Law for Business and Personal Use © Thomson South-Western CHAPTER 7 Genuineness of Assent 7-1Duress and Undue Influence 7-2Mistake, Misrepresentation, and Fraud

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide Duress and Undue Influence GOALS Recognize when genuine assent (agreement) is not present Identify the two key elements in undue influence

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 3 FOCUS Scenario The Thompsons were told that if they did not sign a contract to repay a $2,000 loan at 40 percent interest, their son would be in danger of physical harm. Afraid that their son would be hurt, the Thompsons signed the contract. Questions Is the contract enforceable? Why or why not?

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 4 GENUINE ASSENT (Agreement) Genuine assent True and complete agreement A valid offer has been made by the offeror, and a valid acceptance has been exercised (made) by the offeree

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 5 Duress Duress—improper threat or act to obtain an expression of agreement. Threats of illegal conduct (crime or tort) Threats to report crimes Threats to sue Economic threats

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 6 List the various forms of legal duress.

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 7 UNDUE INFLUENCE AND ASSENT Undue Influence Occurs when one party to the contract is in a position of trust and wrongfully dominates the other party. (Unfair and improper persuasive pressure within a relationship of trust.) Two Key Elements: Relationship Unfair persuasion

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 8 UNDUE INFLUENCE AND ASSENT The relationship—a relationship of trust, confidence, or authority must exist between the parties to the contract. Ex: Teacher = Student Grandparent = Adult Child

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 9 UNDUE INFLUENCE AND ASSENT Unfair persuasion—to prevent a claim of undue influence, the stronger party should act with total honesty, fully disclose all important facts, and insist that the weaker party obtain independent counsel before contracting.

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 10 What are the key elements in undue influence?

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide Mistake, Misrepresentation, and Fraud GOALS Recognize the types of mistakes that can make a contract voidable or void List the criteria for a statement to be treated as a misrepresentation Define fraud and describe the remedies for it

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 12 WHAT ARE THE TYPES OF CONTRACTUAL MISTAKES? Unilateral mistakes—occurs when only one party holds an incorrect belief about the facts related to a contract. Mutual mistakes—(bilateral) both parties have an incorrect belief about an important fact. Material Facts—important facts that influence the parties’ decisions about a contract.

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 13 FOCUS Scenario Jane contracts with Mike to purchase one of his two skateboards. Jane thinks she has bought the red one, a premier skateboard. Mike thinks Jane has bought the blue one, his less valuable skateboard. Question Does a contract exist?

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 14 Name the types of mistakes that can make a contract voidable or void.

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 15 What are the types of Misrepresentation? Innocent Misrepresentation—party makes a statement that turns out to be untrue. Fraudulent Misrepresentation—seller knowingly makes untrue statements. Both are voidable by the party to whom the misrepresentation is made.

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 16 Criteria for a statement to be treated as a misrepresentation: 1.The untrue statement is one of fact or there is active concealment, and 2.The statement is material to the transaction or is fraudulent, and 3.The victim reasonably relied on the statement.

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 17 WHAT IS MISREPRESENTATION? Untrue statement of fact Active concealment—substitute for a false statement of fact (to cover up) Silence—keeping silent about defects Omitting important info True statement is made false by subsequent events One party knows the other party has made a basic mistaken assumption

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 18 WHAT IS MISREPRESENTATION? Materiality—3 ways an untrue statement can be made Statement would cause a reasonable person to contract Defendant knew the plaintiff would rely on the statement Defendant knew the statement was false

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 19 WHAT IS MISREPRESENTATION? Reasonable reliance—relying upon the information to complete the contract (or sale). If victim knows info is incorrect but still completes sale, then there is no reliance

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 20 What are the three criteria for a statement to be treated as a misrepresentation?

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 21 FRAUD The misrepresentation must be intentional or reckless The misrepresentation or concealment must injure

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 22 REMEDIES FOR FRAUD Rescission Damages Punitive damages

Law for Business and Personal Use © Thomson South-Western Chapter 7 Slide 23 What are the remedies available for fraud?