CH 12 LEGS

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

1. A basic assumption about the subject matter of the contract

Courts now find nondisclosure as having the same legal effect as an actual false assertion under certain conditions:

1. A relationship of trust exists between the parties to the contract -the relationship provides a reasonable basis for one person's expectation that the other would never act to defraud him or her

Exception that would permit a court to invalidate a contract of a 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

Courts will not void contracts for reason of mutual mistake if even one of the preceding attributes is missing

1. To rise to the level of a basic assumption, the mistake would need to be about the existence, quality, or quantity of the items exchanged

Fraudulent Misrepresentation 1. A false statement about about a past or existing fact that is material to the contract

2. Intent to deceive.

Fraudulent representation is: 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.

2. There is 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

An illustration is my failure to inform you of the recent outbreak of rust on my rust free car that you agreed to purchase

Duress- when one person was forced into the agreement by the wrongful act of another

Any 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.

When a contract is Voidable, is may be rescinded -

Cancelled

Case 12-1 Simkin V Blank Court of New York When the plaintiff and defendant divorced in 2006, they split their assets. Then, in 2008, the plaintiff thought the terms of the divorce should be renegotiated because he lost almost all of his divorce proceeds. He argued that both he and his wife shared in the mistake in fraud investing

Decision: The Court of Appeals found in favor of the defendant and reversed the decision of lower court

For fraudulent misrepresentation to be the basis for a contract rescission, the statement of fact need not be an actual assertion

Either concealment or nondisclosure can be treated as the equivalent of an actual assertion

In general, Unilateral mistake does not void a contract.

Ex. A widow seeking to rescind her and her husband's election to have his retirement benefits paid out over his life was not permitted to receive survivor's pension benefits. Representatives of the retirement system had provided enough information before they elected that payment plan

Indian Law- duress is referred to as coercion

Factors that enter into the finding of undue influence include: 1. Inadequacy of consideration 2. Inequality between the parties in regard to age, intelligence, or social status 3. Fiduciary relationship between the parties 4. Unconscionable bargains 5. Pardanashin women

On the streets of New York, a man sells you a pocket watch for $20. He says all the watch needs is a new battery and it will be just like new and work perfectly. You buy a new battery for the watch, but the watch still does not work. The man selling the watch knew that the watch would not work, even with a new battery, but he told you it anyway.

Fraudulent Misrepresentation

The importance of genuine assent

If assent is not genuine, or legal, a contract may be voidable

That person lacked Scienter

Intent or knowledge

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

Intent to deceive is present when the party making the false statement claims or implies that he or she has personal knowledge of the accuracy of the assertion

3. Justifiable reliance on the false statement by the innocent party to the agreement

Justifiable reliance is present unless the injured party knew, or should have know of the claim. Ex. a person could not justifiably rely on a claim by another that a hair on her head, although worth $1000 was available for $10

Legal assent is absent when a legal mistake occurs.

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

On rare occasions, rescission is permitted for unilateral mistakes. Which of the following scenarios is an example of when rescission might be available for unilateral mistake?

One party made a mistake about a material fact, and the other party had reason to know about the mistake

Mistake

People may misunderstand either some fact about the deal or the value of what is being exchanged- misunderstandings about facts

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

Rescinding the contract is fair, because any agreement between the parties was an illusion: an ambiguity in some key fact prevented the parties from being in actual agreement

___ is present when the party making the fraudulent assertion believed it was false or had no regard to whether it was true or false

Scienter

Case 12-2 Fantastic Sams Salons v Pstevo Illinois Fantastic Sams Salons entered into a franchise agreement with PSTEVO to operate a franchised salon. Fantastic Sams wanted a court to clearly spell out the rights held under the agreement. PSTEVO then claimed fraudulent misrepresentation by Fantastic Sams

The claim said that the salon would only need 3 months until gaining profit, but the company knew it would take longer Decision: The court granted Fantastic Sams' motion to dismiss the fraudulent misrepresentation claims

Case Nugget: Mary W Scott v Mid Carolina Homes Mary Scott signed a contract to purchase a repossessed 1984 mobile home from Mid Carolina Homes.

The company claimed they could not sell the home anymore due to a bent wire, but then sold the home a few weeks later for a higher price.

Justifiable Reliance on the False Assertion

The injured party has no justifiable claim of fraud after relying on assertions whose falsity should have been obvious to anyone. Ex. my house was build before the founding of our country

Mistakes 2. Mutual

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

To meet the second condition, the mistake must involve agreement

The third condition is necessary to protect those who bargain with someone who agreed to bear the risk of mistake but then wants to avoid that risk when the contract does not go as planned

European courts take a different approach to mistakes about the value of performance of a contract

They agree with US courts to interfere with a contract just because the value of item has changed since agreement. However, European courts permit rescission of the contract when mistake involves more than 50% of the value at the time of the contract

Case 12-3 Telekenex IXC Inc vs Charlotte Russe Washington In December 2004, Charlotte Russe entered into a Master Service Agreement with AuBeta Network Corporation for communication services at its retail stores. Just before it was to terminate in March 2007, received a proposed amendment to the Master Service Agreement and their services would be shut off if they did not sign

Two months later, Russe beleived the Amendment was unenforceable Decision: Russe had established defense of duress and remanded for further proceedings

A(n) ____ is the result of an error by one party about a material fact. If both parties to a contract are mistaken about a material fact, either can opt to rescind it. This is know as a(n) ____

Unilateral mistake; mutual mistake

Suppose you entered into a contract to clean someone's pool. Then, both you and the pool owner discovered that the pool water has produced toxic levels of chlorine over time. As a result, you cannot clean the pool without first decontaminating it. This change in knowledge about the toxicity levels of the pool is considered a material fact in the agreement. Can you rescind the contract?

Yes, this seems like a mutual mistake

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

Undue Influence

a situation in which one person has taken advantage of his or her dominant position in a relationship to persuade the other person the 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

Voidable

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

Misrepresentation

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

Undue Influence Ex

attorney, doctor, guardian, relative

Warning: Anticipate ambiguity in the material facts and

clarify them in advance to save yourself headaches later

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

duress

When both parties are mistaken about a current or past material fact

either can choose to rescind the contract

Nondisclosure

failure to provide pertinent information about the projected contract

Mistakes do not result

from untrue statements of the other party to the contract

In contract law, a(n) ____ is an erroneous belief about the facts of the contract at the time the contract is concluded

mistake of fact

Major Obstacles to genuine assent

mistake, misrepresentation, undue influence, duress

A party who rescinds a contract ___ whatever they received from the other party

must return

Suppose an operator of a weight scale certifies the weight of a good that is for sale. However, the accuracy of the scale has not been checked in years, even though the weight scale operator could have easily checked the accuracy of the scale. The scale gave an improper weight

negligent misrepresentation

The effect of both ___ and __ is that the victim can either rescind the contract or keep the contract and sue for damages

negligent misrepresentation; fraudulent misrepresentation

Any fraud on the part of a party to a contract

provides a basis for rescission

Concealment

the active hiding of the truth about a material fact

Mistakes 1. Unilateral

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

Jane is Harriet's caregiver. If Jane convinces Harriet to changer her will and leave Jane all of her possessions, the will may be voidable due to

undue influence

If one party threatens physical harm or extortion to gain consent to a contract, then that contract is

voidable

Duress Examples 1. One party threaten physical harm or extortion to gain consent to a contract

2. One party threatens to file a criminal lawsuit unless consent is given to the terms of the contract 2. One party threaten's the other's economic interests

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

2. The mistake was caused by clerical error that did not result from gross negligence

3. The mistake was so serious that the contract was unconscionable, that is, so unreasonable that is is outrageous

Negligent Misrepresentation

A false statement of material fact made by a person 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.

IN contract to undue influence, ___ is a much more visible and active interference with free will

duress