© 2007 West Legal Studies in Business, A Division of Thomson Learning Chapter 10 Contracts: Defenses to Contract Enforceability

© 2007 West Legal Studies in Business, A Division of Thomson Learning 2 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 a mistake of fact? What elements must exist for fraudulent misrepresentation to occur? Learning Objectives

© 2007 West Legal Studies in Business, A Division of Thomson Learning 3 Learning Objectives What contracts must be in writing to be enforceable? What is parol evidence? When is it admissible to clarify the terms of a written contract?

© 2007 West Legal Studies in Business, A Division of Thomson Learning 4 Mistakes Mistake of Value (or Quality). –Contract is enforceable. Mistake of Fact. –Unilateral Mistake of Material Fact— mistaken 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.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 5 Mistakes Bilateral (Mutual) Mistakes—if both are mistaken either one can cancel the contract. –CASE 10.1 Roberts v. Century Contractors, Inc. (2004).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 6 Fraudulent Misrepresentation Innocent party can cancel the contract. Plaintiff must show: –Misrepresentation of a material fact (not opinion) by conduct, silence or words. –Intent to deceive. –Innocent party must have justifiably relied on the misrepresentation. –Plaintiff must have suffered a legal injury. –CASE 10.2 Sarvis v. Vermont State Colleges (2001).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 7 Undue Influence and 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.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 8 Statute of Frauds: The Requirement of a Writing Statute of Frauds requires certain contracts to be in writing and signed to be enforceable. –A contract involving an interest in land. –A contract that by its terms cannot be performed within 1 year of execution. –Collateral contracts to answer for the debt of another. –Prenuptial agreement. –Contracts for sale of goods over $500.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 9 Exceptions to Statute of Frauds Partial performance. –Purchaser has paid part of purchase price, taken possession and made valuable improvements to property. Admissions. –Party admits in court records contract exists. Promissory Estoppel/Detrimental Reliance. –Promisee justifiably relies.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 10 Sufficiency of the Writing “Writing” includes memorandum, invoice, fax, check, . Essential terms sufficient. Signed by party against whom enforcement is sought (Defendant). Initials of Defendant adequate. CASE 10.3 Interstate Litho Corp. v. Brown (2001).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 11 Parol Evidence Rule Prohibits the introduction at trial of evidence of the parties prior communications that contradicts the written contract. Exceptions (allow parol evidence): –To show Contract is void or voidable –Subsequent contract modifications –Ambiguous Terms –Prior Dealings –Obvious or gross clerical errors