ADMS 2610 Lecture Notes - Lecture 2: Rescission, Parol Evidence Rule, Precontract
Course CodeADMS 2610
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Practice questions on Formation of Contract and Capacity
A. A has just offered to buy B’s boat for $ 20,000.00. In telling A he accepts the offer, B also
tells him that the boat is in great condition, something that B knows is not true. When the
contract is prepared it only refers to the boat and not B’s statement. Of course when A
gets the boat, he finds is in need of substantial repairs. A wants to return the boat and get
his money back. Advise A providing your reasons. (the answer can be approached in two
ways based on different principles of contract law see Parole evidence rule and
Misrepresentation. Please use the Parol Evidence Rule Approach).
A) Parol Evidence Rule – According to the parole evidence rule, A cannot do anything because
the rule does not allow A to vary or contradict the terms of the written contract. However, there
are exceptions to get around the rule. The first is condition precedent: A statement that ‘the boat is
in great condition’ is a condition precedent which must be satisfied before the written contract
comes into existence. If accepted, this would mean that since the boat was not in great condition
there is no contract and the parties would be restored to their pre-contract position. The second
exception is collateral agreement. Here A will argue that his statement about the great condition
of the boat was the consideration for the written contract. If accepted this would make the term a
part of the contract and A would be entitled to either rescission (putting the parties back in their
pre-contract position) or if they cannot be put back in their pre-contract position, A would sue B
for damages amounting to the amount he paid for the boat.
B) Misrepresentation - B’s statement about the great condition of the boat was a fraudulent
misrepresented since B knew it was not true. Remedies for A would be rescission in contract
and damages in tort.
A) On January 1st, John enters into a contract with George whereby George will renovate
John’s apartment building for $100,000.00 with the work to be completed by May 15th.
The renovations will take 4 weeks (28 days) once construction starts. On April 16th John
offers George another $10,000.00 if George starts on time and so George starts on April
17th, completing the work by May 15th after which George asks John for $ 110,000.00.
Advise John of his obligation(s) with your reasons.
John is not obligated to give the extra $10,000 due to the fact that there was no new
consideration for his new promise of an extra $10,000 for finishing the work on time. John’s
statement/promise is merely a gratuitous promise by John and thus John is not liable for the extra
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