Alyssa is a financial advisor to Mr. and Mrs. Smith. The Smiths tell Alyssa they wish to invest their savings of $100,000 into a long term savings mechanism that will yield a steady yearly increase while they enjoy their elderly years. The Smiths are both in their 80’s. Alyssa has been touted at her firm as a fast riser. She wants to make a name for herself by being able to get clients to put money into ABC – a high risk new venture. Alyssa tells the Smiths that the venture is very stable – and when she gets Mr. Smith alone, she pushes him to make the decision on the spot, without consulting his wife. Alyssa knew that Mr. Smith was starting to show signs of dementia, and she felt he could easily be persuaded without Mrs. Smith around. Mr. Smith signed the entire account to

Question

ABC. Within weeks ABC went bankrupt and the Smith’s lost everything. What claim can be made against Alyssa by the Smiths?

What will be an ideal response?

Answer 1

Defenses to the contract or agreement to transfer the funds can be raised based on lack of capacity, undue influence and fraud. Each party to a contract must understand the nature and consequences of the contract. It may be shown that Mr. Smith was not competent when he signed. Undue Influence is experienced where the party that has a relationship of trust and confidence with another party breaches that trust by influencing the innocent party into entering a contract that is an unfair bargain. Fraud involves a misstatement of a material fact intentionally made to deceive (scienter) the other party and to induce the other party to justifiably rely on such fact to his detriment. The fraudulent representation would relate to the riskiness of the investment. This may be considered to be a statement of opinion rather than a statement of fact, however.