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CU-Boulder BCOR 3000 - Defenses to Contracts

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BCOR 3000 1nd Edition Lecture 14 Outline of Last Lecture I. No Lecture—Exam Outline of Current Lecture I. OverviewII. Mistakes1. Unilateral2. BilateralIII. Fraudd1. Inducement2. 6 requirementsIV. Execution/Inception/In factumCurrent LectureChapter 12—Defenses to Contract Enforceability***The 4 elements of the contract were there, however this chapter will lookat the ways to get out of it and defend yourself from what has beencommitted***Overview- A defense allows a party to avoid its obligations under a contract- Even though the 4 basic reqs. of a contract are present, something allows one party to avoid the contractMistakes• Unilateral—One party or one side has a mistaken impression about subject matter of the contractThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.– Mistaken party cannot avoid– E.g., I buy your iPad, but didn’t know that it is wifi-only.– Usually you cannot get out of this contract.– Example 12.2 on p. 306 of text not a great example• However there are exceptions:– If the non-mistaken party knows of the mistake and takes advantage of it– There is an obligation to clear up any mistakes if there is prior knowledge of it.– Car A/C example 1st car to ever have A/C Shows off her car and Ballantine sees that there is no A/C in thecar under the hood She reached a conclusion that there was A/C Salesperson did not disclose information that there was an A/C Buyer test drove car under the impression that there was A/C and then purchased it B/c she was the only one who had a mistaken impression she CANNOT get out of the contract IF, it were to have been that the sales person was ease-dropping and heard the buyer talking about that the car had A/C and did nothing to correct the mistaken impression—then the buyer CAN get out of the contract.– Mathematical mistake• Subcontractor bidding• Other clerical error—adding up numbers in a contract• A numerical typo• Hire a general contract to build an addition on to a house. A bathroom will be a part of this addition. The general contractor contacts 4 plumbers to do the job. Hears back from all the plumbers and there offers: $10,000, $11,000, $12,000 and $1300. The last offer was a mistake by the plumber b/c a zero was accidentally dropped. You cannot take advantage of this offer under this rule of the “mathematical mistake—clerical error”.Bilateral Mistakes• Both parties are wrong• Either party can void– Both hold same mistaken beliefEx: Both parties with the car sale both thought that the car did not have A/c—both had a mistaken belief. Very often what happens is that the buyer knows nothing about the car. In reality the buyer reached her own conclusion with no influence of the dealership. But if the dealership has on the car a sticker that says there is A/C. If she gets home and realizes there is no A/C she can get out of the contract.Or– Two different beliefs (both reasonable!), no way to know which is correct• Peerless case (p. 307) Peerless—without equal; Ship Peerless Freight forwarding company to have stuff shipped 2 different ships with the same name Freight company thought it was on the later ship Buyer of goods thought it was on the early ship Both parties had 2 different beliefs—Are the both reasonable? (yes)IF…asked to ship from Loveland to Boulder (and you live in Boulder, CO) then the only reasonable belief is that the location would be Boulder, CO. If you try to get out of it by saying “no I meant Boulder, Montana—you cannot get out of it b/c that is not a reasonable belief.Mistakes of Value• Not really a mistake• Not a defense• Opinions of value differ from person to person, therefore this mistake is not valid to be removed from a contract.• Contract for general item that is actually a special item: no mistake– Text violin example p. 306– Ex: Is it a violin or is it a brand name violin?– Rembrandt at yard sale– Ex: painting at a garage sale sold for $7 but actually worth $40,000. The basis of the bargain is the painting. If you buy something that is an ordinary item is something special there is no case. The basis is a painting and what you got was a painting—no mistake.– Contract is for a painting, and it is in fact a painting.However, if you try to sell a Cadillac that is said to be previously owned by Elvis Presley, but in fact it is not then that is a mistake because of false advertisement. There is a mistaken impression on both sides. Can get out of contract and get money back.• Contract for special item that is not the special item, but a general item.– Contract for Elvis’s Cadillac that turns out not to be his– It is NOT Elvis’s Cadillac, thus a mistake, but one of fact• What is the basis of the bargain?—Elvis’s Cadillac (but this basis does not exist since it is not actually Elvis’s Cadillac)FraudInducement (98% of fraud cases)– Lie about the subject matter of the contract e.g., a car’s mileage– Ex: I know that the car is not A/C and the customer asks me if it is. The dealer knows it is not and says that it actually is A/C. This is fraud (a lie) to induce someone to sign a contract.– All fraud involves a “bad guy”– Contract is voidable by the deceived party– Must meet all 6 requirements– Note: Text on p. 308 lists 3 reqs., some in text are 2 in list on next slide– Fraud overlaps tort and contract law– Minimum of 3 types of lawsuits that could be brought to youThe 6 requirements:1. Misrepresentation—a false statement2. Of a material fact (2 parts) Exceptions: Predictions and Opinions Material—“it matters in a decision”3. Intent to deceive (known to be false).or: Reckless or should know Hard to prove Indirect evidence To prove: 1) Prove that the speaker knew the statement was wrong; 2)One party is an expert in the matter—easier to prove; 3) “Reckless disregard”—do know a statement is wrong b/c you have no way of knowing it is right or wrong (having no basis of knowledge in the matter)4. Relied upon—the plaintiff has to say that they believed it  (There is no reliance if the party knows and goes through it anyways.) Ex: Go to a seller of a used car. “Has the car ever been in an accident?”—No. Taken to a mechanic to be inspected before purchase.Mechanic says that the accident damage


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CU-Boulder BCOR 3000 - Defenses to Contracts

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