Deck 12: Consideration

Question 1

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What is the difference between undue influence and duress

Answer 1

Undue influence is an influence in which a person is induced to act in another way against their own free will or without any adequate attention. In this, one of the parties is forced to agree with the terms and conditions of contract.
Duress occurs when one of the parties is involved in designing the terms and conditions in his / her favor and then forces the other party to agree to contract terms by threatening or by forcing them.
Differences between Undue influence and Duress

Question 2

Bilateral Mistake. When Steven Simkin divorced Laura Blank, they agreed to split their assets equally. They owned an account with Bernard L. Madoff Investment Securities estimated to be worth $5.4 million. Simkin kept the account and paid Blank more than $6.5 million-including $2.7 million to offset the amount of the funds that they believed were in the account. Later, they learned that the account actually contained no funds due to its manager's fraud. Could their agreement be rescinded on the basis of a mistake Discuss.

Answer 2

Bilateral mistake occurs when both the parties are mistaken for certain facts as stated in the contract. Since both the parties are mistaken therefore, there is an opportunity for both the parties to rescind the contract.
In the given case, both the parties are mistaken that there are adequate funds available in their account and person 'S' paid the amount to person 'LB'. Later, at a certain time period, both the parties realize that no funds are available in the bank account as it was a fraud done on the bank manager's part. Thus, both the parties are mistaken and the contract can be rescinded by either of the parties as and when they wish. Therefore, the contract will not have any binding on the parties.

Question 3

Case Problem with Sample Answer-Misrepresentation. Charter One Bank owned a fifteen-story commercial building. A fire inspector told Charter that the building's drinking-water and fire-suppression systems were linked. Without disclosing this information, Charter sold the building to Northpoint Properties, Inc. Northpoint spent $280,000 to repair the water and fire-suppression systems and filed a suit against Charter One. Is the seller liable for not disclosing the building's defects Discuss.

Answer 3

Misrepresentation by silence occurs when a person knows about certain facts which can affect the other person in the contract and the first person is having the obligation to reveal the facts. Hiding any fact will be considered as a fraudulent misrepresentation.
In the following case, a person came and told 'C' Bank, that there is fire suppression and both drinking water are linked. Bank 'C' knew that this linkage was a serious problem, but didn't tell to the 'NP' Inc.
In this case, it can be inferred that there was a lack of information from the seller side to the buyer side which caused heavy financial loss to the buyer. So, it can be said that the buyer is liable for not disclosing the full information to the buyer. The reason that might have hindered the seller would be that after learning about the defects, the buyer would deny it in purchasing it.

Question 4

A Question of Ethics-Bilateral Mistake. On behalf of BRJM, LLC, Nicolas Kepple offered Howard Engelsen $210,000 for a parcel of land known as lot five on the north side of Barnes Road in Stonington, Connecticut. Engelsen's company, Output Systems, Inc., owned the land. Engelsen had the lot surveyed and obtained an appraisal. The appraiser valued the property at $277,000, after determining that it was three acres and thus could not be subdivided because it did not meet the town's minimum legal requirement of 3.7 acres for subdivision. Engelsen responded to Kepple's offer with a counteroffer of $230,000, which Kepple accepted. The parties signed a contract. When Engelsen refused to go through with the deal, BRJM filed a suit against Output, seeking specific performance and other relief. Output asserted the defense of mutual mistake on at least two grounds.
1. In the counteroffer, Engelsen asked Kepple to remove from their contract a clause requiring written confirmation of the availability of a "free split," which meant that the property could be subdivided without the town's prior approval. Kepple agreed. After signing the contract, Kepple learned that the property was not entitled to a free split. Would this circumstance qualify as a mistake on which the defendant could avoid the contract Why or why not
2. After signing the contract, Engelsen obtained a second appraisal that established the size of lot five as 3.71 acres, which meant that it could be subdivided, and valued the property at $490,000. Can the defendant avoid the contract on the basis of a mistake in the first appraisal Explain.

Question 5

Critical Legal Thinking. Describe the types of individuals who might be capable of exerting undue influence on others.

Question 6

Undue Influence. Jerome is an elderly man who lives with his nephew, Philip. Jerome is totally dependent on Philip's support. Philip tells Jerome that unless Jerome transfers a tract of land he owns to Philip for a price 30 percent below market value, Philip will no longer support and take care of him. Jerome enters into the contract. Discuss fully whether Jerome can set aside this contract.

Question 7

Brad, an accountant, files Dina's tax returns. When the Internal Revenue Service assesses a large tax against Dina, she retains Brad to contest the assessment. The day before the deadline for replying to the IRS, Brad tells Dina that unless she pays a higher fee, he will withdraw. If Dina agrees to pay, is the contract enforceable Explain your answer.

Question 8

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
In what types of situations might voluntary consent to a contract's terms be lacking

Question 9

Chelene had been a caregiver for Marta's elderly mother, Janis, for nine years. Shortly before Janis passed away, Chelene convinced her to buy Chelene's house for Marta. Janis died before the papers were signed, however. Four months later, Marta used her inheritance to buy Chelene's house without having it inspected. The house was built in the 1950s, and Chelene said it was in "perfect condition." Nevertheless, one year after the purchase, the basement started leaking. Marta had the paneling removed from the basement walls and discovered that the walls were bowed inward and cracked. Marta then had a civil engineer inspect the basement walls, and he found that the cracks had been caulked and painted over before the paneling was installed. He concluded that the "wall failure" had existed "for at least thirty years" and that the basement walls were "structurally unsound." Using the information presented in the chapter, answer the following questions.
1. Can Marta avoid the contract on the ground that both parties made a mistake about the condition of the house Explain.
2. Can Marta sue Chelene for fraudulent misrepresentation Why or why not What element (or elements) might be lacking .
3. Now assume that Chelene knew that the basement walls were cracked and bowed and that she hired someone to install paneling before offering to sell the house. Did she have a duty to disclose this defect to Marta Could a court find that Chelene's silence in this situation constituted misrepresentation Explain.
4. Can Marta obtain rescission of the contract based on undue influence If the sale to Janis had been completed before her death, could Janis have obtained rescission based on undue influence Explain.

Question 10

Question with Sample Answer-Fraudulent Misrepresentation. Grano owns a forty-room motel on Highway 100. Tanner is interested in purchasing the motel. During the course of negotiations, Grano tells Tanner that the motel netted $30,000 last year and that it will net at least $45,000 next year. The motel books, which Grano turns over to Tanner before the purchase, clearly show that Grano's motel netted only $15,000 last year. Also, Grano fails to tell Tanner that a bypass to Highway 100 is being planned that will redirect most traffic away from the front of the motel. Tanner purchases the motel. During the first year under Tanner's operation, the motel nets $18,000. At this time, Tanner learns of the previous low profitability of the motel and the planned bypass. Tanner wants his money back from Grano. Discuss fully Tanner's probable success in getting his money back.

Question 11

In selling a house, Matt tells Ann that the wiring, fixtures, and appliances are of a certain quality. Matt knows nothing about the quality, but it is not as specified. Ann buys the house. On learning the true quality, Ann confronts Matt. He says he wasn't trying to fool her, he was only trying to make a sale. Can she rescind the deal Why or why not

Question 12

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What are the elements of fraudulent misrepresentation

Question 13

Fraudulent Misrepresentation. Ricky Wilcox contracted with Fireside Log Homes to build a house. The logs were to be delivered precut and predrilled, but they arrived unfinished. Fireside told Wilcox that cutting and drilling the logs would take only two or three days. In fact, this process slowed the project by five months. To cover costs caused by the delay. Wilcox borrowed an additional $200,000. When the house was finally built, he filed a suit against Fireside. Did Fireside commit fraud Explain.

Question 14

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What are the differences between misrepresentation of fact and misrepresentation of law

Question 15

Fraudulent Misrepresentation. Marguerite Eaton and Bobby Joe Waldrop moved into a mobile home on land owned by her son, James. Bobby Joe asked James to transfer that portion of the land to him and Marguerite, stating falsely that they had married. James agreed. Marguerite soon transferred her interest in the land to Bobby Joe. When James learned of this transfer and that his mother and Bobby Joe were not married, he filed a suit against Bobby Joe, alleging fraud. Bobby Joe asserted that James had not proved intent to deceive. Do these facts indicate intent to deceive Explain.