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Chapter 13 Contracts — Genuineness of Assent. 2 Introduction Contract may be unenforceable if the parties have not genuinely assented to its terms by:

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Presentation on theme: "Chapter 13 Contracts — Genuineness of Assent. 2 Introduction Contract may be unenforceable if the parties have not genuinely assented to its terms by:"— Presentation transcript:

1 Chapter 13 Contracts — Genuineness of Assent

2 2 Introduction Contract may be unenforceable if the parties have not genuinely assented to its terms by: Mistake. Misrepresentation. Undue Influence. Duress.

3 3 §1: Mistakes Unilateral vs. Bilateral Mistakes of Fact. Unilateral Mistakes: One party mistaken as to some Material Fact. Does not afford the mistaken party any right to relief from the contract.

4 4 Mistakes [2] Exceptions: If other party to the contract knows or should have known that a mistake of fact was made. If mistake was due to mathematical mistake in addition, summation, subtraction, division, or multiplication and was made inadvertently and without gross negligence. Bilateral Mistakes of Fact. Mutual mistake as to some Material Fact, the contract can be rescinded by either party.

5 5 Mistakes of Value Contract enforceable by either party. Unilateral or Bilateral mistake are not basis for avoiding a contract. Exception: Mistake of value because of a mistake of material fact.

6 6 §2: Fraudulent Misrepresentation Contract Voidable by Innocent Party. Elements: Misrepresentation of Material Fact. Intent to Deceive. Reliance on Misrepresentation. Injury to the Innocent Party.

7 7 Misrepresentation Has Occurred Misrepresentation can be express or implied. Concealment. Misrepresentation of future facts and statements of opinion are not fraud, unless person professes to be an expert. Misrepresentation of Law is not fraud, unless person has greater knowledge of the law. Silence is not fraud, unless serious problem or defect.

8 8 Intent to Deceive Scienter is an Intent to Deceive. Party knowledge that fact is not as stated. Party makes a reckless statement with disregard of the truth. Party implies that statement is based on personal knowledge or investigation. Gross negligence is considered intent.

9 9 Reliance on Misrepresentation Deceived party must have Justifiable Reliance. Depends on the knowledge and experience of the party relying.

10 10 Injury to the Innocent Party No proof of injury is required when the action is to rescind contract. Proof of injury is universally required to recover damages.

11 11 §3: Nonfraudulent Misrepresentation Innocent Misrepresentation. Negligent Misrepresentation. Equal to Scienter. Is treated as fraudulent misrepresentation, even though the misrepresentation was not purposeful.

12 12 §4: Undue Influence Contract is Voidable. Confidential or Fiduciary Relationship. Relationship of dependence. Influence or Persuasion. Weak party talked into doing something not beneficial to him or herself.

13 13 §5: Duress Forcing a party to enter into a contract under fear or threat. Contract is Voidable. Threatened act must be wrongful or illegal. Improper Threat. Threat to exercise legal rights (criminal or civil suit). Economic or physical.

14 14 §6: Adhesion Contracts and Unconscionability Adhesion Contracts. Preprinted contract in which the adhering party has no opportunity to negotiate the terms of the contract. Unconscionability. One sided bargains in which one party has substantially superior bargaining power and can dictate the terms of the contract. “Standard-form.” “Take-it-or-leave-it” adhesion contracts.

15 15 Case 13.1: Vokes v. Arthur Murray (Misrepresentation) FACTS: Arthur Murray operated dancing schools through local, franchised operators. At a “dance party” at one of the schools, Vokes was praised by an instructor for her potential as “an excellent dancer.” The instructor sold her eight half-hour dance lessons for $14.50 each. Over the next 16 months, Vokes spent $31,090.45 on dance lessons but finally realized she did not have the potential to be an excellent dancer. Vokes sued Arthur Murray and the court dismissed the case based on fraud. She appealed.

16 16 HELD: REVERSED. FOR VOKES. The District Court of Appeal of Florida reinstated the complaint and remanded. “A statement of a party having * * * superior knowledge may be regarded as a statement of fact although it would be considered as opinion if the parties were dealing on equal terms. It could be reasonably supposed here that defendants had ‘superior knowledge’ as to whether plaintiff had ‘dance potential.’” Case 13.1: Vokes v. Arthur Murray (Misrepresentation)

17 17 Case 13.2: Sarvis v. Vermont State College FACTS: In 1995 Sarvis was convicted of bank fraud and ordered to pay more than $12 million in restitution, and sentenced to forty-six months in prison. While incarcerated, he worked in the prison’s electric department. After his release in 1998, Sarvis applied for an adjunct professor position at Community College of Vermont (CCV) stating that during “1984-1998” he was “President and Chairman of the Board” of “CMI International Inc., Boston, Massachusetts,” where he was “[r]esponsible for all operations and financial matters.”

18 18 FACTS (Cont’d) Sarvis was hired at CCV as an academic coordinator, teacher, and independent studies instructor. After he began work, his probation officer alerted CCV to Sarvis’s criminal history, and CCV terminated his employment. Sarvis sued CCV alleging breach of contract. CCV filed a motion for summary judgment, in part on the ground of fraud, seeking rescission. The court granted CCV’s motion, and Sarvis appealed to the Vermont Supreme Court. Case 13.2: Sarvis v. Vermont State College

19 19 HELD: AFFIRMED. FOR CCV. The Vermont Supreme Court rescinded the contract between Sarvis and CCV. The court explained that “[t]he misrepresentation in this case occurred through plaintiff’s partial disclosure of his past work history and references and his effort to limit defendant’s inquiry into his past.” Case 13.2: Sarvis v. Vermont State College

20 20 Case 13.3: Meade v. CedarRapids FACTS: Meade was offered a job at the El ‑ Jay Division of Cedarapids, Inc., in Eugene, Oregon. During the interview, Meade asked about El-Jay’s future and was told that El- Jay was growing. In fact, however, Cedarapids management already planned to close El-Jay. Meade signed an at-will employment agreement, quit the job he was doing or passed up other employment opportunities, and moved his family to Eugene. When El-Jay closed soon after, Meade sued Cedarrapids alleging fraudulent misrepresentation based on the statements made to them during the interviews.

21 21 HELD: FOR MEADE. Ninth Circuit held that employer may be liable for misrepresenting its future to prospective employees if they act to their detriment in reliance. The plaintiffs’ “injuries were suffered as a result of the fraudulent inducement to enter employment, not the premature termination of that employment.” The court reasoned that “allowing at ‑ will employment to defeat Plaintiffs’ reliance would effectively allow employers to make any representations to prospective employees and then not fulfill those representations once employment began.” Case 13.3: Meade v. CedarRapids

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