Mistakes, Misrepresentation, and
Fraud
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Copyright © Texas Education Agency, 2013. All rights reserved.
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Types of Contractual
Mistakes
• Unilateral - one party has an incorrect belief
about an important fact
• Mutual (bilateral) – both parties have an
incorrect belief about an important fact or the
applicable law
• Material fact - important fact that influences
the parties’ decisions about a contract (void
contract)
Copyright © Texas Education Agency, 2013. All rights reserved.
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Misrepresentation
Untrue Statement of Fact
• Active Concealment - false statement of fact
• Silence
Keep it zipped
– Important information about
shut!
a material fact is omitted
– When a true statement is
made false by subsequent events
– When one party knows the other
party has made a basic mistaken assumption
Copyright © Texas Education Agency, 2013. All rights reserved.
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Misrepresentation
Materiality
I’m telling the truth
– honest!
• If the statement would cause a
reasonable person to contract
• If the defendant knew the
statement was false
• Reasonable reliance - victim
relied on the statement
• Innocent misrepresentation
and fraudulent
misrepresentation will result in
voidable contracts
Copyright © Texas Education Agency, 2013. All rights reserved.
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Misrepresentation
Materiality
• Statements are Treated as Misrepresentation
by the Law if
– The untrue statement is one of fact or there is
active concealment
– The statement is material to the transaction or is
fraudulent
– The victim reasonably relied on the statement
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Fraud and Remedies
for Fraud
• The Misrepresentation Must Be Intentional or
Reckless
• The Misrepresentation or Concealment Must
Injure
• Remedies for Fraud
– Rescission
– Damages
– Punitive damages
Copyright © Texas Education Agency, 2013. All rights reserved.
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Assignments
•
1. Damages for Lawsuits Assignment: Ask students to use the Internet to research
lawsuits that have resulted in large settlements for compensatory and punitive
damages. Students must write a one-page report about the incident, damages
suffered, settlements awarded, and actual amounts received by the winning
plaintiffs.
•
2. Analyze the Television Commercials for Facts and Personal Opinion: Watch 10
television commercials and complete the associated table with facts and personal
opinions included in the advertisements.
•
3. Consumer Fraud PowerPoint Presentation: A government study recently
discovered that consumer fraud takes a $40 billion toll each year on its victims.
According to a Harris poll, more than 92 percent of all Americans are affected.
Conduct research about consumer fraud and produce a PowerPoint presentation that
describes the fraud and explains what can be done to reduce or eliminate it.
Copyright © Texas Education Agency, 2013. All rights reserved.
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