OBL I Pt 4

Cause

1. “An obligation cannot exist without a lawful cause”

2. “Cause is the reason why a party obligates himself”

Identifying Cause

1. Objectivity - subject of the act/nature of the contract

2. Subject - person’s personal motives

Relative Simulation

1. Even though they execute an act the parties have some other intention for their act

2. They intend some effect even if it isnt the one declared

Absolute Simulation

1. Parties intend their act will have no effect between them

2. Very difficult to prove an absolute simulation. To have no effect between the parties, a counterletter is required. (Counterletter is a separate writing expressing the true intent of the parties)

Effect of Simulation

1. Between the parties the simulation is given the effect that the parties intended – not the effect they expressed (the subjective intent vs the objective intent)

Effect of Relative Simulation

1. is the effect not shown in the act/instrument (which is what the parties intended)

Effect of Absolute simulation

1. is no effect at all (which is what the parties intended

3rd Parties and Simulations

1. Third parties MAY be permitted to rely on the express/objective cause of a simulation

Absence of Cause

1. An obligation cannot exist without a lawful cause

   1. If cause is absent, obligation does not exist

False Cause

1. Cause may be “nonexistent” because a party believed in a cause that actually turns out to be false

Failure of Cause

A cause, while valid at the outset of an obligation, may later “fail”. Then the obligation will fail once the cause fails

Cause can be unlawful in 3 ways

Its illegal, immoral, against public policy

UC: Illegal Cause

1. When the cause of the contract is to create some illegal effect, forbidden by law

2. Ex. Contracts for murder; contracts to defraud creditors; contracts for the sale of drugs

UC: Immoral Cause

A cause that runs counter to moral standards of the community

Ex. gambling debts

UC: Against public policy

1. When contrary to values recognized as important by the community

   1. Ex. contracts diminishing/restricting the sanctity of marriage 

Effect of an Unlawful cause

Absolute & Relative Nullity

Effect of an Unlawful Cause - Absolute Nullity

“A contract is absolutely null when it violates a rule of public order, as when the object of a contract is illicit or immoral.”

“Absolute nullity may be invoked by ANY person or may be declared by the court on ITS OWN INITIATIVE.”

Absolutely null contracts are deemed never to have existed - void ab initio. Parties must be restored to the situation that existed before the contract was made

Clean Hands Doctrine

a performance rendered under a contract that is absolutely null because its object or its cause is illicit or immoral may not be recovered by a party who knew or should have known of the defect that makes the contract null. The performance may be recovered, however, when that party invokes the nullity to withdraw from the contract before its purpose is achieved and also in exceptional situations when, in the discretion of the court, that recovery would further the interest of justice

Detrimental reliance Requirements

A representation by conduct or word;

Justifiable (reasonable) reliance thereon; and

A change of position to one’s detriment because of the reliance

Vices of Consent

“Consent may be vitiated by error, fraud, or duress.” Each is somewhat defined in the Civil Code, at least through context

VOC: Error

consent invalid b/c of some confusion or mistake about the contract

VOC: Fraud

consent invalid b/c of the other party’s lie/misrepresentation

VOC: Duress

consent invalid b/c of another person’s threat to harm

Error Def and +

“Error vitiates consent only when it concerns a cause without which the obligation would not have been incurred and that cause was known or should have been known to the other party”

• Requires error as to the cause of the contract and the other party knew about that cause

Error Classifications

Bilateral Error = both parties make the same mistakes

Unilateral Error = only one party is mistaken

Bilateral Error Ex

Anna sells Betty a tract of land. They both think it contains 100 acres. After a land survey is done, the survey shows the land only has 75 acres. So, Anna sells Betty another 25 acres (to make up the difference)Anna later learns that the survey was done improperly – the original tract had 100 acres. This is bilateral error – both make the same mistake. Either can rescind the second contract (and a court will be willing to do so easily)

Unilateral Error

Much more difficult to adjudge a proper result. Why?

For a “unilateral mistake” its considered a rare remedy

Civil law focuses more on subjective consent/intent (or, at least is willing to consider), common law relies more on outward representations of consent (objective consent).

Cause concerned in Error

“Error may concern a cause when it bears on (1) the nature of the contract, or (2) the thing that is the contractual object or a substantial quality of that thing, (3) or the person or the qualities of the other party, (4) or the law, (5) or any other circumstance that the parties regarded, or should in good faith have regarded, as a cause of the obligation.”

Ignorance of Law Vs Error of Law

1. Ignorance of Law

   1. No excuse

2. Error of Law

   1. Cognizable vice of consent

   2. The difference is that the party thought the law led to a different result and specifically contracted on that erroneous basis

   3. Permitting parties to forego a benefit/advantage they would otherwise receive

Effect of Error

A contract is null when its requirements for its formation have not been met

A contract is relatively null when it violates a rule intended for the protection of private parties, as when a party lacked capacity or did not give FREE consent at the time the contract was made

Existence of a vice of consent means consent is not free – contract is relatively null

“Relative nullity may be invoked only by those persons for whose interest the ground for nullity was established, and may not be declared by the court on its own initiative.”

Art. 2032: “Action of annulment of a relatively null contract must be brought within five years from the time the ground for nullity . . . was discovered, as in the case of error or fraud.”

Art. 2033: “[A] relatively null contract that has been declared null by the court[] is deemed never to have existed. The parties must be restored to the situation that existed before the contract was made. If it is impossible or impracticable to make restoration in kind, it may be made through an award of damages.”

Fraud Def

Fraud is a [misrepresentation or a suppression of the truth] made with the intention either to obtain an unjust advantage or to cause a loss or inconvenience to the other. [Fraud may also result from silence or inaction].”

Fraud Elements

1. Material Element

2. Psychological Element

Fraud Element 1

1. Material Element

   1. Affirmatively misstating or misrepresenting of the truth

   2. Remaining silent about the truth

      1. Courts generally do not find that “silence” amounts to fraud UNLESS there was some duty to disclose the relevant information.

Fraud Element 2

1. Psychological Element

   1. Requires the fraudulent party to intend to obtain an advantage/result in a disadvantage to the other party