MANGMT 3540 1st Edition Lecture 14 Outline of Last Lecture I Collateral Promises II Promises Made in Consideration of Marriage III Sale of Goods Priced at 500 or more IV Writing V Exceptions to the Statute of Frauds VI Parol Evidence Rule VII UCC Variations Sale of Goods Outline of Current Lecture VIII Introduction IX Mutual Mistake of Fact Bilateral X Misrepresentation XI Elements of Fraud in the Inducement XII Duress XIII Undue Influence XIV Unconscionability Contracts which are grossly unfair Current Lecture I Introduction A Moving away from Caveat Emptor These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute i Old Rule buyer beware a contract is a contract B Five types of inequitable contracts voidable in equity courts i Mutual mistake of fact voidable by either party ii Material misrepresentation typically voidable by the deceived person iii Duress typically void under state law iv Undue typically voidable by the person wrongly influenced v Unconscionability voidable by the person treated in a grossly unfair manner C Remedies i Usually a party must choose between dollar damages and equitable remedy for example you can sue for damages under the contract due to fraud or you can get rescission avoidance of the contract in equity D Rescission and Restitution i A court cancels the contract and each party must restore the status quo e g give back or property to return the other party as closely as possible to the pre contract situation or status quo E Reformation i If there is an oral agreement of the parties and a mistake in writing it up scrivener s error the court revises the contract to conform to the actual agreement problem is proof II Mutual Mistake of Fact Bilateral A Mistake of both parties to the transaction i Uncertainty usually not enough B As to material fact i Material fact important to subject matter ii Fact not as to law opinion prediction or value iii Usually goes to existence identity or character of subject matter 1 Example contracting parties believe a diamond is a cubic zirconium 2 Example a bank and a junk dealer believe items left in a house are ordinary household goods but there are rare art objects in the basement C Unilateral Mistake of Fact i General rule a unilateral one sided mistake is not generally grounds for rescission but a valid defense can be proven if 1 There is a material mistake of fact by 1 party and 2 The other party has reason to know of the mistake 3 Rescission remedy a Can t take knowing advantage of mistake by the other party b Examples a significant underbid jeweler must tell you if it is a diamond or not III Misrepresentation A Three types and possible remedies i Innocent misrepresentation a mistake without fault rescission only ii Negligent misrepresentation a mistake because of failure to use reasonable care rescission or money damages iii Fraud actual and punitive damages on one hand or rescission on the other B Two types of fraud i Fraud in the execution signing 1 Victim is told he s signing something else 2 Example finance company lies and says couple is filing out a loan application but is really a promissory note ii Fraud in inducement 1 Deception as to the understood subject matter of contract not as to document itself 2 Contract is voidable by the person who was deceived IV Elements of Fraud in the Inducement A Misrepresentation of a material fact i Material important to deal ii Must be misrepresentation of fact or present material fact not expression of opinion future event value general quality or legal opinion iii Three exceptions a misrepresentation of fact is unnecessary for fraud if there is 1 An opinion misusing a position of trust such as where there is a confidential relationship between seller and buyer 2 A seller s opinion where seller has superior knowledge upon which seller expects reliance 3 Concealment of serious defect of which seller knows but buyer has no reasonable way of finding out a Example basement leaks due to ground pressure B Intent to deceive by the defendant i Intent to deceive may be proven by either that the 1 Defendant has knowledge of falsity or 2 Defendant has reckless disregard for the truth making a statement at a time when the speaker has serious doubts about the truth of it C Reliance i There must be justifiable reasonable reliance by the plaintif D Injury to Plaintif i If seeking monetary damages must prove monetary loss V Duress A Definition i Forcing a party into a contract through fear or threats ii Threatening what you have a legal right to do not enough B Four Element of Duress i The defendant threatened the plaintif in a serious way ii The threat was unlawfully or wrongfully made 1 Violate a law or violate a contractual or professional duty iii Causing involuntary acceptance iv Because circumstances permit no alternative VI Undue Influence A Compared to Duress i Duress involves undue influence wrongful persuasion B Three Elements of Undue influence i Confidential family or trust trustee relationship 1 E g attorney client guardian ward ii Weaker party lacked free will because of influence iii A contract results between the parties VII Unconscionability Contracts which are grossly unfair A Three elements of necessary to prove Unconscionability i Unequal bargaining power usually consumer bot commercial ii Dictation of terms of contract by stronger party an Adhesion Contract iii Terms manifestly unfair or oppressive