1. Chapter 8
GENUINE AGREEMENT

2. OBJECTIVES Define genuine agreement and rescission
Identify when duress occurs
Describe how someone may exercise undue influence
Describe the kinds of mistakes that can make a contract void or voidable
Determine when misrepresentation has occurred
Identify when fraud has occurred
Discuss the remedies for mistake, misrepresentation, and fraud

3. HOT DEBATE, pg 114
Where do you stand???

4. Chapter 8-1 Goals: Define genuine agreement and rescission
Identify when duress occurs
Describe how someone may exercise undue influence

5. 1. What is genuine agreement?
Read ‘What’s your verdict?’, page 115
An agreement to enter into a contract that is evidenced by word or conduct between the parties
AKA Genuine assent or mutual assent

6. 2. Genuine Agreement may be lacking due to …
Fraud
Misrepresentation
Undue Influence
Duress
Mistake

7. 3. Voidable Contract
Voidable – a contract in which the injured party can withdraw, thus cancelling the contract
A contract is voidable in the absence of genuine agreement
The injured party can RESCIND   

8. 4. Rescission and Ratification
Rescission: backing out of the transaction by asking for the return of what you gave and offering to give back what you received
Must be PROMPT!!
Must be done shortly after you discover there is no genuine assent
Must occur BEFORE ratification of the contract
Ratification: Conduct suggesting you intend to be bound by the contract
READ In this case, pg 115

9. Situation…
The Thompsons were told by a man that if they did not sign a contract to repay a $2000 loan at 40% interest, their son would be in danger of physical harm. Afraid the threat would be carried out, the Thompsons signed the contract.
Is it enforceable??? Why or why not??

10. 5. Duress
Occurs when one party uses an improper threat or act to obtain an agreement
If duress is evident the contract is voidable!

11. 6. Examples of Duress 1. Threat of Illegal Conduct
Committing an Act of Violence (ie: stabbing)
Threatening a Crime (ie: threatening to stab)
Committing a Tort (ie: unlawful detention)
Threatening a Tort
Defamation, libel, infliction of emotional distress
**Actual crime or tort may be to the physical life, liberty or property of victim, family, or near relatives

12. Other Examples of Duress
2. Threats to report crimes
May also be extortion – obtain something of value through coercion
3. Threats to sue
Purpose must be UNRELATED to the suit
Ie: If during a divorce, a husband threatens to sue for custody of children if wife doesn’t sign stocks over to him
4. Economic threats
Courts will look at both the THREAT and the ALTERNATIVES to the threatened party
If threatened party had no other choice, but to enter into contract duress
READ: Economic Threats paragraph

13. Situation…
The IRS assessed a large tax and penalty against Stan. Stan retained Ashley to represent him to reduce the tax and penalty. The last day before the deadline for filing for a reply with the IRS, Ashley refused to represent Stan. She said she would reconsider if Stan signed an agreement to pay a much higher fee than originally agreed for her services.
Is this agreement enforceable?

14. 7. What is Undue Influence?
Undue Influence – occurs when one party to the contract is in a position of trust and wrongfully dominates the other party
The dominated person does not exercise free will in accepting favorable terms

15. 8. Two Key Elements in Undue Influence:
A. The Relationship:
A relationship of trust, confidence or authority between the two parties of a contract
Formal relationship is NOT necessary
EXAMPLES
B. Wrongful or Unfair Persuasion
Difficult to prove in court
Courts look at unfair terms in contract
To prevent this, the stronger party should act with honesty, fully disclose all important facts, insist weaker party obtain independent counsel
* Nagging and persuasion do not necessarily mean undue influence occurs

16. 9. The Lindbergh Kidnapping Case
Read: Law in the Media, pg 116
When the press descended upon the grounds of the Lindbergh mansion, they trampled over everything they could have used for evidence. What could have been done to prevent this?
UNDUE MEDIA INFLUENCE:
The media declared Hauptmann guilty before he went to trial. Can you think of examples where the modern media has passed judgment on a person accused of a crime?

17. Quick Re-cap! What is genuine agreement?
What is rescission and when can it be used?
What is duress?
What are the 2 main parts of undue influence?
How can someone use undue influence in a contractual setting?

18. TO DO… Compare and contrast Duress and Undue Influence Page 118, 1-15

19. Chapter 8-2: Mistake, Misrepresentation, and Fraud
Read, What’s your verdict, pg. 119
Will he win????

20. GOALS:
Describe the kinds of mistakes that can make a contract void or voidable
Determine when misrepresentation has occurred
Identify when fraud has occurred
Discuss the remedies for mistake, misrepresentation, and fraud

21. Ignorance of the law is no excuse!!!
How do you think this statement relates to a person’s failure to read a contract and the voidability of a contract???

22. 10. Unilateral Mistake UNI – one… LATERAL – related to one side
Occurs when one party holds an incorrect belief about the facts related to a contract
Examples:
Failing to read the contract
Hurried or careless reading of a contract
Signing a contract written in a language you don’t understand
USUALLY not able to rescind

23. 11. Two types of Unilateral Mistakes
A. Recognized Unilateral Mistake
If the other party to the contract is aware of the mistake  court MAY grant rescission
Read, In this case, page 119
B. Induced Unilateral Mistake
If one party has encouraged the other party to make the mistake, the contract is voidable
Ie: Looking at a tray of diamonds mixed with one CZ, and the jeweler encourages you to choose the CZ and pay a diamond’s price, this was induced

24. What’s your verdict??, pg 120
Is the contract valid????

25. 12. What are mutual mistakes?
Mutual Mistake – when both parties have an incorrect belief about an important (material) fact of the contract, AKA: Bilateral Mistake
Material facts: important facts that influence the parties’ decisions about a contract
A. Mistake about subject matter
B. Mistake about the law
In this case, page 120

26. Situation…
Jane contracts with Mike to purchase one of his two skateboards. Mike thinks Jane has bought the blue one, his less valuable skateboard. Jane thinks she bought the red, more expensive one.
Does a contract exist???
NO – Mutual Mistake – both were mistaken on subject matter – materiality – central fact to contract.

27. 13. REMEMBER…
Mistakes about subject matter make the contract void for lack of genuine agreement
Mistakes about the law may still result in valid contract, depending on state laws
Ie: Local zoning laws
MOST mutual mistakes create the right to rescind or void the contract

28. 14. What is Misrepresentation???
Read, What’s your verdict, pg 120
Innocent Misrepresentation – a party to the contract does not know a statement he/she made is untrue
Fraudulent Misrepresentation – a party to the contract knows that a statement he/she made is untrue
* BOTH make contract voidable*

29. 15. Statements are treated as misrepresentation only if:
The untrue statement is ONE OF FACT or there is active concealment, and
The statement is material to the transaction or is fraudulent, and
The victim REASONABLY RELIED on the statement.

30. 16. Untrue Statement of Fact
The statement must be one of ‘past or existing’ fact rather than opinion
If EXPERTS express opinion, the law may treat that statement as a statement of fact
1. Active Concealment: a substitute for a false statement of fact
Examples:
1. Painting the ceiling to cover the roof leaks
2. If the price sticker is placed over a scratch on a TV

31. Untrue Statement of Fact
2. Silence:
Remaining silent about defects or allowing mistaken assumption about something
3 situations where disclosure is required:
Where statement about material fact omits important info (ie: Race car)
When a true statement is made false by subsequent events (ie: Roof leak)
When one party knows the other party has made a mistake (ie: House foundation)
Refer to PAGE 121

32. 17. Materiality 1. A statement is material in the following cases:
If a statement would cause a reasonable person to agree to a contract
(total miles on a car, rebuilt engine, baseball card)
b. If the defendant knew the plaintiff would rely on the statement
* (oil changes)
c. If the defendant knew the statement was false
*(serviced at local gas station and not dealer)

33. Fact or Opinion?? This computer is one year old
The engine has 40,000 miles on it
This dog will be the perfect pet for you!
The suit will create the image you need to double your business.
*****************************************
Why is a person generally not legally required to tell all he or she knows about a product or service being bought or sold???

34. 18. Fraud and Remedies for Fraud
Read, What’s your verdict???, pg 122
FRAUD: Intentional misrepresentation of an existing or important fact
ALL elements of misrepresentation are required to be considered FRAUD, PLUS
Misrepresentation: Untrue statement of fact, material, reasonably relied
Intent
Injury

35. 19. Misrepresentation must be:
Intentional: when a person deliberately lies or conceals a material fact
To induce victim to contract
Reckless: if a person recklessly makes a false statement of fact, without knowing whether it is true or false OR

36. 20. Misrepresentation or Concealment MUST Injure
There must be proof of injury
Does not have to be physical – can be monetary
If there is a misrepresentation but no injury, there is no fraud

37. Situation..
Matt tells Bret: “This Cadillac gets great gasoline mileage. I took it on a trip last week and got over 40 miles to the gallon.” Bret knows about cars and knows the statement is an exaggeration. Still he decides to buy the car from Matt.
If later, Bret changes his mind, does he have an action for fraud when it turns out the car only gets 13 miles per gallon?

38. 21. Remedies for Fraud 1. Rescission: 2. Damages: 3. Punitive Damages:
If the contract is entered into as a result of misrepresentation, the contract is voidable
Must usually return anything received
2. Damages:
Monetary or property damages are available if fraud is proven
May still ratify seek damages for loss created by fraud
3. Punitive Damages:
A form of punishment against the person who committed fraud (ie: Judge awards you $5,000 to punish the party who committed the fraud)

39. Quick Re-cap! What kinds of mistakes make a contract voidable?
What items are required for misrepresentation to occur?
What elements are required for FRAUD to occur?
What are the remedies for mistake, misrepresentation, and fraud?

40. TO DO: Questions, pg 123 (1-10) Chapter 8-2 quiz
Internet Activity: Misrepresentation

41. CHAPTER 8 REVIEW: Worksheet Legal vocab, 124
Think Critically, 125 (21, 22, 23)
Real Cases, 125 – pick 1 from 25, 26, 27