Genuineness of Assent Chapter 7

Genuine Assent and Duress True and complete agreement Required for a contract to be valid If missing contract is VOIDABLE (cancels obligation) Injured party can get back what they put into the contract—RESCISSION Rescission must be prompt Must occur before RATIFICATION (bound by contract)

Duress When one party uses an improper threat or act to obtain an expression of agreement Types: Threats of illegal conduct Threats to report crimes Threats to sue Economic threats

Threats of Illegal Conduct Threat to engage in illegal conduct—crime or tort to win agreement—always constitutes DURESS Committing an act of violence Threatening a crime Committing a tort Threatening a tort to obtain a signature on a written contract Can be to the victim or the victim’s immediate family

Threats to Report Crimes If you observe a crime, you have a DUTY to report it Threatening to report the crime to get the criminal to contract with you is DURESS May also be the crime of extortion

Threats to Sue The law encourages people to settle disputes without suit An important part of this is process involves communicating a threat that you will sue if the other side doesn’t settle When the threat to sue is unrelated to the suit, this may be DURESS Example: Divorce proceedings—husband threatens to sue for custody of the children if the wife doesn’t sign over valuable shares of stock

Economic Threats Parties using economic power over one another to negotiate a favorable modification or settlement Example: Manufacturer has a contract to pay a supplier $15 for parts needed to maintain production Supplier threatens to withhold parts unless they are paid $20 per part If the disruption in the economic flow causes substantial injury to the manufacturer, this is DURESS

Undue Influence When one party to the contract is in a position of trust and wrongfully dominates the other party Types: Relationship Unfair persuasion

Relationship A relationship of trust, confidence, or authority must exist between the parties to a contract Presumed to exist between: Attorney and client Husband and wife Parent and child Guardian and ward Physician and patient Minister and congregation member

Unfair Persuasion Best evidence is found in the contract Example: Selling a house at half the value to a caregiver To prevent undue influence the stronger party must: Act with total honesty Fully disclose all important facts Insist that the weaker party obtain independent counsel before contracting

Contractual Mistakes Types of Contractual Mistakes: Unilateral Occurs when only one party holds an incorrect belief about the facts related to a contract Generally does not affect the validity of a contract Examples: Failure to read the entire contract Hurried or careless reading of the contract Signing a contract written in language you don’t understand

Contractual Mistakes Types of Contractual Mistakes: Mutual (Bilateral) Both parties have an incorrect belief about an important fact Voids the contract if a mistake of FACT occurs Examples: Both parties think a property is 41 acres when, in fact, it is only 28 acres Both parties have an incorrect belief about the applicable law Does not void the contract if a mistake of LAW occur Example: Both parties to a sale believe that local zoning laws permit construction of duplexes on the lot Valid even if duplexes cannot be built All persons are presumed to know the law

Misrepresentation Statements that are untrue Innocent Misrepresentation Occurs when someone is unaware of the truth Example: Someone is selling a car and states that it has 70,000 miles—unaware that the previous owner replaced the odometer—car actually has 150,000 Fraudulent Misrepresentation Occurs when someone is aware of the truth Both types of Misrepresentation void a contract

Misrepresentation Statements are treated as misrepresentations by the law only if: The untrue statement is one of fact or there is active concealment The statement is material to the transaction or is fraudulent The victim reasonably relied on the statement

Misrepresentation Untrue Statement of Fact Statement must be one of fact and not opinion Expert opinion is viewed as fact by the law ACTIVE CONCEALMENT Substitute for a false statement of fact Examples: covering a water stain with paint to conceal a leaky roof SILENCE Seller remains silent about defects Disclosure is required when: A statement about material fact omits important information When a true statement is made false by subsequent events When one party knows the other party has made a basic mistaken assumption

Misrepresentation Materiality Reasonable Reliance A statement is material if the statement would cause a reasonable person to contract A statement is material if the defendant knew this plaintiff would rely on the statement A statement is material if the defendant knew the statement was false Reasonable Reliance Even though the statement is material, there is no misrepresentation unless the victim reasonably relied on it

Fraud Fraud is based on misrepresentation All elements of misrepresentation must be proven to show fraud PLUS two additional elements: Intent Misrepresentation must be intentional or reckless Deliberate lying or concealment of a material fact Recklessly making a false statement not knowing if it is true or false Injury Must be proof of injury

Remedies for Fraud Rescission Damages Punitive Damages Contracts entered into as a result of misrepresentation or fraud are voidable by the injured party and can be rescinded Anything you received must be returned A party who has done nothing may cancel the contract with no further obligation Damages Available if fraud is proven A party defrauded may choose to ratify the agreement rather than rescind Either party may enforce the contract Defrauded party who ratified may seek damages for the loss created by the fraud Punitive Damages Punishment for the party who committed fraud