BUL ch 13

Ken, who is not a real estate broker, sells Global Associates some land. Which of the following statements by Ken, with the accompanying circumstance, would be a fraudulent misrepresentation in that sale? "This acreage offers the most spectacular view of the valley." From higher up the mountain, more of the valley is visible. "You can build an office building here." The county requires the property to be exclusively residential, but neither Ken nor Global knows that. "This property includes ninety acres." Ken knows it includes only eighty acres. "The value of this property will triple in five years." Ken does not know whether the value of the property will triple in five years

"This property includes ninety acres." Ken knows it includes only eighty acres.

types of mistakes

-mistakes of fact -mistakes of value

for fraudulent misrep to occur it must have

1. a misrep of a material fact 2. intent to deceive 3. innocent party justifiably relies on the misrep -to recover damages: innocent party must suffer an injury

types of misrepresentations

1. misrep by words 2. misrep by conduct 3. misrep by law 4. misrep by silence

Metro Transport asks for bids on a construction project. Metro estimates that the cost will be $200,000. Most bids are about $200,000, but EZ Construction bids $150,000. In adding a column of figures, EZ mistakenly omitted a $50,000 item. Because Metro had reason to know of the mistake Metro can enforce the contract. EZ can increase the price and enforce the contract at the higher price. EZ can avoid the contract. none of the above can be done.

EZ can avoid the contract

A seller has no duty to disclose a defect that is known to the seller but could not reasonably be suspected by the buyer.

F

If a person makes a statement that he or she believes to be true, he or she cannot be held liable for misrepresentation.

F

When both parties make a mistake as to the future market value of the object of their contract, the contract can be rescinded by either party.

F

When both parties to a contract are mistaken as to the same material fact, the contract cannot be rescinded by either party.

F

To induce Sam to buy a lot in Mel's development, Mel tells Sam that he intends to add a golf course. The terrain is suitable, and there is enough land, but Mel has no intention of adding a golf course. Sam is induced by the statement to buy a lot. Sam's reliance on Mel's statement is justified because Mel is the owner of the development. Sam does not know the truth and has no way of finding it out. Sam did not buy the golf course. the golf course had obviously not been built yet.

Mel is the owner of the development.

A contract entered into under duress is voidable.

T

A contract involving a mistake of fact can sometimes be avoided.

T

In an action to rescind a contract for fraudulent misrepresentation, proof of injury is required for damages to be awarded.

T

The essential feature of undue influence is that the party taken advantage of does not exercise free will.

T

To commit fraudulent misrepresentation, one party must intend to mislead another.

T

misrep by law

doesnt ordinarily entitle party to avoid a contract -people are assumed to know the law (easily researched state & local laws) *exception*: misrepresenting party is in a profession known to req greater knowledge of the law than the avg citizen

If a mistake concerns the future market value or quality of the object of the contract, the mistake is one of: a. value. b. fraud. c. fact. d. law.

a value

Which of the following makes a contract voidable? a. Mutual mistake of fact b. Unilateral mistake of value c. Unilateral mistake of quality d. Unilateral mistake of fact

a. Mutual mistake of fact

The Kindle family moved across country and could not take all of their belongings with them. They did not have the time to sell them, so they transferred the ownership of these items to their friend Sam. Sam kept some of the items, but he did not need the car, so he sold it to Marissa. She later discovered that it had been in a serious accident and was not as road-worthy as she believed when she purchased it. If Marissa sues Sam for fraud, will she likely be successful? a. Probably not, as there is no indication that Sam intended to deceive. b. Probably, as there is misrepresentation by silence. c. Probably not, as there is a mutual mistake of value. d. Probably, under the claim of scienter

a. Probably not, as there is no indication that Sam intended to deceive.

Peggy offers to sell Shelby a purebred Scottish terrier puppy for $800. Shelby and Peggy 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. Probably not, because Shelby made a mistake about the dog's value, not a mistake about a material fact. b. Yes, because Shelby had a duty to investigate. c. Yes, because the dog was clearly not worth $800. d. Probably so, because Shelby made a mistake about an immaterial fact.

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

Sonja buys a tropical bird from Ramon's rare bird store. Sonja asks Ramon about the bird's origins, and Ramon tells her, "It is from the rainforests of Brazil, and it is extremely rare." Sonja asks Ramon if the bird is on the endangered species list. Even though he knows that the bird is on the list, he tells her that it is not. When government officials come and take her bird away, Sonja is told that she has illegally purchased a bird that is on the endangered species list. In order to recover the price of the bird and the fines levied against her for buying an illegal bird, Sonja can file a lawsuit against Ramon for: a. fraudulent misrepresentation. b. undue influence. c. negligence. d. mistake.

a. fraudulent misrepresentation.

A 75-year-old widower with a diagnosis of dementia became increasingly forgetful. His son, who lived in another state, made arrangements for his care. One of the resources he arranged was a housekeeper he found through the Internet. He became unhappy with the housekeeper and tried to fire her, but his father would not allow it. The son later learning that his father had married the housekeeper and had added her name on his accounts as a joint tenant. The housekeeper drained the man's accounts and then left him. Further investigation revealed that the housekeeper used secrecy, a romantic relationship, and manipulation to get added to the man's accounts. In addition, she created dependency by feeding and bathing the client even though he did not need that level of care. She isolated him from his family and other professionals who were hired to help him, and convinced him that she was the only one who cared about him. The son used this information to sue the housekeeper to retrieve his father's funds. The court most likely ruled in favor of: a. the son on the basis of undue influence. b. the housekeeper since the son made a unilateral mistake when hiring her. c. the housekeeper since the father had the opportunity to fire her and refused. d. the son on the basis of duress.

a. the son on the basis of undue influence.

Judy is a widow who has just sold a valuable parcel of commercial real estate. The proceeds of the sale will keep her from being impoverished during her retirement. Judy dotes on her only son, Chris. Chris asks his mother to invest the proceeds in his restaurant, which is faltering, and lets his mother know that if she does not do so she will probably never see Chris again. Judy is unsure, but because she wants to please Chris, she agrees to his request. That evening, she has a change of heart and demands that Chris return the funds to her. Chris claims that they have formed a binding contract and will not return the funds. The contract may be voidable, though, because it was formed as a result of: a. undue influence. b. duress. c. a unilateral mistake. d. fraudulent misrepresentation.

a. undue influence.

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

a. unilateral and bilateral.

In an e-mail offering to sell amplifiers to Gina for her theater, Dick describes the 120-watt amplifiers as "210 watts per channel." This is fraudulent misrepresentation if the number of watts is a material fact. Dick intends to deceive Gina. Gina relies on the description. all of the above are true.

all of the above are true.

The element of fraud that states there is guilty knowledge on the part of the misrepresenting party, and an intent to deceive, is called: a. undue influence. b. scienter. c. justifiable reliance. d. duress.

b scienter

Division West Chinchilla Ranch began a television advertising campaign encouraging viewers to pay $2,150 for one male and six female chinchillas to start their own chinchilla ranches. The advertisements claimed that anyone could succeed at chinchilla ranching and that it could be easily done in the basement or a spare room. The ads also claimed that chinchilla ranching was a profitable pastime that could "explode into a five-figure income." Based on these representations, Adolph Fischer purchased chinchillas from Division West. It soon became apparent that raising chinchillas required proper training and a carefully controlled environment. In addition, statements made by Division West's sales representatives regarding the value of the pelts were untrue. Fischer lost money over a period of three years. He then filed a lawsuit seeking to rescind the contract and recover his money on the basis of Division West's fraudulent misrepresentations. At the trial, Division West 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. b. could rescind the contract, because Division West knew that its representations about chinchilla ranching were untrue. c. could not rescind the contract, because Division West did not intend to deceive viewers. d. could rescind the contract, because it was unconscionable.

b. could rescind the contract, because Division West knew that its representations about chinchilla ranching were untrue.

In 2009, Hardy Salt Co. hired William 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. In mid-2011, Schmalz was asked to resign after having an affair with the chairman's executive secretary. Schmalz was told that if he did not resign he would be fired, but that if he did resign the company would keep him on the payroll for six weeks. Schmalz resigned and signed an agreement releasing Hardy Salt from the terms of the employment contract. Schmalz then claimed that 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 not signed the release under duress, because Hardy Salt breached the contract. b. had not signed the release under duress, because he was not threatened with a wrongful act. c. had signed the release under duress, because Hardy Salt dominated their relationship. d. had signed the release under duress, because he was under great economic need at the time he signed it.

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

A salesman convinced Juan to purchase a product on the terms that all sales are final. Juan found that the product did not live up to his expectations. In addition, it is clear that the salesman made a misrepresentation about the product, he intended to deceive Juan, and Juan justifiably relied on the salesman's statements. Juan now wants to rescind the contract--return the product and get his money back. In order to do so, a court would probably: a. require proof of duress. b. not require a showing of injury. c. require proof of undue influence. d. require a showing of injury.

b. not require a showing of injury.

bilateral mistakes of fact

both parties are mistaken- voidable by either party -word or term with more than one reasonable interpretation

Taking advantage of someone based on the relationship with that party to the extent they lack free will to make a decision is known as: a. optimization. b. scienter. c. undue influence. d. duress.

c undue influence

Davis, a rare coin dealer and expert collector, buys a coin from Ellen's coin shop. Ellen tells Davis that it is a rare coin, one of only eight like it known to still be in existence. Ellen knows that this coin was actually minted one year after the rare variety and is worth little more than face value. This information is printed in many widely available coin guidebooks. Davis thinks this opportunity is almost too good to be true, but he doesn't want to pass it up, so he purchases the coin for a very high price. Later, Davis does some research and discovers that the coin is not worth what he paid for it. If he sues Ellen for fraudulent misrepresentation, is he likely to win? a. No, because he made a mistake of value. b. Yes, because he made a mistake of value. c. No, because he could not justifiably rely on Ellen's misrepresentation. d. Yes, because Ellen intended to deceive him.

c. No, because he could not justifiably rely on Ellen's misrepresentation.

Mark agrees to buy Dale's one-half-ton truck so that he can pull his trailer. Both Mark and Dale believe that the truck is large enough to do the job. After they complete the deal, Mark hitches the truck to the trailer and attempts to pull the trailer, but without success. The contract between Mark and Dale can be rescinded because of: a. a unilateral mistake. b. an allowable mistake. c. a mutual mistake. d. a beveled mistake.

c. a mutual mistake.

Mark Van Wagoner, a real estate investment attorney, and his wife Katherine were interested in buying property from Carol Klas. When the Van Wagoners asked about the appraised value of the property, Klas replied that there were several appraisals, all ranging from $175,000 to $192,000. Without looking at any appraisals in writing, the Van Wagoners agreed to purchase the property for $175,000. Klas then provided a written appraisal listing the value of the property as $165,000. When the Van Wagoners refused to go through with the deal, Klas sued the Van Wagoners to recover the difference between the agreement price and the price for which the house was later sold. The Van Wagoners claimed that the contract should be rescinded on the basis of their mistaken assumption as to the value of the house. The court most likely: a. allowed the rescission based on fraudulent misrepresentation. b. 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. d. allowed the rescission, because a bilateral mistake occurred.

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

Misrepresentation of the law generally does not allow a party to cancel a contract because: a. you don't have the duty to disclose. b. there is no intent to deceive. c. people are assumed to know the law. d. the mistake was voluntary.

c. people are assumed to know the law.

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. seek to avoid the contract on the basis of undue influence. b. claim that she was defrauded. c. seek to avoid the contract on the basis of duress. d. do nothing; it's too late.

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

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

c. words or actions.

lack of voluntary consent

can be used as a defense to the contract's enforceability -1 or more party is mistaken about an important fact -fraudulent misrep -undue influence -duress

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

Which of the following is not an element of fraudulent misrepresentation? a. A misrepresentation of a material fact b. Justifiable reliance on the misrepresentation c. An intent to deceive d. An innocent party under 21 years of age

d. An innocent party under 21 years of age

Leonard wants to open a convenience store in a residential neighborhood, as he thinks it would be a great business opportunity. Carly has a piece of property for sale in the ideal location for Leonard's store. Carley has no idea whether the property is zoned for commercial or residential development, but tells Leonard, "according to town law, I'm pretty sure the property is zoned for commercial development." Leonard purchases the property, makes plans to build his store, and then discovers that Carly misstated information to him. Can Leonard avoid the contract? a. Yes, because Carly made a misrepresentation of fact. b. No, because there was a mutual mistake of value. c. Yes, because Carly defrauded him. d. No, because Carly made a misrepresentation of law.

d. No, because Carly made a misrepresentation of law.

If a party is fraudulently induced to enter into a contract, that party can: a. impose a counteroffer. b. do nothing if the innocent party consented to the terms. c. legally assault the other party. d. cancel (rescind) the contract.

d. cancel (rescind) the contract.

Blake is seeking to buy a mare that he can breed. Levi tells Blake about a horse that Levi wants to sell, stating that he (Levi) believes that the horse is extremely healthy and will be able to foal within eighteen months. After two years, the horse still has not foaled. The veterinarian informs Blake that the horse is physically incapable of breeding. In Blake's lawsuit to rescind the contract, it is: a. likely that a court will allow the rescission based on a unilateral mistake. b. unlikely that a court will allow rescission, because Blake made a mistake about market value only. c. unlikely that a court will allow rescission based on a mistake of fact. d. likely that a court will allow the rescission based on a mistake of fact.

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

reliance on the misrep

justifiable reason for reliance important factor in inducing the party to enter the contract -if defects are obvious-> not justifiable -defects latent (hidden)-> justifiable

voluntary consent

knowledge of & genuine assent to the terms of a contract

misrep by conduct

lying, can involve denial

unilateral mistakes of fact

made by only one party about a material fact -cannot avoid -enforceable against mistaken party exceptions: 1. other party knows/should have known about the mistake 2. error due to substantial math mistake, accidental & w/o intentional carelessness

In selling a warehouse to A&B Enterprises, Ray does not disclose that the foundation was built on unstable pilings. A&B may later avoid the contract on the ground of misrepresentation. undue influence. duress. none of the above.

misrepresentation

mistakes of value

mistakes concerning the future market value or quality -enforceable -bilateral or unilateral -cant avoid b/c value is variable depending on time, place, etc -when parties form a contract: parties assume the risk that the value will change

mistakes of fact

must involve a material fact: important and central to the subject matter of contract *voidable* -unilateral -bilateral

misrep by silence

neither party has a duty to come forward & disclose facts -wont be set aside b/c certain info isnt volunteered *exception*: if seller knows of a serious potential problem that the buyer cannot be expected to discover

Bob agrees to sell ten shares of Black Bear Corporation stock to Pam. Neither party knows whether the stock will increase or decrease in value. Pam believes that it will increase in value. If she is mistaken, her mistake will justify voiding the contract. not justify voiding the contract. justify a refund to her from Bob of the difference. justify a payment from her to Bob of the difference.

not justify voiding the contract.

undue influence

one party can greatly influence another party, overcoming that party's free will -minors & elderly -- guardian -confidential relationships or relationships founded on trust (ex/ doctor, attorney)

Adam persuades Beth to contract for his company's services by telling her that his employees are "the best and the brightest." Adam's statement is duress. fraud. opinion. undue influence.

opinion

injury to the innocent party

proof req to recover damages -measure of damages = diff b/n how much said it costed vs actual -court awards punitive damages: punish a defendant or set an example

intent to deceive

scienter: guilty knowledge -if a party knows that a fact is not as stated -if a party makes a statement that he/she believes not to be true or made recklessly -party says statement is made on personal knowledge- but really isnt

duress

threats made to force a party to enter into a contract -carry out or avoid

fraudulent misrepresentation

tort: contract can be avoided- no voluntary consent, can cancel or enforce & seek damages

misrep by words

words or writing -statement of opinion (seller's talk, puffery)- tout products w/o being liable not a claim in fraud