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Business Law Chapter 15 Homework Granos Argument Will Prevail Lastly The Issue

Page Count
9 pages
Word Count
4913 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
1
CHAPTER 15
MISTAKES, FRAUD, AND VOLUNTARY CONSENT
ANSWER TO CRITICAL THINKING QUESTION
IN THE FEATURE
ETHICS TODAYCRITICAL THINKING
What might happen if arbitration clauses were prohibited in all consumer contracts?
Certainly there would be more litigation and more class-action litigation. Some consumers
would find themselves better off. In contrast, others might find that their credit card fees,
banking fees, and cellphone contracts would increase in price because of additional litigation
costs for the corporations providing those services.
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 15.1CRITICAL THINKING
LEGAL ENVIRONMENT
The statute at the center of this case provides for remedies that may not be available at
common law. Why would those additional remedies be sought and when would they
most likely be awarded? The statute at the center of the Schneiderman caseNew York
Executive Law Section 63(12)provides that “the attorney general may apply * * * to the
supreme court of the state of New York * * * for an order enjoining the continuance of such
business activity or of any fraudulent or illegal acts and directing restitution and damages * * *
and the court may award [such] relief * * * as it may deem proper.” In contrast, at common law,
relief is normally limited to rescission of a contract and, in cases of proven injury, damages.
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WHAT IF THE FACTS WERE DIFFERENT?
Suppose that Trump University, or Trump Entrepreneur Initiative, had offered courses in
real estate investing only online. Would the result in this case have been different?
Explain. No, it is not likely that the result in the Schneiderman case would have been different if
Trump University, or Trump Entrepreneur Initiative, had offered its courses in real estate
investing only online. This is of course assuming that the facts would otherwise be the same.
CASE 15.2LEGAL REASONING QUESTIONS
1A. In evaluating a claim of fraud, what factors does a court consider in determining
whether reliance was justifiable? In the Cronkelton case, the court states in its opinion,
When determining whether reliance is justifiable courts consider the various circumstances
involved, such as the nature of the transaction, the form and materiality of the transaction, the
form and materiality of the representation, the relationship of the parties, the respective
intelligence, experience, age, and mental and physical condition of the parties, and their
respective knowledge and means of knowledge.”
2A. In this case, what did the jury find with respect to the plaintiff’s claim of reliance?
What was the appellate court’s opinion of this finding? In the Cronkelton case, the jury
found that Cronkelton reasonably relied on Shivley's representations. On appeal, a state
CHAPTER 15: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 3
3A. Did Shively’s misrepresentations rise to the level of fraud? Explain. Yes. Shivley's
misrepresentations to Cronkelton that he had taken the appropriate steps to winterize the
property rose to the level of fraud. The elements of fraud are (1) the misrepresentation of a
material fact, (2) an intent to deceive, (3) an innocent party’s justifiable reliance on the
misrepresentation, and (4) to collect damages, the innocent party must have been harmed as a
result of the misrepresentation.
CASE 15.3CRITICAL THINKING
ETHICAL
Was Cypress’s conduct unethical? Why or why not? Cypress’s conduct was probably
unethical. In failing to provide all material information, Cypress intentionally deceived Fazio.
SOCIAL
What does the decision in this case suggest to sellers of commercial real estate and
others who engage in business negotiations? Of course the decision in this case
underscores the importance of dealing in business negotiations in honesty and good faith. The
decision suggests that no misconduct will go unpunished. Here, the defendant had engaged in
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ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Mistake
Yes, if both parties were ignorant of the fact of the structure, there may be grounds for
rescinding the contract. If there is a bilateral (mutual) mistake of material fact, such as structural
2A. Fraudulent misrepresentation
Anybody can file suit for anything; carrying the day in court is another matter. In the sale of an
old house, the buyer has an obligation to have it inspected by a professional. A seller may very
3A. Duty to disclose
Chelene appears to have lied because she said the house was in perfect condition and she
covered up a known problem. Chelene knew of the problem, lied about it, and covered it up.
4A. 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
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 of 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 the case of real property, buyers should pay for thorough
CHAPTER 15: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 5
Not everyone can be a quality expert. Caveat emptor has no place in the modern
consumer society. Products are just too complicated for the average consumer to know
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. In selling a house, Matt tells Ann that the wiring, fixtures, and appliances are of a
certain quality. Matt knows nothing about the quality, but it is not as specified. Ann buys
the house. On learning the true quality, Ann confronts Matt. He says he wasn’t trying to
fool her, he was only trying to make a sale. Can she rescind the deal? Why or why not?
Yes. Rescission may be granted on the basis of fraudulent misrepresentation. The elements of
2A. Elle, an accountant, certifies several audit reports to Flite Corporation, Elle’s client,
knowing that Flite intends to use the reports to obtain loans from Good Credit Company
(GCC). Elle believes that the reports are true and does not intend to deceive GCC, but
does not check the reports before certifying them. Can Elle be held liable to GCC? Why
or why not? Yes. The accountant may be liable on the ground of negligent misrepresentation.
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
15-1A. Undue influence
Undue influence arises from a relationship in which one party can, through unfair persuasion,
greatly influence or overcome the free will of another. Any contract entered into under
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15-2A. 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 misrepresentation. Statements of events to take place in the future or statements
of opinions are generally not treated as representations of fact. Therefore, even though the
prediction or opinion may turn out to be incorrect, a contract based on this type of statement
15-3A. Voluntary consent
(a) Simmons and Jenson have made a bilateral mistake. The issue is whether the
mistake involves the identity of the stone (quartz versus diamond) or the value of the stone ($10
versus $1,000). Because both parties were mistaken as to the true character of the subject
(b) A contract entered into through a threat of criminal prosecution is generally held to
CHAPTER 15: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 7
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
154A. Fraudulent misrepresentation
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.”
Esprit had promised to deliver pre-cut and pre-drilled logs that could be assembled quickly. It
155A. Fraudulent misrepresentation
Yes. Ordinarily, neither party to a contract has a duty to disclose facts about the object of their
deal. If a seller knows of a serious problem that a buyer cannot reasonably be expected to
discover, however, the seller has a duty to speak if the defect is latent and could not readily be
ascertained.
In this problem, Charter was aware of the linked drinking water and fire-suppression
lines. Despite Charter’s knowledge of this fact, it did not provide Northpoint as a potential buyer
with this information. This constituted a material misrepresentation as to the actual condition of
156A. Standard-form contracts
Desgro’s complaint was filed too late—the contract’s twelve-month limit was enforceable.
Standard-form contracts often contain fine-print provisions that shift a risk ordinarily borne by
one party to the other or otherwise impose limitations on claims and disputes. Many businesses
157A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWERFraudulent misrepresentation
Yes, the facts in this problem evidence fraud. There are three elements to fraud: (1) the
misrepresentation of a material fact, (2) an intent to deceive, and (3) an innocent party’s
justifiable reliance on the misrepresentation. To collect damages, the innocent party must suffer
an injury.
Here, Pervis represented to Pauley that no further commission would be paid by Osbrink.
This representation was false—despite Pervis’s statement to the contrary, Osbrink continued to
send payments to Pervis. Pervis knew the representation was false, as shown by the fact that
158A. Fraudulent misrepresentation
Yes, the facts in the circumstances described in this problem satisfy the requirements for cause
of action based on fraudulent misrepresentation. Those requirements generally include the
following: 1. The misrepresentation of a material fact.
3. An innocent party’s justifiable reliance on the misrepresentation.
4. An injury (to collect damages)
In this problem, Stibal averred in her book that she had been diagnosed with cancer and
had cured herself using a “self-discovered” healing method that she referred to as
ThetaHealing.” Stibal’s representation that she cured herself of cancer was false, however, and
she knew it. This is indicated by her medical records, which did not confirm a cancer diagnosis.
Stibal used this false representation to induce people to take her classes in ThetaHealing.
Among those who believed Stibal’s claim was Kara Alexander, who at presumably considerable
15-9A. A QUESTION OF ETHICSMistake
(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 fivein 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.”
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
The court reasoned, “[T]he appraisal inaccurately valued the property as a result of
appraiser error with respect to the size of the property and whether it could be subdivided. The
mistakes of the appraiser, made while acting on behalf of the seller, and the seller's subsequent
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ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
1510A. Fraudulent misrepresentation
(a) Yes, Rosenzweig could have committed fraud against Givens. 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. Rosenzweig
misrepresented to Givens, with whom he was romantically involved, that he was not married. Of
course, he knew that the truth was otherwise. This meets the first two requirements for a finding
(b) Yes, Rosenzweig’s conduct was deceitful. Rosenzweig certainly appears to have
suffered from some deficiencies of character and he likely would be subject to sanctions by the
state attorneys’ professional responsibility organization. But a desire to see a scoundrel
punished should not motivate the application of the legal principles in this, or any other, case.
(c) It might be possible to act ethically and still commit fraud. For example, if fraud
were committed in the service of an ethical duty or directed towards an ethical endsuch as

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