Genuine Agreement
Mr. Sherpinsky’s Business Law Class
Preview
Five (5) circumstances that might
create a defective agreement:
1. Fraud
2. Misrepresentation
3. Mistake
4. Duress
5. Undue Influence
Fraud – Deliberate Deception
Fraud:
Deliberate deception
intended to secure an
unfair or unlawful gain
Fraud – Deliberate Deception
Five elements must exist
to prove fraud:
1)
Must be false misrepresentation of
fact
2)
Party making the misrepresentation
must know it is false
3)
False misrepresentation must be
made with the intent that it be relied
upon
4)
Innocent party must reasonably rely
upon the false representation
5)
Innocent party must actually suffer
some monetary loss or actual harm
Fraud – Deliberate Deception
Options if you’ve been induced to
enter into a contract by fraud:
1. Rescind
2. Cancel
3. Sue for damages
False Representation of Fact

Material fact –
 A fact that is important
 Matters to one of the parties
 Cannot be a promise of something
that will happen in the future

Sales talk (sales puffery)
 Allowed (Certain amounts)
 “This car is really flashy…”
 “You’ll get plenty of dates with this
car…”
False Representation of Fact

Material False
Representations
 Not confined to oral or written
statements.
○ Actions intended to deceive

Concealment:
 Know as passive fraud or
nondisclosure
 Choosing not to reveal
information
Resulting Loss

Unless you suffer loss as a result of
fraud, you cannot win a lawsuit
Types of Misrepresentations

Negligent Misrepresentation
 Occurs when the defendant
carelessly makes a representation
while having no reasonable basis to
believe it to be true.

Innocent Misrepresentation
 occurs when the representor had
reasonable grounds for believing
that his or her false statement was
true
○ Most common relief is recission
Mistake, Duress, and
Undue Influence
Unilateral Mistakes
Defined:
Error on the part of one of the parties to
the contract
 A person usually cannot avoid a contract
because of such a mistake.

People who sign an agreement are
bound by it, even if you didn’t read it!
 Expectations have been established

 Contract should not be blocked by errors on the part
of one party
Unilateral Mistakes
Mistakes as to the nature of the
agreement
Example:

 The Town of Sharonville received four bids
for construction of new city hall
 Angelini Construction won the lowest bid
 A few days later the General Manager of
Angelini discovered a $500,000 error.
 The bid should have been higher.
Is the company bound to the bid?
Unilateral Mistakes

Mistake as to the identity of the party
 Cause to void a contract
Example:
Genevieve Sands sent a letter offering baby-sitting
services at a certain rate to Jill Gomez, a mother of
toddlers in the neighborhood.
The letter carrier mistakenly delivered it to another Jill
Gomez, who happened to live across town and also
had children.
This Jill Gomez liked the offer and accepted the deal.
Is the contract voidable?
Bilateral Mistake (mutual mistake)
Mistake as to the possibility of
performance
Example



Both parties to an agreement enter into the
agreement thinking something can be done
In fact, they find it cannot be done.
In this situation either party can get out of the
contract because this is a bilateral mistake
**Generally, you can not get out of a contract because of a
unilateral mistake, but you can get out of a contract
because of a bilateral mistake.**
Bilateral Mistake (mutual mistake)
Mistake as to the subject matter
 Both parties can be mistaken as to the identity
of the subject matter when they enter into a
contract
 Either party can void the contract
Example
Ellery Weimer agreed to sell Alvin McCormick 5 vacant lots on
Indiana Ave in Parkersburg.
McCormick refused to go through with deal after discovering the
lots where on a different Indiana Ave in Pakersburg then he
original thought.
WHAT DO YOU THINK?
Duress
Overcoming a person’s will by use of
force or by threat of force or bodily
harm
 Agreements made defective by duress

 Physical duress
 Emotional duress
 Economic duress
○ Threats to a person’s business or income
that cause him or her to enter a contract
without real consent
Elements of Undue
Influence
Occurs when a person/relationship uses
unfair and improper persuasive
pressure to force another person in
the relationship to enter into an
agreement
 A dependency relationship
 Poor health, old age, or mental immaturity

Unfair or improper pressure
 Independent person uses force against dependent person

A beneficial contract
 Independent party benefits at expense of dependent party
Review
Name 5 circumstances that might
create a defective agreement:
1. Fraud
2. Misrepresentation
3. Mistake
4. Duress
5. Undue Influence
Classwork
 Exam
Friday
 54 Questions
○ Four Essays
○ 25 True/False
○ 15 Multiple Choice
○ 10 Drop Down Selection
○ Or less