Deck 9: Grounds Upon Which a Contract May Be Impeached: Misrepresentation, Undue Influence, and Duress

Question 1

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

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

Answer 1

C

Question 2

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

Answer 2

C

Question 3

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) No, because this is a case for damages.
B) Yes, because it is the only legal avenue to pursue.
C) Yes, since the store admits to the error.
D) No, because rescission is impossible.
E) Yes, because this is innocent misrepresentation.

Answer 3

D

Question 4

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

Question 5

Terri asked to see the #378 Silver Streak tomato seeds listed in the catalog. The clerk pointed to a large bag in the corner and Terri commenced to weigh out the two pounds she wanted. Several weeks later, she discovered the plants were the wrong variety. Does she have a legal claim in misrepresentation?

A) Yes, since actions can be a source of misrepresentation.
B) No, because actions cannot be a source of misrepresentation..
C) Yes, since this is clearly a case of shopkeeper negligence.
D) No, because the misrepresentation was not given in written or in oral words.
E) No, because too long of a time has transpired.

Question 6

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 wouldn't run. What legally should Jaime do?

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

Question 7

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

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

Question 8

Tom buys a piece of land based on the innocent misrepresentation of a real estate agent. He can get rescission of the contract

A) if requested within 48 hours of the discovery.
B) up until the final closing date of the sale.
C) as long as it's after the transfer of title.
D) as well as receive damages, since this is the sale of real property.
E) but only up until the time a mortgage is placed on the land.

Question 9

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 realise is 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) No, because Linda is presumed to have read and understood the document.
B) Yes, since the terms correspond to commonly understood principles.
C) Yes, since Linda is fully aware of the distinction between public and private.
D) Yes, since this is an example of misrepresentation by omission.
E) No, because this is a standardised document that has been fully approved.

Question 10

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

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

Question 11

Misrepresentation in contract law

A) is the actual assertion of fact which does not relate to the contract.
B) is concerned with what surrounds the contract's formation, not with terms.
C) is presumed negligent unless proven innocent.
D) requires rescission if title has been lost in a land transaction.
E) usually renders contract voidable at option of victim.

Question 12

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

Question 13

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

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

Question 14

If a preliminary bargaining statement is expected to influence the decision of the other party, then it is said to be to the contract.

A) material
B) subject
C) tangible
D) substance
E) consequential

Question 15

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

Question 16

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. What is the issue?

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

Question 17

Cindy bought a car from Ben. Before she bought the car, her mechanic inspected it and told her it had a new engine. Cindy has now owned the car for two months, and has discovered that the engine is not new and will need to be replaced soon. Both Ben and the mechanic though that the engine was new. What remedies would Cindy most likely be entitled to?

A) damages from the mechanic
B) rescission from the mechanic
C) rescission only from Ben
D) damages only from Ben
E) rescission and damages from Ben

Question 18

If innocent misrepresentation exists, the party who relied on it, upon learning the facts, should

A) forfeit any claim to compensation or indemnity expenses.
B) wait a reasonable length of time to respond.
C) renounce the agreement promptly.
D) prepare a formal protest.
E) take any further benefits.

Question 19

Misrepresentation can affect the contract only if the misrepresentation is

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

Question 20

Dot sold her land to Seth. Three weeks before making the contract, she told Seth the well on the property had a flow of 10 gallons 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 1 gallon per minute. What remedy might Seth be entitled to from Dot?

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

Question 21

Regarding insurance contracts, utmost good faith is important because

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

Question 22

The doctrine of caveat emptor refers to

A) quality or condition of goods, not ownership.
B) the unconscionable transfer of goods.
C) contracts where both a dominant and subservient party exist.
D) transfer of clear title in the sale of goods.
E) the situation where one party is in a vastly superior position of knowledge with respect to some matter which is of vital importance to the other party.

Question 23

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, which would be wisest for Scott to do?

A) Have his wife get independent legal counsel.
B) Explain very carefully what would transpire.
C) Have the wife sign a paper to the effect that she was not unduly influenced.
D) Have his business lawyer explain thoroughly the legal implications.
E) Place all transactions under seal.

Question 24

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 agrees to buy a prize steer, but at half its value. Legally speaking, what has this neighbour done?

A) Failed to act in the "utmost good faith".
B) Exploited a "special relationship".
C) Coerced Paul into selling under duress.
D) Committed a morally objectionable, yet perfectly legal act.
E) Exerted undue influence over Paul.

Question 25

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

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

Question 26

A person seeking to avoid a contract for undue influence must do so promptly.

Question 27

Regarding misrepresentation in a sale of land, the following applies:

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

Question 28

Damages are not available as a remedy for innocent misrepresentation.

Question 29

Guido is an unsavory money lender who charges 35% 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% 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) Claim that she entered into the contract under undue influence.
B) Claim that she entered because of constructive fraud.
C) Claim that she entered under dire circumstances.
D) Claim that she entered the contract under duress.
E) Nothing but pay the debt at 50%; the contract is enforceable.

Question 30

The legal concept where actual or threatened violence is used to persuade a party into entering a contract is called

A) assault and battery.
B) coercion.
C) duress.
D) pressure for harm.
E) undue influence.

Question 31

Kevin was desperate to save his business records and equipment from the rising flood waters. A stranger with a large truck agreed to help if Kevin would give him his choice of equipment for payment. Kevin had no time to argue, so he agreed. After the flood, Kevin demanded everything back. The stranger refused to return a new laptop computer. On what legal grounds can Kevin get his computer back?

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

Question 32

Caveat emptor only applies to the

A) allocation of risks of the goods.
B) ownership of the goods.
C) warranty of the goods.
D) implied performance of the goods.
E) condition or quality of the goods.

Question 33

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

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

Question 34

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% interest. This is an example of undue influence.

Question 35

Undue influence:

A) if circumstances point to undue influence, then burden of proof shifts to the plaintiff.
B) is same as "duress" in the eyes of the law.
C) has the same remedies as fraudulent misrepresentation.
D) if proven, renders a contract void.
E) always involves domination of one party over the mind of another.

Question 36

Monetary compensation is not available together with rescission as a remedy for misrepresentation.

Question 37

A conditional promise to pay only if the debtor defaults is a guarantee.

Question 38

For all but one of the following reasons the law distinguishes a separate category of contracts requiring "utmost good faith". Which is the EXCEPTION?

A) Disclosure affects insurance risks.
B) A higher level of trust is placed with certain professionals.
C) To protect purchaser in land contracts.
D) One party may have "superior position of knowledge."
E) Disclosure affects investment decision.

Question 39

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

A) Give prima facie evidence.
B) Indicate how the decision would be different without the influence.
C) Show there was "constructive fraud".
D) Show the unfairness of the bargain.
E) Show that circumstances likely to lead to undue influence.

Question 40

Caveat Emptor means buyer beware.

Question 41

You are going to lend money to a corporation owned by Mr. X. You are requiring that Mr. X and his wife, Ms. Y, sign personal guarantees agreeing to be responsible in case of default. Why might you be concerned about your ability to enforce the guarantee against Ms. Y, and how should you protect your position?

Question 42

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 43

What effect does undue influence or duress have upon a contract and what steps must a person subject to the undue influence or duress take in order to exercise her remedy?

Question 44

Linda's lawyer took a city lot in payment for services rendered. Now Linda is claiming undue influence and suing to get the land back. What must she prove and what must the lawyer try to prove?

Question 45

Jack is sailing on Crystal Lake when he notices Cathy, an acquaintance, in obvious distress. He sails close to her and quickly learns that her boat has sunk and she does not have a life preserver. Jack quickly assesses the situation and offers to sell her his life preserver for
$2,400. Cathy agrees, and Jack delivers the life preserver. Later that day Jack goes to Cathy's residence to collect his $2,400. Cathy refuses to pay. What basis would Cathy have to refuse to pay and what remedies is Jack entitled to?

Question 46

When an event could reasonably be expected to influence the decision of a party to enter a contract, that event may be said to be "material".

Question 47

Mr. Chessman, an elderly man, is asking a prominent businessman, Mr. Ross, to sign a contract for the restoration of a downtown tenement which Mr. Ross owns and Mr. Chessman lives in. During the ensuing discussion, Mr. Chessman states ". and if you don't
sign your children may suffer". Mr. Ross reluctantly signs. Will this contract be enforceable against Mr. Ross? Explain.

Question 48

Explain why an insurance contract needs the utmost good faith.

Question 49

In the sale of goods, usually the seller guarantees clear title to the buyer. With land, why is it that the seller need not guarantee clear title to the buyer?

Question 50

Define undue influence and distinguish undue influence from duress.

Question 51

Benny, who owns a classic car, lives in an apartment with a disabled roommate. Benny is approached by Dick Albert who advises Benny that if he does not sell his classic car for $2,000 (a fraction of its value), the roommate "will have both his arms broken". Benny then signs the contract and Dick pays him the $2,000. Benny was never threatened at any time during the transaction. What remedies can Benny pursue and what must he do in order to pursue those remedies? What is the likelihood of success?

Question 52

When describing the car he had for sale, Jack told Jill it had genuine cowhide seat covers. The car in fact had imitation leather seat covers. Jill decided to buy the car, in part because she liked cowhide seat covers. The written contract made no mention of the type of seat covers. When Jill took possession of the car she discovered that the seat covers were not cowhide and asked you the following questions:
a. What is the name of all potential causes of action that Jill has against Jack?
b. What remedy or remedies can Jill seek?
c. What elements must Jill be able to prove in order to be successful?
Answer the above questions providing reasons for your answers. Express an opinion about the probable outcome of Jill's action.

Question 53

Donna Brown owned a flower shop which she was anxious to sell. Charles Blue visited her shop and discussed a possible purchase. During those discussions Donna stated that she was sure 1998 sales would exceed $400,000 and that sales for 1997 were more than $360,000. Charles was impressed with those figures and offered to purchase the flower shop for $110,000 cash. The sale was completed one week later (November 24, 1997) and was documented with a brief written agreement which did not include anything about past sales. In April 1998, Charles had the 1997 financial statement for the flower shop prepared and actual sales for 1997 were $320,000. In addition, Charles knew that 1998 sales were 5% below sales for the same period a year earlier. Charles confronted Donna with those figures and Donna was evasive and refused to accept any responsibility, saying only that the written agreement contained no mention of sales figures. Charles asks you the following questions:
a. Do I have a right to sue Donna and if so, what is the legal basis for my action? What must I prove and what are my chances of success?
b. What remedies could I seek and do I have different remedies from which I can choose?

Question 54

What is a material event?

Question 55

Distinguish between negligent and fraudulent misrepresentation.

Question 56

James has an old car for sale. Betty views the car and in response to a question about the age of the car, James replies, "I think it is a 1929 Ford." Betty purchases the car but the written contract makes no mention of the year of the car. Actually the car is a 1932 Ford. What remedy does Betty have? What defenses are available to James?

Question 57

Name the three types of misrepresentation and describe the one that is dealt with only by the Law of Contract.

Question 58

Ryan Thompson is a lawyer and was approached by a client who wished to sell him shares in a business he owned. Ryan accepted the offer by purchasing the shares. The business is a tremendous success. Later the client claims that he sold the shares to Ryan because of Ryan's undue influence over him. What must the client prove in order to be successful in his action?