Chapter 10 Presentation (Week 6)

Chapter Overview

• Focus: Enforceability of Contracts

• Importance of enforceability in business law

• Contracts must be properly formed and legally enforceable

Learning Objectives

• 10-1: Define the doctrine of enforceability in contract law.

• 10-2: Identify five types of consent defects affecting contract assent.

• 10-3: Understand asymmetric information in contracts and differentiate between innocent and fraudulent misrepresentations.

• 10-4: Apply defenses of duress, undue influence, and unconscionability in contracts.

• 10-5: Identify contracts that must be in writing under the statute of frauds.

• 10-6: Explain the parol evidence rule in contract interpretation.

Enforceability of Contracts

• Valid contracts require legal enforceability.

• Essential elements: agreement, consideration, capacity, lawful purpose.

• Contracts must exhibit genuine assent and may need to be in writing under specific conditions.

Consent Defects

• Five critical situations where genuine assent may be missing:

  1. Misrepresentation

  2. Fraud

  3. Duress

  4. Undue Influence

  5. Unconscionability

• Presence of any consent defect may lead to unenforceability of the contract.

Misrepresentation

• Occurs when a party makes an untrue promise or representation regarding a material fact.

• Types of misrepresentation:

  • Innocent Misrepresentations

  • Fraudulent Misrepresentations

Innocent Misrepresentation

• Happens without the party realizing the statement is false.

• To avoid the contract based on innocent misrepresentation, one must prove:

  1. The misrepresentation was material.

  2. Justifiable reliance on the misstatement.

  3. Misrepresentation was fact-based, not opinion.

Fraudulent Misrepresentation

• Conduct where one party knowingly makes a false representation.

• Legal classification includes:

  • Contract typically declared void.

  • Aggrieved party may seek damages for incurred losses and possibly additional damages (treble damages in some states).

Differences Between Misrepresentation and Fraud

• Misrepresentation:

  • Belief in truthfulness.

  • No intention to deceive.

  • Aggrieved party can only cancel the contract.

• Fraud:

  • Knowing untruth of representation.

  • Intention to deceive.

  • Aggrieved party can cancel the contract and seek damages.

Asymmetric Information

• Refers to situations where one party has more or better information than the other.

• Fraudulent representations can also arise from concealing material facts. Examples include:

  1. Assertion of a half-truth.

  2. Affirmative action to conceal the truth.

  3. Failure to correct past statements.

Additional Contract Defenses

• Duress:

• Avoiding contracts induced by unfair coercion. Types of duress:

  1. Violence or threats.

  2. Economic threats.

  3. Extortion threats.

• Undue Influence:

• Improper pressure within a trusted relationship allowing for contract avoidance.

• Unconscionability:

• Refusal to enforce contracts with grossly unequal consideration.

Statute of Frauds

• Laws determining which contracts must be written to be enforceable. Key goals:

  • Prevent fraud through evidence of agreements.

• The statute applies to:

  1. Contracts for land sales or use.

  2. Contracts not performable within a year.

  3. Debt contracts (surety agreements).

  4. Contracts made in consideration of marriage.

  5. Executor's contracts for estate debts.

  6. Contracts for goods over $500 or lease transactions over $1,000.

Contract Interpretation: Parol Evidence Rule

• States that final written agreements cannot be contradicted by prior agreements.

• Allows for preliminary documents to clarify intent regarding specific terms.

Additional Rules of Contract Interpretation

• Ambiguous terms are construed against the drafting party.

• Courts may insert reasonable terms where a contract is silent or omits terms.