Chapter 11: Prepare & Apply

The law very carefully scrutinizes contracts between those in a relationship of trust and confidence that is likely to permit one party to take unfair advantage of the other. Which of the following is not an example of that type of relationship?

• Hair dresser and client.

• Doctor and patient.

• Agent and principal.

• Parent and child.

Answer explanation

While there is a level of trust in the relationship between a hairdresser and a client, it does not typically involve the same depth of trust and confidence as the other examples listed, which involve fiduciary relationships where one party has the potential to take significant advantage of the other party's vulnerabilities or reliance.

In contrast, agent-principal, parent-child, and doctor-patient relationships are considered fiduciary relationships, where the party in the position of trust has a legal or ethical obligation to act in the best interest of the other party.

To establish fraud, the misrepresentation must have been known by the one making it to be false and must be made with an intent to deceive. That knowledge is known as:

• All of these are correct.

• scienter.

• negligent misrepresentation.

• sales puffery.

Answer explanation

Scienter refers to the knowledge of wrongdoing, specifically the intent to deceive or knowledge that a statement is false when it is made. In the context of fraud, it signifies that the person making the misrepresentation was aware of its falsity and intended to mislead the other party.

• Negligent misrepresentation involves carelessness rather than intent to deceive.

• Sales puffery refers to exaggerated claims that are not meant to be taken literally and typically do not constitute fraud.

A person should not be held to an agreement he has not entered voluntarily. Accordingly, the law will not enforce any contract induced by:

• All of these are correct.

• duress.

• mistake.

• puffery.

Answer explanation

A contract induced by duress is not enforceable because it involves one party being forced or threatened into the agreement, meaning they did not enter into it voluntarily.

• Puffery involves exaggerated statements that are not meant to be taken literally, which generally do not invalidate a contract.

• Mistake can sometimes affect the enforceability of a contract, but it depends on the nature of the mistake and whether it was mutual or unilateral.

A person is not entitled to relief from fraud, unless she can show that she:

• was physically forced to comply.

• All of these are correct.

• justifiably relied on the misrepresentation.

• was unduly influenced.

Answer explanation

To obtain relief from fraud, a person must demonstrate that they relied on the misrepresentation in a way that was justified. This means that they took action or made a decision based on the fraudulent statement, which led to their harm.

• Undue influence pertains to a different concept where one party uses their position of power over another to unfairly influence their decisions, but it is not a requirement for relief from fraud.

• Physical force relates to duress, which is also a separate legal concept.

Thus, showing justifiable reliance on the misrepresentation is essential for seeking relief from fraud.

Contracts induced by threats of ________ are not voidable, unlike threats of ________ regardless of whether the coerced party had committed an unlawful act.

• tortious conduct; civil prosecution

• None of these are correct.

• criminal prosecution; civil prosecution

• civil prosecution; criminal prosecution

Answer explanation

Contracts induced by threats of civil prosecution are not voidable, while those induced by threats of criminal prosecution are. This distinction holds true regardless of any unlawful acts by the coerced party.

_______ is an intentional misrepresentation of material fact by one party to the other, who consents to enter into a contract in justifiable reliance on the misrepresentation. Fraud in the inducement renders the contract _______ by the defrauded party.

• Fraud by concealment; void

• Fraud in the inducement; voidable

• Fraud in the execution; voidable

• Silence; void

Answer explanation

Fraud in the inducement occurs when one party intentionally misrepresents a material fact, leading the other party to enter into a contract based on that misrepresentation. As a result, the contract is voidable at the option of the defrauded party, meaning they can choose to affirm or void the contract.

Which of the following, if any, are requisites for fraud in the execution?

• Signing party does not know the character or essential terms of the contract.

• Renders the transaction void.

• All of these are correct.

• False representation as to the very nature of the contract.

Answer explanation

Fraud in the execution involves a false representation about the nature of the contract itself, meaning that the signing party does not understand the character or essential terms of what they are signing. This type of fraud can indeed render the transaction void, as the party was misled about the fundamental aspects of the agreement. Therefore, all the listed requisites apply to fraud in the execution.

Sometimes the law imposes a duty of disclosure. When a fiduciary is silent, silence may constitute fraud. A fiduciary is one who:

• is in a confidential relationship who owes a duty of trust and loyalty to another.

• All of these are correct.

• must deal at arm's length with the other party to the relationship.

• has the same duty of disclosure to the other party to the relationship as one who is not a fiduciary.

Answer explanation

A fiduciary is defined as someone in a confidential relationship who owes a duty of trust and loyalty to another. This makes the first choice the correct answer, as it accurately describes the nature of a fiduciary.

Sometimes a party makes misrepresentations, which if untrue, could constitute a material misrepresentation. Which of the following fits that description?

• "This is the one that I would buy."

• "These tires will wear like iron."

• "This car has a new engine."

• "This is the best tablet on the market."

Answer explanation

The statement "This car has a new engine" is a factual claim that can be verified. If untrue, it constitutes a material misrepresentation, as it directly affects the value and desirability of the car.

Which of the following would be material to the sale of a racehorse?

• The horse was ridden by Josh Jockey in the last race.

• All of these are correct.

• The horse's coloring is chestnut.

• The horse's running time in the last race was the fastest in the circuit.

Answer explanation

The horse's running time in the last race being the fastest in the circuit is crucial as it directly indicates the horse's performance and potential value, making it material to the sale.