7-2 Mistakes, Misrepresentation,
and Fraud
What are the types of Contractual
Mistakes??
1) unilateral mistakes-an incorrect belief by one of the
parties in a contract
–
Ex: not reading the contract before you sign it or signing
contract in language you don’t know
2) mutual mistake (bilateral mistake)-an incorrect belief
by both parties about an important fact
–
Ex: suppose both a buyer and a seller think that a land is
42 acres but later they find out it is actually 21 acres.
This causes the contract to void.
3) material facts-important details that influence the
parties’ decision about the contract
What is Misrepresentation??

Innocent Misrepresentation-a statement made
by a party who didn’t know it was untrue
–

Fraudulent Misrepresentation-a statement made
by one party who knew it was untrue
–

Ex: a seller is unaware that a car has gotten a new odometer
and states it has 700mi when in fact it has 90,000mi.
Ex: a seller is aware of the fact that the cars engine is bad but
tells consumers that it is fine.
Both result in void contract
What is Misrepresentation?? (cont’d)
A) Untrue Statements
–
Active concealment-substitute for a false
statement of fact
–
–
Ex: Seller place a price sticker over a scratch on a TV
screen .
Silence must end when a statement is made false
by previous events.
–
Ex: A owner of a car says he only drove the car once a
week but he didn’t say he drove it at a drag strip.
What is Misrepresentation?? (cont’d)
B) Materiality
–
–
–
A statement is material if it causes a reasonable
person to want to contract.
A statement can be material if a defendant knew
the plaintiff would rely on it.
A statement is material when the defendant
knows that the statement is false.
C) Reasonable Reliance
–
Misrepresentation can only take place when the
victim is reasonably reliable.
Fraud and Remedies for Fraud

Fraud- is a crime based on misrepresentation
A) Misrepresentation- Intentional or Reckless??
–
–
When a person lies and they know they are lying. It is
intentional
When a person says something without knowing its
true or false. It is reckless.
Fraud and Remedies for Fraud
(cont’d)
B) Misrepresentation or Concealment??
–
–
Injury-something that is proven to establish fraud.
There can still be misrepresentation but without
injury there’s no fraud.
Fraud and Remedies for Fraud
(cont’d)
C) Remedies for Fraud
–
Rescission

–
Damages

–
Contracts resulting of misrepresentation or fraud can be
voidable by the injured party and can be rescinded
Are only available if fraud is proven. Then the party
defrauded may choose to ratify the agreement instead of
rescind.
Punitive Damages- A form of punishment

Are also available if fraud is proven.
THE END
By: Glen Thompson