Section 6.1

1. Section 6.1

2. Chapter Genuine Agreement 6 Section 6.1 Fraud and Misrepresentation Section 6.2 Mistake, Duress, and Undue Influence

3. What You’ll Learn • How to identify the elements of fraud (p. 128) • How to distinguish between fraud and concealment (p. 129)

4. What You’ll Learn • How to distinguish between fraud and innocent misrepresentation • (pp. 128 and 132)

5. What You’ll Learn • How to distinguish between the remedy available for fraud and the remedy available for misrepresentation • (pp. 128 and 132)

6. Why It’s Important Learning the elements of fraud may prevent you from being victimized or help you claim your rights if you are defrauded.

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

8. Section Outline Defective Agreements Fraud False Representation of Fact Representation Known to Be False False Representation Intended to Be Relied Upon

9. Fraud, continued False Representation Actually Relied Upon Resulting Loss Innocent Misrepresentation

10. 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.”

11. 6.1 Genuine Agreement Several circumstances might create a defective agreement: Fraud Misrepresentation Mistake Duress Undue Influence

12. Pre-Learning Question How would you define fraud?

13. Fraud Fraud is a deliberate deception intended to secure an unfair or unlawful gain.

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

15. The Elements of Fraud To succeed in a lawsuit for fraud, the following five elements must be demonstrated: • A false representation of fact. • Knowledge of the falsity by the party making the false representation.

16. The Elements of Fraud • Intent to deceive by the party making the false representation. • Reasonable reliance by the innocent party. • An actual loss must be suffered by the innocent party.

17. 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.

18. 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.

19. 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

20. 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.

21. 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.

22. Resulting Loss In proving fraud, the innocent party must show some monetary loss.

23. Pre-Learning Question How is misrepresentation different from fraud?

24. 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.

25. Remedy for Misrepresentation • The right to rescind the contract. • You may not win damages.

26. 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, doesn’t it?” and Tom answered, “As far as I know.” However, when Joel plugged it in, it did not work.

27. Can Joel claim there was false representation? Why or why not?

28. ANSWER Probably not. “As far as I know,” would probably be considered innocent misrepresentation.

29. Section 6.1Assessment Reviewing What You Learned • What are the elements of fraud?

30. Section 6.1Assessment 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.

31. Section 6.1Assessment 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.

32. Section 6.1Assessment Reviewing What You Learned Answer • The innocent party must suffer some monetary loss.

33. Section 6.1Assessment Reviewing What You Learned • What is the difference between fraud and concealment?

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

35. Section 6.1Assessment Reviewing What You Learned • What is the difference between fraud and innocent misrepresentation?

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

37. Section 6.1Assessment Reviewing What You Learned • What is the difference between the remedy available for fraud and the remedy available for misrepresentation?

38. Section 6.1Assessment Reviewing What You Learned Answer Damages are a possible remedy in a fraud case.

39. Section 6.1Assessment Critical Thinking Activity Fraud Why do courts permit fraud to disrupt genuine agreement in a contractual setting?

40. Section 6.1Assessment Critical Thinking Activity Answer Fraud Answers will vary, but should recognize that fraud leads to a defective agreement.

41. Section 6.1Assessment 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.

42. Section 6.1Assessment 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.

43. Section 6.1Assessment 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.

44. Section 6.1Assessment 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.

45. End of Section 6.1