Business Law
Chapter 5:
Mutual Assent
What is Mutual Assent?
• Mutual assent is the term that we use
to encompass not only the offer and the
acceptance, but also the understanding
of the parties about what the contract
contemplates.
Mutual Assent versus Consent
• Mutual assent is different from consent.
• When a person consents, he or she is
agreeing to a particular detail, such as
time, place, or action.
• Mutual assent, on the other hand, refers
to the fact that a party voluntarily
assumed the obligations, rights and
responsibilities under a contract and all
that it entails.
Mutual Assent and the Parties’
Preferences
• A person can give grudging mutual
assent to a contract and be just as
bound by its terms as someone who
enthusiastically embraces the terms of
the contract.
Common Design or Purpose
• In order to have a valid contract, the
parties to the contract must have a
common design or purpose.
Who Will be Bound?
• The parties to the contract must be
identifiable.
When Mutual Assent is Absent
from a Contract
• When mutual assent is not present at
the time that the contract is negotiated,
this deficiency cannot be remedied by
later negotiations.
• Not every aspect of a contract must be
established in order to have a binding
contract.
Construing the language of a
contract
• Courts take a very liberal approach to
interpreting contracts between parties.
• Courts will attempt to enforce a contract
and find a contract valid when the
parties obviously intended to create
one.
Interpreting Mutual Assent
from a Contract
• The courts will review the factual
situation presented in each case and
make a determination about mutual
assent based on what the parties said
and did and what the language of the
contract itself stated.
• The court is presented with an either/or
situation when it comes to determining
mutual assent.
• Either mutual assent was present, or it
was not.
Interpreting the Language of a
Contract – Ground Rules
• When a court is called upon to construe
the language of a contract, there are
some ground rules that will guide the
court.
Rule #1. Words are given their
normal and obvious meaning
• Words used by the parties are given
their normal and common-sense
meaning.
Rule #2: The Contract Is Evaluated
at the Time of its Creation
• The parties’ intentions are assessed at
the moment that the contract is created,
not by their later misgivings.
Rule #3: The Contract is
Interpreted to Provide Fairness
to All Parties
• The general rule is that a contract will
not be void for uncertainty unless the
court finds it impossible to interpret the
intentions of the parties in creating a
binding legal agreement between them.
Degree of Certainty Required
in a Contract
• Courts generally rule that obligation of
the parties must be reasonably certain
and capable of being interpreted.
• A contract may be ruled sufficiently
definite either because the terms
expressed in the contract are specific
enough to create a legally binding
agreement between the parties or
because the contract refers to some
other document that clears up any
ambiguities.
Absolute certainty is not
required
• Absolute certainty is never a
requirement for a contract.
• When a court inquires into the specifics
of a contract, it focuses on the point in
time at which the contract was created.
• If the terms of the contract and the
subsequent legal obligations of the
parties are definite enough at the time
when the contract is created, the
contract is valid.
Mistake as to the subject of
the contract
• A contract may be voided for mistake,
but “mistake” has a very narrow
definition under the law.
Mistake is a Bilateral Act
• A “mistake” refers to an error shared by
both sides of the contract.
Mistake Concerns Material
Facts Only
• A material fact is a fact that is crucial to
the parties' understanding of the
transaction or a key point of negotiation.
Mistake and Conditions
Precedent
• When the parties base their contract on
a specific fact and this fact is false, the
contract can be voided for mistake.
Waiving a Claim of Mistake
• A party can waive a claim of mistake by
any of the following:
1. By failing to raise the claim within a
reasonable period of time.
2. By affirming the contract after learning
of the mistake.
3. By a contract provision that clearly
states that the party was willing to
take on the risk of mistake.
How long does a plaintiff have
to raise a claim of mistake?
• A claim of mistake must be raised within
a reasonable period of time.
Fraud and Misrepresentation
• Fraud: Any kind of trickery used to
cheat another of money or property.
Two Types of Frauds Involved
in Contracts
• In most jurisdictions, there are two types
of frauds: fraud in the execution of a
contract and fraud in the inducement of
a contract.
Fraud in the Execution of a
Contract
• Fraud in the execution of a contract,
sometimes referred to as “fraud in the
factum,” occurs when one party is
misled into entering into a contract with
another.
Fraud in the Inducement
• Fraud in the inducement occurs when a
party agrees to enter into a contract,
understands the rights and
responsibilities of the contractual
agreement, but has been induced into
the agreement by false information
provided prior to agreement.
Fraud Creates a Voidable
Contract
• When fraud occurs during the creation
of a contract, the contract is not
automatically void, at least in the vast
majority of jurisdictions.
Waiving the Right to Allege
Fraud
• Some jurisdictions follow a rule stating
that if the party could have discovered
the fraud through reasonable means,
i.e., reading the contract, and failed to
do so, then the defense of fraud is no
longer available.
Proving Fraud
• In most jurisdictions, a party alleging
fraud must prove the following:
a) That the other party made a
representation.
b) That this representation was about a
material fact to the transaction.
c) That this representation was false.
d) That the party made this false
representation with the intent of
misleading the plaintiff into relying on
the representation.
e) That the plaintiff did, in fact, rely on
the representation.
f) That the plaintiff incurred damages
from relying on this false
representation.
Clear and Convincing
Evidence Required to Prove
Fraud
• Most jurisdictions require that a plaintiff
proves an allegation of fraud with clear
and convincing evidence.
• Clear and convincing evidence: Proof
that a particular set of allegations is
likely to be true; it is a higher level of
proof than preponderance of the
evidence.
Fraud Involves Material Facts
• An allegation of fraud is limited to
dishonesty concerning material facts
Sales Statements Are Usually
Not Considered to be Material
Facts
• Sales exaggerations or “puffing,” is
considered to be harmless since most
people do not put much faith in such
statements in the first place
Opinions Are Usually Not
Considered to be Material
Facts
• A person’s opinion about a particular
situation usually does not rise to the
level of a material fact.
Duress, coercion and undue
influence
• It is one of the basic principles of
contract law that persons cannot have
contracts forced upon them.
Duress
• Duress is the application of unlawful
force, or the threat of force, that causes
a person to do something that he or she
would not otherwise have done.
Exercising a Legal Right does
not Create a Claim of Duress
• It is not duress to exercise a legal
option.
Coercion
• Coercion is a mental threat, compulsion,
or force making a person act against
free will.
Undue Influence
• A defense of undue influence often
comes about in situations where one
person enjoys a position of trust with the
plaintiff and then uses that position to
deceive the plaintiff into entering a
contract.
Ratification
• A person may approve a previous
improper action and make it valid.
Ratification and Void
Contracts
• When a contract is void it cannot be
ratified.
Actions that Qualify as
Ratification
• A person ratifies a contract through
action.
• The only way to successfully ratify a
voidable contract is to wait until the
legal impediment that made it voidable
disappears.
Later Agreement
• A party can ratify a voidable contract by
expressly affirming the contract, even
though it is lacking some specific
element.
Continuing to Receive Benefit
• Ratification can also occur through
actions.
• A court may find that a party has ratified
a contract even without a positive
statement, where the party continues to
receive benefit from the contract, or
continues to act as though the contract
is perfectly valid.
Ratification by Delay
• The courts may find that a party ratified
a contract simply by its failing to
challenge it within a reasonable period
of time.
The Doctrine of Laches
• The principle of laches, sometimes
known as the Doctrine of Laches, is
simple: when a party has a right and
does not assert it, he or she will lose the
right.
Ratification and Duress
• An agreement obtained under duress
may also be ratified at some later point
in time.
• But only when the conditions that
created the duress are removed.