business getting started contracts require genuine assent B u s i n e s s F i n a n c e
BUS-225: Legal Environment of Business
Contracts require genuine assent for the offeror and offeree to be bound by the terms of the contract. If a contract is missing the assent element, a court may allow the contract to be rescinded. A mistake may prevent mutual assent from occurring if there is an incorrect assumption as to a material fact about the contract subject matter. A unilateral mistake results when one party is mistaken as to the material fact about the contract subject matter. A bilateral mistake results when both parties are mistaken as to a material fact about the contract’s subject matter.
Consider the following scenario:
Diego is moving to a new city because of a job change. He has not had sufficient time to find an apartment so he decided to secure short-term housing through an online hospitality service called Rent My Place.
Diego filled out the online rental agreement and clicked the “I Accept” button at the end of the contract. Diego did not read the cancellation terms closely. He believed that he could cancel his one-month reservation if he gave a three-day notice. However, the terms of the contract state that the three-day notice applies only to week-to-week reservations. Cancellation is not allowed for one-month reservations.
Shortly after arriving in the new city, Diego found a studio apartment to rent. When Diego attempted to cancel his one-month reservation with Rent My Place, his request was denied.
If Diego argues that his unilateral mistake voids the contract because he did not fully assent to be bound by the terms of the “click-through” form, he will lose. When Diego clicked the “I Agree” button, he assented to be bound by the terms of the “click-through” contract. Diego’s unilateral mistake will not help him to void the contract.
Upon successful completion of the course material, you will be able to:
Explain contractual mistakes and fraud.
- Textbook: Business Law and the Legal Environment
Webpage: What Are the Consequences of a Mistake in a Contract?
Webpage: Fraud and Breach of Contract: Everything You Need to Know
Webpage: Breach of Contract Remedies: Everything You Need to Know
- Courts will allow a contract to be rescinded under specific conditions. For unilateral contracts, a party may rescind the agreement if the following conditions exist:
the other party to the contract knew or should have known about the mistake,
- the party’s unilateral mistake is due to a substantial mathematical error or clerical error that is not the result of gross negligence, or
- the party who made the unilateral mistake would suffer great harm that would rise to the level of unconscionability.
- Bilateral contracts are subject to rescission when parties are mutually mistaken about a fact that is paramount to the contract subject matter. Alternatively, when there is a mutual mistake about the same material fact of the contract, either party has the option to cancel the contract. Bilateral mistakes generally occur when contract terms are uncertain.
Review the rubric to make sure you understand the criteria for earning your grade.
In the textbook Business Law and the Legal Environment read section 8.1 “General Perspectives on Contracts,” section 8.2 “Sources of Contract Law,” and section 8.3 “Basic Taxonomy of Contracts” from Chapter 8, “Introduction to Contract Law”.
- Read the following:
- Webpage: What Are the Consequences of a Mistake in a Contract?
- Webpage: Fraud and Breach of Contract: Everything You Need to Know
Read this scenario, then address the short-answer questions that follow:
Lydia is involved in a dispute over an area rug she purchased from her neighbor, Tony. Tony’s mother left him the rug in her will. Tony had no space in his home for it, so he offered it to Lydia. The two settled on what they thought was a fair price of $100.
A month later, an antiques hunter saw a picture of the rug and advised Tony that it was in fact a rare Persian rug worth at least $100,000. After learning of his mistake, Tony demanded that Lydia return the rug at once. Lydia refused, stating, “A deal is a deal.”
Explain what constitutes a mistake for purposes of contract law. Distinguish between a unilateral and bilateral mistake. If Tony argues that the rug should be returned because of a unilateral mistake, will he win his case?
Explain what constitutes fraud for purposes of contract law. If Tony sues Lydia for fraud, will he win his case?