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An otherwise valid contract, where all of the essential elements that we have covered in the previous three chapters are present, can be rendered unenforceable in court if certain assertable defenses exist. We will rst look at defenses dealing with genuineness of the assent given under the categories of mistake, fraud or misrepresentation, undue inuence, and duress. We will thereafter look at the defense of the statute of frauds and the parol evidence rule and how they as well can block contract enforcement. ***Remember: "defenses" are actually excuses that someone is putting forth in court. The person is asking the court to excuse performance on the ground that there was a mistake, fraud, etc. and because of the excuse, there was no valid consent to the agreement.*** Mistake Generally in order for this defense to prevail the mistake must be mutual and of a material fact in the contract. A unilateral mistake only by one of the parties, can only succeed if if the other party knew or should have known of the mistake or it is one of mathematics. Mathematics in this setting is with regard to addition, subtraction, multiplication, or division. It does not deal with the price or other dollar amounts contained in the contract, nor does it deal with incorrect reference as to quantity. Let"s say | post an advertisement on Craig's List to sell my car for $17,500 and you email me and accept the offer to buy, and in my conrmatory email back to | transpose the digits and say "This will conrm your purchase of the vehicle for $15,700." the court is likely to uphold a price of $17,500. You knew or should have known the price was $17,500. There was an acceptance by you of the list price, and there was no other reason for the price to be reduced. This would be an example of a unilateral mistake and it would not excuse performance at the contract price of $17,500. Mutual mistake, or bilateral mistake of a material m allows either party to the contract to rescind and cancel performance. It must not, however be related to the market value of item or the quality of the item. It must be a mistake of fact not a mistake of qty or value. Example: I list my house for sale at $250,000 because that is what I think it is worth. You see my for sale sign, look at my house and agree to buy it for $250,000. It is later determined by 3 independent appraisers that it is only worth $200,000. Even if the seller and buyer were both mistaken as to its value, this is not a mistake of fact, and will not result in rescission of the contract. Fraud or Misrepresentation These terms are often used interchangably. In New York we most often use fraud. There are four essential elements. 1. There must be misrepresentation of a material fact. 2. There must be an intention to deceive. 3. The contract decision was made in reliance on the misrepresentation. 4. There must be injury or damage. Regarding the rst element, there must be a misrepresentation ofa material fact, notjust sales jargon used in the negotiations. It is not sufficient if the statements made are predictions, an expression ofan opinion, or someone being boastful (also called "pufng"), unless that person is an expert. Fraud can occur by conduct of a party, by concealing a defect, or untruthful denial of knowledge of a defect. Misrepresentations of law do not normally qualify for this defense unless the person making the statement is an expert or professional in that eld of law. Generally silence is not fraud, unless the person is asked, then truthful disclosure is required. lfthe party is aware of a serious defect that could cause injury or damage, and that defect is not easily discoverable that person's silence can be deemed fraudulent. Regarding the second element of intent to deceive, the person making the statement must know it is not true or reasonably believes it not to be true, or recklessly makes the statement without regard for its truthfulness or accuracy, or implies that the statement is made on the basis of information that he does not have or possess. Any of these acts will qualify as intent to deceive, as the person has scienter (guilty knowledge). The third element requires the affected person to reasonably rely on the fraud in making its decision to enter into the contract. It does not need to be the only reason they entered into the contract. Last, there must be a damage or injury. This will entitle the party to either rescission of the contract or for compensation for the |oss(price less actual value). Undue Inuence This defense is typically relationship based. That is, the parties know each other. One party based on that relationship has affected the free will of the other party resulting in a contract that is grossly unfair or unconscionable. There might be a contention of unjust enrichment as well. People who prey on the elderly would t into this category. Examples of relationships could be parent-child, doctor-patient, psychiatrist-patient, lawyer-client, and guardian-ward.The court is looking to protect against unjust enrichment of one party at the expense of the other. The normal remedy here is for the court to rescind the entire contract. Duress This is the defense used when a party enters into a contract because of a threat, fear, intimidation, blackmail, or diminished capacity. The victim claims to have been forced into the agreement. The typical remedy is rescission. However, in certain instances the court can impose punitive damages, damages intended to punish the wrongdoer that far exceed the actual loss. This can also occur in the instance of undue inluence as well. Statute of Frauds This is either statutory law or common law doctrine that requires a contract to be in writing to be enforceable. What categories of contracts apply? Real Estate Contracts, Matrimonial Contracts (pre-nuptuals and separation agreements), contracts that would take more than one year to perform from the date they are entered into, sale of goods greater than $500 (UCC 2- 201), and collateral promises (agreements to pay for the obligations of another person). As is almost always the case in law there are exceptions. If there is some evidence of a contract and one party performs in reliance on the agreement made, the court can determine that a contract exists that overcomes the defense of the statute of frauds. This is directly related to the concept of promissory estoppel (detrimental reliance) where a party is estopped (prevented) from asserting that there is no contract because they allowed the other party to act and perform to their detriment in reliance on the fact they had an agreement. Other exceptions include a judicial admission (this means that when the party is sworn under oath, in a deposition or at trial, the person admits there was a contract between the parties.) of the contract and oral contracts for the purchase of customized goods Regarding collateral promises, if I tell your banker I will guarantee your student loan but don't sign for it, I generally am not going to be liable. However, ifyou owed me money and I went with you to the bank and told the banker I would guarantee the loan and when you got the loan money you gave it to me in payment of your debt, even ifl don"t sign on the loan I am liable because I beneted from this promise. This is called the main purpose rule. What type of writing is sufcient to satisfy this defense? After studying L_ucy v. Zemer, you know that the writing can veryvery "sparse"! The following will generally be sufcient: an invoice, a sales slip, a check, a fax, an email, a memo, a letter, or a combination thereof. Does it need be signed? In most instances no, initials are okay, use of letterhead, rubber stamps, a fax, email, or check are okay also. (Remember: the signature of the party DENYING the contract is usually needed-again, as in Lucy v. Zemerthe Zemers signed but Lucy did not-but he was not denying the contract-in fact, he was the one who said the writing w a contract) Is it better to sign and initial all changes, absolutely yes. The purpose here is to authenticate the writing as between the parties and the accuracy of the transmittal. Some contracts as we have discussed previously do require a specific form notjust a writing in order to be legal. Separation and pre-nuptual agreements, deeds, power of attorney forms, wills and trusts, all require a specic form, notjust a writing to be legal. These are formal contracts. Generally, what does the writing have to say to be sufcient? It needs to contain the essential terms of the deal, not necessarily all the terms of the deal, Names of the parties, subject matter, amount of property to be sold, if land- a description of it, and the consideration to be paid. The Parol Evidence Rule This doctrine provides that the court will not receive into evidence documents or testimony related to prior negotiations of the parties, prior agreements of the parties, or contemporaneous oral statements of the parties in a dispute over a contract's terms or provisions. This is particularly applicable where the contract contains a clear and complete recitation of the terms of the agreement ("fully integrated") and uses plain language laws in its drafting. If the court can determine the entire understanding of the parties from the written document, the parol evidence rule will cut off any offers of evidence to the contrary. This is particularly useful where a party attempts to assert that they were told at the time they signed the contract "not to worry about what the contract says, you have my word". It is not a defense that the party did not read the contract. If the contract has plain meaning the statements allegedly made at the contract signing will not be heard by the courts. As always, there are exceptions. Testimony and other extrinsic evidence will be allowed if it is to show a subsequent oral modication, if the contract is void or voidable for another reason such as fraud or duress, or if it is intended to render meaning to ambiguous terms or missing definitions. It is also allowed if there is an obvious clerical error, to explain a trade usage meaning to a term or phrase, or if the contract is subject to an orally agreed upon condition. The parol evidence rule is often asserted in the defendant's answer but does not need to be to be preserved for trial
