Contracts: Genuineness of Assent

Introduction

Contract may be unenforceable if the parties have not genuinely assented to its terms by:

§ Mistake.

§ Misrepresentation.

§ Undue Influence.

§ Duress.

Mistakes of Fact

Only a Mistake of Factallows a contract to be canceled.

Bilateral (Mutual) Mistakes can be rescinded by either party.

Unilateral Mistakes cannot be canceled unless:

If other party to the contract knows or should have known that a mistake of fact was made.

If mistake was due to mathematical mistake in addition, summation, subtraction, division, or multiplication and was made inadvertently and without gross negligence.

Mistakes of Value

Generally, contract is enforceable by either party.

Exception: Mistake of value because of a mistake of material fact.

Fraudulent Misrepresentation

Contract Voidable by Innocent Party.

Elements:

Misrepresentation of Material Fact.

Intent to Deceive.

Reliance on Misrepresentation.

Injury to the Innocent Party.

Misrepresentation Has Occurred

Misrepresentation can be express or implied.

§ Concealment.

§ Misrepresentation of future facts and statements of opinion are not fraud, unless person professes to be an expert.

§ Misrepresentation of Law is not fraud, unless person has greater knowledge of the law.

§ Silence is not fraud, unless serious problem or defect known or asked and person lied.

Case 13.1: Vokes v. Arthur Murray Inc. (1968).

Intent to Deceive

Scienter is an Intent to Deceive.

§ Party knowledge that fact is not as stated.

§ Party makes a reckless statement with disregard of the truth.

§ Party implies that statement is based on personal knowledge or investigation.

Gross negligence is considered intent.

Case 13.2: Sarvis v. Vermont State Colleges (2001).

Reliance on Misrepresentation

Deceived party must have Justifiable Reliance.

§ Depends on the knowledge and experience of the party relying

Case 13.3:  Folet v. Parlier (2002).

Injury to the Innocent Party

No proof of injury is required when the action is to rescind contract.

Proof of injury is universally required to recover damages.

Nonfraudulent Misrepresentation

Innocent Misrepresentation.

Negligent Misrepresentation.

§ Equal to Scienter.

§ Is treated as fraudulent misrepresentation, even though the misrepresentation was not purposeful.

Undue Influence

Contract is Voidable.

§ Confidential or Fiduciary Relationship.

§ Relationship of dependence.

§ Influence or Persuasion.

§ Weak party talked into doing something not beneficial to him or herself.

Presumption of Undue Influence.

Duress

Forcing a party to enter into a contract under fear or threat makes the contract voidable.

Threatened act must be wrongful or illegal.

Improper Threat.

§ Threat to exercise legal rights (criminal or civil suit).

§ Economic or physical.

Adhesion contracts and Unconscionability

Adhesion Contracts.

Preprinted contract in which the adhering party has no opportunity to negotiate the terms of the contract.

Unconscionability.

One sided bargains in which one party has substantially superior bargaining power and can dictate the terms of the contract.

•    “Standard-form.”

•    “Take-it-or-leave-it” adhesion contracts.