Business Law: Text & Cases, Chapter 15

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1

Dana believes that a new phone to be sold by Ear Fruit Inc. will become the most popular phone in the global market. Dana enters into a contract to buy 500 shares of Ear Fruit stock, anticipating an increase in its value. The phone does not become popular, and the price of the stock does not rise. Dana can 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.

a. ​nothing.

2

At an auction, Benny bids on a 1957 Chevy coupe, believing that it is worth more than the price asked. When the car proves to need more repairs than Benny estimated, and thus is worth less as is, Benny is

a. ​still liable on the bid.

b. ​not liable on the bid because he underestimated the cost of repairs.

c. ​not liable on the bid because the auctioneer misrepresented the value.

d. ​not liable on the bid because an auction is not subject to contract law.

a. ​still liable on the bid.

3

Data Storage Inc. offers to provide cloud-computing services to Enterprises, LLC, but mistakenly transposes some of the digits in the price so that $15,400 appears in the offer as $14,500. Enterprises accepts the written offer.

Refer to Fact Pattern 15-1. Enterprises’ best argument in favor of enforcement of the contract is that

a. ​a bilateral mistake does not afford relief from a contract.

b. ​a mistake of value does not afford relief from a contract.

c. ​a unilateral mistake does not afford relief from a contract.

d. ​the price was below the prices of comparable devices.

c. ​a unilateral mistake does not afford relief from a contract.

4

Data Storage Inc. offers to provide cloud-computing services to Enterprises, LLC, but mistakenly transposes some of the digits in the price so that $15,400 appears in the offer as $14,500. Enterprises accepts the written offer.

Refer to Fact Pattern 15-1. Data Storage’s best defense against enforcement of the contract is that Enterprises knew

a. ​a bilateral mistake supports the cancellation of a contract.

b. ​a mistake of value supports the cancellation of a contract.

c. ​a unilateral mistake supports the cancellation of a contract.

d. ​the price was below the prices of comparable services.

d. ​the price was below the prices of comparable services.

5

Bob wants to sell his recreational vehicle (RV) for $21,000. He e-mails Curt with an offer, but mistakenly types that the price is $20,100. Curt accepts the offer and pays Bob $20,100. Bob

a. ​can avoid the deal due to a unilateral mistake.

b. ​can avoid the deal due to a bilateral mistake.

c. ​can avoid the deal due to a mistake of value.

d. ​must deliver the RV.

d. ​must deliver the RV.

6

Lewis, an employee of Silos, Inc., makes a substantial mathematical error in totaling the estimated costs for a project for which AgriCo-op is seeking bids. Consequently, Silos’s bid is significantly low.

Refer to Fact Pattern 15–2. Any contract with AgriCo-op that includes the mistake may be rescinded

a. ​if AgriCo-op knew or should have known of the mistake.

b. ​if Lewis’s supervisor did not know of the mistake.

c. ​if Silos knew or should have known of the mistake.

d. ​under no circumstances.

a. ​if AgriCo-op knew or should have known of the mistake.

7

Lewis, an employee of Silos, Inc., makes a substantial mathematical error in totaling the estimated costs for a project for which AgriCo-op is seeking bids. Consequently, Silos’s bid is significantly low.

Refer to Fact Pattern 15–2. Any contract with AgriCo-op that includes the mistake may be rescinded

a. ​if the error was made inadvertently and without gross negligence.

b. ​if the error was made intentionally or negligently.

c. ​if the error was made intelligently but distractedly.

d. ​under no circumstances.

a. ​if the error was made inadvertently and without gross negligence.

8

Lewis, an employee of Silos, Inc., makes a substantial mathematical error in totaling the estimated costs for a project for which AgriCo-op is seeking bids. Consequently, Silos’s bid is significantly low.

Refer to Fact Pattern 15–2. Any contract with AgriCo-op that includes the mistake may be rescinded

a. ​if the mistake involves a material fact.

b. ​if the mistake involves any fact.

c. ​if the mistake is one of value or quality.

d. ​under no circumstances.

a. ​if the mistake involves a material fact.

9

Carlos and David contract for the sale of five hundred head of Carlos’s cattle for $95 per head. Unknown to either party, an unforeseen storm has struck the herd and many of the cattle have died. David is

a. ​entitled to recover the value of the lost cattle.

b. ​not required to pay due to the bilateral mistake.

c. ​not required to pay due to the unilateral mistake.

d. ​required to pay because he assumed the risk the cattle might die.

b. ​not required to pay due to the bilateral mistake.

10

Flora enters into a contract with Global Shipping, Ltd., to insure and ship a painting from France to the United States for a certain price. Global makes a mistake in adding the costs, which results in a contract price that is $1,000 less than the true cost. Most likely, a court would

a. ​allow the parties to rescind the contract.

b. ​award damages to Flora for the mistake.

c. ​award damages to Global for the mistake.

d. ​enforce the contract as is.

a. ​allow the parties to rescind the contract.

11

Dix agrees to sell Eli, for $1,500, a remote parcel of land. They believe the land to be worthless, but beneath it is shale rock containing oil. A court would

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

a. ​not rescind the contract.

12

County Title Company processes information furnished by others to transfer title to real estate from a seller to a buyer. In performing this task for a sale of land from Doyle to Ezra, the furnished information is mistaken.

Refer to Fact Pattern 15–3. If Doyle and Ezra are both ignorant of the mistake, it is

a. ​a bilateral mistake.

b. ​a fraudulent misrepresentation.

c. ​a unilateral mistake.

d. ​unconscionable.

a. ​a bilateral mistake.

13

County Title Company processes information furnished by others to transfer title to real estate from a seller to a buyer. In performing this task for a sale of land from Doyle to Ezra, the furnished information is mistaken.

Refer to Fact Pattern 15–3. The contract between Doyle and Ezra that includes the mistake may be rescinded if the mistake concerns

a. ​a basic assumption on which the contract was made.

b. ​a term in the contract subject to only one reasonable interpretation.

c. ​a detail on which the parties had a true “meeting of the minds.”

d. ​a third party, such as County Title.

a. ​a basic assumption on which the contract was made.

14

County Title Company processes information furnished by others to transfer title to real estate from a seller to a buyer. In performing this task for a sale of land from Doyle to Ezra, the furnished information is mistaken.

Refer to Fact Pattern 15–3. The contract between Doyle and Ezra that includes the mistake may be rescinded if the mistake involves

a. ​a material fact.

b. ​any fact.

c. ​value or quality.

d. ​any of the choices.

a. ​a material fact.

15

Car Lot’s salesperson Dick offers to sell Ernie, who is twenty years old, a car. Dick intentionally misrepresents the vehicle’s use and repairs. In reliance, Ernie buys the car. To prove fraud, Ernie does not have to show that

a. ​Dick intentionally deceived Ernie.

b. ​Dick misrepresented material facts.

c. ​Ernie is under twenty-one.

d. ​Ernie justifiably relied on Dick’s misrepresentations.

c. ​Ernie is under twenty-one.

16

Ralph enters into a contract with Skye to buy her land based on her assertion that the land is open to development. After the sale, Ralph learns that only a small section of the land can be built on—a local law prohibits construction on the rest of the property. Ralph can

a. ​not avoid the contract because persons are assumed to know the law.

b. ​avoid the contract due to a mutual mistake.

c. ​avoid the contract due to a mistake in value.

d. ​avoid the contract due to fraud.

a. ​not avoid the contract because persons are assumed to know the law.

17

In selling a 300 acres of rural land to Organic Farms, Peyton tells the buyer that the land “will be worth twice as much by next year.” This is

a. ​adhesion.

b. ​fraud.

c. ​mistake.

d. ​opinion.

d. ​opinion.

18

Berry enters into a contract with Clyde for a guided tour of Deep Canyon. Clyde represents that he is an experienced, knowledgeable guide, when in reality he has never been in the canyon. Berry is most likely a victim of

a. ​undue influence.

b. ​fraud

c. ​mistake.

d. ​unconscionability.

b. ​fraud

19

Ken, a real estate agent, assures Lily that a certain parcel of commercial property fronts on the most highly trafficked street in Metro City. Lily buys the property and then discovers that the street has no more traffic than any other in its vicinity. Lily is most likely a victim of

a. ​opinion.

b. ​fraud.

c. ​mistake.

d. ​an adhesion contract.

b. ​fraud.

20

Stan, a salesperson for Trucks & Autos, promises Uri a certain car will give him a “smooth ride.” Stan offers a test drive, which Uri declines. He buys the car but soon realizes its suspension is in poor condition. Uri can rescind the contract on the ground of

a. ​fraud.

b. ​undue influence.

c. ​mistake.

d. ​none of the choices.

d. ​none of the choices.

21

Alan induces Beth to enter into a contract for the purchase of a Chef’s Burger House restaurant. Alan knowingly misrepresents a number of material features about the restaurant and the business. When Beth discovers the truth, she can rescind the contract on the basis of

a. ​fraud.

b. ​undue influence.

c. ​mistake.

d. ​none of the choices.

a. ​fraud.

22

Gene, an accountant, convinces his client Hazel to sign a contract to invest her savings in 2Gether, a nonexistent social-networking Web site. There is clear and convincing evidence that Hazel did not act out of her free will. This is

a. ​duress.

b. ​fraud.

c. ​mistake.

d. ​undue influence.

d. ​undue influence.

23

Dennis sells a motorcycle to Elton without disclosing that the odometer, which reads 10,000 miles, was disconnected 100,000 miles ago. Dennis is most likely liable for

a. ​fraud.

b. ​undue influence.

c. ​mistake.

d. ​none of the choices.

a. ​fraud.

24

In selling a commercial building, Riley tells Sam that the property has a certain capacity, making it suitable for a nightclub. Riley knows nothing about the capacity of the building, but it is not as he specifies. Sam buys the building.

Refer to Fact Pattern 15-4. Under these circumstances, Sam’s best course of action is most likely to

a. ​scam Riley.

b. ​induce Riley to give him the commission on her next sale.

c. ​recover damages or rescind the contract to buy the building.

d. ​sabotage Riley’s career with bad publicity.

c. ​recover damages or rescind the contract to buy the building.

25

In selling a commercial building, Riley tells Sam that the property has a certain capacity, making it suitable for a nightclub. Riley knows nothing about the capacity of the building, but it is not as he specifies. Sam buys the building.

Refer to Fact Pattern 15-4. On learning the truth, Sam confronts Riley, who says he was not trying to fool Sam—he was only trying to make a sale. This is

a. ​a mistake of value.

b. ​a valid defense to a charge of fraud.

c. ​misrepresentation.

d. ​unconscionable.

c. ​misrepresentation.

26

In a bike shop, Jessie, who is not knowledgeable about bikes, overhears Kevin say, “This bike could win any race!” Jessie buys the bike, but does not win any races with it. Kevin’s statement is

a. ​a mistake.

b. ​fraudulent.

c. ​an opinion.

d. ​an attempt at undue influence.

c. ​an opinion.

27

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

a. ​Mark is not aware of the fact or his failure to reveal it.

b. ​the amount of consideration is grossly inadequate.

c. ​the fact concerns a serious defect known to Mark but not to Nancy.

d. ​any of the choices.

c. ​the fact concerns a serious defect known to Mark but not to Nancy.

28

Lee applies to Marketing Corporation for a position as a software engineer. Lee has no training in computers or programming and no background as an engineer. After Lee is hired, Marketing learns the truth. The employer can rescind the contract on the basis of

a. ​none of the choices.

b. ​fraud.

c. ​mistake.

d. ​undue influence.

b. ​fraud.

29

Don enters into a contract with Eve, who claims to have access to a stock-trading algorithm that will multiply an investment many times over. When the results do not match this promise, Don learns that Eve does not have access to any unique software and files a suit, alleging fraud. Proof of an injury is required to

a. ​recover damages.

b. ​rescind the contract.

c. ​undo Eve’s influence.

d. ​punish the defendant.

a. ​recover damages.

30

Ruth, who is Sal’s guardian, convinces him to buy a certain parcel of land from Tyrone at a greatly inflated price. Ruth may be liable for

a. ​duress.

b. ​fraud.

c. ​mistake.

d. ​undue influence.

d. ​undue influence.

31

Mona is induced by her guardian Newt to sign a contract to invest her student loan funds in OptiBank through Newt’s investment firm. Unknown to Mona, Newt realizes a commission from the investment. Most likely, Mona may rescind the contract on the basis of

a. ​duress.

b. ​fraud.

c. ​mistake.

d. ​undue influence.

d. ​undue influence.

32

Dim threatens physical harm to force Ed to sell his business, Flowers, Inc., to Dim for a below-market price. This is

a. ​duress.

b. ​fraud.

c. mistake.

d. ​undue influence.

a. ​duress.

33

Moe threatens physical harm to force Norel to contract to pay him for protecting her store against vandalism and destruction. Norel may

a. ​rescind the contract or refuse to comply with its terms.

b. ​do nothing once she has agreed to pay.

c. ​recover from her insurer for the cost.

d. ​recover from the local police for their failure to protect her store.

a. ​rescind the contract or refuse to comply with its terms.

34

Property Management, Inc. (PMI), presents a standard-form lease for an apartment to Quentin, a potential tenant. PMI offers it on a take-it-or-leave-it basis. Quentin signs it, but later wants to withdraw from it. He is most likely to avoid enforcement of the lease on the ground of

a. ​economic duress.

b. ​undue influence.

c. ​unconscionability.

d. ​mistake.

c. ​unconscionability.

35

Olive, the owner of Olive’s Orchard, contracts to sell its harvest to Pure Foods, Inc. Later Olive refuses to perform. Pure Foods files a suit to enforce the contract. Olive and Pure Foods are in a state that does not recognize the doctrine of unconscionability. To defend successfully against enforcement of the contract on similar grounds, Olive might rely on traditional notions of

a. ​fraud.

b. ​materiality.

c. ​mistake.

d. ​value.

a. ​fraud.