CH15 Business Law by Beatty Samuelson Abril 8th Edition

Question 1

CH15 What is Capacity?

Answer 1

The legal ability of a party to enter a contract in the first place.

P 367

Question 2

CH15 What is Consent?

Answer 2

Whether a contracting party truly understood the terms of the contract and whether she made the agreement voluntarily.

P 367

Question 3

CH15 Problems with capacity and consent make a contract …

Answer 3

Voidable.

One party has the ability to either to enforce or terminate the agreement.

Minors can only create voidable contracts.

Only the party lacking capacity can cancel a contract.

P 367

Question 4

CH15 What two groups tend to lack a legal capacity to enter into a contract?

Answer 4

Minors and those with mental impairment.

P 367

Question 5

CH15 What is the difference between a void contract and a voidable contract?

Answer 5

Void: An illegal contract that may not be enforced by either party.

Voidable: A legal contract but permits one party to escape if they wish.

P 367

Question 6

CH 15 What is disaffirmance?

Answer 6

A minor who wishes to escape a contract generally may disaffirm it, or notify the other party that they refuse to be bound by that agreement.

May be done orally or in writing, or they may simply not fulfill their obligations per the contract.

They may also undo a contract that has been completed by rescinding the contract.

Entitled to money back.

P 367

Question 7

CH15 What is Restitution?

Answer 7

A minor who disaffirms a contract must return the consideration he has received, to the extent he is able.

Restoring another party to its original position is restitution.

A minority of states follow the status quo rule, where if the item purchased cannot be returned, the adult or store is only required to return the profit margin to the minor.

P 367-368

Question 8

CH15 Timing of Disaffirmance / Ratification: until what age?

Answer 8

A minor may do this up until age 18 or a reasonable time thereafter.

P 368

Question 9

CH15 What is Ratification?

Answer 9

Ratification is made by any words or action indicating an intention to be bound by the contract.

P 368

Question 10

CH15 What is an exception referred to as Necessaries?

Answer 10

Food clothing, housing, medical care and sometimes legal advice, automobiles, tuition.

On a contract for necessaries, a minor must pay for the value of the benefit received. They may return what is unused.

P 368

Question 11

CH15 Exception: Misrepresentation of Age.

Answer 11

A few states will permit a minor to disaffirm a contract if they have misrepresented information such as their age, but many states will not.

P 369

Question 12

CH15 Regarding mentally impaired persons: A person suffers from a mental impairment if, by reason of mental illness or defect …

Answer 12

A person suffers from a mental impairment if, by reason of mental illness or defect, is unable to understand the nature and the consequences of the transaction.

Mental illness, retardation, brain injury, senility, or other cause that renders the person to not be able to understand the nature of the contract.

P 369

Question 13

CH15 A party suffering from mental impairment usually creates only what type of contract?

Answer 13

Voidable.

The person has the right to disaffirm a contract just as a minor does.

The contract is voidable, not void.

P 369

Question 14

CH15 The law creates what exception for mentally impaired persons?

Answer 14

If a person has been adjudicated incompetent, then all of his or her future agreements are void.

P 369

Question 15

CH15 What does adjudicated mean?

Answer 15

A judge has made a formal finding that a person is mentally incompetent and has assigned the person a guardian by court order.

P 369

Question 16

CH15 What happens when a party to a contract is intoxicated?

Answer 16

If the party is so intoxicated that he cannot understand the nature and consequences of the transaction, the contract is voidable. they have to prove that they did not understand the nature of the agreement.

Courts are highly skeptical of this.

P 371

Question 17

CH15 A mentally infirm party who seeks to void a contract must make …

Answer 17

Restitution. They must give back what they got.

they may have to pay for decrease in value.

P 371

Question 18

CH15 What are the 4 claims that can be made to rescind a contract?

Answer 18

Fraud

Mistake

Duress

Undue Influence

P 371

Question 19

CH15 In fraud, the injured person must show what three things?

Answer 19

The defendant knew the statement was false or the statement was made recklessly.

The false statement was material.

The injured party justifiably relied on the statement.

P 372

Question 20

CH15 Do opinions and puffery amount to fraud?

Answer 20

No.

P 372

Question 21

CH15 What is materiality?

Answer 21

A statement that is material, or important. Minor misstatements do not meet this element of fraud.

Litmus test: Was the misstatement likely to influence the decision of the misled party? If yes, it was material.

P 372-3

Question 22

Ch 15 What is Justifiable Reliance?

Answer 22

The injured party must actually show that they did rely on the false statement.

The buyer, for example, must keep their eyes open when looking at the item, but does not have a duty to undertake an investigation.

P 373

Question 23

CH15 What are the remedies for fraud?

Answer 23

The injured party generally has the choice of rescinding the contract or suing for damages, or in some cases, doing both.

The contract is voidable. It is the choice of the injured party.

In some states the injured party can both rescind and sue for damages.

Per the UCC, doing both is available in all states when a contract is for a sale of goods. UCC 2-721.

P 373

Question 24

CH15 - What does Innocent Misrepresentation mean?

Answer 24

If all elements of fraud are present except the misrepresentation of fact was not made intentionally or recklessly.

If a person misstates a material fact and induces reliance, but believes the statement to be true, they have not committed fraud.

Most states allow the rescission of a contract but not damages in this case.

P 373

Question 25

CH15 Special Problem: Silence.

Answer 25

In 1817 the Supreme Court determined that a party has no duty to disclose. Today, the seller would often be required to divulge the problem.

P 374

Question 26

CH15 Nondisclosure of a fact amounts to misrepresentation in what four cases?

Answer 26

The disclosure is necessary to correct a previous assertion.

The disclosure would correct a basic mistaken assumption that the other party relied on.

The disclosure would correct the other party’s mistaken understanding about a writing.

Where there is a relationship of trust between two parties.

P 374

Question 27

CH15 Correcting a previous assertion.

Answer 27

During negotiations, the perceptions of one party may change.

When an earlier statement then appears inaccurate, the change generally must be reported.

P 374

Question 28

CH15 Correcting a basic mistaken assumption.

Answer 28

When one party knows that the other is negotiating with a mistaken assumption about an important fact, the party who know of the error must correct it.

A seller generally must report any latent defect he knows about that the buyer should not be expected to discover himself.

P 374

Question 29

CH15 Correcting a mistaken understanding about a writing.

Answer 29

The seller must disclose the information.

P 375

Question 30

CH15 Relationship of trust.

Answer 30

If there is a personal relationship, seller must disclose more because the buyer will trust them to be honest.

P 375

Question 31

CH15 Selling “as is.”

Answer 31

The buyer has a right to rely on the seller to disclose where the undisclosed material information would not be discoverable through normal diligence.

The presence of a clause disclaiming warranties in a contract does not negate a pre-contractual duty to speak.

The buyer can elect to rescind or due for damages.

P 376

Question 32

CH15 What is a unilateral mistake?

Answer 32

A unilateral mistake occurs when one party enters a contract under a mistaken assumption; the other is not mistaken.

It is not easy for the mistaken party to rescind a contract.

One party takes unfair advantage of what he knows to be another’s error.

P 376

Question 33

CH15 what must the mistaken party demonstrate to rescind a contract because of basic factual error?

Answer 33

The nonmistaken party knew or had reason to know of the error.

The mistake is mathematical or mechanical alone.

Enforcing the contract would be unconscionable.

P 377

Question 34

CH15 Mathematical and Mechanical errors:

Answer 34

The nonmistaken party will generally be allowed to undo the agreement, if there is clear and convincing evidence that there was a mistake.

P 377

Question 35

CH15 Unconscionability:

Answer 35

When enforcing the contract would result in exploitation or unfairness, the contract is voidable.

P 377

Question 36

CH15 Mutual Mistake:

Answer 36

Both contracting parties share the same mistake. If the contract is based on a fundamental factual error, the contract is voidable by either one.

P 379

Question 37

CH15: Prediction Error:

Answer 37

Predictions that are proven wrong offer no right to rescind.

P 380

Question 38

CH15 Mistake of Value:

Answer 38

Mistaken value alone is not enough reason to take back a deal.

P 380

Question 39

CH15 Conscious Uncertainty:

Answer 39

No rescission is permitted where one of the parties knows he is taking on a risk. He realized there is uncertainty about the quality of the thing being exchanged. The buyer understands the risk they are assuming and there is no mutual mistake.

P 380

Question 40

CH15 Duress:

Answer 40

True consent is lacking when one party agrees to a contract under duress.

If one party makes an improper threat that causes the victim to enter into a contract, and the victim had no reasonable alternative, the contract is voidable.

P 380

Question 41

CH15 Economic Duress: name 4 factors.

Answer 41

Acts that have no legitimate business purpose.

Greatly unequal bargaining power.

An unnaturally large gain for one party.

Financial distress to one party.

P 381

Question 42

CH15: Undue Influence:

Answer 42

Agreements can be rescinded based on undue influence.

To prove undue influence, the injured party demonstrates:

A relationship between the two parties either of trust or of domination, and

Improper persuasion by the stronger party.