FYLSX Defenses to Contract Enforceability 3 — Questions and Answers
Question 1: A seller knowingly misrepresents that a car has never been in an accident. The buyer, who is an experienced mechanic, could easily detect signs of repair but does not inspect the car. The buyer later sues for fraud. Which element is most at issue?
- Whether the seller made a false statement of fact
- Whether the buyer's reliance was justifiable (Correct answer)
- Whether the seller intended to deceive the buyer
- Whether the misrepresentation was material
Correct answer: Whether the buyer's reliance was justifiable
Justifiable reliance may be negated if the party had the expertise and opportunity to discover the truth through reasonable inspection.
Question 2: Paul enters a contract to buy a business. The seller fails to disclose that the business is the subject of a pending government investigation. In most jurisdictions, the seller's silence constitutes actionable fraud if:
- The seller had a duty to disclose due to a confidential relationship or active concealment (Correct answer)
- The buyer failed to conduct adequate due diligence before signing
- The information was obtainable through public records
- The parties negotiated at arm's length
Correct answer: The seller had a duty to disclose due to a confidential relationship or active concealment
Non-disclosure constitutes fraud only when there is a duty to disclose, arising from a confidential relationship, partial disclosure making a statement misleading, or active concealment.
Question 3: A contract is formed under physical duress when one party signs only because the other party threatens imminent bodily harm. The legal effect on the contract is:
- The contract is void because consent was entirely absent (Correct answer)
- The contract is voidable at the option of the coerced party
- The contract is enforceable because a signature was obtained
- The contract is void only if the threat is carried out
Correct answer: The contract is void because consent was entirely absent
Physical duress involving a threat of imminent bodily harm negates consent entirely, rendering the contract void rather than merely voidable.
Question 4: Which of the following is NOT a required element of fraudulent misrepresentation as a defense to contract enforceability?
- A false representation of a material fact
- Intent by the misrepresenting party to induce reliance
- Actual and justifiable reliance by the other party
- Written communication of the misrepresentation (Correct answer)
Correct answer: Written communication of the misrepresentation
Fraudulent misrepresentation does not require a written statement; it can be made orally, through conduct, or by concealment.
Question 5: Tom signs a contract believing it to be a receipt, when it is actually a promissory note. The other party fraudulently misled him about the document's nature. Tom's defense is:
- Fraud in the inducement, making the contract voidable
- Fraud in the execution (factum), making the contract void (Correct answer)
- Mutual mistake, making the contract voidable
- Non est factum, making the contract unenforceable for lack of consideration
Correct answer: Fraud in the execution (factum), making the contract void
Fraud in the execution (fraud in the factum) occurs when a party is deceived about the very nature of the document being signed, rendering the contract void.
Question 6: A plaintiff claims she was induced to sign a contract based on the defendant's innocent (non-fraudulent) misrepresentation. Which remedy is available?
- Rescission of the contract only; no damages for the innocent misrepresentation (Correct answer)
- Compensatory and punitive damages
- Specific performance of the contract
- Reformation of the contract to reflect the truth
Correct answer: Rescission of the contract only; no damages for the innocent misrepresentation
An innocent misrepresentation entitles the misled party to rescind the contract but generally does not support an award of tort damages.
Question 7: Which contract is unenforceable due to illegality?
- A contract with a minor for the purchase of food and clothing
- A contract between two businesses to fix prices in violation of antitrust law (Correct answer)
- A contract to provide services at a price higher than the market rate
- A contract that requires a party to work overtime without additional pay
Correct answer: A contract between two businesses to fix prices in violation of antitrust law
Contracts whose purpose is to violate a statute, such as price-fixing in violation of antitrust law, are illegal and unenforceable as against public policy.
FYLSX Defenses to Contract Enforceability 3
A seller knowingly misrepresents that a car has never been in an accident.
The buyer, who is an experienced mechanic, could easily detect signs of repair but does not inspect the car.
The buyer later sues for fraud.
Which element is most at issue?