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The Elements of Fraudulent Misrepresentation

July 08, 2013

Posted in Business Litigation

Fraudulent MisrepresentationIf you believe that your California business or corporation has been the victim of deceit – or fraudulent misrepresentation – it’s important to understand the elements that will be required to prove your case in a court of law.

The ‘elements’ are the individual components of your argument that must each be verified independently in order for the defendant to be considered guilty of fraudulent misrepresentation.  The judge will evaluate each of the five elements one-by-one to determine if they are present in your argument. If any one of the elements is missing, then you do not have a case.

Element #1 – Material Misrepresentation

First of all, the defendant must have made a false statement of fact that has a direct correlation to your contractual agreement.

For example, let’s assume that you met with your counterpart and prior to finalizing the terms of your agreement, he told you about his very impressive new boat. You eventually made a deal and a contract was signed. Now, your business arrangement has soured and you’ve since discovered that his luxury boat does not exist at all. You want to know if you have recourse in the form of misrepresentation. While the comments about his boat may have had some influence on your opinion of him as a person – they are immaterial to the actual agreement and therefore do not constitute misrepresentation under the law.

Element #2 – Reckless Disregard 

This is why fraudulent misrepresentation falls under the category of an intentional tort; it must be deliberate. The defendant must have knowingly lied to you – or, at the very least – had a reckless disregard for the truth. This can also include instances where the other party made a statement that could technically be possible, but they had no actual reason to believe it to be true at that time.

Element #3 – Intent to Induce

Under the 3rd element, you must be able to prove that the other party told you a lie or false statement knowing that it would have an influence on your decision or course of action in the transaction. For instance, if you are seeking resolution for a merger gone wrong because the other party deliberately made false statements about their books, knowing full well that it would have an impact on your final decision, then clearly the lie was told with the intent to induce you.

Element #4 – Reliance

Element #4 is an extension of #3, but it has an important distinction. If the opposing party knowingly made false statements with the intent of inducing you, but you didn’t actually rely on those statements, then you have failed to meet this requirement and you cannot prove your case. In other words, the false statements had to have played a role in your decision.

Element #5 – Damages

The final piece of the puzzle is in proving that the defendants’ deliberate lie actually caused you some measure of harm. You can prove every other element, but if the false statements in question have caused you no actual loss, then your case will fail.

In summary, you must prove that the other party knowingly made a false statement of fact, that was directly related to the agreement, with the intent to persuade you, which you relied on, and which caused you harm.

Knowing how to prove each of these elements often takes an experienced business litigator. If you’re unsure of the strength of your argument – but believe you may have a case for fraudulent misrepresentation – call The Law Offices of Tony T. Liu to discuss your case today.