P A R T P A R T Contracts Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

P A R T P A R T Contracts Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Reality of Consent PA E TR HC 13 “Necessity never made a good bargain.” Benjamin Franklin, 1735

Learning Objectives  Five doctrines that permit people to avoid their contracts because of the absence of real consent:  Misrepresentation  Fraud  Mistake  Duress, and  Undue influence

 Contracts induced by mistake, fraud, misrepresentation, duress, or undue influence are generally considered to be voidable  Person claiming non-consent has power to rescind (cancel) the contract  Person claiming non-consent must not act in a manner to ratify (affirm) the contract Effect of Doctrines

 A misrepresentation is a false statement and may be negligent (innocent) or fraudulent (knowledge of falsity and intent to deceive)  Elements:  Defendant made an untrue assertion of fact  Fact asserted was material or was fraudulent  Complaining party relied on the assertion  Reliance of complainant was reasonable  Fifth element for fraud: injury Misrepresentation or Fraud?

Remedies

 A mistake is a belief about a fact that is not in accord with the truth  A unilateral mistake will not render a contract unenforceable unless unequal bargaining position existed  Duress is wrongful threat or act that coerces a person to enter or modify contract  Physical, emotional, or economic harm Mistake & Duress

 Undue influence involves wrongful pressure exerted on a person during the bargaining process  Pressure exerted through persuasion rather than coercion Undue Influence

Test Your Knowledge  True=A, False = B  A contract signed under duress or undue influence is simply void.  A misrepresentation may be negligent (innocent) or fraudulent.  Mutual mistakes may be remedied by reformation  Duress and undue influence have the same meaning

Test Your Knowledge  Multiple Choice  Elements of innocent misrepresentation:  (a) False assertion  (b) Knowingly made to induce a person to enter a contract  (c) Reasonable reliance on the assertion by complainant  (d) All of the above  (e) Both (a) and (c), but not (b)

Test Your Knowledge  Multiple Choice  A unilateral mistake will not render a contract void unless:  (a) Substantial difference between contract and market price  (b) Fundamental error occurred  (c) An unequal bargaining position existed

Thought Question  Your landlord tells you that you will be evicted from your apartment or your rent must increase by $75 per month because your neighbors complain about your dog. If you agree to the increase, would the contract be void or voidable under the theory of duress?