ACCT. 324 Exam 1

Undue Influence

refers to those special relationships in which one person takes advantage of a dominant position in a relationship to unfairly persuade the other and interfere with that person's ability to make his or her own decision

Innocent misrepresentations permit the misled party to _____ the contract.

rescind; aggrieved party can't sue for damages also

Capacity

a person has legal capacity if they have the mental ability to understand their rights and obligations under a contract and presumably comply with the terms.

legal assent

a promise the courts will require the parties to obey

Intent to Deceive

occurs when the party making the false statement claims to have or implies having personal knowledge of its accuracy

Formation of a contract begins when the party initiating the contract, called the _______, makes an offer to another party, called the _______.

offeror, oferee

If a contract resulted from duress, the innocent party can__________.

opt to void the contract

Macon is planning to buy Kevin's car for $15,000. He gives Kevin $1,500 to keep the offer open for 30 days. Kevin will deduct the $1,500 from the price of the car if Macon purchases the car within the 30 days. If Macon does not buy the car during that time, Kevin will keep the $1,500 and may then offer the car to someone else. Which of the following contracts does this scenario best illustrate?

option contract

Incapacity or Incompetence

possession of mental or physical defect that prevents a natural person from being able to enter in a legally binding contract

When the obligations of a contract are terminated by a future event, that future event is referred to as a condition _______.

precedent

Kevin is offered a job by a reputable company in a different city. To take the new job, Kevin quits his previous job and moves to the new city along with his family. When he shows up at work, he is told that there is no job. Kevin can sue the employer under the theory of

promissory estoppel

The effect of both a negligent misrepresentation and a fraudulent misrepresentation is that

the victim can either rescind the contract or keep the contract and sue for damages.

Factors that enter into the finding of undue influence are the following:

- Was the dominant party rushing the other party to consent? - Did the dominant party gain undue enrichment from the agreement? - Was the nondominant party isolated from other advisers at the time of the agreement? - Is the contract reasonable because it overwhelming benefits the dominant party?

For a mutual mistake to interfere with legal consent, all the following must be present:

- a basic assumption about the subject matter of the contract - a material effect on the agreement - an adverse effect on a party who did not agree to bear the risk of mistake at the time of the agreement Courts will not void contracts for reason of mutual mistake if even one of these conditions is missing

For Nondisclosure to have the same legal effect as actual false assertion these conditions must be in place:

- a relationship of trust between parties to the contract - there is failure to correct assertions of fact that are no longer true - a statute requires the disclosure - the nondisclosure involves a dangerous defect

Conditions that would permit a court to invalidate a contract on grounds of unilateral mistake:

- one party made a mistake about a material fact, and the other party knew or had reason to know about the mistake - The mistake was caused by a clerical error that was accidental and didn't result from gross negligence - The mistake was so serious that the contract is unconscionable, that is, so unreasonable that it is outrageous

Which of the following conditions must be present for an offer to have a legal effect?

Definite and certain terms

Requirements for Fraudulent Misrepresentation:

1. a false statement about a past or existing fact that is material to the contract 2. Intent to deceive, which can be inferred from the particular circumstances 3. Justifiable reliance on the false statement by the innocent party to the agreement (generally present unless the injured party knew, or should have known by the extravagance of the claim, that the false statement was indeed false) if damages are sought, the defrauded party must have been injured by the misrepresentation

Unilateral Mistake

A mistake that occurs when one party to a contract is mistaken as to a material fact. (not generally void a contract, bc courts are hesitant to interfere when one party is correct)

Suppose that Hannah agrees to purchase Rachel's computer for $500. Hannah's payment of $500 is the _______ that Rachel will receive for her car.

Consideration

In a contract between Sophia and Carl, Sophia had agreed to pay Carl $30,000 to paint her house and redo her garden. Carl agreed to the terms. After painting the house, Carl decided and convinced Sophia that it would be a better deal for her if he could redo her swimming pool rather than the garden for the original price. Carl's duty under the original contract was discharged only after he performed the new duty. Which of the following methods to discharge a contract does this scenario best illustrate?

Discharge by accord and satisfaction.

Ronald agrees that he owes a bank $10,000, as claimed by the bank. Ronald explains to the bank that he can only pay the bank $8,000 as full payment toward the money he owes. The bank agrees to accept $8,000 from him. The following month, Ronald receives his new bank statement claiming that he still owes the bank $2,000. Which of the following statements is true of this scenario?

If Ronald does not agree to pay the remaining $2,000, the creditor may sue Ronald for the balance it believes is owed. Creditor's promise ti accept less than owed, when the debtor is already obligated to pay full amount, is not binding.

False Assertion of Fact

Includes an act of concealment or nondisclosure in addition to actual assertion. Concealment- the active hiding of the truth about a material fact Nondisclosure- failure to provide pertinent information

What is absent when a mistake of fact occurs?

Legal Assent

Amy offers to paint Louis's house for $1,000. The offer stated that acceptance in person was required. Within a reasonable time, Louis e-mailed Amy his acceptance. Which of the following statements is true about this situation?

Louis has not accpeted the offer as required by the offeror, and there is not contract

_______ occurs when a party to a contract unjustifiably fails to substantially perform his obligations under the contract.

Material breach

Maya pays $5,000 and purchases a car from her friend, Jane. Later, Maya realizes that the car is worth less than $3,000. Which of the following statements will be true if Maya plans to sue her friend?

Maya cannot sue Jane because the court seldom considers adequacy of consideration.

The terms of an acceptance that reflect the terms of an offer are known as the _______ rule.

Mirrior-Image Rule

Major obstacles to legal assent

Mistake, misrepresentation, undue influence, duress, and unconscionability

_______ occurs when one party makes a promise knowing the other party will rely on it, the other party does rely on it, and the only way to avoid injustice is to enforce the promise.

Promissory estoppel

Covenants not to compete in conjunction with the sale of a business are generally enforceable if which of the following conditions are met?

Provided the covenant not to compete is reasonable with regard time and location, the covenant will be enforceable.

innocent misrepresentation

Results from a false statement about a material fact that a person made believing it to be true (person had no knowledge the claim was false- lacked scienter)

Freddie offers to sell Lucy five video poker machines. Before Lucy can accept or reject Freddie's offer, the state legislature passes a statute that the purchase, sale, and possession of video poker machines is illegal. In this scenario, Freddie's offer terminates due to which of the following rules?

Subsequent illegality of the subject matter

How is an offeror's intent to be bound by an agreement demonstrated?

The courts determine an offeror's intent based upon how a reasonable person would interpret the offeror's words and actions.

When a minor enters into a contract, the minor has which of the following rights?

The minor has the right to disaffirm the contract only after reaching the age of majority.

Under common law, if the offeree's acceptance with terms that are not identical to the offeror's terms, then which of the following is true?

The offeree's attempted acceptance is considered a counteroffer rather than an acceptance.

In a novation, the original parties to the contract agree to which of the following?

The original parties to the contract and a third party all agree that the third party will replace one of the original parties and that the original party will then be discharged from his or her obligations under the contract.

If someone suffering from dementia has been appointed a guardian, which of the following is true regarding that person's ability to enter into a contract?

When someone has been appointed a guardian, that person's contracts are considered void.

If nothing is stated to the contrary in the terms of an auction, the auction is presumed to be _______, which means that the seller is merely expressing intent to receive offers.

With reserve

Fraudulent Misrepresentation

a false representation of a material fact that is consciously false and is intended to mislead the other party (aka intentional misrepresentation)

When a party attempts to ratify an agreement right after reaching the age of majority, there is a(n)

implied ratification

An agreement in which a party is given an offer without the right to negotiate its terms is called a(n) _______ contract.

adhesion

Mistake of Fact

an erroneous belief about the facts of the contract at the time the contract is concluded

Implied conditions are those conditions which _______.

are not explicitly stated in the contract but are inferred from the nature and language of the contract

Disaffirmance of the Contract

because their contracts are voidable, minors have the right, until a reasonable time after reaching the age of majority, to disaffirm or void their contracts. (only the minor has the right to disaffirm or void the entire contract, need only show intention to rescind it by words or actions)

Maya, a wedding planner, had agreed to use purple orchids for Janet's wedding. However, due to an embargo against the country from where the flowers were to be imported, Maya could not fulfill her promise. In this scenario, the contract between Maya and Janet may be discharged on the basis of

commercial impracticability.

Nominal damages are primarily

designed to signify that the plaintiff has been wronged by the defendant.

A "severable" contract is also known as a _______ contract.

divisible

The essential element of undue influence is the existence of a __________.

dominant-subservient relationship

_______ terms in an offer and its resulting contract allow a court to determine damages in the event that one of the parties breaches the contract. They include the subject matter, price, quantity, quality, and parties.

material

Negligent Misrepresentation

misrepresentation made without due care in ascertaining its truthfulness; renders agreement voidable

To recover damages in a breach-of-contract case, the nonbreaching party must demonstrate that she sought to _______ her damages.

mitigate

When the parties agree to discharge each other from the contract, _______ has occurred.

mutual rescission

Emancipation

occurs when a minor's parents or legal guardians give up their right to exercise legal control over the minor: -when the minor moves out of the parents' house -they begin supporting themselves -when a minor marries

Duress

occurs when one party is forced into the agreement by the wrongful act of another

When a court can void the illegal part of an agreement and enforce the rest if the terms represent the main purpose of the original agreement, it is a(n) _______ contract

servable

If a person who suffers from a mental illness or defect yet still understands the nature of the contract and his or her obligations under the contract, which of the following will result?

the contract will be considered valid

Justifiable Reliance on the False Assertion

the injured party has no justifiable claim of fraud after relying on assertions whose falsity should have been: -obvious clear to anyone who inspected the item

Restitution, as a primary equitable remedy for a breach of contract, is best described as

the return of any property given up under the contract.

If a party to a contract asks for an additional amount of money and agrees to do more work than the contract requires, the result is that the promise

to do the extra work is valid consideration.

In a ________ contract, if one party's consideration is a promise, and the other party's consideration will be an act.

unilateral

If the parties dispute either the existence of a debt or the amount of a debt, that debt is called a(n) _______ debt.

unliquidated

In a(n) _______ debt, the parties either disagree about whether money is owed or dispute the amount.

unliquidated

When a debt is _______, the parties may enter into a(n) _______.

unliquidated; accord and satisfaction

Misrepresentation

untruthful assertion by one of the parties about a material fact. It prevents the parties from having the mental agreement necessary for a legal contract

If a person has been adjudicated insane and has a guardian appointed, any contract the person attempts to enter into is

void

As a general rule, any contract entered into by a minor is _______ by the minor until he or she _______.

voidable; reaches the age of majority or a reasonable time thereafter

Mutual Mistake

when both parties are mistaken about a current or past material fact, either can choose to rescind the contract