Chapter Thirteen Voidable Contracts induced by misrepresentations fraud mistake duress or undue influence are generally considered voidable Person whose consent was not real has the power to rescind the contract and is entitled to the return of anything he gave the other party he must offer to return anything he has received from the other party Necessity for Prompt and Unequivocal Rescission a person wishing to rescind must act promptly and unequivocally must object promptly upon learning the facts that give her the right and must clearly express her intent to cancel Must also avoid any behavior that would suggest that she affirms or ratifies the contract such as continuing to accept benefits from the other party or behaving in any other way inconsistent with her expressed intent to rescind She should avoid unreasonable delay in notifying other party of her rescission unreasonable delay communicates ratification Misrepresentation and Fraud misrepresentation is an assertion that is not in accord with the truth When a person enters a contract because of his justifiable reliance on a misrepresentation of important facts contract is voidable Misrepresentations can be innocent or fraudulent A contract is voidable even if the misrepresentation was made in good faith and believed to be true by the person who made it Fraud misrepresentation communicated knowingly with the intent to deceive scienter o Knowingly If the person knew the statement was false knew that she did not have a good basis for making the statement or even if she was made the statement without being confident it was true o Intent to deceive inferred from fact that defendant knowingly made a misstatement of a fact to a person who was likely to rely on it o Liable for damages and possibly punitive damages tort of deceit o In some states person must either choose to rescind contract or sue for damages Requirements for Rescission on the Ground of Misrepresentation 1 an untrue assertion of fact was made 2 the fact asserted was material or the assertion was fraudulent 3 the complaining party entered the contract because of his reliance on the assertion 4 the reliance of the complaining party was reasonable A plaintiff seeking to recover damages for the tort of deceit must also establish injury Untrue assertion of fact fact asserted must be a past or existing fact as distinguished from an opinion or a promise or prediction about some future happening o Concealment concealment of a fact through some active conduct intended to prevent the other party from discovering the fact is considered to be the equivalent of an assertion o Nondisclosure can be the equivalent of an assertion of fact required in situations such as when the person has already offered some information but further information is needed to give the other party an accurate picture or when there is a relationship of trust and confidence between the parties o Materiality if misrepresentation was innocent person seeking to rescind must establish that fact asserted was material Considered material if it is likely to play a significant role in inducing a reasonable person to enter the contract or if the person asserting the fact knows that the other person is likely to rely on the fact o Actual reliance reliance means that a person pursues some course of action because his faith in an assertion made to him if the complaining party knew that the assertion was false or was not aware that an assertion had been made there has been no reliance o Justifiable Reliance person does not act justifiably if he relies on an assertion that is obviously false or not to be taken seriously Mistake belief about a fact that is not in accord with the truth Must relate to facts as they exist at the time the contract is created erroneous belief or prediction about facts that might occur in the future would not qualify as a mistake Negligence and the Right to Avoid for Mistake person s fault in failing to know or discover facts before entering the contract will not bar relief unless his fault amounted to a failure to act in good faith Mutual mistakes in drafting writings erroneous expression of an agreement remedy is reformation of the writing rather than avoidance of the contract Requirements for a Mutual Mistake 1 mistake relates to a basic assumption on which the contract was made 2 the mistake has a material effect on the agreed upon exchange 3 the party adversely affected by the mistake does not bear the risk of the mistake Mistake about a Basic Assumption even if mistake is mutual adversely affected party will not have the right to avoid the contract unless the mistake concerns a basic assumption on which the contract was based o Assumptions about the identity existence quality or quantity of the subject matter Material Effect on Agreed Upon Exchange the imbalance caused by the mistake is so severe that it would be unfair for the law to require him to perform the contract o better chance if he can show not only that the contract is less desirable for him because of the mistake but also that the other party has received an unbargained for advantage Party Harmed by Mistake Did Not Bear the Risk of Mistake person who is harmed by the mistake cannot avoid the contract if he is considered to bear the risk of mistake o Buyer bears risk if agrees to as is Requirements for Unilateral Mistake exist only when only one of the parties made a mistake about a basic assumption on which he made the contract In addition to prove elements of mistake 1 Nonmistaken party caused or had reason to know of the mistake 2 it would be unconscionable to enforce the contract Duress duress is wrongful coercion that induces a person to enter or modify a contract 1 contract was induced by an improper threat 2 victim had no reasonable alternative but to enter contract Improper threat a person would traditionally have to threaten to do something he was not legally entitled to do restatements says threat only needs to be improper Victim had no reasonable alternative person complaining of duress must be able to prove that the coercive nature of the improper threat was such that he had no reasonable alternative but to enter or modify the contract Economic Duress aka business compulsion one person induces the formation or modification of a contract by threatening another person s economic interest Under the Influence unfair persuasion like duress involves wrongful pressure exerted on a person during the bargaining
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