Week 5 - Test 1 Flashcards
(1), (2) and (3) can go further than making a contract invalid and can actually result in tort claims and punitive damages.
- Fraud
- Duress
- Misrepresentation
damages unrelated to loss, inteded to punish
punitive damages
false statement of material fact, made with intent to deceive, on which another reasonably relies, to his detriment
fraud
fraud relating to the nature of the agreement (e.g., tell dad contract is for meds, but is actually sale of house for half value)
fraud in the execution
fraud relating to the party’s motivation in entering the contract (e.g., lie about mileage on car)
frau in the inducement
sales talk; not generally considered statements of fact
puffing
a party has a duty to disclose and knowingly conceals the truth
silence as fraud
knowledge of falsity
intent to deceive
reliance on an assertion is reasonable
justifiable reliance
false statement made without intent to deceive, upon which a party justifiably relies to his detriment (e.g., carelessness, mistake)
misrepresentation
Two questions that come into play when determining misrepresentation
- Whether statement was one of fact
2. Whether injured party was justified in relying on speaker
all parties are mistaken about a basic assumption - basis for avoiding a contract
mutual mistakes
an assumption essential to the value of a transaction
basic assumption of fact
A mistake in (1) , concerning (2), or about (3) is generally not a basis for avoiding a contract.
- judgment
- consequences
- law
only one party is mistaken about a basic assumption; can rise to grounds for fraud
unilateral mistake
a party may be excused from contract obligations if an unforeseen circumstance makes performance impracticable
commercial impracticability
a wrongful threat, intended to induce action by the other party
duress
an agreement in which a prosecutor and a defendant arrange to settle a criminal case against the defendant
plea agreement
a dominant party takes advantage of that position in entering a contract with party under domination
undue influence
one party is obligated to act in the best interest of the other party
fiduciary interest
3 requirements to make a special relationship contract valid
- fair consideration
- full disclosure by dominant party
- independent advice for weaker party
a contract so unreasonable it is “shocking”
unconscionable
Unconscionablity can be (1) or (2)
- procedural (buried terms)
2. substantive (terms easily found in contract but clearly unfair)
Courts rarely apply the doctrine of unconscionability to (1) or to contracts involving sophisticated parties because the doctrine assumes unequal (2).
- commercial contracts (between businesses)
2. bargaining power
a take-it-or-leave-it contract in which one party has all of the bargaining power
adhesion contract
a statement made that is not in accord with the actual facts
misrepresentation
3 types of misrepresentation
- innocent (actually believe it, with good reason)
- negligent (fail to exercise reasonable care in ascertaining facts)
- fraudulent (intent to deceive)
3 remedies for innocent or negligent misrepresentation
- uphold contract
- rescind on contract and void
- keep contract and collect damages
You may not sue for (1) under contract law. Fraudulent misrepresentation must be sued for through the avenue of (2).
- punitive damages
2. Tort law
Fraudulent misrepresentation is difficult to sue for because you must prove a (1).
- state of mind
3 avenues through which you can prove state of mind for fraudulence
- seller knew/believed ascertation was untrue
- seller lacked confidence in the truth of his statement but presented it as fact
- seller implied there was a basis for the truth of his statement (e.g., he looked it up)
For collecting damages, it must be proven that the buyer (1) on the untruthful statement
- relied
Where there is not (1), there is a generaly rule that there is no duty to disclose info to another party.
statutory authority
5 exceptions to presumed lack of duty to disclose info
- half-truths (“I’ve never see a rattlesnake”–has seen many other snakes)
- positive concealment (filling in cracks)
- failure to correct a past statement (e.g., if something new happens to the property)
- fiduciary relationship (obligated to look out for best interests of the person)
- failure to correct a known mistake (e.g., a buyer’s mistake–“red diamond”)
A mere expression of opinion that does not relate to an (1) cannot be the basis of a claim of (2) or (3) unless the person stating the opinion has (4) or (5) knowledge.
- existing fact
- fraud
- misrepresentation
- exclusive
- superior
Where an opinion is a (1) in a purchase, this can be misrepresentation.
- decisive factor (e.g., “fashionable” couch)
Fraud in the (1) and fraud in the (2) have similar fact patterns.
- execution
2. inducement
relates to parties’ motivation for entering into the contract (e.g., buy a car thinking 50k miles–actually has 150k)
fraud in the inducement
relates to deception in what document is actually being presented for approval
fraud in the execution
(1), or nondisclosure, is difficult to prove as there is not always a (2).
- silence as fraud
2. duty to disclose
knowledge of falsity; a “guilty mind”
scienter
Mistake, if (1), can be rescinded by the offeror. The mistake must be (2), which is hard to prove. Relief can be granted if the mistake relates to the (3)–not to (4) or (5). A mistake in (6) is also not voidable.
- mutual
- material
- substance
- quality
- value
- judgment (believing something is going to gain value)
A (1) mistake usually relates to an accounting error, and it is voidable.
unilateral
consists of any wrongful act or threat which overcomes the free will of the other party. Not necessarily illegal – e.g., threatening a lawsuit
duress
Duress uses a (1) standard–relates to what the person threatened feels
subjective
4 ways to commit duress
- threat of violence
- threat of imprisonment
- wrongful taking/keeping of another’s property or threat to do so
- threat to breach a contract
(1) is hard to prove–it is basically an abuse of trust
undue influence
2 things that must be established for undue influence
- person unduly influenced had a relationship of dependence and trust and other party dominated them and made them believe they were acting on trust
- dominant party abused their position of trust and had a psychological advantage over the other person
2 ways to end up with an unconscionable/adhesion contract
- large disparity in bargaining position of parties (one has little or no ability to negotiate)
- terms of contract are so unfair as to “shock the conscience”
2 ways a contract can “shock the conscience”
- procedural - bargaining process is impaired e.g. language barrier, absolution of responsibility on back of parking pass
- substantive - terms are lopsided e.g., enormous interest rate
