Fraudulent Misrepresentation: Everything You Need to Know
Fraudulent misrepresentation is a lie used to trick someone into an agreement that harms them. It is the most serious type of false statement in contract law.3 min read
Updated June 25, 2020:
What Is Fraudulent Misrepresentation?
Fraudulent misrepresentation is a lie used to trick someone into an agreement that harms them. For example, if a jeweler sells you a diamond ring which you later discover is crystal, that is a fraudulent misrepresentation.It is the most serious type of false statement in contract law. Misrepresentations can be written, spoken, gestured, or made through silence. They make a contract invalid.
Fraudulent Misrepresentation: What Is It?
A fraudulent misrepresentation happens after parties sign a contract, not before. A party can be guilty by failing to give information.
A person or company can make a fraudulent misrepresentation without knowing the statement is false. Merely being reckless or exaggerating to get someone to do something is a fraudulent misrepresentation.
Why Is Fraudulent Misrepresentation Important?
Wrongdoing depends on the intent of one party. This is hard to prove. To prove that a statement is fraudulent, you have to show:
- Material Representation. The party misrepresented something relevant to your contract through writing, speech, gestures, or silence.
- False Premise. The statement was not an opinion or prediction.
- Reckless Disregard. The party knew the statement was false or made it carelessly without knowing if it was true. This is called an intentional tort.
- Intent to Induce. The party misled the other party on purpose to get them to do something.
- Reliance. The other party used that information to make a decision and act on it. The statement must not have been obviously false or intended as a joke.
- Damages. The other party suffered material damage as a result.
Frequently Asked Questions
- What is a negligent misrepresentation?
When one party states a fact without checking that it's true and causes the other party to enter into a contract, that is negligent misrepresentation. It is a type of deceit.
- What is innocent representation?
These statements might be untrue and harm the other party, but they are not intentionally deceptive. This is also a type of deceit.
- What is promissory fraud?
This is a promise that the person does not plan to keep. This is also a type of deceit.
- What is duress?
Duress happens when one party threatens the other into entering a contract. A contract is voidable when one party agrees under duress.
- Is sales talk considered fraudulent misrepresentation?
Also known as puffing, sales talk is usually considered opinion. It doesn't count as fraudulent misrepresentation unless it makes claims about product safety.
- Can a contract limit liability for misrepresentations?
A contract can limit the rights of one party to claim misrepresentation. However, this may not stop the other party from claiming fraud.
Steps to Address Fraudulent Misrepresentation
- Rescind the contract.
Contracts based on false claims are voidable. The easiest way to resolve fraudulent misrepresentation is to void the contract. Both parties must return anything they received from the other. The misled party must ask to rescind the contract right away. They may not continue to benefit from the contract.
- Sue for damages.
Fraudulent misrepresentation is a civil offense, so one party can sue the other. You cannot usually sue for more than what you lost. In some cases, you can sue for punitive damages, but these are subject to state and federal limits. In some states, you can rescind the contract and then sue for damages.
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