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CPCU 530 - Chapter 3
Assignment Questions
19
Other
Not Applicable
12/03/2007

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Cards

Term
What types of consideration can make a promise enforceable?
Definition
  • A return promise
  • An act performed
  • A forbearance from acting
Term
In what situations can a debtor’s paying only part of a debt be binding on the creditor to forgive the entire debt?
Definition
  • Bona fide disputes – the parties believe that their claims are just
  • Payment before debt is due – the creditor has led the debtor to believe that an early payment would discharge the entire obligation, then the promise to accept the lesser amount is binding on the creditor
  • Accord and satisfaction – the debtor makes partial payment and also offers additional consideration in some form other than money, the creditor’s agreement to accept is binding.  It is an agreement to substitute a performance other than that required in a contract and the carrying out of that agreement.
  • Composition of creditors – a composition of creditors forms when several creditors join and each agrees to take a certain percentage of the original obligation owed.
Term
Identify exceptions to the consideration requirement for contracts
Definition
  • Promissory estoppel – the legal principle that a promise made without consideration is nonetheless enforceable to prevent injustice
  • Charitable subscriptions – a person makes a subscription or otherwise pledges money to a charitable organization that depends on voluntary contributions, the obligation involves more than a gratuitous promise to make a gift
  • Specific exceptions under the UCC provisions
    • A written waiver or discharge of a claim involving an alleged breach of a commercial contract
    • An agreement that modifies a contract for the sale of goods
    • A merchant’s firm written offer for goods that includes a statement that the offer is irrevocable for a fixed time, not to exceed three months
  • State statutory exceptions – a person who has indicated in writing an intention to be legally bound by a promise cannot later assert the lack of consideration defense

 

Term
Distinguish the kind of valuable consideration that will support a property-casualty insurance contract from that which will support a life insurance policy.
Definition
  • Property-casualty – prepaying a premium is not a condition necessary to make the contract valid, so that if an insured suffers a loss before paying the premium at the outset of a policy period, and insurer cannot refuse to pay damages based on failure of consideration; however, payment of the entire premium becomes and obligation as soon as the coverage begins
  • Life insurance – the insurance will not take effect until the purchaser pays the first full premium.  Nonpayment can result in forfeiture of policy rights

 

Term
List the types of illegal contracts
Definition
  • Contracts to commit crimes or torts
  • Contracts harmful to the public interest
  • Usury Contracts
  • Wagering Contracts
  • Contracts by unlicensed practioners
  • Contracts violating Sunday laws
  • Contracts attempting to transfer one's negligence liability
  • Contracts restraining marriage
  • Contracts restraining trade
  • Unconscionable bargains
Term
Are exculpatory clauses always illegal?
Definition
Often, but not always, particularly when a party is a t a bargaining disadvantage.  Courts interpret them narrowly against the parties attempting to limit their own liability.
Term
Under what circumstances are noncompetition agreements valid?
Definition
When they contain restrictions that are necessary to protect the parties and if they impose no undue hardship on the restricted party
Term
Give three examples of possible illegality in insurance contracts
Definition
  • The contract covers contraband
  • The insured has no insurable interest in the property or life covered
  • The insured is allowed to profit from his or her wrongful conduct
Term
List the conditions under which an illegal contract might still be totally or partially enforceable
Definition
  • Applicability of protective laws
  • In pari delicto agreements
  • Severable contracts
Term
List the situations in which genuine assent to contract may be absent
Definition
  • Fraud
  • Mistake
  • Duress
  • Undue influence
  • Innocent misrepresentation
Term
Explain the material fact element of fraud
Definition
The misleading statement involves a material fact, that is, a fact that a party would consider important in deciding on a course of action
Term
Describe two situations of fraud in insurance contracts
Definition
  • Collusion – an agreement by two or more people to defraud another person
  • Concealment – misrepresentation by silence
Term
Under what circumstances is concealment a defense to an insurance contract?
Definition
  • The insured knew that the fact concealed was material
  • The insured concealed the fact with the intent to defraud
Term
Is a unilateral mistake ordinarily a defense to a contract?
Definition
No
Term
What is reformation?
Definition
Equitable remedy with which the court rewrites or reforms a contract to reflect the parties' intentions
Term
What effect do mistakes of law have on the binding nature of a contract?
Definition
They do not affect the binding nature of a contact, particularly when the law is not clear
Term
Under what circumstances may duress permit the avoidance of a contract?
Definition
When the wrongdoer deprived the plaintiff of free will in entering the agreement
Term
Under what circumstances may undue influence permit the avoidance of a contract?
Definition
When it results in lack of genuine assent to a contract, usually in confidential relationships in which one party exercises some control and influence over the other.
Term
What is the effect of an innocent misrepresentation relating to a contract?
Definition
If it relates to a material fact and results in a lack of genuine assent, the victim can ask a court to rescind the contract
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