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GENUINENESS OF ASSENT AND

UNDUE INFLUENCE

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CHAPTER 7 CHAPTER 7

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Genuine Assent

• Necessary to create an enforceable contract.• Determined by relevant facts surrounding

negotiation and formation of the contract.• May be manifested in any manner sufficient to

show agreement, including express words or conduct of the parties.

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Genuineness of Assent (continued)

• May be lacking due to:

– Mistake

– Misrepresentation

– Duress

– Undue Influence

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Mistakes

• One or both of the parties have erroneous belief about subject matter, value, or other aspect of the contract.

• Mistakes may be:– Unilateral– Mutual

• Law may permit rescission of some contracts made in mistake.

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Unilateral Mistake

• When one party is mistaken about material fact regarding subject matter of the contract.

• Generally, the mistaken party will not be permitted to rescind the contract.

• Contract will be enforced.

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Unilateral Mistake (continued)

Relief will be granted if:– Other party knew or should have known that

a mistake was made.– Mistake was clerical or mathematical error

that was not the result of gross negligence.– Mistake is so serious that enforcing the

contract would be unconscionable.

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Mutual Mistake of Fact

– Mistake made by both parties concerning a material fact that is important to the subject matter of the contract.

• E.g., each party referring to a different ship and delivery time (Raffles case)

– Contract may be rescinded on the ground that no contract has been formed because there has been no “meeting of the minds” between the parties.

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Mutual Mistake of Value

– Both parties know the object of the contract, but are mistaken as to its value.

• E.g., seller agrees to sell old painting for $100, and it turns out that collectors highly value such paintings.

– Contract is enforceable.• No relief for party that got “worst” of the deal.• Contrary rule would open every contract to such

disputes.

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Fraudulent Misrepresentation

Misrepresentation• Assertion is made

that is not in accord with the facts.

Misrepresentation• Assertion is made

that is not in accord with the facts.

Intentional Misrepresentation

• Person consciously induces another person to rely on a misrepresentation.

• Also called fraud.

Intentional Misrepresentation

• Person consciously induces another person to rely on a misrepresentation.

• Also called fraud.

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Fraudulent Misrepresentation (continued)

• When a party is fraudulently induced to enter into a contract:– The innocent party’s assent to the contract is

not genuine; and– Contract is voidable by the innocent party

• Can rescind contract and obtain restitution, or

• Enforce contract and sue for damages.

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Elements of Fraud

• Wrongdoer made a false representation of material fact.

• Wrongdoer intended to deceive the innocent party (scienter).

• Innocent party justifiably relied on the misrepresentation.

• Innocent party was injured.

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Types of Fraud

Fraud in the Fraud in the InceptionInception Fraud in the Fraud in the

InducementInducement

Fraud by Fraud by ConcealmentConcealment

Silence as Silence as MisrepresentatioMisrepresentatio

nnMisrepresentatioMisrepresentatio

n of Lawn of Law

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Innocent Misrepresentation

• Person makes statement of fact that he or she honestly and reasonably believes to be true, even though it is not.

• Innocent misrepresentation is not fraud.

• The aggrieved party may rescind the contract but may not sue for damages.

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Misrepresentation Summary

Type of Misrepresentation Sue for Damages

Rescind Contract

Fraud in the inception Yes YesFraud in the inducement Yes Yes

Fraud by concealment Yes Yes

Silence as misrepresentation Yes Yes

Misrepresentation of law Usually no Usually no

Innocent misrepresentation No Yes

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Duress

• One party threatens to do a wrongful act unless the other party enters into a contract.– E.g., threat of extortion or physical injury.

• Due to lack of voluntary assent, contract not enforceable against the innocent party.

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Undue Influence

• Occurs where one person:– Takes advantage of another person’s mental,

emotional, or physical weakness, and– Unduly persuades that person to enter into a

contract.

• Contract voidable by the innocent party.

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Undue Influence (continued)

The following elements must be shown:• Fiduciary or confidential relationship existed

between the parties.• E.g., lawyer-client, psychiatrist-patient,

caregiver-elderly patient.• Dominant party unduly used his or her

influence to persuade the servient party to enter into a contract.