Contract Law—Reality of Consent

1
Contract LawReality of Consent

• Several related concepts causing contracts to be
  voidable
• Each provides a defense to a breach of contract
  suit
• The rationale for each is that, despite the
  objective appearance of an agreement, there was a
  lack of completely voluntary consent by one
  party.
• Contracts induced by fraud, innocent
  misrepresentation, mistake about basic facts,
  duress, undue influence (this one is rare)

2
Fraud Innocent Misrepresentation

• Misrepresentation of fact
• What is Not a fact?
• (1)
• (2)
• (3)
• (4)
• Ways to make a misrepresentation?
• (1)
• (2)
• (3)
• (4)

3
Misrepresentation, cont.

• Intent to deceive (scienter)
• How to prove it
• (1)
• (2)
• What difference does it make?
• (1)
• (2)
• Reliance
• Ex. of when theres no reliance
• What about a victim who wasnt sufficiently
  vigilant?
• Deceit_______________Negligence

4
Misrepresentation, cont.

• Sarvis v. Vermont State College, p. 358
• Facts
• Compare these facts to each requirement for
  proving fraud. How does it come out?
• Conclusion rationale?
• In this case, did it matter whether scienter was
  proved by the college?

5
Misrepresentation, cont.

• Darst v. Illinois Farmers Insurance Co., Ind. Ct.
  App., 1999
• While driving, Bert Sloan was rear-ended by
  Weger. Sloan was insured by Illinois Farmers
  Ins. Co., Weger by Sagamore Ins. Co. Sloan had
  several conversations with Kelly, the adjuster
  for Wegers ins. co. (Sagamore). In one phone
  conversation, Kelly asked Sloan what he though
  would be a fair settlement for his personal
  injuries. Poor stupid Sloan said that 15K would
  take care of him and anything that would pop up
  later on. Kelly said that 4K was the most he
  could offer. Sloan said he would discuss with
  his wife Lavonna and call Kelly back.
• Sloan did, his wife told him to see an
  attorney. Sloan didnt do that, but then spoke
  with a rep. from his own ins. co. (Ill.
  Farmers), who told him that it wouldnt do any
  good to talk to an attorney, because the atty.
  would get a cut Sloan wouldnt end up with any
  more in his pocket. Then, Sloan asked his
  ins. co. rep. if he thought that the 4K offer
  was a fair settlement, and the rep. said yes.
  Sloan then accepted the 4K offer from Wegers
  ins. co. as a settlement of all claims for
  personal injuries, including any that might
  manifest themselves later (as injuries from
  accidents sometimes do, or sometimes injuries
  later turn out to be worse than first thought by
  the physicians).
• Sloans injuries did turn out to be a lot worse.
  He his wife went bankrupt, the trustee for
  the bankruptcy estate (Darst) sued Ill. Farmers
  for fraud (Sloans release of Weger Sagamore
  had the effect of relieving Sloans own ins. co.
  (Ill. Farmers) from liability on its
  uninsured/underinsured coverage of Sloan. Was
  there either fraud or innocent misrepresentation?

6
Misrepresentation, cont.

• Steinberg v. Chicago Medical School, Ill. Sup.
  Ct., 1977
• The Chicago Medical Schools (CMS) bulletin
  (i.e., its catalog) stated that applicants would
  be selected on the basis of academic
  achievement, Medical College Admission Test
  (MCAT) results, personal appraisals by a
  pre-professional advisory committee or individual
  instructors, and the personal interview, if
  requested by the committee on Admissions. In
  response to this bulletin, Steinberg sent his
  application ( complied with all application
  requirements) and non-refundable application fee.
  (Steinberg thus made an offer.) CMS accepted
  his application fee. (Contractwhat were the
  contractual obligations?)
• Steinberg was denied admission. Because of his
  qualifications, he was very suspicious-he got a
  lawyer sued. The evidence showed that, over a
  period of years, CMS had accepted applicants more
  on the basis of how much money they and their
  families had donated than on objective
  qualificationsactually, much more on the basis
  of than qualifications. The trial judge
  dismissed the claim because CMS had merely made a
  promise about how they would evaluate applicants,
  not a misrepresentation of existing fact. Thus,
  the trial court held, there could have been a
  breach of contract, but not fraud and its much
  greater damage award possibilities (punitive
  damages, particularly) than breach of contract.
  Steinberg appealed.
• Conclusion rationale? Note Was Steinberg
  seeking rescission of the contract or was he
  suing for the tort of fraud?

7
Misrepresentation, cont.

• Cousineau v. Walker, Alaska Sup. Ct., 1980
• Devin Joan Walker owned approx. 9 acres of land
  in Eagle River, Alaska. One yr. after acquiring
  it, they put it up for sale through a realtor.
  Their description of the property, which was in
  the advertised listing, stated that the property
  had 580 feet of highway frontage and further
  stated that an engineers report revealed the
  property as having over 1 million cubic yards of
  gravel (pretty valuable stuff). After this
  listing agreement w/the realtor expired, the
  signed another one restating the 580 ft. of
  frontage, but stated that the land had a minimum
  of 80,000 cubic yds. of gravel. They had gotten
  the original info. about the engineers report of
  1 million cu. yds. from the people they had
  bought it from, but they had never seen the
  report. The evidence didnt show why they then
  changed it to 80,000 cu. yds.
• Cousineau was a building contractor who was also
  in the gravel extraction business. He was
  interested in the property, and investigated the
  amt. of frontage road. He tried to measure it
  but there was a lot of snow on the property he
  couldnt find any stakes. An appraiser hired by
  Cousineau also couldnt find any stakes at the
  time. Cousineau contracted to buy the property
  for 380K, and started digging for gravel. The
  gravel ran out when he had removed only 6,000
  cubic yards. A subsequent survey showed that the
  actual road frontage was 410 ft., not 580 ft. He
  sued the Walkers to rescind the contract and get
  back his 380K minus the value of the gravel he
  had extracted. The trial court held for the
  Walkers because Cousineau had made very
  inadequate efforts before buying to determine the
  road frontage or to get a reasonable estimate of
  the actual amount of gravel (such as by core
  samples). Cousineau appealed. Result?

8
Misrepresentation, cont.

• When silence (nondisclosure) can be fraud
• Latent . . .
• Fiduciary
• Superior . . . . (objective, not subjective)
• Change in the facts after statement bef.
  contract

9
Misrepresentation, cont.

• Stambovsky v. Ackley, p. 362
• Facts
• Court viewed these facts as showing
• Nondisclosure of a material fact by someone with
  superior knowledge, and
• Nondisclosure of a material fact that amounted to
  a latent defect in the real estate.
• Duty to disclose by one with superior knowledge
  normally doesnt apply to someone like the
  homeowner the real estate agent, perhaps, but
  not the owner. But, the court seemed to treat
  the claim against both the owner and the realtor
  the same way.
• Also, this is really stretching the idea of a
  latent defect.
• What the law is in most states re ghosts, axe
  murders, etc.

10
Mistake of Fact

• Again, fact material
• Mistakes about value?
• Mistakes about law?
• Mutual (book says bilateral) vs. Unilateral
  Mistakes
• General rule regarding unilateral mistakes?
• Exceptionswhen a unilaterally mistaken party may
  be able to rescind a contract.
• Non-mistaken party knew . . .
• Example
• Or should have known . . .
• Example
• Some courts have become more lenient in recent
  years, when performance hasnt begun other
  party wont be hurt.

11
Mistake, cont.

• Beachcomber Coins v. Boskett, Superior Ct. of NJ,
  1979
• Facts
• Conclusion rationale
• Why did the trial court dismiss Bosketts attempt
  to rescind the contract get his money back from
  the seller?
• Why did the app. ct. reverse?
• In what types of situations would the trial
  courts decision about assumption of risk have
  been correct?

12
Mistake, cont.

• Bank One v. Beckey, TX. Dist. Ct., 1996
• Beckey made a deposit of 2,140.45 in Bank One,
  here in Austin. An employee of the Bank
  mistakenly inserted an extra zero when crediting
  her account, thereby making the deposit
  21,040.45, a total of 18,900 more than it
  should have been. Only later did the Bank learn
  of its clerical mistake. The Bank asked Beckey
  for the money back. She refused. The Bank sued,
  claiming the right to rescind the transaction on
  grounds of unilateral mistake.
• Conclusion rationale?

13
Mistake, cont.

• Irmen v. Wrzesinski, Illi. Sm. Cl. Ct., 1990
• In his second or third day in the baseball card
  business, Irmen was swamped with customers and
  asked a woman from the shop next door to help
  him. Twelve-year-old Brian Wrzesinski, owner of
  40,000 baseball cards that he had collected over
  a period of several years, walked into the store
  and noticed a 1968 Nolan Ryan rookie card on
  display in mint condition. The card carried a
  price sticker of 1200/. Brian asked the
  substitute clerk if the price was 12. She said
  yes, and he bought it. However, the sticker
  was supposed to indicate a price of twelve
  hundred dollars, the cards approximate market
  value. When Irmen discovered the sale, he tried
  to get the card back. Brian refused to return
  it. Irmen sued to rescind the sale on grounds of
  mistake, get the card back, give Brian his 12
  back.
• Conclusion rationale?

14
Mistake, cont.

• Konic Interl v. Spokane Computer Serv., Id Ct.
  App., 1985
• David Young, an employee of Spokane Computer
  Services (SCS), was instructed by his employer to
  investigate the possibility of purchasing a piece
  of electrical equipment. Young's investigation
  turned up several units priced from 50 to
  200, none of which, however, were appropriate for
  his employer's needs. Young then contacted Konic.
  After discussing SCSs needs with a Konic
  engineer, Young was referred to one of Konic's
  salesmen. Later, after deciding on a certain
  unit, Young inquired as to the price of the
  selected item. The salesman responded, "fifty-six
  twenty." The salesman meant 5,620. Young
  thought he meant 56.20, ordered the item,
  Konic shipped it to SCS, where it was installed.
  SCSs president was out of the country when the
  item was shipped to SCS installed upon his
  return one day after the shipment installation,
  he immediately recognized that the item was of a
  much higher level than SCS needed, and was far
  more expensive than SCS could afford. SCS
  received an invoice for 5,620. SCSs president
  offered to return the item to Konicit could be
  uninstalled returned without damaging it.
  Konic said no demanded payment. SCS refused to
  pay Konig sued for breach of contract. Should
  SPS be able to rescind the contract?

15
Mistake, cont.

• Wilkin v. First Source Bank, Ind. Ct. App., 1990
• Olga Mestrovic, the widow of internationally
  known sculptor artist Ivan Mestrovic, owned a
  large number of works of art created by her
  deceased husband. Olga died, leaving a will in
  which she directed that all the works of art by
  her husband were to be sold the proceeds
  distributed to surviving family members. She
  also owned a large old home, which was also to be
  sold. First Source Bank (FSB) was the executor
  of her estate, and contracted to sell the home to
  Mr. Mrs. Wilkin. Before the contract was made,
  there were many discussions between the Wilkins
  bank representatives about the many items that
  remained in the house. They agreed that, in
  addition to the house, the Wilkins would buy a
  number of items of furniture, appliances, etc.
  for a certain price. In their discussions,
  everything else was referred to by both parties
  as junk, rubbish, etc., of which there
  apparently was a lot.
• After taking possession of the house, the Wilkins
  complained to the bank about all of the junk in
  the attic. The bank rep. gave them 2 choices
  The bank would either hire a rubbish removal
  service to clean the attic, or the Wilkins could
  do it themselves keep anything they wanted from
  the attic. The Wilkins chose the latter, and
  when they cleaned out the attic, they found
  several very valuable works of art hidden under
  and behind the junk. In the probate of Olga
  Mestrovics estate, the Wilkins claimed ownership
  of the art under their contract with the bank.
• Conclusion rationale?

16
Duress

• Traditional Duress
• Economic Duress
• Totem Marine v. Alyeska Pipeline, Alaska Sup.
  Ct., 1978
• Facts
• Conclusion rationale?
• How did these facts meet the requirements of
  economic duress?
• (1)
• (2)
• (3)
• Could the court have reached the same result
  using a different rationale?

17
Duress

• Hall v. Ochs, U.S. Ct. of App., 1st Cir., 1987
• Hall, a black man, drove to pick up his daughter
  who had spent the night at a friends house after
  the two girls had competed together at a track
  meet. It was a sleepy Sunday morning in Milton,
  Mass., an all-white suburb south of Boston. A
  suspicious neighbor (and obviously a bigoted
  moron) called the police, who arrived, prevented
  the Halls from getting into their car, and
  arrested Mr. Hall. Obviously, bigoted moron
  police officers, too. The officers took Hall to
  the police station where they started to realize
  that there might be a small problem with the
  arrest since Hall had done absolutely nothing
  wrong. An officer told Hall that he could leave
  immediately if he signed a release promising not
  to sue the police, but that he would be held for
  a bail hearing if he refused. He signed was
  released. Then he sued in federal court for a
  violation of civil rights laws and for the tort
  of false imprisonment. The City of Milton and
  the police officers raised the release as a
  defense. Was Hall legally bound by the contract
  of release?
• Conclusion, rationale, and result?