Solution Manual for Essentials of Business Law, 10th Edition, Anthony Liuzzo Ruth Calhoun Hu

Solution Manual for Essentials of Business Law, 10th

Edition, Anthony Liuzzo Ruth Calhoun Hughes

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Ch 09 – Mutual Agreement

Essentials of Business Law, 10th edition

INSTRUCTOR’S MANUAL

Chapter 9 Mutual Agreement

LESSON OVERVIEW

In Chapter 7 students were introduced to the six elements of an enforceable contract, and
Chapter 8 discussed offer and acceptance—the first of the essential elements for a
contract to be valid. In Chapter 9, students examine the potential problems with achieving
a meeting of the minds, the second of these essential elements. Genuineness of Assent, or
reality, is critical to a valid contract, and if there is any misunderstanding, force, or
deception the contract is voidable, and may be disaffirmed at the option of the injured
party. A voidable contract results if agreement of either party is obtained by fraud,
misrepresentation, mistake, undue influence, or duress, or if the contract is one of
adhesion, or is unconscionable. Each of these terms will be explained in this chapter.
Students are encouraged to conduct their own research, and use the end-of-chapter
exercises to further their understanding of these concepts.

CHAPTER OUTLINE

A. DEFECTIVE AGREEMENTS
B. FRAUD
C. MISREPRESENTATION
D. MISTAKE
E. UNDUE INFLUENCE
F. DURESS
G. CONTRACTS OF ADHESION
H. UNCONSCIONABLE CONTRACTS
I. CHAPTER SUMMARY
J. CHAPTER ASSESSMENT
1. Matching Key Terms
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Ch 09 – Mutual Agreement

2. True/False Quiz
3. Discussion Questions
4. Thinking Critically About the Law
5. Case Questions
6. Case Analysis
7. Legal Research

KEY TERMS

Key terms are listed at the beginning of the chapter, posted in the student textbook

margins, and placed in bold in the copy. They are listed here for your quick reference.

▪ fraud ▪ undue influence

▪ puffing ▪ duress
▪ misrepresentation ▪ contract of adhesion
▪ mistake ▪ unconscionable contract

LEARNING OUTCOMES

The chapter Learning Outcomes will help you and the students discover the concepts and

information that should be understood upon completion of the chapter. You may want to

access the PowerPoint (PPT) slides for Chapter 9 when you begin the study of the

chapter and discuss each Learning Outcomes. Each Learning Outcome will be covered

separately in the Instructor Notes, but they are shown here in total as an overview of the

sections being presented in Chapter 9. These slides should be used to reinforce the main

points of the lecture.

After completing this chapter, the students will be able to:

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© 2019 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Ch 09 – Mutual Agreement

1. List seven ways in which a lack of a meeting of the minds may cause defective
agreements.
2. Identify the elements of fraud.
3. Explain misrepresentation and how it differs from fraud.
4. Explain the concept of mistake in the eyes of the law.
5. Define undue influence and explain its impact upon the validity of a contract.
6. Describe duress and the forms that such may take.
7. Define contracts of adhesion and describe the conditions under which these contracts
are voidable.
8. Define unconscionable contracts.

LECTURE OUTLINE
A. DEFECTIVE AGREEMENTS
Genuineness (of Assent), or reality, of agreement is said to be present in a
contract when there is a true mutual meeting of the minds of the parties. If there is
any misunderstanding or if any force or deception is used by either party to obtain
the necessary agreement of the other party, the contract is voidable, and may be
disaffirmed at the option of the injured party. A voidable contract results if
agreement of either party is obtained by fraud, misrepresentation, mistake, undue
influence, or duress, or if the contract is one of adhesion, or is unconscionable.
1. Fraud
Fraud is the intentional misstatement or nondisclosure of a material fact
made by one party with the hope of influencing the other party. It does not
matter how the fraud is committed. It may be by spoken or written words

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© 2019 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Ch 09 – Mutual Agreement

or by acts or conduct of deliberate misrepresentation. For the injured party

to claim fraud, he or she must prove that the statement or act
i. Was a known misstatement or nondisclosure of a material fact
ii. Was made with knowledge of its falsity or with reckless disregard
for its truth
iii. Was made with the intention of causing the other party to enter
into the agreement
iv. Was relied on by the injured party (detrimental reliance)
v. Resulted in loss to the injured party
It is important to recognize the difference between a fraudulent statement
and a salesperson’s puffery, which is considered a mere expression of
opinion. Intentional concealment or intentional nondisclosure of material
facts (deliberately hiding important information) is just as fraudulent as
making false statements.

2. Negligent Misrepresentation
Negligent Misrepresentation as opposed to fraud, is the unintentional
misstatement or nondisclosure of a material fact that results in inducing
another to enter into an agreement to his or her loss (detriment).
It is important to note the distinction between fraud and misrepresentation
because the remedy is different. An injured party who can successfully
prove fraud may have the contract canceled and bring suit for damages. If
the party can prove only negligent misrepresentation, the contract may be
canceled, but the injured party usually cannot sue for additional damages.
3. Mistake
In the eyes of the law, a mistake is a belief that is not in accord with the
facts. Mistakes relating to contracts may be concerned with the nature of
the subject matter or the quality of the subject matter. Obviously, not

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© 2019 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Ch 09 – Mutual Agreement

every erroneous idea or notion is a mistake, and the law makes it clear that
the mistaken belief must concern an existing fact and not a belief about
what might happen in the future. Court decisions involving mistakes are
often complex, and the courts attempt to determine whether the mistake
was “unilateral,” that is, made by only one party, or whether the mistake
was “mutual,” that is, made by both parties, whether it was known by the
parties or not. For a contract to be dissolved because of a mistake, the law
usually requires that both parties be a part of the misunderstanding. That
is, the mistake must be mutual and substantial as to negate the objective of
the parties to the contract.
4. Undue Influence
Sometimes a person has the power to control the actions of another
because of a special or confidential relationship to that person. Such
relationships are sometimes found between employer and employee,
physician or nurse and patient, teacher and student, attorney and client,
financial manager and client, and so on. When someone uses this power
improperly to his or her personal advantage, undue influence is said to
exist. A contract resulting from the use of undue influence is voidable at
the option of the party wrongfully influenced.
5. Duress
Duress is the act of applying unlawful or improper pressure or influence
to a person in order to gain his or her agreement to a contract. Such
pressure may take the form of a threat of bodily harm to an individual or
to his or her family, or the threat of serious loss or damage to his or her
property or reputation. When threats are used to force someone to enter
into a contract, the agreement may be dissolved by the injured party; the
contract voided.
6. Contracts of Adhesion
A contract that involves parties who have unequal bargaining power is
known as a contract of adhesion. These take-it-or-leave-it contracts are

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© 2019 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Ch 09 – Mutual Agreement

quite common and are normally enforceable. But when enforcement of an

otherwise legal contract will result in a significant hardship to one of the
parties, courts have considered such agreements to be so unfair as to be
unenforceable. A key element is did the party of lesser bargaining power
have an opportunity to object or counteroffer.
7. Unconscionable Contracts
A contract that is regarded as shockingly unjust or unfair is said to be an
unconscionable contract. While courts have long been reluctant to
uphold these, more recently, however, the UCC has made such contracts
even less likely to be enforced.
When the UCC was written, it was intended that the unconscionable
clause would apply only to sales of goods. In recent years, however,
virtually the only successful use of unconscionability under the Code has
been made by consumers in various kinds of contracts involving such acts
as making home improvements, opening a checking account, leasing a
gasoline filling station, leasing an apartment, or contracts with the elderly.
Because an aging population has become so susceptible to being deceived
into contracts that offend the conscious of the courts and public, many
states have now enacted special laws governing

INSTRUCTOR NOTES

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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Ch 09 – Mutual Agreement

A resulting answer or explanation is provided below for each Learning Outcomes in

Chapter 9.
LO1. List seven ways in which a lack of a meeting of the minds may cause defective
agreements.
Seven ways in which a lack of a meeting of the minds may interfere with the legal
enforcement of agreements include cases involving (a) fraud, (b)
misrepresentation, (c) mistake, (d) undue influence, (e) duress, (f) contracts of
adhesion, and (g) unconscionable contracts.

LO2. Identify the elements of fraud.

Fraud is (a) a misstatement or nondisclosure of a material fact; (b) made with
knowledge of its falsity or with reckless disregard of its truth; (c) made with the
intention of causing the other party to enter into the agreement; (d) relied on by
the injured party; and (e) resulting in loss to the injured party.

LO3. Explain misrepresentation and how it differs from fraud.

Misrepresentation is (a) the unintentional misstatement or nondisclosure of a
material fact; (b) resulting in inducing another to enter into an agreement; and (c)
loss to the injured party.

LO4. Explain the concept of mistake in the eyes of the law.

A mistake is a belief that is not in accord with the facts. Mistakes relating to
contracts may be concerned with the nature of the subject matter or the quality of
the subject matter.

LO5. Define undue influence and explain its impact upon the validity of a contract.
Undue influence is the improper use of power to control the actions of another
because of a special or confidential relationship to that person. A contract
resulting from the use of undue influence is voidable at the option of the party
wrongfully influenced.

LO6. Describe duress and the forms that such may take.
Duress is the act of applying unlawful or improper pressure or influence to a
person in order to gain his or her agreement to a contract. Such pressure can take
the form of a threat of bodily harm to an individual or to his or her family, or the
threat of serious loss or damage to his or her property.

LO7. Define contracts of adhesion and describe the conditions under which these
contracts are voidable.
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© 2019 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Ch 09 – Mutual Agreement

Contracts of adhesion are contracts that involve parties who have unequal
bargaining power. When enforcement of an otherwise legal contract will result in
a significant hardship to one of the parties, courts have considered such
agreements to be so unfair as to be unenforceable.
LO8. Define unconscionable contracts.
Unconscionable contracts are contracts that are regarded as shockingly unjust or
unfair.

Chapter 9 Assessment Answers

Matching Key Terms

1. i 4. g 7. j 10. h

2. b 5. c 8. e

3. a 6. d 9. f

True/False Quiz

11. T 14. F 17. T 20. T

12. T 15. T 18. T

13. T 16. F 19. F

Discussion Questions
21. For an injured party to claim fraud, he or she must prove that the statement or act
(1) was a misstatement or nondisclosure of a material fact; (2) was made with
knowledge of its falsity or with reckless disregard of its truth; (3) was made with
the intention of causing the other party to enter into the agreement; (4) was relied
on by the injured party; and (5) resulted in loss to the injured party.
22. Fraud is (a) a misstatement or nondisclosure of a material fact; (b) made with
knowledge of its falsity or with reckless disregard of its truth; (c) made with the
intention of causing the other party to enter into the agreement; (d) relied on by
the injured party; and (e) resulting in loss to the injured party. Misrepresentation
is (a) the unintentional misstatement or nondisclosure of a material fact; (b)
resulting in inducing another to enter into an agreement; and (c) loss to the injured
party.

9-8
© 2019 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Ch 09 – Mutual Agreement

23. Unconscionable contracts are contracts that are regarded as shockingly unjust or
unfair.
24. Duress can take the form of a threat of bodily harm to an individual or to his or
her family, or the threat of serious loss or damage to his or her property.
25. Students may wish to respond by offering personal experiences. Persuasive
statements based on a salesperson’s opinion are referred to as puffing. They are
usually exaggerations of a product’s features.
26. Examples of the use of undue influence include a doctor recommending certain
medical equipment to his patient, or a financial planner urging a client to make
certain investments. A contract resulting from the use of undue influence is
voidable at the option of the party wrongfully influenced.

Thinking Critically About the Law

27. A fact is material if it influences a buyer’s decision to purchase the goods or
services.
28. For a contract to be dissolved because of a mistake, the law usually requires that
both parties be a part of the misunderstanding. This serves to protect the party
who was not under the mistaken belief.
29. If pressure takes the form of a threat of bodily harm to an individual or to his or
her family, or the threat of serious loss or damage to his or her property, it
amounts to duress and not merely undue influence.
30. Examples may include contracts involving acts such as making home
improvements, opening a checking account, leasing a gasoline filling station, and
leasing an apartment.
31. Aside from the legal implications, most students would agree that a failure to
disclose material facts or information is unethical. A few might disagree.
Case Questions

32. a. N b. N c. N d. N

33. a. Y b. Y c. Y d. Y

34. a. N b. N c. N d. Y

Case Analysis
35. Principle of law: The courts normally do not attempt to enforce contracts where
there is evidence of mutual mistake.
Decision: There was sufficient evidence in this case to suggest that there was a
mistake by both parties and the mistake would make enforcement of the contract
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Solution Manual for Essentials of Business Law, 10th Edition, Anthony Liuzzo Ruth Calhoun Hu

Ch 09 – Mutual Agreement

“materially more onerous” to the buyer than would be the case if the facts had
been as the parties had believed them to be.
36. Principle of law: Courts normally do not enforce contracts of adhesion in cases
in which there is gross disparity in the bargaining power of the parties.
Decision: The court refused to enforce the clause in question.
37. Principle of law: Making a false statement, even when done innocently, is
misrepresentation and is sufficient to invalidate an agreement.
Decision: Larson is probably not bound to the lease because of Malina’s false
statement about the load-bearing capacity of the floors, which is a material fact.
38. Principle of law: Both fraud and misrepresentation make a contract voidable.
Decision: Harley-Davidson has stated a viable cause of action for contractual
rescission.

Legal Research
39. Results of the team research will vary depending on the dry cleaning
establishments, movie theaters, or parking garages chosen.
40. The Internet should provide numerous cases involving unconscionable contracts
and existing legislation in several jurisdictions that concern such contracts.

BONUS ACTIVITIES

• Ask each student to bring in an article related to one of the seven reasons for lack

of meeting of the minds that may interfere with the legal enforcement of

agreements. Have each student write a brief analysis on their article, and discuss

their findings in class.

• Ask students to form pairs or small groups, and role play cases of duress in class.

Have them focus primarily on the act of applying unlawful or improper pressure

or influence on a person in order to gain his or her agreement to a contract.

9-10
© 2019 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.

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