Business Law Chapter 13

Duress

- Occurs when a person is coerced into entering contract through threat of physical harm or some other harm - If the victim of the duress signs the contract, it cannot be enforced against the victim

Mistake

- Occurs when one or both of the parties to a contract have an erroneous belief about the subject matter, value, or some other aspect of the contract - The law permits rescission (cancellation) of some contracts made in mistake

Fraudulent Misrepresentation (Fraud)

- Occurs when one person consciously decides to induce another person to rely on a misrepresentation, and act on it

Undue Influence

- Occurs when one person, having a fiduciary or confidential relationship with another person, persuades that other person to enter into a contract

Unilateral Mistake

- Only one party is mistaken about a MATERIAL fact regarding the subject matter of a contract

Case of Unilateral Mistake

- The mistaken party can NOT rescind (cancel) the contract UNLESS: - The non-mistaken party knew (or should have known) that the mistake was made - A unilateral mistake occurs because of a clerical or mathematical error that is not the result of gross negligence - The mistake is so serious that enforcing the contract would be unconscionable

Elements of Fraud

- The wrongdoer misrepresented a material fact - The wrongdoer intended to deceive the innocent party (also referred to as scienter) - The innocent party justifiably relied on the misrepresentation - The innocent party was injured

Injury to the Innocent Party

- To recover damages, the innocent party must prove that the fraud caused her economic injury - Damages= Rescission or the difference between the value of the property as represented and the actual value of the property

Two Types of Mistakes

- Unilateral mistake - Mutual mistake

Fraud by concealment

- When one party takes specific action to conceal a material fact from another party

Eddy buys Jim's 1999 Ford pickup truck for $30,000 after Jim informs Eddy that the car was owned by Michael Jackson. But Jim lied= intent to deceive?

- Yes

Jane purchases a car from a dealership. Jane wants leather seats but the model stated in the sales contract is for a car with cloth seats. The car salesman is unaware of Jane's preference for leather seats= Unilateral mistake?

- Yes - Can the contract be cancelled?- No, only Jane is mistaken. Salesman did not know and should not have known

Jane, located in London, purchases a luxury sheet set on eBay from Mary, located in Delaware. Mary quotes a price of 500 via telephone. Jane accepts believing the price to be 500 US dollars. Mary, in fact, meant 500 pounds= mutual mistake?

- Yes. - Can contract be rescinded- Yes.

Genuineness of assent

This is about Agreement - The requirement that a party's assent (agreement) to a contract be genuine - If assent is genuine there is a "meeting of the minds" of the parties to the contract

Material Fact

- A fact that is sufficiently important to influence a person to enter into a contract

Mutual mistake

- A mistake made by both parties concerning a material fact

Reliance on the misrepresentation

- An innocent party who acts in reliance on a misrepresentation must show that her reliance on the misrepresentation was justified and that she acted on the misrepresentation

Eddy buys the $30,000 car because Jim lied and said it was owned by Michael Jackson. The car is actually worth $3,000.

- Eddy could rescind and receive his $30,000 purchase price or keep the truck and get the difference in value (30,000-3,000=27,000)

Intent to deceive

- Exists when the person making the representation knew the representation was false or made it without sufficient knowledge of the truth

Fraud in the inception (fraud in the factum)

- Fraud that occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing - Example: Mary at her son's request signs papers she believes are her son's college registration papers, but the papers are, in fact, a contract to pay for her son's trip around the world

Fraud in inducement

- Fraud that occurs when the party knows what he or she is signing but has been fraudulently induced to enter into the contract

Misrepresentation of law

- Is NOT fraud - Contracting parties are deemed to know the law through their own devises or by hiring an attorney - Misrepresentation of law is considered fraud and rescission allowed if: * One party to the contract is a professional who should know what the law is and intentionally misrepresents the law to a less sophisticated contracting party

Misrepresentation of a material fact

- May occur by words or by the conduct of a party - To constitute fraud, the misrepresentation must be of PAST or EXISTING material FACT - Opinions, or speculative or predictive statements about the future cannot form the basis of a fraud claim, because things can happen to affect future

Assent is not genuine if there is

- Mistake - Fraud - Duress - Undue influence

Silence is not misrepresentation

- Neither party to a contract owes a duty to disclose all the facts to the other party UNLESS - Nondisclosure would cause bodily injury or death - There is a fiduciary (involving trust) relationship between the contracting parties - Federal or state statutes require disclosure