Mistake, Misrepresentation and Fraud Lesson 8-2 Mistake, Misrepresentation and Fraud

What will you learn?? Determine what kinds of mistakes than can make a contract void or voidable Describe the elements of misrepresentation and fraud Identify the difference (And similarities) of misrepresentation and fraud Determine what remedies are available for a victim of mistake, misrepresentation and fraud

What is a unilateral mistake? A “Unilateral Mistake” occurs when one party to a contract holds some kind of incorrect belief about the subject matter of the contract. Generally, this has “NO” effect on the validity of a contract Ex) If a consumer fails to read the details of an agreement or thinks the purchase they are making can do something it can’t, it’s the “Buyers” fault for not reading or asking questions (Buying a F150 pick-up truck thinking (Without asking) it can hold 5000 lbs of weight and having the truck break when you learn it cannot)

What is the difference between a recognized unilateral mistake and induced unilateral mistake? If the mistake is “Major” and the uninjured party was aware of the mistake, it’s a recognized unilateral mistake Court may grant the right to rescind to victim Induced Unilateral Mistake If one party “Encourages” or induces the other party to make a mistake, it’s a induced unilateral mistake Contract becomes voidable (Injured party can “Choose” to end it)

Recognized or induced? Sophie has been pushing her boyfriend to “Tie the Knot” and recently, James was thinking “Yeah, I think I am ready”. James goes to Frontier Jewelry one day and while looking at a tray of diamond rings in the showcase, see’s one he is interested in. The salesperson, realizes that the one James was looking at was a Cubic Zirconia that “accidently” was in the showcase in the wrong spot and he allows James to pay $8000 for a ring worth only $200 because James never asked any questions. What type of mistake just occurred??

ANSWER?? SOPHIE? Recognized Unilateral Mistake Why? The seller knew of the error, allowed the buyer to make the mistake Remedy? The right to rescind (Give back the ring and get your money back) SOPHIE?

Recognized or induced? Jake has been working at Frontier Marts Bakery now for 2 years. He has worked his way up to manager and knows a year end bonus is coming. His boss, the store owner, told Jake “You have been throwing out too much product lately and that is hurting your profit”. Jake decides to tell his employees to mix day old breads and donuts in with the fresh ones, thinking no person will tell the difference. Well, Catherine one day buys donuts and thinks they don’t taste correct. What type of mistake occurred?

ANSWER?? What now? Induced Unilateral Mistake Why? The seller knew of the error and tried to trick the buyer into making the mistake Remedy? Contract is voidable, meaning Catherine can get her money back) What now?

We know what a unilateral mistake is, so what is a “bilateral” mistake? A “Bilateral Mistake” , also known as a “Mutual” mistake, is when BOTH parties to a contract hold an incorrect belief about a material fact (Important fact) If a Bilateral mistake occurs, the contract is void (Contract does not exist at all) There are 2 types of bilateral mistakes: Mistake of the Subject Matter (Which means the parties don’t understand what is being contracted) or Mistake of the Law (Which means the parties broke the law with the contract and did not know they broke the law)

Describe a typical bilateral mistake… If Ken has what he “believes” to be a genuine Jim Kelly rookie football card that he had signed by the Bills legend and decides to sell it to Mark for $400, based on both the card and signature being valid and Mark decides after reviewing it that it was legitimate, a bilateral mistake could occur if after the transaction took place, Mark finds out the card was a forgery and therefore the value was much less.

What is misrepresentation? Misrepresentation occurs when one party in a contract makes a statement that turns out NOT to be true Its different from a mistake because a mistake is an incorrect “belief” by either or both parties to a contract and misrepresentation means passing on something that is untrue

2 types of misrepresentation Innocent Misrepresentation If a false statement is passed on because the seller was lied to when “they” originally made the purchase, they could “innocently” pass on a lie Fraudulent Misrepresentation This is when the seller “knows” the statement being passed on was untrue but did not “necessarily” mean to injure the other person

How is misrepresentation Proven Show that the statement being made was untrue or the seller tried to actively conceal information (Hide it) The statement was material (Important) to the buyer The victim relied on the false information to make their decision

What is fraud and how is it proven? Fraud is based on misrepresentation Fraud means to “intentionally” try to deceive a person to lead them to an injury (Or to lie to them to gain something leading to the other parties loss) Fraud is the more serious version of misrepresentation

What 5 elements prove fraud? Untrue statement of fact or active concealment Material to the decision Relied upon to make decision Intent to deceive or false statements meant to mislead victim into contract Intent to injure Misrepresentation (1-3) Fraud (All 5)

What are the remedies available for victims of misrepresentation and fraud? Right to rescind (Take back contract) Right to rescind Compensatory Damages Punitive Damages Fraud

What are damages? Damages are what is awarded in a civil trial (Lawsuit) Compensatory damages are meant to “Compensate” a victim for their losses (Get the party back to where they were before the contract started) Punitive damages are meant to “punish” the defendant (Given over and above a compensatory damage Rule: Compensatory damages are “ALWAYS” asked for, punitive very rarely

Final Facts….. If a seller remains “silent” about a problem that a buyer does not question, the buyer cannot later claim they were lied to because they have a responsibility to ask questions before deciding Active concealment is proven when a seller “purposely” tries to hide a problem from a buyer, therefore not allowing them to question problems Key phrase to prove misrepresentation or fraud is that the buyer “relied upon an untrue statement made to them to make a bad decision”…

Ticket out the door quiz Complete the practice quiz and turn in before end of class Review and quiz within next 3 classes