45. A contract was made for 125 bales of cotton to arrive on a ship named “Peerless” from Bombay. Unbeknownst to
either party to the contract, there were two ships named “Peerless,” both of which were sailing from Bombay. One
sailed in October and the other in December. The buyer had in mind the ship sailing in October, but the seller had in
mind the ship sailing in December. Each party held his belief in good faith. The goods failed to arrive on time. If the
buyer sues for breach of contract:
a. the seller must pay damages because the seller breached.
b. the seller is guilty of fraud in the inducement for failing to disclose to the buyer which ship would contain the
goods.
c. no contract exists due to mutual mistake of fact as to the existence or identity of the subject matter of the
contract.
d. All of these.
46. Sam wants to sell his Golden Retriever to Jordan. Sam tells Jordan that the dog is three years old and that he will
point, back, and retrieve. Although the dog is three years old and will point at birds, he will not back (honor another
dog’s point). Jordan relies on these statements and purchases the bird dog. The buyer has most probably been a
victim of:
a. duress.
b. undue influence.
c. fraud in the inducement.
d. fraud in the execution.
47. Tom tries to sell his classic car to Victoria for $12,000. Tom tells Victoria, “I paid $12,000 for the car in 1978 and it’s
worth twice that today.” Tom really paid $8,000 for the car in 1978. If Victoria buys the car, basing her decision on
Tom’s statement, which of the following correctly states the situation?
a. Tom’s statements amount to puffing only.
b. Tom’s statements provide grounds to set the contract aside.
c. Tom’s statements are actionable only if negligently made.
d. Tom’s statements amount to fraud in the execution.
48. Contracts induced by threats of
unlawful act.
a. civil prosecution
b. criminal prosecution
c. tortious conduct
d. physical force
are voidable, regardless of whether the coerced party has committed an
49. A fiduciary is a:
a. person in a subservient position.
b. person who owes a duty of trust, confidence, and loyalty to another.
c. form of formal conduct.
d. person of equal power and control.
50. Kyle wants to buy a six-passenger car. The salesperson tells him that the two-seat sports car Kyle sees on the car
lot would be just perfect for six people. Kyle test drives the car and then buys it. In this case:
a. Kyle has a valid cause of action for fraud.
b. Kyle was not justified in relying upon the salesperson’s representation that the car would seat six people.
c. the element of scienter is missing.
d. the salesperson is a fiduciary.
51. When both parties misunderstand the same set of facts relating to a basic assumption on which a contract is made, it
is termed:
a. rescissionary mistake.
b. unilateral mistake.
c. mistake of law.
d. mutual mistake.
52. Which of the following would ordinarily be a basis for making a contract void for mutual mistake?
a. Market conditions
b. Genuineness of the source of the subject matter of the contract
c. The financial situation of the parties
d. All of these.
53. A party to a contract may be able to avoid the contract if:
a. there is a mutual mistake, and the party undertook to bear the risk by conscious allocation.
b. there is a unilateral mistake, and the party undertook to bear the risk by conscious ignorance.
c. there was a mistake and the mistaken party was at fault in not discovering the problem before making the
contract.
d. None of these.
54. If untrue, which of the following would probably be considered a misrepresentation of a material fact?
a. “This is the one that I think is the best buy.”
b. “This is the best computer on the market.”
c. “This car has new brakes.”
d. “These tires will wear like iron.”
55. Which of the following is NOT an element of fraud?
a. Material misrepresentation
b. Competent parties
c. Knowledge of falsity
d. Justifiable reliance
56. A misrepresentation is material if:
a. it would likely induce a reasonable person to enter into a transaction.
b. it changes the price paid by the buyer.
c. it is made knowingly.
d. All of these.
57. Stewart entered into a contract with Will to have Will build a 10-unit apartment complex on Elm Street in Randolph
County. Unknown to both parties, this land had recently been rezoned and only single-unit dwellings can be
constructed.
a. This is a mistake of law.
b. This is a mutual mistake of fact.
c. Stewart is obligated to buy land elsewhere and have the complex constructed on property zoned for
apartments.
d. Will is liable to Stewart since Will is a contractor.
58. Steven has a typed copy of a contract, which he would like to have Thomas sign. Thomas, who needs glasses to
read typing, doesn’t want to sign until he has read the document, but Steven convinces Thomas to sign it anyway,
because it is a “standard” contract for this type of situation. Is the contract which Thomas signed binding upon him?
a. No, because he did not read it
b. No, because he entered into it based upon fraud in the execution
c. Yes, because he has made a unilateral mistake of law
d. Yes, because he was negligent in not ascertaining its contents
59. Albert found a stone in his yard and took it to Bob, a jeweler, for evaluation. Although Bob knew what the stone
was, he told Albert that he wasn’t sure as to the nature of the stone, but that he thought it was a topaz. Bob then
offered to buy the stone for $25 and Albert agreed. Later Albert found out the stone was an uncut diamond worth
about $700. The sale:
a. was a valid contract that should be enforced by the law.
b. can be voided based upon fraud in the execution.
c. can be voided based upon fraud in the inducement.
d. can be voided based upon mistake as to the identity of the subject matter.
60. Fred is a concert violinist who is scheduled to perform at Carnegie Hall for the first time. He buys what he is told is
a Stradivarius violin from a well-known, reputable dealer in quality violins, and he pays the going rate for a
Stradivarius. He later learns the violin is an imitation, although it is such a good imitation that even the dealer thought
it was authentic. In this case:
a. Fred has made a unilateral mistake and cannot avoid the contract.
b. the dealer has committed fraud in the inducement.
c. the sale is voidable by the purchaser for mutual mistake.
d. the sale is voidable, because the dealer has made a fraudulent misrepresentation.
61. Jill contracted to purchase Kevin’s automobile under the belief that she could sell it at a profit to Linda, but after Jill
bought the car, she found out that Linda isn‘t interested in buying it. Jill:
a. cannot void the contract with Kevin.
b. can rescind the agreement with Kevin.
c. could rescind the agreement with Kevin if she was mistaken in her estimate of the value of the auto.
d. can sue Linda for detrimental reliance.
62. Alex wants to submit a bid on a city sewer project. He computes the cost, but mistakenly omits the cost of one item.
Accordingly, he submits a bid of $430,000 to the city. The next highest bid is $675,000, and the rest of the bids are
even higher. The city is happy to have such a low bid, so it accepts Alex’s bid and awards him the contract for the
job, even though the city engineer is of the opinion the job cannot be done for less than $650,000. In this case:
a. Alex must perform for the agreed upon price because he has made a unilateral mistake.
b. the city was aware of or should have been aware of Alex’s mistake. When it accepted the bid with
knowledge of Alex’s mistake, the city sought to take an unconscionable advantage of Alex’s error.
c. the city must allow Alex to revise his bid to include the cost of the omitted item.
d. Alex will be paid the fair market price according to the UCC for his work.
63. Ralph sold a motel to Steve by stating that he had paid $250,000 for it and that his net average annual profit from the
business has been $40,000. In reality he paid $100,000 for the motel and has earned a net average annual profit of
only $30,000. Steve made no attempt to verify the statements until after the transaction was completed. In this case:
a. Ralph has committed fraudulent misrepresentation and the contract is voidable at Steve‘s option.
b. Steve is bound by the contract, because he failed to verify the statements which were made to him.
c. the contract is not voidable, but Steve may sue for damages.
d. the contract is automatically void.
64. Which of the following would be considered to be a misrepresentation of a material fact for purposes of establishing
fraud in the inducement?
a. A statement of judgment of value, such as “This is the best car in town for the money.”
b. “This style of jacket is going to be the most popular style next year.”
c. “This car has a new radiator.”
d. “In my opinion, this is the best buy for the money.”
65. The State of Florida enters into a contract with Treasure Salvors governing the salvage of a Spanish galleon that
sunk in the 1600s. Under the terms of the contract, the salvagers agree to relinquish 25% of the items recovered to
the State of Florida in return for the right to salvage on state lands. At the time the parties enter into the contract,
they both believe that the seabed where the ship lies is state land. Subsequently, the United States Supreme Court
holds that the continental shelf on which the ship rests has never been owned by Florida. The salvagers sue to
rescind the contract. The contract:
a. cannot be rescinded.
b. should be avoided because the parties made a mutual mistake.
c. should be enforced because, although there is a mutual mistake, it is not material.
d. will be enforceable because the United States government will automatically step into the shoes of the State
of Florida.
66. Which of the following need NOT be proved in order to establish the defense of economic duress?
a. That one side involuntarily accepted the terms of another.
b. That circumstances permitted no other alternative.
c. That one party explicitly made an economic threat.
d. That the circumstances leading up to the contract were the result of coercive threats or acts of the opposite
party.
67. Which of the following can meet the scienter requirement to establish fraud in the inducement?
a. Actual knowledge
b. Lack of belief in the statement‘s truthfulness
c. Reckless indifference as to a statement’s truthfulness
d. All of these meet the requirement.
68. Actionable fraud would be likely to be based on falsity of:
a. a car owner’s statement that, “This car is the best buy you will find.”
b. a realtor’s statement that, “The contractor used 25-year warranted shingles on the roof.”
c. an art dealer’s statement that, “This painting will increase in value.”
d. a stockbroker’s statement that, “This stock should double in price within six months.”
69. Answer the following:
a. What are the two types of fraud and what is the effect of each on the contract involved?
b. Give an example of each type of fraud.
c. What elements need to be proved to establish each type of fraud?
70. Give an example of each of the following:
a. Unilateral mistake
b. Mistake in the meaning of a contract term.
71.
a. What are the two types of duress and what is the effect of each on the contract involved?
b. Give an example of each type of duress.
c. Who does the law intend to protect by reason of the defense of duress? Why does the law
protect this type of person?
72. Define “mistake,” “mutual mistake,” and “unilateral mistake.” Explain how the law treats mutual and unilateral
mistakes.
73. Define undue influence and name some of the relationships that would be affected.
74. Define fiduciary and discuss its effect on a contract.
75. Name the two types of nonfraudulent misrepresentation. Identify the remedies that may be available.