1. 13 - 1 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Chapter 13 Genuineness of Assent Chapter 13 Genuineness of Assent

2. 13 - 2 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Assent Voluntary assent by the parties is necessary to create an enforceable contract. Assent is determined by the relevant facts surrounding the negotiation and formation of the contract. Assent may be manifested in any manner sufficient to show agreement, including express words or conduct of the parties.

3. 13 - 3 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Genuineness of Assent Contracts are unenforceable if parties have actually consented to the contract but their assent is not genuine. If a party’s assent to a contract is not genuine, the courts will permit the innocent party to avoid the contract.

4. 13 - 4 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Genuineness of Assent (continued) Genuineness of assent is an issue in the areas of: –Mistake –Misrepresentation –Duress –Undue Influence

5. 13 - 5 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Mistakes A mistake occurs where one or both of the parties have an erroneous belief about the subject matter, value, or some other aspect of the contract. Mistakes may be either: –Unilateral –Mutual

6. 13 - 6 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Rescission An action to undo the contract. The law permits rescission of some contracts made in mistake.

7. 13 - 7 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Unilateral Mistake When one party is mistaken about a material fact regarding the subject matter of the contract. Generally, the mistaken party will not be permitted to rescind the contract. The contract will be enforced on its terms.

8. 13 - 8 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman There are three types of situations where the contract may not be enforced: 1. One party makes a unilateral mistake of fact and the other party knew (or should have known) that a mistake was made. 2. A unilateral mistake occurs because of a clerical or mathematical error that is not the result of gross negligence. 3. The mistake is so serious that enforcing the contract would be unconscionable.

9. 13 - 9 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Mutual Mistakes Mutual Mistake of Fact –A mistake made by both parties concerning a material fact that is important to the subject matter of the contract. –The 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.

10. 13 - 10 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Mutual Mistakes (continued) Mutual Mistake of Value –A mistake that occurs if both parties know the object of the contract, but are mistake as to its value. –The contract remains enforceable by either party because the identity of the subject matter of the contract is not at issue.

11. 13 - 11 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Fraudulent Misrepresentation Misrepresentatio n An assertion is made that is not in accord with the facts. Misrepresentatio n An assertion is made that is not in accord with the facts. Intentional Misrepresentati on Occurs when one person consciously decides to induce another person to rely on a misrepresentati on. Also called fraud. Intentional Misrepresentati on Occurs when one person consciously decides to induce another person to rely on a misrepresentati on. Also called fraud.

12. 13 - 12 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Fraudulent Misrepresentation (continued) When a fraudulent misrepresentation is used to induce another to enter into a contract: –The innocent party’s assent to the contract is not genuine; and –The contract is voidable by the innocent party.

13. 13 - 13 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman To prove fraud, the following elements must be shown: 1. The wrongdoer made a false representation of material fact. 2. The wrongdoer intended to deceive the innocent party. 3. The innocent party justifiably relied on the misrepresentation. 4. The innocent party was injured.

14. 13 - 14 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Types of Fraud Fraud in the Inception Fraud in the Inducement Fraud by Concealment Silence as Misrepresentation Misrepresentation of Law

15. 13 - 15 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Innocent Misrepresentation Occurs when a person makes a 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.

16. 13 - 16 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Concept Summary: Types of Misrepresentation Type of Misrepresentation Sue for Damages Rescind Contract Fraud in the inceptionYes Fraud in the inducement Yes Fraud by concealment Yes Silence as misrepresentation Yes Misrepresentation of law Usually no Innocent misrepresentation NoYes Legal Consequences – Innocent Party May:

17. 13 - 17 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Duress Occurs where one party threatens to do a wrongful act unless the other party enters into a contract. –The assent is not voluntary if one party has been forced into making the contract. –Such contracts are not enforceable against the innocent party.

18. 13 - 18 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Economic Duress Occurs when when one party to a contract refuses to perform his or her contractual duties unless the other party: –Pays an increased price, –Enters into a second contract with the threatening party, or –Undertakes a similar action.

19. 13 - 19 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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. A contract entered into because of undue influence is voidable by the innocent party.

20. 13 - 20 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Undue Influence (continued) The following elements must be shown to prove undue influence: 1. A fiduciary or confidential relationship must have existed between the parties. 2. The dominant party must have unduly used his or her influence to persuade the servient party to enter into a contract.