Question 1

Fact Pattern 14-A2
Moore Properties,Inc. ,offers in writing to sell to New Development Corporation (NDC)a certain half-acre of land for "$112,000." After New Development signs the offer in acceptance and returns it,Moore discovers that the price should have been stated as "$121,000."
-Refer to Fact Pattern 14-A2.The effect of Moore's misstatement of the price will most likely fall on
A)Moore and NDC,who must split the difference.
B)Moore only.
C)NDC only.
D)neither Moore nor NDC.

Accepted Answer

Moore will be responsible for the difference because they made the mistake in stating the price. NDC can hold Moore to the original offer for $112,000.

Question 2

Nero makes an honest but erroneous statement that misrepresents a ma?te?rial fact in a contractual transaction with Odell.Nero is guilty of
A)a unilateral mistake.
B)duress.
C)fraud.
D)innocent misrepresentation.

Accepted Answer

The answer of Nero makes an honest but erroneous statement...

Question 3

Cartier,an accountant,convinces his client Bianca to sign a contract to invest her savings in a nonexistent social-networking Web site.When Bianca learns the truth,she can
A)impose her own scam on Cartier without liability.
B)induce Cartier to give her his other clients' funds without recourse.
C)rescind the contract to invest in the Web site.
D)sabotage Cartier's career in any way possible.

Accepted Answer

Bianca can rescind the contract to invest in the nonexistent social-networking Web site as it was based on Cartier's misrepresentation and fraud. This means she can essentially cancel or void the contract and request to be reimbursed for any funds she may have already transferred to Cartier for the fake investment. The other options mentioned are either illegal or not feasible.

Question 4

Veronica offers to sell Rowena her luxury sedan and says that it has never been in an accident.Rowena hires Laszlo,a mechanic,to appraise the vehicle.Laszlo says that it most likely has been in an accident.In spite of this information,Rowena buys the car.Later,when it develops mechanical problems,she can
A)not rescind the contract.
B)rescind the contract on the basis of fraud.
C)rescind the contract on the basis of mistake.
D)rescind the contract on the basis of unconscionability.

Accepted Answer

The answer of Veronica offers to sell Rowena her luxury...

Question 5

Olin,a professional artist and art teacher,convinces Plato,who has no artistic ability,that he has considerable talent and induces him to pay Olin $10,000 for art lessons.When Plato realizes the truth,he files a suit against Olin.Plato is most likely to recover on the basis of
A)fraud.
B)mistake.
C)undue influence.
D)none of the choices.

Accepted Answer

Olin intentionally misled Plato into paying for art lessons under false pretenses, causing Plato to suffer financial loss. This constitutes fraud and therefore Plato is most likely to recover on the basis of fraud.

Question 6

Crosscreek County and Bridgework Corporation enter into a construction contract that includes mathematical specifications.Later Crosscreek,whose engineer,Damon,compiled the specs,learns that some of the dollar figures are incorrect.Bridgework refuses to agree to changes.A court would most likely
A)award damages to both parties for the mistakes.
B)order Damon to be discharged for fraud.
C)enforce the contract without requiring changes.
D)reform the contract to reflect the figures accurately.

Accepted Answer

The court would likely reform the contract to reflect the accurate figures since it is reasonable to assume that the mistake was unintentional and it would be unfair to hold either party to the incorrect specifications.

Question 7

May is a stockbroker.Due to May's statements,Nora believes that the price of OK Goods,Inc.(OKGI),a widely traded stock,is going to in?crease sub?stantially.Nora buys 500 shares of OKGI at $10 per share,but the price soon drops to $2.Nora can successfully recover
A)nothing.
B)the amount of the purchase price.
C)the amount of the purchase price plus the expected increase.
D)the amount of the purchase price plus the unexpected decrease.

Accepted Answer

May's statements do not guarantee an increase in the price of OKGI. Nora made the investment based solely on May's beliefs, which were not a guarantee of future performance. Therefore, Nora cannot successfully recover any losses incurred from the investment.

Question 8

Bret is convicted of arson for burning down his warehouse to collect the in?surance.On an application for insurance from Cover-All Insurance Company on a new building,in answer to a question about prior convictions,Bret does not disclose his convic?tion.This makes the contract
A)binding because the omission is immaterial to Cover-All's decision to issue coverage.
B)binding due to Cover-All's failure to discover Bret's conviction.
C)voidable by Bret because the omission is immaterial to Cover-All's decision to issue coverage.
D)voidable by Cover-All because the omission is material to its decision to issue coverage.

Accepted Answer

Bret's omission of his prior conviction for arson is material to Cover-All's decision to issue coverage as it directly related to the risk of insuring him. Therefore, the contract is voidable by Cover-All.

Question 9

Sam uses duress to force Tanya to agree to pay him for protecting her re?tail store-Tanya's Trends-against vandalism and destruction.Tanya may
A)avoid the contract or choose to carry it out.
B)do nothing once she has agreed to pay.
C)recover from her insurer for the cost
D)recover from the local police for a failure to protect her store.

Accepted Answer

Duress is a form of coercion or force that negates the voluntary consent required to create a valid contract. Tanya may choose to avoid the contract due to the use of duress to force her to agree to the terms. Alternatively, she may choose to carry out the contract if she believes it is in her best interest to do so. Options B, C, and D are not applicable in this scenario.

Question 10

Danton,a popular performer,dies.His spouse Caitlin sells their house to Buck.Un?known to Caitlin or Buck,in one of the closets is the mas?ter recording of an unreleased album.With respect to this recording,Buck can
A)keep it because Caitlin should have known about it.
B)keep it because the sale of a house includes everything in it.
C)not keep it because there was no voluntary consent to its sale.
D)not keep it because the sale of a house includes nothing in it.

Accepted Answer

The recording was not intentionally included in the sale of the house, so there was no voluntary consent to its sale. Therefore, Buck cannot keep it. The fact that Caitlin was not aware of the recording does not negate the lack of consent.

Question 11

Jill and Karl contract for the sale of Jill's horse for $1,000.Unknown to either party,the horse has died.Karl is
A)entitled to another horse of equivalent value.
B)not required to pay due to the mutual mistake.
C)not required to pay due to the unilateral mistake.
D)required to pay because she assumed the risk the horse might die.

Accepted Answer

The sale contract was based on a mutual mistake, as neither party was aware at the time of the contract that the horse had died. Therefore, the contract is voidable, and Karl is not required to pay for the horse.

Question 12

Fact Pattern 14-A3 
Flip,an accountant,certifies an audit for Erstwhile Corporation,Flip's client,knowing that Erstwhile will use the audit to obtain a loan from Deepwater Bank.Flip believes that the audit is true and does not intend to deceive the bank,but does not check the audit before certifying it.
-Refer to Fact Pattern 14-A3.Under these circumstances,Deepwater's best course of action is most likely to
A)exert economic duress on Flip to retire from accounting.
B)rescind the loan on the ground of unconscionability.
C)recover damages from Flip for any loss on the loan.
D)undercut Flip's career with negative puffery.

Accepted Answer

Deepwater's best course of action would be to recover damages from Flip for any loss on the loan. Flip had a duty of care to check the audit before certifying it and his failure to do so resulted in the erroneous certification. Therefore, Flip can be held liable for any losses suffered by Deepwater as a result of his negligence. Exerting economic duress or undercutting Flip's career with negative puffery is not a justifiable course of action in this scenario. Rescinding the loan on the ground of unconscionability is also not applicable as there is no indication that there was any unfair or oppressive conduct by either party.

Question 13

Fact Pattern 14-A3 
Flip,an accountant,certifies an audit for Erstwhile Corporation,Flip's client,knowing that Erstwhile will use the audit to obtain a loan from Deepwater Bank.Flip believes that the audit is true and does not intend to deceive the bank,but does not check the audit before certifying it.
-Refer to Fact Pattern 14-A3.On learning the truth,Deepwater's chief loan officer confronts Flip,who says,"I didn't know." This is
A)a mistake of value.
B)innocent misrepresentation.
C)negligent misrepresentation.
D)unconscionable.

Accepted Answer

Flip's failure to check the audit before certifying it was negligent, and he made a misrepresentation to Deepwater Bank. Although he did not intend to deceive the bank, his actions fall under the category of negligent misrepresentation.

Question 14

Fact Pattern 14-A1 
Linea,an employee of Hard Labor Industries (HLI),is injured in a work-related accident.Based on the diagnosis of Newt,a doctor,Linea accepts $50,000 from HLI and waives the right to future claims.Newt's diagnosis later proves to have been wrong.
-Refer to Fact Pattern 14-A1.In terms of the impact on Linea's agreement with HLI,Newt's misdiagnosis is
A)a mistake of fact.
B)an expert's puffery.
C)innocent misrepresentation.
D)negligent misrepresentation.

Accepted Answer

The answer of Fact Pattern 14-A1 
Linea,an employee of Hard...

Question 15

Sylvia creates a profile for Today's Date,Inc. ,an online dating service.She exaggerates her appealing features and posts a photo of her friend Uva,whom Sylvia thinks is prettier.Enticed by the profile,Van subscribes to the service so that he can contact Sylvia.Van is most likely a victim of
A)undue influence.
B)fraud.
C)mistake.
D)nothing.

Accepted Answer

Sylvia's exaggeration of her features and use of someone else's photo constitutes fraudulent behavior. Van was deceived into subscribing to the service under false pretenses, making him a victim of fraud.

Question 16

Fact Pattern 14-A1 
Linea,an employee of Hard Labor Industries (HLI),is injured in a work-related accident.Based on the diagnosis of Newt,a doctor,Linea accepts $50,000 from HLI and waives the right to future claims.Newt's diagnosis later proves to have been wrong.
-Refer to Fact Pattern 14-A1.Most likely,Linea may
A)obtain damages from HLI.
B)obtain damages from Newt.
C)recover nothing.
D)set aside the settlement with HLI.

Accepted Answer

The answer of Fact Pattern 14-A1 
Linea,an employee of Hard...

Question 17

In selling paving stones to Yard & Garden Supply,Trey tells Yard & Garden's buying representative that the stones are "soft as carpet." This is
A)adhesion.
B)fraud.
C)mistake.
D)puffery.

Accepted Answer

This statement is an example of puffery, which is exaggerated or boastful advertising that is not meant to be taken literally.

Question 18

Gary threatens physical harm to force Hugh to sell his business,Imports from Asia,Inc. ,to Gary for a below-market price.This is
A)duress.
B)fraud.
C)puffery.
D)undue influence.

Accepted Answer

Duress involves the use of physical force or threats of harm to compel someone to enter into a contract or perform an act. In this scenario, Gary is using physical harm as a means to force Hugh to sell his business, which constitutes duress.

Question 19

Gina induces Hu to enter into a contract for the purchase of a condominium about which Gina knowingly misrepresents a number of material features.When Hu discovers the truth,Hu can
A)not rescind the contract.
B)rescind the contract on the basis of fraud.
C)rescind the contract on the basis of mistake.
D)rescind the contract on the basis of undue influence.

Accepted Answer

Hu can rescind the contract on the basis of fraud because Gina knowingly misrepresented material features of the condominium, which induced Hu to enter into the contract. Rescinding the contract would allow Hu to undo the transaction and seek damages for any losses suffered as a result of the fraudulent misrepresentations.

Question 20

Fact Pattern 14-A2
Moore Properties,Inc. ,offers in writing to sell to New Development Corporation (NDC)a certain half-acre of land for "$112,000." After New Development signs the offer in acceptance and returns it,Moore discovers that the price should have been stated as "$121,000."
-Refer to Fact Pattern 14-A2.Moore's misstatement of the price is
A)a bilateral mistake.
B)a fraudulent misrepresentation.
C)a unilateral mistake.
D)unconscionable.

Accepted Answer

Moore's mistake in stating the price is a unilateral mistake, as only one party (Moore) was mistaken about the price. This mistake does not give either party the right to rescind the contract, unless the mistake was due to a mathematical error or a mistake in transcription.

Quiz 14: B: Mistakes,fraud,and Voluntary Consent

Nero makes an honest but erroneous statement that misrepresents a ma?te?rial fact in a contractual transaction with Odell.Nero is guilty of

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

Olin,a professional artist and art teacher,convinces Plato,who has no artistic ability,that he has considerable talent and induces him to pay Olin $10,000 for art lessons.When Plato realizes the truth,he files a suit against Olin.Plato is most likely to recover on the basis of

Crosscreek County and Bridgework Corporation enter into a construction contract that includes mathematical specifications.Later Crosscreek,whose engineer,Damon,compiled the specs,learns that some of the dollar figures are incorrect.Bridgework refuses to agree to changes.A court would most likely

May is a stockbroker.Due to May's statements,Nora believes that the price of OK Goods,Inc.(OKGI) ,a widely traded stock,is going to in?crease sub?stantially.Nora buys 500 shares of OKGI at $10 per share,but the price soon drops to $2.Nora can successfully recover

Bret is convicted of arson for burning down his warehouse to collect the in?surance.On an application for insurance from Cover-All Insurance Company on a new building,in answer to a question about prior convictions,Bret does not disclose his convic?tion.This makes the contract

Sam uses duress to force Tanya to agree to pay him for protecting her re?tail store-Tanya's Trends-against vandalism and destruction.Tanya may

Danton,a popular performer,dies.His spouse Caitlin sells their house to Buck.Un?known to Caitlin or Buck,in one of the closets is the mas?ter recording of an unreleased album.With respect to this recording,Buck can

Jill and Karl contract for the sale of Jill's horse for $1,000.Unknown to either party,the horse has died.Karl is

Sylvia creates a profile for Today's Date,Inc. ,an online dating service.She exaggerates her appealing features and posts a photo of her friend Uva,whom Sylvia thinks is prettier.Enticed by the profile,Van subscribes to the service so that he can contact Sylvia.Van is most likely a victim of

In selling paving stones to Yard & Garden Supply,Trey tells Yard & Garden's buying representative that the stones are "soft as carpet." This is

Gary threatens physical harm to force Hugh to sell his business,Imports from Asia,Inc. ,to Gary for a below-market price.This is

Gina induces Hu to enter into a contract for the purchase of a condominium about which Gina knowingly misrepresents a number of material features.When Hu discovers the truth,Hu can