Ch. 9 Defective Agreements Review
Which of the following, as a general rule, does not constitute fraud? a. A statement of opinion b. Active concealment of material facts for the purpose of preventing the other contracting party from discovering them c. An express misrepresentation of a material fact by one who knows it is false for the purpose of inducing the other contracting party to act d. Silence in a trust-based relationship when one has a duty to speak
A statement of opinion
Assuming an otherwise valid offer, which of the following would be the Melnick's best rationale in trying to enforce a contract for the sale of three peppers for two cents? a. A unilateral mistake does not relive the party who made the mistake from contract liability. b. A mistake of value usually relieves the liability under a contract. c. A mutual mistake relieves liability under a contract. d. The mistake was immaterial.
A unilateral mistake does not relive the party who made the mistake from contract liability
Chris purchased a truck with 3700 miles on it from Arch Ford. At the time of purchase, the truck had the manufacturer's new vehicle sticker inside it, and a salesman said it was a "demonstrator." Chris also purchased an extended warranty from the dealership. The warranty contract stated that it only applied to new vehicles. Later, when Chris took the truck to Arch Ford for service, he learned that the front end was misaligned and a nonfactory weld had broken, making the truck unsafe. He discovered that the truck was not a demonstrator, but had been previously owned and involved in two wrecks. The prior owner of the truck had informed Arch Ford that it had been in a collision. If Chris sues Arch Ford, what should be the basis of his complaint? a. Arch Ford exerted undue influence on Chris to persuade him to purchase the extended warranty. b. Arch Ford committed active fraud by expressly misrepresenting the truck's condition to Chris. c. Arch Ford innocently misrepresented the truck's condition to Chris. d. Arch Ford caused Chris to agree to a contract through economic duress
Arch Ford committed active fraud by expressly misrepresenting the truck's condition to Chris.
_____ is a means of destroying another's free will by one party obtaining consent to a contract as a result of a wrongful threat to do the other person some harm. a. Duress b. Fraud c. Mutual mistake d. Undue influence
Duress
Sara contracts with Grover to remove a dead stump in her yard. They settle on a flat fee of $100 for the service, because they both believe it to be a small stump. Their contract provides that if the project turns out to be more difficult than anticipated, the fee paid will still only be $100. If it ends up taking Grover 4 days to remove the stump, should the contract be void? a. No, because the contract terms govern the situation. b. No, because it was a unilateral mistake on Grover's part. c. Yes, because the two were mutually mistaken as to the time required. d. Yes, because Sara fraudulently misled Grover about the time involved.
No, because the contract terms govern the situation.
Boston Insurance Company issued a homeowner's policy, including a personal liability policy to Mr. and Mrs. Dufault. Although the Dufaults intended for the personal liability policy to only cover the two of them, their agent failed to communicate that to Boston Insurance Company. The insurance company issued a policy that covered relatives of the Dufaults who lived in the same household and owned a motor vehicle. Frank Smith was involved in an automobile accident with the Dufault's son, Bobby, who owned a truck and lived with his parents. After learning of the Dufaults' original desire for limited coverage, Boston Insurance Company sued, claiming that it should not be liable to pay for Bobby's accident, because the Dufaults had not intended the umbrella policy to cover him and there had been a mutual mistake about the policy. Was the insurance company correct? a. No. There was a mutual mistake regarding the law, which does not render a contract void. b. Yes. There was a mutual mistake of opinion regarding the coverage, which invalidates the contract. c. No. Any mistake in understanding the terms of the contract was the Dufaults' and thus a unilateral one, so the insurance company could not avoid the contract. d. Yes. Both parties were mistaken as to the coverage of the policy, a material fact, so the contract was void.
No. Any mistake in understanding the terms of the contract was the Dufaults' and thus a unilateral one, so the insurance company could not avoid the contract.
George was paid $45,000 by his former employer, Midwest Coal, to settle a lung disease claim against the employer. As part of the settlement, George signed a release that forever discharged the company from any and all claims, demands, actions and suits of any kind which George had or might later have from his employment with Midwest Coal. The release specifically included damages arising from hearing loss. Nine months later, George sued Midwest Coal for hearing loss from working for the coal company. He claimed he had only intended the settlement contract to release the company from a lung disease claim and not from a hearing loss claim. Can George avoid the contract? a. Yes. George signed the release under physical duress, because he was suffering from lung disease. b. Yes. Both parties were mutually mistaken as to a material fact in the contract. c. No. George was mistaken as to the terms of the contract and its legal effect, which will not invalidate a contract. d. No. Midwest Coal innocently misrepresented the terms of the contract, but it was not reasonable for George to rely on the misrepresentation.
No. George was mistaken as to the terms of the contract and its legal effect, which will not invalidate a contract.
If Joe were to introduce himself as Dr. Early to sell to Gensol, knowing that people would assume that he was a medical doctor, but never tell anyone that he was, would contracts entered into be considered to be fraudulent? a. Probably because he would have scienter. b. Probably not because he would have scienter. c. Probably not because there is no statement of a material fact since he did not say he was a medical doctor. d. Probably since he is giving his opinions of the merits of Gensol.
Probably not because there is no statement of a material fact since he did not say he was a medical doctor
Ashley leases a house for a three-year term from Joey for $300,000. The contract clearly stipulates that the Ashley must have the house treated for pests on an annual basis. Ashley fails to read the terms of the document closely and does not have the house treated for pest control. What effect does this failure to read the terms of the document have on the contract? a. The contract is valid. b. The contract is unenforceable. c. The contract is impugned. d. The contract is void.
The contract is valid.
Assuming a court did find there was a valid offer, if there was an action brought against the store, would Vinny's mistake of giving the newspaper the wrong price relieve the store of liability? a. No, because it is a unilateral mistake, and therefore whoever made the mistake cannot use it as a defense. b. No, because it is a mutual mistake between Vinny and the newspaper, therefore any contract could be rescinded. c. Yes, because a unilateral mistake always allows contracts to be rescinded by either party. d. Yes, since the mistake would be obvious to a reasonable person.
Yes, since the mistake would be obvious to reasonable person.
One who intends to and does induce another to enter into a contract as a result of an intentional or reckless false statement of a material fact commits: a. extortion. b. blackmail. c. duress. d. fraud.
fraud
If a court were to address whether or not Joe (or Pharzime) committed fraud in inducement to their contracts, what of the following elements would not need to be proven? a. damages b. scienter c. false representation d. justifiable reliance
damages
Abel holds Nina at gunpoint and gets her to sign a contract agreeing to sell her yacht to him for a very low price. This is an example of: a. fraud. b. embezzlement. c. arson. d. duress.
duress
Damien wants to buy a new truck, and after completing a credit application with the dealer, realizes that his credit score requires someone else to co-sign for the loan. He presents the financing agreement to his father to cosign. However, his father doesn't read well and Damien tells him the paperwork is a job application instead of a loan. His father signs. Later, Damien defaults on the loan, and the car dealership seeks to recover the loss from Damien's father. Damien's father claims the contract is void, due to: a. innocent misrepresentation. b. a unilateral mistake. c. undue influence. d. fraud in the execution
fraud in the execution
If a court were to find that Joe (or Pharzime) committed fraud in inducement to their contracts, to what remedy or remedies is the aggrieved party entitled? a. ratification of the contract b. rescission c. rescission and damages, if out of pocket expenses were incurred as a result of the fraud d. restitution
rescission and damages, if out of pocket expenses were incurred as a result of the fraud
Betty, an 88 year-old elderly woman, is physically and emotionally weak and very dependent on her in-home nurse, Nancy. Betty cannot walk or do other tasks well, due to her age, and Nancy cares for Betty every day. Over a series of weeks, Nancy convinces Betty to sign a contract to sell a parcel of land to Nancy for a very low price. Nancy overcomes Betty's concerns with a combination of persistence and bullying. This contract would be voidable, because of: a. mutual mistakes. b. undue influence. c. economic duress. d. active fraud.
undue influence
A mutual-mistake contract is a(n) _____ contract. a. executory b. unilateral c. unenforceable d. bilateral
unenforceable
A(n) _____ mistake occurs when only one party makes a mistake regarding the contract. a. mutual b. anticipatory c. unilateral d. illusory
unilateral
Jill contracts with James to sell a gemstone pendant for $100, believing the stone to be an attractive gemstone of modest value. After the sale, Jill realizes that the actual worth of the pendant is $1,000 and tries to void the contract with James. Jill's mistake as to the value of the gemstone is an example of a(n): a. anticipatory mistake. b. unilateral mistake. c. mutual mistake. d. illusory mistake.
unilateral mistake
A contract with a mistake that results from failure to understand the contract's meaning or significance or from failure to read the contract is: a. unenforceable. b. void. c. valid. d. constitutional.
valid
If a unilateral mistake as to price results from an error in typing or in misunderstanding an oral quotation of the price, the contract is: a. unconstitutional. b. void. c. valid. d. unenforceable.
valid
Terry buys an antique clock from Katie for $250. The clock is actually worth $1,000. Terry is aware that Katie has a mistaken opinion as to the real value of this antique clock. In accordance with the given scenario, the contract between Katie and Terry is: a. unilateral. b. void. c. valid. d. voidable.
valid
When during contract negotiations a party makes an innocent misrepresentation upon which it is reasonable for the other party to have relied, the contract is: a. voidable. b. enforceable. c. fraudulent. d. unilateral.
voidable