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Practical Application: Understanding Contract Enforcement

Instructor: Scott Tuning

Scott has been a faculty member in higher education for over 10 years. He holds an MBA in Management, an MA in counseling, and an M.Div. in Academic Biblical Studies.

Contracts are the foundation of nearly all personal and professional relationships. This is because we want to know that the other party will act according to their word. Review contract conditions and apply your knowledge with some scenarios.

Executing Enforceable Contracts

Contracts, legally-binding agreements between parties, are so important to economic and professional development that it would be impossible to overstate the necessity of binding, enforceable contracts. But sometimes, the conditions under which a contract is executed renders the contract (or portions of it) unenforceable.

You can quickly review a few of these important conditions using the table below.

Voiding Condition Definition Example
Duress A contract made when circumstances are such that a party has no choice but to agree. An individual whose home was destroyed by a hurricane is asked to sign a contract to re-roof the home at a rate that is six times the normal rate.
Undue Influence A party signs a contract after being threatened, blackmailed, or otherwise coerced. A party signs a contract when the other party indicates they will make a fictitious but public allegation of sexual misconduct.
Fraud A party intentionally provides information that is objectively false. A homeowner has entered into a contract for the installation of a backyard pool. As he intended to do from the start, the contractor takes the customer's money and then leaves the area with the job unfinished.
Misrepresentation A party uses a misleading or deceitful assertion during the contract process. A mortgage lender encourages an applicant to sign an adjustable rate mortgage offering low payments but failing to explain the balloon payment required in the fifth year of the mortgage.

Now you can apply your knowledge to three scenarios dealing with these elements.

Scenario 1: Paying for Rescue

Jose is an avid mountain climber. One day, while on a difficult climbing route, Jose witnessed an accident in which a climber fell more than 25 meters. During the fall, the climber suffered three broken bones that prevented him from extracting himself from the mountain without assistance. Jose called emergency services, and a privately-owned helicopter was dispatched.

When the helicopter reached the climber, one of the crew members presented the injured man with a contract. If he wanted to be rescued, he would be required to execute a contract (on the spot) for a ten year ''membership'' for $995 per month.

  • Is this a valid contract? If not, what provision(s) or condition(s) call the contract into question?

If you said that this was not a valid contract, you're exactly right. This contract was made under duress. As defined in the lesson Duress and Undue Influence in Contract Enforcement, because the injured climber is being ''forced'' into an agreement that he would not likely enter save for the fact he has a life-and-death emergency situation. Contracts made under duress are not enforceable in most circumstances.

Scenario 2: Exerting Influence for Personal Gain

A nursing home with 104 residents and 35 staff members is experiencing exceptional financial hardship. The administrator Sarah does not have enough cash on hand to meet the next payroll. However, one of her fellow church-goers is the vice president of a local bank. Sarah thinks, ''Maybe I can enlist his help in getting a short-term line of credit until we get some cash on hand.''

But when the bank VP sees the financials of the nursing home, he determines that the facility isn't even close to meeting the credit worthiness standards for a line of credit like this. When he informs Sarah of this, her tone changes. She says, ''How do think the church would feel if I told them that you refused to help over 100 at-risk, elderly adults - some of whom you sit next to every week?

  • Is this a valid contract? If not, what provision(s) or condition(s) call the contract into question?

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