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Fraud and MisrepresentationFraud and MisrepresentationSection 6.1Section 6.1

Understanding Business and Personal Law

Fraud and Misrepresentation Fraud and Misrepresentation Section 6.1Section 6.1

Genuine Agreement

Section 6.1Section 6.1Fraud and Misrepresentation Fraud and Misrepresentation

Section 6.2Section 6.2Mistake, Duress, and Undue Influence Mistake, Duress, and Undue Influence

66ChapterChapter Genuine AgreementGenuine Agreement



Genuine Agreement

What You’ll Learn

How to identify the elements of fraud How to identify the elements of fraud (p. 128)(p. 128)

How to distinguish between fraud and How to distinguish between fraud and concealment (p. 129)concealment (p. 129)



Genuine Agreement

What You’ll Learn

How to distinguish between fraud and How to distinguish between fraud and innocent misrepresentation innocent misrepresentation (pp. 128 and 132)(pp. 128 and 132)



Genuine Agreement

What You’ll Learn

How to distinguish between the remedy How to distinguish between the remedy available for fraud and the remedy available for fraud and the remedy available for misrepresentation available for misrepresentation (pp. 128 and 132)(pp. 128 and 132)



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Why It’s Important

Learning the elements of fraud may prevent Learning the elements of fraud may prevent you from being victimized or help you claim you from being victimized or help you claim your rights if you are defrauded.your rights if you are defrauded.



Genuine Agreement

Legal Terms

fraud (p. 128)fraud (p. 128)rescind (p. 128)rescind (p. 128)material fact (p. 129)material fact (p. 129)concealment (p. 129)concealment (p. 129)misrepresentation (p. 132)misrepresentation (p. 132)



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Fraud

False Representation of FactRepresentation Known to Be FalseFalse Representation Intended to Be

Relied Upon

Section OutlineSection Outline

Defective Agreements



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Innocent Misrepresentation

Fraud, continued

False Representation Actually Relied Upon

Resulting Loss



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If the offeror makes a valid offer, If the offeror makes a valid offer, and the offeree has made a valid and the offeree has made a valid acceptance, then a genuine acceptance, then a genuine agreement has been reached.agreement has been reached.The courts describe this type of The courts describe this type of agreement as “a meeting of the agreement as “a meeting of the minds.”minds.”

Genuine Agreement Genuine Agreement



Genuine Agreement

6.16.1

Genuine Agreement Genuine Agreement Several circumstances might create a Several circumstances might create a defective agreement: defective agreement:

FraudMisrepresentationMistakeDuress Undue Influence



Genuine Agreement

Pre-Learning Question Pre-Learning Question

How would you define fraud?



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Fraud Fraud

FraudFraud is a deliberate deception is a deliberate deception intended to secure an unfair or intended to secure an unfair or unlawful gain. unlawful gain.



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You may You may rescindrescind, or cancel, the , or cancel, the contract.contract.You may sue for money damages.You may sue for money damages.

Remedies for Fraud Remedies for Fraud



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To succeed in a lawsuit for fraud, the To succeed in a lawsuit for fraud, the following five elements must be following five elements must be demonstrated:demonstrated:

The Elements of Fraud The Elements of Fraud

1.1. A false representation of fact.A false representation of fact.2.2. Knowledge of the falsity by the Knowledge of the falsity by the

party making the false party making the false representation.representation.



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3.3. Intent to deceive by the party Intent to deceive by the party making the false representation.making the false representation.

4.4. Reasonable reliance by the Reasonable reliance by the innocent party.innocent party.

5.5. An actual loss must be suffered by An actual loss must be suffered by the innocent party.the innocent party.

The Elements of Fraud The Elements of Fraud



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False Representation of Fact False Representation of Fact

Fraud requires a false Fraud requires a false representation of a material, representation of a material, existing fact.existing fact.A A material factmaterial fact is one that is is one that is important; it matters to one of the important; it matters to one of the parties.parties.



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False Representation of Fact False Representation of Fact

Under some circumstances, Under some circumstances, individuals can make false individuals can make false representation by choosing not to representation by choosing not to reveal important information. reveal important information.

This is known as This is known as concealmentconcealment, or , or passive fraud.passive fraud.



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Representation Known to Be False Representation Known to Be False

To be held accountable for fraud, the To be held accountable for fraud, the party making the false representation party making the false representation must be aware that it is false. This must be aware that it is false. This may be shown by:may be shown by:

Proving actual knowledgeProving actual knowledgeShowing the statement was made Showing the statement was made recklessly recklessly



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False Representation False Representation Intended to Be Relied Upon Intended to Be Relied Upon

To prove fraud, the person making the To prove fraud, the person making the misrepresentation must intend that the misrepresentation must intend that the other party will rely upon the other party will rely upon the information as part of the contract information as part of the contract negotiations.negotiations.



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False Representation False Representation Actually Relied Upon Actually Relied Upon

To prove fraud, the false To prove fraud, the false representation must be reasonably representation must be reasonably relied upon by the other party when relied upon by the other party when the agreement is made.the agreement is made.



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Resulting Loss Resulting Loss

In proving fraud, the innocent party In proving fraud, the innocent party must show some monetary loss.must show some monetary loss.



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Pre-Learning Question Pre-Learning Question

How is misrepresentation different from fraud?



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Innocent Misrepresentation Innocent Misrepresentation

MisrepresentationMisrepresentation is the act of is the act of making an innocent statement that making an innocent statement that turns out to be false, when the person turns out to be false, when the person honestly believed the statement was honestly believed the statement was true at the time it was made.true at the time it was made.



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Remedy for Misrepresentation Remedy for Misrepresentation

The right to rescind the contract.The right to rescind the contract.You may not win damages.You may not win damages.



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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.



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Can Joel claim there was false representation? Why or why not?



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ANSWERANSWER

Probably not. “As far as I know,” would probably be considered innocent misrepresentation.



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Reviewing What You Learned

1. What are the elements of fraud?

Section 6.1 Assessment



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There must be a false representation of There must be a false representation of a material fact. a material fact. The party making the representation The party making the representation must know that it is false.must know that it is false.


Answer



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The false representation must be made The false representation must be made with the intent that it be relied upon.with the intent that it be relied upon.The innocent party must reasonably rely The innocent party must reasonably rely upon the false representation. upon the false representation.


Answer



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The innocent party must suffer some The innocent party must suffer some monetary loss.monetary loss.


Answer



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2. What is the difference between fraud and concealment?




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Concealment is passive fraud.Concealment is passive fraud.


Answer



Genuine Agreement


3. What is the difference between fraud and innocent misrepresentation?




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In fraud, the defrauding party knows of the In fraud, the defrauding party knows of the false representation. In misrepresentation false representation. In misrepresentation the false statement is made innocently.the false statement is made innocently.


Answer



Genuine Agreement


4. What is the difference between the remedy available for fraud and the remedy available for misrepresentation?




Genuine Agreement


Damages are a possible remedy in a fraud Damages are a possible remedy in a fraud case.case.


Answer



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Critical Thinking ActivityFraudWhy do courts permit fraud to disrupt genuine agreement in a contractual setting?



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Answers will vary, but should recognize that fraud leads to a defective agreement.

Critical Thinking Activity AnswerFraud



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Legal Skills in ActionToo Good to Be True?You recently received a phone call from a travel agency offering a vacation package to Europe for less than $200.



Genuine Agreement


Legal Skills in ActionToo Good to Be True?To take advantage of the offer, you were told to send $200 in cash within 24 hours or to supply a credit card number on the spot.



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Legal Skills in ActionToo Good to Be True?In small groups, discuss whether this sounds like a case of potential fraud. Begin by listing the elements of fraud.



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Legal Skills in Action AnswerToo Good to Be True?Discussions will vary, but should compare the elements of fraud to the information given about the vacation offer.

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