CHAPTER 7
Genuineness of Assent
7-1 Duress and Undue Influence
7-2 Mistake, Misrepresentation, and
Fraud
7-1Duress and Undue Influence
GOALS
 Recognize when genuine assent is not
present
 Identify the two key elements in undue
influence
FOCUS
Scenario
 The Thompsons were told that if they did not sign a contract to
repay a $2,000 loan at 40 percent interest, their son would be in
danger of physical harm. Afraid that their son would be hurt, the
Thompsons signed the contract.
Questions
 Is the contract enforceable?
 No, if the Thompsons did not want it.
 Why or why not?
 The assent on the part of the Thompsons was not genuine due
to the duress elicited by the threat against the son
GENUINE ASSENT
AND DURESS

Genuine assent – true and complete
agreement.


Without this a contract typically is voidable. (if the
injured party desires, that party can cancel their
obligation under the contract and get back what
they have already put into it.)
The above action is called rescission
Must be prompt shortly after discovered that there is no
genuine agreement.
 Must occur before contract ratification. (conduct
suggesting you intend to be bound by the contract)

GENUINE ASSENT
AND DURESS

Duress – the use of improper threat or act to obtain
an expression of agreement.




Threats of illegal conduct – threat to engage in illegal
conduct such as a crime or tort. (Example: stabbing)
Threats to report crimes – if you observe a crime you have
the duty to report it. If you use this to obtain a contract
you could be considered extortion.
Threats to sue – when you threaten to sue is really made
for a purpose unrelated to the suit, this may be duress.
Economic threats – threat to use economic power. In
these cases the courts look at both the threat and the
alternatives available to the threatened party. If the
threatened party had no choice but to enter into contract
then duress exists.
Checkpoint
List the various forms of legal
duress.
Threats of illegal conduct directed against
a person’s immediate family, near
relatives, or home, legitimate lawsuit,
and threats of substantial economic
harm. All of these would result in the
contract being considered voidable by the
party threatened.
UNDUE INFLUENCE
AND ASSENT

Undue influence – when one party to the
contract is in a position of trust and wrongfully
dominates the other party. The dominated party
then does not exsercise free will. Two key
elements are


The relationship – of trust, confidence or authority
must exist between the parties. (Does not have to be
a formal relationship)
Unfair persuasion – often found in an unfair contract.
CheckPoint
What are the key elements in
undue influence?
The elements are (1) dependent relationship
based on trust in, confidence in or authority
of the dominating party. (2) wrongful
persuasion to enter into an unfair contract.
7-2
Mistake,
Misrepresentation, and
Fraud
GOALS
 Recognize the types of mistakes that can
make a contract voidable or void
 List the criteria for a statement to be
treated as a misrepresentation
 Define fraud and describe the remedies for
it
FOCUS
Scenario
 Jane contracts with Mike to purchase one of his
two skateboards. Jane thinks she has bought
the red one, a premier skateboard. Mike thinks
Jane has bought the blue one, his less valuable
skateboard.
Question
 Does a contract exist?

No because there is a mutual mistake of fact about
the subject matter. There was no genuine Agreement
WHAT ARE THE TYPES OF
CONTRACTUAL MISTAKES?


Unilateral mistakes – occurs when only one
party holds an incorrect belief about the facts
related to a contract. (Usually this does not
affect the validity of the contract.)
Mutual mistakes – (bilateral) both parties have
an incorrect belief about an important fact.
Contract is void.


Important facts also called Material facts
Them both persons make mistake about the law
contract is not void. Assumed that all parties know
the laws.
Check Point
Name the types of mistakes that
can make a contract voidable or
void.
Of the four basic types of mistakes only a
mutual mistake as to the identity of the
subject matter can render a contract void.
However, most courts will still rescind the
contract.
Manuela rented an apartment and later discovered
that the roof leaked. She asked the landlord to
make repairs, but he refused. Manuela said that
she would move out unless the landlord either
made the repairs or lowered the rent. The
landlord lowered the rent. Does Manuela’s
conduct make the modification to the contract
voidable due to duress?
No. The landlord has other
options, including renting
to someone else.
Evelyn was 86 years old and of sound mind. However, she
relied upon her nephew Jamal, an accountant, to advise
her in business matters. during one of Jamal’s visits, he
persuaded her to sell him a valuable painting for about
80% of its true value. Evelyn agreed and signed a
contract. Then she had the painting appraised and learned
its true value. She continued with the transaction by
accepting payment for the painting. About a year later she
died. her estate sued for rescission at the contract Jamal
defended by claiming that Evelyn had ratified by accepting
payment after learning of the value of the paining. Who
prevails. Evelyn’s estate or Jamal?
Even though Jamal was in a position of trust,
Evelyn ratified the contract by continuing with
the transaction after learning of the painting’s
true value. Jamal prevails.
WHAT IS
MISREPRESENTATION?

In both these cases the party to whom the
misrepresentation is made may void the
contract.


Innocent misrepresentation – If the seller had
no known the statement was untrue.
Fraudulent misrepresentation – If the seller
had know the statement was untrue.
WHAT IS
MISREPRESENTATION?
Statements are treated as misrepresentations by the law
only if

Untrue statement of fact – (cannot be opinion)


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Active concealment – trying to cover up
Silence – remaining silent about defects. (No ½ truths)

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You have a duty to break silence if facts change subsequently
You have to break the silence if you know the other party has made a
basic mistaken assumption.
Materiality – Three ways an untrue statement can be determined
material


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When experts express Opinion it is treated as fact.
If statement could cause a reasonable person to contract
If defendant knew this plaintiff would rely on the statement.
The defendant knew the statement was false.
Reasonable reliance - Even if the statement is material there is
no misrepresentation unless the victim reasonably relied on it.
Check Point
What are the three criteria for a
statement to be treated as a
misrepresentation?
1.
Untrue statement of fact or active
concealment
2.
material or fraudulent statement
3.
Reasonable reliance by the victim.
FRAUD

Based on misrepresentation. All elements of
misrepresentation must be proven to show fraud
plus the following two elements.

The misrepresentation must be intentional or reckless



Makes statement without knowing whether it is true or false.
Must have intended to induce the victim to contract.
The misrepresentation or concealment must injure

must be prove of injury.
REMEDIES FOR FRAUD



Rescission – Anything you and the other
party received must be returned.
Damages – available if fraud is charged.
Victim can ratify the contract and then sue
for damages.
Punitive damages – available if fraud is
proven made to punish.
Check Point
What are the remedies available
for fraud?
Recession and damages both
compensatory and punitive
are available as remedies for
fraud.
Anne was shopping for a used washing machine. She
found one she thought was in good condition. She asked
the seller what shape it was in and the seller replied. “It is
in great shape.” In fact it needed major repairs. Is the
seller’s statement a misrepresentation.
No, the statement “great shape” is
merely one of opinion, not fact.
Therefore, it cannot be the basis for
misrepresentation.
Chip was shopping for a used computer. He found one and
asked the seller if the processor’s speed was greater than 2
megahertz. The seller said, “Yes, it runs at 2.5 megahertz.”
In fact it was a much slower chip. Is the seller’s statement
a misrepresentations?
Yes, the statement is one of fact, it is
material, and would likely be relied
upon by a buyer.
Glenna found a computer she wanted. While describing all
the components, the seller said it had a fast modem.
Glenna said modem speed was very important to her and
asked how fast it was. The seller said, “It’s 56K,” but she
didn’t really know how fast it was. In fact it was a much
slower modem. Has the seller committed
misrepresentation? Has this seller committed fraud?
Yes misrepresentation because the
statement was one of fact and it is
untrue, material and relied upon. It
may also be fraud because the
misrepresentation though not
intentional, is probably reckless.
For years, Salazar, the lead mechanic at the Pull On In gas
station, saved his money and eventually bought the
business. Two weeks after the purchase, he found out
that, a month previous, the Environmental Protection
Agency had passed a regulation that would make the
dispensing of petroleum-based fuels within a mile of a
drinking water reservoir illegal. The station was only a few
blocks from such a reservoir. Salazar also discovered that
the previous owners knew of the regulation when they sold
but did not inform him. Can he get the transaction
rescinded?
No, A unilateral mistake of law even
with concealment of a material fact, is
not a basis for rescission.