MANGMT 3540 1st Edition Lecture 14 Outline of Last Lecture I. Collateral PromisesII. Promises Made in Consideration of MarriageIII. Sale of Goods Priced at $500 or moreIV. WritingV. Exceptions to the Statute of FraudsVI. Parol Evidence RuleVII. UCC Variations—Sale of GoodsOutline of Current Lecture VIII. IntroductionIX. Mutual Mistake of Fact (Bilateral)X. MisrepresentationXI. Elements of Fraud in the InducementXII. DuressXIII. Undue InfluenceXIV. Unconscionability—Contracts which are grossly unfairCurrent LectureI. IntroductionA. Moving away from Caveat EmptorThese 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 contractB. Five types of inequitable contracts voidable in equity courtsi. Mutual mistake of fact: voidable by either partyii. Material misrepresentation: typically voidable by the deceived personiii. Duress: typically void under state lawiv. Undue: typically voidable by the person wrongly influencedv. Unconscionability: voidable by the person treated in a grossly unfair mannerC. Remediesi. 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 Restitutioni. 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. Reformationi. 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 transactioni. Uncertainty usually not enoughB. As to material facti. Material – fact important to subject matterii. Fact- not as to law, opinion, prediction or valueiii. Usually goes to: existence, identity, or character of subject matter1. Example: contracting parties believe a diamond is a cubic zirconium2. Example: a bank and a junk dealer believe items left in a house areordinary household goods, but there are rare art objects in the basementC. 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, and2. The other party has reason to know of the mistake3. Rescission remedy:a. Can’t take knowing advantage of mistake by the other partyb. Examples: a significant underbid,; jeweler must tell you if itis a diamond or notIII. MisrepresentationA. Three types and possible remedies i. Innocent misrepresentation: a mistake without fault – rescission onlyii. Negligent misrepresentation: a mistake because of failure to use reasonable care – rescission or money damagesiii. Fraud: actual and punitive damages on one hand or rescission on the otherB. Two types of fraudi. Fraud in the execution (signing)1. Victim is told he’s signing something else2. Example: finance company lies and says couple is filing out a loan application but is really a promissory noteii. Fraud in inducement1. Deception as to the understood subject matter of contract, not as to document itself2. Contract is voidable by the person who was deceivedIV. Elements of Fraud in the InducementA. Misrepresentation of a material facti. Material-important to dealii. Must be misrepresentation of fact or present material fact; not expression of opinion, future event, value, general quality, or legal opinioniii. 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 buyer2. A seller’s opinion where seller has superior knowledge upon which seller expects reliance3. Concealment of serious defect of which seller knows but buyer has no reasonable way of finding outa. Example: basement leaks due to ground pressureB. Intent to deceive by the defendanti. Intent to deceive may be proven by either that the:1. Defendant has knowledge of falsity; or2. Defendant has reckless disregard for the truth; making a statement at a time when the speaker has serious doubts about the truth of itC. Reliancei. There must be justifiable (reasonable) reliance by the plaintifD. Injury to Plaintifi. If seeking monetary damages, must prove monetary lossV. DuressA. Definitioni. Forcing a party into a contract through fear or threats ii. Threatening what you have a legal right to do not enoughB. Four Element of Duress:i. The defendant threatened the plaintif in a serious wayii. The threat was unlawfully or wrongfully made1. Violate a law or violate a contractual or professional dutyiii. Causing involuntary acceptanceiv. Because circumstances permit no alternativeVI. Undue InfluenceA. Compared to Duressi. Duress involves undue influence, wrongful persuasionB. Three Elements of Undue influence:i. Confidential, family, or trust (trustee) relationship1. E.g. attorney-client; guardian-wardii. Weaker party lacked free will because of influenceiii. A contract results between the partiesVII. Unconscionability—Contracts which are grossly unfairA. Three elements of necessary to prove Unconscionabilityi. Unequal bargaining power (usually consumer, bot commercial)ii. Dictation of terms of contract by stronger party – an Adhesion Contractiii. Terms manifestly unfair or