Genuineness of Assent

1. Genuineness of Assent Chapter 7

2. 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)

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 • 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 • 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