Chapter 17Chapter 17Legal AssentLegal Assent

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Legal AssentLegal Assent Definition: Promise to buy or sell courts will require Definition: Promise to buy or sell courts will require

parties to obeyparties to obey

Without assent, contract may be avoided/rescindedWithout assent, contract may be avoided/rescinded

Cancellation of contract due to lack of assent means party Cancellation of contract due to lack of assent means party with power of avoidance can require return of with power of avoidance can require return of consideration given to other party; similarly, party with consideration given to other party; similarly, party with rescission right must return consideration received from rescission right must return consideration received from other party other party

Major “obstacles” to legal assent: Mistake, Major “obstacles” to legal assent: Mistake, misrepresentation, undue influence, duress, and misrepresentation, undue influence, duress, and unconscionabilityunconscionability

17-2

MistakeMistake

Definition: Erroneous beliefs regarding material Definition: Erroneous beliefs regarding material facts of contract at time agreement madefacts of contract at time agreement made

Unilateral Mistake: Mistake made by one Unilateral Mistake: Mistake made by one contracting party; generally, contract still contracting party; generally, contract still bindingbinding

Mutual (Bilateral) Mistake: Mistake made by Mutual (Bilateral) Mistake: Mistake made by both parties; if mutual mistake of material both parties; if mutual mistake of material (significant) fact, either party can rescind (significant) fact, either party can rescind contractcontract

17-3

Fraudulent or Negligent MisrepresentationFraudulent or Negligent Misrepresentation

Fraudulent Misrepresentation (Definition): Intentional, Fraudulent Misrepresentation (Definition): Intentional, untruthful assertion of material fact by contracting party; untruthful assertion of material fact by contracting party; aggrieved party can rescind contract, and sue for damages aggrieved party can rescind contract, and sue for damages

Negligent Misrepresentation (Definition): Negligent, untruthful Negligent Misrepresentation (Definition): Negligent, untruthful assertion of material fact by contracting party; aggrieved party assertion of material fact by contracting party; aggrieved party can rescind contract, and sue for damagescan rescind contract, and sue for damages

Contrast with “innocent misrepresentation”, when party Contrast with “innocent misrepresentation”, when party making false assertion believes it to be true, and is not making false assertion believes it to be true, and is not negligent in making false assertion; although innocent negligent in making false assertion; although innocent misrepresentation permits misled party to rescind contract, misrepresentation permits misled party to rescind contract, he/she cannot sue for damageshe/she cannot sue for damages

Courts permit contract rescission for fraudulent or negligent Courts permit contract rescission for fraudulent or negligent misrepresentation, assuming:misrepresentation, assuming:

False assertionFalse assertion Intent to deceive, or negligenceIntent to deceive, or negligence Justifiable reliance on false assertion by innocent partyJustifiable reliance on false assertion by innocent party

17-4

Undue InfluenceUndue Influence

Definition: Persuasive efforts of dominant Definition: Persuasive efforts of dominant party, who uses special relationship to party, who uses special relationship to interfere with other’s free choice of termsinterfere with other’s free choice of terms

Any relationship involving one party’s Any relationship involving one party’s unusual degree of trust in another can unusual degree of trust in another can give rise to undue influence give rise to undue influence

17-5

Questions Affecting Determination of Questions Affecting Determination of Undue InfluenceUndue Influence

Did dominant party “rush” the other party to Did dominant party “rush” the other party to consent?consent?

Did dominant party gain unjust enrichment from Did dominant party gain unjust enrichment from the contract?the contract?

Was non-dominant party isolated from other Was non-dominant party isolated from other advisers at time of contract?advisers at time of contract?

Is contract unreasonable, in that it Is contract unreasonable, in that it overwhelmingly benefits dominant party?overwhelmingly benefits dominant party?

17-6

DuressDuress

Definition: Occurs when one party threatens Definition: Occurs when one party threatens other with wrongful act unless assent givenother with wrongful act unless assent given

Duress is not legal assent, since coercion Duress is not legal assent, since coercion interferes with contracting party’s free willinterferes with contracting party’s free will

For courts to rescind agreement, injured party For courts to rescind agreement, injured party must prove duress left no reasonable alternatives must prove duress left no reasonable alternatives to contractual agreementto contractual agreement

17-7

Situations Involving DuressSituations Involving Duress

One party threatens physical harm or extortion to One party threatens physical harm or extortion to gain consent to contractgain consent to contract

One party threatens to file criminal lawsuit unless One party threatens to file criminal lawsuit unless consent given to terms of contractconsent given to terms of contract

One party threatens to file frivolous civil lawsuit One party threatens to file frivolous civil lawsuit unless consent given to terms of contractunless consent given to terms of contract

One party threatens the other’s economic interests One party threatens the other’s economic interests (although in many jurisdictions, recovery based on (although in many jurisdictions, recovery based on economic duress/pressure rarely granted)economic duress/pressure rarely granted)

17-8

UnconscionabilityUnconscionability

Definition: Occurs when one party has so much Definition: Occurs when one party has so much relative bargaining power that he/she effectively relative bargaining power that he/she effectively dictates terms of contract, resulting in situation dictates terms of contract, resulting in situation where dominated party, in essence, lacks free where dominated party, in essence, lacks free willwill

Unconscionable contract is an “adhesion Unconscionable contract is an “adhesion contract”, and cannot be basis for avoiding contract”, and cannot be basis for avoiding contractcontract

17-9