>> We began investigation into how courts regulate
improper bargaining tactics by looking at the doctrine of duress.
We will now consider two additional doctrines related to improper bargaining.
This module will consider the doctrine of misrepresentation,
instances in which one party makes
factually incorrect statements that
induced the other to enter into a contract.
In the next module,
we will consider the doctrine of non-disclosure,
which polices instances in which one party conceals or fails to
disclose facts and thereby induces the other party to enter into a contract.
Like the doctrine of duress,
a person's agreeing to enter into a bargain based on misrepresented facts
is an instance in which that person's ascent has not been voluntarily given.
Sometimes, one party will,
despite knowing the truth,
flat out lie about facts to induce the other party to enter into a contract.
In such instances, not only does
contract law protect the wronged party from enforcement of a contract,
tort law and even criminal law may on occasion
also penalize the wrongdoer for such misrepresentation.
We will later see that such instances of
misrepresentation are described as fraudulent in Section 162 Subsection 1.
On other occasions, however,
a party may misrepresent that while genuinely,
though erroneously, believing his statement to be true.
In such instances, the misrepresentation is either negligent or innocent.
Even in these cases,
contract law will, on occasion,
allow the party wrongly induced into entering
a contract to avoid enforcement of that contract.
The concept of misrepresentation is defined in
Section 159 of the restatement
as an assertion that is not in accord with the facts.
It applies to both intentional as well as
to negligent or innocent misrepresentation.
In dealing with misrepresentations,
one must be careful to distinguish between
a parties making an affirmative assertion of fact on
the one hand and a parties merely
expressing an opinion or making a prediction on the other.
Consider the following.
A man goes into a clothing store to buy a suit.
The salesperson says, this suit is 100 percent wool.
In fact, it's made entirely of polyester and the salesman knows it.
This is a clear instance of a misrepresentation
and assertion that is not in accord with the facts.
Contrast that with the salesman saying,
I think that suit looks very good on you.
It makes you look quite debonair.
This is clearly the salesmen expressing his opinion.
Even if the salesman is exaggerating or lying,
it is unlikely that the customer could rescind
the sale when a friend states that the suit makes them look fat.
Similarly, if the salesman says,
I'll bet you'll get a lot of dates when you
wear that suit to your favorite singles bar.
At most, it's the salesman's prediction of what may happen in the future,
not an actionable assertion of fact.
Subsection 1 of Section 164 of
the restatement tells us that if a party is sent to a contract,
is induced by either a fraudulent or a material misrepresentation,
then the wronged party can treat the contract as voidable.
The section mentions two types of misrepresentations,
fraudulent misrepresentations and material misrepresentations.
To understand this distinction,
we turn to Section 162.
Subsection 1 of Section 162
tells us that a misrepresentation is fraudulent when
the person making the misrepresentation intends
it to induce another person to assent to an agreement,
and the misrepresenter knows or believes that
the statement he is making is false and or without basis.
Reading Sections 162 Subsection 1 and 164 together,
we can conclude that,
if one party makes a fraudulent misrepresentation to the other party,
the wronged party can avoid enforcement of the contract if it wishes to do so.
As mentioned earlier, not all misrepresentations are fraudulent.
Some false or misleading assertions may be made carelessly or innocently.
That is, if the maker believes his statement to be true.
In such instances, a party seeking to avoid a contract
must prove that the misrepresentation is material.
Subsection 2 of Section 162 states that
a misrepresentation is material if it is likely to induce
the other party to ascent to a contract or if
the maker of the statement knows that it would be
likely to induce the other party to ascent.
Reading Sections 162 Subsection 2 and 164 together,
we learned that with respect to careless or innocent misrepresentations,
the wronged party will be able to avoid enforcement of a contract,
only if the misrepresentation was material.
Consider the following.
A seller is selling a used tractor to a buyer.
In the negotiations, the seller states that the tractor is 10 years old.
In fact, his memory is faulty and it's actually 11 years old.
In such a case,
it is unlikely that the court would set aside the sale when the buyer
discovers that the tractor is actually one year
older than the seller represented it to be.
The buyer's decision to purchase or
not to purchase the tractor would probably not
be swayed by knowledge of the tractors being
one year older than represented by the seller.