Fraudulent Misrepresentation Tort
Fraudulent misrepresentation tort occurs when one party deliberately deceives another party, prompting litigation from the offended party.3 min read
2. Misrepresentation Types
3. Proving Fraud
Fraudulent misrepresentation tort occurs when one party deliberately deceives another party, prompting litigation from the offended party. Contract law dictates that plaintiffs can recoup damages against a defendant if a court determines that a defendant has committed fraud in some capacity. A court will usually determine if the defendant has indeed committed fraud or misrepresented an issue when six criteria have been met:
- Factor One: The representation was presented.
- Factor Two: The presentation in question proved to be false.
- Factor Three: When the presentation was made, a defendant was aware that the presentation was untrue or that a defendant recklessly made a statement in ignorance.
- Factor Four: The fraudulent presentation was made with an intention that the plaintiff believes the claim.
- Factor Five: The plaintiff did indeed believe the fraudulent presentation.
- Factor Six: The plaintiff suffered from the false presentation.
Any person who manages a business should know that most transactions and agreements are contained within a contract, even if it comes in the form of a simple handshake. Most notably, contract law manages transfer rights from a single party to another, holding all parties accountable to the contract itself. It’s vitally important in an agreement that all parties agree to the terms and act in good conscience. However, if a party makes misleading or false statements to coerce another party into the agreement, which causes harm, the aggrieved person can sue the transgressor.
An agreement is not valid until all parties agree to the conditions. If the stated terms are incorrect, the agreement stems from false statements, rendering the contract invalid. Intentionally making false statements, whether verbally or in writing, even in silence, constitutes fraud if such fraudulent statements have an adverse effect on a business transaction.
For example, a drug company wishes to acquire another company and boasts of powerful drugs in clinical stages, but does not mention that the drugs will not go on the market based on failing results. Because the acquiring business assumed the drugs would add value to the transaction, it was misled into overpaying based on fraudulent information.
Even if a presentation was made without knowledge that the drugs had failed, it can still qualify as fraud because the claim was made in a reckless manner. In such cases, the party making a presentation acts recklessly with the sole aim of including another party into the agreement. Using the aforementioned example, the drug company claims it is the sole company forming a certain class of drugs, even though it’s not certain that such a claim is true. If other companies are working on the same class of drugs, such a misrepresentation could have a negative effect on the deal.
Be aware of the following other types of misrepresentation:
- Negligence: Where one party fails to ensure the accuracy of a presentation.
- Innocent Representation: Does not constitute negligence or fraud. The offending party does not intend to harm or coerce another into an agreement on false pretenses.
You must also remember that misrepresentation does not have an adverse effect on the agreement and would not give cause to legal action. To qualify as fraud, omission or misrepresentation must pertain to existing facts and not a promise of something in the future, unless the party who made such promises did it without current intention to executive it, or with intent not to fulfill the promise.
A promise to execute something in the future, or a simple opinion, cannot be the foundation of claims unless a person making the opinion has superior or sole knowledge of current facts that are not consistent with such opinions. The omission or false statement must have material, meaning that it was important enough for the decision to be rendered.
However, it must be demonstrated that a plaintiff’s reliance was justified, and that upon reasonable questioning would not have found out the truth. To get damages or injuries stemming from fraud, it must be demonstrated that, with the exception of fraud, the damage or fraud would not have happened.
Depending on the case itself, the remedies in fraud may include rescission of the agreement, including damages. A contract rescission is the most common solution because the fraud renders the contract void. Therefore, the parties can choose not to rescind the agreement, restoring the parties to pre-contract positions, if this is possible. In regards to damages, actual losses deriving from the misrepresentation can be claimed.
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