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CHAPTER 14
MISTAKES, FRAUD, AND
VOLUNTARY CONSENT
ANSWER TO CRITICAL ANALYSIS
QUESTION IN THE FEATURE
INSIGHT INTO ETHICS—CRITICAL THINKING—INSIGHT INTO THE LEGAL ENVIRONMENT (PAGE 282)
Why would an employer risk the possibility of a lawsuit by providing a prospective employee with false
information? It’s possible that when the information was provided to the prospective employee, the
employer actually believed it to be true. Another possibility is that the employer hoped that it would
become true. Finally, a callus employer might just assume that the prospective employee would not sue
if the information turned out to be incorrect.
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 14.1—QUESTIONS (PAGE 276)
THE ETHICAL DIMENSION
If a Pride sales representative led the Inkels to believe the dealership did not care about the excessive
miles on the trade-in vehicle, should Pride be willing to incur the loss? Why or why not? If a sales
representative lies to a customer, the manager should be obliged to make good, within reason, and fire
the sales representative. But most dealerships that have bad reputations for dubious practices know
what is going on and the sales reps are not truly acting on their own.
WHAT IF THE FACTS WERE DIFFERENT?
120 UNIT THREE: CONTRACTS AND E-CONTRACTS
Suppose that the provision making the buyers responsible for any problems with the trade-in vehicle
was clearly visible on the face of the contract that the Inkels signed (rather than being in small print on
the back). How might this have changed the outcome of this case/? If the provision making the buyers
CASE 14.2—QUESTIONS (PAGE 280)
WHAT IF THE FACTS WERE DIFFERENT?
Suppose that the difference in the parties’ ages was reversed so that Rosenzweig was nineteen years
Givens’s junior. Should this affect the outcome in the case? Explain. In fact, Givens was twenty-nine at
the time of the transaction, and there was a dissent to the appellate court’s reversal of the summary
judgment that noted this. “I fail to see how the age difference furnishes grounds for excusing defendant
from obligations she freely undertook.” The dissent also pointed out that the defendant had “attended
college and does not claim to suffer from any disability.” A reversal of this situation should not affect the
outcome in this case more than the actual fact would.
THE ETHICAL DIMENSION
Could Rosenzweig be characterized as a scoundrel? If so, should this influence a decision in this case?
CASE 14.3—QUESTIONS (PAGE 281)
1A. Why was James arguing on appeal that intent to deceive was not a requirement for fraud? Given
that Waldrop had told James that he and Marguerite were married, when in fact they weren’t, couldn’t
intent to deceive be inferred? Discuss. Although the trial court’s decision was not published, one could
assume that Eaton did not have sufficient proof of what Waldrop’s intent or state of mind had been
when Waldrop told Eaton of the marriage. Waldrop might have argued that the statement concerning
the marriage was not made so that Eaton would deed Waldrop and Marguerite the property, and
2A. Recall from Chapter 1 that there are two types of remedies: equitable remedies and remedies at
law. Is rescission an equitable remedy or a remedy at law? Why is rescission an appropriate remedy in
CHAPTER 14: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 121
this case? At one time, the only remedies available were remedies at law (money damages). Because
there were cases in which money damages were seen as inadequate to remedy a problem, courts of
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Undue influence
Yes, Chelene was in a position of “trust” for years, which allowed her to take advantage of Marta for
personal gain. Marta made the deal on her own behalf. A buyer has some obligation to inspect property;
Chelene’s statements may reflect how she felt about the house, but any house more than 50 years old
will have problems, so Marta was negligent. Had the sale been to Janis, it would be worthy of more
inspection, as she was frail, did not need the house, and was in Chelene’s care. Undue influence could
arise there.
2A. Fraudulent misrepresentation
Anybody can file suit for anything; carrying the day in court is another matter. In the sale of an old
3A. Duty to disclose
Chelene appears to have lied because she said the house was in perfect condition and she covered up a
4A. Negligent misrepresentation
Chelene hid one problem but was not aware of the other, so may not be responsible for that one.
Chelene is likely responsible to Marta for defects she knew about and lied about or concealed. She might
not be liable for the structural problem, because she was ignorant about it. However, putting up the
paneling hid that defect, which otherwise might have been seen, so Chelene might face liability. The
court will decide which story is believable.
5A. Mistake
122 UNIT THREE: CONTRACTS AND E-CONTRACTS
CHAPTER 14: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 123
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE AT THE END OF THE
CHAPTER
The concept of caveat emptor (“let the buyer beware”) should be applied to all sales, including
those for real property. Buyers of personal and real property should take responsibility for obtaining
enough information about what they are buying so that they are not “surprised” after the purchase. In
ANSWERS TO QUESTIONS AND CASE PROBLEMS
AT THE END OF THE CHAPTER
14-1A. Undue influence
(Chapter 14—Page 283)
Undue influence arises from a relationship in which one party can, through unfair persuasion, greatly
14-2A. QUESTION WITH SAMPLE ANSWER: Fraudulent misrepresentation
Four basic elements are necessary to prove fraud, thus rendering a contract voidable: (1) an intent to
deceive, usually with knowledge of the falsity; (2) a misrepresentation of material facts; (3) a reliance by
the innocent party on the misrepresentation; and (4) usually damage or injury caused by the misrepre-
sentation. Statements of events to take place in the future or statements of opinions are generally not
124 UNIT THREE: CONTRACTS AND E-CONTRACTS
thus, one of the elements necessary to prove fraud—misrepresentation of facts—would be missing. The
statement that the motel netted $30,000 last year is a deliberate falsehood (with intent and knowledge).
Grano’s defense will be that the books in Tanner’s possession clearly indicated that the figure stated was
untrue, and therefore Tanner cannot be said to have purchased the motel in reliance on the falsehood.
If the innocent party, Tanner, knew the true facts, or should have known the true facts because they
14-3A. Voluntary consent
(Chapter 14—Pages 274–276 & 283–284)
(a) Simmons and Jenson have made a bilateral mistake. The issue is whether the mistake
14-4A. Negligent misrepresentation
(Chapter 14—Page 281)
The court entered a judgment against CCC on the negligent misrepresentation claim. CCC appealed to
the U.S. Court of Appeals for the Eighth Circuit, which affirmed this part of the lower court’s judgment.
The appellate court noted that “to find CCC liable for negligent misrepresentation,” the trial court “was
14-5A. Duress
(Chapter 14—Pages 283–284)
For duress to constitute a defense to a contract, there must have been a wrongful act or threat that
14-6A. CASE PROBLEM WITH SAMPLE ANSWER: Fraudulent misrepresentation
A jury returned a verdict against CCC and awarded Verni $20,000 in damages on his fraudulent
misrepresentation claim. On CCC’s motion for judgment notwithstanding the verdict, the court set aside
this verdict. Verni appealed to the Missouri Supreme Court, which affirmed the lower court’s judgment.
The state supreme court explained that “to prove fraudulent misrepresentation, the evidence must
establish the following elements: (1) the claim is a false, material representation; (2) the speaker knows
of its falsity; (3) the speaker intended that the statement should be acted upon by the hearer in a
So where is the contract in this case? Verni might have argued that CCC and he had a contract
that covered the events in this case, as set out in the student handbook, and, in effect, this may be
implied from what he did argue. He expressly contended that he was a third-party beneficiary of the
employment contract between CCC and Makarov. (Third-party contract beneficiaries are discussed in a
later chapter.) Verni alleged that Makarov violated the handbook’s requirement that faculty members
14–7A. Fraudulent misrepresentation
(Chapter 14—Pages 277–283)
Fraud requires (1) a misrepresentation of a material fact, (2) an intent to deceive, (3) an innocent party’s
justifiable reliance on the misrepresentation, and (4) the innocent party’s injury. Here, the evidence of
14–8A. Fraudulent misrepresentation
(Chapter 14—Pages 278–280)
The court determined that “a promise made without a present intent to perform is a misrepresentation
of a material fact and is sufficient to support a cause of action for fraud.” Fireside had promised to
14-9A. A QUESTION OF ETHICS: Mistake
(a) The court held that the contract was void due to mutual mistake and issued a judgment in
the defendant’s favor. The lower court determined, among other things, that a mutual mistake of fact
existed as to the divisibility of lot five—in other words, that the property was entitled to a free split.
BRJM appealed this ruling to a state intermediate appellate court, which reversed the lower
court’s judgment and remanded the case for a new trial. The appellate court explained that a mutual
mistake requires a mutual misunderstanding between the contracting parties as to a material fact and
“effects a result that neither intended.”
The court acknowledged that both parties were mistaken about the availability of a free split for
lot five. But the court reasoned that “this mistake was not material to their bargain. . . . [T]he necessity
of obtaining prior approval did not render the property incapable of being subdivided; rather, the only
Besides, “the fact that it was later determined that approval would be necessary in order to
subdivide the property adversely affected the plaintiff, as purchaser, not the defendant, as seller. The
defendant cannot seek to invalidate the agreement by asserting the defense of mutual mistake on this
basis because the defendant is not the party adversely affected by the mistake.”
(b) As noted in the answer to the previous question, the court held that the contract was
void due to mutual mistake and issued a judgment in the defendant’s favor. The court found in part the
existence of a mutual mistake in the parties’ reliance on an inaccurate appraisal that resulted in a below
market purchase price for the property.
On BRJM’s appeal, the state intermediate court reversed this judgment and remanded the case
for a new trial. The appellate court pointed out that “necessary for a finding of mutual mistake is that
both parties relied on the same mistaken information in entering into a contract.” In this case “the
mistake in establishing a below market purchase price for the property was a unilateral one made by
Engelsen, acting on behalf of the defendant, in reliance on the inaccurate appraisal.”
128 UNIT THREE: CONTRACTS AND E-CONTRACTS
ANSWER TO VIDEO QUESTION NO. 14–10
Mistake
(a) What kind of mistake is involved in the dispute shown in the video (mutual or unilat–
eral, mistake of fact or mistake of value)? This was a unilateral mistake of fact having to do with
the price of the peppers, not a mistake of value having to do with the quality of the peppers.
(b) According to the chapter, in what two situations would the supermarket be able to
rescind a contract to sell peppers to Melnick at the incorrectly advertised price? The general rule
is that unilateral mistake does not afford the mistaken party (the supermarket) any right to relief
from the contract. Under two exceptions to the rule discussed in the chapter, a contract may not
mathematical problem, as Vinny acknowledges that he submitted incorrect or illegible
information to the newspaper. The question, then, is whether Melnick knew or should have
known that the pepper price was a mistake.
(c) Does it matter if the price that was advertised was a reasonable price for the
peppers? Why or why not? Yes, probably. A court deciding the issue of whether Melnick knew or
supermarket was selling its peppers at a price that low (five percent of their cost).