WEBVTT

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>> We began investigation
into how courts regulate

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improper bargaining tactics by
looking at the doctrine of duress.

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We will now consider two additional
doctrines related to improper bargaining.

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This module will consider the
doctrine of misrepresentation,

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instances in which one party makes

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factually incorrect statements that

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induced the other to
enter into a contract.

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In the next module,

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we will consider the
doctrine of non-disclosure,

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which polices instances in which
one party conceals or fails to

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disclose facts and thereby induces the
other party to enter into a contract.

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Like the doctrine of duress,

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a person's agreeing to enter into a
bargain based on misrepresented facts

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is an instance in which that person's
ascent has not been voluntarily given.

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Sometimes, one party will,

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despite knowing the truth,

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flat out lie about facts to induce the
other party to enter into a contract.

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In such instances, not only does

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contract law protect the wronged
party from enforcement of a contract,

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tort law and even criminal
law may on occasion

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also penalize the wrongdoer
for such misrepresentation.

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We will later see that such instances of

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misrepresentation are described as
fraudulent in Section 162 Subsection 1.

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On other occasions, however,

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a party may misrepresent
that while genuinely,

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though erroneously, believing
his statement to be true.

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In such instances, the misrepresentation
is either negligent or innocent.

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Even in these cases,

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contract law will, on occasion,

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allow the party wrongly
induced into entering

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a contract to avoid
enforcement of that contract.

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The concept of
misrepresentation is defined in

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Section 159 of the restatement

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as an assertion that is not
in accord with the facts.

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It applies to both intentional as well as

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to negligent or innocent
misrepresentation.

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In dealing with misrepresentations,

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one must be careful to distinguish between

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a parties making an affirmative
assertion of fact on

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the one hand and a parties merely

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expressing an opinion or making
a prediction on the other.

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Consider the following.

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A man goes into a clothing
store to buy a suit.

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The salesperson says, this
suit is 100 percent wool.

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In fact, it's made entirely of
polyester and the salesman knows it.

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This is a clear instance
of a misrepresentation

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and assertion that is not
in accord with the facts.

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Contrast that with the salesman saying,

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I think that suit looks very good on you.

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It makes you look quite debonair.

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This is clearly the salesmen
expressing his opinion.

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Even if the salesman is
exaggerating or lying,

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it is unlikely that the
customer could rescind

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the sale when a friend states that
the suit makes them look fat.

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Similarly, if the salesman says,

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I'll bet you'll get a
lot of dates when you

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wear that suit to your
favorite singles bar.

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At most, it's the salesman's prediction
of what may happen in the future,

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not an actionable assertion of fact.

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Subsection 1 of Section 164 of

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the restatement tells us that if
a party is sent to a contract,

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is induced by either a fraudulent
or a material misrepresentation,

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then the wronged party can
treat the contract as voidable.

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The section mentions two
types of misrepresentations,

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fraudulent misrepresentations
and material misrepresentations.

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To understand this distinction,

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we turn to Section 162.

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Subsection 1 of Section 162

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tells us that a misrepresentation
is fraudulent when

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the person making the
misrepresentation intends

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it to induce another person
to assent to an agreement,

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and the misrepresenter
knows or believes that

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the statement he is making is
false and or without basis.

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Reading Sections 162
Subsection 1 and 164 together,

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we can conclude that,

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if one party makes a fraudulent
misrepresentation to the other party,

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the wronged party can avoid enforcement
of the contract if it wishes to do so.

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As mentioned earlier, not all
misrepresentations are fraudulent.

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Some false or misleading assertions
may be made carelessly or innocently.

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That is, if the maker believes
his statement to be true.

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In such instances, a party
seeking to avoid a contract

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must prove that the
misrepresentation is material.

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Subsection 2 of Section 162 states that

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a misrepresentation is material
if it is likely to induce

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the other party to ascent
to a contract or if

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the maker of the statement
knows that it would be

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likely to induce the
other party to ascent.

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Reading Sections 162
Subsection 2 and 164 together,

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we learned that with respect to careless
or innocent misrepresentations,

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the wronged party will be able to
avoid enforcement of a contract,

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only if the misrepresentation
was material.

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Consider the following.

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A seller is selling a
used tractor to a buyer.

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In the negotiations, the seller states
that the tractor is 10 years old.

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In fact, his memory is faulty
and it's actually 11 years old.

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In such a case,

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it is unlikely that the court would
set aside the sale when the buyer

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discovers that the tractor
is actually one year

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older than the seller
represented it to be.

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The buyer's decision to purchase or

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not to purchase the
tractor would probably not

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be swayed by knowledge
of the tractors being

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one year older than
represented by the seller.