BLW 302 Ch.15

A lack of voluntary consent (assent) can be used as a defense to the contract’s enforceability. Consent may be lacking due to

• Mistake

• Fraudulent Misrepresentation

• Undue Influence

• Duress

Mistake of Fact

Occurs when the parties entered into a contract with different understandings of one/more material facts relating to the contract’s performance

• only this makes a contract voidable

Unilateral Mistakes of Fact

A mistake made by only one of the parties that does not generally give the mistaken party any right to relief from the contract

• Contract is usually enforceable w/2 exceptions

Exceptions to Unilateral Mistakes of Fact

• The other party to the contract knows or should have known that a mistake of fact was made.

• The error was due to an inadvertent, substantial mathematical mistake and not gross (extreme) negligence

Bilateral (Mutual) Mistakes of Fact

A mistake by both contracting parties about one or more material facts generally entitles (but does not compel) either party to rescind

• Either party can rescind the contract when both
  parties are mistaken about the same material fact.

• When the parties reasonably interpret a term differently, a court may allow the contract to be rescinded

Mistake of Value(or quality)

A mistake about the future market value/quality of the object of the contract

• Contracts cannot be rescinded due to mistakes of value.

  • Each party is considered to have assumed the risk that the value will change in the future or prove to be different from what they thought

Fraudulent Misrepresentation

When an innocent party is induced to enter into a contract by a misrepresentation of material fact. The party may avoid the contract because they did not genuinely consent to its terms

Fraudulent Misrepresentation elements

• A misrepresentation of a material fact must occur.

• There must be an intent to deceive.

• The innocent party must justifiably rely on the misrepresentation.

• To collect damages, a party must have been harmed as a result of the misrepresentation

Misrepresentation by Conduct

occurs when a party takes specific action to conceal a fact that is material to the contract

Statements of opinion and predictions

Are generally not subject to claims of fraud

• Exception: If a naïve purchaser relies on an opinion from an expert, the innocent party may be entitled to a rescission or reformation

Misrepresentation of Law

This will usually not excuse the innocent party, unless the speaker is a member of a profession that requires greater knowledge of the law than possessed by the average citizen

Misrepresentation by Silence

• Ordinarily neither party has duty to disclose facts.

• Common and statutory law create a duty to speak in certain situations (e.g., where one is aware of a serious defect or serious risk of injury).

• When parties are in a fiduciary relationship, failure to disclose material facts may be fraud.

Intent to Deceive

Knowledge on the part of the misrepresenting party that facts have been falsely represented

Scienter (“guilty knowledge”)

an intent to deceive

Scienter exists if a party

• knows that a fact is not as stated;

• makes a statement that they believe is not true;

• makes a statement recklessly, without regard to whether it is true or false; or

• says (or implies) that a statement is made on some basis when it is not

Innocent Misrepresentation

A person makes statement they believe to be true but actually misrepresents facts

• Innocent party can rescind contract, but usually
  cannot seek damages

Negligent Misrepresentation

When a party doesn’t exercise reasonable care in uncovering/disclosing facts-or use the skill and competence required by his/her business/profession

• Equal to scienter in nearly all states.

• Culpable ignorance of the truth supplies the intention to mislead

Justifiable Reliance on Misrepresentation

• Deceived party must have justifiably relied on representation.

• Reliance is not justified if the innocent party knows the true facts or relies on extravagant statements

Injury to the Innocent Party

• No proof of injury is required when the action is to rescind contract.

• Proof of injury is required to recover damages

Undue Influence

• arises from relationships in which one party can greatly influence another party and overcome that party’s free will.

• Contract lacks voluntary consent and is voidable

One Party Dominates the Other

In various types of relationships, one party may have the opportunity to dominate and unfairly influence another party.

Presumption of Undue Influence in Certain Situations

When a contract enriches the dominant party in a fiduciary relationship, the court will often presume that the contract was made under undue influence

Duress

• A party who enters into a contract under fear or threat
  makes the contract voidable.

• Threatened act must be wrongful or illegal and render
  person incapable of exercising free will.

• The threat of civil suit is not unlawful

Economic Duress

Economic need on its own is usually not sufficient enough to constitute duress

Adhesion contracts

Are written exclusively by one party and presented to the other party on a take-it-or-leave-it basis

• These are often standard form contracts that are preprinted
  and give the adhering party no opportunity to negotiate the
  terms of the contract

To avoid Adhesion Contracts

the plaintiff normally must show that the contract or particular clause is unconscionable (contains terms that are unfairly burdensome and that unfairly benefit the dominating party)