1. Pre-Learning Question
How would you define fraud?
How is misrepresentation different from fraud?

2. Chapter 6 Genuine Agreement Section 6.1 Fraud and Misrepresentation
Mistake, Duress, and Undue Influence
Why It’s Important
Learning the elements of fraud may prevent you from being victimized or help you claim your rights if you are defrauded.

3. What You’ll Learn How to identify the elements of fraud (p. 128)
How to distinguish between fraud & concealment (p. 129)
How to distinguish between fraud and innocent misrepresentation (pp. 128 and 132)
How to distinguish between the remedy available for fraud and the remedy available for misrepresentation (pp. 128 and 132)

4. Section Outline Defective Agreements Fraud Innocent Misrepresentation
False Representation of Fact
Representation Known to Be False
False Representation Intended to Be Relied Upon
False Representation Actually Relied Upon
Resulting Loss
Innocent Misrepresentation

5. Genuine Agreement
If the offeror makes a valid offer, and the offeree has made a valid acceptance, then a genuine agreement has been reached.
The courts describe this type of agreement as “a meeting of the minds.”

6. 6.1
Genuine Agreement
Several circumstances might create a defective agreement:
Fraud
Misrepresentation
Mistake
Duress
Undue Influence

7. Fraud Remedies for Fraud
Fraud is a deliberate deception intended to secure an unfair or unlawful gain.
Remedies for Fraud
You may rescind, or cancel, the contract.
You may sue for money damages.

8. The 5 Elements of Fraud A false representation of fact.
5 things must be shown to succeed in a fraud lawsuit
A false representation of fact.
Knowledge of the falsity by party making the false representation.
Intent to deceive by party making the false representation.
Reasonable reliance by the innocent party.
Actual loss must be suffered by innocent party.

9. False Representation of Fact
Fraud requires a false representation of a material, existing fact.
A material fact is one that is important; it matters to one of the parties.
Under some circumstances, individuals can make false representation by choosing not to reveal important information.
This is known as concealment or passive fraud.

10. Representation Known to Be False
To be held accountable for fraud, the party making the false representation must be aware that it is false. This may be shown by:
Proving actual knowledge
Showing the statement was made recklessly

11. Intended to Be Relied Upon
False Representation
Intended to Be Relied Upon
To prove fraud, the person making the misrepresentation must intend that the other party will rely upon the information as part of the contract negotiations.

12. False Representation Actually Relied Upon
To prove fraud, the false representation must be reasonably relied upon by the other party when the agreement is made.

13. Resulting Loss
In proving fraud, the innocent party must show some monetary loss.

14. Innocent Misrepresentation Remedy for Misrepresentation
Misrepresentation is the act of making an innocent statement that turns out to be false, when the person honestly believed the statement was true at the time it was made.
Remedy for Misrepresentation
The right to rescind the contract.
You may not win damages.

15. Can Joel claim there was false representation? Why or why not?
After Mrs. Grayson died, her neighbor, Joel, asked her son, Tom, if he would sell her TV. Before giving Tom $100, Joel asked, “It works, doesn’t it?” and Tom answered, “As far as I know.” However, when Joel plugged it in, it did not work.
Can Joel claim there was false representation? Why or why not?

16. ANSWER
Probably not. “As far as I know,” would probably be considered innocent misrepresentation.

17. Reviewing What You Learned
Section 6.1 Assessment
Reviewing What You Learned
What are the elements of fraud?
What is the difference between fraud and concealment?
What is the difference between fraud and innocent misrepresentation?
What is the difference between the remedy available for fraud and for misrepresentation?

18. Critical Thinking Activity Fraud
Section 6.1 Assessment
Critical Thinking Activity
Fraud
Why do courts permit fraud to disrupt genuine agreement in a contractual setting?

19. Legal Skills in Action Too Good to Be True?
Section 6.1 Assessment
Legal Skills in Action Too Good to Be True?
You recently received a phone call from a travel agency offering a vacation package to Europe for less than $200.
To take advantage of the offer, you were told to send $200 in cash within 24 hours or to supply a credit card number on the spot.
In groups discuss whether this sounds like a case of potential fraud. Begin by listing the elements of fraud.

20. Pre-Learning Question
How can a mistake disrupt an agreement?
What do you think duress is?
What do you think undue influence is?

21. What You’ll Learn
How to distinguish between unilateral and bilateral mistakes (pp. 133 and 135)
How to recognize the types of mistakes that will allow rescission of a contract (p. 134)
How to recognize the requirements of economic duress (p. 137)
How to recognize the requirements of undue influence (p. 138)

22. Section Outline Duress Undue Influence Mistake Unilateral Mistake
Bilateral Mistake
Duress
Undue Influence
Why It’s Important
Recognizing how mistake, duress, and undue influence can affect agreements will help you make better decisions in such situations.

23. Genuine Agreement
In addition to fraud and misrepresentation, mistake, duress, and undue influence can also create a defective agreement.

24. Mistake
People sometimes enter into contracts believing that certain information is true when it is actually not, or that information is not true when it really is.

25. Unilateral Mistake
A unilateral mistake is an error on the part of one of the parties to the contract.
Through words or actions, one party has created reasonable expectations on the part of the other party to the contract.
Those expectations should not be blocked because one of the parties has made an error, or mistake.
A person usually can’t avoid a contract because of such a mistake.

26. Unilateral Mistake There are two types of unilateral mistakes.
Mistake as to the nature of the agreement.
Mistake as to the identity of a party.

27. Mistake to the Nature of the Agreement
People who sign an agreement are bound to it, even if they have not read it or are mistaken about what it says.
Mistake as to the Identity of a Party
If you make an offer by letter to one party, but the wrong person mistakenly receives the offer, the mistake may be cause to void the contract.

28. Mistake as to the Identity of a Party
If you make the same offer face-to-face with a person whose identity you have mistaken, your mistake as to the identity will not prevent a binding contract.

29. Remedies for Unilateral Mistakes
6.2
Remedies for Unilateral Mistakes
Unilateral Mistake
Type of Mistake
Remedy
Mistake as to the
nature of the
agreement.
identity of a party.
Rescission will not
be granted.
Rescission may be
granted.

30. Bilateral Mistake There are two types of bilateral mistakes.
When both parties to a contract are mistaken about an important fact it is called a bilateral mistake, or mutual mistake.
When this mistake occurs, either party may avoid the contract.
There are two types of bilateral mistakes.
Mistake to the possibility of performance.
Mistake as to the subject matter.

31. Possibility of Performance
Mistake as to the
Possibility of Performance
If both parties enter into a contract believing that the duties described in the agreement can be performed, when in fact, they cannot, either party may avoid the contract.

32. Remedies for Bilateral Mistakes
6.2
Remedies for Bilateral Mistakes
Bilateral Mistake
Type of Mistake
Remedy
Mistake as to
possibility of
performance.
Mistake as to the
subject matter.
Rescission will be
granted.

33. True or false—Both parties may avoid contracts involving unilateral and bilateral mistakes.

34. ANSWER
False

35. Duress
Duress is overcoming a person’s will by use of force or threat of force or bodily harm.
3 Types of Duress: Physical
Emotional
Economical

36. Types of Duress
Physical duress is when actual physical violence is used to force a person to enter a contract.
Emotional duress is when the threat of physical force is used to force a person to enter a contract.
Economic duress is when threats to a person’s business or professional reputation are used to force a party to enter a contract.

37. Undue Influence
Undue influence occurs when a person uses unfair and improper persuasive pressure to force another person to enter into an agreement.
Circumstances such as ill health, old age, and mental immaturity may put a person in a weaker position.

38. Elements of Undue Influence
6.2
Elements of Undue Influence
Element
Description
A dependency
relationship
One party in a
relationship is
dependent on the
other party.

39. Elements of Undue Influence
6.2
Elements of Undue Influence
Element
Description
Unfair or improper
pressure
The independent person
uses excessive pressure
to force the dependent
person to enter a
contract.

40. Elements of Undue Influence
6.2
Elements of Undue Influence
Element
Description
A beneficial contract
The contract benefits
the independent party
at the expense of the
dependent party.

41. Reviewing What You Learned
Section 6.2 Assessment
Reviewing What You Learned
What is the difference between unilateral and bilateral mistakes?
What types of mistake will allow rescission of a contract?
What are the requirements of economic duress?
What are the requirements of undue influence?

42. Critical Thinking Activity Types of Mistakes
Section 6.2 Assessment
Critical Thinking Activity
Types of Mistakes
Why is it important to be able to distinguish between unilateral and bilateral mistakes?

43. Legal Skills in Action Undue Influence
Section 6.2 Assessment
Legal Skills in Action Undue Influence
Suppose that a close friend has sent you an message saying that she believes her grandfather was tricked into signing over all of his property to his live-in caretaker.
Your friend asks for your advice. Write an reply to explain the elements she would have to prove to demonstrate that her grandfather signed over his property because of undue influence.

44. Reviewing What You Learned Answer
Section 6.1 Assessment
Reviewing What You Learned
Answer
There must be false representation of a material fact.
The party making the representation must know it is false.
The false representation must be made with intent that it be relied upon.
The innocent party must reasonably rely upon the false representation.
The innocent party must suffer some monetary loss.

45. Reviewing What You Learned Answer #2 Concealment is passive fraud.
Section 6.1 Assessment
Reviewing What You Learned
Answer #2 Concealment is passive fraud.
Answer #3 In fraud, the defrauding party knows of the false representation. In misrepresentation the false statement is made innocently.
Answer #4 Damages are a possible remedy in a fraud case.

46. Critical Thinking Activity Answer Fraud
Section 6.1 Assessment
Critical Thinking Activity Answer
Fraud
Answers will vary, but should recognize that fraud leads to a defective agreement.

47. Reviewing What You Learned Answer #1
Section 6.2 Assessment
Reviewing What You Learned
Answer #1
Unilateral M: only one party is mistaken.
Bilateral M: both parties are mistaken.
Answer #2
Mistake as to the identity of a party, mistake as to the possibility of performance, and mistake as to the subject matter.

48. Reviewing What You Learned Answer #3
Section 6.2 Assessment
Reviewing What You Learned
Answer #3
Economic duress requires threats to a person’s business or income that cause the person to enter a contract without real consent.
Answer #4
Undue influence requires unfair and improper persuasive pressure exercised by one person in a relationship of trust with another person.

49. Legal Skills in Action Answer
Section 6.1/6.2 Assessment
Legal Skills in Action Answer
Too Good to Be True?
Discussions will vary, but should compare the elements of fraud to the information given about the vacation offer.
Critical Thinking Activity Answer
Types of Mistakes
Answers will vary, but should recognize that understanding the differences between unilateral and bilateral mistakes will help you know your rights and remedies in a contract.

50. Legal Skills in Action Answer
Section 6.2 Assessment
Legal Skills in Action Answer
Undue Influence
To prevail in a claim of undue influence, your friend would need to show that the parties had a relationship of trust, and that the caretaker exercised improper persuasion to take advantage of her grandfather .