Chapter 7
Genuine Agreement
(Genuine Assent)
Business Law
Ms. Turner
Genuine Agreement
(Genuine Assent)
• Agreement to enter into a
contract that is evidenced by
words or conduct between
parties
If there is no genuine agreement. . .
. . . Contract is
voidable and the
injured party can
rescind (back out
of the contract)
. . . Rescission must be
made promptly and
before ratification
(conduct suggesting
you intend to be
bound)
5 Situations when there is no Genuine Assent
There is no Genuine Assent if. . .
1. Duress – one party makes an
improper threat or act to
obtain an expression of
agreement
Duress
Threat of Illegal Conduct – threat to
commit a crime or tort to get agreement (ex.
threatening family. . .)
Threat to Report Crimes – you have a
duty to report crimes; threatening to report a
crime to gain acceptance is extortion
Duress (continued)
• Threat to
Sue – threatening to sue for
a purpose unrelated to the suit is
duress (ex. suing for custody of kids if
contract is not signed for property)
Duress (continued)
Economic
Threat – making changes to a
contract that would otherwise cause economic
loss (ex. withholding parts unless $20 each
instead of agreed upon price of $15)
Courts look at the threat and the alternatives
available to threatened party
If threatened party had no choice, duress exists
5 Situations when there is no
Genuine Assent
(continued)
2.
Undue Influence – when one party to the contract is
in a position of trust and wrongfully dominates
the other party
2 Elements of Undue Influence
1)Relationship
– Trust, confidence, or
authority must exist
– (Ex. lawyer/client,
parent/child,
minister/congregation
member,. . .)
2)Unfair Persuasion
– Evidenced by unfair terms
– Evidence of lack of free
will (parent selling home
to child for ½ value)
– Nagging or persuasion is
NOT necessarily undue
influence—issue of fact
to be decided by jury
5 Situations when there is no
Genuine Assent
(continued)
3.
Mistake
1) Unilateral Mistake – when ONE party holds
an incorrect belief about the facts
related to the contract
•
(Ex. Not reading or not carefully reading a
contract, signing a contract with unfamiliar
language)
2 Types of Unilateral Mistakes
Recognized Unilateral
Mistake
–If mistake is big and
the other party is
aware of the mistake,
rescission may be
granted to the other
party
Induced Unilateral
Mistake
–If one party
encouraged the other
party to make mistake,
voidable
• (Ex. Jewels)
2 Types of Unilateral Mistakes (continued)
2)Mutual Mistake (Bilateral
Mistake)
• BOTH parties hold an
incorrect belief about an
important fact (material
fact) ------ contract is
VOID
2 Types of Mutual Mistakes
Mistake about Subject
Matter
–When both parties
are mistaken about
the subject
Mistake of Law
–Varies by state
–In some states,
contract is valid
because all parties
should know the law
–In other states, it
is treated the same
as other mutual
mistakes
5 Situations when there is no
Genuine Assent
(continued)
4. Misrepresentation
1) Innocent Misrepresentation – when the party
making the statement doesn’t know it is
untrue
2) Fraudulent Misrepresentation – when the
party making the statement knows it is
untrue
Contract is voidable
3 Requirements of Misrepresentation
It is treated as Misrepresentation if. . .
1) Untrue Statement of Fact – about a past or
existing fact (if about the future, it is
opinion); when EXPERTS express an opinion, it is
treated as a statement of fact
 Active Concealment – substitute for false statement of
fact (ex. painting ceiling to cover water stains)
 Silence – no half truths (drag racing); when truth is
made false by subsequent events (leaky roof)
 Mistaken Assumption – when party makes assumption that
is incorrect
3 Requirements of Misrepresentation
It is treated as Misrepresentation if. . .
2) Material (Important)
• Material if. . .
 Statement causes reasonable person to contract
(miles on a car)
 If defendant knew plaintiff would rely on
statement
 If defendant knew statement was false
All 3 conditions must be met
3 Requirements of Misrepresentation
It is treated as Misrepresentation if. . .
3) Reasonable Reliance
•
Even if statement is material, there is no
misrepresentation unless the victim relied
on it
5 Situations when there is no Genuine Assent
(continued)
5. Fraud – based on misrepresentation +
intent and injury
 Deliberate concealing of material fact to
induce victim to contract
 Must have proof of injury – if
misrepresentation, but no injury then no
fraud
3 Remedies for Fraud
1) Rescission
2) Actual or Compensatory Damages –
damages are available for innocent
misrepresentation for goods only (UCC)
3) Punitive Damages – to punish the
offender
Th-th-th-that’s all, folks!