GENUINE
AGREEMENT
Defective Agreements
When something goes wrong and what seems to be a valid contract really isn’t
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Fraud
Misrepresentation
Mistake
Duress
Undue influence
Fraud
A deliberate deception intended to secure an unfair or unlawful gain
• If you have entered into a contract by fraud, you may:
• Rescind (cancel) the contract
• Sue for money damages
• Sue for punitive damages – damages designed to punish the wrongdoer for their
conduct
Fraud
To be successful in a lawsuit for fraud the following elements must be present:
• False representation of fact
• Party making the representation must know it is false
• False representation must be made with the intent to be relied upon
• Innocent party must reasonably rely upon the false representation
• Innocent party must actually suffer monetary loss
False Representation of Fact
Requires a false representation of a material, existing fact.
• Material fact – a fact that’s important, it matters to one of the parties; not an
opinion
• Can be oral, written, or actions that are deceptive
• Concealment – not revealing important information; also called passive fraud
or nondisclosure
• **Examples…….
Representation Known to be False
The party making the false representation must know that it is false
• Can be shown to be false
• Can be shown that the statement was made recklessly without regard for the
truth
• **Examples…….
False Representation Intended to Be Relied Upon
• Party making the misrepresentation intends for the other party to rely upon
the information as part of the contract
• **Examples…….
False Representation Actually Relied Upon
• False representation is reasonably relied upon by the other party when the
agreement is made
• Cannot sue for fraud if the party doesn’t actually rely upon the information
• **Examples…….
Research
Find a news article about a lawsuit involving contract fraud
• Does it meet the 5 elements necessary for fraud? Explain the elements you
find mentioned in the article.
• A false representation of fact
• Party making the representation must know it is false
• False representation must be made with the intent that it be relied upon
• Innocent party must reasonable rely upon the false representation
• Innocent party must actually suffer some monetary loss
Resulting Loss
• You may choose to enter the contract as the result of false misrepresentation
but unless there is loss suffered as a result of false misrepresentation, you
cannot win a lawsuit for fraud.
• Examples…..
Innocent Misrepresentation
Misrepresentation - an untrue statement of facts
• Innocent statement that turns out to be false
• If the party making the representation honestly believes it was true at the
time, you may rescind the contract but not sue for fraud.
• Examples…..
???
Work with a partner and discuss is this situation is a case of potential fraud.
• A travel agency calls to offer you a vacation package to Europe for less than
$200. To take advantage of the offer, you must send $200 in cash within 24
hours to supply a credit card number at the time of the call.
• What do you think?
• Remember the elements of fraud.
Mistake
• Unilateral mistake – an error on the part of one party to a contract
• Usually cannot avoid the contract since the other party has reasonable expectations
because of the contract
• Examples…..
Mistake as to the Nature of the Agreement
A unilateral mistake
• Not an excuse to avoid a contract
• If a party signs an agreement, they are bound to it even if they have not read
it or are mistaken about what it says.
• Signature shows agreement with the terms of the contract.
• If someone doesn’t speak English, they are expected to have the contract
(agreement) read and explained to them by someone they trust.
• Not an excuse to get out of a contract
Mistake as to the Identity of a Party
Unilateral mistake
• Identity of a party is misunderstood, not clear
• May be cause to void a contract
• Examples…..
Bilateral Mistake
Both parties to a contract are mistaken about an important fact
• Also called a mutual mistake
• Either party may avoid the contract
Mistake as to the Possibility of Performance
Bilateral Mistake
Both parties believe the duties described in the contract can be performed
when they cannot
• Either party may get out of the contract
• Examples…..
Mistake as to the Subject Matter
Bilateral mistake
• Both parties are mistaken as to the identity of the subject matter in the
contract
• Contract may be avoided by either party
• Examples…..
Duress
Overcoming a person’s will by use of force or by threat of force or bodily
harm
• Must enter into a contract voluntarily, not under duress
• Agreements made under duress are either void or voidable
Physical Duress
• Actual physical violence is used to cause another to enter a contract
• Contract is void
• Threat of physical force to cause another to enter into a contract
• Contract is voidable
Economic Duress
• Threats to a person’s business or income that cause them to enter into a
contract without real consent
• Examples…..
• A threat to exercise one’s legal rights is not duress
Undue Influence
When a person uses unfair and improper persuasive pressure to force another
person to enter into an agreement; stronger person substitutes their will for the
will of the weaker person.
• Elements
• A dependency relationship – one party is dependent on the other party because of ill
health, old age, or mental immaturity
• Unfair or improper pressure – independent person uses excessive pressure to force
dependent person to enter a contract
• Beneficial contract - contract benefits the independent party at the expense of the
dependent party
• Examples…..