Chapter 12 - Reality of Assent

the general obstacles to genuine assent:

1) mistake 2) misrepresentation 3) undue influence 4) duress

voidable

a contract that one or both parties have the ability to either withdraw from or enforce

fraudulent misrepresenatation

a false misrepresentation of a material fact that is consciously false and is intended to mislead the other party (fraudulent misrepresentation is INTENTIONAL misrepresentation) (scienter is clear)

innocent misrepresentation

a false statement about a fact material to an agreement that the person who made the statement believed to be true

mistake

erroneous belief about the facts of a contract at the time the contract is concluded

how is a party treated in negligent misrepresentation?

he is treated in contract law as if the intent were present

the mistake must involve the essence of the agreement

material effect on the agreement (a fact is material WHEN it provides a basis for a person's agreement to enter into the contract)

does a unilateral mistake void a contract?

no

negligent misrepresentation

results when the party making the statement would have known the truth about the fact HAD HE used reasonable care to discover or reveal it.

when a person makes a false statement and has no knowledge of its falsity he lacked..

scienter

mutual mistakes

shared by both parties to the agreement

concealment

the active hiding of the truth about a material fact

What famous story has taught generations of students the importance of being very clear in defining material facts in any contract?

the famous story of the ship Peerless

unilateral mistakes

the result of an error by one party about a material fact, that is, one that is important in the context of a particular contract

t/f either concealment or nondisclosure can be treated as the equivalent of an actual assertion

true

misrepresentation

untruthful assertion by one of the parties about a material fact

duress

when one party was forced into the agreement by the wrongful act of another

For a mutual mistake to interfere with legal consent, it must involve all of the following:

1) a basic assumption about the subject matter of the contract 2) a material effect on the agreement 3) an adverse effect on a party that did not agree to bear the risk of mistake at the time of the agreement.

Will courts void contracts for reason of mutual mistake if even one of the preceding atributes is missing? (3 listed above)

No ; courts will not void them.

illusion

ambiguity in some key fact prevented the parties from being in an actual agreement

the mistake would need to be about the existence, quality, or quantity of the items to be exchanged

basic assumption

rescinded

cancelled (in terms of a contract being cancelled)

scienter

deliberately or knowingly

Case: Simkin v. Blank

divorce wanting half of everything ; his investments were in a Ponzi scheme resulting in nothing issue: should the plaintiff be permitted to use a mutual mistake claim in the context of a material settlement agreement? Reasoning: He could have a case IF the mutual mistake existed at the time the contract was entered into and if the mistake is "material" - this case it was not material (He could have gotten the money from the scheme at anytime before it unraveled but he didn't.) Decision and Remedy: found in favor of wife Significance of Case: provides illustration of the criteria courts use to determine whether a plaintiff can use a mutual mistake claim

nondisclosure (passive form of misleading conduct)

involves a failure to provide pertinent info about the contract

undue influence

special relationships in which one person has taken advantage of his dominant position in the relationship to persuade the other person

T/F for fraudulent misrep. to be the basis for a contract recission, the statement of fact need not be an actual assertion

true

t/f any fraud on the part of a party to a contract provides a basis for recession

true

t/f legal assent is absent when a legal mistake occurs

true

t/f mistakes in contract law do NOT result from the untrue statements of the other party of the contract

true

requirements for a finding of fraudulent misrepresentation:

1) a false statement about a past or existing fact that is material to the contract (the lie) 2) INTENT to deceive 3) justifiable reliance on the false statement by the innocent party to the agreement. (has to be reasonable)

Courts will now find nondisclosure as having the same legal effect as an actual FALSE ASSERTION under certain conditions:

1) a relationship of trust exists bt the parties to the contracts (like a therapist or doctor) 2) there is failure to correct assertions of fact that are no longer true in light of events that have occured since the initial consent to the terms of the agreement

Any of the following conditions would permit a court to invalidate a contract on grounds of unilateral mistake:

1) one party made a mistake about a material fact and the other party either knew or had reason to know about the mistake 2) the mistake was caused by a clerical error that did not result from gross negligence 3) the mistake was so serious that the contract is UNCOSCIONABLE, that is, so unreasonable that it is outrageous.

examples of duress:

1) one party threatens physical harm or extortion to gain consent to a contract 2) threatens to file a criminal lawsuit unless consent is given (threats to file a civil case against a party do not constitute duress unless it is frivolous.) 3) one party threatens the others economic interest (economic duress)

t/f you need an offer and acceptance to form a contract (simplistically)

true

Case: Manderville v. PCGS Group

broker said a house could be split but turns out it couldn't - argued that house buyers didn't rely on him bc they would have researched if they did Issue: Should a lack of diligence and the existence of an exculpatory clause prohibit a buyer from raising a claim of int. misrep? Dec. and Rem - the plaintiffs will have the new opportunity to prove elements of fraudulent misrepresentation Significance of the case: misrep is SERIOUS enough that courts will not let defendants HIDE BEHIND exculpatory clauses

Case: Telekenex Inc. v Charlotte Russe

issue: is economic loss in the business setting sufficient to establish a defense of duress? reasoning: duress will only serve as a defense to breach of contract when: 1) only if the breaching party was left with NO reasonable alternative but to agree to the terms 2) when a party who does not immediately accept the terms will suffer an immediate and substantial business loss Decision and Remedy: court established a prima facie defense of duress and sided w russe to continue Significance of Case: duress in business setting MUST amount to more than the simple pecuniary loss - one must PROVE significance business law (w russe did)

t/f when both parties are mistaken about either a current or a past material fact, either party can choose to rescind the contract

true

t/f courts might rescind the contract, even though the person MAKING the false assertion was entirely innocent of any intentional deception

true

t/f sellers have a special duty to disclose info bc they know more about the product than the buyer

true

t/f the courts insist that there must be a meeting of the minds for a valid contract

true

t/f innocent misrepresentations permit the party that was misled by the false statement to rescind the contract

true ; the aggrieved party cannot sue for damages