Chapter 13

A person who seeks to recover damages for deceit has to establish, apart from the elements of rescission, an additional element of: A. injury. B. injustice. C. fraud. D. materiality.

A. injury.

Sue wanted to purchase a car. She went to "Honest Bob's" used car sales. She was interested in a classic 1956 Jaguar XK 140 Roadster. Bob told her "this is a great car-it runs like a dream, it is a sweet ride." Bob's statements are legally considered to be: A. opinion statements. B. material representations. C. innocent misrepresentations. D. fraudulent, if they are false.

A. opinion statements.

Contracts that are induced by misrepresentation are considered: A. voidable. B. enforceable. C. material. D. fraudulent.

A. voidable.

Threats to institute legal actions cannot be considered improper threats that constitute duress.

False

While economic pressure may amount to undue influence, it cannot constitute duress.

False

A party injured by fraud in a contract for the sale of goods can both rescind the contract and sue for damages.

True

Concealment involves the active hiding of a fact, while nondisclosure is the failure to volunteer information.

True

Undue influence cases often involve a relationship of trust and confidence between the contracting parties.

True

A person who commits fraud may be liable for punitive damages for the tort of: A. deceit. B. fraud. C. misrepresentation. D. assertion.

A. deceit.

Which of the following is a remedy in the case of an erroneous expression of an agreement due to an error in drafting? A. Reformation B. Rescission C. Avoidance D. Tort of deceit

A. Reformation

The main difference between concealment and nondisclosure is that: A. concealment is always regarded as an assertion of fact, while nondisclosure may or may not amount to such an assertion. B. a tort suit is possible in a concealment case, but not in a nondisclosure case. C. punitive damages are available in a nondisclosure case, but not a concealment case. D. nondisclosure is always regarded as an assertion of fact, while concealment may or may not be an assertion of fact.

A. concealment is always regarded as an assertion of fact, while nondisclosure may or may not amount to such an assertion.

David entered into a contract to sell Ruth a parcel of land fully aware that Ruth's intention of purchase was to construct a high-rise commercial building. David was also aware that the subsurface soil condition of the property would prevent such construction. The soil condition was not readily discoverable in the course of normal inspections or soil evaluations. David did not disclose the existence of the condition to Ruth, nor did Ruth make any inquiry of David as to the suitability of the land for the intended development. David's silence as to the soil condition: A. renders the contract voidable at Ruth's discretion. B. entitles Ruth only to monetary damages. C. makes the contract a case of a mutual mistake. D. does not affect the validity of the contract.

A. renders the contract voidable at Ruth's discretion.

Which of the following statements, if false, is most likely to create liability for fraud or misrepresentation? A. "This rare antique chair probably is worth $10,000." B. "This crane will lift a 10,000-pound load." C. "This car is a perfect gem." D. "In my opinion, this car is in flawless mechanical condition."

B. "This crane will lift a 10,000-pound load."

Which of the following is most likely to constitute undue influence? A. A firm demanding more in terms of pricing by withholding essential supplies. B. A clergyman using a parishioner's emotional susceptibility to get the parishioner to contract with the clergyman. C. Threatening to commence a frivolous criminal prosecution against someone, in order to get them to contract with you. D. Grabbing someone's hand and forcing them to sign on a contract you have prepared.

B. A clergyman using a parishioner's emotional susceptibility to get the parishioner to contract with the clergyman.

Which of the following is often taken to be the equivalent of an assertion? A. Oversight B. Concealment C. Reliance D. Materiality

B. Concealment

Which of the following is a ground for avoidance of contract based on a unilateral mistake? A. Both parties are mistaken about a fact. B. Nonmistaken party caused the mistake. C. The mistaken party had reason to know of the mistake. D. Person affected by the mistake does not bear the risk for it.

B. Nonmistaken party caused the mistake.

Paco Corp., a building contractor, offered to sell Roy several pieces of used construction equipment. Roy, engaged in the business of buying and selling equipment, accepted the offer. Paco's written offer had been prepared by a secretary who typed the total price as $10,900, rather than $109,000, which was the approximate fair market value of the equipment. Paco learned of the error in the offer and refused delivery of the equipment unless Roy agreed to pay $109,000. Roy has sued Paco for breach of contract. Which of the following scenarios is the likely outcome? A. Paco will not be liable because there has been a mutual mistake of fact. B. Paco will be able to rescind the contract because Roy should have known that the price was erroneous. C. Roy will prevail because Paco is a merchant. D. The contract is enforceable because Roy had accepted it.

B. Paco will be able to rescind the contract because Roy should have known that the price was erroneous.

Which of the following ends the right to rescind a voidable contract? A. Acquiescence B. Ratification C. Concealment D. Assertion

B. Ratification

Jerry owns a parcel of land. Nate, one of Jerry's closest friends and an attorney, has persuaded Jerry to sell the land to Nate at a price substantially below fair market value. At the time Jerry sold the land, he was resting in a nursing home recovering from a serious illness. If Jerry desires to set aside the sale, which of the following causes of action is most likely to be successful? A. Duress B. Undue influence C. Fraud D. Misrepresentation

B. Undue influence

Bob's threat to breach an existing contract unless Lauren makes another contract with Bob is considered: A. an element of duress, because breach of an existing contract violates a criminal statute. B. an element of duress, depending mainly on the coerciveness of the threat. C. not an element of duress, because it does not involve physical force. D. not an element of duress, because breaking a contract normally does not violate a criminal statute.

B. an element of duress, depending mainly on the coerciveness of the threat.

Assuming that the economic condition of the country is progressing, Peter entered into a contract with John for the sale of substantial amount of shares of his company for consideration of $1,000,000. However, due to a slump in the market in the next few months, Peter lost heavily. This would lead to: A. avoidance of the contract. B. enforcement of the contract. C. rescission of the contract. D. reformation of the contract.

B. enforcement of the contract.

Jim, the CEO of Maple Inc., had to sign a few papers that Amanda, his secretary, presented to him. Unknown to Jim, Amanda had carefully slipped in a contract for the sale of Jim's home to her in the papers which he signed. If Amanda seeks to enforce the contract, Jim's best defense to have the contract declared void would be: A. innocent misrepresentation. B. fraud in the execution. C. mistake. D. duress.

B. fraud in the execution.

One of the differences between fraud and misrepresentation is that: A. there is a requirement of materiality in fraud cases. B. in fraud cases, the injured party has the option of suing for monetary damages. C. misrepresentation requires scienter. D. a false statement of opinion cannot be the basis for a claim of misrepresentation.

B. in fraud cases, the injured party has the option of suing for monetary damages.

A fact is considered to be material in a misrepresentation case when: A. the misrepresentation is considered to be innocent. B. it plays an important role in inducing a person to enter into a contract. C. it is relied upon by a person, even though it could not possibly be true. D. it is similar to an opinion or promise about some future happening.

B. it plays an important role in inducing a person to enter into a contract.

Martin Nowak, an accountant, entered into a written contract with Jane Gibson to perform certain tax services for Jane. Shortly thereafter, Jane was assessed additional taxes and she wanted to appeal the assessment. Jane was required to appeal immediately and the workpapers held by Martin were necessary to appeal. Martin refused to furnish Jane with the workpapers unless he was paid a substantially higher fee than was set forth in the contract. Jane reluctantly agreed in order to meet the filing deadline. The contract as revised is: A. voidable at Jane's option based on undue influence. B. voidable at Jane's option based on duress. C. void on the ground of undue influence. D. void on the ground of duress.

B. voidable at Jane's option based on duress.

Which of the following is most likely to constitute a misstatement that can give rise to fraud or misrepresentation liability? A. A broker says to his client, "I think that this car's engine has been overhauled." B. A customer sales representative of the most popular brand of car says to the customer, "This is the highest selling car in town." C. An owner of a house gets his ceiling painted to conceal a leaking roof and says, "I got the ceiling painted recently." D. The owner of an unencumbered horse states, "I am selling the horse to raise funds for my ranch."

C. An owner of a house gets his ceiling painted to conceal a leaking roof and says, "I got the ceiling painted recently."

Joe sells his business to Shirley. During the negotiations, Joe negligently tells Shirley that the business has earned a profit for the last five years. In reality, the business operated at a loss for each of those years. However, Shirley did not hear Joe's misstatement. Shirley cannot rescind the contract because: A. Joe's false statement was negligent rather than intentional. B. Joe's misstatement was not material. C. Shirley did not actually rely on Joe's misstatement. D. an untrue assertion of fact was made.

C. Shirley did not actually rely on Joe's misstatement.

Which of the following must a person prove to rescind a contract if the misrepresentation was innocent? A. That the fact was asserted B. That the fact was disclosed C. That the fact was material D. That the fact was ratified

C. That the fact was material

Which of the following elements establishes a case of duress? A. An assertion was made with knowledge of its falsity. B. There is an untrue assertion of a fact. C. The contract was induced by improper threat. D. There is a mistake about the basic assumption of the contract.

C. The contract was induced by improper threat.

Which of the following is true of the remedies for misrepresentation and fraud? A. All states allow a victim of fraud to rescind and sue for damages. B. A person can claim punitive damages for fraud under the tort of misrepresentation. C. The contractual remedy for innocent misrepresentation is rescission. D. Ratification enables the right to rescind a contract.

C. The contractual remedy for innocent misrepresentation is rescission.

James has entered into a contract to sell his house to Mikhael. James knows that the house has a bad termite infestation that significantly reduces the value of the house. However, the topic of termites never came up and James did not volunteer any information about the termites. Mikhael is not aware of the termite problem. Under the law of most states, has legal misrepresentation occurred here? A. No, because James made no statement that was false. B. No, because a seller does not have a duty to reveal all faults. C. Yes, because a seller must always inform a buyer about defects that are not obvious. D. Yes, because James is concealing the termite infestation from Mikhael.

C. Yes, because a seller must always inform a buyer about defects that are not obvious.

A party to a contract who seeks to rescind the contract because of that party's reliance on the unintentional but materially false statements of the other party will assert: A. reformation. B. actual fraud. C. misrepresentation. D. constructive fraud.

C. misrepresentation.

According to contract law, a(n) _____ is a belief about a fact that is not in accordance with the truth. A. assertion B. concealment C. mistake D. material

C. mistake

On May 6, Robbie entered into a signed contract with Ed, whereby Robbie was to sell Ed a painting having a fair market value of $350,000 for $130,000. Robbie believed the painting was worth only $130,000. Unknown to either party, the painting had been destroyed by fire on May 4. If Ed sues Robbie for breach of contract, Robbie's best defense is: A. risk of loss had passed to Ed. B. lack of adequate consideration. C. mutual mistake. D. unconscionability.

C. mutual mistake.

To establish a cause of action based on fraud in the inducement, one of the elements the plaintiff must generally prove is that: A. it is impossible for the plaintiff to fulfill the terms of the contract. B. the contract is unconscionable. C. the defendant made a false representation of a material fact. D. there has been a mutual mistake of a material fact by the plaintiff and defendant.

C. the defendant made a false representation of a material fact.

Hally took advantage of a confidential, trusting relationship with Gwyn when they entered into a contract. Now, Gwyn can seek remedy based on: A. duress. B. unconscionability. C. undue influence. D. fraud in the execution.

C. undue influence.

_____ is a wrongful coercion that induces a person to enter or modify a contract. A. Deceit B. Mistake C. Fraud D. Duress

D. Duress

Identify the difference between a case involving intentional fraud and innocent misrepresentation. A. The contractual remedy of rescission is not available in a misrepresentation case. B. A person committing innocent misrepresentation is liable for punitive damages for the tort of deceit. C. Reasonable reliance of the complaining party is not required in a fraudulent case. D. Materiality is not required in a fraudulent case.

D. Materiality is not required in a fraudulent case.

In which of the following cases can the remedy of rescission be invoked by the affected party? A. Mistake of tort B. Mistake of contract C. Mistake of law D. Mistake of fact

D. Mistake of fact

Geometry Co. manufactures microchips for electrical products. Jojoba monopolizes the supply of gallium arsenide, which is used heavily in the manufacturing of microchips. Because of this monopoly and the demand for microchips, Geometry enters into a long-standing agreement with Jojoba for 20 years. For the first couple of years, due to the huge demand for the microchips, Geometry insisted on timely delivery of the raw material. However, once the demand slumped, Geometry asserted economic duress to avoid the contract. Will Geometry be successful? A. Yes, because Geometry was forced to enter the contract due to Jojoba's monopoly over the supply of the raw material. The consent was not free. B. No, because the facts prove that Jojoba had not caused any undue duress. C. Yes, because there was economic duress and thus the contract is voidable at Geometry & Co.'s discretion. D. No, because Geometry has already taken benefits under the contract for two years.

D. No, because Geometry has already taken benefits under the contract for two years.

Jean agrees to lease Steven the fourth floor of his house. Jean himself resides on the second floor. The person typing the contract strikes the wrong key, and the contract reads the leased portion as the "second floor." Neither Jean nor Steven notices this error when they read and sign the contract. What will the courts do in the case of a dispute? A. Avoid the contract B. Rescind the contract C. Enforce the contract D. Reform the contract

D. Reform the contract

Morton Reeves, a building subcontractor, submitted a bid for construction of a portion of a high-rise office building. The bid contained material errors in computation. Lago Corp., the general contractor, accepted the bid with the knowledge of Reeves' errors. Reeves: A. must perform the contract unless he can show that Lago acted fraudulently. B. must perform the contract according to the stated terms since his errors were unilateral. C. can avoid liability on the contract only if his errors were not due to his negligence. D. can avoid liability on the contract since Lago knew of his errors.

D. can avoid liability on the contract since Lago knew of his errors.

An important difference between duress and undue influence is that: A. duress occurs in a relationship of trust, while undue influence employs improper threat. B. duress involves physical compulsion, while undue influence involves economic compulsion. C. the scope of duress has contracted since the 19th century, while the scope of undue influence has expanded since the 19th century. D. duress is wrongful coercion, while undue influence is unfair persuasion.

D. duress is wrongful coercion, while undue influence is unfair persuasion.

In order for a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller's improper threats: A. were due to his relationship with the purchaser. B. actually induced the purchaser to assent to the contract. C. were due to his position of dominance with the purchaser. D. influenced the purchaser to assent as there were no reasonable alternatives.

D. influenced the purchaser to assent as there were no reasonable alternatives.

The primary distinction between an action based on innocent misrepresentation and an action based on common law fraud is that, in the former, a party need not allege and prove: A. that there has been a false representation. B. the materiality of the misrepresentation. C. reasonable reliance on the misrepresentation. D. that the party making the misrepresentation had actual or constructive knowledge that it was false.

D. that the party making the misrepresentation had actual or constructive knowledge that it was false.

A famous journalist predicted the result of an NBA match between the LA Groves and LA Phantoms in favor of the Phantoms, based on the present form of Groves. Accordingly, Mark placed a huge bet on the Phantoms and lost heavily. This is an example of misrepresentation of a material fact of a contract.

False

A party who has the right to rescind a contract may do so at any time.

False

Generally, if there is a good faith dispute over a matter, a person's threat to file a lawsuit to resolve that dispute is considered to be improper.

False

The legal term for innocent misrepresentation is "scienter."

False

When one of the parties offers a disproportionately small amount of money in settlement of a debt and refuses to pay more, it is a form of economic duress.

True

A contract may be voidable even if the person making the misrepresentation believes in good faith that what he/she says is true.

True

In order for a unilateral mistake to make a contract voidable, either the nonmistaken party must have caused or had reason to know of the mistake, or enforcement of the contract must be unconscionable.

True

Mutual mistake is more likely to make a contract voidable than is unilateral mistake.

True

Ratification ends the right to rescind a contract.

True

The threat to institute a criminal prosecution against another party in order to force that party into a contract is almost always duress.

True