Contracts - Genuineness of Consent
Excerpted from West Bus.Law

The key points in this chapter include:

1. The difference between mistakes in judgment as to value or quality and mistakes as to facts and their effect on a contract.

2. Fraudulent misrepresentation and its elements.

3. Nonfraudulent misrepresentation.

4. The difference between undue influence and duress.

5. Adhesion contracts and how they can be avoided.

A contract may be unenforceable if the parties have not genuinely assented to its terms. Assent may be lacking because of mistakes, misrepresentation, undue influence, or duress. A party who has not truly assented can choose to avoid the transaction. Lack of assent is both a defense to the enforcement of a contract and a ground for rescission (cancellation) of a contract.

I. MISTAKES
It is important to distinguish between mistakes made in judgment as to value or quality and mistakes made as to facts. Only the latter have legal significance.

A. UNILATERAL MISTAKE
When one contracting party makes a mistake as to some material fact, he or she is not entitled to relief from the contract. Exceptions are

1. Other Partys Knowledge
A contract may not be enforceable if the other party to the contract knows or should have known that a mistake was made.

2. Mathematical Mistakes
A contract may not be enforceable if a mistake in addition, subtraction, division, or multiplication was inadvertent.

B. MUTUAL MISTAKE OF FACT
When both parties make a mistake as to some material fact, the contract can be rescinded by either party. This is also true if the parties attach different meanings to a term subject to more than one reasonable interpretation.

C. MUTUAL MISTAKE IN VALUE
When both parties make a mistake as to the market value or quality of the object of the contract, the contract can be enforced by either party.

II. FRAUDULENT MISREPRESENTATION
When an innocent party is fraudulently induced to enter into a contract, the contract normally can be avoided because that party has not voluntarily consented to its terms.

A. THE ELEMENTS OF FRAUD
(1) Misrepresentation of a material fact, (2) an intent to deceive, and (3) an innocent partys justifiable reliance on the misrepresentation.

1. Misrepresentation Has Occurred
Misrepresentation can be in words or actions.

a. Statements of Opinion
Statements of opinion are generally not subject to claims of fraud. But when a nave purchaser relies on an experts opinion, the innocent party may be entitled to rescission or reformation.

b. Misrepresentation by Conduct
Misrepresentation can occur by, for example, concealment, which prevents the other party from learning of a material fact.

c. Misrepresentation of Law
Misrepresentation of law does not entitle a party to relief, unless the misrepresenting party is in a profession that is known to require greater knowledge of the law than the average person has.

d. Misrepresentation by Silence
Generally, no party to a contract has a duty to disclose facts. Exceptions include

1) Latent Defect
If a serious defect is known to the seller but could not reasonably be suspected by the buyer, the seller may have a duty to speak.

2) Fiduciary Relationship
In a fiduciary relationship, if one party knows facts that materially affect the others interests, they must be disclosed.

3) Statutory Provisions
Some statutes (for example, the Truth-in-Lending Act) provide exceptions to the rule of nondisclosure.

2. Intent to Deceive (Scienter)
A misrepresenting party must know that facts are falsely represented.

a. When This Occurs
If a party (1) knows a fact is not as stated; (2) makes a statement he or she believes not to be true or makes it recklessly, without regard to the truth; or (3) says or implies that a statement is made on a basis such as personal knowledge when it is not.

b. When Proof of Fault Is Not Necessary
In many cases (often involving sales of land or stock), a buyer need prove only a sellers representation was false, without regard to the sellers state of mind.

3. Reliance on the Misrepresentation
The misrepresentation must be an important factor in inducing the party to contract. Reliance is not justified if the party knows the true facts or relies on obviously extravagant statements, or the defect is obvious.

B. INJURY TO THE INNOCENT PARTY
To rescind a contract, most courts do not require proof of injury. To recover damages, proof of injury is required. In actions based on fraud, punitive damages are often granted, on the public-policy ground of punishing the defendant or setting an example to deter similar wrongdoing by others.

III. NONFRAUDULENT MISREPRESENTATION

A. INNOCENT MISREPRESENTATION
This occurs when a person misrepresents a material fact without the intent to defraud (he or she believes the statement to be true). A party who relies on the statement to his or her detriment can rescind the contract.

B. NEGLIGENT MISREPRESENTATION
This occurs when a person misrepresents a material fact by failing to exercise reasonable care in uncovering or disclosing the facts, or not using the skill and competence that his or her business or profession requires. In effect, this is treated as fraudulent misrepresentation.

IV. UNDUE INFLUENCE
Undue influence occurs when a contract enriches a party at the expense of another who is dominated by the enriched party. Such a contract is voidable.

A. LACK OF FREE WILL
The essential feature is that the party taken advantage of does not exercise free will.

B. CONFIDENTIAL OR FIDUCIARY RELATIONSHIPS
Undue influence often occurs in relationships in which one party can greatly influence another (attorney-client, parent-child). The dominant party is held to extreme or utmost good faith in dealing with the subservient party.

1. Presumption
When a contract between the parties favors the dominant party, a court will often presume that it was made under undue influence.

2. To Rebut the Presumption
The dominant party has to show that full disclosure was made, that consideration was adequate, and that the subservient party received independent and competent advice before completing the transaction.

V. DURESS
Duress involves conduct of a coercive nature.

A. WHAT DURESS IS
Forcing a party to enter into a contract by threatening the party with a wrongful or illegal actthreatening blackmail or extortion, for example.

B. WHAT DURESS IS NOT
Threatening to exercise a legal right; economic need (unless the party exacting the price also creates the need).

VI. ADHESION CONTRACTS AND UNCONSCIONABILITY

A. WHAT AN ADHESION CONTRACT IS
A contract written exclusively by one party (the dominant party, usually a seller or creditor) and presented to the other (buyer or borrower) on a take-it-or-leave-it basis. Typically, a standard form contract.

B. TO AVOID ENFORCEMENT OF THE CONTRACT
The adhering party must show that the parties had substantially unequal bargaining positions and that enforcement would be unfair or oppressive.

1. Unconscionability
Unconscionability under UCC 2302 applies only to contracts for sales of goods. Many courts, however, apply the concept to other contracts.

2. Fraud, Undue Influence, and Duress
In states that have not adopted UCC 2302, the courts rely on traditional notions of fraud, undue influence, and duress.