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Understanding Invalidating Factors in Contracts

Learn about invalidating elements like duress, fraud, and mistakes in contracts. Discover how undue influence and misrepresentations impact the validity of agreements.

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Understanding Invalidating Factors in Contracts

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  1. Chapter 11 Conduct Invalidating Assent

  2. Assent • Free and willing intent to be bound to a contract. • Where a person has not freely assented to the terms of a contract, the contract may be rescinded.

  3. Physical - Forcing a person to sign using violence, at gunpoint. Improper Threats - Intimidation, threats. Economic Duress - coercion by taking advantage of a financial position CAN’T threaten criminal prosecution but CAN threaten civil litigation Duress - Fear or apprehension used in agreeing to a contract

  4. Undue Influence • Involves a dominant party and a weaker party • Usually involves a fiduciary relationship (i.e., attorney/client; guardian/ward of state; parent/child) • Contract may be voidable as a result of undue influence SIGN HERE

  5. Mistakes about Material Facts • Mistakes as to Law- usually not grounds for Rescission • Mutual Mistake of Material Fact - Contract CAN be rescinded. No meeting of the minds about the essence of the contract.. Contract is VOID • Mutual Mistake of Judgment of Value - Usually, contract is not disturbed.

  6. Unilateral Mistakes • Only ONE of the parties is mistaken. • The mistaken party is bound to his mistake UNLESS the other party knew or should have known about the mistake OR it involves an inadvertent, mathematical mistake which was made without gross negligence

  7. Fraud - Contracts induced by fraud are void or voidable • Fraud in the execution - When the fraudulent misrepresentation directly relates to the signing of the document. VOID • Fraud in the inducement - The defrauded party is aware of entering into a contract, and intends to do so, but is deceived about some aspect of the contract, such as the quality of the goods or services. The contract is VOIDABLE

  8. Elements of Fraud • A false representation (or concealment) of a material fact • Intent to misrepresent (scienter, the knowledge of the falsity or utter disregard for the truth) • Intent to induce reliance • Innocent party relied on the deception • Damage (loss) to the innocent party

  9. Fraud • Requires an actual or implied misrepresentation of fact, by words or implied by conduct • A statement of opinion is usually not fraud (unless opinion is made by an expert) • Misrepresentations of future events, probabilities and predictions do not give rise to fraud (Mechanic estimates tune-up will increase gas mileage by 10%)

  10. Fraud • Misrepresentations of law do generally not entitle a party to be relieved of a contract, everyone is presumed to know the law and to have equal knowledge of the law • Exceptions for attorneys, experts • No duty to come forward and disclose facts EXCEPT: (1) a fiduciary relationship • (2) A material fact is known by one party and the other party could not reasonably have discovered it (3) a dangerous, hidden defect.

  11. Innocent Misrepresentation • False misrepresentation made without scienter (knowledge of falsity) • Aggrieved (innocent) party can • rescind the contract

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