13 - 1 © 2007 prentice hall, business law, sixth edition, henry r. cheeseman chapter 13 genuineness...

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 1

Chapter 13Genuineness of Assent

Chapter 13Genuineness of Assent


Assent• Voluntary assent by the

parties is necessary to create an enforceable contract.

• Assent is determined by the relevant facts surrounding the negotiation and formation of the contract.

• Assent may be manifested in any manner sufficient to show agreement, including express words or conduct of the parties.


Genuineness of Assent• Contracts are unenforceable

if parties have actually consented to the contract but their assent is not genuine.

• If a party’s assent to a contract is not genuine, the courts will permit the innocent party to avoid the contract.


Genuineness of Assent (continued)

• Genuineness of assent is an issue in the areas of:– Mistake

– Misrepresentation

– Duress

– Undue Influence


Mistakes• A mistake occurs where

one or both of the parties have an erroneous belief about the subject matter, value, or some other aspect of the contract.

• Mistakes may be either:– Unilateral– Mutual


Rescission

• An action to undo the contract.

• The law permits rescission of some contracts made in mistake.


Unilateral Mistake• When one party is mistaken

about a material fact regarding the subject matter of the contract.

• Generally, the mistaken party will not be permitted to rescind the contract.

• The contract will be enforced on its terms.


There are three types of situations where the contract may not be enforced:

1. One party makes a unilateral mistake of fact and the other party knew (or should have known) that a mistake was made.

2. A unilateral mistake occurs because of a clerical or mathematical error that is not the result of gross negligence.

3. The mistake is so serious that enforcing the contract would be unconscionable.


Mutual Mistakes• Mutual Mistake of Fact

– A mistake made by both parties concerning a material fact that is important to the subject matter of the contract.

– The contract may be rescinded on the ground that no contract has been formed because there has been no “meeting of the minds” between the parties.


Mutual Mistakes (continued)

• Mutual Mistake of Value– A mistake that occurs if both

parties know the object of the contract, but are mistake as to its value.

– The contract remains enforceable by either party because the identity of the subject matter of the contract is not at issue.


Fraudulent MisrepresentationMisrepresenta

tion• An assertion is

made that is not in accord with the facts.

Misrepresentation

• An assertion is made that is not in accord with the facts.

Intentional Misrepresent

ation• Occurs when

one person consciously decides to induce another person to rely on a misrepresentation.

• Also called fraud.

Intentional Misrepresent

ation• Occurs when

one person consciously decides to induce another person to rely on a misrepresentation.

• Also called fraud.


Fraudulent Misrepresentation (continued)

• When a fraudulent misrepresentation is used to induce another to enter into a contract:– The innocent party’s assent to

the contract is not genuine; and

– The contract is voidable by the innocent party.


To prove fraud, the following elements must be shown:

1. The wrongdoer made a false representation of material fact.

2. The wrongdoer intended to deceive the innocent party.

3. The innocent party justifiably relied on the misrepresentation.

4. The innocent party was injured.


Types of FraudFraud in the Fraud in the

InceptionInception Fraud in the Fraud in the InducementInducement

Fraud by Fraud by ConcealmentConcealment

Silence as Silence as MisrepresentatioMisrepresentatio

nnMisrepresentatioMisrepresentation of Lawn of Law


Innocent Misrepresentation• Occurs when a person

makes a statement of fact that he or she honestly and reasonably believes to be true, even though it is not.

• Innocent misrepresentation is not fraud.

• The aggrieved party may rescind the contract but may not sue for damages.


Concept Summary: Types of Misrepresentation

Type of Misrepresentation

Sue for Damages

Rescind Contract

Fraud in the inception Yes Yes

Fraud in the inducement

Yes Yes

Fraud by concealment

Yes Yes

Silence as misrepresentation

Yes Yes

Misrepresentation of law

Usually no Usually no

Innocent misrepresentation

No Yes

Legal Consequences – Innocent Party May:Legal Consequences – Innocent Party May:


Duress• Occurs where one party

threatens to do a wrongful act unless the other party enters into a contract.– The assent is not voluntary if

one party has been forced into making the contract.

– Such contracts are not enforceable against the innocent party.


Economic Duress• Occurs when when one

party to a contract refuses to perform his or her contractual duties unless the other party:– Pays an increased price,– Enters into a second contract

with the threatening party, or– Undertakes a similar action.


Undue Influence• Occurs where one person:

– Takes advantage of another person’s mental, emotional, or physical weakness, and

– Unduly persuades that person to enter into a contract.

• A contract entered into because of undue influence is voidable by the innocent party.


Undue Influence (continued)

The following elements must be shown to prove undue influence:

1. A fiduciary or confidential relationship must have existed between the parties.

2. The dominant party must have unduly used his or her influence to persuade the servient party to enter into a contract.

13 - 1 © 2007 prentice hall, business law, sixth edition, henry r. cheeseman chapter 13 genuineness...

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