Worksheet 15.2: Fraudulent Misrepresentation

18. An element of fraud is that the deceived party must have had a ______ reason for relying on the misrepresentation.

justifiable

3. Fraudulent misrepresentation refers to misrepresentation which is ___(1)___ false and is ___(2)___ to mislead another. The person making the statements knows or ___(3)___ they are false.

(1) consciously (2) intended (3) believes

12. Silence normally ___(1)___ misrepresentation. However, if there is ___(2)___ defect or a(n) ___(3)___ relationship, then a seller ___(4)___ have a duty to speak.

(1) is not (2) a latent (3) fiduciary (4) may

8. Statements of ___(1)___ or ___(2)___ about the future are generally not subject to fraud claims. Normally, this type of talk is called ___(3)___ and ___(4)___ legal.

(1) opinion (2) predictions (3) puffery (4) is

10. When a naïve purchaser relies on the opinion of an expert, the innocent party may be entitled to ___(1)___ (cancelation of the contract) or ___(2)___ (a change to the contract).

(1) rescission (2) reformation

16. Innocent misrepresentation

Giving wrong information about a material fact but with a reasonable belief that it is correct information

16. Fraudulent misrepresentation

Giving wrong information about a material fact intentionally

Negligent misrepresentation

Giving wrong information about a material fact with an unreasonable belief that it is correct information

1. When a party is fraudulently induced into a contract, that party can ______.

rescind the contract

14. Select the three situations where scienter may be found. a. Knowingly making a misstatement of fact b. Accidentally telling the other party incorrect information c. Making a statement recklessly without verifying its truth d. Implying a statement is based on personal knowledge when it is not e. Verifying information through personal observance

a. Knowingly making a misstatement of fact c. Making a statement recklessly without verifying its truth d. Implying a statement is based on personal knowledge when it is not

4. Select the three elements typically found in fraud. a. Misrepresentation of material fact b. Mistake of material fact c. Accidental deception d. Intent to deceive e. Justifiable reliance on the misrepresentation f. Actual reliance (whether justifiable or not) on the misrepresentation

a. Misrepresentation of material fact d. Intent to deceive e. Justifiable reliance on the misrepresentation

9. There is one instance when an opinion may create fraudulent misrepresentation. Select the two criteria for this situation. a. Naïve purchaser b. Savvy purchaser c. Opinion of an expert d. Opinion of the average person e. Opinion of a judge f. Demanding purchaser

a. Naïve purchaser c. Opinion of an expert

17. Negligent misrepresentation occurs when a party gives incorrect information about a material fact, believing it is true because of a lack of care in investigating the information. a. True b. False

a. True

2. Even though fraud is a tort, it is also a contract principle related to voluntary consent. a. True b. False

a. True

15. If there is an innocent misrepresentation, the innocent party may rescind the contract, but not sue for damages. a. True b. False

a. True (An innocent party is not likely to be required to perform a contract when there was an innocent misrepresentation, but he or she is not allowed to sue for damages.)

11. If a non-attorney party to a contract unintentionally misrepresents the law, the other party may rescind the contract. a. True b. False

b. False (Incorrect. Under the common law, people are assumed to know the law. If someone represents the state of the law to a party, that party should verify that the law is as it was stated. If an attorney or an expert in the field covered by the law misrepresents the law, then it is a misrepresentation, and the innocent party may rescind the contract.)

13. Scienter is the science of determining if fraud exists. a. True b. False

b. False (The element of scienter exists when there was an intent to deceive. Scienter clearly exists if a party knows that a fact is not as stated.)

5. When a party has been the victim of fraudulent misrepresentation, he may collect damages even if he has suffered no harm. a. True b. False

b. False (The party must be injured in order to collect damages.)

7. Hiding a material fact from the other party to a contract is considered: a. misrepresentation by words. b. misrepresentation by action. c. not misrepresentation.

b. misrepresentation by action.

6. Misrepresentation can occur by: a. words only. b. words or actions. c. actions only.

b. words or actions.