Question 1

James is in an art gallery when Mitch,who has no special art expertise,points to a painting and says,"That artist is so good.That piece will be worth a fortune in a few years!" James buys the painting,which does not turn out to be valuable.James tries to return the painting and recover his purchase price.A court will
A)order the art gallery to pay James the full purchase price.
B)orderMitch to pay James the full purchase price.
C)enforce the contract between James and the art gallery.
D)enforce the contract between James and the art gallery,but order Mitch to pay James the full purchase price.

Accepted Answer

Mitch's statement, while misleading, does not constitute fraud or misrepresentation that would void the contract between James and the art gallery. James made the decision to purchase the painting based on his own judgment and is therefore responsible for the outcome. The court will only enforce the contract between James and the art gallery.

Question 2

Scienter exists if
A)Martin knows that the transmission on his truck is defective,but does not tell this fact to potential buyers.
B)The racehorse that Karen is trying to sell has a genetic defect,but Karen does not know about the defect,and so she does not warn potential buyers.
C)Jake,a real estate agent,tells a client that he has a house that "will make all her dreams come true."
D)Jon forces Bill to sign a contract to sell Jon a car below market value.

Accepted Answer

Scienter refers to the knowledge or awareness of wrongdoing. In this case, Martin knows that the transmission on his truck is defective but does not disclose this information to potential buyers. This constitutes scienter as he is aware of the issue and is intentionally hiding it from buyers.

Question 3

Big Dog Security Service,Inc.orally agrees to provide security services for NorthGate Mall for as long as NorthGate Mall requires them.This contract is enforceable by
A)Big Dog Security only.
B)NorthGate Mall only.
C)either party.
D)neither party.

Accepted Answer

Since both parties have agreed to the contract, it is enforceable by either party.

Question 4

Kathleen sells Richard a racehorse for $1,000.Both Kathleen and Richard think that the horse is too slow to win any races.Richard then enters the horse in a race,and it wins easily.He enters it in more races,and the horse soon wins more than $1 million.Kathleen tries to rescind the contract to sell the horse,claiming that it was worth more than $1,000.A court will
A)cancel the contract due to Kathleen's failure to know the horse's value.
B)cancel the contract due to Richard's failure to know the horse's price.
C)cancel the contract due to the difference between the contract price and the horse's true value.
D)enforce the contract.

Accepted Answer

The court will enforce the contract as Kathleen sold the racehorse to Richard for $1,000, which he accepted without any fraud or misrepresentation. The fact that Kathleen and Richard both thought that the horse was too slow to win any races is an error in judgment, and it does not negate the validity of the contract. The doctrine of caveat emptor (buyer beware) applies in this case, and Richard assumed the risk when he bought the horse. The subsequent increase in the horse's value is irrelevant as the contract was valid at the time it was made.

Question 5

Seth offers to buy a house from Tia for less than Tia paid for it,stating that he would "hate to see anything bad happen to Tia or her house." Tia agrees to sell. Regarding this agreement,a court would likely
A)enforce it.
B)not enforce it.
C)reform it to reflect the true market value of the property.
D)order the parties to renegotiate the price.

Accepted Answer

This agreement is based on coercion and is therefore voidable, meaning it can be rescinded by Tia. The court would likely not enforce it.

Question 6

Mark fails to reveal a material fact in a business deal with Nancy.This constitutes fraud
A)if Mark is unaware of the fact and the failure.
B)if the amount of consideration received is grossly inadequate.
C)if the fact concerns a serious defect known to Mark and unlikely to be known by Nancy.
D)under any circumstances.

Accepted Answer

In order for Mark's failure to reveal a material fact to constitute fraud, the fact must concern a serious defect that Mark knows about and Nancy is unlikely to know about. The other choices do not necessarily constitute fraud.

Question 7

Selena buys a cell phone for $350 and an air hockey table for $1,500,and signs a one-year employment contract for a $4,000 monthly salary to start at the beginning of the next month.The Statute of Frauds covers
A)the employment contract,and the game table and phone purchases.
B)the employment contract and the game table purchase only.
C)the employment contract only.
D)the game table and phone purchases only.

Accepted Answer

The Statute of Frauds requires certain contracts to be in writing, including contracts for the sale of goods over $500 and contracts that cannot be performed within one year. The air hockey table purchase is covered because it exceeds $500, and the employment contract is covered because it is for a year. The phone purchase is not covered as it is under $500.

Question 8

Barb,a real estate agent,is showing John a house.She tells him that this is a house where "his family can live happily ever after." John buys the house,but his wife does not like it.John
A)can rescind the contract on the ground of fraud.
B)can rescind the contract on the ground of misrepresentation.
C)can rescind the contract on the ground of mistake.
D)was not defrauded.

Accepted Answer

Barb's statement is considered "puffery," which is a subjective opinion or sales talk, not a factual statement. Therefore, it does not constitute fraud or misrepresentation.

Question 9

Beau sells a car to Cody without disclosing that the odometer,which reads 40,000 miles,was disconnected 80,000 miles ago.Beau is liable for
A)duress.
B)fraud.
C)mistake.
D)undue influence.

Accepted Answer

Beau's failure to disclose the true mileage of the car constitutes fraud, which involves intentional misrepresentation or concealment of material facts.

Question 10

Andy knows nothing about horses.Peter,an expert horse trainer,knows that a certain horse has no talent and is not likely to win any competitions.Peter convinces Andy to buy the horse for $500,000 by assuring him that it has great talent.The horse turns out to have no talent and never wins any competitions.Andy can most likely recover damages based on
A)fraud.
B)mistake.
C)undue influence.
D)duress.

Accepted Answer

Peter intentionally misled Andy by assuring him that the horse had great talent when he knew it did not. This constitutes fraud, as Andy was induced to buy the horse based on false information. Andy can recover damages for the amount he paid for the horse, as well as any other losses incurred as a result of the fraud.

Question 11

Jane and Phil enter into a contract,but make a bilateral mistake.For the contract to be rescinded by either party,the bilateral mistake must be about
A)amaterial fact.
B)value.
C)anopinion.
D)aprediction.

Accepted Answer

For a contract to be rescinded due to a mutual mistake, the mistake must be about a material fact. A material fact is a fact that is significant to the performance or subject matter of the contract. Mistakes about value, opinions, or predictions generally do not qualify as material facts and would not be sufficient grounds for rescission.

Question 12

Jayne and Wilbur enter into an oral contract on May 1 under which Jayne agrees to deliver a collection of exotic wines by April 30 of the following year.This contract is enforceable by
A)Jayne only.
B)Wilbur only.
C)either party.
D)neither party.

Accepted Answer

Either party can enforce this contract as it is an oral agreement that has been made between two parties with mutual agreement and consideration. However, proving the terms of the agreement may be challenging without any written evidence.

Question 13

Lou uses undue influence to induce Mona to sign a contract to invest her student loan funds in National Overseas Bank.Mona may
A)avoid the contract or choose to carry it out.
B)do nothing once she has signed the contract.
C)recover from her lender for a failure to influence her "due."
D)recover from the bank for a failure to undo Lou's influence.

Accepted Answer

Undue influence is a situation where one party uses their position of power to persuade another party to act in a way that benefits the first party at the expense of the second party. In this case, Lou used undue influence to induce Mona to invest her student loan funds in National Overseas Bank. Mona can avoid the contract or choose to carry it out. If she chooses to carry it out, she may later argue that the contract was voidable due to undue influence.

Question 14

Pete,an accountant,convinces his client Kasey to invest her savings in a nonexistent social-networking Web site.When Kasey learns the truth,she can
A)seek to void the contract on the ground of undue influence.
B)recover damages based on a claim of mistake of value.
C)rescind the contract to invest in the Web site.
D)seek to void the contract on the ground of unconscionability.

Accepted Answer

Kasey can rescind the contract because it was based on fraudulent misrepresentation, as Pete convinced her to invest in a nonexistent entity.

Question 15

Marta buys a candy bar for $5 and signs a contract for delivery of fresh flowers to her mother's nursing home every week for the rest of her mother's life.She then enters into a contract to assume George's debt to FastCars Dealership.Marta receives no personal benefit from assuming George's debt.The Statute of Frauds covers
A)the candy purchase only.
B)the candy purchase and the delivery contract only.
C)the contract to assume George's debt only.
D)the contract to assume George's debt and the delivery contract only.

Accepted Answer

The Statute of Frauds requires that contracts involving the assumption of another person's debt be in writing to be enforceable. The purchase of candy and the delivery contract for flowers do not fall under this requirement.

Question 16

Julie orally agrees to assume Carlyle's debt to FunGames,Inc.Julie gets a substantial personal benefit from the agreement-Carlyle agrees to work for Julie's landscaping service for six months.Julie's oral assumption of the debt is enforceable by
A)Julie or Carlyle only.
B)FunGames only.
C)any of the parties.
D)no one.

Accepted Answer

Julie's oral assumption of Carlyle's debt is enforceable because she receives a substantial personal benefit from the agreement, which is an exception to the Statute of Frauds requirement for a written contract. Therefore, any of the parties involved can enforce the agreement.

Question 17

Fiona and Dora enter into an oral contract under which Fiona agrees to work on Dora's farm for not less than one week.This contract is enforce-able by
A)Fiona only.
B)Dora only.
C)either party.
D)neither party.

Accepted Answer

Both parties are bound by the oral contract because there is mutual consideration and agreement between Fiona and Dora. Therefore, either party can enforce the contract.

Question 18

Ilsa and Jiffy Loan Company enter into an oral contract under which Ilsa agrees to pay Kyle's debt if he does not.Ilsa does not get any per-sonal benefit from the agreement.This contract is enforceable by
A)any party.
B)Jiffy only.
C)Jiffy or Kyle.
D)none of the parties.

Accepted Answer

The oral contract is not enforceable because it falls under the Statute of Frauds, which requires certain contracts, including those to pay another's debt, to be in writing to be enforceable.

Question 19

Ted and Svetlana orally agree to several different oral contracts.The Statute of Frauds will bar enforcement of an oral contract for
A)a deal that will be performed within a year.
B)a primary obligation.
C)a sale of goods for $100.
D)a sale of land.

Accepted Answer

The Statute of Frauds requires written evidence for the sale of land. Therefore, an oral contract for the sale of land would not be enforceable.

Question 20

Dale files a suit against Evelyn,alleging her fraud in entering into a con-tract with him.Proof of an injury is required
A)to recover damages.
B)to rescind the contract.
C)to undo Evelyn's influence.
D)under no circumstances.

Accepted Answer

To recover damages for the alleged fraud, proof of an injury is required. Without proof of injury, it would be difficult to demonstrate that any damages were caused by Evelyn's alleged fraud. Proof of injury is not necessarily required to rescind the contract or undo Evelyn's influence, but it is required to recover damages.

Quiz 11: Defenses to Contract Enforceability

Scienter exists if

Big Dog Security Service,Inc.orally agrees to provide security services for NorthGate Mall for as long as NorthGate Mall requires them.This contract is enforceable by

Seth offers to buy a house from Tia for less than Tia paid for it,stating that he would "hate to see anything bad happen to Tia or her house." Tia agrees to sell. Regarding this agreement,a court would likely

Mark fails to reveal a material fact in a business deal with Nancy.This constitutes fraud

Selena buys a cell phone for $350 and an air hockey table for $1,500,and signs a one-year employment contract for a $4,000 monthly salary to start at the beginning of the next month.The Statute of Frauds covers

Barb,a real estate agent,is showing John a house.She tells him that this is a house where "his family can live happily ever after." John buys the house,but his wife does not like it.John

Beau sells a car to Cody without disclosing that the odometer,which reads 40,000 miles,was disconnected 80,000 miles ago.Beau is liable for

Jane and Phil enter into a contract,but make a bilateral mistake.For the contract to be rescinded by either party,the bilateral mistake must be about

Jayne and Wilbur enter into an oral contract on May 1 under which Jayne agrees to deliver a collection of exotic wines by April 30 of the following year.This contract is enforceable by

Lou uses undue influence to induce Mona to sign a contract to invest her student loan funds in National Overseas Bank.Mona may

Pete,an accountant,convinces his client Kasey to invest her savings in a nonexistent social-networking Web site.When Kasey learns the truth,she can

Julie orally agrees to assume Carlyle's debt to FunGames,Inc.Julie gets a substantial personal benefit from the agreement-Carlyle agrees to work for Julie's landscaping service for six months.Julie's oral assumption of the debt is enforceable by

Fiona and Dora enter into an oral contract under which Fiona agrees to work on Dora's farm for not less than one week.This contract is enforce-able by

Ilsa and Jiffy Loan Company enter into an oral contract under which Ilsa agrees to pay Kyle's debt if he does not.Ilsa does not get any per-sonal benefit from the agreement.This contract is enforceable by

Ted and Svetlana orally agree to several different oral contracts.The Statute of Frauds will bar enforcement of an oral contract for

Dale files a suit against Evelyn,alleging her fraud in entering into a con-tract with him.Proof of an injury is required