26 Ways to Leave Your Money - Part 2
This is part 2 in a 22 part series about the deceptive practices identified by the FTC, a summary of their 30 year history with business opportunity frauds; these practices are explictly identified in the FTC's new business opportunity rule. The first post was about why an individual cannot contract out or waive the statutory protection given by the FTC Rule. Freedom of contract was trumped by the regulator's concerns about fraud.
The second deceptive practice, covered by 437.5(b), involves what is known in law as the "four corners clause" or the "integration clause". Generally, after negotiations conclude -which are usually oral in nature- lawyers will memorialize the contract by reducing it to writing. To ensure that every party is literally on the same page, an integration clause is part of the agreement. "The existence of such a term is conclusive proof that no varied or additional conditions exist with respect to the performance of the contract beyond those that are in the writing". This makes sense for two bargainers with relatively equal bargaining power.
But business opportunities contracts are generally not negotiated. Section 437.5(b) recognizes that frauds or scams work by the seller telling, showing, or demonstrating to the purchaser a set of facts, which the fine print then takes away.
Here is an example: The seller made oral representations about a guarantee of profits, but in the written document you "agree" that there have been no representations about a guarantee of profits. The integration clause or the fine print then takes away the benefit of the bargain that you thought you got.
This inconsistency between the oral representations and what was in the written contract is what section 437.5(b) deems as a violation of the new business opportunity rule.
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