Introduction to ContractsThe Agreement: Offer
The Agreement: AcceptanceConsideration
Reality of Consent
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Capacity to ContractIllegality
WritingRights of Third Parties
Performance and Remedies
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Reality of Consent
Necessity never made a good bargain.
Benjamin Franklin, 1735
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
Five doctrines that permit people to avoid their contracts because of the absence of real consent: Misrepresentation Fraud Mistake Duress, and Undue influence
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Contracts induced by mistake, fraud, misrepresentation, duress, or undue influence are generally considered to be voidable Person claiming non-consent has power to
rescind (cancel) the contract Person claiming non-consent must not act
in a manner to ratify (affirm) the contract
Effect of The Five Doctrines
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A misrepresentation is a false statement and may be negligent (innocent) or fraudulent (made with knowledge of falsity and intent to deceive) Either way, injured party may void
(rescind) the contract A person who commits fraud may be
liable in tort for damages, including punitive damages
Misrepresentation or Fraud?
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Innocent or fraudulent misrepresentation: Defendant made an untrue assertion of fact
Includes active concealment or non-disclosure Fact asserted was material or was fraudulent
Fact is material if likely to play significant role in inducing reasonable person to enter the contract
Complaining party entered the contract because of reliance on the assertion
Elements
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Reliance of complainant was reasonable Reliance means that
person entered the contract because of belief in the assertion
Fifth element for fraud: Injury
Elements (cont.)
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Remedies
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A mistake is a belief about a fact that is not in accord with the truth Mistake must relate to facts as they
exist at the time the contract is created Mistake not due to other party’s
statements Mutual mistakes may be remedied by
reformation
Mistake in Contracts
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A unilateral mistake will not render a contract unenforceable unless unequal bargaining position existed Example: Estate of Nelson
v. Rice in which the sellers sued buyers after buyers recognized a profit on the sale of estate sale paintings
Mistake in Contracts
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Mistake
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Duress is wrongful threat or act that coerces a person to enter or modify contract Physical, emotional, or
economic harm Given duress, victim must
have no reasonable choice but to enter the contract See Cabot Corp. v AVX Corp.
Duress
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Undue influence involves wrongful pressure exerted on a person during the bargaining process
Unlike duress, pressure is exerted through persuasion rather than coercion
Key is the weakness of the person “persuaded”
Undue Influence
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