Business Law Chapter 13

Elements of Fraud

1. The wrongdoer made a false representation of material fact 2. The wrongdoer intended to deceive the innocent party 3. The innocent party justifiably relied on the misrepresentation 4. The innocent party was injured Fraudulent contracts are voidable by the innocent party

Mutual Mistake of a Material Fact

A mistake made by both parties concerning a material fact that is important to the subject matter of a contract. If there has been a mutual mistake, the contract may be rescinded on the grounds that no contract has been formed because there has been no "meeting of the minds" between the parties.

Mutual Mistake of Value

A mistake that occurs if both parties know the object of the contract but are mistaken as to its value. Here, the contract remains enforceable by either party because the identity of the subject matter of the contract is not at issue

Duress

A situation in which one party threatens to do a wrongful act unless the other party enters into a contract. Contracts made under duress are not enforceable

Rescission

An action to undo a contract. The law permits rescission of some contracts made in mistake

Fraud in the Inception

Fraud that occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing. These contracts are void rather than voidable

Innocent Misrepresentation

Fraud that occurs when a person makes a statement of fact that he or she honestly and reasonably believes to be true even though it is not. This is often treated as mutual mistake and the contracts can be rescinded (the aggrieved cannot sue for damages however)

Fraud in the Inducement

Fraud that occurs when the party knows what he or she is signing but has been fraudulently induced to enter into the contract. Such contracts are voidable by the innocent party

Fraud by Concealment

Occurs when one party takes specific action to conceal a material fact from another party

Unilateral Mistake

Occurs when only one party is mistaken about a material fact regarding the subject matter of the contract. In most cases of unilateral mistake, the mistaken party will not be permitted to rescind the contract. The contract will be enforced on its terms. Exceptions: 1) One party makes a unilateral mistake of fact, and the other party knew (or should have known) that a mistake was made. 2) A unilateral mistake occurs because of a clerical or mathematical error that is not the result of gross negligence. 3) The mistake is so serious that enforcing the contract would be unconscionable.

Equitable Doctrine: Undue Influence

The courts may permit the rescission of a contract based on the equitable doctrine of undue influence. A contract that is entered into because of undue influence is voidable by the innocent party. Elements needed to show undue influence: 1) a fiduciary or confidential relationship existed between the parties and 2) The dominant party must have unduly used his or her influence to persuade the servient party to enter into a contract.

Misrepresentation of the Law

The innocent party cannot rescind the contract. The major exception is if the innocent party was wronged by a professional in that field who should know the law

Genuineness of Assent

The requirement that a party's assent to a contract be genuine.