Vices of Consent - Fraud Flashcards
Definition
i. Definition—“Fraud is a misrepresentation or a suppression of the truth made with the intention either to obtain an unjust advantage or to cause a loss or inconvenience to the other. Fraud may also result from silence or inaction.” (La. Civ. Code art. 1953)
Elements of Fraud
Elements—As defined in La. Civ. Code art. 1953, fraud has a psychological, or subjective element and a material, or objective element.
(a) Material Element—The material element of fraud is the actual misrepresentation or suppression of the truth. Consider what kinds of misrepresentations/suppressions “count” as fraud under La. Civ. Code art. 1953.
The affirmative misrepresentation or the suppression of the truth
(i) Lies/Schemes
a. General Rule—Affirmative misstatements and misrepresentations of the truth amounts to fraud.
i. Hypo—A tells B that the dress she has for sale is the product of a famous designer, when in fact it is not.
b. Puffing—Note that minor misrepresentations or exaggerations are tolerated.
i. Hypo—The sign on A’s restaurant states: “World’s Best BBQ.” Is this fraud? Why does the law tolerate minor misrepresentations or exaggerations of this type?
This is merely an opinion, not a fact. We realize that in commercial practice advertising involves talking up a product. y
(ii) Silence/Omission
a. Majority View: Duty to Disclose Required—Courts generally do not find that silence amounts to fraud unless the party making the omission had a duty to disclose certain information to the other party.
i.
Hypo—A sells B a vehicle with a defective engine. A does not mention to B that the engine is in need of repair. Read carefully La. Civ. Code art. 2545. Does A have a duty to disclose the defect?
Because it is material, this must be disclosed. This example is fraud.
ii. Hypo—A sells B a house where a murder was committed. A does not tell B about the crime that occurred there. Has A committed fraud?
Not fraud. You have to disclose physical defects, but not more psychological problems. Though this may be rescindable for error if the seller is aware that the buyer would never want to buy a house that a murder was committed in.
b. Fraud though Silence in the Absence of a Duty to Disclose—Some legal scholars argue that the failure to disclose relevant information that may result in an unjust advantage or cause a loss or inconvenience to the other party amounts to fraud even when the law does not explicitly provide for a duty to disclose. Read carefully La. Civ Code art. 1759 & 1983. What support exists there for the argument that silence=fraud even in the absence of an affirmative and explicit duty to disclose?
(a) Psychological Element—What is the psychological element of fraud? How is intent central to the commission of fraud?
The intent, either to obtain an unjust advantage or to cause a loss or inconvenience.
(i) Illustration—Orr v. Walker, 109 So. 2d 77 (1959)—p. 294—Identify the contract that Orr seeks to rescind on the basis of fraud. In what way does Orr allege that Walker has defrauded him? What was the material element of the fraud? What was the psychological element? Does the court find that both elements were present in this case? Carefully review the court’s discussion of the necessity of a “pecuniary interest” on page 296. Is it necessary for Orr to show that he suffered a financial loss in order to prevail in this case? Why or why not? Carefully review the court’s discussion of “future developments” on page 296. Why aren’t misrepresentations about future developments considered fraudulent statements? Did the court characterize Walker’s misrepresentations in this case as misrepresentations about the future? Why or why not?
- Causing a loss or inconvenience
- Walker buys a strip of property from Orr with the intention of giving it to Talley, and induced Orr to sell the strip of land to him by saying that Talley would be moving.
- If all Walker had done here was misstate a prediction, then the contract could not have been rescinded. However, that is not the case here, Walker misstated the present.
- Walker presenting the deed from Talley to Orr is a material misrepresentation of fact. The material prong “a misstatement or omission of fact” is satisfied.
- The court says that it does not need to be a true pecuniary loss.
- Art. 1955 -
(ii) Illustration—Griffing v. Atkins, 1 So. 2d 445 (La. App. 1 Cir. 1941—Identify the contract that Sims seeks to rescind in this case. In what way does Sims allege that Griffing defrauded him? What was the material element of the fraud? What was the psychological element? Does the court find that both elements were present in this case? Read carefully the court’s discussion of whether any of the parties in this case were acting as a “fiduciary” or “quasi-fiduciary” of Sims on pp. 288-89 What is the significance of this discussion? Did a “duty to disclose” exist in this case? On what basis does the dissent object to the reasoning of the majority? - Court determines that Griffing knew that the ring was worth more than he valued it to Simms., so that is a suppression of the truth. Also determines that they had a fiduciary duty to Simms (or, as they say, a quasi-fiduciary duty) because Simms has absolutely no idea what the ring is worth and the Jeweler has all of the knowledge as to what the ring is worth. - Material Element: duty to disclose } Appraisal } Absolute ignorance of simms } Simms went there on invitation to the Jeweler } Racial power imbalance (1941) - Intent: } The intent was to make an enormous profit off of the ring. - It is worth noting that a quasi-fiduciary duty does not exist. However, in an equity sense, this case probably turned out correctly.
Prequsities for Fraud that Vitiates Consent
(a) Induces an Error Substantially Influencing Consent—“Error induced by fraud need not concern the cause of the obligation to vitiate consent, but it must concern a circumstance that has substantially influenced that consent.” (La. Civ. Cod art. 1955)
(i) Necessity of an Error—Quite obviously, fraud must induce an error in order for consent to be vitiated. Attempted fraud that does not result in a mistake or misunderstanding on the part of the other party does not affect the quality of that party’s consent.
(ii) Substantially Influenced Consent—The error need not concern a cause without which the obligation would not have been incurred. Instead, the error need only be one that substantially influenced the contract.
a. Illustration—A sells a car to B. The car has been in an accident and repaired, but A does not reveal this fact to B. Instead, A tells B the car has “never been wrecked.” B can rescind on the basis of fraud, even if he still would have purchased the car had he known of the accident, so long as the fraud affects some aspect of the contract (such as the price or other contractual terms).
(b) Truth Unascertainable—“Fraud does not vitiate consent when the party against whom the fraud was directed could have ascertained the truth without difficulty, inconvenience, or special skill. This exception does not apply when a relation of confidence has reasonably induced a party to rely on the other’s assertions or representations.” (La. Civ. Code art. 1954)
(i) General Rule—In general, if the truth could have been easily determined by the party defrauded, then the fraud is not actionable.
a. Illustration—A sells B a car. A tells B that the car is worth $6,000. In fact, the bluebook value of this type of car in top condition is $4,500. B cannot rescind the sale on the basis of fraud.
(ii) Exception—When a relationship of confidence induces a party to believe the party making the misrepresentation, then it matters not that the truth may have been easy to ascertain. What is a “relation of confidence”?
(iii) Illustration—Overby v. Beach, 55 So. 2d 873 (La. 1951)—Identify the alleged fraud in this case. What caused the misunderstanding of the purchaser regarding the apartments? Could the purchaser have ascertained the truth without special skill or difficulty? Even if the facts of this case do not satisfy the standard for fraud, can it be argued that the contract should be rescinded on the basis of error?
- Essentially the seller lied about how much rent could be collected from the property.
- Initially the court held that the buyer could have found out about the law that capped the amount of rent that could be collected, but upon rehearing changed their minds.
- Case is designed to highlight that you cannot rescind if the truth is easily ascertainable.
(c) Party Perpetrating Fraud
(i) General Rule—Fraud generally must be perpetrated by a party to the contract to be actionable. That is, fraud perpetrated by persons unrelated to the contract does not, as a general rule, lead to nullity.
(ii) Exception—Fraud Perpetrated by Third Parties—“Fraud committed by a third party vitiates the consent of a contracting party if the other party knew or should have known of the fraud.” (La. Civ. Code art. 1956)
Proving Fraud
Fraud must be proved by a preponderance of the evidence and may be established by circumstantial evidence.
Remedies
(a) Rescission—What is the legal basis for granting rescission in cases of fraud? See La. Civ. Code art. 2031. Review the rules governing nullity of contracts found in La. Civ. Code arts. 2029-2035.
A contract procured through fraud is relatively null
(b) Damages and Attorney Fees—The party against whom rescission is granted because of fraud is liable for damages and attorney fees.” (La. Civ. Code art. 1958)
