Ch. 11 quiz

A fiduciary is a: person in a subservient position. person who owes a duty of trust, confidence, and loyalty to another. form of formal conduct. person of equal power and control.

b

A unilateral mistake of fact is ordinarily grounds for avoiding a contract. True False

false

A misrepresentation is material if: it would likely induce a reasonable person to enter into a transaction. it changes the price paid by the buyer. it is made knowingly. All of these.

A

A basic element of fraud is a false representation or a misrepresentation. True False

true

An act that is contrary to public policy or is morally reprehensible may constitute duress. True False

true

Mistake by failure to read a document is grounds to void a contract. True False

false

A seller's promise to service a sewing machine free for the next 90 days when she has no intention of doing so is actionable as a false representation of a fact if the other elements of fraud are present. True False

true

Al owns a farm that he believes is worth $150,000. Betty knows that there is oil under the farm and offers Al $160,000 for it. Al is suspicious and asks her why she wants to buy the place. She says she would like to live in the country. Al then asks her if she thinks there might be valuable minerals under the land. Betty laughs and says she doubts that very much, so Al sells her the farm for $160,000. Al later realizes that the land was worth more than he was paid. Betty's statement to Al was a misrepresentation requisite for fraud. True False

true

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. As Lorna signs the papers, her signature is applied to the sales contract. This is a void contract because it was entered by fraud in the execution. True False

true

For a misrepresentation to be material, it must be likely to induce a reasonable person to manifest assent or the maker must know that it would be likely to induce the recipient to do so. True False

true

If a seller occupies a fiduciary relationship with the buyer and fails to make full disclosure to the buyer, then the latter will be able to avoid the transaction. True False

true

If an agreement is not voluntary and knowing, it will be either void or voidable. True False

true

Physical compulsion and improper threats are the two basic types of duress. True False

true

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 $30,000. Steve made no attempt to verify the statements until after the transaction was completed. In this case: Ralph has committed fraudulent misrepresentation and the contract is voidable at Steve's option. Steve is bound by the contract, because he failed to verify the statements which were made to him. the contract is not voidable, but Steve may sue for damages. the contract is automatically void.

a

Actionable fraud would be likely to be based on falsity of: a car owner's statement that, "This car is the best buy you will find." a realtor's statement that, "The contractor used 25-year warranted shingles on the roof." an art dealer's statement that, "This painting will increase in value." a stockbroker's statement that, "This stock should double in price within six months."

b

Alex wants to submit a bid on a city sewer project. He computes the cost, but mistakenly omits the cost of one item. Accordingly, he submits a bid of $430,000 to the city. The next highest bid is $675,000, and the rest of the bids are even higher. The city is happy to have such a low bid, so it accepts Alex's bid and awards him the contract for the job, even though the city engineer is of the opinion the job cannot be done for less than $650,000. In this case: Alex must perform for the agreed upon price because he has made a unilateral mistake. the city was aware of or should have been aware of Alex's mistake. When it accepted the bid with knowledge of Alex's mistake, the city sought to take an unconscionable advantage of Alex's error. the city must allow Alex to revise his bid to include the cost of the omitted item. Alex will be paid the fair market price according to the UCC for his work.

b

Contracts induced by threats of ____ are voidable, regardless of whether the coerced party has committed an unlawful act. civil prosecution criminal prosecution tortious conduct physical force

b

Kyle wants to buy a six-passenger car. The salesperson tells him that the two-seat sports car Kyle sees on the car lot would be just perfect for six people. Kyle test drives the car and then buys it. In this case: Kyle has a valid cause of action for fraud. Kyle was not justified in relying upon the salesperson's representation that the car would seat six people. the element of scienter is missing. the salesperson is a fiduciary.

b

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 amount to puffing only. Tom's statements provide grounds to set the contract aside. Tom's statements are actionable only if negligently made. Tom's statements amount to fraud in the execution.

b

A party to a contract may be able to avoid the contract if: there is a mutual mistake, and the party undertook to bear the risk by conscious allocation. there is a unilateral mistake, and the party undertook to bear the risk by conscious ignorance. there was a mistake and the mistaken party was at fault in not discovering the problem before making the contract. None of these.

c

Albert found a stone in his yard and took it to Bob, a jeweler, for evaluation. Although Bob knew what the stone was, he told Albert that he wasn't sure as to the nature of the stone, but that 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. The sale: was a valid contract that should be enforced by the law. can be voided based upon fraud in the execution. can be voided based upon fraud in the inducement. can be voided based upon mistake as to the identity of the subject matter.

c

Eliza was an antique expert. She went to a tea party at Grandma Jones' house and saw a magnificent Queen Anne table out on the back porch. She asked Grandma about it and was told it was in the way so they were going to store it in the barn. Eliza offered to buy it from her for $200. The next week, Grandma saw it in Eliza's store on sale for $3,000. Grandma: can get the table back because of fraudulent concealment of the value. can get the true value, because it would not be fair otherwise. cannot rescind the contract because Eliza did not have a duty to tell her the value of the table. cannot rescind the contract because she did not rely on Eliza to give her a fair price.

c

Fred is a concert violinist who is scheduled to perform at Carnegie Hall for the first time. He buys what he is told is a Stradivarius violin from a well-known, reputable dealer in quality violins, and he pays the going rate for a Stradivarius. He later learns the violin is an imitation, although it is such a good imitation that even the dealer thought it was authentic. In this case: Fred has made a unilateral mistake and cannot avoid the contract. the dealer has committed fraud in the inducement. the sale is voidable by the purchaser for mutual mistake. the sale is voidable, because the dealer has made a fraudulent misrepresentation.

c

If untrue, which of the following would probably be considered a misrepresentation of a material fact? "This is the one that I think is the best buy." "This is the best computer on the market." "This car has new brakes." "These tires will wear like iron."

c

Al owns a farm that he believes is worth $150,000. Betty knows that there is oil under the farm and offers Al $160,000 for it. Al accepts and sells the farm to Betty. Al later realizes that the land was worth more than $160,000. Al can have the contract avoided based upon fraud. True False

false

For a misrepresentation to be actionable as fraud in the inducement, it must be a misrepresentation of an opinion. True False

false

For a misrepresentation to be fraud in the inducement, it need not be material. True False

false

Historically, courts held that representations of law were statements of fact, but the present trend is to recognize that they have only the effect of statements of opinion. True False

false

If the act or threat would affect a person of average strength and intelligence, then and only then will the act constitute duress. True False

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. True False

false

Matt sells bikes at a local discount store. To encourage Bob to buy a more expensive model than he originally contemplated, Matt tells Bob, "This is the most awesome bike money can buy at this price. You can expect lots of riding pleasure." Based on this statement Bob buys the bike. A week later, before his bike is fully paid for, Bob sees a far superior bike for a lower price at another store. Bob can avoid his contract with Matt because of fraudulent misrepresentation. True False

false

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 the car and one of her friends decides to buy it, Pat is under no duty to tell the correct figure unless asked. True False

false

Fraud in the inducement will render an agreement void. True False

flase

Generally, whether or not the parties deal at arm's length does not affect whether silence alone amounts to fraud. True False

flase

If a confidential relationship exists between parties to a contract, the law presumes that undue influence exists if it appears that the dominant party has gained at the other party's expense, but the presumption can be rebutted by evidence that it was not exercised. True False

true

Rescission is usually permitted where the parties to a contract are both mistaken about a material fact. True False

true