BELL QUIZ ON CHAPTER 5 What is any agreement that is enforceable by law? There are six elements of a contract. Name TWO. How many promises does a bilateral contract contain? Who is the person making the offer? There are five ways to terminate an offer. Name TWO.

ANSWERS TO BELL QUIZ CHAPTER 5 Contract Offer, acceptance, genuine agreement, consideration, capacity, legality Two Offeror Revocation, rejection, counteroffer, expiration of time, death or insanity

Section 6.1

Chapter 6 Genuine Agreement Section 6.1 Fraud and Misrepresentation Mistake, Duress, and Undue Influence

Why It’s Important Learning the elements of fraud may prevent you from being victimized or help you claim your rights if you are defrauded.

Genuine Agreement If the offeror makes a valid offer, and the offeree has made a valid acceptance, then a genuine agreement has been reached. The courts describe this type of agreement as “a meeting of the minds.”

6.1 Genuine Agreement Several circumstances might create a defective agreement: Fraud Misrepresentation Mistake Duress Undue Influence

Fraud Fraud is a deliberate deception intended to secure an unfair or unlawful gain.

Remedies for Fraud You may rescind, or cancel, the contract. You may sue for money damages. You may also try to collect punitive damages which is designed to punish the wrongdoer for their conduct.

The Five Elements of Fraud A false representation of fact. Knowledge of the falsity by the party making the false representation.

The Five Elements of Fraud Intent to deceive by the party making the false representation. Reasonable reliance (trust) by the innocent party. An actual loss must be suffered by the innocent party.

False Representation of Fact Fraud requires a false representation of a material, existing fact. A material fact is one that is important; it matters to one of the parties.

False Representation of Fact Under some circumstances, individuals can make false representation by choosing not to reveal important information. This is known as concealment, or passive fraud.

Representation Known to Be False To be held accountable for fraud, the party making the false representation must be aware that it is false. This may be shown by: proving actual knowledge showing the statement was made recklessly Example 1 page 130

Intended to Be Relied Upon False Representation Intended to Be Relied Upon To prove fraud, the person making the misrepresentation must intend that the other party will rely upon the information as part of the contract negotiations. Example 2 page 131

False Representation Actually Relied Upon To prove fraud, the false representation must be reasonably relied upon by the other party when the agreement is made. Example 3 page 131

Resulting Loss In proving fraud, the innocent party must show some monetary loss.

Innocent Misrepresentation Misrepresentation is the act of making an innocent statement that turns out to be false, when the person honestly believed the statement was true at the time it was made.

Remedy for Misrepresentation the right to rescind the contract you may not win damages

After Mrs. Grayson died, her neighbor, Joel, asked her son, Tom, if he would sell her TV. Before giving Tom $100, Joel asked, “It works, doesn’t it?” and Tom answered, “As far as I know.” However, when Joel plugged it in, it did not 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.

Mistake, Duress, and Undue Influence Section 6.2 Mistake, Duress, and Undue Influence

Why It’s Important Recognizing how mistake, duress, and undue influence can affect agreements will help you make better decisions in such situations.

Genuine Agreement In addition to fraud and misrepresentation, mistake, duress, and undue influence can also create a defective agreement.

Mistake 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 A unilateral mistake is an error on the part of one of the parties to the contract. Through words or actions, one party has created reasonable expectations on the part of the other party to the contract.

Unilateral Mistake Those expectations should not be blocked because one of the parties has made an error, or mistake. A person usually cannot avoid a contract because of such a mistake Example 5 page 133

Unilateral Mistake There are two types of unilateral mistakes. Mistake as to the nature of the agreement Mistake as to the identity of a party

Nature of the Agreement Mistake as to the Nature of the Agreement People who sign an agreement are bound to it, even if they have not read it or are mistaken about what it says!!!

Mistake as to the Identity of a Party If you make an offer by letter to one party, but the wrong person mistakenly receives the offer, the mistake may be cause to void the contract.

Mistake as to the Identity of a Party If you make the same offer face-to-face with a person whose identity you have mistaken, your mistake as to the identity will not prevent a binding contract.

Remedies for Unilateral Mistakes 6.2 Remedies for Unilateral Mistakes Unilateral Mistake Type of Mistake Remedy Mistake as to the nature of the agreement. identity of a party Rescission will not be granted. Rescission may be granted.

Bilateral Mistake When both parties to a contract are mistaken about some important fact, this is called a bilateral mistake, or mutual mistake. When this mistake occurs, either party may avoid the contract.

Bilateral Mistake There are two types of bilateral mistakes. Mistake as to the possibility of performance Mistake as to the subject matter

Possibility of Performance Mistake as to the Possibility of Performance If both parties enter into a contract believing that the duties described in the agreement can be performed, when in fact, they cannot, either party may avoid the contract. Example 7 page 136

Mistake as to the Subject Matter Both parties can be mistaken as to the identity of the subject matter when they enter into a contract. The contract may be avoided by either one of the parties. Example 8 page 136

Remedies for Bilateral Mistakes 6.2 Remedies for Bilateral Mistakes Bilateral Mistake Type of Mistake Remedy Mistake as to possibility of performance. Mistake as to the subject matter. Rescission will be granted.

Duress Duress is overcoming a person’s will by use of force or threat of force or bodily harm.

Types of Duress Physical duress is when actual physical violence is used to force a person to enter a contract. Emotional duress is when the threat of physical force is used to force a person to enter a contract.

Types of Duress Economic duress is when threats to a person’s business or professional reputation are used to force a party to enter a contract.

Undue Influence Undue influence occurs when a person uses unfair and improper persuasive pressure to force another person to enter into an agreement.

Undue Influence Circumstances such as ill health, old age, and mental immaturity may put a person in a weaker position.

Elements of Undue Influence 6.2 Elements of Undue Influence Element Description A dependency relationship One party in a relationship is dependent on the other party.

Elements of Undue Influence 6.2 Elements of Undue Influence Element Description Unfair or improper pressure The independent person uses excessive pressure to force the dependent person to enter a contract.

Elements of Undue Influence 6.2 Elements of Undue Influence Element Description A beneficial contract The contract benefits the independent party at the expense of the dependent party. End of Chapter 6