Business Law Chapter 11

Pat told her friends that her car got 35 miles to the gallon in the city when in reality it only got 20 miles per gallon. When Pat decides to sell and one these friends decides to buy the car, Pat is under no duty to tell the correct figure unless asked

False

Ty threatened to have Lisa's father prosecuted for embezzlement unless Lisa signed a contract to pay Ty 12 monthly payments of $500 each to purchase his car. Lisa cannot avoid the contract based on duress since the threat was toward Lisa's father rather than Lisa herself.

False

Undue influence is the taking of unfair advantage of a person by reason of a dominant position based upon a confidential relationship

True

Which of the following is correct with regard to duress? a. It always renders a contract void. b. Duress by improper threats is the most common form of duress. c. The wrongful act must be either a crime or a tort in order to be considered wrongful. d. All of the above.

b. Duress by improper threats is the most common form of duress.

Fraud in the inducement will render an agreement void

false

Adam wants to buy a six-passenger car. The salesman tells him that the two-seat sports car Adam sees on the car lot would be just perfect for six people. Adam test drives the car and then buys it. a. Adam has a valid cause of action for fraud. b. Adam was not justified in relying upon the salesman's representation that the car would seat six people. c. The element of scienter is missing in this fact situation. d. The salesman is in a confidential relationship with Adam.

b. Adam was not justified in relying upon the salesman's representation that the car would seat six people.

Which of the following results in a void contract? a. Duress by improper threat. b. Duress by physical force. c. Undue influence on a party. d. Fraud in the inducement. e. Both (b) and (d).

b. Duress by physical force.

Contracts induced by threats of __________ are voidable, regardless of whether the coerced party has committed an unlawful act. a. civil prosecution b. criminal prosecution c. tortious conduct d. a lawsuit to recover a debt

b. criminal prosecution

Which of the following would be considered to be a misrepresentation of a material fact for purposes of establishing fraud in the inducement? a. A statement of value, such as "This is the best car in town for the money." b. "This style of jacket is going to be the most popular style next year." c. "This car has a new radiator." d. "In my opinion, this is the best buy for the money."

c. "This car has a new radiator."

A misrepresentation is material if: a. it would likely induce a reasonable person to enter into a transaction. b. the maker knows it would likely induce the other party to enter into the transaction. c. it is made knowingly. d. Either (a) or (b).

d. Either (a) or (b).

When both parties misunderstand their manifestation of mutual assent, it is termed: a. mistakes of fact. b. unilateral mistake. c. mistake of law. d. mutual mistake.

d. mutual mistake.

For a misrepresentation to be fraudulent, it need not be material

False

Fraud in the execution is a fairly common occurrence and involves defrauding a person as to the very nature of the contract

False

Marjorie has been cared for by her family physician for 35 years. She decides to assume the mortgage on his new clinic. The contract is automatically invalid because of undue influence.

False

At the marriage of her daughter, Lorna is given papers to sign, which the catering company says are the invoices for the food, service, and decorations. Underneath the invoices are a carbon and a contract of sale for a portion of the failing catering business. Lorna signs the papers; her signature is transferred to the sales contract. This is a void contract because it was entered by fraud in the execution.

True

Jill contracts to purchase Kevin's automobile under the belief that she can sell it at a profit to Linda, but after Jill has bought the car, she finds out that Linda isn't interested in buying it. a. Jill cannot void the contract. b. Jill can rescind the agreement. c. Jill could rescind the agreement if she was mistaken in her estimate of the value of the auto. d. Jill can sue Linda for detrimental reliance.

a. Jill cannot void the contract.

Albert found a stone in his yard and took it to Bob, a jeweler, for evaluation. Bob wasn't sure as to the nature of the stone, but told Albert he thought it was a topaz. Bob then offered to buy the stone for $25 and Albert agreed. Later Albert found out the stone was an uncut diamond worth about $700. a. This is a valid contract that should be enforced by the law, because neither party knew the exact nature of the stone at the time of the sale. b. This contract can be voided based upon fraud in the execution. c. This contract can be voided based upon fraudulent misrepresentation. d. This contract can be voided based upon mistake as to the identity of the subject matter.

a. This is a valid contract that should be enforced by the law, because neither party knew the exact nature of the stone at the time of the sale.

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. a. The seller is in breach and must pay damages. b. The seller is guilty of fraud in the inducement for failing to disclose to the buyer which ship would contain the goods. c. No contract exists due to mistake in meaning of terms. d. Two of the above, (a) and (b).

c. No contract exists due to mistake in meaning of terms.

In the Lesher v. Strid case, the court held that: a. a representation is material if it is likely to influence a reasonable person. b. for a misrepresentation to be actionable, it must be one of fact rather than of opinion. c. a mutual mistake of fact renders a contract voidable by the adversely affected party if the mistake is so fundamental that it frustrates the purpose of the contract. d. the contract's "as is" clause expressly excluded reliance on extrinsic representations such as the defendant's representation about the four-acre water rights.

c. a mutual mistake of fact renders a contract voidable by the adversely affected party if the mistake is so fundamental that it frustrates the purpose of the contract.

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: a. can avoid the contract because of mistake by failure to read. b. can avoid the contract because he was the victim of economic duress. c. cannot avoid the contract because of economic duress or failure to read. d. may rescind the contract because of unilateral mistake.

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

In the Berardi v. Meadowbrook Mall Company case, the court found: a. plaintiffs must produce subjective evidence of their duress to win a case of economic duress. b. duress is readily accepted by the courts as a reason to avoid a contract. c. economic duress must leave the plaintiff no reasonable alternative but to acquiesce to the terms of the contract. d. plaintiffs who prove economic duress may void the transaction, and this is their complete remedy.

c. economic duress must leave the plaintiff no reasonable alternative but to acquiesce to the terms of the contract.

An arm's length transaction is one in which: a. the parties owe each other a special duty of confidentiality. b. the parties owe each other a fiduciary duty. c. the parties are acting in their own self-interest. d. None of the above.

c. the parties are acting in their own self-interest.