In Louisiana, a contract is defined as an agreement between two or more parties by which certain obligations are created. The four requirements of a valid contract are (1) capacity, (2) consent, (3) lawful cause, and (4) lawful object. When one of these requirements is at issue to determine whether a valid contract has been entered, the dispute generally focuses on consent, i.e., whether a valid offer and acceptance have been made by the parties. To attack the validity of consent, one must generally demonstrate that a vice of consent existed. Louisiana Civil Code 1948 provides three (3) vices of consent: Error, Fraud, and Duress.
Error: An error can be either bilateral or unilateral. A bilateral error occurs when both parties to a contract are in error. Under this circumstance, the parties can declare their consent vitiated, or can alternatively agree to reform the contract to reflect the true mutual intent of both sides. Where the error is unilateral (only one party is in error), the consent of the party in error can only be vitiated if (1) the error concerns the principal reason why the contract was formed, and (2) this reason for forming the contract was known or should have been known to the other party. Louisiana Civil Code 1949.
Error concerns the principle reason of the contract when it concerns (1) the nature of the contract, (2) the contractual object or a substantial quality of that object, (3) the person or the qualities of the other party, (4) anything the parties regarded or should have regarded in good faith as a principle reason, or (5) the law when a party has drawn mistaken conclusions of law and entered into a binding contract based on them. This first element of vitiation ensures that parties do not claim error as a means to get out of a contract on immaterial grounds. Thus, if the party invoking unilateral error would have entered into the contract despite the error, there is no vice of consent. The latter vitiation element, i.e., knowledge, is an attempt to treat the other party fairly. For instance, if the other party did not know that the party in error was binding himself because of the mistaken error, there is no vice of consent.
Fraud: LA Civil Code 1953 defines fraud as a misrepresentation or a suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other. Fraud may be the result of silence or inaction. As a potential vice of consent, fraud will not vitiate consent when the party against whom the fraud was directed could have ascertained the truth without difficulty, inconvenience, or special skill. LA Civ. Code 1954. However, this exception does not apply when a relation of confidence has reasonably induced a party to rely on the other’s assertions or representations. Id. Error induced by a fraud need not concern the primary cause, as long as it substantially influenced the consent. LA Civ. Code 1955. A party must rely on the statement. Concerning third parties, fraud committed by a third person vitiates the consent of a contracting party if the other party knew or should have known of the fraud. LA Civ. Code 1956.
Duress: Consent may be vitiated by duress when consent has been obtained in a manner of such a nature as to cause a reasonable fear of unjust and considerable injury to a party’s person, property, or reputation. LA Civ. Code 1959. Age, health, disposition, and other personal circumstances of a party must be taken into account in determining reasonableness of the fear. Id. Duress greatly differs from error and fraud because with the latter two, the party whose consent was vitiated agreed to the contract because he or she was mistaken and did not know the true nature of the contract. However, with duress, the party whose consent is vitiated does know the true nature of the contract and agreed to the contact, but felt that he or she was forced to give their consent. To maintain an action of duress, a party must present two elements: an act of duress and an actual victim.
The act of duress must threaten unjust injury and must be accompanied by an ability to actually cause the injury. Thus, for instance, if the supposed threat is not “unjust” or is to otherwise perform a lawful act or exercise a legitimate legal right, there exists no duress. LA Civ. Code 1962. Further, whether the fear is reasonable is a standard that considers like-victims in age, health, disposition and circumstances. The second element, injury upon a victim, must have actually resulted in a reasonable fear of significant injury, which caused the victim to consent to the contract. The contracting party whose consent was vitiated by duress need not have been the same person against whom the violence was threatened. In fact, the threatened injury can be directed against a party’s family member or close friend, which then causes the party to give his or her consent. LA Civ. Code 1960.
Damages: A party who obtains rescission on grounds of his own error is liable for the loss sustained by the other party unless the other party knew or should have known of the error. LA Civ. Code 1952. The court may refuse rescission when the effective protection of the other party’s interest requires that the contract be upheld. Id. In this case, a reasonable compensation for the loss may be granted to the party to whom rescission is refused. Id. Likewise, a party against whom rescission is granted because of fraud is liable for damages and attorney fees. LA Civ. Code 1958. Last, when rescission is granted because of duress exerted or known by a party to the contract, the other party may also recover damages and attorney fees. LA Civ. Code 1964. Rescission may also be granted due to duress caused by a third person. In this instance, the parties to the contract who are innocent of the duress may recover damages and attorney fees from that third person. Id.
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