Chapter 12 Genuineness of Assent

Introduction Voluntary assent by the parties is necessary to create an enforceable contract. Assent is determined by the relevant facts surrounding the negotiation and formation of the contract. Assent may be manifested in any manner sufficient to show agreement, including express words or conduct of the parties. A contract may not be enforced if the assent of one or both of the parties to the contract was not genuine or real. Genuine assent may be missing because a party entered into a contract based on mistake, fraudulent misrepresentation, duress, or undue influence.

Mistake A mistake occurs where one or both of the parties have an erroneous belief about the subject matter, value, or some other aspect of a contract. Mistakes may be either unilateral or mutual. The law permits rescission of some contracts made in mistake. Unilateral Mistakes Unilateral mistakes occur when only one party is mistaken about a material fact regarding the subject matter of the contract. There are three types of situations in which a contract may not be enforced due to such a mistake: 1.One party makes a unilateral mistake of fact, and the other party knew (or should have known) that a mistake was made. 2.A unilateral mistake occurs because of a clerical or mathematical error that is not the result of gross negligence. 3.The mistake is so serious that enforcing the contract would be unconscionable.

Mistake Cont. In most cases, however, the mistaken party will not be permitted to rescind the contract. The contract will be enforced on its terms. Mutual Mistakes Either party may rescind a contract if there has been a mutual mistake of a past or existing material fact. A material fact is a fact that is important to the subject matter of a contract. An ambiguity in a contract may constitute a mutual mistake of material fact. An ambiguity occurs where a word or a term in the contract is susceptible to more than one logical interpretation. If there has been a mutual mistake, the contract may be rescinded on the ground that no contract has been formed because there has been no “meeting of the minds” between the parties. The courts must distinguish between mutual mistakes of fact and mutual mistakes of value. A mutual mistake of value exists if both parties know the object of the contract but are mistaken as to its value. Here, the contract remains enforceable by either party because the

Mistake, and Fraud the identity of the subject matter of the contract is not at issue. If the rule were different, almost all contracts could later be rescinded by the party who got the “worst” of the deal. Fraud A misrepresentation occurs when an assertion is made that is not in accord with the facts. An intentional misrepresentation occurs when one person consciously decides to induce another person to rely and act on a misrepresentation. Intentional misrepresentation is commonly referred to as fraudulent misrepresentation, or fraud. When fraudulent misrepresentation is used to induce another to enter into a contract, the innocent party’s assent to the contract is not genuine, and the contract is voidable by the innocent party. The innocent party can either rescind the contract and obtain restitution or enforce the contract and sue for

Fraud Cont. contract damages. To prove fraud, the following elements must be shown: 1.The wrongdoer made a false representation of material fact. 2.The wrongdoer intended to deceive the innocent party. 3.The innocent party justifiably relied on the misrepresentation. 4.The innocent party was injured. (See pp of the book for explanations). There are various types of fraud. Some of them are as follows. Fraud in the Inception Fraud in the inception, or fraud in the factum, occurs if a person is deceived as to the nature of her act and does not know what she is signing. Contracts involving fraud in the inception are void rather than just voidable.

Fraud Cont. Fraud in the Inducement Here, the innocent party knows what she is signing but has been fraudulently induced to enter into the contract. Such contracts are voidable by the innocent party. Fraud by Concealment Fraud by concealment occurs when one party takes specific action to conceal a material fact from another party. Silence as Misrepresentation Generally, neither party to a contract owes a duty to disclose all the facts to the other party. Ordinarily, such silence is not a misrepresentation unless (1) nondisclosure would cause bodily injury or death, (2) there is a fiduciary relationship (i.e. a relationship of trust and confidence) between the contracting parties, or (3) federal and state

Fraud Cont. statutes require disclosure. Misrepresentation of Law Usually, a misrepresentation of law is not actionable as fraud. The innocent party cannot generally rescind the contract because each party to a contract is assumed to know the law that applies to the transaction either through his or her own investigation or by hiring a lawyer. There is one major exception to this rule: The misrepresentation will be allowed as grounds for rescission of the contract if one party to the contract is a professional who should know what the law is and intentionally misrepresents the law to a less sophisticated contracting party. Innocent Misrepresentation An innocent misrepresentation occurs when a person makes a statement of fact that he or she honestly and reasonably believes to be true even

Fraud Cont. though it is not. Innocent misrepresentation is not fraud. If an innocent misrepresentation has been made, the aggrieved party may rescind the contract but may not sue for damages. Often innocent misrepresentation is treated as a mutual mistake.

Undue Influence The courts may permit the rescission of a contract based on the equitable doctrine of undue influence. Undue influence occurs when one person (the dominant party) takes advantage of another person’s mental, emotional, or physical weakness and unduly persuades that person (the servant party) to enter into a contract. The persuasion by the wrongdoer must overcome the free will of the innocent party. Wills are often challenged as having been made under undue influence. The following elements must be shown to prove undue influence: 1.A fiduciary or confidential relationship must have existed between the parties. 2.The dominant party must have unduly used his or her influence to persuade the servient party to enter into a contract.

Undue Influence Cont. If there is a confidential relationship between persons—such as lawyer and client, a doctor and a patient—any contract made by the servient party that benefits the dominant party is presumed to be entered into under undue influence. This rebuttable presumption can be overcome through proper evidence.

Duress Duress occurs when one party threatens to do some wrongful act unless the other party enters into a contract. If a party to a contract has been forced into making the contract, the assent is not voluntary. Such a contract is not enforceable against the innocent party. A threat to commit physical harm or extortion unless someone enters into a contract constitutes duress. So does a threat to bring (or not drop) a criminal lawsuit. Such threats are duress even if the criminal lawsuit is well founded. A threat to bring (or not drop) a civil lawsuit, however, does not constitute duress unless such a suit is frivolous or brought in bad faith. The courts have recognized another type of duress—economic duress. Economic duress usually occurs when one party to a contract refuses to perform his or her contractual duties unless the other party pays an increased price, or the like. The duressed party must prove that he had no alternative but to acquiesce to the other party’s threat.