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“Freedom of contract begins where equality of bargaining power begins.”
Oliver Wendell Holmes, Jr.
I. Teacher to Teacher Dialogue
has always been a troublesome puzzle to unravel; yet without it, the objective facts placed before
a court may not show the reality of consent. Because of the potential harshness of a bad contract,
courts want to be very sure that the assent element of contracts is just that—a free and real
consent to the agreement. Factors that mitigate or diminish the genuineness of assent can be
tracked on a scale of incremental culpability.
(so important that no real meeting of the minds ever occurred).
The next step up the slope of culpability is found in the area of misrepresentation or
concealment. The shade of gray turns darker when a person is actively seeking to mark the cards
or pass them under the table. Here we can see that freedom of assent is even further compromised
culpability scale but can also be found at the top of the charts on the most popular white-collar
criminal list. And the consumer pays the ultimate cost of these crimes through passed-on costs for
insurance, credit, and any number of other services undermined by these kinds of activities.
Another highly sensitive area of mutual assent is found in the law of undue influence. Undue
GENUINENESS OF ASSENT AND
UNDUE INFLUENCE
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respective clients, patients, or beneficiaries, a contract is presumed to be under undue influence,
and the burden of proof is on the fiduciary to show that any type of transaction for the party she is
serving and to whom she owes a duty is at arm’s length, i.e., it is fairly arrived at.
II. Chapter Objectives
1. Explain genuineness of assent.
2. Explain how mutual mistake of fact excuses performance.
III. Key Question Checklist
Was the agreement entered into on the basis of any mistaken fact?
IV. Text Materials
Enforceable contracts require voluntary assent. The court will determine if genuine assent was
Mistake
The law allows rescission of some contracts where there has been a mistake about the subject
Unilateral Mistakes – In most cases of unilateral mistake, the mistaken party will not be
permitted to rescind the contract. The three types of situations in which a contract may not be
enforced due to a unilateral mistake are:
One party makes a unilateral mistake of fact, and the other party knew (or should have
known) that a mistake was made.
Mutual Mistake of a Material Fact – An ambiguity in a contract may constitute a mutual
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Mutual Mistake of Value – In the case of mutual mistake of value, the contract remains
Fraud
Fraud is an intentional misrepresentation. An innocent party who has been induced to enter a
Misrepresentation of a Material Fact – The misrepresentation must have been a significant
factor in inducing the innocent party to enter into the contract. It need not have been the sole
factor.
Reliance on the Misrepresentation – A misrepresentation is not actionable unless the innocent
Injury to the Innocent Party – To recover damages, the innocent party must prove that the fraud
Types of Fraud
Fraud in the Inducement – These voidable contracts occur when an innocent party knows what
Circuit
Facts: A Victoria’s Secret franchise was promised to the plaintiff basically through a bribe.
Issue: Is there liability for the defendants?
Decision: Yes
Ethics Questions: It is pretty obvious that the business broker did not act in a manner which
speak against them.
Fraud by Concealment – This occurs when one party takes a specific action to conceal material
facts from the other party.
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statutes require disclosure.
Misrepresentation of Law – Innocent parties usually cannot rescind a contract due to a
misrepresentation of law, unless the misrepresenting party is a professional and is dealing with a
less sophisticated individual.
Case 13.2 Fraud: Krysa v. Paine
176 S.W.3d 150, 2005 Mo. App. Lexis 1680 (2005), Court of Appeals of Missouri
Facts: The Krysas were looking for a truck to tow their 18-foot trailer. At Payne’s Car Company,
Crane, the salesman, told them that the F-350 would tow their trailer and make it 400,000 miles,
halves of different trucks welded together.
They returned the truck and were offered credit against another vehicle on the lot, but could
not find one that suited their needs. Payne refused to return their money. They sued for fraudulent
damages?
Decision: The court of appeals found that Payne’s fraudulent concealment, fraudulent
misrepresentation, and reckless disregard for the safety of the Krysas and the public justified the
award of $500,000 of punitive damages to the Krysas. Punitive damages serve as punishment
the harm that was actually incurred.
Ethics Questions: Fraudulent concealment is when one party takes specific actions to conceal
material facts from another that could cause injury or harm. Fraudulent misrepresentation is an
event that occurs when one person consciously decides to induce another person to rely and act
on a misrepresentation. Payne appears to have acted unethically in his actions, and the court
Duress
Duress is when one party threatens another with physical injury or extortion, inducing the second
party to enter into a contract.
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Equitable Doctrine: Undue Influence
Critical Legal Thinking – Undue influence occurs often in the U.S. Looking at the bargaining
V. Key Terms and Concepts
negotiation of a contract.
Duress—Occurs where one party threatens to do a wrongful act unless the other party enters
into a contract.
Fraudulent misrepresentation—An event that occurs when one person consciously decides to
induce another person to rely and act on a misrepresentation.
fact from another party.
Fraud in the inception—Occurs if a person is deceived as to the nature of his or her act and
Fraud in the inducement—A personal defense against the enforcement of a negotiable
instrument; a wrongdoer makes a false statement to another person to lead that person to enter
into a contract with the wrongdoer.
contract to another party.
Material fact—A fact that is important to the subject matter of a contract.
Mistake—Occurs when one or both of the parties to a contract have an erroneous belief about
the subject matter, value, or some other aspect of the contract. Mistakes may be either
unilateral or mutual.
Reliance on a misrepresentation—Justified reliance on a misrepresentation in a contract is
grounds to ask for rescission by the defrauded party.
Rescission—An action to rescind (undo) the contract. Rescission is available if there has been
a material breach of contract, fraud, duress, undue influence, or mistake.
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illegal.
Servient party—The party who has less bargaining strength during the course of negotiations
Undue influence—Occurs where one person takes advantage of another person’s mental,
Unilateral mistake—When only one party is mistaken about a material fact regarding the