By Richard A. Mann & Barry S. Roberts Business Law and the Regulation of Business Chapter 11: Conduct Invalidating Assent By Richard A. Mann & Barry S. Roberts

Topics Covered in this Chapter A. Duress B. Undue Influence C. Fraud D. Nonfraudulent Misrepresentation E. Mistake

Duress Definition – wrongful or unlawful act or threat that overcomes the free will of a party. Physical Compulsion – coercion involving physical force renders the agreement void. Improper Threats – improper threats or acts, including economic and social coercion, render the contract voidable.

Undue Influence Definition – taking unfair advantage of a person by reason of a dominant position based on a confidential relationship. Effect – renders a contract voidable.

Fraud Fraud in the Execution – a misrepresentation that deceives the other party as to the nature of a document evidencing the contract renders the agreement void. Fraud in the Inducement – renders the agreement voidable if the elements on the following slide are present.

Fraud in the Inducement False Representation – positive statement or conduct that misleads. Fact – the event occurred or the thing exists. Materiality – of substantial importance. Knowledge of Falsity & Intention to Deceive – (scienter) includes (a)­actual knowledge, (b)­lack of belief in statement's truthfulness, or (c)­reckless indifference to its truthfulness. Justifiable Reliance – a defrauded party is reasonably influenced by the fraud.

Nonfraudulent Misrepresentation Negligent Misrepresentation – misrepresentation made without due care in ascertaining its truthfulness; renders agreement voidable. Innocent Misrepresentation – misrepresentation made without knowledge of its falsity but with due care; renders contract voidable.

Mistake Understanding not in accord with fact. Mutual Mistake – both parties have a common but erroneous belief forming the basis of the contract; renders the contract voidable by either party. Unilateral Mistake – courts are unlikely to grant relief unless the error is known or should be known by the nonmistaken party. Assumption of Risk – a party may assume the risk of a mistake. Effect of Fault upon Mistake – not a bar to avoidance unless the fault amounts to a failure to act in good faith.

Conduct Invalidating Assent