Reality of Consent - Business Law

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  • Topic: Contract law, Rescission, Tort
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  • Published : April 18, 2013
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Chapter 13 Reality of Consent
Effects of Doctrines Discussed in This Chapter
* Voidable: person whose consent was not real has the power to rescind (cancel) the contract * Necessity for Prompt and Unequivocal Rescission
* Must act promptly and unequivocally to rescind a contract * Also avoid actions that suggest that she affirms or ratifies the contract * Send mixed messages, delaying the notification, etc. Misrepresentation and Fraud

* Relationship between Misrepresentation and Fraud
* Misrepresentation: assertion that is not in accord with the truth * Can be “innocent” or “fraudulent”
* Innocent: not intentionally deceptive
* Fraudulent: made with knowledge of falsity and intent to deceive * Either one can give the complaining party right to rescind contract * Fraud: type of misrepresentation that is committed knowingly, with the intent to deceive * Scienter (legal term to distinguish from innocent) * Liable for damages; possibly including punitive damages for the tort of deceit * Election of Remedies

* Can’t rescind contract and sue for damages (some states make you elect, or chose) * Requirements for Rescission on the Ground of Misrepresentation * Should be used only when a person has been misled about a fact important to the contract by someone he had the right to rely on * Required element:

* Untrue assertion of fact was made
* Fact asserted was material or the assertion was fraudulent * Complaining party entered the contract b/c of his reliance on the assertion * The reliance of the complaining party was reasonable * Untrue Assertion of Fact

* Concealment of a fact
* Nondisclosure
* Failure to volunteer information
* When the person has already offered some information but further information is needed to give the other party an accurate picture, or when there is a relationship of trust and confidence between the parties * Materiality

* Must establish that fact asserted was material (for innocent) * May be rescinded if the misrepresentation was fraudulent * Actual Reliance
* Reliance: person pursues some course of action because of his faith in an assertion made to him * No reliance if the complaining party knew that the assertion was false or was not aware that an assertion had been made * Justifiable Reliance

* Person does not act justifiably if he relies on an assertion that is obviously false or not to be taken seriously * Problem: to what extent is the complaining party responsible for investigating the accuracy? * Classical contract law: person who did not attempt to discover readily discoverable facts generally was not justified in relying on the other party’s statements about them * Today: place a greater degree of accountability on the person who makes the assertion rather than the person who relies on the assertion Mistake

* Nature of Mistake
* If the parties are wrong about an important fact, the exchange that they make is likely to be quite different than what they contemplated when they entered the contract * May be due to change in market price, etc.

* What is a Mistake?
* Mistake: an error in judgment or an unfortunate act
* Contract law: mistake is a belief about a fact that is not in accord with the truth * Erroneous belief or predictions about facts not mistake * Erroneous belief is not the result of the other party’s untrue statement * Mistakes of Law

* Traditional: not justify rescission
* Modern: granted relief even when the mistake is an erroneous belief about some aspect of law * Negligence and the Right to Avoid for Mistake
* Section 157 of the Restatement (Second) of Contracts * Focuses on the degree of a party’s negligence in...
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