Chapter 12

fraudulent misrepresentation

A __________________ is a false representation of a material fact that is consciously false and is intended to mislead the other party.

voidable

A term applied to a contract that one or both parties have the ability to either withdraw from or enforce.

mutual

Alternatively, they may be _________, shared by both parties to the agreement. This distinction is important in determining which contracts are voidable.

innocent misrepresentation

An ____________________ is a false statement about a fact material to an agreement that the person who made the statement believed to be true.

One party made a mistake about a material fact and the other party either knew or had reason to know about the mistake. The mistake was caused by a clerical error that did not result from gross negligence. The mistake was so serious that the contract is unconscionable, that is, so unreasonable that it is outrageous.

Any of the following conditions would permit a court to invalidate a contract on grounds of unilateral mistake:

A basic assumption about the subject matter of the contract. A material effect on the agreement. An adverse effect on a party that did not agree to bear the risk of mistake at the time of the agreement.

For a mutual mistake to interfere with legal consent, it must involve all the following:

intentional misrepresentation.

Fraudulent misrepresentation is ____________________. Here, scienter is clear. The party making the misrepresentation either knows or believes that the factual claim is false or knows that there is no basis for the assertion.

unilateral

Mistakes may be ___________, the result of an error by one party about a material fact, that is, a fact that is important in the context of the particular contract.

Intent to Deceive

Scienter is present when the party accused of making the fraudulent assertion believed that the assertion was false or made the claim without any regard for whether it was true or false. Alternatively, intent to deceive is present when the party making the false statement claims or implies that he or she has personal knowledge of the accuracy of the assertion. Any resulting assent is not legal because the injured party was not allowed to join the mind of the deceiving party. The party with scienter or intent to deceive wanted the contract to be fulfilled on the basis of a falsehood.

scienter

The person who made the false statement had no knowledge of the falsity of the claim. We say the person lacked ___________

A false statement about a past or existing fact that is material to the contract. Intent to deceive. Intent can be inferred from the particular circumstances. Then add a third necessary element: Justifiable reliance on the false statement by the innocent party to the agreement. Justifiable reliance is generally present unless the injured party knew, or should have known by the extravagance of the claim, that the false statement was indeed false. For example, a person could not justifiably rely on a claim by another that a hair on her head, although worth $1,000, was available for $10.

To understand the requirements for a finding of fraudulent misrepresentation, start with the two elements from the definition:

rescinded

When a contract is voidable, it may be ___________, or canceled

Mutual Mistake

When both parties to a contract are mistaken about either a current or a past material fact, either party can choose to rescind the contract. Rescinding such a contract is fair because any agreement between the parties was an illusion: An ambiguity in some key fact prevented the parties from being in actual agreement.

rescission

____________ is permitted for even unilateral mistakes. Because our economic well-being depends so heavily on reliable contracts, we want to be fully aware of the circumstances under which unilateral mistakes permit rescission.

Nondisclosure

______________ is different because it involves a failure to provide pertinent information about the projected contract.

Concealment

________involves the active hiding Page 244of the truth about a material fact, for example, removing 20,000 miles from the odometer on your car before selling it to me.

unilateral mistake

a _______________ does not void a contract. Courts are hesitant to interfere with a contract when one of the parties has a correct understanding of the material facts of the agreement. For instance, a widow seeking to rescind her and her husband's election to have his retirement benefits paid out over his life was not permitted to receive survivor's pension benefits. The court held that representatives of the retirement system had provided sufficient information to the plaintiff and her husband before they elected that particular form of payout

misrepresentation

a ________________ is an untruthful assertion by one of the parties about a material fact. One party said something that prevented the parties from having the mental agreement necessary for a legal contract. The parties only appeared to agree, so their contract lacked legal assent.

A relationship of trust exists between the parties to the contract. In this situation, the relationship provides a reasonable basis for one person's expectation that the other would never act to defraud him or her. There is failure to correct assertions of fact that are no longer true in light of events that have occurred since the initial consent to the terms of the agreement. An illustration is my failure to inform you of the recent outbreak of rust on my rust-free car that you have agreed to purchase next month.

courts will now find nondisclosure as having the same legal effect as an actual false assertion under certain conditions:

Mistake

is an erroneous belief about the facts of a contract at the time the contract is concluded.

how to achieve genuine assent.

mistake, misrepresentation, undue influence, and duress.

negligent misrepresentation

one party makes a statement of material fact that he thinks is true, but he is negligent in making the assertion. Such a _____________ results when the party making the statement would have known the truth about the fact had he used reasonable care to discover or reveal it.