Genuine Agreement
Chapter 7
Chapter Overview
When someone makes an offer and another party accepts that offer, a genuine agreement has been made. Sometimes, though, things go wrong and the agreement is considered defective. Several circumstances can create this defective agreement: fraud, misrepresentation, mistake, duress, and undue influence. In this chapter, you will learn how to recognize the elements of defective agreements. By having a clear understanding of them, you can protect yourself and avoid becoming a victim.
The offeror makes a valid offer and the offeree makes a valid acceptance, then genuine agreement has been reached.
Fraud and Misrepresentation
Fraud
1. DELIBERATE DECEPTION INTENDED TO SECURE AN UNFAIR OR UNLAWFUL GAIN
2. If you enter a contract by fraud, you can RECIND, or cancel. You can also sue for MONEY DAMAGES. Punitive damages (money as punishment) are also a possible option.
To win a lawsuit for fraud, the following five elements must be proven:
3. A material fact is an important fact that matters to one of the parties to the contract
4. Concealment (non-disclosure) occurs when one party does not say something that he/she is obligated to reveal (hidden problems)
Example: The seller of a car did not reveal that the window doesn't roll down.
Representation known to be false
6. To prove a party to the contract is guilty of fraud through false representation you must prove they had actual knowledge that what they told you is false
Example: The seller said "This car has never been in an accident" and later the buyer finds proof of repairs due to a crash
False representation intended to be relied upon
The person making the misrepresentation must intend that the other party rely upon their information as part of contract negotiations
I intended to defraud you - I told you something in order to get you to buy something and I intend for you to rely on what I say.
7. Example: A car salesman is trying to get you to buy a car so he tells you the car's engine works great knowing this isn't true.
False representation actually relied upon
A statement was reasonably relied upon when the agreement is made.
8. Example: Matt told you the shoes he was selling were real Yeezy Boost 350's knowing that they were fake. You buy them for a much higher price than their true value.
Resulting Loss
9. You must prove that you suffered a loss as a result of false statements made by the other party to the contract. If you do not suffer a loss, you cannot win a lawsuit for fraud.
Innocent Misrepresentation
~This occurs when a person makes a false statement but does not realize that it is false.
~A buyer can rescind, or cancel, the contract but cannot sue for damages.
11. A couple of weeks after Justin’s next-door neighbor, Mrs. Grayson died, Justin saw Joe Grayson at the house taking care of his mother’s things. Justin asked Joe if he would like to sell Mrs. Grayson’s TV, and Joe said, “Sure.” When asked if it worked, Joe answered, “As far as I know.” Justin gave him $100 for the TV, but when he plugged it in, it didn’t work. Can Justin claim there was false representation? Why or why not?
12.) An ad in the travel sections of the newspaper read: “Vacation in a tropical setting. Sand, sun, & palm trees. Resort accommodations for 3 nights & 4 days including round trip airfare only $1,000!” The hotel was actually in the middle of a large city, enclosed with a security fence. The pool area contained palm trees in sand planters. Do you think this would be considered sales puffery (exaggeration) or fraud?
Mistake, Duress, and Undue Influence
Unilateral and Bilateral Mistakes
~If the party to a contract created reasonable expectations they cannot block the contract because of their mistake.
14. Two types of unilateral mistakes:
- Mistake as to the nature of the agreement - If you sign the contract you have to follow it even if you do not understand.
- Mistake as to the identity of a party - You think you are going into contract with John Smith that lives on E. Main Street but John Smith that lives on W. Main Street is who signed the contract.
15. Bilateral mistakes occur when both parties to a contract are mistaken (mutual mistake).
Two types of bilateral mistakes:
16. Mistake as to the possibility of performance - Both parties believe that the duties described can be performed when they really cannot
Example: You sell a car to a neighbor for $10,000 not knowing it had been totaled overnight by a hit and run driver.
17. Mistake as to the subject matter - Both parties can be mistaken as to the identity of subject matter and the contract can be avoided by either party.
Example: Buying property on Watkins Rd. thinking it is in Pataskala but it was really Watkins Rd. in Columbus.
Duress
~This contract would be void or voidable.
19. Economic duress occurs when threats to a person's business or income cause him/her to enter a contract without real consent.
Undue Influence
~ill health, old age, mental impairments, dependency relationship
20. To prove undue influence you need to show parties had a relationship of trust and improper persuasion was used.
Teacher Watkins Memorial High School