Genuine Agreement Lessons CHAPTER 8 8-1 Duress and Undue Influence 8-2 Mistake, Misrepresentation, and Fraud

Duress and Undue Influence CHAPTER 8 4/16/2017 Chapter 8 LESSON 8-1 Duress and Undue Influence GOALS Define genuine agreement and rescission Identify when duress occurs Describe how someone may exercise undue influence

Chapter 8 Hot Debate Your friend buys a PDA for $250.00, including a foldout keyboard and a portable printer. The keyboard and printer were shown with the PDA in the ad but noted as optional equipment.

Chapter 8 In her excitement, your friend signs the credit card sales receipt, which is not itemized She fails to note that the two items add an extra $198 to the price. When the bill for the total purchase price of $448 plus sales tax arrives, your friend objects.

The bill was not itemized to show these facts. Chapter 8 State 2 reasons why it would be fair to allow your friend to withdraw from the contract. Your friend’s obvious excitement left her unfocused and the salesperson did not point out the optional equipment would add to the cost. The bill was not itemized to show these facts.

Chapter 8 State 2 reasons why it would be fair for your friend to be bound to the contract. The doctrine of -- (let the buyer beware) does not place a positive duty on the sales personnel to make sure each consumer understands all parts of the transaction. The goods were marked as optional equipment which implies additional cost.

Chapter 8 Conclusion A unilateral mistake of failure to read a contract still renders the contract valid.

Chapter 8 GENUINE AGREEMENT Genuine agreement is an agreement to enter into a contract that is evidenced by words or conduct between the parties. The absence of genuine agreement will make what appears to be a contract voidable (may be voided).

Chapter 8 RESCISSION Rescission is backing out of the transaction by asking for the return of what you gave in the transaction, and offering to give back what you received. Ratification is conduct suggesting you intend to be bound by the contract.

Chapter 8 DURESS Duress occurs when one party uses an improper threat or act to obtain an expression of agreement Threats of illegal conduct – to engage in illegal conduct such as crime/tort to win agreement Threats to report crimes – if you observe a crime being committed then coerce the criminal to contract with you

DURESS Threats to sue – made for a purpose unrelated to the suit Chapter 8 DURESS Threats to sue – made for a purpose unrelated to the suit Economic threats – seeking to modify an existing contract for more favorable terms Certain actions, such as duress on the part of one party, means genuine assent is lacking.

Chapter 8 Duress i.e. A supplier, knowing of an approaching delivery deadline for a parts user, threatens to slow shipments of parts unless more were paid for them. This threat of substantial economic harm (through late shipments of orders) would render the contract  Voidable

WHAT IS UNDUE INFLUENCE? Chapter 8 WHAT IS UNDUE INFLUENCE? Undue influence occurs when one party to the contract is in a position of trust and wrongfully dominates the other party. There are two key elements in undue influence The relationship – trust, confidence, authority Unfair persuasion – careful examination of terms of contract

Chapter 8 Case Albert had cancer and was being treated by Dr. Bennington. He had carefully followed the doctor’s advice, and the treatment had been successful. One day, during a periodic checkup, Dr. Bennington said to Albert, “To prevent cancer from recurring, you need to reduce the stress in your life.

Could Albert avoid the contract due to undue influence? Chapter 8 Long drives in the country are great for that . Come to think of it, I’m selling my convertible right now. You should buy it.” Without investigating, Albert followed the doctor’s directions and contracted to buy the car. Later he found the price he’d agreed to pay was nearly double the market. Could Albert avoid the contract due to undue influence?

Yes, the contract would be voidable by Albert. Chapter 8 Yes, the contract would be voidable by Albert. Sometimes, a formal relationship is absent and the courts will still allow the injured party to void the contract.

Cooling Off Rule FTC - Cooling Off Rule Chapter 8 Cooling Off Rule FTC - Cooling Off Rule Three days to change your mind about a contract that was made: Door-to-door solicitation Tradeshow/hotel made at a “temporary” residence

Shopping from Home – Cooling Off Rule Chapter 8 Shopping from Home – Cooling Off Rule When you buy something at a store and later change your mind, your ability to return the merchandise depends upon store policy. If you buy an item in your home you might have three days to cancel. This Cooling-Off Rule also applies to purchases of $25 or more at your workplace and places rented by a seller on a temporary basis, such as hotel or motel rooms, convention centers, fairgrounds and restaurants.

Does NOT apply: You made the purchase entirely by mail or telephone. Chapter 8 Does NOT apply: You made the purchase entirely by mail or telephone. The sale was the result of prior contact you had at the seller's permanent business location. You signed a document waiving your right to cancel. Your purchase is not primarily for personal, family or household use. . You were buying real estate, insurance, securities, or a motor vehicle. You can't return the item in a condition similar to how it was when you got it. You bought arts or crafts at a fair, shopping mall, civic center, or school.

Mistake, Misrepresentation, and Fraud Chapter 8 LESSON 8-2 Mistake, Misrepresentation, and Fraud GOALS Describe the kinds of mistakes that can make a contract void or voidable Determine when misrepresentation has occurred Identify when fraud has occurred Discuss the remedies for mistake, misrepresentation, and fraud

Bugliosi saved more than $25,000 to buy the new car of his dreams. Chapter 8 Bugliosi saved more than $25,000 to buy the new car of his dreams. At the dealership, the sales staff convinced him to purchase option after option until his $25,000 was totally exhausted. When he went to register the vehicle, he found that the state expected him to pay an 8% sales tax on the purchase price.

Is the contract voidable by Bugliosi because of his mistake? Chapter 8 Bugliosi thought the $2,000 in sales tax had been included in the $25,000 paid at the dealership, just as it is with purchases at other retail stores. Is the contract voidable by Bugliosi because of his mistake? No – it’s valid

WHAT IS A UNILATERAL MISTAKE? Chapter 8 WHAT IS A UNILATERAL MISTAKE? A unilateral mistake occurs when one party holds an incorrect belief about the facts related to a contract. - valid Recognized unilateral mistake – if mistake is major, and other party is aware of mistake = recission may be granted i.e. Genetic Products receives a bid far lower than all other bidders. They realize the low bidder made an error. There is no contract.

Chapter 8 What’s Your Verdict? Baglio wanted the gutters of his new house to be free of rust. The specs called for “rust-resistant steel gutters galvanized with zinc.” Later learns galvanized steel gutters would eventually rust Aluminum or cooper are best & would not rust

No – unilateral mistake on Baglio’s part Chapter 8 Baglio sues contractor claiming a breach of contract b/c he did not get what he really wanted. Will he win? No – unilateral mistake on Baglio’s part

Chapter 8 Induced unilateral mistake – one party has encourage or induced the other to make the mistake (diamond example – mixing fake with real – you unknowlingly select the fake and offer a high price for it)  voidable

WHAT ARE MUTUAL MISTAKES? Chapter 8 WHAT ARE MUTUAL MISTAKES? When there is a mutual mistake both parties have an incorrect belief about an important fact (material facts). - void Mistake about the subject matter – law treats unilateral mistakes about identity of the subject matter as a mutual mistake – void i.e. Buyer & Seller think a certain piece of property is 41 acres in size and they contract based on this belief. Later they learn the property is really only 28 acres.

Chapter 8 Mistake of law - when mistake is about applicable laws, contract is still valid i.e. Buying property both parties thought would allow construction of duplexes.

Effect of Types of Mistakes on the Resultant Contracts Chapter 8 Effect of Types of Mistakes on the Resultant Contracts UNILATERAL MUTUAL F A C T void enforceable L A W enforceable enforceable

WHAT IS MISREPRESENTATION? Chapter 8 WHAT IS MISREPRESENTATION? For a statement to be treated as misrepresentation, three elements are required Untrue statement of fact ( existing / past) Active concealment – attempting to cover the truth Silence Materiality Reasonable reliance

This computer is one-year old. FACT / OPINION ? Chapter 8 This computer is one-year old. FACT / OPINION ?

The engine has 40,000 miles on it. FACT / OPINION ? Chapter 8 Fact The engine has 40,000 miles on it. FACT / OPINION ?

This dog will be the perfect pet for you! FACT / OPINION ??? Chapter 8 Fact This dog will be the perfect pet for you! FACT / OPINION ???

This suit will create the image you need to double your business. Chapter 8 Opinion This suit will create the image you need to double your business. FACT / OPINION ???

Chapter 8 Opinion

Chapter 8 Food Lion vs. Prime Time Reporters for the ABC news show “Prime Time” went undercover with fake identities in Food Lion stores posing as store workers. They were acting on a tip from former workers that Food Lion had been washing spoiled meat in bleach and then selling it.

Chapter 8 The reporters allegedly found facts to substantiate that the story was true. However, a No. Carolina judge found ABC news guilty of misrepresentation and trespassing and fined them $315,000 in punitive damages (a jury had originally assessed $5.5 mil. In punitive damages against ABC but the judge reduced it)

Chapter 8 Should reporters be able to use misrepresentation on employment applications and contracts to get to the truth of the matter?

INNOCENT MISREPRESENTATION Chapter 8 INNOCENT MISREPRESENTATION Innocent misrepresentation occurs when a party to a contract does not know that a statement he or she made is untrue.

FRAUDULENT MISREPRESENTATION Chapter 8 FRAUDULENT MISREPRESENTATION Fraudulent misrepresentation occurs when a party to a contract knows that a statement he or she made is untrue.

FRAUD AND REMEDIES FOR FRAUD Chapter 8 FRAUD AND REMEDIES FOR FRAUD Misrepresentation must be intentional or reckless The misrepresentation or concealment must injure Remedies for fraud Rescission Damages Punitive damages