Fraud, misrepresentation, and nondisclosure - Next Generation Bar Exam

1. What effect does the recipient's failure to investigate have on justifiable reliance?

   It does not bar reliance unless the failure amounts to ignoring obvious facts or a lack of good faith. A recipient may rely on an assertion of fact even if a reasonable investigation would have revealed the truth.

2. What must a party show to avoid a contract for misrepresentation?

   A misrepresentation, either fraudulent or material, that induced its assent and on which it justifiably relied. Fraud and materiality are alternatives: a fraudulent misrepresentation need not be material, and a material one need not be fraudulent.

3. When does the Restatement (Second) treat nondisclosure of a known fact as an assertion?

   To correct a prior assertion, a basic-assumption mistake, or a writing's contents, or in a relationship of trust. For basic-assumption mistakes, nondisclosure is an assertion only if it amounts to a failure to act in good faith.

4. What is the effect of fraud in the factum (fraud in the execution)?

   The contract is void. The victim was deceived about the very nature of the document signed, so there is no assent.

5. What two remedial paths are open to a party defrauded into a contract?

   Avoid the contract and seek restitution, or affirm it and recover damages. Electing one path generally precludes the other for the same loss.

6. Under the prevailing view, what effect does a general merger clause have on a claim of fraudulent inducement?

   It does not bar evidence of the fraud. The parol evidence rule does not shield fraud; a specific disclaimer of reliance may be treated differently.

7. What must a party show about a non-fraudulent misrepresentation to avoid the contract?

   That the misrepresentation was material. A misrepresentation is material if it would induce a reasonable person to assent or the maker knows it would induce this recipient.

8. A seller paints over water stains on a ceiling before showing a house, and the buyer does not ask about leaks. On what basis may the buyer avoid the sale?

   Active concealment, which is treated as a misrepresentation. Hiding the defect is an assertion by conduct that no water damage exists.

9. When may a statement of opinion support a misrepresentation claim?

   When the recipient reasonably relies on the speaker's special expertise, a relationship of trust, or implied facts. Ordinarily, opinions and sales talk are not assertions of fact.

10. What is the effect of fraud in the inducement?

    The contract is voidable by the deceived party. The victim knew what it was signing but was induced to sign by a misrepresentation.

11. A used-car dealer tells a buyer that a car is 'a real beauty.' Why is the statement not a basis for avoiding the sale?

    It is puffery, an opinion rather than an assertion of fact. Vague praise of quality is not something a reasonable buyer would treat as a factual representation.

12. How is active concealment of a fact treated?

    As equivalent to an assertion that the fact does not exist. Conduct that prevents the other party from learning a fact is a misrepresentation by conduct.

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