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Contracts

contract and if the misrepresentation would likely induce PAROL EVIDENCE RULE
a reasonable person to so enter the contract. The parol evidence rule provides that if the parties to a
Duress may make a contract unenforceable. Physical contract intended for their contract to be a complete inte-
duress, or forcing a person to accept an offer, invalidates gration, that is, if the parties intended that the written
the contract, while the threat of physical harm makes the agreement be the full extent of the understanding between
contract voidable at the election of the victim. Courts are them, then evidence other than the contract itself may not
divided on whether economic duress is sufficient to deny be admitted to contradict the written terms. Therefore, in
the enforceability of a contract. interpreting a contract, the court should generally not
A contract that is entered into under undue influence look beyond the contract itself for interpretation. The
is also voidable at the election of the victim. Undue influ- parol evidence rule permits evidence intended to prove or
disprove the legitimacy of contract formation, such as evi-
ence exists where one improperly takes advantage of one’s
dence showing a party’s capacity or showing fraud or
relationship with another to coerce the other person to
mutual mistake, but prohibits evidence intended to vary,
enter a contract. Examples are the influence that an adult
child may have over an elderly parent who is dependent contradict, or change the terms of the written agreement.
on the child for care, or the reliance of an unsophisticated Of course, if a contract refers to another document, that
other document may be admitted to explain the terms of
individual on a sophisticated adviser, where the adviser is
the contract at issue.
aware of the reliance.
As a general rule, an illegal bargain is void as a matter
of law and may not be enforced. Therefore, a contract to STATUTE OF FRAUDS
commit murder, to rob a bank, or to steal a car is void as A common mistake is the belief that oral contracts are not
a matter of law. enforceable. In fact, most oral contracts, if they fulfill all
of the requirements of a contract, are indeed enforceable.
A contract may be void because enforcement of the
However, the statute of frauds requires that in certain spe-
contract would be unconscionable. It is important to
understand that mere disproportionality of the benefits of cific circumstances, contracts must be in writing. While
a contract, no matter how great, does not make the con- the requirements vary from state to state, generally the
statute of frauds requires the following contracts to be in
tract void as unconscionable. Unconscionability may be
writing: contracts by executors, administrators, or other
found only where there is grossly disproportionate bar-
personal representatives; contracts in consideration of
gaining power to the extent that one of the parties had vir-
tually no choice in accepting the terms of the contract. marriage; contracts for the sale of real estate; contracts for
Contracts are rarely found to be unconscionable unless a the sale of goods exceeding $500; and contracts that will
not be performed within one year of the making of the
significant public policy issue is involved.
contract. The statute of frauds generally does not require
any particular written form, and generally a contract will
CONTRACT INTERPRETATION suffice so long as it identifies the parties, describes the sub-
An offer, acceptance, and consideration must be present ject matter, states the essential and material terms, states
to form a contract. The defenses to contract formation, as that consideration exists, and is signed by the party against
discussed above, may be used to show that no contract whom enforcement is sought.
exists. However, even if it is shown that a contract does
exist, questions may arise as to the content and meaning REMEDIES AND DAMAGES
of that contract.
Throughout this article, reference has been made to the
court’s enforcement of a contract. This, of course, begs the
RULES OF CONSTRUCTION question of what course of action may be taken to enforce
In interpreting contracts, courts generally follow certain a contract, to repay the victim of a breach of contract, or
fundamental rules of construction. Under the four corners to punish those who breach.
rule, courts will restrict their analyses to the written terms Generally, the victim of a breached contract is enti-
of the agreement itself, wherever possible. Ambiguities tled to be made whole, or put in the same position as that
will be construed against the drafter. Courts will generally party would have been in had the contract been fulfilled.
seek to harmonize the terms of a contract in a manner that Commonly, this is done by forcing the breaching party to
makes those terms consistent. Courts will generally find pay the aggrieved party compensatory damages. Compen-
that specifics in a contract will control over generalities. satory damages are intended to compensate the non-
Words and phrases used in a contract are given their plain breaching party for the actual damages suffered.
meaning absent evidence to the contrary. Normally, compensatory damages are measured by the

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 155