Chapter 9 – Misrepresentation/Undue Influence/Duress
Misrepresentation and Contracts
i. Material – could reasonably be expected to influence the decisions of a party
to enter into a contract
ii. Innocent Misrepresentation – if the misrepresentation is made innocently
and without negligence, no damages are awarded, the wronged party’s
remedy is restricted to the right to rescind.
Rescind – set the contract aside and out the party back in her pre-
Consequences of Misrepresentation in Contracts
i. If a party relied on a innocent misrepresentation and learns the true facts,
the contract is voidable at the option of the victim, but she must renounce
the agreement promptly. She loses the right to rescind if she allows an
unreasonable time to pass, or takes further benefits.
a. Indemnity or compensation – a money award given as a supplement to
rescission for loss sustained in performing a contract
ii. Sale of land – the right to rescission for innocent misrepresentation is
generally lost once title to the property is transferred and the transaction is
Opinion versus Fact
i. A false assertion is a misrepresentation only if it is made as a statement of
ii. Opinions do not amount to misrepresentation and give no remedy for those
who rely on it.
iii. Expert opinion – an opinion given by a person who purports to have
specialized knowledge of a subject
Signed Documents and Misrepresentation by Omission
i. Sometimes a party is expected to sign a document in a hurt and without an
opportunity to read or understand it.
ii. In this case, there is a special onus on the supplier to point out any terms in a
printed form that differ from what the consumer might reasonably expect. If
he fails to do so, he is guilty of misrepresentation by omission.
Silence as Misrepresentation: Contracts Requiring Disclosure
a. When one party has special knowledge
i. Failure to disclose information because one of the parties has
access to such information not available to other.
ii. Utmost good faith – a duty owed when a special measure of trust
is placed in one party by the other b. Contract of Insurance
i. A party seeking insurance must disclose to the insurance company
all pertinent aspects of the risk she is asking it to assume.
c. Sale of Corporation Securities
i. Prospectus – a statement issued to inform the public about a new
issue of shares or bonds
ii. Corporations are required to give out certain information to
d. Sale of goods compared with sale of land
i. A buyer of goods takes them with their defects unless some facts
about the quality were misrepresented.
ii. A buyer of land must take it with all faults if no representation is
a. Special Relationships
I. Undue Influence – the domination of one party over the mind of another
to such a degree as to deprive the weaker party of the will to an
II. A contract formed as a result of undue influence is voidable at the
options of the victim
III. If he delays, hoping to gain some advantage, the court will refuse to assist
IV. Usually when a special relationship is present; one party has special skill
or knowledge causing the other to place confidence and trust in him.
b. Dire Circumstances
I. Sometimes under influences arises when one party is temporarily in dire
straits and will agree to exorbitant and unfair terms because he is
desperate for aid.
c. Burden of Proof
I. When a special relationships existed; the law presumes that undue
influence was exerted in contracts advantageous to the party in the
II. Once proven that undue influence exists, the burden shifts to the
dominant party to prove that undue influence was not exerted.
III. Constructive fraud - the unconscientious use of power by a dominant
party to take advantage of weakness of the other party
d. Arrangements between Husband and Wife
I. Raises if one spouses is more experienced than the other and persuades
e. Importance of Independent Legal Advice I. Example: when husband brings wife to sign loan papers, wife is offered
lawyers to meet, she than visits the lawyers, has them fully explain the
II. Basically, if undue influence can come up later, it is better to have the
weaker party seek legal advice before mov