Improper Bargaining

Question 1

Types of Improper Bargaining

Answer 1

1. Misrepresentation
2. Duress
3. Unconscionability
   
   • Undue Influence
4. Illegality/Contravention of Public Policy

Question 2

Elements of misrepresentation

Answer 2

1. D makes a claim about a material element of K;
   
   1. That is false; and
   2. Induces justifiable reliance by P

Question 3

fraud in the factum/execution

vs

fraud in the inducement

Answer 3

Factum: Party is prevented from knowing essential terms of K due to fraudulent misrepresentation=K is void.

Inducement: Party is induced into entering K b/c of fraudulent misrepresentation=K is voidable if adversely affected party relied on misrepresentation.

Question 4

Categories of Misrepresentations

Answer 4

• Misrep. by level of “scienter” (a.k.a. mental state):
  
  1. Fraudulent (intentional) misrepresentation = “Fraud”
  2. Negligent misrepresentation
  3. Innocent misrepresentation
• Misrep. by nature of the act/omission:
  
  1. Affirmative Misrepresentation
     
     • affirmatively saying something that isn’t true
  2. Concealment/omission
     
     • withholding information
  3. Nondisclosure/omission
     
     • withholding information

*Note: Misrepresentation can occur through words (express) or actions (implied)

Question 5

What are the elements of fraudulent misrepresentation

Answer 5

1. There was a misrepresentation of a material fact;
   
   • Assertion not in accord with the facts
     
     • What counts as a fact?
       
       • Fact vs. Opinion distinction
     • What counts as an assertion?
       
       • Statement vs. Omission distinction
2. That the D knew was false; or made with reckless disregard for the truth;
   
   • Actual knowledge of falsity or no confidence in its truth=INTENTIONAL
3. That the D knew would cause reliance;
   
   • intention to induce asset (=intentional)
4. P did in fact rely on the misrepresentation; and
5. P suffered damages as a result

_*liable!_

Question 6

Elements of negligent misrepresentation

Answer 6

1. Misrepresentation of a material fact;
   
   • Assertion not in accord with the facts

• What counts as a fact?
  
  • Fact/Opinion distinction
• What counts as an assertion?
  
  • Statement/Omission distinction

1. That misrepresentor should have known was false; and
   
   • Should have known/had reason to know of falsity (=negligent)
2. P reasonably relied on the misrepresentation

Question 7

Elements of innocent misrepresentation

Answer 7

1. Misrepresentation of a material fact;
   
   • Assertion not in accord with the facts

• What counts as a fact?
  
  • Fact/Opinion distinction
• What counts as an assertion?
  
  • Statement/Omission distinction

1. That misrepresentor had no reason to know was false; and
   
   • Had no reason to know of falsity (=innocent)
2. P reasonably relied on the misrepresentation

_*no LIABILITY_

Question 8

What counts as “material”?

Answer 8

A misrepresentation is “material” if it would be “likely to induce a reasonable person to manifest belief or if the maker knows that it would be likely to induce the recipient to do so.”

R2d 162(2).

Question 9

What counts as justifiable reliance?

Answer 9

• Information publicly available?
• Truth could have been ascertained with little effort?
• Reasonable person would have known to ask?
• Speaker made assurances to victim/led them on?
• Victim acted in good faith?

Question 10

Is there a duty to disclose Misrepresentation?

Answer 10

Yes, if either:

• Fiduciary relationship [legal/ethical relationship of trust] exists;
• P was only told part of the truth such that it was misleading;
• D fails to correct a statement by P that they know is misleading;
• One party knows that the other is mistaken as to a basic assumption; or
• D does an affirmative act to hide a material fact (e.g. painting over mold to conceal it)

Question 11

definition

Duress

Answer 11

Any wrongful act or threat which overcomes the free will of a party such that there is no other reasonable alternative than to assent to the contract.

⭐️ subjective standard

• Improper threats/Coersion
  
  • may be expressed or implied through words or conduct.
  • left no reasonable alternative.

Question 12

Duress Examples

Answer 12

THREAT OF:

• Physical violence;
  
  • VOID
• Civil or criminal penalties (ex. imprisonment);
  
  • VOID
• Wrongful interference with the other party’s property, or
  
  • VOIDABLE *because economic threat
• Breaching the K or doing other unlawful acts (ex. “if you don’t change the contract to say you now owe me $100 million dollars, I’ll breach);
  
  • VOIDABLE *because economic threat

Question 13

What is undue influence and what are the elements?

Answer 13

One party enters into a contract after being unfairly persuaded* by the other.

Elements:

1. Weaker party lacked:
   
   1. capacity
   2. expertise, or
   3. was part of a special relationship; and
2. Was unfairly persuaded* by the stronger party; and
3. Persuasion hindered the free will of weaker party

Question 14

What are examples of unfair persuasion?

Answer 14

• Talking about the K at an unusual time;
• Completing the K at an unusual place;
• Demanding that the K be completed immediately;
• Extreme emphasis on the negative consequences of delaying the transaction; or
• Stating that there is no time to consult advisors or attorneys

Question 15

Who bears the burden to show that the contract was made without undue influence?

Answer 15

Party being accused

Question 16

Undue Influence Remedies?

Answer 16

• K VOIDABLE (by victim/aggrieved)
  
  • Can seek restitution

Question 17

unconscionable contract

Answer 17

K where the bargaining power or terms are so unequal as to shock the conscience

[i.e. no reasonable person would agree to it]

Question 18

Who decides whether a contract is unconscionable: a judge or jury?

Answer 18

JUDGE

Question 19

What are two categories of unconscionability?

Answer 19

1. Procedural
2. Substantive

Question 20

procedural unconscionability

Answer 20

When one side enters into a contract without meaningful choice

Question 21

What are examples of procedural unconscionability?

Answer 21

• Adhesion contracts (“take it or leave it”)
• Contracts with boilerplate terms
• Contracts with hidden terms that are vague or confusing

Question 22

substantive unconscionability

Answer 22

Terms of K itself are not fair

Question 23

examples of substantive unconscionability?

Answer 23

• Grossly excessive price
• Disproportionate consequences for minor breach
• Provisions unreasonably limiting warrranties or remedies

Question 24

What actions court can take upon finding unconscionability?

Answer 24

1. Declare the entire contract void;
2. Strike the unconscionable clause while leaving the rest; or
   
   • Red Pencil [throw out the entire convenant]
   • Blue pencil [only the part of the clause that is unconscionable]
3. Reforemation: Rewrite the offending clause to make it conscionable

Question 25

When does a K violate public policy?

Answer 25

Either:

• Subject matter is explicitly prohibited by law
  
  • (prostitution, gambling);
• Formed for the purpose of committing a crime or tort; or
• Violates certain values and freedoms designated by the state
  
  • (ex. freedom of trade)/problematic exclusivity K’s

Question 26

illegal contract

Answer 26

Either contains illegal clauses or contemplates illegal actions