Chapter 17 - Business Law

Legal assent

a promise to buy or sell that the courts will require that the parties obey

Without assent, contracts may be...

voidable

Voidable

a term applied to a contract that one or both parties have the ability to either withdraw from or enforce

Rescind

to cancel a contract

A voidable contract may be ...

recinded

Doctrines that negate assent

mistake, misrepresentation, undue influence, duress, unconscionability

Three types of mistakes

mistake of fact, unilateral mistake, mutual (bilateral) mistake

Mistake of fact

Erroneous belief about material facts at the time the contract is entered into

Example of mistake of fact

A person buys a painting at a garage sale, genuinely believing it's a reproduction, and pays $100 for it. Later, they find out it's actually an original worth $10,000. The seller also thought it was a reproduction

Unilateral mistake

Mistake made by one contracting party; generally, contract still binding

Example of Unilateral mistake

A contractor submits a bid to build a house for $250,000 but accidentally miscalculates the cost of materials — they meant to write $350,000. The homeowner accepts the $250,000 offer

Mutual mistake

mistake made by both parties

Example of Mutual mistake

A farmer agrees to sell a specific cow to a buyer for $1,000. Both the farmer and the buyer believe the cow is alive at the time of the agreement. However, after the contract is made, they discover the cow had already died earlier that day

When both parties are mistake about a key factual foundation for the agreement, the mistake can be grounds for ______________

recission

Three requirements to rescind based on mutual mistake

a basic assumption about the subject matter of the contract

a material effect on the agreement

an adverse effect on a party who did not agree to bear risk of mistake at time agreement

Which points must you hit to use mistake to rescind the agreement?

1 and 2

Material fact

fact that is significant in the context of the deal

What was the ruling of the Michael Jordan case?

Michael did not have to pay because they were operating under a mutual mistake and/or she misrepresented to him that she was the dad (the appeals court affirmed that)

Scienter

deliberately or knowingly

When is scienter present?

when the party making the fraudulent assertion believed it was false or had no regard for whether it was true or false

Intent to deceive

occurs when the party makign the false statement claims to have or impleis having personal knowledge of its accuracy

Three types of misrepresentation

innocent, negligent, and fraudulent misrepresentation

Innocent misrepresentation

false statement about a material fact that person making it reasonably believed to be true

Example of innocent misrepresentation

A car dealer sells a used car to a buyer, telling them it has never been in an accident. The dealer genuinely believes this to be true because the previous owner told them so and there's no visible damage. Later, it's discovered that the car had actually been in a minor collision that was repaired

Remedy for innocent misrepresentation

the misled party can rescind the contract (but may not sue for damages)

Negligent misrepresentation

negligent or careless untruthfull assertion of material fact

Example of negligent misrepresentation

A real estate agent tells a buyer that a house has never had water damage. The agent doesn't bother to check the property records or inspect the basement, even though there are clear signs of past flooding. Later, the buyer discovers extensive water damage and mold

Remedy for negligent misrepresentation

the misled party can rescind contract and sue for damages

Fraudulent (intentional) misrepresentation

intentional untruthful assertino of material fact by contracting party that is intended to deceie and that induces reliance and damages by the other party

Example of fraudulent misrepresentation

A used car seller tells a buyer, “This car has never been in an accident,” even though they know the car was previously totaled and rebuilt after a major crash. They hide the accident history report and repaint the car to cover the damage

Remedy of fraudulent misrepresentation

the misled party can rescind contract and sue for damages

Three requirements for fraudulent misrepresentation

false statement of fact, intent to deceive, justifiable reliance

Justifiable reliance

usually shown unless the injured party knew or should have known statement was false

Concealment (active hiding of facts) can satisfy...?

the assertion requirement

Non-disclosure (not communicating important information) is (more/less) common in satisfying the false assertion requirement

less common

Undue influence

persuasive efforts of dominant party, who uses special relationship to interfere with other's free choice of contract terms

Example of undue influence

An elderly woman relies heavily on her caretaker for daily needs. The caretaker convinces her to change her will, leaving everything to the caretaker instead of her family. The woman signs the new will because she feels pressured and fears losing the caretaker's help if she refuses

What kind of relationship can give rise to undue influence?

Any relationship involving one party's unusual degree of truth (ex: doctor, lawyer, guardian, etc.)

Contracts under undue influence can be ____________ depending on the other party's mental conditiona dn extent to which the dominant party used persuasive powers

voidable

What kind of advice to the subservient party can help avoid undue influence claims?

independent advce

How does the court evaluate undue influence?

did the dominant party rush other party to consent/

did the dominant party gain undue enrichment from the contract?

was the nondominant party isolated from other advisers at the time of the contract?

is the contract unreasonable, in that it ovrhwelmingly benefits the dominant party?

Duress

one party is forced into an agreement by a wrongful act of another

Example of duress

A business owner is threatened by a competitor who says, "Sign this contract giving me 40% of your profits, or I'll harm your family." Out of fear, the business owner signs the agreement

Is duress legal assent? Why or why not?

no, because coercion interferes with contracting party's free will

Threats involved in duress situations

threats to physically harm or extortion to gain consent

threats to file criminal charges

threats to file a frivolous civil lawsuit

threats to other's economic interests

Unconscionability

contract is so unfairly onesided that it would be unjust to enforce it

Example of unconscionability

A low-income tenant signs a lease with a landlord that says if the tenant misses one rent payment, the landlord can immediately evict them and keep all the tenant’s belongings inside the apartment. The tenant did not understand the clause because it was buried in fine print and wasn’t explained