Chapter 13: Genuineness of Assent and Undue Influence

64) What is physical duress?

threatening to physically harm someone if he or she does not sign a contract

40) Harry finds an old stereo in his attic. He sells the stereo to Jake for $50 telling him that it is fully functional, which Jake thinks is true. However, it turns out to be broken. Which of the following statements is true in this context?

Jake can rescind the deal but cannot sue Harry for innocent misrepresentation.

49) Fraud in the factum occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing.

TRUE

73) ________ is a situation in which one person takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person to enter into a contract.

Undue influence

15) A material fact is a fact that is irrelevant to the subject matter of a contract but pertains to the conduct of the parties.

FALSE

17) If there has been a mutual mistake, the contract cannot be rescinded.

FALSE

18) A unilateral mistake occurs if both parties know the object of the contract but are mistaken as to its value.

FALSE

43) A misrepresentation of a material fact is actionable as fraud only if it occurs by words.

FALSE

44) To be actionable as fraud, the misrepresentation must have been the sole factor in inducing the innocent party to enter into the contract.

FALSE

47) A misrepresentation is considered fraud even if it is made without intent to deceive another party.

FALSE

51) Fraud in inducement occurs when the party does not know the terms of the contract.

FALSE

52) Contracts involving fraud in inducement are not voidable.

FALSE

53) When one party takes specific action to cover a material fact from another party, fraud by enticement occurs.

FALSE

56) A misrepresentation of law is actionable as fraud as the innocent party cannot know every legal detail that applies to the situation.

FALSE

57) Misrepresentation of law is a fraud that occurs when a person makes a statement of fact that he or she honestly and reasonably believes to be true even though it is not.

FALSE

58) If an innocent misrepresentation has been made, the aggrieved party may sue for damages.

FALSE

59) Innocent misrepresentation is treated as a unilateral mistake.

FALSE

7) An action to undo a contract is called restitution.

FALSE

70) Duress is said to have occurred only where a threat involved a physical harm.

FALSE

71) Physical duress occurs when there is physical harm to the contractual document, such as complete or partial destruction or manipulation of content.

FALSE

77) Taking advantage of another person's mental, emotional, or physical weakness and unduly persuading that person to enter into a contract constitutes duress.

FALSE

9) In most cases of a unilateral mistake, the mistaken party is permitted to rescind the contract.

FALSE

30) ________ occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing.

Fraud in the factum

32) ________ occurs when the party knows what he or she is signing but has fraudulently been led into the contract.

Fraud in the inducement

24) To prove fraud, which of the following elements must be shown?

The wrongdoer intended to deceive the innocent party.

68) Lucy wants a divorce from her husband but he wants to stay in the marriage. She threatens to bring a false criminal lawsuit claiming physical abuse from him if he does not sign the divorce papers. This is an instance of ________.

duress

28) Jeffrey became a victim of fraud when he entered a pyramid scheme which turned out to be a scam. In order to claim damages, Jeffrey has to prove which of the following?

economic injury

23) Intentional misrepresentation is commonly referred to as ________.

fraud

34) Contracts involving fraud in inducement are ________.

voidable

12) ________ is a mistake made by both parties concerning an object that is important to the subject matter of a contract.

Mutual mistake of material fact

1) ________ is an action to undo a contract.

Rescission

60) What should be shown to prove fraud?

To prove fraud, the following elements must be shown: 1. The wrongdoer made a false representation of material fact. 2. The wrongdoer intended to deceive the innocent party. 3. The innocent party justifiably relied on the misrepresentation. 4. The innocent party was injured.

80) Explain undue influence with an example.

Undue influence occurs when one person (the dominant party) takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person (the servient party) to enter into a contract. The persuasion by the wrongdoer must overcome the free will of the innocent party. A contract that is entered into because of undue influence is voidable by the innocent party. Example: Mr. Johnson, who is 70 years old, has a stroke and is partially paralyzed. He is required to use a wheelchair, and he needs constant nursing care. Prior to his stroke, Mr. Johnson had executed a will, leaving his property upon his death equally to his four grandchildren. Edward, a licensed nurse, is hired to care for Mr. Johnson on a daily basis, and Mr. Johnson relies on Edward's care. Edward works for Mr. Johnson for two years before Mr. Johnson passes away. It is later discovered that Mr. Johnson had executed a written contract with Edward three months before he died, deeding a valuable piece of real estate to Edward. If it is shown that Edward has used his dominant and fiduciary position to unduly influence Mr. Johnson to enter into this contract, then the contract is invalid. If no undue influence is shown, the contract with Edward is valid, and Edward will receive the property deeded to him by Mr. Johnson.

74) Which of the following is true of undue influence in entering contracts?

A fiduciary or confidential relationship must have existed between the parties for undue influence to be proven.

27) Which of the following is true of misrepresentation?

A misrepresentation is not actionable unless the innocent party relied on the misrepresentation and acted on it.

21) Explain the three kinds of mistakes that can be made by either party while entering a contract. When are contracts involving mistakes rescinded?

A mistake occurs where one or both of the parties to a contract have an erroneous belief about the subject matter, value, or some other aspect of the contract. Mistakes may be either unilateral or mutual. A unilateral mistake is a mistake in which only one party is mistaken about a material fact regarding the subject matter of a contract. In most cases of unilateral mistake, the mistaken party will not be permitted to rescind the contract. The contract will be enforced on its terms. Mutual mistake of a material fact is a mistake made by both parties concerning a material fact that is important to the subject matter of a contract. If there has been a mutual mistake, the contract may be rescinded on the grounds that no contract has been formed because there has been no "meeting of the minds" between the parties. A mutual mistake of value exists if both parties know the object of the contract but are mistaken as to its value. Here, the contract remains enforceable by either party because the identity of the subject matter of the contract is not at issue.

20) How is a mistake different from fraud?

A mistake occurs where one or both of the parties to a contract have an erroneous belief about the subject matter, value, or some other aspect of the contract. Mistakes may be either unilateral or mutual. The law permits rescission of some contracts made in mistake. Intentional misrepresentation is commonly referred to as fraudulent misrepresentation, or fraud. An intentional misrepresentation occurs when one person consciously decides to induce another person to rely and act on a misrepresentation. When fraudulent misrepresentation is used to induce another to enter into a contract, the innocent party's assent to the contract is not genuine, and the contract is voidable by the innocent party. The innocent party can either rescind the contract and obtain restitution or enforce the contract and sue for contract damages.

62) ________ is a situation in which one party threatens to do a wrongful act unless the other party enters into a contract.

Duress

61) Explain fraud in the inducement with an example.

Fraud in the inducement occurs when the party knows what he or she is signing but has been fraudulently induced to enter into the contract. Example: Lyle tells Candice that he is forming a partnership to invest in drilling for oil in an oil field and invites her to invest in this venture. In reality, though, there is no oil field, and Lyle intends to use whatever money he receives from Candice for his personal expenses. Candice relies on Lyle's statements and invests $30,000. Lyle absconds with Candice's $30,000 investment. Here, there has been fraud in the inducement. Candice has been induced to give Lyle $30,000 based on Lyle's misrepresentation of fact. Candice can rescind the contract and recover the money from Lyle, if she can find him and locate his money or property.

22) ________ is an event that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation.

Fraudulent misrepresentation

67) Which of the following is true of duress?

It is a threat issued to make another person sign a contract.

25) Which of the following is true of misrepresentation of a material fact?

It is actionable as fraud if the misrepresentation is of a past or existing material fact.

4) Kevin goes to the store to purchase a fully-automatic washing machine. He browses through several models of washing machines, but does not let the salesperson know that he wants a fully-automatic model. While signing the sales contract, he does not notice that the model he is purchasing is a semi-automatic machine. After purchase, which of the following options does Kyle have?

Keep the semi-automatic washing machine as he made a unilateral mistake.

11) Which of the following constitutes a mutual mistake of a material fact?

Martha and Graham agreeing on the sale of a house, both referring to different houses

39) Which of the following is true of misrepresentation?

Misrepresentation of law is not actionable as fraud.

2) Which of the following is true of a unilateral mistake?

Only one party is mistaken about a material fact regarding the subject matter of a contract.

16) An ambiguity in a contract may constitute a mutual mistake of a material fact.

TRUE

19) When a mutual mistake of value occurs, the contract remains enforceable by either party.

TRUE

42) Intentional misrepresentation is considered fraud.

TRUE

45) Predictions about the future generally do not form the basis for fraud.

TRUE

46) Scienter means knowledge that a representation is false or that it was made without sufficient knowledge of the truth.

TRUE

48) The measure of damages awarded to the innocent party for fraud is the difference between the value of the property as represented and the actual value of the property.

TRUE

5) Assent of a party to a contract may be manifested in any manner sufficient to show agreement, including conduct.

TRUE

50) Contracts involving fraud in the inception are void.

TRUE

54) During the sale of a house, if the seller does not inform the buyer about construction flaws of the house despite the buyer's enquiry, the seller is liable for fraud by concealment.

TRUE

55) If a seller does not disclose legal disputes involving the property being sold, he or she is liable for silence as misrepresentation.

TRUE

6) Unilateral mistake is a mistake in which only one party is mistaken about a material fact regarding the subject matter of a contract.

TRUE

69) Duress is a situation in which one party threatens to do a wrongful act unless the other party enters into a contract.

TRUE

72) A threat to bring a civil lawsuit unless someone enters into a contract constitutes duress.

TRUE

78) If there is a confidential relationship between two people, any contract made by the servient party that benefits the dominant party is presumed to be entered into under undue influence.

TRUE

79) For a situation to be considered "undue influence," the persuasion by the wrongdoer must overcome the free will of the innocent party.

TRUE

8) Mistakes in clerical or mathematical errors that are not the result of gross negligence are considered unilateral mistakes.

TRUE

41) While signing a contract, one of the parties misinterpreted a legal clause. Neither of the parties is a legal professional. Which of the following statements holds well in this scenario?

The party who misinterpreted the law is not actionable for fraud.

14) John buys a watch for $100 at a vintage store. Later, the store learns that the watch was worn by Sean Connery in a James Bond movie and wishes to rescind the sales contract they have with John. Which of the following statements is true in this scenario?

The store cannot rescind or void the contract.

76) Which of the following scenarios makes Tim liable for undue influence?

Tim takes advantage of his grandmother's illness and persuades her to sign a will leaving all her property to him.

66) Which of the following constitutes duress?

a plaintiff threatening the defendant that he will not drop the lawsuit until the defendant pays him a certain amount of money

63) Which of the following constitutes duress?

a threat to commit extortion unless someone enters into a contract

65) Gary and Mary are siblings involved in a legal tangle over who gets possession of their ancestral home. Gary threatens to kill Mary's husband if she does not sign papers declaring Gary's sole ownership of their home. This is an instance of ________.

duress

35) Melissa Harrison, a realtor, sells a house to the Smiths. Before the sale is finalized, Mr. Smith asks Melissa for details of repairs the house has undergone over the years. Melissa gives him details of minor repairs but hides all documents regarding a major plumbing defect that was repaired last year. Three months after the Smiths moved in, the defect reappeared flooding the first floor, damaging their expensive carpet and furniture. Melissa is liable for which of the following frauds?

fraud by concealment

37) Joe buys a trailer from a used-car dealership. On enquiry, the dealer tells him that the trailer is in great condition. However, three days later, the trailer breaks down. Investigation by Joe reveals that the trailer had seven previous owners and that the engine has been replaced thrice. An automobile expert tells Joe that the trailer is dangerous. Which of the following frauds would the dealer be liable for?

fraud by concealment

36) Which of the following occurs when one party intentionally hides a material fact from another party?

fraud in concealment

33) Alice offers Richard a chance to work in her affiliate marketing program which, she claims, will make him a millionaire in three months. Richard makes the "mandatory investment" of $12,000 and becomes an affiliate. Soon, he realizes that such a program does not exist and that Alice has disappeared with the money. This is an instance of ________.

fraud in inducement

31) Millie receives a parcel from her aunt in Indonesia. The delivery man asks her to sign an authorization document to receive the parcel. Millie signs without reading the document, as she is in a hurry. However, on the other side of the document are contract terms that transfer all of Millie's property to the delivery man. This is an instance of ________.

fraud in the inception

26) What is scienter?

knowledge that a representation is false

38) Which of the following is not actionable as fraud?

misrepresentation of law

10) In which of the following cases of assent is the rescission of a contract unenforceable?

mutual mistake of value

13) A contract in which both parties are mistaken about the value of the object of the contract is considered ________.

non-rescindable

29) The measure of damages from a misrepresentation is ________.

the difference between the value of the property as represented and the actual value of the property

75) When Stella Finman found out that she was terminally ill, she drafted a will leaving all her property to her son. During her period of illness, Stella was financially and emotionally supported by her lawyer as her son was mostly away. When the will was read upon her death, it said that her lawyer would get a 20 percent stake in Finman Corp., a company Stella owned. Upon investigation, it was revealed that Stella's lawyer took advantage of Stella's weakness and persuaded her to change the contractual terms. This is an instance of ________.

undue influence

3) Heather chooses to buy a scarf at Macy's and reads the price on the tag as $50. She uses her credit card to pay for the scarf, but post-purchase, she notices that the price tag actually says $500. This is an instance of a(n) ________.

unilateral mistake