Chapter 10 Consent and Performance

I. Consent

A. Caveat Emptor Means buyer beware RECISSION means the contract is extinguished Rescission is an appropriate remedy when consent was given by mistake or was obtained through duress, menace, fraud, or undue influence [CC§ 1689]

II. Mistake Mistake of Fact Mistake of Law

A. Mistake of Fact 1. MUTUAL MISTAKE – No contract formed. When both parties make the same mistake of a material fact and neither is at fault 2. MUTUAL MISTAKE – Contract formed. Mistake must be material Mutual mistake does not deal with the subject matter of the contract, rather it deals with something contained in the contract Rescind the contract

A. Mistake of Fact (cont.) 3. UNILATERAL MISTAKE Rescission is possible if only one person made a mistake, but only in certain situations Generally, if one party makes a mistake that causes that person to enter into a contract, and the other party was not making the same mistake, the parties are bound to the terms of the contract and there will be no rescission by the mistaken party 4. MISTAKE OF JUDGMENT Generally, relief is refused for errors of judgment

B. Mistake of Law In certain circumstances, California will permit a rescission of a contract on the basis of a mistake of law MISTAKE OF LAW – occurs when a person who is truly acquainted with the existence or nonexistence of the relevant facts is ignorant of or arrives at an erroneous conclusion as to the effect of those facts

III. Offensive Conduct

California requires that consent be freely given, and in situations where it has not been given freely, the innocent party is able to disaffirm the contract Fraud Duress and Menace Undue Influence

IV. Fraud

Remedies CONTRACT REMEDY for fraud includes rescission and restitution TORT REMEDY for deceit of keeping the contract and suing for money damages Possible exemplary damages

A. Actual Fraud “consists in any of the following acts, committed by a party to the contract, or with his connivance, with the intent to deceive another party thereto, or to induce him to enter into the contract: 1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true; 2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, although he believes it to be true; 3. The suppression of that which is true, by one having knowledge or belief of the fact; 4. A promise made without any intention of performing it, or 5. Any other act fitted to deceive.”

1. Intentional Misrepresentation [CC§ 1572(1)] If you make a mistake that you know to be false, you are committing an “intentional misrepresentation”

2. Negligent Misrepresentation [CC§ 1572(2)] If you make a positive statement, not knowing if it is true, you may have committed “negligent misrepresentation”

3. Suppression (Concealment) [CC§ 1572(3)] Actively suppressing or concealing a known material fact is considered actual fraud

4. False Promise [CC§ 1572(4)] If, at the time of entering into a contract, one person makes promises about performance of an obligation with absolutely no intention of performing that obligation, that is actual fraud

5.Any Other Act Intended to Deceive [CC§ 1572(5)] This is a catch-all that the legislature uses to give the courts latitude in finding other types of fraud that were not specifically identified in the Civil Code Section 1572 This is a catch-all that the legislature uses to give the courts latitude in finding other types of fraud that were not specifically identified in the Civil Code Section 1572

B. Reliance and Puffing RELIANCE occurs when the misrepresentation alters a party’s conduct, which usually means the party changes legal positions by entering into a contract; or absent that misrepresentation, the party would not have entered into the contract PUFFING is a statement that exaggerates through superlative comments or opinions, a property’s benefits

C. Remedies for Fraud In a normal fraud case, one party is induced by the other, through either actual fraud or constructive fraud, to enter into a contract that is voidable because of the fraud [CC§ 1689(b)(1)]

D. Constructive Fraud Constructive fraud results from a breach of a confidential relationship, which gains an advantage for the person, because of a tendency to mislead the other Not telling a client all the material facts necessary to make a decision amounts to “constructive fraud,” even though there was no intention to defraud the client

E. Innocent Misrepresentation An innocent misrepresentation occurs when a party makes a material misrepresentation, but does so honestly believing it to be true

V. Duress and Menace

A. Duress DURESS - is the wrongful use of threats to obtain a person’s consent to a contract In California, duress actually involves the unlawful confinement of a person or a relative of that person or the unlawful detention of his or her property [CC§ 1569] Duress makes the contract voidable

B. Menace In California, menace is a closely related form of coercion If a person threatens to cause the unlawful confinement of another person, to inflict unlawful and violent injury to another person or their property, or injure the other person’s character, he or she has committed menace [CC§ 1570] A threat of criminal prosecution, as opposed to a threat of civil prosecution on a bona fide claim, will constitute menace if used to gain an advantage in a civil matter

C. Economic Duress Economic duress is not specifically mentioned by statute in California; however, it is recognized by the courts ECONOMIC DURESS exists whenever a person is induced by the unlawful act of another to give apparent consent to a contract under circumstances that prevent the exercise of free will

VI. Undue Influence

Undue Influence UNDUE INFLUENCE occurs when a person takes advantage of a relationship with another person so that the other person’s consent is not freely given Confidential relationships Accountants Attorneys Trustees Stockbrokers Two other situations where undue influence may exist: 1. If a grossly and unfair advantage was taken of a person as a result of that person’s needs or distress 2. If an unfair advantage was taken because one party had a weakness of mind

VII. Adhesion Contracts and Unconscionability

A. Adhesion Contracts An adhesion contract is typically prepared by one party who had such overwhelming bargaining power over the other party that there is no negotiating possible by the weaker party Adhesion contracts are not necessarily bad, they are just one-sided

B. Unconscionability A contract or a portion of a contract so one-sided the courts will find it shocking to their conscience is consider UNCONSCIONABLE A contract or a portion of a contract so one-sided the courts will find it shocking to their conscience is consider UNCONSCIONABLE Inserting an unconscionable provision in a contract is unlawful as a deceptive practice under the Consumer Legal Remedies Act [CC§ 1770(a)(19)]

VII.Contract Performance Common Contract Conditions Common Contract Conditions Satisfaction Clauses Time of Performance Substantial Performance

A. Common Contract Conditions CONDITIONS are provisions in the contract that determine the time for performance, the order of performance, or establish the circumstances under which a performance obligation begins or ends Condition Precedent Condition Subsequent Conditions Concurrent

B. Satisfaction Clauses A contract may contain a clause that provides that one party’s performance must be satisfactory to the other party before that performance must occur Courts imply an obligation of good faith in determining satisfaction Personal taste Judgment Mechanical Utility Operative Fitness

C. Time for Performance If a contract specifies the time for performance, it may be either general, “by the end of the rainy season,” or specific, “by five P.M., Thursday, March 17” If no time is specified for the performance of an act required to be performed, a reasonable time is allowed “time is of the essence”

D. Substantial Performance To reach the level of SUBSTANTIAL PERFORMANCE, the act/task must be so close to completion that the other party has obtained the substantial benefit of the bargain

Chapter Summary Consent Mistake Mistake of Fact Mistake of Law Offensive Conduct Fraud Actual Fraud Reliance and Puffing Remedies for Fraud Constructive Fraud Innocent Misrepresentation Duress and Menace Economic Duress Undue Influence Adhesion Contracts and Unconscionability Contract Performance Common Contract Conditions Satisfaction Clauses Time of Performance Substantial Performance