chapter 13: Reality of Consent

mutual mistakes in drafting writings

Remedy is reformation if the writing rather than avoidance of the contract

Party Harmed by Mistake Did Not Bear the Risk of Mistake

when adversely affected person has expressively contracted to do so (buyer accepting property "as is")

mutual mistake

when both parties to the contract have wrong assumptions about the same fact

when does a unilateral mistake exist?

when only one party makes a mistake about a basic assumption on which he made the contract

An untrue assertion of fact was made

-The fact asserted must be past or existing fact -The concealment of a fact through some active conduct intended to prevent the other party from discovering the fact=assertion Nondisclosure: failure to volunteer information, also is considered assertion

Requirements for Rescission on the Ground of misrepresentation

-untrue assertion DOESNT make the contract voidable -A drastic remedy such as recession should be used only when a person has been seriously misled about a fact important to the contract by someone he had the right to rely on

fraud (rescission and/or tort action for damages)

-untrue assertion of fact -assertion made with knowledge of falsity (scienter)and intent to deceive -justifiable reliance -economic loss (in a tort action for damages)

innocent misrepresentation (Rescission)

-untrue assertion of fact -assertion relates to material fact -actual reliance -justifiable reliance

Determining Undue Influence

1) The relationship between the parties is either one of trust and confidence or one in which the person exercising the persuasion dominates the person being persuaded 2) The persuasion is unfair

a person seeking to rescind a contract on the ground of misrepresentation must be able to establish EACH of the elements:

1. An untrue assertion of fact was made 2. The fact asserted was material or the assertion was fraudulent 3. The complaining party entered the contract because of his reliance on the assertion 4. The reliance of the complaining party was reasonable

nature of duress

1. Can include physical compulsion (grasping someone's hand and forcing them to sign a contract) 2. Can include threats by a physical, emotional or economic harm (in which case, the contract is voidable)

requirements for mutual mistake (when both parties are mistaken )

1. The mistake relates to a basic assumption on which the contract was made 2. The mistake has a material affect on the agreed-upon exchange 3. The party adversely affected by the mistake does not bear the risk of the mistake

requirements for a unilateral mistake

1. The non-mistaken party caused or had reason to know of the mistake 2. It would be unconscionable to enforce the contract

Misrepresentation can either be...

1. innocent (not intentionally deceptive) 2. fraudulent (made with knowledge of falsity & intent to deceive) -either or gives the complaining party the right to rescind a contract

5 doctrines that allow people to avoid contracts because of the absence or real consent

1. misrepresentation 2.fraud 3. mistake 4. duress 5. undue influence

Materiality

A fact is material if it is likely to play a significant role in inducing a reasonable person to enter a contract or if the person asserts it knowing that the other person will rely on that fact

Mistake of Law

Courts can grant relief when the mistake is an erroneous belief about some aspect of law

Negligence and the Right to Avoid for Mistake

Restatement (Second) of Contracts focuses on the degree of negligence and that a person's fault in failing to know or discover facts before entering a contract will not bar relief unless his fault amounted to a failure to act in good faith

what is a mistake?

a belief about a fact that is not in accord with the truth

actual reliance

a person pursues some course of action because of his faith in an assertion made to him

Misrepresentation

assertion that is not in accord with the truth

Mistake about a Basic Assumption

assumptions about the identity, existence, quality, or quantity of the subject matter of the contract are among the basic assumptions on which contracts typically are founded

rescind

cancel contract -person whose consent was not real has the that power

Voidable Contract

contracts induced by misrepresentation, fraud, mistake, duress, or undue influences

Scienter

knowledge of falsity (distinguishes fraud from innocent misrepresentation )

Effect of Mistake

mistake alone is not sufficient ground for avoidance of contract right to avoid a contract because of mistake depends on several factors ->one important factor: whether the mistake was made by just one of the parties (unilateral mistake) or by both parties (mutual mistake)

reformations

modification of the written instrument to express the agreement that the party made but failed to express correctly

Material effects on agreed-upon exchange

must show imbalance caused by the mistake is so severe that it would be unfair for the law to require him to perform the contract He should show that not only is the contract less desirable for him, but because of the mistake the other party has received an unbargained-for advantage

economic duress (business compulsion)

one person induces the formation or modification of a contract by threatening another person's economic interest

Justifiable Reliance

reliance must be JUSTIFIABLE, meaning that courts will scrutinize against a person if they rely on an assertion that is obviously false or not taken seriously

Election of Remedies

some states: a person injured by fraud cannot rescind the contract AND sue for damages for deceit; must elect (choose) between these remedies other states: injured party may pursue both rescission and damage remedies and does not have to elect between them

Necessity for Prompt and Unequivocal Rescission

to rescind a contract based on fraud or any of the other doctrines, she must act promptly and equivocally. ->must object promptly upon learning the facts that give her the right to rescind and must clearly express her intent to cancel the contract. must also avoid any behavior that would suggest that she affirms or ratifies the contract (RATIFICATION of a voidable contract means that a person who had the right to rescind has elected not to do so. ratification ends the right to rescind)

requirements for duress

to rescind a contract...you MUST be able to establish BOTH 1. The contract was induced by an improper threat 2. The victim had no reasonable alternative but to enter into the contract

fraud

type of misrepresentation that is committed knowingly with intent to deceive

nature of undue influence

unfair persuasion; involves wrongful pressure exerted on a person during the bargaining process ->pressure is exerted through PERSUASION rather than through coercion

duress

wrongful coercion that induces a person to enter or modify a contract