Chapter 7 – Avoiding Enforcement
I. Misrepresentation and Nondisclosure
1. Overview: Victim of misrepresentation has the choice between seeking redress in tort for damages or in Contract through rescission.
· Tort – intent to deceive; can get punitive damages
· K – use to receive rescission; CANNOT recover punitive damages
a. Rescission can be exercised as a shield, an affirmative defense to an action to enforce the K, or in as a sword, an affirmative action seeking restitution of benefits conferred on the other party.
b. Rescission – a judicial return of the parties to the position they were in before the K
· Misrepresentation can be innocent or negligent – doesn’t have to be fraudulent if we are talking about misrepresentation in K.
2. Syester v. Banta – Old lady dance lessons signs settlement K for fraudulent dance lessons. Includes a general release from all claims.
· P uses misrepresentation as a shield – defense as to the enforcement of the K (release)
3. Rest. § 164 – Misrepresentation will make a K voidable:
1. If assent is induced by either a
b.material misrepresentation by the other party
2. Upon which the recipient is justified in relying on
4. Assertion of Opinion (Rest. §168)
· An assertion is an opinion if it expresses a belief, without certainty, as to the extent of a fact, puffing
· Rest §159 – An opinion will be regarded as a misrepresentation when the person expresses an opinion they don’t actually believe. (misrepresent their state of mind)
5. Cannot rely on opinion as a defense to misrepresentation if:
a. you are in a fiduciary relationship with the person relying on your opinion (a position of trust or confidence)
b. the person relying on the opinion believes the person giving the opinion is an expert
c. the person relying on the opinion is because of age or other factors particularly susceptible to a misrepresentation of the type involved. (ethical note: no contact rule for attny’s who if they know the other party has an atny they cannot contact that party w/o other counsel being present)
6. 2 rules for measuring damages in Tort action
· “out-of-pocket” rule – allows her to recover the difference b/w what she parted with and what she received + consequential damages suf
ed to know the fact b/c of a relationship of trust and confidence b/w them
5. Intentional v. Unintentional
· If the sellers are unaware (unintentional) there is no duty to disclose. If you don’t know about it, it is not non-disclosure. Different from misrepresentation – can have an innocent misrepresentation, but not possible w/non-disclosure
6. Latent Defects – (particular info known by one party but not obvious) Only have to disclose these kinds of defects. If it is obvious then no duty to disclose.
7. 8 Factors to consider when determining if fairness requires disclosure of material information:
a. difference in degree of intelligence of the parties
b. relation the parties bear to each other
c. manner in which the info is acquired
d. nature of the fact not disclosed
e. general class of the person concealing the info belongs
nature of the K itself (releases & insurance Ks all material facts must be included)