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Chapter 13 – Reality of Consent

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CHAPTER 13

REALITY OF CONSENT

I. OBJECTIVES

This chapter is intended to acquaint students with the circumstances under which an agreement

can be avoided because it was not the product of voluntary consent. After reading the chapter and

attending class, a student should be able to:

A. Identify the conditions under which a contract can be rescinded because of the absence of

knowing or voluntary consent.

B. Explain the elements of misrepresentation and fraud and determine whether a contract is

likely to be voidable because of misrepresentation or fraud.

C. Explain the elements of mistake and determine when mistake makes a contract voidable.

D. Explain the circumstances under which duress makes a contract voidable.

influence makes a contract voidable.

F. Explain what a party who claims misrepresentation, fraud, mistake, duress, or undue

influence is required to do in order to rescind a contract.

II. ANSWER TO INTRODUCTORY PROBLEM

as well. The broken or reset odometer would be considered a statement in itself (that the

mileage was 52,000 miles). If the seller knew that the odometer was broken, that, of course,

should have been disclosed.

C. It depends if the statement that a car is in “mint condition” is considered to be a statement of

Duncan’s reliance was not justifiable about some facts, such as the performance of the car in

winter, because he did not attempt to ascertain them. However, many courts today follow the

Restatement approach of holding that a party’s failure to investigate is not unjustifiable

unless it constitutes a failure to act in good faith. It is doubtful that Duncan’s failure to test

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reading was falsified.

III. SUGGESTIONS FOR LECTURE PREPARATION

A. Introduction

1. Remind students that the cornerstone of contract law is the notion of voluntary consent.

it is the result of a basic misunderstanding, the essential element of voluntary consent is

missing.

2. Note that most of these doctrines (all but mistake and nonfraudulent misrepresentation)

marketplace.

3. Point out that except for a few exceptional situations (e.g., fraud in factum) contracts

4. Note the dangers inherent in the doctrine of ratification: parties who want to avoid a

unreasonable delay in rescinding or continuing to use goods obtained pursuant to a

contract that one wants to rescind.)

5. Note that the public interest in promoting a stable and predictable commercial

need to police the business environment and ensure that contracts are the product of

process was seriously defective.

6. Discuss what happens when rescission occurs.

B. Misrepresentation and Fraud

1. Note that misrepresentation deals with situations in which a party enters into a contract

from the case cited there).

2. Point out that misrepresentation can be innocent or intentional (fraudulent). Discuss the

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

3. Explain that fraud shares a common core of elements with innocent misrepresentation,

but fraud has the additional requirement of scienter. Explain scienter.

4. Note that innocent misrepresentation and fraud both supply grounds for rescission of a

5. Explain that for either misrepresentation or fraud, one of the parties must have made an

assertion of fact not in accord with the truth. Example: the illustration at p. 404 of the

text. You should have no trouble thinking of other examples.

a. Note that concealment (active hiding) of a material fact can constitute an

is present).

b. Discuss nondisclosure as a form of assertion. Distinguish nondisclosure from

concealment. Discuss the circumstances under which traditional contract law

Problems #9 and #10.

Stephen A. Wheat Trust v. Sparks (p. 405): The Georgia Court of Appeals holds

that the lower court erred in granting summary judgment to the defendants (the

Sparkses) on the plaintiffs’ (the Wheats’) claims that the Sparkses made

fraudulent statements and engaged in fraudulent nondisclosure or concealment

water problems as of the time of the sale.

Points for Discussion: This is a useful case because it combines allegations of

express falsehoods with allegations of fraud through equivalent conduct. Have

the students identify the various instances of fraud alleged by the Wheats. Do

rescission. Instead, they sought damages—a remedy available for fraud but not

for misrepresentation.

c. Discuss the traditional view that statements of opinion generally are not

assertions for purposes of the law of misrepresentation, presumably because it is

condition”) as a discussion problem.

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Example: Problem Case #3.

6. Explain that an innocent misrepresentation must relate to a material fact to render a

voidable if the statement was made fraudulently. Discuss the standard used to determine

whether a fact is material.

7. Discuss reliance. Point out that reliance means not only believing what the other person

of the text.

8. Discuss the further requirement that the injured party’s reliance have been justifiable.

This element can be used to defeat lawsuits by people who really have relied, but who

failed to use reasonable care in discovering the truth. The traditional rule was that it is

not reasonable to rely on statements about facts that are discoverable by reasonable

executed and a financing statement was filed in the state’s UCC filings. Later, the

Timothys were approached by the Keetches’ broker about making a bridge loan to the

Keetches. The Keetches offered to pledge the horse as security for the loan. The

Keetches made statements that the horse was unencumbered and that they owned it “free

they have a duty to inspect the public records? The court found that the Timothys did not

have the duty to inspect the public record absent facts that would serve as a warning that

they were being deceived.

Points for Discussion: Why did Mr. Timothy ask the trainer and the American Quarter

we really want that outcome? Note, however, that it certainly would have been a

good idea for the Timothys to have checked the UCC filings. They would have

saved themselves a great deal of grief.

C. Mistake

1. Discuss the concept of mistake. Distinguish mistaken belief about a fact from poor

judgment or bad luck. Discuss why the law allows parties to avoid contract for mistake.

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Examples: Problem Cases #1 and #6.

a. Distinguish mistake from misrepresentation and fraud: all involve a person entering

a contract with an erroneous impression about some fact material to the contract.

might point out how close mistake and nondisclosure are. In both situations, the

injured party has a false impression caused by his lack of information, but in a

nondisclosure case, we say that the injured party’s false impression was caused by

the other party’s failure to offer information.

supposedly worsened injuries after having signed a release at the time she accepted

settlement funds from the defendant’s insurer.

Points for Discussion: Ask the students why the plaintiff’s mutual mistake argument

failed. Note why the court concludes that the plaintiff assumed the risk of being

c. Distinguish mistake from ignorance.

d. Discuss the circumstances under which unilateral mistake can be the basis for

rescission. Discuss facts such as obvious mathematical errors in bids that might give

the nonmistaken party reason to know that a mistake had been made.

Sumerel v. Goodyear Tire & Rubber Company (p. 413): After the appeal of a product

the original, erroneous calculation. The court held that the defendants’ lawyer’s

email was not an offer, but even if it were, it would be unenforceable because of

unilateral mistake.

Points for Discussion: This case presents a great opportunity to discuss ethics. What

Example: Problem #1.

e. Discuss the implications of pricing mistakes on the web (Cyberlaw in Action, p.

416). Why is it a bigger problem than pricing mistakes offline? Ask students whether

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

f. Discuss the role of the mistaken party’s negligence in determining whether a court

will give relief for mistake. Point out that the modern trend is to be more tolerant of

slight negligence on the part of the mistaken party. Section 157 of the Restatement

Second provides that a mistaken party’s fault in failing to know or discover facts

before entering the contract does not bar relief unless this failure would amount to a

failure to act in good faith.

D. Duress and Undue Influence

1. Point out that both duress and undue influence deal with excessive and wrongful

influence involves persuasion.

2. Discuss the elements of duress.

a. Note that the threat must have been improper. Sometimes threatening to do an act

quite a bit of discussion.

b. Note that the degree of coercion applied by the improper threat must be such that the

coerced party is left with no reasonable alternative but to enter or modify the

economic interests constitute duress.

Example: Problems #2 and #8.

product of economic duress. See Rich & Whillock, Inc. v. Ashton Development,

Inc., 204 Cal. Rptr. 86 (Cal. App. 1984). With regard to the ethics of the

strategy.

3. Discuss the nature of undue influence.

a. Note that it is designed to protect people who have capacity to contract but who are

with that person.

Additional Example: Dolloff v. Dolloff, 593 A.2d 1044 (Maine Sup. Ct. 1991) (73-

year-old widow persuaded by her stepson to sell property on favorable terms).

b. Point out that contracts are usually preceded by persuasion, and that the difficult

weaker one.

Examples: Problem Case #4; Methodist Mission Home of Texas v. N.A.B., 451

S.W.2d 539 (Tex. Civ. App. 1970) (young unwed mother who consented to give up

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

her child for adoption in the face of considerable pressure by employees of a home

for unwed mothers was the victim of undue influence).

c. The mere fact that there is a personal relationship between the parties to the contract

or that one of the parties was elderly, weak, or ill does not necessarily mean that

there has been undue influence.

Example: Newell v. High Lawn Memorial Park, 264 S.E.2d 454 (W. Va. 1980)

(contract between elderly woman and her longtime companion which provided that

he would get all of her shares of a company upon her death was not procured by

rewards”).

IV. RECOMMENDED REFERENCES

A. RESTATEMENT (SECOND) OF CONTRACTS (1983).

C. B. E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS (3rd ed. 2005).

WAKE FOREST L. REV. 689 (1992).

V. ANSWERS TO PROBLEMS AND PROBLEM CASES

1. No. A contract may be rescinded on the ground of mutual mistake when both parties have an

erroneous assumption about a matter basic to the contract. The mistake must have had a

threatening his economic interests. The court stated that “the victim’s plight alone will not

suffice; it must be coupled with the bad acts of the transgressor….Here, even if we were to

agree that Hawley’s conduct amounted to a threat, there is no evidence that the threatened

action was imminent.” Lopez returned to work in February and continued to work for The G-

App. LEXIS 2342 (Tex. Ct. App. 2011).

3. No. The court found that a statement couched in terms of opinion can be a statement of fact if

it would appear to a reasonable listener or reader that the opinion is based on fact or at least

not contradicted by facts. Rodi’s complaint was adequate because it alleged that the dean

knew that the school was not going to be able to remedy its deficiencies. The defendants had

4. Yes. The court stated that undue influence involves the use of excessive pressure applied by

a dominant party against a party who is susceptible to the other person’s influence because of

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and the high-pressure tactics of insisting on hurrying the transaction without giving Odorizzi

the chance to seek the advice of an attorney. Odorizzi v. Bloomfield School District, 54 Cal.

Rptr. 533 (Cal. Dist. Ct. 1966).

5. Yes. The court stated that “mutual mistake will justify rescission where the mistake exists at

premises could be used as a restaurant, a mistake that was clearly substantial.” Thus,

(Sup. Ct. N.Y., App. Term 2009).

6. Yes. The court stated that the genuineness of the coin was an essential fact on which the

7. It seems unlikely. The reality of consent doctrine most likely to be applied in this case is

unilateral mistake. Retailer would have to establish that he (through his agent) entered the

under the circumstances. This is a “judgment call” that the court would make, but since

Retailer was in the best position to know the card’s value, mark it correctly, and train his

these propositions rather handily.

8. Yes. The elements of duress were present. Although Keith may have had the right to institute

legal proceedings against Radford, his methods were wrongful and coercive. Radford v.

Keith, 584 S.E.2d 815 (N.C. Ct. App. 2003).

9. The Supreme Court of Pennsylvania, upholding a lower court’s grant of summary judgment

to the Jaconos, held that they did not have a duty to disclose the murder/suicide. Therefore,

estate, and therefore decided not to go down such a path. (Compare this case, however, with

the case in Problem #10.) Finally, the court observed that the murder/suicide had been a

LEXIS 1770 (Pa. Sup. Ct. 2014).

10. Yes. The sale was voidable on the ground of misrepresentation (nondisclosure) when the

seller did not disclose to the purchaser, who was a newcomer to the community, that the

(N.Y. Sup. Ct. App. Div. 1991).