Business Misrepresentation and Fraud

Misrepresentation is a term used in contract law that refers to false statements made by a party when attempting to enter or get out of a contract or business agreement with another party. There are some cases where misrepresentation is innocent, in which there was reasonable belief that the statements being made were true. These types of matters are typically pretty simple and easy to resolve. In business law, fraudulent misrepresentation is considered active fraud and is the most complex and severe. If there is intent to deceive another party it is considered fraudulent misrepresentation. In these cases the party that is the victim of the misrepresented material may get out of a contract, and may sue for any damages that may have occurred.

There are six key elements that must be present in order for fraudulent misrepresentation to exist. They are:

  • the misrepresentation is made with the intention of entering into a contract, or getting out of a contract with another party;
  • an individual must make a false representation;
  • the false information must cause the other party to suffer damages;
  • the misrepresentation is material to the transaction;
  • the misrepresentation is made with knowledge of its falsity; and
  • the other makes a decision based on the false information given.

Other factors that are considered in cases that involve misrepresentation include the relationship of the parties, the details of the agreement, and the nature of the misrepresentation. In most cases, the most difficult part is proving the intent of the misrepresentation.

Business attorneys represent business owners in matters that involve misrepresentation and fraud, and often times can resolve the issues prior to litigation. Business attorneys handle cases in the following areas:

  • partnerships and joint ventures;
  • securities;
  • real estate;
  • sales of goods and services; and
  • buy-sell agreements.

Often times when there is misrepresentation in a business deal, there are other issues that can occur as well, such as breach of contract, breach of fiduciary duties, and business fraud.