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Exam 11: Conduct Invalidating Assent

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Question 21

Multiple Choice

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Sadie convinced Brenda to buy her gas station for $300,000 by stating that she had paid $250,000 for it ten years earlier and that her net average annual profit from the business has been $80,000. In reality she paid $100,000 for the gas station and it has earned a net average annual profit of only $40,000. Brenda made no attempt to verify the statements until after the transaction was completed. In this case:

A) Sadie has committed fraudulent misrepresentation.
B) Brenda is bound by the contract, because she failed to verify the statements which were made to her.
C) Sadie has used economic duress to compel the sale.
D) the contract is void due to duress.

E) B) and C)
F) A) and C)

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Question 22

Multiple Choice

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Marcus is a salesman for Outdoor Life.  He is telling a potential customer the virtues of a particular tent, by making the claim that "It's tougher than bears!"  If this customer buys the tent, only to find it destroyed by bears in the campground,

A) she has a valid claim because she has justifiably relied upon the Marcus' representation.
B) she has a valid claim because  Marcus had knowledge that his statements were false and the statements were made with the intention to deceive.
C) she does not have a valid claim because Marcus' talk was just sales puffery.
D) she does not have a valid claim because Marcus is not an expert in bears or tents.

E) None of the above
F) A) and D)

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Question 23

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A contract was made for 125 bales of cotton to arrive on a ship named "Peerless" from Bombay. Unbeknownst to either party to the contract, there were two ships named "Peerless," both of which were sailing from Bombay. One sailed in October and the other in December. The buyer had in mind the ship sailing in October, but the seller had in mind the ship sailing in December. Each party held his belief in good faith. When the goods failed to arrive on time, the buyer sued for breach of contract. The court found:

Pat told her friends that her car got 35 miles to the gallon in the city when in reality it only got 20 miles per gallon. When Pat decides to sell and one these friends decides to buy the car, Pat is under no duty to tell the correct figure unless asked.

An act that is not wrongful or unfair may constitute duress.

Scienter is a legal term which means:

The test for duress is objective and the act constituting duress must be a tort or a crime in order to be wrongful.

The Third Restatement of Torts: Liability for Economic Harm provides that a false statement of opinion results in liability only if (1) the parties are in a fiduciary or confidential relationship or (2) the perpetrator of the fraud holds himself out as having expertise or other knowledge not accessible to the defrauded party.

The law requires that to form a valid contract the agreement must be voluntary and knowing.

Sam wants to sell his golden retriever to Al. Sam tells Al that the dog is three years old and that he will point, back, and retrieve. Al relies on these statements and purchases the bird dog. Although the dog is three years old and will point at birds, he will not back (honor another dog's point) . The buyer has most probably been a victim of:

Define undue influence and name some of the relationships that would be affected.

For rescission to be available as a remedy for a false statement, a misrepresentation must have been made with scienter.

Nonfraudulent representation is made without scienter.

a. What are the two types of duress and what is the effect of each on the contract involved? b. Give an example of each type of duress. c. Who does the law intend to protect by reason of the defense of duress? Why does the law protect this type of person?

A basic element of fraud is a false representation or a misrepresentation.

Acts constituting duress are necessarily crimes or torts in themselves.

In the Berardi v. Meadowbrook Mall Company case, the court found:

Al owns a farm that he believes is worth $150,000. Betty knows that there is oil under the farm and offers Al $160,000 for it. Al is suspicious and asks her why she wants to buy the place. She says she would like to live in the country. Al then asks her if she thinks there might be valuable minerals under the land. Betty laughs and says she doubts that very much, so Al sells her the farm for $160,000. Al later realizes that the land was worth more than he was paid. Al can have the contract voided based upon fraud.

Scienter is the element of fraud that requires that the misrepresentation must have been known by the one making it to be false and must have been made with an intent to deceive.

Economic coercion that compels a person to enter into a contract renders that contract void.