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7-2 Mistake, Misrepresentation, and Fraud

7-2 Mistake, Misrepresentation, and Fraud. GOALS Recognize the types of mistakes that can make a contract voidable or void List the criteria for a statement to be treated as a misrepresentation Define fraud and describe the remedies for it. WHAT IS MISREPRESENTATION?.

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7-2 Mistake, Misrepresentation, and Fraud

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  1. 7-2 Mistake, Misrepresentation, and Fraud GOALS • Recognize the types of mistakes that can make a contract voidable or void • List the criteria for a statement to be treated as a misrepresentation • Define fraud and describe the remedies for it Chapter 7

  2. WHAT IS MISREPRESENTATION? • Untrue statement of fact • Active concealment • Silence • Material fact (important enough to influence decision) • Reasonable reliance Chapter 7

  3. What are the three criteria for a statement to be treated as a misrepresentation? Chapter 7

  4. FRAUD • The misrepresentation must be intentional or reckless • The misrepresentation or concealment must injure Chapter 7

  5. Elements of Fraud • False representation must be deliberate • Present or Past Fact - not an opinion • Material Fact - important enough to influence the person’s decision to enter into the contract. • Person making the statement knows it is false or makes it recklessly • Intention to influence the other person to act • Reliance - Fraud must have induced action and caused injury Chapter 7

  6. REMEDIES FOR FRAUD • Defrauded party may • Disaffirm/rescind/avoid/repudiate/ renounce (all mean the same thing) • Ratify • Ratify, but seek reimbursement for loss through litigation (sue for damages) Chapter 7

  7. Explain these remedies available for fraud. Rescission Damages Punitive damages Chapter 7

  8. WHAT ARE THE TYPES OF CONTRACTUAL MISTAKES? • Unilateral mistakes • Mutual mistakes • When mistakes are made, the contract may be valid, voidable, or void. Chapter 7

  9. CONTRACTUAL MISTAKES • Valid • Unilateral mistake - made by only one of the parties and not obvious to the other Chapter 7

  10. CONTRACTUAL MISTAKES • Voidable • Unilateral mistake that is obvious to the other party Chapter 7

  11. CONTRACTUAL MISTAKES • Void • Mutual mistake - both parties are wrong about some important fact Chapter 7

  12. Name the types of mistakes that can make a contract voidable or void. Chapter 7

  13. PREVENT LEGAL DIFFICULTIES In making contracts . . . • Research important transactions before entering into them. Verify claims of the seller by outside means or through firsthand personal experience. • Do not rush into a decision. Take time to review and understand the advantages and disadvantages of the proposed contract. Legitimate proposals will usually survive a delay. Continued on the next slide Chapter 7

  14. PREVENT LEGAL DIFFICULTIES • Do not hesitate to ask questions about vague or uncovered issues. Forcing the other party to make statements about them may lay the groundwork for proving fraud or misrepresentation later. • If the other party does not properly answer your questions, proceed with great caution or abandon the negotiations. • If you believe you have been defrauded, act promptly to rescind the contract. Chapter 7

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