Business Law Question

Undue influence is one of the things that can interfere with assent to contract.  Explain undue influence and provide an example of it.

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Chapter 17
Legal Assent
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 17 Case Hypothetical and Ethical Dilemma
John Hammonds recently purchased a used Fjord Mastodon sedan from Square
Deal Pre-Owned Auto Sales, Inc. During contract negotiations, John 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. John had saved for a car for five (5) years, and he paid
ten thousand dollars cash for the vehicle.
After his purchase, John kept meticulous records regarding the fuel consumption
of the Mastodon, and he calculated that the Mastodon was getting approximately
twelve (12) miles per gallon. He immediately returned to Square Deal (John
thought the dealership should be renamed “Raw Deal”), found Wink Eubanks in
front of one of the store’s vending machines, and stated “You should have told me
that Mastodon only gets twelve miles per gallon. I am the victim of fraud, and I
want my money back. Here are the keys to your Mastodon with the mammoth
appetite!”
Do you agree with John Hammonds? Is John 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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Chapter 17 Case Hypothetical and Ethical Dilemma
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 left all of his financial interests, a considerable
sum 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 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 Gary Watson. She immediately calls Samuel and Benjamin, schedules
an emergency “sibling meeting” for Sunday, and wonders what to do about her mother’s illadvised 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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Legal Assent
◼
Definition: Promise to buy or sell courts will require parties to obey
◼
Without assent, contract may be avoided/rescinded
◼
Cancellation of contract due to lack of assent means party with power of
avoidance can require return of consideration given to other party; similarly,
party with rescission right must return consideration received from other party
◼
Major “obstacles” to legal assent: Mistake, misrepresentation, undue
influence, duress, and unconscionability
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Mistake
◼
Definition: Erroneous beliefs regarding material facts of
contract at time agreement made
◼
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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Fraudulent or Negligent Misrepresentation
◼
Fraudulent Misrepresentation (Definition): Intentional, untruthful assertion of
material fact by contracting party; aggrieved party can rescind contract, and sue for
damages
◼
Negligent Misrepresentation (Definition): Negligent, untruthful assertion of material
fact by contracting party; aggrieved party can rescind contract, and sue for damages
◼
◼
Contrast with “innocent misrepresentation”, when party making false assertion
believes it to be true, and is not negligent in making false assertion; although
innocent misrepresentation permits misled party to rescind contract, he/she
cannot 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 non-dominant 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 threatens other with
wrongful act unless assent given
◼
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 (although in
many jurisdictions, recovery based on economic duress/pressure
rarely granted)
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Unconscionability
◼
Definition: Occurs when one party has so much relative
bargaining power that he/she effectively dictates terms of
contract, resulting in situation where dominated party, in
essence, lacks free will
◼
Unconscionable contract is an “adhesion contract”, and cannot
be basis for avoiding contract
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