Contracts II Outline
Thursday, April 30, 2009
1. Can the contract be avoided?
A. Misrepresentation and Fraud
1. Definition: An assertion not in accordance with the facts.
a. Fraudulent Misrepresentation: If a misrepresentation is made with the knowledge that it is untrue (scienter) and with intent to mislead the other party, it is fraudulent.
i. Fraud is a stronger case of Misrepresentation–May receive damages because fraud is also a tort.
§ Fraud in the inducement:
§ A fraudulent misrepresentation concerning a fact that forms the basis of the contract
§ Renders the contract voidable
§ Fraud in the factum:
§ A misrepresentation relating to the nature or effect of a document to be signed
· Example: persuading someone to sign an order for goods by asserting that it is merely a request for a catalog
§ Voids a contract completely
Elements of Misrepresentation:
§ Something important and essential to the bargain
§ Affirmative Assertion
§ Partial Assertion
§ Fraudulent (Knowledge + Intent)
§ Future Intention: When the breacher entered the contract already determined to breach it
Contradictory to the Facts, which
§ Fact or
§ Opinion: may be a statement of fact if it may reasonably be understood by the reader or listener as implying the existence of facts that justify the statement.
Induces Manifestation of Assent with
§ Would induce a reasonable person
Justified Reliance on the Assertion
§ If you could find the information at a reasonable cost, then we are less likely to find justified reliance.
§ Must determine the level of burden placed on the “victim”
§ At what point is it fair to force a party to disclose information.
§ Rescission and possibly Restitution–Not Damages
§ Allow contract to remain, and the grieved party can sue for expectation.
Definition: The compulsion of a manifestation of assent by force or threat.
Assent Induced by
Improper Threat with (Economic or Physical)
No Reasonable Alternative
· Void v. Voidable
§ A physical threat will always make the contract VOID.
§ Any other duress will make the contract voidable.
· Coercion by a Third-Party
§ Hard for the court to determine an appropriate remedy when the pressure is from a third independent party without the consent or knowledge of an involved party.
Void: Rescission and Restitution
Definition: Unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that the person will not act in a manner inconsistent with his welfare.
Assent Induced by
Unfair Persuasion through
Their Relationship (3 Types)
§ Domination: Parent/Child
§ Trust: Lawyer/Client
§ Some interaction but not an ongoing relationship
Definition: The transaction is so unfair that it would offend the conscience of the court to enforce.
o The wider public interest may or may not overshadow the need to balance the equities between the parties.
“Rule of Reason:”
· Contracts will be upheld to the extent that they are reasonable
· Example: Contracts against competition
· In the sale of businesses, partnership agreements, and employment contracts
Balancing Public Policy:
· If the harm to public interests outweighs the benefit of enforcement it must be refused.
· Example: Surrogate Parenting Contracts: A childless couple enters into a contract with a third person to enable the couple to have a child that is the biological child of at least one of them.
· Contract waiving the surrogate mother’s parental rights.
A minor can avoid his contract simply by showing that he was a minor at the time he made it.
· The contract is usually made voidable, not void, meaning the minor may choose to avoid the contract or to keep it in force.
· Usually 18, but fixed by legislature
· However, if the minor turns the majority age while the contract is still in force, and continues to honor the contract, it is an implied exception of the terms. The minor may not now disaffirm.
· Necessaries, such as food, medical needs, clothes, or shelter, depending on the jurisdiction
· If it is a necessary, the contract could be enforceable.
· If not, then the courts use restitution.
· Is the minor emancipated?