Genuineness of Assent
A closer look at the first required
element of a K...
AGREEMENT
Quick Review of Agreement
An offer made by one party, assented to
(accepted) by another party
Manifestation of mutual assent to the
same bargain
Mirror Image Rule
acceptance must match offer exactly
detailing the Honda?
Legal Reality of Consent
K may be subject to avoidance (rescission)
because of lack of real consent
There is a problem with the agreement if it
was obtained through:
misrepresentation (non-fraudulent)
fraud
mutual mistake
duress
undue influence
If you‟re assent wasn‟t genuine...
...you can
enforce the K
why would you want to?
disaffirm
an action for rescission
sometimes you can get damages
and if you‟re challenged, use defense of
lack of genuineness of assent
MISTAKE.... ooops!
“occurs in the formation of a K
where the party or parties to the K
believe that a past fact which is
material to their transaction exists
when in reality it does not, or
believe it does not exist when in
reality it does”
Distinguish between...
unilateral and bilateral
mistakes as to material facts
mistakes of judgment as to value or
quality
which warrant K rescission?
Unilateral v. Bilateral Mistakes
Unilateral Mistake Bilateral Mistake
Only one party to the K is Determine what mistake
mistaken as to a material is about...
fact If about a material fact:
Generally, does not terms
afford mistaken party identity of parties
relief existence, nature,
Exceptions quantity of the subject
other party knows or matter
should have known of Peerless
mistake ...then mistake allows
inadvertent math error, rescission by either party
without gross at any time
negligence
Bilateral (Mutual) Mistakes in Value
Value is established at the moment of
agreement...
what is value subject to?
Mistake as to value almost never justifies
avoidance of the K… why?
but... if mistake in value includes a mistake as to a
fact, K may be avoided
barren cow; Mestrovic deal; Stradivarius
Mistake in value d/n/e mistake in fact!!!
Misrepresentation (non-fraud)
innocent misrepresentation of a material
fact upon which a party justifiably relied
as an inducement to enter a K to their
detriment...
huh?
“The Honda only has 25,000 miles on it”
Voidable... no tort remedy available...
Should have known better....
Negligent Misrepresentation
“Sure, the „89 Honda‟s only got 20,000
miles on it...”
... sold by a used car dealer?...
Culpable ignorance of the truth
you might have a duty to know...
Essentially treated as fraudulent
misrepresentation, even though it wasn‟t
intentional...
FRAUD!!!
It‟s a tort
What do you need to show it occurred?
Misrepresentation of a material fact
Intent to deceive (scienter)
Justifiable reliance on the
misrepresentation
... and to recover damages, must show
some injury
Misrepresentation of a Material Fact
In words or action (conduct)
Concealment (either by action or
inaction)
There might be an expectation that you
will use due care and judgment
Predictions, sales puffery, opinions are
not normally subject to fraud claims
subjective v. objective
Misrepresentation....
But wait...
expert opinions
unfair advantage
novice relying on expert
e.g., Arthur Murray Dance School case
Misrepresentation of Law
ordinarily, no relief
Why?
unless relying on an expert... brokers, etc.
Can you misrepresent by saying
nothing?
No duty to inform contracting party of facts....
except
• latent defects (not normally discoverable) causing
danger (defined as injury or detriment)
• seller w/ superior knowledge may not conceal
facts knowing other party lacks knowledge
• previous misstatement require correction
• fiduciary or confidential relationship
• sometimes, statutes require disclosures... e.g.,
prospectus
Scienter
• “Intent to deceive”
means guilty knowledge
knowledge of falsity
reckless - assertion of a fact, when party
asserting it had no reason to do so
you might have duty to know truth...
making statement with no basis for belief
might provide requisite scienter for finding
of fraud...
Justifiable Reliance
Reliance on the misrepresentation must
be based on a justifiable reason
misrepresentation must also be an
important factor in inducing the party to
enter into the K
why?
subjective test (Do not use reasonable person
test. Question is not “should it have happened?”,
but “did it happen?”)
Injury to Innocent Party
Some courts don‟t require injury be
shown if only rescission of K is sought
But... for damages to be recovered, all
courts require a showing of injury
What‟s the remedy?
benefit of the bargain
sometimes, punitive or exemplary
damages
Differentiating Fraud and
Misrepresentation
Common elements
Misrepresentation of a fact
Materiality of fact
Justifiable reliance
Injury or detriment
Distinguishing elements
knowledge of falsity
intent to deceive
justifiable silence (no = fraud)
Two Types of Fraud
Fraud in Inception Fraud in Inducement
(Fraud in Execution) innocent party knows
occurs if the person what she is signing, or
knows the stated
is deceived as to the purpose of the K, but has
nature of his act, and been fraudulently
does not know what induced to enter into K
he is signing K is voidable at the
K is void
option of the innocent
party
autograph example
oil well... Production
immigrant lacking capacity; no liens on
knowledge of English property for sale
Undue Influence
occurs when the dominant party in a
confidential or fiduciary relationship
secures an unfair advantage in a K with
a dominated party
arises where there is some kind of special
relationship
minor and guardian
incompetents
elderly
Undue Influence
“To what extent was the transaction induced
by domination of the mind?”
examination of mental state to indicate if
transaction should be deemed unfair
Rebuttable Presumption in fiduciary and
confidential relationships... rebut by showing:
full disclosure
adequate consideration
competent independent advice was received
Duress
Any wrongful threat made toward a person
whereby that person is forced by fear to
enter a K against his will
Assent induced by fear of:
bodily harm (to self or family)
criminal prosecution (what about civil?)
destruction of property
Subjective Test: did threat actually induce
assent on the part of person claiming to be
victim?
Duress v. Undue Influence
Don‟t confuse them!!!
Coercion v. Persuasion (need relationship)
Unconscionable Clauses
Superior Bargaining Position
Unfair advantage
K for sale of goods (b/c its in the UCC)
Examples:
Adhesion Ks... broad exculpatory Ks; strong arm
terms....
unreasonably small or large liquidated damages
terms that attempt to eliminate product liability...
Adhesion Contracts
Not per se unenforceable
What must be shown?
Substantially unequal bargaining power
Enforcement is manifestly unfair
How do we show it, and what are the
potential problems?
Problem 14-1
Undue Influence
arises from special kinds of relationships...
one party greatly influences other...
overcoming free will
Questions to ask:
to what extent was the transaction induced
by a domination of the mind or emotions of
the person in question?
Problem 14-1
Voidable K
Is there Duress?
likely not...
need coercion for duress.... forcing a party
to enter into a K under fear of threat
Problem 14-2
Elements of Fraudulent
Misrepresentation
misrepresentation of a material fact
intent to deceive
justifiable reliance
for damages... must show injury
Is a statement of opinion as to future
event a misrepresentation?
Problem 14-2
Justifiable Reliance
Who has the books?
Which elements are missing?
Failure to disclose
Was information reasonably expected to
be discovered?
Problem 14-2
Questions:
Duty to disclose? Non-fiduciary
relationship?
Prediction of future profits = opinion or a
statement of fact?
Was there justifiable reliance by Tanner
books were available to Tanner
can Tanner reasonably find out about
overpass?
Problem 14-3
A) Bilateral mistake.... value question or
identity question?
Both mistaken as to the Subject Matter... K can be
rescinded by either
B) K as a result of threat of criminal
prosecution = duress....
voidable regardless of guilt
Problem 14-4
Elements of Fraudulent
Misrepresentation?
misrepresentation of a material fact
intent to deceive
justifiable reliance
for damages... must show injury
What‟s missing?
Problem 14-5
Was mistake by Lanci known to
Metropolitan or should it have been?
Basic assumption under which the
contract was made?