Carson and Deby’s Gallery - Business Law

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The second circumstance mentioned here is fraud or fradulent misrepresentation.. Fraud is the knowing and intentional disclosure of false information or the knowing failure to disclose relevant information. Fraud has the same elements of proof as misrepresentation with the added element of Scienter, or the knowledge that the information given is false. The truth is Derby had forgotten to pay his annual subscription and his membership had expired the previous month. What if Derby was out of the Association of Modern Art dealers and still showed the notice proving that it still a member to this, and of course, Carson did not knnow anything about the truth. It totally had the probability to happen. Once again, misrepresentation occurred here but this time is different, with the appearance of Scienter ( Derby did not proclaim the accurate information ), so this became fraud . Carson must rely on or attach some importance to the statement. Whatever information is given must be part of the reason Carson has agreed to enter into the contract with Derby’s gallery.

In addition, the third circumstance “ Contracts in violation of licensing statutes “ should be taken into observation. Derby selling painting here of course is of no illegality , but it was not in the Association anymore, it did not have the permission to sell picture under the name of : member of the Association of Modern art dealers because the Association had already imposed a strict code of conduct on its members as regards sales to the public

Innocent misrepresentation includes three main elements:

- Misstatement of a material fact ( or the failure to disclose a material fact)

- Reliance by the buyer on that material misstatement or omission

- Resulting damages to buyers.

Mr. Carson did not get enough accurate information about Derby’s gallery before coming to the decision to purchase the painting. Mr. Carson only decided to pay for this picture given that Derby’s gallery was still “ Member of Association of Modern Art Dealers ” at the time, which indicated that Carson had a reliance on the material fact misstatement made by Derby. This is the second element of innocent misrepresentation. Had Carson known the truth, he might not have purchased the Fred Smith work because the information from Derby’s gallery was not accurate as “A friend in the art trade has advised Carson that he should only buy from an Association member as the Association imposes a strict code of conduct on its members as regards sales to the public “ Furthermore, according to the case: “While the price of $700,000 which Carson paid reflected the painting’s market value at that time, the painting is now worth just $100,000 “. It is clear that because of this misrepresentation, Mr. Carson bought a picture which current value has reduced by 7 times from its initial value of with the total damaging of $600,000. The misrepresentation has caused damaged to the buyer, which is the third element of innocent misrepresentation. When there has been misrepresentation in the formation of contract, the law allows a rescission of the contract. Rescission means that the contract is set aside.

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