BLAW 14: Contracts-Voluntary Consent & BLAW 15: Illegal Contracts

Elements of misrepresentation

(1) A representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his or her intent that it should be acted on by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance on the truth; (8) the hearer's right to rely thereon; and (9) the hearer's consequent and proximate injury" resulting therefrom.

Remedies for Misrepresentation

A court may order rescission of contract or find that the contract is voidable. A party who is the victim of a misrepresentation must promptly move to rescind or disaffirm a contract. A failure to do so may be interpreted as a ratification of the contract and lose the right to rescind the agreement.

Mistake

A mistake is an unintentional act or omission arising from ignorance, surprise, or misplaced confidence. The mistake must be material, that is, so substantial and fundamental as to defeat the intent of the parties. Mutual mistake of a material fact. A mutual mistake occurs when both parties, at the time of contracting, share a misconception about a basic assumption or vital fact upon which they based their bargain. It can also include situations in which the parties labor under differing misconceptions as to the same basic assumption or vital fact. Rescission is the proper remedy where there is a mutual mistake of fact that is material or fundamental to the contract. Mutual mistake permits a party to rescind or modify a contract as long as the mistake is so substantial and fundamental as to defeat the object of that party. Unilateral mistake. One of the parties to the agreement is acting under a mistaken belief. A contract containing a unilateral mistake may be rescinded or modified if there has been a misrepresentation or knowledge of the mistake by the other party.

Risk shifting agreements and speculative bargains

Agreement that identifies that one party will bear the risk of a particular situation. Insurance agreements—Insurance company bears the risk of property being lost or destroyed in exchange for a paid premium by property owner. If party has no legitimate economic interest in policy, then this is an wager which is illegal. Speculative bargains. Stock and commodity transaction.

Duress

Condition of mind produced by the wrongful conduct of another, rendering a person incompetent to contract with the exercise of his free will power. Threat or action leaves party with no reasonable alternatives. Economic duress-threatens an economic interest. Ex: Seasonal employees threaten to walk off job if no new contract

Illegality—Illegal Contracts

Contracts are illegal if the performance or formation of the agreement will cause the parties to engage in an activity that is illegal. A contract can be illegal if it calls for behavior or performance that violates a law or statute, or public policy. An illegal contract is one that rests on illegal consideration consisting of any act or forbearance which is contrary to law or public policy. Rights of protected parties. A person that enters into an agreement that violates a statute that seeks to protect the person can usually enforce the agreement or recover consideration. Ex: A party contracting with an unregistered corporation. Rescission before Performance of an Illegal Act. Court may allow a party to recover consideration bargained for as a part of an illegal contract if the party rescinds the agreement before performing the illegal act. Divisible Contracts. "Legal parts of contract can be separated from illegal parts." Legal parts of contract can be enforceable.

Contracts Contrary to Public Policy

Contracts injurious to public service. Agreements that induce public servants to deviate or refrain from doing their duty. Bribes. Contracts to influence fiduciaries. Fiduciary—A person in a position of trust or confidence—a trustee or agent. A fiduciary works on behalf of a beneficiary. Agreement for a fiduciary to breach his or her fiduciary duty is illegal. Exculpatory Clauses. Agreement or provision in a contract that attempts to relieve a party to the contract from the consequences of his or her own negligence. The general rule is that exculpatory clauses are enforceable unless: (1) they violate public policy, (2) the negligent act falls greatly below the standard established by law for protection of others or (3) they are inconspicuous. Contracts in restraint of trade. May be upheld if reasonable in relation to time and geography. Antitrust prohibitions, i.e. agreements to monopolize, fix prices, rig bids. Covenants not to compete (non-competition provision). Courts will enforce such agreements if they are reasonable and lawful. Factors a court will consider. (1) whether the restraint is necessary to protect the employer's business or goodwill, (2) whether it imposes on the employee any greater restraint than is reasonably necessary to secure the employer's business or goodwill, and (3) whether enforcing the covenant would injure the public through loss of the employee's service and skill to the extent that the court should not enforce the covenant, i.e., whether it violates public policy.

Illegal Contracts—Exceptions to Enforceability

Courts have recognized an exception to the unenforceability of an illegal contract where the parties are not "in pari delicto," granting relief to the innocent party. "In pari delicto" = "of equal fault." Courts have also recognized exceptions to the unenforceability of an illegal contract where fraud, undue influence, or duress are present and the agreement does not violate a statute. In certain situations, courts may allow a less guilty, or "uninformed", party to recover to avoid an unjust enrichment by a more guilty party (the reasonable value of the good or service that was provided).

Revenue raising statute

Different from statutes that require demonstration of skill or expertise (regulatory statutes). Revenue raising statutes sole purpose is raise revenue. Generally, an agreement in which a party has failed to obtain or comply with a revenue raising statute or license will not rise to the level of an illegal contract and contract will be enforceable.

Remedies to Illegal Contracts

Generally, illegal contracts are void, and unenforceable. In some states, courts have a duty to raise the issue of illegality when presented with a matter even if the parties do not raise the issue. When asked to by a party to enforce an illegal contract, court will generally "leave the parties where it finds them." The court will not allow a party to maintain an action for breach of contract. Will not order a return of consideration bargained for as a part of the agreement. Will not find a quasi contract (implied-in-law contract) for benefits conferred on one party. ***(There are exceptions to this general rule)***

Fraud

Idaho law treats fraud and misrepresentation as equivalents. Recklessness—Making statements without adequate information to know, or believe, whether or not they are true. These kinds of statements are sufficient to constitute fraud. Remedies: The contract may be rescinded. The contract can be affirmed and party can sue for damages.

Sunday or Blue Laws

Laws prohibiting the sale of goods or performing certain acts on Sunday. Remedy—Weekday ratification of acts or agreements entered into on Sundays. Most states have repealed these laws. Some states restrict alcohol sales on Sundays.

Regulatory Statutes

License to required to practice or engage in a particular type of work. Doctors, lawyers, architects, contractors, etc. Generally, agreements made by unlicensed or unregistered to perform or engage in regulated services are illegal. Unlicensed or unregistered party may be able to recover for unjust enrichment of the other party. (The reasonable value of the services rendered or of goods received, regardless of whether the other party was enriched.)

Misrepresentation

Misrepresentation of a material fact that was justifiably relied upon by a party to their detriment (party suffered a harm). Difference between a fact vs. an opinion. Puffing—An exaggeration or statement that no reasonable person would take as factual. A person's non-disclosure of a fact known to him or her is the equivalent to an assertion that the fact does not exist (if the fact would change the other party's decision)

Unconscionable Contracts

Substantive unconscionability—Cases where a clause or term in the contract is alleged to be one-sided or overly harsh." Shocking to the conscience," "monstrously harsh" or "exceedingly calloused" are terms sometimes used to define substantive unconscionability. Procedural unconscionability—The "lack of meaningful choice, considering all the circumstances surrounding the transaction including the manner in which the contract was entered," whether each party had "a reasonable opportunity to understand the terms of the contract," and whether "the important terms were hidden in a maze of fine print.'

Usury Laws

Usury is the unlawful act of charging interest on a debt (including discount points, fees and other charges) at a rate greater than what is permitted under any applicable law. In Washington, set at 12%. In Idaho, depends on the terms of agreement as usury law were repealed in 1983. To establish the defense of usury, a defendant must show: (1) a loan or forbearance, express or implied, of money or other negotiable tender; (2) an understanding between the parties that the principal must be repaid; (3) the exaction of a greater rate of interest than is allowed by law; and (4) an intention to violate the law. This defense may not be available to a party who initiated the transaction that set the usurious rate.

Voluntary Consent

When parties enter a contract, the agreement, acceptance, or assent by the parties must be voluntary. Where or when there is a lack of voluntary consent to enter a contract, the agreement may be: Voidable, Rescinded, or Disaffirmed. The agreement, acceptance or assent to enter a contract is not voluntary in situations where there is evidence of: Mistake, Misrepresentation, Deception, Fraud or Undue pressure. Why? No "meeting of the minds."

Undue Influence

Where one party is under the domination of another, or by virtue of the relation between them, is justified in assuming that the other party will not act in a manner inconsistent with his welfare, a transaction induced by unfair persuasion of the latter, is induced by undue influence and is voidable. It is not enough that a person is susceptible to undue influence as a result of a confidential relationship. It is also not enough that influence is exerted upon that person. Persuasion is unfair (or influence is undue) only when it overcomes the will of another such that her own free agency is destroyed.

Adhesion Contracts

created by a party to an agreement that is presented to the other party on a take it or leave it basis which has unequal bargaining power. Factors considered by the court to determine if a contract is one of adhesion: 1) whether the contract is a standard form printed contract; 2) whether it was "prepared by one party and submitted to the other on a 'take it or leave it'"; 3) whether there was "no true equality of bargaining power" between the parties. A adhesion contract may also be procedurally unconscionable.