Section 6.1 Fraud and Misrepresentation
BELL QUIZ ON CHAPTER 5
1. What is any agreement that is enforceable by law?
2. There are six elements of a contract. Name TWO.
3. How many promises does a bilateral contract
contain?
4. Who is the person making the offer?
5. There are five ways to terminate an offer. Name
TWO.
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
ANSWERS TO BELL QUIZ CHAPTER 5
1. Contract
2. Offer, acceptance, genuine agreement,
consideration, capacity, legality
3. Two
4. Offeror
5. Revocation, rejection, counteroffer,
expiration of time, death or insanity
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Section 6.1
Fraud and Misrepresentation
Section
6.1
and Misrepresentation
Agreement
Chapter 6FraudGenuine
Section 6.1
Fraud and Misrepresentation
Section 6.2
Mistake, Duress, and Undue Influence
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
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.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
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.”
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Genuine Agreement
6.1
Section
6.1 Fraud and Misrepresentation
Genuine Agreement
Several circumstances might create a
defective agreement:
Fraud
Misrepresentation
Mistake
Duress
Undue Influence
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Fraud
Fraud is a deliberate deception
intended to secure an unfair or
unlawful gain.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Remedies for Fraud
You may rescind, or cancel, the
contract.
You may sue for money damages.
You may also try to collect punitive
damages which is designed to punish
the wrongdoer for their conduct.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
The Five Elements of Fraud
1. A false representation of fact.
2. Knowledge of the falsity by the
party making the false
representation.
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
The Five Elements of Fraud
3. Intent to deceive by the party
making the false representation.
4. Reasonable reliance (trust) by the
innocent party.
5. An actual loss must be suffered by
the innocent party.
Understanding Business and Personal Law
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Section 6.1 Fraud and Misrepresentation
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.
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
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.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
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
Example 1 page 130
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
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.
Example 2 page 131
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
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.
Example 3 page 131
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Section 6.1 Fraud and Misrepresentation
Resulting Loss
In proving fraud, the innocent party
must show some monetary loss.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
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.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Remedy for Misrepresentation
the right to rescind the contract
you may not win damages
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
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.
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Can Joel claim there was false
representation? Why or why not?
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
ANSWER
Probably not. “As far as I know,” would
probably be considered innocent
misrepresentation.
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Section 6.2
Mistake,
Duress,
and Undue Influence
Fraud
and
Misrepresentation
Section 6.1 Fraud and Misrepresentation
Why It’s Important
Recognizing how mistake, duress, and
undue influence can affect agreements will
help you make better decisions in such
situations.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Genuine Agreement
In addition to fraud and
misrepresentation, mistake, duress,
and undue influence can also create a
defective agreement.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Mistake
People sometimes enter into contracts
believing that certain information is
true when it is actually not, or that
information is not true when it really is.
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Unilateral Mistake
A unilateral mistake is an error on
the part of one of the parties to the
contract.
Through words or actions, one party
has created reasonable
expectations on the part of the other
party to the contract.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Unilateral Mistake
Those expectations should not be
blocked because one of the parties
has made an error, or mistake.
A person usually cannot avoid a
contract because of such a mistake
Example 5 page 133
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Unilateral Mistake
There are two types of unilateral
mistakes.
1. Mistake as to the nature of the
agreement
2. Mistake as to the identity of a party
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Mistake as to the
Nature of the Agreement
People who sign an agreement are
bound to it, even if they have not read
it or are mistaken about what it says!!!
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Mistake as to the
Identity of a Party
If you make an offer by letter to one
party, but the wrong person mistakenly
receives the offer, the mistake may be
cause to void the contract.
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Mistake as to the
Identity of a Party
If you make the same offer face-toface with a person whose identity you
have mistaken, your mistake as to the
identity will not prevent a binding
contract.
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Genuine Agreement
6.2
Section
6.1 Fraud and Misrepresentation
Remedies for Unilateral Mistakes
Unilateral Mistake
Type of Mistake
1. Mistake as to the
nature of the
agreement.
2. Mistake as to the
identity of a party
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Remedy
1. Rescission will not
be granted.
2. Rescission may be
granted.
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Bilateral Mistake
When both parties to a contract are
mistaken about some important fact,
this is called a bilateral mistake, or
mutual mistake.
When this mistake occurs, either
party may avoid the contract.
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Bilateral Mistake
There are two types of bilateral
mistakes.
1. Mistake as to the possibility of
performance
2. Mistake as to the subject matter
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Mistake as to the
Possibility of Performance
If both parties enter into a contract
believing that the duties described in
the agreement can be performed,
when in fact, they cannot, either party
may avoid the contract.
Example 7 page 136
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Mistake as to the
Subject Matter
Both parties can be mistaken as to the
identity of the subject matter when
they enter into a contract. The contract
may be avoided by either one of the
parties.
Example 8 page 136
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Genuine Agreement
6.2
Section
6.1 Fraud and Misrepresentation
Remedies for Bilateral Mistakes
Bilateral Mistake
Type of Mistake
1. Mistake as to
possibility of
performance.
2. Mistake as to the
subject matter.
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Remedy
1. Rescission will be
granted.
2. Rescission will be
granted.
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Duress
Duress is overcoming a person’s will
by use of force or threat of force or
bodily harm.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Types of Duress
Physical duress is when actual
physical violence is used to force a
person to enter a contract.
Emotional duress is when the threat of
physical force is used to force a
person to enter a contract.
Understanding Business and Personal Law
Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Types of Duress
Economic duress is when threats to
a person’s business or professional
reputation are used to force a party to
enter a contract.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Undue Influence
Undue influence occurs when a
person uses unfair and improper
persuasive pressure to force another
person to enter into an agreement.
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Genuine Agreement
Section 6.1 Fraud and Misrepresentation
Undue Influence
Circumstances such as ill health, old
age, and mental immaturity may put a
person in a weaker position.
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Genuine Agreement
6.2
Section
6.1 Fraud and Misrepresentation
Elements of Undue Influence
Element
A dependency
relationship
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Description
One party in a
relationship is
dependent on the
other party.
Genuine Agreement
6.2
Section
6.1 Fraud and Misrepresentation
Elements of Undue Influence
Element
Unfair or improper
pressure
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Description
The independent person
uses excessive pressure
to force the dependent
person to enter a
contract.
Genuine Agreement
6.2
Section
6.1 Fraud and Misrepresentation
Elements of Undue Influence
Element
A beneficial contract
Description
The contract benefits
the independent party
at the expense of the
dependent party.
End of Chapter 6
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Genuine Agreement