Business Law - Chapter 11 - Study Questions

Carl Contractor submits a bid that contains a substantial error in addition

If the error is an obvious one that the other party knew of when it accepted the contract, Carl can avoid the contract

Carl Contractor submits a bid that contains a substantial error in addition.

If the error is an obvious one that the other party knew of when it accepted the contract, Carl can avoid the contract.

The law grants relief in a situation involving mistake only where there has been

a mutual mistake of material fact

In order for a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller's improper threats

actually induced the purchaser to assent to the contract.

In which of the following situations would silence constitute a misrepresentation?

A person fails to disclose a fact which she knows would correct a mistake upon which the other party is relying, and the nondisclosure is a failure to act in good faith.

Which of the following statements is TRUE regarding fraud in the inducement?

Active concealment, or action intended or known to be likely to keep another from learning a fact he otherwise would have learned, can form the basis for fraud in the inducement.

Bob bought a car from Sally for $25,000. Sally had misrepresented to Bob that the car only had 50,000 miles on it. Sally knew the actual mileage was 200,000 miles. Bob is in possession of the car and Sally has his $25,000. If Bob voids the contract due to fraud in the inducement, what will happen?

Bob will have to give the car back to Sally and Sally will have to give the $25,000 back to Bob.

Actionable fraud can usually be based on a statement of opinion as well as a statement of fact.

F

Bill Businessman has decided to buy a copying machine on an installment contract from the Business Supply Store. After looking at machines, Bill is in a hurry, so he signs the agreement without reading it. Later, he discovers that the interest rate is 22% and that there are no guarantees on the machine. Bill can avoid the contract based on mistake.

F

Duress in the form of improper threats must be explicit in order to render the resulting contract voidable.

F

Duress in the form of physical force renders the resulting agreement voidable.

F

Harold Homeowner went to Al's Auto Dealership to look at cars. Harold found a 1980 Plymouth Horizon that he thought would be a good car for his teenagers to drive to school. Al said, "This is the best car in town." Harold buys it for $1,000. Two weeks later, the car breaks down. Al is guilty of fraud in the inducement.

F

In deciding whether a threat is sufficient to constitute duress, the fact that the act or threat would not affect a person of average strength and intelligence is determinative.

F

When parties are dealing at arm's length, silence or nondisclosure usually constitutes fraud.

F

The courts would not carefully scrutinize a contract between the parties in which of the following relationships?

Manufacturer and wholesaler

Which of the following statements is FALSE regarding undue influence?

Relationships that may lead to a court's careful scrutiny of contracts between the parties to make sure undue influence was not present include manufacturer and wholesaler.

Which of the following contracts is voidable, NOT void or valid?

Sam wants to sell his golden retriever to Al. Sam tells Al that the dog is three years old and that he will point, back, and retrieve. Al relies on these statements and purchases the bird dog. Although the dog is three years old and will point at birds, he will not back (honor another dog's point).

A misrepresentation is material in which of the following cases

Seller represents a fact knowing it would be likely to induce a reasonable buyer to manifest his assent, Seller knows the misrepresentation would be likely to induce the buyer to act.

Stephanie is an attorney representing ABC Bank. Joseph owes ABC Bank $10,000 which is due and payable. Stephanie writes a demand letter to Joseph demanding he pay the $10,000 owed to ABC Bank or ABC Bank will file suit against him to collect. Joseph immediately goes to the bank to pay the $10,000. Which of the following statements is TRUE regarding this situation?

Stephanie did not induce Joseph to pay the $10,000 by duress because her threat of filing the suit against Joseph was not improper.

A contract induced by an innocent misrepresentation is actionable provided all of the remaining elements of fraud are present and the misrepresentation is material.

T

Active concealment, or action intended or known to be likely to keep another from learning a fact he otherwise would have learned, can form the basis for fraud.

T

Before one can avoid a contractual obligation based upon undue influence, there must exist a confidential relationship between the parties involved.

T

Fraud in the execution consists of a misrepresentation that deceives the defrauded person as to the very nature of the contract being entered.

T

Fraud in the inducement will result in the contract being voidable.

T

In a legally challenged contract between a guardian and his ward, the law presumes that the guardian took advantage of the ward.

T

It has generally been held that contracts induced by threats of criminal prosecution are voidable, regardless of whether the coerced party had committed an unlawful act.

T

Justifiable reliance requires that the misrepresentation contribute substantially to the misled party's decision to enter into the contract.

T

Which of the following would be a statement of fact?

This furniture was refinished last year

A fiduciary owes which of the following duties?

Trust, loyalty, confidence

A contract assented to by a party acting under improper physical coercion is:

Void

Sam and George are partners. Sam owns a real property worth only $1,000 because there is an easement running right through the middle of the property making the property almost useless. George is interested in buying the property,thinks it would be worth $100,000 and has no knowledge concerning the easement . Does Sam have an obligation to tell George about the existence of the easement?

Yes, because partners have a fiduciary duty to each other, making this transaction NOT arm's length. Sam cannot remain silent about the easement, even if George does not ask.

The requisite elements of fraud in the inducement include:

a false representation of material fact, a representation made with knowledge of its falsity and the intention to deceive, a false representation justifiably relied upon

Knowledge of falsity and intention to deceive under fraud in the inducement may be shown by

actual knowledge, lack of belief of the statement's truthfulness, reckless indifference as to its truthfulness

Ben and Kate had been negotiating Ben's employment contract in conversations over the phone for a couple of weeks. Finally, they agreed on some contract terms. Kate offered to create a draft of the contract for Ben to read over. On the same day Ben was fired from his job. Afraid he would be unemployed, Ben signed Kate's draft without reading it. In this example Ben:

cannot avoid the contract because of economic duress or failure to read.

In order for an act or threat to constitute duress, it needs to be at least:

contrary to public policy

A contract was made for 125 bales of cotton to arrive on a ship named "Peerless" from Bombay. Unbeknownst to either party to the contract, there were two ships named "Peerless," both of which were sailing from Bombay. One sailed in October and the other in December. The buyer had in mind the ship sailing in October, but the seller had in mind the ship sailing in December. Each party held his belief in good faith. When the goods failed to arrive on time, the buyer sued for breach of contract. The court found:

no contract existed due to mutual mistake in meaning of terms.

An arm's length transaction is one in which:

the parties owe each other no special duties and each is acting in their own self-interest.

Fred is a concert violinist who is scheduled to perform at Carnegie Hall for the first time. He buys what he is told is a Stradivarius violin from a well-known, reputable dealer in quality violins, and he pays the going rate for a Stradivarius. He later learns the violin is an imitation, which should not have fooled the dealer. In this case:

the sale may be rescinded, because the dealer has made a fraudulent misrepresentation which induced Fred to purchase the violin.

In determining whether an improper threat constitutes duress, it must be shown that:

the threat actually coerced assent on the part of the person claiming to be the victim of duress

In determining whether an improper threat constitutes duress, it must be shown that

the threat actually coerced assent on the part of the person claiming to be the victim of duress.

A package is delivered to your door and the delivery person asks you to sign a receipt for the package. You actually sign a promissory note promising to pay the delivery person $5,000! The note is

void due to fraud in the execution

A contract entered into or induced by undue influence on the part of the dominant party is:

voidable