Chapter 8 Slide 1
CHAPTER 8
Genuine Agreement
Lessons
8-1 Duress and Undue Influence
8-2 Mistake, Misrepresentation, and Fraud
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LESSON 8-1
Chapter 8 Slide 2
Duress and
Undue Influence
GOALS
 Define genuine agreement and rescission
 Identify when duress occurs
 Describe how someone may exercise undue
influence
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Chapter 8 Slide 3
Hot Debate
Your friend buys a PDA for $250.00,
including a foldout keyboard and a
portable printer.
The keyboard and printer were shown
with the PDA in the ad but noted as
optional equipment.
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Chapter 8 Slide 4
In her excitement, your friend signs the
credit card sales receipt, which is not
itemized She fails to note that the two
items add an extra $198 to the price.
When the bill for the total purchase
price of $448 plus sales tax arrives,
your friend objects.
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Chapter 8 Slide 5
State 2 reasons why it would be fair to
allow your friend to withdraw from the
contract.
Your friend’s obvious excitement left her
unfocused and the salesperson did not
point out the optional equipment would
add to the cost.
The bill was not itemized to show these
facts.
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Chapter 8 Slide 6
State 2 reasons why it would be fair for
your friend to be bound to the
contract.
 The doctrine of
-- (let the
buyer beware) does not place a positive duty
on the sales personnel to make sure each
consumer understands all parts of the
transaction.
 The goods were marked as optional
equipment which implies additional cost.
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Chapter 8 Slide 7
Conclusion
A unilateral mistake of failure to read a
contract still renders the contract valid.
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Chapter 8 Slide 8
GENUINE AGREEMENT
Genuine agreement is an agreement
to enter into a contract that is evidenced
by words or conduct between the parties.
The absence of genuine agreement will
make what appears to be a contract
voidable (may be voided).
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Chapter 8 Slide 9
RESCISSION
Rescission is backing out of the
transaction by asking for the return of
what you gave in the transaction, and
offering to give back what you received.
Ratification is conduct suggesting you
intend to be bound by the contract.
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Chapter 8 Slide 10
DURESS
Duress occurs when one party uses an
improper threat or act to obtain an
expression of agreement
Threats of illegal conduct – to engage in
illegal conduct such as crime/tort to win
agreement
Threats to report crimes – if you observe a
crime being committed then coerce the criminal
to contract with you
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Chapter 8 Slide 11
DURESS
Threats to sue – made for a purpose
unrelated to the suit
Economic threats – seeking to modify an
existing contract for more favorable terms
 Certain actions, such as duress on the part of
one party, means genuine assent is lacking.
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Chapter 8 Slide 12
Duress
i.e. A supplier, knowing of an
approaching delivery deadline for a
parts user, threatens to slow shipments
of parts unless more were paid for
them.
This threat of substantial economic
harm (through late shipments of orders)
would render the contract  Voidable
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Chapter 8 Slide 13
WHAT IS UNDUE INFLUENCE?
Undue influence occurs when one party
to the contract is in a position of trust and
wrongfully dominates the other party.
There are two key elements in undue
influence
The relationship – trust, confidence, authority
Unfair persuasion – careful examination of terms of
contract
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Chapter 8 Slide 14
Case
Albert had cancer and was being treated by
Dr. Bennington. He had carefully followed
the doctor’s advice, and the treatment had
been successful.
One day, during a periodic checkup, Dr.
Bennington said to Albert, “To prevent
cancer from recurring, you need to reduce
the stress in your life.
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Chapter 8 Slide 15
Long drives in the country are great for
that . Come to think of it, I’m selling my
convertible right now. You should buy
it.”
Without investigating, Albert followed
the doctor’s directions and contracted to
buy the car. Later he found the price
he’d agreed to pay was nearly double
the market.
Could Albert avoid the contract due to
undue influence?
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Chapter 8 Slide 16
Yes, the contract would be voidable by
Albert.
Sometimes, a formal relationship is
absent and the courts will still allow the
injured party to void the contract.
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Chapter 8 Slide 17
Cooling Off Rule
FTC - Cooling Off Rule
Three days to change your mind about
a contract that was made:
Door-to-door solicitation
Tradeshow/hotel
made at a “temporary” residence
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Chapter 8 Slide 18
Shopping from Home –
Cooling Off Rule
 When you buy something at a store and later
change your mind, your ability to return the
merchandise depends upon store policy. If you
buy an item in your home you might have three
days to cancel.
 This Cooling-Off Rule also applies to purchases of
$25 or more at your workplace and places rented
by a seller on a temporary basis, such as hotel or
motel rooms, convention centers, fairgrounds and
restaurants.
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Chapter 8 Slide 19
Does NOT apply:
 You made the purchase entirely by mail or telephone.
 The sale was the result of prior contact you had at
the seller's permanent business location.
 You signed a document waiving your right to cancel.
 Your purchase is not primarily for personal, family or
household use. .
 You were buying real estate, insurance, securities, or
a motor vehicle.
 You can't return the item in a condition similar to how
it was when you got it.
 You bought arts or crafts at a fair, shopping mall,
civic center, or school.
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LESSON 8-2
Chapter 8 Slide 20
Mistake, Misrepresentation,
and Fraud
GOALS
 Describe the kinds of mistakes that can make a
contract void or voidable
 Determine when misrepresentation has occurred
 Identify when fraud has occurred
 Discuss the remedies for mistake,
misrepresentation, and fraud
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Chapter 8 Slide 21
Bugliosi saved more than $25,000 to buy the
new car of his dreams.
At the dealership, the sales staff convinced
him to purchase option after option until his
$25,000 was totally exhausted.
When he went to register the vehicle, he
found that the state expected him to pay an
8% sales tax on the purchase price.
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Chapter 8 Slide 22
Bugliosi thought the $2,000 in sales tax
had been included in the $25,000 paid
at the dealership, just as it is with
purchases at other retail stores.
Is the contract voidable by Bugliosi
because of his mistake?
No – it’s valid
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Chapter 8 Slide 23
WHAT IS A
UNILATERAL MISTAKE?
A unilateral mistake occurs when one
party holds an incorrect belief about the
facts related to a contract. - valid
Recognized unilateral mistake – if
mistake is major, and other party is aware of mistake
= recission may be granted
 i.e. Genetic Products receives a bid far lower than all
other bidders. They realize the low bidder made an
error. There is no contract.
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Chapter 8 Slide 24
What’s Your Verdict?
Baglio wanted the gutters of his new
house to be free of rust.
The specs called for “rust-resistant steel
gutters galvanized with zinc.”
Later learns galvanized steel gutters
would eventually rust
Aluminum or cooper are best & would
not rust
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Chapter 8 Slide 25
Baglio sues contractor claiming a
breach of contract b/c he did not get
what he really wanted.
Will he win?
No – unilateral mistake on Baglio’s part
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Chapter 8 Slide 26
Induced unilateral mistake – one party
has encourage or induced the other to
make the mistake (diamond example –
mixing fake with real – you unknowlingly
select the fake and offer a high price for
it)  voidable
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Chapter 8 Slide 27
WHAT ARE
MUTUAL MISTAKES?
When there is a mutual mistake both
parties have an incorrect belief about an
important fact (material facts). - void
Mistake about the subject matter – law
treats unilateral mistakes about identity of the subject
matter as a mutual mistake – void
 i.e. Buyer & Seller think a certain piece of property is 41
acres in size and they contract based on this belief.
Later they learn the property is really only 28 acres.
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Chapter 8 Slide 28
Mistake of law - when mistake is about
applicable laws, contract is still valid
 i.e. Buying property both parties thought
would allow construction of duplexes.
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Chapter 8 Slide 29
Effect of Types of Mistakes on the Resultant Contracts
UNILATERAL
MUTUAL
FAC T
enforceable
void
LAW
enforceable
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Chapter 8 Slide 30
WHAT IS
MISREPRESENTATION?
For a statement to be treated as
misrepresentation, three elements are
required
Untrue statement of fact ( existing / past)
Active concealment – attempting to cover the
truth
Silence
Materiality
Reasonable reliance
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Chapter 8 Slide 31
This computer is one-year old.
FACT / OPINION ?
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Chapter 8 Slide 32
Fact
The engine has 40,000 miles on it.
FACT / OPINION ?
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Chapter 8 Slide 33
Fact
This dog will be the perfect pet for you!
FACT / OPINION ???
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Chapter 8 Slide 34
Opinion
This suit will create the image you need
to double your business.
FACT / OPINION ???
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Chapter 8 Slide 35
 Opinion
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Chapter 8 Slide 36
Food Lion vs. Prime Time
Reporters for the ABC news show
“Prime Time” went undercover with fake
identities in Food Lion stores posing as
store workers.
They were acting on a tip from former
workers that Food Lion had been
washing spoiled meat in bleach and
then selling it.
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Chapter 8 Slide 37
The reporters allegedly found facts to
substantiate that the story was true.
However, a No. Carolina judge found
ABC news guilty of misrepresentation
and trespassing and fined them
$315,000 in punitive damages (a jury
had originally assessed $5.5 mil. In
punitive damages against ABC but the
judge reduced it)
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Chapter 8 Slide 38
Should reporters be able to use
misrepresentation on employment
applications and contracts to get to the
truth of the matter?
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Chapter 8 Slide 39
INNOCENT
MISREPRESENTATION
Innocent misrepresentation occurs when
a party to a contract does not know that a
statement he or she made is untrue.
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Chapter 8 Slide 40
FRAUDULENT
MISREPRESENTATION
Fraudulent misrepresentation occurs
when a party to a contract knows that a
statement he or she made is untrue.
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Chapter 8 Slide 41
FRAUD AND
REMEDIES FOR FRAUD
Misrepresentation must be intentional or
reckless
The misrepresentation or concealment
must injure
Remedies for fraud
Rescission
Damages
Punitive damages
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