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Chapter 8 GENUINE AGREEMENT
OBJECTIVES • Define genuine agreement and rescission • Identify when duress occurs • Describe how someone may exercise undue influence • Describe the kinds of mistakes that can make a contract void or voidable • Determine when misrepresentation has occurred • Identify when fraud has occurred • Discuss the remedies for mistake, misrepresentation, and fraud
HOT DEBATE, pg 114 • Where do you stand???
Chapter 8-1 • Goals: • Define genuine agreement and rescission • Identify when duress occurs • Describe how someone may exercise undue influence
1. What is genuine agreement? • Read ‘What’s your verdict?’, page 115 • An agreement to enter into a contract that is evidenced by word or conduct between the parties • AKA Genuine assent or mutual assent
2. Genuine Agreement may be lacking due to … • Fraud • Misrepresentation • Undue Influence • Duress • Mistake
3. Voidable Contract • Voidable – a contract in which the injured party can withdraw, thus cancelling the contract • A contract is voidable in the absence of genuine agreement • The injured party can RESCIND
4. Rescission and Ratification • Rescission: backing out of the transaction by asking for the return of what you gave and offering to give back what you received • Must be PROMPT!! • Must be done shortly after you discover there is no genuine assent • Must occur BEFORE ratification of the contract • Ratification: Conduct suggesting you intend to be bound by the contract • READ In this case, pg 115
Situation… • The Thompsons were told by a man that if they did not sign a contract to repay a $2000 loan at 40% interest, their son would be in danger of physical harm. Afraid the threat would be carried out, the Thompsons signed the contract. • Is it enforceable??? Why or why not??
5. Duress • Occurs when one party uses an improper threat or act to obtain an agreement • If duress is evident the contract is voidable!
6. Examples of Duress 1. Threat of Illegal Conduct • Committing an Act of Violence (ie: stabbing) • Threatening a Crime (ie: threatening to stab) • Committing a Tort (ie: unlawful detention) • Threatening a Tort • Defamation, libel, infliction of emotional distress **Actual crime or tort may be to the physical life, liberty or property of victim, family, or near relatives
Other Examples of Duress 2. Threats to report crimes • May also be extortion – obtain something of value through coercion 3. Threats to sue • Purpose must be UNRELATED to the suit • Ie: If during a divorce, a husband threatens to sue for custody of children if wife doesn’t sign stocks over to him 4. Economic threats • Courts will look at both the THREAT and the ALTERNATIVES to the threatened party • If threatened party had no other choice, but to enter into contract duress • READ: Economic Threats paragraph
Situation… • The IRS assessed a large tax and penalty against Stan. Stan retained Ashley to represent him to reduce the tax and penalty. The last day before the deadline for filing for a reply with the IRS, Ashley refused to represent Stan. She said she would reconsider if Stan signed an agreement to pay a much higher fee than originally agreed for her services. • Is this agreement enforceable?
7. What is Undue Influence? • Undue Influence – occurs when one party to the contract is in a position of trust and wrongfully dominates the other party • The dominated person does not exercise free will in accepting favorable terms
8. Two Key Elements in Undue Influence: A. The Relationship: • A relationship of trust, confidence or authority between the two parties of a contract • Formal relationship is NOT necessary • EXAMPLES B. Wrongful or Unfair Persuasion • Difficult to prove in court • Courts look at unfair terms in contract • To prevent this, the stronger party should act with honesty, fully disclose all important facts, insist weaker party obtain independent counsel * Nagging and persuasion do not necessarily mean undue influence occurs
9. The Lindbergh Kidnapping Case • Read: Law in the Media, pg 116 • When the press descended upon the grounds of the Lindbergh mansion, they trampled over everything they could have used for evidence. What could have been done to prevent this? UNDUE MEDIA INFLUENCE: • The media declared Hauptmann guilty before he went to trial. Can you think of examples where the modern media has passed judgment on a person accused of a crime?
Quick Re-cap! • What is genuine agreement? • What is rescission and when can it be used? • What is duress? • What are the 2 main parts of undue influence? • How can someone use undue influence in a contractual setting?
TO DO… • Compare and contrast Duress and Undue Influence • Page 118, 1-15 • Undue Influence
Chapter 8-2: Mistake, Misrepresentation, and Fraud • Read, What’s your verdict, pg. 119 • Will he win????
GOALS: • Describe the kinds of mistakes that can make a contract void or voidable • Determine when misrepresentation has occurred • Identify when fraud has occurred • Discuss the remedies for mistake, misrepresentation, and fraud
Ignorance of the law is no excuse!!! • How do you think this statement relates to a person’s failure to read a contract and the voidability of a contract???
10. Unilateral Mistake • UNI – one… LATERAL – related to one side • Occurs when one party holds an incorrect belief about the facts related to a contract • Examples: • Failing to read the contract • Hurried or careless reading of a contract • Signing a contract written in a language you don’t understand • USUALLY not able to rescind
11. Two types of Unilateral Mistakes A. Recognized Unilateral Mistake • If the other party to the contract is aware of the mistake court MAY grant rescission • Read, In this case, page 119 B. Induced Unilateral Mistake • If one party has encouraged the other party to make the mistake, the contract is voidable • Ie: Looking at a tray of diamonds mixed with one CZ, and the jeweler encourages you to choose the CZ and pay a diamond’s price, this was induced
What’s your verdict??, pg 120 • Is the contract valid????
12. What are mutual mistakes? • Mutual Mistake – when both parties have an incorrect belief about an important (material) fact of the contract, AKA: Bilateral Mistake • Material facts: important facts that influence the parties’ decisions about a contract A. Mistake about subject matter B. Mistake about the law In this case, page 120
Situation… • Jane contracts with Mike to purchase one of his two skateboards. Mike thinks Jane has bought the blue one, his less valuable skateboard. Jane thinks she bought the red, more expensive one. • Does a contract exist??? • NO – Mutual Mistake – both were mistaken on subject matter – materiality – central fact to contract.
13. REMEMBER… • Mistakes about subject matter make the contract void for lack of genuine agreement • Mistakes about the law may still result in valid contract, depending on state laws • Ie: Local zoning laws • MOST mutual mistakes create the right to rescind or void the contract
14. What is Misrepresentation??? • Read, What’s your verdict, pg 120 • Innocent Misrepresentation – a party to the contract does not know a statement he/she made is untrue • Fraudulent Misrepresentation – a party to the contract knows that a statement he/she made is untrue * BOTH make contract voidable*
15. Statements are treated as misrepresentation only if: • The untrue statement is ONE OF FACT or there is active concealment, and • The statement is material to the transaction or is fraudulent, and • The victim REASONABLY RELIED on the statement.
16. Untrue Statement of Fact • The statement must be one of ‘past or existing’fact rather than opinion • If EXPERTS express opinion, the law may treat that statement as a statement of fact 1. Active Concealment: a substitute for a false statement of fact • Examples: • 1. Painting the ceiling to cover the roof leaks • 2. If the price sticker is placed over a scratch on a TV
Untrue Statement of Fact 2. Silence: • Remaining silent about defects or allowing mistaken assumption about something • 3 situations where disclosure is required: • Where statement about material fact omits important info (ie: Race car) • When a true statement is made false by subsequent events (ie: Roof leak) • When one party knows the other party has made a mistake (ie: House foundation) Refer to PAGE 121
17. Materiality 1. A statement is material in the following cases: • If a statement would cause a reasonable person to agree to a contract • (total miles on a car, rebuilt engine, baseball card) b. If the defendant knew the plaintiff would rely on the statement * (oil changes) c. If the defendant knew the statement was false *(serviced at local gas station and not dealer)
Fact or Opinion?? • This computer is one year old • The engine has 40,000 miles on it • This dog will be the perfect pet for you! • The suit will create the image you need to double your business. ***************************************** • Why is a person generally not legally required to tell all he or she knows about a product or service being bought or sold???
18. Fraud and Remedies for Fraud • Read, What’s your verdict???, pg 122 • FRAUD: Intentional misrepresentation of an existing or important fact • ALL elements of misrepresentation are required to be considered FRAUD, PLUS • Misrepresentation: Untrue statement of fact, material, reasonably relied • Intent • Injury
19. Misrepresentation must be: • Intentional: when a person deliberately lies or conceals a material fact • To induce victim to contract • Reckless: if a person recklessly makes a false statement of fact, without knowing whether it is true or false OR
20. Misrepresentation or Concealment MUST Injure • There must be proof of injury • Does not have to be physical – can be monetary • If there is a misrepresentation but no injury, there is no fraud
Situation.. • Matt tells Bret: “This Cadillac gets great gasoline mileage. I took it on a trip last week and got over 40 miles to the gallon.” Bret knows about cars and knows the statement is an exaggeration. Still he decides to buy the car from Matt. • If later, Bret changes his mind, does he have an action for fraud when it turns out the car only gets 13 miles per gallon?
21. Remedies for Fraud 1. Rescission: • If the contract is entered into as a result of misrepresentation, the contract is voidable • Must usually return anything received 2. Damages: • Monetary or property damages are available if fraud is proven • May still ratify seek damages for loss created by fraud 3. Punitive Damages: • A form of punishment against the person who committed fraud (ie: Judge awards you $5,000 to punish the party who committed the fraud)
Quick Re-cap! • What kinds of mistakes make a contract voidable? • What items are required for misrepresentation to occur? • What elements are required for FRAUD to occur? • What are the remedies for mistake, misrepresentation, and fraud?
TO DO: • Questions, pg 123 (1-10) • Chapter 8-2 quiz • Internet Activity: Misrepresentation
CHAPTER 8 REVIEW: • Worksheet • Legal vocab, 124 • Think Critically, 125 (21, 22, 23) • Real Cases, 125 – pick 1 from 25, 26, 27