13-1 copyright © 2013 by the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin
TRANSCRIPT
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3•Introduction to Contracts•The Agreement: Offer
•The Agreement: Acceptance•Consideration
•Reality of Consent
Contracts
PA
R
T
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3•Capacity to Contract
•Illegality•Writing
•Rights of Third Parties•Performance and Remedies
Contracts
PA
R
T
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Learning Objectives
• Explain five doctrines that permit people to avoid their contracts because of the absence of real consent and identify elements:– Misrepresentation– Fraud– Mistake– Duress, and – Undue influence
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• Contracts induced by mistake, fraud, misrepresentation, duress, or undue influence are generally considered to be voidable– 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
Effect of The Five Doctrines
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• A misrepresentation is a false statement and may be negligent (innocent) or fraudulent (made with knowledge of falsity and intent to deceive) – Either way, injured party may void
(rescind) the contract
• A person who commits fraud may be liable in tort for damages, including punitive damages
Misrepresentation or Fraud?
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• Innocent or fraudulent misrepresentation:– Defendant made an untrue assertion of fact
• Includes active concealment or non-disclosure
– Fact asserted was material or was fraudulent• Fact is material if likely to play significant role
in inducing reasonable person to enter the contract
– Complaining party entered the contract because of reliance on the assertion
Elements
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• Reliance of complainant was reasonable– Reliance means that
person entered the contract because of belief in the assertion
• Fifth element for fraud:– Injury
Elements (cont.)
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• A mistake is a belief about a fact that is not in accord with the truth– Mistake must relate to facts as they
exist at the time the contract is created– Mistake not due to other party’s
statements
• Mutual mistakes may be remedied by reformation
Mistake in Contracts
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• A unilateral mistake will not render a contract unenforceable unless unequal bargaining position existed– Sumerel v. Goodyear Tire & Rubber Company in
which plaintiffs attempted to exploit defendants’ mathematical or clerical error and failed
Mistake in Contracts
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• Duress is wrongful threat or act that coerces a person to enter or modify contract– Physical, emotional, or
economic harm
• Given duress, victim must have no reasonable choice but to enter the contract– Cabot Corp. v AVX Corp.
Duress
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• Undue influence involves wrongful pressure exerted on a person during the bargaining process
• Unlike duress, pressure is exerted through persuasion rather than coercion
• Key is the weakness of the person “persuaded”
Undue Influence