Chapter 8 Genuine agreement

1. Chapter 8Genuine agreement Duress and undue influence Mistake, misrepresentation, and fraud

2. Rescission vs. ratification • Rescission - backing out of a contract that is evidenced by words or conduct between parties. • Return what is received • Ask for the return of what was given *** Must be prompted to be effective (limited time) • Ratification – injured party exhibits conduct suggesting that the party is bound by the contract, then rescission is unlikely. Requires intent.

3. duress • Using an improper threat or act to obtain an expression of agreement • Threat of illegal conduct • Threat to report crimes • Threat to sue • Economic threat

4. Is this a contract? • Contract is voidable if • Fraud or misrepresentation • Undue influence, duress, or mistake • Voidable – A contract can be withdrawn because it lacks genuine agreement.

5. Undue influence • One party to a contract is in a position of trust. Must be a relationship of: • Trust • Confidence • Authority • One party secures agreement by: • Wrongfully dominating another party. • Using unfair persuasion

6. Unilateral mistake • One party holds an incorrect belief about the facts related to a contract. • Failing to read the contract • Read the contract carelessly • Signing a contract written in a language that the party does not understand. • Generally, contract is not voidable unless: • Recognized – Major mistake. Other party is aware. • Induced – One party encouraged another to make a mistake.

7. Mutual mistake • Both parties have an incorrect belief about an important fact. • Subject Matter Mistake - Voidable • About the Law – Depends on the State • Material Fact – Important facts that influence a party’s decisions about a contract.

8. Facts and opinions • Untrue statement of fact • Untrue statement about a past or existing fact • Something that actually occurred or existed • Opinion • Something that a party believes may happen in the future, but cannot be proven • Distinguished from facts based on how concrete they are • Material Fact – Important facts that influence a party’s decisions about a contract.

9. misrepresentation • Innocent Misrepresentation – Untrue statement that the party does not know is untrue. • Fraudulent Misrepresentation – Untrue statement that the party knows is untrue, is intentional or reckless, and results in an injury • Active concealment • Statement is material to the transaction • Victim relied upon the statement Note: Remedy for fraud may include rescission and compensatory or punitive damages.

10. Chapter 8Mutual Consideration What is consideration? When is it not required? Legal value and bargained-for exchange

11. consideration • Consideration – That which is given or received in a contract. • Act, forbearance, or promise is given. • Each party must trade their contribution to the transaction. • Contributions must have legal value. • Forbearance – The promise not to do something • Has legal value and is adequate to contract • One or both parties may offer • May benefit one or both parties Are mutual gifts consideration?

12. Settling debts • Liquidated Debt – 4 ways to settle • Negotiating a compromise on a different amount • Signing a release for promise not to sue • Agreement not to file for bankruptcy for reducing debt • Agreement to pay earlier for reducing debt

13. Legal value • Legal Value – There is a change in legal position of the party as a result of the contract. • Benefits are promised • Goods or services are promised • Illusory promises – Agreement that leaves a choice of performance. • Do not constitute legal value.

14. Bargained-for exchange • One party asks for consideration in return for consideration. • Negotiation takes place in the present. • Performance is immediate or in the future • Prior performance can’t be consideration after it has occurred.

15. Exceptions to consideration • Promissory Estoppel – doctrine that allows exception to mutual consideration • Promisor should foresee that promisee will rely on promise • Promisee acts in reliance on promise • Promisee would suffer substantial economic loss if not enforced. • Injustice can be avoided only if enforced • Firm offer – A merchant’s offer in a signed writing to buy or sell goods.

16. Exceptions to consideration • Promises to Charitable Organizations • Charity states a specific use for the money • Acts in reliance on the pledge • There might be financial hardship based on actions already taken. • Statute of Limitations – A specified time limit for bringing a lawsuit.

17. Chapter 9LAW OF CAPACITY CAPACITY RIGHTS Limitations on capacity rights

18. Capacity rights • Contractual Capacity • Understand that a contract is being made • Understand the general meaning of the contract • The following parties do not have contractual capacity • Minors • Mentally incapacitated person • Intoxicated persons

19. Disaffirming a contract • Disaffirmance - Ending a contract when both parties give back the consideration under the following circumstances: • No capacity • For a Non-necessary • Minor can disaffirm within a reasonable time after majority • If minor is emancipated, may lose capacity protection. • Insanity is a defense for either necessaries and non-necessaries.

20. Necessaries vs non-necessaries • Necessaries – Things needed to maintain life and lifestyle. • Food • Clothing • Shelter • Transportation • Non-necessaries – Things that are relative luxuries.

21. Scope of authority • Scope of authority – Within the range of acts an organization has authorized a party to do. • Vendors should verify that an employee has the authority to make a contract • Employees should be aware of the scope of their authority • May be help personally responsible for consideration

22. Contracts with Minors • Minor must return anything of value • If minor gives a false age when entering into a contract, they may be liable for false representation • Can’t disaffirm court-approved contracts or major commitments • Banking • Insurance • Work-related • Realty and apartment rental contracts (some states)

23. ratification • Ratification – Acting toward a contract as though one intends to be bound by it. • Giving a new promise to perform as agreed • Any act such as making payments, indicates the need to be bound.

24. Chapter 9Legality of contracts Which agreements are illegal? Enforceability of illegal contracts

25. Illegal agreements • Illegal by specific statute • Obstruct legal procedure • Without a required competency license • Affect marriage negatively • Restrain trade unreasonably • Price Fixing • Resale Price Maintenance • Allocation of Markets • Covenants Not to Compete

26. Voiding a contract • Statutes specifically prohibit the contract • Violation of a statute on the public welfare is large • Contract and state violation are closely connected • Parties are all involved in the violation of the statute

27. Illegal by specific statute • Illegal gambling • Pay Usurious Interests • Usurious – Higher than state maximum • Illegal discrimination

28. Obstruct legal procedure • Paying for false testimony • Bribing jurors • Refraining from reporting illegal activity for consideration

29. Agreements without competency license • Persons in certain occupations may be required to have a competency license • CPA, attorney, hairdresser, etc. • Persons required to have a revenue license but do not have one can make a valid contract • Revenue license – License required only to raise revenue and not to protect the public

30. Agreements that affect marriage negatively • Agreements that harm or interfere with marriage are unenforceable • Bribing someone to marry or not to marry is illegal

31. Agreements that restrain trade unreasonably • Price fixing • Bid rigging • Agreements to maintain resale prices • Allocation of markets • Covenants not to compete Lead to Reduced Competition! Laws protect free and open competition

32. Enforceability of Illegal agreements • Realty or Services – Courts do not help either party with 4 exceptions: • Victims who are protected by a law • Excusably ignorant • Party who rescinds before illegal act occurs • If the contract is divisible into legal and illegal parts, they will enforce the legal part.