Chapter 13 Lecture Notes PDF

Preview

Summary

Lecture notes on Chapter 13 Reality of Consent...

Description

Chapter 13 – Reality of Consent Voidable: contracts induced by misrepresentation, fraud, mistake, duress, or undue influence Rescind (cancel) contract: person can do this when consent was not real -entitled to the return of anything given and must offer to return anything received from other party -must rescind promptly and unequivocally (leave no doubt); avoid any behavior that would suggest affirmation or ratification of the contract -Ratification of voidable contract means that a person who has had the right to rescind has elected not to do so; ends right to rescind Misrepresentation and Fraud Misrepresentation: assertion that is not in accord with the truth; voidable when contract entered because of justifiable reliance on the misrepresentation about some important fact -“innocent”: not intentionally deceptive; even if person making misrepresentation believes in good faith that what he says is true -“fraudulent”: made with knowledge of falsity and intent to deceive; untrue assertion made scienter- legal term that refers to intent or knowledge of wrongdoing -“knowingly” if he knew his statement is false, if he did not have a basis for making the statements, or if he just made the statement without being confident it was true -rescission: contract remedy for fraud; person who commits fraud liable for damages, possibly including punitive damages because tort of deceit Some states = person injured by fraud can rescind contract or sue for damages for deceit Some states = both rescission and damage remedies Rescission on Ground of Misrepresentation: 1- An untrue assertion of fact was made a. One party must have made an untrue assertion of fact or engaged in some conduct that is the equivalent of an untrue assertion of fact; fact must be past or existing fact b. Concealment of fact through active conduct intended to prevent the other party from discovering the fact is considered equivalent to assertion; can be basis for a claim of misrepresentation or fraud c. Nondisclosure involves active hiding of a fact, whereas nondisclosure is the failure to volunteer information i. Most states hold that a seller who knows about a latent (hidden) defect that materially affects the value of the property he is selling has the obligation to speak up about this defect 2- The face asserted was material or assertion was fraudulent a. Material: if misrepresentation was innocent, person seeking to rescind contract must establish that the fact asserted was material; material if likely to play a significant role in inducing a reasonable person to enter the contract or if the person asserting the fact knows that the other person is likely to rely on the fact 3- The complaining party entered the contract because of his reliance on the assertion

a. Fraud- needs casual connection between the assertion and the complaining party’s decision to enter the contract 4- The reliance of the complaining party was reasonable/justifiable a. person who did not attempt to discover readily discoverable facts generally not justified in relying on other party’s statements about them b. § 172 of the Restatement : a relying party’s failure to discover facts before entering the contract does not make his reliance unjustifiable unless the degree of his fault was so extreme as to amount to a failure to act in good faith and in accordance with reasonable standards of fair dealing Nature of Mistake Mistake: a belief about a fact that is not in accord with the truth; NOT erroneous belief or prediction about facts that might occur in the future -person adversely affected by mistake can avoid contract under Doctrine of Mistake -mistake must relate to facts as they exist at the time contract is created Mistakes of Law: mistake about a principle of law will not justify rescission -modern: relief granted when mistake is an erroneous belief about some aspect of law Negligence and the Right to Avoid for Mistake: rescission often granted when mistaken party somewhat negligent - § 157 of the Restatement (Second) of Contracts: person’s fault in failing to know or discover facts before entering the contract will not bar relief unless his fault amounted to a failure to act in good faith Mutual Mistakes in Drafting Writings: erroneous expression of an agreement by clerical error in drafting/typing contract, deed, or other doc. -remedy = Reformation of the writing rather than avoidance of the contract; modify written instrument to express the agreement that parties made but failed to express correctly

Three Requirements for Mutual Mistake: both parties in contract have erroneous assumptions about same fact 1- The mistake relates to a basic assumption on which the contract was made a. even if mutual, adversely affected party will not have right to avoid a contract unless mistake concerns basic assumption on which the contract was based

-basic assumptions ex: identity, existence, quality or quantity of the subject matter of the contract, etc. -not basic if concerns a matter that bears indirect or collateral relationship to subject matter of the contract 2- The mistake has a material effect on the agreed-upon exchange a. imbalance caused by mistake so severe that it would be unfair for law to require him to perform contract; contract should be less desirable because of mistake and other party has received unbargained-for advantage 3- The party adversely affected by the mistake does not bear the risk of the mistake a. can’t rescind contract for gambling on limited knowledge and losing Requirements for Unilateral Mistake: when one of the parties makes a mistake about basic assumption on which he made contract -courts more likely to allow avoidance of contract when both parties are mistaken than when only one mistaken -person trying to avoid on ground of unilateral mistake must show EITHER one: 1- The nonmistaken party caused or had reason to know of the mistake 2- It would be unconscionable to enforce the contract; mistaken party would have to convince court that consequences of the mistake would be severe enough to make contract unreasonably harsh or oppressive if it were enforced Durress: wrongly coercion that induces a person to enter or modify a contract -physical compulsion to enter contract -person is induced to enter a contract by a threat of physical, emotional, or economic harm (voidable as option of victimized person) NEED BOTH elements: 1- the contract was induced by an improper threat a. person would have to threaten to do something she was not legally entitled to do for a threat to be duress b. Restatement: the threat need not be wrongful or illegal but must be improper to use as leverage to induce a contract i. threat to sue is made in bad faith and for purpose unrelated to the issues in the law suit = improper 2- the victim had no reasonable alternative but to enter into the contract a. the degree of coercion exercised had to be sufficient to overcome the will of a person of ordinary courage b. modern: looks at alternatives open to the complaining party Economic Duress/Business Compulsion: situations in which one person induces the formation or modification of a contract by threatening another person’s economic interests. -ex: threaten to breach contract unless the other party agrees to term modification Undue Influence/Unfair Persuasion: wrongful pressure exerted on a person during bargaining process through persuasion (NOT coercion); need BOTH elements: 1- the relationship between the parties is either one of trust and confidence or one in which the person exercising the persuasion dominates the person being persuaded a. involve people in position of particular vulnerability in relationship to the other party to the contract

b. relationship can be one in which one of the parties holds dominant psychological power that is not derived from a confidential relationship 2- the persuasion is unfair

Chapter 18 – Contract Remedies Types of Contract Remedies: 1- Legal remedies (money damages) 2- Equitable remedies: remedies with origins in courts of equity rather than courts of law 3- Restitution: requires defendant to pay the value of the benefits that the plaintiff has conferred on him Interests Protected by Contract Remedies: 1- Expectation Interest: promisee’s expectation interest in his interest in obtaining the objective or opportunity for gain that he bargained for and “expected”; courts want to place promisee in position he would have been in if the contract had been performed as promised 2- Reliance Interest: promisee’s reliance interest is his interest in being compensated for losses that he has suffered by changing his position in reliance on the other party’s promise 3- Restitution Interest: party’s interest in recovering the amount by which he has enriched or benefited the other; involve promisees who have changed their position; loss to promisee that constitutes an unjust enrichment to the promisor

Legal Remedies (money damages) Limitations on Recovery: 1- A party can recover damages only for those losses that he can prove with reasonable certainty 2- A breaching party is responsible for paying only those losses that were foreseeable to him at the time of contracting. 3- Plaintiffs injured by a breach of contract have the duty to mitigate (avoid or minimize) damages. Compensatory Damages: court will give “benefit of his bargain” placing him in the position he would have been in had the contract been performed as promised; compensate for provable losses and gains that he has been prevented from realizing by breach 1- Loss in Value: determine loss in value of performance that plaintiff had right to expect 2- Consequential/Special Damages: compensate for losses that occur as a consequence of the breach of contract; lost profits can be recovered if foreseeable and proven with reasonable certainty 3- Incidental Damages: compensate for reasonable costs that the injured party incurs after the breach in an effort to avoid further loss Alternative Measures of Damages: reliance interest- losses suffered by relying on other party’s promise; promissory estoppel Nominal Damages: very small damage awards that are given when a technical breach of contract has occurred...