© 2010 Pearson Education, Inc., publishing as Prentice-Hall 1 GENUINENESS OF ASSENT AND UNDUE INFLUENCE © 2010 Pearson Education, Inc., publishing as Prentice-Hall CHAPTER 7

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 2 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 3 Genuineness of Assent (continued) May be lacking due to: –Mistake –Misrepresentation –Duress –Undue Influence

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 4 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 5 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 6 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 7 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 E.g., each party referring to a different ship and delivery time (Raffles case) –Contract may be rescinded on the ground that no contract has been formed because there has been no “meeting of the minds” between the parties.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 8 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 9 Fraudulent Misrepresentation Misrepresentation Assertion is made that is not in accord with the facts. 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. Intentional Misrepresentation Person consciously induces another person to rely on a misrepresentation. Also called fraud.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 10 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 11 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 12 Types of Fraud Fraud in the Inception Fraud in the Inducement Fraud by Concealment Silence as Misrepresentation Misrepresentation of Law

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 13 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 14 Misrepresentation Summary Type of MisrepresentationSue for Damages Rescind Contract Fraud in the inception Yes Fraud in the inducementYes Fraud by concealmentYes Silence as misrepresentationYes Misrepresentation of lawUsually no Innocent misrepresentationNoYes

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 15 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 16 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 17 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.