BLAW CH. 13 NOTES

Voluntary Consent

• In contract law, a contract can sometimes be voided due to mistakes made during its formation.

• Distinction is made between mistakes of fact (which are voidable) and mistakes of value or quality (which are not).

• A mistake of fact must involve a material element—one that a reasonable person would consider important.

Types of Mistakes

Mistakes of Fact

• Mistakes of fact can be categorized into two forms:

  • Unilateral Mistake: A mistake made by one party.

    • General rule: The mistaken party has no right to relief, and the contract is enforceable.

    • Exceptions to this rule include:

      1. If the other party knew or should have known of the mistake.

      2. If there was a substantial mathematical error (addition, subtraction, etc.) made inadvertently without gross negligence.

  • Bilateral (Mutual) Mistake: Both parties are mistaken about the same basic assumption.

Example of Unilateral Mistake of Fact

• Elena's Jet Ski Offer:

  • Intended price: $2,500

  • Mistakenly offered: $1,500

  • Contract enforceability: Elena is bound to sell the jet ski for $1,500 due to her unilateral mistake.

Example of Bilateral Mistake of Fact

• Jason Allen Case:

  • Parties: Jason Allen and Accident Fund Insurance.

  • Agreement: VPA for $264.53/week for 54.2 weeks.

  • Error: Should have been 131.7 weeks.

  • Court ruling: Reform VPA with correct figures reflecting the original intent.

Mistakes of Value

• Mistakes regarding the future market value of a contract's object do not allow for rescission.

• Example with Violin:

  • Sung buys a violin for $250, later learned its true value is thousands.

  • Mistake classified as a mistake of value—contract remains enforceable.

• Reason for non-rescindability:

  • Value varies over time and context, establishing a risk assumption within mutual agreements.

Conclusion on Mistakes

• Importance of differentiating between mistakes of fact and mistakes of value in contract law.

• Understanding these concepts aids in determining contract enforceability and potential relief.

3–1b. Fraudulent Misrepresentation Summary

Fraudulent misrepresentation occurs when one party deceives another party in a contract, affecting the innocent party's ability to give genuine consent. This deception allows the innocent party to either cancel (rescind) the contract or seek compensation (damages).

Components of Fraudulent Misrepresentation

To establish fraudulent misrepresentation, certain elements must be present:

1. Misrepresentation of a Material Fact: This refers to a false statement that is significant to the contract. For example, if a seller claims that a car has never been in an accident, but it has, this is a misrepresentation of a material fact.

2. Intent to Deceive: The person making the misrepresentation must have the intention to mislead the other party. This means they knowingly provided false information or were reckless about the truth.

3. Justifiable Reliance: The deceived party must have a good reason to trust the false information provided. For instance, if the buyer relied on the false statement of the seller when making their decision to purchase, their reliance is justifiable.

4. Harm Resulting from the Misrepresentation: The innocent party must suffer harm as a result of relying on the misrepresentation. Harm can be financial loss or some other disadvantage.

Examples

• Oluchi Nwankwo Case: In this case, Oluchi Nwankwo annulled her marriage after discovering that her husband had lied about his true intentions for marrying her. He had primarily married her to gain U.S. citizenship, which constituted fraudulent misrepresentation, as it misled Oluchi about the genuineness of their marriage.

• Jerry McCullough Case: Jerry McCullough filed a claim against Allstate, asserting that the insurance company fraudulently misrepresented a payment in a manner that contradicted the original agreement between them. The court found that even though there was a merger clause in the contract, it did not prevent evidence of fraud from being considered. This allowed McCullough's claim regarding fraudulent misrepresentation to go forward.

Key Concepts

• Misrepresentation can come in two forms:

  • Explicit Misrepresentation: Clearly stated false information.

  • Implicit Misrepresentation: Misleading conduct or behavior that suggests false information.

• Statements of opinion (e.g., "This is the best product on the market") or predictions about the future (e.g., "Prices will definitely rise") do not usually qualify for fraud claims.

• Scienter: This term refers to the knowledge of falsehood that the deceiving party has, which is essential for establishing intent to deceive.

• Justifiable Reliance: This means the deceived party had valid reasons to trust the misrepresentation—they believed it based on past experiences or reasonable expectations.

• While harm is generally necessary for seeking damages, it is not required to rescind a contract. The mere fact of being misled can justify the cancellation of the contract.

Undue Influence

Definition: Undue influence happens when one person can strongly affect another person’s choices, making it hard for the second person to decide freely. If someone makes a contract while under undue influence, that contract can be canceled because they didn’t really agree to it.

Easy Examples:

1. Parent and Child: Imagine a child wants to play with their toys, but their parent says, "If you don’t give me your toys, I won’t take you to the park." The child might feel forced to give their toys because they want to go to the park, which isn’t a fair choice.

2. Elderly Person and Caregiver: Let's say an elderly person has someone taking care of them and that person says, "If you don’t sign this paper giving me your money, I’ll stop helping you." The elderly person might sign the paper even if they don’t want to because they are afraid of losing help.

3. Doctor and Patient: Imagine a doctor telling a patient, "You must agree to this treatment, or I won’t help you get better." The patient might feel pressured to agree even if they have doubts about the treatment.

Important Points:

• Freedom of Choice: The main idea is that when someone is said to be under undue influence, they had no real choice.

• Not Just About Age: Just being older or having some challenges isn’t enough to prove undue influence. There must be solid proof that the person didn’t choose freely.

Undue Influence

Undue influence occurs when one party exerts significant influence over another, compromising the latter's free will in decision-making. A contract signed under undue influence lacks voluntary consent and is, therefore, voidable.

Context and Relationships

Undue influence often occurs in relationships where one individual has the capacity to dominate or manipulate another, such as:

• Guardianship: Minors and the elderly are particularly susceptible to undue influence from their guardians. For example, a guardian may pressure a minor or elderly ward into a contract that disproportionately benefits the guardian.

• Fiduciary Relationships: This influence can arise in various trusted relationships, including physician-patient, parent-child, husband-wife, or guardian-ward scenarios.

Key Features

The pivotal aspect of undue influence is the lack of free will exercised by the influenced party.

• Free Will Required: Merely being elderly or having a mental or physical challenge does not constitute undue influence. It must be demonstrated through clear and convincing evidence that the person acted without free will.

• Fiduciary Relationship Insufficiency: The mere existence of a fiduciary relationship is not enough to prove undue influence; additional evidence is necessary.

Performance and Discharge

The main way to end a contract is by completing the tasks required in it.

• Example: If a buyer and seller agree to sell a Lexus RZ for $63,000 through email, the contract ends when the buyer pays $63,000 and the seller gives the Lexus to the buyer.

Discharge by Agreement

In simple terms, a contract can be ended (discharged) when both parties agree to it. This agreement might be in the original contract or could be a new contract aimed specifically at ending the first one.

Discharge by Mutual Rescission

• What is it?

  • It’s when both parties agree to cancel the contract and go back to where they were before.

• Example:

  • If two friends planned to trade baseball cards but then decided they didn’t want to anymore, they can mutually agree to cancel the trade and keep their own cards.

• Key Points:

  • Both parties must agree and create a new agreement stating they are canceling.

  • Usually, if they haven't done anything in the contract (like actually traded the cards), this agreement holds.

Discharge by Novation

• What is it?

  • This happens when both parties replace one of the original parties with a new party.

• Example:

  • Imagine you promised to help your friend with a project, but then you need someone else to finish it. You and your friend agree to let another person take your place. That’s a novation!

• Key Points:

  • The original promise is canceled.

  • A new agreement between the two remaining parties and the new person must be made.

Discharge by Settlement Agreement

• What is it?

  • If there’s an argument about a contract, the two parties can make a new agreement to settle it.

• Example:

  • Two people disagree on the price of a car, so they decide together to lower the price to resolve their dispute. This new agreement replaces the old one.

Discharge by Accord and Satisfaction

• What is it?

  • This means agreeing to do something different than what was originally promised in the contract.

• Example:

  • If a person owes money for a car but both agree that instead of paying cash, they can trade a bicycle instead, it’s an accord. If the bicycle is given as agreed, the debt is canceled.

• Key Points:

  • The original agreement isn’t completely gone until the new agreement (the accord) is fulfilled. If it’s not, the original debt remains.

In summary, there are different ways to end a contract based on agreements between the parties, whether they are simply canceling the contract, replacing a party, settling disputes, or agreeing to new terms. Understanding these terms can help in navigating contracts more easily!

Discharge by Operation of Law

Discharge by Operation of Law refers to situations where a contract can be ended automatically under specific conditions. Here are some simple examples:

• Material Alteration of the Contract: If one party changes important terms of a written contract (like the price) without the other's agreement, that can make the contract void. For instance, if someone changes the price of a car sale without telling the other party, the other person can consider the deal canceled.

• Statutes of Limitations: This is the time limit after which a person can no longer sue for a contract breach. For example, if you don’t take action against someone for breaking a verbal agreement within 2-3 years, you can’t sue them anymore.

• Bankruptcy: If someone files for bankruptcy, it usually stops creditors from claiming debts they owe. For example, if a person owes money to a friend but files for bankruptcy, that friend likely cannot force repayment.

• Impossibility of Performance: This happens when something happens that makes contract performance impossible. For example, a singer has to cancel a concert because they got sick; they cannot perform, thus the contract is void. Another example is if a bakery agrees to make a wedding cake, but the oven breaks down, making it impossible to fulfill the order.

Additional Examples of Discharge by Impossibility

1. If a dancer dies before their performance, the contract is dissolved because they can’t perform.

2. If a tractor the farm was supposed to sell gets destroyed in an accident, they can’t complete the sale.

3. If a new law is passed that prevents a company from doing what they agreed to, like creating a specific product, they can cancel the contract due to this law.

Temporary Impossibility

Temporary impossibility means that something unexpected makes it hard to perform but not impossible. For example, during COVID-19, a restaurant faced temporary issues because of a lockdown but still could operate for takeout. Here, they could not argue the contract was canceled just because it was tough to operate normally.

Commercial Impracticability**:

This happens when fulfilling a contract becomes very costly or hard, and this difficulty couldn’t have been predicted initially. For instance, excavation costs suddenly double because of an unexpected geological issue; the contractor might be able to cancel or renegotiate the contract.

Frustration of Purpose**:

This occurs when unforeseen events make the original goal of the contract unreachable. For example, if a person rents a venue for a wedding, but a natural disaster makes the venue unusable, the purpose behind renting t

13–3. Damages

When someone breaks a contract, the other party can ask for money to cover their losses. This money helps put them back in the situation they would have been in if the contract had been followed. However, going to court to get this money can be costly and take a long time. Sometimes, it can be hard to collect the money if the person who broke the contract doesn't have enough money.

13–3a. Types of Damages

There are four main types of damages:

1. Compensatory Damages: These cover the direct losses caused by the breach. For example, if someone ordered a custom-made sofa but didn't receive it, they could ask for money back equal to what they paid for that sofa.

2. Consequential Damages: These cover indirect losses that happen because of the breach. If a business ordered machinery that didn't arrive on time, causing them to lose sales, they could claim these losses.

3. Punitive Damages: These are rare in contract cases, but they are intended to punish someone for bad behavior. They usually come into play when a contract breach also involves wrongdoing.

4. Nominal Damages: If no financial loss occurs, the court may still award a small amount (like $1) to acknowledge that the contract was broken.

Compensatory Damages Example

Carianne Baird and her classmates paid for nursing degrees from a school that lost its accreditation. They sued because they felt they wouldn't earn as much money with degrees from a non-accredited school. The court agreed and determined damages based on future earnings.

Consequential Damages Example

Javed ordered drinks for a Super Bowl event. The supplier didn't deliver them on time, leading to loss of profits for Javed. He can sue for the profits he expected to make from selling those drinks.

Liquidated Damages vs. Penalties

• Liquidated Damages: These are pre-set amounts agreed upon in a contract for a breach. For example, if a coach quits before their contract ends, they might owe a certain amount based on salary.

• Penalties: Unlike liquidated damages, penalties are designed to punish the breaching party and aren’t enforceable in court.

Example of Liquidated Damages

Gene Ford, a coach, signed a contract saying if he quit early, he'd owe a specific amount as damages. When he left, the court ruled that this amount was valid and reasonable.

Equitable Remedies for Contract Breach

Sometimes, just getting money isn't enough. Instead, a judge might order something else to fix the situation. Here are two examples:

• Rescission and Restitution: This means canceling the contract and giving back what each party has received. If a service is not performed, the person can get their money back. For instance, if Katie paid an architect and the architect couldn’t do the work, she could get her money back.

• Specific Performance: This means the court orders a party to do exactly what they agreed to in the contract. This is usually for unique items like a specific piece of land. For example, if someone agrees to sell a specific piece of land and tries to back out, the buyer can ask the court to force the sale.

Conclusion

Understanding these damages and remedies helps parties navigate contracts and know their rights when contracts are breached.