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

2. Section Outline Fraud Innocent Misrepresentation
False Representation of Fact
Representation Known to Be False
False Representation Intended to Be Relied Upon
False Representation Actually Relied Upon
Resulting Loss
Innocent Misrepresentation

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

4. 6.1
Genuine Agreement
Several circumstances might create a defective agreement:
Fraud
Misrepresentation
Mistake
Duress
Undue Influence

5. Pre-Learning Question
How would you define fraud?

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

7. Remedies for Fraud You may rescind, or cancel, the contract.
You may sue for money damages.

8. The Elements of Fraud
To succeed in a lawsuit for fraud, the following five elements must be demonstrated:
A false representation of fact.
Knowledge of the falsity by the party making the false representation.

9. The Elements of Fraud
Intent to deceive by the party making the false representation.
Reasonable reliance by the innocent party.
An actual loss must be suffered by the innocent party.

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

11. False Representation of Fact
Under some circumstances, individuals can make false representation by choosing not to reveal important information.
This is known as concealment, or passive fraud.

12. Representation Known to Be False
To be held accountable for fraud, the party making the false representation must be aware that it is false. This may be shown by:
proving actual knowledge
showing the statement was made recklessly

13. Intended to Be Relied Upon
False Representation
Intended to Be Relied Upon
To prove fraud, the person making the misrepresentation must intend that the other party will rely upon the information as part of the contract negotiations.

14. False Representation Actually Relied Upon
To prove fraud, the false representation must be reasonably relied upon by the other party when the agreement is made.

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

16. Pre-Learning Question
How is misrepresentation different from fraud?

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

18. Remedy for Misrepresentation
the right to rescind the contract
you may not win damages

19. 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.

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

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

22. Reviewing What You Learned What are the elements of fraud?
Section 6.1 Assessment
Reviewing What You Learned
What are the elements of fraud?

23. Reviewing What You Learned Answer
Section 6.1 Assessment
Reviewing What You Learned
Answer
There must be a false representation of a material fact.
The party making the representation must know that it is false.

24. Reviewing What You Learned Answer
Section 6.1 Assessment
Reviewing What You Learned
Answer
The false representation must be made with the intent that it be relied upon.
The innocent party must reasonably rely upon the false representation.

25. Reviewing What You Learned Answer
Section 6.1 Assessment
Reviewing What You Learned
Answer
The innocent party must suffer some monetary loss.

26. Reviewing What You Learned
Section 6.1 Assessment
Reviewing What You Learned
What is the difference between fraud and concealment?

27. Reviewing What You Learned Answer
Section 6.1 Assessment
Reviewing What You Learned
Answer
Concealment is passive fraud.

28. Reviewing What You Learned
Section 6.1 Assessment
Reviewing What You Learned
What is the difference between fraud and innocent misrepresentation?

29. Reviewing What You Learned Answer
Section 6.1 Assessment
Reviewing What You Learned
Answer
In fraud, the defrauding party knows of the false representation. In misrepresentation the false statement is made innocently.

30. Reviewing What You Learned
Section 6.1 Assessment
Reviewing What You Learned
What is the difference between the remedy available for fraud and the remedy available for misrepresentation?

31. Reviewing What You Learned Answer
Section 6.1 Assessment
Reviewing What You Learned
Answer
Damages are a possible remedy in a fraud case.

32. Critical Thinking Activity Fraud
Section 6.1 Assessment
Critical Thinking Activity
Fraud
Why do courts permit fraud to disrupt genuine agreement in a contractual setting?

33. Critical Thinking Activity Answer Fraud
Section 6.1 Assessment
Critical Thinking Activity Answer
Fraud
Answers will vary but should recognize that fraud leads to a defective agreement.

34. Legal Skills in Action Too Good to Be True?
Section 6.1 Assessment
Legal Skills in Action
Too Good to Be True?
You recently received a phone call from a travel agency offering a vacation package to Europe for less than $200.

35. Legal Skills in Action Too Good to Be True?
Section 6.1 Assessment
Legal Skills in Action
Too 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.

36. Legal Skills in Action Too Good to Be True?
Section 6.1 Assessment
Legal Skills in Action
Too Good to Be True?
In small groups, discuss whether this sounds like a case of potential fraud. Begin by listing the elements of fraud.

37. Legal Skills in Action Answer
Section 6.1 Assessment
Legal Skills in Action Answer
Too Good to Be True?
Discussions will vary but should compare the elements of fraud to the information given about the vacation offer.

38. End of Section 6.1