Chapter 7

Genuine Agreement(Genuine Assent)

Business Law

Ms. Turner

Genuine Agreement(Genuine Assent)

• Agreement to enter into a contract that is evidenced by words or conduct between parties

If there is no genuine agreement. . .

. . . Contract is voidable and the injured party can rescind (back out of the contract)

. . . Rescission must be made promptly and before ratification (conduct suggesting you intend to be bound)

5 Situations when there is no Genuine Assent

1. Duress – one party makes an

improper threat or act to obtain an expression of agreement

There is no Genuine Assent if. . .

Duress

Threat of Illegal Conduct – threat to

commit a crime or tort to get agreement (ex. threatening family. . .)

Threat to Report Crimes – you have a

duty to report crimes; threatening to report a crime to gain acceptance is extortion

Duress (continued)

• Threat to Sue – threatening to sue for

a purpose unrelated to the suit is duress (ex. suing for custody of kids if contract is not signed for property)

Duress (continued)

Economic Threat – making changes to a

contract that would otherwise cause economic loss (ex. withholding parts unless $20 each instead of agreed upon price of $15)

Courts look at the threat and the alternatives available to threatened party

If threatened party had no choice, duress exists

2. Undue Influence – when one party to the contract is

in a position of trust and wrongfully dominates

the other party

5 Situations when there is no Genuine Assent

(continued)

2 Elements of Undue Influence

1)Relationship

– Trust, confidence, or authority must exist

– (Ex. lawyer/client, parent/child, minister/congregation member,. . .)

2)Unfair Persuasion

– Evidenced by unfair terms

– Evidence of lack of free will (parent selling home to child for ½ value)

– Nagging or persuasion is NOT necessarily undue influence—issue of fact to be decided by jury

5 Situations when there is no Genuine Assent(continued)

3. Mistake

1) Unilateral Mistake – when ONE party holds an incorrect belief about the facts related to the contract

• (Ex. Not reading or not carefully reading a contract, signing a contract with unfamiliar language)

2 Types of Unilateral Mistakes

Recognized Unilateral Mistake

–If mistake is big and the other party is aware of the mistake, rescission may be granted to the other party

Induced Unilateral Mistake

–If one party encouraged the other party to make mistake, voidable • (Ex. Jewels)

2)Mutual Mistake (Bilateral Mistake)

• BOTH parties hold an incorrect belief about an important fact (material fact) ------ contract is VOID

2 Types of Unilateral Mistakes (continued)

2 Types of Mutual Mistakes

Mistake about Subject Matter

–When both parties are mistaken about the subject

Mistake of Law

–Varies by state

–In some states, contract is valid because all parties should know the law

–In other states, it is treated the same as other mutual mistakes

5 Situations when there is no Genuine Assent(continued)

4. Misrepresentation

1) Innocent Misrepresentation – when the party making the statement doesn’t know it is untrue

2) Fraudulent Misrepresentation – when the party making the statement knows it is untrue

Contract is voidable

3 Requirements of Misrepresentation

It is treated as Misrepresentation if. . .

1) Untrue Statement of Fact – about a past or existing fact (if about the future, it is opinion); when EXPERTS express an opinion, it is treated as a statement of fact

Active Concealment – substitute for false statement of fact (ex. painting ceiling to cover water stains)

Silence – no half truths (drag racing); when truth is made false by subsequent events (leaky roof)

Mistaken Assumption – when party makes assumption that is incorrect

3 Requirements of Misrepresentation

It is treated as Misrepresentation if. . .

2) Material (Important)

• Material if. . .

Statement causes reasonable person to contract (miles on a car)

If defendant knew plaintiff would rely on statement

If defendant knew statement was false

All 3 conditions must be met

3 Requirements of Misrepresentation

It is treated as Misrepresentation if. . .

3) Reasonable Reliance

• Even if statement is material, there is no misrepresentation unless the victim relied on it

5 Situations when there is no Genuine Assent(continued)

5. Fraud – based on misrepresentation +

intent and injury

Deliberate concealing of material fact to induce victim to contract

Must have proof of injury – if misrepresentation, but no injury then no fraud

3 Remedies for Fraud

1) Rescission

2) Actual or Compensatory Damages –damages are available for innocent misrepresentation for goods only (UCC)

3) Punitive Damages – to punish the offender

Th-th-th-that’s all, folks!