Business Law: Chapter 13, The Ethical, Global, and E-Commerce Environment, 14th ed., by Mallor, Barnes, Bowers, Langvardt

Introduction to ContractsThe Agreement: Offer

The Agreement: AcceptanceConsideration

Reality of Consent

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Capacity to ContractIllegality

WritingRights of Third Parties

Performance and Remedies

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Reality of Consent

Necessity never made a good bargain.

Benjamin Franklin, 1735

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Learning Objectives

Five doctrines that permit people to avoid their contracts because of the absence of real consent: Misrepresentation Fraud Mistake Duress, and Undue influence

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Contracts induced by mistake, fraud, misrepresentation, duress, or undue influence are generally considered to be voidable Person claiming non-consent has power to

rescind (cancel) the contract Person claiming non-consent must not act

in a manner to ratify (affirm) the contract

Effect of The Five Doctrines

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A misrepresentation is a false statement and may be negligent (innocent) or fraudulent (made with knowledge of falsity and intent to deceive) Either way, injured party may void

(rescind) the contract A person who commits fraud may be

liable in tort for damages, including punitive damages

Misrepresentation or Fraud?

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Innocent or fraudulent misrepresentation: Defendant made an untrue assertion of fact

Includes active concealment or non-disclosure Fact asserted was material or was fraudulent

Fact is material if likely to play significant role in inducing reasonable person to enter the contract

Complaining party entered the contract because of reliance on the assertion

Elements

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Reliance of complainant was reasonable Reliance means that

person entered the contract because of belief in the assertion

Fifth element for fraud: Injury

Elements (cont.)

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Remedies

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A mistake is a belief about a fact that is not in accord with the truth Mistake must relate to facts as they

exist at the time the contract is created Mistake not due to other party’s

statements Mutual mistakes may be remedied by

reformation

Mistake in Contracts

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A unilateral mistake will not render a contract unenforceable unless unequal bargaining position existed Example: Estate of Nelson

v. Rice in which the sellers sued buyers after buyers recognized a profit on the sale of estate sale paintings

Mistake in Contracts

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Mistake

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Duress is wrongful threat or act that coerces a person to enter or modify contract Physical, emotional, or

economic harm Given duress, victim must

have no reasonable choice but to enter the contract See Cabot Corp. v AVX Corp.

Duress

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Undue influence involves wrongful pressure exerted on a person during the bargaining process

Unlike duress, pressure is exerted through persuasion rather than coercion

Key is the weakness of the person “persuaded”

Undue Influence

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