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GENUINENESS OF ASSENT
Chapter 7
Genuine Assent and Duress
Genuine Assent True and complete agreement Required for a contract to be valid
If missing contract is VOIDABLE (cancels obligation)
Injured party can get back what they put into the contract—RESCISSION Rescission must be prompt Must occur before RATIFICATION (bound by
contract)
Duress
When one party uses an improper threat or act to obtain an expression of agreement
Types: Threats of illegal conduct Threats to report crimes Threats to sue Economic threats
Threats of Illegal Conduct
Threat to engage in illegal conduct—crime or tort to win agreement—always constitutes DURESS Committing an act of violence Threatening a crime Committing a tort Threatening a tort to obtain a signature on a
written contract Can be to the victim or the victim’s
immediate family
Threats to Report Crimes
If you observe a crime, you have a DUTY to report it
Threatening to report the crime to get the criminal to contract with you is DURESS
May also be the crime of extortion
Threats to Sue
The law encourages people to settle disputes without suit An important part of this is process involves
communicating a threat that you will sue if the other side doesn’t settle
When the threat to sue is unrelated to the suit, this may be DURESS Example:
Divorce proceedings—husband threatens to sue for custody of the children if the wife doesn’t sign over valuable shares of stock
Economic Threats
Parties using economic power over one another to negotiate a favorable modification or settlement
Example: Manufacturer has a contract to pay a supplier
$15 for parts needed to maintain production Supplier threatens to withhold parts unless
they are paid $20 per part If the disruption in the economic flow causes
substantial injury to the manufacturer, this is DURESS
Undue Influence
When one party to the contract is in a position of trust and wrongfully dominates the other party
Types: Relationship Unfair persuasion
Relationship
A relationship of trust, confidence, or authority must exist between the parties to a contract
Presumed to exist between: Attorney and client Husband and wife Parent and child Guardian and ward Physician and patient Minister and congregation member
Unfair Persuasion
Best evidence is found in the contract Example:
Selling a house at half the value to a caregiver To prevent undue influence the stronger
party must: Act with total honesty Fully disclose all important facts Insist that the weaker party obtain
independent counsel before contracting
Contractual Mistakes
Types of Contractual Mistakes: Unilateral
Occurs when only one party holds an incorrect belief about the facts related to a contract
Generally does not affect the validity of a contract
Examples: Failure to read the entire contract Hurried or careless reading of the contract Signing a contract written in language you don’t
understand
Contractual Mistakes
Types of Contractual Mistakes: Mutual (Bilateral)
Both parties have an incorrect belief about an important fact Voids the contract if a mistake of FACT occurs Examples:
Both parties think a property is 41 acres when, in fact, it is only 28 acres
Both parties have an incorrect belief about the applicable law
Does not void the contract if a mistake of LAW occur Example:
Both parties to a sale believe that local zoning laws permit construction of duplexes on the lot
Valid even if duplexes cannot be built All persons are presumed to know the law
Misrepresentation
Statements that are untrue Innocent Misrepresentation
Occurs when someone is unaware of the truth Example:
Someone is selling a car and states that it has 70,000 miles—unaware that the previous owner replaced the odometer—car actually has 150,000
Fraudulent Misrepresentation Occurs when someone is aware of the truth
Both types of Misrepresentation void a contract
Misrepresentation
Statements are treated as misrepresentations by the law only if: The untrue statement is one of fact or there is
active concealment The statement is material to the transaction or
is fraudulent The victim reasonably relied on the statement
Misrepresentation Untrue Statement of Fact
Statement must be one of fact and not opinion Expert opinion is viewed as fact by the law ACTIVE CONCEALMENT
Substitute for a false statement of fact Examples: covering a water stain with paint to
conceal a leaky roof SILENCE
Seller remains silent about defects Disclosure is required when:
A statement about material fact omits important information
When a true statement is made false by subsequent events
When one party knows the other party has made a basic mistaken assumption
Misrepresentation
Materiality A statement is material if the statement would
cause a reasonable person to contract A statement is material if the defendant knew
this plaintiff would rely on the statement A statement is material if the defendant knew
the statement was false Reasonable Reliance
Even though the statement is material, there is no misrepresentation unless the victim reasonably relied on it
Fraud Fraud is based on misrepresentation All elements of misrepresentation must
be proven to show fraud PLUS two additional elements: Intent
Misrepresentation must be intentional or reckless
Deliberate lying or concealment of a material fact
Recklessly making a false statement not knowing if it is true or false
Injury Must be proof of injury
Remedies for Fraud Rescission
Contracts entered into as a result of misrepresentation or fraud are voidable by the injured party and can be rescinded Anything you received must be returned A party who has done nothing may cancel the contract with
no further obligation Damages
Available if fraud is proven A party defrauded may choose to ratify the agreement
rather than rescind Either party may enforce the contract Defrauded party who ratified may seek damages for the loss
created by the fraud Punitive Damages
Punishment for the party who committed fraud