Chapter 17 Business Law

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Without legal assent, a contract can be:

voidable

In contract law, ____ is an erroneous belief about the facts of the contract at the time the contract is concluded.

a mistake of fact

Which of the following is true of unilateral mistakes?

A unilateral mistake is the result of an error by one party about a material fact.

In a mutual mistake:

when both parties are mistaken about a current or past material fact, either can choose to rescind the contract.

A(n) _____ results from a false statement about a fact material to an agreement that the person making it believed to be true.

innocent misrepresentation

A(n) _____ is a consciously false representation of a material fact intended to mislead the other party.

fraudulent misrepresentation

In some contract negotiations, one party makes a statement of material fact that he/she thinks is true, which he/she could have discovered by using reasonable care. The party has made a(n):

negligent misrepresentation.

Active hiding of the truth about a material fact is:

concealment

Removing 10,000 miles from the odometer on a car before selling it is an example of:

concealment

_____ is a failure to provide pertinent information about the projected contract.

Nondisclosure

_____ refers to those special relationships in which one person takes advantage of a dominant position in a relationship to unfairly persuade the other and interfere with that person's ability to make his or her own decision.

Undue influence

People bargaining with their attorney, doctor, guardian, or relative are susceptible to being persuaded by unusual pressures unique to that relationship. This is an example of:

undue influence.

Contracts that result from undue influence are:

voidable

Which of the following occurs when one party is forced into the agreement by the wrongful act of another?

Duress

Unconscionability leads to _____ contracts.

adhesion

A mistake of fact is an erroneous belief about the facts of the contract at the time the contract is concluded.

True

Mistakes in contract law result from untrue statements made by one party to the contract.

False

For fraudulent misrepresentation to be the basis for a contract rescission, the statement of fact need not be an actual assertion.

True

A negligent misrepresentation results when the party making the statement would have known the truth about the fact had he used reasonable care to discover or reveal it.

True

When a fraudulent misrepresentation is at issue, intent to deceive may not be inferred.

False

Nondisclosure involves the active hiding of the truth about a material fact.

False

Scienter is present when the party accused of making the fraudulent assertion believed that the assertion was false or made the claim without any regard for whether it was true or false.

True

Undue influence refers to those special relationships in which one person has taken advantage of his or her dominant position in a relationship to unduly persuade the other person and interfere with that person's ability to make his or her own decision.

True

Threatening physical harm or extortion to gain consent to a contract is classified as undue influence.

False

Unconscionability is a concept strictly limited today to the sale of goods.

False

Which of the following involves a promise to buy or sell that the courts will require the parties to obey?

Legal assent

Without legal assent, a contract may be ______.

Voidable

When a contract is voidable, it may be _____.

Rescinded

Which of the following was the result on appeal in the Case Opener involving the claim that Michael Jordan owed $5 million based on his agreement to pay the plaintiff's mother on the premise that he was the father although it was later determined that the child was not his?

That the agreement to pay $5 million could be rescinded based on either a mistake of fact or based on the mother's fraud.

When a mistake of fact occurs, ______ is absent.

Legal assent

A(n) ______ mistake is the result of an error by one party about a material fact.

Unilateral

A(n) ______ mistake is a mistake that is shared by both parties to an agreement.

Mutual

Why is it important to distinguish between unilateral and mutual mistakes?

Because it determines which contracts are voidable.

Although there are some exceptions, a[n] ______ mistake does not generally void a contract.

Unilateral

In cases where both parties to a contract are mistaken about either a current or a past material fact, either can choose to ______ the contract.

Rescind

George offers to sell Penelope a ring that George found in his yard. He and Penelope look at the ring and decide that they are not sure what it is, probably just a shiny stone. Penelope pays George $10 for the ring. The ring turns out to be a diamond worth much more than $10. George wants the ring back, and Penelope refuses. What is the most likely result?

The ring will remain with Penelope because the parties contracted on the assumption that they did not know the value of the ring.

Which of the following must a mutual mistake involve in order for a mutual mistake to interfere with legal consent?

A basic assumption about the subject matter of the contract, an adverse effect on a party who did not agree to bear the risk of mistake at the time of the agreement, and a material effect on the agreement.

A[n] ______ misrepresentation results from a false statement about a fact material to an agreement that the person making the statement believed to be true.

Innocent

When a person who makes a misrepresentation has no knowledge about the falsity of the claim, it is said that the person lacked ______.

Scienter

Which of the following is true regarding the effect of an innocent misrepresentation on a contract?

It permits either the party that was misled by the false statement or the party who made the false statement to rescind the contract, and it also makes the contract void and of no effect.

Which of the following was the result on appeal in the case of Evan Rothberg v. Walt Disney Pictures, the case in the text in which the defendant allegedly used undue influence to obtain a release of employee benefits from a person in the hospital dying of AIDS?

The court ruled that a jury question was presented as to whether undue influence was present.

Which of the following is true on appeal regarding the case of Mary W. Scott v. Mid-Carolina Homes, Inc. discussed in the "Case Nugget" in which the plaintiff sued to recover damages after a salesperson allegedly mistakenly refused to sell her a mobile home because of a bent frame but later sold it to someone else?

The court refused to find that the defendant had the right to rescind the contract based on the alleged unilateral mistake.

Which of the following was the result on appeal in the case of Ronald Jackson and Willa Jackson v. Robert R. Blanchard, Helen M. Blanchard, Maynard L. Shellhammer, and Philip Schlemmer, the case in the text in which the defendants sued the sellers of property after finding well problems, septic discharge problems, and the presence of underground petroleum storage tanks?

That the plaintiffs were not entitled to rescission because they were unable to establish issues material to the parties' agreement sufficient to establish mutual mistake.

In China, which of the following is true regarding the treatment of fraudulent misrepresentations by outsiders?

Outsiders have been fined heavily and refused permission to enter into more agreements with Chinese firms.

A ______ is a false representation of a material fact that is consciously false and intended to mislead the other party.

Fraudulent misrepresentation

Which of the following involves the active hiding of the truth about a material fact?

Concealment

Which of the following refers to a failure to provide pertinent information about a projected contract?

Nondisclosure

In determining whether a mistake of fact occurred, what of the following is true?

Courts look to determine whether a mistake of fact occurred at the time the contract was concluded.

Which of the following is present when a party making a false statement claims or implies that he or she has personal knowledge of the accuracy of the assertion?

Intent to deceive

Which of the following refers to special relationships in which one person has taken advantage of his or her dominant position in a relationship to unduly persuade the other person?

Undue influence

Which of the following is found when one party was forced into an agreement by the wrongful act of another?

Duress

Which of the following is involved in a situation in which a person refuses to perform according to a contract unless the other person either signs another contract with the one making the threat or pays that person a higher price than was specified in the original agreement?

Economic duress

Mary and Jason discuss the fact that a new teacher is being hired for business law and other changes going on at the school. Jason mentions that he does not yet have a book, and Mary agreed to sell Jason a used business law book for $30 for the upcoming semester. When the new semester begins, the new business law teacher announces that a new business law text will be used that is available in the bookstore. Jason wants a refund. Which of the following is Mary's best defense?

That Jason knew of the change of teacher and bore the risk of mistake.

Which of the following occurs when a party threatens to file a criminal lawsuit unless consent is given to the terms of a contract?

Duress

Selma agreed to buy a used car from Hillary for $2,000. Hillary drew up the contract providing that the exchange would occur the next week. Unfortunately, Hillary was not very good with the keyboard and typed in $200 as the price of the car. Selma noticed that the contract said $200, not $2,000, and was very pleased. She signed it without saying anything. When it was time to make the exchange, Selma gave Hillary $200. In response to Hillary's inquiry regarding an additional $1,800, Selma pulled out the contract and showed her that it said $200. Selma said that there was no mistake on her part because she knew exactly what she was doing and that she thought that Hillary had decided to give her a deal on the car. Which of the following is Hillary's best argument?

That the mistake resulted from an accidental clerical error and that it would be unconscionable to enforce the contract.

Which of the following was the result on appeal in the case in the text, Gary W. Cruse and Venita R. Cruse v. Coldwell Banker/Gruber Real Estate, Inc., in which the court examined the liability of a realtor when problems were discovered with a home marketed as "new"?

That a jury question was presented on whether the plaintiffs could have justifiably relied on the defendants' misrepresentation.

When duress is at issue, the _____ needed for legal consent has been removed by the specifics of the threat.

Free will

Which of the following occurs when one of the parties to a contract has so much more bargaining power than the other that he or she dictates the terms of the agreement?

Unconscionability

The resulting contract from an agreement reached because one of the parties has so much more bargaining power than the other that he or she dictates the terms of the agreement is called which of the following?

An adhesion contract

Which of the following occurs in Australia whenever an illegitimate threat is made to hold on to goods unless a payment is made or an agreement is entered into?

Duress of goods

The reasoning in innocent misrepresentation cases resembles the reasoning in a ______ case.

Mutual mistake

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