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6.2 Voidable Contracts and Remedies

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Shannon Ziegler

on 31 March 2010

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Transcript of 6.2 Voidable Contracts and Remedies

Business Law
Section 6.2
Voidable Contracts and Remedies

Ken plans to pay Bridget $20 per week to walk his dog daily while he is on vacation. What statements should Ken add to this contract to identify what will happen if Bridget cannot meet the obligation?
Sometimes a contract may seem to be valid, but several circumstances might lead to a defective agreement:
Fraud
Misrepresentation
Mistake
Duress
Undue influence
Fraud: A deliberate deception intended to serve an unfair and unlawful gain
If you find out that the seller lied, you may be able to get your money back
You may have to sue for money damages
Lying weakens the entire world of contracts
To win a lawsuit based on fraud, five elements must be shown:
1. There must be a false representation of fact (a lie)
2. The person who lied must know it was a lie
3. The lie must be made with the intent that it be relied on
4. The innocent party must reasonably rely on the lie
5. The innocent party must experience a loss
What are the six elements of a contract?
When the element of genuine agreement is no longer included, a contract becomes defective.
This cell phone will never drop calls and is 100% reliable.

What misrepresentations may have been made?
False Representation of Fact
The lie must be a material fact that is really important.
The law allows salespeople to exaggerate their claims as long as the exaggerations are obviously a statement of the seller's opinion.
A lie does not need to be written or spoken - it can be actions that a seller uses to cover up a defect or to hide some factual piece of evidence.
Turning back the odometer of a car before you sell it so that you can get a better price is an example of a lie shown by an action.
Jeff purchased a used car from Quality Autos. The salesperson at the lot assured Jeff that his car had never been involved in an accident. While looking through his car's glove box a week after purchasing it, Jeff discovered repair receipts that indicated the car had been in a major accident. Can Jeff pursue a claim of false representation?
Knowledge of the Lie
To be responsible for the lie, the person telling the lie must know it is a lie.
The innocent party has to show this by giving evidence in court that the other person had actual knowledge that he or she was lying.
Or, the innocent party might succeed if the other party told the lie recklessly - without regard for the true story.
Lying by inaction - happens when they do not say something they are supposed to say.

Also called passive fraud, concealment, or nondisclosure.
Lie Intended to Be Relied Upon
The innocent party must show that the liar told the lie knowing that the other party would
Hear it
Believe it
Act on it
Told the lie to tempt the other party into the false contract.
Lie Actually Relied Upon
The innocent party must show that he or she depended on the lie.
Resulting Loss
Innocent party has to lose something to be fraud.

No Loss = No Fraud
Yes. He would have to prove either that the salesperson knew of the car accident or that he made a reckless statement about the car's history and condition.
Innocent Misrepresentation
Misrepresentation occurs when a person who is involved in contract negotiation says something they believe to be true, but turns out to be false. The law gives the innocent party the right to get out of the contract.
A salesman at a dealership routinely tells customers that a certain brand of truck is the most durable on the market. He later discovers that the brand has the worst record for durability. Should customers be able to nullify their sales contracts?
Mistake
Unilateral Mistake
Bilateral Mistake
An error on the part of one of the parties.
Usually a person cannot get out of a contract just because of a mistake
The law wants people to pay attention to their business deals
Examples:
A mistake as to the nature of the agreement
If you buy a DVD online and then realize you already had that DVD, you made a mistake - you cannot get out of this contract
If you do not read the contract or are mistaken about what it says - you cannot get out of the contract
Your signature shows you agreed to the terms
If you cannot read English, you are expected to have someone with you who does
A mistake as to value (how much it's worth) - you cannot get out of the contract
An error that is made on the part of both parties to the contract
Examples:
Mistake is made as to the possibility of performance - this will get rid of the duty to perform (you put a $10 deposit on a Harry Potter book before it comes out - author decides not to write one - you and the book store owner are mistaken)
If you buy a 2005 version of a DVD, but the 1993 version actually arrives, both parties can void the contract
Duress
Duress: The act of destroying somebody's free will by force, threat of force, or bodily harm
Agreements made under duress are either void or voidable.
Physical duress: When actual force is used to cause another person to enter a contract
Economic duress: An act that threatens a person's income or business that makes a person enter a contract without real consent
To succeed voiding a contract because of economic duress, victim must prove:
1. Other party wrongfully placed them in a poor economic position
2. Victim had no choice other than to submit to the duress
3. Their submission to the duress was reasonable under the circumstances
Undue Influence
Undue influence: An action or series of overly persuasive actions that make inappropriate use of one person's position of power over another person to create an agreement that is very favorable to the person with all the power
Victim must prove these things to void the contract:
1. Existence of a caregiver-type relationship
2. Use of excessive pressure by the caregiver
3. Resulting contract that heavily favors the caregiver
Yes, the innocent party can get out of the contract.
Create a scenario in whch a person makes a fraudulent representation to another individual. All five elements of fraud should be present.
Remedies and Damages
Remedy: A legal means of enforcing a right or correcting a wrong
If you are the injured party, you have three options:
Accept the breach
Sue for money damages
Ask the court for an equitable remedy
Accept the Breach
Have you ever had a friend promise to take you to a concert or an event, only to have the friend fail to follow through? What actual damage has been suffered?
Damages: Payment recovered in court by a person who has suffered an injury
Money Damages
Should place you in the position you would have been if the contract had been carried out
Injured party must make tender
Punitive Damages or Rescission
Fraud - Punitive Damages: Money payments for damages that go beyond what the innocent party actually lost and that are designed to punish the wrongdoer
Innocent misrepresentation - Rescission: Party seeks to be relieved of his obligations
Equitable Remedies
Specific Performance
Asks the court to order the other party to do what he or she had agreed to do in the contract
Only used when money damages are not sufficient enough to give relief or subject matter is rare or unique
Injunction: A court order that prevents a party from performing a specific act
- Only available in special circumstances
- Temporary or permanent
- One who disobeys is in contempt of court
Prime Company was contracted to deliver 200 gallons of fruit to the J Jam Company. Prime delivered 150 gallons due to a planning mistake. What kinds of remedies may be available to J Jam Company?
Money Damages
Request that Prime find another company to deliver the remaining 50 gallons
Section 6.2 Assessment
Complete the Self Check questions and the Critical Thinking question on page 147 on a notecard.
Mutual: Possessed in common; having the same relationship
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