Chapter 8Chapter 8GENUINE AGREEMENTGENUINE AGREEMENT

OBJECTIVESOBJECTIVES Define genuine agreement and rescissionDefine genuine agreement and rescission Identify when duress occursIdentify when duress occurs Describe how someone may exercise Describe how someone may exercise

undue influenceundue influence Describe the kinds of mistakes that can Describe the kinds of mistakes that can

make a contract void or voidablemake a contract void or voidable Determine when misrepresentation has Determine when misrepresentation has

occurredoccurred Identify when fraud has occurredIdentify when fraud has occurred Discuss the remedies for mistake, Discuss the remedies for mistake,

misrepresentation, and fraudmisrepresentation, and fraud

HOT DEBATE, pg 114HOT DEBATE, pg 114 Where do you stand??? Where do you stand???

Chapter 8-1Chapter 8-1

Goals: Goals: Define genuine agreement and Define genuine agreement and

rescissionrescission Identify when duress occursIdentify when duress occurs Describe how someone may exercise Describe how someone may exercise

undue influenceundue influence

1. What is genuine 1. What is genuine agreement?agreement?

Read ‘What’s your verdict?’, page Read ‘What’s your verdict?’, page 115115

An agreement to enter into a An agreement to enter into a contract that is evidenced by word or contract that is evidenced by word or conduct between the partiesconduct between the parties AKA Genuine assent or mutual assentAKA Genuine assent or mutual assent

2. Genuine Agreement may be 2. Genuine Agreement may be lacking due to …lacking due to …

FraudFraud MisrepresentationMisrepresentation Undue InfluenceUndue Influence DuressDuress MistakeMistake

3. Voidable Contract3. Voidable Contract

Voidable – a contract in which the Voidable – a contract in which the injured party can withdraw, thus injured party can withdraw, thus cancelling the contract cancelling the contract A contract is voidable in the absence of A contract is voidable in the absence of

genuine agreement genuine agreement The injured party can RESCIND The injured party can RESCIND

4. Rescission and 4. Rescission and RatificationRatification

RescissionRescission: backing out of the transaction : backing out of the transaction by asking for the return of what you gave by asking for the return of what you gave and offering to give back what you and offering to give back what you received received Must be PROMPT!!Must be PROMPT!! Must be done shortly after you discover there Must be done shortly after you discover there

is no genuine assentis no genuine assent Must occur BEFORE ratification of the contractMust occur BEFORE ratification of the contract

RatificationRatification: Conduct suggesting you : Conduct suggesting you intend to be bound by the contractintend to be bound by the contract

READ READ In this case, pg 115In this case, pg 115

Situation…Situation… The Thompsons were told by a man The Thompsons were told by a man

that if they did not sign a contract to that if they did not sign a contract to repay a $2000 loan at 40% interest, repay a $2000 loan at 40% interest, their son would be in danger of their son would be in danger of physical harm. physical harm. Afraid the threat would be carried out, Afraid the threat would be carried out, the Thompsons signed the contract.the Thompsons signed the contract.

Is it enforceable??? Why or why not??Is it enforceable??? Why or why not??

5. Duress5. Duress

Occurs when one party uses an Occurs when one party uses an improper threat or act to obtain an improper threat or act to obtain an agreementagreement If duress is evident the contract is If duress is evident the contract is

voidable!voidable!

6. Examples of Duress6. Examples of Duress

1. Threat of Illegal Conduct1. Threat of Illegal Conducta.a. Committing an Act of Violence (ie: stabbing)Committing an Act of Violence (ie: stabbing)

b.b. Threatening a Crime (ie: threatening to stab)Threatening a Crime (ie: threatening to stab)

c.c. Committing a Tort (ie: unlawful detention)Committing a Tort (ie: unlawful detention)

d.d. Threatening a Tort Threatening a Tort a.a. Defamation, libel, infliction of emotional distressDefamation, libel, infliction of emotional distress

**Actual crime or tort may be to the physical life, **Actual crime or tort may be to the physical life, liberty or property of victim, family, or near liberty or property of victim, family, or near relativesrelatives

Other Examples of DuressOther Examples of Duress2. Threats to report crimes 2. Threats to report crimes

May also be extortion – obtain something of May also be extortion – obtain something of value through coercionvalue through coercion

3. Threats to sue 3. Threats to sue Purpose must be UNRELATED to the suitPurpose must be UNRELATED to the suit Ie: If during a divorce, a husband threatens to Ie: If during a divorce, a husband threatens to

sue for custody of children if wife doesn’t sign sue for custody of children if wife doesn’t sign stocks over to himstocks over to him

4. Economic threats4. Economic threats Courts will look at both the THREAT and the Courts will look at both the THREAT and the

ALTERNATIVES to the threatened partyALTERNATIVES to the threatened party If threatened party had no other choice, but to If threatened party had no other choice, but to

enter into contractenter into contract duress duress READ: Economic Threats paragraphREAD: Economic Threats paragraph

Situation…Situation… The IRS assessed a large tax and The IRS assessed a large tax and

penalty against Stan. Stan retained penalty against Stan. Stan retained Ashley to represent him to reduce the Ashley to represent him to reduce the tax and penalty. The last day before tax and penalty. The last day before the deadline for filing for a reply with the deadline for filing for a reply with the IRS, Ashley refused to represent the IRS, Ashley refused to represent Stan. She said she would reconsider if Stan. She said she would reconsider if Stan signed an agreement to pay a Stan signed an agreement to pay a much higher fee than originally agreed much higher fee than originally agreed for her services.for her services.

Is this agreement enforceable?Is this agreement enforceable?

7. What is Undue Influence?7. What is Undue Influence?

Undue InfluenceUndue Influence – occurs when one – occurs when one party to the contract is in a position party to the contract is in a position of trust and wrongfully dominates of trust and wrongfully dominates the other partythe other party The dominated person does not exercise The dominated person does not exercise

free will in accepting favorable termsfree will in accepting favorable terms

8. Two Key Elements in Undue 8. Two Key Elements in Undue Influence: Influence:

A. A. The RelationshipThe Relationship: : A relationship of trust, confidence or authority between the A relationship of trust, confidence or authority between the

two parties of a contracttwo parties of a contract Formal relationship is NOT necessaryFormal relationship is NOT necessary EXAMPLESEXAMPLES

B. B. Wrongful or Unfair PersuasionWrongful or Unfair Persuasion Difficult to prove in courtDifficult to prove in court Courts look at unfair terms in contractCourts look at unfair terms in contract To prevent this, the stronger party should act with honesty, To prevent this, the stronger party should act with honesty,

fully disclose all important facts, insist weaker party obtain fully disclose all important facts, insist weaker party obtain independent counselindependent counsel

* Nagging and persuasion do not necessarily mean * Nagging and persuasion do not necessarily mean undue influence occursundue influence occurs

9. The Lindbergh 9. The Lindbergh Kidnapping CaseKidnapping Case

Read: Law in the Media, pg 116Read: Law in the Media, pg 116 When the press descended upon the When the press descended upon the

grounds of the Lindbergh mansion, they grounds of the Lindbergh mansion, they trampled over everything they could have trampled over everything they could have used for evidence. used for evidence. What could have been What could have been done to prevent thisdone to prevent this??

UNDUE MEDIA INFLUENCE: UNDUE MEDIA INFLUENCE: The media declared Hauptmann guilty The media declared Hauptmann guilty

before he went to trial. before he went to trial. Can you think of Can you think of examples where the modern media has examples where the modern media has passed judgment on a person accused of a passed judgment on a person accused of a crime?crime?

Quick Re-cap!Quick Re-cap!

What is genuine agreement?What is genuine agreement? What is rescission and when can it be What is rescission and when can it be

used?used? What is duress?What is duress? What are the 2 main parts of undue What are the 2 main parts of undue

influence?influence? How can someone use undue How can someone use undue

influence in a contractual setting?influence in a contractual setting?

TO DO…TO DO… Compare and contrast Duress and Compare and contrast Duress and

Undue InfluenceUndue Influence

Page 118, 1-15Page 118, 1-15 Undue InfluenceUndue Influence

Chapter 8-2: Chapter 8-2: Mistake, Misrepresentation, and Mistake, Misrepresentation, and

FraudFraud Read, What’s your verdict, pg. 119Read, What’s your verdict, pg. 119 Will he win????Will he win????

GOALS: GOALS:

Describe the kinds of mistakes that Describe the kinds of mistakes that can make a contract void or voidablecan make a contract void or voidable

Determine when misrepresentation Determine when misrepresentation has occurredhas occurred

Identify when fraud has occurredIdentify when fraud has occurred Discuss the remedies for mistake, Discuss the remedies for mistake,

misrepresentation, and fraudmisrepresentation, and fraud

Ignorance of the law is no Ignorance of the law is no excuse!!!excuse!!!

How do you think this statement How do you think this statement relates to a person’s failure to read a relates to a person’s failure to read a contract and the voidability of a contract and the voidability of a contract??? contract???

10. Unilateral Mistake10. Unilateral Mistake UNI – one… LATERAL – related to one UNI – one… LATERAL – related to one

sideside Occurs when one party holds an Occurs when one party holds an

incorrect belief about the facts related incorrect belief about the facts related to a contractto a contract

Examples: Examples: Failing to read the contractFailing to read the contract Hurried or careless reading of a contractHurried or careless reading of a contract Signing a contract written in a language you Signing a contract written in a language you

don’t understanddon’t understand USUALLY not able to rescindUSUALLY not able to rescind

11. Two types of Unilateral 11. Two types of Unilateral MistakesMistakes

A. Recognized Unilateral MistakeA. Recognized Unilateral Mistake If the other party to the contract is aware of If the other party to the contract is aware of

the mistake the mistake court MAY grant rescission court MAY grant rescission

Read, In this case, page 119Read, In this case, page 119

B. Induced Unilateral MistakeB. Induced Unilateral Mistake If one party has encouraged the other party to If one party has encouraged the other party to

make the mistake, the contract is voidablemake the mistake, the contract is voidable Ie: Looking at a tray of diamonds mixed with Ie: Looking at a tray of diamonds mixed with

one CZ, and the jeweler encourages you to one CZ, and the jeweler encourages you to choose the CZ and pay a diamond’s price, this choose the CZ and pay a diamond’s price, this was inducedwas induced

What’s your verdict??, pg What’s your verdict??, pg 120120

Is the contract valid????Is the contract valid????

12. What are mutual 12. What are mutual mistakes?mistakes?

Mutual MistakeMutual Mistake – when both parties have an – when both parties have an incorrect belief about an important (incorrect belief about an important (materialmaterial) ) fact of the contract, AKA: Bilateral Mistakefact of the contract, AKA: Bilateral Mistake

Material factsMaterial facts: important facts that influence : important facts that influence the parties’ decisions about a contractthe parties’ decisions about a contract A. Mistake about subject matterA. Mistake about subject matter

B. Mistake about the lawB. Mistake about the law

In this case, page 120In this case, page 120

Situation…Situation…

Jane contracts with Mike to purchase one Jane contracts with Mike to purchase one of his two skateboards. Mike thinks Jane of his two skateboards. Mike thinks Jane has bought the blue one, his less valuable has bought the blue one, his less valuable skateboard. Jane thinks she bought the skateboard. Jane thinks she bought the red, more expensive one.red, more expensive one.

Does a contract exist???Does a contract exist??? NO – Mutual Mistake – both were mistaken NO – Mutual Mistake – both were mistaken

on subject matter – materiality – central on subject matter – materiality – central fact to contract.fact to contract.

13. REMEMBER…13. REMEMBER… Mistakes about subject matter make Mistakes about subject matter make

the contract void for lack of genuine the contract void for lack of genuine agreementagreement

Mistakes about the law may still Mistakes about the law may still result in valid contract, depending on result in valid contract, depending on state lawsstate laws Ie: Local zoning lawsIe: Local zoning laws

MOST mutual mistakes create the MOST mutual mistakes create the right to rescind or void the contractright to rescind or void the contract

14. What is 14. What is Misrepresentation???Misrepresentation???

Read, What’s your verdict, pg 120Read, What’s your verdict, pg 120 Innocent MisrepresentationInnocent Misrepresentation – a party to – a party to

the contract does not know a statement the contract does not know a statement he/she made is untruehe/she made is untrue

Fraudulent MisrepresentationFraudulent Misrepresentation – a party – a party to the contract knows that a statement to the contract knows that a statement he/she made is untruehe/she made is untrue

* BOTH make contract voidable** BOTH make contract voidable*

15. Statements are treated as 15. Statements are treated as misrepresentation misrepresentation onlyonly if: if:

1.1. The untrue statement is ONE OF The untrue statement is ONE OF FACT or there is active FACT or there is active concealment, andconcealment, and

2.2. The statement is material to the The statement is material to the transaction or is fraudulent, andtransaction or is fraudulent, and

3.3. The victim REASONABLY RELIED on The victim REASONABLY RELIED on the statement. the statement.

16. Untrue Statement of 16. Untrue Statement of FactFact

The statement must be one of The statement must be one of ‘past or ‘past or existing’existing’ factfact rather than rather than opinionopinion

If If EXPERTS express opinion, the law may , the law may treat that statement as a statement of treat that statement as a statement of factfact

1. 1. Active ConcealmentActive Concealment: a substitute for a : a substitute for a false statement of factfalse statement of fact

Examples: Examples: 1. Painting the ceiling to cover the roof leaks1. Painting the ceiling to cover the roof leaks 2. If the price sticker is placed over a 2. If the price sticker is placed over a

scratch on a TVscratch on a TV

Untrue Statement of FactUntrue Statement of Fact2. Silence: 2. Silence:

Remaining silent about defects or allowing mistaken Remaining silent about defects or allowing mistaken assumption about somethingassumption about something

3 situations where disclosure is required: 3 situations where disclosure is required: 1.1. Where statement about material fact omits Where statement about material fact omits

important info (ie: Race car)important info (ie: Race car)2.2. When a true statement is made false by When a true statement is made false by

subsequent events (ie: Roof leak)subsequent events (ie: Roof leak)3.3. When one party knows the other party has When one party knows the other party has

made a mistake (ie: House foundation)made a mistake (ie: House foundation)

Refer to PAGE 121Refer to PAGE 121

17. Materiality 17. Materiality 1. A statement is material in the following cases: 1. A statement is material in the following cases:

a.a. If a statement would cause a reasonable If a statement would cause a reasonable person to agree to a contractperson to agree to a contract

a.a. (total miles on a car, rebuilt engine, baseball card)(total miles on a car, rebuilt engine, baseball card)

b. If the defendant knew the plaintiff would rely on b. If the defendant knew the plaintiff would rely on the statementthe statement

* (oil changes)* (oil changes)

c. If the defendant knew the statement was falsec. If the defendant knew the statement was false

*(serviced at local gas station and not dealer)*(serviced at local gas station and not dealer)

Fact or Opinion??Fact or Opinion?? This computer is one year oldThis computer is one year old The engine has 40,000 miles on itThe engine has 40,000 miles on it This dog will be the perfect pet for you!This dog will be the perfect pet for you! The suit will create the image you need to The suit will create the image you need to

double your business.double your business.

********************************************************************************** Why is a person generally not legally Why is a person generally not legally

required to tell all he or she knows about a required to tell all he or she knows about a product or service being bought or sold???product or service being bought or sold???

18. Fraud and Remedies for 18. Fraud and Remedies for FraudFraud

Read, What’s your verdict???, pg 122Read, What’s your verdict???, pg 122 FRAUD: Intentional misrepresentation of FRAUD: Intentional misrepresentation of

an existing or important factan existing or important fact ALL elements of misrepresentation are ALL elements of misrepresentation are

required to be considered FRAUD, required to be considered FRAUD, PLUSPLUS Misrepresentation: Untrue statement of Misrepresentation: Untrue statement of

fact, material, reasonably reliedfact, material, reasonably relied IntentIntent InjuryInjury

19. Misrepresentation must 19. Misrepresentation must be: be:

IntentionalIntentional: when a person : when a person deliberately lies or conceals a material deliberately lies or conceals a material factfact To induce victim to contractTo induce victim to contract

RecklessReckless: if a person recklessly makes : if a person recklessly makes a false statement of fact, without a false statement of fact, without knowing whether it is true or falseknowing whether it is true or false

20. Misrepresentation or 20. Misrepresentation or Concealment MUST InjureConcealment MUST Injure

There must be proof of injuryThere must be proof of injury Does not have to be physical – can be Does not have to be physical – can be

monetarymonetary If there is a misrepresentation but no If there is a misrepresentation but no

injury, there is no fraudinjury, there is no fraud

Situation..Situation..

Matt tells Bret: “This Cadillac gets great Matt tells Bret: “This Cadillac gets great gasoline mileage. I took it on a trip last gasoline mileage. I took it on a trip last week and got over 40 miles to the gallon.” week and got over 40 miles to the gallon.” Bret knows about cars and knows the Bret knows about cars and knows the statement is an exaggeration. Still he statement is an exaggeration. Still he decides to buy the car from Matt. decides to buy the car from Matt.

If later, Bret changes his mind, does he If later, Bret changes his mind, does he have an action for fraud when it turns out have an action for fraud when it turns out the car only gets 13 miles per gallon? the car only gets 13 miles per gallon?

21. Remedies for Fraud21. Remedies for Fraud1. Rescission: 1. Rescission:

If the contract is entered into as a result of If the contract is entered into as a result of misrepresentation, the contract is voidablemisrepresentation, the contract is voidable

Must usually return anything receivedMust usually return anything received2. Damages: 2. Damages:

Monetary or property damages are available if Monetary or property damages are available if fraud is provenfraud is proven

May still ratifyMay still ratify seek damages for loss created by seek damages for loss created by fraudfraud

3. Punitive Damages: 3. Punitive Damages: A form of punishment against the person who A form of punishment against the person who

committed fraud (ie: Judge awards you $5,000 to committed fraud (ie: Judge awards you $5,000 to punish the party who committed the fraud)punish the party who committed the fraud)

Quick Re-cap! Quick Re-cap!

What kinds of mistakes make a What kinds of mistakes make a contract voidable?contract voidable?

What items are required for What items are required for misrepresentation to occur?misrepresentation to occur?

What elements are required for What elements are required for FRAUD to occur?FRAUD to occur?

What are the remedies for mistake, What are the remedies for mistake, misrepresentation, and fraud?misrepresentation, and fraud?

TO DO: TO DO: Questions, pg 123 (1-10)Questions, pg 123 (1-10) Chapter 8-2 quizChapter 8-2 quiz Internet Activity: MisrepresentationInternet Activity: Misrepresentation

CHAPTER 8 REVIEW: CHAPTER 8 REVIEW:

1.1. WorksheetWorksheet

2.2. Legal vocab, 124Legal vocab, 124

3.3. Think Critically, 125 (21, 22, 23)Think Critically, 125 (21, 22, 23)

4.4. Real Cases, 125 – pick 1 from 25, 26, Real Cases, 125 – pick 1 from 25, 26, 2727