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Genuine Agreement Chapter 6

Genuine Agreement

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Genuine Agreement. Chapter 6. Defective Agreements. If the offeror makes a valid offer, and the offeree has made a valid acceptance, then a genuine agreement has been reached—”meeting of the minds” Sometimes, however, something goes wrong, and what seems to be a valid contract isn’t. - PowerPoint PPT Presentation

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Page 1: Genuine Agreement

Genuine Agreement

Chapter 6

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Defective AgreementsIf the offeror makes a valid offer, and the offeree

has made a valid acceptance, then a genuine agreement has been reached—”meeting of the

minds”Sometimes, however, something goes wrong, and

what seems to be a valid contract isn’t.

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FraudIs a deliberate deception intended to secure

an unfair or unlawful gain.You have a choice if this happens

You may rescind, or cancel the contractYou may sue for damages

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Succeeding in a lawsuit for fraudThe following 5 elements must be demonstrated

1. There must be a false representation of fact

2. The party making the representation must know it is false

3. The false misrepresentation must be made with the intent that it be relied upon

4. The innocent party must reasonably rely upon the false representation

5. The innocent party must actually suffer some monetary loss

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1. False Representation of FactMaterial fact is a fact that is

ImportantMatters to one of the partiesCannot be a promise of something that

will happen in the futureNor someone’s opinion

Concealment is another way false representation can occur

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2. Representation Known to Be FalseThe party making the false

representation must be aware that the representation is false

Can be shown by proving actual knowledgeShowing that the statement was made

recklessly, without regard for the truth

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3. False Representation Intended to Be Relied Upon

Must show that the false representation was made with the intent that it be relied upon

In other words, the person making the misrepresentation must intend that the other party rely upon the information as part of the contract negotiations

Example: Suppose that Ed met Mr. Johnson, a man whose car he admired. He asked Mr. Johnson, “Is this car a 1964 Mustang?” Mr. Johnson, with no intention of selling his car but with knowledge that is really was a 1965 model said, “Yes, it’s a 1964.” If Ed then went out and purchased a car like Mr. Johnson's, believing it was really a 1964 Mustang, he could not win a lawsuit against Johnson for fraud. Johnson did not make a statement with the intent that Ed rely on it.

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4. False Representation Actually Relied Upon

If fraud is to be proven, the false representation must be reasonably relied upon by the other party when the agreement is made

Example: Suppose that Johnson wants to sell his car and tells Ed that it is a 1964 Mustang. However, Ed is accompanied by George Trimmer, an antique car expert. Trimmer takes Ed aside and tells him that the car is actually a 1965 and is worth far less money than a 1964. If Ed still insisted on buying Johnson’s car at an inflated price, he could not later win a lawsuit for fraud because he did not actually rely on Johnson’s false statement.

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5. Resulting LossIn order to win a lawsuit for fraud, you

must have suffered a loss as a result.Example: If you paid a friend $75 for a CD player that was

said to be “in perfect working order” and then discovered the track selection feature did not work, you have lost $75 and may make a legal claim for fraud. If, however, you agreed to accept the CD player in exchange for a favor, such as helping your friend perform a community project, you suffered no monetary loss. In such a situation, you would not be legally entitled to make a claim for fraud.

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Innocent Misrepresentation• Innocent statement made that turns

out to be false• This is called misrepresentation• Must honestly believe the statement

was true at the time• Law gives you the right to rescind the

contract

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POP QUIZ!Question: A couple of weeks

after Joel’s next door neighbor, Mrs. Grayson died, Joel saw Tom Grayson at the house taking care of his mother’s affects. Joel asked Tom if he would like to sell her TV, and Tom said “sure”. When asked if it worked, tom answered, “as far as I know.” Joel gave Tom $100 for the TV, but when he plugged it in at home, it didn’t work. Can Joel claim there was false representation? Why or why not?

Answer: Probably not. “As far as I know” would probably be considered innocent misrepresentation.

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Mistake, Duress, and Undue Influence

Section 6.2

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MistakeThe purpose of contract law is to fulfill the reasonable

expectations of the parties to a contract. People sometimes enter into contracts believing that certain

information is true when it is actually not, or that information is not true when it really is.

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Unilateral MistakeIs an error on the part of ONE of the parties to

the contractUsually cannot avoid a contract because of

such a mistakeThere are 2 types:

1. Mistakes as to the Nature of the Agreement2. Mistake as to the Identity of a Party

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1. Mistake as to the Nature of the Agreement

Unilateral mistakeCannot be an excuse to avoid a

contractRescission will not be granted

People who SIGN an agreement are bound to it, even if they don’t read it or are mistaken about what it says

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2. Mistake as to the Identity of a PartyUnilateral MistakeRescission may be grantedInvolves the identity of a party to a contractExample: If a offer is made through a letter to a person but

the letter gets delivered to a different person with the same name, the contract is voidable because this different person with the same name was not the person the letter was intended for.

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Bilateral MistakeBoth parties to contract are mistaken about

an important fact (mutual mistake)Either party may avoid the contractThere are 2 types

Mistake as to the Possibility of PerformanceMistake as to the Subject Matter

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1. Mistake as to the Possibility of PerformanceBilateral mistakeBoth parties of a contract believe that the

duties described in the agreement can be performed when, in fact, they cannot

Rescission will be grantedExample: Robert agreed to sell his car to Cynthia for

$3,000. Unknown to both of them, however, was the fact that overnight the car had been sideswiped and severely damaged by a hit-and-run driver as it sat in front of Robert’s house. Either party may now avoid the contract.

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2. Mistake as to the Subject MatterBilateral mistakeContract may be rescinded by either partyExample: Ellen agreed to sell Alvin five vacant lots on

Indiana Avenue in Parkersburg. Alvin refused to go through with the agreement when he discovered that the land he thought he was buying was on another Indiana Avenue, also in Parkersburg. Ellen sued Alvin for breach of contract. However, because there was a bilateral mistake as to the location to the land in the contract, Ellen lost the case.

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DuressIs overcoming a person’s will by use of force

or by threat of force or bodily harmAgreements made under this are either void

or voidableActual physical forced is used = voidThreat of physical force = voidable

Economic Duress consists of threats to a person’s business or income that cause him or her to enter a contract without real consent

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Undue InfluenceOccurs when a person uses unfair and

improper persuasive pressure to force another person to enter into an agreement

Circumstances such as Ill health Old ageMental impairment

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POP QUIZ!1. True or False –

Both parties may avoid contracts involving unilateral and bilateral mistakes.

2. True or false—undue influence is the overcoming of a person’s will by use of force.

1. FALSE2. FALSE