Contract Defenses for Lack of Mutual Assent: Mistake, Misunderstanding and Misrepresentation

Summary

This presentation explores legal defenses to contract enforcement, focusing on mistake, misunderstanding, and misrepresentation. It discusses how a mutual mistake, where both parties share an erroneous belief about a material fact, can void a contract, and how unilateral mistakes may render a contract unenforceable if unfair or unconscionable. It also examines misunderstandings about contract terms and how differing interpretations can lead to unenforceability. Finally, the presentation covers how misrepresentation, whether fraudulent or innocent, can affect a contract's validity, emphasizing the importance of accurate information in contract agreements.

Takeaways

• 😀 Mistake, misunderstanding, and misrepresentation can serve as defenses against enforcing a contract, even if the contract satisfies the basic elements of offer, acceptance, and consideration.
• 😀 A mistake defense applies when one or both parties have erroneous beliefs about important terms of the contract.
• 😀 Mutual mistake occurs when both parties share the same mistaken assumption, and the contract is voidable by the adversely affected party.
• 😀 In mutual mistake cases, a mistake must materially affect the contract terms to the extent that enforcing it would be unfair.
• 😀 An example of mutual mistake: a contract for leasing land to grow jojoba was voided because both parties mistakenly believed there was enough water to sustain the crops.
• 😀 A party can only avoid the contract due to a mutual mistake if they did not assume the risk of making the mistake.
• 😀 A unilateral mistake occurs when only one party makes the mistake, and in certain cases, it can make the contract unenforceable.
• 😀 Unilateral mistake can make a contract unconscionable if the terms are disproportionately unfair or if the other party knew about the mistake.
• 😀 In cases of miscalculated bids, if the mistake is significantly disproportionate (e.g., a contractor submitting a bid far lower than normal), the contract may be unenforceable due to unconscionability.
• 😀 Misunderstandings arise when each party attaches a different meaning to the same term, and if the misunderstanding is serious enough, the contract may be unenforceable.
• 😀 Misrepresentation refers to false or fraudulent statements made during negotiations. It can render a contract voidable or provide grounds for reforming it, depending on whether the misrepresentation was material or intentional.
• 😀 Not every misrepresentation makes a contract unenforceable; only material misrepresentations—those that directly impact the agreement—can invalidate it.
• 😀 A misrepresentation can also be innocent, and if it causes substantial harm to the other party’s understanding of the contract, it can render the contract unenforceable.
• 😀 Legal defenses like mistake, misunderstanding, and misrepresentation are consistent with contract law’s goal of protecting the reasonable expectations of parties and preventing unfair obligations.

Q & A

What is the primary purpose of the defenses of mistake, misunderstanding, and misrepresentation in contract law?

These defenses are designed to protect parties from being bound by contracts that they never intended to make or that were based on incorrect assumptions, ensuring fairness and upholding the reasonable expectations of the parties.

What are the two types of mistakes that can occur in contract law?

The two types of mistakes in contract law are mutual mistakes, where both parties share the same erroneous belief, and unilateral mistakes, where only one party is mistaken.

What are the four characteristics required for a mutual mistake to void a contract?

1. The mistake must have been made by both parties at the same time. 2. The mistake must involve a basic assumption on which the contract was made. 3. The mistake must materially affect the agreed-upon exchange. 4. Only the adversely affected party can void the contract, unless they assumed the risk of the mistake.

Can a contract be voided due to a mutual mistake if the parties assumed a risk?

No, if a party assumed the risk of making the mistake, they cannot avoid the contract, even if the mistake was significant.

How does unilateral mistake differ from mutual mistake in contract law?

Unilateral mistake involves only one party being mistaken about a material fact, whereas mutual mistake involves both parties sharing the same erroneous belief.

Under what conditions can a unilateral mistake make a contract unenforceable?

A unilateral mistake can make a contract unenforceable if: 1. Enforcing the contract would be unconscionable, 2. The non-mistaken party knew or should have known about the mistake, or 3. The mistake was caused by the fault of the other party.

What is an example of a situation where a unilateral mistake might render a contract unenforceable?

If a contractor submits an unusually low bid due to a miscalculation and the other party knows or should know that the bid is much lower than others, the contract might be unenforceable due to the unilateral mistake.

What is a misunderstanding in the context of contract law?

A misunderstanding occurs when both parties interpret the same term differently, resulting in a lack of 'meeting of the minds.' If the misunderstanding is serious enough, the contract may be unenforceable.

How can a misrepresentation affect the enforceability of a contract?

A misrepresentation can make a contract unenforceable, voidable, or subject to reform if the false statement is material and has caused the other party to rely on it when entering into the contract.

What is the difference between fraudulent and innocent misrepresentation?

Fraudulent misrepresentation involves knowingly making a false statement with intent to deceive, while innocent misrepresentation involves a false statement made without intent to deceive, though it still impacts the other party's decision to contract.