Chapter 13 Legal Environment of Business

Huseyin and Ashish are negotiating the details of a new garage that Ashish plans to build on Huseyin's property. They agree on the building specs, the delivery date, and a price of $25,000. Ashish draws up the contract and sends it to Huseyin to sign. Huseyin reviews the contract and notices the price is listed as $2,500 instead of $25,000. Elated at the unbelievably low price, Huseyin quickly signs the contract and sends it back to Ashish, who signs it as well. If Ashish later tries to rescind the contract due to the mistaken price:

Ashish will be successful, because it is a mathematical mistake that Huseyin was aware of.

Which mistake is likely to be voidable?

Bilateral mistake

Which of the following elements are required to show fraudulent misrepresentation in a contract? (Select all that apply)

Damages Scienter Justifiable reliance on the fact by the innocent party Misrepresentation of a material fact

Selma wants to buy Matilda's house. Selma has been admiring the house for a long time and has asked Matilda repeatedly to sell the house to her, but Matilda has always refused. Finally, Selma tells Matilda that if Matilda does not sell Selma the house, Selma will kill Matilda's daughter. Afraid for her daughter's life, Matilda signs the contract to sell the house to Selma. If Matilda later tries to rescind the contract:

Matilda may rescind the contract on the grounds that she signed the contract under duress.

Would one party's mistaken belief about the law governing a contract be enough to rescind the contract?

No, because it is unilateral and concerns the law.

Will a mistake in value of the subject of the contract allow a contract to be rescinded?

No, even if both parties were mistaken.

Kellen is selling a vehicle which has been previously been in an accident and which shows obvious damage. If he does not tell the buyer about the accident, has he committed fraudulent misrepresentation?

No, if the buyer does not ask about the vehicle history.

What are the possible remedies for a contract formed under duress? Choose 3 answer choices.

Rescind the contract. Allow duress as a defense for breach of contract. Make the contract voidable.

What is the result of a contract in which both parties are wrong about a material fact of the contract?

The contract is voidable.

What must a plaintiff prove to show duress in the formation of a contract? Choose 2 answer choices.

The plaintiff was incapable of voluntarily agreeing to the contract. The defendant committed a wrongful or illegal act.

Rafael tells his friends that he wants to sell his party barge for $30,000. Rafael has some flyers made up with a picture of the party barge, a description of the features, and the price. Andre obtains one of the flyers and contacts Rafael about purchasing the party barge. Rafael draws up a contract and mistakenly lists the price of the party barge at $20,000 instead of $30,000. Rafael and Andre both sign the contract. When Andre brings $20,000 to purchase the party barge, Rafael discovers his mistake. Will Rafael be able to rescind the contract?

Yes, Rafael can rescind the contract even though it was a unilateral mistake.

In a contract where there was a bilateral mistake of fact:

both parties misunderstood a word or term in the contract.

Forcing a party to agree to the terms of a contract through the use of threats or blackmail is called:

duress

What remedies are available in the case of a unilateral mistake in making a contract? Choose 2 answers.

reformation rescission

Dora has been in a nursing home for three years and rarely has visitors. Vanita works at the nursing home and regularly takes care of Dora. Vanita and Dora have become very close, and Dora depends on Vanita to help her with decisions about her finances. Just before Dora dies, Vanita and Dora enter into a contract to sell Dora's family home to Vanita for $20,000. The home is worth $100,000. If Dora's children try to void the contract between Vanita and Dora:

the children may be able to void the contract based on undue influence.

A misrepresentation of fact may occur in a contract, by silence, when: (Choose 2 answers)

the seller knows of a serious problem that the buyer in unlikely able to discover a party is under a duty to speak (such as a professional from whom the other party is seeking an opinion)

Which of the following may constitute duress? Choose 2 answers.

threatening to financially harm someone threatening to physical harm someone

Which of these contracts would be enforceable, despite the existence of a mistake? Choose 2 answer choices.

Christopher agrees to sell his washer and dryer to Ella in "as is" condition. Ella thinks the set is in excellent condition and is willing to take a chance on buying it. Neither works after a few weeks of use. Christopher agrees to sell his washer and dryer to Ella. Ella thinks the dryer uses gas instead of electricity, but she is incorrect.

What factors must be present to prove fraudulent misrepresentation in a contract? Choose 3 answers.

The innocent party has justifiably relied on the misrepresentation. A misrepresentation of a material fact has occurred. There has been an intent to deceive.

If Ramona changes her will at age 88 to leave the bulk of her fortune to her home health care nurse instead of her children, what factor will the courts consider in judging whether or not her will is valid?

undue influence