CHAPTER 4 GENUINENESS OF ASSENT

CHAPTER OBJECTIVES

After studying this chapter you will be able to:

1. List the reasons why an agreement is not binding because the assent thereto

was in fact not genuine.

2. List the kinds of mistake that can be made and ttheir effect upon contracts.

3. Compare the effect of an innocent false statement, a failure to volunteer

information, and fraud.

4. Distinguish between undue influence, physical duress, and economic duress.

5. List the remedies available when the assent of a party to the agreement is not

genuine.

6. Solve problems involving the question whether assent to an agreement was

genuine.

In order to protect the voluntary character of contractual agree­ments, special rules had developed to meet the situation in which the appar­ent agreement does not reflect the true intentions of the parties whether because of mistake, a false statement, concealment, or pressure. This chapter considers the scope of these factors and the remedies that are available to the contracting party who is the victim of such practices.

Unilateral Mistake.

A unilateral mistake as to a fact does not affect the contract. As exceptions to this statement, the agreement has no effect if it states that it shall be void if the fact is not as believed. The party making the mistake may also avoid the contract if the mistake is known or should be known or recog­nized by the other contracting parry.

A unilateral mistake as to (a) expectations or (b} the law, does not have any effect upon the contract. Thus, the fact that a signer of a contract would not have signed if the signer had understood the legal effect of the con­tract is not a defense.

FACTS:

Sanif, Inc. made a contract with The Protection People by which the latter provided burglar alarm service for Sanif's place of busi­ness. The place of business was burglarized. Sanif sued lannotti and other persons involved and The Protection People, suing the latter on the theory that there was negligent failure of the alarm system. The Protection People raised the defense that the contract expressly limited its liability in case of failure. The officer of the plaintiff claimed that this limitation was not binding because it had not been explained to him when the contract was signed.

DECISION:

The limitation was binding. The officer of the plaintiff had voluntarily signed the con­tract on behalf of the corporation. There was no evidence that the other contracting party had committed any fraud and therefore the fail­ure to have explained the limitation clause to the other contracting party did not affect the validity of the limitation clause. [Sanif, Inc. v lannotti, ___App Div 2d ___, 500 NYSZd 798 (1986)]

(a) Mistake as to Nature of Paper. When a party makes a negligent mistake as to the nature of a paper, the party is bound according to its terms. For example, when the printed form for applying for a loan to a corporation contained a guaranty by the president of the corporation of the corporate debt, the president

signing the application without reading it was bound by this guaranty, even though the president did not know that it was in the application and the application was headed merely "application for credit."

(b) Mistake as to Terms of Paper. A person who has the ability and the opportunity to read a paper before signing is bound by its terms even though such person signed without reading. Such a signer can not avoid liability on the ground that there had not been any explanation given of the terms of the writing.

A person unable to read or to understand the terms of a paper is bound by signing the paper without obtaining an explanation of it, unless the other contracting party knows or has reason to know of the signer's disability or educational limitation.

(c) Mistakes as to Releases. An insurance claimant is bound by the release given to the insurance company when there is a unilateral mistake as to its meaning resulting from carelessness in reading the release. When a release is given and accepted in good faith, it is initially immaterial that the releasor or both of the parties were mistaken as to the seriousness or possible future consequences of a known injury or condition. If the release covers all claims "known or unknown," the courts following the common-law view hold the releasor is bound even though there were other injuries of which the releasor was unaware because the effects of the unknown injuries had not yet appeared. Some courts depart from this and hold the release effective only with respect ro the conditions or consequences that were known as of the time when the release was given.