I. Common Law Fraud
Misrepresentation of material fact
Omissions: mere silence is never actionable absent fiduciary duty
Duty to disclose arises when Δ takes affirmative steps to conceal a problem, more than just silence
Opinionsà actionable only if superior knowledge (superior knowledge rule)
Scienterà Δ knew or had reckless disregard for the truth of the statement
Whether a “reasonable” person would have relied on the misrepresentation (Brooklyn Bridge sale unreasonable reliance)
“No duty of resting upon a citizen to suspect the honesty of those with whom he transacts business.”
“That a more cautious buyer might not have relied, might have smelled a rat, does not defeat liability.”
Reformation of contract
Out of pocket expensesà value of what Π gave as consideration – value of what Π actually receivedà Put them in pre-contract position
Benefit of the Bargain or Expectancy (Contract remedy only)à Put them in position they would have been in if the misrepresentation had been trueà Profit
Generally not recoverable unless statute expressly grants fees or contract provided for fees in event of dispute
Requires actual malice or reckless disregard for the consequences of the action
Wanton and malicious fraud
Punitive damages cannot greatly exceed compensatory damages (4:1 is baseline)
Fischer v. Div. West Chinchilla Ranch (Group of 7 plaintiffs duped into scam involving raising chinchillas and selling them for their pelts; company selling them misrepresents as to expected profits and omits to tell them proper way to raise chinchillas for maximum quality; plaintiffs all unsophisticated)
Disparity of knowledge: fraudulent to sell something to a person who is obviously not able to use it because of his lack of experience or skills
Opinion: Cannot constitute fraud when it is understood as only being an opinion (unless misrepresenter has superior knowledge)
Test: Whether representations reasonably calculated to deive, not the average man, but a person of the capacity and experience of the particular individual who was the recipient of the representations.
Makes difference whether parties stand on equal grounds
Fraud is a tort, so typically no expectancy damages
Also, expected profits can be too speculative – cannot recover unascertainable damages
UCC §2-721: You can get rescission as well as other damages under UCC. Don’t forfeit other remedies under UCC just because you rescind the contract.
Joyner v. Albert Merrill (Mexican born person gets sucked into computer training course based on promise of job. Δ falsified Π’s aptitude test and falsely reassured him to stay in program).
Rule: Sellers have d
ors in establishing penalty (subsection (3))
If you commit a willful and knowing violation, you may be subject to criminal penalties as well
Civil Penaltiesà §32710
A person who violates the statute with intent to defraud will be liable for three times actual damages or $1500, whichever is greater.
Delay v. Hearn Fordà Intent to defraud was found where car dealer who had bought used car from original transferor was in complete possession of the vehicle during the time that odometer was rolled back before it was transferred back to the original transferor
Nieto v. Penceà Car dealer who sold a 10 year old car with on 14,000 miles reported to it should have known that figure was low and could have figured out that it had way more than that. Therefore, constructive knowledge was sufficient to establish intent to defraud.
Note: Manufacturer does not have to provide disclosure on first transfer to a dealer
Note: Don’t have to provide disclosure if vehicle was manufactured in a model year beginning at least ten years before January 1 of the calendar year in which the transfer occurs.
Note: TWO YEARS STATUTE OF LIMITATIONS