In order to form a valid contract, all parties involved must agree to the actual terms of the contract. Sometimes, one party will purposely make a false statement to the other contracting party to persuade them to sign the contract. This is referred to as fraudulent misrepresentation and can be grounds to void the entire contract.
For example, say someone is trying to sell a used car. This person advertises the car as having “new brakes, new tires and a new engine.” In reality, the seller is aware that the brakes, tire and engine are actually all 5-10 years old.
If someone enters into a contract to buy the car because of these representations and later finds out this information was false, the buyer may be able to sue the seller under a theory of fraudulent misrepresentation.
What are the Different Types of Fraudulent Misrepresentation?
Fraudulent misrepresentation can be conveyed in several different ways, including the following:
- When one party to the contract makes an affirmative statement to the other party that is false;
- When one party to the contract makes a statement to the other party that is a “half-truth” or “partial truth,” meaning that some material facts were concealed or omitted; and/or
- When one party is completely silent and fails to disclose facts that are material to the contract.
Keep in mind that silence alone generally does not constitute fraud. However, if a party is under a legal obligation to disclose all material facts to another party and instead chooses to be silent, this inaction can constitute fraudulent misrepresentation.
What are the Elements of Fraudulent Misrepresentation?
After you realize that you entered into a contract based on a fraudulent misrepresentation by the other party, you will probably wish to file a lawsuit. First, you should contact the other party to determine if there was merely an innocent misrepresentation. If this is the case, you may be able to resolve the issue quickly and without legal intervention.
However, if your suspicions of fraudulent misrepresentation are founded, you will likely have grounds to file a lawsuit. While you should check your jurisdiction’s specific requirements, a plaintiff will generally need to plead and prove the following elements to prevail in a civil lawsuit for fraudulent misrepresentation:
- One party to a contract made a representation to another party to the contract;
- The representation that the party made was false;
- The party making the representation knew the information was false or made recklessly without knowledge of its truth at the time it was made;
- The party made the representation with the intention that the plaintiff would rely on it and enter into the contract;
- The plaintiff ended up relying on the misrepresentation; and
- The plaintiff suffered damages (such as monetary loss) as a result of relying on the fraudulent misrepresentation and entering into the contract.
If the party proves all the above elements, then they should win the lawsuit and be awarded damages. The general remedy in civil court for all types of misrepresentations is contract rescission, which means that the court will act like the transaction or contract never existed. Rescission is meant to put all of the parties back to the position they were in before the contract was formed.
Other remedies include monetary damages or contract amendment. Fraudulent misrepresentation is considered a more egregious offense than innocent misrepresentation because it requires intent that the statements made were false. For this reason, a court may also award money damages to the plaintiff.
As an illustration, in the automobile contract discussed above the following remedies could be awarded:
- The contract is rescinded. The buyer returns the car to the seller and the seller returns the money paid for the car to the buyer, placing both parties in their original positions.
- The contract terms are amended. The buyer wishes to keep the car, but is refunded an amount that reflects what the buyer would have paid had they known the parts were actually 5-10 years old instead of brand new.
Are There Any Defenses to Fraudulent Misrepresentation?
If a party is accused of fraudulent misrepresentation, they may have some defense available to the claim. The availability of defenses will depend on the situation and may include the following:
- The defendant did not actually make a false misrepresentation;
- The defendant’s misrepresentation was innocent, as opposed to intentional or reckless;
- The plaintiff knew the representation was false and still signed the contract under the terms; and
- The plaintiff did not suffer any damages because of the fraudulent misrepresentation.
Should I Contact an Attorney to Help With My Fraudulent Misrepresentation Lawsuit?
Hiring a local business attorney with experience in contract issues can help you with a fraudulent misrepresentation case. Many times there is not any hard evidence that the other party was aware of their false statements and intended to mislead the other party. An attorney can evaluate your case and improve your chances of reaching a settlement and prevailing at trial.