P A R T
3
Contracts
Introduction to Contracts
The Agreement: Offer
The Agreement: Acceptance
Consideration
Reality of Consent
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
P A R T
3
Contracts
Capacity to Contract
Illegality
Writing
Rights of Third Parties
Performance & Remedies
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
C H A P T E R
13
Reality of Consent
“Necessity never made
a good bargain.”
Benjamin Franklin,
1735
Learning Objectives
 Five
doctrines that permit people to
avoid their contracts because of the
absence of real consent:





13 - 5
Misrepresentation
Fraud
Mistake
Duress, and
Undue influence
Effect of Doctrines

Contracts induced by mistake, fraud,
misrepresentation, duress, or undue
influence are generally considered to be
voidable


13 - 6
Person claiming non-consent has power to
rescind (cancel) the contract
Person claiming non-consent must not act in a
manner to ratify (affirm) the contract
Misrepresentation or Fraud?
A misrepresentation is a false statement and
may be negligent (innocent) or fraudulent
(knowledge of falsity and intent to deceive)
 Elements:






13 - 7
Defendant made an untrue assertion of fact
Fact asserted was material or was fraudulent
Complaining party relied on the assertion
Reliance of complainant was reasonable
Fifth element for fraud: injury
Remedies
13 - 8
Mistake & Duress

A mistake is a belief about a fact that is not in
accord with the truth


A unilateral mistake will not render a
contract unenforceable unless unequal
bargaining position existed
Duress is wrongful threat or act that coerces
a person to enter or modify contract

13 - 9
Physical, emotional, or economic harm
Undue Influence

Undue influence involves
wrongful pressure exerted
on a person during the
bargaining process

13 - 10
Pressure exerted through
persuasion rather than
coercion
Test Your Knowledge

True=A, False = B




13 - 11
A contract signed under duress or undue
influence is simply void.
A misrepresentation may be negligent
(innocent) or fraudulent.
Mutual mistakes may be remedied by
reformation
Duress and undue influence have the same
meaning
Test Your Knowledge

Multiple Choice
 Elements of innocent misrepresentation:
(a) False assertion
 (b) Knowingly made to induce a person to
enter a contract
 (c) Reasonable reliance on the assertion by
complainant
 (d) All of the above
 (e) Both (a) and (c), but not (b)

13 - 12
Test Your Knowledge

Multiple Choice
 A unilateral mistake will not render a
contract void unless:
(a) Substantial difference between contract
and market price
 (b) Fundamental error occurred
 (c) An unequal bargaining position existed

13 - 13
Thought Question

Your landlord tells you
that you will be evicted
from your apartment or
your rent must increase
by $75 per month because
your neighbors complain
about your dog. If you
agree to the increase,
would the contract be
void or voidable under
the theory of duress?
13 - 14