Voluntary Consent

What happens when there is a lack of genuine assent in the contract?

It makes the contract voidable, allowing the party with the defense to rescind it, and both parties must provide restitution.

When is a contract voidable due to duress?

When an improper threat causes a party to lose their free will in agreeing to the contract.

Rosa is Tony’s most important customer. Rosa wants harsh terms in their next contract and says to Tony, “Either you sign, or I will never do business with you again.” Tony freaks out and agrees. Then Tony wishes he hadn’t. Can Tony avoid the contract based on duress?

No, this is not an improper threat, as it’s based on a lawful business choice, not a crime, tort, or bad faith breach of contract

What kinds of threats make a contract voidable due to duress?

It is improper to threaten to commit a crime, a tort, or a bad faith breach of contract.

What are the two elements of misrepresentation?

(1) A false statement or omission of a material fact, and (2) reasonable reliance by the other party.

What happens if you prove intent in addition to the two elements of misrepresentation?

The defense changes from misrepresentation to fraud.

How can intent be shown in a fraud case?

By proving the speaker either:
a. Knew the statement was false, or
b. Recklessly disregarded the truth.

What are the four situations where there is a duty to disclose?

• A fiduciary relationship

• When an earlier statement becomes false

• Active concealment by one party

• Seller knows of a material and latent defect

What is a fiduciary relationship?

A relationship of trust and confidence (e.g., lawyer-client, trustee-beneficiary) where full honesty and disclosure are required.

Raquel was selling her house. A buyer asked her whether the roof ever leaked. She answered truthfully that it had not. That night it rained, and her roof leaked. If Raquel is not a fiduciary, does she have to tell buyer about the leak?

Yes she has a duty to disclose since the earlier statement is now false

Stefan has a criminal record, when he interviews for jobs does he have to tell the company about his record? What if he deletes his criminal record from the government database?

No he does not have to disclose however if he hacks the government database he now has a duty to disclose as that’s active concealment.

Active Concealment

When a party takes steps to hide or prevent the other from finding out. The party then has the duty to disclose

When does a seller have to disclose a defect?

When the defect is material (important) and latent (not discoverable by inspection).

What is a mutual mistake?

When the contract is made based on a mistaken assumption by both parties about some important fact (not a mistake of value, opinion, or prediction)

Owner hired GC, a general contractor, to build a soccer stadium. GC received many bids from subcontractors, including one from SC. SC’s bid was below all other bids, so GC accepted it. When SC realized he made an error in computing his bid, he tried to avoid the contract on the grounds of mistake. Can SC avoid the contract?

SC can not avoid the contract as it wasn’t a mutual mistake. (This is a unilateral mistake.)

What two options does the plaintiff have if fraud occurs in a contract?

The plaintiff can choose to cancel the contract or enforce it and get damages.

What type of damages are available in cases of fraud?

Punitive damages are available.

What can happen to the defendant if fraud is proven?

The defendant may be charged with a crime.

Developer wants to buy Seller’s land to build townhouses. Seller tells her the zoning law allows her to build 50 townhouses on the lot. Developer crunches the numbers and decides to buy. Later, Developer checks the zoning law and discovers it allows only 30 (not 50) townhouses — meaning she’ll lose money.

Developer sues Seller to rescind their contract based on misrepresentation. What is the weak spot in Developer’s case?

The seller will argue that the developer lacked reasonable reliance.

What does the traditional rule say about reliance in misrepresentation cases?

If a party could have determined the truth themselves, they cannot rely on the other party’s statement.

Under the traditional rule, what must parties be responsible about?

What they believe

What does the modern rule say about reliance?

Reliance is allowed unless failing to check the truth was so unreasonable it amounts to bad faith.

Under the modern rule, what must parties be responsible about?

What they say

What is considered bad faith?

When a party suspects dishonesty but ignores it or fails to inspect obvious issues.

Can you cancel a contract because the other party didn’t share important information?

Usually no, silence alone isn’t misrepresentation unless unless the facts create a duty to disclose, in which case silence would be an OMISSION.

What is the general rule (GR) about sharing information when contracting?

When contracting, there is no duty to tell the other party everything you know.

What is the general rule (GR) for unilateral mistake?

Unilateral mistake is no defense for a contract.

When can a contract be avoided due to a unilateral mistake?

To avoid a contract due to unilateral mistake, one must show in addition to the usual requirements for mutual mistake, that the other party had reason to know of the mistake.

In the case of the subcontractor - “Owner hired GC, a general contractor, to build a soccer stadium. GC received many bids from subcontractors, including one from SC. SC’s bid was below all other bids, so GC accepted it. When SC realized he made an error in computing his bid, he tried to avoid the contract on the grounds of mistake” - change the facts of the case to get a different result.

If the subcontractor bid is so low than the other bids, the general contractor should be able to see that there is something fishy.

You have been the financial and spiritual advisor for a rich, elderly person, Madison, for over 10 years. Madison always seeks and follows your advice on business matters. Recently Madison decided to sell a Swiss ski chalet, a property you are interested in owning.

A. Are you prohibited from buying it from Madison?

A. No, you are not prohibited even though she relies on you and trusts you.

You have been the financial and spiritual advisor for a rich, elderly person, Madison, for over 10 years. Madison always seeks and follows your advice on business matters. Recently Madison decided to sell a Swiss ski chalet, a property you are interested in owning

B. If you make the contract, what risk would you run?

B. That she could come along later (or her family later) and try to cancel the contract through undue influence.

You have been the financial and spiritual advisor for a rich, elderly person, Madison, for over 10 years. Madison always seeks and follows your advice on business matters. Recently Madison decided to sell a Swiss ski chalet, a property you are interested in owning

C. What can you do to prevent the possibility of Madison avoiding the contract on that basis?

C. Give full disclosure.
Assist Madison in getting advice and counsel not from you.
Make sure the contract is fair to Madison.

What are the elements of undue influence?

• The parties have a preexisting relationship in which one has influence over the other.

• The weaker party is especially susceptible to the will of the stronger.

• The stronger party uses unfair persuasion, causing the weaker party to agree without free will.