Dynamic business law 4e kubasek 4e CH17

Chapter 17
Legal Assent

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Overview

• LO17-1: Why is legal assent important?
• LO17-2: What are the elements of mistake?
• LO17-3: What are the elements of misrepresentation?
• LO17-4: What are the elements of undue influence?
• LO17-5: What are the elements of duress?

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Chapter 17 Hypothetical Case 1
•

Sara Jameson believes she is close to achieving her version of the American Dream. She has just purchased from Dan Salazar an empty lot on 1534 Oak Drive in her
hometown of Omaha, Nebraska, and is ready to build her first house, a 1,500-square-feet ranch. She has borrowed $225,000 from First Omaha National Bank, the
maximum loan amount for which she qualifies.

This morning, Jameson was on location at 1534 Oak Drive with her contractor, establishing the foundation parameters for her new home. Her curious (and gossipy) new
neighbor, Anna Frederickson, stopped by to chat. In their conversation, Frederickson asked Jameson what size home she was planning to build, and Jameson responded,
"1,500 square feet." Frederickson immediately proclaimed, "Sara, you can't build a home of that size in our neighborhood. The restrictive covenants in our neighborhood
require houses of 1,800 square feet or larger."

Jameson and her contractor rush down to the Douglas County Register of Deeds, and upon researching the public record, find the restrictive covenants for the
subdivision. Jameson's worst fears are confirmed—the restrictive covenants indeed dictate a larger home, and Jameson does not have access to the additional proceeds

necessary (approximately $35,000) to build one.

Sara would like to "undo" the contract for purchase of the lot at 1534 Oak Drive, returning title and ownership to seller Dan Salazar, and receiving as reimbursement from
him the purchase price she paid for the lot. Salazar is unwilling to rescind the contract.

•

Who would win in a lawsuit for rescission of the contract: Sara Jameson or Dan Salazar?

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Chapter 17 Hypothetical Case 2
•

John Hammonds recently purchased a used Fjord Mastodon sedan from Square Deal Pre-Owned Auto Sales, Inc. During contract negotiations,
Hammonds did not ask any questions related to the fuel efficiency of the car, and Square Deal's sales representative, Wink Eubanks, did not
volunteer any information about the Mastodon's gas mileage. Hammonds had saved for a car for five years, and he paid $10,000 cash for the vehicle.

After his purchase, Hammonds kept meticulous records regarding the fuel consumption of the Mastodon, and he calculated that the Mastodon was
getting approximately 12 miles per gallon. He immediately returned to Square Deal (Hammonds thought the dealership should be renamed "Raw
Deal"), found Eubanks in front of one of the store's vending machines, and stated "You should have told me that Mastodon only gets 12 miles per
gallon. I am the victim of fraud, and I want my money back. Here are the keys to your Mastodon with its mammoth appetite!"

•

Do you agree with John Hammonds? Is he the victim of fraud? Is he entitled to a rescission of the contract based on Square Deal's nondisclosure of
the Mastodon's gas mileage?

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Legal Assent

• Definition:
•

A promise to buy or sell that courts will require parties to obey

• Without assent, contract may be voidable
• Voidable contract can be rescinded (canceled)
• Major obstacles to legal assent: mistake, misrepresentation, undue influence,
duress, unconscionability

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Mistake

• Mistake of fact: Erroneous belief about the facts at the time the contract is
concluded.

• Unilateral mistake: Mistake made by one contracting party; generally, contract still
binding

• Mutual (bilateral) mistake: Mistake made by both parties; if mutual mistake of
material (significant) fact, either party can rescind contract

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Misrepresentation
•
•
•

Innocent misrepresentation: False statement about a material fact that the person making it believed to be
true. Misled party can rescind contract; may not sue for damages.
Negligent misrepresentation: Negligent, untruthful assertion of material fact by contracting party; aggrieved
party can rescind contract and sue for damages
Fraudulent misrepresentation: Intentional, untruthful assertion of material fact by contracting party;
aggrieved party can rescind contract and sue for damages

•

Courts permit contract rescission for fraudulent or negligent misrepresentation, assuming:

•
•
•

False assertion
Intent to deceive, or negligence
Justifiable reliance on false assertion by innocent party

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Undue Influence

• Definition:
•

Persuasive efforts of dominant party, who uses special relationship to interfere with
other's free choice of terms

• Any relationship involving one party's unusual degree of trust in another
can give rise to undue influence

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Questions Affecting Determination of Undue Influence

• Did dominant party rush the other party to consent?
• Did dominant party gain unjust enrichment from the contract?
• Was nondominant party isolated from other advisers at time of contract?
• Is contract unreasonable, in that it overwhelmingly benefits dominant
party?

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Duress

• Definition:
•

Occurs when one party is forced into an agreement by a wrongful act of another.

• Duress is not legal assent, since coercion interferes with contracting
party's free will

• For courts to rescind agreement, injured party must prove duress left no
reasonable alternatives to contractual agreement

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Situations Involving Duress

• One party threatens physical harm or extortion to gain consent to contract
• One party threatens to file criminal lawsuit unless consent given to terms of contract
• One party threatens to file frivolous civil lawsuit unless consent given to terms of
•

contract
One party threatens the other's economic interests

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Chapter 17 Hypothetical Case 3
•

For Greta Harrington and her husband Robert, it was love at first sight. The two were married for 52 years, until cancer took her husband at the age of 84. Greta is
currently 83 years old, and her marriage produced three offspring: Samuel, 50 years old; Katherine, 45 years old; and Benjamin, 40 years old. In his will, Robert
Harrington left all of his financial interests, valued at $5 million, entirely to his wife; in his will, he also expressed love and affection for his three children, as well as the
desire that Greta devise the remainder of the couple's estate to their children, in equal portions, upon her death.

Greta Harrington has recently been keeping company with Gary Watson, a twice-divorced, 65-year-old bachelor with a reputation for womanizing. While visiting her
mother one weekend, Katherine is shocked to see a fully-executed will on the desk in the living room, devising all of her mother's estate to Watson. She immediately calls
her brothers, schedules an emergency sibling meeting, and wonders what to do about her mother's ill-advised decision. She has noticed in recent months that her
mother is often forgetful, frequently calls her "Sharon" (her aunt's name), and often confuses the days of the week.

•

Do the children have any legal rights in terms of successfully invalidating Greta Harrington's will? From a legal and/or ethical standpoint, should a mother (even of adult
children) be allowed to disinherit her offspring?

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Chapter 17 Hypothetical Case 4
•

Jerome Hagel is in the job market. He's not having much luck, so he eventually decides to go on a job interview for a position selling kitchen
knives door-to-door for a company called Kutting Krew.

In the interview, Hagel feels pressured by Kutting Krew's representative, Jody Sofer. He decides halfway through the interview to secretly
record the conversation. After he begins recording, Sofer tells him again and again that the knives "sell themselves," and that all he will
have to do is sign the contract—that there is no obligation on his part.

Hagel signs, but he does not understand that the contract requires him to buy 200 knives at $50 each before he can represent Kutting Krew
knives. Two days later, he receives an invoice from Sofer for $10,000—money he does not have and cannot pay.

•

Can Hagel make a claim for recission of the contract because Sofer told him there was no obligation on his part?

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