Sandy Cowden inherited $700,000 from her grandfather. Reginald LaRocco is a local businessman who operates an almond ranch and is an insurance salesperson. He owns several land parcels in the local community and wants to sell some of this land to Sandy

Question

He convinces Sandy to buy Riveracres, Reginald's ranch on the outskirts of town. Reginald tells Sandy that there are 130 acres on the ranch. In fact there are only 90 . Sandy has the ranch surveyed before buying and learns that it has only 90 acres. Reginald tells Sandy that he paid $50,000 for the land 40 years earlier and it is worth 10 times that today. He actually only paid $25,000 for the land which he purchased 53 years ago. He sells it to Sandy for $380,000 and three months later Sandy finds out a similar adjoining parcel sold for $210,000 . Sandy wants to get out of the Riveracres contract. Will she be able to do so? Why or why not? Explain.

Answer 1

Do any of Reginald's representations constitute fraud or actionable misrepresentation? His representations were: Riveracres has 130 acres (it only has 90 acres); Reginald paid $50,000 for the land 40 years earlier (Reginald actually paid $25,000 53 years before); and Riveracres is worth 10 times $50,000, or $500,000 (it appears the market price is actually somewhat less than the $380,000 Sandy paid for the land).
Fraud is the intentional misrepresentation of a material fact with the intent to mislead another and to benefit the party making the misrepresentation. Fraud allows the injured person to avoid a contract and seek damages. As fraud is also a tort, punitive damages are even possible. Innocent misrepresentation occurs when all elements of fraud except wrongful intent are present. The elements of fraud are:
(1) false representation
(2) of a material
(3) fact
(4) known to be false
(5) made with intent to deceive
(6) victim is deceived and contracts on justifiable reliance on the deception
(7) injury to the deceived party.
To prove fraud, all elements must be present in Reginald's communication. Reginald did
misrepresent a material fact by saying there were 130 acres when there were only 90 . However, Sandy checked this fact out and cannot state she relied upon it. She knew there were only 90 acres before she purchased. Justifiable reliance is necessary to prove fraud in the inducement.
Reginald's false statements about what he paid and when are not material to the transaction. It makes little difference what a person paid for property 40 or 53 years ago. For fraud to exist, the misrepresentation must not only be of a fact, but of a fact material to the transaction.
Reginald states the property was worth 10 times the $50,000 he paid for the property. Again
there must be a misrepresentation of a fact to prove fraud. The belief in the value of property, whether truly held or merely seller's exaggeration, is not a fact. The value of property is a matter of opinion and should be so treated by Sandy. The statement was merely an opinion and it cannot be the basis for fraud.
At least one element of fraud or innocent misrepresentation is missing in each communication by Reginald. If any element is missing then fraud does not exist. There is no basis for damages or rescission for the misstatements and exaggerations of Reginald.