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 (made with knowledge of falsity and intent to deceive) –Either way, injured party may void (rescind) the contract A person who commits fraud may be liable in tort for damages, including punitive damages Misrepresentation or Fraud?

Innocent or fraudulent misrepresentation: –Defendant made an untrue assertion of fact Includes active concealment or non-disclosure –Fact asserted was material or was fraudulent Fact is material if likely to play significant role in inducing reasonable person to enter the contract –Complaining party entered the contract because of reliance on the assertion Reliance means that person entered the contract because of belief in the assertion Elements

Innocent or fraudulent misrepresentation: –Reliance of complainant was reasonable Fifth element for fraud: –Injury Elements (cont.)

Remedies

Rodi v. Southern New England School of Law Facts: –Rodi went to Southern New England School of Law (SNESL) which claimed that the ABA accreditation committee had recommended SNESL for “provisional accreditation” Disclaimer about accreditation in catalogue –Rodi intended to take New Jersey bar exam and the law requires bar applicants to hold law degrees from ABA accredited law schools Accreditation critically important to Rodi

Rodi v. Southern New England School of Law Facts: –ABA denied accreditation during Rodi’s first year; Dean urged Rodi to remain –Rodi graduated, SNESL remained unaccredited, and Rodi was ineligible to sit for the New Jersey bar examination –Rodi filed suit against SNESL and others alleging fraudulent misrepresentation –Court granted SNESL motion to dismiss

Rodi v. Southern New England School of Law Issue and Legal Reasoning: –Had Rodi failed to state a claim? –Despite catalogue disclaimer, if SNESL representatives knew of non- accreditation probability, then positive statements about the likelihood of SNESL’s accreditation were actionably misleading –Reversed and remanded in favor of Rodi

A mistake is a belief about a fact that is not in accord with the truth –Mistake must relate to facts as they exist at the time the contract is created –Mistake not due to other party’s statements Mutual mistakes may be remedied by reformation Mistake in Contracts

A unilateral mistake will not render a contract unenforceable unless unequal bargaining position existed –Example: Estate of Nelson v. Rice in which the sellers sued buyers after buyers recognized a profit on the sale of estate sale paintings Mistake in Contracts

Mistake

Duress is wrongful threat or act that coerces a person to enter or modify a contract –Physical, emotional, or economic harm Given the duress, victim must have no reasonable alternative but to enter the contract Example: Radford v. Keith Duress

Radford v. Keith Facts: –Contract for Keith to build house for Radford –Keith accused Radford of fraud; threatened to block closing unless additional payment made Had guard at door during the meeting –Relying on closing date, Radford had entered into other contracts and under threat of suit, thought she had no choice but to make the payment –Radford filed suit against Keith under theory of duress; jury found for Radford & Keith appealed

Radford v. Keith Issue: –May Radford rescind agreement for additional payment under theory of duress? Law Applied to Facts: –Substantial evidence, especially the guard at the door, indicated to jury that duress occurred –Affirmed, favor of Radford

Undue influence involves wrongful pressure exerted on a person during the bargaining process Unlike duress, pressure is exerted through persuasion rather than coercion Key is the weakness of the person “persuaded” Undue Influence