Chapter 6

If the offeror makes a valid offer, and the offeree has made a valid acceptance, then a genuine agreement has been reached—”meeting of the minds” Sometimes, however, something goes wrong, and what seems to be a valid contract isn’t.

Fraud Is a deliberate deception intended to secure an unfair or unlawful gain. You have a choice if this happens You may rescind, or cancel the contract You may sue for damages

Succeeding in a lawsuit for fraud The following 5 elements must be demonstrated 1. There must be a false representation of fact 2. The party making the representation must know it is false 3. The false misrepresentation must be made with the intent that it be relied upon 4. The innocent party must reasonably rely upon the false representation 5. The innocent party must actually suffer some monetary loss

1. False Representation of Fact Material fact is a fact that is Important Matters to one of the parties Cannot be a promise of something that will happen in the future Nor someone’s opinion Concealment is another way false representation can occur

2. Representation Known to Be False The party making the false representation must be aware that the representation is false Can be shown by proving actual knowledge Showing that the statement was made recklessly, without regard for the truth

3. False Representation Intended to Be Relied Upon Must show that the false representation was made with the intent that it be relied upon In other words, the person making the misrepresentation must intend that the other party rely upon the information as part of the contract negotiations Example: Suppose that Ed met Mr. Johnson, a man whose car he admired. He asked Mr. Johnson, “Is this car a 1964 Mustang?” Mr. Johnson, with no intention of selling his car but with knowledge that is really was a 1965 model said, “Yes, it’s a 1964.” If Ed then went out and purchased a car like Mr. Johnson's, believing it was really a 1964 Mustang, he could not win a lawsuit against Johnson for fraud. Johnson did not make a statement with the intent that Ed rely on it.

4. False Representation Actually Relied Upon If fraud is to be proven, the false representation must be reasonably relied upon by the other party when the agreement is made Example: Suppose that Johnson wants to sell his car and tells Ed that it is a 1964 Mustang. However, Ed is accompanied by George Trimmer, an antique car expert. Trimmer takes Ed aside and tells him that the car is actually a 1965 and is worth far less money than a If Ed still insisted on buying Johnson’s car at an inflated price, he could not later win a lawsuit for fraud because he did not actually rely on Johnson’s false statement.

5. Resulting Loss In order to win a lawsuit for fraud, you must have suffered a loss as a result. Example: If you paid a friend $75 for a CD player that was said to be “in perfect working order” and then discovered the track selection feature did not work, you have lost $75 and may make a legal claim for fraud. If, however, you agreed to accept the CD player in exchange for a favor, such as helping your friend perform a community project, you suffered no monetary loss. In such a situation, you would not be legally entitled to make a claim for fraud.

Innocent Misrepresentation Innocent statement made that turns out to be false This is called misrepresentation Must honestly believe the statement was true at the time Law gives you the right to rescind the contract

POP QUIZ! Question: A couple of weeks after Joel’s next door neighbor, Mrs. Grayson died, Joel saw Tom Grayson at the house taking care of his mother’s affects. Joel asked Tom if he would like to sell her TV, and Tom said “sure”. When asked if it worked, tom answered, “as far as I know.” Joel gave Tom $100 for the TV, but when he plugged it in at home, it didn’t work. Can Joel claim there was false representation? Why or why not? Answer: Probably not. “As far as I know” would probably be considered innocent misrepresentation.

Section 6.2

The purpose of contract law is to fulfill the reasonable expectations of the parties to a contract. People sometimes enter into contracts believing that certain information is true when it is actually not, or that information is not true when it really is.

Unilateral Mistake Is an error on the part of ONE of the parties to the contract Usually cannot avoid a contract because of such a mistake There are 2 types: 1. Mistakes as to the Nature of the Agreement 2. Mistake as to the Identity of a Party

1. Mistake as to the Nature of the Agreement Unilateral mistake Cannot be an excuse to avoid a contract Rescission will not be granted People who SIGN an agreement are bound to it, even if they don’t read it or are mistaken about what it says

2. Mistake as to the Identity of a Party Unilateral Mistake Rescission may be granted Involves the identity of a party to a contract Example: If a offer is made through a letter to a person but the letter gets delivered to a different person with the same name, the contract is voidable because this different person with the same name was not the person the letter was intended for.

Bilateral Mistake Both parties to contract are mistaken about an important fact (mutual mistake) Either party may avoid the contract There are 2 types Mistake as to the Possibility of Performance Mistake as to the Subject Matter

1. Mistake as to the Possibility of Performance Bilateral mistake Both parties of a contract believe that the duties described in the agreement can be performed when, in fact, they cannot Rescission will be granted Example: Robert agreed to sell his car to Cynthia for $3,000. Unknown to both of them, however, was the fact that overnight the car had been sideswiped and severely damaged by a hit-and-run driver as it sat in front of Robert’s house. Either party may now avoid the contract.

2. Mistake as to the Subject Matter Bilateral mistake Contract may be rescinded by either party Example: Ellen agreed to sell Alvin five vacant lots on Indiana Avenue in Parkersburg. Alvin refused to go through with the agreement when he discovered that the land he thought he was buying was on another Indiana Avenue, also in Parkersburg. Ellen sued Alvin for breach of contract. However, because there was a bilateral mistake as to the location to the land in the contract, Ellen lost the case.

Duress Is overcoming a person’s will by use of force or by threat of force or bodily harm Agreements made under this are either void or voidable Actual physical forced is used = void Threat of physical force = voidable Economic Duress consists of threats to a person’s business or income that cause him or her to enter a contract without real consent

Undue Influence Occurs when a person uses unfair and improper persuasive pressure to force another person to enter into an agreement Circumstances such as Ill health Old age Mental impairment

POP QUIZ! 1. True or False – Both parties may avoid contracts involving unilateral and bilateral mistakes. 2. True or false—undue influence is the overcoming of a person’s will by use of force. 1. FALSE 2. FALSE