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CHAPTER 14: GENUINENESS OF ASSENT FRAUDULENT MISREPRESENTATION When an innocent party is induced to enter into a contract The contract normally can be avoided b/c that party has not voluntarily consented to its terms Normally, the innocent party can either: Rescind the contract and be restored to his/her original position Enforce the contract and seek damages for any injuries resulting from the fraud Refers only to misrepresentation that is consciously false and is intended to mislead another The perpetrator of the fraudulent misrepresentation knows or believes that the assertion is false (or knows that he/she does not have a basis for the assertion) 3 elements: [1] A misrepresentation of a material fact must occur [2] There must be an intent to deceive [3] The innocent party must justifiably rely on the misrepresentation To collect damages: Party must also have been injured To obtain rescission/defend against enforcement of contract on basis of fraudulent misrepresentation: Party need not have suffered an injury MISREPRESENTATION HAS OCCURRED The first element of proving fraud is to show that misrepresentation of a material fact has occurred Can occur by words or actions Representations of future facts (predictions) and statements of opinion are generally not subject to claims of fraud “This land will be worth twice as much next year” “This car will last for years and years” These are statements of opinion, not fact Contracting parties should recognize them as such and not rely on them An opinion is usually subject to contrary or conflicting views A fact is objective and verifiable Thus, a seller of goods is allowed to use puffery to see his/her wares without liability for fraud When a naïve purchaser relies on a so-called expert’s opinion the innocent party may be entitled to rescission or reformation Reformation = an equitable remedy granted by a court in which the terms of a contract are
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