An introduction to the fundamentals of dynamic business law and business ethics chap011

Legal Assent• Definition: Voluntary, willing promise to transact the law will require contracting parties to obey • Without assent, contract may be avoided/rescinded • Cancellation of c

Chapter 11

Reality of Assent

Chapter 11 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?

Chapter 11 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 ill-advised 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?

Legal Assent

• Definition: Voluntary, willing promise to transact the

law will require contracting 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

• Definition: Misunderstandings 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

For a mutual mistake to interfere with

legal consent, it must involve:

• A basic assumption about the subject

matter of the contract;

• A material effect on the agreement; and

• An adverse effect on a party who did not

agree to bear the risk of mistake at the time

of the agreement

Negligent or Fraudulent Misrepresentation

• 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

• Fraudulent Misrepresentation (Definition): Intentional,

untruthful assertion of material fact by contracting party;

aggrieved party can rescind contract, and sue for damages

• Courts permit contract rescission for negligent or fraudulent

misrepresentation, assuming:

-False assertion

Undue Influence

• Definition: Persuasive efforts of dominant

party, who uses special relationship to unduly

persuade the other party

• Any relationship involving one party’s unusual

degree of trust in another can give rise to

undue influence

-Examples include attorney-client relationship,

and doctor-patient relationship

Questions Affecting Determination of

Undue Influence

• Did dominant party “rush” the other party to

consent?

• Did dominant party gain unjust enrichment from

the agreement?

• Was non-dominant party isolated from other

advisers at time of agreement?

• Is contract unreasonable, in that it

overwhelmingly benefits dominant party?

• 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

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)