Week 3-5

Contracts — Genuineness
of Assent
 Introduction
Contract may be unenforceable if the
parties have not genuinely assented
to its terms by:
• Mistake.
• Misrepresentation.
• Undue Influence.
• Duress.
2
 §1: Mistakes
• Unilateral vs. Bilateral Mistakes of Fact.
• Unilateral Mistakes: One party mistaken
as to some Material Fact.
• Does not afford the mistaken party any right to
relief from the contract.

3
 Mistakes [2]
• Exceptions:
• If other party to the contract knows or should have
known that a mistake of fact was made.
• If mistake was due to mathematical mistake in addition,
summation, subtraction, division, or multiplication and
was made inadvertently and without gross negligence.
• Bilateral Mistakes of Fact.
• Mutual mistake as to some Material Fact, the contract
can be rescinded by either party.

4
 Mistakes of Value
• Contract enforceable by either party.
• Unilateral or Bilateral mistake are not
basis for avoiding a contract.
• Exception:
• Mistake of value because of a mistake of
material fact.

5
 §2: Fraudulent
Misrepresentation
• Contract Voidable by Innocent Party.
• Elements:
• Misrepresentation of Material Fact.
• Intent to Deceive.
• Reliance on Misrepresentation.
• Injury to the Innocent Party.

6
 Misrepresentation
Has Occurred
Misrepresentation can be express or
implied.
• Concealment.
• Misrepresentation of future facts and statements
of opinion are not fraud, unless person
professes to be an expert.
• Misrepresentation of Law is not fraud, unless
person has greater knowledge of the law.
• Silence is not fraud, unless serious problem or
defect.
7
 Intent to Deceive
• Scienter is an Intent to Deceive.
• Party knowledge that fact is not as stated.
• Party makes a reckless statement with disregard
of the truth.
• Party implies that statement is based on
personal knowledge or investigation.
• Gross negligence is considered intent.

8
Reliance on Misrepresentation
• Deceived party must have Justifiable
Reliance.
• Depends on the knowledge and experience of
the party relying.

9
 Injury to the Innocent Party
• No proof of injury is required when the
action is to rescind contract.
• Proof of injury is universally required to
recover damages.

10
 §3: Nonfraudulent
Misrepresentation
• Innocent Misrepresentation.
• Negligent Misrepresentation.
• Equal to Scienter.
• Is treated as fraudulent misrepresentation, even
though the misrepresentation was not
purposeful.

11
 §4: Undue Influence
Contract is Voidable.
• Confidential or Fiduciary Relationship.
• Relationship of dependence.
• Influence or Persuasion.
• Weak party talked into doing something not
beneficial to him or herself.

12
 §5: Duress
• Forcing a party to enter into a contract under
fear or threat.
• Contract is Voidable.
• Threatened act must be wrongful or illegal.
• Improper Threat.
• Threat to exercise legal rights (criminal or civil suit).
• Economic or physical.

13
 §6: Adhesion Contracts
and Unconscionability
• Adhesion Contracts.
• Preprinted contract in which the adhering party has no
opportunity to negotiate the terms of the contract.
• Unconscionability.
• One sided bargains in which one party has substantially
superior bargaining power and can dictate the terms of
the contract.
• “Standard-form.”
• “Take-it-or-leave-it” adhesion contracts.

14
 Case 1: Vokes v. Arthur Murray
(Misrepresentation)

• FACTS:
• Arthur Murray operated dancing schools
through local, franchised operators.
• At a “dance party” at one of the schools, Vokes
was praised by an instructor for her potential as
“an excellent dancer.”
• The instructor sold her eight half-hour dance
lessons for $14.50 each. Over the next 16
months, Vokes spent $31,090.45 on dance
lessons but finally realized she did not have the
potential to be an excellent dancer.
• Vokes sued Arthur Murray and the court
dismissed the case based on fraud. She 15
 Case 1: Vokes v. Arthur Murray
(Misrepresentation)

• HELD: REVERSED. FOR VOKES.

• The District Court of Appeal of Florida
reinstated the complaint and remanded.
• “A statement of a party having * * * superior
knowledge may be regarded as a statement of
fact although it would be considered as opinion
if the parties were dealing on equal terms. It
could be reasonably supposed here that
defendants had ‘superior knowledge’ as to
whether plaintiff had ‘dance potential.’”

16
 Case 2: Sarvis v.
Vermont State College
• FACTS:
• In 1995 Sarvis was convicted of bank fraud and ordered to
pay more than $12 million in restitution, and sentenced to
forty-six months in prison.
• While incarcerated, he worked in the prison’s electric
department.
• After his release in 1998, Sarvis applied for an adjunct
professor position at Community College of Vermont
(CCV) stating that during “1984-1998” he was “President
and Chairman of the Board” of “CMI International Inc.,
Boston, Massachusetts,” where he was “[r]esponsible for
all operations and financial matters.” 17
 Case 2: Sarvis v.
Vermont State College
• FACTS (Cont’d)
• Sarvis was hired at CCV as an academic
coordinator, teacher, and independent studies
instructor.
• After he began work, his probation officer
alerted CCV to Sarvis’s criminal history, and
CCV terminated his employment.
• Sarvis sued CCV alleging breach of contract.
CCV filed a motion for summary judgment, in
part on the ground of fraud, seeking rescission.
The court granted CCV’s motion, and Sarvis
appealed to the Vermont Supreme Court.
18
 Case 2: Sarvis v.
Vermont State College
• HELD: AFFIRMED. FOR CCV.
• The Vermont Supreme Court rescinded
the contract between Sarvis and CCV.
• The court explained that “[t]he
misrepresentation in this case occurred
through plaintiff’s partial disclosure of
his past work history and references and
his effort to limit defendant’s inquiry into
his past.”
19
 Case 3: Meade v. CedarRapids
• FACTS:
• Meade was offered a job at the El-Jay Division of
Cedarapids, Inc., in Eugene, Oregon. During the
interview, Meade asked about El-Jay’s future and was
told that El-Jay was growing. In fact, however,
Cedarapids management already planned to close El-
Jay.
• Meade signed an at-will employment agreement, quit
the job he was doing or passed up other employment
opportunities, and moved his family to Eugene.
• When El-Jay closed soon after, Meade sued Cedarrapids
alleging fraudulent misrepresentation based on the
statements made to them during the interviews. 20
 Case 3: Meade v. CedarRapids
• HELD: FOR MEADE.
• Ninth Circuit held that employer may be liable
for misrepresenting its future to prospective
employees if they act to their detriment in
reliance.
• The plaintiffs’ “injuries were suffered as a result
of the fraudulent inducement to enter
employment, not the premature termination of
that employment.”
• The court reasoned that “allowing at-will
employment to defeat Plaintiffs’ reliance would
effectively allow employers to make any
representations to prospective employees and 21
then not fulfill those representations once