Chapter 11
CONDUCT INVALIDATING ASSENT
A. Duress
1. Physical Compulsion
2. Improper Threats
B. Undue Influence
C. Fraud
1. Fraud in the Execution
2. Fraud in the Inducement
a. False Representation
b. Fact
c. Materiality
d. Knowledge of Falsity and Intention to Deceive
e. Justifiable Reliance
D. Nonfraudulent Misrepresentation
E. Mistake
1. Mutual Mistake
2. Unilateral Mistake
3. Assumption of Risk of Mistake
4. Effect of Fault upon Mistake
5. Mistake in Meaning of Terms
Cases in This Chapter
Berardi v. Meadowbrook Mall Company
Neugebauer v. Neugebauer
Maroun v. Wyreless Systems, Inc.
Reed v. King
Lesher v. Strid
Chapter Outcomes
After reading and studying this chapter, the student should be able to:
Identify the types of duress and describe the legal effect of each.
Dene undue influence and identify some of the situations giving rise to a
condential relationship.
Identify the types of fraud and the elements that must be shown to
establish the existence of each.
Dene the two types of nonfraudulent misrepresentation.
Identify and explain the situations involving voidable mistakes.
TEACHING NOTES
The law demands that agreements be voluntary, knowing, legal and entered into
by parties with legal capacity. Otherwise the agreement is either voidable, void,
or unenforceable.
Defenses to contracts include situations in which the manifested consent was
not given knowingly and voluntarily, such as duress, undue influence, fraud,
nonfraudulent misrepresentation, and mistake.
*** Chapter Outcome ***
Identify the types of duress and discuss the legal effect of each.
A. DURESS
Wrongful act or threat that overcomes the free will of a party. There are two
basic types:
Physical Compulsion
When one party compels another to agree to a contract through actual physical
force; renders the agreement void.
Improper Threats
Using economic and social coercion, leaving the victim with no reasonable
alternative to agreeing with the more powerful party; threat may be explicit or
CASE 11-1
BERARDI v. MEADOWBROOK MALL COMPANY
Supreme Court of Appeals of West Virginia, 2002
212 W.Va. 377, 572 S.E.2d 900 http://scholar.google.com/scholar_case?
case=1600684206457698039&q=572+S.E.2d+900+&hl=en&as_sdt=2,34
Per Curiam:
Jerry A. Berardi (hereinafter referred to as “Mr. Berardi”), Betty J. Berardi, and Bentley
Corporation, plaintiffs below/appellants (hereinafter collectively referred to as “the Berardis”),
seek reversal of a summary judgment granted to Meadowbrook Mall Company, an Ohio Limited
Partnership, and the Cafaro Company (hereinafter referred to as “Cafaro Company”), an Ohio
Corporation, defendants below/appellees (hereinafter collectively referred to as “Meadowbrook”
or * * * “Cafaro Company”). * * *
Facts and Procedural History
Between 1985 and 1987, the Berardis leased space for three restaurants from Meadowbrook. In
1990, the Berardis were delinquent in their rent. Cafaro Company, an affiliate of Meadowbrook,
sent a letter dated October 1, 1990, to Mr. Berardi citing the arrearages. The letter informed him
that a lawsuit would be filed in Ohio requesting judgment for the total amount of the arrearages.
The letter proposed that after filing the suits, a consent judgment would be forwarded to Mr.
Berardis agreed to pay Meadowbrook $150,000 on the date the Goff Building refinancing
occurred, and also to pay Meadowbrook $100,000 plus 8.5% interest per year on the third
anniversary of the initial $150,000 payment. These payments would discharge the Berardis from
all other amounts due and owing. The payment of the initial $150,000 would also result in
Meadowbrook releasing the lien against the Goff Building.
The agreement additionally recited:
Berardis hereby release and forever discharge Meadowbrook, its employees, agents,
successors, and assigns from any and all claims, demands, damages, actions, and causes of
action of any kind or nature that have arisen or may arise as a result of the leases, or
* * *
Discussion
“We begin our discussion of this issue by reiterating, at the outset, that settlements are highly
regarded and scrupulously enforced, so long as they are legally sound.” [Citation.] “The law
favors and encourages the resolution of controversies by contracts of compromise and settlement
rather than by litigation; and it is the policy of the law to uphold and enforce such contracts if
they are fairly made and are not in contravention of some law or public policy.” [Citations.]
Those who seek to avoid a settlement “face a heavy burden” [citation] and “since * * *
settlement agreements, when properly executed, are legal and binding, this Court will not set
aside such agreements on allegations of duress * * * absent clear and convincing proof of such
claims.” [Citation.]
The Berardis contend the 1997 settlement is invalid as it was procured by “economic duress:”
The concept of “economic or business duress” may be generally stated as follows: Where the
plaintiff is forced into a transaction as a result of unlawful threats or wrongful, oppressive, or
“Duress is not readily accepted as an excuse” to avoid a contract. [Citation.] Thus, to
establish economic duress, “in addition to their own * * * statements, the plaintiffs must produce
objective evidence of their duress. The defense of economic duress does not turn only upon the
subjective state of mind of the plaintiffs, but it must be reasonable in light of the objective facts
presented.” [Citation.]
Mr. Berardi is a sophisticated businessman who has operated a number of commercial
enterprises. As of 1997, the Berardis had substantial assets and a considerable net worth. While
economic duress may reach large business entities as well as the “proverbial little old lady in
tennis shoes,” [citation], when the parties are sophisticated business entities, releases should be
* * *
No case can be found, we apprehend, where a party who, without force or intimidation and
with full knowledge of all the facts of the case, accepts on account of an unlitigated and
controverted demand a sum less than what he claims and believes to be due him, and agrees
to accept that sum in full satisfaction, has been permitted to avoid his act on the ground that
this is duress.
[Citations.]
Moreover, the Berardis did not file their complaint until October 2, 2000. A party seeking to
repudiate a release must act promptly in disavowing it once the putative duress ends or else the
party will be deemed to have ratified the agreement. [Citations.] * * *
Finally, we do not believe that any relative economic inequality between the Berardis and
[Citation.]
Given the facts, the law’s disfavor of economic duress, its approbation of settlements, the
sophisticated nature of the parties, and the extremely high evidentiary burden the Berardis must
overcome, we harbor no substantial doubt nor do we believe the circuit court abused its
discretion.
* * *
Conclusion
The judgment of the Circuit Court of Harrison County is affirmed.
*** Chapter Outcome ***
Dene undue influence and identify some of the situations giving rise to a condential
relationship.
B. UNDUE INFLUENCE
Taking unfair advantage of a person, by reason of a dominant position based on
a condential relationship, renders a contract voidable.
Examples of situations giving rise to a condential relationship are those of
guardian and ward, trustee and beneciary, spouses to each other, principal and
agent, parent and child, attorney and client, physician and patient, and clergy
and parishioner.
CASE 11-2
NEUGEBAUER v. NEUGEBAUER
Supreme Court of South Dakota, 2011
804 N.W.2D 450, 2011 S.D. 64
http://scholar.google.com/scholar_case?
case=1062309080412566845&q=804+N.W.2d+450+&hl=en&num=100&as_sdt=ffffffffffffe04&as_ylo=2010
Zinter, J.
Harold and Pearl Neugebauer owned a 159-acre farm the parties called the “Home Place.” The
Hutchinson County farm included a house, garage, granary, machine sheds, barns, silos, and a
dairy barn. During their marriage, Harold handled all of the legal and financial affairs of the farm
and family. In 1980, Harold died, leaving Pearl as the sole owner of the Home Place and another
farm property. Following Harold’s death, Lincoln, the youngest of Harold and Pearl’s seven
children, began farming both properties. Lincoln also resided with his mother on the Home
Place.
Lincoln would be “fair.” Pearl never took any steps to determine if the $6,320 annual rent
Lincoln was paying was fair.
On several occasions from 2004 to 2008, Lincoln privately consulted with attorney Keith
Goehring about purchasing the Home Place. On December 3, 2008, Lincoln took Pearl to
Goehring’s office to discuss the purchase. Pearl, who only had an eighth-grade education, was
almost eighty-four years old and was hard of hearing. Although Lincoln and Goehring discussed
details of Lincoln’s proposed purchase, Pearl said virtually nothing. She later testified that she
could not keep up with the conversation and did not understand the terms discussed.
After executing the contract, Lincoln told Pearl not to tell the rest of her children about
the agreement. Pearl later became suspicious that something may have been wrong with the
contract. In January 2009, Pearl’s children returned to Parkston for a funeral. For the first time,
Pearl revealed the contract to the rest of her children, and they explained the contract to her. She
began to cry and wanted the contract torn up. Pearl personally and through her children asked
Lincoln to tear up the contract. Lincoln refused.
The elements [of undue influence] are: (1) a person susceptible to undue influence; (2)
another’s opportunity to exert undue influence on that person to effect a wrongful purpose; (3)
another’s disposition to do so for an improper purpose; and (4) a result clearly showing the
effects of undue influence. [Citation.] The party alleging undue influence must prove these
elements by a preponderance of the evidence. [Citation.]
Susceptibility to Undue Influence
Lincoln argues that no evidence supported the court’s finding that Pearl was susceptible to undue
influence. * * * Lincoln contends that in the absence of medical evidence of mental deficits, the
court erred in finding that Pearl was susceptible to undue influence.
Concededly, “‘physical and mental weakness is always material upon the question of undue
influence.’ Obviously, an aged and infirm person with impaired mental faculties would be more
susceptible to influence than a mentally alert younger person in good health.” [Citations.] But
this Court has not required medical evidence to prove susceptibility to undue influence. * * *
In this case, there was substantial non-medical evidence demonstrating Pearl’s susceptibility
to undue influence. Pearl had an eighth-grade education, and she lacked experience in business
Opportunity to Exert Undue Influence
Lincoln contends that the court’s finding of opportunity to exert undue influence was erroneous
because Lincoln and Pearl had no confidential relationship and Pearl had the ability to seek
independent advice between the two meetings with Goehring, but chose not to do so. * * *
* * *
Disposition to Exert Undue Influence
The court’s finding that Lincoln had a disposition to exert undue influence for an improper
purpose was also supported. Lincoln had substantial experience in farmland transactions and real
estate appreciation. He collaborated with an attorney a number of times over four years to
purchase the farm and draft the necessary documents. Yet Lincoln did not have the farm
appraised as he had previously done when farming the property with his brother. Instead, Lincoln
set the price at a value for which it had appraised twenty-four years earlier, a price that was
one-sixth of its then current value. He also took no steps to ensure that his elderly mother
* * *
Result Showing Effects of Undue Influence
Finally, we see no clear error in the court finding a result clearly showing the effects of
undue influence. By executing the contract for deed, Pearl sold her property for $580,000 less
than its value. Not only was the contract price of $117,000 substantially below the market value
of $697,000, the thirty-year payment term would have required Pearl to live to 114 years-of-age
to receive the payments. ***