FLEMING, J.

Appeal from a judgment dismissing plaintiff’s amended complaint on demurrer.

Plaintiff Donald Odorizzi was employed during 1964 as an elementary school teacher by defendant Bloomfield School District and was under contract with the district to continue to teach school the following year as a permanent employee. On June 10 he was arrested on criminal charges of homosexual activity, and on June 11 he signed and delivered to his superiors his written resignation as a teacher, a resignation which the district accepted on June 13. In July the criminal *127charges against Odorizzi were dismissed under Penal Code, section 995, and in September he sought to resume his employment with the district. On the district’s refusal to reinstate him he filed suit for declaratory and other relief.

Odorizzi’s amended complaint asserts his resignation was invalid because obtained through duress, fraud, mistake, and undue influence and given at a time when he lacked capacity to make a valid contract. Specifically, Odorizzi declares he was under such severe mental and emotional strain at the time he signed his resignation, having just completed the process of arrest, questioning by the police, booking, and release on bail, and having gone for 40 hours without sleep, that he was incapable of rational thought or action. While he was in this condition and unable to think clearly, the superintendent of the district and the principal of his school came to his apartment. They said they were trying to help him and had his best interests at heart, that he should take their advice and immediately resign his position with the district, that there was no time to consult an attorney, that if he did not resign immediately the district would suspend and dismiss him from his position and publicize the proceedings, his “ aforedescribed arrest” and cause him “to suffer extreme embarrassment and humiliation”; but that if he resigned at once the incident would not be publicized and would not jeopardize his chances of securing employment as a teacher elsewhere. Odorizzi pleads that because of his faith and confidence in their representations they were able to substitute their will and judgment in place of his own and thus obtain his signature to his purported resignation. A demurrer to his amended complaint was sustained without leave to amend.

By his complaint plaintiff in effect seeks to rescind his resignation pursuant to Civil Code, section 1689, on the ground that his consent had not been real or free within the meaning of Civil Code, section 1567, but had been obtained through duress, menace, fraud, undue influence, or mistake. A pleading under these sections is sufficient if, stripped of its conclusions, it sets forth sufficient facts to justify legal relief. (Gogerty v. Coachella Valley Junior College Dist., 57 Cal.2d 727, 731 [21 Cal.Rptr. 806, 371 P.2d 582] ; Krug v. Meeham, 109 Cal.App.2d 274, 277 [240 P.2d 732].) In our view the facts in the amended complaint are insufficient to state a cause of action for duress, menace, fraud, or mistake, but they do set out sufficient elements to justify rescission of a consent *128because of undue influence. We summarize our conclusions on each of these points.

1. No duress or menace has been pleaded. Duress consists in unlawful confinement of another’s person, or relatives, or property, which causes him to consent to a transaction through fear. (Civ. Code, § 1569.) Duress is often used interchangeably with menace (Leeper v. Beltrami, 53 Cal.2d 195, 203 [1 Cal.Rptr. 12, 347 P.2d 12, 77 A.L.R.2d 803]), but in California menace is technically a threat of duress or a threat of injury to the person, property, or character of another. (Civ. Code, § 1570; Rest., Contracts, §§492, 493.) We agree with respondent’s contention that neither duress nor menace was involved in this case, because the action or threat in duress or menace must be unlawful, and a threat to take legal action is not unlawful unless the party making the threat knows the falsity of his claim. (Leeper v. Beltrami, 53 Cal.2d 195, 204 [1 Cal.Rptr. 12, 347 P.2d 12, 77 A.L.R.2d 803].) The amended complaint shows in substance that the school representatives announced their intention to initiate suspension and dismissal proceedings under Education Code, sections 13403,'13408 et seq. at a time when the filing of such proceedings was not only their legal right but their positive duty as school officials. (Ed. Code, § 13409; Board of Education v. Weiland, 179 Cal.App.2d 808 [4 Cal.Rptr. 286].) Although the filing of such proceedings might be extremely damaging to plaintiff’s reputation, the injury would remain incidental so long as the school officials acted in good faith in the performance of their duties. (Schumm v. Berg, 37 Cal.2d 174, 185-186 [231 P.2d 39, 21 A.L.R.2d 1051].) Neither duress nor menace was present as a ground for rescission.

2. Nor do we find a cause of action for fraud, either actual or constructive. (Civ. Code, §§ 1571 to 1574.) Actual fraud involves conscious misrepresentation, or concealment, or non-disclosure of a material fact which induces the innocent party to enter the contract. (Civ. Code, § 1572; Pearson v. Norton, 230 Cal.App.2d 1, 7 [40 Cal. Rptr. 634]; Rest., Contracts, §471.) A complaint for fraud must plead misrepresentation, knowledge of falsity, intent to induce reliance, justifiable reliance, and resulting damage. (Sixta v. Ochsner, 187 Cal.App.2d 485, 489 [9 Cal. Rptr. 617]; Zinn v. Ex-Cell-O Corp., 148 Cal.App.2d 56, 68 [306 P.2d 1017].) While the amended complaint charged misrepresentation, it failed to assert the elements of knowledge of falsity, intent to induce reliance, and justifiable *129reliance. A cause of action for actual fraud was therefore not stated. (Norkin v. United States Fire Ins., 237 Cal.App.2d 435 [47 Cal.Rptr. 15].)

Constructive fraud arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice. (Civ. Code, § 1573.) Plaintiff has attempted to bring himself within this category, for the amended complaint asserts the existence of a confidential relationship between the school superintendent and principal as agents of the defendant, and the plaintiff. Such a confidential relationship may exist whenever a person with justification places trust and confidence in the integrity and fidelity of another. (Vai v. Bank of America, 56 Cal.2d 329, 338 [15 Cal.Rptr. 71, 364 P.2d 247]; Pryor v. Bistline, 215 Cal.App.2d 437, 446 [30 Cal.Rptr. 376].) Plaintiff, however, sets forth no facts to support his conclusion of a confidential relationship between the representatives of the school district and himself, other than that the parties bore the relationship of employer and employee to each other. Under prevailing judicial opinion no presumption of a confidential relationship arises from the bare fact that parties to a contract are employer and employee; rather, additional ties must be brought out in order to create the presumption of a confidential relationship between the two. (Annot., 100 A.L.R. 875.) The absence of a confidential relationship between employer and employee is especially apparent where, as here, the parties were negotiating to bring about a termination of their relationship. In such a situation each party is expected to look after his own interests, and a lack of confidentiality is implicit in the subject matter of their dealings. We think the allegations of constructive fraud were inadequate.

3. As to mistake, the amended complaint fails to disclose any facts which would suggest that consent had been obtained through a mistake of fact or of law. The material facts of the transaction were known to both parties. Neither party was laboring under any misapprehension of law of which the other took advantage. The discussion between plaintiff and the school district representatives principally attempted to evaluate the probable consequences of plaintiff’s predicament and to predict the future course of events. The fact that their speculations did not forecast the exact pattern which events subsequently took does not provide the basis for *130a claim that they were acting under some sort of mistake. The doctrine of mistake customarily involves such errors as the nature of the transaction, the identity of the parties, the identity of the things to which the contract relates, or the occurrence of collateral happenings. (Rest., Contracts, § 502, com. e.) Errors of this nature were not present in the case at bench.

4. However, the pleading does set out a claim that plaintiff’s consent to the transaction had been obtained through the use of undue influence.

Undue influence, in the sense we are concerned with here, is a shorthand legal phrase used to describe persuasion which tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment. (Estate of Ricks, 160 Cal. 467, 480-482 [117 P. 539].) The hallmark of such persuasion is high pressure, a pressure which works on mental, moral, or emotional weakness to such an extent that it approaches the boundaries of coercion. In this sense, undue influence has been called overpersuasion. (Kelly v. McCarthy, 6 Cal.2d 347, 364 [57 P.2d 118].) Misrepresentations of law or fact are not essential to the charge, for a person’s will may be overborne without misrepresentation. By statutory definition undue influence includes “taking an unfair advantage of another’s weakness of mind, or . . . taking a grossly oppressive and unfair advantage of another’s necessities or distress.” (Civ. Code, § 1575.) While most reported eases of undue influence involve persons who bear a confidential relationship to one another, a confidential or authoritative relationship between the parties need not be present when the undue influence involves unfair advantage taken of another’s weakness or distress. (Wells Fargo Bank v. Brady, 116 Cal.App.2d 381, 398 [254 P.2d 71]; Buchmayer v. Buchmayer, 68 Cal.App.2d 462, 467 [157 P.2d 9].)

We paraphrase the summary of undue influence given the jury by Sir James P. Wilde in Hall v. Hall, L.R. 1, P. & D. 481, 482 (1868) : To make a good contract a man must be a free agent. Pressure of whatever sort which overpowers the will without convincing the judgment is a species of restraint under which no valid contract can be made. Importunity or threats, if carried to the degree in which the free play of a man’s will is overborne, constitute undue influence, although no force is used or threatened. A party may be led but not driven, and his acts must be the offspring of his own volition and not the record of someone else’s.

*131In essence undue influence involves the use of excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a servient object. In combination, the elements of undue susceptibility in the servient person and excessive pressure by the dominating person make the latter’s influence undue, for it results in the apparent will of the servient person being in fact the will of the dominant person.

Undue susceptibility may consist of total weakness of mind which leaves a person entirely without understanding (Civ. Code, §38); or, a lesser weakness which destroys the capacity of a person to make a contract even though he is not totally incapacitated (Civ. Code, § 39; Peterson v. Ellebrecht, 205 Cal.App.2d 718, 721-722 [23 Cal.Rptr. 349]); or, the first element in our equation, a still lesser weakness which provides sufficient grounds to rescind a contract for undue influence (Civ. Code, § 1575; Faulkner v. Beatty, 161 Cal.App.2d 547, 551 [327 P.2d 41] ; Stewart v. Marvin, 139 Cal.App.2d 769, 775 [294 P.2d 114]). Such lesser weakness need not be long-lasting nor wholly incapacitating, but may be merely a lack of full vigor due to age (Wells Fargo Bank v. Brady, 116 Cal. App.2d 381, 397-398 [254 P.2d 71]), physical condition (Weger v. Rocha, 138 Cal.App. 109, 114-115 [32 P.2d 417]), emotional anguish (Moore v. Moore, 56 Cal. 89, 93; 81 Cal. 195, 197-198 [22 P. 589, 874]), or a combination of such factors. The reported cases have usually involved elderly, sick, senile persons alleged to have executed wills or deeds under pressure. (Malone v. Malone, 155 Cal.App.2d 161 [317 P.2d 65] [constant importuning of a senile husband] ; Stewart v. Marvin, 139 Cal.App.2d 769 [294 P.2d 114] [persistent nagging of elderly spouse].) In some of its aspects this lesser weakness could perhaps be called weakness of spirit. But whatever name we give it, this first element of undue influence resolves itself into a lessened capacity of the object to make a free contract.

In the present ease plaintiff has pleaded that such weakness at the time he signed his resignation prevented him from freely and competently applying his judgment to the problem before him. Plaintiff declares he was under severe mental and emotional strain at the time because he had just completed the process of arrest, questioning, booking, and release on bail and had been without sleep for forty hours. It is possible that exhaustion and emotional turmoil may wholly incapacitate a person from exercising his judgment. As an *132abstract question of pleading, plaintiff has pleaded that possibility and sufficient allegations to state a case for rescission.

Undue influence in its second aspect involves an application of excessive strength by a dominant subject against a servient object. Judicial consideration of this second element in undue influence has been relatively rare, for there are few cases denying persons who persuade but do not misrepresent the benefit of their bargain. Yet logically, the same legal consequences should apply to the results of excessive strength as to the results of undue weakness. Whether from weakness on one side, or strength on the other, or a combination of the two, undue influence occurs whenever there results "that kind of influence or supremacy of one mind over another by which that other is prevented from acting according to his own wish or judgment, and whereby the will of the person is overborne and he is induced to do or forbear to do an act which he would not do, or would do, if left to act freely.” (Webb v. Saunders, 79 Cal.App.2d 863, 871 [181 P.2d 43].) Undue influence involves a type of mismatch which our statute calls unfair advantage. (Civ. Code, § 1575.) Whether a person of subnormal capacities has been subjected to ordinary force or a person of normal capacities subjected to extraordinary force, the match is equally out of balance. If will has been overcome against judgment, consent may be rescinded.

The difficulty, of course, lies in determining when the forces of persuasion have overflowed their normal banks and become oppressive flood waters. There are second thoughts to every bargain, and hindsight is still better than foresight. Undue influence cannot be used as a pretext to avoid bad bargains or escape from bargains which refuse to come up to expectations. A woman who buys a dress on impulse, which on critical inspection by her best friend turns out to be less fashionable than she had thought, is not legally entitled to set aside the sale on the ground that the saleswoman used all her wiles to close the sale. A man who buys a tract of desert land in the expectation that it is in the immediate path of the city’s growth and will become another Palm Springs, an expectation cultivated in glowing terms by the seller, cannot rescind his bargain when things turn out differently. If we are temporarily persuaded against our better judgment to do something about which we later have second thoughts, we must abide the consequences of the risks inherent in managing our own affairs. (Estate of Anderson, 185 Cal. 700, 706-707 [198 P. 407].)

*133However, overpersuasion is generally accompanied by certain characteristics which tend to' create a pattern. The pattern usually involves several of the following elements: (1) discussion of the transaction at an unusual or inappropriate time, (2) consummation of the transaction in an unusual place, (3) insistent demand that the business be finished at once, (4) extreme emphasis on untoward consequences of delay, (5) the use of multiple persuaders by the dominant side against a single servient party, (6) absence of third-party advisers to the servient party, (7) statements that there is no time to consult financial advisers or attorneys. If a number of these elements are simultaneously present, the persuasion may be characterized as excessive. The cases are illustrative:

Moore v. Moore, 56 Cal. 89, 93, and 81 Cal. 195 [22 P. 589, 874], The pregnant wife of a man who had been shot to death on October 30 and buried on November 1 was approached by four members of her husband's family on November 2 or 3 and persuaded to deed her entire interest in her husband’s estate to his children by a prior marriage. In finding the use of undue influence on Mrs. Moore, the court commented: “It was the second day after her late husband’s funeral. It was at a time when she would naturally feel averse to transacting any business, and she might reasonably presume that her late husband’s brothers would not apply to her at such a time to transact any important business, unless it was of a nature that would admit of no delay. And as it would admit of delay, the only reason which we can discover for their unseemly haste is, that they thought that she would be more likely to comply with their wishes then than at some future time, after she had recovered from the shock which she had then so recently experienced. If for that reason they selected that time for the accomplishment of their purpose, it seems to us that they not only took, but that they designed to take, an unfair advantage of her weakness of mind. If they did not, they probably can explain why they selected that inappropriate time for the transaction of business which might have been delayed for weeks without injury to anyone. In the absence of any explanation, it appears to us that the time was selected with reference to just that condition of mind which she alleges that she was then in.

“Taking an unfair advantage of another’s weakness of mind is undue influence, and the law will not permit the retention of an advantage thus obtained. (Civ. Code, § 1575.) ”

Weger v. Rocha, 138 Cal.App. 109 [32 P.2d 417]. Plaintiff, *134while confined in a cast in a hospital, gave a release of claims for personal injuries for a relatively small sum to an agent who spent two hours persuading her to sign. At the time of signing plaintiff was in a highly nervous and hysterical condition and suffering much pain, and she signed the release in order to terminate the interview. The court held that the release had been secured by the use of undue influence.

Fyan v. McNutt (1934) 266 Mich. 406 [254 N.W. 146], At issue was the validity of an agreement by Mrs. McNutt to pay Fyan, a real estate broker, a 5 percent commission on all moneys received from the condemnation of Mrs. McNutt’s land. Earlier, Fyan had secured an option from Mrs. McNutt to purchase her land for his own account and offer it for sale as part of a larger parcel to Wayne County for an airport site. On July 25 Fyan learned from the newspapers that the county would probably start condemnation proceedings rather than obtain an airport site by purchase. Fyan, with four others, arrived at Mrs. McNutt’s house at 1 a.m. on July 26 with the commission agreement he wanted her to sign. Mrs. McNutt protested being awakened at that hour and was reluctant to sign, but Fyan told her he had to have the paper in Detroit by morning, that the whole airport proposition would fall through if she did not sign then and there, that there wasn’t time to wait until morning to get outside advice. In holding the agreement invalid the Michigan Supreme Court said: ‘ ‘ The late hour of the night at which her signature was secured over her protest and plea that she be given until the next day to consider her action, the urge of the moment, the cooperation of the others present in their desire to obtain a good price for their farm lands, the plaintiff’s anxiety over the seeming weakness of his original option, all combined to produce a situation in which, to say the least, it is doubtful that the defendant had an opportunity to exercise her own free will. ... A valid contract can be entered into only when there is a meeting of the minds of the parties under circumstances conducive to a free' and voluntary execution of the agreement contemplated. It must be conceived in good faith and come into existence under circumstances that do not deprive the parties of the exercise of their own free will. ’ ’

The difference between legitimate persuasion and excessive pressure, like the difference between seduction and rape, rests to a considerable extent in the manner in which the parties go about their business. For example, if a day or two after Odorizzi’s release on bail the superintendent of the school district *135had called him into his office during business hours and directed his attention to those provisions of the Education Code compelling his leave of absence and authorizing his suspension on the filing of written charges, had told him that the district contemplated filing written charges against him, had pointed out the alternative of resignation available to him, had informed him he was free to consult counsel or any adviser he wished and to consider the matter overnight and return with his decision the next day, it is extremely unlikely that any complaint about the use of excessive pressure could ever have been made against the school district.

But, according to the allegations of the complaint, this is not the way it happened, and if it had happened that way, plaintiff would never have resigned. Bather, the representatives of the school board undertook to achieve their objective by over per suasion and imposition to secure plaintiff’s signature but not his consent to his resignation through a high-pressure carrot-and-stick technique—under which they assured plaintiff they were trying to assist him, he should rely on their advice, there wasn't time to consult an attorney, if he didn’t resign at once the school district would suspend and dismiss him from his position and publicize the proceedings, but if he did resign the incident wouldn’t jeopardize his chances of securing a teaching post elsewhere.

Plaintiff has thus pleaded both subjective and objective elements entering the undue influence equation and stated sufficient facts to put in issue the question whether his free will had been overborne by defendant’s agents at a time when he was unable to function in a normal manner. It was sufficient to pose "... the ultimate question . . . whether a free and competent judgment was merely influenced, or whether a mind was so dominated as to prevent the exercise of an independent judgment.” (Williston on Contracts, § 1625 [rev. ed.]; Rest., Contracts, § 497, com. e.) The question cannot be resolved by an analysis of pleading but requires a finding of fact.

We express no opinion on the merits of plaintiff’s ease, or the propriety of his continuing to teach school (Ed. Code, § 13403), or the timeliness of his rescission (Civ. Code, §1691). We do hold that his pleading, liberally construed, states a cause of action for rescission of a transaction to which his apparent consent had been obtained through the use of undue influence.

The judgment is reversed.

Roth, P. J., and Herndon, J., concurred.

OPINION

Before BOOCHEVER, C. J., and RABI-NOWITZ, CONNOR, BURKE and MATTHEWS, JJ.

BURKE, Justice.

This appeal arises from the superior court’s granting of summary judgment in favor of defendants-appellees Alyeska Pipeline Services, et al., in a contract action brought by plaintiffs-appellants Totem Marine Tug & Barge, Inc., Pacific, Inc., and Richard Stair.

The following summary of events is derived from the materials submitted in the summary judgment proceedings below.

Totem is a closely held Alaska corporation which began operations in March of 1975. Richard Stair, at all times relevant to this case, was vice-president of Totem. In June of 1975, Totem entered into a contract with Alyeska under which Totem was to transport pipeline construction materials from Houston, Texas, to a designated port in southern Alaska, with the possibility of one or two cargo stops along the way. In order to carry out this contract, which was Totem’s first, Totem chartered a barge (The “Marine Flasher”) and an ocean-going tug (the “Kirt Chouest”). These charters and *18other initial operations costs were made possible by loans to Totem from Richard Stair individually and Pacific, Inc., a corporation of which Stair was principal stockholder and officer, as well as by guarantees by Stair and Pacific.

By the terms of the contract, Totem was to have completed performance by approximately August 15, 1975. From the start, however, there were numerous problems which impeded Totem’s performance of the contract. For example, according to Totem, Alyeska represented that approximately 1,800 to 2,100 tons of regular un-coated pipe were to be loaded in Houston, and that perhaps another 6,000 or 7,000 tons of materials would be put on the barge at later stops along the west coast. Upon the arrival of the tug and barge in Houston, however, Totem found that about 6,700 to 7,200 tons of coated pipe, steel beams and valves, haphazardly and improperly piled, were in the yard to be loaded. This situation called for remodeling of the barge and extra cranes and stevedores, and resulted in the loading taking thirty days rather than the three days which Totem had anticipated it would take to load 2,000 tons. The lengthy loading period was also caused in part by Alyeska’s delay in assuring Totem that it would pay for the additional expenses, bad weather and other administrative problems.

The difficulties continued after the tug and barge left Houston. It soon became apparent that the vessels were travelling more slowly than anticipated because of the extra load. In response to Alyeska’s complaints and with its verbal consent, on August 13, 1975, Totem chartered a second tug, the “N. Joseph Guidry.” When the “Guidry” reached the Panama Canal, however, Alyeska had not yet furnished the written amendment to the parties’ contract. Afraid that Alyeska would not agree to cover the cost of the second tug, Stair notified the “Guidry” not to go through the Canal. After some discussions in which Alyeska complained of the delays and accused Totem of lying about the horsepower of the first tug, Alyeska executed the amendment on August 21, 1975.

By this time the “Guidry” had lost its preferred passage through the Canal and had to wait two or three additional days before it could go through. Upon finally meeting, the three vessels encountered the tail of a hurricane which lasted for about eight or nine days and which substantially impeded their progress.

The three vessels finally arrived in the vicinity of San Pedro, California, where Totem planned to change crews and refuel. On Alyeska’s orders, however, the vessels instead pulled into port at Long Beach, California. At this point, Alyeska’s agents commenced off-loading the barge, without Totem’s consent, without the necessary load survey, and without a marine survey, the absence of which voided Totem’s insurance. After much wrangling and some concessions by Alyeska, the freight was off-loaded. Thereafter, on or about September 14, 1975, Alyeska terminated the contract. Although there was talk by an Alyeska official of reinstating the contract, the termination was affirmed a few days later at a meeting at which Alyeska officials refused to give a reason for the termination.

Following termination of the contract, Totem submitted termination invoices to Alyeska and began pressing the latter for payment. The invoices came to something between $260,000 and $300,000. An official from Alyeska told Totem that they would look over the invoices but that they were not sure when payment would be made— perhaps in a day or perhaps in six to eight months. Totem was in urgent need of cash as the invoices represented debts which the company had incurred on 10-30 day payment schedules. Totem’s creditors were demanding payment and according to Stair, without immediate cash, Totem would go bankrupt. Totem then turned over the collection to its attorney, Roy Bell, directing him to advise Alyeska of Totem’s financial straits. Thereafter, Bell met with Alyeska officials in Seattle, and after some negotiations, Totem received a settlement offer from Alyeska for $97,500. On November 6, 1975, Totem, through its president Stair, *19signed an agreement releasing Alyeska from all claims by Totem in exchange for $97,500.

On March 26, 1976, Totem, Richard Stair, and Pacific filed a complaint against Alyes-ka, which was subsequently amended. In the amended complaint, the plaintiffs sought to rescind the settlement and release on the ground of economic duress and to recover the balance allegedly due on the original contract. In addition, they alleged that Alyeska had wrongfully terminated the contract and sought miscellaneous other compensatory and punitive damages.

Before filing an answer, Alyeska moved for summary judgment against the plaintiffs on the ground that Totem had executed a binding release of all claims against Alyeska and that as a matter of law, Totem could not prevail on its claim of economic duress. In opposition, plaintiffs contended that the purported release was executed under duress in that Alyeska wrongfully terminated ■ the contract; that Alyeska knew that Totem was faced with large debts and impending bankruptcy; that Alyeska withheld funds admittedly owed knowing the effect this would have on plaintiffs and that plaintiffs had no alternative but to involuntarily accept the $97,500 in order to avoid bankruptcy. Plaintiffs maintained that they had thus raised genuine issues of material fact such that trial was necessary, and that Alyeska was not entitled to judgment as a matter of law. Alyeska disputed the plaintiffs’ assertions.

On November 30,1976, the superior court granted the defendant’s motion for summary judgment. This appeal followed.

I

At the outset, this case presents a procedural issue which we must resolve before reaching the major questions on appeal.

Where a party to an action has filed a motion for summary judgment, pursuant to Rule 56, Alaska R.Civ.P., the trial court’s initial task is to determine whether there exist genuine issues of material fact such that trial on these issues is necessary. Ordinarily, the parties submit affidavits, depositions, sworn admissions, answers to interrogatories or similar material in order to show the existence or non-existence of those facts material to the case. Civil Rule 56(c) and (e);1 see 10 C. Wright and A. Miller, Federal Practice and Procedure: Civil, § 2721 at 475-76 (1973). On the basis of these materials together with the pleadings, the trial court then decides whether genuine issues of material fact exist. If *20such issues do exist, summary judgment is denied; if not, the court enters judgment for the party prevailing as a matter of law. Civil Rule 56(c).

In the instant case, most of the facts bearing on summary judgment were contained in a deposition taken by Alyeska of appellant Richard Stair. With the exception of Alyeska’s submission of the release executed by Totem, both Alyeska’s motion for summary judgment and Totem’s opposing memorandum and statement of genuine issues were based almost solely on testimony contained in the Stair deposition. The memoranda of both parties included numerous references to and quoted excerpts from the deposition.

Following entry of summary judgment in Alyeska’s favor and commencement of this appeal by Totem, Totem submitted a motion to the superior court requesting it to publish Stair’s deposition2 so that it could become part of the record on appeal. Despite the extensive use of this deposition, it apparently had not been formally opened and presented to the court during the proceedings below. The superior court denied the motion on the ground that the deposition was not before it during the proceedings and thus was not part of the record before the court.

Thereafter, Alyeska filed a motion in this court to strike portions of Totem’s reply brief for the reason that these portions contained references to the Stair deposition which were not before the superior court. Specifically, Alyeska sought to strike all references to those parts of the deposition to which reference had not been made in the memoranda filed below. We denied the motion.

We believe that the lower court erred in ■ refusing to publish the Stair deposition and in ruling that the deposition was not part of the record before it. In Jennings v. State, 566 P.2d 1304 (Alaska 1977), the trial court had ruled on a motion for summary judgment by referring only to the pleadings. We concluded that this was error and stated:

Even though the parties did little to call the superior court’s attention to other items, including the three depositions on file, the superior court should have gone outside the pleadings to consider the entire setting of the case to the extent that the material was brought to the court’s attention by the parties on the motion.

566 P.2d at 1310 [footnote omitted]. In that case, we then looked to the depositions to determine what facts the superior court would have found had it looked outside the pleadings. Id.

In the instant case, unlike Jennings, the parties did refer frequently to the Stair deposition in the court below. Although Totem did not move formally to publish the deposition at the time of the hearing, we think the superior court was obliged to consider, on its own motion, at least those portions of the deposition to which reference was made in the memoranda and arguments of the parties. Therefore, we consider the deposition to be properly part of the record on appeal. Ordinarily, we would remand this case to the superior court for a new decision on Alyeska’s motion for summary judgment, at which time it could<take into consideration the facts found in the deposition. However, we have elected to examine the pertinent portions of the deposition for ourselves, in order to avoid further delay in the ultimate resolution of this case.

II

As was noted above, a court’s initial task in deciding motions for summary judgment is to determine whether there exist genuine issues of material fact. In order to decide whether such issues exist in this case, we must examine the doctrine allowing avoidance of a release on grounds of economic duress.

*21This court has not yet decided a case involving a claim of economic duress or what is also called business compulsion. At early common law, a contract could be avoided on the ground of duress only if a party could show that the agreement was entered into for fear of loss of life or limb, mayhem or imprisonment. 13 Williston on Contracts, § 1601 at 649 (3d ed. Jaeger 1970). The threat had to be such as to overcome the will of a person of ordinary firmness and courage. Id., § 1602 at 656. Subsequently, however, the concept has been broadened to include myriad forms of economic coercion which force a person to involuntarily enter into a particular transaction. The test has come to be whether the will of the person induced by the threat was overcome rather than that of a reasonably firm person. Id., § 1602 at 657.

At the outset it is helpful to acknowledge the various policy considerations which are involved in cases involving economic duress. Typically, those claiming such coercion are attempting to avoid the consequences of a modification of an original contract or of a settlement and release agreement. On the one hand, courts are reluctant to set aside agreements because of the notion of freedom of contract and because of the desirability of having private dispute resolutions be final. On the other hand, there is an increasing recognition of the law’s role in correcting inequitable or unequal exchanges between parties of disproportionate bargaining power and a greater willingness to not enforce agreements which were entered into under coercive circumstances.3

There are various statements of what constitutes economic duress, but as noted by one commentator, “The history of generalization in this field offers no great encouragement for those who seek to summarize results in any single formula.” Dawson, Economic Duress — An Essay in Perspective, 45 Mich.L.Rev. 253, 289 (1947). Section 492(b) of the Restatement of Contracts defines duress as:

any wrongful threat of one person by words or other conduct that induces another to enter into a transaction under the influence of such fear as precludes him from exercising free will and judgment, if the threat was intended or should reasonably have been expected to operate as an inducement.

Professor Williston states the basic elements of economic duress in the following manner:

1. The party alleging economic duress must show that he has been the victim of a wrongful or unlawful act or threat, and

2. Such act or threat must be one which deprives the victim of his unfettered will.

13 Williston on Contracts, § 1617 at 704 [footnotes omitted].

Many courts state the test somewhat differently, eliminating use of the vague term “free will,” but retaining the same basic idea. Under this standard, duress exists where: (1) one party involuntarily accepted the terms of another, (2) circumstances permitted no other alternative, and (3) such circumstances were the result of coercive acts of the other party. Undersea Engineering & Construction Co. v. International Telephone & Telegraph Corp., 429 F.2d 543, 550 (9th Cir. 1970); Urban Plumbing and Heating Co. v. United States, 408 F.2d 382, 389, 187 Ct.Cl. 15 (1969); W. R. Grimshaw Co. v. Nevil C. Withrow Co., 248 F.2d 896, 904 (8th Cir. 1957); Fruhauf Southwest Garment Co. v. United States, 111 F.Supp. 945, 951, 126 Ct.Cl. 51 (1953). The third element is further explained as follows:

In order to substantiate the allegation of economic duress or business compulsion, the plaintiff must go beyond the mere showing of reluctance to accept and of financial embarrassment. There must be a showing of acts on the part of the defendant which produced these two factors. The assertion of duress must be proven by evidence that the duress resulted from defendant’s wrongful and oppressive conduct and not by the plaintiff’s necessities.

*22 W. R. Grimshaw Co., supra, 111 F.Supp. at 904.

As the above indicates, one essential element of economic duress is that the plaintiff show that the other party by wrongful acts or threats, intentionally caused him to involuntarily enter into a particular transaction. Courts have not attempted to define exactly what constitutes a wrongful or coercive act, as wrongfulness depends on the particular facts in each case. This requirement may be satisfied where the alleged wrongdoer’s conduct is criminal or tortious but an act or threat may also be considered wrongful if it is wrongful in the moral sense. Restatement of Contracts, § 492, comment (g); Gerber v. First National Bank of Lincolnwood, 30 Ill.App.3d 776, 332 N.E.2d 615, 618 (1975); Fowler v. Mumford, 48 Del. 282, 9 Terry 282, 102 A.2d 535, 538 (Del.Supr.1954).

In many cases, a threat to breach a contract or to withhold payment of an admitted debt has constituted a wrongful act. Hartsville Oil Mill v. United States, 271 U.S. 43, 49, 46 S.Ct. 389, 391, 70 L.Ed. 822, 827 (1926); Austin Instrument, Inc. v. Loral Corp., 29 N.Y.2d 124, 324 N.Y.S.2d 22, 25, 272 N.E.2d 533, 535 (1971); Capps v. Georgia-Pacific Corporation, 253 Or. 248, 453 P.2d 935 (1969); see also 13 Williston, supra, § 1616A at 701. Implicit in such cases is the additional requirement that the threat to breach the contract or withhold payment be done in bad faith. See Louisville Title Insurance Co. v. Surety Title & Guaranty Co., 60 Cal.App.3d 781, 132 Cal.Rptr. 63, 76, 79 (1976); Restatement (Second) of Contracts, § 318 comment (e).

Economic duress does not exist, however, merely because a person has been the victim of a wrongful act; in addition, the victim must have no choice but to agree to the other party’s terms or face serious financial hardship. Thus, in order to avoid a contract, a party must also show that he had no reasonable alternative to agreeing to the other party’s terms, or, as it is often stated, that he had no adequate remedy if the threat were to be carried out. First National Bank of Cincinnati v. Pepper, 454 F.2d 626, 632-33 (2d Cir. 1972); Austin Instrument, supra, 324 N.Y.S.2d at 25, 272 N.E.2d at 535; Capps, supra; Ross Systems v. Linden Dari-Delite, Inc., 35 N.J. 329, 173 A.2d 258, 261 (1961); Leeper v. Beltrami, 53 Cal.2d 195, 1 Cal.Rptr. 12, 19, 347 P.2d 12, 19 (1959); Tri-State Roofing Company of Uniontown v. Simon, 187 Pa.Super. 17, 142 A.2d 333, 335-36 (1958). What constitutes a reasonable alternative is a question of fact, depending on the circumstances of each case. An available legal remedy, such as an action for breach of contract, may provide such an alternative. First National Bank of Cincinnati, supra; Austin Instrument, supra; Tri-State Roofing, supra. Where one party wrongfully threatens to withhold goods, services or money from another unless certain demands are met, the availability on the market of similar goods and services or of other sources of funds may also provide an alternative to succumbing to the coercing party’s demands. Austin Instrument, supra; Tri-State Roofing, supra. Generally, it has been said that “[t]he adequacy of the remedy is to be tested by a practical standard which takes into consideration the exigencies of the situation ⅛ which the alleged victim finds himself.” Ross Systems, 173 A.2d at 262. See also First National Bank of Cincinnati, supra at 634; Dalzell, Duress By Economic Pressure I, 20 N. Carolina L.Rev. 237, 240 (1942).

An available alternative or remedy may not be adequate where the delay involved in pursuing that remedy would cause immediate and irreparable loss to one’s economic or business interest. For example, in Austin Instrument, supra, and Gallagher Switchboard Corp. v. Heckler Electric Co., 36 Misc.2d 225, 232 N.Y.S.2d 590 (N.Y.Sup.Ct.1962), duress was found in the following circumstances: A subcontractor threatened to refuse further delivery under a contract unless the contractor agreed to modify the existing contract between the parties. The contractor was unable to obtain the necessary materials elsewhere without delay, and if it did not have the materials promptly, it would have been in default on its main *23contract with the government. In each case such default would have had grave economic consequences for the contractor and hence it agreed to the modifications. In both, the courts found that the alternatives to agreeing to the modification were inadequate (i. e., suing for breach of contract or obtaining the materials elsewhere) and that modifications therefore were signed under duress and voidable.

Professor Dalzell, in Duress By Economic Pressure II, 20 N. Carolina L.Rev. 340, 370 (1942), notes the following with regard to the adequacy of legal remedies where one party refuses to pay a contract claim:

Nowadays, a wait of even a few weeks in collecting on a contract claim is sometimes serious or fatal for an enterprise at a crisis in its history. The business of a creditor in financial straits is at the mercy of an unscrupulous debtor, who need only suggest that if the creditor does not care to settle on the debtor’s own hard terms, he can sue. This situation, in which promptness in payment is vastly more important than even approximate justice in the settlement terms, is too common in modern business relations to be ignored by society and the courts.

This view finds support in Capps v. Georgia Pacific Corporation, 253 Or. 248, 453 P.2d 935 (1969). There, the plaintiff was owed $157,000 as a commission for finding a lessee for defendant’s property but in exchange for $5,000, the plaintiff signed a release of his claim against defendant. The plaintiff sued for the balance of the commission, alleging that the release had been executed under duress. His complaint, however, was dismissed. On appeal, the court held that the plaintiff had stated a claim where he alleged that he had accepted the grossly inadequate sum because he was in danger of immediately losing his home by mortgage foreclosure and other property by foreclosure and repossession if he did not obtain immediate funds from the defendant. One basis for its holding was found in the following quote by a leading commentator in the area of economic duress:

The most that can be claimed [regarding the law of economic duress] is that change has been broadly toward acceptance of a general conclusion — that in the absence of specific countervailing factors of policy or administrative feasibility, restitution is required of any excessive gain that results, in a bargain transaction, from impaired bargaining power, whether the impairment consists of economic necessity, mental or physical disability, or a wide disparity in knowledge or experience.

Dawson, Economic Duress — An Essay In Perspective, 45 Mich.L.Rev. 253, 289 (1947).4

Ill

Turning to the instant ease, we believe that Totem’s allegations, if proved, would support a finding that it executed a release of its contract claims against Alyeska under economic duress. Totem has alleged that *24Alyeska deliberately withheld payment of an acknowledged debt, knowing that Totem had no choice but to accept an inadequate sum in settlement of that debt; that Totem was faced with impending bankruptcy; that Totem was unable to meet its pressing debts other than by accepting the immediate cash payment offered by Alyeska; and that through necessity, Totem thus involuntarily accepted an inadequate settlement offer from Alyeska and executed a release of all claims under the contract. If the release was in fact executed under these circumstances,5 we think that under the legal principles discussed above that this would constitute the type of wrongful conduct and lack of alternatives that would render the release voidable by Totem on the ground of economic duress. We would add that although Totem need not necessarily prove its allegation that Alyeska’s termination of the contract was wrongful in order to sustain a claim of economic duress, the events leading to the termination would be probative as to whether Alyeska exerted any wrongful pressure on Totem and whether Alyeska wrongfully withheld payment from Totem.6

One purpose of summary judgment, however, is to pierce the allegations in the pleadings in an effort to determine whether genuine issues of fact exist. As the moving party, Alyeska had the burden of showing that there were no such genuine issues and that it was entitled to judgment as a matter of law. E. g., Brock v. Rogers and Babler, Inc., 536 P.2d 778, 782 (Alaska 1975). Alyeska showed that Totem had executed the release, that Totem had been represented by counsel at the negotiating session leading to the settlement and release and that appellant Stair, who actually signed the release on behalf of Totem, was fully aware of the consequences of such a release. Such evidence, by itself, would have entitled Alyeska to summary judgment in its favor. As a matter of law, there is no doubt that a valid release of all claims arising under a contract will bar any subsequent claims based on that contract.

To avoid summary judgment once the moving party meets its burden, the non-moving party must produce competent evidence showing that there are issues of material fact to be tried. Id. The respondent must set forth specific facts showing that it could produce admissible evidence reasonably tending to dispute the movants evidence or establish an affirmative defense. Id. The court then must draw all reasonable inferences in favor of the non-moving party and against the movant. E. g., Clabaugh v. Bottcher, 545 P.2d 172, 175 n.5 (Alaska 1976).

In entering summary judgment against Totem, the court below reasoned as follows:

The plaintiffs, specifically Mr. Stair, assert the release and settlement should be held for naught because of duress and coercion exerted upon him and his corporation by the defendants’ action.

Mr. Stair fails to show that the release and settlement negotiated by his attorneys was involuntary on his part. Mr. Stair did not personally participate in the negotiations which resulted in the release and settlement. No affidavit or other suggestion of evidence has been submitted to demonstrate that upon trial the plaintiffs could sustain their burden of proof required to set aside the release and settlement.

As thus stated, the superior court’s decision clearly misstated the standard applicable on motions for summary judgment. A party opposing summary judgment need not establish that he will ultimately prevail at trial. Gablick v. Wolfe, 469 P.2d 391, 395 (Alaska 1970). Although we may affirm a *25trial court’s grant of summary judgment if alternative grounds exist for upholding its judgment, Moore v. State, 553 P.2d 8, 21 (Alaska 1976), we do not believe that summary judgment was properly granted in this ease.

Our examination of the materials presented by Totem in opposition to Alyeska’s motion for summary judgment leads us to conclude that Totem has made a sufficient factual showing as to each of the elements of economic duress to withstand that motion. There is no doubt that Alyes-ka disputes many of the factual allegations^ made by Totem7 and drawing all inferences^ in favor of Totem, we believe that genuine issues of material fact exist in this case such that trial is necessary. Admittedly, Totem’s showing was somewhat weak in that, for example, it did not produce the testimony of Roy Bell, the attorney who represented Totem in the negotiations leading to the settlement and release. At trial, it will probably be necessary for Totem to produce this evidence if it is to prevail on its claim of duress. However, a party opposing a motion for summary judgment need not produce all of the evidence it may have at its disposal but need only show that issues of material fact exist. 10 C. Wright and A. Miller, Federal Practice and Procedure: Civil, § 2727 at 546 (1973). Therefore, we hold that the superior court erred in granting summary judgment for appel-lees and remand the case to the superior court for trial in accordance with the legal principles set forth above.

IV

One final issue remains in this appeal. Appellants Richard Stair and Pacific, Inc. contend that even if Totem is ultimately found to be bound by the release it executed, Stair and Pacific are not similarly bound because they did not sign the release. This contention is without merit. Neither Stair individually nor Pacific were parties to the original contract between Totem and Alyeska, nor were they parties to the amendment. No contention has been made that they were even third party beneficiaries to that contract. As they were not parties to the original contract, it follows that Stair and Pacific had no contractual claims against Alyeska which they could have released and thus it is irrelevant whether or not they executed the release. Stair and Pacific’s fate in this lawsuit, therefore, depends entirely on Totem’s success or failure in pursuing its contractual claims against Alyeska.

REVERSED and REMANDED.

FLEMING, J.

Appeal from a judgment dismissing plaintiff’s amended complaint on demurrer.

Plaintiff Donald Odorizzi was employed during 1964 as an elementary school teacher by defendant Bloomfield School District and was under contract with the district to continue to teach school the following year as a permanent employee. On June 10 he was arrested on criminal charges of homosexual activity, and on June 11 he signed and delivered to his superiors his written resignation as a teacher, a resignation which the district accepted on June 13. In July the criminal *127charges against Odorizzi were dismissed under Penal Code, section 995, and in September he sought to resume his employment with the district. On the district’s refusal to reinstate him he filed suit for declaratory and other relief.

Odorizzi’s amended complaint asserts his resignation was invalid because obtained through duress, fraud, mistake, and undue influence and given at a time when he lacked capacity to make a valid contract. Specifically, Odorizzi declares he was under such severe mental and emotional strain at the time he signed his resignation, having just completed the process of arrest, questioning by the police, booking, and release on bail, and having gone for 40 hours without sleep, that he was incapable of rational thought or action. While he was in this condition and unable to think clearly, the superintendent of the district and the principal of his school came to his apartment. They said they were trying to help him and had his best interests at heart, that he should take their advice and immediately resign his position with the district, that there was no time to consult an attorney, that if he did not resign immediately the district would suspend and dismiss him from his position and publicize the proceedings, his “ aforedescribed arrest” and cause him “to suffer extreme embarrassment and humiliation”; but that if he resigned at once the incident would not be publicized and would not jeopardize his chances of securing employment as a teacher elsewhere. Odorizzi pleads that because of his faith and confidence in their representations they were able to substitute their will and judgment in place of his own and thus obtain his signature to his purported resignation. A demurrer to his amended complaint was sustained without leave to amend.

By his complaint plaintiff in effect seeks to rescind his resignation pursuant to Civil Code, section 1689, on the ground that his consent had not been real or free within the meaning of Civil Code, section 1567, but had been obtained through duress, menace, fraud, undue influence, or mistake. A pleading under these sections is sufficient if, stripped of its conclusions, it sets forth sufficient facts to justify legal relief. (Gogerty v. Coachella Valley Junior College Dist., 57 Cal.2d 727, 731 [21 Cal.Rptr. 806, 371 P.2d 582] ; Krug v. Meeham, 109 Cal.App.2d 274, 277 [240 P.2d 732].) In our view the facts in the amended complaint are insufficient to state a cause of action for duress, menace, fraud, or mistake, but they do set out sufficient elements to justify rescission of a consent *128because of undue influence. We summarize our conclusions on each of these points.

1. No duress or menace has been pleaded. Duress consists in unlawful confinement of another’s person, or relatives, or property, which causes him to consent to a transaction through fear. (Civ. Code, § 1569.) Duress is often used interchangeably with menace (Leeper v. Beltrami, 53 Cal.2d 195, 203 [1 Cal.Rptr. 12, 347 P.2d 12, 77 A.L.R.2d 803]), but in California menace is technically a threat of duress or a threat of injury to the person, property, or character of another. (Civ. Code, § 1570; Rest., Contracts, §§492, 493.) We agree with respondent’s contention that neither duress nor menace was involved in this case, because the action or threat in duress or menace must be unlawful, and a threat to take legal action is not unlawful unless the party making the threat knows the falsity of his claim. (Leeper v. Beltrami, 53 Cal.2d 195, 204 [1 Cal.Rptr. 12, 347 P.2d 12, 77 A.L.R.2d 803].) The amended complaint shows in substance that the school representatives announced their intention to initiate suspension and dismissal proceedings under Education Code, sections 13403,'13408 et seq. at a time when the filing of such proceedings was not only their legal right but their positive duty as school officials. (Ed. Code, § 13409; Board of Education v. Weiland, 179 Cal.App.2d 808 [4 Cal.Rptr. 286].) Although the filing of such proceedings might be extremely damaging to plaintiff’s reputation, the injury would remain incidental so long as the school officials acted in good faith in the performance of their duties. (Schumm v. Berg, 37 Cal.2d 174, 185-186 [231 P.2d 39, 21 A.L.R.2d 1051].) Neither duress nor menace was present as a ground for rescission.

2. Nor do we find a cause of action for fraud, either actual or constructive. (Civ. Code, §§ 1571 to 1574.) Actual fraud involves conscious misrepresentation, or concealment, or non-disclosure of a material fact which induces the innocent party to enter the contract. (Civ. Code, § 1572; Pearson v. Norton, 230 Cal.App.2d 1, 7 [40 Cal. Rptr. 634]; Rest., Contracts, §471.) A complaint for fraud must plead misrepresentation, knowledge of falsity, intent to induce reliance, justifiable reliance, and resulting damage. (Sixta v. Ochsner, 187 Cal.App.2d 485, 489 [9 Cal. Rptr. 617]; Zinn v. Ex-Cell-O Corp., 148 Cal.App.2d 56, 68 [306 P.2d 1017].) While the amended complaint charged misrepresentation, it failed to assert the elements of knowledge of falsity, intent to induce reliance, and justifiable *129reliance. A cause of action for actual fraud was therefore not stated. (Norkin v. United States Fire Ins., 237 Cal.App.2d 435 [47 Cal.Rptr. 15].)

Constructive fraud arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice. (Civ. Code, § 1573.) Plaintiff has attempted to bring himself within this category, for the amended complaint asserts the existence of a confidential relationship between the school superintendent and principal as agents of the defendant, and the plaintiff. Such a confidential relationship may exist whenever a person with justification places trust and confidence in the integrity and fidelity of another. (Vai v. Bank of America, 56 Cal.2d 329, 338 [15 Cal.Rptr. 71, 364 P.2d 247]; Pryor v. Bistline, 215 Cal.App.2d 437, 446 [30 Cal.Rptr. 376].) Plaintiff, however, sets forth no facts to support his conclusion of a confidential relationship between the representatives of the school district and himself, other than that the parties bore the relationship of employer and employee to each other. Under prevailing judicial opinion no presumption of a confidential relationship arises from the bare fact that parties to a contract are employer and employee; rather, additional ties must be brought out in order to create the presumption of a confidential relationship between the two. (Annot., 100 A.L.R. 875.) The absence of a confidential relationship between employer and employee is especially apparent where, as here, the parties were negotiating to bring about a termination of their relationship. In such a situation each party is expected to look after his own interests, and a lack of confidentiality is implicit in the subject matter of their dealings. We think the allegations of constructive fraud were inadequate.

3. As to mistake, the amended complaint fails to disclose any facts which would suggest that consent had been obtained through a mistake of fact or of law. The material facts of the transaction were known to both parties. Neither party was laboring under any misapprehension of law of which the other took advantage. The discussion between plaintiff and the school district representatives principally attempted to evaluate the probable consequences of plaintiff’s predicament and to predict the future course of events. The fact that their speculations did not forecast the exact pattern which events subsequently took does not provide the basis for *130a claim that they were acting under some sort of mistake. The doctrine of mistake customarily involves such errors as the nature of the transaction, the identity of the parties, the identity of the things to which the contract relates, or the occurrence of collateral happenings. (Rest., Contracts, § 502, com. e.) Errors of this nature were not present in the case at bench.

4. However, the pleading does set out a claim that plaintiff’s consent to the transaction had been obtained through the use of undue influence.

Undue influence, in the sense we are concerned with here, is a shorthand legal phrase used to describe persuasion which tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment. (Estate of Ricks, 160 Cal. 467, 480-482 [117 P. 539].) The hallmark of such persuasion is high pressure, a pressure which works on mental, moral, or emotional weakness to such an extent that it approaches the boundaries of coercion. In this sense, undue influence has been called overpersuasion. (Kelly v. McCarthy, 6 Cal.2d 347, 364 [57 P.2d 118].) Misrepresentations of law or fact are not essential to the charge, for a person’s will may be overborne without misrepresentation. By statutory definition undue influence includes “taking an unfair advantage of another’s weakness of mind, or . . . taking a grossly oppressive and unfair advantage of another’s necessities or distress.” (Civ. Code, § 1575.) While most reported eases of undue influence involve persons who bear a confidential relationship to one another, a confidential or authoritative relationship between the parties need not be present when the undue influence involves unfair advantage taken of another’s weakness or distress. (Wells Fargo Bank v. Brady, 116 Cal.App.2d 381, 398 [254 P.2d 71]; Buchmayer v. Buchmayer, 68 Cal.App.2d 462, 467 [157 P.2d 9].)

We paraphrase the summary of undue influence given the jury by Sir James P. Wilde in Hall v. Hall, L.R. 1, P. & D. 481, 482 (1868) : To make a good contract a man must be a free agent. Pressure of whatever sort which overpowers the will without convincing the judgment is a species of restraint under which no valid contract can be made. Importunity or threats, if carried to the degree in which the free play of a man’s will is overborne, constitute undue influence, although no force is used or threatened. A party may be led but not driven, and his acts must be the offspring of his own volition and not the record of someone else’s.

*131In essence undue influence involves the use of excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a servient object. In combination, the elements of undue susceptibility in the servient person and excessive pressure by the dominating person make the latter’s influence undue, for it results in the apparent will of the servient person being in fact the will of the dominant person.

Undue susceptibility may consist of total weakness of mind which leaves a person entirely without understanding (Civ. Code, §38); or, a lesser weakness which destroys the capacity of a person to make a contract even though he is not totally incapacitated (Civ. Code, § 39; Peterson v. Ellebrecht, 205 Cal.App.2d 718, 721-722 [23 Cal.Rptr. 349]); or, the first element in our equation, a still lesser weakness which provides sufficient grounds to rescind a contract for undue influence (Civ. Code, § 1575; Faulkner v. Beatty, 161 Cal.App.2d 547, 551 [327 P.2d 41] ; Stewart v. Marvin, 139 Cal.App.2d 769, 775 [294 P.2d 114]). Such lesser weakness need not be long-lasting nor wholly incapacitating, but may be merely a lack of full vigor due to age (Wells Fargo Bank v. Brady, 116 Cal. App.2d 381, 397-398 [254 P.2d 71]), physical condition (Weger v. Rocha, 138 Cal.App. 109, 114-115 [32 P.2d 417]), emotional anguish (Moore v. Moore, 56 Cal. 89, 93; 81 Cal. 195, 197-198 [22 P. 589, 874]), or a combination of such factors. The reported cases have usually involved elderly, sick, senile persons alleged to have executed wills or deeds under pressure. (Malone v. Malone, 155 Cal.App.2d 161 [317 P.2d 65] [constant importuning of a senile husband] ; Stewart v. Marvin, 139 Cal.App.2d 769 [294 P.2d 114] [persistent nagging of elderly spouse].) In some of its aspects this lesser weakness could perhaps be called weakness of spirit. But whatever name we give it, this first element of undue influence resolves itself into a lessened capacity of the object to make a free contract.

In the present ease plaintiff has pleaded that such weakness at the time he signed his resignation prevented him from freely and competently applying his judgment to the problem before him. Plaintiff declares he was under severe mental and emotional strain at the time because he had just completed the process of arrest, questioning, booking, and release on bail and had been without sleep for forty hours. It is possible that exhaustion and emotional turmoil may wholly incapacitate a person from exercising his judgment. As an *132abstract question of pleading, plaintiff has pleaded that possibility and sufficient allegations to state a case for rescission.

Undue influence in its second aspect involves an application of excessive strength by a dominant subject against a servient object. Judicial consideration of this second element in undue influence has been relatively rare, for there are few cases denying persons who persuade but do not misrepresent the benefit of their bargain. Yet logically, the same legal consequences should apply to the results of excessive strength as to the results of undue weakness. Whether from weakness on one side, or strength on the other, or a combination of the two, undue influence occurs whenever there results "that kind of influence or supremacy of one mind over another by which that other is prevented from acting according to his own wish or judgment, and whereby the will of the person is overborne and he is induced to do or forbear to do an act which he would not do, or would do, if left to act freely.” (Webb v. Saunders, 79 Cal.App.2d 863, 871 [181 P.2d 43].) Undue influence involves a type of mismatch which our statute calls unfair advantage. (Civ. Code, § 1575.) Whether a person of subnormal capacities has been subjected to ordinary force or a person of normal capacities subjected to extraordinary force, the match is equally out of balance. If will has been overcome against judgment, consent may be rescinded.

The difficulty, of course, lies in determining when the forces of persuasion have overflowed their normal banks and become oppressive flood waters. There are second thoughts to every bargain, and hindsight is still better than foresight. Undue influence cannot be used as a pretext to avoid bad bargains or escape from bargains which refuse to come up to expectations. A woman who buys a dress on impulse, which on critical inspection by her best friend turns out to be less fashionable than she had thought, is not legally entitled to set aside the sale on the ground that the saleswoman used all her wiles to close the sale. A man who buys a tract of desert land in the expectation that it is in the immediate path of the city’s growth and will become another Palm Springs, an expectation cultivated in glowing terms by the seller, cannot rescind his bargain when things turn out differently. If we are temporarily persuaded against our better judgment to do something about which we later have second thoughts, we must abide the consequences of the risks inherent in managing our own affairs. (Estate of Anderson, 185 Cal. 700, 706-707 [198 P. 407].)

*133However, overpersuasion is generally accompanied by certain characteristics which tend to' create a pattern. The pattern usually involves several of the following elements: (1) discussion of the transaction at an unusual or inappropriate time, (2) consummation of the transaction in an unusual place, (3) insistent demand that the business be finished at once, (4) extreme emphasis on untoward consequences of delay, (5) the use of multiple persuaders by the dominant side against a single servient party, (6) absence of third-party advisers to the servient party, (7) statements that there is no time to consult financial advisers or attorneys. If a number of these elements are simultaneously present, the persuasion may be characterized as excessive. The cases are illustrative:

Moore v. Moore, 56 Cal. 89, 93, and 81 Cal. 195 [22 P. 589, 874], The pregnant wife of a man who had been shot to death on October 30 and buried on November 1 was approached by four members of her husband's family on November 2 or 3 and persuaded to deed her entire interest in her husband’s estate to his children by a prior marriage. In finding the use of undue influence on Mrs. Moore, the court commented: “It was the second day after her late husband’s funeral. It was at a time when she would naturally feel averse to transacting any business, and she might reasonably presume that her late husband’s brothers would not apply to her at such a time to transact any important business, unless it was of a nature that would admit of no delay. And as it would admit of delay, the only reason which we can discover for their unseemly haste is, that they thought that she would be more likely to comply with their wishes then than at some future time, after she had recovered from the shock which she had then so recently experienced. If for that reason they selected that time for the accomplishment of their purpose, it seems to us that they not only took, but that they designed to take, an unfair advantage of her weakness of mind. If they did not, they probably can explain why they selected that inappropriate time for the transaction of business which might have been delayed for weeks without injury to anyone. In the absence of any explanation, it appears to us that the time was selected with reference to just that condition of mind which she alleges that she was then in.

“Taking an unfair advantage of another’s weakness of mind is undue influence, and the law will not permit the retention of an advantage thus obtained. (Civ. Code, § 1575.) ”

Weger v. Rocha, 138 Cal.App. 109 [32 P.2d 417]. Plaintiff, *134while confined in a cast in a hospital, gave a release of claims for personal injuries for a relatively small sum to an agent who spent two hours persuading her to sign. At the time of signing plaintiff was in a highly nervous and hysterical condition and suffering much pain, and she signed the release in order to terminate the interview. The court held that the release had been secured by the use of undue influence.

Fyan v. McNutt (1934) 266 Mich. 406 [254 N.W. 146], At issue was the validity of an agreement by Mrs. McNutt to pay Fyan, a real estate broker, a 5 percent commission on all moneys received from the condemnation of Mrs. McNutt’s land. Earlier, Fyan had secured an option from Mrs. McNutt to purchase her land for his own account and offer it for sale as part of a larger parcel to Wayne County for an airport site. On July 25 Fyan learned from the newspapers that the county would probably start condemnation proceedings rather than obtain an airport site by purchase. Fyan, with four others, arrived at Mrs. McNutt’s house at 1 a.m. on July 26 with the commission agreement he wanted her to sign. Mrs. McNutt protested being awakened at that hour and was reluctant to sign, but Fyan told her he had to have the paper in Detroit by morning, that the whole airport proposition would fall through if she did not sign then and there, that there wasn’t time to wait until morning to get outside advice. In holding the agreement invalid the Michigan Supreme Court said: ‘ ‘ The late hour of the night at which her signature was secured over her protest and plea that she be given until the next day to consider her action, the urge of the moment, the cooperation of the others present in their desire to obtain a good price for their farm lands, the plaintiff’s anxiety over the seeming weakness of his original option, all combined to produce a situation in which, to say the least, it is doubtful that the defendant had an opportunity to exercise her own free will. ... A valid contract can be entered into only when there is a meeting of the minds of the parties under circumstances conducive to a free' and voluntary execution of the agreement contemplated. It must be conceived in good faith and come into existence under circumstances that do not deprive the parties of the exercise of their own free will. ’ ’

The difference between legitimate persuasion and excessive pressure, like the difference between seduction and rape, rests to a considerable extent in the manner in which the parties go about their business. For example, if a day or two after Odorizzi’s release on bail the superintendent of the school district *135had called him into his office during business hours and directed his attention to those provisions of the Education Code compelling his leave of absence and authorizing his suspension on the filing of written charges, had told him that the district contemplated filing written charges against him, had pointed out the alternative of resignation available to him, had informed him he was free to consult counsel or any adviser he wished and to consider the matter overnight and return with his decision the next day, it is extremely unlikely that any complaint about the use of excessive pressure could ever have been made against the school district.

But, according to the allegations of the complaint, this is not the way it happened, and if it had happened that way, plaintiff would never have resigned. Bather, the representatives of the school board undertook to achieve their objective by over per suasion and imposition to secure plaintiff’s signature but not his consent to his resignation through a high-pressure carrot-and-stick technique—under which they assured plaintiff they were trying to assist him, he should rely on their advice, there wasn't time to consult an attorney, if he didn’t resign at once the school district would suspend and dismiss him from his position and publicize the proceedings, but if he did resign the incident wouldn’t jeopardize his chances of securing a teaching post elsewhere.

Plaintiff has thus pleaded both subjective and objective elements entering the undue influence equation and stated sufficient facts to put in issue the question whether his free will had been overborne by defendant’s agents at a time when he was unable to function in a normal manner. It was sufficient to pose "... the ultimate question . . . whether a free and competent judgment was merely influenced, or whether a mind was so dominated as to prevent the exercise of an independent judgment.” (Williston on Contracts, § 1625 [rev. ed.]; Rest., Contracts, § 497, com. e.) The question cannot be resolved by an analysis of pleading but requires a finding of fact.

We express no opinion on the merits of plaintiff’s ease, or the propriety of his continuing to teach school (Ed. Code, § 13403), or the timeliness of his rescission (Civ. Code, §1691). We do hold that his pleading, liberally construed, states a cause of action for rescission of a transaction to which his apparent consent had been obtained through the use of undue influence.

The judgment is reversed.

Roth, P. J., and Herndon, J., concurred.

SNell, J.

— This is a law action seeking damages, actual and exemplary, for allegedly false and fraudulent representations in. *616the sale of dancing instruction to plaintiff. From the final judgment entered after a jury verdict for plaintiff in a substantial amount defendants have appealed.

Plaintiff is a lonely and elderly widow who fell for the blandishments and flattery of those who- saw some “easy money” available.

Defendants are the owners of the Des Moines Arthur Murray Dance Studio. They have a legitimate service to sell but wlien their selling techniques transcend the utmost limits of reason and fairness they must expect courts and juries to frown thereon. In this case the jury has done so.

Since the beginning of recorded history men and women have persisted in selling their birthrights for a mess of pottage and courts cannot protect against the folly of bad judgment. We can, however, insist on honesty in selling. The old doctrine of caveat emptor is no longer the polestar for business.

Much of the testimony was uneontradicted. The testimony as to intentional fraud and misrepresentation as well as the motive and credibility of some witnesses was attacked but these were questions for the jury. It was for the jury to say who should be believed.

It is not for us to say who should have prevailed with the jury. It is for us to determine the sufficiency of the admissible evidence to generate a jury question and the correctness - of the instructions given the jury. We will mention only as much of the testimony as is necessary for that purpose.

Plaintiff is a widow living alone. She has no family. Her exact age does hot appear but a former employee of defendants and a favorite dancing instructor of plaintiff testified “that-during the period from 1957 through the fall of 1960 she was 68 years old.”

After her husband’s death plaintiff worked at Bishops as a “coffee girl.” She first went to the Arthur Murray Studio in 1954 as a gift from a friend. On the first visit there was no attempt to sell her any lessons but she was invited to return a few days later. When she returned she was interviewed by the manager and sold a small course of dancing íéssons. From that time on *617there appears to have been an astoundingly successful selling campaign.

The testimony of defendants’ manager and his written summary of payments, received as Exhibit 1, are not in complete accord, but the variation is not vital. By May 2, 1955, defendants sold plaintiff 3222 hours of dancing instruction for which she paid $21,020.50. In all, according to the testimony of defendants’ manager plaintiff paid $33,497 for 4057 hours of instruction. Because of some refunds and credits defendants’ Exhibit 1 shows plaintiff’s cost to be only $29,174.30. Defendants’ Exhibit 1 is as follows:

“Exhibit 1

“Summary oe

“DaNCe Courses Puroi-iased

“By Agnes Syester

Hours In

“Date Sold By Course Am:t Paid

9-27-54 1709.50 Brick 206

10-15-54 2490.00 . Neidt 300

11- 4-54 Neidt 16 88.00

1- 8-55 Bersch 500 3825.00

1-19-55 Bersch 1000 6800.00

5- 2-55 Bersch 1200 6000.00

5-24-55 Brick 100 995.00

6-22-55 Brick 10 79.80

5-25-57 11 130.00 Brick-Ziegler

6-22-57 10 106.00 Brick

6- 4-58 10 106.00 Carey

9- 8-58 10 99.00 Carey

1- 6-59 4 25.00 Erickson

5-27-59 10 116.00 Wolf

6-10-59 10 112.50 Wolf

6-10-59 10 112.50 Wolf

12- 2-59 25 290.00 Carey-Kenton

3- 2-60 625 6090.00 Carey

4057 $29174.30”

*618On May 2,1955, when plaintiff bought 1200 additional hours of instruction for $6000 she had already bought 2022 hours and had used only 261 hours.

Included in the courses offered were lifetime memberships. With the purchase of 1000 or 1200 hours of instruction it was the policy of defendants to give free attendance to weekly dances for life and two hours of instruction or practice a month to keep active on what had been learned. Included in plaintiff’s purchases were three lifetime memberships. Plaintiff attended the weekly' dances and incidental entertainments and admitted having fun.

Plaintiff testified that defendants’ manager sold her the first lifetime membership. She testified “He promised me all the privileges of the studio and I would be a professional dancer.” To make such a promise to a lady plaintiff’s age was ridiculous. The fact that she was so gullible as to be an easy victim does not justify taking over $29,000 of her money. She may have been willing and easily sold but nevertheless a victim.

The members of defendants’ staff were carefully schooled and ■ supervised in the art of high-powered salesmanship. Mr. Jerry Carey, a witness ■ for plaintiff, testified at length as to methods and as to his contact with plaintiff. There was evidence that Mr. Carey was a disgruntled former employee and instructor and had expressed hostility toward defendants, but his- credibility was for the jury.

■Defendants’ studio occupies seven rooms consisting" of a grand ballroom and six private studios. Each private studio is wired for sound so the manager could monitor conversations between instructor and student and without the student’s knowledge correct the instructor’s sales technique.

Mr. Carey had received two months’ training including a course on sales technique taught by the manager. Plaintiff’s Exhibit-H is a revised edition of defendants’ “Eight Good Rules For Interviewing.” It is an exhaustive set of instructions, outlines and suggested conversations covering twenty-two typewritten- pages. A few pertinent parts are:

“1. How to prevent a prospect from consulting his banker, lawyer, -wife or friend. .

*619“2. Avoid permitting your prospect to think the matter over.:

“3/ Tell the prospect that has never danced before that it is an advantage and tell the prospect that has danced before that it is an advantage.

. ■ “4. To dance -with the prospect and then tell the prospect" that the rhythm is very good, their animation or self-confidence'' is good, that their natural ability is very good. That they will be. an excellent ballroom dancer in much less time and that if they didn’t have natural ability it would take twice as long. ■

“5. To summarize the prospect’s ability to learn as'follows: ‘Did you know that the three most important points on this D. A. are: Bhythin, natural ability and animation? You’ve been graded Excellent in all three.’ • ’

“6'. In quoting the price for various courses, the instructor is supposed to say ‘the trouble with most people is that they dance, lifelessly, but as I told you oh your analysis, you have animation-vitality in your daneing. No matter what course you ■ decide on you’re going to be a really smooth dancer (men would rather be á smooth dancer — women would rather be a beautiful, graceful dancer).’

“7. To use ‘emotional selling’ and the instructor is tutored as follows: ‘This is the warm-up period and is a very important part of your interview. ■ You have proved to him by now that he can learn to dance; now you jhust appeal to his emotions in-such a way that he will want lessons regardless- of the-cost.’ ”

Theoretically, for advancing proficiency in dancing' (the jury'must have thought that-$29,000 had something to:do with it), plaintiff was awarded a'Bronze Medal, then a Silver Medal and then a Gold Medal. These awards were given plaintiff all in the same year although defendants’ manager testified that it takes approximately two to four years to qualify for a Bronze Medal, five to seven years for a Silver Medal 'and anytime after 1200 hours a student could qualify for- the Gold -Medal. Finally after considerable thought about new incentives1 for-plaintiff to buy something more-she was shown a film on Gold Star dancing. This is a difficult professioiial type of dancing. “The dancers on-thé¡ film were brought in from -Europe by Mr. Murray. The dancing is English quick step and is- the type of dancing- done by Ginger *620Rogers and Fred Astaire only about twice as difficult.” This film had been studied 15 to 20 times to determine what parts to stress with plaintiff.

Plaintiff was easily sold a Gold Star course of 625 hours for $6250. A few days later she came into the ballroom, handed Mr. Carey an envelope and said “Well, it took some doing but here is the money.” The money was delivered to the manager.

The Gold Star course was started although even the instructor was “faking it” and had no idea what he was doing.

Mr. Carey testified that from 1957 through the fall of 1960 plaintiff’s dancing ability did not improve. “She was 68 years old and had gone as far as she would ever go in dancing, thereon it would be merely repetitious.” In his opinion “it would take 200. to 400 hours of instructions to teach her to dance in the manner she was dancing in 1960.” He also testified that while he was at the studio none of his students ever failed to qualify for. any of the medals. When he questioned plaintiff’s ability to do the advanced type of dancing she was being sold he was reminded bjr defendants'manager that he was an employee and that the manager made the rules.

Mr. Carey testified at length as to the attentions, inducements, promises and lies (he said they were) lavished on plaintiff. He became plaintiff’s regular instructor. He was about twenty-five years old and apparently quite charming and fascinating to plaintiff. She gave him a diamond ring for his birthday in 1960.

The testimony is rather fantastic but it would unduly extend this opinion to, set it forth in greater detail. It was in our opinion sufficient for the jury to find that plaintiff was the victim of a calculated course of intentional misrepresentations.

The charge for instruction varied somewhat up to $10 per hour. After some refunds, and, according to defendants’ computation, plaintiff paid approximately $6.75 per hour for 3425 hours of instruction or about $23,000.

If Mr. Carey’s estimate of plaintiff’s ability and possibility of progress is accepted plaintiff was knowingly overcharged for 3025 hours or a total sum of $20,418.75.

Mr. Carey was discharged by defendants in the fall of 1960. *621Plaintiff quit the studio shortly thereafter. She still had 1750 hours of unused time that she had purchased. She testified that she did so because she “was unhappy because things didn’t go right and 1 was through with dancing, and that was the only reason I quit.” Defendants’ manager testified that plaintiff “became unhappy over the dismissal of Mr. Carey and left the studio.” Another Avitness for defendants said plaintiff! complained mostly about losing her instructor, Mr. Carey.

In January 1961 plaintiff! employed counsel to represent her in a lawsuit against defendants. Her counsel contacted defendants. Conferences rrere held. Apparently a divertive campaign AA'as planned by defendants. Mr. Carey testified:

“I next heard from Mr. Theiss in January of 1961 when he called and asked me to come down to the studio to discuss employment. I went to see him and he told me that Mrs. Syester was suing him and wanted to know if 1 still had any influence over her, to get her to drop the suit. 1 told him I felt that I still did and I Avould try to get her to coihe back to the studio and drop her legal action against him. He said he would reinstate me and pay all of my past due commissions. I accepted the position and went to Bishop’s Cafeteria where Mrs. Syester was the coffee girl to see what her feelings were toward the studio. She Avas very cold toAvard me and I reported this to Mr. Theiss. He said not to concern myself with the studio, that my job was merely to get her to drop the lawsuit, so I Avent to Bishops a couple of times a day to try and talk AAdth Mrs. Syester. Finally I succeeded and told her that I was back in the studio and that Mr. Theiss wanted her back. I told her that there Avould be no hard feelings on our part if she would just drop the suit and come back but she said she did not want to come back to the studio. I continued talking to her and finally got her to accept coming to a party and told her' that I would be out to pick her up and escort her to the studio. This was about a Aveek .after I first contacted her, in February of 1961. I told her that I was going to the.party and I would save -her some AA'altzes. I kneAAr this was her favorite dance. And I felt that if she Avould pass up this Avaltz, she was not interested in dancing. She did not come to “the studio so the next day I went down to Bishop’s and told her she disappointed *622me- very much. Then I started talking about all of the lessons she and I had had and all of the months we had danced and the fun we had together. I told her how wonderful she had done. 1 painted word pictures and things so she could see this. I asked her if she remembered about when she got the Bronze. She kept saying that was best but all she wanted was her money back. I finally ^mrsuaded her to come to the studio and we danced for about-45 minutes. It was at this time that she called the lawsuit off. * * * when I went to Bishop’s Cafeteria to see Mrs. Syester I told her she was a good dancer and that she still had the ability to be a professional, excellent dancer. I told her that she did not need an attorney; after all Mr. Theiss and myself were her onty friends and we -wanted her back at the studio to continue with her Gold Star and reminded her of all the waltzes we would do together.”

During the month of February several people contacted plaintiff at the instigation of defendants’ manager, including Mr. Carey. These efforts were fruitful. Plaintiff made what defendants claim was a complete settlement. Defendants’ counsel prepared a written release (defendants’ Exhibit 2) and was present diiring one conference of the parties. Defendants’ counsel did not instigate, carry on, nor make the “settlement” with plaintiff. He testified that he “did not want to get that implicated.” In any event defendants’ manager at plaintiff’s home persuaded plaintiff' to discharge her counsel by phone and agree t'o settle for the refund of her'March 2, 1960, payment of $6090. This was reported to defendants’ counsel, who, in behalf of his client, wrote settlement checks: Plaintiff’s counsel received his share although there is no evidence that the settlement was ever pursuant to his advice. There is evidence' that defendants were attempting to lead plaintiff away from her own counsel. Their efforts were so far beyond the limits of propriety that ffheir own counsel hesitated to participate.

The release signed by plaintiff is a specific release of her claim based on the March 2, 1960, payment and a general release of all claims. If obtained in good faith it is a bar to all plaintiff’s claims. The release was witnessed by Estella M. Smith, whose identity does not appear, and by defendants’ manager. *623After signing this release on March 6,1961, plaintiff’s then pending lawsuit was dismissed. Plaintiff returned to the studio and participated in the activities for several months.

A second release dated January 28, 1963, was obtained by defendants’ manager. It purports to be a contractual release for $4000. The $4000 to be paid was to be evidenced by a note. There is no claim that anything has been paid thereon. The note provided for installment payments but instead of being signed by defendants it is signed by plaintiff. Defendants’ manager testified that this was all a mistake and that the studio was to pay.

Accepting defendants’ explanation that it was a mistake the most charitable thing that can be said is that plaintiff would sign anything requested, even a note wherein she was the payee.

The present action was filed March 12, 1963. It alleged fraud and misrepresentation in the several sales to plaintiff and in obtaining dismissal of the previous lawsuit and the releases signed by plaintiff.

Defendants denied any fraud or misrepresentations and urged the releases as a complete defense. Defendants offered evidence in support of their position. At the close of plaintiff’s evidence and again at the close of all the evidence defendants moved for a directed verdict. The motions were overruled. The jury returned a verdict for plaintiff in the sum of $14,300 actual damages and $40,000 punitive damages. Defendants appealed.

I. The court told the jury to first consider the issues involved in the releases signed- by plaintiff and placed on plaintiff the burden of proving by clear, satisfactoi’y and convincing-evidence that they were not binding on her. This was proper.

In five instructions, separately numbered but in sequence, the court instructed on fraud, expression of opinion as distinguished from a statement of fact, fraudulent misrepresentation, intent to mislead, consideration for releases, presumption of freedom from fraud, need for prudence in signing and failure of consideration.

On appeal defendants challenged the sufficiency of the evidence to generate a jury question but not the accuracy of the instructions-.

*624Defendants argue in the absence of fraud the execution of a valid release bars a future action based on the rights relinquished. The rule is stated in Kilby v. Charles City Western Railway Co., 191 Iowa 926, 928, 183 N.W. 371, as follows:

“Where a settlement has been had between competent parties, and a release has been fairly entered into, without fraud or overreaching,- it becomes binding and effectual, and will be upheld and enforced. It is undoubtedly the law that an instrument of this character can be impeached for fraud in procuring the same, or where the same was executed by a party who was- mentally incompetent to legally execute such an instrument. The burden, of proof is on the party seeking to impeach such written instrument.”

Mere failure to read an instrument before signing will not avoid its provisions. Crum v. McCollum, 211 Iowa 319, 233 N.W. 678. These propositions are not in dispute and further citation of authority is unnecessary.

Relief from the bar of a release is becoming more liberal even where there is no claim of fraud but only mistake. In Reed v. Harvey, 253 Iowa 10, 17, 110 N.W.2d 442, we quoted from 71 A. L. R.2d as follows:

“There ‘appears to be a definite trend in most jurisdictions towards granting relief liberally where it is made to appear that an injured party released his claim under a false impression that he was fully informed as to the nature and extent of his injuries’ (page 88 of 71 A. L. R.2d).” . -

Reed v. Harvey was a tort action but the same rule should apply.

In Christy v. Heil, 255 Iowa 602, 606, 123 N.W.2d 408, a vendor-vendee case, we said: “The trend of recent cases is toward the doctrine that a vendor cannot shield himself from liability by asking the law to condemn the credulity of the purchaser.”

The issue involving- the'releases, was essentially factual. That plaintiff was easily influenced appears without question. The consideration for the first release was wholly inadequate. It was only a partial return of an unconscionable overcharge. The consideration for the second release was not paid. The evi*625dence was such that the jury could find that there was such a concerted effort, lacking in propriety, to obtain the releases as to constitute fraudulent overreaching. The jury obviously concluded that there was a predatory play on the vanity and credulity of an old lady. We find no reason for. interfering with that conclusion.

II. Defendants argue that “In an action based upon fraud, certain universally recognized elements must be alleged and shown, and the failure to establish any one or more of such elements is fatal to such action.” With this statement we agree and so did the trial court. In Instruction No. 10 the jury was told that to recover the burden was on plaintiff to establish by clear, satisfactory and convincing evidence each of the following propositions:

“1. That the defendants made one or more of the representations [claimed by plaintiff] * * *.

“2. That said statements, or one or more of them, were false.

“3. That said false statements or representations were as to material matters with reference to the entering into the lesson contracts.

“4. That the defendants knew the said representations, or one or more of them, were false.

“5. That said representations were made with intent to deceive and defraud the plaintiff.

“6. That the plaintiff believed and relied upon said false representations and would not have entered into the lesson contracts, except for believing and relying upon said misrepresentations.

“7. That the plaintiff was damaged in some amount through relying on said representations.

“If you find that the plaintiff has established each and every one of the foregoing propositions, numbered 1 to 7 inclusive by evidence which is clear, satisfactory and convincing, then your verdict will be for the plaintiff and against the defendants in such amount as you find plaintiff is justly entitled to receive. .

“If you find, however, that the plaintiff has failed to establish any one or more of the foregoing propositions, numbered 1 to 7 inclusive, then your verdict will be for the defendants.”

*626The instruction was adequate. Here again tile problem was factual. Defendants argue that the representations proved by-plaintiff were nothing more than mere expressions of opinion or “puffing” and thát the only substantial expression of opinion was in fact accomplished.

In Christy v. Heil, supra, we considered statements.of fact as distinguished from opinion or puffing. We said “Ordinarily the question of whether the representations made are opinion or fact is for the jury to determine and depends upon the facts and circumstances in each case.” (Citations) Loe. cit. 608 of 255 Iowa. “We must review the evidence in the light most favorable to the purchasers.” Loc. cit. 613.

Defendants’ review of the authorities is exhaustive and scholarly but the fact remains that in the ease at bar there was evidence which, if believed by the jury, would support a finding of fraud. ' ’

III. Defendants argue that there was no proof of damage. Although the court’s instructions on measure of damage were closer to the “out of pocket” rule than to the “benefit of bargain” rule to which we are committed (see 37 C. J. S., Fraud, section 143, page 477) defendants make no complaint. The instruction was not prejudicial to defendants. Defendants say that the rule was'properly stated but suggest that the statement of the issues including the amount prayed for may have been misleading. The fact that plaintiff asked for something beyond the correct measure of damage is not reversible error if, as defendants say, the court properly instructed the jury.

Defendants argue that there was no evidence from which the jury could find the -fair and reasonable value of the instruction received other than the amount paid by plaintiff. Defendants’ manager testified that plaintiff still has 899 hours of unused lessons. Mr. Carey’s testimony would support a finding that plaintiff was knowingly overcharged for 3025 hours or the sum of $20,418.75. The jury’s verdict for $14,300 actual damages was within the evidence. We have no means of knowing just how the jury computed the damage. It was for more than the charge for the unused time according to defendants, but less than would be due for unproductive instruction. In argument defend*627ants have stressed the value of plaintiff’s enjoyment. That may have entered into the jury’s computation. .

The verdict was not beyond the scope of the evidence or the instructions.

IY. In addition to actual damages plaintiff asked for exemplary or punitive damages. The claim was submitted to the jury and a verdict for $40,000 punitive damages was returned.

Defendants argue that the record will not support an award of punitive damages in any amount and that the issue should not have been submitted, but do not challenge the accuracy..of the instructions relative thereto.

Defendants argue that in the absence of actual dam: ages, punitive, damages cannot be awarded. That proposition is well established and needs no extended discussion here for we have said in Division III, supra, that there was support for an award of actual damages. The rule is stated in 17 Iowa Law Review 413, 414, as follows: ....

“It is a well, settled .and almost universally acpepted rule in the.law of damages that a finding of exemplary damages must be predicated upon a finding of actual damages. The reason for the rule lies in the theory behind exemplary damages, and this theory is ordinarily utilized by the courts in supporting their statements. As indicated by its synonyms, ‘exemplary’ damages are a species of punishment. They are awarded to the plaintiff in the discretion of the jury as- a means of retaliation against the defendant for his anti-social conduct, as a means of preventing him from acting similarly in the future, and as a -means of deterring others who might be so- inclined. . It is argued effectively, therefore, that if no actual damages have been sustained, the defendant merits no harsh treatment, and that there is -no foundation on which exemplary damages may be based. * * *.”• .

In the absence of malice, punitive damages cannot be awarded. The problem of what constitutes malice and the evidence, necessary to support a finding has been considered in many decisions. The problem frequently arises in actions for libel but comparable confusion arises in other situations. In Ballinger v. Democrat Company, 207 Iowa 576, 578, 223 N.W. 375, the following quotation appears: “ ‘the word “malice” is the bugbear of the law of libel.’ ”

*628Judge Henry Graven in Amos v. Prom, Inc., 115 F. Supp. 127, tborougbly analyzed tbe rules and supporting authorities incident to exemplary damages. We quote and adopt, but need not repeat, the supporting citations for that opinion.

“There is no mathematical ratio and exemplary damages may considerably exceed compensatory damages in some eases.” Loc. cit. 131.

“Under Iowa law exemplary damages are not a matter of right but rest in the discretion of the jury.” (Citations) Loc. cit. 133. '

“Exemplary damages may be awarded where it appears that the defendant is guilty of fraud.” Ibid.

“Such exemplary damages are permitted on the theory that they serve as a deterrent to wrongdoers and as punishment for wrongdoing.” Loc. cit. 134.

Malice or wanton conduct is imputable to the principal. Ibid.

“While it is not entirely clear whether the Iowa decisions regard ‘malice in fact’ as a descriptive term for ‘legal malice’ or as a synonym for ‘express malice,’ it is apparent that the ‘malice’ required to permit an award of exemplary damages is something less than actual ill-will or express malice and may be termed ‘legal malice’ for want of a better expression.” Loc. cit. 136 of 115 F. Supp.

“It is finally said that the intentional doing of a ‘wrongful act’ without justification will permit an inference of the wicked state of mind. Yet it is apparent that many wrongful or illegal acts may be intentionally committed from motives wholly apart from any malice or evil intent directed toward the person who happens to suffer by the action, as where defendant is motivated by a desire for gain and has no feeling at all for those injured by him.

“Therefore, when the law reaches this last stage, as it has in Iowa, it is no longer ‘malice’ which is required but the ‘something else’ from which malice is said to be presumed. [Citations] ‘It is enough (for legal malice) if it be the result of any improper or sinister motive and in disregard of the rights of others.’ 108 N.W. at page 238. The rule would seem to be: exemplary damages may be awarded where defendant acts ma*629liciously, but malice may be inferred where defendant’s act is illegal or improper; where the nature of the illegal act is such as to negative any inference of feeling toward the person injured, and is in fact consistent with a complete indifference on the part of defendant, liability for exemplary damages .is not based upon the maliciousness of the defendant but is based, rather, upon the separate substantive principle that illegal or improper acts ought to be deterred by the exaction from the defendant of sums over and above the actual damage he has caused.” Loc. cit. 136 and 137 of 115 F. Supp.

The jury award of $40,000 was large. However, the evidence of greed and avariciousness on the part of defendants is shocking to our sense of justice as it obviously was to the jury.

The allowance of exemplary damages is wholly within the discretion of the jury where there is a legal basis for the allowance of such damages. We may interfere only where passion and prejudice appear and then only by reversal.

It is not within our power to order a remittitur. Waltham Piano Company v. Freeman, 159 Iowa 567, 571, 141 N.W. 403; Crum v. Walker, 241 Iowa 1173, 1181, 44 N.W.2d 701; Sergeant v. Watson Bros. Transportation Company, 244 Iowa 185, 200, 52 N.W.2d 86.

We think the question of exemplary damages was properly submitted to the jury; that there was evidence to support a verdict; that there is no indication of such passion and prejudice as to require a reversal and that the case should be and hereby is — Affirmed.

Garfield, C. J., and Hays, Larson, Peterson, Thornton and Moore, JJ., concur.

THOMPSON and Stuart, JJ., concur in result.

OPINION

BARTEAU, Judge.

Park 100 appeals the trial court's finding that James and Nancy Kartes are not Hable for unpaid rent under a personal guaranty of lease. We affirm.

FACTS

In 1984, James and Nancy Kartes were part-owners of Kartes Video Communications, Inc. (KVC) in Indianapolis. The com*348pany was growing rapidly and required larger operating facilities Robert Scannell, a representative of the Park 100 industrial complex in Indianapolis, contacted the Karteses and marketed facilities in Park 100 that KVC could lease. After discussing the general requirements and terms for the new facilities, James Kartes delegated all of the lease negotiations to David Kaplan, a KVC senior vice-president.

Kaplan and Scannell worked out the details for KVC's lease of Building 107 in Park 100. Park 100 provided a lease agreement form to KVC. The lease did not include any provisions for a personal guaranty of the lease and a personal guaranty was never mentioned during any of the lease negotiations. KVC's attorney approved the lease and Kaplan signed and delivered the lease to Seannell on or before July 27, 1984. KVC made preparations to move its operations into Building 107 over the weekend of July 28-29, 1984.

On Friday, July 27, 1984, the evening before KVC was to move into Building 107, Seannell went to KVC's offices at 5:00 p.m. and found the Karteses getting into their car to leave for the day. Seannell told the Karteses that he had "lease papers" for them to sign. James Kartes explained that they were late for their daughter's wedding rehearsal and asked if the matter could wait until the following Monday. Scannell informed the Karteses that the matter could not wait and that KVC could not move into Building 107 until the papers were signed.

The Karteses and Scannell then went into KVC's building, where Scannell produced a document entitled "Lease Agreement."1 From the lobby of the building, James Kartes telephoned Kaplan, who was in another part of the building, and asked if the lease agreement had been approved by KVC's lawyer. Seannell remained silent. Upon ending his discussion with Kaplan, James Kartes asked where he was to sign the document. Seannell opened the papers to the signature page and the Karteses both signed the document. The Karteses, being officers of the corporation, did not think it unusual that their signatures would be required on the lease. Scannell never told the Karteses that what they were signing was actually a personal guaranty of lease.

Years later, Park 100 sent the Karteses a "Tenant Agreement" that included an estop-pel certificate. At this time the Karteses first learned of the personal guaranty of lease. They immediately disavowed the guaranty and refused to affirm that portion of the "Tenant Agreement."

Eventually, the Kartes sold their interest in KVC to Saffron Associates, which subsequently failed to make rent payments to Park 100. Park 100 brought suit to collect the unpaid rent from the Karteses under the personal guaranty.

ISSUE

Park 100 raises numerous issues and arguments on appeal. We find that one issue is dispositive of this matter: whether the trial court erred in finding that Park 100 used fraudulent means to procure the signatures of the Karteses on the guaranty of lease.

DISCUSSION2

Upon the motion of Park 100, the trial court entered thorough and well-reasoned Findings of Facts and Conclusions of Law. When the trial court enters special Findings of Fact and Conclusions of Law *349pursuant to a motion by a party, this court employs a two-tiered standard of review. First, we must determine whether the findings support the judgment. The second inquiry is whether the conclusions and judgment are clearly erroneous based on the facts as found by the trial court. American Cyanamid Co. v. Stephen (1993), Ind.App., 623 N.E.2d 1065, 1070.

The trial court found that Park 100 obtained the signatures of the Karteses on the personal guaranty of lease through fraudulent means. Under Indiana law, the elements of actual fraud are as follows:

(1) A material misrepresentation of past or existing fact by the party to be charged, which

(2) was false,

(3) was made with knowledge or in reckless ignorance of the falsity,

(4) was relied upon by the complaining party, and

(5) proximately caused the complaining party injury.

Pugh's IGA v. Super Food Services, Inc. (1988), Ind. App., 531 N.E.2d 1194, 1197, reh'g denied, trans. denied. In its findings and conclusions, the trial court found: (1) The statements made by Scannell, Park 100's agent, that the personal guaranty was "lease papers" and that KVC could not move into the building until the papers were signed, were each misrepresentations of material facts; (2) Scannell knew that the document he presented for the Karteses' signatures was a guaranty and, therefore, knowingly made false misrepresentations; and (8) the Karteses, through the use of ordinary care and diligence, believed that the document they were signing was a lease, and reasonably relied upon Seannell's statements to their detriment.

The evidence and testimony presented at trial supports these findings and conclusions. A guaranty of lease was never discussed during the lease negotiations, and the lease agreement makes no reference to a guaranty. The document that Seannell presented to the Karteses was entitled "Lease Agreement" and Scannell never told the Karteses that they were signing a personal guaranty of lease, even when he overheard the telephone conversation in which Mr. Kartes asked Kap-lan if the lease agreement had been approved by KVC's lawyer.3

Park 100 argues that the Karteses failed to prove the third element of actual fraud, that of reliance. Park 100 summarily argues that one's reliance upon a material misrepresentation must be justified and, in an arm's-length relationship involving knowledgeable business people such as the Karteses, such reliance is misplaced. Park 100 concludes that the Karteses had a duty to read the document that they signed and cannot avoid their obligations under the agreement by claiming ignorance of its terms.

Generally, parties are obligated to know the terms of the agreement they are signing, and cannot avoid their obligations under the agreement due to a failure to read it. W.T. Rawleigh Co. v. Snider (1935), 207 Ind. 686, 690, 194 N.E. 356, 358; Givan v. Masterson (1898), 152 Ind. 127, 180, 51 N.E. 237, 238. However, where one employs misrepresentation to induce a party's obligation under a contract, one cannot bind the party to the terms of the agreement.

It has many times been held, and is a well-settled rule of law, that a contract of guaranty cannot be enforced by the guarantee, where the guarantor has been induced to enter into the contract by fraudulent misrepresentations or concealment on the part of the guarantee.

Doerr v. Hibben Hollweg & Co. (1926), 84 Ind.App. 239, 241-42, 150 N.E. 795, 796.

Seannell misrepresented the personal guaranty as "lease papers," and in furtherance of this misrepresentation, the personal guaranty was disguised under the title of "Lease Agreement." We are not persuaded by Park 100's argument that the Karteses *350cannot prove actual fraud because the Karteses should have known better than to rely on Scannell's representations.

"Whether one has the right to rely depends largely on the facts of the case." Fire Ins. Exchange v. Bell (1994), Ind.App., 634 N.E.2d 517, 522, aff'd in part, vacated in part, 643 N.E.2d 310. When Scannell presented the "lease papers," Mr. Kartes telephoned Kaplan. Only upon confirming that KVC's attorney had examined and approved the lease agreement did the Karteses affix their signatures to the document entitled "Lease Agreement." "While a person relying on another's representations must use ordinary care and diligence to guard against fraud, the requirement of reasonable pru-denee in business transactions is not carried to the extent that the law will ignore an intentional fraud practiced on the unwary." Fire Ins. Exchange, 634 N.E.2d at 521. The evidence supports the trial court's finding that the Karteses acted with ordinary care and diligence.

CONCLUSION

Whether fraud is present in a case is rooted in the surrounding facts and cireum-stances and is for the trial court to determine. A.G. Edwards & Sons, Inc. v. Hillgoss (1991), Ind.App., 597 N.E.2d 1, 3. We cannot reweigh the evidence and substitute our judgment for that of the trial court, as Park 100 invites us to do. Wolfeld v. Hanika (1932), 95 Ind.App. 44, 179 N.E. 178. The evidence supports the trial court's conclusion that Park 100 obtained the signatures of the Karteses on the personal guaranty of lease through fraudulent means, and the findings support the judgment. The trial court's conclusion and judgment in favor of James and Nancy Kartes are not clearly erroneous.

AFFIRMED.

RILEY, J., and SHARPNACK, C.J., concur.

Ryan, J.

In March of 1977, Carl and Nancy Pickles, appellees, purchased from appellants, William and Martha Messerly, a 600-square-foot tract of land upon which is located a three-unit apartment building. Shortly after the transaction was closed, the Lenawee County Board of Health condemned the property and obtained a permanent injunction which prohibits human habitation on the premises until the defective sewage system is brought into conformance with the Lenawee County sanitation code.

We are required to determine whether appellees should prevail in their attempt to avoid this land contract on the basis of mutual mistake and failure of consideration. We conclude that the parties did entertain a mutual misapprehension of fact, *20but that the circumstances of this case do not warrant rescission.

I

The facts of the case are not seriously in dispute. In 1971, the Messerlys acquired approximately one acre plus 600 square feet of land. A three-unit apartment building was situated upon the 600-square-foot portion. The trial court found that, prior to this transfer, the Messerlys’ predecessor in title, Mr. Bloom, had installed a septic tank on the property without a permit and in violation of the applicable health code. The Messerlys used the building as an income investment property until 1973 when they sold it, upon land contract, to James Barnes who likewise used it primarily as an income-producing investment.1

Mr. and Mrs. Barnes, with the permission of the Messerlys, sold approximately one acre of the property in 1976, and the remaining 600 square feet and building were offered for sale soon thereafter when Mr. and Mrs. Barnes defaulted on their land contract. Mr. and Mrs. Pickles evidenced an interest in the property, but were dissatisfied with the terms of the Barnes-Messerly land contract. Consequently, to accommodate the Pickleses’ preference to enter into a land contract directly with the Messerlys, Mr. and Mrs. Barnes executed a quitclaim deed which conveyed their interest in the property back to the Messerlys. After inspecting the property, Mr. and Mrs. Pickles executed a new land contract with the Messerlys on March *2121, 1977. It provided for a purchase price of $25,-500. A clause was added to the end of the land contract form which provides:

"17. Purchaser has examined this property and agrees to accept same in its present condition. There are no other or additional written or oral understandings.”

Five or six days later, when the Pickleses went to introduce themselves to the tenants, they discovered raw sewage seeping out of the ground. Tests conducted by a sanitation expert indicated the inadequacy of the sewage system. The Lenawee County Board of Health subsequently condemned the property and initiated this lawsuit in the Lenawee Circuit Court against the Messerlys as land contract vendors, and the Pickleses, as vendees, to obtain a permanent injunction proscribing human habitation of the premises until the property was brought into conformance with the Lenawee County sanitation code. The injunction was granted, and the Lenawee County Board of Health was permitted to withdraw from the lawsuit by stipulation of the parties.

When no payments were made on the land contract, the Messerlys filed a cross-complaint against the Pickleses seeking foreclosure, sale of the property, and a deficiency judgment. Mr. and Mrs. Pickles then counterclaimed for rescission against the Messerlys, and filed a third-party complaint against the Barneses, which incorporated, by reference, the allegations of the counterclaim against the Messerlys. In count one, Mr. and Mrs. Pickles alleged failure of consideration. Count two charged Mr. and Mrs. Barnes with wilful concealment and misrepresentation as a result of their failure to disclose the condition of the sanitation *22system. Additionally, Mr. and Mrs. Pickles sought to hold the Messerlys liable in equity for the Barneses’ alleged misrepresentation. The Pickleses prayed that the land contract be rescinded.2

After a bench trial, the court concluded that the Pickleses had no cause of action against either the Messerlys or the Barneses as there was no fraud or misrepresentation. This ruling was predicated on the trial judge’s conclusion that none of the parties knew of Mr. Bloom’s earlier transgression or of the resultant problem with the septic system until it was discovered by the Pickleses, and that the sanitation problem was not caused by any of the parties. The trial court held that the property was purchased "as is”, after inspection and, accordingly, its "negative * * * value cannot be blamed upon an innocent seller”. Foreclosure was ordered against the Pickleses, together with a judgment against them in the amount of $25,943.09.3

Mr. and Mrs. Pickles appealed from the adverse judgment. The Court of Appeals unanimously affirmed the trial court’s ruling with respect to Mr. and Mrs. Barnes but, in a two-to-one decision, reversed the finding of no cause of action on the Pickleses’ claims against the Messerlys. Lenawee County Board of Health v Messerly, 98 Mich App 478; 295 NW2d 903 (1980).4 It concluded that the

*23mutual mistake5 between the Messerlys and the Pickleses went to a basic, as opposed to a collateral, element of the contract,6 and that the parties intended to transfer income-producing rental property but, in actuality, the vendees paid $25,500 for an asset without value.7

*24We granted the Messer lys’ application for leave to appeal. 411 Mich 900 (1981).8

II

We must decide initially whether there was a mistaken belief entertained by one or both parties to the contract in dispute and, if so, the resultant legal significance.9

A contractual mistake "is a belief that is not in accord with the facts”. 1 Restatement Contracts, 2d, § 151, p 383. The erroneous belief of one or both of the parties must relate to a fact in existence at the time the contract is executed. Richardson Lumber Co v Hoey, 219 Mich 643; 189 NW 923 (1922); Sherwood v Walker, 66 Mich 568, 580; 33 NW 919 (1887) (Sherwood, J., dissenting). That is to say, the belief which is found to be in error may not be, in substance, a prediction as to a future occurrence or non-occurrence. Henry v Thomas, 241 Ga 360; 245 SE2d 646 (1978); Hailpern v Dryden, 154 Colo 231; 389 P2d 590 (1964). But see Denton v Utley, 350 Mich 332; 86 NW2d 537 (1957).

The Court of Appeals concluded, after a de novo review of the record, that the parties were mistaken as to the income-producing capacity of the property in question. 98 Mich App 487-488. We agree. The vendors and the vendees each believed that the property transferred could be utilized as *25income-generating rental property. All of the parties subsequently learned that, in fact, the property was unsuitable for any residential use.

Appellants assert that there was no mistake in the contractual sense because the defect in the sewage system did not arise until after the contract was executed. The appellees respond that the Messerlys are confusing the date of the inception of the defect with the date upon which the defect was discovered.

This is essentially a factual dispute which the trial court failed to resolve directly. Nevertheless, we are empowered to draw factual inferences from the facts found by the trial court. GCR 1963, 865.1(6).

An examination of the record reveals that the septic system was defective prior to the date on which the land contract was executed. The Messerlys’ grantor installed a nonconforming septic system without a permit prior to the transfer of the property to the Messerlys in 1971. Moreover, virtually undisputed testimony indicates that, assuming ideal soil conditions, 2,500 square feet of property is necessary to support a sewage system adequate to serve a three-family dwelling. Likewise, 750 square feet is mandated for a one-family home. Thus, the division of the parcel and sale of one acre of the property by Mr. and Mrs. Barnes in 1976 made it impossible to remedy the already illegal septic system within the confines of the 600-square-foot parcel.10

*26Appellants do not dispute these underlying facts which give rise to an inference contrary to their contentions.

Having determined that when these parties entered into the land contract they were laboring under a mutual mistake of fact, we now direct our attention to a determination of the legal significance of that finding.

A contract may be rescinded because of a mutual misapprehension of the parties, but this remedy is granted only in the sound discretion of the court. Harris v Axline, 323 Mich 585; 36 NW2d 154 (1949). Appellants argue that the parties’ mistake relates only to the quality or value of the real estate transferred, and that such mistakes are collateral to the agreement and do not justify rescission, citing A & M Land Development Co v Miller, 354 Mich 681; 94 NW2d 197 (1959).

In that case, the plaintiff was the purchaser of 91 lots of real property. It sought partial rescission of the land contract when it was frustrated in its attempts to develop 42 of the lots because it could not obtain permits from the county health department to install septic tanks on these lots. This Court refused to allow rescission because the mistake, whether mutual or unilateral, related only to the value of the property.

"There was here no mistake as to the form or substance of the contract between the parties, or the description of the property constituting the subject *27matter. The situation involved is not at all analogous to that presented in Scott v Grow, 301 Mich 226; 3 NW2d 254; 141 ALR 819 (1942). There the plaintiff sought relief by way of reformation of a deed on the ground that the instrument of conveyance had not been drawn in accordance with the intention and agreement of the parties. It was held that the bill of complaint stated a case for the granting of equitable relief by way of reformation. In the case at bar plaintiff received the property for which it contracted. The fact that it may be of less value than the purchaser expected at the time of the transaction is not a sufficient basis for the granting of equitable relief, neither fraud nor reliance on misrepresentation of material facts having been established.” 354 Mich 693-694.

Appellees contend, on the other hand, that in this case the parties were mistaken as to the very nature of the character of the consideration and claim that the pervasive and essential quality of this mistake renders rescission appropriate. They cite in support of that view Sherwood v Walker, 66 Mich 568; 33 NW 919 (1887), the famous "barren cow” case. In that case, the parties agreed to the sale and purchase of a cow which was thought to be barren, but which was, in reality, with calf. When the seller discovered the fertile condition of his cow, he refused to deliver her. In permitting rescission, the Court stated:

"It seems to me, however, in the case made by this record, that the mistake or misapprehension of the parties went to the whole substance of the agreement. If the cow was a breeder, she was worth at least $750; if barren, she was worth not over $80. The parties would not have made the contract of sale except upon the understanding and belief that she was incapable of breeding, and of no use as a cow. It is true she is now the identical animal that they thought her to be when the contract was made; there is no mistake as to the identity of the creature. Yet the mistake was not of the *28mere quality of the animal, but went to the very nature of the thing. A barren cow is substantially a different creature than a breeding one. There is as much difference between them for all purposes of use as there is between an ox and a cow that is capable of breeding and giving milk. If the mutual mistake had simply related to the fact whether she was with calf or not for one season, then it might have been a good sale; but the mistake affected the character of the animal for all time, and for her present and ultimate use. She was not in fact the animal, or the kind of animal, the defendants intended to sell or the plaintiff to buy. She was not a barren cow, and, if this fact had been known, there would have been no contract. The mistake affected the substance of the whole consideration, and it must be considered that there was no contract to sell or sale of the cow as she actually was. The thing sold and bought had in fact no existence. She was sold as a beef creature would be sold; she is in fact a breeding cow, and a valuable one.

"The court should have instructed the jury that if they found that the cow was sold, or contracted to be sold, upon the understanding of both parties that she was barren, and useless for the purpose of breeding, and that in fact she was not barren, but capable of breeding, then the defendants had a right to rescind, and to refuse to deliver, and the verdict should be in their favor.” 66 Mich 577-578.

As the parties suggest, the foregoing precedent arguably distinguishes mistakes affecting the essence of the consideration from those which go to its quality or value, affording relief on a per se basis for the former but not the latter. See, e.g., Lenawee County Board of Health v Messerly, 98 Mich App 478, 492; 295 NW2d 903 (1980) (Mackenzie, J., concurring in part).

However, the distinctions which may be drawn from Sherwood and A & M Land Development Co do not provide a satisfactory analysis of the nature of a mistake sufficient to invalidate a contract. *29Often, a mistake relates to an underlying factual assumption which, when discovered, directly affects value, but simultaneously and materially affects the essence of the contractual consideration. It is disingenuous to label such a mistake collateral. McKay v Coleman, 85 Mich 60; 48 NW 203 (1891). Corbin, Contracts (one vol ed), § 605, p 551.

Appellant and appellee both mistakenly believed that the property which was the subject of their land contract would generate income as rental property. The fact that it could not be used for human habitation deprived the property of its income-earning potential and rendered it less valuable. However, this mistake, while directly and dramatically affecting the property’s value, cannot accurately be characterized as collateral because it also affects the very essence of the consideration. "The thing sold and bought [income-generating rental property] had in fact no existence”. Sherwood v Walker, 66 Mich 578.

We find that the inexact and confusing distinction between contractual mistakes running to value and those touching the substance of the consideration serves only as an impediment to a clear and helpful analysis for the equitable resolution of cases in which mistake is alleged and proven. Accordingly, the holdings of A & M Land Development Co and Sherwood with respect to the material or collateral nature of a mistake are limited to the facts of those cases.

Instead, we think the better-reasoned approach is a case-by-case analysis whereby rescission is indicated when the mistaken belief relates to a basic assumption of the parties upon which the contract is made, and which materially affects the agreed performances of the parties. Denton v Ut *30 ley, 350 Mich 332; 86 NW2d 537 (1957); Farhat v Rassey, 295 Mich 349; 294 NW 707 (1940); Richardson Lumber Co v Hoey, 219 Mich 643; 189 NW 923 (1922). 1 Restatement Contracts, 2d, § 152, pp 385-386.11 Rescission is not available, however, to relieve a party who has assumed the risk of loss in connection with the mistake. Denton v Utley, 350 Mich 344-345; Farhat v Rassey, 295 Mich 352; Corbin, Contracts (one vol ed), § 605, p 552; 1 Restatement Contracts, 2d, §§ 152, 154, pp 385-386, 402-406.12

All of the parties to this contract erroneously assumed that the property transferred by the vendors to the vendees was suitable for human habitation and could be utilized to generate rental income. The fundamental nature of these assumptions is indicated by the fact that their invalidity changed the character of the property transferred, *31thereby frustrating, indeed precluding, Mr. and Mrs. Pickles’ intended use of the real estate. Although the Pickleses are disadvantaged by enforcement of the contract, performance is advantageous to the Messerlys, as the property at issue is less valuable absent its income-earning potential. Nothing short of rescission can remedy the mistake. Thus, the parties’ mistake as to a basic assumption materially affects the agreed performances of the parties.

Despite the significance of the mistake made by the parties, we reverse the Court of Appeals because we conclude that equity does not justify the remedy sought by Mr. and Mrs. Pickles.

Rescission is an equitable remedy which is granted only in the sound discretion of the court. Harris v Axline, 323 Mich 585; 36 NW2d 154 (1949); Hathaway v Hudson, 256 Mich 694; 239 NW 859 (1932). A court need not grant rescission in every case in which the mutual mistake relates to a basic assumption and materially affects the agreed performance of the parties.

In cases of mistake by two equally innocent parties, we are required, in the exercise of our equitable powers, to determine which blameless party should assume the loss resulting from the misapprehension they shared.13 Normally that can only be done by drawing upon our "own notions of *32what is reasonable and just under all the surrounding circumstances”.14

Equity suggests that, in this case, the risk should be allocated to the purchasers. We are guided to that conclusion, in part, by the standards announced in § 154 of the Restatement of Contracts, 2d, for determining when a party bears the risk of mistake. See fn 12. Section 154(a) suggests that the court should look first to whether the parties have agreed to the allocation of the risk between themselves. While there is no express assumption in the contract by either party of the risk of the property becoming uninhabitable, there was indeed some agreed allocation of the risk to the vendees by the incorporation of an "as is” clause into the contract which, we repeat, provided:

"Purchaser has examined this property and agrees to accept same in its present condition. There are no other or additional written or oral understandings.”

That is a persuasive indication that the parties considered that, as between them, such risk as related to the "present condition” of the property should lie with the purchaser. If the "as is” clause is to have any meaning at all, it must be interpreted to refer to those defects which were unknown at the time that the contract was executed.15 Thus, the parties themselves assigned the risk of loss to Mr. and Mrs. Pickles.16_

*33We conclude that Mr. and Mrs. Pickles are not entitled to the equitable remedy of rescission and, accordingly, reverse the decision of the Court of Appeals.

Fitzgerald, C.J., and Kavanagh, Williams, Levin, and Coleman, JJ., concurred with Ryan, J.

Riley, J., took no part in the decision of this case.

NATHANIEL R. JONES, Circuit Judge.

Plaintiff Karl Wendt Farm Equipment Company (“Wendt”) appeals and defendants International Harvester Company and International Harvester Credit Corp. (collectively “IH”) cross-appeal from a deficiency judgement and preceding trial verdicts in this contract action relating to a dealer sales and service agreement. For the reasons set forth below, we reverse and remand in part and affirm in part.

I.

This diversity action arises out of IH’s decision to go out of the farm equipment business after a dramatic downturn in the market for farm equipment. In the fall of 1974, Wendt and IH entered into a “Dealer Sales and Service Agreement” (“agreement”) which established Wendt as a dealer of IH goods in the area of Marlette, Michigan. The agreement set forth the required method of sale, provisions for the purchase and servicing of goods, as well as certain dealer operating requirements. The agreement also provided specific provisions for the termination of the contract upon the occurrence of certain specified conditions.

In light of a dramatic recession in the farm equipment market, and substantial losses on the part of IH, IH negotiated an agreement with J.I. Case Co. and Tenneco Inc. (“Case/Tenneco”) to sell its farm equipment division to Case/Tenneco. The sale took the form of a sale of assets. The base purchase price was $246,700,000.00 in cash and $161,300,000.00 to be paid in participating preferred stock in Tenneco. While IH asserts that it lost $479,000,-000.00 on the deal, it also noted that this was a “paper loss” which will result in a tax credit offsetting the loss. J.App. at 405.1

In its purchase of IH’s farm equipment division, Case/Tenneco did not acquire IH’s existing franchise network. Rather, it received “access” to IH dealers, many of whom eventually received a Case franchise. However, there were some 400 “conflicted areas” in which both a Case and an IH dealership were located. In these areas Case offered only one franchise contract. In nearly two-thirds of the conflicted areas, the IH dealer received the franchise. However, Marlette, Michigan was such a “conflicted area” and Wendt was not offered a Case franchise.

Wendt filed this action alleging breach of IH’s Dealer Agreement and several other causes of action, but all Wendt’s allegations save the breach of contract action were disposed of before trial. IH filed a counter-claim against Wendt for debts arising out of farm equipment and parts advanced to Wendt on credit.

At trial, the court allowed IH’s defense of impracticability of performance to go to the jury on the contract action. The jury returned a verdict of no cause of action on the contract and the district court denied Wendt’s motion for J.N.O.Y./new trial, which was based on the invalidity of the impracticability defense. These actions by the court form a substantial basis of Wendt’s appeal. In addition, however, the court ordered a directed verdict for Wendt as to IH’s defenses of frustration of purpose, an implied covenant limiting the duration of the contract and a defense relating to whether Section 2 of the agreement permitted IH to cease production of all its product lines. The court’s directed verdict on the viability of these defenses forms the basis of IH’s cross-appeal.

After trial the court issued an order dated April 1, 1988, stating that based upon evidence produced at trial, Wendt was in*1115debted to IH in the amount of $253,839.69 on IH’s counter-claim. The order required that Wendt turn over certain of its inventory in farm equipment and parts to IH, including four tractors which had been mistakenly delivered to Wendt. The order also required that after the equipment and parts were disposed of in a “commercially reasonable manner” by IH, the parties should return to the court to report any surplus or deficiency on the debt. See J.App. 56-57.

When IH attempted to collect the equipment and parts pursuant to the April 1 order, Wendt refused to tender the goods until the court determined whether it was entitled to a credit pursuant to the repurchase provisions of the Michigan Farm and Utility Equipment Franchise Act, Mich. Comp.Laws Ann. § 445.1451 et seq. (1989) (“Farm Act”). On October 4, 1988, IH moved for an order finding Wendt in contempt for defying the April 1 order. In ruling on that motion the district court determined that the Farm Act had no relevance to the appropriateness of enforcing the replevin order, but was relevant to the calculation of any deficiency judgment due to the defendant. The court affirmed its April 1 order and ordered return of the goods. J.App. 185-87.

In November 1988, IH received the equipment from Wendt and after selling it, asked the court for a deficiency judgment. Wendt objected to the sale of the equipment as not having been conducted in a “commercially reasonable manner” but did not specifically raise the provisions of the Farm Act. Instead, Wendt asserted the proper amount of the deficiency was $180,-379.21 rather than a higher figure claimed by IH. J.App. 207. Later the parties stipulated the amount of the deficiency at $180,379.21, as suggested by Wendt. On August 18, 1989, the court entered a judgment in that amount. Wendt appeals from the judgment claiming that the court erred in not applying the provisions of the Farm Act in determining damages on IH’s counter-claims.

II.

We review the trial court’s interpretation of a contract de novo. Davis v. Sears, Roebuck & Co., 873 F.2d 888, 893 (6th Cir.1989). In a diversity action, we must apply state law in reviewing whether the district court properly applied the standards for a J.N.O.V. and a directed verdict. Rhea v. Massey-Ferguson, Inc., 767 F.2d 266, 269 (6th Cir.1985). Under Michigan law, a directed verdict is appropriate only if, viewing the evidence in the light most favorable to the non-moving party, all reasonable persons would agree that there had been “an essential failure of proof.” Snider v. Bob Thibodeau Ford, 42 Mich.App. 708, 712, 202 N.W.2d 727, 730 (1972). The test for determining whether a J.N.O.V. should be granted is whether the evidence is insufficient as a matter of law to support the judgment. See Basic Food Industries v. Grant, 107 Mich.App. 685, 695, 310 N.W.2d 26, 30-31 (1981) (quoting Sabraw v. Michigan Millers Mut. Ins. Co., 87 Mich.App. 568, 571, 274 N.W.2d 838, 840 (1978)).

By contrast, this court is to apply federal law in determining whether the trial court properly denied a motion for new trial. D.R.C.D.T., Inc. v. Integrity Insurance Co., 816 F.2d 273, 276 (6th Cir.1987). A court should grant a motion for new trial if it is convinced that the verdict is against the clear weight of the evidence. Bruner v. Dunaway, 684 F.2d 422, 425 (6th Cir.1982), cert. denied, 459 U.S. 1171, 103 S.Ct. 816, 74 L.Ed.2d 1014 (1983). A judge’s decision on a motion for new trial will not be reversed absent abuse of discretion. Id.

Wendt asserts a number of errors surrounding the district court’s allowing the defense of impracticability of performance to go to the jury. Wendt first contends that the defense of impracticability due to extreme changes in market conditions is not a cognizable defense under Michigan law. In the alternative, Wendt argues that there was insufficient evidence to withstand Wendt’s motion for a directed verdict on impracticability. The jury’s verdict of no cause of action against IH based on the impracticability defense also forms the ba*1116sis of Wendt’s motions for J.N.O.V. and new trial.

To determine whether the doctrine of impracticability is applicable under Michigan law based on the circumstances presented in this case, the court must first look to any controlling decisions of the Michigan Supreme Court. Angelotta v. American Broadcasting Corp., 820 F.2d 806, 807 (6th Cir.1987). If the Supreme Court has not spoken on a particular issue, the court must “ascertain from all available data what the state law is and apply it.” Bailey v. V. & O. Press Co, 770 F.2d 601, 604 (6th Cir.1985) (citations omitted). As this court recognized in Angelotta, “the ‘available data’ to be considered if the highest court has not spoken include relevant dicta from the state supreme court, deci-sional law of the appellate courts, restatements of law, law review commentaries, and the ‘majority rule’ among other states.” Angelotta, 820 F.2d at 807 (quoting Bailey, 770 F.2d at 604).

Wendt first contends that impracticability is only cognizable under Michigan law as a defense to contracts for sale of goods governed by the U.C.C. For this contention, Wendt cites Cleveland-Cliffs Iron Co. v. Chicago & Northwestern Trans. Co., 581 F.Supp. 1144, 1151 (W.D.Mich.1984) which suggested that the defenses of frustration of purpose and impracticability were only available as defense to an action under Mich.Comp.Laws Ann. § 440.2615 (a provision of Michigan’s U.C.C.), and were not available in situations where a party alleged that the contract had become unprofitable due to a change in market conditions.

The district court found that Cleveland-Cliffs incorrectly stated Michigan law. The court asserted that the Michigan Supreme Court’s recognition of the doctrine of impossibility was not altered by its adoption of the U.C.C. in 1964 and further that the doctrine of impossibility was broadened by the Michigan Court of Appeals in Bissell v. L.W. Edison Co., 9 Mich.App. 276, 156 N.W.2d 623 (1967) to excuse future performance when circumstances make performance impracticable. See J.App. at 44. Thus, as the district court put it,

The relevant question is not whether the doctrine of impossibility as defined by the Michigan Supreme Court in Sheldon-Seatz, Inc. v. Coles, 319 Mich. 401, 408, 29 N.W.2d 832 (1947); Milligan v. Haggerty, 296 Mich. 62, 70-71, 295 N.W. 560 (1941); and Chase v. Clinton Cty., 241 Mich. 478, 484, 217 N.W. 565 (1928), remains valid.... [Rather,] [t]he only issue in dispute is whether the Michigan Supreme Court would adopt the doctrine of impracticability of performance embraced by the Court of Appeals in Bissell in light of its teaching in Sheldon, Milli-gan, and Chase concerning the doctrine of impossibility of performance.

J.App. 44-45 (emphasis original). We find that the district court properly framed the question presented here.

Generally, under Michigan law, “[e]co-nomic unprofitableness [sic] is not the equivalent to impossibility of performance. Subsequent events which in the nature of things do not render performance impossible, but only render it more difficult, burdensome, or expensive, will not operate to relieve [a party of its contractual obligations].” Chase, 241 Mich, at 484, 217 N.W. at 567. See, also Milligan 296 Mich. at 71, 295 N.W. at 563, and Sheldon, 319 Mich. at 408, 29 N.W.2d at 835.

In Bissell, the Michigan Court of Appeals, relying on the Restatement of Contracts section 457, concluded that the doctrine of impossibility is a valid defense not only when performance is impossible, but also when supervening circumstances make performance impracticable. Section 457 of the Restatement of Contracts, now section 261 of the Restatement (Second) of Contracts (1981) provides:

Discharge by Supervening Impracticability

Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the lan*1117guage or the circumstances indicate the contrary.

Although Bissell did not involve non-performance due to economic causes, the court relied extensively on section 457 which defines impossibility to include, “not only strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury and loss involved.” Bissell, 9 Mich.App. at 285, 156 N.W.2d at 626. In the instant case the district court relied heavily on the language of section 457 quoted in Bissell to conclude that the extreme downturn in the market for farm products was “unreasonable and extreme” enough to present a jury question as to the defense under Michigan law. See J.App. at 47.

Recognizing that Bissell suggests that an impracticability defense may be cognizable under Michigan law in some circumstances, we must turn to the question of whether under Michigan law, the defense of impracticability was appropriately presented to the jury under the circumstances involving a dramatic downturn in the market for farm equipment which led to the contract action before us in this case. The commentary to section 261 of the Restatement (Second) provides extensive guidance for determining when economic circumstances are sufficient to render performance impracticable. Comment d to section 261 makes clear that mere lack of profit under the contract is insufficient: “ ‘[Ijmpracticability’ means more than ‘im-practieality.’ A mere change in the degree of difficulty or expense due to such causes as increased wages, prices of raw materials or costs of construction, unless well beyond the normal range, does not amount to impracticability since it is this sort of risk that a fixed price contract is intended to cover.” Comment d also provides:

A severe shortage of raw materials or of supplies due to war, embargo, local crop failure, unforeseen shutdown of major sources of supply, or the like, which either causes a marked increase in cost or prevents performance altogether may bring the case within the rule stated in this Section.

More guidance is provided in Comment b to section 261. Comment b states: “In order for a supervening event to discharge a duty under this Section, the non-occurrence of that event must have been a ‘basic assumption’ on which both parties made the contract.” Comment b goes on to provide that the application of the “basic assumption” criteria

is also simple enough in the cases of market shifts or the financial inability of one of the parties. The continuation of existing market conditions and of the financial situation of one of the parties are ordinarily not such assumptions, so that mere market shifts or financial inability do not usually effect discharge under the rule stated in this Section.

(Emphasis added). Comment b also provides two helpful examples. In Illustration 3 of comment b, A contracts to employ B for two years at a set salary. After one year a government regulation makes A’s business unprofitable and he fires B. A’s duty to employ B is not discharged due to impracticability and A is liable for breach. In Illustration 4, A contracts to sell B a machine to be delivered by a certain date. Due to a suit by a creditor, all of A’s assets are placed in receivership. A is not excused for non-performance under the doctrine of impracticability.

In our view, section 261 requires a finding that impracticability is an inappropriate defense in this case. The fact that IH experienced a dramatic downturn in the farm equipment market and decided to go out of the business does not excuse its unilateral termination of its dealership agreements due to impracticability. IH argues that while mere unprofitability should not excuse performance, the substantial losses and dramatic market shift in the farm equipment market between 1980 and 1985 warrant the special application of the defense in this case. IH cites losses of over $2,000,000.00 per day and a drop in the company’s standing on the Fortune 500 list from 27 to 104. IH Brief at 7 (citing trial record). IH also put on evidence that if it had not sold its farm equipment division, it might have had to declare bankruptcy. While the facts suggest that IH suf*1118fered severely from the downturn in the farm equipment market, neither market shifts nor the financial inability of one of the parties changes the basic assumptions of the contract such that it may be excused under the doctrine of impracticability. Restatement (Second) of Contracts, section 261, comment b. To hold otherwise would not fulfill the likely understanding of the parties as to the apportionment of risk under the contract. The agreement provides in some detail the procedure and conditions for termination. IH may not have been entirely responsible for the economic downturn in the company, but it was responsible for its chosen remedy: to sell its farm equipment assets. An alternative would have been to terminate its Dealer Agreements by mutual assent under the termination provisions of the contract and share the proceeds of the sale of assets to Case/Tenneco with its dealers. Thus, we find that IH had alternatives which could have precluded unilateral termination of the contract. Further, application of the impracticability defense in this case would allow IH to avoid its liability under franchise agreements, allow Case/Tenneco to pick up only those dealerships its sees fit and leave the remaining dealers bankrupt. In such circumstance, application of the doctrine of impracticability would not only be a misapplication of law, but a windfall for IH at the expense of the dealers.

We find this understanding of the doctrine of impracticability to be more consistent with Michigan law than the district court’s interpretation. In applying the doctrine of impossibility, the Michigan Supreme Court has repeatedly held that economic loss or hardship was not enough to excuse performance. See Sheldon, 319 Mich. at 408, 29 N.W.2d at 835 (a government regulation which placed a ceiling on the price of scooter bikes making their manufacture unprofitable did not excuse performance on a contract for sale of scooter bikes); Chase, 241 Mich. at 484, 217 N.W. at 567 (increased labor, materials and construction costs due to the unexpected economic hardship brought on by World War I did not excuse performance even when performance cost some 40% more than the contract price); and Milligan, 296 Mich. at 71, 295 N.W. at 563 (market conditions which made the manufacture of bricks unprofitable did not excuse performance). As recently as 1986, this principle was recognized by the Michigan Court of Appeals in In the Matter of Yeager Bridge Culvert Co., 150 Mich.App. 386, 398, 389 N.W.2d 99, 104 (1986) (mere changes in market conditions which render performance unprofitable do not justify releasing a party from its obligation to perform). The fact that IH’s losses in this case involved millions of dollars does not change the scope of the doctrine as the proportional effect of those changes is equivalent to the hardship imposed on the small businesses in the impossibility cases just described.

In the end, IH simply asserts that it would have been unprofitable to terminate its agreements with its dealers by invoking the six-month notice and other termination procedures embodied in the Dealer Agreement, or by sharing the proceeds of its sale of its farm equipment assets with dealers. This assertion does not excuse IH’s performance under the agreement.

As Bissell did not address the question of economic circumstances which excuse performance under the doctrine of impracticability and neither the case law of the Supreme Court of Michigan nor the Restatement (Second) of Contracts suggests that the economic circumstances in this case would be sufficient to excuse performance, we hold that while the Supreme Court of Michigan might recognize the defense of impracticability, it would not do so in the circumstances of this case as a matter of law. Accordingly, we find that the district court erred in permitting the defense of impracticability to go to the jury and that Wendt was entitled to a directed verdict on this issue as a matter of law.

III.

In its cross-appeal, IH asserts that the court improperly granted a directed verdict for Wendt on its other affirmative defenses. Specifically, IH objects to the court’s grant of a directed verdict on IH’s defense of frustration of purpose, its defense based *1119upon Section 2 of the Dealer Agreement and its defense based upon an implied covenant that the contract was not perpetual. We will address IH’s defenses seriatim.

A. Frustration of Purpose.

It is undisputed that Michigan law recognizes the defense of frustration of purpose. See Molnar v. Molnar, 110 Mich.App. 622, 625-26, 313 N.W.2d 171, 173 (1981) (allowing the defense of frustration of purpose in a suit to discontinue child support payments when the beneficiary child died). However, the district court in the instant case determined that the defense was unavailable. In making this determination, the court relied on section 265 of the Restatement (Second) of Contracts which provides:

Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

In interpreting this provision, the district court relied on the Supreme Court of South Dakota’s analysis of this same defense when raised by IH in a suit by a dealer for breach of the same dealer agreement in Groseth Int’l. v. Tenneco, 410 N.W.2d 159 (S.D.1987).

In Groseth, the court found that under the Restatement (Second), the defense of frustration requires the establishment of three factors. The first is that the purpose frustrated by the supervening event must have been the “principal purpose” of the party making the contract. Quoting section 265, comment a, the court noted, “ ‘It is not enough that [the contracting party] had in mind a specific object without which he would not have made the contract. The object must be so completely the basis of the contract that, as both parties understand, without it the transaction would make little sense.’ ” Id. at 165. The court interpreted this passage to require an inquiry into the principal purpose of the contract and a finding that the frustrating event destroys the primary basis of the contract. Id.

According to the Groseth court, the second factor required under the Restatement is that the frustration be “substantial”. Once again quoting comment a to section 265, the court stated: “ ‘It is not enough that the transaction has become less profitable for the affected party or even that he will sustain a loss. The frustration must be so severe that it is not fairly to be regarded as within the risks that he assumed under the contract.’ ” Id. The court added, “[t]he fact that performance has become economically burdensome or unattractive is not sufficient to excuse performance.” Id. (citations omitted).

Finally, according to Groseth, the third factor required to make out a defense of frustration under the Restatement is that the frustrating event must have been a “basic assumption” of the contract. See Restatement (Second) of Contracts, section 265 comment a. In analyzing this element, comment a states that the analysis is the same as under the defense of impracticability. Id. (referencing section 261, comment b) (quoted at p. 1117, supra.).

Applying these three factors in the instant case, the district court found that the primary purpose of the Dealer Agreement was stated in section 1 of the agreement. Section 1 provides,

The general purposes of the agreement are to establish the dealer of goods covered by this agreement, and to govern the relations between the dealer and the company in promoting the sale of those goods and their purchase and sale by the dealer, and in providing warranty and other service for their users.

J.App. 506 (quoting agreement). The court interpreted this language to mean that the primary purpose of the agreement was to establish the dealership and the terms of interaction and was not “mutual profitability” as asserted by IH. Therefore, the court reasoned that a dramatic down-turn in the farm equipment market resulting in reduced profitability did not frustrate the primary purpose of the agreement. Id. at *1120505-07. The court went on to suggest that continuity of market conditions or the financial situation of the parties were not basic assumptions or implied conditions to the enforcement of a contract. Id. at 507. Thus, following Groseth, it held that the doctrine of frustration was not applicable to this case. Id.

IH does not offer any arguments which challenge the correctness of the Groseth decision or the district court’s analysis. Rather, IH challenges the court’s finding that the primary purpose of the contract was not “mutual profitability.” In our view, the district court had substantial grounds for so finding and we affirm the district court’s grant of a directed verdict for Wendt on the frustration defense. If IH’s argument were to be accepted, the “primary purpose” analysis under the Restatement would essentially be meaningless as “mutual profitability” would be implied as the primary purpose of every contract. Rather, like the doctrine of impracticability, the doctrine of frustration is an equitable doctrine which is meant to fairly apportion risks between the parties in light of unforeseen circumstances. It is essentially an implied term which is meant to apportion risk as the parties would have had the necessity occurred to them. See Groseth, 410 N.W.2d at 166; Patch v. Solar Corp., 149 F.2d 558, 560 (7th Cir.1945), cert. denied, 326 U.S. 741, 66 S.Ct. 53, 90 L.Ed. 442 (1945). In this case, the frustrating event was IH’s decision to sell its farm equipment assets and go out of that line of business. While IH might have determined that such a move was economically required, it may not then assert that its obligation under existing agreements are discharged in light of its decision.2 For these reasons, we affirm.

B. Section 2 of the Dealer Agreement.

Section 2 of the Dealer Agreement provides, in relevant part:

The agreement shall cover all those items of agricultural tractors, machines, equipment and attachments, which appear in the agricultural equipment price list issued by the company, and service parts for such goods. The company reserves the right to make additions to and eliminations from such list, including but not limited to reductions resulting from the discontinued production of a line or lines of such tractors, machines, equipment and attachments, without incurring any responsibility to the dealer.

J.App. at 545. IH asserts that this provision authorizes IH to completely withdraw from the market. The theory is that if IH may withdraw some of its product lines it may also withdraw all of them.

Authority is split as to whether IH’s asserted interpretation is correct. In J.I. Case Co. v. Berkshire Implement Co., No. S86-555, slip op. at 7-10 (N.D.Ind. March 3, 1987) (following St. Joseph Equipment v. Massey-Ferguson, Inc., 546 F.Supp. 1245 (W.D.Wis.1982)), the court interpreted a provision very similar to section 2 of the Dealer Agreement as enabling the manufacturer to eliminate all its product lines and go out of business. In Groseth, 410 N.W.2d 159 (S.D.1987), however, the court read section 2 of the same Dealer Agreement to allow IH to eliminate or change certain products or product lines, but not to eliminate its farm products altogether.

In the instant case, the district court followed the Groseth view of section 2 of the Dealer Agreement and we find that interpretation to be the correct one. Section 2, by its terms, seems to be intended to allow IH to make shifts in its product lines and to discontinue product lines without changing the binding force of the agreement. We find it quite a stretch to believe that the parties intended this provision to *1121function as an alternative means for termination of the contract. This interpretation is reenforced by the fact that the agreement provides specific conditions and provisions for termination. See J.App. 555-61 (Section of the contract entitled “Termination of the Agreement”). As we find the court’s interpretation of section 2 of the agreement correct as a matter of law, we affirm.

C. An Implied Term that the Agreement was of Limited Duration.

Finally, IH asserts that the district court erred in refusing to find that an implied term of every dealership agreement is the ability of the manufacturer to go out of business. For this position, IH relies on dicta from the Supreme Court of Michigan in Lichnovsky v. Ziebart Int’l. Corp., 414 Mich. 228, 324 N.W.2d 732 (1982). The court in Lichnovsky, held that while it might be appropriate to imply a term for termination of an agreement when no termination provisions existed in the contract, it would not imply such a term in a contract which provided for termination of the agreement for cause. Id. at 414 Mich. at 242-43, 324 N.W.2d at 739-40. In response to the argument that the Court’s holding would create a perpetual franchise agreement, the Court stated:

There are relatively few enterprises that last even fifty or a hundred years, let alone forever. Just as an agreement for life employment (terminable for cause) is subject to the vicissitudes of human mortality, so too a franchise agreement is subject to the vicissitudes of the market[.]

At some point, that which Ziebart and Lichnovsky agreed upon may no longer be viable. The life of the subject matter of their agreement will be at an end.

414 Mich. at 243-44, 324 N.W.2d at 740. Using this language, IH urges this court to imply a term which would allow termination of a franchise agreement when the manufacturer goes out of business. IH cites as precedent for this proposition Delta Truck & Tractor v. J.I. Case, Co., No. 85-2606, 1990 WL 294415, slip op. at 2-3 (W.D.La.1990), which, relying on Lichnov-sky, holds that in the absence of a specified duration of performance in the contract a reasonable time will be implied. The court held that a reasonable time in the circumstance of the IH franchise agreement was the period in which IH manufactured farm equipment. Hence, the court implied a term that when IH ceased to manufacture such equipment, the agreement was terminated. We find the court’s invocation of Lichnovsky in Delta Truck misplaced as the Dealer Agreement, like the contract in Lichnovsky has provisions for its termination for cause. Following Lichnovsky would require that no term be implied when the contract itself provides the circumstances for its own termination in its termination provisions.

As noted above, courts will use their equitable power to imply terms into contracts in circumstances which would apportion the risk of loss as the parties would have had they thought to include such a provision. See, e.g, Groseth, 410 N.W.2d at 166; Patch, 149 F.2d at 560. In this case, the evidence supports the conclusion that while either party might have anticipated market shifts neither party anticipated that IH would go out of the farm equipment business completely. Implying a term which enables IH to terminate its franchise agreement unilaterally without following the termination conditions of the agreement and without incurring a breach places all the risk on the dealer. Rather, if economic circumstances require that IH leave the market for farm products, it should properly seek to terminate its agreement under the terms of the agreement. This is precisely the same conclusion the Lichnov-sky court arrived at in determining that a franchise agreement was not terminable at will, but rather terminable only for cause by its terms. See Lichnovsky, 414 Mich. at 242-43, 324 N.W.2d at 739-40. As there is no evidence which suggests that IH sought to terminate its agreement with Wendt by mutual agreement under the terms of the agreement, the district court properly granted a directed verdict for Wendt on this defense.

*1122IV.

As its final assignment of error, Wendt asserts that the district court failed to apply the repurchase provisions of the Michigan Farm and Utility Equipment Franchise Act, Mich.Comp.Laws Ann. section 445.-1451, et seq. in calculating its deficiency judgment on IH’s counter-claims. Section 445.1453 lays out the scope of the act:

If a dealer enters into a franchise agreement with a supplier that is evidenced by a written or implied contract, sales agreement, or security agreement, in which the dealer agrees to maintain an inventory and the contract, sales agreement, or security agreement is subsequently terminated, the supplier shall repurchase the inventory of the dealer as provided in this act. The dealer may choose to keep the inventory if the dealer has a contractual right to do so.

Section 445.1454 explains the terms under which the supplier is required to repurchase the dealer’s equipment, and subsection 3 of this section provides that the dealer may use the proceeds from the repurchase to offset debts owed by the dealer. Wendt asserts that the trial court erred in failing to take account of these provisions in calculating damages on IH’s counter-claims.

We find that Wendt failed to raise the provisions of the Farm Act before the district court at an appropriate point in the proceedings. After the court initially ordered Wendt to return the goods to IH in recognition of IH’s replevin action, Wendt refused asserting that the court had to apply the provisions of the Farm Act. Later, IH filed a motion for contempt of the court’s order of replevin. In its responding order, the court noted that the Farm Act was not relevant as to whether Wendt had to tender the goods to IH in replevin, but was relevant as to the calculation of damages or a deficiency judgment. However, while the court recognized that the Farm Act might be relevant in the calculation of any deficiency, Wendt never raised the provisions of the Farm Act in its answer to IH’s motion for a deficiency judgment. Rather, Wendt simply asserted that the proper amount of the deficiency was $180,-379.21. See J.App. at 207. This amount was later agreed to by IH and entered as a stipulated amount in the court’s deficiency judgment.

Since Wendt failed to raise the provisions of the Farm Act at the time in the proceedings pertaining to the calculation of damages in the deficiency judgment, it should not now be permitted to raise them on appeal. See Acwoo International Steel Corp. v. Toko Kaiun Kaish, Ltd., 840 F.2d 1284, 1288 n. 3 (6th Cir.1988) (refusing to hear on appeal an issue which was not raised before the district court). Further, our holding should impose no hardship upon Wendt because the amount ordered in the deficiency was the amount Wendt asserted to be the correct amount. J.App. at 207. We therefore affirm the district court’s calculation of damages on IH’s counterclaims in its deficiency judgment.

V.

As the district court erred in allowing the defense of impracticability of performance to go to the jury in this case under Michigan law, we REVERSE and REMAND for a new trial only on the question of damages for IH’s breach of its Dealer Agreement with Wendt. With respect to all other assignments of error by the parties, we AFFIRM.

RYAN, Circuit Judge

(dissenting).

The court has held that the district court erred in submitting the defendants’ defense of impracticability of performance to the jury. I disagree.

The court concedes, correctly I think, that the Michigan Supreme Court “might” recognize the impracticability doctrine, but the court says, “it would not do so in the circumstances of this case as a matter of law.” Despite the court’s use of the verb “might,” I assume it means the Michigan Supreme Court, in all probability, “would,” if asked, adopt the doctrine of impracticability of performance as defined in Restatement (Second) of Contracts § 261. The strongest indication of that, since the Michigan Supreme Court has not spoken on *1123the matter, is the Michigan Court of Appeals decision in Bissell v. L.W. Edison Co., 9 Mich.App. 276, 156 N.W.2d 623 (1967), in which the impracticability defense is recognized. In declaring that the Michigan Supreme Court would not apply the doctrine “in the circumstances of this case,” I take the court to mean the “facts” of this case. The court cannot mean that the impracticability doctrine can never be applied in a ease involving unforeseeable, extreme, and unreasonable economic circumstances. There is simply no authority to be found in the Michigan cases, or indeed in the commentary to section 261 of the Restatement (Second) of Contracts, to suggest that no change in economic circumstances, no matter how catastrophic, would ever be sufficient to invoke the impracticability defense. Indeed, the majority opinion observes that the commentary to section 261 “provides extensive guidance for determining when economic circumstances are sufficient to render performance impracticable.” (Emphasis added.)

It appears that the majority opinion rejects the impracticability defense “in the circumstances of this case” because, in the court’s view, the economic reverses confronted by International Harvester were not so “extreme and unreasonable,” severe, or catastrophic as to excuse performance of the franchise agreement with the plaintiffs. Although claiming to recognize that whether impracticability of performance has been proved is a question of fact for the jury, Michigan Bean Co. v. Senn, 93 Mich.App. 440, 287 N.W.2d 257 (1979), the court appears to disagree with the jury that International Harvester was confronted with economic circumstances sufficiently disastrous to justify discharge for impracticability. There were “alternatives,” the court says, “which might have precluded unilateral termination of the contract.” One such alternative open to International Harvester, the court suggests, might have been “to terminate [the] Dealer Agreements by mutual assent under the termination provisions of the contract and share the proceeds of the sale of assets to Case/Tenneco with its dealers.”

Whether the “alternative” the court suggests ever occurred to International Harvester’s management, or, if considered, was a feasible business solution, is entirely irrelevant on this appeal because it is the jury, not this court, that is empowered to determine whether International Harvester proved impracticability of performance as that defense was defined by the trial court.

The district court correctly recognized that the standard for determining whether there was a jury submissible issue of impracticability is set forth in Restatement (Second) of Contracts § 261 (1981):

§ 261. Discharge by Supervening Impracticability

Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

The “event” International Harvester relies upon is a sudden, massive, near total collapse of the farm equipment industry that was nationwide, drove two major suppliers into bankruptcy, and resulted in losses to International Harvester of over $2 billion in four years.

There is no quarreling with the defendants’ version of the facts for purposes of reviewing the plaintiff’s motion for judgment notwithstanding the verdict. In reviewing the district court’s refusal to grant International Harvester’s motion for judgment notwithstanding the verdict, we are obligated to apply the Michigan standard. In Michigan,

a judgment notwithstanding the verdict on a defendant’s motion is appropriate only if the evidence is insufficient as a matter of law to support a judgment for the plaintiff. In reaching a decision, the trial court must view the evidence in the light most favorable to the plaintiff and give the plaintiff the benefit of every reasonable inference that could be drawn from the evidence. If, after viewing the evidence in this manner, reasonable peo-*1124pie could differ, the question is one for the jury and judgment notwithstanding the verdict is proper.

Jacobs v. St. Clair County, 163 Mich.App. 230, 234, 414 N.W.2d 161 (1987).

When all facts and reasonable inferences therefrom are taken in a light most favorable to International Harvester, they reveal a sudden, unforeseen, nationwide collapse of the farm implement industry so severe and so widespread that International Harvester, after losing over $2 billion in four years, was faced, in its business judgment, with no alternative but bankruptcy or selling off its farm implement division. Those are the facts as we must view them for purposes of this appeal. The question for us, then, is whether “reasonable people could differ” that those facts amounted to “an event, the non-occurrence of which was a basic assumption on which the contract was made.” Restatement (Second) of Contracts, supra. Manifestly, they could. The majority opinion is an indication of that.

Since there is nothing in the jurisprudence of the impracticability defense to suggest that a market collapse of the kind shown by International Harvester is not, as a matter of law, within the doctrine, we are not free to disturb the jury’s verdict.