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© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 1
Chapter 13Genuineness of Assent
Chapter 13Genuineness of Assent
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 2
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 3
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 4
Genuineness of Assent (continued)
• Genuineness of assent is an issue in the areas of:– Mistake
– Misrepresentation
– Duress
– Undue Influence
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 5
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
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 6
Rescission
• An action to undo the contract.
• The law permits rescission of some contracts made in mistake.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 7
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 8
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 9
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 10
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 11
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 12
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 13
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 14
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
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 15
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 16
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:
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 17
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 18
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 19
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 13 - 20
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.
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