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Contract Agreement Mistakes and Problem to Avoid

In addition to lack of capacity, there are other reasons a contract may not be enforced. Those include when a mistake has been made in the contract, when one party intentionally misrepresented a material fact or term, if the contract is fraudulently obtained, one party negligently misrepresents a fact or term, or one party exercises undue influence or inflicts duress on the other party.

Unilateral and Mutual Mistakes

A unilateral mistake is one that is made by one party. A unilateral mistake will not affect the contract when the non-mistaken party is unaware of the mistake. Let’s say the parties agree to a price that was reached by a mistake of the offeror. If the offeree did not know of the mistake, then the contract stands with the mistake. If the offeree knew or should have known, then that term in the contract may be avoided by the offeror. If it’s a computational error on the part of the offeror, then it will stand unless the error is so noticeable that the offeree should have recognized it as an error.

A mutual mistake occurs when both parties misunderstand the other party’s intent about a material term of the contract. The classic example here involves two different ships, both called the Peerless. In that case, the parties entered a contract for cotton to be delivered to England from Bombay on the Peerless. The only problem is one party meant the Peerless sailing in October, the other meant the Peerless sailing in December. Because each party was thinking of a different ship when the contract was formed, the contract was voidable. If the difference had been one of judgment rather than fact or law, the contract would not be voidable.

If a mistake is made in the transcribing of the contract, the contract can be reformed to match the intention of the parties.

Intentional Misrepresentation

fraudIntentional misrepresentation is otherwise known as fraud. It occurs when someone deliberately misleads a party about a material fact in order to gain an advantage over the other party. Fraud requires that the party making the misrepresentation do it with knowledge that the information is false or a reckless indifference to its truth, with the intent that the listeners rely on that information, that the listener does rely on it, and as a result the listener is harmed.

To be a material misrepresentation of fact, that fact must be likely to induce a reasonable person to agree to the contract. However, opinions about the value or future events are rarely fraudulent. Instead, the law allows for a little puffing of a product. Statements about a product that are merely matters of opinion are not fraud. A reasonable person should recognize the statements for what they are: opinion. However, if the person stating the opinion knows of facts that make the opinion false, it is fraud.

To be important, someone must rely on the fraudulent statement. If the relying party should have known that the statements were fraudulent, he or she cannot rely on those false statements because a reasonable person wouldn’t have. To recover under fraud, the injured party must have proof of the harm. The injured party can recover actual damages as well as punitive damages when the fraud is oppressive. The court can rescind or cancel the contract.

Definition

Puffing is a nonspecific, un-measurable statement about a product; this statement cannot be interpreted by a reasonable person as a benchmark about the truth of the statement.

Negligent Misrepresentation

Negligent misrepresentation is similar to fraud in its elements only it does not require known false statements. Instead, for negligent misrepresentation the negligent party has to fail to exercise due care regarding material information. There is no intent to deceive, but carelessness. This is an easier standard to prove, so it is often alleged along with fraud.

Consultation

Nondisclosure con result in a contract being voided. In a normal situation a party has no duty to volunteer information to a party. However, in the following cases a party does have a duty: 1) duty to disclose an unknown defect or condition, 2) duty to disclose a confidential relationship between the parties, and 3) active concealment of information (this can be physical concealment of harmful evidence or hiding information).

Undue Influence and Duress

Another area where someone may not be able to give actual consent is if they are being unduly influenced by someone or are under duress. Many people rely on others to assist them with their financial and legal affairs. An elderly parent may rely on an adult child, a patient on a nurse, a client on a trusted advisor. In those cases, the person relied on can exert undue influence. Essentially, the weaker party loses the ability to exercise independent judgment and is unduly influenced by the other party. When that occurs, the contract can be voided. Courts will normally default to a position that the weaker party was persuaded rather than unduly influenced. The inability to exercise free will becomes the key in these disputes.

A related issue is duress. A party can argue that they only entered the contract because of duress. Physical duress occurs when someone is threatened with physical harm unless he or she acts in a desired way. Emotional duress occurs when someone enters a contract under circumstances which require him or her to sacrifice free will. If a contract is made under duress, it is voidable at the victim’s choice.

Definition

Undue influence is the unfair or improper persuasion of one person by another who has dominant position in the relationship. Duress is the threat of harm used to compel another to do an act against his or her will or judgment.

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