Study Notes for Basic Contract Law Chapter 6: Contractual Intent

Chapter 6: Contractual Intent

Learning Objectives

  • After studying this chapter, you will be able to:

    • Define what is meant by "contractual intent."

    • Define "fraud."

    • Differentiate fraud from misrepresentation.

    • Explain the concept of duress.

    • List the three types of duress that may be encountered in contract law.

    • Discuss what is meant by undue influence.

    • Define a contract of adhesion.

    • Discuss the effect of a mistake on contract formation.

    • Discuss the enforceability of contracts entered into with a unilateral mistake.

    • Understand how the concept of contractual intent may be applied to void contracts.

Contractual Intent

  • Contractual intent refers to the actual intention of the parties involved to enter into a contract for the same bargain, simultaneously. This means that both parties must have a mutual understanding and agreement about the contract's terms.

Fraud

  • Fraud in contract law encompasses five critical elements which must be established:

    1. The misrepresentation of a material fact.

    2. Made with the intent to deceive the other party.

    3. The misrepresentation must be relied upon by the other party.

    4. The reliance on the misrepresentation must be to the detriment of the party deceived.

Duress

  • Duress indicates the presence of some form of force or coercion exerted on one of the parties to the contract to induce their agreement or promise to contract. Coercion undermines genuine consent, which is necessary for contract formation.

Forms of Duress

  • There are three main forms of duress:

    1. Physical duress: Involves threats or physical force against a party to induce them into a contract.

    2. Economic duress: Involves financial pressures or threats that compel a party to agree to the contract.

    3. Mental duress: Involves psychological pressure or threats that force a party to enter into a contract against their will.

Contract of Adhesion

  • A contract of adhesion is defined as a legal document created by one party (typically the stronger party) that has all the terms set, leaving the other party (the weaker party) with little or no ability to negotiate more favorable terms. These contracts are often scrutinized for fairness due to the disparity in bargaining power:

    • An important characteristic of a contract of adhesion is that it falls under the category of duress, even if there is no overt force utilized. The inherent inequality of bargaining power leads to the implication that the assent given may not be truly voluntary.

    • Such contracts are considered voidable by the innocent party due to the unconscionable nature of the agreement.

Mistake

  • A mistake occurs when one or both of the parties hold a misconception regarding the subject matter of the contract. Mistakes can affect the enforceability of the contract and are categorized as follows:

Categories of Mistake

  1. Mutual mistake:

    • This type of mistake arises when both parties share a fundamental misconception about a vital fact pertaining to the agreement. It must fulfill three criteria:

      • It relates to a basic assumption of the agreement.

      • It has a material adverse effect on the parties involved.

      • It involves a mistake that could not have been reasonably foreseen by either party.

  2. Unilateral mistake:

    • This occurs when only one party is mistaken about a crucial fact due to errors such as typos or calculation mistakes. The impact of a unilateral mistake on contract enforcement varies based on the specifics of the scenario and may not always render the contract voidable.