Chapter 12 LENB Reality of Assent Mult Choice

20) When a contract is voidable, it may be ________ or canceled. A) rescinded B) decertified C) void ab initio D) antedated E) quid pro quo

A Explanation: When a contract is voidable, it may be rescinded or canceled.

23) Mistakes in contracts may be classified as either ________. A) void or voidable B) primary or secondary C) conditional or unconditional D) in rem or quasi in rem E) unilateral or mutual

E Explanation: A mistake is an erroneous belief about the facts of a contract at the time the contract is concluded. Mistakes in contracts may be classified as either unilateral or mutual.

52) Which of the following is/are found when one party was forced into an agreement by the wrongful act of another? A) Duress B) Negligence C) Fraud D) Duress, negligence, or fraud E) Duress and fraud, but not negligence

A Explanation: Duress is a much more visible and active interference with free will than is undue influence. Duress is found when one party was forced into the agreement by the wrongful act of another.

54) Which of the following occur(s) when one party threatens physical harm to gain consent to a contract? A) Duress B) Undue influence C) Disparagement D) Criminal influence E) Duress and disparagement, but not undue influence

A Explanation: Duress is a much more visible and active interference with free will than is undue influence. Duress is found when one party was forced into the agreement by the wrongful act of another. An example of duress is when one party threatens physical harm to gain consent to a contract.

55) Which of the following occur(s) when a party threatens to file a criminal lawsuit unless consent is given to the terms of a contract? A) Duress B) Undue influence C) Durable fraud D) Criminal influence E) Duress and undue influence, but not durable fraud

A Explanation: Duress is a much more visible and active interference with free will than is undue influence. Duress is found when one party was forced into the agreement by the wrongful act of another. An example of duress is when one party threatens to file a criminal lawsuit unless another party gives consent to the terms of the contract.

56) Which of the following occur(s) when a party threatens to file a frivolous civil lawsuit unless another party gives consent to the terms of a contract? A) Duress B) Undue influence C) Durable fraud D) Criminal influence E) Duress and undue influence, but not durable fraud

A Explanation: Duress is a much more visible and active interference with free will than is undue influence. Duress is found when one party was forced into the agreement by the wrongful act of another. An example of duress is when one party threatens to file a frivolous civil lawsuit unless another party gives consent to the terms of the contract.

58) When duress is at issue, the ________ needed for legal consent has been removed by the specifics of the threat. A) free will B) knowledge C) scienter D) consideration E) realization

A Explanation: Duress is found when one party was forced into the agreement by the wrongful act of another person. With duress, the point is that the free will necessary for legal consent had been removed by the specifics of the threat.

24) Which of the following is necessary in order to establish that a mutual mistake involving a basic assumption about the subject matter of a contract was made? A) That the mistake involved the existence, quality, or quantity of the items to be exchanged. B) That the mistake involved whether a party could profit from the contract. C) That the mistake involved whether a party could profit from the contract or whether a party misunderstood the time constraints involved in the contract. D) That the mistake involved the identity of parties to the contract or whether a party misunderstood the time constraints involved in the contract. E) That the mistake involved a misunderstanding regarding the applicability of the Uniform Commercial Code to the contract.

A Explanation: For a mutual mistake to interfere with legal consent, it must involve a basic assumption about the subject matter of the contract. To rise to the level of a basic assumption, the mistake would need to be about the existence, quality, or quantity of the items to be exchanged.

46) Which of the following involve(s) the active hiding of the truth about a material fact? A) Concealment B) Nondisclosure C) Negligence D) Concealment, nondisclosure, or negligence E) Concealment and nondisclosure, but not negligence

A Explanation: For fraudulent misrepresentation to be the basis for a contract rescission, the statement of fact need not be an actual assertion. Concealment can be treated as the equivalent of an actual assertion. Concealment involves the active hiding of the truth about a material fact.

29) Which of the following was the result on appeal in Telekenex IXC, Inc. v. Charlotte Russe, Inc., the case in the textbook in which the defendant claimed that an amendment to a contract for communication services was unenforceable because it was entered into based on a threat that the services would be discontinued otherwise? A) The court found that the defendant had established a prima facie defense of duress and remanded the case for further proceedings. B) The court found that the defendant had established a prima facie defense of misrepresentation and remanded the case for further proceedings. C) The court found that the defendant had established a prima facie defense of undue influence and remanded the case for further proceedings. D) The court found that the defendant was bound to the amendment because no one forced the agreement. E) The court found that the defendant was bound to the amendment because the defendant had begun performance under it.

A Explanation: In Telekenex IXC, Inc. v. Charlotte Russe, Inc., the Court of Appeals of Washington (state) found that the defendant had established a prima facie defense of duress and remanded the case for further proceedings.

37) What was the result in the Peerless case referenced in the textbook in which there were two ships named Peerless and the parties disagreed over which ship was the subject of the contract? A) The court rescinded the contract. B) The court ruled that the older ship would be identified to the contract. C) The court ruled that the newer ship would be identified to the contract. D) The court ruled that the defendant would be allowed to choose which ship would be identified to the contract. E) The court ruled that the plaintiff would be allowed to choose which ship would be identified to the contract.

A Explanation: In the Peerless case, the contracting parties had agreed that the vessel Peerless would deliver the cotton they were exchanging. Unfortunately for them, there were actually two ships named Peerless! So, when the deal was made, one party had one Peerless in mind while the other meant the second Peerless. This was a mutual mistake, an error by both parties about a material fact pertaining to the contract. The times the ships sailed were materially different, so the court rescinded the contract.

41) Which of the following is/are available to a party who was misled by a false statement contained in an innocent misrepresentation? A) Rescission of the contract only B) Compensatory damages and rescission of the contract C) Punitive damages, compensatory damages, and the right to rescind the contract D) Exemplary damages, compensatory damages, and the right to rescind the contract E) Nominal damages only

A Explanation: Innocent misrepresentations permit the party that was misled by the false statement to rescind the contract. However, because the party that made the false statement had no intent to mislead, the aggrieved party cannot sue for damages.

45) A ________ is a false representation of a material fact that is consciously false and intended to mislead the other party. A) negligent misrepresentation B) fraudulent misrepresentation C) defalcation D) negligent misrepresentation, fraudulent misrepresentation, or defalcation E) fraudulent misrepresentation or defalcation, but not a negligent misrepresentation,

B Explanation: A fraudulent misrepresentation is a false representation of a material fact that is consciously false and is intended to mislead the other party. Fraudulent misrepresentation is intentional misrepresentation. The party making the misrepresentation either knows or believes that the factual claim is false or knows that there is no basis for the assertion.

32) Distinguishing between unilateral and mutual mistakes is important because the classification bears on which contracts ________. A) are void B) are voidable C) lack consideration D) lack legality E) are entitled to enforcement in a court of equity

B Explanation: A mistake is an erroneous belief about the facts of a contract at the time the contract is concluded. Mistakes in contracts may be classified as either unilateral or mutual. A unilateral mistake is the result of an error by one contracting party about a material fact, while a mutual mistake is shared by both parties to the agreement. The distinction between unilateral and mutual mistakes is important in determining which contracts are voidable.

31) An error on the part of both parties to an agreement is a ________ mistake. A) primary B) mutual C) unilateral D) secondary E) conditional

B Explanation: A mistake is an erroneous belief about the facts of a contract at the time the contract is concluded. Mistakes in contracts may be classified as either unilateral or mutual. An error on the part of both parties to an agreement is a mutual mistake.

38) A false statement about a fact material to an agreement that the person making the statement believed to be true is considered a(n) ________. A) commercial disparagement B) innocent misrepresentation C) fraudulent misrepresentation D) scienter-based misrepresentation E) criminal misrepresentation

B Explanation: An innocent misrepresentation is a false statement about a fact material to an agreement that the person who made the statement believed to be true. The person who made the false statement had no knowledge of the falsity of the claim.

27) For a mutual mistake to interfere with legal consent, it must involve a ________ effect on the agreement. A) conditional B) material C) tertiary D) criminal E) statutory

B Explanation: For a mutual mistake to interfere with legal consent, it must involve a material (i.e., important in the context of the particular contract) effect on the agreement. A court will not void a contract for a non-material, mutual mistake.

25) The Peerless ship case referenced in the textbook is a classic example of a ________ mistake. A) unilateral B) mutual C) conditional D) secondary E) non-material

B Explanation: The famous story of the Peerless ship has taught generations of students the importance of being very clear in defining material facts in any contract. The contracting parties had agreed that the vessel Peerless would deliver the cotton they were exchanging. Unfortunately for them, there were actually two ships named Peerless! So, when the deal was made, one party had one Peerless in mind while the other meant the second Peerless. This was a mutual mistake, an error by both parties about a material fact pertaining to the contract.

51) Which of the following refers to a special relationship in which one person has taken advantage of his or her dominant position in a relationship to unduly persuade the other person? A) Fraudulent misrepresentation B) Undue influence C) Economic duress D) Physical duress E) Conscionability

B Explanation: Undue influence refers to a special relationship in which one person has taken advantage of his or her dominant position in the relationship to unduly persuade the other person.

30) An error by one party about a material fact is known as a ________ mistake. A) primary B) mutual C) unilateral D) secondary E) conditional

C Explanation: A mistake is an erroneous belief about the facts of a contract at the time the contract is concluded. Mistakes in contracts may be classified as either unilateral or mutual. An error by one party about a material fact is known as a unilateral mistake.

33) In general, a ________ mistake does not generally void a contract. A) conditional B) mutual C) unilateral D) bilateral E) primary

C Explanation: In general, a unilateral mistake does not void a contract. Courts are hesitant to interfere with a contract when one of the parties has a correct understanding of the material facts of the agreement.

21) Major obstacles to genuine assent include all but which of the following? A) mistake B) misrepresentation C) factual capacity D) undue influence E) duress

C Explanation: The major obstacles to genuine assent include mistake, misrepresentation, undue influence, and duress.

22) A(n) ________ is an erroneous belief about the facts of a contract at the time the contract is concluded. A) assumption B) projection C) abeyance D) mistake E) accord

D Explanation: A mistake in contract law is an erroneous belief about the facts of a contract at the time the contract is concluded. Mistakes in contract law do not result from the untrue statements of the other party to the contract.

28) Any fraud on the part of a party to a contract provides a basis for ________. A) judicial recognition of an equitable remedy for the defendant B) judicial recognition of an implied-in-law contract C) judicial enforcement of an implied-in-fact contract D) contract rescission E) contract reformation

D Explanation: Any fraud on the party of a party to a contract provides a basis for contract rescission. The parties cannot be said to have assented when one of the parties was tricked into the agreement by a fraudulent misrepresentation. Thus, the agreement was not voluntary and can be rescinded on the grounds that there was no meeting of the minds.

53) Which of the following is involved in a situation in which a person refuses to perform according to a contract unless the other person either signs another contract with the one making the threat or pays that person a higher price than was specified in the original agreement? A) Fraudulent duress B) Conditional duress C) Negligent duress D) Economic duress E) Undue influence

D Explanation: Economic duress occurs when one party threatens the other's economic interests, such as by refusing to perform according to a contract unless the other party either signs another contract or pays him a higher price than that specified in the original agreement.

36) Which of the following must a mutual mistake involve in order for a mutual mistake to interfere with legal consent? A) A basic assumption about the subject matter of the contract. B) A material effect on the agreement. C) A basic assumption about the subject matter of the contract and an adverse effect on a party who did not agree to bear the risk of mistake at the time of the agreement, but not a material effect on the agreement. D) A basic assumption about the subject matter of the contract, a material effect on the agreement, and an adverse effect on a party who did not agree to bear the risk of mistake at the time of the agreement. E) An admission by one of the parties that a misrepresentation occurred.

D Explanation: For a mutual mistake to interfere with legal consent, it must involve a basic assumption about the subject matter of the contract, a material effect on the agreement, and an adverse effect on a party that did not agree to bear the risk of mistake at the time of the agreement. Courts will not void contracts for reason of mutual mistake if even one of the preceding attributes is missing.

42) When the party making the statement would have known the truth about the fact had he used reasonable care to discover or reveal it, the statement is a(n) ________. A) innocent misrepresentation B) fraudulent misrepresentation C) non-material misrepresentation D) negligent misrepresentation E) commercial disparagement

D Explanation: In some contract negotiations, one party makes a statement of material fact that he thinks is true, but he is negligent in making the assertion. Such a negligent misrepresentation results when the party making the statement would have known the truth about the fact had he used reasonable care to discover or reveal it.

57) Which of the following occurs when a party threatens to file a legitimate (in other words, a non-frivolous) civil lawsuit unless another party gives consent to the terms of a contract? A) Duress B) Undue influence C) Durable fraud D) Criminal influence E) None of the above

E Explanation: Duress is a much more visible and active interference with free will than is undue influence. Duress is found when one party was forced into the agreement by the wrongful act of another. Threats to file a civil case against a party do not constitute duress unless the suit is frivolous.

39) A person who makes a misrepresentation but has no knowledge about the falsity of the statement does not have ________. A) information B) premeditation C) planning D) plotting E) scienter

E Explanation: If a person who made a false statement had no knowledge of the falsity of the claim, we say the person lacked scienter. Scienter is a legal term that refers to intent or knowledge of wrongdoing. This means that an offending party had knowledge of the wrongness of an act or event prior to committing it.

34) Which of the following is an incorrect statement regarding rescinding a contract in the Philippines? A) If consent is given through mistake, violence, intimidation, undue influence, or fraud, contracts are valid until they are annulled. B) The period in which to annul a contract for mistake, violence, intimidation, undue influence, or fraud is four years. C) In cases of intimidation, violence, or undue influence, the time period for annulling a contract is measured from the time the defect in the assent ceases. D) In cases of mistake or fraud, the time period for annulling a contract is measured from the time of the discovery of the defect. E) The law of the Philippines regarding contract rescission for mistake, violence, intimidation, undue influence, or fraud is the same as United States law.

E Explanation: The law in the Philippines is somewhat unusual in the way it limits the time for rescinding a contract. In the Philippines, if consent is given through mistake, violence, intimidation, undue influence, or fraud, contracts are valid until they are annulled. The period within which to annul such a contract is four years. In cases of intimidation, violence, or undue influence, the time period is measured from the time the defect in the assent ceases. In cases of mistake or fraud, it is measured from the time of the discovery of the defect.