Reality Of Consent Exam Questions Ch13

Business Law, 17e (Langvardt)

Chapter 13 Reality of Consent

1) A party who has the right to rescind a contract may do so at any time.

2) Ratification ends the right to rescind a contract.

3) To rescind a contract means to cancel it.

4) The legal term for innocent misrepresentation is "scienter."

5) In some states, a party injured by fraud can both rescind the contract and sue for damages.

6) A contract may be voidable even if the person making the misrepresentation believes in good faith that what he/she says is true.

7) Concealment involves the active hiding of a fact, whereas nondisclosure is the failure to volunteer information.

8) A famous journalist predicted the result of an NBA match between the LA Groves and LA Phantoms in favor of the Phantoms, based on the present form of Groves. Accordingly, Mark placed a huge bet on the Phantoms and lost heavily. This is an example of misrepresentation of a material fact of a contract.

9) Misrepresentations can either be innocent or fraudulent.

10) Reliance means that an individual acts because of an assertion of another party.

11) Mutual mistake is more likely to make a contract voidable than a unilateral mistake.

12) For a unilateral mistake to make a contract voidable, either (1) the nonmistaken party must have caused or had reason to know of the mistake or (2) enforcement of the contract must be unconscionable.

13) A mistake of law will not justify a recession in a contract.

14) Threats to institute legal actions cannot be considered improper threats that constitute duress.

15) The threat to institute a criminal prosecution against another party to force that party into a contract is almost always duress.

16) Generally, if there is a good faith dispute over a matter, a person's threat to file a lawsuit to resolve that dispute is considered to be improper.

17) When one of the parties offers a disproportionately small amount of money in settlement of a debt and refuses to pay more, it is a form of economic duress.

18) Threatening to breach a contract unless the party agrees to modify the terms of a contract is an example of economic duress.

19) Undue influence cases often involve a relationship of trust and confidence between the contracting parties.

20) Duress involves threats and coercion while undue influence involves persuasion to susceptible individuals.

21) Which of the following means not utterly null, but annullable?

A) Voidable

B) Unenforceable

C) Void

D) Enforceable

22) Contracts that are induced by misrepresentation are considered:

A) voidable.

B) enforceable.

C) material.

D) fraudulent.

23) A person who rescinds a contract is entitled to the return of:

A) everything that person has given the other party.

B) 50% of the items that the person has given the other party.

C) 75% of the items that the person has given the other party.

D) nothing.

24) Which of the following ends the right to rescind a voidable contract?

A) Acquiescence

B) Ratification

C) Concealment

D) Assertion

25) One of the differences between fraud and misrepresentation is that:

A) fraud cases require materiality.

B) in fraud cases, the injured party has the option of suing for monetary damages.

C) misrepresentation requires scienter.

D) a false statement of opinion cannot be the basis for a claim of misrepresentation.

26) Which of the following is true of the remedies for misrepresentation and fraud?

A) All states allow a victim of fraud to rescind and sue for damages.

B) A person can claim punitive damages for fraud under the tort of misrepresentation.

C) The contractual remedy for innocent misrepresentation is rescission.

D) Ratification enables the right to rescind a contract.

27) A person who commits fraud may be liable for punitive damages for the tort of:

A) deceit.

B) fraud.

C) misrepresentation.

D) assertion.

28) The primary distinction between an action based on innocent misrepresentation and an action based on common law fraud is that, in the former, a party need not allege and prove:

A) that there has been a false representation.

B) the materiality of the misrepresentation.

C) reasonable reliance on the misrepresentation.

D) that the party making the misrepresentation had actual or constructive knowledge that it was false.

29) A party to a contract who seeks to rescind the contract because of that party's reliance on the unintentional but materially false statements of the other party will assert:

A) reformation.

B) actual fraud.

C) misrepresentation.

D) constructive fraud.

30) Identify the difference between a case involving intentional fraud and innocent misrepresentation.

A) The contractual remedy of rescission is not available in a misrepresentation case.

B) A person committing innocent misrepresentation is liable for punitive damages for the tort of deceit.

C) Reasonable reliance of the complaining party is not required in a fraud case.

D) Materiality is not required in a fraud case.

31) A party to a contract who seeks to rescind the contract because of that party's reliance on the unintentional but materially false statements of the other party will assert:

A) reformation.

B) actual fraud.

C) misrepresentation.

D) constructive fraud.

32) A person who seeks to recover damages for deceit has to establish, apart from the elements of rescission, an additional element of:

A) injury.

B) injustice.

C) fraud.

D) materiality.

33) Which of the following must a person prove to rescind a contract if the misrepresentation was innocent?

A) That the fact was asserted

B) That the fact was disclosed

C) That the fact was material

D) That the fact was ratified

34) Which of the following is most likely to constitute a misstatement that can give rise to fraud or misrepresentation liability?

A) A broker says to his client, "I think that this car's engine has been overhauled."

B) A customer sales representative of the most popular brand of car says to the customer, "This is the highest selling car in town."

C) An owner of a house gets his ceiling painted to conceal a leaking roof and says, "I got the ceiling painted recently."

D) The owner of an unencumbered horse states, "I am selling the horse to raise funds for my ranch."

35) A fact is considered to be material in a misrepresentation case when:

A) the misrepresentation is considered to be innocent.

B) it plays a significant role in inducing a person to enter into a contract.

C) it is relied upon by a person, even though it could not possibly be true.

D) it is similar to an opinion or promise about some future happening.

36) The main difference between concealment and nondisclosure is that:

A) concealment is always regarded as an assertion of fact, while nondisclosure may or may not amount to such an assertion.

B) a tort suit is possible in a concealment case, but not in a nondisclosure case.

C) punitive damages are available in a nondisclosure case, but not a concealment case.

D) nondisclosure is always regarded as an assertion of fact, while concealment may or may not be an assertion of fact.

37) Which of the following statements, if false, is most likely to create liability for fraud or misrepresentation?

A) "This rare antique chair is probably worth $10,000."

B) "This crane will lift a 10,000-pound load."

C) "This car is a perfect gem."

D) "In my opinion, this car is in flawless mechanical condition."

38) Joe sells his business to Shirley. During the negotiations, Joe negligently tells Shirley that the business has earned a profit for the last five years. In reality, the business operated at a loss for each of those years. However, Shirley did not hear Joe's misstatement. Shirley cannot rescind the contract because:

A) Joe's false statement was negligent rather than intentional.

B) Joe's misstatement was not material.

C) Shirley did not actually rely on Joe's misstatement.

D) an untrue assertion of fact was made.

39) James entered into a contract to sell his house to Mikhael. James knows that the house has a bad termite infestation that significantly reduces the value of the house. However, the topic of termites never came up and James did not volunteer any information about the termites. Mikhael is not aware of the termite problem. Under the law of most states, has legal misrepresentation occurred here?

A) No, because James made no statement that was false.

B) No, because a seller does not have a duty to reveal all faults.

C) Yes, because a seller must always inform a buyer about defects that are not obvious.

D) Yes, because James is concealing the termite infestation from Mikhael.

40) Sue wanted to purchase a car. She went to "Honest Bob's" used car sales. She was interested in a classic 1956 Jaguar XK 140 Roadster. Bob told her "this is a great car—it runs like a dream, it is a sweet ride." Bob's statements are legally considered to be:

A) opinion statements.

B) material representations.

C) innocent misrepresentations.

D) fraudulent, if they are false.

41) To establish a cause of action based on fraud in the inducement, one of the elements the plaintiff must generally prove is that:

A) it is impossible for the plaintiff to fulfill the terms of the contract.

B) the contract is unconscionable.

C) the defendant made a false representation of a material fact.

D) there has been a mutual mistake of a material fact by the plaintiff and defendant.

42) David entered into a contract to sell Ruth a parcel of land fully aware that Ruth's intention of the purchase was to construct a high-rise commercial building. David was also aware that the subsurface soil condition of the property would prevent such construction. The soil condition was not readily discoverable in the course of normal inspections or soil evaluations. David did not disclose the existence of the condition to Ruth, nor did Ruth make any inquiry of David as to the suitability of the land for the intended development. David's silence as to the soil condition:

A) renders the contract voidable at Ruth's discretion.

B) entitles Ruth only to monetary damages.

C) makes the contract a case of a mutual mistake.

D) does not affect the validity of the contract.

43) Jim, the CEO of Maple, Inc., signed a few papers that Amanda, his secretary, presented to him. Unknown to Jim, Amanda had carefully slipped in a contract for the sale of Jim's home to her in the papers. If Amanda seeks to enforce the contract, Jim's best defense to have the contract declared void would be:

A) innocent misrepresentation.

B) fraud in the execution.

C) mistake.

D) duress.

44) To recover damages for the tort of deceit, a plaintiff would have to prove:

A) he/she suffered economic injury.

B) profit by the defendant.

C) the Secretary of State was properly notified.

D) that there was a BFOQ that contributed to the defendant's behavior.

45) In which of the following cases can the remedy of rescission be invoked by the affected party?

A) Mistake of tort

B) Mistake of contract

C) Mistake of law

D) Mistake of fact

46) According to contract law, a(n) ________ is a belief about a fact that is not in accordance with the truth.

A) assertion

B) concealment

C) mistake

D) material

47) Jean agrees to lease Steven the fourth floor of his house. Jean, by himself, resides on the second floor. The person typing the contract strikes the wrong key, and the contract reads the leased portion as the "second floor." Neither Jean nor Steven notices this error when they read and sign the contract. What will the courts do in the case of a dispute?

A) Avoid the contract

B) Rescind the contract

C) Enforce the contract

D) Reform the contract

48) Assuming that the economic condition of the country is progressing, Peter entered into a contract with John for the sale of substantial amount of shares of his company for consideration of $1,000,000. However, due to a slump in the market in the next few months, Peter lost heavily. This would lead to:

A) avoidance of the contract.

B) enforcement of the contract.

C) rescission of the contract.

D) reformation of the contract.

49) Which of the following is a remedy in the case of an erroneous expression of an agreement due to an error in drafting?

A) Reformation

B) Rescission

C) Avoidance

D) Tort of deceit

50) On May 6, Robbie entered into a signed contract with Ed, whereby Robbie agreed to sell Ed a painting with a fair market value of $350,000 for $130,000. Robbie believed the painting was worth only $130,000. Unknown to either party, the painting was destroyed by fire on May 4. If Ed sues Robbie for breach of contract, Robbie's best defense is:

A) risk of loss had passed to Ed.

B) lack of adequate consideration.

C) mutual mistake.

D) unconscionability.

51) Which of the following is a ground for avoidance of a contract based on a unilateral mistake?

A) Both parties are mistaken about a fact.

B) The nonmistaken party caused the mistake.

C) The mistaken party had reason to know of the mistake.

D) Person affected by the mistake does not bear the risk for it.

52) Paco Corp., a building contractor, offered to sell Roy several pieces of used construction equipment. Roy, engaged in the business of buying and selling equipment, accepted the offer. Paco's written offer had been prepared by a secretary who typed the total price as $10,900, rather than $109,000, which was the approximate fair market value of the equipment. Paco learned of the error in the offer and refused delivery of the equipment unless Roy agreed to pay $109,000. Roy sued Paco for breach of contract. Which of the following scenarios is the likely outcome?

A) Paco will not be liable because there has been a mutual mistake of fact.

B) Paco will be able to rescind the contract because Roy should have known that the price was erroneous.

C) Roy will prevail because Paco is a merchant.

D) The contract is enforceable because Roy had accepted it.

53) Morton Reeves, a building subcontractor, submitted a bid for construction of a portion of a high-rise office building. The bid contained material errors in computation. Lago Corp., the general contractor, accepted the bid with the knowledge of Reeves' errors. Reeves:

A) must perform the contract unless he can show that Lago acted fraudulently.

B) must perform the contract according to the stated terms since his errors were unilateral.

C) can avoid liability on the contract only if his errors were not due to his negligence.

D) can avoid liability on the contract since Lago knew of his errors.

54) ________ is a wrongful coercion that induces a person to enter or modify a contract.

A) Deceit

B) Mistake

C) Fraud

D) Duress

55) Which of the following elements establishes a case of duress?

A) An assertion was made with knowledge of its falsity.

B) There is an untrue assertion of a fact.

C) The contract was induced by improper threat.

D) There is a mistake about the basic assumption of the contract.

56) Bob's threat to breach an existing contract unless Lauren makes another contract with Bob is considered:

A) an act of duress, because breach of an existing contract violates a criminal statute.

B) an act of duress, depending mainly on the coerciveness of the threat.

C) not an act of duress, because it does not involve physical force.

D) not an act of duress, because breaking a contract normally does not violate a criminal statute.

57) 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) were due to his relationship with the purchaser.

B) actually induced the purchaser to assent to the contract.

C) were due to his position of dominance with the purchaser.

D) influenced the purchaser to assent as there were no reasonable alternatives.

58) Geometry Co. manufactures microchips for electrical products. Jojoba monopolizes the supply of gallium arsenide, which is used heavily in the manufacturing of microchips. Because of this monopoly and the demand for microchips, Geometry enters into a long-standing agreement with Jojoba for 20 years. For the first couple of years, due to the huge demand for the microchips, Geometry insisted on timely delivery of the raw material. However, once the demand slumped, Geometry asserted economic duress to avoid the contract. Will Geometry be successful?

A) Yes, because Geometry was forced to enter the contract due to Jojoba's monopoly over the supply of the raw material. The consent was not free.

B) No, because the facts prove that Jojoba had not caused any undue duress.

C) Yes, because there was economic duress and thus the contract is voidable at Geometry & Co.'s discretion.

D) No, because Geometry has already taken benefits under the contract for two years.

59) Martin Nowak, an accountant, entered into a written contract with Jane Gibson to perform certain tax services for Jane. Shortly thereafter, Jane was assessed additional taxes and she wanted to appeal the assessment. Jane was required to appeal immediately and the workpapers held by Martin were necessary to appeal. Martin refused to furnish Jane with the workpapers unless he was paid a substantially higher fee than was set forth in the contract. Jane reluctantly agreed in order to meet the filing deadline. The contract as revised is:

A) voidable at Jane's option based on undue influence.

B) voidable at Jane's option based on duress.

C) void on the ground of undue influence.

D) void on the ground of duress.

60) The term for when both parties to a contract are mistaken about the same fact is called?

A) Mutual mistake

B) Mutual duress

C) Unilateral mistake

D) Unilateral duress

61) An important difference between duress and undue influence is that:

A) duress occurs in a relationship of trust, while undue influence employs improper threat.

B) duress involves physical compulsion, while undue influence involves economic compulsion.

C) the scope of duress has contracted since the 19th century, while the scope of undue influence has expanded since the 19th century.

D) duress is wrongful coercion, while undue influence is unfair persuasion.

62) Which of the following is most likely to constitute undue influence?

A) A firm demanding more in terms of pricing by withholding essential supplies.

B) A clergyman using a parishioner's emotional susceptibility to get the parishioner to contract with the clergyman.

C) Threatening to commence a frivolous criminal prosecution against someone, in order to get him or her to contract with you.

D) Grabbing someone's hand and forcing him or her to sign on a contract you have prepared.

63) Hally took advantage of a confidential, trusting relationship with Gwyn when they entered into a contract. Now, Gwyn can seek remedy based on:

A) duress.

B) unconscionability.

C) undue influence.

D) fraud in the execution.

64) Jerry owns a parcel of land. Nate, one of Jerry's closest friends and an attorney, persuaded Jerry to sell the land to Nate at a price substantially below fair market value. At the time Jerry sold the land, he was resting in a nursing home recovering from a serious illness. If Jerry desires to set aside the sale, which of the following causes of action is most likely to be successful?

A) Duress

B) Undue influence

C) Fraud

D) Misrepresentation

65) Which term references threats or coercion that is used by one party to a contract to force another to agree to a contract?

A) Duress

B) Undue influence

C) Breach

D) Power of Attorney

66) Which of the following, in the context of contracts, means to terminate the contract as to future transactions or to annul the contract from the beginning?

A) Acquiescence

B) Rescind

C) Ratification

D) Assertion

67) A person who rescinds a contract must:

A) offer to return everything that he received from the other party.

B) return 50% of the items that he received from the other party.

C) return everything that he received from the other party.

D) return nothing.

68) Which of the following is the adoption or affirmance by a person of a prior act that did not bind him or her?

A) Acquiescence

B) Ratification

C) Concealment

D) Assertion

69) Which of the following statements about ratification is false?

A) Ratification ends the right to rescind.

B) Ratification of a voidable contract means that a person who had the right to rescind has elected to do so.

C) A person who does not seek to ratify the contract must avoid any conduct that would send a "mixed message."

D) An unreasonable delay in notifying the other party of a rescission may result in ratification of the contract.

70) A(n) ________ misrepresentation is made with knowledge of falsity and intent to deceive.

A) innocent

B) fraudulent

C) unintentional

D) harmless

71) A(n) ________ misrepresentation is not intentionally deceptive.

A) harmless

B) innocent

C) unintentional

D) fraudulent

72) ________ means knowledge on the part of the person making the representations, at the time when they are made, that they are false.

A) Deceit

B) Scienter

C) Fraud

D) Concealment

73) Which tort involves misrepresentation or cheating by means of some device?

A) Tortious interference

B) Conversion

C) Deceit

D) Nuisance

74) Which of the following is not required to prove innocent representation?

A) The fact asserted was material.

B) The complaining party entered the contract because of his reliance on the fact asserted.

C) The complaining party's reliance was reasonable.

D) The fact asserted constituted a mistake of law.

75) Which of the following would satisfy the "untrue assertion of fact" element for misrepresentation and fraud claims?

A) An untrue fact asserted that is a past or existing fact.

B) An untrue fact asserted that is an opinion.

C) An untrue fact asserted that is a promise.

D) An untrue fact asserted that is a prediction about some future happening.

76) In contract law, ________ refers to taking active steps to prevent another from learning the truth.

A) concealment

B) deceit

C) fraudulent misrepresentation.

D) scienter

77) As demonstrated in the case in the text, Stephen A. Wheat Trust v. Sparks, concealment can provide a basis for a claim of fraud. Which of the following statements about concealment is false?

A) Concealment is not used to support a claim of fraud in cases involving the sale of real property.

B) Concealment is equivalent to an assertion.

C) Concealment is taking active steps to prevent another from learning the truth.

D) Concealment can be the basis for a claim of misrepresentation.

78) In Timothy v. Keetch, the case in the text, the court held that:

A) Utah law requires one to inspect the public record to verify the truthfulness of statements made to him or her.

B) Paul's visit to the ranch should have "served as a warning" that the Timothys were being deceived.

C) the Keetches justifiably represented that they owned the horse without any encumbrances.

D) the Timothys had no reason to know that they were being deceived.

79) Which of the following is not a required element to avoid a contract due to mutual mistake?

A) The mistake relates to a basic assumption on which the contract was made.

B) The mistake has a material effect on the agreed-upon exchange.

C) The mistake was not readily apparent to either party at the time of contract.

D) The party adversely affected by the mistake does not bear the risk of the mistake.

80) Which of the following statements about mutual mistake of a basic assumption is true?

A) The parties must be consciously aware of the assumption.

B) An assumption is basic even when it concerns a matter that bears an indirect or collateral relationship to the subject matter of the contract.

C) Assumptions about the identity, existence, quality, or quantity of the subject matter of the contract are considered to be basic assumptions.

D) A contract can be avoided even if the mutual mistake was not based on a basic assumption.

81) As discussed in the case in the text, Hicks v. Sparks, a person who is harmed by a mutual mistake cannot avoid that contract if he is considered to bear the risk of mistake. Which of the following statements is true?

A) A buyer is not considered to have accepted the risk when he accepts property "as is."

B) Courts have the power to allocate risk of a mistake on the adversely affected person whenever it is reasonable under the circumstances to do so.

C) The adversely affected party does not bear the risk of mistake when he contracts with conscious awareness that he has limited information about a fact.

D) A person who is harmed by the mistake can avoid the contract on the basis of mutual mistake even if he is considered to bear the risk of mistake.

82) In Patterson v. CitiMortgage, Inc., the case in the text, the court held that:

A) under Georgia law, a court may not rescind a contract based on a unilateral mistake.

B) the parties' negotiations demonstrated CitiMortgage's mistake was obvious and Patterson knew or should have known that it was a mistake.

C) CitiMortgage could not rescind the contract because it should have been aware of its mistake.

D) CitiMortgage could not rescind the contract because its acts were negligent.

83) Business compulsion is another term for:

A) fraud.

B) undue influence.

C) fraudulent misrepresentation.

D) economic duress.

84) In the case in the text, Olmstead v. Saint Paul Public Schools, the court held that:

A) Olmstead could not demonstrate that his free will was overcome.

B) Olmstead's resignation was revocable because when he resigned he was under duress.

C) Olmstead was under duress when the District threated to file termination charges against Olmstead when it had no intention or grounds to do so.

D) the District illegally promised to not report Olmstead if he resigned.

85) Which of the following relationships is unlikely to provide a basis for an undue influence case?

A) Parent and child

B) Husband and wife

C) Lawyer and client

D) Salesperson and customer

86) Give two reasons why the differences between fraud and misrepresentation are relevant.

87) Suppose that Reed is buying a crane from Movers Inc. Reed needs a crane that will handle loads of up to 10,000 pounds. Movers' salesman tells Reed that the crane "will handle a 10,000-pound load." Relying on this statement, Reed buys the crane. Later, he discovers that the crane will only handle a 5,000-pound load. Reed wants to rescind on the basis of either fraud or misrepresentation. Movers, however, alleges that the salesman did not make a statement of past or existing fact. Is Movers correct?

88) Joe Loser enters into an investment scheme with some reputed financiers. To get Joe's money, these people lie to Joe about several present facts that are critical to the investment scheme. Later, Joe sues to rescind the investment contract on the basis of fraud. While Joe is on the stand, the attorney for the other parties asks him: "Mr. Loser, why did you enter this deal in the first place?" Joe says: "For the one and only reason: I admired these men tremendously and figured that any deal good enough for them was a deal I wanted in on too. The details didn't matter; if they were in it, I wanted to be in it too." Joe has just blown his fraud case. Why?

89) Nick, a real estate agent, decided to purchase a house for $300,000 after hiring architects, decorators, and electricians to examine it. However, Nick did not get the property appraised. After executing the sale contract with the homeowner, Kurt, Nick discovered that the house was actually worth only $150,000. Will Nick be entitled to rescind his contract with Kurt? Explain.

90) Jill Homeowner contracts with Ralph Roofer for Ralph to reshingle Jill's roof. Midway through the job, Ralph says that he cannot finish unless Jill promises to pay him an additional $500. There is no real basis for this demand; Ralph just wants more money. Even though she could have gotten one of six other roofers to finish the job at a reasonable price, Jill gives in and promises to pay the $500, after which Ralph completes the job. Later, Jill refuses to pay the additional $500, and Ralph sues her. Jill defends on the basis of duress. What are the chances of this defense working?