1. Mistake, Misrepresentation, and Fraud
Lesson 7-2
Mistake, Misrepresentation, and Fraud

2. What is a unilateral mistake?
Unilateral mistake-occurs when one party holds an incorrect belief about the facts related to a contract
Generally, this does not void a contract
Examples
Not reading a contract
Hurried or careless reading
In a foreign language
Uses technical terminology

3. Recognized unilateral mistake
If mistake is major and other party is aware of it, contract may be rescinded

4. Induced unilateral mistake-one party encouraged or induced the other to make the mistake
Contract is voidable

5. What are mutual mistakes?
Mutual mistake (bilateral mistake)-both parties have an incorrect belief about an important fact
Material fact-important fact that influences the parties’ decision
Contract is void (without legal effect)

6. Mistake about the subject matter
Existence
Identity-unilateral mistake about the identity of the subject matter of a transaction is considered a mutual mistake

7. Mistake of law-many states still consider a contract valid if a mutual mistake involves law. All persons are presumed to know the law.
Zoning laws

8. What is misrepresentation?
Innocent misrepresentation-party did not know they were making an untrue statement. Contract is voidable by party to whom the misrepresentation was made.
Fraudulent misrepresentation-party knew statement was untrue

9. To be considered misrepresentation:
Untrue statement is one of fact or there is active concealment
Statement is material
Victim reasonably relied on statement

10. Untrue statement of fact Fact….not opinion
Opinions include statement about the future and are not concrete
An expert’s opinion is treated as a statement of fact
Active concealment-substitute for a false statement (painting over water stains, price sticker over a scratch)

11. Silence-Most times, seller may remain silent
Three situations where disclosure is required.
Statement about material fact omits important information
True statement is made false by subsequent events.
One party knows the other party has made a basic mistaken assumption

12. Three way an untrue statement can be determined to be material
Materiality
Three way an untrue statement can be determined to be material
If statement would cause a reasonable person to contract (authentic signature of a celebrity)
If the defendant knew the plaintiff would rely on statement
If the defendant knew the statement was false

13. Reasonable Reliance- Misrepresentation results if the victim reasonably relied on the material fact

14. Fraud and Remedies for Fraud
Fraud-same requirements as misrepresentation PLUS:
Misstatement was made recklessly or intentionally
Injury resulted

15. Misrepresentation must be intentional or reckless (not knowing if it is true or false) in order to get victim to enter into contract.
Misrepresentation or concealment must injure. Must have proof of injury.

16. Remedies for fraud
In addition to rescinding contract, courts allow (compensatory)damages and punitive damages
Rescission-both parties give back
Damages-(must prove fraud) Under UCC, damages are available for innocent misrepresentation for goods (tangible personal property)
Punitive damages-Punishment