Chapter 15: Mistakes, Fraud, and Undue Influence

Question 1

What can create a lack of voluntary consent? (5)

Answer 1

• Mistake
• Fraud
• Undue Influence
• Duress
• Adhesion Contracts and Unconscionability

Question 2

What are the two types of Mistakes?

Answer 2

• Mistakes of Fact
• Mistakes of Value

Question 3

What are the consequences of a bilateral mistake of fact?

Answer 3

the adversely affected party may void the contract.

Question 4

What are the conditions for a unilateral mistake of fact to be voidable?

Answer 4

2 cases:
- the other party must have known, or should have known, that a mistake of fact was made
- the mistake was due to a substantial mathematical mistake.

in both bases, it must involve a material mistake.

Question 5

May the courts rescind a contract due to both parties reasonably interpreting a term differently?

Answer 5

Yes, because there was no true “meeting of the minds”

Question 6

True or False: a Mistake of Value creates grounds for a voidable contract.

Answer 6

False: Mistake of Value is not grounds for a voidable contract.

BECAUSE: value is a variable which can change, and both parties assume that risk.

Question 7

4 elements of fraud:

Answer 7

1. The misrepresentation of a material fact
2. Intent to deceive (Scienter)
3. Justifiable Reliance on the misrepresentation
4. Injury to the innocent party

Question 8

Exceptions to fraudulent misrepresentation:

Answer 8

• Misrepresentation of Law (unless the statement is made by a professional with greater knowledge of the law)
• Misrepresentation of future facts and Statements of Opinion
• Silence (unless there is a duty to disclose)

Question 9

What can create a duty to disclose?

Answer 9

• fiduciary relationship (one of trust. ex. physician-patient, parent-child)
• latent defects

Question 10

What is misrepresentation by conduct?

Answer 10

Taking actions to conceal a fact that is material to the contract.

Question 11

Scienter

Answer 11

Intent to Deceive

Question 12

True or False: Negligent Misrepresentation is equitable to Scienter

Answer 12

True. Negligent misrepresentation is the careless statement of a fact which is false. There is a duty to exercise reasonable care, therefore it is equitable to scienter and fraudulent misrepresentation.

Question 13

True or False: Innocent Misrepresentation is equitable to Fraud

Answer 13

False. Innocent representation is making a statement they believe to be true but is false. In this case, the party may rescind the contract, but cannot seek damages.

Question 14

How to determine justifiable reliance on the misrepresenation?

Answer 14

Depends on the knowledge of the reliant party. If there is reason to believe they had prior knowledge to be able to identify an obvious extravagant statement, they do not have justifiable reliance, or if the condition of the property is easily discoverable, they do not have justifiable reliance.

Question 15

When does a party need to prove damages?

Answer 15

When they are seeking recovery. If they only wish to rescind the contract, there is no need for proof of damages.

Question 16

Damages =

Answer 16

= property’s value had it been delivered as promised - price paid

Question 17

undue influence:

Answer 17

persuasion with less actual force, but more than advice, and that induces a person to act accordingly to the will or purposes of the dominating party.

Must prove that they did not exercise free will.

Question 18

When will the courts presume undue influence?

Answer 18

If the contract enriches the dominating party, the court will often presume undue influence, but the existence of fiduciary relationships alone is insufficient to prove undue influence.

Question 19

Duress:

Answer 19

threatening a person with a wrongful or illegal act.

threatening someone with the exercise of your legal rights, (such as to sue them) does not constitute duress.

Question 20

Economic Duress:

Answer 20

exacting a high price on an item AND creating the need for the item equates to economic duress. Both must be present.

Question 21

How can one avoid enforcement of an adhesion contract?

Answer 21

The plaintiff must show that the contract or clause was also unconscionable. Must show that they were in unequal bargaining positions and enforcement would be manifestly unfair.