Deck 11: Conduct Invalidating Assent

Question 1

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.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Marjorie has been cared for by her family physician for 35 years. She decides to assume the mortgage on his new clinic. The contract is automatically invalid because of undue influence.

Answer 3

False

Question 4

Economic coercion that compels a person to enter into a contract renders that contract void.

Question 5

Samuel is given papers to sign while planning for his daughter's wedding.  The papers are clearly and accurately the invoices for the food, service, and decorations. He agrees to these charges.  Underneath the invoices, however, are a carbon and a contract of sale for a portion of the failing catering business. When  Samuel signs the top papers, his signature is transferred to the sales contract. This deception automatically voids both the contract for food, service and decorations as well as the hidden sales contract.

Question 6

Attorney Geraldine advises her client, Rick, to enter a contract, which ultimately would have benefited Geraldine but not Rick. The test of whether the contract, if entered, is voidable based on undue influence is whether Geraldine's advice would have dominated the thinking of an ordinary, reasonable person rather than whether it dominated Rick's mind or emotions.

Question 7

Ty threatened to have Lisa's father prosecuted for embezzlement unless Lisa signed a contract to pay Ty 12 monthly payments of $500 each to purchase his car. Lisa cannot avoid the contract based on duress since the threat was toward Lisa's father rather than Lisa herself.

Question 8

An act that is not wrongful or unfair may constitute duress.

Question 9

A famous decision involving mistake in the meaning of contractual terms is Raffles v. Wichelhaus , a case involving two ships with the same name which were confused by the two parties. Neither party was at fault, and the court held that no contract existed.

Question 10

Fraud in the inducement will render an agreement void.

Question 11

If Lucas paid $150 for his vehicle taxes because that is what he was told he owed, then later finds out he only owed $50, he should be able to recover the $100 because this was a unilateral mistake of fact.

Question 12

Hal holds a gun to Irving's head and tells him to sign the contract. Irving signs the contract. The contract is void only if it is not beneficial to Irving.

Question 13

A voluntary choice of perfectly legitimate alternatives may in some instances constitute economic duress.

Question 14

Pat told her friends that her car got 35 miles to the gallon in the city when in reality it only got 20 miles per gallon. When Pat decides to sell and one these friends decides to buy the car, Pat is under no duty to tell the correct figure unless asked.

Question 15

The law requires that to form a valid contract the agreement must be voluntary and knowing.

Question 16

Physical compulsion and improper threats are the two basic types of duress.

Question 17

For a misrepresentation to be actionable as fraud in the inducement, it must be a misrepresentation of opinion.

Question 18

Acts constituting duress are necessarily crimes or torts in themselves.

Question 19

Scienter is the element of fraud that requires that the misrepresentation must have been known by the one making it to be false and must have been made with an intent to deceive.

Question 20

To sustain a case of fraud in the inducement, the injured party must prove that he actually relied upon the false representation.

Question 21

An arm's length transaction is one in which the parties owe each other no special duties and each is acting in his or her self-interest.

Question 22

Ben and Kate had been negotiating Ben's employment contract in conversations over the phone for a couple of weeks. Finally, they agreed on some contract terms. Kate offered to create a draft of the contract for Ben to read over. On the same day Ben was fired from his job. Afraid he would be unemployed, Ben signed Kate's draft without reading it. In this example Ben:

A) can avoid the contract because of mistake by failure to read.
B) can avoid the contract because he was the victim of economic duress.
C) cannot avoid the contract because of economic duress or failure to read.
D) may rescind the contract because of unilateral mistake.

Question 23

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

Question 24

The Third Restatement of Torts: Liability for Economic Harm provides that a false statement of opinion results in liability only if (1) the parties are in a fiduciary or confidential relationship or (2) the perpetrator of the fraud holds himself out as having expertise or other knowledge not accessible to the defrauded party.

Question 25

There are two distinct types of fraud.

Question 26

Generally, whether or not the parties deal at arm's length does not affect whether silence alone amounts to fraud.

Question 27

An arm's length transaction is one in which the parties owe each other no special duties and each is acting in his or her self-interest.

Question 28

Nonfraudulent representation is made without scienter.

Question 29

Silence may constitute fraud if the transaction involves a person with fiduciary duty to the other party.

Question 30

An act that is contrary to public policy or is morally reprehensible may constitute duress.

Question 31

Fraud in the execution is a fairly common occurrence and involves defrauding a person as to the very nature of the contract.

Question 32

To obtain relief for negligent or innocent misrepresentation, the elements of fraud must be present but the misrepresentation need not be material.

Question 33

The law will carefully scrutinize contracts between a trustee and a beneficiary of the trust, to make sure there was no undue influence by the trustee.

Question 34

For rescission to be available as a remedy for a false statement, a misrepresentation must have been made with scienter.

Question 35

Predictions, opinions, and promissory statements ordinarily do not constitute bases of fraud.

Question 36

The test for duress is objective and the act constituting duress must be a tort or a crime in order to be wrongful.

Question 37

For a misrepresentation to be material, it must be likely to induce a reasonable person to manifest assent or the maker must know that it would be likely to induce the recipient to do so.

Question 38

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.

Question 39

If the act or threat would affect a person of average strength and intelligence, then and only then will the act constitute duress.

Question 40

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 is suspicious and asks her why she wants to buy the place. She says she would like to live in the country. Al then asks her if she thinks there might be valuable minerals under the land. Betty laughs and says she doubts that very much, so Al sells her the farm for $160,000. Al later realizes that the land was worth more than he was paid. Al can have the contract voided based upon fraud.

Question 41

Relationships that may lead to a court's careful scrutinization of contracts between the parties to make sure undue influence was not present include all but:

A) agent and principal.
B) salesperson and customer.
C) parent and child.
D) doctor and patient.

Question 42

Which of these statements about duress is accurate?

A) It always renders a contract void.
B) Duress by improper threats or acts is more common than physical duress.
C) The wrongful act must be either a crime or a tort in order to be considered wrongful.
D) An improper threat can be duress even if the victim has a reasonable alternative to agreeing.

Question 43

An arm's-length transaction is one in which:

A) the parties owe each other a special duty of confidentiality.
B) the buyer does not know the identity of the seller.
C) the parties are acting in their own self-interest.
D) the parties do not meet in person to conduct the transaction.

Question 44

Sam wants to sell his golden retriever to Al. Sam tells Al that the dog is three years old and that he will point, back, and retrieve. Al relies on these statements and purchases the bird dog. Although the dog is three years old and will point at birds, he will not back (honor another dog's point). The buyer has most probably been a victim of:

A) duress.
B) undue influence.
C) fraud in the inducement.
D) fraud in the execution.

Question 45

Which of the following is NOT an element of fraud?

A) Material misrepresentation.
B) Competent parties.
C) Knowledge of falsity.
D) Justifiable reliance.

Question 46

In the Berardi v. Meadowbrook Mall Company case, the court found:

A) plaintiffs must produce subjective evidence of their duress to win a case of economic duress.
B) duress is readily accepted by the courts as a reason to avoid a contract.
C) economic duress must leave the plaintiff no reasonable alternative but to acquiesce to the terms of the contract.
D) plaintiffs who prove economic duress may void the transaction, and this is their complete remedy.

Question 47

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. When the goods failed to arrive on time, the buyer sued for breach of contract. The court found:

A) the seller was in breach and must pay damages.
B) the seller was guilty of fraud in the inducement for failing to disclose to the buyer which ship would contain the goods.
C) no contract existed due to mistake in meaning of terms.
D) the buyer must accept the goods sent in December since he did not specify the October sailing date and the seller sent them in good faith.

Question 48

Stewart entered into a contract with Will to have Will build a 10-unit apartment complex on Elm Street in Randolph County. Unknown to both parties, this land had recently been rezoned and only single-unit dwellings can be constructed. In this case:

A) there is a mistake of law, which in some states is treated no differently than a mistake of fact. In such states, since this mistake relates to a basic assumption on which the parties made their contract and it has a material effect on their agreement, the contract is voidable.
B) since everyone should know the law, Stewart is liable to Will for any losses he may incur.
C) Stewart is obligated to buy land elsewhere and have the complex constructed on property zoned for apartments.
D) Will is liable to Stewart since Will is a contractor.

Question 49

Tom tries to sell his Aston-Martin 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?

A) Tom's statements amount to puffing only.
B) Tom's statements provide grounds to set the contract aside.
C) Tom's statements are actionable only if intentional.
D) Tom's statements amount to fraud in the execution.

Question 50

A contract induced by threatening to bring a civil suit against an individual is prohibited:

A) if the threat is an abuse of process.
B) if the suit is to recover a debt, whether the debt is valid or in controversy.
C) under no circumstances.
D) under any circumstances.

Question 51

Scienter is a legal term which means:

A) that a buyer has justifiably relied upon the seller's representation.
B) that the seller had knowledge that his statements were false and the statements were made with the intention to deceive.
C) sales puffery.
D) statements of scientifically proven knowledge.

Question 52

Under the Restatement, if the parties to a contract attach materially different meanings to their manifestations and neither party knows or has reason to know the meaning attached by the other:

A) and neither party is to blame, there is a voidable contract.
B) and both parties are to blame, there is no contract at all.
C) and one party is to blame, that party will be held responsible, but the contract is void.
D) no matter who is to blame, the contract is void.

Question 53

A misrepresentation is material if:

A) it would likely induce a reasonable person to enter into a transaction.
B) the maker does not know it would likely induce the other party to enter into the transaction.
C) it is made knowingly.
D) it misrepresents a transaction's value by more than 20%.

Question 54

Which of the following results in a void contract?

A) Duress by improper threat.
B) Duress by physical force.
C) Undue influence on a party.
D) Fraud in the inducement.

Question 55

Adam wants to buy a six-passenger car. The salesman tells him that the two-seat sports car Adam sees on the car lot would be just perfect for six people. Adam test drives the car and then buys it.

A) Adam has a valid cause of action for fraud.
B) Adam is not entitled to relief based on fraud because he was not justified in relying upon the salesman's representation that the car would seat six people.
C) The element of scienter is missing in this fact situation.
D) The salesman is in a confidential relationship with Adam.

Question 56

Contracts induced by threats of __________ are voidable, regardless of whether the coerced party has committed an unlawful act.

A) civil prosecution
B) criminal prosecution
C) tortious conduct
D) a lawsuit to recover a debt

Question 57

If incorrect, which of the following would probably be considered a misrepresentation of a material fact?

A) "This is the one that I think is the best buy."
B) "This is the best computer on the market."
C) "This car has new brakes."
D) "These tires will wear like iron."

Question 58

Anita tells Murray she will hit him in the head with a golf club unless Murray signs a contract agreeing to pay Anita $14,000 for her golf cart, which is only worth $4,000. Because of the threat, Murray signs the contract.

A) This contract is voidable at Murray's option.
B) Anita has committed physical duress against Murray .
C) This is an example of economic duress since the price is far too high for the golf cart.
D) Anita has committed assault and battery against Murray .

Question 59

Which of the following is not a requisite for fraud in the inducement?

A) False representation of a fact that is material.
B) Representation is made with knowledge of its falsity and the intention to deceive.
C) The representation is justifiably relied on.
D) Monetary loss of over $1,000.

Question 60

By holding a knife to his back, Ed compelled Sean to sign a contract advantageous to Ed. This contract was entered under:

A) physical duress.
B) improper threats.
C) undue influence.
D) false representation.

Question 61

Albert found a stone in his yard and took it to Bob, a jeweler, for evaluation. Bob wasn't sure as to the nature of the stone, but told Albert he thought it was a topaz. Bob then offered to buy the stone for $25 and Albert agreed. Later Albert found out the stone was an uncut diamond worth about $700. The sales contract:

A) is a valid contract that should be enforced by the law, because neither party knew the exact nature of the stone at the time of the sale.
B) can be voided based upon fraud in the execution.
C) can be voided based upon fraudulent misrepresentation.
D) can be voided based upon mistake as to the identity of the subject matter.

Question 62

What elements need to be proved to establish each type of fraud?

Question 63

What are the two types of fraud and what is the effect of each on the contract involved? Give an example of each type of fraud.

Question 64

Sadie convinced Brenda to buy her gas station for $300,000 by stating that she had paid $250,000 for it ten years earlier and that her net average annual profit from the business has been $80,000. In reality she paid $100,000 for the gas station and it has earned a net average annual profit of only $40,000. Brenda made no attempt to verify the statements until after the transaction was completed. In this case:

A) Sadie has committed fraudulent misrepresentation.
B) Brenda is bound by the contract, because she failed to verify the statements which were made to her.
C) Sadie has used economic duress to compel the sale.
D) the contract is void due to duress.

Question 65

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

A) A statement of value, such as "This is the best car in town for the money."
B) "This style of jacket is going to be the most popular style next year."
C) "This car has a new radiator."
D) "In my opinion, this is the best buy for the money."

Question 66

Which of the following results in a void, rather than voidable, agreement?

A) Duress by improper threat.
B) Fraud in the execution.
C) Fraud in the inducement.
D) Undue influence.

Question 67

a. What are the two types of duress and what is the effect of each on the contract involved?
b. Give an example of each type of duress.
c. Who does the law intend to protect by reason of the defense of duress? Why does the law protect this type of person?

Question 68

The remedies of damages and rescission are not available for:

A) concealment.
B) silence in an arms-length transaction.
C) innocent misrepresentation
D) negligent misrepresentation .

Question 69

Marcus is a salesman for Outdoor Life.  He is telling a potential customer the virtues of a particular tent, by making the claim that "It's tougher than bears!"  If this customer buys the tent, only to find it destroyed by bears in the campground,

A) she has a valid claim because she has justifiably relied upon the Marcus' representation.
B) she has a valid claim because  Marcus had knowledge that his statements were false and the statements were made with the intention to deceive.
C) she does not have a valid claim because Marcus' talk was just sales puffery.
D) she does not have a valid claim because Marcus is not an expert in bears or tents.

Question 70

Jill contracts to purchase Kevin's automobile under the belief that she can sell it at a profit to Linda, but after Jill has bought the car, she finds out that Linda isn't interested in buying it. Jill:

A) cannot void the contract.
B) can rescind the agreement.
C) could rescind the agreement if she was mistaken in her estimate of the value of the auto.
D) can sue Linda for detrimental reliance.

Question 71

Identify two situations in which silence or nondisclosure constitutes a misrepresentation.

Question 72

Identify whether the following statements could result in actionable fraud and why or why not.
a. A statement by an art dealer to a potential buyer, "I think this painting is underpriced because the artist is now gaining national recognition."
b. A vacuum cleaner salesperson's statement, "This machine is the best available for the cost."
c. A city councilman's statement to a fellow councilman that, "If we vote for that action, the resulting consolidation will be illegal."

Question 73

Steven has a typed copy of a contract, which he would like to have Thomas sign. Thomas, who needs glasses to read typing, doesn't want to sign until he has read the document, but Steven convinces Thomas to sign it anyway, because it is a "standard" contract for this type of situation. Is the contract which Thomas signed binding upon him?

A) No, because he did not read it.
B) No, because he entered into it based upon fraud in the execution.
C) Yes, because he has made a unilateral mistake of law.
D) Yes, because he was negligent in not ascertaining its contents.

Question 74

Fred is a concert violinist who is scheduled to perform at Carnegie Hall for the first time. He buys what he is told is a Stradivarius violin from a well-known, reputable dealer in quality violins, and he pays the going rate for a Stradivarius. He later learns the violin is an imitation, although it is a good imitation, which fooled even the dealer. In this case:

A) Fred has made a unilateral mistake and cannot void the contract.
B) the dealer has committed fraud in the inducement.
C) the sale is voidable by the purchaser for mutual mistake.
D) the sale may be rescinded, because the dealer has made a nonfraudulent misrepresentation.

Question 75

Give an example of each of the following:
a. Unilateral mistake
b. Mistake in the meaning of a contract term.

Question 76

Which of the following need NOT be proved in order to establish the defense of economic duress?

A) That one side involuntarily accepted the terms of another.
B) That circumstances permitted no other alternative.
C) That one party explicitly made the economic threat.
D) That the circumstances leading up to the contract were the result of coercive acts of the opposite party.

Question 77

Which of the following can meet the scienter requirement to establish fraud in the inducement?

A) Actual knowledge.
B) Lack of belief in the statement's truthfulness.
C) Reckless indifference as to a statement's truthfulness.
D) All of these meet the requirement.

Question 78

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

Question 79

A voidable contract results when the contract arises from:

A) physical duress.
B) undue influence.
C) fraud in the execution.
D) a mutual mistake in the meaning of contractual terms and neither party is to blame.

Question 80

The law would most likely impose a duty of disclosure in a transaction between:

A) a salesperson and customer.
B) business partners.
C) a contractor and a homeowner seeking bids on repairing a roof.
D) a seller of real property and a potential buyer who knows the property has greater value than the seller realizes.