1. 7-2 Mistake, 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
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2. WHAT ARE THE TYPES OF CONTRACTUAL MISTAKES?
Unilateral mistakes
Mutual mistakes
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3. What are the types of contractual mistakes?
Unilateral: one party’s mistake. Contract is valid
Bilateral: both parties mistake about a material fact. Contract is void.
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4. What is misrepresentation:
Innocent misrepresentation
Fraudulent misrepresentation
In both cases, contract is voidable by innocent party
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5. Untrue Statement of Fact
Must be factual statement, not opinion
Expert’s opinion is always treated as a statement of fact
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6. Active concealment Actively concealing a defect
Substitute for false statement of fact
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7. Silence Omits important information
A true statement is made false by subsequent events
One party knows the other party has made a basic mistaken assumption
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8. Materiality The statement would cause a reasonable person to contract
The defendant knew the plaintiff would rely on the statement
The defendant knew the statement was false
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9. Reasonable Reliance
Buyer must reasonably rely on statement
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10. Fraud and Remedies for Fraud: The misrepresentation must be intentional or reckless
Induced victim to enter into the contract. May also have to show victim had no way to check accuracy of statement.
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11. The misrepresentation or concealment must injure
No liability for fraud if no injury
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12. Remedies for fraud: Rescission
Voidable by injured party. Anything received must be returned
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13. Damages
If fraud is proven. If victim ratifies the contract, may seek damages for loss created by the fraud.
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14. Punitive damages
May also be awarded for fraud
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15. Unilateral mistake
A mistake in which only one party holds an incorrect belief about the facts related to a contract
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16. Mutual mistake (bilateral mistake)
A mistake in which both parties have an incorrect belief about an important fact
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17. Material facts
Important facts that influence the parties’ decisions about a contract
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18. void
A contract is void (without legal effect) if a mutual mistake of fact as to the identity of the subject matter of a contract occurs
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19. Innocent misrepresentation
Party to a contract does not know that a statement he or she made is untrue.
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20. Fraudulent misrepresentation
An untrue statement by a party in a contract that the party knows is untrue
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21. fraud
The tort that occurs when one person intentionally misrepresents an existing important fact thereby causing financial injury
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22. Describe three ways a party may make a unilateral mistake
Describe three ways a party may make a unilateral mistake. Do these make a contract voidable?
Failing to read a contract
Reading a contract carelessly
Signing a contract written in a language that the party does not understand.
Generally, does not make a contract voidable
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23. What is the difference between an innocent misrepresentation and a fraudulent misrepresentation?
An innocent misrepresentation occurs when the offeror makes a statement that he does not know to be untrue.
Fraudulent misrepresentation occurs when the offeror makes a statement that he knows to be false.
Contract is voidable by offeree in both cases
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24. If there is intentional misrepresentation, but no injury, is there fraud? Can the contract by rescinded? Should it be rescinded?
Fraud requires injury. However, misrepresentation may be grounds for rescinding the contract. If the contract is still to the advantage of both parties, the injured party may not want to rescind.
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25. CHECKPOINT
  
Name the types of mistakes that can make a contract voidable or void.
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26. WHAT IS MISREPRESENTATION?
Untrue statement of fact
Active concealment
Silence
Materiality
Reasonable reliance
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27. Chapter 7
5/20/2019
CHECKPOINT
  
What are the three criteria for a statement to be treated as a misrepresentation?
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LAW

28. FRAUD AND REMEDIES FOR FRAUD
The misrepresentation must be intentional or reckless
The misrepresentation must injure
Remedies for fraud
Rescission
Damages
Punitive damages
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29. CHECKPOINT
  
What are the remedies available for fraud?
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30. 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
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31. 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.
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