Ch 14: Mistakes, Fraud, And Voluntary Consent (Contracts)

Front 1

Mistake of fact (categories)

Back 1

bilateral
unilateral
*may allow a contract to be avoided

Front 2

Mistake of value or quality

Back 2

if a mistake concerns the future market value or quality of the object of the contract
*normally contract is enforceable
EX: violin sold for cheap but later is found to be rare and worth much more. seller can't later demand more
*reason: value is variable and depends on time, place, etc

Front 3

Bilateral (mistake of fact)

Back 3

mutual mistake made by both of the contracting parties
EX: surveyer made a mistake in amount/placement of land
or word/term subject to more than one interpretation

Front 4

unilateral (mistake of fact)

Back 4

a mistake made by only one of the parties about a material fact
*normally does not give mistaken party any relief and the contract is enforceable
EX: V selling motorhome. Types offer and mistypes price but B accepts - bound contract

Front 5

exceptions to a contract with a unilateral mistakes of fact contracts being enforceable

Back 5

1) if the other party to the contract knows or should have known that a mistake of fact was made
2) a mathematical mistake made inadvertently and without gross (extreme) negligence. Clerical error must be readily provable

Front 6

Elements of Fraudulent Misrepresentation

Back 6

1) A misrepresentation of a material fact must occur
-can occur by words or actions
2) There must be ab intent to deceive
3) The innocent party must justifiably rely on the misrepresentation

Front 7

Cases when opinions can be fraud

Back 7

When a naive purchaser relies on a so-called expert's opinion, the innocent party may be entitled to rescission or reformation (equitable remedy granted by a court in which the terms of a contract are altered to reflect the true intentions of these parties - see Ch 18)

Front 8

Misrepresentation

Back 8

-can occur by words or actions
-statements of opinion and representations of future facts (predictions) are generally not subject to claims of fraud
- a seller of goods is allowed to use puffery to sell his or her wares without liability for fraud

Front 9

Misrepresentation by Concealment

Back 9

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

Front 10

Misrepresentation of Law

Back 10

-ordinarily does not entitle a party to relief from a contract
-at common law people are assumed to know state and local ordinances
EXCEPTIONS
-when the misrepresenting party is in a profession that is known to require greater knowledge of the law than the average citizen possesses.

Front 11

Misrepresentation by Silence

Back 11

a contract cannot be set aside because certain pertinent information is not volunteered
-however, if the purchaser asks you and you lie, you have committed a fraudulent misrepresentation

Front 12

Exceptions to the Misrep by Silence

Back 12

-If the seller knows of a serious potential problem that could not reasonably be suspected by the buyer, the seller may have a duty to speak
-seller must disclose only "latent" defects (defects that could not readily discovered)
-when parties are in a fiduciary relationship (one of trust ex: attorney and their client), there is a duty to disclose materail facts; failure to do so may constitute fraud

Front 13

Duty to Prospective Employees

Back 13

A duty to disclose information may also arise in an employment context when the employer either misrepresents or conceals info from a prospective employee during the hiring process (ex: fraudulent misrepresentation about a company's financial health)

Front 14

scienter

Back 14

"guilty knowledge"
-second element of fraud: knowledge on the part of the misrepresenting party that facts have been falsely represented
*signifies an intent to deceive*

Front 15

innocent misrepresentation

Back 15

If a person makes a statement that she or he believes to be true but that actually misrepresents material facts
(not guilty of fraud)
-the aggrieved party can rescind the contract but usually cannot seek damages

Front 16

negligent misrepresentation

Back 16

a party will make a misrepresentation through carelessness believing the statement is true.
If a person fails to exercise reasonable care in uncovering or disclosing the facts or does not use the skill and competence that her or his business or profession requires
-equal to scienter
-treated as fraudulent misrepresentation (even though it wasn't purposeful)

Front 17

justifiable reliance

Back 17

the deceived party must haev a justifiable reason for relying on the misrepresentation, and the misrepresentation must be an important factor (but not necessarily the sole factor) in inducing that party to enter into the contract

Front 18

Injury to the innocent party

Back 18

-Showing of injury is not required when the action is to rescind the contract (this just returns parties to the positions they held before the contract was made)
-To recover damages caused by fraud, proof of an injury is universally required
*courts can also award punitive damages (intended to punish the defendant) or exemplary damages

Front 19

undue influence

Back 19

-arises from special kinds of relationships in which one party can greatly influence another party, thus overcoming that party's FREE WILL
-lacks voluntary consent and is therefore voidable
-there must be clear and convincing evidence that the person did not act out of her or his free will

Front 20

the presumption of undue influence

Back 20

-when the principal in a confidential relationship benefits from that relationship, a presumption of undue influence arises
-the dominant party must exercise the utmost good faith in dealing with the other party
-when a contract enriches the dominant party, the court will often presume that the contract was made under undue influence

Front 21

duress

Back 21

forcing a party to do something, including entering into a contract, through fear created by threats (blackmail/extortion count too)
-a defense to the enforcement of a contract and a ground for the rescission of a contract

Front 22

The Threatened Act Must Be Wrongful or Illegal

Back 22

threatening someone to exercise a legal right, ordinarily is not illegal and usually does not constitute duress

Front 23

Economic Duress

Back 23

economic need is generally not sufficient to constitute duress, even when one party exacts a very high price for an item that the other party needs
- if the party exacting the price creates the need, economic duress may be found

Front 24

adhesion contracts

Back 24

contracts written exclusively by one party and presented to the other party on a take-it-or-leavei-it basis.
*often use standard forms

Front 25

standard form contracts

Back 25

often contain fine-print provisions that shift a risk naturally borne by one party to the other
-often used by life insurance policies, residential leases, loan agreements, and employment agency contracts
*to avoid enforcement of the contract or of a particular clause, the aggrieved party must show that the parties had substantially unequal bargaining positions and that enforcement would be manifestly unfair or oppresive

Front 26

unconscionability (broad)

Back 26

Section of the Uniform Commercial Code applies only for the sale of goods but courts have broadened the concept and applied it in other situations