COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. CHAPTER 14 Genuineness of Assent 1

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. What is assent? A contract may be unenforceable if the parties have not genuinely agreed to the terms. A contract may be unenforceable if the parties have not genuinely agreed to the terms. Lack of voluntary assent, or agreement, can be used as a defense to the contract’s enforceability. Lack of voluntary assent, or agreement, can be used as a defense to the contract’s enforceability.  How can this happen??? A contract may be unenforceable if the parties have not genuinely agreed to the terms. A contract may be unenforceable if the parties have not genuinely agreed to the terms. Lack of voluntary assent, or agreement, can be used as a defense to the contract’s enforceability. Lack of voluntary assent, or agreement, can be used as a defense to the contract’s enforceability.  How can this happen??? 2

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 3 Genuineness of assent or voluntary agreement…. Contract may be unenforceable if the parties have not genuinely assented to its terms by: 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: Contract may be unenforceable if the parties have not genuinely assented to its terms by:  Mistake.  Misrepresentation.  Undue Influence.  Duress.

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 4 §1: Mistakes of Fact Only a Mistake of Fact allows a contract to be canceled. Only a Mistake of Fact allows a contract to be canceled. Bilateral (Mutual) Mistakes can be rescinded by either party. Bilateral (Mutual) Mistakes can be rescinded by either party.  Ie: Fake VanGogh painting, normally very expensive, if both parties believe it is real and agree on a selling price, later find out it is a fake, the buyer can recover the purchase price, neither party was aware when the deal was made Only a Mistake of Fact allows a contract to be canceled. Only a Mistake of Fact allows a contract to be canceled. Bilateral (Mutual) Mistakes can be rescinded by either party. Bilateral (Mutual) Mistakes can be rescinded by either party.  Ie: Fake VanGogh painting, normally very expensive, if both parties believe it is real and agree on a selling price, later find out it is a fake, the buyer can recover the purchase price, neither party was aware when the deal was made

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 5 Unilateral Mistakes cannot be canceled unless: 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.  Case 14.1: Roberts v. Century Contractors, Inc. (2004). Unilateral Mistakes cannot be canceled unless: 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.  Case 14.1: Roberts v. Century Contractors, Inc. (2004). Mistakes of Fact

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 6 Mistakes of Value Generally, contract is enforceable by either party. Generally, contract is enforceable by either party.  Why? Because value changes, think about homes, cars, etc….depending on time and place Generally, contract is enforceable by either party. Generally, contract is enforceable by either party.  Why? Because value changes, think about homes, cars, etc….depending on time and place

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 7 §2: Fraudulent Misrepresentation Contract Voidable by Innocent Party. Contract Voidable by Innocent Party. Elements: Elements:  Misrepresentation of Material Fact (different from salesman talk or puffery).  Intent to Deceive.  Reliance on Misrepresentation.  Injury to the Innocent Party. Contract Voidable by Innocent Party. Contract Voidable by Innocent Party. Elements: Elements:  Misrepresentation of Material Fact (different from salesman talk or puffery).  Intent to Deceive.  Reliance on Misrepresentation.  Injury to the Innocent Party.

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 8 Misrepresentation Has Occurred Misrepresentation can be express or implied. 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 14.2: Vokes v. Arthur Murray Inc. (1968). Misrepresentation can be express or implied. 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 14.2: Vokes v. Arthur Murray Inc. (1968).

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 9 Intent to Deceive “Scienter” means guilty knowledge and is an Intent to Deceive. “Scienter” means guilty knowledge and is an Intent to Deceive.  Party knew 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. Gross negligence is considered intent. “Scienter” means guilty knowledge and is an Intent to Deceive. “Scienter” means guilty knowledge and is an Intent to Deceive.  Party knew 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. Gross negligence is considered intent.

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 10 Reliance on Misrepresentation Deceived party must have Justifiable Reliance. Deceived party must have Justifiable Reliance.  Depends on the knowledge and experience of the party relying. Case 14.3: Fogel v. Enterprise Leasing Co. of Chicago (2004). Case 14.3: Fogel v. Enterprise Leasing Co. of Chicago (2004). Deceived party must have Justifiable Reliance. Deceived party must have Justifiable Reliance.  Depends on the knowledge and experience of the party relying. Case 14.3: Fogel v. Enterprise Leasing Co. of Chicago (2004). Case 14.3: Fogel v. Enterprise Leasing Co. of Chicago (2004).

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 11 Injury to the Innocent Party No proof of injury is required when the action is to rescind contract. No proof of injury is required when the action is to rescind contract.  What does that mean? To rescind a contract means to “return the parties to the positions held before the contract was made” Proof of injury is universally required to recover damages. Proof of injury is universally required to recover damages.  Punitive-awarded to punish guilty party  Exemplary-awarded to plaintiff over and above the actual compensation for the loss No proof of injury is required when the action is to rescind contract. No proof of injury is required when the action is to rescind contract.  What does that mean? To rescind a contract means to “return the parties to the positions held before the contract was made” Proof of injury is universally required to recover damages. Proof of injury is universally required to recover damages.  Punitive-awarded to punish guilty party  Exemplary-awarded to plaintiff over and above the actual compensation for the loss

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. What if……the plaintiff seeks to rescind a contract on the ground of fraudulent misrepresentation, we know that the plaintiff must prove that the defendant had the intent to deceive. What if……the plaintiff seeks to rescind a contract on the ground of fraudulent misrepresentation, we know that the plaintiff must prove that the defendant had the intent to deceive. But what if they didn’t intend to deceive? But what if they didn’t intend to deceive?  Most courts allow rescission in cases involving innocent or negligent misrepresentation. What if……the plaintiff seeks to rescind a contract on the ground of fraudulent misrepresentation, we know that the plaintiff must prove that the defendant had the intent to deceive. What if……the plaintiff seeks to rescind a contract on the ground of fraudulent misrepresentation, we know that the plaintiff must prove that the defendant had the intent to deceive. But what if they didn’t intend to deceive? But what if they didn’t intend to deceive?  Most courts allow rescission in cases involving innocent or negligent misrepresentation. 12

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 13 §3: Nonfraudulent Misrepresentation Innocent Misrepresentation. Innocent Misrepresentation. Negligent Misrepresentation. Negligent Misrepresentation.  Carelessness, failure to exercise reasonable care in checking facts  Is treated as fraudulent misrepresentation, even though the misrepresentation was not purposeful. Innocent Misrepresentation. Innocent Misrepresentation. Negligent Misrepresentation. Negligent Misrepresentation.  Carelessness, failure to exercise reasonable care in checking facts  Is treated as fraudulent misrepresentation, even though the misrepresentation was not purposeful.

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 14 §4: Undue Influence Contract is Voidable. 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. Presumption of Undue Influence. Contract is Voidable. 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. Presumption of Undue Influence.

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 15 §5: Duress- means one of the parties is forced into making an agreement Forcing a party to enter into a contract under fear or threat makes the contract voidable. Forcing a party to enter into a contract under fear or threat makes the contract voidable. Threatened act must be wrongful or illegal. Threatened act must be wrongful or illegal. Improper Threat. 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. Forcing a party to enter into a contract under fear or threat makes the contract voidable. Threatened act must be wrongful or illegal. Threatened act must be wrongful or illegal. Improper Threat. Improper Threat.  Threat to exercise legal rights (criminal or civil suit).  Economic or physical.

COPYRIGHT © 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 16 §6: Adhesion Contracts and Unconscionability Standard-Form (Adhesion) Contracts. Standard-Form (Adhesion) Contracts.  Preprinted contract in which the adhering party has no opportunity to negotiate the terms of the contract.  Take-it-or-leave-it” adhesion contracts. Unconscionability. Unconscionability.  One sided bargains in which one party has substantially superior bargaining power and can dictate the terms of the contract. Standard-Form (Adhesion) Contracts. Standard-Form (Adhesion) Contracts.  Preprinted contract in which the adhering party has no opportunity to negotiate the terms of the contract.  Take-it-or-leave-it” adhesion contracts. Unconscionability. Unconscionability.  One sided bargains in which one party has substantially superior bargaining power and can dictate the terms of the contract.