Excuses For Non-Performance
Mistake
In contract law a mistake is an erroneous belief, at contracting, that certain facts are true. It may be used as grounds to invalidate the agreement. Common law has identified three different types of mistake in contract: unilateral mistake, mutual mistake, and common mistake. A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject-matter. The courts will uphold such a contract unless it was determined that the non-mistaken party was aware of the mistake and tried to take advantage of the mistake. A mutual mistake occurs when the parties to a contract shared an erroneous belief concerning a fact at the time of contracting. A mutual mistake creates a power of avoidance in the adversely affected party where the erroneous fact was a basic assumption upon which the contract was made and had a material effect on the agreed upon exchange of performances, but only if the adversely affected party did not bear the risk of the mistake.
Misrepresentation
In contract law, a misrepresentation is a false statement of fact made by one party to another party and has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation. Several types of misrepresentations are identified with different remedies available:
Frustration of Purpose
In the law of contracts, frustration of purpose is a defense to an action for non-performance based on the occurrence of an unforeseen event which undermines a party's principal purpose for entering into a contract. Despite frequently arising as a result of government action, any third party (or even nature) can frustrate a contracting party's primary purpose for entering into the contract.
Frustration of purpose is often confused with the related doctrine of impossibility, which is closely related. The distinction between the two is that impossibility concerns the duties specified in the contract, whereas frustration of purpose concerns the reason a party entered into the contract. For example, say Jane enters into a lease with Bobby because she wants to open a Chinese-food restaurant. If the government enacts a regulation which makes it illegal to rent the property or if the property is destroyed, then it is impossible for Bobby to perform the contract. If the government enacts a regulation which makes it illegal to run a restaurant on the property or people suddenly abandon eating Chinese food, then Jane's primary purpose for entering into the lease has been frustrated. In the second scenario, the parties could still carry out their obligations under the contract, but one of them has no longer has a reason to.
The Restatement of Contracts, Second § 265 defines frustration of purpose:
“ Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or circumstances [of the contract] indicate the contrary. ”
A circumstance is not deemed to be a "basic assumption on which the contract is made" unless the change in circumstances could not have been reasonably foreseen at the time the contract was made. As a result, it is rarely invoked successfully. Successful invocations usually come in waves during times of substantial tumult, such as after the passage of Prohibition, when bars and taverns no longer had a reason for their leases, or during major wars, when demand for many consumer goods and services drops far below normal.
Impossibility
The doctrine of impossibility is an excuse for the nonperformance of duties under a contract, based on a change in circumstances (or the discovery of preexisting circumstances), the nonoccurrence of which was an underlying assumption of the contract, that makes performance of the contract literally impossible. For such a defense to be raised, performance must not merely be difficult or unexpectedly costly for one party; there must be no way for it to actually be accomplished.
For example, if Rachel contracts to pay Joey $1000 to paint her house on October 1, but the house burns to the ground before the end of September, Rachel is excused from her duty to pay Joey the $1000, and he is excused from his duty to paint her house; however, Joey may still be able to sue for the unjust enrichment of any benefit conferred on Rachel before her house burned down.
Impracticability
The doctrine of impracticability in the common law of contracts excuses performance of a duty, where that duty has become unfeasibly difficult or expensive for the party who was to perform. It is similar in some respects to the doctrine of impossibility because it is triggered by the occurrence of a condition, the nonoccurrence of which was a basic assumption of the contract. The major difference between impossibility and impracticability, however, is that while impossibility excuses performance where the contractual duty cannot physically be performed, the doctrine of impracticability comes into play where performance is still physically possible, but would be very burdensome for the party whose performance is due.
Typically, the test U.S. courts typically use for impracticability is as follows (with a few variations between jurisdictions):
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There must be an occurrence of a condition, the nonoccurrence of which was a basic assumption of the contract;
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Te occurrence must make performance extremely expensive or difficult; and
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This difficulty was not anticipated by the parties to the contract (note: some jurisdictions require that there be no measure within the contract itself to allocate risk between the parties)
Illegality
An illegal agreement, under the common law of contract, is one that the courts will not enforce because the purpose of the agreement is to achieve an illegal end. The illegal end must result from performance of the contract itself, however. A contract that requires only legal performance, such as the sale of packs of cards to a known gambler, where gambling is illegal, will nonetheless be enforceable. A contract to pay a gambling debt, however, will not.
A famous example in the United States is Bovard v. American Horse Enterprises, 247 Cal. Rptr. 340 (1988), in which the California Supreme Court refused to enforce a contract for payment of promissory notes used for the purchase of a company that manufactured drug paraphernalia. Also, contracts in restraint of trade are a variety of illegal contracts and generally will not be enforced unless they are reasonable in the interests of the contracting parties and the public.
Unclean Hands
Unclean hands, sometimes clean hands doctrine, is an equitable defense in which the defendant argues that the plaintiff is not entitled to obtain an equitable remedy on account of the fact that the plaintiff is acting unethically or has acted in bad faith with respect to the subject of the complaint—that is, with "unclean hands." The defendant has the burden of proof to show the plaintiff is not acting in good faith. The doctrine is often stated as "those seeking equity must do equity" or "equity must come with clean hands".
Equitable remedies are generally remedies other than the payment of damages. This would include such remedies as obtaining an injunction, or requiring specific performance of a contract. Before the development of the courts of equity in England, such remedies were unavailable in the common law courts. Such remedies were developed in the equity courts as the payment of damages was often not a sufficient remedy for a plaintiff in certain circumstances. For example, if a landowner polluted the land of the neighbour, the common law tort of nuisance would only allow the innocent party to recover damages. Common law had no remedy that would force the defendant to stop the pollution. Equity courts developed such a remedy, the injunction, that provided an ongoing bar to the activity that caused the damage.
Equity courts realized that such extraordinary remedies were only justified in extraordinary cases, and would generally not grant such a remedy where damages were sufficient to make the plaintiff whole. For example, if a car dealership broke a contract of sale and refused to deliver a particular car, which now could only be obtained for $10,000 more than what the plaintiff was willing to pay, the courts would merely award the plaintiff $10,000 (in addition to the original amount paid, if it had already been paid). It would not force the dealer to obtain the exact same car and sell it to the plaintiff. However, if the subject matter of the sale were a particular work of art, the court would order specific performance and require the sale of the art work.
However, equity courts also realized that these extraordinary remedies were subject to abuse. For example, if a doctor had signed a non-compete agreement with a clinic, the non-compete clause might prevent the doctor from earning a living if he left the clinic's employment. As such, the court will generally only grant these remedies on the strictest terms. If there is any indication that the plaintiff seeking the remedy had acted in bad faith, either prior to the commencement of the litigation or afterwards, the court will generally not grant the remedy. For example, if the doctor left the clinic because it was involved in insurance fraud, a court would most likely refuse to enforce the non-compete agreement by issuing an injunction, although it might allow the clinic to recover damages if they did lose business to the doctor.
Unconscionability
Unconscionability (also known as Unconscientious Dealings) is a term used in contract law to describe a defense against the enforcement of a contract based on the presence of terms unfair to one party. Typically, such a contract is held to be unenforceable because the consideration offered is lacking or is so obviously inadequate that to enforce the contract would be unfair to the party seeking to escape the contract.
In and of itself, inadequate consideration is likely not enough to make a contract unenforceable. However, a court of law will consider evidence that one party to the contract took advantage of its superior bargaining power to insert provisions that make the agreement overwhelmingly favor the interests of that party. Usually for a court to find a contract unconscionable the party claiming unconscionability will have to prove both that there was a problem with the substance of the contract and the process through which that contract was formed. The substantive problem will usually be the consideration, but could also be the terms, interest payments, or other obligations the court finds unfair. Procedural issues that a court could consider include a party's lack of choice, superior bargaining position or knowledge, and other circumstances surrounding the bargaining process.
Upon finding unconscionability a court has a great deal of flexibility on how it remedies the situation. It may refuse to enforce the contract, refuse to enforce the offending clause, or take other measures it deems necessary to have a fair outcome. Damages are usually not awarded.
Accord & Satisfaction
In contract law, accord and satisfaction is the purchase of the release from a debt obligation. The payment is typically less than what is owed and is not paid by the actual performance of the original obligation. The accord is the agreement to discharge the obligation and the satisfaction is the legal "consideration" which binds the parties to the agreement. If a person is sued over an alleged debt they bear the burden of proving the affirmative defense of accord and satisfaction.
Accord and satisfaction is a settlement of an unliquidated debt. For example, a builder is contracted to build a homeowner a garage for $35,000. The contract called for $17,500 prior to starting construction, to disburse $10,000 during various stages of construction, and to make a final payment of $7,500 at completion. At completion, the homeowner complained about inferior work quality and refused to make the final payment. After a mutual settlement agreement, the builder accepted $4,000 as full payment. Thereby, new contract was formed by offer, acceptance, and consideration. The consideration is that for a $3,500 savings, the homeowner gives up that which he is entitled, a well-constructed garage. The builder gives up his right to full price to avoid suit for inferior performance. When accord and settlement has occurred, the homeowner and builder have given up his right to sue for more money under this settlement agreement.
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Fraudulent misrepresentation occurs when one makes representation with intent to deceive and with the knowledge that it is false. An action for fraudulent misrepresentation allows for a remedy of damages and rescission. One can also sue for fraudulent misrepresentation in a tort action. Fraudulent misrepresentation is capable of being made recklessly.
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Negligent misrepresentation at common law occurs when the defendant carelessly makes a representation while having no reasonable basis to believe it to be true.
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Innocent misrepresentation occurs when the representor had reasonable grounds for believing that his or her false statement was true.
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