AMI 402 Issues—Claim for Damages Based Upon Deceit—Burden of Proof

Arkansas Supreme Court Committee On Jury Instructions-Civil

Ark. Model Jury Instr., Civil AMI 402

Arkansas Model Jury Instructions-Civil

December 2023 Update

Arkansas Supreme Court Committee On Jury Instructions-Civil

Chapter 4. Intentional Torts and Defamation

AMI 402 Issues—Claim for Damages Based Upon Deceit—Burden of Proof

(Plaintiff) claims damages from (defendant) for deceit and has the burden of proving each of the following five essential propositions:

First, that [he][she] has sustained damages;

Second, that a false representation of a material fact was made by (defendant);

Third, that (defendant)[either][knew or believed that the representation was false], [or] [(he)(she) knew or believed that (he)(she) did not have a sufficient basis of information to make the representation]

Fourth, that (defendant) intended to induce (plaintiff)[to act][or][to refrain from acting] in reliance upon the misrepresentation; and

Fifth, that (plaintiff) justifiably relied upon the representation in [acting][or][refraining from acting] and as a result sustained damages.

A fact or statement of fact is material if it was a substantial factor in influencing (plaintiff)'s decision. It is not necessary, however, that it be the paramount or decisive factor, but only one that a reasonable person would attach importance to in making a decision.

[If you find from the evidence in this case that each of these propositions has been proved, then your verdict should be for (plaintiff) (against the party or parties who made the false representation); but if, on the other hand, you find from the evidence that any of these propositions has not been proved, then your verdict should be for (defendant).]

NOTE ON USE

Do not use the bracketed paragraph when the case is submitted on interrogatories.

COMMENT

This instruction was approved in McClard v. Crain Mgmt. Group, Inc., 313 Ark. 472, 855 S.W.2d 929 (1993).

The elements of the tort of deceit were reiterated in Fidelity Mortgage Co. of Texas v. Cook, 307 Ark. 496, 821 S.W.2d 39 (1991), and Baskin v. Collins, 305 Ark. 137, 806 S.W.2d 3 (1991). See also Nicholson v. Century 21, Ivy Realty, Inc., 307 Ark. 161, 818 S.W.2d 254 (1991); Brookside Village Mobile Homes v. Meyers, 301 Ark. 139, 782 S.W.2d 365 (1990).

Ordinary care does not require a buyer to test the truth of a seller's representations where they are within the knowledge of the seller, and made to induce the buyer to refrain from seeking further information. Lancaster v. Schilling Motors, Inc., 299 Ark. 365, 772 S.W.2d 349 (1989). See also Yazdianpour v. Safeblood Technologies, Inc., 779 F.3d 530, 536 (8th Cir. 2015) (reviewing Arkansas cases on duty to investigate the representation).

There is no duty to disclose the existence of a governmental regulation, where both parties have equal access to the knowledge. Baskin, supra. See Restatement (Second) of Torts § 551 (1976) for a discussion of occasions when a duty to disclose arises in a business transaction.

In the context of negotiating a contract, misrepresentation must relate to a past event, or a present circumstance, but not to a future event. An assertion limited to a future event may be merely a prediction, or it may be a promise that imposes liability for breach of contract, but it is not a misrepresentation as to that event. P.A.M. Transport, Inc. v. Arkansas Blue Cross and Blue Shield, 315 Ark. 234, 868 S.W.2d 33 (1993). On the other hand, when a misrepresentation involves a promise to act in the future, failure to perform the act may be actionable if the promisee can prove that, at the time the promise was made, the promisor had no intent to perform. Undem v. First Nat. Bank, Springdale, Ark., 46 Ark. App. 158, 879 S.W.2d 451 (1994).

The representation must be material. Nicholson v. Simmons First Nat. Corp., 312 Ark. 291, 849 S.W.2d 483 (1993). Materiality is a question of fact. Ellis v. Liter, 311 Ark. 35, 37, 841 S.W.2d 155, 156 (1992).

The third element has been structurally modified to make clear that the “knew or believed” requirement is applicable to the phrase “did not have a sufficient basis of information to make it.” See Scollard v. Scollard, 329 Ark. 83, 947 S.W.2d 345 (1997).

An attempt to overturn or contradict the terms of a written instrument requires satisfaction of the higher burden of proof by clear and convincing evidence. Beatty v. Haggard, 87 Ark. App. 75, 184 S.W.3d 479 (2004).

Silence when there is a duty to speak can constitute fraud. In Holiday Inn Franchising, Inc. v. Hotel Assocs., Inc., 2011 Ark. App. 147, at 12, 382 S.W.3d 6, 14, the Court of Appeals said:

Generally, a mere failure to volunteer information does not constitute fraud. Farm Bureau Policy Holders v. Farm Bureau Mut. Ins. Co., Ark. 285, 302, 984 S.W.2d 6, 14–15 (1998). But silence can amount to actionable fraud in some circumstances where the parties have a relation of trust or confidence, where there is inequality of condition and knowledge, or where there are other attendant circumstances. Id. The duty to disclose is not limited to confidential or fiduciary relationships, as Holiday Inn suggests. See Camp v. First Fed. Savings & Loan, Ark.App. 150, 154, 671 S.W.2d 213, 216 (1984). There may be a special relationship or special circumstances requiring disclosure. Id. In determining whether such special relationships or circumstances exist, the events surrounding the parties' transaction may be considered. Lambert v. Firstar Bank, 83 Ark.App. 259, 265, 127 S.W.3d 523, 527–28 (2003). … A duty of disclosure may exist where information is peculiarly within the knowledge of one party and is of such a nature that the other party is justified in assuming its nonexistence. Bridges v. United Savings Ass'n, 246 Ark. 221, 228, 438 S.W.2d 303, 306 (1969); see also Merrill Lynch, Pierce, Fenner & Smith, Inc. v. First Nat'l Bank of Little Rock, 774 F.2d 909, 913–14 (8th Cir. 1985).

Such a duty to disclose information material to the renewal of a long term franchise relationship characterized by honesty, trust, and the free flow of information was found in Holiday Inn Franchising, Inc., supra, where the franchisee had spent a substantial amount of money on improvements in anticipation of the franchise renewal and had been assured by a representative of the franchisor that the franchise would be renewed if the franchise was operated properly.

In fraud cases, the remedies of rescission and damages are available, and various measures of damages have been applied: (1) benefit of the bargain, (2) out-of-pocket, (3) cost of repair, (4) consequential, and (5) punitive. Smith v. Walt Bennett Ford, Inc., 314 Ark. 591, 601–603, 864 S.W.2d 817, 823–824 (1993); see also Howard W. Brill, Arkansas Law of Damages§ 33.8 (5th ed. 2013). It may be appropriate to prepare an instruction with the measure(s) of damage being sought in the case.

In Wallis v. Ford Motor Co., 362 Ark. 317, 208 S.W.3d 153 (2005), the Arkansas Supreme Court affirmed the dismissal of the fraud claim, holding that a claim for an allegedly defective vehicle was insufficient where the only injury alleged was the “diminution in value” of the vehicle. Wallis is discussed in greater detail in the Comment to AMI 2900.

A plaintiff alleging deceit may proceed to trial seeking the inconsistent remedies of rescission of the fraudulent contract and damages based on the fraudulent contract. Marx Real Estate Invests., LLC v. Coloso, 2011 Ark. App. 426, at 9 (fraud alleged in the sale of a house). The plaintiff must elect between the inconsistent remedies before the jury is instructed. Id. at 10 (the jury was empanelled, heard evidence through the close of the plaintiffs' case, and then after the plaintiff's election of the equitable remedy of rescission was discharged). If the plaintiff elects the equitable remedy of rescission but the court refuses to rescind the contract based on the evidence, the court may nevertheless award damages to the plaintiff under the equitable clean-up doctrine. Id. at 10–11.

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