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Exam 15: Mistakes Fraud and Voluntary Consent

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Question 1

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Open Range agrees to sell Pinewood Ranch a remote parcel of land for $15,000. Both parties believe the land to be worthless, but beneath it is shale rock containing oil. A court would

A) not rescind the contract.
B) rescind the contract on the basis of a mistake of quality.
C) rescind the contract on the basis of a mistake of value.
D) rescind the contract on the basis of a mistake of opinion.

E) B) and D)
F) B) and C)

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Question 2

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Health Source Inc. offers to buy Medico Supplies Corporation. On June 1, Medico gives Health Source copies of Medico's financial statements for the previous year. The statements show an inventory of $10 million. On June 15, Medico discovers that the previous year's inventory is overstated by $500,000, but does not inform Health Source. On July 1, Health Source, relying on the financial statements, buys Medico. On July 10, Health Source discovers the inventory overstatement. Can Health Source succeed in a suit against Medico? Explain.

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Yes, Health Source can succeed in a suit...

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Question 3

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Nero is an elderly man who lives with his nephew Mervyn. Nero is dependent on Mervyn for support. Mervyn advises Nero to "invest" in Mervyn's "professional gambling" venture, or Mervyn will no longer support him. Nero liquidates his other investments and signs a contract with Mervyn, to whom Nero gives the funds. Can Nero set aside this contract?

An otherwise valid contract is enforceable even if the parties have not genuinely agreed to its terms.

Beryl enters into a contract with Clay for a guided tour of Deep Canyon. Clay represents that he is an experienced, knowledgeable guide, when in reality he has never been in the canyon. Most likely, Beryl

The first element of proving fraud is to show that the innocent party is not easily fooled.

Voluntary consent to a contract is not lacking if one of the parties is mistaken about an important fact concerning the subject matter of the bargain.

Mary owns two all-terrain vehicles (ATVs) , worth $1,000 and $500, respectively. Neil enters into a contract to buy "Mary's ATV" for $750. Mary believes, in good faith, that she is selling the $500 ATV. Neil believes, in good faith, that he is buying the $1,000 ATV. In this situation

Dim threatens physical harm to force Eb to sell his Flower Shop to Dim for a below-market price. This is

Because value is variable, mistakes of value affect the enforceability of contracts.

The party on whom duress is exerted can choose to avoid the entire transaction.

Eugene, an accountant, convinces his client Faye to enter into a contract to invest her savings in Gathering, a non-existent social media site. There is clear and convincing evidence that Faye did not act out of her free will. This is

Fess convinces Gwyn to enter into a contract for the purchase of a Falafel Waffle Food Cart by knowingly misrepresenting a number of material features about the facility and the business. Most likely, Gwyn can rescind the contract on the basis of

Reliance on a misrepresentation is justified even if the innocent party knows the true facts.

In general, a person should not rely on a non-lawyer's statement about a point of law.

For purposes of fraudulent misrepresentation, scienter clearly exists if a party asserting a fact knows it is not as stated.

Alvin induces Beth to enter into a contract for the purchase of a Chef's Burger restaurant. Alvin knowingly misrepresents a number of material features about the restaurant and the business. When Beth discovers the truth, she can rescind the contract on the basis of

The distinction between "seller's talk" and facts allows sellers to tout their products and services, thereby creating potential liability for fraud.

Ordinarily, every party to a contract has a duty to come forward and disclose facts.

Undue influence can arise from a confidential relationship or a relationship based on trust.