Download Chapter 011 - Reality of Consent and Writing

PowerPoint Slides to Accompany
CONTEMPORARY BUSINESS AND
ONLINE COMMERCE LAW
5th Edition
by Henry R. Cheeseman
Chapter 11
Reality of Consent and Writing
Slides developed by
Les Wiletzky
Wiletzky and Associates
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
Introduction
 A contract may not be enforced even if all
the required elements of a legal contract
are met
 This can happen when the party against
whom the enforcement is sought raises
certain defenses against its enforcement
i.e., genuiness of assent
 i.e., the contract did not meet the
requirements of the Statute of Frauds

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Mistakes
 A mistake occurs where one or both of
the parties has an erroneous belief about
the subject matter, value, or some other
aspect of the contract
 Mistakes may be either unilateral or
mutual
 The law permits recission of some
contracts made in mistake
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Unilateral Mistakes
 Occur when only one party is mistaken
about a material fact regarding the subject
matter of the contract
 In most cases the mistaken party will not
be permitted to rescind the contract
 The contract will be enforced on its terms
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Mutual Mistakes
Mutual Mistake of Fact
 A mistake made by both
parties concerning a
material fact that is
important to the subject
matter of the contract
 In Raffles v. Wichelhaus,
the court held that a
mutual mistake of fact
excused performance of
the contract
Mutual Mistake of Value
 A mistake that occurs if
both parties know the
object of the contract but
are mistaken as to its
value
 The contract remains
enforceable by either party
because the identity of the
subject matter of the
contract is not at issue
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Fraudulent Misrepresentation
When a person intentionally makes an
assertion that is not in accord with the
facts.
Also called fraud.
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Elements of Fraud
1. The wrongdoer made a false
representation of material fact
2. The wrongdoer intended to deceive the
innocent party
3. The innocent party justifiably relied on
the misrepresentation
4. The innocent party was injured
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Legal Consequence if Fraudulent
Misrepresentation is Found
The innocent party may:
1. Rescind the contract and obtain
restitution, or
2. Enforce the contract and sue for
damages
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Common Types of Fraud (1 of 2)
 Fraud in the inception
 An innocent person is deceived as to the
nature of his or her act
 Fraud in the inducement
 The wrongdoer fraudulently induces another
party to enter into a contract
 Fraud by concealment
 The wrongdoer takes specific action to
conceal a material fact from the other party
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Common Types of Fraud (2 of 2)
 Silence as misrepresentation
 The wrongdoer remains silent when he or
she is under a legal obligation to disclose a
material fact
 Misrepresentation of law
 A professional who should know what the law
is intentionally misrepresents the law to a less
sophisticated party
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Innocent Misrepresentation
 Occurs when a person unintentionally
makes an assertion that is not in accord
with the facts
 The innocent party may rescind the
contract but cannot recover damages
 Innocent misrepresentation is not fraud
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Summary:
Types of Misrepresentation
Legal Consequences – Innocent Party
May:
Type of Misrepresentation
Sue for Damages
Rescind Contract
Fraud in the inception
Yes
Yes
Fraud in the inducement
Yes
Yes
Fraud by concealment
Yes
Yes
Silence as a misrepresentation
Yes
Yes
Misrepresentation of law
Usually no
Usually no
Innocent misrepresentation
No
Yes
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Undue Influence (1 of 2)
 Occurs when one person takes advantage
of another person’s mental, emotional, or
physical weakness and unduly persuades
that person to enter into a contract
 The persuasion by the wrongdoer must
overcome the free will of the innocent
party
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Undue Influence (2 of 2)
The following elements must be shown
to prove undue influence:
1. A fiduciary or confidential relationship
must have existed between the parties
2. The dominant party must have unduly
used his or her influence to persuade the
servient party to enter into a contract
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Duress
 Occurs when one party threatens to do
some wrongful act unless the other party
enters into a contract
 A contract entered into under duress
cannot be enforced
 Types of duress:
Physical duress
 Extortion

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Statute of Frauds (1 of 2)
State statute that requires the following
types of contracts to be in writing:
1. Contracts involving the transfer of interests in real
property
2. Contracts that cannot be performed within one
year of their formation
3. Collateral contracts where one person promises
to answer for the debts or duties of another
person
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Statute of Frauds (2 of 2)
4. Promises made in consideration of marriage,
such as prenuptial agreements
5. Agents’ contracts to sell real property
6. Contracts for the sale of goods costing $500 or
more
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Part Performance Exception
 A doctrine that allows the court to order an
oral contract for the sale of land or
transfer of another interest in real estate
to be specifically performed if it has been
partially performed and performance is
necessary to avoid injustice
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Original and Guaranty Contracts
Debtor
Contract No. 1
Original Contract
Creditor
Guarantor agrees to pay
the debt if the debtor
fails to pay the creditor
Guarantor
Contract No. 2
Guaranty Contract
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Promissory Estoppel
 Equitable doctrine that prevents the
application of the Statute of Frauds
 It permits the enforcement of oral
contracts that should otherwise be in
writing under the Statute of Frauds to
prevent injustice or unjust treatment
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Sufficiency of the Writing (1 of 2)
 Formality of the writing
 A written contract does not have to be formal
or drafted by a lawyer to be enforceable
 Informal contracts are enforceable contracts
 Required signature
 The party against whom enforcement of the
contract is sought must have signed the
contract
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Sufficiency of the Writing (2 of 2)
 Integration of several writings
 Several writings may be integrated to form a
contract
 Express reference – one document
incorporates another document
 Implied reference – documents are physically
attached by staple or by paper clip or are
placed in the same envelope
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Interpreting Contract Words and
Terms (1 of 2)
 Ordinary words are given their usual meaning
according to the dictionary
 Technical words are given their technical meaning,
unless a different meaning is clearly intended
 Specific terms are presumed to qualify general
terms
 If both parties are members of the same trade or
profession, words will be given their meaning as
used in the trade (i.e., usage of trade)
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Interpreting Contract Words and
Terms (2 of 2)
 Where a preprinted form contract is used, typed
words in a contract prevail over preprinted words
 Handwritten words prevail over both preprinted and
typed words
 If there is an ambiguity in a contract, the ambiguity
will be resolved against the party who drafted the
contract
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The Parol Evidence Rule
 Parol evidence – any oral or written words that
are outside of the four concerns of a written
contract
 Parol evidence rule – provides that if a
written contract is a complete integration, any prior
contemporaneous oral or written statements are
inadmissible as evidence to alter or contradict the
terms of the written contract
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Exceptions to the Parol Evidence
Rule
Parol evidence may be admitted in court to:
 Prove mistake, fraud, misrepresentation, undue
influence, or duress
 Explain ambiguous language
 Explain a prior course of dealing or course of
performance between the parties or a usage of
trade
 Fill in the gaps of a contract
 Correct obvious clerical or typographical errors
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Merger, or Integration, Clause
 The parties to a written contract may include a
clause stipulating that the contract is a complete
integration and the exclusive expression of their
agreement and that parol evidence may not be
introduced to explain, alter, contradict, or add to
the terms of the contract
 This type of clause expressly reiterates the parol
evidence rule
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