Chapter 16: Defenses: Misrepresentation and Non Disclosure

misrepresentation

If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

representation

a statement of a fact about the subject matter of the contract.

Fraudulent Misrepresentation

A fraudulent misrepresentation is an intentional misrepresentation where the maker (1) knows or should have known that the facts are untrue, and (2) is making the statement with the intent to mislead the other party—i.e., to induce the other party.

Material misrepresentation

A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

nondisclosure

Generally, there is no requirement of full disclosure of all relevant facts in every business relationship. Exceptions: An uninformed party may seek rescission of a contract if there are non-disclosed facts which (a) have a material effect on the transaction, (b) are not readily observable, and (c) are not known to the non-disclosed party in the following circumstances: where disclosure is required by statute; where a party intentionally conceals the non-disclosed facts, where the uninformed party is entitled to know the facts because of a relationship of trust and confidence between the parties; or in order to prevent or correct a mistake of the uninformed party when nondisclosure is a breach of the duty of good faith.

reformation

allows a court to rewrite some terms in a contract in order to more accurately reflect parties' intentions—maintains contractual relationship, but replaces term with something more reasonable

maker

party making the misrepresentation

recipient

party receiving the misrepresentation

rescission

restore the parties to their pre-contract position—essentially unwinding the deal and returning the consideration to each party; damages would attempt to put P in same economic position as if misrep had not been made

intentional concealment

the act of the cover-up and is treated the same as a fraudulent misrepresentation

materiality

to show that a misrepresentation was material: (1) A reasonable person would likely be induced by the misrepresentation to enter the contract; or (2) The maker knows that this specific recipient would likely be induced even though a reasonable person might not be so induced.