MANGMT 3540 1st Edition Exam # 3 Study Guide Lectures: 14 - 19Lecture 14 (October 27)Chapter 12 – (Lack of) Reality of ConsentNote about remedies: All of these types of Lack of Reality of Consent will be voidable except for fraud, which will always be void. What does voidable mean? “Voidable” means that the wronged party will have the option of getting out of the contract (usually by rescission), having the contract deemed unenforceable, but that they can also choose to let the contract stand. Even if the contract stands, the wronged party may still beable to sue for any actual damages they incur from the contract. What about in the instance of fraud?In the instance of fraud, the contract will always be deemed unenforceable. If the wronged party chooses money damages instead of rescission, they will be able to get actual damages AND punitive damages. Can rescission and money damages be granted to the wronged party?Keep in mind that in all instances, parties must choose between simply undoing the contract (rescission) OR money damages (either actual or actual and punitive if fraud) – they cannot choose both because this would grant double recovery, which is notallowed.Mistake of Material Fact (break this down to understand definition)What does Mutual mean? Mutual means both parties are mistaken and thus the remedy is for rescission of the contractWhat does unilateral mean?Unilateral means only one party is mistaken and thus usually no remedy is available. However, rescission may be granted IF:1. There was a mistake of material fact by one party of the contract; AND2. The non-mistaken party is aware of the mistakeThe reason this creates grounds for rescission is that if one party is aware of the other’s mistake and moves forward without correcting them, this is considered to be taking advantage of the non-mistaken party, so the courts will allow rescission.Mistake of MATERIAL FACTWhat does mistake mean?A mistake must be more than a mere uncertainty; you actually think an object is one thing when it isn’t, rather than simply not being sure what it is.What does material mean?Material means that the mistake is important to the subject matter at hand. For example, an immaterial fact would be the brand of nails used in building a house, whereas a material fact would be the color of the brick used.Note: an immaterial fact can become material if the parties specifically contract around that fact. For example, if I contract with you to build me a house and say I put in the contract that a specific brand of nails must be used, then this increases the materiality of nails.What does fact mean? Fact means that the mistake is relating to the existent, identity, or character of the subject matter.What is existence? Existence is if you are contracting to buy a house that was in good condition when you saw it, but has since been destroyed by a fire, that house no longer existsWhat is identity? Identity means it’s important that the parties are contracting about the same item.What is character?Character is an ordinary household object vs. rare art. The way you would contract for an ordinary item is very different than the way you would contract for rare art.Note that VALUE IS NOT FACT – how much something is worth is a matter of opinion and will not be covered by this.Material Misrepresentation Note: the available remedy differs for each type, to remember which remedy is available for each type think of a spectrum, where, as fault increases, the available remedies increase:No Fault ------------------------------------------ Some Fault ------------------------------High FaultInnocent -------------------------------------------Negligent -------------------------------FraudulentRescission Only -------------------- Rescission or Actual Damages ---------------- Rescission oractual and punitive damagesWhat is Innocent Misrepresentation?Take for example, my dad who bought me a car for my 20th birthday. He had no reason to believe that the car didn’t have 30,000 miles on it like the odometer said. Four years later, I sell the car to you. The odometer now reads 100,000 miles, which I believe is true. However, it turns out that the person that sold my dad the car in the first place had rolled back theodometer from 60,000 to 30,000. This means the car actually now has 130,000 miles on it, rather than 100,000. There is no fault here because I had no way of knowing this was the case when I told you that the car has 100,000.What is Negligent Misrepresentation?For example, I want to sublease my apartment for the summer so that I can move to DC for an internship. I know that there is some chance that my landlord doesn’t allowing subleasing, but I am not really sure what the policy is. Without checking, I sublease my apartment to you. Two weeks into the summer, my landlord discovers you living in the apartment and kicks you out. It turns out that subleasing wasn’t allowed. This is negligent misrepresentation because I did not take due care in checking a policy that I knew I was unsure about before allowing you to sublease.What is Fraudulent Misrepresentation? (Two types)What is Fraud in the Execution?Fraud in the execution is lying about the nature of the document. For example: you agree to sublease my apartment for two months this summer, which I have ensured is okay with my landlord. However, the document I have you sign actually states, despitewhat I have told you, that you will be taking responsibility for the entire 10 months I have remaining on my lease. What is Fraud in the Inducement?Fraud in the inducement is lying about the subject matter of the contract. For example, you agree to sublease my apartment for the summer. I have told you that the apartment is a 1 bedroom, 1 bathroom. However, when you come to move in, you realize that I have lied. The apartment is actually a very small studio apartment, where there is no separate room for a bedroom and the bathroom is only partitioned by a largecurtain.What Four Elements Must be Proven in fraudulent misrepresentation? (must prove ALL unless exception):1. Misrepresentation of Material Fact (ex – the number of bedrooms and bathrooms in the apartment)Exceptions (you do NOT need to prove this element if you can show ANY of these):1. Confidential relationship between the parties; OR2. The seller has superior knowledge upon which the