Opinion ID: 771909
Heading Depth: 2
Heading Rank: 4

Heading: Misrepresentation/Constructive Fraud

Text: 51 Having determined that NEI may be liable for the obligations of the initial developer, and that the statute of limitations is satisfied, we turn now to the merits of plaintiffs' claim. Plaintiffs contend that the initial developer made misrepresentations regarding the time-share owners' continued access to Hotel amenities and parking. 52 Under Arkansas law, a buyer of property may be entitled to rescind the purchase contract if the purchase was induced by constructive fraud. Constructive fraud may be found in the absence of actual fraud: 53 To rescind a contract based upon fraud, it is not necessary that actual fraud exist. It is well settled that representations are construed to be fraudulent when made by one who either knows the assurances to be false or else not knowing the verity asserts them to be true. . . . Neither actual dishonesty of purpose nor intent to deceive is an element of constructive fraud. 54 Lane v. Rachel, 389 S.W.2d 621, 624 (Ark. 1965) (emphasis in original); see also South County, Inc. v. First West.Loan Co., 871 S.W.2d 325, 327 (Ark. 1994) (describing constructive fraud as the making of misrepresentations by one who, not knowing whether they are true or not, asserts them to be true without knowledge of their falsity and without moral guilt or evil intent); Cardiac Thoracic & Vascular Surgery, P.A. Profit Sharing Trust v. Bond, 840 S.W.2d 188, 191 (Ark. 1992) (holding that a cause of action for constructive fraud will lie even when the misrepresentations were made innocently, and their false nature is not discovered until well after the representations are made). To establish constructive fraud under Arkansas law, the misrepresentation must be material. See Scollard v. Scollard, 947 S.W.2d 345, 348 (Ark. 1997). 55 In this case, the material nature of the misrepresentation is satisfied by NEI's stipulation that the plaintiffs would not have purchased their time-share interests without access to the Hotel amenities and parking. The question remains, however, whether the developer represented that the plaintiffs would enjoy permanent access to the Hotel's parking, utilities, and recreational amenities throughout the life of the time- share interests. We conclude that the developer made those representations. 56 We find persuasive the fact that the Arkansas Real Estate Commission reviewed the public offering statement and Master Deed, and concluded that those documents promised the use of the amenities by Time-Share Interval purchasers. We find even more persuasive the fact that the Commission would not accept the Lakeshore time- share application until the license agreement referenced in the public offering statement was amended to purportedly provide time-share owners with permanent access to the licensed amenities. The Commission demanded a license agreement that was drafted so that it will be in existence as long as the Time-Share program exists, to insure the promised use of the amenities by Time-Share Interval purchasers. (Emphasis added). The developer responded with an amended license agreement representing that it provid[es] for the continued use of all amenities and parking facilities of the resort by the timeshare owners of Lakeshore Resort and Yacht Club. NEI's subsequent stipulation, that this representation was later corroborated by oral representations made to individual purchasers by the developer's sales agents, is the linchpin in support of our conclusion that the developer represented to plaintiffs that they would have permanent access to the Hotel amenities and parking. 10