George Mason School of Law

1. George Mason School of Law Contracts II Fraud F.H. Buckley fbuckley@gmu.edu

2. Fraus omnia corrumpit Lord Eldon ordered that Shelley’s children be taken from him I met Murder on the way – He had a mask like Castlereagh – Very smooth he looked, yet grim; Seven blood-hounds followed him: Next came Fraud, and he had on, Like Eldon, an ermined gown; His big tears, for he wept well Turned to mill-stones as they fell Shelly, The Mask of Anarchy

3. The Elements of Fraud • A False Representation • Restatement§ 159 3

4. The Elements of Fraud • A False Representation • Which the Δ knows to be false. • Restatement § 162(1)(a) 4

5. The Elements of Fraud • A False Representation • Which the Δ knows to be false. • Made with the intention to induce the Π to enter into the contract. • Restatement § 162(1) 5

6. The Elements of Fraud • A False Representation • Which the Δ knows to be false. • Made with the intention to induce Π’s to enter into the contract. • On which the Π relies. • Restatement § 164 6

7. The Elements of Fraud • A False Representation • Which the Δ knows to be false. • Made with the intention to induce Π’s to enter into the contract. • On which Π relies. • And which is material • Restatement §§ 164(1), 162(2) 7

8. The Elements of Fraud • A False Representation • Which the Δ knows to be false. • Made with the intention to induce Π’s to enter into the contract. • On which Π relies. • And which is material • Restatement §§ 164(1), 162(2) • Does § 164(1) dispense with materiality, if the representation is fraudulent? 8

9. The Elements of Fraud • A False Representation • Which the Δ knows to be false. • Made with the intention to induce Π’s to enter into the contract. • On which Π relies. • And which is material • Restatement §§ 164(1), 162(2) • What does “upon which the recipient is justified in relying” mean? 9

10. The Elements of Fraud • Does the Restatement water down materiality? • “the maker knows it would be likely to induce the recipient.” § 162(2) • “a fraudulent … representation … upon which the recipient is justified in relying.” § 164 • What does § 164 do to the fraud requirement? • Innocent material misrepresentations 10

11. The Elements of FraudBut none of this is cut-and-dried A False Representation Which the Δ knows to be false. Made with the intention to induce Π’s to enter into the contract. On which Π relies. And which is material

12. The Elements of FraudThe Restatement on Reliance • A False Assertion. § 159 • Which the Δ knows to be false. § 162(1)(a) • Made with the intention to induce Π’s to enter into the contract. § 162(1) • On which Π relies. § 164 • And which is material. §§ 164(1), 162(2) 12

13. The Elements of Fraud • What is an assertion? • Restatement §§ 159

14. The Elements of Fraud • Restatement § 159: What is an assertion? • What aren’t assertions?

15. What is an Assertion?“It works”: You got a problem with that?

16. Mere puffs are not assertionsSimplex commendatio non obligat

17. Mere puffsSpeiss v. Brandt • What were the alleged representations? Lake McFarland

18. Mere puffsSpeiss v. Brandt • What if the Δs had said “You can make good money out of the resort”? • Or “I believe you can make good money out of it”? 18

19. Mere puffsSpeiss v. Brandt • Qu. “We are making good money out of the resort.” 19

20. Mere puffsSpeiss v. Brandt • Qu. “We are making good money out of the resort.” • What is the optimal profit to make where there is double taxation of dividends? • Cf. Gallagher’s dissent 20

21. Mere puffsSpeiss v. Brandt • “We are making good money out of the resort.” • What if they had provided the financials? 21

22. Mere puffsSpeiss v. Brandt • “We are making good money out of the resort.” • What if they had provided the financials? • What do you conclude from the buyers’ willingness to do the deal even though the financials were not provided 22

23. Mere puffsSpeiss v. Brandt • “We are making good money out of the resort.” • What if they had provided the financials? • Restatement § 172 • A subjective or an objective test? 23

24. Mere puffsSpeiss v. Brandt • “We are making good money out of the resort.” • Suppose the seller had omitted to say anything about past earnings? 24

25. Mere puffsSpeiss v. Brandt • “We are making good money out of the resort.” • Suppose the seller had omitted to say anything about past earnings? • Fraudulent concealment? Restatement § 161? 25

26. How is the reliance requirement treated in Ziff-Davis? 26

27. How is the reliance requirement treated in Ziff-Davis? • Distinguish the action in fraud from the action for breach of warranty • Suing in tort: Punitive damages

28. George Mason School of Law Contracts II Fraud F.H. Buckley fbuckley@gmu.edu 28

29. The Merger Clause in Danann What is it and why did the parties agree to it?

30. The Merger Clause in Danann • Absent the merger clause, what result?

31. The Merger Clause in Danann Absent the merger clause, what result? The representations would ordinarily be excluded by the Parole Evidence Rule Here however the fraud exception to the Parole Evidence Rule would apply.

32. The Merger Clause in Danann Absent the merger clause, what result? The representations would ordinarily be excluded by the Parole Evidence Rule Here however the fraud exception to the Parole Evidence Rule would apply. Did the Δs misrepresent their financials?

33. The Merger Clause in Danann Absent the merger clause, what result? The representations would ordinarily be excluded by the Parole Evidence Rule Here however the fraud exception to the Parole Evidence Rule would apply. Did the Δs misrepresent their financials? Does the sophistication of the parties matter?

34. Signing a ContractMerit Music Bar, 601 South Monroe St. Baltimore MD

35. Signing a ContractMerit Music Were the terms harsh? 35

36. Signing a ContractMerit Music • Were the terms harsh? • 120 plays of the pinball machine @ week • 48 plays of the juke box @ week 36

37. Signing a ContractMerit Music • Were the terms harsh? • Who was in the best position to determine the revenue from the machines? 37

38. Signing a ContractMerit Music • Were the terms harsh? • Who was in the best position to determine the revenue from the machines? • Were the Sonneborns inexperienced? 38

39. Signing a ContractMerit Music • Were the terms harsh? • Who was in the best position to determine the revenue from the machines? • Were the Sonneborns inexperienced? • Did they have any reason to think that what they signed was not a contract? 39

40. Signing a ContractMerit Music • Have you ever signed a contract without reading it? What effect did you think the printed language had? • Restatement § 211(1) 40

41. Signing a ContractMerit Music • Were the terms harsh? • Does that matter? 41

42. Signing a ContractMerit Music • Were the terms harsh? • Does that matter? • Should Restatement § 211(3) have been triggered? 42

43. Standard Form ContractsBirmingham TV v. Water Works Were the terms benign?

44. Standard Form ContractsBirmingham TV v. Water Works • Were the terms benign? • Is that irrelevant? 44

45. Standard Form ContractsBirmingham TV v. Water Works Were the terms harsh? How would you expect bailees to react to the decision? 45

46. Standard Form Contracts • Were the terms harsh? Does that matter? • How would you expect bailees to react to the decision? • Is the world now a better place?

47. Thank God for proper warning signs

48. Thank God for proper warning signs

49. Thank God for proper warning signs

50. Why Employ Standard Form Contracts?