Unit 2 – Chapter 8 Genuine Agreement Business Law Unit 2 – Chapter 8 Genuine Agreement

Three acceptable reasons to withdraw from the contract Three Reasons to be bound to the contract

(Genuine Assent, Mutual Assent) Genuine Agreement (Genuine Assent, Mutual Assent) Agreement to enter into a contract that is evidenced by words or conduct between parties Consent that is not negated or clouded by fraud, duress, undue influence, or mistake No genuine assent Victim may cancel, rescind, or disaffirm the contract Voidable

Voidable Voidable Only party victimized (injured party) can cancel or disaffirm Demand return of any consideration

Rescission Rescission the backing out of the transaction by asking for the return of what you gave in the transaction, and offering to give back what you have received

To be effective, Rescission Ratification prompt Shortly after discovery of no genuine agreement Rescission must occur before ratifying contract Ratification conduct suggesting you intend to be bound by contract

In This Case – page 115 Yes, by the seller Steven inspected a 5 year-old car with the intention to buy, he asked the owner “How many miles are on it?” The owner stated, “As you can see by the odometer, it only has 30,000 miles on it, and I’m the only owner.” A written contract was executed and Steven took the car to a dealer for inspection. The dealer stated that the odometer had been replaced at 100,000 miles. Was there fraud? Is the contract voidable? What might bind Steven to the contract? Yes, by the seller Voidable – lacking genuine assent Continuing to make payments

Duress Duress The use of an improper threat or act to obtain an expression of agreement

Duress Threats of Illegal Conduct “What’s Your Verdict?” – page 115 Such as: Acts of violence (stabbing) Threatening a crime (threaten to stab) Commit a tort (unlawful detention) Threatening to obtain a signature on a written contract The actual crime or tort, threat may be to the physical life, liberty or property of the victim or his/her family/friends “What’s Your Verdict?” – page 115

Cameron owned a promising racehorse that Link had offered to buy for undisclosed parties. When Cameron refused to sell, Link lowered his voice and slowly said, “Listen, the people I represent don’t take ‘no’ for an answer. If you don’t sell, they’ll hurt you. They’ll hurt your family. Like a good friend, I’m telling you to sell. Your getting a fair price, just sign the contract.” Cameron, who had secretly recorded the conversation, sold. Then he called the police. Can he now rescind and get his horse back?

Duress Threats to Report Crimes If you observe a crime, you have a duty to report it to the proper authorities If you use a threat to get the criminal to contract with you, it is duress and may be a crime of extortion

Review Rescission Ratification Duress Threats of Illegal Conduct Threat to report a crime

Duress Threats to Sue Law encourages party to settle conflict w/o suing Communicating a threat to the other side for a purpose unrelated to the suit is duress Divorce: Husband threatens custody of kids if Wife doesn’t sign over stocks. Husband never wanted custody

Duress Economic Threats Using economic power they have over another to negotiate a contract or modify it Manufacturer pays supplier $15 for special computer part to maintain production. Supplier threatens to withhold parts if manufacturer doesn’t pay $20 per part. If disruption in flow of parts causes substantial injury to manufacturer, then new price voidable for duress.

Duress Economic Threats Courts look at both the threat and the alternatives available to the threatened party If threatened party had no choice but to enter into or modify contract, then duress exists

Undue Influence Undue Influence One party of the contract is in a position of trust and wrongfully dominates the other party The dominated party does not exercise free-will in accepting unfavorable terms

What’s your verdict – page 117 Smith was in the hospital near death. His nurse said she would not give him drugs for pain unless he signed a contract transferring certain stock to her for half its market value. Smith signed. Is Smith bound?

Undue Influence 2 Key elements: 1. Relationship 2. Wrongful or unfair persuasion

Undue Influence 1. Relationship is a relationship of trust, confidence, or authority between parties Attorney / client Husband / wife Parent / child Financial advisor / client The relationship DOES NOT have to be formal Example: housekeeper and employee

Undue Influence 2. Unfair Persuasion Contract made under undue influence Voidable by victim Elderly person who depends on one child for care Sells house to that child for half the value To avoid undue influence Stronger party must be honest, disclose important facts & insist other party talk to independent counsel

Book Time Page 118 – Think Critically About Evidence Answer CW 8-1 Check if done Discuss

Mistake, Misrepresentation, Fraud Describe the kinds of mistakes that can make a contract void Determine when misrepresentation has occurred Identify when fraud has occurred Remedies for mistake, misrepresentation, and fraud

What is a Unilateral Mistake One party holds an incorrect belief about the facts related to a contract Important contractual mistake made by only one of the parties Usually doesn’t affect validity of contract

Effect of Mistake Failure to read contract before signing is a unilateral mistake Misunderstanding from a hurried or careless reading is a unilateral mistake Signing a contract written in a language you don’t understand is a unilateral mistake

What’s your verdict? Baglio wanted the gutters of his new house to be free of rust. The specifications in the contract he signed called for “rust-resistant steel gutters galvanized with zinc.” After the house was built, he learned that galvanized steel gutters would eventually rust and require replacement. Aluminum or copper gutters are the kind he should have contracted for because they would not rust. Baglio now sues the contractor claiming a breach of contract because he did not get what he wanted. Will he win?

Effect of Mistake Exceptions Mistake is major & other party recognizes Court could declare contract void Page 119 – In This Case One party encourage / induced the other to make mistake Tray of diamonds, you chose only stone on tray that’s zirconium. You offer high price for it.

Mistakes = Void or Voidable Bilateral Mistake Mutual Mistake, both parties wrong Either party can disaffirm Contract void Both parties have incorrect belief about an important fact (material facts) that influenced their decision Both buyer & seller believe property is 48 acres, find out that it is 28 acres Agreement is not binding

Book Time Page 120 – In this Case (blue box) Read aloud “Existence” of subject matter can be a mutual mistake

Mistakes = Void or Voidable Law treats a unilateral mistake about the identity of the subject matter of a transaction as a mutual mistake Makes contract void Read “What’s your Verdict?” – page 120 Is the contract valid? NO – the buyers mistake as to the identity of the subject matter made the contract void

Mistake Of The Law Example: Two parties (seller & builder) believe no permit is necessary to build duplexes on a lot Contract is valid – all persons are presumed to know the law

What is Misrepresentation? Innocent Misrepresentation Party to a contract does not know that a statement he/she made is untrue Sale of car: Seller says car has 70,000 miles Actually has 150,000 miles Seller didn’t know true mileage because a previous owner replaced the odometer

What is Misrepresentation? Fraudulent Misrepresentation Party to a contract knows a statement he/she made is untrue Sale of Car: Seller knows that car has 150,000 miles on it and that odometer was replaced. Tells buyer 70,000 miles

What is Misrepresentation? Both Innocent and Fraudulent misrepresentation make contract voidable

Fraud Fraud Intentional misrepresentation of fact relied upon by another False representation of a material fact

Fraud – 5 elements 5 elements must all be present for fraud to exist 1. Untrue statement is one of fact or there is active concealment (deliberately hiding fact) 2. Misrepresented or concealed fact must be material Ex: car has 50,000 miles……. 3. victim reasonably relied on the statement 4. intentional 5. injury

What’s Your Verdict – page 122 Can Camacho rescind? Was there: An untrue statement of fact? Was the statement material to the transaction? Did the victim rely on the statement? Was the statement intentional? Was there injury?

Remedies for Fraud If a seller innocently misrepresents a material fact, the buyer may rescind This remedy also available for fraud But if victim establishes fraud, courts allow recovery of damages and punitive damages

Remedies for Fraud Rescission Contracts entered as a result of misrepresentation or fraud are voidable by injured party Victim may rescind agreement Anything you received must be returned Deceived party who performs part of contract may recover what has been paid or given Deceived party who performs nothing, may cancel contract

Remedies for Fraud Damages Available if fraud proven Party may chose to ratify agreement rather than rescind. Then either party may enforce. However, defrauded party who ratified may seek damages for loss created by fraud May seek to get the difference in value of car with 70,000 miles (Fraudulent misrep) and one w/ 150,00 miles (truth)

Remedies for Fraud Punitive Damages Money a court requires a defendant to pay in order to punish and make an example of Judge awards victim $5,000 as a way to punish party who committed fraud

Book Time Page 123 – Think Critically #7-10 Answer on piece of paper Check

Book Time Page 124 – Your Legal Vocab #1-9 Page 125 – Think Critically About Evidence Check Review

Class Work CW 8-3 Cases Answer Turn in when done Review

END END OF CHAPTER 8 – Genuine Agreement