9.1 1.1
Law for Business, 15e
by Ashcroft
Chapter 9:
Defective Agreements
Law for Business, 15e, by Ashcroft, © 2005 West Legal Studies in Business, a Division of Thomson Learning
9.2
Chapter 9 Objectives
 Describe mistakes that invalidate
a contract.
 State what types of mistakes
normally do not invalidate
contracts.
 Identify situations in which
fraud, duress, or undue influence
are present.
Activity
Agreement or
Mistake?
Mark agrees to sell Geraldine his car for
$3,000, without specifying it was a 1995
Ford. She could view it by driving to his
home where it would be in the driveway.
Unknown to Mark, his wife had come
home early and parked their Ferrari in the
driveway (worth more than $3,000).
Geraldine sees the Ferrari and thinks it
could be bought for $3,000. She quickly
tells Mark she wants to buy it. Has there
been a meeting of the minds?
9.3
9.4
Activity
Agreement or
Mistake?
No - the mistake was mutual.
Neither knew exactly what the other
was referring to.
9.5
Unilateral Mistakes

Usually has no effect on a contract

However, a unilateral mistake of a fact
may entitle a mistaken party to relief
 If
the nonmistaken party has caused
the mistake or knew of the other party’s
mistake and the mistaken party
exercised ordinary care.
 Courts
show extreme unwillingness to
allow one party to hold the other to a
contract if the first party knows that the
other one has made a mistake.
9.6
Contract Terms
Govern
 Contract
terms govern, no matter
how the law would apply to mistakes
 The
contract could also indicate
which party assumes the risk that
the facts are not as believed.
 The
law as to mistake applies only in
absence of a governing provision in
the contract, so long as that
governing provision is not
unconscionable.
9.7
Mutual Mistakes
A mutual mistake will render a
contract defective except in these
types of mistakes:
a. Value, quality, or price
b. Terms of the contract
c. The law
d. Expectations
9.8
Kinds of Fraud
Fraud in the
Inducement
Fraud in the
Execution
Innocent
Misrepresentation
Passive
Fraud
Active
Fraud
9.9
Duress and
Undue Influence

Types of duress

Physical
Emotional

Economic


Undue influence is exercised when no
force or threat of harm is used, but
one party exerts so much pressure on
the other that the second party’s free
will cannot be exercised
Remedies for Breach
of Contract
• Sue to recover money, goods, or
other things of value.
• If the contract is executory on
your part, sue to perform.
• Sue to have the contract
judicially declared void.
9.10
Remedies for Breach
of Contract
• Sue for reformation (correction)
of the contract.
• Sue to have the contract
rescinded (voided)
9.11
The End !
Be sure you understand this
chapter before continuing to
the next.
9.12 1.12