Conduct Invalidating Assent

Conduct Invalidating Assent

Mutual assent is crucial to a valid contract. There are situations, however, where consent may
have been given, but it was ineffective in some way. This makes the resulting contract void or
voidable.

1. Duress: Since mutual assent must be voluntary, if the consent is acquired by force or the
threat of force and against the will of one of the parties, the consent is ineffective.

a. Physical force: If physical force or the threat of immediate physical force is used to
compel a party to agree to a contract, the resulting contract is void.

b. Economic force: In some cases, the duress comes in the form of economic and social
coercion. If these threats leave the party with no reasonable alternative, but to agree to the
contract, the resulting contract is voidable at the option of the offeree.

1) Subjective perception: The standard used to determine the effectiveness of the
duress in forcing a person to enter into a contract is subjective. It does not matter that
a reasonable person would not have been affected by the threat. The issue is whether
this particular party was unduly influenced.

c. Threat of criminal prosecution: When a party is forced to sign a contract in response to
a threat that the person would face criminal prosecution unless he or she signed the
contract, the resulting contract is voidable.

1) Threat of civil lawsuit: Threatening to bring a civil suit if a contract is not signed
does not constitute duress.

2. Undue influence: Undue influence is the application of unfair persuasion by a person in a
dominant position in a confidential relationship. In these relationships, there is a danger that
one party who is in a dominant position may persuade the weaker party to accept terms that
are disadvantageous. This is especially a source of concern where one party is overly
dependent due to age, failing health, inability to speak English or understand the customs of
this country, etc. Contracts entered into by undue influence are voidable.

a) Confidential relationship: Examples of confidential relationships include lawyer-client,
doctor-patient, parent-child, spouses, etc

3. Fraud in the execution: Fraud in the execution takes place when, due to fraud, a person who
signs a contract does not even realize that he or she is entering into a contractual relationship.
When a contract is induced by fraud in the execution, the resulting contract is void.

Example: A fan approaches Michael Jordan with a piece of paper and asks for his autograph.
The paper Michael signed is a contract in which he promised to pay the person a million
dollars.

4. Fraud in the inducement: Fraud in the inducement takes place when a person is persuaded
to enter into a contract as a result of a material misrepresentation. The resulting contract is
voidable.

a. Elements of this fraud:

1) A false representation is made

2) The false representation is of a fact

3) The false representation is material to the agreement

4) The false representation is made with knowledge that the representation is false

5) The offeree relies upon the false representation in entering into the contract

Example: Bill offers to sell his car to Jane for $5,000. He tells Jane that the car has only
20,000 miles on it. In reality the car has over 120,000 miles.

b. Concealment: Concealment takes place when a party deliberately takes steps to conceal
a material fact. This is different from misrepresentation which involves a false statement.
Concealment can form the basis of fraud.

Example: A car dealer uses Bondo and a quick paint job to conceal the fact that the car
he is trying to sell was damaged in a serious accident.

c. Misrepresentation: Misrepresentation takes place when a statement that is known to be
contrary to the facts is made.

1) Silence: When parties deal at “arms-length,” a party is not obligated to disclose all
information regarding a subject of a contract. If a buyer, for example, knows that the
car she is trying to buy is worth many times more than the asking price, she is under
no obligation to reveal what she knows.

2) Obligation to break the silence: In some cases, a party is obligated to disclose
information that only he or she may have regarding the subject of the contract. These
involve cases where the information is fundamental to the contract, the facts would
not have been discovered through ordinary inspection, and good faith dealing would
require that the information be disclosed.

3) Obligations of a fiduciary: When a person is a fiduciary, a person in a confidential
relationship of trust and loyalty to another, he or she has an obligation to disclose all
relevant facts regarding a contract that the fiduciary is recommending.

4) Misrepresentation of a fact: The misrepresentation must deal with an issue of fact,
not one of opinion. If a car dealer says this car will get 30 miles to a gallon, this claim
must be accurate. On the other hand, if the dealer says, “This is the best looking car
around,” this is simply the dealer’s opinion. Other people may or may not agree.

5) Predictions: In general, predictions are considered to be non-factual. This is because
in most instances it is impossible to predict what will happen in the future. But if a
person knew that a promise could not or would not be kept at the time it was being
made, this fact must be disclosed or it would constitute fraud.

6) Elements of misrepresentation:

a) Material: When misrepresentation is being alleged, it must be shown that the
misrepresented fact is material. A misrepresentation is material if the fact would
persuade a reasonable person to enter into the contract.

b) Knowledge of falsity and intention to deceive: To establish fraud, the person
making the misrepresented fact must have known it to be false and did it to
deceive. c) Justifiable reliance: The person who was deceived must have relied upon the
misrepresented fact in his or her decision to enter into the contract.

2. Non-fraudulent misrepresentation: A non-fraudulent misrepresentation is a false statement
regarding a material fact that induces the offeree to enter into the contract, but the
misrepresentation is made as a result of negligence and not an intentional attempt to deceive.
These contracts are voidable.

3. Mistake: A mistake is a belief that is not in accord with the facts. The consequences of a
mistake in a contract depend upon several factors.

a) Mutual mistake: If a material mistake is made by both sides, there is no contract.

b) Unilateral mistake: Where only one party has made a mistake, the general rule is that
the resulting contract is valid.

c) Assumption of risk: Where one or more parties assume the risk that a mistake may have
been made, the law cannot offer a remedy.

Example: Buyer of a used car does so in “as is” condition. If the car has a defective
engine, the buyer has assumed this risk and could not use the condition of the engine as
an excuse to set aside the sale.