COB 218 Ch. 11

Major obstacles to genuine assent

- Mistake - Misrepresentation - Undue Influence - Duress

Justifiable Reliance on the False Assertion

- The injured party has no justifiable claim of fraud when they relied on assertions that should have been obviously false. - Duty to inspect - Increasing responsibility is being placed on the person who made the erroneous assertion.

Any of the following would trigger a successful request for rescission on the grounds of duress.

-One party threatens physical harm or extortion to gain consent - One party threatens to file a criminal lawsuit unless consent is given - One party threatens the other's economic interest. Make the case for duress by demonstrating that the threat left them no reasonable alternatives.

Mutual Mistake

-The result of an error by both parties about a material fact - Either party can choose to rescind the contract. Rescinding is fair because any agreement between the parties was an illusion.

Unilateral Mistake

-The result of error by ONE party about a material fact - In general does NOT void a contract. Sometimes however, rescission is permitted (can be costly in time and lost opportunities)

For a mutual mistake to interfere with legal consent it must involve ALL 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. * the mistake would need to be about the existence, quality, or quantity of the items to be exchanged. ** the mistake must involve the essence of agreement.

Elements for Intentional Misrepresentation

1. A false statement about a past or existing fact that is material to the contract. 2. Intent to deceive. 3. Justifiable reliance on the false statement by the innocent party to the agreement. Generally present unless the injured party knew or should have known the extravagant claim was false.

Nondisclosure won't have the same legal effect as an actual false assertion under these conditions:

1. A relationship of trust exists between the parties to the contract. 2. There is a failure to correct assertions of fact that are no longer true in light of events that have occurred since the initial consent to the terms of the agreement.

Conditions that would permit a court to invalidate a contract on the 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 unconscionable that is, so unreasonable that it is outrageous.

Nondisclosure

A failure to provide pertinent information about a projected contract. Can be equivalent to actual assertion.

Fraudulent Misrepresentation.

A false representation of a material fact that is consciously false and is intended to mislead the other party. Any fraud on the part of a party to a contract provides a basis for rescission. *For fraudulent misrepresentation to be the basis for a contract rescission, the statement of fact need not be an actual assertion.

Innocent Misrepresentation

A false statement about a fact material to an agreement that the person who made the statement believed to be true. The person who made the false statement had no knowledge of the falsity of the claim. They lacked scienter.

Negligent Misrepresentation

A false statement of material facts made by a party who thinks it is true but who would have known the truth about the fact had they used reasonable care to discover or reveal it. No actual intent to deceive. Treated in contract law as if the intent was present.

Mistake

An erroneous belief about the facts of a contract at the time the contract is concluded. When a mistake occurs, legal assent is absent. Mistakes in contract law do NOT result from the untrue statements of the other party to the contract

Misrepresentation

An untruthful assertion by one of the parties about a material fact. Parties only appeared to agree so contract lacks legal assent.

Duress

Any unlawful act or threat exercised on a person whereby the person is forced to enter an agreement or to perform some other act against their will.

Scienter

Deliberately or knowingly

Questions Affecting Determination of Undue Influence

Did dominant party "rush" the other party to consent? Did dominant party gain unjust enrichment from the agreement? Was non-dominant party isolated from other advisers at time of agreement? Is contract unreasonable, in that it overwhelmingly benefits dominant party?

Intentional Misrepresentation

Fraudulent Misrepresentation is Intentional Misrepresentation. Here scienter is clear. The party making the misrepresentation knows or believes that the factual claim is false or knows there is no basis for assertion.

Intent to deceive

Scienter is present when the party accused of making the fraudulent assertion believed that the assertion was false or made the claim without regard for whether it was true or false.

Concealment

The active hiding of truth about a material fact. Can be equivalent to actual assertion.

Undue Influence

The situation in which one person has taken advantage of their dominant position in a relationship to unduly persuade the other person to the extent that the dominant person's persuasive efforts have interfered with the other person's ability to make their own decisions.

material fact

a fact that is important in the context of the particular contract.