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This semester has a much greater emphasis on the policy behind the rules.
Learn this, and apply it.
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On the final, organize your writing. Don’t put all your rules in one
paragraph, break it down. Overall rule and one or two elements, apply.
New paragraph for the next element, apply. This will also help you with
your analysis, to make sure you don’t miss anything
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This semester pay attention to whether a rule will VOID a contract or make
it AVOIDABLE. These are different.
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The rules this semester also vary in the application based on the
sophistication of the parties. COMMERCIAL parties have more expected
of them than a CONSUMER. Touch on this in your analysis
Policing Contracts for Improper Bargaining
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Void contract—is a legal nullity, will not be recognized by a court. NO
CONTRACT
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Avoidable contract—the aggrieved party can elect either to keep the
contract in force or to exercise their right to rescind (avoid) it
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If avoided—the general rule is that each party is entitled to
restitution of any benefits conferred on the other under the contract
up to the avoidance
Fraudulent Misrepresentation
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A material misrepresentation of fact, made with knowledge of its falsity
and intent to induce the contract, which does in fact justifiably induce the
other party to enter the contract
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Can be:
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Affirmative—in the form of a deliberate untrue statement or
purposeful action to conceal a fact
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Concealment
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Nondisclosure
Fraudulent Misrepresentation
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The misrepresentation must relate to a fact
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Mere expression of opinion or a prediction of the future generally
does not qualify as fact
o
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Factual assertion (a misrepresentation that a fact exists) is distinguishable
from a contractual promise (a commitment to do something in the future)
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BUT can be based on fact and if no factual basis for the
assertion it is misrepresentation
But if the party deliberately and dishonestly misrepresents their
future intentions this can be treated as a misrepresentation of fact
Misrepresentation of Fact
R2K § 159—a misrepresentation is an assertion not in accordance with the
facts
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False representation that a fact is true
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Assertion not in accord with the facts
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Can be an express statement or a deliberate concealment of a fact
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Balance between knowledge of misrepresenting party and legal severity
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High knowledge = fraud
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Medium knowledge = negligent
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Low knowledge = innocent
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When Action is Equivalent to an Assertion (concealment)
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R2K § 160— Action intended to or known to be likely to prevent another
from learning a fact is equivalent to an assertion that the fact does not
exist
Knowledge of Falsity and Intent to Mislead (Scienter)
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Must show scienter for fraud
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If a misrepresentation is made with the knowledge that it is untrue and
with an intent to mislead the other party, it is fraudulent
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Scienter—knowledge of untruth and intent to mislead
o

Is a mark of fraudulent misrepresentation
Knowledge of Falsity—situation in which party knows they are lying OR
situation in which they are recklessly indifferent as to the truth
R2K § 162 (1) —When a Misrepresentation is Fraudulent
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A misrepresentation is fraudulent if the maker intends his assertion to
induce a party to manifest his assent and the maker:
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Knows or believes that the assertion is not in accord with the facts;
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Does not have the confidence that he states or implies in the truth
of the assertion; or
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Knows that he does not have the basis for the assertion
R2K § 162 (2) —Materiality
A misrepresentation is material if it would be likely to induce a reasonable
person to manifest his assent (objective standard) or if the maker knows
that it would be likely to induce the recipient to do so (subjective
standard)
R2K § 164

allows avoidance of a contract for misrepresentation either if the
misrepresentation was fraudulent or negligent
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If a party’s manifestation of assent is induced by either a fraudulent or a
material misrepresentation by the other party upon which the recipient is
justified in relying, the contract is voidable by the recipient
Fraudulent v. Negligent
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Materiality is an element of negligent misrepresentation not fraud
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Therefore, a party seeking avoidance on grounds of fraudulent
misrepresentation is not required to prove the misrepresentation was
material
o

Although include discussion in test answers, it also bolsters the
case for fraud
Negligent misrepresentation—failure to exercise reasonable care in
obtaining or communicating information
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Needs materiality
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Disclaimer, merger or other contractual clauses may shield party
from negligent misrepresentation
Justifiable Inducement
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Victim of fraud must show that the misrepresentation induced him to enter
the contract and that he was justified in relying on the misrepresentation
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Means the victim would not have entered the contract, or would
not have entered it on those terms, had he known the truth
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Must show inducement and justifiable reliance
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Justifiable reliance mixes objective (reasonableness) and subjective
elements to determine if the victim, given his personal attributes and
circumstances, should have been taken in by the falsehood
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Here look at things like commercial sophistication
Reliance on the contract must be reasonable
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Most courts need to look at materiality which is why most do not
completely fall in line with § 164’s lack of the requirement of
misrepresentation to be material
Remedy
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Recission—Victim can avoid the contract and obtain restitution for any
performance that has been rendered
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Damages—Victim can also keep the contract in force and sue for
damages, being any loss in value of the performance as a result of the
fraud
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Typically, the difference in value between actual worth of
performance and what it would have been as represented
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Punitive damages are available because fraud is a tort
o
Usually not available if recission is sought, only if seeking
damages
Hodge v. Craig
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Defendant led plaintiff to believe her child was his, leading to him
proposing and marriage [affirmative fraud]
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Legal responsibility for deceit (predecessor to fraud) centered on
defendant’s intent to deceive, mislead, or convey a false impression
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Defendant either knows a statement is false or that the defendant
made the statement without any belief as to its truth or with reckless
disregard as to whether it is true or false
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Recovered monetary damages for reliance in paying child support as a
result of the misrepresentation
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To recover for intentional misrepresentation, a plaintiff must prove:
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That the defendant made a representation of a present or past
fact;
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That the representation was false when it was made;
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That the representation involved a material fact;
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That the defendant knew that the representation was false or did
not believe it to be true or that the defendant made the
representation recklessly without knowing whether it was true or
false;
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That the plaintiff did not know that the representation was false
when made and was justified in relying on the representation; and
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That the plaintiff sustained damages as a result of the
representation
Misrepresentation of Fact, Opinion, or Prediction
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fraud is based on misrepresentation of fact, when an expression of opinion
or a prediction has a factual basis, the expression of a false opinion or
predication could qualify as fraud
Rodi v. Southern New England School of Law
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Plaintiff claims he was misled about the ABA accreditation of the law
school. Court found it possible that the school’s prediction/opinion of
eventually becoming ABA accredited was a misrepresentation of fact
made to induce Rodi to enroll and stay at the school
o
Need to determine whether reliance was justified
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Rule: A statement though couched in terms of opinion may constitute a
statement of fact in the context a fraudulent misrepresentation claim if
the statement can reasonably be understood as implying the existence of
facts that justify the statement—or, at least, the non-existence of any facts
incompatible with the statement

statements of opinion cannot imply that no facts exist contrary to that
opinion
Silence as Fraud
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Fraudulent Nondisclosure and the Duty to Speak
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Silence is not tantamount to fraud in every situation
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Party can be entitled to keep info to themselves
R2K § 161—When Nondisclosure is Equivalent to an Assertion
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A person’s nondisclosure of a fact known to him is equivalent to an
assertion that the fact does not exist in the following cases only:

Where he knows that disclosure of the fact is necessary to prevent
some previous assertion from being a misrepresentation or from
being fraudulent or material
o
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Failure to correct
Where he knows disclosure of the fact would correct a mistake of
the other party as to a basic assumption on which that party is
making the contract and if nondisclosure of the fact amounts to a
failure to act in good faith and in accordance with reasonable
standards of fair dealing
o
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Where he knows that disclosure of the fact would correct a mistake
of the other party as to the contents or effect of a writing, evidence
or embodying an agreement in whole or in part
o
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Know disclosure would correct mistake about a writing
Where the other person is entitled to know the fact because of a
relation of trust and confidence between them
o
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Known mistake as to basic assumption—subjective test,
based on party’s sophistication
Fiduciary relationship
Default in business transactions is no duty to disclose in arm’s length
transactions
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Onus on party to ask about the things important to them
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then if other party lies = affirmative misrepresentation
Kaloti Enterprises, Inc. v. Kellog Sales Company
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Plaintiff bought and resold food from Kellog, when Kellog decided to cut
out the middle man they did not inform plaintiff when plaintiff was placing
its quarterly order
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Claim may arise from a failure to disclose a material fact or from a
statement of material fact which is untrue
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Where the defendant has special knowledge or means of knowledge not
open to the plaintiff and is aware that the plaintiff is acting under a
misrepresentation as to facts which could be of importance to him, and
would probably affect his decision
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At its core misrepresentation is not cheating other people
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Duty to disclose if information (material fact) exists that the other party
cannot obtain
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To state a claim for intentional misrepresentation [nondisclosure]
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The defendant must have made a factual representation;
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Which was untrue;
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Defendant either made the representation knowing it was untrue or
made it recklessly without caring whether it was true or false;
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Defendant made the representation with the intent to defraud and
induce another to act upon it; and
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Plaintiff believed the statement to be true and relied on it to their
detriment
Factors weighed in determining if a legal duty exists
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Kind of history
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Our ideas of morals and justice
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The convenience of administration of the rule
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Our social ideas as to where the loss should fall
Duty to Disclose— Generally, there is no duty to disclose in an arm’s length
transaction, and a party must be under a duty to disclose before it can be
charged with failure to disclose. Duty exists when:
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The fact is material to the transaction;
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The party with knowledge of that fact knows that the other party is
about to enter into the transaction under a mistake as to the fact;

The fact is peculiarly and exclusively within the knowledge of one
party, and the mistaken party could not reasonably be expected to
discover it; and
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On account of the objective circumstances, the mistaken party
would reasonably expect disclosure of the fact
Quimbee/ A party to a contract has a duty to disclose a fact if: (1) the fact is material to
the transaction, (2) the party knows the other party is about to enter into the contract
under a mistake regarding the fact, (3) the fact is exclusively within the knowledge of
the party so that the other party could not reasonably discover it, and (4) the mistaken
party would reasonably expect disclosure of the fact.
Milliken v. Jacono
Court found that the nondisclosure of a murder/suicide in the home that the
plaintiff’s purchased did not amount to fraud because the