Deck 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Question 1

Rectification will be ordered where

A)there is a complete unambiguous agreement that was recorded incorrectly.
B)the parties wish to change certain terms in the contract.
C)one of the parties to the contract lacks legal capacity.
D)the offeror misrepresented certain facts.
E)the wrong party performs the contract.

Answer 1

A

Question 2

Which of the following is NOT a condition that must be met by a plaintiff who request rectification of a contract?

A)The plaintiff must satisfy the court that there was a complete agreement between the parties,free from ambiguity.
B)The plaintiff must establish that the parties did not engage in further negotiations to amend the contract.
C)The plaintiff must satisfy the court that the agreement is not subject to,or conditional on,any further adjustments.
D)The plaintiff must satisfy the court that all attempts to reach some understanding between the parties have failed.
E)The plaintiff must establish that the change in the written document appears to be an error in the recording of the document and is easily explained as such.

Answer 2

D

Question 3

McKenzie purchases goods from Dormond.Later McKenzie goes to court and the court declares that the contract between McKenzie and Dormond is void.This means that

A)Dormond has to return all money received from McKenzie,but McKenzie does not have to return the goods.
B)the court has declared that there was a valid contract between Dormond and McKenzie from the date of the purchase until the date of the Court ruling.
C)the court has declared that Dormond breached the contract.
D)McKenzie can return all or the remainder of the goods to Dormond in exchange for reimbursement of payment.
E)McKenzie can keep the goods and can demand his money back from Dormond.

Answer 3

D

Question 4

An innocent party can lose her or his right to repudiate a contract formed as a result of undue influence by

A)physical retaliation after the contract's formation.
B)not repudiating promptly after being freed from the domination.
C)tearing up the contract before its execution.
D)reversing the role of the dominant party.
E)declaring that the special relationship between the parties no longer exists.

Question 5

When a court grants rectification of a contract,it

A)declares a contract to be unenforceable.
B)changes the part of the document that was incorrect in the written document.
C)sets aside the contract.
D)declares the contract to be voidable.
E)interprets the contract for the parties.

Question 6

A court will not enforce a contract if

A)a party is mistaken as to what the subject matter of the contract was.
B)one party was unreasonable in using certain words.
C)the meanings of the words are not clear.
D)the parties disagree as to the interpretation of important terms.
E)there are two reasonable interpretations of words in the contract and no indication which is correct.

Question 7

If,at the time a contract was made,the subject matter did not exist,without the knowledge of the seller,the contract is

A)a mistake in terms of fact and not assumption.
B)subject to the tort of deceit.
C)void,according to the Sale of Goods Act as well as under the common law.
D)valid; the purchaser stands the loss.
E)voidable at the option of the court.

Question 8

Non est factum is based not only on the principle of placing loss on the person guilty of carelessness,but also upon recognition of the need for certainty and security in commerce.For these reasons,the application of the principle

A)must always result in the enforcement of the contract.
B)must always result in the unenforceability of the contract.
C)must depend on the circumstances of each case.
D)needs to be decided by a jury.
E)because of its equitable nature,needs to be decided by a judge alone.

Question 9

Jonathan sells crates of tomatoes on board the SS Apapa to Margaret.At the time of the sale,both parties are unaware that the crates were washed overboard.What is the status of the contract between Jonathan and Margaret?

A)Jonathan is still the owner of the shipment.Jonathan bears the loss and will have to refund Margaret's money.
B)Margaret has to pay the agreed price and recover from her insurance.
C)The ownership passed to Margaret,but Jonathan is still in possession,and so he is liable.
D)Margaret is the new owner of the tomatoes and has to bear the loss.
E)Margaret may sue Jonathan for the tort of deceit.

Question 10

Contracts between parties of unequal bargaining power that are unfairly advantageous to the powerful parties have long been considered

A)bilateral contracts and void.
B)unilateral contracts and voidable.
C)unconscionable contracts and voidable.
D)non est factum.
E)contrary to the Criminal Code of Canada.

Question 11

A plea of non est factum

A)is applicable only where both parties have made a mistake.
B)means it is not my doing.
C)is not a good defence against third parties.
D)means the contract is not correct.
E)can only be raised if there is a misrepresentation.

Question 12

Sam buys a car from Denise for $3,500 "as is".They agree to the terms of the contract orally.In attempting to reduce the contract to writing,Sam mistakenly writes down the amount as "$2,500".Both parties sign the contract.If either party resists any attempt to correct the document by denying a common mistake the court may

A)treat the agreement as void.
B)treat the agreement as unenforceable but order costs.
C)correct the written document to reflect accurately the contract made by the parties.
D)dismiss any action on the basis of non est factum.
E)rescind the agreement.

Question 13

A has a Tom Thomson painting that he wishes to sell.A has heard that B is an art lover and takes very good care of the paintings of Canadian masters.As a result,A decides that he will only contract with B.So he calls B and they make a deal over the telephone.Unfortunately,B's servant C overhears the conversation and before B can get to A's house,C arrives there pretending to be B.A sells the painting to C believing that C is B.Just after C leaves A's house,B shows up and A realizes his error.This situation is a classic example of

A)breach of contract.
B)fraud or deceit.
C)mistake by both parties as to the subject matter of the contract.
D)unilateral mistake as to identity.
E)all of the above

Question 14

James says to Jack,"I am selling my Toyoda for $500.Would you like to buy it?" Jack,believing that James was referred to his automobile,replies,"Yes,I'll buy your Toyota for $500." Jack pays $500 and James presents him with a Japanese doll called Toyoda.Jack asks for his money back because he misunderstood James.Should this matter go to court,the court will most likely find that

A)no contract arose because a reasonable person would not believe that James would offer to sell his car for $500.
B)Jack's refusal to pay is a breach of contract.
C)there is a binding contract for the sale of the Toyoda doll because that is what James meant when he made the offer.
D)there is a binding contract for the sale of the Toyota car because James should have made it clear what he was selling.
E)there is a binding contract for the sale of the Toyota car because that is the offer Jack believed he was accepting.

Question 15

Mistake about terms does NOT include

A)the attribution by the parties of different meanings to words used in a contract.
B)errors that are made in the recording of an agreement between parties.
C)the error of judgment that a party makes when he or she enters into a bad contract.
D)misunderstandings about the meanings of words used in a contract.
E)words used inadvertently in stating the terms of a contract.

Question 16

In a legal sense,mistake is

A)a mistake of fact.
B)an error of judgment.
C)a misunderstanding.
D)narrowly defined and limited in scope.
E)a misrepresentation.

Question 17

At common law,a mistake by an innocent party as to the identity of the other party usually involves

A)a mistaken assumption.
B)fraud.
C)the element of surprise.
D)an ambiguous term.
E)the element of risk.

Question 18

In contract law,a mistake is

A)an error about the terms of the contract,or the assumptions regarding important facts related to the contract.
B)the threat of physical or economic harm that results in a contract.
C)a false statement made by one party that causes someone to enter a contract.
D)unfair manipulation that compromises someone's free will.
E)an error of judgment about the benefits of a contract.

Question 19

James purchases an antique chair at a garage sale for $150.00.Later he sells it to Jacqueline for $300 and makes a nice profit.A few months later the Antiques Road Show comes to town and Jacqueline takes the chair to the show to be valued.She is advised that the chair dates as far back as 1866 and is worth approximately $5000.Which of the following is TRUE?

A)James made a mistake about the value of the chair and so the contract will be set aside by a court.
B)James did not make a legal mistake because he was careless in determining the right price.
C)James can plead non est factum.
D)James did not make a mistake about the value of the chair because the radically different price is one of the risks expected in the contract.
E)If Jacqueline sells the chair,the court will order that Jacqueline pay a portion of the proceeds of sale to James because James made a mistake.

Question 20

In executing its discretion to grant relief when a party makes a mistake about terms

A)the court will correct the document.
B)the court will determine the burden of proof.
C)the court will consider the hardship that will be suffered by each party.
D)the court will adopt the position of the plaintiff.
E)the court will determine each party's interpretation of the terms.

Question 21

The parking enforcement officer gave Jim a parking ticket.But as it turns out,the NO PARKING sign had been placed in error on private property.Can Jim recover damages in a tort action?

A)No,he can't,since damages are not of a pecuniary nature.
B)Yes,he can,since he was terribly inconvenienced by this affair.
C)Yes,he can,because the ticket was totally misrepresented.
D)Yes,he can,because no negligence or fraud is present.
E)No,he can't,since there was no fraud nor carelessness on the part of the parking enforcement officer.

Question 22

Linda took out a new auto insurance policy.She signed without reading each of the papers presented to her by the agent.What she didn't realize was that the insurance only covered accidents on "public roads." This term in no way was brought to her attention nor explained.A few days later she got into a serious accident in a large housing development where the roads had not as yet been turned over to the municipality.The insurance company refused to pay the claim.Can Linda get damages under misrepresentation?

A)Yes,she can,since Linda is fully aware of the distinction between public and private.
B)Yes,she can,since this is an example of misrepresentation by omission.
C)No,she can't,because Linda is presumed to have read and understood the document.
D)Yes,she can,since the terms correspond to commonly understood principles.
E)No,she can't,because this is a standardized document that has been fully approved.

Question 23

If a party to an existing contract discovers he or she had made an incorrect statement during the contract negotiations,then he or she should

A)rescind the contract immediately.
B)declare the contract voidable at the option of the other party.
C)call his or her lawyer before he or she is sued for negligent misrepresentation.
D)inform the other party of the true situation as soon as possible.
E)offer to make allowances for any misunderstandings.

Question 24

Kevin was desperate to save his business records and equipment from the rising flood waters.Just then,a stranger with a large truck drove by,and Kevin,feeling that he had little choice,said,"I'll give you your choice of my equipment if you help me save my business records and equipment." The stranger agreed and chose some equipment and a laptop computer.After the flood,Kevin demanded everything back.The stranger refused to return the new laptop computer.On what legal grounds can Kevin get his computer back?

A)undue influence
B)duress
C)coercion
D)dire circumstances
E)No basis; this is a valid contract that has fair consideration on both sides.

Question 25

Jaime has agreed to buy Steve's 4x4 truck.When Steve used the truck last,it ran quite well,so he says "it is in good condition." Unfortunately,the truck sat in the humid weather for some time and the head gasket had rotted away to where the truck won't run.What,legally,should Jaime do?

A)nothing,since statements of opinion do not amount to misrepresentation
B)sue for breach; the contract was corrupted by undue influence
C)promptly demand rescission of the contract
D)sue for fraudulent misrepresentation
E)nothing,since this is a clear case of caveat emptor

Question 26

Brandy wants to buy a car.Her credit rating will not allow her to borrow from a bank,so she goes to a private lender.This lender asks her to sign a contract that has lots of restrictive terms,which he rushes by without explaining or allowing her to read them.What is the issue?

A)innocent misrepresentation
B)undue influence
C)misrepresentation by omission
D)fraudulent misrepresentation
E)duress

Question 27

If an incident of misrepresentation is neither fraudulent nor negligent,yet it resulted in harm,then

A)a claim of tort can only be made with evidence the victim relied on the misrepresentation.
B)the victim's one hope is to show that a provision in the contract was misrepresented.
C)it is innocent misrepresentation,which has no legal significance
D)it does not qualify for a tort action.
E)the victim is guilty of having unreasonable reliance on the misrepresentation.

Question 28

In law,"utmost good faith" means a level of trust in

A)not using undue influence.
B)not making false assertions.
C)disclosing all pertinent information concerning the contract.
D)only giving factual statements.
E)being aboveboard with all affairs.

Question 29

Dot sold her land to Seth.Three weeks before making the contract,she told Seth that the well on the property has a flow of 40 litres per minute.Dot had obtained the information from a certified water surveyor.Two months after taking title to the property,Seth discovered that the flow in the well was only 4 litres per minute.What remedy might Seth be entitled to from Dot?

A)damages only
B)damages and rescission
C)damages or rescission
D)no remedy
E)rescission

Question 30

Cindy bought a car from Ben,who had bought it from John.When Ben bought the car,John lied to Ben and told him that the car had a new engine.As a result,believing that the engine was new,Ben told this to Cindy.Before she bought the car,Cindy had her mechanic inspect it and when Cindy asked him about the engine,he got her car confused with another customer's car and told her that it did indeed have a new engine.Cindy,who has owned the car for two months,has just discovered that the engine is not new and will need to be replaced soon.What remedy or remedies would Cindy most likely be entitled to and why?

A)rescission only from Ben for breach of contract
B)damages from the mechanic for negligent misrepresentation
C)rescission and damages from Ben for fraudulent misrepresentation
D)rescission from the mechanic for negligent misrepresentation
E)damages only from Ben for fraudulent misrepresentation

Question 31

Misrepresentation can affect the contract only if the misrepresentation is

A)known by the defendant.
B)negligent or fraudulent.
C)in writing,not oral.
D)prior to the contract negotiations.
E)a statement of fact,not opinion.

Question 32

Regarding insurance contracts,utmost good faith is important because

A)insurance records follow the policy holder for life.
B)the insurance company is in a position of superior knowledge.
C)the insured must calculate her or his risks.
D)third parties may be involved-especially with liability policies.
E)without it,there is fraudulent omission.

Question 33

Both rescission and damages are available remedies for misrepresentation only when the misrepresentation is

A)fraudulent or negligent.
B)innocent or fraudulent.
C)innocent only.
D)innocent,negligent,and fraudulent.
E)innocent or negligent.

Question 34

With respect to sale of goods,the doctrine of caveat emptor offers buyers the right to rescind the contracts in situations where

A)both a dominant and subservient party exist.
B)there is a clear title in the sale of goods.
C)one party is in a vastly superior position of knowledge with respect to some matter that is of vital importance to the other party.
D)there is an unconscionable transfer of goods.
E)there is a failure to disclose a problem with the ownership of goods.

Question 35

Damages are not generally awarded in cases of innocent misrepresentation; however,"out-of-pocket" expenses might be awarded.These are referred to as

A)expense benefits.
B)compensation or indemnity.
C)trivial damages.
D)an expense supplement.
E)rescission expenses.

Question 36

You innocently have made some misstatements that others are relying on.Legally speaking,you can change your situation from innocent misrepresentation into one of fraudulent or negligent misrepresentation by

A)doing nothing when you learn about the truth.
B)immediately trying to set things right.
C)trying to mitigate the situation.
D)filing a writ of claims with the court.
E)letting the other party know you were in error.

Question 37

The domination of one party over the mind of another to such a degree as to deprive the latter of the will to make an independent decision is

A)undue influence.
B)domination.
C)supervision.
D)control.
E)being pushy.

Question 38

If rescission is unavailable in a case of innocent misrepresentation,and the misstatement was an important inducement,and the aggrieved party has suffered substantial loss,the court may look at the misrepresentation as

A)negligent,and award damages.
B)a contractual nuisance.
C)an obligation in tort.
D)a breach of contract.
E)a term to the agreement.

Question 39

Albert has agreed to sell his car to Larry for $14 000.00.Albert told Larry that the car had never been in an accident,was in good condition,and drove like a dream.Albert knew that this was untrue,but wanted to get as much money as he could for the car.In fact,the car had been in two accidents,had substantial frame damage,and could not be driven safely on the road.Assume that Harry had no way of checking on the condition of the car and that the principle of caveat emptor does not apply.In this situation,Albert's statement about the car is

A)a negligent misrepresentation.
B)an innocent misrepresentation.
C)a fraudulent misrepresentation.
D)a mere invitation to treat.
E)none of the above

Question 40

Christi was told by the store's produce manager that the oranges were of a variety that had a extremely high level of vitamin C.So she bought a case for her health club's garden party.At the party,the guests enjoyed eating up all the oranges.When Christi was next in the store,the manager corrected his prior statement,saying the oranges were of a different variety than what he had thought.Does Christi have a legal claim for rescission?

A)Yes,she does,because it is the only legal avenue to pursue.
B)Yes,she does,because this is innocent misrepresentation.
C)Yes,she does,since the store admits to the error.
D)No,she doesn't,because rescission is impossible.
E)No,she doesn't,because this is a case for damages.

Question 41

Where a party inadvertently uses the wrong words in stating the terms of a contract,and another party enters into the contract,the court may set aside the contract if a reasonable bystander would conclude that the party had made a mistake.

Question 42

Paul,a poor farmer,has just learned he has a serious medical problem.The medication needed is extremely expensive and not covered by medical insurance.Hearing of his plight,the next-door neighbour offers to buy Paul's prize steer,but at half its value.Paul feels he has no choice but to sell the steer,because he needs the money,so he agrees to sell it for half its value.Legally speaking,what has this neighbour done?

A)failed to act in the "utmost good faith"
B)committed a morally objectionable,yet perfectly legal,act
C)exerted undue influence over Paul
D)coerced Paul into selling under duress
E)exploited a "special relationship"

Question 43

Scott,an independent businessman,is asking his wife to pledge her inherited family homestead towards a business loan he has arranged at the bank.She seems perfectly willing to do this.Yet,to avoid a possible later legal claim of undue influence by Scott's wife,which would be wisest for the bank to do?

A)have Scott's wife get independent legal counsel
B)explain very carefully what would transpire
C)place all transactions under seal
D)have the wife sign a paper to the effect that she was not unduly influenced
E)have Scott's lawyer thoroughly explain to Scott's wife the legal implications

Question 44

The most fundamental mistake that radically changes the nature of the bargain of the parties is a mistake about the existence of the subject matter of the contract.

Question 45

An innocent party can lose her or his right to repudiate a contract made with undue influence by

A)declaring that the special relationship between the parties no longer exists.
B)not repudiating promptly after coming out from under the undue influence.
C)tearing up the contract before its execution.
D)physical retaliation after the contract's formation.
E)reversing the role of the dominant party.

Question 46

Where the wrong words are inadvertently used by a party in stating the terms of a contract,resulting in a mistake,the contract will be binding on the party if it was reasonable for the other party to rely on the words used.

Question 47

Misrepresentation never gives rise to damages for torts as well as rescission in contract.

Question 48

If the parties disagree over what the words in a contract mean,the court will declare the contract void.

Question 49

With the issue of undue influence,what must the victim do to shift the burden of proof to the dominant party?

A)show the unfairness of the bargain
B)show that circumstances likely were to lead to undue influence
C)show there was "constructive fraud"
D)indicate how the decision would be different without the influence
E)give prima facie evidence

Question 50

Common mistake is a situation in which both parties believe the same misunderstanding or mistake about the contract.

Question 51

Mistake about terms includes the inadvertent use of wrong words.

Question 52

Guido is an unsavory money lender who charges 35 percent interest.Upon learning that Sylvia,one of his clients,had become unable to make her weekly payment,Guido tells her that he has "a way of dealing with defaulters where they think twice next time." She then promptly signs a contract agreeing to a 50 percent rate over a longer period of time.Sylvia now wants to get out of this second contract.As a lawyer,what should you advise Sylvia to do?

A)nothing,but pay the debt at 50 percent; the contract is enforceable
B)claim that she entered because of constructive fraud
C)claim that she entered the contract under duress
D)claim that she entered into the contract under undue influence
E)claim that she entered under dire circumstances

Question 53

Regarding misrepresentation in a sale of land

A)the purchaser must take it with all its faults.
B)all defects must be revealed.
C)rescission is liberally given for misrepresentation.
D)caveat emptor.
E)the seller is required to disclose all interests in ownership.

Question 54

It is a criminal offence for a lender to charge an interest rate in excess of 50 percent.

Question 55

The cooling-off period is a time during which a consumer may cancel or rescind a contract without any reason whatsoever.

Question 56

In contract law,the domination of one party over the mind of another to such a degree as to deprive the latter of the will to make an independent decision is known as undue domination.

Question 57

A spouse may set aside a transaction if he or she can prove actual undue influence.

Question 58

A legal mistake is an error in judgment.

Question 59

A statement of opinion such as "it is the best car in the lot" can amount to a misrepresentation.

Question 60

Where a contract deals with the sale of goods,such as a car,at common law,the duty of the purchaser is to inspect the goods before she or he purchases them.

Question 61

What is the difference between a void and a voidable contract?

Question 62

What is rectification? Explain its use by courts in situations involving mistake in law.

Question 63

What is an entirety clause?

Question 64

Jack really needs money to pay off his mortgage before the bank forecloses.He goes to "Shark" who agrees to lend Jack the money if Jack will pay 100 percent interest.This is an example of undue influence.

Question 65

What are the two main types of mistake in contract law?

Question 66

A guarantor is a person who agrees to pay the debts of another person but only if that person dies.

Question 67

Explain why an insurance contract needs the utmost good faith.

Question 68

When it comes to deciding whether or not a contract is void,the common law knows no half measures.Explain.

Question 69

A contract entered into by reason of a mistake as to identity of a third party usually has an element of fraud.Explain.

Question 70

Why are public corporations required to give the investing public information about any new issue of shares in a statement called a prospectus?

Question 71

Explain the concept of rescission as it relates to mistake in contract law.

Question 72

Independent Legal Advice must come from a lawyer not associated with the transaction or the other parties.

Question 73

What remedies are available to the innocent parties if they are the victims of an innocent misrepresentation? What is the remedy if they are the victims of a fraudulent misrepresentation?

Question 74

At times,the concepts of undue influence and duress may overlap.Explain.

Question 75

What must an innocent party to a contract show in order to rely on the defence of non est factum?

Question 76

What is a material event?

Question 77

Exerting domination over the mind of another party so as to make him or her enter into a contract constitutes duress.

Question 78

Explain the meaning of rescission.

Question 79

Explain the importance of independent legal advice.

Question 80

The threat by one party that unless the other party enters into the contract,he will harm the other's child constitutes undue influence.