Voluntary

1
CHAPTER 13

• Voluntary
• Consent

2
Introduction

• An agreement must be voluntary to be enforceable
• Remedy
• Voidable (Rescind or Disaffirm)
• Unless ratify

3
Lack of Voluntary Consent

• Knowing Misrepresentation
• of a material fact
• based on the circumstances
• fact, not opinion, speculation or puffing
• Morehouse v. Behlman-Pontiac, p. 222
• The court finds that a used car salesmans
  representations about the condition of a minivan
  were material misrepresentations of fact. The
  court takes the modern approach of construing the
  statements in favor of the party with less
  knowledge. Bogosian was a veteran used-car
  salesman with more than forty-two years
  experience.

4
Lack of Voluntary Consent

• Knowing Misrepresentation
• of a material fact
• Question 6 at end of chapter
• Sperau v. Ford Motor Co.
• An African-American businessman who was recruited
  by Ford to open a dealership is successful in his
  claim that race-based figures regarding return on
  investment and losses, which were not revealed by
  Ford, were material facts.
• Sperau sued for fraudulent misrepresentation in
  tort. However, the issues discussed would be the
  same whether in tort or contract. The court
  construes the statements in favor of the party
  with less knowledge.

5
Lack of Voluntary Consent

• Knowing Misrepresentation
• justifiably relied on
• after reasonable investigation
• Griesi v. Atlantic General Hospital, p.223
• The court finds that an applicant for a job
  justifiably relied on the statement of the acting
  CEO that he had been hired.
• Griesi is not trying to get out of a contract due
  to misrepresentation (the usual case). He is
  suing for negligent misrepresentation. However,
  the issue of justifiable reliance is the same.
  Note that the fact that the representations were
  made by the head of the institution was important
  to the courts decision regarding whether the
  reliance was justifiable. If the CEO cant be
  relied on, who can? Since Griesi was being hired
  as an employee at will, he could not sue for the
  lack of a job, per se.

6
Lack of Voluntary Consent

• Knowing Misrepresentation
• to the detriment of the party relying (i.e.
  actual injury)
• not an honest mistake

7
Fraud

• Intentional Misrepresentation
• Knowingly Made
• Or should have known
• Or Reckless
• With Intent to Deceive- Scienter
• Courts often infer
• May include intent to conceal material fact(s)

8
Fraud

• By Silence
• Common law Caveat Emptor
• Modified by disclosure laws
• Columbia v. Cottey, p.226
• The court finds that the hospitals failure to
  disclose its discretion to rescind the Top Hat
  Plan is sufficient to find that the hospital
  misrepresented the contract by silence. Cottey
  sued for fraudulent misrepresentation in tort.
  However, the issues discussed would be the same
  whether in tort or contract. Including Cotteys
  other claims, he was awarded close to 500,000.
  Note that the hospital argued that Cottey
  ratified the contract by continuing to perform
  his duties even after he learned of the recission
  of the plan. However, the court looked to the
  intent of the parties and held that acts done in
  affirmance of the contract can amount to a waiver
  of the fraud only where they are done with full
  knowledge of the fraud and of all material facts,
  and with the intention, clearly manifested, of
  abiding by the contract and waiving all right to
  recover for the deception. Acts which, although
  in affirmance of the contract, do not indicate
  any intention to waive the fraud, cannot be held
  to operate as a waiver. Cottey continued to
  complain about the rescission of the plan. He did
  not ratify the fraud or waive his right to
  complain about it.

9
Fraud

• By Silence
• Question 5 at end of chapter
• Stambovsky v. Ackley
• The court, in a humorous opinion, finds that
  failure to disclose that a house is haunted when
  the seller has advertised that fact in the past,
  is sufficient for rescission.
• The court found that, as a matter of law, the
  house was haunted. Courts normally require the
  disclosure of material facts. The court said,
  no divination is required to conclude that it is
  defendants promotional efforts in publicizing
  her close encounters with these spirits which
  fostered the homes reputation in the community.
  Ackley clearly made money on his ghosts. The
  court stresses that buyers have a duty to inspect
  for usual problems. Defendant inserted an as
  is clause in the contract, but the court found
  that it applied only to tangible or physical
  matters and not to paranormal phenomena. The
  dissent in the case felt that if caveat emptor
  was to be discarded, it ought to be for a reason
  more substantive than a poltergeist.

10
Fraud

• Hord v. Environmental Research Institute of
  Michigan, p.225
• An employee who is shown a misleading financial
  statement in order to induce him to work for the
  company is allowed to sue for fraud.
• Hord sued both for fraudulent misrepresentation
  and silent fraud (the failure to disclose
  information). The jury awarded him 175,000
  without indicating which theory it relied on.
• Do you think Hord had a duty to ask for the
  latest financial information if he considered it
  crucial to his decision about whether to take the
  job?
• Would it matter to the outcome if the company
  believed that the reversal in its fortunes was
  only temporary?

11
Fraud

• In Execution - involves misstatements about the
  content or legal effect of something, usually in
  a preprinted contract.
• Rely without reading no claim for fraud
• Unless prevented or discouraged from reading or
• special trust relationship
• Effect prevents creation of a contract

12
Fraud

• Remedy
• Rescind
• Affirm and sue in tort for deceit

13
Duress/Undue Influence

• Involves interference with ability to resist
  entering into an agreement
• At time of contract
• Duress Wrongful Threat (or Force)
• Of physical harm(common law)
• Of disastrous economic harm
• Cross Talk Productions, Inc. v. Jacobson, p. 228
• Employees who reveal extortion payments they felt
  economically compelled to make are allowed to sue
  for economic distress when their contract is
  cancelled.
• The court here viewed the facts with a view to
  doing substantial justice between the parties.
• Defendant demurred to plaintiffs claims of
  economic duress, and intentional and negligent
  infliction of emotional distress because of the
  unclean hands defense, and was successful at
  the trial level. The appeals court finds that the
  defendant instigated the misconduct and that the
  moral blame attributable to him far outweighs any
  attributable to plaintiffs. Plaintiffs did not
  obtain the contract through bribery and they did
  not admit to commercial bribery since they had no
  intent to injure or defraud CBS.

14
Duress/Undue Influence

• Economic Duress
• Question 7 at end of chapter
• No. Economic duress occurs when, due to a
  wrongful act, a party involuntarily accepts the
  terms of an agreement because the circumstances
  permit no other reasonable alternative. A person
  may not have a reasonable alternative when a
  delay caused by pursuing a legal remedy would
  cause immediate or irreparable serious loss or
  financial ruin. Defendants offering plaintiff a
  choice of resigning or being fired did not rise
  to such a level as to deprive Blubaugh of the
  exercise of free will. Blubaugh could have
  allowed defendant to fire him and then sought
  relief from the courts, or resigned and taken the
  severance pay to which he was entitled without
  signing the release. There is no evidence that
  walking away with 31,382 instead of 35,943
  placed such an economic hardship on him as to
  obliterate his exercise of free will. There is no
  evidence he would face immediate financial ruin
  if he pursued a remedy in court instead of
  signing the agreement. The fact that he was upset
  is insufficient to invalidate the agreement
  emotional distress is not equivalent to economic
  duress. The fact that he didnt negotiate the
  agreement or seek counsel also does not amount to
  duress. What we apparently have here is someone
  who was initially satisfied with the settlement
  but who, upon subsequent reflection, concluded he
  could have gotten more out of the deal and
  attempted to renege on it. Blubaugh v. Turner,
  842 P.2d 1072 (Sup. Ct. Wyo. 1992).

15
Duress/Undue Influence

• Involves interference with ability to resist
  entering into an agreement
• Of criminal prosecution
• Not of well-found civil suit
• Undue Influence
• Based on confidential/special relationship
• Question 8 at end of chapter.
• Yes. Wyers was a widow with limited abilities who
  was strongly influenced by a young man who
  offered to help her and care for her. She was
  also on medication at the time of the mortgage
  signing. When United asked her if she understood
  what was happening, Gilreath hit her under the
  table and she nodded yes. He had earlier
  brandished a loaded gun and told her not to give
  him any trouble at the closing or answer any
  questions and to do what she was told. This is
  sufficient for undue influence. United Companies
  Financial Corp. v. Wyers, 518 So.2d 700 (Sup. Ct.
  Ala. 1988).
• Effect Voidable

16
Mistake

• One or more parties acted upon a sincere but
  untrue belief about a material existing or past
  fact
• Mutual a basis for recission by either party
• Unintentional ambiguous term
• About subject matter
• State of Alaska v. Carpenter, p. 169
• A man who bought land and borrowed money from the
  state in order develop a working farm is not
  allowed to use the doctrine of mistake when all
  attempts at farming failed.
• Since the government was selling the land and
  making the loan to be used as farmland, is this
  something Carpenter was justified in relying on
  despite the disclaimers?

17
Mistake

• Mutual a basis for recission by either party
• Question 9 at end of chapter.
• No. Judicial relief from a contract on the basis
  of mutual mistake is proper where there was a
  mistake of both parties at the time of contracts
  as to a basic assumption on which the contract
  was made, the mistake had a material effect on
  the performance, and the party seeking relief did
  not bear the risk of the mistake. Where there is
  a conscious uncertainty, there is an assumption
  of the risk that the resolution of the
  uncertainty may be unfavorable. The detailed
  disclaimers in the contracts made Carpenter aware
  that there were uncertainties regarding the
  condition of the land. Although both parties may
  have intended for the land to be developed for
  agricultural purposes, they were uncertain that
  this was possible. Additionally, Carpenter
  contractually bore the risk of that uncertainty.
  He is not excused from his contractual
  obligations. State of Alaska v. Carpenter, 268
  P.2d 1181 (Alaska Sup. Ct. 1994).

18
Mistake

• Mutual a basis for recission by either party
• Question 10 at end of chapter
• Yes. Mutual assent is a prerequisite to the
  creation of a contract. Where both parties share
  a common assumption about a vital fact on which
  they based their bargain, and that assumption is
  false, the transaction may be avoided if the
  mistake caused quite a different exchange of
  values than that contemplated by the parties. The
  parties shared a common presumption that proved
  false. Both considered the property to be
  cluttered with junk stuff and trash.
  Neither party suspected that Mestrovic works
  remained on the premises. The resultant gain to
  the Wilkins and loss to the bank were not
  contemplated by the parties when the bank agreed
  to let the Wilkins clean the premises and keep
  the personal property. There was no agreement for
  the disposition of the art because there was no
  meeting of the minds. Wilkins v. 1st Source Bank,
  548 N.E. 2d 170 (Ct. App. Ind. 1990).

19
Mistake

• Unilateral not a basis for recission (Though
  courts sometimes grant anyway)
• Lehrer v. State of Washington, p. 230
• A psychiatrist who agreed to resign from a
  hospital in return for the removal of personal
  conduct records from his files is not allowed to
  use the doctrine of mistake when the disciplinary
  board continued to pursue complaints levied
  against him.