Chapter 14

duress

The use of threats to force a party to enter into a contract. Blackmail, extortion to induce consent to a contract. Both a defense to enforce and a ground for the recession of a contract.

In an adhesion contract, who usually takes advantage of whom? a. A seller takes advantage of a buyer. b. A buyer takes advantage of a vendor. c. A woman takes advantage of a man. d. A child takes advantage of his or her parents.

a. A seller takes advantage of a buyer.

What occurs in a typical adhesion contract? a. A seller takes advantage of a buyer. b. The contract becomes voidable after ninety days. c. A buyer takes advantage of a vendor. d. The rules applied to prior dealings between the parties are applied to their present dealings.

a. A seller takes advantage of a buyer.

Michigan Health Care offered Rowe a position as a nurse. She asked the company about its financial condition but was told nothing. She accepted the job, sold her home, and moved to Detroit. One month later, Michigan Health suffered a financial crisis and terminated 150 employees, including Rowe. She sued Michigan Health, claiming that it was liable for her losses based on fraudulent misrepresentation by silence. The court probably held that Michigan Health: a. had committed misrepresentation by silence, because it failed to disclose material information to Rowe. b. had committed misrepresentation by silence, because it fulfilled its duty to disclose information to Rowe. c. had not committed misrepresentation by silence, because it did not fail to disclose information to Rowe. d. had not committed misrepresentation by silence, because it had no duty to disclose information to Rowe.

a. had committed misrepresentation by silence, because it failed to disclose material information to Rowe.

Suzanne wants to buy a house at least 2,500 square feet in size. She looks at Lyle's house. Lyle believes the house has 2,600 square feet of floor space, and he tells her that. Suzanne agrees to buy the house. When the house is measured, she learns that it has 2,400 square feet of floor space. Suzanne can seek to rescind the contract on the basis of Lyle's: a. innocent misrepresentation. b. fraudulent misrepresentation. c. mutual mistake. d. unilateral mistake.

a. innocent misrepresentation.

Keller purchased grain silos from Harvestore Products, which held a patent on the silos. Prospective buyers were advised that the silos prevented oxygen from coming into contact with the feed stored inside, enabling ranchers to store feed indefinitely. The silos were also supposed to reduce or eliminate the need for protein supplements for dairy herds. Sales representatives distributed videotapes, brochures, and literature to promote silo sales. After Keller had the silos installed and began to use them, milk production of his herd dropped, and many cattle developed health problems. Some died. Keller sued, seeking rescission of the contract and recovery of financial losses. The court most likely held that Keller was entitled to rescission based on: a. negligent misrepresentation. b. a bilateral mistake of fact. c. a mistake of value. d. an adhesion contract.

a. negligent misrepresentation.

One party's intent to deceive the other party to a contract is known as: a. scienter. b. revision. c. rescission. d. optimization.

a. scienter.

reformation

an equitable remedy granted by a court in which the terms of a contract are altered to reflect the true intentions of the parties.

undue influence

arises from special kinds of relationships in which one party can greatly influence another party, thus overcoming the party's free will. Lacks voluntary consent and is voidable.

The case of Sarvis v. Vermont State Colleges brings up which issue associated with assent? a. Undue influence b. Fraudulent misrepresentation c. Mutual mistake d. Duress

b. Fraudulent misrepresentation

Blake wants to buy a mare that he can breed to help develop a horse operation. Levi offers to sell Blake a horse that Levi believes is healthy and should make a good broodmare when a little older. After two years, the horse still has not foaled. The veterinarian tells Blake that the horse is incapable of breeding. If Blake sues to rescind the contract with Levi, it is: a. likely that a court will allow the rescission based on a unilateral mistake. b. likely that a court will allow the rescission based on a mistake of fact. c. unlikely that a court will allow rescission based on a mistake of fact. d. unlikely that a court will allow rescission, because Blake made a mistake about market value.

b. likely that a court will allow the rescission based on a mistake of fact.

When a court alters contract terms to reflect the true intentions of parties to the contract, this is known as: a. rescission. b. reformation. c. cancellation. d. nullification.

b. reformation.

If a party is fraudulently induced to enter into a contract, that party can: a. legally assault the other party. b. rescind (cancel) the contract. c. impose an adhesion contract. d. avoid the contract based on the Statute of Frauds.

b. rescind (cancel) the contract.

If you do not genuinely assent to a contract's terms, you may: a. legally assault the other party. b. rescind, or cancel, the contract. c. impose your own adhesion contract. d. avoid the contract based on the Statute of Frauds.

b. rescind, or cancel, the contract.

Priya offers to sell Shelby a Scottish terrier puppy for $800. Shelby and Priya do not discuss the dog's ancestry, but Shelby believes that the dog came from champion lines and agrees to the price. Shelby later discovers that the puppy is worth only $200. Can Shelby rescind the contract based on her mistake? a. Yes, because the dog was clearly not worth $800. b. Yes, because Shelby had a duty to investigate, which she failed to perform. c. Probably not, because Shelby made a mistake about the dog's value, not a mistake about a material fact. d. Probably so, because Shelby made a mistake about a material fact.

c. Probably not, because Shelby made a mistake about the dog's value, not a mistake about a material fact.

Suppose that you purchase a purebred Scottish Terrier puppy. You pay $800 for the dog because you think it comes from champion lines. The dog's owner did not discuss the dog's ancestors with you. If you discover, later, that the dog was not worth $800, but only $400, can you have the contract rescinded, or canceled, based on your mistake? a. Yes, the dog was clearly not worth $800. b. Yes, because you had a duty to investigate. c. Probably not, because you made a mistake about the dog's value, not a mistake of a material fact. d. Probably so, because you made a mistake of an immaterial fact.

c. Probably not, because you made a mistake about the dog's value, not a mistake of a material fact.

Marquez agrees to buy Dale's pickup truck so he can pull his trailer. Both Marquez and Dale believe that the truck is big enough to do the job. After they complete the deal, Marquez finds that the truck is not strong enough to handle the trailer. The contract between Marquez and Dale can be rescinded because of: a. a unilateral mistake. b. a beveled mistake. c. a mutual mistake. d. an allowable mistake.

c. a mutual mistake.

Mark and Katherine Van Wagoner were interested in buying property from Klas. When the Van Wagoners asked about the appraised value of the property, Klas replied that the appraisals ranged from $175,000 to $192,000. Without looking at any appraisals, the Van Wagoners agreed to buy the property for $175,000. Klas then provided an appraisal listing the value as $165,000. When the Van Wagoners refused to go through with the deal, Klas sued to recover the difference between $175,000 and the lower price for which the house was later sold. The Van Wagoners claimed the contract should be rescinded based on their mistaken assumption about the value of the house. The court most likely: a. allowed the rescission based on fraudulent misrepresentation. b. allowed the rescission, because a bilateral mistake occurred concerning the value. c. did not allow the rescission, because a unilateral mistake of value does not provide a basis for avoiding a contract. d. did not allow the rescission, because Klas did not exert undue influence.

c. did not allow the rescission, because a unilateral mistake of value does not provide a basis for avoiding a contract.

In 1982, Hardy Salt hired Schmalz under an employment contract that granted him six months' severance pay if he was laid off, but not if he left voluntarily or was terminated for cause. A year later, Schmalz was asked to resign after having an affair with another employee. He was told that if he did not resign he would be fired. If he resigned, the company would keep him on the payroll for six weeks. He resigned and signed an agreement releasing Hardy Salt from the terms of the employment contract. Schmalz then claimed he had signed the release under duress and sued Hardy Salt for the six months' severance pay provided for in his contract. The court most likely held that Schmalz: a. had signed the release under duress, because he was under economic stress when he signed it. b. had signed the release under duress, because Hardy Salt dominated their relationship. c. had not signed the release under duress, because he was not threatened with a wrongful act. d. had not signed the release under duress, because Hardy Salt breached the contract.

c. had not signed the release under duress, because he was not threatened with a wrongful act.

Judy, a widow, just sold a piece of property. She will live off that money during her retirement. Judy dotes on her son, Chris, who asks her to invest her money in his restaurant, which is faltering. He tells her that if she does not lend him the money she will never see him again. She is afraid of being alone and agrees to his request, but soon changes her mind and asks for her money back. Chris claims they have formed a binding contract. In fact, the contract may be voidable, because it was formed as a result of: a. duress. b. a unilateral mistake. c. undue influence. d. fraudulent misrepresentation.

c. undue influence.

The two forms mistakes of fact can take are: a. associated and disassociated. b. linear and nonlinear. c. unilateral and mutual. d. recessive and dominant.

c. unilateral and mutual.

Misrepresentations of material facts can be made by: a. actions alone. b. words alone. c. words or actions. d. writings alone.

c. words or actions.

Which of the following is NOT an element of fraud? a. Intent to deceive b. Justifiable reliance on a misrepresentation c. A misrepresentation of a material fact d. An innocent party under twenty-one years of age

d. An innocent party under twenty-one years of age

Which provision of the Uniform Commercial Code allows the courts to refuse to enforce a contract or clause on the basis of unconscionability? a. Section 1-301 b. Section 2-101 c. Section 1-103 d. Section 2-302

d. Section 2-302

DW Chinchilla Ranch ran an advertising campaign encouraging viewers to pay $2,150 for one male and six female chinchillas to start their own chinchilla ranches. The ads claimed that chinchilla ranching could be easily done in the basement or a spare room. The ads claimed it was a profitable pastime that could "explode into a five-figure income." Fischer purchased chinchillas from DW. It soon became apparent that raising chinchillas required training and a carefully controlled environment. Statements made by DW's sales representatives regarding the value of the pelts were untrue. Fischer lost money over three years. He then sued to rescind the contract and recover his money on the basis of DW's fraudulent misrepresentations. At trial, DW representatives testified that raising chinchillas is "an art." The court most likely held that Fischer: a. could not rescind the contract, because courts do not look to the fairness of a bargain, and consideration had been given. b. could not rescind the contract, because DW did not intend to deceive viewers. c. could rescind the contract, because it was unconscionable. d. could rescind the contract, because DW knew its representations about chinchilla ranching were untrue.

d. could rescind the contract, because DW knew its representations about chinchilla ranching were untrue.

Forcing someone to enter into a contract through fear created by threats is known as: a. undue influence. b. unjustifiable reliance. c. collateralism. d. duress.

d. duress.

Sonja buys a tropical bird from Ramon's bird store. Ramon says, "It is extremely rare." Sonja asks if the bird is on the endangered species list. Ramon knows it is on the list, but he tells her it is not. Government officials later tell Sonja that she purchased a bird that individuals may not own, the bird is confiscated, and she is fined for possessing it. To recover the price of the bird and the cost of fines, Sonja can sue Ramon for: a. mistake, which allows the contract to be rescinded. b. negligence. c. undue influence. d. fraudulent misrepresentation.

d. fraudulent misrepresentation.

Nancy's stepson Jarred tells Nancy that he is going to lock her in a closet for a week unless she gives him a check for $20,000. Nancy is old and feeble. If she gives Jarred the check and then has second thoughts about having done so, she can: a. reclaim the money, as it was a gift; there was no consideration. b. seek to avoid the contract on the basis of undue influence. c. claim that she was defrauded. d. seek to avoid the contract on the basis of duress.

d. seek to avoid the contract on the basis of duress.

Josephine buys a very rare tropical bird from Frank's Rare Birds of the Earth store. Josephine asks Frank where the bird is from, and Frank tells her that it is from "the rainforests of Brazil. It is extremely rare, almost no one has one." When Josephine asks Frank if the bird is on the endangered species list, Frank tells her that it is not on the list (even though he has recently learned that it is on that list). Josephine later discovers, when officials from an environmental agency arrive at her door and take her bird away, that she has illegally purchased a bird that is on the endangered species list. To recover damages (the purchase price of the bird, plus any penalties levied by the environmental agency) from Frank, Josephine would: a. sue Frank for mistake. b. sue Frank for defamation. c. sue the environmental agency for regulatory overload. d. sue Frank for fraudulent misrepresentation.

d. sue Frank for fraudulent misrepresentation.

How do we measure damages in the case of fraud?

equal to the property's value had it been delivered as represented, less the actual price paid for the property.

puffery

exaggerated claims concerning the quality of goods offered for sale. Such claims involve opinions rather than facts and are not considered to be legally binding promises or warranties.

A ____ is objective and verifiable.

fact

punitive damages

intended to punish the defendant and are granted to a plaintiff over and above compensation for the proved, actual loss.

innocent misrepresentation

not fraud the aggrieved party can rescind the contract but usually cannot seek damages.

Unilateral mistakes

occurs when only one of the contracting parties is mistaken about a material fact. Generally does not afford the mistaken party any right to relive from the contract. Normally, the contract is enforceable.

economic duress

one party exacts a very high price for an item that the other party needs and the party exacting the price also creates the need.

A ____ is usually subject to debate.

opinion

To recover damages caused by fraud, what is required?

proof of harm

justifiable reliance

the deceived party must have justifiable reason for relying on the misrepresentation, and the misrepresentation must be an important factor in inducing that party to enter into the contract.

Bilateral mistake

"mutual misunderstanding concerning a basic assumption on which the contract was made." Both parties are mistaken about the same material fact, the contract can be rescinded by either party. Normally the contract is voidable by adversely affected party.

Fraudulent misrepresentation consists of:

1. A misrepresentation of a material fact must occur. 2. There must be an intent to deceive. 3. The innocent party must justifiably rely on the misrepresentation.

adhesion contracts

A "standard-form" contract, such as that between a large retailer and a consumer, in which the stronger party dictates the terms.