1. © 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 13 Contracts: Genuineness of Assent Chapter 13 Contracts: Genuineness of Assent

2. © 2004 West Legal Studies in Business A Division of Thomson Learning 2 Introduction Contract may be unenforceable if the parties have not genuinely assented to its terms by:  Mistake.  Misrepresentation.  Undue Influence.  Duress. Contract may be unenforceable if the parties have not genuinely assented to its terms by:  Mistake.  Misrepresentation.  Undue Influence.  Duress.

3. © 2004 West Legal Studies in Business A Division of Thomson Learning 3 §1: Mistakes of Fact Only a Mistake of Fact allows a contract to be canceled. Bilateral (Mutual) Mistakes can be rescinded by either party. Unilateral Mistakes cannot be canceled unless:  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. Only a Mistake of Fact allows a contract to be canceled. Bilateral (Mutual) Mistakes can be rescinded by either party. Unilateral Mistakes cannot be canceled unless:  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.

4. © 2004 West Legal Studies in Business A Division of Thomson Learning 4 Mistakes of Value Generally, contract is enforceable by either party. Exception: Mistake of value because of a mistake of material fact. Generally, contract is enforceable by either party. Exception: Mistake of value because of a mistake of material fact.

5. © 2004 West Legal Studies in Business A Division of Thomson Learning 5 §2: Fraudulent Misrepresentation Contract Voidable by Innocent Party. Elements:  Misrepresentation of Material Fact.  Intent to Deceive.  Reliance on Misrepresentation.  Injury to the Innocent Party. Contract Voidable by Innocent Party. Elements:  Misrepresentation of Material Fact.  Intent to Deceive.  Reliance on Misrepresentation.  Injury to the Innocent Party.

6. © 2004 West Legal Studies in Business A Division of Thomson Learning 6 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 known or asked and person lied.  Case 13.1: Vokes v. Arthur Murray Inc. (1968). 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 known or asked and person lied.  Case 13.1: Vokes v. Arthur Murray Inc. (1968).

7. © 2004 West Legal Studies in Business A Division of Thomson Learning 7 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. Case 13.2: Sarvis v. Vermont State Colleges (2001). 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. Case 13.2: Sarvis v. Vermont State Colleges (2001).

8. © 2004 West Legal Studies in Business A Division of Thomson Learning 8 Reliance on Misrepresentation Deceived party must have Justifiable Reliance.  Depends on the knowledge and experience of the party relying. Case 13.3: Folet v. Parlier (2002). Deceived party must have Justifiable Reliance.  Depends on the knowledge and experience of the party relying. Case 13.3: Folet v. Parlier (2002).

9. © 2004 West Legal Studies in Business A Division of Thomson Learning 9 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. No proof of injury is required when the action is to rescind contract. Proof of injury is universally required to recover damages.

10. © 2004 West Legal Studies in Business A Division of Thomson Learning 10 §3: Nonfraudulent Misrepresentation Innocent Misrepresentation. Negligent Misrepresentation.  Equal to Scienter.  Is treated as fraudulent misrepresentation, even though the misrepresentation was not purposeful. Innocent Misrepresentation. Negligent Misrepresentation.  Equal to Scienter.  Is treated as fraudulent misrepresentation, even though the misrepresentation was not purposeful.

11. © 2004 West Legal Studies in Business A Division of Thomson Learning 11 §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. Presumption of 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. Presumption of Undue Influence.

12. © 2004 West Legal Studies in Business A Division of Thomson Learning 12 §5: Duress Forcing a party to enter into a contract under fear or threat makes the contract voidable. Threatened act must be wrongful or illegal. Improper Threat.  Threat to exercise legal rights (criminal or civil suit).  Economic or physical. Forcing a party to enter into a contract under fear or threat makes the contract voidable. Threatened act must be wrongful or illegal. Improper Threat.  Threat to exercise legal rights (criminal or civil suit).  Economic or physical.

13. © 2004 West Legal Studies in Business A Division of Thomson Learning 13 §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. 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.

14. © 2004 West Legal Studies in Business A Division of Thomson Learning 14 Law on the Web KATZ Law Firm on Fraud. ‘Lectric Law Cases on Contract Law. Legal Research Exercises on the Web. KATZ Law Firm on Fraud. ‘Lectric Law Cases on Contract Law. Legal Research Exercises on the Web.