Chapter 12
Voluntary Consent
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. Voluntary consent may be lacking because of misrepresentation but not
because of a mistake.
2. A material fact is a fact that a reasonable person would consider important
when determining his or her course of action.
3. Any party who does not receive what he or she considers a fair bargain can
argue mistake.
4. A contract is sometimes voidable if one party is aware that the other party
made a mistake of fact.
5. A unilateral mistake is a mistake made by both parties to a contract.
6. A unilateral mistake always gives the mistaken party a right to relief from the
contract.
7. For a party to a contract to receive relief from either a unilateral or a bilateral
mistake, the mistake must involve a material fact.
8. Often, when both parties to a contract are mistaken as to the same material
fact, either party can rescind the contract.
9. Words or terms in contracts that are subject to more than one reasonable
interpretation can lead to bilateral mistakes.
10. A mistake in value will rarely enable a party to a contract to avoid the contract.
11. If a contractor’s bid contains a mistake in addition when totaling the estimated
costs, the contract may not be enforceable.
12. An innocent party may never rescind a fraudulent contract.
CHAPTER 12: VOLUNTARY CONSENT 3
13. An innocent party does not need to suffer an injury to collect damages as a
result of a misrepresentation.
14. An innocent party can enforce a fraudulent contract and seek damages for any
harm resulting from the fraud.
15. Misrepresentation of a material fact is an element of fraud.
16. Misrepresentation can occur through conduct.
17. A false statement by an expert to a naive buyer usually will entitle the buyer to
rescind or reform a contract.
18. A fact is objective and verifiable.
19. When a naïve purchaser relies on an opinion from an expert, the innocent party
is not entitled to rescission or reformation.
20. Misrepresentation of law ordinarily entitles a party to relief from a contract.
21. Misrepresentation of a material fact can occur by words or action.
22. Misrepresentation of a material fact cannot occur through conduct alone.
23. Misrepresentation can occur by words or actions, but not by silence.
24. A seller’s failure to disclose a serious defect about a product for sale may give
rise to an action for fraud.
25. Scienter exists if a party makes a statement that he or she believes to be
scientifically verifiable.
26. A deceived person must have a justifiable reason for relying on a
misrepresentation.
27. Intent to deceive is an element of fraud.
28. Reliance on a misrepresentation is justified if the misrepresentation is an
obviously extravagant statement.
29. A contract entered into under undue influence is voidable.
30. Duress is a defense to the enforcement of a contract, but not a ground for
rescission of a contract.
31. The use of threats to force a party to enter into a contract is undue influence.
32. Most courts require a showing of injury when an action is to rescind a contract
for fraud.
33. The use of threats to force a party to enter into a contract is duress.
34. Because fraud actions necessarily involve wrongful conduct, courts may award
punitive damages.
35. When the dominant party in a fiduciary relationship benefits from that
relationship, a presumption of undue influence arises.
MULTIPLE CHOICE QUESTIONS
1. Garth owns two all-terrain vehicles (ATVs), worth $1,000 and $500, respec-
tively. Helen agrees to buy “Garth’s ATV” for $750. Garth believes, in good
faith, that he is selling the $500 ATV. Helen believes, in good faith, that she is
buying the $1,000 ATV. In this situation
a. Garth is entitled to $750 for the $500 ATV.
b. Helen is entitled to the $1,000 ATV for $750.
c. Helen must buy both ATVs for $1,500.
d. there is no contract.
2. Katie and Linda enter into a contract for Katie to buy Linda’s house in which
there are several terms that are subject to more than one reasonable
interpretation. If Katie and Linda attach materially different meanings to a term
a. only Katie will be able to void the contract.
b. only Linda will be able to void the contract.
c. neither Katie nor Linda will be able to void the contract.
d. either Katie or Linda will be able to void the contract.
3. Byron agrees to sell to Charity, for $1,500, a remote parcel of land. They be-
lieve the land to be worthless, but beneath it is a gold mine. A court would
a. cancel the contract due to Byron’s failure to know the land’s value.
b. cancel the contract due to Charity’s failure to know the land’s price.
c. cancel the contract due to the difference between the contract price and
the market price.
d. enforce the contract.
4. Kathleen sells Richard a racehorse for $1,000. Both Kathleen and Richard
think that the horse is too slow to win any races. Richard then enters the horse
in a race, and it wins easily. He enters it in more races, and the horse soon
wins more than $1 million. Kathleen tries to rescind the contract to sell the
horse, claiming that it was worth more than $1,000. A court will
a. cancel the contract due to Kathleen’s failure to know the horse’s value.
b. cancel the contract due to Richard’s failure to know the horse’s price.
c. cancel the contract due to the difference between the contract price and
the horse’s true value.
d. enforce the contract.
5. Jane and Phil enter into a contract, but make a bilateral mistake. For the
contract to be rescinded by either party, the bilateral mistake must be about
a. a material fact.
b. value.
c. an opinion.
d. a prediction.
6. In La Junta, Carlos and Alvaro contract for the sale of five hundred head of
Carlos’s cattle for $95 per head. Unknown to either party, a unforeseen storm
has struck the herd and many of the cattle have died. Alvaro is
8 UNIT TWO: CONTRACTS
a. entitled to recover the value of the lost cattle.
b. not required to pay due to the bilateral mistake.
c. not required to pay due to the unilateral mistake.
d. required to pay because he assumed the risk the cattle might die.
Fact Pattern 12–1 (Questions 7–9 apply)
Lewis, an employee of Silos, Inc., makes a substantial mathematical error in totaling
the estimated costs for a project for which AgriCo-op is seeking bids. Consequently,
Silos’s bid is significantly low.
7. Refer to Fact Pattern 12–1. Any contract with AgriCo-op that includes the
mistake may be rescinded
a. if AgriCo-op knew or should have known of the mistake.
b. if Lewis’s supervisor did not know of the mistake.
c. if Silos knew or should have known of the mistake.
d. under no circumstances.
8. Refer to Fact Pattern 12–1. Any contract with AgriCo-op that includes the
mistake may be rescinded
a. if the error was made inadvertently and without gross negligence.
b. if the error was made intentionally or negligently.
c. if the error was made intelligently but distractedly.
d. under no circumstances.
9. Refer to Fact Pattern 12–1. Any contract with AgriCo-op that includes the
mistake may be rescinded
a. if the mistake involves a material fact.
b. if the mistake involves any fact.
c. if the mistake is one of value or quality.
d. under no circumstances.
10. Dwight believes that a new phone to be sold by Ear Sonic Corporation will
become the most widely bought and used phone in the global market. Dwight
enters into a contract to buy 500 shares of Ear Sonic stock, anticipating an
increase in its value. If the price of the stock does not rise, Dwight can recover
a. nothing.
b. the amount of the purchase price.
c. the amount of the purchase price plus the expected increase.
d. the amount of the purchase price plus the unexpected decrease.
10 UNIT TWO: CONTRACTS
Fact Pattern 12-2 (Questions 11–12 apply)
Organic Farms Company contracts to buy two tracts of land from Prime Bottomland,
Inc. Both parties believe that the two tracts are adjacent, but in fact they are not.
Prime Bottomland is still willing to sell the land, but under these circumstances the
deal would adversely affect Organic Farms.
11. Refer to Fact Pattern 12–2. The parties’ belief about the adjacency of the
property is
a. a bilateral mistake.
b. a fraudulent misrepresentation.
c. a unilateral mistake.
d. unconscionable.
12. Refer to Fact Pattern 12-2. Because of the parties’ belief about the adjacency
of the property, their contract is
a. unavoidable.
b. unconscionable.
c. unenforceable.
d. voidable.
13. At an auction for the first time, Dulcinea bids on a one-hundred-year-old
Edison-brand phonograph, believing that it is worth more than the price asked.
When the item proves to be less valuable, Dulcinea is
a. liable on the bid.
b. not liable on the bid because Dulcinea overestimated the value of the
auctioned item.
c. not liable on the bid because the auctioneer overstated the value of the
auctioned item.
d. not liable on the bid because this was Dulcinea’s first auction.
Fact Pattern 12-3 (Questions 14–15 apply)
Digital Storage, Inc., offers to sell provide cloud-computing services to Entrepreneur
CHAPTER 12: VOLUNTARY CONSENT 11
Enterprises, Inc., but mistakenly transposes some of the digits in the price so that
$15,400 appears in the offer as $14,500. Entrepreneur Enterprises accepts the written
offer.
14. Refer to Fact Pattern 12-3. Entrepreneur Enterprises’ best argument in favor of
enforcement of the contract is that
a. a bilateral mistake does not afford relief from a contract.
b. a mistake of value does not afford relief from a contract.
c. a unilateral mistake does not afford relief from a contract.
d. the price was below the prices of comparable devices.
15. Refer to Fact Pattern 12-3. Digital Storage’s best defense against enforcement
of the contract is that Entrepreneur Enterprises knew
a. a bilateral mistake supports the cancellation of a contract.
b. a mistake of value supports the cancellation of a contract.
c. a unilateral mistake supports the cancellation of a contract.
d. the price was below the prices of comparable devices.
16. Phoebe enters into a contract with Everest for a guided tour of Whitewater
Canyon. Everest acts as though he is an experienced, knowledgeable guide,
when in reality he has never been in the canyon. Phoebe is most likely a victim
of
a. undue influence.
b. fraud.
c. mistake.
d. nothing.
17. Pete, an accountant, convinces his client Kasey to invest her savings in a
nonexistent social-networking Web site. When Kasey learns the truth, she can
a. seek to void the contract on the ground of undue influence.
b. recover damages based on a claim of mistake of value.
12 UNIT TWO: CONTRACTS
c. rescind the contract to invest in the Web site.
d. seek to void the contract on the ground of unconscionability.
18. James is in an art gallery when Mitch, who has no special art expertise, points
to a painting and says, “That artist is so good. That piece will be worth a fortune
in a few years!” James buys the painting, which does not turn out to be
valuable. James tries to return the painting and recover his purchase price. A
court will
a. order the art gallery to pay James the full purchase price.
b. order Mitch to pay James the full purchase price.
c. enforce the contract between James and the art gallery.
d. enforce the contract between James and the art gallery, but order Mitch
to pay James the full purchase price.
19. Andy knows nothing about horses. Peter, an expert horse trainer, knows that a
certain horse has no talent and is not likely to win any competitions. Peter
convinces Andy to buy the horse for $500,000 by assuring him that it has great
talent. The horse turns out to have no talent and never wins any competitions.
Andy can most likely recover damages based on
a. fraud.
b. mistake.
c. undue influence.
d. none of the choices.
20. Barb, a real estate agent, is showing John a house. She tells him that this is a
house where “his family can live happily ever after.” John buys the house, but
his wife does not like it. John
a. can rescind the contract on the ground of fraud.
b. can rescind the contract on the ground of misrepresentation.
c. can rescind the contract on the ground of mistake.
d. was not defrauded.
CHAPTER 12: VOLUNTARY CONSENT 13
21. Garland induces Jules to enter into a contract for the purchase of a Chef’s
Burger House restaurant. Garland knowingly misrepresents a number of
material features about the restaurant and the business. When Jules discovers
the truth, he can
a. not rescind the contract because Jules assumed the risk that the bargain
would prove to be different from what he thought.
b. rescind the contract on the basis of fraud.
c. rescind the contract on the basis of mistake.
d. rescind the contract on the basis of undue influence.
22. In selling a 300-acre farm to Rural Land Investments, Inc., Simone tells the
buyer’s representative that the land “will be worth twice as much by next year.”
This is
a. undue influence.
b. fraud.
c. a mistake.
d. an opinion.
23. Winona enters into a contract with Peyton to buy Peyton’s land based on
Peyton’s assertion that the land is legally open to development. After the sale,
Winona learns what Peyton knew previously—only a small section of the land
can be built on. A local law prohibits construction on the rest of the property.
Winona can
a. not avoid the contract because persons are assumed to know the law.
b. avoid the contract due to a mutual mistake.
c. avoid the contract due to a mistake in value.
d. avoid the contract due to fraud.
24. Creighton applies to BigData Corporation for a position as a software engineer.
Creighton has no training in computers or programming and no background as
an engineer. After Creighton is hired, BigData learns the truth. BigData can
a. not rescind the contract.
b. rescind the contract on the basis of fraud.
c. rescind the contract on the basis of mistake.
d. rescind the contract on the basis of undue influence.
25. Kari, a real estate agent, assures Linc that a certain parcel of commercial
property fronts on the most highly trafficked street in Metro City. Linc buys the
property and then discovers that the street has no more traffic than any other in
its vicinity. Linc is most likely a victim of
a. opinion.
b. fraud.
c. mistake.
d. nothing.
26. In a bike shop, Barrie, who is not knowledgeable about bikes, overhears Cullen
say, “This bike could win any race!” Barrie buys the bike, but does not win any
races with it. Cullen’s statement is
a. a mistake.
b. fraudulent.
c. an opinion.
d. an attempt at undue influence.
27. Gene sells a trail bike to Hollis without disclosing that the odometer, which
reads 10,000 miles, was disconnected 90,000 miles ago. Gene is most likely
liable for
a. undue influence.
b. fraud.
c. mistake.
CHAPTER 12: VOLUNTARY CONSENT 15
d. nothing.
28. Mark fails to reveal a material fact in a business deal with Nancy. This
constitutes fraud
a. if Mark is unaware of the fact and the failure.
b. if the amount of consideration received is grossly inadequate.
c. if the fact concerns a serious defect known to Mark and unlikely to be
known by Nancy.
d. under any circumstances.
29. Beau sells a 1940 Ford pick-up truck car to Cody without disclosing that he had
originally planned to restore the truck but changed his mind because of the
cost. Beau is liable for
a. opinion.
b. fraud.
c. mistake.
d. nothing.
30. Scienter exists if
a. Martin knows that the transmission on his truck is defective, but does not
tell this fact to potential buyers.
b. The racehorse that Karen is trying to sell has a genetic defect, but Karen
does not know about the defect, and so she does not warn potential
buyers.
c. Jake, a real estate agent, tells a client that he has a house that “will
make all her dreams come true.”
d. Jon forces Bill to sign a contract to sell Jon a car below market value.
31. Seth offers to buy a house from Tia for less than Tia paid for it, stating that he
would “hate to see anything bad happen to Tia or her house.” Tia agrees to
sell. Regarding this agreement, a court would likely
a. enforce it.
b. not enforce it.
c. reform it to reflect the true market value of the property.
d. order the parties to renegotiate the price.
32. Lou uses undue influence to induce Mona to sign a contract to invest her
student loan funds in National Overseas Bank. Mona may
a. avoid the contract or choose to carry it out.
b. do nothing once she has signed the contract.
c. recover from her lender for a failure to influence her “due.”
d. recover from the bank for a failure to undo Lou’s influence.
33. Mona is induced by her guardian Newt to sign a contract to invest her student
loan funds in Overseas Bank through Newt’s investment firm. Unknown to
Mona, Newt realizes ongoing commissions from the investment. Most likely,
Mona may
a. not rescind the contract.
b. rescind the contract on the basis of undue influence.
c. rescind the contract on the basis of mistake.
d. rescind the contract on the basis of opinion.
34. Drake enters into a contract with Eve, who claims to have access to a stock–
trading algorithm that will multiply an investment many times over. When the
results do not match this promise, Drake learns that Eve does not have access
to any unique software and files a suit against her, alleging fraud. Proof of an
injury is required to
a. recover damages.
b. rescind the contract.
c. undo Eve’s influence.
d. punish the defendant.
35. Dumont threatens physical harm to force Eddie to sell his business, Citywide
Vending, Inc., to Dumont for a below-market price. This is
a. duress.
b. fraud.
c. a unilateral mistake.
d. undue influence.
ESSAY QUESTIONS
1. Multi Investments, Inc., offers to buy Nano Toy Corporation. On May 1, Nano
provides copies of its financial statements for the previous year, showing an
inventory of $10 million. On May 15, Nano discovers that the previous year’s
inventory is overstated by $5 million, but does not inform Multi. On June 1,
Multi, relying on the financial statements, buys Nano. On June 10, the buyer
discovers the inventory overstatement. Can Multi succeed in a suit against
Nano for fraud?
2. Floramaria is an elderly woman who lives with her niece Galaxy. Floramaria is
dependent on Galaxy for support. Galaxy advises Floramaria to “invest” in
CHAPTER 12: VOLUNTARY CONSENT 19
Galaxy’s “professional gambling” venture, or Galaxy will no longer support her.
Floramaria liquidates her other investments and signs a contract with Galaxy,
to whom Floramaria gives the funds. Can Floramaria set aside this contract?