Contract Law—Reality of Consent
Several related concepts causing contracts to be
Each provides a defense to a breach of contract suit
The rationale for each is that, despite the objective
appearance of an agreement, there was a lack of
completely voluntary consent by one party.
Contracts induced by fraud, innocent misrepresentation,
mistake about basic facts, duress, undue influence (this
one is rare)
Fraud & Innocent Misrepresentation
Misrepresentation of “fact”
What is Not a fact?
Ways to make a misrepresentation?
Intent to deceive (“scienter”)
How to prove it
What difference does it make?
Ex. of when there’s no reliance
What about a victim who wasn’t sufficiently vigilant?
Sarvis v. Vermont State College, p. 358
Compare these facts to each requirement for proving fraud.
How does it come out?
Conclusion & rationale?
In this case, did it matter whether scienter was proved by the
Darst v. Illinois Farmers Insurance Co., Ind. Ct. App., 1999
While driving, Bert Sloan was rear-ended by Weger. Sloan was insured by Illinois
Farmer’s Ins. Co., & Weger by Sagamore Ins. Co. Sloan had several conversations
with Kelly, the adjuster for Weger’s ins. co. (Sagamore). In one phone
conversation, Kelly asked Sloan what he though would be a fair settlement for his
personal injuries. Poor stupid Sloan said that $15K would “take care of him and
anything that would pop up later on.” Kelly said that $4K was the most he could
offer. Sloan said he would discuss with his wife Lavonna and call Kelly back.
Sloan did, & his wife told him to see an attorney. Sloan didn’t do that, but then spoke
with a rep. from his own ins. co. (Ill. Farmer’s), who told him that it wouldn’t do
any good to talk to an attorney, because the atty. would get a cut & Sloan wouldn’t
end up with any more $$ in his pocket. Then, Sloan asked his ins. co. rep. if he
thought that the $4K offer was a fair settlement, and the rep. said yes. Sloan then
accepted the $4K offer from Weger’s ins. co. as a settlement of all claims for
personal injuries, including any that might manifest themselves later (as injuries
from accidents sometimes do, or sometimes injuries later turn out to be worse than
first thought by the physicians).
Sloan’s injuries did turn out to be a lot worse. He & his wife went bankrupt, & the
trustee for the bankruptcy estate (Darst) sued Ill. Farmers for fraud (Sloan’s
release of Weger & Sagamore had the effect of relieving Sloan’s own ins. co. (Ill.
Farmers) from liability on its uninsured/underinsured coverage of Sloan. Was there
either fraud or innocent misrepresentation?
Steinberg v. Chicago Medical School, Ill. Sup. Ct., 1977
The Chicago Medical School’s (CMS) bulletin (i.e., its catalog) stated that applicants
would be selected “on the basis of academic achievement, Medical College
Admission Test (MCAT) results, personal appraisals by a pre-professional advisory
committee or individual instructors, and the personal interview, if requested by the
committee on Admissions.” In response to this bulletin, Steinberg sent his
application (& complied with all application requirements) and non-refundable
application fee. (Steinberg thus made an offer.) CMS accepted his application &
fee. (Contract—what were the contractual obligations?)
Steinberg was denied admission. Because of his qualifications, he was very suspicious-
he got a lawyer & sued. The evidence showed that, over a period of years, CMS had
accepted applicants more on the basis of how much money they and their families
had donated than on objective qualifications—actually, much more on the basis of
$$ than qualifications. The trial judge dismissed the claim because CMS had merely
made a promise about how they would evaluate applicants, not a misrepresentation
of existing fact. Thus, the trial court held, there could have been a breach of
contract, but not fraud and its much greater damage award possibilities (punitive
damages, particularly) than breach of contract. Steinberg appealed.
Conclusion & rationale? [Note: Was Steinberg seeking rescission of the contract or
was he suing for the tort of fraud?]
Cousineau v. Walker, Alaska Sup. Ct., 1980
Devin & Joan Walker owned approx. 9 acres of land in Eagle River, Alaska. One yr.
after acquiring it, they put it up for sale through a realtor. Their description of the
property, which was in the advertised listing, stated that the property had 580 feet
of highway frontage and further stated that an engineer’s report revealed the
property as having over 1 million cubic yards of gravel (pretty valuable stuff). After
this listing agreement w/the realtor expired, the signed another one restating the
580 ft. of frontage, but stated that the land had a minimum of 80,000 cubic yds. of
gravel. They had gotten the original info. about the engineer’s report of 1 million
cu. yds. from the people they had bought it from, but they had never seen the
report. The evidence didn’t show why they then changed it to 80,000 cu. yds.
Cousineau was a building contractor who was also in the gravel extraction business.
He was interested in the property, and investigated the amt. of frontage road. He
tried to measure it but there was a lot of snow on the property & he couldn’t find
any stakes. An appraiser hired by Cousineau also couldn’t find any stakes at the
time. Cousineau contracted to buy the property for $380K, and started digging for
gravel. The gravel ran out when he had removed only 6,000 cubic yards. A
subsequent survey showed that the actual road frontage was 410 ft., not 580 ft. He
sued the Walkers to rescind the contract and get back his $380K minus the value of
the gravel he had extracted. The trial court held for the Walkers because
Cousineau had made very inadequate efforts before buying to determine the road
frontage or to get a reasonable estimate of the actual amount of gravel (such as by
core samples). Cousineau appealed. Result?
When silence (nondisclosure) can be fraud
Latent . . .
Superior . . . . (objective, not subjective)
Change in the facts after statement & bef. contract
Stambovsky v. Ackley, p. 362
Court viewed these facts as showing
Nondisclosure of a material fact by someone with superior
Nondisclosure of a material fact that amounted to a “latent
defect” in the real estate.
Duty to disclose by one with “superior knowledge” normally
doesn’t apply to someone like the homeowner; the real estate
agent, perhaps, but not the owner. But, the court seemed to
treat the claim against both the owner and the realtor the
Also, this is really stretching the idea of a latent defect.
What the law is in most states re ghosts, axe murders, etc.
Mistake of Fact
Again, “fact” & “material”
Mistakes about value?
Mistakes about law?
Mutual (book says “bilateral”) vs. Unilateral Mistakes
General rule regarding unilateral mistakes?
Exceptions—when a unilaterally mistaken party may be able to
rescind a contract.
Non-mistaken party knew . . .
Or should have known . . .
Some courts have become more lenient in recent years,
when performance hasn’t begun & other party won’t be hurt.
Beachcomber Coins v. Boskett, Superior Ct. of NJ, 1979
Conclusion & rationale
Why did the trial court dismiss Boskett’s attempt to rescind the
contract & get his money back from the seller?
Why did the app. ct. reverse?
In what types of situations would the trial court’s decision
about assumption of risk have been correct?
Bank One v. Beckey, TX. Dist. Ct., 1996
Beckey made a deposit of $2,140.45 in Bank One, here in Austin. An
employee of the Bank mistakenly inserted an extra zero when crediting
her account, thereby making the deposit $21,040.45, a total of $18,900
more than it should have been. Only later did the Bank learn of its clerical
mistake. The Bank asked Beckey for the money back. She refused. The
Bank sued, claiming the right to rescind the transaction on grounds of
Conclusion & rationale?
Irmen v. Wrzesinski, Illi. Sm. Cl. Ct., 1990
In his second or third day in the baseball card business, Irmen was swamped
with customers and asked a woman from the shop next door to help him.
Twelve-year-old Brian Wrzesinski, owner of 40,000 baseball cards that he
had collected over a period of several years, walked into the store and
noticed a 1968 Nolan Ryan rookie card on display in mint condition. The
card carried a price sticker of “$1200/.” Brian asked the substitute clerk if
the price was $12. She said “yes,” and he bought it. However, the sticker
was supposed to indicate a price of twelve hundred dollars, the card’s
approximate market value. When Irmen discovered the sale, he tried to
get the card back. Brian refused to return it. Irmen sued to rescind the
sale on grounds of mistake, get the card back, & give Brian his $12 back.
Conclusion & rationale?
Konic Inter’l v. Spokane Computer Serv., Id Ct. App., 1985
David Young, an employee of Spokane Computer Services (SCS), was instructed
by his employer to investigate the possibility of purchasing a piece of
electrical equipment. Young's investigation turned up several units priced from
$ 50 to $ 200, none of which, however, were appropriate for his employer's
needs. Young then contacted Konic. After discussing SCS’s needs with a
Konic engineer, Young was referred to one of Konic's salesmen. Later, after
deciding on a certain unit, Young inquired as to the price of the selected item.
The salesman responded, "fifty-six twenty." The salesman meant $ 5,620.
Young thought he meant $ 56.20, ordered the item, & Konic shipped it to SCS,
where it was installed. SCS’s president was out of the country when the item
was shipped to SCS & installed; upon his return one day after the shipment &
installation, he immediately recognized that the item was of a much higher
level than SCS needed, and was far more expensive than SCS could afford.
SCS received an invoice for $5,620. SCS’s president offered to return the item
to Konic—it could be uninstalled & returned without damaging it. Konic said
no & demanded payment. SCS refused to pay & Konig sued for breach of
contract. Should SPS be able to rescind the contract?
Wilkin v. First Source Bank, Ind. Ct. App., 1990
Olga Mestrovic, the widow of internationally known sculptor & artist Ivan Mestrovic,
owned a large number of works of art created by her deceased husband. Olga died,
leaving a will in which she directed that all the works of art by her husband were to
be sold & the proceeds distributed to surviving family members. She also owned a
large old home, which was also to be sold. First Source Bank (FSB) was the
executor of her estate, and contracted to sell the home to Mr. & Mrs. Wilkin. Before
the contract was made, there were many discussions between the Wilkins & bank
representatives about the many items that remained in the house. They agreed
that, in addition to the house, the Wilkins would buy a number of items of furniture,
appliances, etc. for a certain price. In their discussions, everything else was
referred to by both parties as “junk, rubbish, etc.”, of which there apparently was a
After taking possession of the house, the Wilkins complained to the bank about all of
the “junk” in the attic. The bank rep. gave them 2 choices: The bank would either
hire a rubbish removal service to clean the attic, or the Wilkins could do it
themselves & keep anything they wanted from the attic. The Wilkins chose the
latter, and when they cleaned out the attic, they found several very valuable works
of art hidden under and behind the junk. In the probate of Olga Mestrovic’s estate,
the Wilkins claimed ownership of the art under their contract with the bank.
Conclusion & rationale?
Totem Marine v. Alyeska Pipeline, Alaska Sup. Ct., 1978
Conclusion & rationale?
How did these facts meet the requirements of economic duress?
Could the court have reached the same result using a different
Hall v. Ochs, U.S. Ct. of App., 1st Cir., 1987
Hall, a black man, drove to pick up his daughter who had spent the night at a
friend’s house after the two girls had competed together at a track
meet. It was a sleepy Sunday morning in Milton, Mass., an all-white
suburb south of Boston. A suspicious neighbor (and obviously a bigoted
moron) called the police, who arrived, prevented the Halls from getting
into their car, and arrested Mr. Hall. Obviously, bigoted moron police
officers, too. The officers took Hall to the police station where they
started to realize that there might be a small problem with the arrest
since Hall had done absolutely nothing wrong. An officer told Hall that
he could leave immediately if he signed a release promising not to sue
the police, but that he would be held for a bail hearing if he refused. He
signed & was released. Then he sued in federal court for a violation of
civil rights laws and for the tort of false imprisonment. The City of
Milton and the police officers raised the release as a defense. Was Hall
legally bound by the contract of release?
Conclusion, rationale, and result?