Week 3 Tutorial Questions

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Jada Porter Fundamentals of Business Law 1/30/2024 Week 3: Tutorial Questions TQ 3.1: How did the D.C. Court of Appeals’ decision in Hernandez v. Banks change the law regarding the enforceability of contracts entered into by mentally incapacitated persons? Why did the court make this change? The D.C Court of Appeals’ decision changed the law regarding the enforceability of contracts entered into the mentally incapacitated by adopting “the majority approach that such contracts are voidable, rather than inherently void” ( 65 A.3d 59 (D.C. 2013 ). This means that contracts entered by mentally incapacitated individuals can be voided but it requires an action by the incapacitated party or their representative to do so. The court made this change to the previous rule in Sullivan because it “relied on an outdated understanding” in regard to protecting the legal rights of the mentally incapacitated ( 65 A.3d 59 (D.C. 2013) . The voidable change allows mentally incapacitated people to have “meaningful participation in society” without automatically becoming restricted in contract law ( 65 A.3d 59 (D.C. 2013) . Citation: Hernandez v. Banks , 65 A.3d 59 (D.C. 2013) TQ 3.2: What two defenses did the insurance carrier assert in Harleysville Worchester Insurance v. Diamondhead Property Owners Association in an attempt to avoid any duty to defend or indemnify under the policy? How did the court hold on each of the asserted defenses? What was the outcome with regard to coverage under the policy? The insurance carrier asserted mutual mistake and reformation defenses. Harleysville argued that the defendant parties “intended to exclude law enforcement coverage” although this coverage was mistakenly included in the written insurance policy (W.D. Ark. Jan. 31, 2013) . Harleysville presented evidence that met the burden of proof for a mutual mistake in the contract. As the agreement did not reflect the correct intent of the insured, the court granted Harleysville’s motion for partial summary judgment on the reformation issue. The outcome was that Harleysville Worchester Insurance obtained equitable relief in regard to coverage under the policy. Citation: Harleysville Worchester Ins. Co. v. Diamondhead Prop. Owners Ass'n, Inc. , (W.D. Ark. Jan. 31, 2013) TQ 3.3: In Pioneer Industries Inc. v. Hartford Fire Insurance Co. , what specifically did Pioneer do that constituted fraud? Why did the court conclude that it was irrelevant whether Hartford would have issued the policy even if it had been aware of these facts? The court determined that Pioneer Industries Inc. engaged in fraud by making material misrepresentation in their insurance applications. Specifically, Pioneer provided Hartford with false information regarding their internal controls and accounting practices. Hartford’s agreement required Pioneer to practice decentralized accounting including two

signatures on checks and routine financial statement audits. However, Pioneer did not adhere to this due to their former CFO, Harlander’s embezzlement along with additional evidence of a general lack of internal controls to prevent an employee’s abuse of fiduciary authority. Hartford argued that Pioneer caused a “very substantial increase to their risk of loss” which entitles them to rescind their insurance policy (D. Minn. Jul. 22, 2009) . Pioneer’s misrepresentations “impaired Hartford’s ability to make a reasonable decision to assume the risk of covering Pioneer”, making the question of whether Hartford would have issued the policy with knowledge of these facts irrelevant (D. Minn. Jul. 22, 2009). Citation: Pioneer Industries, Inc. v. Hartford Fire Insurance Co. , Civil No. 07-4421 (JNE/JJK) (D. Minn. Jul. 22, 2009) TQ 3.4: How did the decision in Riverisland Cold Storage , Inc. v. Fresno-Madera change the rule established in Bank of America v. Pendergrass ?  The Bank of America v. Pendergrass rule was changed by the court overturning the limitation of parol evidence to prove fraud claims. Unlike the Pendergrass rule, the Riverisland Cold Storage, Inc. v. Fresno-Madera decision allows parol evidence of oral promises to be presented. Citations: Bank of America Etc. Assn. v. Pendergrass , 4 Cal.2d 258, 48 P.2d 659 (Cal. 1935) Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association , F068738 (Cal. Ct. App. May. 11, 2015)

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