Chapter 17 - Legal Assent

Examples of Duress

1. Threat of physical harm or extortion to gain consent to a contract 2. Threaten to file a criminal lawsuit or frivolous civil lawsuit 3. Threaten the other's economic interests

Legal Assent

A promise the courts will require the parties to obey

Concealment

Active hiding of the truth about a material fact

Mistake of Fact

An erroneous belief regarding material facts of the contract at the time agreement made Legal assent absent when a mistake of fact occurs Mistakes of value usually do not result in a lack of assent

Arnold V. United Companies Lending Corporation

Contract mandating arbitration for disputes brought by borrower while lender could file a lawsuit was unconscionable

Recision elements

Courts permit contract rescission for fraudulent or negligent misrepresentation, assuming: False Assertion of Fact Concealment - Active hiding of the truth about a material fact Nondisclosure - Failure to provide pertinent information Intent to Deceive - When a party making a false statement claims to have or implies having personal knowledge of its accuracy Justifiable Reliance on the False Assertion

Cruse v. Coldwell Banker

Facts: Plaintiffs wanted to purchase a new home, and knew that someone was occupying the home, but the Defendant referred to the home as new. Plaintiffs wanted to get a home inspection, but Defendant encouraged them not to. Plaintiffs bought the home and discovered many defects and sued for misrepresentation. Issue: Can the Plaintiffs claim misrepresentation when they declined to have the home inspected, and bought it "as-is?" Yes. Reasoning: Defendant's statements went beyond mere sales talk. He misrepresented material facts. Plaintiffs relied on these representations in deciding not to hire an inspector. The fact that Plaintiffs knew the house was occupied and signed an "as is" agreement may or may not be significant—this is a question for the jury.

Simkim v. Blank

Facts: Steven Simkin and Laura Blank divorced in 2006, and split their $13.5 million in assets. However, most of Simkin's allocated assets were lost as a result of Madoff's Ponzi scheme. Simkin asked Blank if they could renegotiate the contract regarding the splitting of their assets, but she refused. He sued, arguing that his funds never existed as a result of the Ponzi scheme, and also that he and his wife had shared in investing in Madoff's project, but only Simkin had reaped the negative consequences. Issue: Can Simkin seek to renegotiate a divorce contract under a theory of mutual mistake? No. Reasoning: Under the theory of mutual mistake, the mistake must be so important that it goes to the foundation of the agreement. A mutual mistake must exist at the time a contract is created, but at the time of the divorce agreement between Simkin and Blank, no mutual mistake existed. Because no mutual mistake exists, the court ruled in favor of Blank.

Nondisclosure

Failure to provide pertinent information

Fraudulent Misrepresentation

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

Mutual Mistake

Mistake made by both parties -If mutual mistake of material (significant) fact, either party can rescind contract Elements: -A basic assumption about the subject matter of the contract -A material effect on the agreement - changes the essence of the agreement -An adverse effect on a party who did not agree to bear the risk of mistake at the time of the agreement

Unilateral Mistake

Mistake made by one contracting party Usually does not void a contract Rescission is permitted on rare occasions -One party made a mistake of material fact and the other party knew or had reason to know about the mistake -Mistake was caused by clerical error that was accidental and not caused by gross negligence (accidently write 500 instead of 5000) -Mistake was so serious that the contract is unconscionable

Major "obstacles" to legal assent

Mistake, misrepresentation, undue influence, duress and unconscionability

Importance of legal assent

Provides businesses with the assurance that their agreements will be honored or are enforceable

Innocent Misrepresentation

Results from a false statement about a material fact that a person made believing it to be true If a person had no knowledge of a falsity, they lacked scienter (knowledge) The misled party may rescind the contract, similar to mutual mistake, but damages are not permitted

Adhesion Contract

Standard form contract that is one-sided, and the other party has little or no ability to negotiate

Factors that enter into the finding of undue influence

Was dominant party rushing the other party to consent? Did the dominant party gain undue enrichment from the agreement? Was the non-dominant party isolated from other advisers at the time of agreement? Is the contract unreasonable because it overwhelmingly benefits the dominant party?

Intent to Deceive

When a party making a false statement claims to have or implies having personal knowledge of its accuracy

Negligent Misrepresentation

Negligent, untruthful assertion of material fact by contracting party Aggrieved party can rescind contract, and sue for damages

Unconscionability

Occurs when one party has so much relative bargaining power that he/she effectively dictates terms of contract, resulting in situation where dominated party, in essence, lacks free will

Duress

Occurs when one party threatens other with wrongful act unless assent given Contracts are voidable For courts to rescind agreement, injured party must prove duress left no reasonable alternatives to contractual agreement

Misrepresentation

Similar to mistake in that at least one party is in error about a material fact, however it is caused by an untruthful assertion by one of the parties about a material fact in a contract

Undue Influence

Special Relationships in which one person takes advantage of a dominant position in a relationship to unfairly persuade the other and interfere with that person's ability to make his or her own decision Contracts are voidable