Business Law Ch. 12 Reality of Assent

Courts permit contract rescission + damages awarded to Plaintiff for negligent or fraudulent misrepresentation, assuming (3):

-False assertion -Negligence resulting in deception, or intent to deceive -Justifiable reliance on false assertion by innocent party

For a mutual mistake to interfere with legal consent, it must involve (3):

1)A basic assumption about the subject matter of the contract; 2)A material effect on the agreement; and 3) An adverse effect on a party who did not agree to bear the risk of mistake at the time of the agreement

4 Questions Affecting Determination of Undue Influence

1. Did dominant party "rush" the other party to consent? 2. Did dominant party gain unjust enrichment from the agreement? 3. Was non-dominant party isolated from other advisers at time of agreement? 4. Is contract unreasonable, in that it overwhelmingly benefits dominant party?

4 Situations Involving Duress

1. One party threatens physical harm or extortion to gain consent to contract 2. One party threatens to file criminal lawsuit unless consent given to terms of contract 3. One party threatens to file frivolous civil lawsuit unless consent given to terms of contract 4. One party threatens the other's economic interests (although in many jurisdictions, recovery based on economic duress/pressure rarely granted)

Intentional Misrepresentation

A false representation of a material fact made by a party who either knows or believes that the factual claim is false or knows that there is no basis for the assertion. Scienter is clear.

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

Innocent Misrepresentation

Definition: False statement about material fact that person who made statement believed true Person who made innocent misrepresentation lacked "scienter"; i.e., had no knowledge of falsity of claim Party misled by innocent misrepresentation can rescind contract, but cannot sue for damages

Undue Influence

Definition: Persuasive efforts of dominant party, who uses special relationship to unduly persuade the other party Any relationship involving one party's unusual degree of trust in another can give rise to undue influence -Examples include attorney-client relationship, and doctor-patient relationship

An unlawful act or threat exercised on a person whereby the person is forced to enter into an agreement or to perform some other act against his or her will. is known as.....

Duress

TF: Duress is legal assent

False. Duress is not legal assent since coercion interferes with contracting party's free will

Fraudulent Misrepresentation (Definition):

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

Mutual (Bilateral) Mistake

Mistake made by both parties; if mutual mistake of material (significant) fact, either party can rescind contract

Unilateral Mistake

Mistake made by one contracting party. Generally these do not void a contract.

What are major obstacles to legal assent

Mistake, misrepresentation, undue influence and duress

Mistake Definition

Misunderstandings regarding material facts of contract at time agreement made

2 types of misrepresentation

Negligent and Fraudulent

Negligent Misrepresentation (Definition):

Negligent, untruthful assertion of material fact by contracting party; aggrieved party can rescind contract, and sue for damages Contrast with "innocent misrepresentation", when party making false assertion believes it to be true, and is not negligent in making false assertion; although innocent misrepresentation permits misled party to rescind contract, he/she cannot sue for damages

Duress

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

Voidable Contract Definition

One or both parties have ability to withdraw from or enforce.

Rescind

To cancel a contract

TF: Cancellation of contract due to lack of assent means party with power of avoidance can require return of consideration given to other party; similarly, party with rescission right must return consideration received from other party

True

Legal Assent Definition

Voluntary, willing promise to transact the law will require contracting parties to obey

Nondisclosure

a failure to provide pertinent information about a projected contract

Fraudulent Misrepresentation

a false representation of a material fact that is consciously false and is intended to mislead the other party

innocent misrepresentation

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

Negligent Misrepresentation

a false statement of material fact made by a party who thinks it is true but who would have known the truth about the fact had he or she used reasonable care to discover or reveal it

The result of an error by both parties about a material fact, that is, one that is important in the context of a particular contract is known as....

a mutual mistake

voidable

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

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 is known as.....

a unilateral mistake

4 elements of a valid contract:

agreement, consideration, capacity, legal object

Misrepresentation

an untruthful assertion by one of the parties about a material fact

Without assent,

contract is voidable and subject to being rescinded

scienter

intent or knowledge of wrongdoing

For courts to rescind agreement injured party must.....

prove duress left no reasonable alternatives to contractual agreement

concealment

the active hiding of the truth about a material fact

Undue influence

the situation in which one person has taken advantage of his or her dominant position in a relationship to persuade the other person unduly to the extent that the dominant person's persuasive efforts have interfered with the other person's ability to make his or her own decision

rescind

to cancel a contract

2 types of mistakes

unilateral and mutual