Business Law Question

Chapter 17Legal Assent
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 17 Case Hypothetical and Ethical Dilemma
John Hammonds recently purchased a used Fjord Mastodon sedan from Square
Deal Pre-Owned Auto Sales, Inc. During contract negotiations, John did not ask
any questions related to the fuel efficiency of the car, and Square Deal’s sales
representative, Wink Eubanks, did not volunteer any information about the
Mastodon’s gas mileage. John had saved for a car for five (5) years, and he paid
ten thousand dollars cash for the vehicle.
After his purchase, John kept meticulous records regarding the fuel consumption
of the Mastodon, and he calculated that the Mastodon was getting approximately
twelve (12) miles per gallon. He immediately returned to Square Deal (John
thought the dealership should be renamed “Raw Deal”), found Wink Eubanks in
front of one of the store’s vending machines, and stated “You should have told me
that Mastodon only gets twelve miles per gallon. I am the victim of fraud, and I
want my money back. Here are the keys to your Mastodon with the mammoth
appetite!”
Do you agree with John Hammonds? Is John the victim of fraud? Is he entitled to
a rescission of the contract based on Square Deal’s nondisclosure of the
Mastodon’s gas mileage?
17-2
Chapter 17 Case Hypothetical and Ethical Dilemma
For Greta Harrington and her husband Robert, it was love at first sight. The two were
married for 52 years until cancer took her husband at the age of 84. Greta is currently 83 years
old, and her marriage produced three offspring: Samuel, 50 years old; Katherine, 45 years old;
and Benjamin, 40 years old. In his will, Robert left all of his financial interests, a considerable
sum valued at $5 million, entirely to his wife; in his will, he also expressed love and affection
for his three children, as well as the desire that Greta devise the remainder of the couple’s
estate to their children, in equal portions, upon her death.
Greta has recently been “keeping company” with Gary Watson, a twice-divorced, 65-year-old
bachelor with a reputation for “womanizing.” While visiting her mother one weekend,
Katherine is shocked to see a fully-executed will on the desk in the living room, devising all of
her mother’s estate to Gary Watson. She immediately calls Samuel and Benjamin, schedules
an emergency “sibling meeting” for Sunday, and wonders what to do about her mother’s illadvised decision. She has noticed in recent months that her mother is often forgetful,
frequently calls her “Sharon” (her aunt’s name,) and often confuses the days of the week.
Do the children have any legal rights in terms of successfully invalidating Greta Harrington’s
will? From a legal and/or ethical standpoint, should a mother (even of adult children) be
allowed to “disinherit” her offspring?
17-3
Legal Assent
◼
Definition: Promise to buy or sell courts will require parties to obey
◼
Without assent, contract may be avoided/rescinded
◼
Cancellation of contract due to lack of assent means party with power of
avoidance can require return of consideration given to other party; similarly,
party with rescission right must return consideration received from other party
◼
Major “obstacles” to legal assent: Mistake, misrepresentation, undue
influence, duress, and unconscionability
17-4
Mistake
◼
Definition: Erroneous beliefs regarding material facts of
contract at time agreement made
◼
Unilateral Mistake: Mistake made by one contracting party;
generally, contract still binding
◼
Mutual (Bilateral) Mistake: Mistake made by both parties; if
mutual mistake of material (significant) fact, either party can
rescind contract
17-5
Fraudulent or Negligent Misrepresentation
◼
Fraudulent Misrepresentation (Definition): Intentional, untruthful assertion of
material fact by contracting party; aggrieved party can rescind contract, and sue for
damages
◼
Negligent Misrepresentation (Definition): Negligent, untruthful assertion of material
fact by contracting party; aggrieved party can rescind contract, and sue for damages
◼
◼
Contrast with “innocent misrepresentation”, when party making false assertion
believes it to be true, and is not negligent in making false assertion; although
innocent misrepresentation permits misled party to rescind contract, he/she
cannot sue for damages
Courts permit contract rescission for fraudulent or negligent misrepresentation,
assuming:
◼
◼
◼
False assertion
Intent to deceive, or negligence
Justifiable reliance on false assertion by innocent party
17-6
Undue Influence
◼ Definition:
Persuasive efforts of dominant party, who
uses special relationship to interfere with other’s free
choice of terms
◼ Any relationship involving one party’s unusual degree
of trust in another can give rise to undue influence
17-7
Questions Affecting Determination of Undue
Influence
◼
Did dominant party “rush” the other party to consent?
◼
Did dominant party gain unjust enrichment from the contract?
◼
Was non-dominant party isolated from other advisers at time of
contract?
◼
Is contract unreasonable, in that it overwhelmingly benefits
dominant party?
17-8
Duress
◼
Definition: Occurs when one party threatens other with
wrongful act unless assent given
◼
Duress is not legal assent, since coercion interferes with
contracting party’s free will
◼
For courts to rescind agreement, injured party must prove duress
left no reasonable alternatives to contractual agreement
17-9
Situations Involving Duress
◼
One party threatens physical harm or extortion to gain consent
to contract
◼
One party threatens to file criminal lawsuit unless consent given
to terms of contract
◼
One party threatens to file frivolous civil lawsuit unless consent
given to terms of contract
◼
One party threatens the other’s economic interests (although in
many jurisdictions, recovery based on economic duress/pressure
rarely granted)
17-10
Unconscionability
◼
Definition: Occurs when one party has so much relative
bargaining power that he/she effectively dictates terms of
contract, resulting in situation where dominated party, in
essence, lacks free will
◼
Unconscionable contract is an “adhesion contract”, and cannot
be basis for avoiding contract
17-11
College of Administrative and Financial Sciences
Assignment 2
Principles of Finance (FIN101)
Deadline for students: (2/10/2022@ 23:59)
Course Name: Principles of Finance
Student’s Name:
Course Code: FIN101
Student’s ID Number: S
Semester: 2nd
CRN: 21797
Academic Year: 1444/1445 H, Second Semester
For Instructor’s Use only
Instructor’s Name: Dr. Moin Uddin
Students’ Grade:
/15
Level of Marks:
Instructions – PLEASE READ THEM CAREFULLY
❖ This assignment is an individual assignment.
❖ The Assignment must be submitted only in WORD format via the allocated folder.
❖ Assignments submitted through email will not be accepted.
❖ Students are advised to make their work clear and well presented. This also includes
filling in your information on the cover page.
❖ Students must mention question numbers clearly in their answers.
❖ Late submitted assignments will NOT be entertained.
❖ Avoid plagiarism; the work should be in your own words; copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
❖ All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
Submissions without this cover page will NOT be accepted.
Assignment Questions:
(Marks: 15)
A company issued 10-year bonds three years ago with a coupon of 7 percent. If the current
market rate is 8 percent and the bonds make annual coupon payments, what is the current
market value of one of these bonds? what is the current market value of one of these bonds if it
was a zero-coupon rate? (2.5 Marks)
ABC company is growing at a constant rate of 7 percent every year. Last week the company paid
a dividend of $1.8. If dividends are expected to grow at the same rate as the fi rm and the required
rate of return is 12 percent, what should be the stock’s price four years from now? (2.5 Marks)
XYZ company is considering developing new computer software. Th e cost of development will
be $775,000 and management expects the net cash flow from sale of the software to be $200,000
for each of the next six years. If the discount rate is 13 percent, what is the net present value and
payback period of this project? (2.5 Marks)
A chemical company is considering buying a magic fan for its plant. Th e magic fan is expected to
work forever and help cool the machines in the plant and, hence, reduce their maintenance costs
by $6,000 per year. Th e cost of the fan is $50,000. Th e appropriate discount rate is 10 percent,
and the marginal tax rate is 35 percent. Should the company buy the magic fan? (2.5 Marks)
Define bond yield to maturity. Why is it important? (2.5 Marks)
Explain why preferred stock is considered to be a hybrid of equity and debt securities? (2.5 Marks)