Low of Business
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Chap017_Pre.pptChapter 17
Legal Assent
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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Chapter 17: Legal Assent
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: 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 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?
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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 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?
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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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Legal assent is defined as a promise to buy or sell a court will require the parties to obey. Without assent, a contract may be avoided or rescinded. Cancellation of contract due to a lack of assent means the party with the power of avoidance can require the return of consideration given to the other party; similarly, party with a rescission right must return the consideration received from the other party. Major “obstacles” to legal assent include mistake, misrepresentation, undue influence, duress, and unconscionability.
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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Mistakes are erroneous beliefs regarding the material facts of a contract existing at the time the agreement was made. A unilateral mistake is a mistake made by one contracting party; generally, a contract is still binding even if a unilateral mistake has been made. With a mutual (or bilateral) mistake, a mistake is made by both parties; if the mistake is mutual, and if it pertains to a material (or significant) fact, either party can rescind the contract.
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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Fraudulent misrepresentation is defined as the intentional, untruthful assertion of a material fact by a contracting party. If a fraudulent misrepresentation has occurred, the aggrieved party can rescind the contract, and sue for damages. Negligent misrepresentation is defined as the negligent, untruthful assertion of material fact by a contracting party. If a negligent misrepresentation has occurred, the aggrieved party can rescind the contract, and sue for damages. An innocent misrepresentation occurs when the party making the false assertion believes it to be true, and is not negligent in making the false assertion. Although an innocent misrepresentation permits the misled party to rescind the contract, he or she cannot sue for damages. Courts permit contract rescission for fraudulent or negligent misrepresentation, assuming proof of a false assertion, the intent to deceive or negligence resulting in deception, and justifiable reliance on the false assertion by the innocent party.
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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Undue influence consists of persuasive efforts of a dominant party, who uses a special relationship to interfere with the other party’s free choice of contract terms. Any relationship involving one party’s unusual degree of trust in another can result in undue influence.
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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Questions affecting a determination of undue influence include the following: Did the dominant party “rush” the other party to consent?; Did the dominant party gain unjust enrichment from the contract?; Was the non-dominant party isolated from other advisers at the time of contract?; and is the contract unreasonable, in that it overwhelmingly benefits the dominant party?
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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Duress occurs when one party threatens another with a wrongful act unless assent is given. Duress is not legal assent, since coercion interferes with the contracting party’s free will. For courts to rescind an agreement, the injured party must prove the duress left no reasonable alternative 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)
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Duress occurs when one party threatens physical harm or extortion to gain consent to contract, when one party threatens to file a criminal lawsuit unless consent is given to the terms of the contract, when one party threatens to file a frivolous civil lawsuit unless consent is given to the terms of the contract, and when one party threatens the other’s economic interests (although in many jurisdictions, recovery based on economic duress or pressure is rarely granted.)
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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Unconscionability occurs when one party has so much relative bargaining power that he or she effectively dictates the terms of contract, resulting in a situation where the dominated party, in essence, lacks free will. An unconscionable contract is an “adhesion contract,” and cannot be the basis for avoiding the contract.
