Law and business administration in canada 13th edition smyth test bank

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

1) Contracts between parties of unequal bargaining power that are unfairly advantageous to the powerful parties have long been considered a. bilateral contracts and void. b. unilateral contracts and voidable. c. unconscionable contracts and voidable. d. non est factum. e. contrary to the Criminal Code of Canada.

Answer: c Diff: 3 Type: MC Topic: Consumer Protection Skill: Applied 2) In executing its discretion to grant relief when a party makes a mistake about terms, a. the court will correct the document. b. the court will determine the burden of proof. c. the court will consider the hardship that will be suffered by each party. d. the court will adopt the position of the plaintiff. e. the court will determine each party's interpretation of the terms.

Answer: c Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Recall 3) An innocent party can lose her or his right to repudiate a contract formed as a result of undue influence by a. physical retaliation after the contract’s formation. b. not repudiating promptly after being freed from the domination. c. tearing up the contract before its execution. d. reversing the role of the dominant party. e. declaring that the special relationship between the parties no longer exists.

Answer: b Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 3 Type: MC Topic: Undue Influence Skill: Recall/Applied 4) Use this fact situation to answer the related questions that follow it.

A and B are negotiating a settlement under which A is to give B money and in return B is to give A his house and his car. The negotiations are by faxes back and forth between A and B, who agree to put the settlement in writing. A prepares the written settlement agreement, which, unfortunately, does not refer to his house, so B quickly signs it.

In this situation, if A argues that the house was part of the settlement and was left out by mistake, a. B need not give his house to A, because there really was no error by A at all. b. B need not give his house to A, because the written settlement agreement superseded the negotiations. c. B need not give his house to A, because it was not reasonable for A to have relied on the house as part of B's settlement obligation. d. B must give his house to A, because B knew of A's error and took advantage of it. e. B need not give his house to A, because that term is not in the written contract.

Answer: d Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 5) Use the fact situation in Q4 to answer the related question that follows.

Based on the fact situation above, to ensure that A's argument succeeds and he gets the house from B, A will ask the court for a. rectification. b. an injunction. c. rescission. d. specific performance. e. damages.

Answer: a Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 6) If a preliminary bargaining statement is expected to influence the decision of the other party, then it is said to be ___________ to the contract. a. subject b. tangible c. consequential d. substance e. material Answer: e Diff: 2 Type: MC Topic: Misrepresentation Skill: Applied 7) A agrees to buy 1000 shares in a telephone company from B for $3.00 a share. A believes that the value of the shares in the company is going to go up to $15.00 in a day or two. However, B believes that the value of the shares is going to go down to $1.50 and wants to get as much money as he can. Unknown to either A or B, at the time of the agreement, the value of the company and thus the shares has dropped below $1.50, to $0.75. A now wishes to get out of the agreement. In this case, a. A will succeed because A was mistaken about the value of the shares in the company and has been adversely affected. b. A will succeed because there was a mistake as to the subject matter of the contract and A has been adversely affected. c. A will not succeed because A was adversely affected and took a risk about the company and the value of its shares. d. A will succeed because a change in circumstances of the company does not affect the agreement. e. A will not succeed because both A and B took a risk about the value of the shares in the company.

Answer: c Diff: 2 Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Type: MC Topic: Mistakes in Assumptions Skill: Applied 8) A contract that is void a. is one that exists, but by reason of some mistake can be set aside. b. is one that exists, but is merely unenforceable. c. is one that does not exist, but can still be set aside. d. is one that does not exist unless a party wants it to, at which time it becomes enforceable. e. is one that never exists so as to give rise to rights under it.

Answer: e Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 9) A voidable contract is a contract that, a. like a void contract, never exists so as to give rise to rights under it. b. unlike a void contract, cannot be rectified. c. unlike a void contract, exists but does not give rise to legal rights. d. unlike a void contract, exists but can only be set aside by agreement of the parties to it. e. unlike a void contract, exists but can be set aside at the option of one of the parties to it.

Answer: e Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 10) Use this fact situation to answer the questions that follow.

A has two Corvette Stingray automobiles, one built in 1965 and the other built in 2009.

Generally speaking, both cars are worth approximately the same amount (about $70 000.00). A now wants to sell the 1965 Corvette and to this end begins negotiations with B, who knows that A owns both a 1965 and a 2009 Corvette. In discussions with B, A Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

says "I'm thinking of selling my Corvette for $65 000.00.” B believes A is talking about his 2009 Corvette, so B says "I'll buy it at that price," and pays A the $65 000.00. Later A calls B asking him when he is going to pick up the 1965 Corvette. Having thought that he was buying the 2009 Corvette, B now tells A he wants his money back.

In this situation, a. only B has made a mistake, and he can seek rectification of the contract and get the 2009 Corvette from A. b. only B has made a mistake as to the subject matter of the contract, so he cannot get his money back if A delivers the 1965 Corvette. c. both A and B have made a mistake as to the subject matter of the contract, and the contract is voidable. d. both A and B have made a mistake as to the subject matter of the contract, and the contract is void. e. only A has made a mistake as to the subject matter of the contract, so B cannot get out of the contract so long as A delivers the 1965 Corvette.

Answer: d Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 11) Use the fact situation in Q10 to answer the related question that follows.

Based on the above fact situation, the court will a. restore A and B to their original positions before the contract. b. make B give back the car. c. rescind the contract. d. make A give back the money. e. all of the above Answer: e Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

12) At common law, a mistake by an innocent party as to the identity of the other party usually involves a. a mistaken assumption. b. fraud. c. the element of surprise. d. an ambiguous term. e. the element of risk.

Answer: b Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 13) A has a Tom Thomson painting that he wishes to sell. A has heard that B is an art lover and takes very good care of the paintings of Canadian masters. As a result, A decides that he will only contract with B. So he calls B and they make a deal over the telephone. Unfortunately, B's servant C overhears the conversation and before B can get to A's house, C arrives there pretending to be B. A sells the painting to C believing that C is B. Just after C leaves A's house, B shows up and A realizes his error. This situation is a classic example of a. breach of contract. b. fraud or deceit. c. mistake by both parties as to the subject matter of the contract. d. unilateral mistake as to identity. e. all of the above Answer: d Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 14) Which of the following is not a condition that must be met by a plaintiff who request rectification of a contract? a. The plaintiff must satisfy the court that there was a complete agreement between the parties, free from ambiguity.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

b. The plaintiff must establish that the parties did not engage in further negotiations to amend the contract. c. The plaintiff must satisfy the court that the agreement is not subject to, or conditional on, any further adjustments. d. The plaintiff must satisfy the court that all attempts to reach some understanding between the parties have failed. e. The plaintiff must establish that the change in the written document appears to be an error in the recording of the document and is easily explained as such.

Answer: d Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 15) Mistake about terms does NOT include a. the attribution by the parties of different meanings to words used in a contract. b. errors that are made in the recording of an agreement between parties. c. the error of judgment that a party makes when he or she enters into a bad contract. d. misunderstandings about the meanings of words used in a contract. e. words used inadvertently in stating the terms of a contract.

Answer: c Diff: 3 Type: MC Topic: Mistakes About the Terms Skill: Applied 16) James says to Jack, “I am selling my Toyoda for $500. Would you like to buy it?”

Jack, believing that James was referred to his automobile, replies, "Yes, I'll buy your Toyota for $500." Jack pays $500 and James presents him with a Japanese doll called Toyoda. Jack asks for his money back because he misunderstood James. Should this matter go to court, the court will most likely find that a. no contract arose because a reasonable person would not believe that James would offer to sell his car for $500. b. Jack's refusal to pay is a breach of contract. c. there is a binding contract for the sale of the Toyoda because that is what James meant when he made the offer.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

d. there is a binding contract for the sale of the Toyota car because James should have made it clear what he was selling. e. there is a binding contract for the sale of the Toyota because that is the offer Jack believed he was accepting.

Answer: a Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 17) In contract law, a mistake is a. an error about the terms of the contract, or the assumptions regarding important facts related to the contract. b. the threat of physical or economic harm that results in a contract. c. a false statement made by one party that causes someone to enter a contract. d. unfair manipulation that compromises someone's free will. e. an error of judgment about the benefits of a contract.

Answer: a Diff: 2 Type: MC Topic: The Narrow Meaning of Mistake Skill: Recall 18) A court will not enforce a contract if a. a party is mistaken as to what the subject matter of the contract was. b. one party was unreasonable in using certain words. c. the meanings of the words are not clear. d. the parties disagree as to the interpretation of important terms. e. there are two reasonable interpretations of words in the contract and no indication which is correct.

Answer: e Diff: 2 Type: MC Topic: Mistakes About the Terms Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Skill: Applied 19) In a legal sense, mistake is a. a mistake of fact. b. an error of judgment. c. a misunderstanding. d. narrowly defined and limited in scope. e. a misrepresentation.

Answer: d Diff: 2 Type: MC Topic: The Narrow Meaning of Mistake Skill: Applied 20) Rectification will be ordered where a. there is a complete unambiguous agreement that was recorded incorrectly. b. the parties wish to change certain terms in the contract. c. one of the parties to the contract lacks legal capacity. d. the offeror misrepresented certain facts. e. the wrong party performs the contract.

Answer: a Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 21) When a court grants rectification of a contract, it a. declares a contract to be unenforceable. b. changes the part of the document that was incorrect in the written document. c. sets aside the contract. d. declares the contract to be voidable. e. interprets the contract for the parties.

Answer: b Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 22) A pleas of non est factum a. is applicable only where both parties have made a mistake. b. means it is not my doing. c. is not a good defence against third parties. d. means the contract is not correct. e. can only be raised if there is a misrepresentation.

Answer: b Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 23) McKenzie purchases goods from Dormond. Later McKenzie goes to court and the court declares that the contract between McKenzie and Dormand is void. This means that a. Dormond has to return all money received from McKenzie, but McKenzie does not have to return the goods. b. the court has declared that there was a valid contract between Dormond and McKenzie from the date of the purchase until the date of the Court ruling. c. the court has declared that Dormond breached the contract. d. McKenzie can return all or the remainder of the goods to Dormond in exchange for reimbursement of payment. e. McKenzie can keep the goods and can demand his money back from Dormond.

Answer: d Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Recall

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

24) Jonathan sells crates of tomatoes on board the SS Apapa to Margaret. At the time of the sale, both parties are unaware that the crates were washed overboard. What is the status of the contract between Jonathan and Margaret? a. Jonathan is still the owner of the shipment. Jonathan bears the loss and will have to refund Margaret's money. b. Margaret has to pay the agreed price and recover from her insurance. c. The ownership passed to Margaret, but Jonathan is still in possession, and so he is liable. d. Margaret is the new owner of the tomatoes and has to bear the loss. e. Margaret may sue Jonathan for the tort of deceit.

Answer: a Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 25) James purchases an antique chair at a garage sale for $150.00. Later he sells it to Jacqueline for $300 and makes a nice profit. A few months later the Antiques Road Show comes to town and Jacqueline takes the chair to the show to be valued. She is advised that the chair dates as far back as 1866 and is worth approximately $5000. Which of the following is true? a. James made a mistake about the value of the chair and so the contract will be set aside by a court. b. James did not make a legal mistake because he was careless in determining the right price. c. James can plead non est factum. d. James did not make a mistake about the value of the chair because the radically different price is one of the risks expected in the contract. e. If Jacqueline sells the chair, the court will order that Jacqueline pay a portion of the proceeds of sale to James because James made a mistake.

Answer: d Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

26) If, at the time a contract was made, the subject matter did not exist, without the knowledge of the seller, the contract is a. a mistake in terms of fact and not assumption. b. subject to the tort of deceit. c. void, according to the Sale of Goods Act as well as under the common law. d. valid; the purchaser stands the loss. e. voidable at the option of the court.

Answer: c Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Recall 27) The domination of one party over the mind of another to such a degree as to deprive the latter of the will to make an independent decision is a. undue influence. b. domination. c. supervision. d. control. e. being pushy.

Answer: a Diff: 1 Type: MC Topic: Undue Influence Skill: Recall 28) Use this fact situation to answer the related questions that follow it.

John Jones is an 80-year-old man who lives in Ontario. Two years ago, John made a will in which he left one-third of his entire estate (all of his assets) to each of his three children, Mary, George, and Edward. Harry told the children what he was leaving them just after he made his will. Since that time, Edward has been unhappy about getting only one-third of his father's estate, and for the past two years he has been telling his father that Mary and George really hate their father and cannot wait until he dies. Lately John has become ill, and because Edward is the only son in Ontario, he has been taking care of his father. Each time that Edward sees his father, which is two to three times a week, he reminds him about Mary’s and George's feelings towards him and tells John that he is the Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

only child who really loves his father. John, seeing how much care Edward is giving him, begins to believe Edward and decides to make a new will in which he leaves his entire estate to Edward and nothing to Mary and George.

George's changing his will under these circumstances is a classic example of a. duress by Edward. b. fraud by Edward. c. deceit by Edward. d. undue influence by Edward. e. misrepresentation by Edward.

Answer: d Diff: 2 Type: MC Topic: Undue Influence Skill: Recall/Applied 29) Use the fact situation in Q28 to answer the related question that follows.

Change the fact situation by assuming that Edward's conduct towards his father is designed to make his father enter into a contract with a third party. Also assume that Mary and George convince John that what Edward has been telling him about how they feel about him was a lie. In this situation, the contract is a. valid but unenforceable by the third party. b. void. c. voidable at the option of John only. d. voidable at the option of the third party. e. voidable at the option of John, Mary, and George.

Answer: c Diff: 3 Type: MC Topic: Undue Influence Skill: Applied 30) Use this fact situation to answer the related questions that follow it.

John lives with his wife, Mary, and regularly beats her, leaving Mary in a constant state of fear when John is around. John needs to borrow some money for his business, and so Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

he goes to his bank and meets with the manager, who agrees to loan him the money, but only if both John and his wife sign a guarantee of the loan. John signs the guarantee in front of the manager and then takes it home to be signed by Mary. At home, John tells Mary to sign the guarantee "or else you know what will happen to you," so Mary signs the guarantee.

Mary's signing the guarantee under these circumstances is a classic example of a. assault. b. fraud. c. duress. d. undue influence. e. diminished capacity.

Answer: c Diff: 2 Type: MC Topic: Duress Skill: Applied 31) Use the fact situation in Q30 to answer the related question that follows.

Using the fact situation above, assume that shortly after signing the guarantee, Mary leaves John so that he can no longer abuse her and decides that she really should not have to guarantee John's loan. If Mary acts quickly by bringing a lawsuit against the bank, Mary may succeed because a. the guarantee is unenforceable. b. the guarantee is void. c. the guarantee is voidable at both her option and the bank's option. d. the guarantee is voidable if Mary acts immediately to repudiate it. e. all of the above Answer: d Diff: 3 Type: MC Topic: Duress Skill: Applied 32) Use the fact situation in Q30 to answer the related question that follows.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Assume that before Mary signs the guarantee, she sees a lawyer for independent legal advice. Assume also that just before she signs the guarantee, the lawyer asks her if she is signing the guarantee freely and without threat of harm, duress, or undue influence and that Mary replies, "Yes, I am signing it freely and without threat of harm, duress, or undue influence." In these circumstances, if Mary changes her mind and does not want to be bound by the guarantee, a. she will succeed because the bank cannot rely on the independent legal advice she received. b. she will succeed because the guarantee is void for duress. c. she will not succeed because of the doctrine of caveat emptor. d. she will succeed because the guarantee is voidable for duress. e. she will not succeed because the bank can rely on the independent legal advice she received.

Answer: e Diff: 3 Type: MC Topic: Duress Skill: Applied 33) Use this fact situation to answer the related questions that follow it.

Marvin is an investment counsellor. Alice is one of Marvin's clients. Alice has no investment experience and relies on Marvin's advice in making her investments. Last night, while he was sleeping, Marvin had a dream that the shares of Very Big Company (VBC) would go up a great amount in value. As a result, without even checking to ensure that VBC was a good company to invest in, this morning Marvin called Alice and told her to put all of her money into VBC, which Alice did. Later that day VBC declared bankruptcy and Alice lost all of her money.

In these circumstances, Marvin's advice to Alice is a. an example of undue influence. b. an innocent misrepresentation. c. a fraudulent misrepresentation. d. a mistake. e. a negligent misrepresentation.

Answer: e Diff: 2 Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Type: MC Topic: Misrepresentation and Torts Skill: Recall/Applied 34) Use the fact situation in Q33 to answer the related question that follows.

Referring to the above fact situation, in a lawsuit by Alice against Marvin, Alice will seek a. damages in tort. b. rescission in contract and damages in tort. c. damages in contract. d. rescission in tort. e. rescission in contract.

Answer: b Diff: 2 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Applied 35) If an incident of misrepresentation is neither fraudulent nor negligent, yet it resulted in harm, then a. a claim of tort can only be made with evidence the victim relied on the misrepresentation. b. the victim's one hope is to show that a provision in the contract was misrepresented. c. it is innocent misrepresentation, which has no legal significance d. it does not qualify for a tort action. e. the victim is guilty of having unreasonable reliance on the misrepresentation.

Answer: d Diff: 2 Type: MC Topic: Misrepresentation and Contracts Skill: Recall 36) The parking enforcement officer gave Jim a parking ticket. But as it turns out, the NO PARKING sign had been placed in error on private property. Can Jim recover damages in a tort action? a. No, he can’t, since damages are not of a pecuniary nature.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

b. Yes, he can, since he was terribly inconvenienced by this affair. c. Yes, he can, because the ticket was totally misrepresented. d. Yes, he can, because no negligence or fraud is present. e. No, he can’t, since there was no fraud nor carelessness on the part of the parking enforcement officer.

Answer: e Diff: 2 Type: MC Topic: Misrepresentation and Contracts Skill: Recall 37) If a party to an existing contract discovers he or she had made an incorrect statement during the contract negotiations, then he or she should a. rescind the contract immediately. b. declare the contract voidable at the option of the other party. c. call his or her lawyer before he or she is sued for negligent misrepresentation. d. inform the other party of the true situation as soon as possible. e. offer to make allowances for any misunderstandings.

Answer: d Diff: 1 Type: MC Topic: Misrepresentation and Contracts Skill: Recall 38) You innocently have made some misstatements that others are relying on. Legally speaking, you can change your situation from innocent misrepresentation into one of fraudulent or negligent misrepresentation by a. doing nothing when you learn about the truth. b. immediately trying to set things right. c. trying to mitigate the situation. d. filing a writ of claims with the court. e. letting the other party know you were in error.

Answer: a Diff: 1 Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Type: MC Topic: Misrepresentation and Torts Skill: Recall 39) Both rescission and damages are available remedies for misrepresentation only when the misrepresentation is a. fraudulent or negligent. b. innocent or fraudulent. c. innocent only. d. innocent, negligent, and fraudulent. e. innocent or negligent.

Answer: a Diff: 2 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Applied 40) Christi was told by the store's produce manager that the oranges were of a variety that had a extremely high level of vitamin C. So she bought a case for her health club's garden party. At the party, the guests enjoyed eating up all the oranges. When Christi was next in the store, the manager corrected his prior statement, saying the oranges were of a different variety than what he had thought. Does Christi have a legal claim for rescission? a. Yes, she does, because it is the only legal avenue to pursue. b. Yes, she does, because this is innocent misrepresentation. c. Yes, she does, since the store admits to the error. d. No, she doesn’t, because rescission is impossible. e. No, she doesn’t, because this is a case for damages.

Answer: d Diff: 2 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Recall/Applied 41) Jaime has agreed to buy Steve's 4x4 truck. When Steve used the truck last, it ran quite well, so he says "it is in good condition." Unfortunately, the truck sat in the humid

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

weather for some time and the head gasket had rotted away to where the truck won't run.

What, legally, should Jaime do? a. nothing, since statements of opinion do not amount to misrepresentation b. sue for breach; the contract was corrupted by undue influence c. promptly demand rescission of the contract d. sue for fraudulent misrepresentation e. nothing, since this is a clear case of caveat emptor Answer: c Diff: 2 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Recall/Applied 42) Albert has agreed to sell his car to Larry for $14 000.00. Albert told Larry that the car had never been in an accident, was in good condition, and drove like a dream. Albert knew that this was untrue, but wanted to get as much money as he could for the car. In fact, the car had been in two accidents, had substantial frame damage, and could not be driven safely on the road. Assume that Harry had no way of checking on the condition of the car and that the principle of caveat emptor does not apply. In this situation, Albert's statement about the car is a. a negligent misrepresentation. b. an innocent misrepresentation. c. a fraudulent misrepresentation. d. a mere invitation to treat. e. none of the above Answer: c Diff: 2 Type: MC Topic: Misrepresentation and Torts Skill: Recall/Applied 43) If rescission is unavailable in a case of innocent misrepresentation, and the misstatement was an important inducement, and the aggrieved party has suffered substantial loss, the court may look at the misrepresentation as a. negligent, and award damages. b. a contractual nuisance.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

c. an obligation in tort. d. a breach of contract. e. a term to the agreement.

Answer: e Diff: 2 Type: MC Topic: Misrepresentation and Contracts Skill: Applied 44) Damages are not generally awarded in cases of innocent misrepresentation; however, "out-of-pocket" expenses might be awarded. These are referred to as a. expense benefits. b. compensation or indemnity. c. trivial damages. d. an expense supplement. e. rescission expenses.

Answer: b Diff: 1 Type: MC Page Reference: 176 Topic: Consequences of Misrepresentation in Contracts Skill: Recall 45) Cindy bought a car from Ben, who had bought it from John. When Ben bought the car, John lied to Ben and told him that the car had a new engine. As a result, believing that the engine was new, Ben told this to Cindy. Before she bought the car, Cindy had her mechanic inspect it and when Cindy asked him about the engine, he got her car confused with another customer's car and told her that it did indeed have a new engine. Cindy, who has owned the car for two months, has just discovered that the engine is not new and will need to be replaced soon. What remedy or remedies would Cindy most likely be entitled to and why? a. rescission only from Ben for breach of contract b. damages from the mechanic for negligent misrepresentation c. rescission and damages from Ben for fraudulent misrepresentation d. rescission from the mechanic for negligent misrepresentation

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

e. damages only from Ben for fraudulent misrepresentation Answer: b Diff: 3 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Applied 46) Misrepresentation can affect the contract only if the misrepresentation is a. known by the defendant. b. negligent or fraudulent. c. in writing, not oral. d. prior to the contract negotiations. e. a statement of fact, not opinion.

Answer: e Diff: 1 Type: MC Topic: Opinion Versus Fact Skill: Applied 47) Dot sold her land to Seth. Three weeks before making the contract, she told Seth that the well on the property has a flow of 40 litres per minute. Dot had obtained the information from a certified water surveyor. Two months after taking title to the property, Seth discovered that the flow in the well was only 4 litres per minute. What remedy might Seth be entitled to from Dot? a. damages only b. damages and rescission c. damages or rescission d. no remedy e. rescission Answer: d Diff: 3 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Applied Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

48) Linda took out a new auto insurance policy. She signed without reading each of the papers presented to her by the agent. What she didn't realize was that the insurance only covered accidents on "public roads." This term in no way was brought to her attention nor explained. A few days later she got into a serious accident in a large housing development where the roads had not as yet been turned over to the municipality. The insurance company refused to pay the claim. Can Linda get damages under misrepresentation? a. Yes, she can, since Linda is fully aware of the distinction between public and private. b. Yes, she can, since this is an example of misrepresentation by omission. c. No, she can’t, because Linda is presumed to have read and understood the document. d. Yes, she can, since the terms correspond to commonly understood principles. e. No, she can’t, because this is a standardized document that has been fully approved.

Answer: b Diff: 1 Type: MC Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Skill: Recall 49) Brandy wants to buy a car. Her credit rating will not allow her to borrow from a bank, so she goes to a private lender. This lender asks her to sign a contract that has lots of restrictive terms, which he rushes by without explaining or allowing her to read them.

What is the issue? a. innocent misrepresentation b. undue influence c. misrepresentation by omission d. fraudulent misrepresentation e. duress Answer: c Diff: 1 Type: MC Topic: Signed Documents and Misrepresentation by Omission Skill: Applied 50) In law, "utmost good faith" means a level of trust in a. not using undue influence.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

b. not making false assertions. c. disclosing all pertinent information concerning the contract. d. only giving factual statements. e. being aboveboard with all affairs.

Answer: c Diff: 2 Type: MC Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Skill: Recall 51) Regarding insurance contracts, utmost good faith is important because a. insurance records follow the policy holder for life. b. the insurance company is in a position of superior knowledge. c. the insured must calculate her or his risks. d. third parties may be involved—especially with liability policies. e. without it, there is fraudulent omission.

Answer: d Diff: 2 Type: MC Topic: Signed Documents and Misrepresentation by Omission Skill: Recall 52) Kevin was desperate to save his business records and equipment from the rising flood waters. Just then, a stranger with a large truck drove by, and Kevin, feeling that he had little choice, said, "I'll give you your choice of my equipment if you help me save my business records and equipment." The stranger agreed and chose some equipment and a laptop computer. After the flood, Kevin demanded everything back. The stranger refused to return the new laptop computer. On what legal grounds can Kevin get his computer back? a. undue influence b. duress c. coercion d. dire circumstances e. no basis; this is a valid contract that has fair consideration on both sides

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Answer: e Diff: 3 Type: MC Topic: Misrepresentation and Contracts Skill: Applied 53) With respect to sale of goods, the doctrine of caveat emptor offers buyers the right to rescind the contracts in situations where a. both a dominant and subservient party exist. b. there is a clear title in the sale of goods. c. one party is in a vastly superior position of knowledge with respect to some matter that is of vital importance to the other party. d. there is an unconscionable transfer of goods. e. there is a failure to disclose a problem with the ownership of goods.

Answer: e Diff: 1 Type: MC Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Skill: Recall 54) Regarding misrepresentation in a sale of land, a. the purchaser must take it with all its faults. b. all defects must be revealed. c. rescission is liberally given for misrepresentation. d. caveat emptor. e. the seller is required to disclose all interests in ownership.

Answer: a Diff: 1 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Recall 55) An innocent party can lose her or his right to repudiate a contract made with undue influence by a. declaring that the special relationship between the parties no longer exists.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

b. not repudiating promptly after coming out from under the undue influence. c. tearing up the contract before its execution. d. physical retaliation after the contract's formation. e. reversing the role of the dominant party.

Answer: b Diff: 1 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Recall 56) With the issue of undue influence, what must the victim do to shift the burden of proof to the dominant party? a. show the unfairness of the bargain b. show that circumstances likely were to lead to undue influence c. show there was "constructive fraud" d. indicate how the decision would be different without the influence e. give prima facie evidence Answer: b Diff: 2 Type: MC Page Reference: 180 Topic: Undue Influence Skill: Recall 57) Paul, a poor farmer, has just learned he has a serious medical problem. The medication needed is extremely expensive and not covered by medical insurance.

Hearing of his plight, the next-door neighbour offers to buy Paul’s prize steer, but at half its value. Paul feels he has no choice but to sell the steer, because he needs the money, so he agrees to sell it for half its value. Legally speaking, what has this neighbour done? a. failed to act in the "utmost good faith" b. committed a morally objectionable, yet perfectly legal, act c. exerted undue influence over Paul d. coerced Paul into selling under duress e. exploited a "special relationship"

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Answer: c Diff: 2 Type: MC Topic: Undue Influence Skill: Recall/Applied 58) Scott, an independent businessman, is asking his wife to pledge her inherited family homestead towards a business loan he has arranged at the bank. She seems perfectly willing to do this. Yet, to avoid a possible later legal claim of undue influence by Scott's wife, which would be wisest for the bank to do? a. have Scott's wife get independent legal counsel b. explain very carefully what would transpire c. place all transactions under seal d. have the wife sign a paper to the effect that she was not unduly influenced e. have Scott's lawyer thoroughly explain to Scott's wife the legal implications Answer: a Diff: 2 Type: MC Topic: Undue Influence Skill: Recall 59) Guido is an unsavory money lender who charges 35 percent interest. Upon learning that Sylvia, one of his clients, had become unable to make her weekly payment, Guido tells her that he has "a way of dealing with defaulters where they think twice next time."

She then promptly signs a contract agreeing to a 50 percent rate over a longer period of time. Sylvia now wants to get out of this second contract. As a lawyer, what should you advise Sylvia to do? a. nothing, but pay the debt at 50 percent; the contract is enforceable b. claim that she entered because of constructive fraud c. claim that she entered the contract under duress d. claim that she entered into the contract under undue influence e. claim that she entered under dire circumstances Answer: c Diff: 2 Type: MC Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Topic: Duress Skill: Recall 60) In contract law, the domination of one party over the mind of another to such a degree as to deprive the latter of the will to make an independent decision is known as undue domination. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Undue Influence Skill: Applied 61) The cooling-off period is a time during which a consumer may cancel or rescind a contract without any reason whatsoever. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Contracts with Consumers Skill: Applied 62) A spouse may set aside a transaction if he or she can prove actual undue influence. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Topic: Arrangements Involving Spouses Skill: Applied 63) It is a criminal offence for a lender to charge an interest rate in excess of 50 percent. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Consumer Protection Skill: Applied 64) A legal mistake is an error in judgment. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Mistakes in Assumptions Skill: Applied 65) Mistake about terms includes the inadvertent use of wrong words. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Narrow Meaning of Mistake Skill: Applied Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

66) Where the wrong words are inadvertently used by a party in stating the terms of a contract, resulting in a mistake, the contract will be binding on the party if it was reasonable for the other party to rely on the words used. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Mistakes About the Terms Skill: Applied 67) Where a party inadvertently uses the wrong words in stating the terms of a contract, and another party enters into the contract, the court may set aside the contract if a reasonable bystander would conclude that the party had made a mistake. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Mistakes About the Terms Skill: Recall 68) Common mistake is a situation in which both parties believe the same misunderstanding or mistake about the contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Mistakes About the Subject Matter Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Skill: Recall 69) The most fundamental mistake that radically changes the nature of the bargain of the parties is a mistake about the existence of the subject matter of the contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Mistakes in Assumptions Skill: Applied 70) If the parties disagree over what the words in a contract mean, the court will declare the contract void. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Mistakes About the Terms Skill: Recall 71) Where a contract deals with the sale of goods, such as a car, at common law, the duty of the purchaser is to inspect the goods before she or he purchases them. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Skill: Recall/Applied 72) Misrepresentation never gives rise to damages for torts as well as rescission in contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Misrepresentation and Contracts Skill: Recall 73) A statement of opinion such as "it is the best car in the lot" can amount to a misrepresentation. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Opinion Versus Fact Skill: Recall 74) The threat by one party that unless the other party enters into the contract, he will harm the other's child constitutes undue influence. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Duress Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Skill: Recall/Applied 75) Exerting domination over the mind of another party so as to make him or her enter into a contract constitutes duress. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Undue Influence Skill: Recall/Applied 76) Jack really needs money to pay off his mortgage before the bank forecloses. He goes to "Shark" who agrees to lend Jack the money if Jack will pay 100 percent interest. This is an example of undue influence. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Undue Influence Skill: Recall/Applied 77) Explain the meaning of rescission.

Answer: Rescission is an order of the court that rescinds a contract or revokes a contract. The effect of a rescission is that the parties are, as near as possible, returned their original positions.

Diff: 1 Type: ES Topic: Mistakes in Assumptions Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Skill: Recall 78) When it comes to deciding whether or not a contract is void, the common law knows no half measures. Explain.

Answer: This statement normally applies to the effect of a void contract on third parties and means that a finding by a court that a contract is void renders any subsequent contract entered into with a third party void as well. For example, if A sells goods to a rogue who then purports to sell the goods to a third party, if the contract between A and the rogue is void, then so, too, is the contract between the rogue and the third party, with the result that A can sue the third party for the return of the goods.

Diff: 1 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 79) A contract entered into by reason of a mistake as to identity of a third party usually has an element of fraud. Explain.

Answer: This statement deals with contracts that are entered into by one party in the mistaken belief that he or she is contracting with a specific individual, but in reality he or she ends up contracting with someone who purports to be that individual. The fact that the imposter represents to the first party that he or she is the specific party with whom the first party wished to contract means that the imposter is committing a fraud on the first party. In other words, the mistake by the first party results from the fraud of the imposter.

Diff: 1 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 80) What must an innocent party to a contract show in order to rely on the defence of non est factum?

Answer: The innocent party must prove that he or she signed the contract relying on a material misrepresentation of the other party as to the nature of the contract. Additionally, the innocent party must establish that he or she was not careless in signing the document.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 1 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall 81) What are the two main types of mistake in contract law?

Answer: The two main types of mistake in contract law are mistake about terms of a contract and mistake in assumptions about important facts related to the contract.

Diff: 1 Type: ES Topic: The Narrow Meaning of Mistake Skill: Recall 82) What is rectification? Explain its use by courts in situations involving mistake in law.

Answer: Rectification is the correction of a written document so that it accurately reflects the contract made by the parties. When parties to a contract reach an agreement, the written version of the contract may not reflect the original agreement. The party who claims that the written version of the agreement does not properly record the original agreement may ask the court for rectification.

Diff: 2 Type: ES Topic: Mistakes About the Terms Skill: Applied 83) Explain the concept of rescission as it relates to mistake in contract law.

Answer: Rescission is an order of the court that rescinds a contract, that is, it revokes the contract so that the parties are, as far as possible, returned to their original positions. In contract law, when a party makes a mistake, either a mistake about terms or a mistake in assumptions related to the contract, a court may set aside or rescind the contract. When a contract is rescinded by the court, the parties are placed in their original positions.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 2 Type: ES Topic: Mistakes in Assumptions Skill: Recall 84) What is the difference between a void and a voidable contract?

Answer: A void contract is one that is nullity from its inception, it is as if the contract was never formed or never existed. A voidable contract is one that exists until one of the parties takes steps to bring the contract to an end.

Diff: 2 Type: ES Topic: Mistake and Innocent Third Parties Skill: Applied 85) What is a material event?

Answer: A material event is an event that could reasonably be expected to influence the decision of a party to enter a contract.

Diff: 2 Type: ES Topic: Misrepresentation and Contracts Skill: Recall 86) What is an entirety clause?

Answer: An entirety clause is a term in a contract stating that the whole agreement is contained in the written document and that there are no other terms, conditions, representations, or warranties. It confines the agreement between the parties to the single written document.

Diff: 3 Type: ES Topic: Strategies to Manage the Legal Risks Skill: Recall Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

87) Explain the importance of independent legal advice.

Answer: Independent legal advice is important to ensure that a party enters into a contract freely and voluntarily, so as to prevent that party from attempting to set the contract aside at a later time on the grounds of undue influence or duress.

Diff: 2 Type: ES Topic: Undue Influence Skill: Applied 88) At times, the concepts of undue influence and duress may overlap. Explain.

Answer: Although both undue influence and duress have separate definitions in law, occasionally they overlap, as in the case of economic duress, which focuses on both coercion and an illegitimate or inappropriate application of pressure.

Diff: 2 Type: ES Topic: Duress Skill: Applied 89) What remedies are available to the innocent parties if they are the victims of an innocent misrepresentation? What is the remedy if they are the victims of a fraudulent misrepresentation?

Answer: If a person is a victim of an innocent misrepresentation his or her only remedy is rescission of the contract, providing the right to rescind has not been lost. If the statement is fraudulent, he or she is entitled to rescission and is also entitled to damages.

Diff: 2 Type: ES Topic: Misrepresentation and Torts Skill: Applied 90) Explain why an insurance contract needs the utmost good faith.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Answer: In order for an insurance company to assess risks and assign a proper premium, it may need to ask some pertinent questions where only the applicant knows the answers. So the insurance company is relying on the answers to be given in the utmost of good faith.

Diff: 2 Type: ES Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Skill: Applied 91) Some current consumer protection legislation offers consumers a cooling-off period.

If a consumer elects to cancel or rescind a contract during the cooling-off period, what reasons must she or he provide?

Answer: A consumer who exercises the right to cancel or rescind a contract within a cooling-off period does not need to provide any reason whatsoever. The rationale behind the coolingoff period is to provide the consumer with an opportunity to review the terms in a contract that may not have been provided to her or him prior to signing.

Diff: 3 Type: ES Topic: Contracts With Consumers Skill: Recall/Applied 92) Define undue influence and distinguish undue influence from duress.

Answer: Undue influence is the domination of one party over the mind of another, thereby depriving that person of using independent judgment when entering into a contract.

Duress is actual or threatened violence against the contracting party or his or her family.

Undue influence affects the mind, while duress has a physical implication.

Diff: 2 Type: ES Topic: Undue Influence Skill: Recall

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

93) James has an old car for sale. Betty views the car and in response to a question about the age of the car, James replies, "I think it is a 1929 Ford." Betty purchases the car, but the written contract makes no mention of the year of the car. Actually, the car is a 1932 Ford. What remedy does Betty have? What defenses are available to James?

Answer: Betty would have no remedy in this case. There was no misrepresentation because the statement made by James was not a statement of fact but one of opinion.

Misrepresentations must be false statements of fact.

Diff: 2 Type: ES Topic: Misrepresentation and Contracts Skill: Recall 94) Linda's lawyer took a city lot she owned in payment for services rendered. Now Linda is claiming undue influence and suing to get the land back. What must she prove and what must the lawyer try to prove?

Answer: Linda must show that the circumstances were such that undue influence was likely. In this case, with a lawyer, it’s prima facie. The lawyer would try to prove he made every effort to allow Linda her own free will and that the contract was fair, just, and reasonable.

Diff: 2 Type: ES Topic: Undue Influence Skill: Recall 95) Mr. Chessman, an elderly man, is asking a prominent businessman, Mr. Ross, to sign a contract for the restoration of a downtown apartment building that Mr. Ross owns and that Mr. Chessman lives in. During the ensuing discussion, Mr. Chessman states, "And if you don't sign, your children may suffer." Mr. Ross reluctantly signs. Will this contract be enforceable against Mr. Ross? Explain.

Answer: Mr. Ross might try to declare this contract void because of duress; his children were physically threatened by Mr. Chessman. On the other hand, Mr. Chessman would say there was no serious threat (i.e., no duress), the terms were reasonable, and the businessman would have signed regardless.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 2 Type: ES Topic: Duress Skill: Applied 96) Some consumer protection legislation provides for a cooling-off period. What is a cooling-off period and how does it benefit consumers?

Answer: A cooling-off period gives a consumer the right to cancel or rescind certain contracts without any reason whatsoever. Standard form contracts containing onerous terms are often put to consumers. There is a general presumption that once one signs the contract, one is bound by its terms. The cooling-off period provides consumers with an opportunity to review the contract during the cooling-off period, retaining the right to cancel or rescind for no reason whatsoever.

Diff: 3 Type: ES Topic: Contracts with Consumers Skill: Recall/Applied 97) Explain the difference in approach of common law and equity to a contract that is entered into by a party under a mistake as to identity caused by the fraud or deceit of the other party.

Answer: The approach of common law to this situation is that the contract is void. As a result, any further contract entered into by the rogue with a third party for the same goods, etc. is also void and the original owner/seller of the goods, etc. can recover them from the third party. On the other hand, equity will often declare the contract voidable at the option of the innocent party, rescinding the contract and restoring the property to the innocent party. However, if the rogue has sold them to a third party, equity will employ principles of fairness and not set aside a further contract between the rogue and the third party for the goods, etc., so long as the third party paid full value for the goods and did not know of the rogue's fraud.

Diff: 3 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall/Applied

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

98) A party who seeks rectification of a document must satisfy the conditions for rectification. Explain.

Answer: Rectification is the correction of a written document by a court so that it accurately reflects the contract made by the parties. Where a party claims that the written document does not reflect the original agreement reached by the parties, it may ask the court for rectification. A court will not rectify a contract unless certain conditions are met. A court will rectify a contract if (a) it is satisfied that there was a complete agreement between the parties and that this agreement was free from any ambiguity and was not conditional on any further adjustments, (b) the parties did not engage in any further negotiations to amend the contract, and (c) the change in the written document appears to be an error in the recording of the document and can be easily explained as such.

Diff: 2 Type: ES Topic: Mistakes About the Terms Skill: Applied 99) Explain the concept of non est factum and how this concept has evolved over the years.

Answer: Non est factum means "it is not my doing." The concept or plea of non est factum originated in medieval times, when a majority of the population could neither read nor write. A person who could not read or write who had to enter into a contract had to rely on the honesty of the other party. Such a person could be fraudulently induced into signing a contract. Such an innocent party was permitted to raise the plea or defence of non est factum if the other party attempted to enforce the fraudulently obtained contract.

Currently, the use of the plea has been extended to cover those situations in which literate persons have been duped into entering a contract. The plea or defence has been further restricted to prevent careless or negligent signers from relying on non est factum.

Diff: 2 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 100) What is rescission? Explain how rescission relates to mistake in contract law.

Answer: Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Rescission is an order of the court that rescinds a contract, that is, it revokes the contract so that the parties are, as far as possible, returned to their original positions. In contract law, when a party makes a mistake, either a mistake about terms or a mistake in assumptions related to the contract, a court may set aside or rescind the contract. When a contract is rescinded by the court, the parties are placed in their original positions.

Diff: 1 Type: ES Topic: Mistakes in Assumptions Skill: Recall 101) Donna Brown owned a flower shop, which she was anxious to sell. Charles Blue visited her shop and discussed a possible purchase. During those discussions, Donna stated that she was sure 2013 sales would exceed $400 000 and that sales for 2012 were more than $360 000. Charles was impressed with those figures and offered to purchase the flower shop for $110 000 cash. The sale was completed one week later (November 24, 2012) and was documented with a brief written agreement that did not include anything about past sales. In April 2013, Charles had the 2012 financial statement for the flower shop prepared and discovered that actual sales for 1997 were $320 000. In addition, Charles knew that 2013 sales were 5 percent below sales for the same period a year earlier. Charles confronted Donna with those figures and Donna was evasive and refused to accept any responsibility, saying only that the written agreement contained no mention of sales figures. Charles asks you the following questions: a. Do I have a right to sue Donna, and if so, what is the legal basis for my action? What must I prove and what are my chances of success? b. What remedies could I seek, and do I have different remedies from which I can choose?

Answer: (a) Because the representation about sales figures was precontractual, Charles would have to rely upon misrepresentation. Charles would have to prove that the statement made was false; that the statement was one of fact, not opinion; and that the misrepresentation was material and was the inducing factor that led him to enter into the contract. In this instance, the main problem faced by Charles would be proving that the statements were statements of fact and not opinion. The representation on 2012 sales figures seems to be a statement of fact, not opinion, but the representation with respect to 2013 may be an estimate and therefore a statement of opinion. Charles would be successful, however, if he could prove that either of the representations were statements of fact. (b) If the misrepresentation was innocent, the remedy is rescission and the issue would be whether or not Charles has lost his right to rescind. If the misrepresentation was either negligent or fraudulent, Charles could choose between rescission and damages.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 2 Type: ES Topic: Misrepresentation and Torts Skill: Applied 102) What is meant when we say that an innocent party may be entitled to indemnity or compensation as a result of an innocent misrepresentation?

Answer: Where a party enters into a contract as a result of an innocent misrepresentation, he or she may have sustained out-of-pocket expenses in performing the contract or may have paid money to the other party before becoming aware of his or her right to rescind. In such a case, the innocent party will be entitled to be reimbursed by a money award known as indemnity or compensation, which is different from damages.

Diff: 2 Type: ES Topic: Consequences of Misrepresentation in Contracts Skill: Recall/Applied 103) When describing the car he had for sale, Jack told Jill it had genuine cowhide seat covers. The car in fact had imitation leather seat covers. Jill decided to buy the car, in part because she liked cowhide seat covers. The written contract made no mention of the type of seat covers. When Jill took possession of the car, she discovered that the seat covers were not cowhide and asked you the following questions: a. What is the name of all potential causes of action that I have has against Jack? b. What remedy or remedies can I seek? c. What elements must I be able to prove in order to be successful?

Answer the above questions providing reasons for your answers. Express an opinion about the probable outcome of Jill's action.

Answer: a. Jill's potential cause of action against Jack is misrepresentation, either innocent, negligent, or fraudulent. b. If the misrepresentation is innocent, Jill's only remedy is rescission, but if the misrepresentation is negligent or fraudulent, she can claim either rescission or damages. c. Jill must prove that Jack has made a false statement of fact that was material to entering into the contract. If she is claiming either negligent or fraudulent misrepresentation, she must show that the statement was made due to some lack of skill, care, or diligence on Jack's part or that Jack knew the statement was false, did not believe Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

in its truth, or was reckless when he made the statement as to whether or not it was true or false.

Diff: 2 Type: ES Topic: Misrepresentation and Torts Skill: Recall/Applied 104) Ryan Thompson, a lawyer, was approached by a client who wished to sell him shares in a business he owned. Ryan accepted the offer by purchasing the shares. The business is a tremendous success. Later the client claims that he sold the shares to Ryan because of Ryan's undue influence over him. What must the client prove in order to be successful in his action?

Answer: The relationship between Ryan and his client is classed as a special relationship, which exists where there is a dominant party and the dominant party receives a benefit from the other party. Where this special relationship exists, the onus of proof shifts to the dominant party to prove that there was no undue influence. In this case, the client need only show that Ryan received a benefit from him, and Ryan then has the burden of showing that no undue influence was present. For example, Ryan should have had his client seek independent legal advice or have taken some other measure to indicate that undue influence was not present. Without these measures, Ryan may have a problem.

Diff: 2 Type: ES Topic: Undue Influence Skill: Recall/Applied 105) You are going to lend money to a corporation owned by Mr. X. You are requiring that Mr. X and his wife, Ms. Y, sign personal guarantees agreeing to be responsible in case of default. Why might you be concerned about your ability to enforce the guarantee against Ms. Y, and how should you protect your position?

Answer: You should be concerned that if you have to enforce the guarantee against Ms. Y, she might try to avoid the guarantee by alleging undue influence on the part of her husband.

It would be wise in this situation to insist that, before signing the guarantee, Ms. Y obtain independent legal advice. If the guarantor has obtained independent legal advice, it will be very hard to claim domination.

Diff: 2 Copyright © 2013 Pearson Canada Inc.

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MyTest for Smyth: The Law and Business Administrations, Thirteenth Edition Chapter 8: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Type: ES Topic: Undue Influence Skill: Recall/Applied 106) Benny, who owns a classic car, lives in an apartment with a disabled roommate.

Benny is approached by Dick Albert, who advises Benny that if he does not sell his classic car for $2000 (a fraction of its value), the roommate "will have both his arms broken." Benny then signs the contract and Dick pays him the $2000. Benny was never threatened at any time during the transaction. What remedies can Benny pursue and what must he do in order to pursue those remedies? What is the likelihood of success?

Answer: Benny would claim duress; in other words, actual or threatened violence was used to coerce him to enter into the contract. He should rescind as soon as the threat is gone.

However, strictly speaking, duress is not present, since Benny's roommate is not a family member, such as a spouse, parent, or child. Dick's attempt to extort a benefit from Benny may not give Benny a remedy using duress, but an the alternative remedy, such as undue influence, would likely be available.

Diff: 2 Type: ES Topic: Duress Skill: Recall/Applied 107) Why are loan transactions among the most heavily scrutinized consumer contracts?

What protections are provided to consumers?

Answer: Most provinces have adopted legislation governing loan transactions that imposes tight regulations on lenders concerning the disclosure of costs of borrowing, maximum interest rate, terms of credit, and more. Additionally, consumers can ask courts to sever the offending interest terms entirely or to lower the rate. Finally, consumers are often provided with cooling-off periods in which they can examine the terms of their contracts.

If they are not satisfied, they can cancel without any reason whatsoever.

Diff: 3 Type: ES Topic: Consumer Protection Skill: Recall/Applied

Copyright © 2013 Pearson Canada Inc.

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