Fraud and Misrepresentation

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Section 6.1
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Chapter
Genuine Agreement
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Section 6.1 Fraud and Misrepresentation Section
6.2 Mistake, Duress, and Undue Influence
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What Youll Learn

• How to identify the elements of fraud (p. 128)
• How to distinguish between fraud and concealment
  (p. 129)

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What Youll Learn

• How to distinguish between fraud and innocent
  misrepresentation
• (pp. 128 and 132)

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What Youll Learn

• How to distinguish between the remedy available
  for fraud and the remedy available for
  misrepresentation
• (pp. 128 and 132)

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Why Its Important
Learning the elements of fraud may prevent you
from being victimized or help you claim your
rights if you are defrauded.
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Legal Terms

• fraud (p. 128)
• rescind (p. 128)
• material fact (p. 129)
• concealment (p. 129)
• misrepresentation (p. 132)

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

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6.1
Genuine Agreement
Several circumstances might create a defective
agreement
Fraud Misrepresentation Mistake Duress Undue
Influence
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Pre-Learning Question
How would you define fraud?
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Fraud
Fraud is a deliberate deception intended to
secure an unfair or unlawful gain.
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Remedies for Fraud

• You may rescind, or cancel, the contract.
• You may sue for money damages.

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The Elements of Fraud
To succeed in a lawsuit for fraud, the following
five elements must be demonstrated

1. A false representation of fact.
2. Knowledge of the falsity by the party making the
   false representation.

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The Elements of Fraud

1. Intent to deceive by the party making the false
   representation.
2. Reasonable reliance by the innocent party.
3. An actual loss must be suffered by the innocent
   party.

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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.

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False Representation of Fact
Under some circumstances, individuals can make
false representation by choosing not to reveal
important information. This is known as
concealment, or passive fraud.
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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

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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.
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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.
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Resulting Loss
In proving fraud, the innocent party must show
some monetary loss.
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Pre-Learning Question
How is misrepresentation different from fraud?
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Innocent 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.
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Remedy for Misrepresentation

• The right to rescind the contract.
• You may not win damages.

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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,
doesnt it? and Tom answered, As far as I
know. However, when Joel plugged it in, it did
not work.
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Can Joel claim there was false representation?
Why or why not?
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ANSWER
Probably not. As far as I know, would probably
be considered innocent misrepresentation.
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Section 6.1 Assessment
Reviewing What You Learned

1. What are the elements of fraud?

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Section 6.1 Assessment
Reviewing What You Learned
Answer

• There must be a false representation of a
  material fact.
• The party making the representation must know
  that it is false.

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Section 6.1 Assessment
Reviewing What You Learned
Answer

• The false representation must be made with the
  intent that it be relied upon.
• The innocent party must reasonably rely upon the
  false representation.

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Section 6.1 Assessment
Reviewing What You Learned
Answer

• The innocent party must suffer some monetary loss.

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Section 6.1 Assessment
Reviewing What You Learned

1. What is the difference between fraud and
   concealment?

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Section 6.1 Assessment
Reviewing What You Learned
Answer
Concealment is passive fraud.
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Section 6.1 Assessment
Reviewing What You Learned

1. What is the difference between fraud and innocent
   misrepresentation?

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Section 6.1 Assessment
Reviewing What You Learned
Answer
In fraud, the defrauding party knows of the false
representation. In misrepresentation the false
statement is made innocently.
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Section 6.1 Assessment
Reviewing What You Learned

1. What is the difference between the remedy
   available for fraud and the remedy available for
   misrepresentation?

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Section 6.1 Assessment
Reviewing What You Learned
Answer
Damages are a possible remedy in a fraud case.
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Section 6.1 Assessment
Critical Thinking Activity Fraud
Why do courts permit fraud to disrupt genuine
agreement in a contractual setting?
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Section 6.1 Assessment
Critical Thinking Activity Answer Fraud
Answers will vary, but should recognize that
fraud leads to a defective agreement.
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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.
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Section 6.1 Assessment
Legal Skills in Action Too Good to Be True?
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.
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Section 6.1 Assessment
Legal Skills in Action Too Good to Be True?
In small groups, discuss whether this sounds like
a case of potential fraud. Begin by listing the
elements of fraud.
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Section 6.1 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.
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End of Section 6.1