CH 17 SMARTBOOK

Select all that apply In order for a mutual mistake to interfere with legal consent, the following must be present. (Check ALL that apply.)

A basic assumption about the subject matter of the contract An adverse effect on a party who did not agree to bear the risk of the mistake at the time of the agreement A material effect on the agreement

Abigail was shopping in an antique store and was drawn to what appeared to be an antique plate. The antique dealer said the plate was created in the 1800s in England. In reality, the plate was made in China in 2000. The plate was stamped with this information on the bottom. Abigail bought the plate, but then later sued for fraudulent misrepresentation. The court will not rescind the contract because: ___________.

Abigail did not have justifiable reliance since she could have easily discovered the falsity of the seller's claims

Select all that apply Which of the following is considered a false assertion of fact? (Check all that apply.)

An incorrect assertion An act of concealment A nondisclosure

______ refers to the active hiding of the truth about a material fact.

Concealment

Identify a true statement about contracts with unilateral mistakes.

Courts are hesitant to void them.

Select all that apply Identify the major obstacles to legal assent. (Check all that apply.)

Duress Misrepresentation

Mistaken beliefs about the subjective value of an item affect the validity of the contract.

False

The major obstacles to legal assent include failure of consideration, revocation of the offer, and promissory estoppel.

False

Select all that apply Regarding misrepresentation, when can a consumer take legal action against a company? (Check all that apply.)

If the product benefits are misrepresented on labels If the product benefits are exaggerated in advertisements If the product benefits are misrepresented on the packaging

Regarding a justifiable reliance on a false assertion, which of the following is correct according to modern contract law?

Increasing responsibility is given to the person who made the erroneous assertion.

Jeff was shopping for a good used car. He met Seth, the salesperson, and asked Seth many questions about the car. Seth told Jeff that the car Jeff was asking about had very low mileage and that he knew that himself since he had processed the sale of the car from the former owner. In reality, Seth had personally set back the odometer in the car. What kind of scienter did Seth have?

Intent to deceive

Which of the following is not an essential element to prove a fraudulent misrepresentation?

Negligence per se

______ is the failure to provide pertinent information about a contract.

Nondisclosure

Select all that apply Which of the following would allow a court to invalidate a contract on the grounds of unilateral mistake? (Check ALL that apply)

One party made a mistake about a material fact, and the other party knew or had reason to know about the mistake. The mistake was caused by a clerical error that was accidental and did not result from gross negligence. The mistake was so serious that the contract is unconscionable, that is, so unreasonable that it is outrageous.

Select all that apply Identify the factors that would result in rescission of a contract based on duress. (Check ALL that apply)

One party threatens physical harm or extortion to gain consent to a contract. One party threatens the other's economic interests, i.e., economic duress. One party threatens to file a criminal lawsuit unless consent is given to the terms of the contract.

Select all that apply Factors that are considered by a court in undue influence claims include all of the following:___________. (Check all that apply.)

The dominant party rushes the other party to consent. The non-dominant party was isolated from advisers at the time of the agreement. The dominant party gained undue enrichment from the agreement.

Select all that apply Which of the following is correct regarding a contract based on an innocent misrepresentation? (Check all that apply.)

The misled party can rescind the contract. The misled party cannot sue for damages.

Select all that apply Before a contract can be voided for a mutual mistake, which of the following conditions must be met? (Check all that apply.

The mistake must have a material effect on the agreement. The enforcement of the contract will have an adverse effect on the party who did not agree to bear the risk of the mistake at the time of the agreement. The mistake must be about a basic assumption that affects the subject matter of the contract.

Select all that apply Which of the following conditions would permit a court to invalidate a contract on grounds of unilateral mistake? (Check ALL that apply.)

The mistake was caused by an accidental clerical error. One party made a mistake about a material fact, and the other party knew about the mistake.

Select all that apply For the courts to find a nondisclosure of a material fact to be equated with and have the same legal effect as a false assertion, the following elements must be present. (Check all that apply.)

There is a failure to correct assertions of fact that are no longer true. There is a statute that requires disclosure. A relationship of trust exists between the parties to the contract.

Josh contracted with a railroad company to have his order of lumber delivered by the train the company called Westward. Actually, there were two trains that were named Westward. They were identical trains, but had different delivery times. Josh thought his goods were being delivered by Westward I which delivered goods at the end of October. Westward II had a delivery date of February. Josh thought he was contracting for Westward I and the railroad company thought he wanted Westward II. Will the court void or rescind the contract due to mutual mistake?

Yes, since all of the required elements are present for mutual mistake.

A pharmaceutical company was marketing a new drug which had been tested for its effectiveness in curing headaches. The drug was very good at curing headaches, but that was all it did. However, the executives wanted to raise the sales of the drug by also claiming that it provided a cure for hair loss. There was absolutely no proof of this, but the pharmaceutical company advertised the drug as a headache cure and a hair loss cure. Soon there were complaints that the drug did not work as a hair loss cure. The pharmaceutical company is responsible for: ___________.

a misrepresentation

Tiffany went to a jewelry store with her fiance to pick out her engagement ring. The jeweler showed her a tray of diamond engagement rings and Tiffany picked out the one she liked. The jeweler told her that the ring was a genuine diamond ring, but the jeweler knew for a fact that it was really cubic zirconia. The jeweler's statement about the ring being a diamond instead of being cubic zirconia is: __________.

a misrepresentation

When both parties are mistaken about a current or past material fact, it is known as: _________.

a mutual mistake

Scienter is present when the party making the fraudulent assertion: ___________.

believed it was false or had no regard for whether it was true or false

The active hiding of the truth about a material fact is legally known as: __________.

concealment

The essential element of undue influence is the existence of a __________.

dominant-subservient relationship

Marya had contracted with a tree service to remove a large, dead tree from her yard and to have the resulting debris removed from her property. When the workers arrived, they informed Marya that they would not do the work unless she signed another contract which required a higher amount of money to be paid to the workers. The action of the workers is known as: __________.

duress

When one party is forced into an agreement by the wrongful act of another party, it is known as: __________.

duress

An intentional and knowing false representation of a material act that is intended to mislead the other party is known as a(n): ___________.

fraudulent misrepresentation

Barry was interested in buying a house. He has worked with his real estate agent, Rita, for two years now. His real estate agent found the exact type of house that he was looking for except that she failed to disclose that the house had a severe infestation of termites that had left the structure of the house compromised and in danger of collapse. The state required both the agent and the owners to disclose any apparent or latent defect in the house, but both parties failed to tell Barry about the damage. Barry entered a bid and the owners accepted his bid. Barry had a house inspector inspect the house and when he was told of the termite infestation, he sued to rescind the contract based on nondisclosure. The court will find that this nondisclosure: ___________.

has the same effect as a false assertion and will act to rescind the contract

If a unilateral mistake has been made about a material fact of the contract, the courts are _________ the contract.

hesitant to void

A false statement about a material fact that was based on an innocent belief that the false statement was true is a(n): __________.

innocent misrepresentation

Jonathan was a sales person at a hardware store. The store had run a promotion for the past week which would give any customer who bought a lawnmower a free leaf blower. The promotion had ended the previous day, but Jonathan thought the promotion ran through the next day. Jonathan's customer had agreed to buy a lawnmower and Jonathan put a leaf blower in his cart thinking that it would be free due to the promotion. However, the check-out person rang it up as a charge against the customer. Jonathan's assertion that the customer would get a free leaf-blower with the purchase of the lawnmower is an example of (a): __________.

innocent misrepresentation

Gabe and Nelson entered into a contract where Gabe agreed to buy a sword owned by Nelson for $300. Gabe thought he was buying the Japanese sword owned by Nelson, but Nelson intended to sell the French rapier. Obviously, the two parties committed a mistake of fact which results in a(n): __________.

lack of assent

If there is a misrepresentation in a contract, the court allows the parties to rescind the contract because the contract lacks _________.

legal assent

Trey was a pilot for a large airline. He also spent his spare time selling his homemade vitamins. These vitamins were capsules filled with cod liver oil, but Trey told his customers that these vitamins were a cure for cancer. Trey knew that the cod liver oil in the vitamins would never cure cancer, but he made the claim anyway. He promised that if his customers would invest in a month-to-month delivery plan for these vitamins that the purchaser would never be plagued with cancer again. Suppose that Paul bought the vitamins and then got cancer. If Paul sues Trey for fraudulent misrepresentation, Paul will: __________.

lose, because he should not have relied on Trey's representation

A ________ ________ is a false statement of material fact made by a person who thinks it is true but would have known the truth about the fact had he or she used reasonable care to discover or reveal it.

negligent misrepresentation

Courts find a(n) ___________ only when the party making the false statement should have known the truth using the skills and competence required of a person in her position or profession.

negligent misrepresentation

If Ron makes a statement that he believes is true, but Ron could have known the truth about a material fact if he used reasonable care to find the truth, the statement that was made is known as a(n): __________.

negligent misrepresentation

Jacqueline was at an antique book store. She was interested in purchasing a very old edition of Dickens' Great Expectations. Jacqueline remarked that the price was quite high, but Mark, the sales clerk, told her that it was a first edition. Mark was not sure the book was actually a first edition. He could have easily verified this because the owner of the shop, Mr. Sykes, was an expert on Dickens and antique books. Mr.Sykes was in his office a few steps from the counter. Mark was rather lazy, and he thought it was too much bother to check with Mr.Sykes, so he sold Jacqueline the book at a very high price. Jacqueline had the book appraised and learned later that it was not a first edition. She tried to return the book, but Mark said all sales were final. Jacqueline sued saying that Mark had misrepresented the fact that the book was a first edition. The judge is most likely to find a(n): _______________.

negligent misrepresentation

The failure to provide pertinent information about a projected contract is known as: __________.

nondisclosure

A court was asked to void a contract based on mutual mistake. The parties had entered into an agreement where the seller of goods believed that he was to deliver the goods on the truck which was designated as Route 1. However, the buyer thought he was contracting for the truck designated as Route 2. The only difference between the two trucks was the delivery date -- the Route 1 shipment would be delivered one day sooner than goods shipped on Route 2. The later delivery did not really affect the buyer in any negative way. The buyer was so furious about the late delivery that he wished to teach the trucking company a lesson and requested the court to void the contract. The court will: __________.

not void the contract, since at least one of the elements of mutual mistake is missing

An injured party has no justifiable claim of fraud after relying on an assertion whose falsity should have been: ___________.

obvious

In a case of an innocent mistake, a victim can: ___________.

only request rescission of the contract

If a contract resulted from duress, the innocent party can: __________.

opt to void the contract

The remedy that is most appropriate when a mutual mistake has occurred is: _________.

recission

The courts insist on a "meeting of the minds" to have a valid contract and even if a misrepresentation was innocent and without intent, the court will: __________.

rescind the contract

A contract that is voidable can be _________, where the person canceling the contract is required to return everything she gave the other party and return anything the other party gave to her.

rescinded

A court ordered that a contract was voidable due to the lack of legal assent. The court also ordered that both parties must return what the other party had given to them. This scenario exemplifies the: __________.

rescission of a contract

Brenda went shopping for a new computer at a nearby computer store. Her salesperson, Alan, had been told by another sales associate that a free printer was to be given to any customer who purchased a new laptop. This was not the case, but Alan believed the sales associate since he had been working at the store for two years. Alan told Brenda about the free printer, and Brenda purchased the laptop. Unfortunately Brenda was charged for the printer. Brenda was very angry and went to court. The judge found that there was innocent misrepresentation, and therefore, Brenda can receive: ____________.

rescission of the contract, but no damages

If a person had no knowledge of a claim's falsity, we say that he or she lacked: _________.

scienter

The Latin term for knowledge is: _________.

scienter

With fraudulent misrepresentation, the party knows that the misrepresentation is false, yet still makes the representation to another party. This indicates that the party making the misrepresentation has: __________.

scienter

A weight loss product was advertised on TV as being a safe way to lose weight. The advertisements did not indicate that the consumer of the product would probably be likely to have dangerously high blood pressure and an increased likelihood of heart attack. The consumer can: ___________.

take legal action against the advertiser due to misrepresentation

In contract law, a mistake of fact is an erroneous belief about the facts of a contract at the time: _________.

the contract is concluded

A special relationship in which one person takes advantage of a dominant position in a relationship to unfairly persuade the other and interfere with that person's ability to make his or her own decision to enter into a contract is known as: __________.

undue influence

Carol was the favorite niece of her aunt Esther. Esther had always loved to pamper her niece and usually indulged her in almost anything. Carol had a lot of sway over her aunt and convinced her to invest in a land development project. If Carol persuaded her aunt to sign a contract for the land deal, Carol would be given a $50,000 bonus. Carol pressured her aunt to come to a decision about the contract and prevented her aunt from consulting her attorney. Aunt Esther would normally never have engaged in such a contract, but her judgment was affected by her relationship with Carol. Carol had: ___________.

undue influence over Aunt Esther

An error by one party about a material fact, that is, a fact that is important in the context of the particular contract is called a(n) _________ mistake.

unilateral

A mistake of a material fact by one party is known as a(n): _________.

unilateral mistake

A mistake can be of two types. One is a mistake of fact about the deal. The other is a mistake of the _________ of what is being exchanged.

value

Without legal assent, a contract may be: _________.

voidable

In a case of fraudulent or negligent misrepresentation, a victim can: ___________.

either rescind the contract or keep the contract and sue for damages

A __________ does not have to be an actual statement; it may also be an act of concealment or nondisclosure.

false assertion of fact

Mr. Matisse was an art dealer who sold original works of art and copies of famous artwork. Mr Matisse saw a couple of customers who gave him the impression that they knew next to nothing about artwork. They were interested in purchasing a copy of a famous Picasso. When they asked Mr. Matisse if the work was an original, Mr. Matisse assured them it was really an original work of Picasso's and he further stated, "I should know -- I am an art dealer". Mr. Matisse was fully aware that it was a copy, but he needed the income. So he sold the painting to the couple at a very high price. The couple discovered that the painting was a copy when they tried to insure it. They sued Mr. Matisse. The court will find that Mr. Matisse had engaged in a(n): ___________.

fraudulent misrepresentation and would award damages to the couple

Katie offered to buy Jonathan's set of trading cards. Although Jonathan was reluctant to sell the cards to Katie, Katie threatened to physically hurt him if he did not sell. Jonathan reluctantly agreed and Katie gave him the money she had promised. Jonathan later changed his mind and went to court to try to get his trading cards back. Jonathan's best argument to have the contract voided is that there was no: _________.

genuine assent