Chapter 13 Genuineness of Assent

Assent 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. Copyright © 2004 by Prentice-Hall. All rights reserved.

Genuineness of Assent Contracts are unenforceable if parties have actually consented to the contract but their assent is not genuine. If a party’s assent to a contract is not genuine, the courts will permit the innocent party to avoid the contract. Copyright © 2004 by Prentice-Hall. All rights reserved.

Genuineness of Assent (continued) Genuineness of assent is an issue in the areas of: Mistake Misrepresentation Duress Undue Influence Copyright © 2004 by Prentice-Hall. All rights reserved.

Mistakes A mistake occurs where one or both of the parties have an erroneous belief about the subject matter, value, or some other aspect of the contract. Mistakes may be either: Unilateral Mutual Copyright © 2004 by Prentice-Hall. All rights reserved.

Rescission An action to undo the contract. The law permits rescission of some contracts made in mistake. Copyright © 2004 by Prentice-Hall. All rights reserved.

Unilateral Mistake When one party is mistaken about a material fact regarding the subject matter of the contract. Generally, the mistaken party will not be permitted to rescind the contract. The contract will be enforced on its terms. Copyright © 2004 by Prentice-Hall. All rights reserved.

There are three types of situations where the contract may not be enforced: One party makes a unilateral mistake of fact and the other party knew (or should have known) that a mistake was made. A unilateral mistake occurs because of a clerical or mathematical error that is not the result of gross negligence. The mistake is so serious that enforcing the contract would be unconscionable. Copyright © 2004 by Prentice-Hall. All rights reserved.

Mutual Mistakes Mutual Mistake of Fact A mistake made by both parties concerning a material fact that is important to the subject matter of the contract. The contract may be rescinded on the ground that no contract has been formed because there has been no “meeting of the minds” between the parties. Copyright © 2004 by Prentice-Hall. All rights reserved.

Mutual Mistakes (continued) Mutual Mistake of Value A mistake that occurs if both parties know the object of the contract, but are mistake as to its value. The contract remains enforceable by either party because the identity of the subject matter of the contract is not at issue. Copyright © 2004 by Prentice-Hall. All rights reserved.

Fraudulent Misrepresentation An assertion is made that is not in accord with the facts. Intentional Misrepresentation Occurs when one person consciously decides to induce another person to rely on a misrepresentation. Also called fraud. Copyright © 2004 by Prentice-Hall. All rights reserved.

Fraudulent Misrepresentation (continued) When a 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. Copyright © 2004 by Prentice-Hall. All rights reserved.

To prove fraud, the following elements must be shown: The wrongdoer made a false representation of material fact. The wrongdoer intended to deceive the innocent party. The innocent party justifiably relied on the misrepresentation. The innocent party was injured. Copyright © 2004 by Prentice-Hall. All rights reserved.

Types of Fraud Fraud in the Inception Fraud in the Inducement Fraud by Concealment Silence as Misrepresentation Misrepresentation of Law Copyright © 2004 by Prentice-Hall. All rights reserved.

Innocent Misrepresentation Occurs when a person makes a statement of fact that he or she honestly and reasonably believes to be true, even though it is not. Innocent misrepresentation is not fraud. The aggrieved party may rescind the contract but may not sue for damages. Copyright © 2004 by Prentice-Hall. All rights reserved.

Concept Summary: Types of Misrepresentation Legal Consequences – Innocent Party May: Type of Misrepresentation Sue for Damages Rescind Contract Fraud in the inception Yes Fraud in the inducement Fraud by concealment Silence as misrepresentation Misrepresentation of law Usually no Innocent misrepresentation No Copyright © 2004 by Prentice-Hall. All rights reserved.

Duress Occurs where one party threatens to do a wrongful act unless the other party enters into a contract. The assent is not voluntary if one party has been forced into making the contract. Such contracts are not enforceable against the innocent party. Copyright © 2004 by Prentice-Hall. All rights reserved.

Economic Duress Occurs when when one party to a contract refuses to perform his or her contractual duties unless the other party: Pays an increased price, Enters into a second contract with the threatening party, or Undertakes a similar action. Copyright © 2004 by Prentice-Hall. All rights reserved.

Undue Influence Occurs where one person: Takes advantage of another person’s mental, emotional, or physical weakness, and Unduly persuades that person to enter into a contract. A contract entered into because of undue influence is voidable by the innocent party. Copyright © 2004 by Prentice-Hall. All rights reserved.

Undue Influence (continued) The following elements must be shown to prove undue influence: A fiduciary or confidential relationship must have existed between the parties. The dominant party must have unduly used his or her influence to persuade the servient party to enter into a contract. Copyright © 2004 by Prentice-Hall. All rights reserved.