Mistake, Misrepresentation and Fraud
Lesson 8-2 Mistake, Misrepresentationand Fraud What will you learn?? Determine what kinds of mistakes than can make acontract void or voidable Describe the elements of misrepresentation and fraud Identify the difference (And similarities) ofmisrepresentation and fraud Determine what remedies are available for a victim ofmistake, misrepresentation and fraud What is a unilateral mistake?
A Unilateral Mistake occurs when one party to a contractholds some kind of incorrect belief about the subject matter ofthe contract. Generally, this has NO effect on the validity of a contract Ex) If a consumer fails to read the details of an agreement orthinks the purchase they are making can do something it cant,its the Buyers fault for not reading or asking questions (Buyinga F150 pick-up truck thinking (Without asking) it can hold lbs of weight and having the truck break when you learn itcannot) What is the difference between a recognized unilateral mistake and induced unilateral mistake?
If the mistake is Major andthe uninjured party was awareof the mistake, its arecognized unilateral mistake Court may grant the right torescind to victim Induced Unilateral Mistake If one party Encourages orinduces the other party tomake a mistake, its ainduced unilateral mistake Contract becomes voidable(Injured party can Chooseto end it) Recognized or induced? Sophie has been pushing her boyfriend to Tiethe Knot and recently, James was thinking Yeah,I think I am ready.James goes to FrontierJewelry one day and while looking at a tray ofdiamond rings in the showcase, sees one he isinterested in.The salesperson, realizes that theone James was looking at was a Cubic Zirconiathat accidently was in the showcase in thewrong spot and he allows James to pay $8000 fora ring worth only $200 because James neverasked any questions.What type of mistake justoccurred?? ANSWER?? SOPHIE? Recognized Unilateral Mistake
Why?The seller knew of theerror, allowed the buyer tomake the mistake Remedy? The right to rescind(Give back the ring and get yourmoney back) SOPHIE? Recognized or induced? Jake has been working at Frontier Marts Bakery now for 2 years.Hehas worked his way up to manager and knows a year end bonus iscoming.His boss, the store owner, told Jake You have beenthrowing out too much product lately and that is hurting yourprofit.Jake decides to tell his employees to mix day old breads anddonuts in with the fresh ones, thinking no person will tell thedifference.Well, Catherine one day buys donuts and thinks theydont taste correct.What type of mistake occurred? ANSWER?? What now? Induced Unilateral Mistake
Why?The seller knew of theerror and tried to trick thebuyer into making the mistake Remedy? Contract is voidable,meaning Catherine can get hermoney back) Whatnow? We know what a unilateral mistake is, so what is a bilateral mistake?
A Bilateral Mistake , also known as a Mutual mistake, iswhen BOTH parties to a contract hold an incorrect belief about amaterial fact (Important fact) If a Bilateral mistake occurs, the contract is void (Contract doesnot exist at all) There are 2 types of bilateral mistakes:Mistake of the SubjectMatter (Which means the parties dont understand what is beingcontracted) or Mistake of the Law (Which means the partiesbroke the law with the contract and did not know they broke thelaw) Describe a typical bilateral mistake
If Ken has what he believes to be agenuine Jim Kelly rookie football card thathe had signed by the Bills legend anddecides to sell it to Mark for $400, based onboth the card and signature being valid andMark decides after reviewing it that it waslegitimate, a bilateral mistake could occur ifafter the transaction took place, Mark findsout the card was a forgery and thereforethe value was much less. What is misrepresentation?
Misrepresentation occurs when oneparty in a contract makes a statementthat turns out NOT to be true Its different from a mistake because amistake is an incorrect belief by eitheror both parties to a contract andmisrepresentation means passing onsomething that is untrue 2 types of misrepresentation
Innocent Misrepresentation If a false statement is passedon because the sellerwaslied to when theyoriginally made thepurchase, they couldinnocently pass on a lie FraudulentMisrepresentation This is when the sellerknows the statement beingpassed on was untrue butdid not necessarily meanto injure the other person How is misrepresentation Proven
Show that the statement being madewas untrue or the seller tried toactively conceal information (Hide it) The statement was material(Important) to the buyer The victim relied on the falseinformation to make their decision What is fraud and how is it proven?
Fraud is based on misrepresentation Fraud means to intentionally try to deceive a person tolead them to an injury (Or to lie to them to gainsomething leading to the other parties loss) Fraud is the more serious version of misrepresentation What 5 elements prove fraud?
Untrue statement of fact or activeconcealment Material to the decision Relied upon to make decision Intent to deceive or false statementsmeant to mislead victim intocontract Intent to injure Misrepresentation (1-3) Fraud (All 5) What are the remedies available for victims of misrepresentation and fraud?
Right to rescind (Take back contract) Right to rescind Compensatory Damages Punitive Damages Fraud What are damages? Damages are what is awarded in a civil trial (Lawsuit) Compensatory damages are meant to Compensate avictim for their losses (Get the party back to where theywere before the contract started) Punitive damages are meant to punish the defendant(Given over and above a compensatory damage Rule:Compensatory damages are ALWAYS asked for,punitive very rarely Final Facts.. If a seller remains silent about a problem that a buyerdoes not question, the buyer cannot later claim they werelied to because they have a responsibility to ask questionsbefore deciding Active concealment is proven when a seller purposelytries to hide a problem from a buyer, therefore not allowingthem to question problems Key phrase to prove misrepresentation or fraud is that thebuyer relied upon an untrue statement made to them tomake a bad decision Ticket out the door quiz
Complete the practice quizand turn in before end ofclass Review and quiz within next 3classes