1. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 1 Chapter 7 7-2 7-2Mistake, Misrepresentation, and Fraud GOALS Recognize the types of mistakes that can make a contract voidable or void List the criteria for a statement to be treated as a misrepresentation Define fraud and describe the remedies for it

2. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 2 Chapter 7 WHAT IS MISREPRESENTATION? Untrue statement of fact Active concealment Silence Material fact (important enough to influence decision) Reasonable reliance

3. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 3 Chapter 7 What are the three criteria for a statement to be treated as a misrepresentation?

4. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 4 Chapter 7 FRAUD The misrepresentation must be intentional or reckless The misrepresentation or concealment must injure

5. Law for Business and Personal Use © South-Western, a part of Cengage Learning Elements of Fraud False representation must be deliberate Present or Past Fact - not an opinion Material Fact - important enough to influence the person’s decision to enter into the contract. Person making the statement knows it is false or makes it recklessly Intention to influence the other person to act Reliance - Fraud must have induced action and caused injury Slide 5 Chapter 7

6. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 6 Chapter 7 REMEDIES FOR FRAUD Defrauded party may Disaffirm/rescind/avoid/repudiate/ renounce (all mean the same thing) Ratify Ratify, but seek reimbursement for loss through litigation (sue for damages)

7. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 7 Chapter 7 Explain these remedies available for fraud. Rescission Damages Punitive damages

8. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 8 Chapter 7 WHAT ARE THE TYPES OF CONTRACTUAL MISTAKES? Unilateral mistakes Mutual mistakes When mistakes are made, the contract may be valid, voidable, or void.

9. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 9 Chapter 7 CONTRACTUAL MISTAKES Valid Unilateral mistake - made by only one of the parties and not obvious to the other

10. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 10 Chapter 7 CONTRACTUAL MISTAKES Voidable Unilateral mistake that is obvious to the other party

11. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 11 Chapter 7 CONTRACTUAL MISTAKES Void Mutual mistake - both parties are wrong about some important fact

12. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 12 Chapter 7 Name the types of mistakes that can make a contract voidable or void.

13. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 13 Chapter 7 PREVENT LEGAL DIFFICULTIES In making contracts... Research important transactions before entering into them. Verify claims of the seller by outside means or through firsthand personal experience. Do not rush into a decision. Take time to review and understand the advantages and disadvantages of the proposed contract. Legitimate proposals will usually survive a delay. Continued on the next slide

14. Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 14 Chapter 7 PREVENT LEGAL DIFFICULTIES Do not hesitate to ask questions about vague or uncovered issues. Forcing the other party to make statements about them may lay the groundwork for proving fraud or misrepresentation later. If the other party does not properly answer your questions, proceed with great caution or abandon the negotiations. If you believe you have been defrauded, act promptly to rescind the contract.