Transcript Document 7687771

Chapter 9
Mutual Assent and Defective
Agreement
BUSINESS LAW/MUSOLINO
Learning Objectives
1. Explain the nature of mutual
assent
2. Identify the ways that mutual
assent can be destroyed
3. List the elements that must be
proved to establish fraud
4. Identify those situations that can
give rise to claims of passive fraud
5. Distinguish between fraud and
misrepresentation, and contrast
the remedies available for each
9-2
Learning Objectives
6. Discuss the difference between unilateral and
bilateral mistakes
7. Judge which types of mistakes provide
appropriate grounds for getting out of a
contract
8. Explain the nature of physical and emotional
duress
9. Explain the elements of economic duress
10. Explain how the existence of a confidential
relationship is a key factor in establishing
undue influence
9-3
Question?
__________ is when both parties
know what the terms are, and both
have willingly agreed to be bound
by those terms?
A. Agreement
B. Mutual assent
C. Shared agreement
D. A firm offer
9-4
Mutual Assent
Mutual assent
– both parties know what the terms are,
and both have willingly agreed to be
bound by those terms
– “meeting of the minds.”
9-5
Mutual Assent
Destruction of Mutual Assent
If one party or the other discovers
that he or she has been cheated or
finds out that a mutual mistake
placed the party at a great
disadvantage, that party is no
longer bound to the terms of the
agreement
Defective agreement
9-6
Question?
What is a wrongful statement, action,
or concealment pertinent to the
subject matter of a contract
knowingly made to damage the
other party?
A. Tort
B. Deception
C. Mutual acceptance
D. Fraud
9-7
Fraud and Misrepresentation
Fraud
– a wrongful statement, action, or
concealment pertinent to the subject
matter of a contract knowingly made
to damage the other party
9-8
Types of Fraud
Fraud in the inception
– occurs when one party tricks another
party into a contract by lying to the
innocent party about the actual nature
of the contract
Fraud in the inducement
– occurs when one party tricks another
party into a contract by lying about
the terms of the agreement to get the
innocent party to enter the contract
under false pretenses
9-9
Question?
Which type of fraud occurs when one
party to a contract makes a false
statement intended to deceive the
other party?
A. Passive fraud
B. Active fraud
C. Submissive fraud
D. Dynamic fraud
9-10
Active Fraud
Active fraud
– occurs when one party to a contract
makes a false statement intended to
deceive the other party and thus leads
that party into a deceptively based
agreement.
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Passive Fraud
Passive fraud
– occurs when one party does not say
something about certain facts that he
or she is under an obligation to reveal
– Also called concealment or
nondisclosure
9-12
Fiduciary Relationships
Fiduciary relationship
– a relationship based on trust.
– Exist between attorneys and clients,
guardians and wards, trustees and
beneficiaries, and boards of directors
and corporations
9-13
Agreements Made Defective by
Falsehood
9-14
Question?
What is a false statement made
innocently with no intent to
deceive?
A. Rescission
B. Recession
C. Misrepresentation
D. Representation
9-15
Misrepresentation
Misrepresentation
– a false statement made innocently
with no intent to deceive
Rescission
– both parties are returned to their
original positions, before they entered
into the contract
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Mistake
Unilateral mistake
– A mistake made by only one of the
contracting parties is a and not
offering sufficient grounds for
rescission or renegotiation
Bilateral mistake
– both parties are mistaken, and may
permit a rescission by either the
offeror or the offeree
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The Nature of Mistakes
Mistakes as to Description
Mistakes as to Existence
Mistakes as to Value
Mistakes Through Failure to Read
Document
Mistakes of Law
9-18
Agreements Made Defective by
Mutual Mistake
9-19
Question?
What forces a person into a contract
through the use of physical,
emotional, or economic threats?
A. Stress
B. Eustress
C. Duress
D. Coercion
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Duress and Undue Influence
Duress
– an action by one party that forces
another party to do what need not
otherwise be done
– forces a person into a contract
through the use of physical,
emotional, or economic threats
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Question?
Which type of duress consists of
threats of a business nature that
force another party without real
consent to enter a commercial
agreement?
A. Physical duress
B. Emotional duress
C. Economic duress
D. Undue influence
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Physical and Emotional Duress
Physical duress
– involves either violence or the threat
of violence against an individual or
against that person’s family,
household, or property
Emotional duress
– arises from acts or threats that would
create emotional distress in the one
on whom they are inflicted
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Economic Duress
Economic duress
– consists of threats of a business
nature that force another party without
real consent to enter a commercial
agreement
– also known as business compulsion
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Undue Influence
Undue influence
– occurs when the dominant party in a
special relationship uses excessive
pressure to convince the weaker party
to enter a contract that greatly
benefits the dominant party
9-25
Agreements Made Defective by
Force or Pressure
9-26