Common Law Fraudulent Misrepresentation

120734977-contract-deal-negotiation

Elements of Common Law Fraudulent Misrepresentation Claim

Although it has a variety of different names, including just misrepresentation and just fraud, the Minnesota Supreme Court has defined fraudulent misrepresentation as having the following elements:

  1. A false representation by a party of a past or existing material fact that is susceptible of knowledge,
  2. The person making the representation made it either a) with knowledge of its falsity, or b) as if he had knowledge but without actually knowing whether it was true or false,
  3. The representation was made with the intention to induce another party to act in reliance on the representation,
  4. The representation caused the other party to act in reliance, and
  5. The other party suffered pecuniary damages as a result of the reliance.

Representation

The first part of a fraudulent misrepresentation claim involves the representation itself. A representation can be made through words or even through silence in certain circumstances. There are two different kinds of misrepresentations through words; the first is very basic, it is when someone makes an affirmative statement that is false. The second kind of misrepresentation through words is known as telling what is called a “half-truth,” which essentially means that the person conceals or does not disclose certain facts which causes facts that are disclosed to be very misleading. In other words, a true statement may nonetheless be a misrepresentation if that statement omits other material facts that would give the original statement a different meaning.

The second kind of misrepresentation is when there is silence or non-disclosure of facts. As a general rule, a party has no duty to disclose material facts to another, so silence generally does not constitute fraud. L&H Airco, Inc. v. Rapistan Corp., 446 N.W.2d 372, 380 (Minn. 1989). If a non-disclosure of facts is going to be considered fraud, there must be a suppression of facts which one party is under a legal or equitable obligation to communicate to the other and which the other party is entitled to have communicated to him. Wizman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 190 (Minn. 1999). To be under a legal or equitable obligation to communicate facts the parties must be involved in one of the following three circumstances.

  1. One who speaks must say enough to prevent his words from misleading the other party (i.e. “half-truth”),
  2. One who has special knowledge of material facts to which the other party does not have access, may have a duty to disclose those facts to the other party, and
  3. One who stands in a confidential or fiduciary relation to the other party to a transaction must disclose material facts.

It is important to note that if both parties to a transaction or both parties in any type of communication situation are intelligent and fully capable of taking care of themselves, then there is no confidential relationship between the parties and generally no duty to disclose material facts.

It should also be noted that circumstance number two, which is when one person has special knowledge of material facts may have a duty to disclose those facts to the other party, is rarely enforced under Minnesota Law. That is because the general rule is that one party to a transaction has no duty to disclose material facts to the other. In Richfield Bank & Trust v. Sjogren, 309 Minn. 362, 365, 244 N.W.2d 648, 650 (1976), the Minnesota Supreme Court held that it was fraud for a bank to not disclose to a borrower that a bank depositor with whom the borrower was dealing was insolvent and was engaging in fraudulent business practices when the bank had actual knowledge of the fraudulent activities. Compare that to L&H Airco, Inc. v. Rapistan Corp., 446 N.W.2d 372 (Minn. 1989), where the Minnesota Supreme Court held that an attorney did not have a duty to disclose known facts to his client’s adversary in the litigation context.

Falsity and Past or Present Fact

Fraudulent misrepresentation in and of itself must be predicated on a falsity and to be a misrepresentation a statement must relate to a past or existing fact. Any statements regarding future events such as predictions, intentions, or expectations are not normally actionable. This does not mean that in every instance a statement regarding a future event is not actionable. A statement regarding a future event or prediction can be a misrepresentation to the extent that the representation was untrue at the time it was made and if it satisfies the other requirements of fraudulent misrepresentation. For example; if someone is going to break a contractual promise that does not necessarily constitute fraud unless the promisor never actually had any intention to perform at the time that the promise was made.