Chapter 011 - Reality of Consent and Writing

Chapter 011 - Reality of Consent and Writing

PowerPoint Slides to Accompany CONTEMPORARY BUSINESS AND ONLINE COMMERCE LAW 6th Edition by Henry R. Cheeseman Chapter 12 Genuineness of Assent and Statute of Frauds Copyright 2009 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved.

12 - 2 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. Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 3 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved.

12 - 4 Mutual Mistakes Mutual MutualMistake Mistakeof ofFact Fact AAmistake mistakemade madeby byboth both parties partiesconcerning concerningaa material materialfact factthat thatisis important importanttotothe thesubject subject matter matterofofthe

thecontract contract In InRaffles Rafflesv.v.Wichelhaus, Wichelhaus, the thecourt courtheld heldthat thataa mutual mutualmistake mistakeofoffact fact excused excusedperformance performanceofof the thecontract contract Mutual MutualMistake Mistakeof ofValue

Value AAmistake mistakethat thatoccurs occursifif both bothparties partiesknow knowthe the object objectofofthe thecontract contractbut but are aremistaken mistakenas astotoits its value value The Thecontract contractremains

remains enforceable enforceableby byeither eitherparty party because becausethe theidentity identityofofthe the subject subjectmatter matterofofthe the contract contractisisnot notatatissue issue Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 5 Fraudulent Misrepresentation When a person intentionally makes an assertion that is not in accord with the

facts. Also called fraud. fraud Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 6 Elements of Fraud 1. 1. The The wrongdoer wrongdoer made made aa false false 2. 2. 3. 3. 4. 4. representation representation of of material material fact fact

The The wrongdoer wrongdoer intended intended to to deceive deceive the the innocent innocent party party The The innocent innocent party party justifiably justifiably relied relied on on the the misrepresentation misrepresentation The The innocent innocent party party was was injured injured

Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 7 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 8 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 9 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 10 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 11 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 12 Undue Influence (1 of 2) Occurs when one person takes advantage of another persons 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 13 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 14 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 15 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 16 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 17 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 18 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 19 Promissory Estoppel Equitable doctrine that prevents the application of the Statute of Frauds Permits the enforcement of oral contracts that should otherwise be in writing under the Statute of Frauds in order to prevent injustice or unjust treatment

Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 20 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 21 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. Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 22 Interpreting Contract Words and Terms (1 of 2) Ordinary Ordinary words words are are given given their their usual usual meaning meaning

according according toto the the dictionary dictionary Technical Technical words words are are given given their their technical technical meaning, meaning, unless unless aa different different meaning meaning isis clearly clearly intended intended Specific Specific terms terms are are presumed presumed toto qualify qualify general

general terms terms IfIf both both parties parties are are members members ofof the the same same trade trade or or profession, profession, words words will will be be given given their their meaning meaning as as used used inin the the trade trade (i.e., (i.e., usage

usage ofof trade) trade) Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 23 Interpreting Contract Words and Terms (2 of 2) Where Where aa preprinted preprinted form form contract contract isis used, used, typed typed words words inin aa contract contract prevail prevail over over preprinted preprinted words words

Handwritten Handwritten words words prevail prevail over over both both preprinted preprinted and and typed typed words words IfIf there there isis an an ambiguity ambiguity inin aa contract, contract, the the ambiguity ambiguity will will be be resolved resolved against against the the party party who who drafted

drafted the the contract contract Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 24 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 25 Exceptions to the Parol Evidence Rule Parol

Parol evidence evidence may may be be admitted admitted in in court court to: to: Prove Prove mistake, mistake, fraud, fraud, misrepresentation, misrepresentation, undue undue influence, influence, or or duress duress Explain Explain ambiguous ambiguous language language Explain Explain aa prior

prior course course ofof dealing dealing or or course course ofof performance performance between between the the parties parties or or aa usage usage ofof trade trade Fill Fill inin the the gaps gaps ofof aa contract contract Correct Correct obvious obvious clerical clerical or or typographical typographical errors

errors Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 26 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 Copyright 2009 by Pearson Prentice Hall. All rights reserved. 12 - 27

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