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1
Chapter 15
Mistakes, Fraud, and
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
B1. A material fact is a fact that a reasonable person would consider important
when determining his or her course of action.
B2. Voluntary consent may be lacking because of misrepresentation but not
because of a mistake.
B3. A unilateral mistake is a mistake made by both parties to a contract.
B4. Generally, a unilateral mistake affords the mistaken party a right to relief from
the contract.
2 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B5. Words or terms in contracts that are subject to more than one reasonable
interpretation can lead to bilateral mistakes.
B6. Any party who does not receive what he or she considers a fair bargain can
argue mistake.
B7. An innocent party can rescind a fraudulent contract and be restored to his or
her original position.
B8. To recover for fraud, a plaintiff must be twenty-one or more years of age.
B9. Courts typically set aside contracts because a party did not volunteer pertinent
information.
B10. Misrepresentation of a material fact cannot occur through conduct alone.
B11. Misrepresentation can occur by words or actions, but not by silence.
B12. Scienter clearly exists if a party knows a fact is not as stated.
CHAPTER 15: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 3
B13. A negligent misrepresentation is not a basis for rescinding a contract.
B14. The element of justifiable reliance requires the misrepresentation to be the sole
factor in inducing the deceived party to enter into the contract.
B15. Because fraud actions necessarily involve wrongful conduct, courts may award
punitive damages.
B16. An innocent party does not need to suffer an injury to collect damages as a
result of a misrepresentation.
B17. Duress is a defense to the enforcement of a contract, but not a ground for
rescission of a contract.
B18. When the dominant party in a fiduciary relationship benefits from that
relationship, a presumption of undue influence arises.
B19. In some states, the courts prefer to rely on traditional notions of fraud, undue
influence, and duress rather than the concept of unconscionability.
B20. Many courts have broadened the concept of unconscionability to apply it in
situations other than sales of goods.
4 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
MULTIPLE CHOICE QUESTIONS
Fact Pattern 15-B1 (Questions B1-B2 apply)
Digital Storage, Inc., offers to sell provide cloud-computing services to Entrepreneur
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.
B1. Refer to Fact Pattern 15-B1. 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.
B2. Refer to Fact Pattern 15-B1. 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.
Fact Pattern 15-B2 (Questions B3–B4 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.
B3. Refer to Fact Pattern 15-B2. Because of the parties’ belief about the adjacency
of the property, their contract is
CHAPTER 15: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 5
a. unavoidable.
b. unconscionable.
c. unenforceable.
d. voidable.
B4. Refer to Fact Pattern 15-B2. The parties’ belief about the adjacency of the
property is
a. a bilateral mistake.
b. a fraudulent misrepresentation.
c. a unilateral mistake.
d. unconscionable.
B5. Nora enters into a contract with Oceanic Transport, Inc., to insure and ship a
painting from France to the United States for a certain price. But Oceanic
makes a mistake in adding the costs, which results in a contract price that is
$1,000 less than the true cost. Most likely, a court would
a. allow the parties to rescind the contract.
b. award damages to Nora for the mistake.
c. award damages to Oceanic for the mistake.
d. enforce the contract as is.
B6. 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.
6 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B7. 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.
B8. 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. Byron 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.
B9. 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.
B10. 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.
CHAPTER 15: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 7
b. fraudulent.
c. an opinion.
d. an attempt at undue influence.
B11. Ray buys a rural vineyard from Sergio, who claims that it would be a prime site
for a housing subdivision. Ray later learns that the law does not permit the land
to be used for housing. Ray may
a. not rescind the contract.
b. rescind the contract only if Ray did not know the law before the deal.
c. rescind the contract only if Sergio knew about the law before the deal.
d. rescind the contract only if the law is not common knowledge.
B12. Camille, a tennis pro, convinces Dante, who has no athletic ability, that he has
considerable skill and induces him to pay Camille $1,000 for tennis lessons.
When Dante realizes the truth, he files a suit against Camille. Dante is most
likely to recover on the basis of
a. opinion.
b. fraud.
c. unconscionability.
d. none of the choices.
B13. 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. unconscionability.
b. fraud.
c. mistake.
d. nothing.
8 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
Fact Pattern 15-B3 (Questions B14–B15 apply)
In selling a commercial building, Birdie tells Colt that the property has a certain
capacity, making it suitable for a nightclub. Birdie knows nothing about the capacity of
the building, but it is not as she specifies. Colt buys the building.
B14. Refer to Fact Pattern 15-B3. Under these circumstances, Colt’s best course of
action is most likely to
a. scam Birdie.
b. induce Birdie to give him the commission on her next sale.
c. recover damages or rescind the contract to buy the building.
d. sabotage Birdie’s career with bad publicity.
B15. Refer to Fact Pattern 15-B3. On learning the truth, Colt confronts Birdie, who
says she was not trying to fool him—she was only trying to make a sale. This is
a. a mistake of value.
b. a valid defense to a charge of fraud.
c. negligent misrepresentation.
d. unconscionable.
B16. 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 unconscionability.
B17. 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
CHAPTER 15: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 9
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.
B18. 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.
B19. ApartmentsRUs, a property management firm, presents a standard-form lease
for an apartment to Barnaby, a potential tenant. ApartmentsRUs does not
pressure Barnaby to sign the lease, but offers it on a take-it-or-leave-it basis.
Barnaby signs the lease, but later wants to withdraw from the contract. He is
most likely to avoid enforcement of the lease on the ground of
a. economic duress.
b. undue influence.
c. unconscionability.
d. mistake.
B20. Raven, the owner of Strawberry Fields, contracts to sell its harvest to Tender
Fruits, Inc. When Raven refuses to perform, Tender Fruits files a suit to enforce
the contract. Raven and Tender Fruits are in a state that does not recognize
the doctrine of unconscionability. To defend successfully against enforcement
of the contract on similar grounds, Raven might rely on traditional notions of
a. fraud.
10 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
b. materiality.
c. mistake.
d. value.
ESSAY QUESTIONS
B1. Niles, an accountant, certifies several audit reports on Optimal Operational
Processes, Inc., Niles’s client, knowing that the company intends to use the
reports to borrow money from Prime Business Lending Company to buy new
equipment. Niles believes that the reports are true and does not intend to
deceive Prime Business, but does not check the reports before certifying them.
Can Niles be held liable to Prime Business?
B2. Floramaria is an elderly woman who lives with her niece Galaxy. Floramaria is
dependent on Galaxy for support. Galaxy advises Floramaria to “invest” in
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?
CHAPTER 15: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 11
