Slides · Class 19

By the end of class, you can

State the three elements of misrepresentation (R2d §§ 159, 162) and apply them to distinguish an actionable misstatement from a true-but-incomplete one.
Apply the three-element duress test (R2d § 175 + § 176) to a settlement-on-the-courthouse-steps fact pattern.
Distinguish duress from undue influence under R2d § 177 by mapping each to the relationship between the parties.
Apply the procedural-substantive unconscionability framework (R2d § 208 / UCC § 2-302) to a consumer-form contract.

Today

Floor. ~40 min: misrepresentation elements (R2d §§ 159, 162, 164) + Barrer. The doctrine the next class assumes you have covered.

Target. ~75 min: Floor + duress (R2d §§ 175, 176) + Quebodeaux + undue influence (R2d § 177) + Goldman + public policy (R2d § 178) + synthesis.

R2d § 164: When a Misrepresentation Makes a Contract Voidable

(1) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

(2) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.

The elements of misrepresentation

R2d § 159 defines a misrepresentation as an assertion that is not in accord with the facts. To make a contract voidable, the misrepresentation must be:

A false assertion — spoken, written, or (under §§ 160-161) implied by conduct or silence.
Fraudulent OR material — fraudulent (R2d § 162(1)) means made with intent to deceive; material (R2d § 162(2)) means it would induce a reasonable person to assent. Either one suffices.
Justifiably relied upon — the recipient must have actually and reasonably relied (R2d § 164).

Not every false statement voids a contract. A statement believed true but spoken carelessly can still be a misrepresentation — but only if material.

R2d § 175: When Duress by Threat Makes a Contract Voidable

(1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

(2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.

When is a threat improper? (R2d § 176)

Duress under R2d § 175 requires an improper threat that leaves no reasonable alternative. Section 176 defines when a threat is improper:

§ 176(1) — improper regardless of fairness: a threat of a crime or tort; a threat of criminal prosecution; a threat to use civil process in bad faith; or a threat to breach the duty of good faith and fair dealing.
§ 176(2) — improper only if the exchange is unfair: the threatened act harms the recipient without benefiting the threatener; prior unfair dealing increased the threat's force; or the threat uses power for illegitimate ends.

Hard bargaining is not duress. Every offer carries an implied threat — "no deal unless you accept." The threat must rise to an abuse of the bargaining process.

R2d § 177: When Undue Influence Makes a Contract Voidable

(1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.

(2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.

(3) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.

Voidability matrix: misrepresentation + duress

Four defense subgraphs (mistake, mutual and unilateral; misrepresentation, fraudulent and innocent; duress, physical and economic; and undue influence), each showing elements and void or voidable outcome; physical compulsion is the only void result. — Today covers misrepresentation (fraudulent and innocent) and duress (physical and economic): the two subgraphs that require an improper act by the other party.

Barrer v. Women's National Bank

761 F.2d 752 (D.C. Cir. 1985)
United States Court of Appeals, District of Columbia Circuit

Rule. A material misrepresentation makes a contract voidable under R2d §§ 159 + 162 + 164, even where the misrepresentation is innocent, if the recipient was justified in relying on it. Nondisclosure of material facts can be a misrepresentation where the party had reason to know the other side was relying on the omitted information.

Quebodeaux v. Quebodeaux

102 Ohio App. 3d 502, 657 N.E.2d 539 (1995)
Court of Appeals of Ohio, Ninth District

Rule. Duress rendering a contract voidable requires three elements: an involuntary act by the victim, no reasonable alternative to the act, and circumstances induced by the other party. Threats that exploit a power imbalance and leave no realistic option satisfy the test.

Undue influence: when trust is exploited

R2d § 177 makes a contract voidable for undue influence — unfair persuasion of a party who is under the domination of the persuader, or who by virtue of the relationship is justified in assuming the persuader will not act inconsistently with his welfare.

Undue influence is the quiet cousin of duress. There is no threat. The wrong is the exploitation of a relationship — attorney/client, caregiver/elder, clergy/parishioner — to override the weaker party's free judgment.

Duress asks: was there a coercive threat? Undue influence asks: was there a relationship the stronger party exploited?

Goldman v. Bequai

TM Chapter 12 lesson-plan illustration

Facts. An elderly widow transferred property to her attorney, whom she trusted as a family friend.

Holding. The transfer was the product of undue influence. The attorney occupied a dominant position of trust and confidence over a vulnerable client, and the transaction favored him.

Rule. Where a party in a relationship of trust and dominance (R2d § 177) obtains a benefit through unfair persuasion of a vulnerable counterpart, the resulting contract or transfer is voidable for undue influence.

R2d § 208 / UCC § 2-302: Unconscionability

If a contract or term thereof is unconscionable at the time the contract is made, a court may refuse to enforce the contract, may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

Williams v. Walker-Thomas: the framework

350 F.2d 445 (D.C. Cir. 1965)

Today's focus. Procedural side of the two-prong test: absence of meaningful choice, adhesion, surprise. The court does NOT decide the substantive prong; it remands for fact-finding. Class 20 returns to the same case for the substantive side.

Public policy: contracts courts refuse to enforce (R2d § 178)

The last improper-bargaining defense polices not the process and not the terms but the subject matter. R2d § 178 makes a term unenforceable on grounds of public policy when the interest in enforcement is clearly outweighed by a public policy against it.

Contracts that violate statutes — usury, unlicensed practice, gambling debts where illegal.
Contracts that harm public interests — agreements to commit a crime, to suborn perjury, or (sometimes) overbroad non-competes that stifle competition.

Unlike the other defenses, public policy can render a contract unenforceable even where both parties consented freely and the deal is fair between them. The objection is external.

Worked example: Problem 12.1 — Motor Home Misrepresentation

A buyer purchases a used motor home after the seller represents it has 40,000 miles on the engine. The actual mileage is 140,000; the odometer had rolled over. The seller did not know. The buyer relies on the mileage in setting his price.

Q. Can the buyer rescind under R2d § 164?

Stretch: second hypothetical

Vary one fact. In Barrer, the bank discovers the same omitted debt during its standard pre-funding review (before issuing the check) rather than after. Does materiality plus justifiable reliance change when the bank's own diligence would have surfaced the fact?

Stretch: practice problem

Stretch problems from the chapter.

Problem 12.1. Motor Home Misrepresentation. See casebook Chapter 12.

Problem 12.2. The Blodgetts under Duress. See casebook Chapter 12.

Walk through the analysis on the board. Hit the rule, the elements, the line of authority, the answer.

Class summary

Rules. R2d §§ 159, 162, 164 (misrepresentation) · R2d §§ 175, 176 (duress) · R2d § 177 (undue influence) · R2d § 178 (public policy).

Cases. Barrer v. Women's National Bank · Quebodeaux v. Quebodeaux · Goldman v. Bequai.

Open question. Misrepresentation by affirmative assertion is covered. What about silence? When does the law require a party to disclose? Class 20 picks up with Hill v. Jones and the duty to disclose.

Next time

Next class: Improper Bargaining cont. + Incapacity setup

_Defenses_ · Nov 5

Read Hill v. Jones and preview Webster Street v. Sheridan. The Hills bought a house riddled with termites the seller knew about and said nothing about. When does silence by a seller become a misrepresentation the law will void? Come ready to answer. You may be called.

Class 19: Improper Bargaining