Chapter 6

1. Genuine Agreement Chapter 6 Mr. Sherpinsky’s Business Law Class

2. Chapter Overview • How certain types of mistakes and incorrect representation of facts can lead to the voiding of a contract • The difference between unilateral and bilateral mistakes • The difference between duress and undue influence • The difference between misrepresentation and fraud

3. The Opening Scene, pg. 127 • Alena • Hana • Viktor • Jake • Mr. Benes • What are the Legal Issues, 1-4

4. Section 1 – Fraud and Misrepresentation • “A local restaurant owner purchased several pieces of furniture from an antique store to use as decorative items in his restaurant. The antique dealer assured him that these pieces were authentic to the 1930’s. Later, the restaurant owner found that the items were not dated to this period.” Can the restaurant owner prosecute the antique dealer for fraud?

5. Fraud – Deliberate Deception Five elements must exist to prove fraud: • Must be false misrepresentation of fact • Party making the misrepresentation must know it is false • False misrepresentation must be made with the intent that it be relied upon • Innocent party must reasonably rely upon the false representation • Innocent party must actually suffer some monetary loss

6. False Representation of Fact • Material fact – • Important information • Matters to one of the parties • Cannot be a promise of something that will happen in the future • Sales talk (sales puffery) • Allowed (Certain amounts) • “This car is really flashy…” • “You’ll get plenty of dates with this car…”

7. False Representation of Fact • Material False Representations • Not confined to oral or written statements. • Actions intended to deceive are considered to be false representations • Concealment: • Choosing not to reveal info. • Also know as passive fraud or nondisclosure • Examples of Concealment?

8. Representation Known to be False Example 1, pg. 130 • Jeff purchased a used car from Al Reed’s Quality Used Autos • The salesperson assured Jeff the car had never been involved in an accident. • Jeff found repairs bills stuffed under the seat showing the car had been involved in a major accident Could Jeff pursue a claim of false representation?

9. False Representation Intended to be Relied Upon Example 2, pg. 131 • Supposed that Ed met Mr. Johnson, a man whose car he admired. • He asked Mr. Johnson , “Is this car a 1964 mustang?” Mr. Johnson, with no intention of selling his car, but knowing it was really a 1965, said yes, it’s a 1964…. • Ed then went out and bought a car like Mr. Johnson’s… Could he win a lawsuit against Johnson?

10. False Representation Actually Relied Upon Example 3, pg. 131 • Suppose Johnson wants to sell his car and tells Ed that it is a 1964 • However, Ed brings over George, an antique car expert • George tells Ed its really a 1965, and worth far less than a 1964 If Ed still buys it anyway, could he win a lawsuit for fraud?

11. Resulting Loss • Unless you suffer loss as a result of fraud, you cannot win a lawsuit • Example: CD player, page 132

12. Misrepresentation – may be an innocent act Example 4, pg. 132 • Fred bought a mountain bike from Matt • Matt said he believed the bike did not need any repairs • After a weekend ride at a local trail, Fred found the back wheel was severely misaligned Is Fred entitled to damages?

13. Innocent Misrepresentation • Have you ever sold a personal item like a bike, calculator, or a CD player? • Did you sell the item with the idea that it was in good condition? If after selling the item an unknown defect surfaces, would the buyer be entitled to damages?

14. Judge for Yourself • An ad in the travel section of the newspaper read “Vacation in a tropical setting. Sand, sun, and palm trees. Resort accommodations for 3 nights and 4 days including round trip airfare only $1,000.” The hotel was actually in the middle of a large city, enclosed with a security fence. The pool area contained palm trees in sand planters. • Does this constitute sales puffery or fraud?

15. Classwork • Genuine Agreement Packet • Vocabulary- Ch. 6

16. Bell Ringer Activity • Have you ever been involved or know of a situation where a contract or agreement was reached but was then voided due to a mistake or due to the fact that it was forced?

17. Mistake, Duress, and Undue Influence Chapter 6, Section 2

18. Unilateral Mistakes Defined: • Error on the part of one of the parties to the contract • A person usually cannot avoid a contract because of such a mistake. • People who sign an agreement are bound by it, even if you didn’t read it! • Expectations have been established • Contract should not be blocked by errors on the part of one party

19. Unilateral Mistakes • Mistakes as to the nature of the agreement Example: • The Town of Sharonville received four bids for construction of new city hall • Angelini Construction won the lowest bid • A few days later the General Manager of Angelini discovered a $500,000 error. • The bid should have been higher. Is the company bound to the bid?

20. Unilateral Mistakes • Mistake as to the identity of the party • Cause to void a contract Example: Genevieve Sands sent a letter offering baby-sitting services at a certain rate to Jill Gomez, a mother of toddlers in the neighborhood. The letter carrier mistakenly delivered it to another Jill Gomez, who happened to live across town and also had children. This Jill Gomez liked the offer and accepted the deal. Is the contract voidable?

21. Bilateral Mistake (mutual mistake) Mistake as to the possibility of performance Example • Both parties to an agreement enter into the agreement thinking something can be done • In fact, they find it cannot be done. • In this situation either party can get out of the contract because this is a bilateral mistake **Generally, you can not get out of a contract because of a unilateral mistake, but you can get out of a contract because of a bilateral mistake.**

22. Bilateral Mistake (mutual mistake) Mistake as to the subject matter • Both parties can be mistaken as to the identity of the subject matter when they enter into a contract • Either party can void the contract Example Ellery Weimer agreed to sell Alvin McCormick 5 vacant lots on Indiana Ave in Parkersburg. McCormick refused to go through with deal after discovering the lots where on a different Indiana Ave in Pakersburg then he original thought. WHAT DO YOU THINK?

23. Duress • Overcoming a person’s will by use of force or by threat of force or bodily harm • Agreements made defective by duress • Physical duress • Emotional duress • Economic duress • Threats to a person’s business or income that cause him or her to enter a contract without real consent

24. Elements of Undue Influence Occurs when a person uses unfair and improper persuasive pressure to force another person to enter into an agreement • A dependency relationship • Ill health, old age, or mental immaturity • Unfair or improper pressure • Independent person uses force against dependent person • A beneficial contract • Independent party benefits at expense of dependent party

25. Classwork • Finish Chapter 6 vocabulary and Packet • Due Wednesday • Exam Wednesday