Consumer Law – Spring 2010
I. Common Law Fraud
i. Misrepresentation of an existing fact
ii. Scienter (def: “either knew or should have known that the statement was a lie OR had reckless disregard for the truth)
iii. Justifiable reliance
iv. Actual damages
i. Majority rule: “benefit of the bargain,” aka expectation damages. Allows recovery of what party would have received had the representations they relied upon been true. Note: this includes lost profits.
ii. Minority rule: “out of pocket.” This is the difference in value between what the party gave as consideration and what they actually received. These are relience type expenditures.
1. Recission: a non-monetary/equitable remedy. Does away with the contract and gives back what is left and any money paid.
2. Punitives: sometimes allowed when the court is trying to deter (this occurs when there is actual malice or reckless disregard for consequences).
3. South Carolina: measures damages as the difference between actual value at time of sale and value expected.
4. Attorney fees: not usually recoverable but may be recovered if:
a. Provided for under the consumer law statute; or
b. Provided for under the contract; or
c. There is intentional fraud
– Case Law
i. Fischer v. Division West Chinchilla Ranch: 1970, looked at whether the elements of fraud were met and how damages should be applied.
1. The court looks at the knowledge and sophistication of the parties (it did not consider the average person but rather, the average person in the plaintiff’s position).
2. The court said that fraud exists when there is a misrepresentation of a fact, OR, the one making the statement does actually hold the belief.
3. Court held that even if the plaintiff’s did not fit the definition under consumer law (1. individual buying goods and services for personal/household/family use 2. Fit within the proscribed activity of the statute), they were still able to have a cause of action under common law fraud.
ii. Von Hoffman v. Prudential Life Insurance: 2002, this is a case of fraud in the inducement. Here a failure to disclose a change in procedures that were material to the transaction was made for the purpose of inducement.  1. Failure to disclose material information is silent fraud.
iii. Joyner v. Albert Merrill School: 1978, plaintiff was fraudently induced by defendant whom convinced plaintiff that despite his lack of education and low proficiency in English, he had high aptitude for success and should enroll in an expensive computer-programming course.
1. Taking advantage of this unsophistacated party was fraud in the inducement.
2. Punitive damages were necessary to prevent this type of fraud occurring again.
3. Parol evidence and contract law could not be used as affirmative defenses.
II. Motor Vehicle Information and Cost Savings Act (Odometer Act)
i. 49 USC §32701 is known as the “Odometer Act of 1973”
ii. Signals a shift from common law fraud to statutory provisions because these issues were becoming bigger problems.
iii. The statute provides for attorney fees in order to provide an incentive for attorneys to bring this type of action.
iv. The term “transferor:” applies whether by sale, gift or other means. This is a very broad definition.
v. No violation if the car is 10+ years old at time of transaction.
vi. “Constructive knowledge” is all that is required: knowledge can be proven by the transferor being in dominion and control AND the odometer being rolled back. This requires dealers to now go back and investigate the history of their cars.
– Prohibited Conduct
ii. Rolling back
iii. Selling devices/tools that are used to roll back
iv. Driving a car with a false odometer reading wi
to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender. All such merchandise shall have attached to it a clear and conspicuous statement informing the recipient that he may treat the merchandise as a gift to him and has the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender.
(c) No mailer of any merchandise mailed in violation of subsection (a) of this section, or within the exceptions contained therein, shall mail to any recipient of such merchandise a bill for such merchandise or any dunning communications.
(d) For the purposes of this section, “unordered merchandise” means merchandise mailed without the prior expressed request or consent of the recipient.
– Purpose and Prohibited Conduct (FTC §5 violation)
i. Prohibits the mailing of merchandise without prior request or consent of the recipient aka ‘un-ordered merchandise.’
1. Does not apply to free samples or merchandise from a charitable organization soliciting cotributions.
ii. Cannot mail a bill for un-ordered merchandise.
iii. Only applies to merchandise mailed via the United States Postal Service.
iv. Unsolicited merchandise must have a clear statement that it may be treated as a gift, and may be retained, used or discarded without any obligation to the sender.
– Recipient’s Rights Upon Receipt
i. The merchandise is treated as a gift. Receiver may retain, use or discard the merchandise as they see fit.
ii. However, obvious mistakes in mailing are not generally covered.
 Is this fraud in the inducement or silent fraud? Do we need to know the elements of these?