Chapter 8
Genuine Agreement
Genuine Agreement and
Rescission
• Genuine agreement
– agreement to enter into a contract that is
evidenced by words or conduct between parties
– aka. genuine assent or mutual assent
– May be lacking due to fraud, misrepresentation,
undue influence, duress or mistake
• Voidable
– the absence of genuine agreement in a contract
Genuine Agreement and
Recession
• Rescission
– Backing out of the transaction by asking for the
return of what you gave in the transaction and
offering to give you back what you have
received
– Must happen promptly and before ratification
• Ratification
– conduct suggesting you intend to be bound by
the contract
Duress
• Occurs when one party uses an improper
threat or act to obtain an expression of
agreement
• Causes of Duress
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Threats of illegal conduct
Threats to report crimes
Threats to sue
Economic threats
What is Undue Influence?
• Occurs when one party to the contract is in
a position of trust and wrongfully dominates
the other party
• Two Key Elements
– Relationship
– Wrongful or unfair persuasion
The Relationship
• Relationship of trust, confidence, or authority
must exist between the parties to contract
• Presumed between:
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attorney and client
husband and wife
parent and child
guardian and ward
physician and patient
minister and congregation member
Unfair Persuasion
• Found in unfair terms of contract
• The stronger party must act with scrupulous
honesty, full disclosure, and insist that the
weaker party seek independent counsel
• Persuasion or nagging do not necessarily
mean undue influence exists
– This is a hard question of fact for a jury to find
What is a Unilateral Mistake?
• Occurs when one party holds an incorrect
belief about the facts related to a contract.
• A mistake from failure to read a contract
before signing
• Misunderstanding from hurried or careless
reading
Recognized Unilateral Mistake
• The other party knows there is a mistake
• A court may grant a rescission to the injured
party
Induced Unilateral Mistake
• When one party encouraged the other to
make a mistake
• The contract is voidable
What are Mutual Mistakes?
• Mutual Mistakes
– Both parties have an incorrect belief about an
important fact (material fact)
• Mistake About Subject Matter
– Treated the same as a mutual mistake
• Mistake About Law
– When about applicable law, the contract to still
valid
– You may be able to rescind
What is Misrepresentation?
• Innocent Misrepresentation
– The seller doesn’t know there is a
misrepresentation
• Fraudulent Misrepresentation
– The seller knows a statement is untrue
• Statements are treated as misrepresentation
– The untrue statement is one of fact
– The statement is material to the transaction or
fraudulent
– The victim reasonably relied on the statement
Untrue Statement of Fact
• The statement must be one of fact not
opinion
• the statement must be one of past or
existing fact
• When experts express opinion the law
regards that as fact
Untrue Statements of Fact
• Active Concealment
– a substitute for a false statement of fact
• Silence – Three situations
– Omits important facts
– true statement is made false by subsequent
events
– a basic mistaken assumption has been made by
one of the parties
Materiality
• Three ways an untrue statement can be
determined to be material
1. Cause a reasonable person to contract
2. the defendant knew this plaintiff would
rely on the statement
3. The defendant knew the statement was
false
Reasonable Reliance
• A material statement isn’t misrepresentation
unless the victim relied on it
Elements of Misrepresentation
• Untrue statement of fact or active
concealment or silence when disclosure is
required
• Materiality
• Reasonable Reliance
Fraud and Remedies
• Fraud
– Based on misrepresentation
• Elements of Fraud
– All those for Misrepresentation plus
• Intent to deceive or reckless statements intended to
induce victim to contract
• Injury
Intentional or Reckless
• If a person lies or conceals a material fact
• Making a false statement of fact
• Intend to make the victim contract
Must Injure
• Proof of injury
• Without injury there is no liability for fraud
Remedies for Fraud
• Rescission
– Contracts entered into as a result of
misrepresentation or fraud are voidable
– Anything you received must be returned and
vice versa
Damages
• Available if fraud is proven
• Defrauded party may seek damages for loss
created by the fraud
• UCC states damages are available for
innocent misrepresentation on tangible
goods
Punitive Damages
• Damages awarded with intent to punish
those who have defrauded another