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Powerpoint from textbook Business Law - the ethical, global, and e-commerce environment to accompany BA 330 course at the University of Alaska Fairbanks.
Citation preview
Introduction to ContractsThe Agreement: Offer
The Agreement: AcceptanceConsideration
Reality of Consent
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
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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Jordan v. Knafel
Facts: Knafel claimed she was pregnant with
Jordan’s child and Jordan offered a settlement: Knafel agreed to keep the situation confidential
and to refrain from filing a paternity suit Jordan would pay Knafel $5 million upon his
retirement from professional basketball After child’s birth, paternity test revealed
child was not Jordan’s
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Jordan v. Knafel
Procedural History & Issue: Jordan filed suit for declaratory
judgment that if an agreement had been made, it was unenforceable for fraud and mutual mistake
On appeal, issue was what impact the paternity evidence had on enforceability of alleged agreement
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Legal Reasoning & Holding: Fraud in the inducement of a contract is
a defense rendering the contract voidable at the election of injured party Jordan’s paternity was a material fact in
settlement of Knafel’s paternity claim Agreement premised on fraud or mutual
mistake and thus voidable by Jordan
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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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Cabot Corporation v. AVX Corporation
Facts: After long negotiation of a long-term supply
contract, parties disputed whether contract was valid and binding contract (Cabot’s claim) or void due to economic duress (AVX’s claim)
The Law: To establish economic duress, party must
show he has been the victim of a wrongful or unlawful act or threat, and such act or threat must be one which deprives the victim of unfettered will
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Law Applied to Facts: AVX and Cabot are sophisticated and
substantial commercial parties represented by highly competent counsel
Cabot was in stronger position than AVX, but “hard bargaining is not unlawful”
No evidence of coercion, but there is evidence of AVX’s ratification
Holding: Judgment affirmed in favor of Cabot
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Cabot Corporation v. AVX Corporation
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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Review
Test Your Knowledge
True=A, False = B A contract signed under duress or
undue influence is simply void. A misrepresentation may be
negligent (innocent) or fraudulent. Mutual mistakes may be remedied by
reformation Duress and undue influence have the
same meaning13 - 21
Test Your Knowledge
Multiple Choice Elements of innocent
misrepresentation: (a) False assertion(b) Knowingly made to induce a person to
enter a contract(c) Reasonable reliance on the assertion by
complainant(d) All of the above(e) Both (a) and (c), but not (b)
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Test Your Knowledge
Multiple Choice A unilateral mistake will not render a
contract void unless: (a) Substantial difference between
contract and market price(b) Fundamental error occurred(c) An unequal bargaining position
existed
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Thought Question
Your landlord tells you that you will be evicted from your apartment or your rent must increase by $75 per month because your neighbors complain about your dog. If you agree to the increase, would the contract be void or voidable under the theory of duress?
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