Chapter 9 Mutual Agreement

9-2 Defective Agreements Recall that a meeting of the minds (i.e. genuine assent) is the second of the six requirements discussed in chapter 7 for an enforceable contract. Genuineness of an agreement is said to be present in a contract when there is a true meeting of the minds of the parties. Learning Outcome 9-1: List seven ways in which a lack of a meeting of the minds may cause defective agreements. Page: 142

Defective Agreements (cont.) 9-3 Defective Agreements (cont.) If there is any misunderstanding ,or if force or deception was used to obtain the agreement of the other party, the contract is voidable and may be disaffirmed at the option of the injured party. A voidable contract results if agreement (of either party) is obtained by fraud, misrepresentation, mistake, undue influence, or duress. Additionally, a voidable contract may result if the contract is one of adhesion, or is unconscionable. Learning Outcome 9-1: List seven ways in which a lack of a meeting of the minds may cause defective agreements. Page: 142

9-4 Fraud The intentional misstatement or nondisclosure of a material fact made by one party in an attempt to influence the actions of another party is fraud. Fraud may arise from spoken or written words or by acts or conduct. Regardless of how the fraud is committed, the party who relies on the misstatement or nondisclosure must suffer a loss as a result of the act. Intentional concealment or intentional nondisclosure of material facts is just as fraudulent as making a false statement. Learning Outcome 9-2: Identify the elements of fraud. Page: 142

9-5 Fraud (cont.) In order to prove a fraud case, a plaintiff must demonstrate five elements: A misstatement or nondisclosure of a material fact; Knowledge of its falsity or with reckless disregard of its truth; Intention of causing the other party to enter into the agreement; Reliance by the injured party; and Harm to injured party (financial, physical, or both) Learning Outcome 9-2: Identify the elements of fraud. Page: 142

9-6 Puffing There is a distinct difference between a fraudulent statement and a salesperson’s “puffing.” Puffing is considered a mere expression of opinion. Most of us have experienced puffing when we speak to a salesperson. Some examples of puffing are: “This washing machine is the best buy in town.” “This computer is as good as other well-known brands.” “The engine in this car has the latest hybrid technology.” Learning Outcome 9-2: Identify the elements of fraud. Page: 143

9-7 Misrepresentation Misrepresentation is the unintentional misstatement or nondisclosure of a material fact that results in inducing another to enter into an agreement to his or her loss. When misstatement made knowingly or recklessly it is fraud. Remedy is different for fraud and misrepresentation. An injured party proving fraud can have contract canceled and sue for additional damages. An injured party proving misrepresentation can have contract canceled but cannot sue for additional damages. Learning Outcome 9-3: Explain misrepresentation and how it differs from fraud. Page: 143

Mistake A mistake is a belief that is not in accord with the facts. 9-8 Mistake A mistake is a belief that is not in accord with the facts. Mistakes relating to contracts may be concerned with the nature of the subject matter or the quality of the subject matter. Court decisions involving mistakes are often complex, and the courts attempt to determine whether the mistake was “unilateral,” or “mutual”. A unitlateral mistake is a mistake made by only one party. A mutual mistake is a mistake made by both parties. Learning Outcome 9-4: Explain the concept of mistake in the eyes of the law. Page: 144

9-9 Mistake (cont.) For a contract to be dissolved because of a mistake, the law usually requires that both parties be a part of the misunderstanding—that is, the mistake must be mutual. Example: Chin, a painting delear offered to sell a particular Picasso painting (catalog number 1401) to Kovacs for $14,000. When it came time to exchange the painting for the money, it was obvious that Kovacs expected a different Picasso paining (catalog number 1410) . Chin believed Kovacs wanted to buy catalog number 1401. The contract can be canceled by either party because this was a mutual mistake. Learning Outcome 9-4: Explain the concept of mistake in the eyes of the law. Page: 144

9-10 Undue Influence Sometimes a person has the power to control the actions of another because of a special or confidential relationship. Examples: Relationships between employer and employee, physician or nurse and patient, teacher and student. When someone uses this power improperly to his or her personal advantage, it is undue influence. A contract resulting from the use of undue influence is voidable at the option of the wrongfully influenced party. Learning Outcome 9-5: Define undue influence and explain its impact upon the validity of a contract. Page: 144

9-11 Duress Duress is the act of applying unlawful or improper pressure or influence to a person in order to gain his or her agreement to a contract. Some types of pressure are: Threat of bodily harm to an individual or to his or her family. Threat of serious loss or damage to property. If someone enters into a contract under duress, the injured party can dissolve the agreement. Learning Outcome 9-6: Describe duress and the forms that such may take: Page: 145

9-12 Contracts of Adhesion A contract that involves parties who have unequal bargaining power is known as a contract of adhesion. Sometimes referred to as “take-it-or-leave-it” contracts, they are quite common and are normally enforceable. But when enforcement of an otherwise legal contract will result in a significant hardship to one of the parties, courts have considered such agreements to be so unfair as to be unenforceable. Learning Outcome 9-7: Define contracts of adhesion and describe the conditions under which these contracts are voidable. Page: 145

Contracts of Adhesion (cont.) 9-13 Contracts of Adhesion (cont.) The inequality of bargaining power exists in contracts that are prepared by one party and presented to the other without the opportunity for meaningful negotiation. Example – Lorenz brought shirts to a laundry service for cleaning. A note on the receipt he was given indicated that the establishment was not responsible for goods left over 30 days. Lorenz attempted to pick up his shirts 35 days later and was told that, under contract terms he was not entitled to them. The “30 day” clause would be a contract of adhesion. Learning Outcome 9-7: Define contracts of adhesion and describe the conditions under which these contracts are voidable. Page: 145

Unconscionable Contracts 9-14 Unconscionable Contracts An unconscionable contract is regarded as shockingly unjust or unfair. While courts have long been reluctant to uphold these, more recently, however, the UCC has made such contracts even less likely to be enforced. Under the UCC if there is a judicial finding of unconscionability the court may – Refuse to enforce the contract, or Strike any unconscionable clause and enforce the remainder of the contract, or limit application of any unconscionable clause to avoid an unconscionable result. Learning Outcome 9-8: Define unconscionable contracts. Page: 146