Non-Enforcement of Contracts chapter 8

1. Non-Enforcement of Contractschapter 8 After studying this chapter you should have an understanding of: Why enforcement of contracts is the norm Exceptional circumstances when contracts are not enforced Which contracts must be in writing and why

2. General rule: a contract, once formed, is enforceable. Exceptionscan be characterized three ways: (p. 167) • unequal relationship between the parties • misrepresentation or mistake • defective contracts Where any of these doctrines apply the contract may be found to be either (i) voidable (at the option of the aggrieved party, e.g. duress) or (ii) void (where the contract itself is illegal)

3. 1. Contracts Based On Unequal Relationships (a) Legal incompetence (i) children (minors) (ii) mental incapacity (b) Duress (c) Undue influence (i) actual pressure (ii) presumed pressure (d) Unconscionable Transactions

4. (a) Legal incompetence (i) children (minors) (p. 168) General rule: minors are not obligated by the contracts that they make; however, such contracts are only enforceable at the option of the minor, i.e. voidable. Exceptions: minors are obligated by (i) contracts for essentials, and (ii) contracts of beneficial service (involving a significant element of training).

5. (ii) mental incapacity (p. 169) General rule: if a party is mentally impaired through illness or intoxication and unable to understand the consequences of the contract, and the other party is aware of this state, such contracts may only be enforceable at theoption of the impaired party, i.e. voidable.

6. (b) Duress One party financially pressuring (coercing) the other, beyond ordinary commercial pressure, to such an extent that true consent is vitiated. Such contracts are voidable at the option of the party being coerced. (p. 170)

7. (c) Undue influence – doubtful that one party able to exercise ‘free will’. (i) Actual pressure – where one party has exercised unfair influence. Party seeking relief must prove: - influence existed - influence was exercised - influence resulted in the agreement; (ii) Presumed pressure – certain existing raise a presumption of pressure: e.g. solicitor-client.

8. (d) Unconscionable Transactions • Transactions in which one party stands in a position of being able to take advantage of the other and causes the other to enter into an unfair or improvident bargain. (p. 172) • Proving unconscionableinvolves a two-step process: Step 1 proof of inequality Step 2 proof of exploitation

9. 2. MISREPRESENTATION AND MISTAKE (a)Misrepresentation of Fact(p. 175) Statements made prior to the parties entering a contract. (i)Necessary Elements in Misrepresentation - false - clear and unambiguous - material (relevant) to the contract - actual inducement - fact and not opinion

10. (ii)Categories of Actionable Misrepresentation (p. 176) fraudulent- (deliberate intent to mislead or reckless as to truth of the representation) negligent- (statement made carelessly or negligently) innocent- (no fraud, no negligence, but has misrepresented) (iii)Remedies for Misrepresentation (see fig. 8.2)

11. (ii) Mistake (p. 178) - more than a simple oversight required - rarely proven

12. 3. CONTRACTS BASED ON DEFECTS (a)Illegality (i) illegal by statute (p. 181) (ii) contrary to public policy (injurious to the public interest)

13. (b) Writing as a Requirement:Statute of Frauds (i) guarantees (p. 184) (ii) performance after one year (iii) contracts dealing with land (p. 185) (iv) sale of goods (p. 186)