Contracts and Sales, Capacity and Assent: Contract Law

Contracts and Sales, Capacity and Assent: Contract Law

 

PART 1

CONFIDENTIAL RELATIONSHIPS

This is a type of relationship founded on trust and confidence in a contract. The parties are expected to act in utmost good faith by disclosing all material facts necessary for influencing them on what decision to make. Its confidential nature is that the contract terms are not to bind third parties to the contract except under special circumstances. For example, it would be a breach of the confidential relationship if an offeree would omit some information, for instance, on the mechanical maintenance of a machine that would make the offeree buy it thinking it is in a good state only to find out otherwise later. Such a party can seek legal and equitable remedies.

CONTRACTUAL CAPACITY

This is a party’s legal capacity for entering into a legally binding contract agreement. For it to be enforceable, the parties must have the legal conditions required. Every individual can enter into any contractual relationship. However, certain circumstances arise whereby some parties’ legal status is contestable, for example, due to age, mental status, and legal status that is bankruptcy.

In most jurisdictions, the legal age to enter into a mutually binding relationship is 18 years, for example, in the UK (Valero, 1978). Contracts entered into by parties who have not attained this age are either binding, void, or voidable depending on the contract’s circumstances and nature. Minors cannot enter into a contract for loans.

The issue of the mental status of a party has become a growing concern in contracts; the courts on most occasions inquire whether the party was if the party suffered from a psychiatric disorder at the time of the contract to the point that it was unable to grasp the essence of its act. Should the court be satisfied that the party was in such a state of mind to understand his/her actions, then the party cannot evade their contractual burden. This is also the case with drunk people; if they were so drunk as to understand their actions during contract formation, then they are void.

A bankrupt person is one who is declared by court not to have the pecuniary ability to repay their debts. A court would decide the contractual capacity of such a person by applying the relevant statutes on bankruptcy.

DURESS

It exists where a contractual arrangement is formed by direct aggression or threats against the individual. In common law, intimidation involves direct aggression or threats of violence; it renders a contract voidable at the innocent party’s option. To amount to duress, the offeree must prove that; its intention to cause fear or loss of life, the threat was meant for the individual, and the threat is illegal. A threat to sue is not illegal and would therefore not be treated as a threat.

ECONOMIC DURESS

In a contractual relationship, one party may threaten the other party by use of commercial threats; for example, he/she may threaten to repudiate the contract to lure the offeree to agree to the terms of the agreement. This pressure caused by one of the parties should leave the offeree with no other available alternative option but to accept the offer per its terms.

FRAUD

During most business activities, engagement’s both parties are expected to respect their fiduciary relationship and act in utmost good faith and confidentiality. However, in some cases, one of the parties, mostly the seller, may intentionally deceive the buyer on a certain thing, which is essential in decision making on whether he/she will go by the goods or not. The party deceiving will mostly gain some benefit that they would not have gained if he/she had not deceived (Elliott & Quinn, n.d.).

NECESSARIES

As a rule, all parties can make a contract except in the circumstances such as age. However, due to contracts’ universal nature; there are certain conditions under which minors may enter into a contractual relationship; these are contracts for necessaries. They are items acceptable to the state of such a minor’s existence and to his actual demand at the time of selling and delivery.

PHYSICAL DURESS

A contracting party may sometimes threaten another to induce them to agree to a contract. The threats may be to someone’s life or to injure him/her (Turner, 2014).

REFORMATION

Just as the wording suggests, this is whereby the contract is remade. This is more so when a court orders that a written contract be modified because of a mistake in the written contract or a misrepresentation.

STATUS QUO ANTE

This is when a contract is rescinded, and the parties are returned to the position they were initially before the contract took effect. It occurs in most instances when the parties go to court seeking legal remedies for misrepresentation and mistake of fact and law.

UNDUE INFLUENCE

Where a faction controls the will of the other party, it is said to exist, thus prohibiting the exercising of an impartial decision on the contract from having an advantage over the offeree and compelling them to accept a contract that they would not otherwise have accepted individually. There must exist a special relationship between the parties to justify the influence over the other.

PART 2

Mutual Mistake

There are two kinds of mistake about facts existing when the contract is created, mutual and unilateral mistake. A mutual mistake is not a defense in enforcing a contract. It is an omission in the subject matter of the contract.  It arises when parties misunderstand each other or at cross-purposes.  No agreement arises between them for lack of consensus ad idem. However, not all misunderstanding constitutes a mutual mistake; it depends on what a reasonable person would deem the circumstances to be.  Section 152 of the 2nd Restatement addresses the issue of mutual mistake. It avers where at the time of the contract, an omission committed by all parties to the general principle under which the contract was concluded has a substantial effect on the negotiated exchange of performances; the contract shall be void by the party adversely affected unless he bears the risk of the mistake under the rule stated in Section 154.

A party bears the risk of a mistake in three different circumstances, and these are: when the risk has been allocated to him by the court on the basis that it is reasonable to do so, when the risk is allocated to him by agreement of the parties, and when he is aware at contract formation, that he has limited knowledge on the facts of the mistake but treats this limited knowledge as sufficient.

PART 3

Unilateral Mistake

It is envisaged on section 153, and it arises where only one party is mistaken while the other is clear-minded as to the terms of the contract. A mistake of one party at the time of contracting was made as to a basic assumption on which he made a contract. This fault should have a significant adverse impact on the negotiated exchange of results, so that the contract is invalid if it does not carry the possibility of an error under the provision set out in section 154. The effect of the mistake would be such that the mistake’s effect is such as the enforcement of the contract would be unconscionable. The other party also had reason to know of the mistake or his fault caused the mistake. The parties must disclose information as per section 161 B. where a party fails to disclose information that would otherwise correct a mistake. Then the party violates breaches the duty of trust and utmost good faith.

Unilateral and mutual mistakes have similar elements in that one party is incorrect as to a fundamental premise of the contract; the other party has some knowledge of the first party’s mistake, and failure to warn the mistaken party to her mistake amounts to a violation of the contractual norms.

PART 4

Question and Case Problem 2.

The issues are:

  1. Whether there existed a contract between Hellen and the dealer?
  2. Whether Hellen can avoid the contract

Rule

When breached, a contract is a promise that the law provides a remedy and the performance of which the law recognizes as an obligation. To make a contract have a binding effect, all the essential elements must be satisfied. They include; Offer and Acceptance, Capacity, Intention, Consideration, Legality, and Formalities, if any.

All persons have a legal capacity to enter into a contract. However, some circumstances would make some special class of persons cannot make the contracts. This includes; children, people with a known mental condition, and drunken persons.  Contracts entered into by children are binding if only they deal with necessaries; the rest are void or voidable at the court’s discretion and based on circumstances.

Application

It is true to say that Hellen and the dealer agreed, but its enforceability would be subject to whether it conforms to the essential elements. It vitiates the contractual capacity element since Hellen is a minor and therefore has no legal capacity to enter into a contract. This is further proved by her admission that she was indeed a minor.

The contract is void; this is because of the age of Hellen. The dealer ought to have done due diligence to ensure that he is sure about her age.

Conclusion

There existed no contract between Hellen and the dealer due to lack of legal capacity, and she can avoid the contractual burden created thereunder.

Question and Case Problem 12.

The issues are:

  1. Whether the contract is legally binding?
  2. What would additional facts allow the store to avoid the contract for the additional machines?

Certain conditions exist, which would render a contract invalid and void, and no rights can be derived from it. Mistakes negate the mutual consent element since the parties are not like-minded, and there is no commonality of purpose.

The supplier can be said to have made a unilateral mistake. He made a clerical error, which puts him in a different position from the retailer who made the order. There is a disparity in purpose between the supplier and the retailer, and the consequence is that neither party can arbitrarily enforce his own will on the other. The mistake goes to the root of the contract since it deals with the commodity quantity to be supplied. The contract is thus not enforceable due to a unilateral mistake.

The history of the retailer’s purchases would come in handy to show that they do not purchase many computers. The fact that the employee was new in the job could also be used to show the mistake he did not use to work and thus prone to errors.

PART 5

‘Tales Of Capacity’

Wayne is a husband to Elizabeth and father to Edna and Clara. Clara is aged 14 years, and Edna is aged 19 years old. Clara attends Richmond Hills high school, and Edna attends Gareth University, where she is pursuing an undergraduate law degree. The two sisters are similar, and it is really hard to tell one from the other. When Clara was walking from school, she saw a pair of shoes on display in Reuben’s shop. She proceeded to enter the shop, pick the shoes, and even tried them on, and they fitted her. Clara went to the cashier, who is also the proprietor Mr. Reuben where they agreed that she should get the shoes on credit, but she was to at least pay a third of the shoe’s marked price. In the agreement, she represented herself as Edna, her identical sister. Mr. Reuben, just like many of the villagers, could not tell the difference, and he presumed that indeed she was Edna. They agreed on the terms of the agreement, more so the payment duration. She was expected to pay the debt by the end of one month; at the end of that period, Mr. Reuben approached her, and she told him that there was no contract between them, and thus she was not going to pay him.

Elizabeth spends most of the days at home running basic errands since she is suffering from a known medical condition Epilepsy. During one Friday afternoon, she received a call from the landlord of their estate, who wanted to get her consent on the new rates for electricity charges. The landlord asked her whether she would accept the new rate, increasing by 100 us dollars from the initial one. Before she could answer, she had a seizure and did not answer the landlord. The landlord implied that she had accepted and hung up the phone. He later sent them a new billing receipt, and it had affected the new changes. Elizabeth contested that she did not accept any increase in charges and that the husband was the one who made such decisions.

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