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CHAPTER 9
DEFECTIVE AGREEMENTS
Answers to Learning Objectives
1. Normally, mutual mistakes of fact invalidate contracts. Unilateral mistakes invalidate
contracts when the nonmistaken party has caused the mistake or knows or should have
Lesson Outline
1. Some mistakes make contracts defective. Mistakes are classified as unilateral or mutual.
2. Some courts classify a mutual-mistake contract as void and some classify such contracts as
voidable; however the effect is to make them unenforceable.
5. Mutual mistakes that do not make a contract defective include:
a. Mistakes as to value, quality, or price
b. Mistakes as to the terms of the contract
c. Mistakes of law
d. Mistakes as to expectations
6. Inducing another to contract as a result of an intentionally or recklessly false statement of a
material fact is fraud. Fraud in the inducement makes a contract voidable. Fraud in the
execution makes a contract void.
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12. Undue influence is the exercise of such influence over the mind of another that the latter does
not exercise free will. It renders the contract voidable by the injured party.
Comments on Cases
(p. 88) The court pointed out that an agreement based on mutual mistake is not binding. In this
case all the parties had been mistaken about how much Summerhill should be required to
pay Wallace. The court said that all parties had concluded that $7,938 was a fair amount.
Wallace was not entitled to more than double that amount because of a mutual mistake.
Wallace v. Summerhill Nursing Home, 883 A.2d 384 (N.J. Super. A.D.)
(p. 89) The court found no evidence of mistake on the part of William and Bonnie, so there was
no way there could have been mutual mistake and therefore rescission of the contract
with them. Vonada v. Long, 852 A.2d 331 (Pa. Super.)
(p. 93) The court said a seller is not liable for constructive knowledge of a defect. The seller
must have had actual knowledge in order to be liable. Jensen v. Bailey, 76 So.3d 980
(Fla. App.)
mental condition and reliant on Crider was evidence of undue influence. Houston v.
Crider, 317 S.W.3d 178 (Mo. App.)
Discussion of Ethical Point
(Page 93)
It offends many people’s sense of fairness that parties are not required to disclose pertinent
facts. After all, the only way to make a rational decision is to have “all the facts.” However, so far
government has not made that a legal requirement.
Answers to Questions
(Page 97)
1. Whether a mistake affects the validity of a contract normally depends on whether just one of
the parties or both parties have made a mistake.
4. Buyers can protect themselves from a mistake as to value or quality by requiring a warranty
from the seller as to the quality or value of the articles they are buying.
5. Fraud in the inducement occurs when the party defrauded intended to make the contract but
was told a false statement regarding the terms or obligations of the transaction between the
parties. Fraud in the execution occurs when the defrauded party was tricked into signing a
contract under circumstances in which the nature of the writing could not be understood.
6. Silence might constitute passive fraud when one’s relationship with another relies on trust
and confidence.
(Page 98)
1. Admiral must pay. Neither mistake of fact or mistake of law would excuse Admiral from its
obligations under the settlement agreement. A mistake of law does not provide the basis for
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was not substituted for Teresa’s own judgment in deciding to sign the agreement. In re
Marriage of Shanks, 758 N.W.2d 506 (Iowa)
5. No. The theory of economic duress does not compel entry into a contract. It invalidates an
otherwise enforceable contract. Economic duress occurs when one party agrees to a
wrongful demand by the other because the first party has no choice but to agree. New
Horizon did not agree to any demands of 1266. 1266 Apartment Corp. v New Horizon Deli,
Inc., 847 A.2d 9 (N.J. Super.A.D.)
6. There was a unilateral not a mutual mistake. The only party who was mistaken was Peak
(and his lawyer) who did not read the release carefully enough to notice that Adams was also
released. Peak v. Adams, 799 N.W.2d 535 (Iowa)