BLAW Ch.11

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.

FALSE

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

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.

FALSE

Social coercion to enter into a contract cannot be a basis for avoidance of the contract.

FALSE

The difference between fraud and misrepresentation is that fraud involves malice while nonfraudulent misrepresentation is always innocent.

FALSE

The test for duress is objective and the act must be classified as a tort or a crime in order to be wrongful.

FALSE

The trustee of a trust does not owe a fiduciary duty to the beneficiary of that trust.

FALSE

Which of the following need NOT be proved in order to establish the defense of economic duress? a. That one side involuntarily accepted the terms of another. b. That circumstances permitted no other alternative. c. That one party explicitly made an economic threat. d. That the circumstances leading up to the contract were the result of coercive threats or acts of the opposite party.

c. That one party explicitly made an economic threat.

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: a. was a valid contract that should be enforced by the law. b. can be voided based upon fraud in the execution. c. can be voided based upon fraud in the inducement. d. can be voided based upon mistake as to the identity of the subject matter.

c. can be voided based upon fraud in the inducement.

Which of the following can meet the scienter requirement to establish fraud in the inducement? a. Actual knowledge b. Lack of belief in the statement's truthfulness c. Reckless indifference as to a statement's truthfulness d. All of the above meet the requirement.

d. All of the above meet the requirement.

The remedies of damages and rescission are available for: a. fraudulent misrepresentation. b. negligent misrepresentation. c. innocent misrepresentation. d. All of the above.

d. All of the above.

A misrepresentation is material if: a. it would likely induce a reasonable person to enter into a transaction. b. the maker knows it would likely induce the other party to enter into the transaction. c. it is made knowingly. d. Both (a) and (b).

d. Both (a) and (b).

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: a. Ralph has committed fraudulent misrepresentation. b. Steve is bound by the contract, because he failed to verify the statements which were made to him. c. the contract is voidable at Steve's option. d. Both (a) and (c).

d. Both (a) and (c).

Which of the following is NOT an element of fraud? a. Material misrepresentation b. Competent parties c. Knowledge of falsity d. Justifiable reliance

b. Competent parties

Which of the following results in a void, rather than voidable, agreement? a. Duress by improper threat b. Fraud in the execution c. Fraud in the inducement d. Undue influence

b. Fraud in the execution

Which of the following would ordinarily be a basis for making a contract void for mutual mistake? a. Market conditions b. Genuineness of the source of the subject matter of the contract c.The financial situation of the parties d. All of the above.

b. Genuineness of the source of the subject matter of the contract

James threatens to hit Kenneth on the head with a baseball bat unless Kenneth signs a contract agreeing to pay James $900 for a motor. If, because of the threat, Kenneth signs the contract: a. the contract is voidable at Kenneth's option. b. James has committed physical duress against Kenneth. c. this is an example of economic duress. d. All of the above.

b. James has committed physical duress against Kenneth.

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: a. Kyle has a valid cause of action for fraud. b. Kyle was not justified in relying upon the salesperson's representation that the car would seat six people. c. the element of scienter is missing. d. the salesperson is a fiduciary.

b. Kyle was not justified in relying upon the salesperson's representation that the car would seat six people.

A collection agency threatened to sue Martha for the unpaid hospital bills from her heart operation. She signed a promissory note at a high but not illegal rate of interest. What result? a. The note is valid because she signed it. b. The threat to bring a civil suit to collect money owed is permissible. c. The note is invalid because she signed under duress. d. The note is invalid because the agency put her under undue pressure.

b. The threat to bring a civil suit to collect money owed is permissible.

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

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

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

b. a realtor's statement that, "The contractor used 25-year warranted shingles on the roof."

Which of the following would be considered to be a misrepresentation of a material fact for purposes of establishing fraud in the inducement? a. A statement of judgment of value, such as "This is the best car in town for the money." b. "This style of jacket is going to be the most popular style next year." c. "This car has a new radiator." d. "In my opinion, this is the best buy for the money."

c. "This car has a new radiator."

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

c. "This car has new brakes."

Which of the following does not exemplify a relationship that typically leads to scrutiny of a contract for undue influence? a. Wife and husband b. Clergy and parishioner c. Brother and sister d. Parent and child

c. Brother and sister

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

TRUE

A famous decision involving mistake as to the meaning of contract terms is Raffles v. Wichelhaus, a case involving two ships with the same name which were confused by the two parties to the contract.

TRUE

A party to a contract may be entitled to relief even if he is contributorily negligent in relying on a fraudulent misrepresentation.

TRUE

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

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

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

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

Economic duress renders a contract voidable.

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

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

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

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

TRUE

Nonfraudulent representation is made without scienter.

TRUE

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

TRUE

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

TRUE

Scienter is the element of fraud that requires that the person who makes the misrepresentation knows that it is false or has reckless indifference as to its truthfulness.

TRUE

The most uncommon type of duress involves the use of physical compulsion.

TRUE

There are two distinct types of fraud.

TRUE

To obtain relief for negligent or innocent misrepresentation, all the remaining elements of fraud must be present and the misrepresentation must be material.

TRUE

To sustain a case of fraud in the inducement, the injured party must prove that he actually relied upon the false representation.

TRUE

Undue influence is the taking of unfair advantage of a person by reason of a dominant position based upon a confidential relationship.

TRUE

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

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.

FALSE

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

FALSE

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

FALSE

Fraud in the inducement will render an agreement void.

FALSE

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

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.

FALSE

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

FALSE

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.

FALSE

An arm's-length transaction is one in which the parties owe each other special duties.

FALSE

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. a. This is a mistake of law. b. This is a mutual mistake of fact. c. Stewart is obligated to buy land elsewhere and have the complex constructed on property zoned for apartments. d. Will is liable to Stewart since Will is a contractor.

a. This is a mistake of law.

Jill contracted to purchase Kevin's automobile under the belief that she could sell it at a profit to Linda, but after Jill bought the car, she found out that Linda isn't interested in buying it. Jill: a. cannot void the contract with Kevin. b. can rescind the agreement with Kevin. c. could rescind the agreement with Kevin if she was mistaken in her estimate of the value of the auto. d. can sue Linda for detrimental reliance.

a. cannot void the contract with Kevin.

Tommy's parents died in a plane crash and he went to live with his guardian, Aunt Rose. Rose had a very small house and did not have a separate bedroom and bath for 12-year-old Tommy. She and Tommy decided to use some of his inheritance to pay for an addition to the house. He had some shares of stock transferred into Rose's name so that she could sell them when the money was due to be paid. The stock transfers are: a. presumed voidable unless Rose can show no unfair advantage was taken. b. presumed valid unless it can be proven that Tommy was taken advantage of. c. null and void because of undue influence. d. presumed void because of duress.

a. presumed voidable unless Rose can show no unfair advantage was taken.

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

b. criminal prosecution

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

b. person who owes a duty of trust, confidence, and loyalty to another.

The State of Florida enters into a contract with Treasure Salvors governing the salvage of a Spanish galleon that sunk in the 1600s. Under the terms of the contract, the salvagers agree to relinquish 25% of the items recovered to the State of Florida in return for the right to salvage on state lands. At the time the parties enter into the contract, they both believe that the seabed where the ship lies is state land. Subsequently, the United States Supreme Court holds that the continental shelf on which the ship rests has never been owned by Florida. The salvagers sue to rescind the contract. The contract: a. cannot be rescinded. b. should be avoided because the parties made a mutual mistake. c. should be enforced because, although there is a mutual mistake, it is not material. d. will be enforceable because the United States government will automatically step into the shoes of the State of Florida.

b. should be avoided because the parties made a mutual mistake.

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: a. can get the table back because of fraudulent concealment of the value. b. can get the true value, because it would not be fair otherwise. c. cannot rescind the contract because Eliza did not have a duty to tell her the value of the table. d. cannot rescind the contract because she did not rely on Eliza to give her a fair price.

c. cannot rescind the contract because Eliza did not have a duty to tell her the value of the table.

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: a. duress. b. fraud in the execution. c. fraud in the inducement. d. non-fraudulent misrepresentation.

c. fraud in the inducement.

Sam wants to sell his Golden Retriever to Jordan. Sam tells Jordan 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). Jordan relies on these statements and purchases the bird dog. The buyer has most probably been a victim of: a. duress. b. undue influence. c. fraud in the inducement. d. fraud in the execution.

c. fraud in the inducement.

A contract was made for 125 bales of cotton to arrive on a ship named "Peerless" from Bombay. Unbeknownst to either party to the contract, there were two ships named "Peerless," both of which were sailing from Bombay. One sailed in October and the other in December. The buyer had in mind the ship sailing in October, but the seller had in mind the ship sailing in December. Each party held his belief in good faith. The goods failed to arrive on time. If the buyer sues for breach of contract: a. the seller must pay damages because the seller breached. b. the seller is guilty of fraud in the inducement for failing to disclose to the buyer which ship would contain the goods. c. no contract exists due to mutual mistake of fact as to the existence or identity of the subject matter of the contract. d. Two of the above, (a) and (b).

c. no contract exists due to mutual mistake of fact as to the existence or identity of the subject matter of the contract.

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: a. Fred has made a unilateral mistake and cannot avoid the contract. b. the dealer has committed fraud in the inducement. c. the sale is voidable by the purchaser for mutual mistake. d. the sale is voidable, because the dealer has made a fraudulent misrepresentation.

c. the sale is voidable by the purchaser for mutual mistake.

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

c. there was a mistake and the mistaken party was at fault in not discovering the problem before making the contract.

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: a. Alex must perform for the agreed upon price because he has made a unilateral mistake. b. 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. c. there was a palpable unilateral mistake. d. Both (b) and (c).

d. Both (b) and (c)

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? a. No, because he did not read it b. No, because he entered into it based upon fraud in the execution c. Yes, because he has made a unilateral mistake of law d. Yes, because he was negligent in not ascertaining its contents

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

When both parties misunderstand the same set of facts relating to a basic assumption on which a contract is made, it is termed: a. rescissionary mistake. b. unilateral mistake. c. mistake of law. d. mutual mistake.

d. mutual mistake.