B.law Chapter 11

Front 1

What is duress?

Back 1

wrongful act or threat that overcomes the free will of a party.

Front 2

What are two types of duress?

Back 2

(1) Physical compulsion - void contract

(2) Improper threats - voidable contract

Front 3

What is undue influence?

Back 3

1. taking unfair advantage of a person
2. by reason of a dominant position
3. based on a confidential relationship
4. voidable contract.

Front 4

What are two kinds of fraud?

Back 4

(1) Fraud in the execution - misrepresentation about the nature of a document; void contract

(2) Fraud in the inducement - voidable contract if elements met:
a. False representation (or active concealment)
b. Material fact - would induce an action (not an OPINION or sales puffing)
c. Made with knowledge of falsity and intention to deceive (scienter)
d. Justifiable reliance on statement

Reed v. King case

Front 5

What are two types of non-fraudulent misrepresentation?

Back 5

(1) Negligent misrepresentation - made without due care in ascertaining its truthfulness; voidable

(2) Innocent misrepresentation - made without knowledge of falsity but with due care; voidable contract.

Front 6

What is mutual mistake?

Back 6

both parties have common but erroneous belief forming the basis of the contract

voidable by either party

Front 7

What is unilateral mistake?

Back 7

one party mistaken;

courts not likely to give relief unless mistake known or should have been known by non-mistaken party (ie. won’t relief for bad bids)

Front 8

What is assumption of the risk of mistake?

Back 8

a party may assume the risk of a mistake, it is not a mistake, but a conscious allocation of risk.

ex. rock at garage sale, but the rock is a valuable gemstone.

Front 9

What is effect of fault upon mistake?

Back 9

not a bar to avoidance unless the fault amounts to a failure to act in good faith.
if a party did not read the contract, it is his fault, no relief.

Front 10

What is mistake in meaning of terms?

Back 10

usually no mutual assent, so no contract.

in Peerless case, (two ship with same name) no party at fault, both believed in good faith. Court held that no contract existed.

Front 11

____ 1. Duress in the form of physical force renders the resulting agreement voidable.

Back 11

F

Front 12

____ 2. Duress in the form of improper threats must be explicit in order to render the resulting contract voidable.

Back 12

F

Front 13

____ 3. In deciding whether a threat is sufficient to constitute duress, the fact that the act or threat would not affect a person of average strength and intelligence is determinative.

Back 13

F

Front 14

____ 4. It has generally been held that contracts induced by threats of criminal prosecution are voidable, regardless of whether the coerced party had committed an unlawful act.

Back 14

T

Front 15

____ 5. Before one can avoid a contractual obligation to another party based upon undue influence, there must be a confidential relationship between the parties involved.

Back 15

T

Front 16

____ 6. Fraud in the execution consists of a misrepresentation that deceives the defrauded person as to the very nature of the contract being entered.

Back 16

T

Front 17

____ 7. Fraud in the inducement will result in the contract being voidable.

Back 17

T

Front 18

____ 8. Actionable fraud can usually be based on a statement of opinion as well as a statement of fact.

Back 18

F

Front 19

____ 9. Active concealment, or action intended or known to be likely to keep another from learning a fact he otherwise would have learned, can form the basis for fraud.

Back 19

T

Front 20

____ 10. When parties are dealing at arm’s length, silence or nondisclosure usually constitutes fraud.

Back 20

F

Front 21

____ 11. Justifiable reliance requires that the misrepresentation contribute substantially to the misled party's decision to enter into the contract.

Back 21

T

Front 22

____ 12. A contract induced by an innocent misrepresentation is actionable provided all of the remaining elements of fraud are present and the misrepresentation is material.

Back 22

T

Front 23

____ 13. In a legally challenged contract between a guardian and his ward, the law presumes that the guardian took advantage of the ward.

Back 23

T

Front 24

____ 14. Harold Homeowner went to Al’s Auto Dealership to look at cars. Harold found a 1980 Plymouth Horizon that he thought would be a good car for his teenagers to drive to school. Al said, “This is the best car in town.” Harold buys it for $1,000. Two weeks later, the car breaks down. Al is guilty of fraud in the inducement.

Back 24

F

Front 25

____ 15. Bill Businessman has decided to buy a copying machine on an installment contract from the Business Supply Store. After looking at machines, Bill is in a hurry, so he signs the agreement without reading it. Later, he discovers that the interest rate is 22% and that there are no guarantees on the machine. Bill can avoid the contract based on mistake.

Back 25

F

Front 26

____ 1. A contract assented to by a party acting under improper physical coercion is:
a. void.
b. voidable at the election of the coerced party.
c. binding on both parties.
d. none of the above.

Back 26

a

Front 27

____ 2. In determining whether an improper threat constitutes duress, it must be shown that:
a. the threat would have induced a reasonable person to assent to the contract.
b. the threat was intended by the coercing party to coerce assent on the part of the person claiming to be the victim of duress.
c. the threat actually coerced assent on the part of the person claiming to be the victim of duress.
d. none of the above

Back 27

c

Front 28

____ 3. In which of the following situations would silence constitute a misrepresentation?
a. The parties are dealing at arm’s length in a business transaction.
b. A person fails to disclose a fact which she knows would correct a mistake upon which the other party is relying, and the nondisclosure is a failure to act in good faith.
c. A buyer knows that a new highway is proposed through the seller’s property, making it more valuable than the seller realizes.
d. All of the above.

Back 28

b

Front 29

____ 4. The requisite elements of fraud in the inducement include:
a. a false representation of material fact.
b. a representation made with knowledge of its falsity and the intention to deceive.
c. a false representation justifiably relied upon.
d. All of the elements above are required to be shown.

Back 29

d

Front 30

____ 5. A misrepresentation is material in which of the following cases:
a. Seller believes goods are of less value than buyer believes them to be, but seller remains silent.
b. Seller represents a fact knowing it would be likely to induce a reasonable buyer to manifest his assent.
c. Seller knows the misrepresentation would be likely to induce the buyer to act.
d. (b) or (c), but not (a).

Back 30

d

Front 31

____ 6. Knowledge of falsity and intention to deceive under fraud in the inducement may be shown by:
a. actual knowledge.
b. lack of belief of the statement’s truthfulness.
c. reckless indifference as to its truthfulness.
d. all of the above.

Back 31

d

Front 32

____ 7. A package is delivered to your door and the delivery person asks you to sign a receipt for the package. You actually sign a promissory note promising to pay the delivery person $5,000! The note is:
a. void due to fraud in the execution.
b. voidable due to fraud in the execution.
c. void due to fraud in the inducement.
d. voidable due to fraud in the inducement.

Back 32

a

Front 33

____ 8. The law grants relief in a situation involving mistake only where there has been:
a. a unilateral mistake by one party as to the nature of the subject matter of the contract.
b. a mutual mistake of material fact.
c. a unilateral mistake by one party to the contract occasioned by his failure to read the document before assenting to it.
d. a unilateral mistake by one party to the contract as to its legal effect.

Back 33

b

Front 34

____ 9. In order for an act or threat to constitute duress, it needs to be at least:
a. contrary to public policy.
b. tortious, but not necessarily criminal.
c. a criminal act or threat.
d. none of the above.

Back 34

a

Front 35

____ 10. A contract entered into or induced by undue influence on the part of the dominant party is:
a. valid.
b. void.
c. voidable.
d. unenforceable.

Back 35

c

Front 36

____ 11. Carl Contractor submits a bid that contains a substantial error in addition.
a. This is a unilateral mistake. Carl is bound by the error.
b. Carl is guilty of fraud in the inducement.
c. If the error is an obvious one that the other party knew of when it accepted the contract, Carl can avoid the contract.
d. Carl can avoid the contract based upon duress.

Back 36

c

Front 37

____ 12. Which of the following would be a statement of fact?
a. For the price, this is the best typewriter available.
b. This is the one that I would recommend.
c. This furniture was refinished last year.
d. With a few more lessons, you should be able to compete in the regional dance competition.

Back 37

c

Front 38

____ 13. A fiduciary owes which of the following duties?
a. Trust
b. Loyalty
c. Confidence
d. All of the above

Back 38

d

Front 39

____ 14. The courts would not carefully scrutinize a contract between the parties in which of the following relationships?
a. Trustee and beneficiary.
b. Manufacturer and wholesaler.
c. Agent and principal.
d. Physician and patient.

Back 39

b

Front 40

____ 15. CPA: In order for a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller’s improper threats:
a. constituted a crime or tort.
b. actually induced the purchaser to assent to the contract.
c. would have induced a reasonably prudent person to assent to the contract.
d. were made with the intent that the purchaser be influenced by them.

Back 40

b

Front 41

1. Identify the types of duress and discuss the legal effect of each.

Back 41

There are two basic types of duress. The first occurs when a party is compelled to assent to a contract through physical force. This form of duress renders the purported agreement void. The second type of duress involves the use of improper threats to compel a person to enter into a contract. The threat may be explicit or inferred from words or conduct. A subjective test is used to determine whether the threat actually induced assent on the part of the person claiming to be the victim of duress. Duress of this kind renders the resulting contract voidable at the option of the coerced.

Front 42

2. a. List the elements necessary to establish fraud in the inducement.
b. Can the statement of an opinion constitute fraud in the inducement? Explain.
c. What is the difference between a false statement of fact and “puffing”? Explain.

Back 42

(a) The elements necessary to establish fraud in the inducement include: false representation, of fact, that is material, made with knowledge of its falsity and the intention to deceive, and that is justifiably relied on. (b) In general, a statement of opinion cannot constitute fraud in the inducement. However, a statement of opinion by an expert is treated as being a statement of fact. (c) Puffing is rather general and is considered to be “sales talk.” A statement such as “This is the best car in town” is puffing. A statement such as “Consumer Reports rates this the best car of the year” is a statement of the fact that it has in fact been so rated by Consumer Reports.

Front 43

3. The Main Street Gazette and Ned of Ned’s Newsstand have entered into a contract under the terms of which the Gazette has agreed to ship its newspaper, the Morning Disturber, to Ned, a newspaper dis¬tributor in Elmville, U.S.A. In order to sell a morning newspaper, Ned must receive the papers and have them on the newsstand by 12 midnight. Accordingly, the parties agreed that the Gazette would ship the papers from its plant in Metro City to Elmville on the Silver Streak, a train that arrives in Elmville at 10:00 p.m. Unbeknownst to either party, however, the Silver Streak’s schedule has been changed effective the first date of their contract so that the newspaper will not arrive in Elmville until 2:00 a.m., which is too late for distribution. No other trains pass through Elmville and the shipment of the newspa¬pers by truck or airplane is impractical. Ned sues the Main Street Gazette for breach of contract when the first shipment arrives too late for him to sell. Discuss the enforceability of the contract.

Back 43

Both parties to the contract mistakenly believed that the train schedule would allow the papers to arrive in time. The contract is voidable due to mutual mistake of fact.

Front 44

4. Discuss materiality.

Back 44

To be material, a fact must be of substantial importance. When considering materiality as related to misrepresentation, a fact is material if (1) it would be likely to induce a reasonable person to manifest his assent to an agreement or (2) the maker knows that it would be likely to induce the recipient to do so.

Front 45

5. Define undue influence and describe the circumstances under which it generally occurs.

Back 45

Undue influence is the unfair persuasion of a person by a party in a dominant position based on a relationship of trust and confidence. It generally occurs where there is a confidential relationship such as a guardian and ward or physician and patient where the dominant party takes unfair advantage of the other.