Deck 9: Defective Agreements

Question 1

Under what circumstances will an innocent misrepresentation by a party cause a contract to be voidable?

Answer 1

While negotiating a contract one party might make a false statement about the facts with the belief that facts are true, even though they are false. This type of representation is known as Innocent Misrepresentation.
Court holds an innocent misrepresentation to be voidable when it was reasonable for the misled party to believe or rely on the innocent misrepresentation of the material facts of contract inducing him to enter in the contract , where made by another party.

Question 2

Orange County, New York, deeded two lots to Josclynne and Harriet Grier. At the time of the execution of the deeds, all the parties believed that Orange County owned the property. When it later turned out that the county did not own the lots, the county asked the court to vacate the deeds. How should the court rule on the case?

Answer 2

In this case, company O has committed fraud with two parties J and H. It is because company O has concealed the material fact that it did not own the property, which was sold to J and H as per the agreement.
The court will declare this agreement void and take all the necessary actions to put J and H under the condition as it was before the execution of the contract.

Question 3

When can a statement of opinion constitute fraud?

Answer 3

As a general rule, statement of opinion compared with statement of fact will not amount to fraud. But in the following circumstance statement of opinion will amount to fraud:
When a person giving an opinion has an expert knowledge of the subject matter which is not accessible by another party and he knows that the party relies on it. Then any misstatement in opinion that is made intentionally will amount to fraud.

Question 4

Kenneth Smith obtained a second home equity line of credit and forged the signature of his wife, Sue-Anna Smith, on the loan documents submitted to the bank. Several years later, Sue-Anna filed for divorce and alleged that the home equity loan was obtained through fraud. To resolve the divorce litigation, the state court entered a series of orders dividing the property and obligations of each party. The order included a provision that after 12 months, it would be Sue-Anna's responsibility to make payments on the home equity loan and sell the property, from which she would receive the proceeds. Sue-Anna made payments on the home equity loan after the 12-month period. She then contacted the bank and told them that the loan had been fraudulently obtained. The bank was unable to complete a fraud investigation, because Sue-Anna failed to provide a copy of the police report. The bank then offered Sue-Anna the opportunity to modify the terms of the loan, which she accepted. Despite her knowledge of the forgery, Sue-Anna signed the modification agreement and continued making payments as modified by the agreement. The modification agreement also listed Sue-Anna as the sole borrower. After declaring bankruptcy, Sue-Anna sought to invalidate the home equity loan contract on the grounds that her signature was fraudulently obtained. How should the court rule on this case?

Question 5

When does emotional duress occur?

Question 6

Elizabeth Young, an employee of Paper Converting Machine Company (PCMC), was severely injured while working on a machine made by PCMC, and PCMC learned about the accident. At the time, PCMC was self-insured. Several months later, PCMC was purchased by another company, and it bought a $2 million policy from Admiral Insurance Co. (Admiral). In applying for the policy, PCMC disclosed the Young accident to Admiral's underwriting department. When Young sued PCMC, the company notified Admiral's claims department. Thinking the policy might cover Young's injuries, Admiral participated in settlement negotiations and agreed to pay $2 million. Before sending the money, Admiral decided the policy did not cover that claim, because its policy excluded known claims, and the Young accident occurred prior to the policy being issued. Admiral said it would not pay unless PCMC reimbursed it. PCMC alleged that Admiral was bound by the settlement agreement. In the resulting lawsuit, Admiral claimed it was not bound by the agreement because of mistake of fact or mistake of law. Decide the case.

Question 7

A month before they were divorced, Margaret Janusz and Francis Gilliam entered into a property settlement agreement. The agreement provided that Gilliam would continue funding and maintain in effect his survivor's annuity through the federal Civil Service Retirement System. The annuity would pay a monthly amount to Janusz after Gilliam's death. Several years after the divorce, the federal Office of Personnel Management told Janusz that pursuant to federal law, she was not eligible for Gilliam's survivor benefits. Janusz sued to rescind the settlement agreement on the basis of mutual mistake of fact. Was the agreement rescinded?

Question 8

What does the determination of whether a mistake affects the validity of a contract normally depend on?

Question 9

When is a contract voidable because of undue influence?

Question 10

Randall Shanks was a successful attorney, and Teresa, his fiancée, was a secretary and office manager in his office. To preserve his assets for his children from a prior marriage, Randall suggested they sign a premarital agreement, and Teresa agreed. Randall drafted an agreement and gave it to Teresa ten days before their wedding. He responded to Teresa's questions about it, but he told her to get independent legal advice. Teresa consulted an attorney licensed in another state, who concluded the agreement would force Teresa to waive all rights as a spouse. She told Teresa to get advice from an attorney licensed in Teresa's state. Teresa returned the agreement to Randall and asked him to make some changes the attorney had suggested. Randall gave a revised agreement to Teresa and told her to review it with her attorney. Teresa did not seek further legal advice. Randall and Teresa signed the agreement and were married. The marriage failed, and when Randall asked for enforcement of the premarital agreement, Teresa alleged undue influence. Was there undue influence?

Question 11

Why should the victims of acts that make contracts voidable, such as duress or undue influence, take steps to protect their rights?

Question 12

When will courts allow a unilateral mistake of fact to impair the enforceability of a contract?

Question 13

While working, an ore bucket hit Henry Kruzich on the side of his face, causing a severe head injury. Old Republic Insurance Co. insured his employer's workers' compensation plan. It paid Kruzich total disability and medical benefits. Kruzich ultimately needed domiciliary care, so Old Republic started paying Henry's wife, Kathy, to stay at home and care for him. Six years after the accident, Henry and Old Republic signed a settlement agreement for $132,701 that ended "fully and forever... all present and future domiciliary care" benefits. Ten years later, Henry was diagnosed with Parkinson's disease, most likely from the accident. Henry sought rescission of the settlement agreement on the basis of mutual mistake of fact saying that at the time of the settlement, neither party knew there was any connection between head injuries and Parkinson's disease. Was the agreement rescinded?

Question 14

What is the effect when a contract specifies what is to happen in the case of a mistake?

Question 15

Paul Lietz worked for Hansen Law Offices. Hansen terminated Lietz, who then sued for breach of employment contract and unpaid wages. He asked for economic damages, double damages, costs, and attorney's fees. Hansen submitted an offer of judgment, saying it offered "to settle the claim against defendants at the present time in the amount of $7,500." Lietz responded by saying he "accepts Defendants' offer of judgment... in the amount of seven thousand five hundred dollars ($7,500)." Neither writing mentioned attorney's fees. Hansen sent Lietz a check for $7,500. He returned the check, saying he would seek attorney's fees since the law allowed such fees when an offer of judgment is made. Hansen said her attorney had made a mistake in drafting the offer of judgment. Should the court find the entry of judgment valid?

Question 16

How can buyers protect themselves from a mistake as to value or quality?

Question 17

State police suspected David Miller and Miller's Auto Body, Inc. of enhancing damages to vehicles and billing for damages not sustained in an attempt to get more money from insurance companies. The state Attorney General brought charges against Miller, but agreed to dismiss charges on the condition that Miller sign a settlement agreement; pay restitution to insurance carriers; and release the carriers from all claims, demands, and actions that Miller might have. With the counsel of an attorney, who drafted the release, Miller signed the settlement agreement. Fifteen months later, Miller filed suit against the insurance carriers named in the agreement. Miller claimed he was experiencing "severe financial and emotional distress" at the time he signed the agreement and felt he had "no other choice" but to sign. He argued it was signed under duress and voidable. Was he correct?

Question 18

Explain the difference between fraud in the inducement and fraud in the execution of a contract.

Question 19

Glen and Marlene Spitznogle purchased a parcel of land from Kevin and Krista Durbin. The land contract described the 138-acre property and excepted a small lot and house trailer from the purchase. At the time the parties executed the contract, the Durbins' interest in the land was subject to a reservation of oil and gas rights for the lifetime of each of the prior owners, the Scherichs. The Durbins owned a vested remainder interest in the oil and gas rights, which meant the oil and gas rights would be theirs after the Scherichs died. However, in the land sale contract to the Spitznogles, the Durbins did not except their remainder interest in the oil and gas rights. After the land contract was fully consummated, the Durbins attempted to except their interest to gas and oil rights in the land. They claimed they did not initially except their rights, because they had been confused about the nature of their interest to the oil and gas rights in the land. Could they set the contract aside?