Contract Law Chapter 4: Defenses to Contract Formation (Part 1)

Law School

Summary of Chapter 4: Defenses to Contract Formation.

Chapter 4 covers the defenses that can render a contract voidable or unenforceable, ensuring fairness and preventing exploitation in contractual agreements. The key defenses include mistake, misrepresentation and fraud, duress and undue influence, and illegality.

4.1 Mistake

Mutual Mistake: Both parties share a common erroneous belief about a material fact central to the contract. The contract is voidable if the mistake significantly impacts performance or expectations.

Example: Both parties believe a painting is an original by a famous artist, but it turns out to be a replica.

Unilateral Mistake: One party is mistaken about a material fact. The contract is voidable if the non-mistaken party knew or should have known about the mistake or if enforcing the contract would result in unconscionability.

Example: A contractor quotes a very low price due to a clerical error, and the buyer exploits this mistake.

4.2 Misrepresentation and Fraud

Innocent Misrepresentation: A false statement made without knowledge of its falsity. The contract is voidable if the misrepresentation was material and relied upon by the misled party.

Example: A seller mistakenly advertises a car as having 50,000 miles when it actually has 100,000 miles.

Fraudulent Misrepresentation: Intentional false statements made to deceive. The contract is voidable, and the defrauded party can seek damages.

Example: A seller knowingly lies about the financial health of a business to induce a buyer.

4.3 Duress and Undue Influence

Duress: Improper pressure, such as threats or coercion, forcing a party to enter a contract against their will. The contract is voidable by the coerced party.

Example: A supplier threatens to cut off essential supplies unless a buyer agrees to unfavorable terms.

Undue Influence: One party exerts unfair pressure on another, often in a relationship of trust. The contract is voidable by the influenced party.

Example: A caregiver persuades an elderly person to sign over their assets.

4.4 Illegality

Illegal Contracts: Agreements involving illegal activities or regulatory violations are void and unenforceable.

Example: A contract to distribute illegal drugs is void.

Contracts Contrary to Public Policy: Contracts that harm societal interests or public welfare are unenforceable.

Example: A non-compete clause that excessively restricts an employee's ability to work.

4.5 Statute of Frauds

Requirements for Written Contracts: Certain contracts must be in writing to be enforceable, including those for the sale of land, contracts that cannot be performed within one year, and agreements to pay another's debt.

Example: A two-year employment contract must be in writing.

Summary.

Chapter 4 outlines various defenses to contract formation, emphasizing the need for fairness and voluntariness in contractual agreements. Understanding these defenses helps parties recognize and avoid entering into agreements that could be rendered void or unenforceable due to mistake, misrepresentation, duress, undue influence, or illegality. The Statute of Frauds further ensures that specific types of contracts are documented in writing to prevent fraud and misunderstandings.

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