Business Law Ch. 11 Reality of Assent

grounds for Duress

-Once party threatens physical harm or extortion to gain consent to contract -One party threatens to file criminal lawsuit unless consent given to terms of contract -One party threatens to file frivolous civil lawsuit unless consent given to terms of contract -One party threatens the other's economic interests (although in many jurisdictions, recovery based on economic duress/pressure is rarely granted)

Legal Assent

-Without valid legal assent, contract may be avoided/rescinded -Cancellation of contract due to lack of assent means the party with the power of avoidance can require return of consideration given to other party -Similarly, the party with rescission right must return consideration received from other party

conditions nondisclosure have the same legal effect as an actual false assertion

-a relationship of trust exist between the parties to the contract - there is a failure to correct assertion of fact that are no longer true in light of events that have occurred since the initial consent to the terms of the agreement

Courts permit contract rescission for negligent or fraudulent misrepresentation, assuming the aggrieved party can prove the following elements;

1. A false assertion of material fact 2. Negligence resulting in deception, or an objective intent to deceive 3. Justifiable reliance on the false assertion by the innocent party

Major "obstacles" to legal assent:

1. Mistake 2. Misrepresentation 3. Undue influence 4. Duress 5. Unconscionability

Unilateral Mistake (Exceptions)

1. Mistake involves a material fact and the other party knew or had reason to know of the mistake 2. Mistake was caused by a clerical error not arising from gross negligence 3. Mistake so serious as to create unconscionable result

Unilateral Mistake (Definition)

A mistake made by one contracting party

Mistake

A misunderstanding regarding material fact(s) of contract at the time the agreement is made

Legal Assent (Definition)

A voluntary, willing promise to transact that the law will require contracting parties to obey

Mutual(Bilateral) Mistake to interfere with legal consent

Either party can rescind contract if the mistake: 1. Involves a basic assumption about the subject matter of the contract; 2. Has a material effect on the agreement; AND 3. Has an adverse effect on a party that did not agree to bear the risk of mistake at the time of the agreement

Any relationship involvinng one party's unusual degree of trust in another can give rise to undue influence

Examples: -Attorney-client relationship -Doctor-patient relationship

Unilateral Mistake (Effect)

General Rule-contract still binding

Fraudulent Misrepresentation

Intentional, untruthful assertion of material fact by contracting party; aggrieved party can rescind contract, and sue for damages

Mutual(Bilateral) Mistake (Definition)

Mistake made by both parties

Duress

Occurs when one party threatens other with wrongful act unless assent given

Undue Influence

Persuasive efforts of dominant party, who uses special relationship to unduly persuade the other party

Innocent Misrepresentation

When party making false assertion believe it to be true, and is not negligent in making the false assertion. -Although innocent misrepresentation permits a misled party to rescind a contract, he/she cannot sue for damages

concealment

active hiding of the truth about a material fact

nondisclosure

failure to provide pertinent information about a projected contract

Negligent Misrepresentation

party making the statement would have known the truth about the fact had he used reasonable care to discover or reveal it

Duress is not legal assent,

since coercion interferes with contracting party's free will

For courts to rescind an agreement entered into under duress,

the injured party must prove duress left no reasonable alternatives to contractual agreement