Fraudulent misrepresentation: Overview, definition and example
What is fraudulent misrepresentation?
Fraudulent misrepresentation happens when someone lies on purpose to convince another party to enter a contract. The person making the false claim knows it isn’t true and uses it to deceive the other party. If this dishonesty causes the other party to suffer a loss, they may be able to cancel the contract and claim damages.
In simple terms, it’s knowingly misleading someone to get them to agree to a deal.
Why is fraudulent misrepresentation important?
Fraudulent misrepresentation is important because it protects against dishonesty in business deals. If one party intentionally misleads the other, the harmed party can take legal action to recover losses or even undo the agreement. This ensures accountability and helps maintain trust in business relationships.
For businesses, spotting and avoiding fraudulent misrepresentation is key to avoiding bad deals. It’s also a reminder to double-check any promises or claims they make to avoid liability for misleading the other side.
Understanding fraudulent misrepresentation through an example
Imagine a business is selling a factory and claims it meets all safety regulations. The buyer relies on this assurance and agrees to the deal. Later, the buyer discovers that the seller knew the factory didn’t meet the safety standards but chose to lie to close the sale. This is fraudulent misrepresentation because the seller intentionally gave false information, leading the buyer to suffer a financial loss.
Another example could involve a software vendor who falsely guarantees that their product is fully compatible with a client’s systems. If the client relies on this statement, purchases the software, and later incurs extra costs because the claim was untrue, this could also be fraudulent misrepresentation.
An example of a fraudulent misrepresentation clause
Here’s how a clause dealing with fraudulent misrepresentation might look:
“The parties confirm that no statements or promises, other than those written in this Agreement, have been relied upon in entering this Agreement. Any fraudulent misrepresentation by either party entitles the injured party to seek all remedies under the law.”
Conclusion
Fraudulent misrepresentation is serious and involves intentionally misleading someone to gain an unfair advantage. It’s harmful and can cause significant financial loss, but the law provides ways to undo the damage.
By acting honestly and verifying claims made by the other party, businesses can protect themselves from fraudulent misrepresentation. Including clear terms in contracts to address it adds an extra layer of protection in case something goes wrong.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.