisfaction clause: perform duties to the satisfaction of the other partytime is of the essence clause: time of performance is essential to the contract. ANY time delays = material breachAnticipatory repudiation: material breach occurs when prior to time of performance one party informs other that it will not perform the contractOther party has immediate right to obtain substitute performance and sue for breach of contract3. Occurrence or Failure of a condition:condition precedent: condition that must be fulfilled prior to a duty arising under the contractEx: employee bonusesCondition subsequent: relieves contractual duty after a certain event occursConcurrent condition: both parties’ performance is conditioned on the others’ simultaneous performanceEx: cash on delivery4. Agreement of Parties: 4 ways1. voluntary rescission: all parties agree to cancel the contract2. Novation: Parties agree to cancel old contract and enter into a new one3. Accord and satisfaction: agreement by one party to accept performance different from contract followed by completion of performance by the other party4. Waiver: voluntary acceptance by one party of the inadequate performance of the other5. Discharge by operation of Lawbankruptcy, statute of limitations expires, intentional material alteration, impossibility(happens 4 ways)death or incapacity of an ESSENTIAL partydestruction of subject matterintervening illegalityunforeseeable drastic changeCommon law= commercial frustrationUCC (sale of goods)= commercial impracticabilityDeclared impossible to perform if performing costs are 10 times more b/c of the drastic change6. Compliance with a court order remedy: breach of contract resolved in court, remedy decided by court and must be paid by defendant in order to be discharged from the contractChapter 14 Contract RemediesExpectations = interestsTypes of interest of NON-BREACHING parties:Expectation interest: interest to receive benefit of the bargain; same situation the party would have been in if there was no breachReliance interest: repaid for the cost of partial performance or preparation to performRestitution interest: receive value of the benefit he/she supplied to the other party6 categories of money damages1. Compensatory damages: direct damages, naturally flow from breach of contract, meet expectation interest of the non-breaching partyreceive benefit of the bargain he/she madeSELLER breaches contract:damages= cover price – contract priceCover price: cost of substitute goods or performanceNo monetary damages if cover price < contract priceBUYER breaches contract:damages= contract price – fair market valueProvider of services breachDamages= cost of partial performance + lost profit2. Consequential Damages: indirect damages, recoverable if damages are foreseeable and specifically proven3. Incidental damages: costs of finding substitute performance (cost of mitigation damages)mitigation of damages: require non-breaching party to use reasonable efforts to lesson the damages of breaching party4. Punitive damages: (exemplary) awarded to punish defendant and to deter other from similar conductdefraud someone into a contract= punitive damages5. Nominal Damages: small amounts given to winning party but show no monetary injury6. Liquidated damages: fixed amount agreed on by both parties prior to any breach of contract. To be enforceable:damages must be difficult to estimatedamages must be a reasonable amountEquitable remedies: where monetary or legal remedies are insufficient2