Chapter 7. Misrepresentation, Duress and Undue Influence (159-177)

Question 1

A makes to B, a credit rating company, a true statement of his financial condition, intending that its substance be published to B’s subscribers. B summarizes the information and transmits the summary to C, a subscriber. Shortly thereafter, A’s financial condition becomes seriously impaired, but he does not disclose this to B. C makes a contract to lend money to A. Does A’s conduct constitute a misrepresentation?

Answer 1

A’s non-disclosure is equivalent to an assertion that his financial condition is not seriously impaired, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164. Restatement 2d of Contracts § 161(c)

Question 2

A, seeking to induce B to make a contract to buy a thoroughbred mare, tells B that the mare is in foal to a well-known stallion. Unknown to A, the mare has miscarried. A learns of the miscarriage but does not disclose it to B. B makes the contract. Does A’s conduct constitute a misrepresentation?

Answer 2

A’s non-disclosure is equivalent to an assertion that the mare has not miscarried, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164. Restatement 2d of Contracts § 161(c)

Question 3

A, in casual conversation with B, tells B that a tract of land owned by A contains thirty acres. A knows that it contains only twenty-nine acres but misstates its area because he does not regard the figure as important. A’s statement is not fraudulent because it is not made with the intention of inducing B to buy the land (§ 162(1)). B later offers to buy the tract from A. A does not disclose its true area to B, for fear that B will not buy it, and accepts B’s offer. Does A’s conduct constitute a misrepresentation?

Answer 3

A’s non-disclosure is equivalent to a new assertion that the tract contains thirty acres, and this assertion is a fraudulent misrepresentation (§ 162(1)). Whether the contract is voidable by B is determined by the rule stated in § 164. Restatement 2d of Contracts § 161(c)

Question 4

A, seeking to induce B to make a contract to buy land, knows that B does not know that the land has been filled with debris and covered but does not disclose this to B. B makes the contract. Does A’s conduct constitute a misrepresentation?

Answer 4

A’s non-disclosure is equivalent to an assertion that the land has not been filled with debris and covered, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164. Restatement 2d of Contracts § 161(d)

Question 5

A, seeking to induce B to make a contract to buy A’s house, knows that B does not know that the house is riddled with termites but does not disclose this to B. B makes the contract. Does A’s conduct constitute a misrepresentation?

Answer 5

A’s non-disclosure is equivalent to an assertion that the house is not riddled with termites, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164. Restatement 2d of Contracts § 161(d)

Question 6

A, seeking to induce B to make a contract to buy a food-processing business, knows that B does not know that the health department has given repeated warnings that a necessary license will not be renewed unless expensive improvements are made but does not disclose this to B. B makes the contract. Does A’s conduct constitute a misrepresentation?

Answer 6

A’s non-disclosure is equivalent to an assertion that no warnings have been given by the health department, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164. Restatement 2d of Contracts § 161(d)

Question 7

A, seeking to induce B to make a contract to sell land, knows that B does not know that the land has appreciably increased in value because of a proposed shopping center but does not disclose this to B. B makes the contract. Does A’s conduct constitute a misrepresentation?

Answer 7

Since B’s mistake is not one as to a basic assumption (see Comment b to § 152 and Comment b to § 261), A’s non-disclosure is not equivalent to an assertion that the value of the land has not appreciably increased, and this assertion is not a misrepresentation. The contract is not voidable by B. See Illustration 13 to § 161. Rst. 161(d)

Question 8

In response to B’s invitation for bids on the construction of a building according to stated specifications, A submits an offer to do the work for $150,000. A believes that this is the total of a column of figures, but he has made an error by inadvertently omitting a $5,000 item, and in fact the total is $155,000. B knows this but accepts A’s bid without disclosing it. Does B’s conduct constitute a misrepresentation?

Answer 8

B’s non-disclosure is equivalent to an assertion that no error has been made in the total, and this assertion is a misrepresentation. Whether the contract is voidable by A is determined by the rule stated in § 164. See Illustrations 1 and 2 to § 153. See also Comment a to § 167.Rst. 161(d)

Question 9

In answer to an inquiry from “J.B. Smith Company,” A offers to sell goods for cash on delivery. A mistakenly believes that the offeree is John B. Smith, who has an established business of good repute, but in fact it is a business run by his son, with whom A has refused to deal because of previous disputes. The son learns of A’s mistake but accepts A’s offer without disclosing his identity. Does the son’s conduct constitute a misrepresentation?

Answer 9

The son’s non-disclosure is equivalent to an assertion that the business is run by the father, and this assertion is a misrepresentation. Whether the contract is voidable by A is determined by the rule stated in § 164. See Illustration 11 to § 153. See also Comment a to § 167.Rst. 161(d)

Question 10

A, seeking to induce B to make a contract to sell A land, learns from government surveys that the land contains valuable mineral deposits and knows that B does not know this, but does not disclose this to B. B makes the contract. Does A’s conduct constitute a misrepresentation?

Answer 10

A’s non-disclosure does not amount to a failure to act in good faith and in accordance with reasonable standards of fair dealing and is therefore not equivalent to an assertion that the land does not contain valuable mineral deposits. The contract is not voidable by B.Rst. 161(d)

Question 11

The facts being otherwise as stated in Illustration 10, A learns of the valuable mineral deposits from trespassing on B’s land and not from government surveys. Does A’s conduct constitute a misrepresentation?

Answer 11

A’s non-disclosure is equivalent to an assertion that the land does not contain valuable mineral deposits, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164. Restatement 2d of Contracts § 161(d)

Question 12

A, seeking to induce B to make a contract to sell a tract of land to A for $100,000, makes a written offer to B. A knows that B mistakenly thinks that the offer contains a provision under which A assumes an existing mortgage, and he knows that it does not contain such a provision but does not disclose this to B. B signs the writing, which is an integrated agreement. Does A’s conduct constitute a misrepresentation?

Answer 12

A’s non-disclosure is equivalent to an assertion that the writing contains such a provision, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164. Whether, at the request of B, the court will decree that the writing be reformed to add the provision for assumption is determined by the rule stated in § 166. See Illustration 4 to § 166. Restatement 2d of Contracts § 161(e)

Question 13

A, who is experienced in business, has raised B, a young man, in his household, and B has habitually followed his advice, although A is neither his parent nor his guardian. A, seeking to induce B to make a contract to sell land to A, knows that the land has appreciably increased in value because of a planned shopping center but does not disclose this to B. B makes the contract. Does A’s conduct constitute a misrepresentation?

Answer 13

A’s non-disclosure is equivalent to an assertion that the value of the land has not appreciably increased, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164. See Illustration 7 to § 161. Restatement 2d of Contracts § 161(f)

Question 14

A makes to B, a credit rating company, a statement of his financial condition that he knows is untrue, intending that its substance be published to B’s subscribers. B summarizes the information and transmits the summary to C, a subscriber. C is thereby induced to make a contract to lend money to A. Does A’s conduct constitute a misrepresentation?

Answer 14

A’s statement is a fraudulent misrepresentation and the contract is voidable by C under the rule stated in § 164. Restatement 2d of Contracts § 162(a)

Question 15

2. A, seeking to induce B to make a contract to buy his house, tells B that the plumbing is of pipe of a specified quality. A does not know the quality of the pipe, and it is not of the specified quality. B is induced by A’s statement to make the contract. Does A’s conduct constitute a misrepresentation?

Answer 15

The statement is a fraudulent misrepresentation, both because A does not have the confidence that he implies in its truth, and because he knows that he does not have the basis for it that he implies. The contract is voidable by B under the rule stated in § 164. Restatement 2d of Contracts § 162(b)

Question 16

A, while negotiating with B for the sale of A’s race horse, tells him that the horse has run a mile in a specified time. A is honestly mistaken, and, unknown to him, the horse has never come close to that time. B is induced by A’s assertion to make a contract to buy the horse. Does A’s conduct constitute a misrepresentation?

Answer 16

A’s statement, although not fraudulent, is a material misrepresentation, and the contract is voidable by B under the rule stated in § 164. Restatement 2d of Contracts § 162(c)

Question 17

A, while negotiating with B for the sale of A’s race horse, tells him that the horse was bred in a specified stable. A is honestly mistaken, and, unknown to him, it was bred in another stable of better reputation. The specified stable was, unknown to A, founded by B’s grandfather, and B is therefore induced by A’s assertion to make a contract to buy the horse. Does A’s conduct constitute a misrepresentation that renders the contract voidable by B?

Answer 17

A’s misrepresentation is neither fraudulent nor material, and the contract is not voidable by B. Restatement 2d of Contracts § 162(c)

Question 18

A, while negotiating with B for the sale of A’s race horse, tells him that the horse was bred in a specified stable. A knows that the named stable was founded by B’s grandfather and that B would like to own a horse bred there. Does A’s conduct constitute a misrepresentation that renders the contract voidable by B?

Answer 18

A’s misrepresentation, although not fraudulent, is material, and the contract is voidable by B under the rule stated in § 164. Restatement 2d of Contracts § 162(c)

Question 19

A, seeking to induce B to make a contract to sell him goods on credit, tells B that he is C, a well-known millionaire. B is induced by the statement to make the proposed contract with A. Is B’s assent effective? Is the contract voidable by B?

Answer 19

B’s apparent manifestation of assent is effective. However, the contract is voidable by B under the rule stated in § 164(1). Contrast Illustrations 2 and 4 to § 163. Restatement 2d of Contracts § 163(a)

Question 20

A and B reach an understanding that they will execute a written contract containing terms on which they have agreed. It is properly prepared and is read by B, but A substitutes a writing containing essential terms that are different from those agreed upon and thereby induces B to sign it in the belief that it is the one he has read. Is B’s assent effective?

Answer 20

B’s apparent manifestation of assent is not effective. Restatement 2d of Contracts § 163(b)

Question 21

A and B reach an understanding that they will execute a written contract containing terms on which they have agreed. A prepares a writing containing essential terms that are different from those agreed upon and induces B to sign it by telling him that it contains the terms agreed upon and that it is not necessary for him to read it. Is B’s assent effective? Is the contract voidable by B?

Answer 21

B’s apparent manifestation of assent is effective if B had a reasonable opportunity to read the writing. However, the contract is voidable by B under the rule stated in § 164. See Illustration 3 to § 164. In the alternative, at the request of B, the court will decree that the writing be reformed to conform to their understanding under the rule stated in § 166. See Illustration 1 to § 166. Restatement 2d of Contracts § 163(b)

Question 22

A and B reach an understanding that they will execute a written contract containing terms on which they have agreed. A prepares a writing containing essential terms that are different from those agreed upon. B is blind and gets C to read the writing to him, but C, in collusion with A, reads it wrongly. Is B’s assent effective?

Answer 22

B’s apparent manifestation of assent is not effective. Restatement 2d of Contracts § 163(b)

Question 23

A, seeking to induce B to make a contract to buy a tract of land at a price of $1,000 an acre, tells B that the tract contains 100 acres. A knows that it contains only 90 acres. B is induced by the statement to make the contract. Is the contract voidable by B?

Answer 23

Because the statement is a fraudulent misrepresentation (§ 162(1)), the contract is voidable by B, regardless of whether the misrepresentation is material. Restatement 2d of Contracts § 164(b)

Question 24

A, seeking to induce B to make a contract to buy a tract of land at a price of $1,000 an acre, tells B that the tract contains 100 acres. A is mistaken and does not know that the tract contains only 90 acres. Is the contract voidable by B?

Answer 24

Because the statement is not a fraudulent misrepresentation, the contract is voidable by B only if the misrepresentation is material (§ 162(2)). Restatement 2d of Contracts § 164(b)

Question 25

A and B agree that A will buy a tract of land from B for $100,000 and will assume an existing mortgage of $50,000. In reducing the agreement to writing, A intentionally omits the provision for assumption but tells B that the writing correctly expresses their agreement. B does not notice the omission and is induced by A’s statement to sign the writing. Is the contract voidable by B?

Answer 25

The misrepresentation is both fraudulent and material, and the contract is voidable by B. Compare Illustration 1 to § 166 and see Illustration 10 to § 161. Restatement 2d of Contracts § 164(b)

Question 26

A, who is not C’s agent, induces B by a fraudulent misrepresentation to make a contract with C to sell land to C. C promises to pay the agreed price, not knowing or having reason to know of the fraudulent misrepresentation. Is the contract voidable by B?

Answer 26

Since C’s promise to pay is value, the contract is not voidable by B. The contract would be voidable by B if C learned or acquired reason to know of the fraudulent misrepresentation before promising to pay the price. Restatement 2d of Contracts § 164(e)

Question 27

A, who is not C’s agent, induces B by a fraudulent misrepresentation to sign a pledge by which B promises C, a charitable corporation, to contribute a sum of money. C does not know or have reason to know of the fraudulent representation. Is the contract voidable by B?

Answer 27

B’s promise, although binding under § 90(2), is voidable by B. B’s promise would not be voidable if C materially changed its position in reliance on B’s promise before learning or acquiring reason to know of the fraudulent misrepresentation. Restatement 2d of Contracts § 164(e)