What Is Fraudulent Misrepresentation in Business?

What Is Fraudulent Misrepresentation in Business?
fraudulent misrepresentation

Fraudulent misrepresentation can lead to immensely bad situations. If you run a business in Connecticut, you know that business dealings involve contracts, even if it’s an oral agreement. As your Connecticut business lawyer will explain to you, contract law primarily regulates the transfer of rights from one party to another. The terms of the contract control each party’s role and hold them accountable on the agreed terms.

One essential condition is that both parties act in good faith when entering a business contract. Good faith is honesty, a sincere intention to deal fairly with others. Thus, if one party to a contract makes a false statement to induce the other party to perform an act they would not have performed and causes them harm, they will be liable for this.

This article looks at the meaning of fraudulent misrepresentation. Our business law attorneys will also discuss the elements and remedies for the aggrieved party. If you determine the other party to a contractual agreement is acting in bad faith, contact us at Aeton Law Partners.

What Is Fraudulent Misrepresentation?

Under business law, fraudulent misrepresentation is a statement that the defendant made knowing it was false or that the defendant made recklessly to induce the other party to enter a contract. Misrepresentation happens in different ways. For example, it could be written words, spoken words, gestures, body motions like a nod, or silence and inaction.

A fraudulent misrepresentation affects the validity of a contract. For example, suppose a pharmaceutical company in the process of being acquired by another company boasts of a cutting-edge medication meant to revolutionize the drug business. But fails to mention that the FDA found faults with the drug. Then the other company, assuming that the drugs would rake in profits and add value to their brand, goes ahead with acquisition and pays more for it.

If the other company later finds a statement that secured their cooperation was false, they can sue the other company for fraudulent misrepresentation. Even if the pharmaceutical company made the “representation” without knowing its validity, it could still lead to a fraudulent misrepresentation lawsuit. This will be the case where the party made the statement carelessly.

As a result, the law infers that the person made the statement to induce the other party into the contract. Aside from reckless misrepresentation, other types of fraudulent misrepresentation are negligent misrepresentation and innocent misrepresentation.   Note that a misrepresentation that has no consequential effect on the contract will not lead to legal action.

What Are the Elements of Fraudulent Misrepresentation?

There are some elements a plaintiff in a fraudulent misrepresentation claim must prove if they hope to win. Below are six of them.

  • The defendant made a representation (this refers to any action or conduct that can become a statement of fact).
  • The representation was false.
  • When making the representation, the defendant knew it was false or made it recklessly without knowing the truth.
  • The defendant made the representation with the intention that the plaintiff would rely on it.
  • The plaintiff relied on the representation and acted on it.
  • The plaintiff suffered damages as a result of relying on the representation.

What Are the Remedies?

For the defendant in a fraudulent misrepresentation to be liable, the plaintiff must have suffered measurable harm from the misrepresentation. This is crucial because the damages awarded by the court must be commensurate with the losses suffered by the plaintiff. Thus, a business that fell victim to fraudulent misrepresentation can expect financial compensation.

Note that several persons aside from the one who made the misrepresentation can be liable in damages. For example, suppose an employer ordered an employee to make a reckless representation. The employer will be responsible for the fallout under the doctrine of vicarious liability.

Aside from monetary damages, liability may lead to the termination of the contract. This is because the misrepresentation makes the contract voidable and not void. Thus, the parties can rescind the contract and return to the pre-contractual positions.

Are There Defenses?

The defendant in a lawsuit can raise one of the following defenses:

  • Insufficient evidence to prove the misrepresentation
  • Filing the claim after the Statute of Limitations elapsed
  • Coercion and duress, meaning the defendant was forced to make the statement.

Hire Our Reputable Connecticut Business Attorneys

Fraudulent misrepresentation can have vast reaching adverse effects. So, as a business owner, you should take legal action if you’re a victim of fraudulent misrepresentation. Our Connecticut business lawyers at Aeton Law Partners will fight for your right and get the remedies available under the law. So, waste no time and contact us for a free case evaluation today.

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on email
Why Your Connecticut Business Needs an Independent Contractor Agreement
Own a Connecticut Business? Don’t Get Hit With a Religious Discrimination Lawsuit
Protecting Your Connecticut Business From Identity Theft
Must-Have Items For Your Connecticut Business Contract

Please do not include any confidential or sensitive information in this form. This form sends information by non-encrypted e-mail which is not secure.

Submitting this form does not create an attorney-client relationship.