2 Do NowWhen can an injured party rescind? Give an example of a situation when an individual would want to rescind.
3 VocabularyGenuine Agreement: agreement to enter into a contract that is evidenced by words or conduct between the partiesVoidable Contract: contract in which the injured part can withdraw, thus cancelling the contractRescission: backing out of a transaction by asking for the return of what you gave and offering to give back what you receivedRatification: acting toward the contract as though one intends to be bound by it
4 Vocabulary ContinuedDuress: occurs when one party uses an improper threat or act to obtain an expression of agreementUndue influence: occurs when one party to a contract is in a position of trust and wrongfully dominates the other party
5 To Clarify Two parties make a genuine agreement Not valid in cases of fraud, misrepresentation, undue influence, duress, or mistakeWithout a genuine agreement, the contract is voidable and allows the injured party to rescind.A rescission must occur promptly, and before a contract is ratified
6 Duress: Threats of Illegal Conduct Threat to engage in any illegal activity, such as a crime or tort, to win an agreementCommitting an act of violence (ex: stabbing)Threatening to commit act of Violence( ex: threatening to stab)Committing Tort (ex: unlawful detention)Threatening Tort
7 Duress: Threats to Report Crimes If an individual observes a crime, they have a duty to report that crime to the proper authorities.If an individual threatens to report the criminal in attempt to get them to contract; this is duress (extortion)
8 Duress: Threats to SueParties are encouraged by law to settle disputes without a suitCommunicating the threat to sue IS okay UNLESS…The threat to sue is made for any purpose unrelated to the suit
9 Duress: Economic Threats When bound by valid contract, parties seek to modify itThey sometimes are tempted to result to use economic power one holds over the other to negotiateCourts look at both the threat and alternatives in economic duress cases.If the threatened party had no other choice to enter into or modify a contract, then it is duress
10 Undue InfluenceWhen dominated by one party, the dominated person’s free will is restricted and thus usually must accept unfavorable termsTwo Key Elements Exist:The relationshipUnfair persuasion
11 Relationship & Unfair Persuasion A relationship of trust, confidence or authority must exist between the parties (formal relationship not necessary)Ex: Attorney and Client, Housekeeper and elderly employerBest evidence of unfair persuasion found in contractEx: Elderly Mother dependent on child sells home to him/her for half its value. No free will.
12 Case of Smith p.129Smith was in the hospital near death. His nurse said she would not give him drugs for pain unless he signed a contract transferring certain stock to her for half its market value. Smith signed.IS SMITH BOUND??