GENUINENESS OF ASSENT

Chapter 7

Genuine Assent and Duress

Genuine Assent 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)

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

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

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

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

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

Undue Influence

When one party to the contract is in a position of trust and wrongfully dominates the other party

Types: Relationship Unfair persuasion

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

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

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

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

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

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

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

Misrepresentation

Materiality 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

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

Remedies for Fraud Rescission

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