In what types of situations might voluntary consent to a contract’s terms be lacking? In what types of situations might voluntary consent to a contract’s

• In what types of situations might In what types of situations might voluntary consent to a contract’s terms voluntary consent to a contract’s terms be lacking?be lacking?• What is the difference between a What is the difference between a

mistake of value or quality and a mistake of value or quality and a mistake of fact?mistake of fact?• What are the elements of fraudulent What are the elements of fraudulent

misrepresentation? misrepresentation? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

• Does a party to a contract ever have Does a party to a contract ever have a duty to disclose information to the a duty to disclose information to the other party?other party?• What is an adhesion contract?What is an adhesion contract?

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3

• Contract may be unenforceable if the Contract may be unenforceable if the parties have not genuinely assented parties have not genuinely assented to its terms by:to its terms by:–Mistake. –Misrepresentation.–Undue Influence.–Duress.


• UnilateralUnilateral Mistakes cannot be Mistakes cannot be canceled canceled unlessunless::–If other party to the contract knows or

should have known that a mistake of fact was made, OR–If mistake was due to an inadvertent

mathematical and without gross negligence.


• BilateralBilateral (Mutual) Mistakes can be (Mutual) Mistakes can be rescinded by either party.rescinded by either party.–CASE 13.1 Inkel v. Pride Chevrolet-Inkel v. Pride Chevrolet-

Pontiac, Inc.Pontiac, Inc. (2008). What factors did the court consider in ruling for the Inkels?



• Contract is Voidable by Innocent Contract is Voidable by Innocent Party.Party.• Consists of the following Elements:Consists of the following Elements:–Misrepresentation of Material Fact.–Intent to Deceive.–Reliance on Misrepresentation.–Injury to the Innocent Party.


• Misrepresentation Has Occurred.Misrepresentation Has Occurred.–Statement of Fact vs. Statement of

Opinion.• Statement of Opinions are not

actionable. • Opinions from Experts can be actionable,

and injured party can seek rescission or reformation.


• Misrepresentation Has Occurred Misrepresentation Has Occurred (cont’d).(cont’d).–Misrepresentation by Conduct: occurs

when a party takes specific action to conceal a fact that is material to the contract.–Misrepresentation of Law: does not

entitle a party to relief.


• Misrepresentation Has Occurred Misrepresentation Has Occurred (cont’d).(cont’d).–Misrepresentation by Silence.• Ordinarily neither party has duty to

disclose facts.• However, seller will be liable if she knows

of material defect that cannot be reasonably discovered by buyer.


• Misrepresentation Has Occurred Misrepresentation Has Occurred (cont’d).(cont’d).–Misrepresentation by Silence (cont’d).•When parties are in a fiduciary

relationship, failure to disclose material facts may be fraud.• CASE 13.2 Rosenweig v. Givens Rosenweig v. Givens (2009).

What factors did the court consider in its decision?


• Intent to Deceive.Intent to Deceive.–Scienter (Guilty Knowledge) is an

Intent to Deceive.• Party knows that a ‘fact’ is not true, or

makes a reckless statement without regard for the truth, or implies that statement is based on personal knowledge or investigation.


• Reliance on Misrepresentation.Reliance on Misrepresentation.–Deceived party must have justifiably

relied on representation.• Reliance is not justified if the innocent

party knows the true facts or relies on extravagant statements.• Should employers also be liable for

misrepresentations they make to prospective employees?


• Injury to the Innocent Party.Injury to the Innocent Party.–No proof of injury is required when the

action is to rescind contract.–Proof of injury is universally required

to recover damages.


• Undue Influence.Undue Influence.–Contract lacks voluntary consent and is

voidable.• Based on Confidential or Fiduciary

Relationship, or Relationship of Dependence.• Undue Influence or Persuasion is presumed

if weak party talked into doing something not beneficial to him or herself.


• Duress.Duress.–Forcing a party to enter into a contract

under fear or threat makes the contract voidable.–Threatened act must be wrongful or

illegal and render person incapable of exercising free will. Threat of civil suit, or economic need, is not duress.


• Standard-Form (Adhesion) Contracts.Standard-Form (Adhesion) Contracts.–Preprinted contract in which the

adhering party has no opportunity to negotiate the terms of the contract.–One-sided “Take-it-or-Leave-it”

contracts where one side has substantially superior bargaining power.


• Unconscionability and the Courts.Unconscionability and the Courts.–Under UCC unconscionability only

applies to sale of goods.–But courts have broadened scope to

include other situations.


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In what types of situations might voluntary consent to a contract’s terms be lacking? In what types of situations might voluntary consent to a contract’s