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Chapter9

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									Chapter 9
Misrepresentation, Undue Influence & Duress
Business 4000
Chapter 9                Misrepresentation, Undue
                         Influence and Duress
Misrepresentation
Fraudulent
   Statement is known to be false, or there is willful (reckless)
    disregard of its falsity
   Contract is voidable and the victim is entitled to damages
    for the tort of deceit (intentional tort)
Negligent
   Doesn’t require an intent to deceive; only a breach of the
    duty of care
   Contract is voidable and the victim is entitled to damages
    for negligence
Business 4000
Chapter 9                     Misrepresentation, Undue
                              Influence and Duress
Innocent
   Even if the statement is innocent, the victim may still get relief
    if the misrepresentation is material
        A material misrepresentation is one that could reasonably be expected to
         influence the party to enter into a contract
   Victim may repudiate contract if:
        act promptly after becoming aware of the truth (can’t continue to receive
         the benefits) and
        no innocent third party is adversely affected;
   Victim may ask that the contract be rescinded and seek
    indemnity or compensation for expenses incurred in performing
    the contract
   May become negligent or fraudulent if the party making the
    statement fails to advise of the truth once the mistake is realized
Business 4000
Chapter 9              Misrepresentation, Undue
                       Influence and Duress
Opinion vs. Fact
   Opinions usually don’t amount to
    misrepresentation, even if subsequently found to
    be incorrect
   BUT an expert opinion is equivalent to a
    statement of fact
       An “expert” is someone purporting to have specialized
        knowledge of a subject (Recall Ch. 4: Professional
        Liability)
Business 4000
Chapter 9                Misrepresentation, Undue
                         Influence and Duress
Misrepresentation by Omission
   General rule: the signer of a document is presumed to have
    accepted all of its terms
   Can be rebutted if:
       the document was signed hurriedly,
       without an opportunity to read or understand it, and
       when the other party has good reason to suspect that the
        signer may not fully comprehend its implications
   Failing to point out certain terms that are different from
    those the signer might reasonably expect amounts to
    misrepresentation by omission
       Court may strike down such terms
Business 4000
Chapter 9                     Misrepresentation, Undue
                              Influence and Duress

Contracts Requiring Disclosure
   Where one party has special knowledge not available to the
    other
   Utmost good faith is required
   Examples:
       Insurance Contracts
            The applicant must disclose all information necessary to determine
             whether to insure and how much to charge
       Sale of Corporate Securities
            All relevant information must be disclosed in the
             prospectus/notices/letters
       Other relationships having a special measure of trust/knowledge
            Partners, corporate directors, continuing business relationships,
             lawyer/client, doctor/patient, etc.
Business 4000
Chapter 9           Misrepresentation, Undue
                    Influence and Duress

Undue Influence
   Mental domination of one party by the other to
    such a degree that it robs the weaker person of
    their free will
   Contract is voidable at the option of the victim
    provided they act promptly upon being freed from
    domination
Business 4000
Chapter 9                Misrepresentation, Undue
                         Influence and Duress
Burden of Proof for Undue Influence
   Party alleging undue influence must satisfy court that in
    the circumstances domination was probable
       Will be presumed where a special relationship exists
       Could also arise from dire circumstances
   Burden then shifts to other party to prove that undue
    influence was not exerted
       Difficult to prove as the advantage may have been obtained
        unconsciously (“constructive fraud”)
       Court will look at the degree of domination (personalities)
        and the extent of the advantage (market values)
Business 4000
Chapter 9                 Misrepresentation, Undue
                          Influence and Duress

Independent Legal Advice
   Common business practice used to avoid subsequent claims
    of undue influence
       Often relating to guarantees or pledges of security
   “Dominant” party and/or its creditors keenly interested in
    ensuring that the contracts with the “subordinate” party are
    enforceable
   Practice is to refer subordinate party to an independent
    lawyer to obtain advice on the implications of signing the
    document
       That lawyer will provide certificate that such advice was
        given to and understood by the client and that the contract
        was freely entered into
Business 4000
Chapter 9              Misrepresentation, Undue
                       Influence and Duress
Duress

   Use of actual or
    threatened violence as
    a means of coercing a
    party to enter into a
    contract.



    “I’m gonna make him
    an offer he can’t
    refuse”.
Business 4000
Chapter 9           Misrepresentation, Undue
                    Influence and Duress
Duress
   Voidable at the option of the victim provided
    he/she repudiates promptly once free from violence
    or threat of violence
   Rare and difficult to prove

								
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