GENUINENESS OF ASSENT AND CHAPTER 13 GENUINENESS OF ASSENT AND UNDUE INFLUENCE © 2010 Pearson Education, Inc., publishing as Prentice-Hall

Genuine Assent Necessary to create an enforceable contract. Determined by relevant facts surrounding negotiation and formation of the contract. May be manifested in any manner sufficient to show agreement, including express words or conduct of the parties.

Genuineness of Assent (continued) May be lacking due to: Mistake Misrepresentation Duress Undue Influence

Mistakes One or both of the parties have erroneous belief about subject matter, value, or other aspect of the contract. Mistakes may be: Unilateral Mutual Law may permit rescission of some contracts made in mistake.

Unilateral Mistake When one party is mistaken about material fact regarding subject matter of the contract. Generally, the mistaken party will not be permitted to rescind the contract. Contract will be enforced.

Unilateral Mistake (continued) Relief will be granted if: Other party knew or should have known that a mistake was made. Mistake was clerical or mathematical error that was not the result of gross negligence. Mistake is so serious that enforcing the contract would be unconscionable.

Mutual Mistake of Fact Mistake made by both parties concerning a material fact that is important to the subject matter of the contract. E.g., each party referring to a different ship and delivery time (Raffles case) Contract may be rescinded on the ground that no contract has been formed because there has been no “meeting of the minds” between the parties.

Mutual Mistake of Value Both parties know the object of the contract, but are mistaken as to its value. E.g., seller agrees to sell old painting for $100, and it turns out that collectors highly value such paintings. Contract is enforceable. No relief for party that got “worst” of the deal. Contrary rule would open every contract to such disputes.

Fraudulent Misrepresentation Assertion is made that is not in accord with the facts. Intentional Misrepresentation Person consciously induces another person to rely on a misrepresentation. Also called fraud.

Fraudulent Misrepresentation (continued) When a party is fraudulently induced to enter into a contract: The innocent party’s assent to the contract is not genuine; and Contract is voidable by the innocent party Can rescind contract and obtain restitution, or Enforce contract and sue for damages.

Elements of Fraud Wrongdoer made a false representation of material fact. Wrongdoer intended to deceive the innocent party (scienter). Innocent party justifiably relied on the misrepresentation. Innocent party was injured.

Types of Fraud Fraud in the Inception Fraud in the Inducement Fraud by Concealment Silence as Misrepresentation Misrepresentation of Law

Innocent Misrepresentation Person makes statement of fact that he or she honestly and reasonably believes to be true, even though it is not. Innocent misrepresentation is not fraud. The aggrieved party may rescind the contract but may not sue for damages.

Misrepresentation Summary Type of Misrepresentation Sue for Damages Rescind Contract Fraud in the inception Yes Fraud in the inducement Fraud by concealment Silence as misrepresentation Misrepresentation of law Usually no Innocent misrepresentation No

Duress One party threatens to do a wrongful act unless the other party enters into a contract. E.g., threat of extortion or physical injury. Due to lack of voluntary assent, contract not enforceable against the innocent party.

Undue Influence Occurs where one person: Takes advantage of another person’s mental, emotional, or physical weakness, and Unduly persuades that person to enter into a contract. Contract voidable by the innocent party.

Undue Influence (continued) The following elements must be shown: Fiduciary or confidential relationship existed between the parties. E.g., lawyer-client, psychiatrist-patient, caregiver-elderly patient. Dominant party unduly used his or her influence to persuade the servient party to enter into a contract.