Exam 11: Conduct Invalidating Assent

Define fiduciary and discuss its effect on a contract.

Which of the following would be considered to be a misrepresentation of a material fact for purposes of establishing fraud in the inducement?

Al owns a farm that he believes is worth $150,000.Betty knows that there is oil under the farm and offers Al $160,000 for it.Al accepts and sells the farm to Betty.Al later realizes that the land was worth more than $160,000.Al can have the contract avoided based upon fraud.

A contract was made for 125 bales of cotton to arrive on a ship named "Peerless" from Bombay.Unbeknownst to either party to the contract, there were two ships named "Peerless," both of which were sailing from Bombay.One sailed in October and the other in December.The buyer had in mind the ship sailing in October, but the seller had in mind the ship sailing in December.Each party held his belief in good faith.The goods failed to arrive on time.If the buyer sues for breach of contract:

If a seller occupies a fiduciary relationship with the buyer and fails to make full disclosure to the buyer, then the latter will be able to avoid the transaction.

Tom tries to sell his classic car to Victoria for $12,000.Tom tells Victoria, "I paid $12,000 for the car in 1978 and it's worth twice that today." Tom really paid $8,000 for the car in 1978.If Victoria buys the car, basing her decision on Tom's statement, which of the following correctly states the situation?

At the marriage of her daughter, Lorna is given papers to sign which the catering company says are the invoices for the food, service, and decorations.Underneath the invoices are a carbon and a contract of sale for a portion of the failing catering business.As Lorna signs the papers, her signature is applied to the sales contract.This is a void contract because it was entered by fraud in the execution.

A fiduciary is a:

Define undue influence and name some of the relationships that would be affected.

Alex wants to submit a bid on a city sewer project.He computes the cost, but mistakenly omits the cost of one item. Accordingly, he submits a bid of $430,000 to the city.The next highest bid is $675,000, and the rest of the bids are even higher.The city is happy to have such a low bid, so it accepts Alex's bid and awards him the contract for the job, even though the city engineer is of the opinion the job cannot be done for less than $650,000.In this case:

A seller's promise to service a sewing machine free for the next 90 days when she has no intention of doing so is actionable as a false representation of a fact if the other elements of fraud are present.

The State of Florida enters into a contract with Treasure Salvors governing the salvage of a Spanish galleon that sunk in the 1600s.Under the terms of the contract, the salvagers agree to relinquish 25% of the items recovered to the State of Florida in return for the right to salvage on state lands.At the time the parties enter into the contract, they both believe that the seabed where the ship lies is state land.Subsequently, the United States Supreme Court holds that the continental shelf on which the ship rests has never been owned by Florida.The salvagers sue to rescind the contract.The contract:

Undue influence is the taking of unfair advantage of a person by reason of a dominant position based upon a confidential relationship.

Scienter is the element of fraud that requires that the person who makes the misrepresentation knows that it is false or has reckless indifference as to its truthfulness.

A basic element of fraud is a false representation or a misrepresentation.

To obtain relief for negligent or innocent misrepresentation, all the remaining elements of fraud must be present and the misrepresentation must be material.

Matt sells bikes at a local discount store.To encourage Bob to buy a more expensive model than he originally contemplated, Matt tells Bob, "This is the most awesome bike money can buy at this price.You can expect lots of riding pleasure." Based on this statement Bob buys the bike.A week later, before his bike is fully paid for, Bob sees a far superior bike for a lower price at another store.Bob can avoid his contract with Matt because of fraudulent misrepresentation.

Ralph sold a motel to Steve by stating that he had paid $250,000 for it and that his net average annual profit from the business has been $40,000.In reality he paid $100,000 for the motel and has earned a net average annual profit of only $30,000.Steve made no attempt to verify the statements until after the transaction was completed.In this case:

Name the two types of nonfraudulent misrepresentation.Identify the remedies that may be available.

A party to a contract may be able to avoid the contract if: