I) REVIEWING WHAT YOU LEARNED
1. Give an example of a contract containing consideration.
Mr.B comes to a bicycle shop, after an hour of test ride, he finally makes his decision. He tells the owner, “I’ll take that bike for $500”, and the owner replies, “Sure, I'll pack it right now”.
2. Give an example of an agreement that does not contain consideration.
Micheal helps John to look after his cat, which has left John’s house for 2 months, so John wants to give Micheal $1000. In this case, there isn’t any exchange of promise; this contract is still valid without any consideration.
3. Where is consideration found in a bilateral contract? In a unilateral contract?
The consideration is found in the promises of each party in a bilateral contract.
In a unilateral contract, consideration is found in the promise of the offeror and the act of the offeree.
4. List seven kinds of contracts that must be in writing in order to be enforceable.
+ Contracts that are not to be completed within a year.
+ Promises to answer for the debt or default of another.
+ Contracts for the sale of an interest in real property.
+ Contracts in which marriage is the consideration (such as prenuptial agreements).
+ Promises by personal representatives of estates to pay debts of the estate personally.
+ Promises to leave something to someone in a will.
+ With four exceptions, contracts for the sale of goods of $500 or more.
5. What are the requirements of a memorandum that will satisfy the statue of frauds?
+ Identifies the parties to the contract.
+ States the terms of the contract.
+ Identifies the locus of land, that is, the exact parcel of land under contract.
+ States the price.
+ Is signed by the person against whom enforcement is sought.
6. Explain the meaning and significance of the parol evidence rule.
Parol evidence rule is an oral evidence of prior or contemporaneous negotiations between the parties is not admissible in court to alter, vary, or contradict the terms of a written agreement.
Because of this rule, it is important to include all terms that are orally agreed upon whenever a contract is reduced to writing. If one believes that he or she was lied to during negotiations because the contract doesn't reflect what was stated by the other party, the party making the accusation of lying will not be able to testify about what was supposed to be in the contract.
7. Describe the kind of contract that is voidable because of a mistake, and compare it with the kind of contract that is not voidable because of a mistake.
The contract voidable because of a mistake is that when both parties are mistaken about an important aspect of an agreement that they entered into, so that no meeting of the minds occurs, it is known as bilateral or mutual mistake and the contract is voidable at the option of either party.
In contrast, when only one of the parties makes a mistake, it is known as a unilateral (one-sided) mistake and the contrast cannot be avoided (made void) by the parties, as general rule.
8. List the five elements of fraud.
+ False representation or fact.
+ Knowledge of the falsity by the party making the false representation.
+ Intent to deceive the party by making false representation.
+ Reasonable reliance by the innocent party.
+ Actual loss suffered by the innocent part.
9. Describe an unconscionable contract.
Some contracts (or parts of them) are so harshly one-sided and unfair that they-as is the operative legal phrase-shock the conscience of the court. Such contracts are considered unconscionable by the courts and will not be enforced.
For example, when one party is an experienced dealer in a certain type of business and the other party is an average customer, the business dealer requires the customer to sign a contract.
In that contract, the business dealer buried very complex and technical language that most ordinary individuals would not understand or recognize, or the business dealer used a very small font and inserted the clause in such a way that it would purposefully mislead the consumer into signing a contract that contained unfair terms.
10. Describe three kinds of contracts that are illegal and void in many states.
- Usury the practice of making unethical or immoral monetary loans that unfairly enrich the lender.
- Sunday contracts (The laws pertaining to Sunday contracts rely heavily on judicial interpretation, and as a result incur many unjust decisions. By common law they were never illegal).
- Gambling is the wagering something of value on an event with an uncertain outcome with the intent of winning something else of value. Gambling thus requires three elements to be present: consideration, risk, and a prize.
II) UNDERSTANDING LEGAL CONCEPTS
1. A binding contract comes into existence when one per son says to another. "I'm going to give you my stereo as a gift," and the other replies, "Fine, I'll accept it." TRUE
2. In the past, and still today in some states, a seal on a contract furnishes consideration when none exists. TRUE
3. Under a rule of law known as the statute of limitations, certain contracts must be in writing to be enforceable. FALSE
(Statute of limitations => statue of frauds)
4. Contracts for the sale of an interest in real property must be in writing to be enforceable. TRUE
5. With four exceptions, contracts for the sale of goods of $600 or more must be in writing to be enforceable. FALSE ($600 => $500)
6. A memorandum may consist of words on a piece of scrap paper, receipt, or check. TRUE
7. The law assumes that when a contract is reduced to writing, all of its terms are contained in the writing. TRUE
8. When a mutual mistake occurs, a contract cannot be avoided by the parties. FALSE (cannot => can)
9. When a person is induced by fraud to enter into a contract, it is called fraud in the execution, and the contract is void. FALSE (fraud in the execution => fraud in the inducement)
10. Illegal contracts are void they have no legal effect. FALSE (void => avoid)
III) CHECKING TERMINOLOGY
a. adhesion contract: A contract that is drawn by one party to that party's benefit and must be accepted, as is, on a take-it-or-leave-it basis if a contract is to result.
b. affirm: Approve.
c. avoid: To Annul, cancel or make void.
d. bilateral mistake: When both parties are mistaken about an important aspect of an agreement.
e. boilerplate: Standard language commonly used in documents of the same type.
f. consideration: An exchange of benefits and detriments by the parties to an agreement.
g. contractual capacity: Capability of making a fully binding contract.
h decent: A misrepresentation of a material, existing fact, knowingly made, that causes someone reasonably relying on it to suffer damages.
i duress: The overcoming of a person's free will by the use of threat or physical harm.
k. exculpatory clause: A method of signing an electronic message.
l. failure of consideration: A defense available when the consideration provided for in an agreement is not in fact given to the party being sued.
m. firm offer: A merchant’s written promise to hold an offer open for the sale of goods.
n. forbearance: Refraining from taking action.
o. fraud: A misrepresentation of a material, existing fact, knowingly made, that causes someone reasonably relying on it to suffer damages.
p. fraud in the execution: Fraud as to the essential nature of the transaction.
q. fraud in the inducement: Fraud that induces another to enter into a contract.
r. in pari delicto: In equal fault.
s. lack of consideration: A defense available to a party being sued when no consideration is contained in the agreement that is sued on.
t. locus: Place; locality.
u. locus sigilli: Place of the seal.
v. morandum: The writing that is necessary to satisfy the statute of frauds.
w. mutual mistake: When both parties are mistaken about an important aspect of an agreement.
x. nudum pactum: Barten promise with no consideration.
y, option contract: A binding promise to hold an offer open.
z. parol evidence rule: oral evidence of prior or contemporaneous negotiations between the parties is not admissible in court to alter, vary, or contradict the terms of a written agreement.
aa. promisee: One to whom a promise is made.
bb. promisor: One who makes a promise.
cc. promissory estoppel: A doctrine under which no consideration is necessary when someone makes a promise that induces another's action or forbearance and injustice can be avoided only by enforcing the promise.
dd public policy: Underlying foundational principles which bind various peoples into a close-knit society.
ee. quid pro quo: One thing in return for another.
ff. rescind: Cancel.
gg. rescission: Cancellation.
hh. Seal: A mark, impression, the word "scal." or the letters LS." placed on a written contract next to the party's signature.
ii. statute of frauds: Certain contracts must be in writing to be enforceable.
jj unconscionable: So harshly one-sided and unfair that the court's conscience is shocked.
kk. undue influence: The overcoming of a person's free will by misusing a position of trust and taking advantage of the other person who is relying on the trust relationship.
ll. unilateral mistake: A mistake made by only one party to a contract.
mm. usury: The charging of a greater amount of interest than is allowed by law.
IV) USING LEGAL LANGUAGE
The smooth talking salesperson promised to pay for a free cataract operation for an elderly woman who was almost blind. The salesperson was the promisor and the elderly woman was the promisee; however, because the elderly woman promised nothing in exchange for the cataract operation, she suffered no detriment. For this reason, no consideration occurred, and the agreement was a nudum pactum. Had the promise been in writing and put under seal by the use of the letters "L.S." (which stands for locus sigilli), it would have been binding in some states. The sales person also committed fraud or deceit when he lied to the elderly woman.
He talked her into buying some worthless land with a shack on it by telling her that the locus was beautiful, high ground; actually, it was swamp land. The type of fraud was fraud in the inducement, because the salesperson's lie induced the woman to enter into the contract. Because the salesperson was not in a position of trust, the wrongful act was not undue influence, and it was not duress because the woman's free will was not overcome by threats of physical harm. It was fraud in esse contractus, when the salesperson told the woman that she was signing a second copy of the contract when she was actually signing a check for $10,000.
The writing that the woman signed met the requirements of a memorandum and, for that reason, was sufficient to satisfy the statute of frauds. Because it was drawn up by the seller to the seller's advantage and offered to the woman on a take-or-leave-it basis, the court might consider the contract to be an adhesion contract. In addition, the court might consider the contract to be unconscionable because the woman agreed to buy a shack on an acre of worthless swamp land for $250,000. Under the terms of the contract, she was to pay $100,000 in cash and sign a note for the balance at 50 percent per annum interest, which is usury.
Although the parol evidence rule does not allow prior oral statements by the parties into evidence in court to alter the terms of a written agreement, an exception exists when fraud is committed. In addition, because both parties were mistaken as to the existence of the subject matter when they signed the contract (the shack on the property had burned down two days before the contract was signed), the contract was voidable. The mistake was a mutual mistake, which is also known as a bilateral mistake not an unilateral mistake.
V) PUZZLING OVER WHAT YOU LEARNED
Caveat: Allow squares for spaces between words and punctuation (apostrophes, Hyphens, etc.) when filling in crossword.
Across
3. A defense available when no consideration is contained in an agreement. FAILURE OF CONSIDERATION
8. The charging of a greater amount of interest than is allowed by law. USURY
10. A mark, impression, the word “seal,” or the letters “L.S.” SEAL
11. Place; locality. LOCUS
13, The overcoming of a person’s free will by the use of threat or physical harm. DURESS
16. Approve. AFFIRM
17. Another name for a bilateral mistake. MUTUAL MISTAKE
Down
1. Misrepresentation of material, existing fact knowingly made. DECEIT
2. Overcoming a person’s free will by misusing a position of trust. UNDUE INFULENCE
4. One-sided contract that must be accepted as is. ADHENSION CONTRACT
5. Fraud that induces another to enter into a contract. FRAUD IN THE INDUCEMENT
6. In equal fault. IN PARI DELICTO
7. Annulled, canceled, or made void. AVOIDED
9. So harshly one-sided and unfair as to shock the court’s conscience. UNCONSCIONABLE
12. Another name for deceit. FRAUD
14. The writing that is necessary to satisfy the statue of frauds. MEMORANDUM
15. A merchant’s written promise to hold an offer open for the sale of goods. FIRM OFFER
Source: Brown, G. W., & Kauffman, K. D. (1998). Legal terminology. Prentice Hall.
CHAPTER 19: Contract Requirements, Book 1, Pages 187-190
Edited by Nguyen Nhat Linh
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