Business Law Ch.15

T/F: Misrepresentation of law is typically fraud

F

T/F: To rescind a contract for fraud, a plaintiff must prove an injury.

False

scienter

Knowledge by the misrepresenting party that material facts have been falsely represented or omitted with an intent to deceive.

Procedural Unconscionability

Procedural unconscionability concerns how a term becomes part of a contract. It may involve a party's lack of knowledge or understanding of a term due to inconspicuous print, unintelligible language, or lack of opportunity to read the contract or to ask about its meaning, such as may occur in cases involving adhesion contracts

Substantive Unconscionability

Substantive unconscionability describes contracts or terms that are oppressive—provisions that deprive one party of the benefits of the agreement or leave that party without remedy for nonperformance

T/F: A bilateral (mutual) mistake of fact will usually enable a party to a contract to avoid it; it is a unilateral mistake that generally will not afford the mistaken party relief.

T

T/F: Silence is generally not fraud

T

T/f: Misrepresentation also occurs when a party takes specific action to conceal a fact that is material to the contract.

TRUE

T/F: To collect damages a contract for fraud, a plaintiff must prove an injury.

True

Enforceable or unenforceable?: clauses that exclude liability for injuries that are inflicted intentionally, that occur as a result of fraud, or that result from illegal acts.

Unenforceable

A bilateral mistake is

a "mutual misunderstanding concerning a basic assumption on which the contract was made."

Duress is both

a defense to the enforcement of a contract and a ground for the rescission of a contract.

with unilateral mistakes, the mistake must be...

about a material fact.

\Statements of opinion and representations of future facts (predictions) generally are not subject to

claims of fraud.

Technically, unconscionability under Section 2-302 of the Uniform Commercial Code (UCC) applies only to

contracts for the sale of goods.

When parties are in a fiduciary relationship, one of trust, such as partners, physician and patient, or attorney and client, they have a duty to...

disclose material facts.

Misrepresentation of law ordinarily...

does not entitle a party to relief from a contract.

When both parties are mistaken about the same material fact, the contract can be rescinded by ...

either party.

The essential feature of undue influence is that the party being taken advantage of does not, in reality...

exercise free will in entering into a contract.

Misrepresentation can be (2)....

express or implied

Standard form contracts often contain

fine-print provisions that shift a risk ordinarily borne by one party to the other.

In general, a unilateral mistake does not ...

give the mistaken party any right to relief from the contract.

If a mistake concerns the future market value or quality of the object of the contract, the mistake is

one of value, and the contract normally is enforceable.

A unilateral mistake is made by...

only one of the parties.

negligent misrepresentation

party makes a misrepresentation through carelessness, believing the statement is true

To establish duress, there must be ...

proof of a threat to do something that the threatening party has no right to do.

Undue influence arises from...

relationships in which one party can greatly influence another party, thus overcoming that party's free will.

Guilty knowledge is equivalent to...

scienter

Unconscionability can occur in ...

standard-form contracts and take-it-or-leave-it (adhesion) contracts.

Most courts do not require a showing of injury when ....

the action is to rescind the contract.

If the parties to the contract attach materially different meanings to the term, a court may allow ...

the contract to be rescinded because there has been no true "meeting of the minds."

When a contract enriches the dominant party, the court will often presume that...

the contract was made under undue influence.

When t a presumption of undue influence arises

the dominant party in a fiduciary relationship benefits from that relationship,

Negligent misrepresentation occurs if

the party does not exercise reasonable care in uncovering or disclosing facts, or use the skill and competence required by his or her business or profession.

economic duress may be found if ...

the party exacting the price also creates the need

The threat if criminal prosecution is generally held to be made ...

under duress and is voidable

to recover damages caused by fraud, proof of harm is

universally required

Forcing a party into a contract under a threat makes it

voidable

A contract entered into under excessive or undue influence lacks...

voluntary consent and is therefore voidable

mistakes of value do not

warrant contract rescission

Unilateral mistake rule has 2 exceptions. The contract may not be enforceable if:

1. The other party to the contract knows or should have known that a mistake of fact was made. 2. The error was due to a substantial mathematical mistake in addition, subtraction, division, or multiplication and was made inadvertently and without gross (extreme) negligence. If, for instance, a contractor's bid was significantly low because he or she made a mistake in addition when totaling the estimated costs, any contract resulting from the bid normally may be rescinded.

Typically, fraudulent misrepresentation consists of the following elements:

1.A misrepresentation of a material fact must occur. 2. There must be an intent to deceive. 3.The innocent party must justifiably rely on the misrepresentation. 4. To collect damages, a party must have been harmed as a result of the misrepresentation.

Grandpa sells you the Munster mansion, telling you that it's seen better days and should be rehabbed and turned into condominiums, knowing full well that the neighborhood is zoned for single family dwellings only. After buying the property, you learn the truth. Most courts would ____ a. not rescind the contract. ____ b.rescind the contract only if you did not know the law before the deal.____ c. rescind the contract only if Grandpa knew about the law before the deal. ____ d. rescind the contract only if the law is not common knowledge.

A

Herman uses undue influence to induce Grandpa to sell his business, Munster Motors, Inc., to Herman. Grandpa may ____ a.avoid the contract or choose to carry it out. ____ b.do nothing once he has signed the contract. ____ c. none of the above.

A

Adhesion contracts

A "standard-form" contract, such as that between a large retailer and a consumer, in which the stronger party dictates the terms. "Take it or leave it basis"

Latent defects

A defect that is not obvious or cannot readily be ascertained.

innocent misrepresentation

A false statement of fact or an act made in good faith that deceives and causes harm or injury to another.

Herman and Grandpa contract for the sale of Herman's pet dragon , Spot, for $1,000. Unknown to either party, Spot has died. Grandpa is _____ a. entitled to another dragon of equivalent value. ____ b.not required to pay due to the mutual mistake. _____ c.not required to pay due to the unilateral mistake. _____ d. required to pay because Grandpa assumed the risk Spot might die.

B

Grandpa, a salesperson for Munster Motors, tells Herman that a certain car will give him a "smooth ride." Grandpa offers a test drive, which Herman declines. Herman buys the car but soon realizes that its suspension is in poor condition. Herman____ a.can rescind the contract on the ground of fraudulent misrepresentation. ____ b.can rescind the contract on the ground of mistake. ____ c. none of the above.

C

Herman is accepting bids for his pet dragon, Spot, which has died. Although Herman is very sad, he knows a dead dragon can fetch roughly $100 for later stuffing and mounting (and shoes and handbags)! Grandpa, off in Transylvania visiting family, faxes in an offer of $1,000 to Herman, noting it would break Eddie's heart if he couldn't play fetch with Spot any more. Grandpa is _____ a. entitled to another dragon of equivalent value. _____ b. not required to pay due to the mutual mistake. _____ c. not required to pay due to his unilateral mistake, known by Herman. _____ d. required to pay because Grandpa assumed the risk that Spot might die.

C