CPM/U1 Topic 2 Factors Affecting Contracting
A contract is a legally enforceable agreement between two or more parties. To make it that way, all of the components of a valid contract must be present. These components include an offer, acceptance of the offer, consideration of something of value in exchange for the promise, mutual agreement, the legal capacity to enter into an agreement and legality of the subject matter. A number of factors, both within and outside the normal course of business, can affect consent in contract law.
These are the following Factors Affecting Contracting
(i) No Consent if There’s a Mistake
Legal consent cannot be given if both parties or in some cases, only one party is wrong about some critical aspect of the agreement. Mistakes fall under two categories: mutual mistakes and unilateral mistakes. A contract usually is voidable when the mistake is mutual, involves a basic assumption and strikes at the heart of the agreement. For example, a real estate purchase agreement for a condominium might be voidable if the buyer assumes the unit in question faces the beach and the seller assumes it faces a parking lot.
In a case where a mistake is one-sided, a court usually will not rule that the mistake affected legal consent, but instead only require that contract be corrected. The only exceptions are mistakes that make the agreement grossly unfair to the mistaken party. These include mistakes caused by or known by the other party and not disclosed. Most unilateral mistakes involve definitions, prices, quantities, dates and descriptions.
(ii) Fraud and Misrepresentation Negate Consent
Fraud and misrepresentation are similar except in regards to intent. However, both can affect legal consent. Fraud is an intentional misstatement or omission of fact by one party designed to induce the other party to give consent. For example, a car salesperson might tell a buyer the odometer reading is correct, even though he knows it was rolled back the previous day.
In contrast, misrepresentation involves a false statement of fact made without the intent to deceive. The car salesperson who tells a buyer an odometer reading is accurate without knowing it was rolled back has made a misrepresentation. The occurrence of either can make a contract voidable.
(iii) Duress and Undue Influence Void the Contract
Duress and undue influence are explicit acts by one party intended to place pressure on the other party to give consent. Duress usually involves threats of violence, imprisonment, claims against another person’s property of breach of contract. For example, in a 1993 California case in which Universal pictures sued Michael Oliver for unfairly renegotiating a contract in the middle of filming under threat of walking away, the court ruled the signed agreement was unenforceable because Universal Pictures signed it under duress.
Undue influence affects consent when a person in a position of trust uses her position to gain an advantage over another person. These issues can occur in family, business and legal relationships. For example, a financial adviser who uses his position to influence a client to purchase questionable stocks for which he will receive a generous commission may be deemed to have exerted undue influence.
(iv) The Mirror Image Rule
Consideration, which usually refers to an agreed upon purchase price, commonly affects consent in contract law. This is especially evident in real estate contracts, which must abide by the mirror image rule for consent to occur. The mirror image rule says that an offer and acceptance must match exactly. For example, if you offer to sell something for $100 and someone gives you $100 for the item, the offer was properly accepted. In a real estate contract, a counteroffer from a seller in response to a buyer’s purchase offer changes the terms of the original offer, negates it and therefore creates an entirely new offer. The parties often go back and forth several times with several offers before reaching consent or walking away from negotiations. There is no contract until consent is achieved.