Business Law - Chapter 15 reading homework

Which of the following are situations in which silence amounts to a misrepresentation?

- If there is a relationship of trust between the parties - If the other party was relying on a mistaken assumption about a writing - If the other party was relying on a basic mistaken assumption - If the defendant previously made an incorrect assertion

Which of the following are ways in which a minor can disaffirm a contract?

- Refuse to perform his contractual obligations - Tell the other party orally - Tell the other party in writing

Which of the following, if proven, will establish unilateral mistake when combined with the fact that a party relied upon a basic factual error when entering into the contract?

- The non-mistaken party knew or had reason to know of the error - Enforcing the contract would be unconscionable - The mistake is mathematical or mechanical alone

Which of the following must a plaintiff show in order to prove that a defendant's misrepresentation amounted to fraud?

- The plaintiff justifiably relied on the statement - The statement was material - The defendant knew the statement was false or made the statement recklessly

In contract law, a minor is generally someone under the age of ________. Because a minor ________, she normally can only create a(n) ___________ contract.

18 lacks legal capacity voidable

Void

A contract that is illegal from the beginning and may not be enforced

Voidable

A contract that may be canceled by the party who lacks capacity

Select the parties below who might be required to make restitution if they rescind a deal:

A minor A person with a brain injury

Walter runs a small museum that displays antique VW busses. Shane sells Walter a VW bus, telling him it has a brand new engine and will run well for another few years. Walter finds out that the engine is 15 years old, but is not permitted to rescind the contract. Why not?

Because Walter did not rely on Shane's statements.

Courts are generally unwilling to enforce a contract when one party was intoxicated when making the agreement.

False

Rescind

Formal cancellation of a contract by a court

Jacobi is visiting Sheila at her apartment while she is redecorating, and Sheila asks him if he would like to buy her two sofas that she is replacing. Sheila tells Jacobi that the sofas are in great condition and are the most comfortable she has ever had. She acknowledges that some of the fabric on the sofas is slightly worn but says that is their only issue. Jacobi buys the sofas on the spot, but once they are back at his house he finds that one of them is infested with bed bugs. Jacobi has to throw out the infested sofa and pay a special exterminator to come and get rid of the insects. Jacobi sues Sheila. Assume their jurisdiction follows the majority approach. How will the court rule?

If Sheila had a reasonable belief that she was telling the truth, Jacobi can rescind the contract but he cannot collect damages.

Which of the following are items that courts consider necessaries?

Legal advice Tuition Food Automobiles Medical Care Housing Clothing

Plaintiff can rescind if:

Mutual mistake Unilateral mistake Duress Fraud

For his 17th birthday, Asher bought himself a used car from a car dealer for $10,000. The dealer had purchased it for $6,000, repaired it, and then sold it to Asher. Eighteen months later, Asher has almost finished paying off the car when he totals it by accidentally driving it into his neighbor's swimming pool. Asher's mother is a lawyer and tells him to rescind the contract. Will Asher be able to recover any money from the dealer?

No, because he ratified the contract.

Mina, a real estate developer, reads that the tiny town of Lakeview is considering building a large shopping center and adding public transportation from the nearby city to Lakeview. Mina knows that these types of changes would greatly increase the demand for real estate in Lakeview. She buys 10 acres of land in Lakeview from Arlen, so that she can build houses and take advantage of the town's economic boom. There is no reference in the purchase and sale agreement or deed to the possible development in Lakeview. A few weeks later, the town declares that, due to changes in zoning laws, it is not building the shopping center or adding the public transportation. Can Mina rescind on her contract with Arlen?

No, because she understood the risk she was assuming.

Nancy buys a new car from Bayside Beemers. The salesman Chris tells Nancy the car is "the smoothest ride on the planet." After she buys the car, Nancy develops back pain due its rough ride. Can Nancy sue for fraud?

No, because the statement is considered puffery.

Roy Newburn borrowed money and bought a $49,000 truck from Treadwell Ford. A few months later, the truck began having transmission problems. Newburn learned that the truck had 170,000 more miles on it than the odometer indicated. Treadwell admitted the mileage error and promised to install a new transmission for free. When Newburn came to pick up the truck with the new transmission installed by Treadwell, the company refused to turn over the truck until Newburn signed a general release of the dealership's liability for any claims based on the inaccurate mileage, which Newburn signed. One month later, the truck broke down, and the resulting delays cost Newburn so much income that he fell behind on his loan payments and lost the truck. He sued Treadwell, which defended based on the release. Is the release valid?

No, the release is not valid. This meets all of the criteria of a clear case of economic duress. Treadwell made an improper threat, forcing Newburn to enter into the contract.

Marco, acting in good faith, sells $1,000 of fishing equipment to Celine, a 25 year old woman who is mentally handicapped, and $1,000 of fishing equipment to Paul, a 16 year old. Paul and Celine both throw out their fishing equipment after one use and then disaffirm their respective deals. Assume their jurisdiction follows the majority approach. What result?

Paul can rescind his deal but Celine cannot.

Plaintiff cannot rescind

Plaintiff made a prediction error Mistake of value Conscious uncertainty Puffery

Seventeen-year-old Ruby buys an inflatable bounce house from SplurgeZone for $2,500 dollars. SplurgeZone buys its products from the manufacturer for $1000 each. The bounce house is great fun for a year, and then it rips in several places and is ruined. Ruby wants her money back. Assume she is in a state that follows the status quo rule. Will Ruby be able to recover any money from SplurgeZone?

Ruby will receive $1,500 from SplurgeZone.

Jonah is 12 years old and absolutely loves soccer trading cards. At the local hobby shop, he finds a "Lionel Messi" trading card in the case, which has a handwritten tag by it that reads "9/00-." The employee at the front desk interprets this to mean $9.00 and sells Jonah the card for that amount. A few days later, Ronaldo, the card shop owner calls Jonah and asks for the card back because it is worth around $900. Jonah refuses and Ronaldo sues. Which of the following is Jonah's strongest argument?

That neither Ronaldo nor Jonah knew the real value of the card.

Tom and Harriet, adult siblings, are taking their parents on a weekend trip. They pick up their father, Luther, at his house where he is singing a goodbye song to each of his 20 plants, and eating pancakes out of his coat pocket. Next, they drive to an assisted living facility, to collect their mother Augusta who has lived there since a judge declared her mentally incompetent a few years ago. When they arrive at their hotel, Luther writes postcards to his plants, Augusta knits a sweater, Harriet goes for a walk, and Tom orders a glass of scotch. When Harriet returns, she learns that a hotel guest sold Tom and her parents each a souvenir snow globe for $1,000. The snow globes are for sale in the hotel gift shop for $5. Harriet is furious. Can her family members get their money back?

The sale to Augusts is void; the sales to Luther and Tom may be voidable.

Scarlett and three friends, all of whom are minors, go to the grocery store and buy food for a camping trip. They buy $50 worth of food and then after the trip disaffirm the contract. What result?

They must pay for the value of the benefit received.

Disaffirm

To notify the other party to a contract that you refuse to be bound by it.

A minor can disaffirm a contract for any reason at all, and may do so even once he is no longer a minor.

True

If a party makes a mathematical error in a contract, the court will usually allow him to rescind.

True

Mason commits fraud when he sells his desk to Alice. Alice can rescind the contract and sue for damages.

True

Susan drops by Dean's garage sale and buys a painting for $10 that both she and Dean think is a copy of a piece by Matisse, a well-known painter. Later, Susan is delighted to discover that the painting is actually an original Matisse and is worth $50,000,000. Dean hears the news and wants the painting back. Will he get it? Why or why not?

Yes, Dean is entitled to rescind. This is a mutual mistake because both parties made an important factual error.

Sixteen-year-old Travis Mitchell brought his Pontiac GTO into M&M Precision Body and Paint for body work and a paint job. M&M did the work and charged $1,900, which Travis paid. Travis later complained about the quality of the work. M&M did some additional work, but Travis was still dissatisfied. He demanded his $1,900 back, but M&M refused to refund it because all of the work was "in" the car and Travis could not return it to the shop. The state of Nebraska, where this occurred, follows the majority rule on this issue. Does Travis get his money?

Yes, Travis will get his money because a minor is permitted to disaffirm a contract and get a full refund of his money, even if he is unable to make restitution.

Ellen and Allen are interested in renting Lyle's country house for the summer. Lyle tells them about the house, volunteering the property's square footage, the number of bedrooms, and stating that the house has a heated pool and a hot tub. The next day, Lyle learns that the pool is going to be drained for the summer as it undergoes repair. Must Lyle disclose this information to the potential renters?

Yes, because Lyle previously told them about the pool.

Vinita is preparing to put her house on the market. She knows that some of the insulation in the house contains asbestos. When the house was built, asbestos was commonly used in insulation, but it is no longer allowed today, because we now know that when asbestos is disturbed it can create a very serious health hazard. The asbestos is unlikely to be discovered unless it is inspected by a professional. Must Vinita tell potential buyers about the presence of asbestos in the house?

Yes, because it will not be revealed by a basic inspection of the house.

The McAllisters had several serious problems with their house, including leaks in the ceiling, a buckling wall, and dampness. They repaired the buckling wall by installing I-beams to support it, but never resolved the leaks or the dampness. When they decided to sell the house, they said nothing to prospective buyers about the problems. If asked, they stated that the I-beam had been added for reinforcement. The Silvas bought the house for $60,000 and immediately began to have problems with leaks, mildew, and dampness. Are the Silvas entitled to any money damages?

Yes, the Silvas are entitled to damages for both fraud and nondisclosure.

Stephanie is craving genuine Canadian maple syrup, so she calls a manufacturer in Montreal and orders two gallons. They agree on a price for the express shipping and for the syrup, but when Stephanie sees the bill on her credit card she is shocked and refuses to pay. Stephanie thought they had agreed to the terms in US dollars and the manufacturer thought they had agreed to the terms in Canadian dollars. What result?

either party can void the contract because it was based on mutual mistake

___________ occurs when one party to a contract has more information than the other party. Pursuant to the law of _________, the mistaken party may _________ the contract if the other party takes unfair advantage of what he knows to be an error on the part of the mistaken party.

information asymmetry unilateral mistake rescind

Will and Isaac enter into an agreement in which Isaac will buy Will's prized goose for $500. If, after forming the agreement, both parties learn that that the goose died the day before, this will mean the contract was based on _________ and __________.

mutual mistake either party can rescind the agreement

A minor who lies about his age in order to enter in a contract is ______________.

sometimes able to disaffirm

Sarah died at age 70 from health problems stemming from years of smoking cigarettes. Her illnesses made the last few years of her life very painful, and her unemployed 55-year-old boyfriend Jay took care of her daily needs. Sarah had made a lot of money during her life from developing several successful shopping malls. When her children find out that she has left all the money to Jay, they want to invalidate her will. What will they have to show?

that Sarah trusted Jay, and that he exerted improper influence over her

Problems with capacity and consent make a contract _________. ___________ means the ability of a party to enter a contract in the first place. _________ refers to whether a contracting party truly understood the terms of the contract and whether she made the agreement voluntarily.

voidable capacity consent

A contract with a party suffering from a mental impairment is usually _________ contract. If a person has been adjudicated ________ then all of his future agreements are ________.

voidable incompetent void

In the case of fraud, the injured party is entitled to the difference between _________ and _________.

what the contract promised what the contract delivered

In Donovan v. RRL Corporation the court held that the terms of luxury car dealer's newspaper ad:

would not be upheld because the dealer did not know about the mistake, and because the dealer did not try to mislead the plaintiff