Jun

Ma

Fraud, duress and undue influence outline

Fraud
1. Primary rule:
a. There is generally no duty to disclose in an arm’s length transaction, but if a
party undertakes to disclose information, it must be truthful.
b. What is plainly injurious to good faith ought to be considered as a fraud
sufficient to impeach a contract.

A. Misrepresentation
Generally a misrepresentation, to be actionable, must be one of fact rather
than of opinion.
i. What constitutes a fact: a statement of a party having superior knowledge
may be regarded as a statement of fact although it would be considered as
opinion if the parties were dealing on equal terms
Exception:
a. It does not apply where there is a fiduciary relationship between the parties,
or
b. Where there has been some artifice or trick employed by the representor,
or
c. Where the parties do not in general deal at “arm’ strength” as we
understand the phrase, or
ii. At what circumstances court can’t find misrepresentation?
If the vendors had been wholly silent and had made no references
whatsoever to use of house, they could not have been found to be made any
misrepresentation.
iii. Half truths:
Fragmentary information may be as misleading as active misrepresentation,
and half-truths may be as actionable as whole lies.
E.g. in Kannavos case, court allowed rescission because of the negligent
misrepresentation, innocent but false, of the current assessed value of property being
sold. If vendors did as much as they did so, they were bound to do more. Failing to do
so, they were responsible for misrepresentation. Even though there were
misrepresentation was not consciously false and here it was by half-truth.

1
 Jun Ma

B. Non-disclosure
a. Rule: even if contractual situations where a party to a transaction owes no
duty to disclose facts within his knowledge or to answer inquiries
respecting such facts, the law is if he undertakes to do so he must
disclose the whole truth.
RE: in Andrey E. Vokes case, defendant’s vast outlay of cash for the many
hundreds of additional hours of instruction was not justified by her slow
and awkward progress, which she would have been made well aware of if
they had spoken the whole truth.
b. Concealment
i. If it is concealment in the simple sense of mere failure to reveal,
with nothing to show any peculiar duty to speak, the
characterization of the concealment as false and fraudulent of
course adds nothing in the absence of further allegations of fact.
c. At what circumstances seller is not liable for non-disclosure:
Seller is not liable if the seller fails to disclose any nonapparent
defect known to him in the subject of the sale which materially
reduces its value and which the buyer fails to discover.
E.g. since the infestation of building has not been common in MA
and constitutes a concealed risk against which buyers are off
their guard.
d. Rule of nonliability for bare nondisclosure:
i. Whether vendees were in no way prevented from acquiring information?
ii. Whether the vendors stood in fiduciary relationship to the vendees?
iii. Rule: if seller does not speak with reference to a given point of
information, voluntarily or at the other’s request, he is bound to speak honestly and
to divulge all the material facts bearing upon the point that lie within his knowledge.
RE: in Kannavos case, the vendors knew that the vendees were planning to
continue to use the buildings for apartments, and yet the vendors still failed to
disclose the zoning and building violations. Hence, enough was done affirmatively to
make the disclosure inadequate and partial, and in the circumstances, intentionally
deceptive and fraudulent.

2
 Jun Ma

Duress
1. A contract is voidable on the ground of duress when it is established that the party
making the claim was forced to agree to it by means of a wrongful threat
precluding the exercise of his free will.
A. Proof of duress:
a. Immediate possession of needful goods is threatened or
b. One party to a contract his threatened to breach the agreement by
withholding goods unless the other party agrees to some further demand.
B. Exception:
a. A mere threat by one party to breach the contract by not delivering the
required times, though wrongful, Unless the threatened party could not
obtain the goods from another source of supply and that the ordinary
remedy of an action for breach of contract would not be adequate.

2. Duress principle expansion

A. Direct dire harm is no longer essential.
a. Whether the threat overbears the exercise of free will.
b. Business compulsion has two basic elements:
i. The party who asserts business compulsion must show that he has
been the victim of a wrongful or unlawful act or threat;
ii. Such act or threat must be one that deprives the victim of his
unfettered will.
c. Concept that the victim had no reasonable alternative concept of
business duress.
RE: Where the plaintiff is forced into a transaction as a result of
unlawful threats or wrongful, oppressive or unconscionable conduct on the part of
the defendant, which leaves the plaintiff no reasonable alternative, but to
acquiesce, the plaintiff may void the transaction and recover any economic loss.

B. At what circumstances concept of business or economic duress is not

applicable?
1. The future expectancy is not a legal right on which the plaintiff can anchor
a claim of economic duress. i.e. a party cannot be guilty of economic

3
 Jun Ma

duress for refusing to do which is not legally required to do.

E.g. there was no continuing contract between plaintiff and defendant.
2. General acknowledgement that duress is not shown:
a. One party to the contract has driven a hard bargain or
b. Market or other conditions make the contract more difficult to perform
by one of the parties; or
c. Financial circumstances may have caused one party to make concession.

Undue influence
1. Similar to duress:
a. Unfair persuasion was used to get them to agree to the contract.
i. High-pressure which works on mental, moral, or emotional weakness to
such an extent that it approaches that boundaries of coercion.
b. Amount of unfair persuasion may fall short for that required to establish
duress, claims of undue influence often require that claimant establish that there
was a “relationship of trust” between the parties such person agreeing to the
contract would never have expected the other party to act in a manner that would
be harmful or disadvantageous.
2. Restatement of contract definition:
Unfair persuasion of a party who is under the domination of the person
exercising persuasion, or who by virtue of the relation between them is justified
in assuming that the person will not act in a manner inconsistent with his
welfare.
Requirement for undue influence:
i. No confidential relationship, but there must be domination of one party by the
other, who is unduly susceptible to the excessive pressure applied by other.
ii. Factors:
a. Discussion of the transaction at an unusual or inappropriate time
b. Consummation of the transaction in an unusual place
c. Insistent demand that the business be finished at once
d. Extreme emphasis on untoward consequence of delay
e. The use of multiple persuaders by the dominant side against the subservient
side

4
 Jun Ma

f. Absence of third party advisers to the servient party

g. Statements that there is no time to consult financial advisers or attorneys.