Chapter 13: Genuineness of Assent and Undue Influence
Which of the following is true of misrepresentation? A) A misrepresentation is not actionable unless the innocent party relied on the misrepresentation and acted on it. B) An innocent party who acts in reliance on a misrepresentation need not justify his or her reliance. C) An innocent party must prove that the wrongdoer's misrepresentation was the sole reason he or she entered into the contract. D) An innocent party need not prove economic injury to recover damages for fraud.
A
Which of the following is not actionable as fraud? A) misrepresentation of law B) silence as misrepresentation C) marriage to obtain rights of immigration D) identity theft
A
________ is an action to undo a contract. A) Rescission B) Recession C) Restitution D) Inception
A
________ is an event that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation. A) Fraudulent misrepresentation B) Unilateral mistake C) Bilateral mistake D) Erroneous misrepresentation
A
How is a mistake different from fraud?
A mistake occurs where one or both of the parties to a contract have an erroneous belief about the subject matter, value, or some other aspect of the contract. Mistakes may be either unilateral or mutual. The law permits rescission of some contracts made in mistake. A misrepresentation occurs when an assertion is made that is not in accord with the facts. An intentional misrepresentation occurs when one person consciously decides to induce another person to rely and act on a misrepresentation. Intentional misrepresentation is commonly referred to as fraudulent misrepresentation, or fraud. When fraudulent misrepresentation is used to induce another to enter into a contract, the innocent party's assent to the contract is not genuine, and the contract is voidable by the innocent party. The innocent party can either rescind the contract and obtain restitution or enforce the contract and sue for contract damages.
Intentional misrepresentation is commonly referred to as ________. A) erroneous misrepresentation B) fraud C) duress D) undue influence
B
Lucy wants a divorce from her husband but he wants to stay in the marriage. She threatens to bring a false criminal lawsuit claiming physical abuse from him if he doesn't sign the divorce papers. This is an instance of ________. A) fraud B) duress C) undue influence D) scienter
B
Which of the following constitute a mutual mistake of a material fact? A) Martha selling her house to Graham and hiding the fact that its first floor is damaged B) Martha and Graham agreeing on the sale of a house, both referring to different houses C) Graham buying a house from Martha without asking her details of damages D) Martha selling Graham an old vase for $20, both of them unaware that it is a valuable antique collectible
B
Which of the following is true of misrepresentation? A) Innocent misrepresentation is grounds for the aggrieved party to sue for damages. B) Misrepresentation of law is not actionable as fraud. C) Innocent misrepresentation cannot be treated as a mutual mistake. D) Misrepresentation of law can never be grounds for rescission of the contract.
B
Which of the following occurs when one party intentionally hides a material fact from another party? A) fraud in the inducement B) fraud in concealment C) silence as misrepresentation D) misrepresentation of law
B
________ is a mistake made by both parties concerning an object that is important to the subject matter of a contract. A) Mutual mistake of value B) Mutual mistake of material fact C) Elementary unilateral mistake D) Fraud by concealment
B
________ is a situation in which one party threatens to do a wrongful act unless the other party enters into a contract. A) Scienter B) Duress C) Battery D) Assault
B
________ is a situation in which one person takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person to enter into a contract. A) Duress B) Undue influence C) Fraud D) Scienter
B
________ occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing. A) Fraud in the inducement B) Fraud in the factum C) Fraud by concealment D) Fraud by suppression
B
________ occurs when the party knows what he or she is signing but has been fraudulently been led into the contract. A) Fraud in the factum B) Fraud in the inducement C) Fraud by concealment D) Misrepresentation of law
B
Melissa Harrison, a realtor, sells a house to the Smiths. Before the sale is finalized, Mr. Smith asks Melissa for details of repairs the house has undergone over the years. Melissa gives him details of minor repairs but hides all documents regarding a major plumbing defect that was repaired last year. Three months after the Smiths moved in, the defect reappeared that caused the first floor to flood, damaging their expensive carpet and furniture. Melissa is liable for which of the following frauds? A) fraud in the inception B) fraud in the inducement C) fraud by concealment D) fraud in the factum
C
While signing a contract, one of the parties misinterpreted a legal clause. Neither of the parties is a legal professional. Which of the following statements holds well in this scenario? A) The party who misinterpreted the law is actionable for fraud. B) The party who misinterpreted the law may rescind the contract. C) The party who misinterpreted the law is not actionable for fraud. D) The contract is declared unenforceable as the law has been misinterpreted.
C
Leona drove into an eatery and ordered Volcano Chicken. Harry, who took her order, was a new employee who had started working in the eatery the same day. When asked if the chicken she ordered was very spicy, Leona was informed by Harry—who was not aware of all details of the eatery yet—that it was not. However, when Leona took a bite, she found the hot sauce extremely spicy which resulted in her choking on the piece of chicken and requiring medical help. Which of the following statements is true in this context? A) Harry can be sued for fraud in inducement. B) Harry's employment can be terminated for having committed fraud in inception. C) Harry can be sued for innocent misrepresentation. D) Harry cannot be sued for innocent misrepresentation
D
To prove fraud, which of the following elements must be shown? A) The innocent party knew the wrongdoer. B) The innocent party was the one who detected fraud. C) The wrongdoer assumed a false identity. D) The wrongdoer intended to deceive the innocent party
D
Which of the following is true of undue influence in entering contracts? A) Undue influence need not require the overcoming of the innocent party's free will. B) Undue influence is not grounds for prosecution, as the innocent party has complete freedom to evaluate the terms of the contract. C) A contract that is entered into because of undue influence is not voidable. D) A fiduciary or confidential relationship must have existed between the parties for undue influence to be proven.
D
Describe a case that involves fraud in the inducement.
Lyle tells Candice that he is forming a partnership to invest in drilling for oil in an oil field and invites her to invest in this venture. In reality, though, there is no oil field, and Lyle intends to use whatever money he receives from Candice for his personal expenses. Candice relies on Lyle's statements and invests $30,000 with Lyle. Lyle absconds with Candice's $30,000 investment. Here, there has been fraud in the inducement. Candice has been induced to give Lyle $30,000 based on Lyle's misrepresentation of fact. Candice can rescind the contract and recover the money from Lyle, if she can find him and locate his money or property.
Explain the three kinds of mistakes that can be made by either party while entering a contract. When are contracts involving mistakes rescinded?
Mistakes may be either unilateral or mutual. A unilateral mistake is a mistake in which only one party is mistaken about a material fact regarding the subject matter of a contract. In most cases of unilateral mistake, the mistaken party will not be permitted to rescind the contract. The contract will be enforced on its terms. Mutual mistake of a material fact is a mistake made by both parties concerning a material fact that is important to the subject matter of a contract. If there has been a mutual mistake, the contract may be rescinded on the grounds that no contract has been formed because there has been no "meeting of the minds" between the parties. A mutual mistake of value exists if both parties know the object of the contract but are mistaken as to its value. Here, the contract remains enforceable by either party because the identity of the subject matter of the contract is not at issue.
Explain undue influence with an example
occurs when one person (the dominant party) takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person (the servient party) to enter into a contract. The persuasion by the wrongdoer must overcome the free will of the innocent party. A contract that is entered into because of undue influence is voidable by the innocent party. Example: Mr. Johnson, who is 70 years old, has a stroke and is partially paralyzed. He is required to use a wheelchair, and he needs constant nursing care. Prior to his stroke, Mr. Johnson had executed a will, leaving his property upon his death equally to his four grandchildren. Edward, a licensed nurse, is hired to care for Mr. Johnson on a daily basis, and Mr. Johnson relies on Edward's care. Edward works for Mr. Johnson for two years before Mr. Johnson passes away. It is later discovered that Mr. Johnson had executed a written contract with Edward three months before he died, deeding a valuable piece of real estate to Edward. If it is shown that Edward has used his dominant and fiduciary position to unduly influence Mr. Johnson to enter into this contract, then the contract is invalid. If no undue influence is shown, the contract with Edward is valid, and Edward will receive the property deeded to him by Mr. Johnson.
What should be shown to prove fraud? the following elements must be shown: 1. The wrongdoer made a false representation of material fact. 2. The wrongdoer intended to deceive the innocent party. 3. The innocent party justifiably relied on the misrepresentation. 4. The innocent party was injured.
2
In which of the following cases of assent is the rescission of a contract unenforceable? A) mutual mistake of value B) misrepresentation of a material fact C) silence as misrepresentation D) innocent misrepresentation
A
Millie receives a parcel from her aunt in Indonesia. The delivery man asks her to sign an authorization document to receive the parcel. Millie signs without reading the document, as she is in a hurry. However, on the other side of the document are contract terms that transfer all of Millie's property to the delivery man. This is an instance of ________. A) fraud in the inception B) fraud in the inducement C) fraud by concealment D) misrepresentation of law
A
What is scienter? A) knowledge that a representation is false B) undue influence used on a party to a contract C) another term for duress D) damages given to a victim of fraud
A
When Stella Finman got to know that she was terminally ill, she drafted a will leaving all her property to her son. During her period of illness, Stella was financially and emotionally supported by her lawyer as her son was mostly away. When the will was read upon her death, it said that her lawyer would get a 20 percent stake in Finman Corp., a company Stella owned. Upon investigation, it was revealed that Stella's lawyer took advantage of Stella's weakness and persuaded her to change the contractual terms. This is an instance of ________. A) undue influence B) battery C) duress D) fraud
A
A contract in which both parties are mistaken about the value of the object of the contract is considered ________. A) unenforceable B) unconscionable C) non-rescindable D) void
C
Alice offers Richard a chance to work in her affiliate marketing program which, she claims, will make him a millionaire in three months. Richard makes the "mandatory investment" of $12,000 and becomes an affiliate. Soon, he realizes that such a program does not exist and that Alice has disappeared with the money. This is an instance of ________. A) misrepresentation of law B) fraud in the factum C) fraud in inducement D) duress
C
Contracts involving fraud in inducement are ________. A) valid B) void C) voidable D) non-rescindable
C
Jeffrey became a victim of fraud when he entered a pyramid scheme which turned out to be a scam. In order to claim damages, Jeffrey has to prove which of the following? A) misrepresentation B) motive of the fraudster C) economic injury D) involvement in the pyramid scheme
C
Joe buys a trailer from a used-car dealership. On enquiry, the dealer tells him that the trailer is in great condition. However, three days later, the trailer breaks down. Investigation by Joe reveals that the trailer had seven previous owners and that the engine has been replaced thrice. An automobile expert tells Joe that the trailer is dangerous. Which of the following frauds would the dealer be liable for? A) fraud in the factum B) fraud in the inducement C) silence as misrepresentation D) misrepresentation of law
C
The measure of damages, recovered from a misrepresentation, is ________. A) the actual value of the property B) the represented value of the property C) the difference between the value of the property as represented and the actual value of the property D) twice the actual value of the property which includes punitive damages
C
What is physical duress? A) physically damaging the contract documents B) signing a contract without the knowledge that it represents fraudulent information C) threatening to physically harm someone if he or she does not sign a contract D) persuading a person to rescind a valid contract by misrepresenting the facts
C
Which of the following constitutes duress? A) a plaintiff threatening the defendant that he will not drop the lawsuit until the defendant pays him a certain amount of money B) a teacher threatening a student that he will be expelled if he is found with cigarettes again C) a wife threatening to commit suicide if her abusive husband does not stop beating her D) a father using his dominant and fiduciary position to unduly influence his son into committing a crime
C
Which of the following constitutes duress? A) an event that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation B) a situation in which one person takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person to enter into a contract C) a threat to commit extortion unless someone enters into a contract D) the knowledge that a representation is false or that it was made without sufficient knowledge of the truth
C
Which of the following is true of a unilateral mistake? A) Only one mistake or ambiguity is present in the subject matter of the entire contract. B) Out of several contracts drafted simultaneously between two parties, one has a mistake in its subject matter that does not concern the other contracts. C) Only one party is mistaken about a material fact regarding the subject matter of a contract. D) A single mistake about a material fact in the subject matter of a contract appears several times in the contract.
C
Which of the following is true of duress? A) It is liable for fraud. B) A threat should involve physical harm for it to be actionable as duress. C) It is a threat issued to make another person sign a contract. D) Intoxicating a person to sign a contract is considered duress
C
Which of the following is true of misrepresentation of a material fact? A) It can occur only by the words of the wrongdoer. B) A misrepresentation is actionable as fraud only if it is the sole factor in inducing the innocent party to enter into the contract. C) It is actionable as fraud if the misrepresentation is of a past or existing material fact. D) Predictions about the future are considered basis for fraud.
C
Which of the following scenarios makes Tim liable for undue influence? A) Tim uses a false identity, borrows $10,000 from Kelly, and disappears with the money. B) Tim threatens to kill Carlos if Carlos does not sign a contract that transfers all his property to Tim. C) Tim takes advantage of his grandmother's illness and persuades her to sign a will leaving all her property to him. D) Tim threatens to bring a lawsuit against David if David does not make him a partner in his firm.
C
Gary and Mary are siblings involved in a legal tangle over who gets possession of their ancestral home. Gary threatens to kill Mary's husband if she does not sign papers declaring Gary's sole ownership of their home. This is an instance of ________. A) scienter B) battery C) undue influence D) duress
D
Heather chooses to buy a scarf at Macy's and reads the price on the tag as $50. She uses her credit card to pay for the scarf, but post-purchase, she notices that the price tag actually says $500. This is an instance of a(n) ________. A) bilateral mistake B) mutual mistake of value C) innocent misrepresentation D) unilateral mistake
D
John buys a watch for $100 at a vintage store. Later, the store learns that the watch was worn by Sean Connery in a James Bond movie and wishes to rescind the sales contract they have with John. Which of the following statements is true in this regard? A) The store can rescind the contract immediately and refund $100 to John. B) The store can recover from John the difference between the value of the watch and the amount paid by John. C) The store can declare the contract void and pay John no money. D) The store cannot rescind or void the contract.
D
Kevin goes to the store to purchase a fully-automatic washing machine. He browses through several models of washing machines but does not let the salespersons know that he wants a fully-automatic model. While signing the sales contract, he does not notice that the model he is purchasing is a semi-automatic machine. After purchase, which of the following options does Kyle have? A) Exchange the machine with a fully-automatic one and sue the store if its does not accept it. B) Demand a full cash refund from the store for fraud in concealment. C) Sue the store for its innocent misrepresentation. D) Keep the semi-automatic washing machine as he made a unilateral mistake.
D