BLAW 3430 Ch. 11

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:

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

Contracts induced by threats of __________ are voidable, regardless of whether the coerced party has committed an unlawful act.

criminal prosecution

Justifiable reliance

requires that the misrepresentation contribute substantially to the misled party's decision to enter into the contract.

Relationships that may lead to a court's careful scrutinization of contracts between the parties to make sure undue influence was not present include all but

salesperson and customer.

In relation to fraud, scienter is a legal term which means

that the seller had knowledge that his statements are false and had the intention to deceive.

An arm's length transaction is one in which

the parties are acting in their own self-interest.

Which of the following would be considered to be a misrepresentation of a material fact for purposes of establishing fraud in the inducement?

"This car has a new radiator."

If incorrect, which of the following would probably be considered a misrepresentation of a material fact?

"This car has new brakes."

What renders a K Voidable

- Economic duress ( Improper Threat) - Undue Influence - Fraud in the Execution

Which of the following, if any, are requisites for fraud in the inducement?

- False representation of a fact that is material. - Representation is made with knowledge of its falsity and the intention to deceive. - The representation is justifiably relied on.

LO 4: Explain the elements required for fraud in the inducement and the effect of fraud in the inducement on an agreements

- Makes agreement VOIDABLE Requires 4 things - misrepresentation - material fact - made with knowledge of the falsity or intent to deceive - which is justifiably relied on

LO 6: Explain the types of mistakes which make an agreement voidable

- Mutual Mistake - both parties are mistaken as to the same facts (VOIDABLE) - Unilateral mistake - one party is mistaken as to facts. Mistaken party can avoid agreement if the non mistaken part knows of error or should have known (VOIDABLE)

What renders a K Void

- Physical Duress - Fraud in the Execution

What renders a K Valid?

- an agreement - Real consent

A misrepresentation is material if:

- it would likely induce a reasonable person to enter into a transaction. - the maker knows it would likely induce the other party to enter into the transaction.

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. Jill:

Cannot avoid the contract

Which of the following is NOT an element of fraud?

Competent parties.

Which of the following is correct with regard to duress?

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

Which of the following results in a void contract?

Duress by physical force.

By holding a knife to his back, Ed compelled Sean to sign a contract advantageous to Ed. This contract was entered under:

Physical Duress

LO 1: Explain the types of duress and the legal effect each has on an agreement

Physical duress - renders agreement VOID Improper Threat (economic duress) - renders agreement VOIDABLE

Ralph sold a motel to Steve by stating that he had paid $250,000 for it and that his net average annual profit from the business has been $40,000. In reality he paid $100,000 for the motel and has earned a net average annual profit of only $28,000. Steve made no attempt to verify the statements until after the transaction was completed. In this case:

Ralph has committed fraudulent misrepresentation. the contract is voidable at Steve's option.

LO 2: List the elements of undue influence and the types of relationships that give rise to a confidential relationship

Requires unfair persuasion by a person in a confidential relationship - Make the agreement VOIDABLE Fiduciary - relationship of trust or confidence (doctor, lawyers, etc)

LO 5: Define nonfraudulent misrepresentation and explain the effect it has on an agreement

Same as fraud without being made with knowledge of falsity. Makes agreement VOIDABLE

LO 3: What is required in order to prove fraud in the execution and the effect of fraud in the execution on an agreement

Signing something you would not have signed, believed it to be something else. - This make an agreement VOID

Which of the following need NOT be proved in order to establish the defense of economic duress?

That one party explicitly made the economic threat.

Steven has a typed copy of a contract, which he would like to have Thomas sign. Thomas, who needs glasses to read typing, doesn't want to sign until he has read the document, but Steven convinces Thomas to sign it anyway, because it is a "standard" contract for this type of situation. Is the contract which Thomas signed binding upon him?

Yes, because he was negligent in not ascertaining its contents.

Which of the following can meet the scienter requirement to establish fraud in the inducement?

Actual knowledge. Lack of belief in the statement's truthfulness. Reckless indifference as to a statement's truthfulness.

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. In this case:

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, rather than voidable, agreement?

Fraud in the execution.

James threatens to hit Kenneth in the head with a baseball bat unless Kenneth signs a contract agreeing to pay James $400 for his saw. If, because of the threat, Kenneth signs the contract:

James has committed physical duress against Kenneth.

Stewart entered into a contract with Will to have Will build a 10-unit apartment complex on Elm Street in Randolph County. Unknown to both parties, this land had recently been rezoned and only single-unit dwellings can be constructed.

This is a mistake in law, which is treated no differently than a mistake in facts.

Tom tries to sell his classic car to Victoria for $12,000. Tom tells Victoria, "I paid $12,000 for the car in 1978 and it's worth twice that today." Tom really paid $8,000 for the car in 1978. If Victoria buys the car, basing her decision on Tom's statement, which of the following correctly states the situation?

Tom's statements provide grounds to set the contract aside.

An intentional misrepresentation of a material fact made with knowledge of the falsity and intention to deceive and which a party justifiably relies upon to his detriment is known as:

fraud in the inducement

Sam wants to sell his Golden Retriever to Al. Sam tells Al that the dog is three years old and that he will point, back, and retrieve. Although the dog is three years old and will point at birds, he will not back (honor another dog's point). Al relies on these statements and purchases the bird dog. The buyer has probably been a victim of:

fraud in the inducement.

The remedies of damages and rescission are available for:

fraudulent misrepresentation. negligent misrepresentation. innocent misrepresentation.

A fiduciary

is a person in a confidential relationship who owes a duty of trust and loyalty to another.

A fraudulent misrepresentation

must be material to recover damages.

When both parties are mistaken as to the same set of facts, it is termed:

mutual mistake.