Ch 13 Notes on Contract Performance, Breach and Remedies

Chapter 13: Contract Performance, Breach and Remedies

13-1 Voluntary Consent

  • Voluntary Consent: Knowing and voluntary agreement to the terms of a contract.

  • If voluntary consent is lacking, the contract will be voidable.

  • Reasons for lack of voluntary consent:

    • Mistake

    • Misrepresentation

    • Undue influence

    • Duress

13-1a Mistakes

  • To make a contract voidable, a mistake must be:

    • A mistake of fact

    • Mistakes of value or quality do not make a contract voidable.

    • Mistakes of fact occur in two forms:

      1. Bilateral (Mutual)

      2. Unilateral

    • Mistakes must involve a material fact - a fact that a reasonable person would consider important in determining his or her course of action.

Unilateral Mistakes of Fact

  • Unilateral mistake: A mistake that occurs when one party to a contract is mistaken as to a material fact.

    • General Rule: A unilateral mistake does not give the mistaken party any right to relief from the contract.

    • Exceptions:

    1. If the other party knows or should have known about the mistake of fact.

    2. If the error was due to a substantial mathematical mistake made inadvertently and without gross (extreme) negligence.

Example of Unilateral Mistake

  • Example Scenario:

    • Seller owns two cars: a Pinto and a 2024 Porsche. Seller posts an ad offering to sell the Pinto but mistakenly types in an email offer for the Porsche at $150. If the buyer accepts this offer, whether the seller is obligated to sell the Porsche for this price depends on the circumstances around the mistake.

Bilateral (Mutual) Mistakes of Fact

  • Bilateral mistake: A mistake that occurs when both parties to a contract are mistaken about the same material fact.

    • Contract can be rescinded by either party.

    • If the parties attach materially different meanings to a contract term, a court may allow the contract to be rescinded due to there being no true "meeting of the minds."

Example of Bilateral Mistake

  • Two farmers enter into a contract for the sale of a barren cow.

    • If the cow is later discovered to be pregnant, this changes the value, allowing the selling farmer possibly to refuse to go through with the agreement.

Mistakes of Value

  • If a mistake concerns the future market value or quality of the object, it is a mistake of value and does not affect the enforceability of contracts because value is variable.

  • Both parties assume the risk of change in value when entering into the contract.

13-1b Fraudulent Misrepresentation

  • Fraudulent Misrepresentation: When an innocent party is fraudulently induced to enter into a contract, it can usually be avoided because they have not voluntarily consented to its terms.

    • The innocent party has the option to:

    • Rescind the contract and be restored to the original position, or

    • Enforce the contract and seek damages for harms resulting from fraud.

Elements of Fraudulent Misrepresentation

  1. A misrepresentation of a material fact must occur.

  2. There must be an intent to deceive.

  3. The innocent party must justifiably rely on the misrepresentation.

  4. The innocent party must have been harmed as a result of the misrepresentation.

Means of Misrepresentation

  • By Words: Ex: Claiming a sculpture was made by Michelangelo when another artist did it.

  • By Actions: Ex: Directing a customer to the wrong paintings when asked for specific artists.

  • Concealment Actions: Taking specific action to hide a material fact.

  • Exceptions to Predictions: Statements of opinion and future predictions are generally not grounds for fraud claims unless a naïve party relies on an expert's opinion.

Intent to Deceive (Scienter)

  • Scienter: Knowledge by the misrepresenting party that material facts have been falsely represented or omitted.

    • Indicates intent to deceive if one:

    • Knows a fact is not as stated;

    • Makes an untrue statement;

    • Recklessly makes a statement without regard for truth.

Justifiable Reliance on the Misrepresentation

  • The deceived party must have a justifiable reason for relying on the misrepresentation.

  • Reliance is not justified if:

    • The innocent party knows the actual facts.

    • The statements relied upon are obviously extravagant.

Injury to the Innocent Party

  • Most courts do not require proof of injury for rescinding a contract; rescission restores prior status.

  • Damage claims caused by fraud must show harm and measure damages narrowly against what was promised and paid.

13-1c Undue Influence

  • Undue Influence: Persuasion less than force but more than mere advice that results in coercion to act against one’s free will.

  • Contracts made under excessive influence are voidable

  • In fiduciary relationships (e.g., physician/patient, parent/child), the law may presume undue influence if one party benefits significantly.

  • Courts typically require evidence that the influenced party did not act out of free will.

13-1d Duress

  • Duress: The use of threats or unlawful pressure to compel someone to enter into a contract.

    • Duress can be a defense against contract enforcement and grounds for rescission.

    • Establishing duress requires proof of an illegitimate threat that incapacitates the threatened party’s will.