© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1 Chapter 12: Defenses to Contract Enforceability

2 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives In what types of situations might genuineness of assent to a contract’s terms be lacking? What is the difference between a mistake of value or quality and mistake of fact? What elements must exist for fraud to occur? What contracts must be in writing to be enforceable? What is parole evidence? When is it admissible?

3 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Mistakes

4 Mistakes Mistake of Value (or Quality). –Contract is enforceable. Unilateral Mistake (of Fact). –Party does not have the right to cancel contract unless: (1) the non-mistaken party knew or should have known about the mistake, or (2) there is a clerical error.

5 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Mistakes Bilateral (Mutual) Mistakes—if both are mistaken, either one can cancel the contract. Case 12.1 Inkel v. Pride Chevrolet- Pontiac, Inc. For mutual mistake to occur, both parties must have been mistaken about a material fact. This was a matter of fact for a jury.

6 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Fraudulent Misrepresentation Contract is voidable by innocent party. Injured party must show: –Misrepresentation of a material fact (not opinion) by conduct, of law, silence, or words. Opinion is not fact (unless it is an expert opinion). Case 12.2 Rosenweig v. Givens. Whether fraud was committed in the context of a fiduciary relationship between the parties were questions of fact for a jury.

7 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Fraudulent Misrepresentation Injured party must show (cont’d): –Intent to deceive. Also known as “scienter.” –Innocent party must have justifiably relied on the misrepresentation. –Plaintiff must have suffered a legal injury.

8 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Undue Influence & Duress Undue Influence. –Arises from a special relationship of trust. –A stronger party overcomes a weaker party’s free will by exerting psychological influence. Duress. –Threat of physical force or extortion. –Can serve as basis for rescission of contract. –Economic need, by itself, is not duress.

9 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Statute of Frauds—Writing Requirement

10 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Statute of Frauds—Writing Requirement Requires certain contracts to be in writing and signed to be enforceable, as follows: –Interest in Land: A contract involving an interest in land. Includes sales, fixtures, leases, mortgages, and easements. –One Year Rule: A contract that by its terms cannot be performed within 1 year of execution. 

11 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. ‘One Year Rule’

12 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Statute of Frauds Collateral Promises: answer for the debt of another. –Contracts with Primary vs. Secondary Obligations. Only secondary obligations must be in writing. –Exception – “Main Purpose” Rule: guarantor seeks to secure personal benefit. Promises Made in Consideration of Marriage. –Unilateral promise for money or property must be in writing.

13 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Statute of Frauds Contracts for the Sale of Goods over $500. Exceptions: –Partial performance, detrimental reliance. Case 12.3 School-Link Technologies, Inc. v Applied Resources, Inc. Whether fraud was committed in the context of a fiduciary relationship between the parties were questions of fact for a jury.

14 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Statute of Frauds--Exceptions Exceptions to Statute of Frauds: –Admissions by party against whom enforcement is sought. –Promissory Estoppel (or Detrimental Reliance). Special UCC Exceptions. –Oral contracts for sale of customized goods may be enforced. –Oral contracts between merchants may be enforced.

15 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Statute of Frauds—Sufficiency of the Writing What Constitutes a Writing? –Written contract(s) or memorandum(s) (paper or electronic) SIGNED by the party against whom enforcement is sought (typically the defendant in the case). –Documents can be “incorporated” into each other. What Must be Contained in the Writing? –Essential terms only. –Must name parties. –Be signed by party against whom enforcement is sought (usually the Defendant). Proving an “e- signature” is a matter for trial.

16 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Parol Evidence Rule Prohibits the introduction at trial of evidence of the parties prior communications that contradicts the written contract. The question is whether the contract is “integrated” (the final agreement between the parties). Exceptions: –To Show Fraud or Mistake. –Subsequent modifications. –Ambiguous Terms. –Prior Dealings. –Obvious or gross clerical errors.

17 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Parol Evidence