Essentials of Business Law, 9th edition
INSTRUCTOR’S MANUAL
Chapter 9 Mutual Agreement
LESSON OVERVIEW
In Chapter 7 students were introduced to the six elements of an enforceable contract, and Chapter 8
discussed offer and acceptance—the first of the essential elements for a contract to be valid. In Chapter
9, students examine the potential problems with achieving a meeting of the minds, the second of these
essential elements. Genuineness, or reality, is critical to a valid contract, and if there is any
misunderstanding, force, or deception the contract is voidable, and may be disaffirmed at the option of
the injured party. A voidable contract results if agreement of either party is obtained by fraud,
misrepresentation, mistake, undue influence, or duress, or if the contract is one of adhesion, or is
unconscionable. Each of these terms will be explained in this chapter. Students are encouraged to
conduct their own research, and use the end-of-chapter exercises to further their understanding of these
concepts.
CHAPTER OUTLINE
A. DEFECTIVE AGREEMENTS (p. 140)
B. FRAUD (pp. 140-141)
C. MISREPRESENTATION (pp. 141-142)
D. MISTAKE (p. 142)
E. UNDUE INFLUENCE (pp. 142-143)
F. DURESS (p. 143)
G. CONTRACTS OF ADHESION (pp. 143-144)
H. UNCONSCIONABLE CONTRACTS (p. 144)
I. CHAPTER SUMMARY (p. 1475
J. CHAPTER ASSESSMENT (p. 145)
1. Matching Key Terms (pp. 145-146)
2. True/False Quiz (p. 146)
3. Discussion Questions (p. 147)
4. Thinking Critically About the Law (pp. 147-148)
5. Case Questions (pp. 148-149)
6. Case Analysis (pp. 149-151)
7. Legal Research (p. 151)
KEY TERMS
Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed
in bold in the copy. They are listed here for your quick reference.
§ fraud (p. 140)
§ puffing (p. 141)
§ misrepresentation (p. 141)
§ mistake (p. 142)
§ undue influence (p. 142)
§ duress (p. 143)
§ contract of adhesion (p. 143)
§ unconscionable contract (p. 144)
LEARNING OUTCOMES
The chapter Learning Outcomes will help you and the students discover the concepts and information
that should be understood upon completion of the chapter. You may want to access the PowerPoint
(PPT) slides for Chapter 9 when you begin the study of the chapter and discuss each Learning
Outcomes. Each Learning Outcomes will be covered separately in the Instructor Notes, but they are
shown here in total as an overview of the sections being presented in Chapter 9. The corresponding text
page numbers and PPT slides are listed next to each outcome. These slides should be used to reinforce
the main points of the lecture.
After completing this chapter, the students will be able to:
1. List seven ways in which a lack of a meeting of the minds may cause defective agreements. (p.
140, PPT slide 2)
2. Identify the elements of fraud. (pp. 140-141, PPT slides 3-4)
3. Explain misrepresentation and how it differs from fraud. (pp. 141-142, PPT slide 5)
4. Explain the concept of mistake in the eyes of the law. (p. 142, PPT slide 6)
5. Define undue influence and explain its impact upon the validity of a contract. (pp. 142-143, PPT
slide 7)
6. Describe duress and the forms that such may take. (p. 143, PPT slides 8-9)
7. Define contracts of adhesion and describe the conditions under which these contracts are
voidable. (pp. 143-144, PPT slides 10-11)
8. Define unconscionable contracts. (p. 144, PPT slide 12)
LECTURE OUTLINE
A. DEFECTIVE AGREEMENTS
Genuineness, or reality, of agreement is said to be present in a contract when there is a true meeting of
the minds of the parties. If there is any misunderstanding or if any force or deception is used by either
party to obtain the necessary agreement of the other party, the contract is voidable, and may be
disaffirmed at the option of the injured party. A voidable contract results if agreement of either party is
obtained by fraud, misrepresentation, mistake, undue influence, or duress, or if the contract is one of
adhesion, or is unconscionable.
1. Fraud
Fraud is the intentional misstatement or nondisclosure of a material fact made by one
party with the hope of influencing the other party. It does not matter how the fraud is
committed. It may be by spoken or written words or by acts or conduct. For the injured
party to claim fraud, he or she must prove that the statement or act
i. Was a misstatement or nondisclosure of a material fact
ii. Was made with knowledge of its falsity or with reckless disregard of its
truth
iii. Was made with the intention of causing the other party to enter into the
agreement
iv. Was relied on by the injured party
v. Resulted in loss to the injured party
It is important to recognize the difference between a fraudulent statement and a
salesperson’s puffing, which is considered a mere expression of opinion. Intentional
concealment or intentional nondisclosure of material facts (deliberately hiding important
information) is just as fraudulent as making false statements.
2. Misrepresentation
Misrepresentation is the unintentional misstatement or nondisclosure of a material fact
that results in inducing another to enter into an agreement to his or her loss.
It is important to note the distinction between fraud and misrepresentation because the
remedy is different. An injured party who can successfully prove fraud may have the
contract canceled and bring suit for damages. If the party can prove only
misrepresentation, the contract can be canceled, but the injured party cannot sue for
additional damages.
3. Mistake
In the eyes of the law, a mistake is a belief that is not in accord with the facts. Mistakes
relating to contracts may be concerned with the nature of the subject matter or the
quality of the subject matter. Obviously, not every erroneous idea or notion is a mistake,
and the law makes it clear that the mistaken belief must concern an existing fact and not
a belief about what might happen in the future. Court decisions involving mistakes are
often complex, and the courts attempt to determine whether the mistake was
“unilateral,” that is, made by only one party, or whether the mistake was “mutual,” that
is, made by both parties. For a contract to be dissolved because of a mistake, the law
usually requires that both parties be a part of the misunderstanding. That is, the mistake
must be mutual.
4. Undue Influence
Sometimes a person has the power to control the actions of another because of a special
or confidential relationship to that person. Such relationships are sometimes found
between employer and employee, physician or nurse and patient, teacher and student,
attorney and client, and so on. When someone uses this power improperly to his or her
personal advantage, undue influence is said to exist. A contract resulting from the use
of undue influence is voidable at the option of the party wrongfully influenced.
5. Duress
Duress is the act of applying unlawful or improper pressure or influence to a person in
order to gain his or her agreement to a contract. Such pressure can take the form of a
threat of bodily harm to an individual or to his or her family, or the threat of serious loss
or damage to his or her property. When threats are used to force someone to enter into a
contract, the agreement may be dissolved by the injured party.
6. Contracts of Adhesion
A contract that involves parties who have unequal bargaining power is known as a
contract of adhesion. These take-it-or-leave-it contracts are quite common and are
normally enforceable. But when enforcement of an otherwise legal contract will result in
a significant hardship to one of the parties, courts have considered such agreements to
be so unfair as to be unenforceable.
7. Unconscionable Contracts
A contract that is regarded as shockingly unjust or unfair is said to be an
unconscionable contract. While courts have long been reluctant to uphold these, more
recently, however, the UCC has made such contracts even less likely to be enforced.
When the UCC was written, it was intended that the unconscionable clause would apply
only to sales of goods. In recent years, however, virtually the only successful use of
unconscionability under the Code has been made by consumers in various kinds of
contracts involving such acts as making home improvements, opening a checking
account, leasing a gasoline filling station, and leasing an apartment.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcomes in Chapter 9. Every
objective is also mapped to corresponding text page numbers, PPT slides, and relevant chapter
assessment exercises and activities for ease of reference and use.
LO1. List seven ways in which a lack of a meeting of the minds may cause defective agreements.
Seven ways in which a lack of a meeting of the minds may interfere with the legal enforcement of
agreements include cases involving (a) fraud, (b) misrepresentation, (c) mistake, (d) undue influence,
(e) duress, (f) contracts of adhesion, and (g) unconscionable contracts.
Text Pages: 140
PowerPoint: Slide 2
Case Questions: 34
LO2. Identify the elements of fraud.
Fraud is (a) a misstatement or nondisclosure of a material fact; (b) made with knowledge of its falsity
or with reckless disregard of its truth; (c) made with the intention of causing the other party to enter
into the agreement; (d) relied on by the injured party; and (e) resulting in loss to the injured party.
Text Pages: 140-141
PowerPoint: Slides 3-4
Discussion Questions: 21, 22, 25
Thinking Critically About the Law: 27, 31
Case Questions: 33
Case Analysis: 38
LO3. Explain misrepresentation and how it differs from fraud.
Misrepresentation is (a) the unintentional misstatement or nondisclosure of a material fact; (b) resulting
in inducing another to enter into an agreement; and (c) loss to the injured party.
Text Pages: 141-142
PowerPoint: Slide 5
Discussion Questions: 32
Thinking Critically About the Law: 31
Case Questions: 32
Case Analysis: 37
LO4. Explain the concept of mistake in the eyes of the law.
A mistake is a belief that is not in accord with the facts. Mistakes relating to contracts may be
concerned with the nature of the subject matter or the quality of the subject matter.
Text Pages: 142
PowerPoint: Slide 6
Thinking Critically About the Law: 28
Case Analysis: 35
LO5. Define undue influence and explain its impact upon the validity of a contract.
Undue influence is the improper use of power to control the actions of another because of a special or
confidential relationship to that person. A contract resulting from the use of undue influence is voidable
at the option of the party wrongfully influenced.
Text Pages: 142-143
PowerPoint: Slide 7
Discussion Questions: 26
Thinking Critically About the Law: 29
Case Questions: 32
LO6. Describe duress and the forms that such may take.
Duress is the act of applying unlawful or improper pressure or influence to a person in order to gain his
or her agreement to a contract. Such pressure can take the form of a threat of bodily harm to an
individual or to his or her family, or the threat of serious loss or damage to his or her property.
Text Pages: 143
PowerPoint: Slides 8-9
Discussion Questions: 24
Thinking Critically About the Law: 29
LO7. Define contracts of adhesion and describe the conditions under which these contracts are
voidable.
Contracts of adhesion are contracts that involve parties who have unequal bargaining power. When
enforcement of an otherwise legal contract will result in a significant hardship to one of the parties,
courts have considered such agreements to be so unfair as to be unenforceable.
Text Pages: 143-144
PowerPoint: Slides 10-11
Case Analysis: 36
LO8. Define unconscionable contracts.
Unconscionable contracts are contracts that are regarded as shockingly unjust or unfair.
Text Pages: 144
PowerPoint: Slide 12
Discussion Questions: 23
Thinking Critically About the Law: 30