occurs when one party coerces another into signing a contract by

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Chapter Thirteen

Contracts

I. Sample Test Questions

Fill-ins

1. As a general rule, in any contract there must be something of value, known as

_________________, coming from both sides of the transaction.

2. A ________________ mistake is one that has been made on only one side of the contract.

3. Forcing a person to enter a contract against that person’s will is known as

____________________________.

4. ____________________ occurs when one party coerces another into signing a contract by taking advantage of a fiduciary or confidential relationship.

5. Consideration may be in the form of a ______________, a _____________, or a

__________________________.

6. In some cases, consideration may appear to be present on both sides, but a closer inspection of the agreement shows that valuable consideration is coming from only one side or neither side of the transaction. This is known as ___________________.

7. A __________________ contract is one in which one of the parties has the option to enforce or not enforce the agreement.

8. A __________________ contract is totally unenforceable and therefore not a contract at all.

Short Answer

1.

2.

John puts up a reward poster that states that he will pay $100 to anyone who can find and return his lost dog.

Is this a unilateral or bilateral contract offer? Please explain your answer.

Susan states that she will sell her refrigerator to Mary if Mary will promise to pay $450. Mary agrees to pay the price. Susan transfers the refrigerator, but Mary never transfers the money. a. Is this a unilateral or bilateral contract offer? Please explain your answer. b. Is this an executed or executory contract? Please explain your answer.

c. Is this an express or an implied contract? Please explain your answer.

3.

4.

State the five absolutely necessary elements of a contract.

Are the contracts of people intoxicated by alcohol or drugs valid? Please explain.

5. Harry agrees to sell to Carl all of the wicker chairs that he, Harry, can manufacture in the year 2000 at $75/chair. Can this kind of offer be valid even though it does not indicate the exact number of chairs that would be included?

What is the name that is usually used for this kind of contract offer?

6. According to the mailbox rule: a. when is an acceptance valid? b. when is a revocation valid? c. when is a rejection valid?

7. State two circumstances under which a minor’s contract might be valid rather than voidable.

8. Name four ways to terminate an offer.

9. Give two examples of offers that may not be revocable.

10. Under what circumstances are agreements not to compete enforceable?

11. Name five kinds of contracts that must be evidenced in writing to be enforceable.

II. Answers to the Sample Test Questions

Fill-ins

1. consideration

2. unilateral

3. duress

4. undue influence

5. promise, performance, forbearance

6. illusory consideration

7. voidable

8. void

Short Answer

1. This is a unilateral contract offer because it is a promise calling for a performance and can only be accepted by a performance.

2. a. It is bilateral, because it is a promise calling for a promise and it can be accepted either by a promise or a performance. b. It is executory, because one party performed and the other did not. c. It is express, because it is openly stated in an oral or written way.

3. an agreement (offer and acceptance) competent parties consideration legality genuine assent

(Evidence of a writing is also sometimes required under the Statute of Frauds.)

4. The fact that a party entering into a contract is intoxicated does not automatically mean that the party lacked capacity and that the contract is therefore void and unenforceable. He or she will, however, be regarded as contractually incompetent if it would have been evident to a reasonable person at the time the contract was formed that the party was unaware of entering into a contract or understanding the basic nature of the agreement. Furthermore, if one party “drugged” the other with alcohol or some other kind of narcotic, the one causing the intoxication cannot enforce the contract against the intoxicated party. If a person is intoxicated to the extent that he or she is unaware that an agreement is being made, the contract is voidable. In other words, the person who was intoxicated can choose to enforce or disaffirm it. If that person chooses to enforce it, the other party will be bound by the agreement.

5. Yes, this offer can be valid. This type of contract offer is known as an output contract offer. A breach would clearly be evident if it was discovered that

Harry, the offeror/seller, had sold the products to other purchasers during the

2000 calendar year.

6. According to the mailbox rule, an acceptance is valid when mailed, assuming the letter is correctly addressed. Revocations and rejections are effective when received.

7. Examples of contracts entered into by minors that may be regarded as valid rather than voidable include those for necessities, releases, and student loans.

8. Answers will vary, but may include: rejection revocation counteroffer expiration of time death of either party insanity of either party illegality after the offer but before the acceptance

9. Answers will vary, but may include: options situations involving detrimental reliance firm offers

10.

When a party enters into an employment contract, a provision may be included in the agreement that prohibits the party from competing against the company for a stated period of time after the employment contract ends. Similarly, when one sells a business, including its equipment, inventory, and customer list, the buyer may insist that the seller agree not to compete against the buyer’s business in the area for a certain period of time. Both kinds of agreements are enforceable provided that they are reasonable as to area and time. Agreements to not compete under other circumstances are generally regarded as an illegal restraint of trade and therefore unenforceable.

11. contracts for the sale of an interest in real estate, contracts that cannot be performed within one year, contracts in which one makes a promise to a creditor to pay a debtor’s debts with

the promisor’s own money, contracts in consideration of marriage, contracts for the sale of goods over $500

III. Answers to the Review Questions in the Text

1. a. This is an example of a unilateral contract because it is a promise calling for a performance. The only way that this contract offer can be accepted is by performance. b. This is an express contract because the terms are openly stated by the party making the offer. An express contract offer can be either oral or written. An implied contract is one in which the terms can be discerned from the conduct of the parties.

2. a. Henry will be unable to win the lawsuit, since no money was paid to keep the offer open, Barbara may have a moral obligation to Henry but not a legal one. In order to prevent Barbara from withdrawing, Henry should have insisted that

Barbara enter into an option contract and pay a deposit. Otherwise, there would be no consideration for the agreement to keep the offer open. Without such a payment, there would be a violation of the general rule of contract law that there must be consideration on both sides in order to form a binding agreement. b. If Henry accepted the agreement prior to Barbara's revocation, the offer and the acceptance together would form a contract, and it would be too late for Barbara to effectively revoke her offer. Most agreements (including this one) need not be evidenced by a writing in order to be valid. The statute of frauds indicates which kinds of contracts do. The contract price in this case is for the sale of goods, but it is for a price less than $500.00 and therefore does not fall within the statute of frauds.

3. a. 1) The minor can still disaffirm the contract, but the liability of the parent will be unaffected, and he or she will remain liable.

2) The minor can disaffirm within a reasonable time after his or her 18th birthday.

4. Her attorney should raise the issue of undue influence, because the facts indicate that

Victor was taking advantage of a confidential or fiduciary relationship.

5. a. It would be voidable, because Rose is a minor. b. It would be voidable, because the act of duress would keep Spencer from enforcing the contract, while Maria could either choose to enforce the contract or walk away from it. c. It is void because of its illegal nature. d. It would be valid. Melinda’s failure to include a reference to the March 1987 issue was a unilateral mistake that had no effect upon the enforceability of the

contract. e. This would be valid. However, it would be terminable at the option of either party. If such a termination occurred, the parties would only be required to fulfill their obligations that still exist at the time of the termination. f. This would be voidable not just because of the intoxication, but because of the fact that he didn’t know that he was entering into a contract. g. This would be voidable due to Leslie’s intentional fraud. h. This would be voidable due to unintentional misrepresentation.

6. 5b. is an example of duress, 5d. is an example of unilateral mistake, 5g. is intentional fraud, and 5h. is unintentional misrepresentation.

7.

Three such circumstances would include paid options, firm offers, or situations involving detrimental reliance.

8.

Bilateral (mutual) mistake is a common basis for rescission of a contract. In contrast, the existence of unilateral contract generally has no effect upon the enforceability of a contract.

9.

The sale of the house must be evidenced by a writing because it involves the sale and purchase of an interest in real estate. The purchase of the computer involves a sale of goods, but the purchase price is less than $500, and the contract need not therefore be evidenced by a writing. The four-year lease is not a sale or purchase of real estate, but it is a contract that cannot be completed within one year and must therefore be evidenced by a writing. The executor’s promise to pay the estate debts was not a promise to pay with the executor’s own money, and it therefore need not be evidenced by a writing.

10.

1. The contract was express, because the terms were openly stated in an oral or written way; 2. The contract is executory because the agreement was not yet fully performed on both sides; and 3. The contract is bilateral because it involves a promise which calls for a return promise.

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