Ch 10

Fundamentals of Business Law

Summarized Cases, 8th Ed., and Excerpted Cases, 2nd Ed.

ROGER LeROY MILLER Institute for University Studies Arlington, Texas

GAYLORD A. JENTZ Herbert D. Kelleher Emeritus Professor in Business Law University of Texas at Austin

Learning Objectives • In what types of situations might genuineness of assent to a contract’s terms be lacking? • What is the difference between a mistake of value or quality and mistake of fact? • What elements must exist for fraud to occur? • What contracts must be in writing to be enforceable? • What is parole evidence? When is it admissible to clarify the terms of a written contract? Copyright © 2010 South-Western

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Mistakes

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Mistakes • Mistake of Value (or Quality). – Contract is enforceable.

• Mistake of Fact. – Unilateral Mistake of Material Fact— mistaken party does not have the right to cancel contract unless: • (1) the non-mistaken party knew or should have known about the mistake, or • (2) there is a clerical error. Copyright © 2010 South-Western

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Mistakes • Bilateral (Mutual) Mistakes—if both are mistaken either one can cancel the contract. – CASE 10.1 Inkel v. Pride ChevroletPontiac, Inc. (Vermont, 2008).

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Fraudulent Misrepresentation • Innocent party can cancel the contract. • Plaintiff must show: – Misrepresentation of a material fact (not opinion) by conduct, silence or words. – Intent to deceive. – Innocent party must have justifiably relied on the misrepresentation. – Plaintiff must have suffered a legal injury. Copyright © 2010 South-Western

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Undue Influence and Duress • Undue Influence. – Arises from a special relationship of trust. – A stronger party overcomes a weaker party’s free will by exerting psychological influence.

• Duress. – Threat of physical force or extortion. – Can serve as basis for rescission of contract. – Economic need, by itself, is not duress.

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Statute of Frauds: The Requirement of a Writing • Statute of Frauds requires certain contracts to be in writing and signed to be enforceable. – A contract involving an interest in land. – A contract that by its terms cannot be performed within 1 year of execution. – Collateral contracts to answer for the debt of another. – Prenuptial agreement. – Contracts for sale of goods over $500. Copyright © 2010 South-Western

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One Year Rule

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Exceptions to Statute of Frauds • Partial performance. – Purchaser has paid part of purchase price, taken possession and made valuable improvements to property. – CASE 10.2 School-Link Technologies, Inc. v. Applied Resources, Inc. (Kansas, 2007).

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Exceptions to Statute of Frauds • Admissions. – Party admits in court records contract exists.

• Promissory Estoppel/Detrimental Reliance. – Promisee justifiably relies.

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Sufficiency of the Writing • “Writing” includes memorandum, invoice, fax, check, email. • Essential terms sufficient. • Signed by party against whom enforcement is sought (Defendant). • Initials of Defendant adequate.

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Contracts Subject to the Statute of Frauds

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Parol Evidence Rule

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Parol Evidence Rule • Prohibits the introduction at trial of evidence of the parties prior communications that contradicts the written contract. • CASE 10.3 Yocca v. Pittsburgh Steelers Sports, Inc. (Penn., 2004).

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Parol Evidence: Exceptions • Exceptions (allow parol evidence): – Evidence of subsequent contract modifications – Oral evidence to show contract was void or voidable. – Show meaning of ambiguous Terms. – To “fill in the gaps.” – Prior Dealings, course of performance, usage in trade. – Obvious or gross clerical errors. Copyright © 2010 South-Western

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Integrated Contracts • Is the written contract intended to be a complete and final statement of the terms of the agreement? – If “yes”, then the contract is “integrated.” – Can be fully or partially integrated.

• Courts exclude any parol evidence that contradicts the writing.

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