1. Genuineness of Assent
Chapter 7

2. Genuine Assent and Duress
True and complete agreement
Required for a contract to be valid
If missing contract is VOIDABLE (cancels obligation)
Injured party can get back what they put into the contract—RESCISSION
Rescission must be prompt
Must occur before RATIFICATION (bound by contract)

3. Duress
When one party uses an improper threat or act to obtain an expression of agreement
Types:
Threats of illegal conduct
Threats to report crimes
Threats to sue
Economic threats

4. Threats of Illegal Conduct
Threat to engage in illegal conduct—crime or tort to win agreement—always constitutes DURESS
Committing an act of violence
Threatening a crime
Committing a tort
Threatening a tort to obtain a signature on a written contract
Can be to the victim or the victim’s immediate family

5. Threats to Report Crimes
If you observe a crime, you have a DUTY to report it
Threatening to report the crime to get the criminal to contract with you is DURESS
May also be the crime of extortion

6. Threats to Sue
The law encourages people to settle disputes without suit
An important part of this is process involves communicating a threat that you will sue if the other side doesn’t settle
When the threat to sue is unrelated to the suit, this may be DURESS
Example:
Divorce proceedings—husband threatens to sue for custody of the children if the wife doesn’t sign over valuable shares of stock

7. Economic Threats
Parties using economic power over one another to negotiate a favorable modification or settlement
Example:
Manufacturer has a contract to pay a supplier $15 for parts needed to maintain production
Supplier threatens to withhold parts unless they are paid $20 per part
If the disruption in the economic flow causes substantial injury to the manufacturer, this is DURESS

8. Undue Influence
When one party to the contract is in a position of trust and wrongfully dominates the other party
Types:
Relationship
Unfair persuasion

9. Relationship
A relationship of trust, confidence, or authority must exist between the parties to a contract
Presumed to exist between:
Attorney and client
Husband and wife
Parent and child
Guardian and ward
Physician and patient
Minister and congregation member

10. Unfair Persuasion Best evidence is found in the contract
Example:
Selling a house at half the value to a caregiver
To prevent undue influence the stronger party must:
Act with total honesty
Fully disclose all important facts
Insist that the weaker party obtain independent counsel before contracting

11. Contractual Mistakes Types of Contractual Mistakes: Unilateral
Occurs when only one party holds an incorrect belief about the facts related to a contract
Generally does not affect the validity of a contract
Examples:
Failure to read the entire contract
Hurried or careless reading of the contract
Signing a contract written in language you don’t understand

12. Contractual Mistakes Types of Contractual Mistakes: Mutual (Bilateral)
Both parties have an incorrect belief about an important fact
Voids the contract if a mistake of FACT occurs
Examples:
Both parties think a property is 41 acres when, in fact, it is only 28 acres
Both parties have an incorrect belief about the applicable law
Does not void the contract if a mistake of LAW occur
Example:
Both parties to a sale believe that local zoning laws permit construction of duplexes on the lot
Valid even if duplexes cannot be built
All persons are presumed to know the law

13. Misrepresentation Statements that are untrue
Innocent Misrepresentation
Occurs when someone is unaware of the truth
Example:
Someone is selling a car and states that it has 70,000 miles—unaware that the previous owner replaced the odometer—car actually has 150,000
Fraudulent Misrepresentation
Occurs when someone is aware of the truth
Both types of Misrepresentation void a contract

14. Misrepresentation
Statements are treated as misrepresentations by the law only if:
The untrue statement is one of fact or there is active concealment
The statement is material to the transaction or is fraudulent
The victim reasonably relied on the statement

15. Misrepresentation Untrue Statement of Fact
Statement must be one of fact and not opinion
Expert opinion is viewed as fact by the law
ACTIVE CONCEALMENT
Substitute for a false statement of fact
Examples: covering a water stain with paint to conceal a leaky roof
SILENCE
Seller remains silent about defects
Disclosure is required when:
A statement about material fact omits important information
When a true statement is made false by subsequent events
When one party knows the other party has made a basic mistaken assumption

16. Misrepresentation Materiality Reasonable Reliance
A statement is material if the statement would cause a reasonable person to contract
A statement is material if the defendant knew this plaintiff would rely on the statement
A statement is material if the defendant knew the statement was false
Reasonable Reliance
Even though the statement is material, there is no misrepresentation unless the victim reasonably relied on it

17. Fraud Fraud is based on misrepresentation
All elements of misrepresentation must be proven to show fraud PLUS two additional elements:
Intent
Misrepresentation must be intentional or reckless
Deliberate lying or concealment of a material fact
Recklessly making a false statement not knowing if it is true or false
Injury
Must be proof of injury

18. Remedies for Fraud Rescission Damages Punitive Damages
Contracts entered into as a result of misrepresentation or fraud are voidable by the injured party and can be rescinded
Anything you received must be returned
A party who has done nothing may cancel the contract with no further obligation
Damages
Available if fraud is proven
A party defrauded may choose to ratify the agreement rather than rescind
Either party may enforce the contract
Defrauded party who ratified may seek damages for the loss created by the fraud
Punitive Damages
Punishment for the party who committed fraud