Genuine Agreement and Rescission

1. Genuine Agreement and Rescission By John Yazici

2. Do Now • When can an injured party rescind? Give an example of a situation when an individual would want to rescind.

3. Vocabulary • Genuine Agreement: agreement to enter into a contract that is evidenced by words or conduct between the parties • Voidable Contract: contract in which the injured part can withdraw, thus cancelling the contract • Rescission: backing out of a transaction by asking for the return of what you gave and offering to give back what you received • Ratification: acting toward the contract as though one intends to be bound by it

4. Vocabulary Continued • Duress: occurs when one party uses an improper threat or act to obtain an expression of agreement • Undue influence: occurs when one party to a contract is in a position of trust and wrongfully dominates the other party

5. To Clarify • Two parties make a genuine agreement • Not valid in cases of fraud, misrepresentation, undue influence, duress, or mistake • Without a genuine agreement, the contract is voidable and allows the injured party to rescind. • A rescission must occur promptly, and before a contract is ratified

6. Duress: Threats of Illegal Conduct • Threat to engage in any illegal activity, such as a crime or tort, to win an agreement • Committing an act of violence (ex: stabbing) • Threatening to commit act of Violence( ex: threatening to stab) • Committing Tort (ex: unlawful detention) • Threatening Tort

7. Duress: Threats to Report Crimes • If an individual observes a crime, they have a duty to report that crime to the proper authorities. • If an individual threatens to report the criminal in attempt to get them to contract; this is duress (extortion)

8. Duress: Threats to Sue • Parties are encouraged by law to settle disputes without a suit • Communicating the threat to sue IS okay UNLESS… • The threat to sue is made for any purpose unrelated to the suit

9. Duress: Economic Threats • When bound by valid contract, parties seek to modify it • They sometimes are tempted to result to use economic power one holds over the other to negotiate • Courts look at both the threat and alternatives in economic duress cases. • If the threatened party had no other choice to enter into or modify a contract, then it is duress

10. Undue Influence • When dominated by one party, the dominated person’s free will is restricted and thus usually must accept unfavorable terms • Two Key Elements Exist: • The relationship • Unfair persuasion

11. Relationship & Unfair Persuasion • A relationship of trust, confidence or authority must exist between the parties (formal relationship not necessary) • Ex: Attorney and Client, Housekeeper and elderly employer • Best evidence of unfair persuasion found in contract • Ex: Elderly Mother dependent on child sells home to him/her for half its value. No free will.

12. Case of Smith p.129 • Smith was in the hospital near death. His nurse said she would not give him drugs for pain unless he signed a contract transferring certain stock to her for half its market value. Smith signed. • IS SMITH BOUND??