can some one help me with this exam .i will attach all the notes that you need to answer the questions.

“Freedom of contract begins where equality of bargaining power begins.”

Oliver Wendell Holmes, Jr.

I. Teacher to Teacher Dialogue

This chapter provides a ripe opportunity to go into all sorts of illustrations of “abuse by contract.” The first set of defenses to the enforcement of contracts in this chapter revolves around the issue of free will. Where free will is compromised, mutual assent is also compromised, and the agreement may not stand as a contract. What makes this area of law difficult is that courts and juries are asked to exercise 20/20 hindsight when looking back on how the parties were thinking as they were embarking on the road to contract formation. The subjectivity of measuring intent has always been a troublesome puzzle to unravel; yet without it, the objective facts placed before a court may not show the reality of consent. Because of the potential harshness of a bad contract, courts want to be very sure that the assent element of contracts is just that—a free and real consent to the agreement. Factors that mitigate or diminish the genuineness of assent can be tracked on a scale of incremental culpability.

At the bottom of the scale is an innocent mistake that can be either unilateral or bilateral. In a contract mistake, one or both of the parties is acting under an erroneous belief about the subject matter of the contract. Normally, if only one (unilateral) of the parties is mistaken, there will be no grounds for rescission unless that mistake is coupled with some sort of bad faith or abuse on the part of the nonmistaken party, i.e., one step further up the culpability ladder. Where the mistake is mutual (bilateral), either party may seek rescission if the mistake is considered material (so important that no real meeting of the minds ever occurred).

The next step up the slope of culpability is found in the area of misrepresentation or concealment. The shade of gray turns darker when a person is actively seeking to mark the cards or pass them under the table. Here we can see that freedom of assent is even further compromised than in mistake alone. Now the element of scienter (guilty mind) enters the picture, and the grounds for rescission are greatly increased. If the misrepresentation is material, known to be so by the maker, made with the intent to deceive, and is justifiably relied upon by an innocent and injured party, then the elements of fraud are in place. With a finding of fraud, the injured party may seek rescission and/or civil damages. In addition, the state may choose to prosecute the wrongdoer under the penal code. Contract fraud, unfortunately, not only sits at the top of the culpability scale but can also be found at the top of the charts on the most popular white-collar criminal list. And the consumer pays the ultimate cost of these crimes through passed-on costs for insurance, credit, and any number of other services undermined by these kinds of activities.

Another highly sensitive area of mutual assent is found in the law of undue influence. Undue influence involves taking away a person’s free will through any manner of physical, emotional, or psychological manipulation. It can happen in any relationship, and where it is alleged, the person claiming to be the victim of undue influence has the burden of proof in showing the alleged duress. One important exception to this general rule involves persons who act in a fiduciary role. Fiduciary is a term derived from the Latin word fides meaning faith, honesty, confidence, or trust. A person in a fiduciary role is entrusted with acting for the benefit of another. Most professionals in law, accounting, the healing arts, and business find themselves in fiduciary roles to one degree or another. As for the fiduciary, the burden of proof is now reversed. In dealing with their respective clients, patients, or beneficiaries, a contract is presumed to be under undue influence, and the burden of proof is on the fiduciary to show that any type of transaction for the party she is serving and to whom she owes a duty is at arm’s length, i.e., it is fairly arrived at.

II. Chapter Objectives

1. Explain genuineness of assent.

2. Explain how mutual mistake of fact excuses performance.

3. Explain the elements of intentional misrepresentation (fraud).

4. Describe duress.

5. Define equitable doctrine of undue influence.

III. Key Question Checklist

• Was the agreement entered into on the basis of any mistaken fact?

• Was there any misrepresentation or concealment in the transaction?

• Can undue influence be used as a basis for a lack of genuineness of assent?

IV. Text Materials

Enforceable contracts require voluntary assent. The court will determine if genuine assent was missing based on mistake, fraudulent misrepresentation, duress, and/or undue influence.

The law allows rescission of some contracts where there has been a mistake about the subject matter, value, or some other aspect of the contract. These mistakes may be unilateral or mutual.

Unilateral Mistakes – In most cases of unilateral mistake, the mistaken party will not be permitted to rescind the contract. The three types of situations in which a contract may not be enforced due to a unilateral mistake are:

• One party makes a unilateral mistake of fact, and the other party knew (or should have known) that a mistake was made.

• A unilateral mistake occurs because of a clerical or mathematical error that is not the result of gross negligence.

• The mistake is so serious that enforcing the contract would be unconscionable.

Mutual Mistake of a Material Fact – An ambiguity in a contract may constitute a mutual mistake of a material fact. An ambiguity occurs where a word or term in the contract is susceptible to more than one logical interpretation.

Mutual Mistake of Value – In the case of mutual mistake of value, the contract remains enforceable by either party because the identity of the subject matter of the contract is not at issue.

Fraud is an intentional misrepresentation. An innocent party who has been induced to enter a contract through fraudulent misrepresentation may rescind the contract and obtain restitution or enforce the contract and sue for damages.

In order to prove fraud, you must show all four elements. There must be a misrepresentation of a past or existing material fact. The person making the misrepresentation must have intended to deceive the innocent party. The innocent party must have relied upon the misrepresentation and have had an actual injury in order to recover damages.

Misrepresentation of a Material Fact – The misrepresentation must have been a significant factor in inducing the innocent party to enter into the contract. It need not have been the sole factor.

Intent to Deceive – To prove that a person intended to deceive an innocent party, the person making the misrepresentation must have either had knowledge that the representation was false or made it without sufficient knowledge of the truth.

Reliance on the Misrepresentation – A misrepresentation is not actionable unless the innocent party to whom the misrepresentation was made relied on the misrepresentation and acted on it.

Injury to the Innocent Party – To recover damages, the innocent party must prove that the fraud caused him or her economic injury.

Types of Fraud

Fraud in the Inception – Fraud in the factum occurs when a person is deceived as to the nature of their act and is unaware of what they are signing. These contracts are void.

Fraud in the Inducement – These voidable contracts occur when an innocent party knows what they are signing, but have been fraudulently induced into entering the contract. Such contracts are voidable by the innocent party.

Case 13.1 Fraud in the Inducement: Portugues-Santana v. Rekomdiv International, Inc.,

725 F.3d 17, 2013 U.S. App. Lexis 15331 (2013), United States Court of Appeals for the First Circuit

Facts: A Victoria’s Secret franchise was promised to the plaintiff basically through a bribe.

Issue: Is there liability for the defendants?

Decision: Yes

Ethics Questions: It is pretty obvious that the business broker did not act in a manner which would be accepted under American law. Defendants settle lawsuits when the facts and/or the law speak against them.

Fraud by Concealment – This occurs when one party takes a specific action to conceal material facts from the other party.

Silence as Misrepresentation – Although neither party has a duty to disclose all facts to the other party, silence will be considered a misrepresentation if nondisclosure would cause bodily injury or death, there is a fiduciary relationship between the parties, or if either federal or state statutes require disclosure.

Misrepresentation of Law – Innocent parties usually cannot rescind a contract due to a misrepresentation of law, unless the misrepresenting party is a professional and is dealing with a less sophisticated individual.

Innocent Misrepresentation – This is a misrepresentation made when a person honestly believes that their statements are true. The injured party may sue for rescission but not damages.

Case 13.2 Fraud: Krysa v. Paine

176 S.W.3d 150, 2005 Mo. App. Lexis 1680 (2005), Court of Appeals of Missouri

Facts: The Krysas were looking for a truck to tow their 18-foot trailer. At Payne’s Car Company, Crane, the salesman, told them that the F-350 would tow their trailer and make it 400,000 miles, so, after a test drive, they borrowed the necessary money and purchased the truck. That same day, they noticed that there was a problem with the power locks and discovered that the radiator was smashed and that a window had been replaced. The first time that they tried to tow the trailer, they found that the truck did not have enough power. Also, it consumed oil. CARFAX indicated that the truck had had thirteen owners, and eventually it was determined that it was actually two halves of different trucks welded together.

They returned the truck and were offered credit against another vehicle on the lot, but could not find one that suited their needs. Payne refused to return their money. They sued for fraudulent nondisclosure and misrepresentation, seeking compensatory and punitive damages. The jury awarded them $18,449 in compensatory damages and $500,000 in punitive damages; Payne appealed the award of punitive damages.

Issue: Did Payne engage in fraudulent nondisclosure, fraudulent misrepresentation, and reckless disregard for the safety of the Krysas and the public to support the award of $500,000 in punitive damages?

Decision: The court of appeals found that Payne’s fraudulent concealment, fraudulent misrepresentation, and reckless disregard for the safety of the Krysas and the public justified the award of $500,000 of punitive damages to the Krysas. Punitive damages serve as punishment and as a deterrent to similar conduct. The court determined Payne acted indifferently to or in reckless disregard of the safety of the Krysas in selling them a vehicle that he knew or should have known was not safe to drive and that the potential harm to the Krysas was much greater than the harm that was actually incurred.

Ethics Questions: Fraudulent concealment is when one party takes specific actions to conceal material facts from another that could cause injury or harm. Fraudulent misrepresentation is an event that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation. Payne appears to have acted unethically in his actions, and the court properly allowed an award of punitive damages because the purpose of punitive damages is to inflict punishment and to serve as an example and a deterrent for future similar conduct.

Duress is when one party threatens another with physical injury or extortion, inducing the second party to enter into a contract.

Equitable Doctrine: Undue Influence

Rescission may be permitted for undue influence, which can occur when a more dominant party takes advantage of another’s weaknesses to induce them to enter into a contract. To prove undue influence, there must have been a fiduciary or confidential relationship between the parties and the dominant party must have used his/her influence to induce contracting by the other party.

Critical Legal Thinking – Undue influence occurs often in the U.S. Looking at the bargaining power which exists between the parties at the time of the transaction is a good test to consider in terms of spotting undue influence.

V. Key Terms and Concepts

• Dominant party—The party who holds the greater amount of bargaining power during the negotiation of a contract.

• Duress—Occurs where one party threatens to do a wrongful act unless the other party enters into a contract.

• Fraudulent misrepresentation—An event that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation.

• Fraud by concealment—Occurs when one party takes specific action to conceal a material fact from another party.

• Fraud in the inception—Occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing.

• Fraud in the inducement—A personal defense against the enforcement of a negotiable instrument; a wrongdoer makes a false statement to another person to lead that person to enter into a contract with the wrongdoer.

• Genuineness of assent—The requirement that a party’s assent to a contract be genuine.

• Innocent misrepresentation—Occurs when an agent makes an untrue statement that he or she honestly and reasonably believes to be true.

• Intentional misrepresentation—When a seller or lessor fraudulently misrepresents the quality of a product and a buyer is injured thereby. Also called fraud.

• Intent to deceive—A party who intentionally plans and does misrepresent the terms of a contract to another party.

• Material fact—A fact that is important to the subject matter of a contract.

• Mistake—Occurs when one or both of the parties to a contract have an erroneous belief about the subject matter, value, or some other aspect of the contract. Mistakes may be either unilateral or mutual.

• Misrepresentation of law—Non actionable under fraud and generally, a contract is not subject to rescission unless one party is highly unsophisticated.

• Mutual mistake of a material fact—A mistake made by both parties concerning a material fact that is important to the subject matter of the contract.

• Mutual mistake of value—A mistake that occurs if both parties know the object of the contract, but are mistaken as to its value.

• Reliance on a misrepresentation—Justified reliance on a misrepresentation in a contract is grounds to ask for rescission by the defrauded party.

• Rescission—An action to rescind (undo) the contract. Rescission is available if there has been a material breach of contract, fraud, duress, undue influence, or mistake.

• Scienter—The offending party knows that the act or conduct he is undertaking is wrong or illegal.

• Servient party—The party who has less bargaining strength during the course of negotiations and/or the execution of a contract.

• Undue influence—Occurs where one person takes advantage of another person’s mental, emotional, or physical weakness and unduly persuades that person to enter into a contract or will; the persuasion by the wrongdoer must overcome the free will of the innocent party or testator.

• Unilateral mistake—When only one party is mistaken about a material fact regarding the subject matter of the contract.