Solution Manual for Cengage Advantage Books Law for

Business 19th Edition by Ashcroft Ashcroft Patterson ISBN

1305654927 9781305654921
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Chapter 09 Defective Agreements

TRUEFALSE

1. As a general rule, a unilateral mistake made at the time of contracting has an effect on the
validity of a contract.

(A) True (B)

False

Answer : (B)

2. Ordinarily, for a mistake to invalidate a contract, the mistake must be a mutual one about a
material fact.

(A) True (B)

False

Answer : (A)

3. If an unilateral mistake regarding price results arise from misunderstanding an oral quotation of
the price, the contract is invalid.

(A) True (B)

False

Answer : (B)

4. A contract is void if parties to a contract are mutually mistaken about their expectations.

(A) True

(B) False

Answer : (B)
5. Fraud in the execution occurs when a defrauded party intends to sign a contract as a result of
false statements made by the promisor.

(A) True (B)

False

Answer : (B)
6. Failure to disclose information when there is duty to do so is known as passive fraud.

(A) True

(B) False

Answer : (A)

7. A false statement made in the belief that it is true is known as innocent misrepresentation.

(A) True

(B) False

Answer : (A)

8. When one party wrongly threatens to injure another person physically in order to get agreement
to a contract, economic duress occurs.

(A) True (B)

False

Answer : (B)

9. Mistakes such as duress and undue influence render contracts void.

(A) True

(B) False

Answer : (B)

10. If a contract is voidable due to a mistake such as fraud in the inducement, duress or undue
influence, a person might elect to rescind the contract.

(A) True (B)

False

Answer : (A)

11. When one party wrongly threatens to injure another person financially in order to get agreement
to a contract, economic duress occurs.

(A) True

(B) False
Answer : (A)

MULTICHOICE

12. Mark, a civil engineer, entered into a contract with David. As per the contract, Mark agreed to
design and build a house for David for a specified fee. Mark provided David with an estimation of the
total cost and the contract was mutually agreed upon. However, during construction, when Mark
increased the price due to a miscalculation on his part, David refused to pay the amount. This
scenario is an example of a mistake.

(A) mutual

(B) collective

(C) collateral

(D) unilateral

Answer : (D)

13. Allen enters into a contract with Joe to sell his car. However by mistake, he undervalues his car.
Though the actual value of the car is $6000, he sells it to Joe for $3000. During the purchase, Joe is
aware of the actual value but does not communicate this fact to Allen. Which of the following is likely
to be true in such a scenario?

(A) Allen is entitled to compensation through a court of law.

(B) Allen is entitled to cancel the contract because he was not aware of the actual value.

(C) Joe is entitled to keep the car because the contract is valid.

(D) Joe must pay the difference to Allen in order to validate the purchase.

Answer : (C)

14. Mary contracts to sell Rachel her violin for $10,000, based on an appraisal of the instrument.
Their contract provides that even if the appraisal is later found to be mistaken, the sale price will not
be altered. One month after the sale, Rachel learns that the violin is only worth $5000. Which of the
following is true:

(A) Because the contract specified what would happen in the case of a mistake, the sale price will
not be altered.

(B) Mary must refund Rachel $5000, because the appraisal was mistaken.

(C) The contract is unenforceable, because the appraisal was mistaken.

(D) The contract is void, because the sale is fraudulent.

Answer : (A)

15. Which of the following is true regarding parties who make mutual mistakes of law?

(A) The contract becomes null and nonbinding on the parties.

(B) One of the parties can annul the contract stating that it is a mistake of law.

(C) The parties are expected to have knowledge of the law when making the contract.

(D) Both parties can claim relief and compensation through a court of law.

Answer : (C)

16. Which of the following statements is true of fraud in the execution?

(A) It occurs when a party intends to make a contract based on a false statement of terms.

(B) It occurs when a party does not intend to sign a contract, as the nature of the writing is not
understood.

(C) It refers to a party forced to sign a contract under duress.

(D) It occurs when a party signs a contract based on an innocent misrepresentation.

Answer : (B)

17. is a means of destroying another's free will by one party obtaining consent to a contract as
a result of a wrongful threat to do the other person or family members some harm.

(A) Passive fraud

(B) Duress

(C) Misrepresentation

(D) Undue Influence

Answer : (B)

18. Which of the following is an example of passive fraud?

(A) A homeowner tells a home buyer that the basement of the home never floods, when in fact the
homeowner knows it has several significant leaks.

(B) An attorney fails to tell his or her client of an offer to settle a case.

(C) A thrift store sales clerk mistakenly tells a customer that a table is oak instead of pine.

(D) A car salesman tells a customer that he believes the latest model of certain pickup truck is more
reliable than previous models.

Answer : (B)

19. Which of the following is true of undue influence?

(A) It occurs when one party threatens to cause physical harm to another.

(B) It refers to one party injuring another financially to influence him to enter into a contract.

(C) It takes place between people who are not known to each another.

(D) It refers to a person in a special relationship causing another's action contrary to free will.

Answer : (D)

ESSAY

20. What is active fraud? What four elements must be present to constitute fraud as a result of
express misrepresentation?

Graders Info :

Active fraud occurs when a party actually does something or takes steps to cause a fraud. Active
fraud may occur either by express misrepresentation or by concealment of material facts. The
following four elements must be present to constitute fraud as a result of express misrepresentation:

1. There must be a misrepresentation: A false statement of a material fact.

2. The misrepresentation must be made by one who knew it to be false or made it in reckless
disregard for its truth or falsity.
3. The misrepresentation must be made with the intent to induce the innocent party to act.
4. The innocent party must justifiably rely on the false statement and make a contract.