Week 7 Flashcards
What are the eight defenses discussed?
Deception, mistake, duress, undue influence, illegality, incapacity, unconscious ability, statute of frauds
What can a party argue if there was no consideration or mutual assent?
There was no contract at all
What does proving one of the eight defenses allow a party to do?
Get out of the contract
What is deception in the context of contracts?
One party deceives the other party in some way
What can a party that was deceived potentially recover?
Damages for any financial harms resulting from the deception
What are the three sub-defenses of deception?
Misrepresentation, non-disclosure, concealment
Define misrepresentation.
Mis stating something
Define non-disclosure.
Not stating something that should be stated
Define concealment.
Hiding something
What are the three forms of misrepresentation?
- Accidental (innocent) misrepresentation
- Intentional misrepresentation
- Negligent misrepresentation
What characterizes accidental misrepresentation?
A misstatement made without intent to deceive
What characterizes intentional misrepresentation?
A deliberate falsehood made to deceive another party
What characterizes negligent misrepresentation?
A misstatement made without reasonable care to verify the truth
What remedies are available for intentional misrepresentation?
Rescission plus damages
What remedies are available for negligent misrepresentation?
Rescission plus damages
What remedy is available for accidental misrepresentation?
Rescission only
If a seller lies about a house’s roof condition, what can the buyer claim?
Rescission of the contract
What is ‘mere puffery’ in sales?
Statements made that are not considered false but are exaggerated claims
What is required to prove the defense of misrepresentation?
- A false statement
- The statement must be of fact, intention, or opinion that is verifiable
What is puffery?
Puffery refers to exaggerated claims that are subjective and not verifiable.
What qualifies as a false statement?
A false statement must be a verifiable statement of fact, intention, or opinion.
Is the statement ‘this car is awesome’ considered a false statement?
No, it is an opinion and not verifiable.
What is the difference between a verifiable opinion and a vague opinion?
A verifiable opinion can be substantiated, while a vague opinion cannot.
What constitutes a false statement of fact?
A statement that can be proven true or false, such as ‘this car has never been in an accident.’
What is a false statement of intention?
A misrepresentation regarding a plan to act in a certain way that can be proven false.
What is materiality in the context of misrepresentation?
Materiality refers to whether a reasonable person would regard the misstatement as significant to entering a contract.
How is actual reliance defined?
Actual reliance means that a party entered into a contract because of the misrepresentation.
What is justifiable reliance?
Justifiable reliance means there must be a plausible basis for relying on the misstatement.
True or False: Justifiable reliance is a higher standard than reasonableness.
False, justifiable reliance is a lower standard than reasonableness.
What happens if the state of mind of the party making the statement is intentional?
If intentional, materiality can be disregarded in establishing misrepresentation.
What must be proven to succeed in a claim of misrepresentation?
There must be a verifiably untrue statement, materiality, actual reliance, justifiable reliance, and damages.
What is required for damages in a misrepresentation case?
There must be some harm, loss, or injury resulting from the misrepresentation.
Fill in the blank: A _______ statement must be verifiable and can be proven true or false.
[false]
What does it mean if a misrepresentation is considered ‘material’?
It means that the misstatement is significant and important to a reasonable person in making a contract.
What is the significance of the seller intending to buy the same car after selling?
It suggests the seller values the car, which may be seen as material by a reasonable buyer.
What is the role of state of mind in misrepresentation?
State of mind determines whether the misstatement was intentional, negligent, or innocent.
What if someone buys a car and experiences no issues after believing a misrepresentation?
They cannot claim misrepresentation if they suffered no harm or loss.
What is the legal definition of misrepresentation?
Misrepresentation is a false statement that induces another party to enter into a contract.
What is required to succeed in a defense of deception in a contract?
There must be harm, loss, or injury.
In the context of misrepresentation, what must be determined regarding the buyer?
Whether the buyer relied on the statements.
What is the significance of materiality in misrepresentation cases?
It determines whether a reasonable person would consider the statements important.
What are the three key questions to determine entitlement to rescission and restitution in misrepresentation cases?
- Actual reliance on the statements
- Materiality of the statements
- Justifiable reliance on the statements
What does actual reliance mean in the context of misrepresentation?
The misrepresentation must have induced the recipient to make the contract.
What does justifiable reliance mean?
The recipient was not completely out of line or foolish in believing the information.
What is the definition of restitution in contract law?
To have money returned.
What does the term ‘innocent misrepresentation’ imply?
A false statement made without intent to deceive.
What historical rule regarding buyer responsibility does the court reference?
Caveat emptor, or ‘buyer beware.’
How has the rule regarding misrepresentation evolved according to the court?
Sellers may be held accountable for outright misrepresentations.
What is the significance of gravel and road frontage in the Cousin Ovie Walker case?
They were claimed to be valuable attributes of the property.
Fill in the blank: The actual amount of gravel on the property was _______ compared to what was stated.
much less than expected.
True or False: The court found that the seller’s statements about the property were truthful.
False.
What are the two elements of misrepresentation that were established in the case?
- False statement
- Damages
What does the court suggest about the burden on buyers in relation to seller statements?
Buyers should not be punished for believing a seller’s outright lies.
What is the outcome if a buyer asks a question and receives a false statement in response?
It is not fair to punish the buyer.
What does the court imply about the relationship between lying in contracts and free will?
Lying undermines the concept of free will in contracting.
What should happen if a seller lies to a buyer?
Buyers shouldn’t be punished when sellers outright lie.
What is required from a buyer regarding due diligence?
The buyer must make an effort to find out the truth.
Under what condition can a buyer of land relying on an innocent misrepresentation be barred from recovery?
If the buyer’s failure to discover defects was wholly irrational, preposterous, or in bad faith.
What is a material fact according to the court?
A material fact is one to which a reasonable person might attach importance in making a choice of action.
How does the court define the significance of a material fact?
A material fact could reasonably be expected to influence someone’s judgment or conduct concerning the transaction.
What are the implications if a buyer’s reliance on a seller’s statement was justifiable?
If the reliance was justifiable, the seller cannot escape liability for false statements.
What indicates actual reliance in the context of property purchase?
The buyer decided to enter the transaction based on the information provided about the property.
What did the court conclude about the materiality of statements regarding highway frontage and gravel content?
Statements regarding highway frontage and gravel content were material.
What did the court say about the importance of highway frontage on a commercial tract?
The amount of highway frontage would be considered important by a reasonable buyer.
What is the difference between a representation and a warranty in contract law?
Representations are statements made during negotiations; warranties are promises within the contract.
What did CBS do in relation to Ziff Davis Publishing?
CBS made a successful bid to purchase the magazine business from Ziff Davis Publishing.
What did Ziff Davis warrant regarding its financial statements?
Ziff Davis warranted that the financial statements were prepared in accordance with GAAP.
True or False: A reasonable person would find the existence of gravel deposits important in land development.
True.
Fill in the blank: A material fact is one which could __________ influence someone’s judgment or conduct concerning the transaction.
reasonably
What is the significance of justifiable reliance in legal terms?
It protects the buyer from being penalized for relying on misleading statements.
What does the court say about the experience level of the buyers in the discussed case?
The buyers were experienced and knowledgeable in real estate matters.
What aspect of the property was particularly important for the buyers according to the court’s analysis?
The amount of highway frontage.
What does GAAP stand for?
Generally Accepted Accounting Principles.
What is the role of representations in contract negotiations?
Representations are statements made to induce the other party to enter the contract.
What must a buyer show to prove justifiable reliance?
That their reliance was not wholly irrational or preposterous.
What is GAAP?
Generally Accepted Accounting Principles
GAAP is a set of accounting standards and principles used in financial reporting.
What is the difference between a representation and a warranty?
A representation is a statement made during negotiation, while a warranty is a promise included in the contract itself.
What did Ziff Davis warrant about its financial statements?
That they were prepared in accordance with GAAP and were accurate.
What is the significance of a warranty in a contract?
It serves as a contractual promise that certain statements are true and will survive the closing of the contract.
Why did CBS proceed with the sale despite concerns about Ziff Davis’s financials?
CBS wanted to acquire the magazine business and believed they could negotiate a lower price.
What does it mean to reserve rights under a contract?
To maintain the right to seek remedies for breaches while still proceeding with the contract.
What is materiality in the context of financial statements?
The importance of a fact in influencing a reasonable person’s decision.
True or False: A misrepresentation is the same as a breach of contract.
False.
What does CBS claim against Ziff Davis?
Breach of contract due to inaccurate financial statements.
What are the potential remedies for a breach of contract?
Money damages while the contract remains in effect.
Fill in the blank: A warranty is a _______ within the contract.
promise.
What happens to a contract when a party breaches it?
The contract usually remains valid.
What is the primary remedy for misrepresentation?
Rescission of the contract.
What does actual reliance refer to in contract law?
The belief that one party relied on the statements of another when entering the contract.
What is the role of due diligence in a business acquisition?
To investigate and verify the financial statements and condition of the business being acquired.
What does it mean if a statement ‘survives the closing’ of a contract?
It remains valid and enforceable even after the contract is finalized.
What distinguishes a warranty from a representation in a contract?
A warranty is a binding promise while a representation is merely a statement made during negotiation.
True or False: Ziff Davis can claim that CBS could not have relied on their financial statements.
False.
What is the consequence of breaching a warranty?
The injured party can seek damages, but the contract remains in force.
What does the term ‘non-disclosure’ refer to in contract law?
Failing to disclose information that one has a duty to reveal.
What is the relationship between misrepresentation and contract formation?
Misrepresentation occurs during contract negotiations and can lead to rescission.
What does ‘breach of contract’ entail?
Failure to fulfill the obligations stipulated in the contract.
What is non-disclosure?
It’s about not stating something
Non-disclosure does not require stating every single issue or piece of information.
What is required when there is a duty to disclose?
You have to share that information
This applies to certain facts about your house or other obligations.
How does non-disclosure relate to misrepresentation?
It is similar, but involves a failure to disclose a fact instead of a false statement
Both concepts involve materiality.
What is the key difference between concealment and misrepresentation?
Concealment requires an active effort to prevent another party from learning
Misrepresentation involves making a false statement.
When is there a duty to disclose?
Only if there is some special duty to disclose
Most of the time, there is no special duty.
What does concealment involve?
Hiding something or preventing another person from learning it
This is distinct from simply not stating information.
What is the materiality aspect in non-disclosure?
It is still considered, but focuses on the duty to disclose
This shifts away from the state of mind aspect.
True or False: You must disclose every issue about your property.
False
Only specific issues with a duty to disclose need to be shared.
Fill in the blank: Concealment requires an _______ effort to prevent another party from learning.
active
This distinguishes it from misrepresentation.
What is the primary focus when discussing non-disclosure?
The existence of a duty to disclose
This informs whether information must be shared.
