Deck 9: Defective Agreements

Question 1

Mary contracts to sell Rachel her violin for $10,000, based on an appraisal of the instrument.  Their contract provides that even if the appraisal is later found to be mistaken, the sale price will not be altered.  One month after the sale, Rachel learns that the violin is only worth $5000. Which of the following is true:

A)Because the contract specified what would happen in the case of a mistake, the sale price will not be altered.
B)Mary must refund Rachel $5000, because the appraisal was mistaken.
C)The contract is unenforceable, because the appraisal was mistaken.
D)The contract is void, because the sale is fraudulent.

Answer 1

A

Question 2

Mistakes such as duress and undue influence render contracts void.

Answer 2

False

Question 3

​ What is active fraud?  What four elements must be present to constitute fraud as a result of express misrepresentation?

Answer 3

Active fraud occurs when a party actually does something or takes steps to cause a fraud.  Active fraud  may occur either by express misrepresentation or by concealment of material facts.  The following four elements must be present to constitute fraud as a result of express misrepresentation:There must be a misrepresentation: A false statement of a material fact.
The misrepresentation must be made by one who knew it to be false or made it in reckless disregard for its truth or falsity.
The misrepresentation must be made with the intent to induce the innocent party to act.
The innocent party must justifiably rely on the false statement and make a contract.

Question 4

If a contract is voidable due to a mistake such as fraud in the inducement, duress or undue influence, a person might elect to rescind the contract.

Question 5

Which of the following is true of undue influence?

A)It occurs when one party threatens to cause physical harm to another.
B)It refers to one party injuring another financially to influence him to enter into a contract.
C)It takes place between people who are not known to each another.
D)It refers to a person in a special relationship causing another's action contrary to free will.

Question 6

Which of the following statements is true of fraud in the execution?

A)It occurs when a party intends to make a contract based on a false statement of terms.
B)It  occurs when a party does not intend to sign a contract, as the nature of the writing is not understood.
C)It refers to a party forced to sign a contract under duress.
D)It occurs when a party signs a contract based on an innocent misrepresentation.

Question 7

​ Mark, a civil engineer, entered into a contract with David. As per the contract, Mark agreed to design and build a house for David for a specified fee. Mark provided David with an estimation of the total cost and the contract was mutually agreed upon. However, during construction, when Mark increased the price due to a miscalculation on his part, David refused to pay the amount. This scenario is an example of a mistake.

A)mutual
B)collective
C)collateral
D)unilateral

Question 8

When one party wrongly threatens to injure another person financially in order to get agreement to a contract, economic duress occurs.

Question 9

A contract is void if parties to a contract are mutually mistaken about their expectations.

Question 10

When one party wrongly threatens to injure another person physically in order to get agreement to a contract, economic duress occurs.

Question 11

Ordinarily, for a mistake to invalidate a contract, the mistake must be a mutual one about a material fact.

Question 12

Which of the following is an example of passive fraud?

A)A homeowner tells a home buyer that the basement of the home never floods, when in fact the homeowner knows it has several significant leaks.
B)An attorney fails to tell his or her client of an offer to settle a case.
C)A thrift store sales clerk mistakenly tells a customer that a table is oak instead of pine.
D)A car salesman tells a customer that he believes the latest model of certain pickup truck is more reliable than previous models.

Question 13

Which of the following is true regarding parties who make mutual mistakes of law?

A)The contract becomes null and nonbinding on the parties.
B)One of the parties can annul the contract stating that it is a mistake of law.
C)It will generally not invalidate a contract.
D)Both parties can claim relief and compensation through a court of law.

Question 14

Allen enters into a contract with Joe to sell his car. However by mistake, he undervalues his car. Though the actual value of the car is $6000, he sells it to Joe for $3000. During the purchase, Joe is aware of the actual value but does not communicate this fact to Allen. Which of the following is likely to be true in such a scenario?

A)Allen is entitled to compensation through a court of law.
B)Allen is entitled to cancel the contract because he was not aware of the actual value.
C)Joe is entitled to keep the car because the contract is valid.
D)Joe must pay the difference to Allen in order to validate the purchase.

Question 15

A false statement made in the belief that it is true is known as innocent misrepresentation.

Question 16

is a means of destroying another's free will by one party obtaining consent to a contract as a result of a wrongful threat to do the other person or family members some harm.

A)Passive fraud
B)Duress
C)Misrepresentation
D)Undue Influence

Question 17

Fraud in the execution occurs when a defrauded party intends to sign a contract as a result of false statements made by the promisor.

Question 18

Failure to disclose information when there is duty to do so is known as passive fraud.

Question 19

If an unilateral mistake regarding price results arise from misunderstanding an oral quotation of the price, the contract is invalid.

Question 20

​ As a general rule, a unilateral mistake made at the time of contracting has an effect on the validity of a contract.